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As filed with the Securities and Exchange Commission
on February 7, 2000 Registration No.:
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
|_| Pre-Effective Amendment No. ___ |_| Post-Effective Amendment No. __
(Check appropriate box or boxes)
Exact Name of Registrant as Specified in Charter:
THE GALAXY FUND
Area Code and Telephone Number:
(877) 289-4252
Address of Principal Executive Offices:
4400 Computer Drive
Westborough, MA 01581-5108
Name and Address of Agent for Service:
W. Bruce McConnel, III
Drinker Biddle & Reath LLP
One Logan Square
18th and Cherry Streets
Philadelphia, Pennsylvania 19103-6996
Copy to:
Jylanne Dunne, Vice President
PFPC Inc.
4400 Computer Drive
Westborough, Massachusetts 01581-5108
Approximate Date of Proposed Public Offering: As soon as practicable after the
Registration Statement becomes effective under the Securities Act of 1933.
Calculation of Registration Fee under the Securities Act of 1933: No filing fee
is required under the Securities Act of 1933 because an indefinite number of
shares in the Registrant have previously been registered on Form N-1A
(Registration Nos. 33-4806; 811-4636) pursuant to Rule 24f-2 under the
Investment Company Act of 1940, as amended. The Registrant's Rule 24f-2 Notice
for the fiscal year ended October 31, 1999 was filed on January 27, 2000.
Pursuant to Rule 429 under the Securities Act of 1933, this Registration
Statement relates to the shares previously registered on the aforesaid
Registration Statement on Form N-1A.
It is proposed that this filing will become effective on March 8, 2000 pursuant
to Rule 488 under the Securities Act of 1933.
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THE GALAXY FUND
FORM N-14
CROSS REFERENCE SHEET
Item No. Heading
- -------- -------
Part A
1. Beginning of Registration Statement
and Outside Front Cover Page......... Cover Page of Registration Statement;
Cross-Reference Sheet; Front Cover
Page of Proxy Statement/Prospectus
2. Beginning and Outside
Back Cover Page...................... Table of Contents
3. Fee Table, Synopsis Information
and Risk Factors..................... Summary -- Proposed Reorganization;
Summary -- Overview of the Funds;
Summary -- Federal Income Tax
Consequences; Summary -- 1784 and
Galaxy Board Consideration; Summary --
Principal Risk Factors; Summary --
Voting Information; Summary --Fees and
Expenses. Appendix II - Expense
Summaries of 1784 Funds and
Corresponding Galaxy Funds
4. Information About the Transaction.... The Reorganization -- Reasons for the
Reorganization; The Reorganization --
Description of the Reorganization
Agreement; The Reorganization -- 1784
Board Consideration; The
Reorganization -- Capitalization; The
Reorganization -- Federal Income Tax
Considerations.
5. Information About the Registrant..... Comparison of 1784 Funds and Galaxy
Funds; Additional Information about
Galaxy
6. Information About the Company
Being Acquired....................... Comparison of 1784 Funds and Galaxy
Funds; Additional Information about
1784
7. Voting Information................... Voting Matters
8. Interest of Certain Persons
and Experts.......................... Not Applicable
9. Additional Information Required
for Reoffering by Persons Deemed
to be Underwriters................... Not Applicable
Part B
10. Cover Page.......................... Cover Page
11. Table of Contents................... Table of Contents
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12. Additional Information
About the Registrant................ Incorporation of Documents by
Reference in Statement of Additional
Information
13. Additional Information
About the Company Being
Acquired............................ Not Applicable
14. Financial Statements................ Exhibits to Statement of Additional
Information
Part C
Items 15-17. Information required to be included in Part C is set forth under
the appropriate Item, so numbered, in Part C of this Registration Statement.
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Boston 1784 Funds
Money Market Funds:
Boston 1784 Tax-Free Money Market Fund
Boston 1784 U.S. Treasury Money Market Fund
Boston 1784 Institutional U.S. Treasury Money Market Fund
Boston 1784 Prime Money Market Fund
Boston 1784 Institutional Prime Money Market Fund
Bond Funds:
Boston 1784 Short-Term Income Fund
Boston 1784 Income Fund
Boston 1784 U.S. Government Medium-Term Income Fund
Tax-Exempt Income Funds:
Boston 1784 Tax-Exempt Medium-Term Income Fund
Boston 1784 Connecticut Tax-Exempt Income Fund
Boston 1784 Florida Tax-Exempt Income Fund
Boston 1784 Massachusetts Tax-Exempt Income Fund
Boston 1784 Rhode Island Tax-Exempt Income Fund
Stock Funds:
Boston 1784 Asset Allocation Fund
Boston 1784 Growth and Income Fund
Boston 1784 Growth Fund
Boston 1784 International Equity Fund
2 Oliver Street
Boston, Massachusetts 02109
March 8, 2000
Dear Shareholder:
On behalf of the Board of Trustees of Boston 1784 Funds ("1784"), we are
pleased to invite you to a special meeting of shareholders of the 1784 funds
named above (each a "1784 Fund") to be held at 10:00 a.m. (Eastern time) on
April 28, 2000 at the offices of 1784's administrator, SEI Investments Mutual
Fund Services, 1 Freedom Valley Drive, Oaks, Pennsylvania (the "Special
Meeting"). At the Special Meeting, you will be asked to approve a proposed
Agreement and Plan of Reorganization, dated as of February 4, 2000 (the
"Reorganization Agreement"), by and between 1784 and The Galaxy Fund ("Galaxy"),
which contemplates the reorganization of your 1784 Fund into a corresponding
fund of Galaxy (each a "Galaxy Fund").
Background. As you may recall, BankBoston Corporation and Fleet Financial
Group, Inc. recently merged with each other to form Fleet Boston Corporation
("New Fleet"). As a
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result of the consolidation, both BankBoston, N.A., the investment adviser to
all of the 1784 Funds, and Fleet Investment Advisors Inc. ("Fleet Advisors"),
the investment adviser to each of the Galaxy Funds, are indirect, wholly owned
subsidiaries of New Fleet. New Fleet has decided to consolidate the mutual fund
investment advisory operations of Fleet Advisors and BankBoston, N.A.
At the upcoming Special Meeting, you will be asked to approve the
reorganization of your 1784 Fund into a corresponding Galaxy Fund (the
"Reorganization"). If shareholder approval is obtained, your 1784 Fund will be
reorganized into the corresponding Galaxy Fund in May 2000, when your shares in
the 1784 Fund will be exchanged for shares of equal value of a corresponding
Galaxy Fund.
1784'S BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT YOU VOTE TO APPROVE
THE PROPOSED REORGANIZATION.
In considering these matters, you should note:
o The Same or Similar Objectives and Policies
Ten of the 1784 Funds are proposed to be reorganized into existing Galaxy
Funds, each of which has investment policies and objectives that are, in
general, similar to those of its corresponding 1784 Fund. Seven of the 1784
Funds are proposed to be reorganized into newly organized shell Galaxy Funds
that have been specifically created for the purpose of the Reorganization. Each
of these newly organized shell Galaxy Funds will continue the investment
policies and objectives of the 1784 Fund being reorganized into it.
o Same Value of Shares
The Galaxy Fund shares you receive in the Reorganization will have the
same total dollar value as the total dollar value of the 1784 Fund shares that
you held immediately prior to the Reorganization. The exchange of 1784 Fund
shares for Galaxy Fund shares will be tax-free under federal tax laws, and no
front-end or contingent deferred sales loads will be charged as a result of the
exchange.
o Reasons for the Reorganization
The proposed Reorganization is expected to benefit 1784 Fund shareholders
by, among other things:
(i) Offering shareholders the opportunity to become part of a larger and more
diverse family of more than thirty mutual funds. Many 1784 Fund shareholders
will be able to exchange their shares among most or all of those funds.
(ii) Offering shareholders the opportunity to invest in larger funds which can
use their increased asset size to achieve greater portfolio diversification,
engage in block trading and other
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investment transactions on potentially more advantageous terms, and spread
relatively fixed costs, such as legal fees, over a larger asset base.
(iii) Offering shareholders the opportunity to invest in a family of funds that
has demonstrated ability to attract new investors. Successful marketing and
resulting fund growth, in turn, afford investors the benefits of portfolio
diversification and economies of scale.
(iv) Offering shareholders the opportunity to invest in a family of funds
managed by an investment adviser that has extensive investment management
resources and research capabilities; and
(v) Providing additional shareholder services such as consolidated tax reporting
and problem tracking and resolution services.
The Trustees also considered the future prospects of the 1784 Funds if the
Reorganization was not effected and 1784's continuing viability using a no-load
distribution channel.
To see how the Reorganization will affect your 1784 Fund, please carefully
review the enclosed materials where you will find information on the expenses,
investment policies and services relating to the corresponding Galaxy Funds.
The formal Notice of Special Meeting, a Combined Proxy
Statement/Prospectus and a Proxy Ballot are enclosed. If you own shares in more
than one of the 1784 Funds named above, more than one Proxy Ballot accompanies
these materials. Please be sure to vote and return each Proxy Ballot.
Whether or not you plan to attend the Special Meeting, you may vote by
proxy in any of the following ways:
1. Internet - Instructions for casting your vote via the internet can
be found in the enclosed proxy voting materials. The required
control number is printed on your enclosed proxy card. If this
feature is used, you are giving authorization for another person to
execute your proxy and there is no need to mail the proxy card.
2. Telephone - Instructions for casting your vote via telephone can be
found in the enclosed proxy voting materials. The toll-free 800
number and required control number are printed on your enclosed
proxy card. If this feature is used, you are giving authorization
for another person to execute your proxy and there is no need to
mail the proxy card.
3. By mail - If you vote by mail, please indicate your voting
instructions on the enclosed proxy card, date and sign the card, and
return it in the envelope provided, which is addressed for your
convenience and needs no postage if mailed in the United States.
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Please return your Proxy Ballot(s) or follow the instructions below to
vote on-line or by telephone so that your vote will be counted.
YOUR VOTE IS IMPORTANT TO US REGARDLESS OF THE NUMBER OF SHARES THAT YOU
OWN. PLEASE VOTE BY RETURNING YOUR PROXY BALLOT(S) TODAY, IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. YOU ALSO MAY VOTE YOUR PROXY BY A TOLL-FREE PHONE CALL OR
BY VOTING ON-LINE, AS INDICATED IN THE ENCLOSED MATERIALS.
The proposed Reorganization and the reasons for the 1784 Board of
Trustees' unanimous recommendation are discussed in detail in the enclosed
materials, which you should read carefully. If you have any questions about the
Reorganization, please do not hesitate to contact 1784 toll free at
1-800-BKB-1784.
We look forward to your attendance at the Special Meeting or receiving
your Proxy Ballot(s) or your on-line or telephone instructions so that your
shares may be voted at the Special Meeting.
Sincerely,
Robert A. Nesher
President and Chief Executive Officer
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THE GALAXY FUND
March 8, 2000
Questions & Answers
For Shareholders of Boston 1784 Funds:
The following questions and answers provide an overview of the proposal to
reorganize your portfolio of Boston 1784 Funds ("1784") into a corresponding
portfolio offered by The Galaxy Fund ("Galaxy"). We also encourage you to read
the full text of the combined proxy statement/prospectus (the
"Proxy/Prospectus") that follows.
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Q: What are 1784 shareholders being asked to vote upon?
A: 1784 shareholders are being asked to consider and approve a proposal to
reorganize each of the portfolios offered by 1784 (each, a "1784 Fund") into a
corresponding portfolio within the Galaxy family of mutual funds (each, a
"Galaxy Fund").
Q. Why has the reorganization of the 1784 Funds into corresponding Galaxy Funds
been recommended?
A: The Board of Trustees of 1784 and the Board of Trustees of Galaxy have each
determined that the reorganization of each of the 1784 Funds into its respective
corresponding Galaxy Fund is in the best interests of the respective
shareholders of each such fund. Among the benefits for 1784 Fund shareholders
considered by the 1784 Board of Trustees were: access to a broader array of
mutual funds, the potential for individual Galaxy Funds to achieve greater
portfolio diversification and engage in investment transactions on potentially
more advantageous terms; spreading relatively fixed costs, such as legal fees,
over a larger asset base; the demonstrated ability of Galaxy to attract new
investors; Fleet Investment Advisors Inc.'s ("Fleet Advisors") extensive
investment management resources and research capabilities; and access to
additional shareholder services such as consolidated tax reporting and problem
tracking and resolution services. The Trustees also considered the future
prospects of the 1784 Funds if the Reorganization was not effected and the
continuing viability of the 1784 Funds using a no-load distribution channel.
Q: What is the anticipated timing of the reorganization?
A: The meeting of shareholders to consider the proposal is scheduled to occur on
April 28, 2000. If all necessary approvals are obtained, the proposed
reorganization will likely take place in May 2000.
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Q: Who will receive the Proxy/Prospectus material?
A: The Proxy/Prospectus has been mailed to all persons and entities that held
shares of record in a 1784 Fund on February 29, 2000. Please note that in
some cases record ownership of and/or voting authority over 1784 Fund shares
may reside with a fiduciary or other agent. In these cases, the fiduciary or
other agent may receive the combined Proxy/Prospectus.
Q: How are the 1784 Funds proposed to be reorganized?
A: As you may know, 1784 consists of seventeen separate mutual funds. The
proposed agreement and plan of reorganization for these funds, approved by the
1784 Board of Trustees, contemplates the reorganization of ten of these 1784
Funds into ten existing Galaxy Funds having similar investment objectives and
policies. The remaining seven 1784 Funds will be reorganized into shell Galaxy
Funds that are being created to continue the current operations of these 1784
Funds. The investment objectives and strategies of each of these shell
portfolios will be substantially the same as those of its corresponding 1784
Fund. Under the proposed agreement and plan of reorganization, each 1784 Fund
will be reorganized into the Galaxy Fund listed directly opposite such 1784 Fund
in the table below:
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Boston 1784 Fund Galaxy Fund
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Tax-Free Money Market Fund Tax-Exempt Fund
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U.S. Treasury Money Market Fund U.S. Treasury Fund
- --------------------------------------------------------------------------------
Institutional U.S. Treasury Money Institutional Treasury Money Market
Market Fund Fund (shell portfolio)
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Prime Money Market Fund Money Market Fund
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Institutional Prime Money Market Fund Institutional Money Market Fund (shell
portfolio)
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Short-Term Income Fund Short-Term Bond Fund
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Income Fund High Quality Bond Fund
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U.S. Government Medium-Term Income Fund Intermediate Government Income Fund
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Tax-Exempt Medium-Term Income Fund Intermediate Tax-Exempt Bond Fund
(shell portfolio)
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Connecticut Tax-Exempt Income Fund Connecticut Intermediate Municipal
Bond Fund (shell portfolio)
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Florida Tax-Exempt Income Fund Florida Municipal Bond Fund (shell
portfolio)
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Massachusetts Tax-Exempt Income Fund Massachusetts Intermediate Municipal
Bond Fund (shell portfolio)
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Rhode Island Tax-Exempt Income Fund Rhode Island Municipal Bond Fund
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Asset Allocation Fund Asset Allocation Fund
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Growth and Income Fund Growth and Income Fund
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Growth Fund Growth Fund II (shell portfolio)
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International Equity Fund International Equity Fund
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<PAGE>
Please refer to Tables III(A) and III(B) of the accompanying Proxy/Prospectus
for information regarding the specific classes of shares of the 1784 Funds and
Galaxy Funds involved in the Reorganization.
Q: Which class of shares of the Galaxy Funds will I receive in the
reorganization?
A: Each shareholder of the 1784 Funds currently owns the same, single class of
shares. By contrast, certain Galaxy Funds offer multiple classes of shares to
investors. The various classes of Galaxy Fund shares all represent interests in
the same portfolio of securities owned by the Galaxy Fund, but have different
expenses and characteristics (such as shareholder servicing arrangements) that
are intended to meet the needs of different types of investors. In general,
eligibility to purchase a particular class of Galaxy Fund shares turns on
whether the investor is characterized as an "institutional investor" or a
"retail investor."
As part of the reorganization, all shareholders of the Boston 1784 Institutional
U.S. Treasury Money Market Fund, Boston 1784 Institutional Prime Money Market
Fund and Boston 1784 Florida Tax-Exempt Income Fund will receive a single class
of shares ("Shares") of the corresponding Galaxy Fund. Shareholders of all other
1784 Funds will receive either "Trust Shares" or "BKB Shares," depending on how
the shareholders acquired their 1784 Fund shares. Shareholders who purchased
their shares through an investment management, trust, custody, or other agency
relationship with BankBoston, N.A. (each an "Institutional Shareholder" and
collectively, "Institutional Shareholders") will receive Trust Shares of the
corresponding Galaxy Fund. All other shareholders (each a "Retail Shareholder"
and collectively "Retail Shareholders") will receive BKB Shares of the
corresponding Galaxy Fund. As discussed below, your proxy card will identify
whether your 1784 Fund Shares will be exchanged for Trust Shares or BKB Shares
in the reorganization. In considering the consequences of the reorganization if
you are a Retail Shareholder, you should note that BKB Shares of the Galaxy
Funds will convert to "Retail A Shares" of the Galaxy Funds one year after the
reorganization, provided that the Galaxy Board of Trustees determines that
converting the shares is in the best interests of the Retail Shareholders
holding BKB Shares. You should also note that the expense ratios of a
substantial majority of the Galaxy Funds which offer Galaxy Fund Retail A Shares
are higher than the expense ratios of both the BKB Shares to be received in the
reorganization and the corresponding 1784 Fund shares currently held by the
Retail Shareholders. For more information see "Fee Tables."
Q: Why will BKB Shares convert to Retail A Shares?
A: As Retail Shareholders, persons holding BKB shares will receive enhanced
shareholder services such as consolidated tax reporting and problem tracking and
resolution services. The expenses of providing those services to Galaxy Fund
shareholders ordinarily is defrayed through a shareholder servicing fee imposed
on Galaxy Fund Retail A Shares. In connection with the Reorganization, Fleet
Advisors has agreed to create the class of BKB Shares that is subject to a
waiver, depending upon the Galaxy Fund, of some or all of the fees that could be
imposed under the shareholder servicing plan for those Funds. The purpose of the
waiver is to allow Retail Shareholders to evaluate those services for a period
without an increase in their current expense ratio as a result of the
shareholder servicing fee, although four of the Galaxy Funds that offer
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BKB Shares will have higher expense ratios than their corresponding 1784 Funds
notwithstanding the fee waiver. The conversion of the BKB Shares ends the fee
waiver and imposes upon Retail Shareholders the same expenses borne by similarly
situated shareholders of the Galaxy Funds. Fleet Advisors has committed to waive
shareholder servicing fees as needed to ensure that until the later of one year
from the date of the reorganization or such time as the Galaxy Board of Trustees
votes on the conversion of the BKB Shares to Retail A Shares, the Galaxy Funds
total operating expense ratios will not exceed the pro forma after waiver
expense ratios in Table I-B of the Combined Proxy/Statement/Prospectus below.
Before the conversion can be accomplished, the Board of Trustees of the Galaxy
Fund must determine that the conversion of BKB Shares to Retail A Shares is in
the best interests of Retail Shareholders.
Q: How will 1784 Fund shares be voted and how will I know what type of shares I
hold?
A: For each Fund for which BKB Shares will be created, votes cast by
Institutional Shareholders and Retail Shareholders will be counted separately,
and a 1784 Fund will not be reorganized unless both the Institutional
Shareholders and the Retail Shareholders separately as a class approve the
reorganization. Shareholders of those 1784 Funds that will reorganize into a
Galaxy Fund that offers only a single class of shares (the Boston 1784
Institutional U.S. Treasury Money Market Fund, Boston 1784 Institutional Prime
Money Market Fund, and the Boston 1784 Florida Tax-Exempt Income Fund) will vote
as a single group of shareholders for each 1784 Fund on the reorganization
proposal.
Your proxy card will designate (where applicable) whether your 1784 Fund shares
will be exchanged for Trust Shares (meaning that you are an Institutional
Shareholder) or BKB Shares (meaning that you are a Retail Shareholder), and the
number of such shares you are entitled to vote as either an Institutional
Shareholder and/or a Retail Shareholder. No designation will be made on the
proxy card for shareholders of the Boston 1784 Institutional U.S. Treasury Money
Market Fund, Boston 1784 Institutional Prime Money Market Fund, and Boston 1784
Florida Tax-Exempt Income Fund.
Q: What are the costs and federal tax implications to shareholders in connection
with the proposed reorganization?
A: In general, the costs of the reorganization will not be borne by 1784 Fund
shareholders. No sales charge will be imposed on the shares of the Galaxy Funds
issued to you in the reorganization, which means that the aggregate value of the
Galaxy Fund shares issued to you will be equal to the aggregate value of the
1784 Fund shares that you own immediately prior to the reorganization. In
addition, the exchange of 1784 Fund shares for Galaxy Fund shares will be
tax-free under federal tax laws. However, the sale of securities by a 1784 Fund,
prior to the reorganization, whether in the ordinary course of business or in
anticipation of the reorganization, could increase the amount of the taxable
capital gains distribution made prior to the reorganization. See "The
Reorganization - Federal Income Tax Considerations" for additional information.
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Boston 1784 Funds
Money Market Funds:
Boston 1784 Tax-Free Money Market Fund
Boston 1784 U.S. Treasury Money Market Fund
Boston 1784 Institutional U.S. Treasury Money Market Fund
Boston 1784 Prime Money Market Fund
Boston 1784 Institutional Prime Money Market Fund
Bond Funds:
Boston 1784 Short-Term Income Fund
Boston 1784 Income Fund
Boston 1784 U.S. Government Medium-Term Income Fund
Tax-Exempt Income Funds:
Boston 1784 Tax-Exempt Medium-Term Income Fund
Boston 1784 Connecticut Tax-Exempt Income Fund
Boston 1784 Florida Tax-Exempt Income Fund
Boston 1784 Massachusetts Tax-Exempt Income Fund
Boston 1784 Rhode Island Tax-Exempt Income Fund
Stock Funds:
Boston 1784 Asset Allocation Fund
Boston 1784 Growth and Income Fund
Boston 1784 Growth Fund
Boston 1784 International Equity Fund
2 Oliver Street
Boston, Massachusetts 02109
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held On April 28, 2000
To Shareholders of the Boston 1784 Funds:
NOTICE IS GIVEN THAT a special meeting of the shareholders (the "Special
Meeting") of the Boston 1784 Funds named above (each a "1784 Fund" and together,
the "1784 Funds"), each of which is a separate series of Boston 1784 Funds
("1784"), will be held at 10:00 a.m. (Eastern time), on April 28, 2000, at the
offices of 1784's administrator, SEI Investments Mutual Fund Services, 1 Freedom
Valley Drive, Oaks, Pennsylvania, for the purpose of considering and voting
upon:
ITEM 1. A proposal to approve the Agreement and Plan of Reorganization,
which provides for and contemplates: (1) the transfer of substantially all
of the assets and
<PAGE>
liabilities of each 1784 Fund to a corresponding investment portfolio of
The Galaxy Fund in exchange for shares of the designated classes of the
corresponding Galaxy Fund of equal value; (2) the distribution of the
shares to the shareholders of the 1784 Funds in liquidation of each of the
1784 Funds; and (3) the deregistration under the Investment Company Act of
1940, as amended, and the termination under state law of 1784.
ITEM 2. Such other business as may properly come before the Special
Meeting or any adjournment(s).
Item 1 is described in the attached Combined Proxy Statement/Prospectus.
YOUR TRUSTEES UNANIMOUSLY RECOMMEND THAT YOU VOTE IN FAVOR OF THE PROPOSAL.
Shareholders of record as of the close of business on February 29, 2000
are entitled to notice of, and to vote at, the Special Meeting or any
adjournment(s) thereof.
YOU ARE REQUESTED TO MARK, DATE, SIGN AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE EACH ACCOMPANYING PROXY BALLOT(S) THAT IS BEING SOLICITED BY THE 1784
BOARD OF TRUSTEES. THIS IS IMPORTANT TO ENSURE A QUORUM AT THE SPECIAL MEETING.
YOU ALSO MAY RETURN PROXIES BY: 1) TOUCHTONE VOTING OR 2) VOTING ON-LINE.
PROXIES MAY BE REVOKED AT ANY TIME BEFORE THEY ARE EXERCISED BY SUBMITTING TO
1784 A WRITTEN NOTICE OF REVOCATION OR A SUBSEQUENTLY EXECUTED PROXY OR BY
ATTENDING THE SPECIAL MEETING AND VOTING IN PERSON.
By Order of the Board of Trustees,
Robert A. Nesher
President
WE NEED YOUR PROXY VOTE IMMEDIATELY. YOU MAY THINK THAT YOUR VOTE IS NOT
IMPORTANT, BUT IT IS VITAL. BY LAW, THE SPECIAL MEETING WILL HAVE TO BE
ADJOURNED WITHOUT CONDUCTING ANY BUSINESS IF LESS THAN A MAJORITY OF THE SHARES
ELIGIBLE TO VOTE ARE REPRESENTED. IN THAT EVENT, 1784 WOULD CONTINUE TO SOLICIT
VOTES IN AN ATTEMPT TO ACHIEVE A QUORUM. YOUR VOTE COULD BE CRITICAL IN ALLOWING
1784 TO HOLD THE SPECIAL MEETING AS SCHEDULED, SO PLEASE RETURN YOUR PROXY
BALLOT(S) IMMEDIATELY OR VOTE ON-LINE OR BY TELEPHONE.
- 2 -
<PAGE>
COMBINED PROXY STATEMENT/PROSPECTUS
March 8, 2000
BOSTON 1784 FUNDS
2 Oliver Street
Boston, Massachusetts 02109
1-800-342-5734
THE GALAXY FUND
4400 Computer Drive
Westborough, Massachusetts 01581-5108
1-877-289-4252
This combined proxy statement/prospectus ("Proxy/Prospectus") is being
sent to shareholders of the Boston 1784 Tax-Free Money Market Fund, Boston 1784
U.S. Treasury Money Market Fund, Boston 1784 Institutional U.S. Treasury Money
Market Fund, Boston 1784 Prime Money Market Fund, Boston 1784 Institutional
Prime Money Market Fund, Boston 1784 Short-Term Income Fund, Boston 1784 Income
Fund, Boston 1784 U.S. Government Medium-Term Income Fund, Boston 1784
Tax-Exempt Medium-Term Income Fund, Boston 1784 Connecticut Tax-Exempt Income
Fund, Boston 1784 Florida Tax-Exempt Income Fund, Boston 1784 Massachusetts
Tax-Exempt Income Fund, Boston 1784 Rhode Island Tax-Exempt Income Fund, Boston
1784 Asset Allocation Fund, Boston 1784 Growth and Income Fund, Boston 1784
Growth Fund and Boston 1784 International Equity Fund (each a "1784 Fund" and
collectively the "1784 Funds"). The Board of Trustees of Boston 1784 Funds
("1784") has called a Special Meeting of Shareholders (the "Special Meeting") at
the offices of 1784's administrator, SEI Investments Mutual Fund Services, 1
Freedom Valley Drive, Oaks, Pennsylvania on April 28, 2000 at 10:00 a.m. Eastern
time.
At the Meeting, shareholders will be asked:
o To approve a proposed Agreement and Plan of Reorganization dated as
of February 4, 2000 (the "Reorganization Agreement"), by and between
1784 and The Galaxy Fund ("Galaxy"), which provides for and
contemplates (a) the transfer of substantially all of the assets and
liabilities of each 1784 Fund to a corresponding investment
portfolio of Galaxy (each a "Galaxy Fund" and collectively, the
"Galaxy Funds") in exchange for the shares of designated classes of
the corresponding Galaxy Fund of equal value; (b) the distribution
of the shares of designated classes of the corresponding Galaxy Fund
to shareholders of each 1784 Fund in liquidation of each of the 1784
Funds; and (c) the deregistration under the Investment Company Act
of 1940, as amended (the "1940 Act"), and termination under state
law, of 1784.
The Reorganization Agreement, the form of which is attached as Appendix I,
provides for the transfer of assets and liabilities of each 1784 Fund to a
corresponding Galaxy Fund in exchange for BKB Shares, Trust Shares or Shares of
the corresponding Galaxy Fund of equal
<PAGE>
value. 1784 and Galaxy are both registered open-end management investment
companies (mutual funds). As a result of the Reorganization, shareholders of the
1784 Funds will become shareholders of the Galaxy Funds (the 1784 Funds and
Galaxy Funds are sometimes referred to as "Funds").
Each shareholder of the 1784 Funds currently owns the same, single class
of shares. By contrast, certain Galaxy Funds offer multiple classes of shares to
investors. The various classes of Galaxy Fund shares all represent interests in
the same portfolio of securities owned by the Galaxy Fund, but have different
characteristics (such as fees and shareholder servicing arrangements) that are
intended to meet the needs of different types of investors. In general,
eligibility to purchase a particular class of Galaxy Fund shares turns on
whether the investor is characterized as an "institutional investor" or a
"retail investor."
As part of the Reorganization, all shareholders of the Boston 1784
Institutional U.S. Treasury Money Market Fund, Boston 1784 Institutional Prime
Money Market Fund and Boston 1784 Florida Tax-Exempt Income Fund will receive a
single class of shares ("Shares") of the corresponding Galaxy Fund. Shareholders
of all other 1784 Funds will receive either "Trust Shares" or "BKB Shares,"
depending on how the shareholders acquired their 1784 Fund shares. Shareholders
who purchased their shares through an investment management, trust, custody, or
other agency relationship with BankBoston, N.A. (each an "Institutional
Shareholder" and collectively, "Institutional Shareholders") will receive Trust
Shares of the corresponding Galaxy Fund. All other shareholders (each a "Retail
Shareholder" and collectively "Retail Shareholders") will receive BKB Shares of
the corresponding Galaxy Fund. In considering the consequences of the
reorganization if you are a Retail Shareholder, you should note that BKB Shares
of the Galaxy Funds will convert to "Retail A Shares" of the Galaxy Funds one
year after the reorganization, provided that the Galaxy Board of Trustees
determines that converting the shares is in the best interests of the Retail
Shareholders holding BKB Shares. You should also note that the expense ratios
for a substantial majority of the Galaxy Funds which offer Retail A Shares are
higher than the expense ratios of both the BKB Shares to be received in the
reorganization and the corresponding 1784 Fund shares currently held by the
Retail Shareholders. For more information see "Fee Tables."
If the Reorganization Agreement is approved and the transactions
contemplated thereby are consummated, 1784 will transfer all of its assets and
liabilities, deregister as a registered investment company and terminate under
Massachusetts law.
This Proxy/Prospectus sets forth concisely the information that a 1784
Fund shareholder should know before voting, and should be retained for future
reference. It is both 1784's proxy statement for the Special Meeting and a
prospectus for the Galaxy Money Market Fund, Galaxy U.S. Treasury Fund, Galaxy
Tax-Exempt Fund, Galaxy Short-Term Bond Fund, Galaxy Intermediate Government
Income Fund, Galaxy High Quality Bond Fund, Galaxy Rhode Island Municipal Bond
Fund, Galaxy Asset Allocation Fund, Galaxy Growth and Income Fund, and the
Galaxy International Equity Fund (the "Operating Galaxy Funds"). It is not a
prospectus for the Galaxy Institutional Treasury Money Market Fund, Galaxy
Institutional Money Market Fund, Galaxy Intermediate Tax-Exempt Bond Fund,
Galaxy Connecticut Intermediate Municipal Bond Fund, Galaxy Florida Municipal
Bond Fund, Galaxy Massachusetts Intermediate Municipal
- 2 -
<PAGE>
Bond Fund and Galaxy Growth Fund II (the "Shell Galaxy Funds") because these
funds were created to continue the business of their corresponding 1784 Funds.
Each of the Shell Galaxy Funds will have substantially the same investment
objectives, policies and restrictions as its respective corresponding 1784 Fund.
Additional information is set forth in the Statement of Additional
Information relating to this Proxy/Prospectus and in the prospectus dated
October 1, 1999, as supplemented, for the 1784 Funds, which is incorporated
herein by reference. Each of these documents is on file with the Securities and
Exchange Commission (the "SEC"), and is available without charge by calling or
writing 1784 at the telephone number or address stated above. The information
contained in the Operating Galaxy Funds' current prospectuses for the designated
share classes, dated February 27, 2000, also is incorporated by reference into
this Proxy/Prospectus. In addition, a current prospectus for the designated
share classes of the Operating Galaxy Funds accompanies this Proxy/Prospectus.
The Annual Report for the year ended October 31, 1999 and the Semi-Annual Report
for the period ended April 30, 1999 for the Operating Galaxy Funds are available
without charge by calling or writing Galaxy at the telephone number or address
stated above. Each of these documents is also available on the SEC's website at
www.sec.gov.
This Proxy/Prospectus is expected to be first sent to shareholders on or
about March __, 2000.
- 3 -
<PAGE>
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROXY/PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
SHARES OF 1784 AND GALAXY ARE NOT DEPOSITS OR OBLIGATIONS OF OR GUARANTEED
OR ENDORSED BY BANKBOSTON, N.A., FLEET INVESTMENT ADVISORS, INC. OR ANY OF THEIR
AFFILIATES OR ANY OTHER BANK. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER GOVERNMENT AGENCY. MUTUAL FUND SHARES INVOLVE CERTAIN INVESTMENT
RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THE DISTRIBUTOR OF 1784 IS SEI
INVESTMENTS DISTRIBUTION CO. THE DISTRIBUTOR OF GALAXY IS PROVIDENT
DISTRIBUTORS, INC.
MONEY MARKET FUNDS SEEK TO MAINTAIN A NET ASSET VALUE OF $1.00 PER SHARE.
AN INVESTMENT IN A MONEY MARKET FUND IS NEITHER INSURED NOR GUARANTEED BY THE
U.S. GOVERNMENT. THERE CAN BE NO ASSURANCE THAT A MONEY MARKET FUND WILL BE ABLE
TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
- 4 -
<PAGE>
TABLE OF CONTENTS
Page
FEE TABLES.....................................................................1
Table I-A..........................................................2
Table I-B..........................................................5
SUMMARY........................................................................8
Proposed Reorganization............................................8
Overview Of The Funds..............................................9
Table II....................................................11
Federal Income Tax Consequences...................................12
1784 and Galaxy Board Consideration...............................12
Principal Risk Factors............................................13
Voting Information................................................18
THE REORGANIZATION............................................................18
Reasons for the Reorganization....................................18
Description of the Reorganization Agreement.......................19
Table III(A)................................................20
Table III(B)................................................23
1784 Board Consideration..........................................25
Capitalization....................................................26
Table IV....................................................27
Federal Income Tax Considerations.................................34
COMPARISON OF 1784 FUNDS AND GALAXY FUNDS.....................................35
Investment Objectives and Policies................................35
Investment Advisory Services......................................37
Table V.....................................................37
Other Service Providers for the 1784 Funds and the Galaxy Funds...38
Sales Load and Distribution Arrangements for 1784 Funds...........39
Sales Load and Shareholder Servicing Arrangements for Galaxy......39
Shareholder Servicing Arrangements................................42
Administration Agreements.........................................42
Shareholder Transactions and Policies.............................43
Fees and Expenses.................................................43
Performance.......................................................43
Share Structure...................................................43
Comparison of Trust Structure.....................................44
VOTING MATTERS................................................................44
General Information...............................................44
Shareholder and Board Approvals...................................46
Principal Shareholders............................................47
Table VI(A).................................................47
Table VI(B).................................................48
Quorum............................................................49
Annual Meetings and Shareholder Meetings..........................49
ADDITIONAL INFORMATION ABOUT GALAXY...........................................49
-i-
<PAGE>
ADDITIONAL INFORMATION ABOUT 1784.............................................50
FINANCIAL STATEMENTS..........................................................50
OTHER BUSINESS................................................................51
SHAREHOLDER INQUIRIES.........................................................51
APPENDICES I FORM OF REORGANIZATION AGREEMENT I-1
II EXPENSE SUMMARIES OF THE 1784 FUNDS
AND CORRESPONDING GALAXY FUNDS II-1
III INVESTMENT OBJECTIVES, LIMITATIONS AND
CERTAIN SIGNIFICANT INVESTMENT POLICIES
OF THE REORGANIZING 1784 FUNDS AND
CORRESPONDING GALAXY FUNDS III-1
IV SHAREHOLDER TRANSACTIONS AND
SERVICES OF THE GALAXY FUNDS AND THE
CORRESPONDING 1784 FUNDS IV-1
V PERFORMANCE COMPARISONS OF THE OPERATING
GALAXY FUNDS AND THEIR CORRESPONDING
1784 FUNDS V-1
VI MANAGEMENT DISCUSSION OF GALAXY FUND
PERFORMANCE VI-1
-ii-
<PAGE>
FEE TABLES
Each shareholder of the 1784 Funds currently owns the same, single class
of shares. By contrast, certain Galaxy Funds offer multiple classes of shares to
investors. The various classes of Galaxy Fund shares all represent interests in
the same portfolio of securities owned by the Galaxy Fund, but have different
characteristics (such as fees and shareholder servicing arrangements) that are
intended to meet the needs of different types of investors. In general,
eligibility to purchase a particular class of Galaxy Fund shares turns on
whether the investor is characterized as an "institutional investor" or a
"retail investor."
As part of the Reorganization, all shareholders of the Boston 1784
Institutional U.S. Treasury Money Market Fund, Boston 1784 Institutional Prime
Money Market Fund and Boston 1784 Florida Tax-Exempt Income Fund will receive
Shares of the corresponding Galaxy Fund. Shareholders of all other 1784 Funds
will receive either "Trust Shares" or "BKB Shares," depending on how the
shareholders acquired their 1784 Fund shares. Institutional Shareholders will
receive Trust Shares of the corresponding Galaxy Fund. Retail Shareholders will
receive BKB Shares of the corresponding Galaxy Fund. In considering the
consequences of the reorganization if you are a Retail Shareholder, you should
note that BKB Shares of the Galaxy Funds will convert to "Retail A Shares" of
the Galaxy Funds one year after the reorganization, provided that the Galaxy
Board of Trustees determines that converting the shares is in the best interests
of the Retail Shareholders holding BKB Shares.
The following table shows which of the following Galaxy Funds and classes
are projected to experience higher, lower or the same annualized per share total
operating expense ratios as their Corresponding 1784 Funds, after fee waivers,
based upon the fee arrangements and commitments that will be in place upon
consummation of the Reorganization. Three of the fourteen corresponding Galaxy
Funds which offer Trust Shares, four of the fourteen corresponding Galaxy Funds
which offer BKB Shares, and eleven of the fourteen corresponding Galaxy Funds
which offer Retail A Shares have total operating expense ratios (after fee
waivers) which are higher than the 1784 Fund Shares. Fleet Investment Advisors,
Inc. ("Fleet") has committed to waive shareholder servicing fees as needed to
ensure that until the later of one year from the date of the reorganization or
such time as the Galaxy Board of Trustees votes on the conversion of the BKB
Shares to Retail A Shares, the Galaxy Funds total operating expense ratios will
not exceed the pro forma after waiver expense ratios in Table I-B. These fee
waivers may be terminated at any time after the first anniversary of the date
that the 1784 Fund is reorganized into its corresponding Galaxy Fund.
- 1 -
<PAGE>
Table I-A
- --------------------------------------------------------------------------------
Higher Expenses Lower Expenses Same Expenses
than the than the as the
Fund and Class Corresponding Corresponding Corresponding
-------------- 1784 Fund 1784 Fund 1784 Fund
--------- --------- ---------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Galaxy Tax Exempt Fund
- --------------------------------------------------------------------------------
Trust Shares X
- --------------------------------------------------------------------------------
BKB Shares X
- --------------------------------------------------------------------------------
Retail A Shares X
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Galaxy U.S. Treasury Fund
- --------------------------------------------------------------------------------
Trust Shares X
- --------------------------------------------------------------------------------
BKB Shares X
- --------------------------------------------------------------------------------
Retail A Shares X
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Galaxy Institutional
Treasury Money Market Fund
- --------------------------------------------------------------------------------
Shares X
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Galaxy Money Market Fund
- --------------------------------------------------------------------------------
Trust Shares X
- --------------------------------------------------------------------------------
BKB Shares X
- --------------------------------------------------------------------------------
Retail A Shares X
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Galaxy Institutional Money
Market Fund
- --------------------------------------------------------------------------------
Shares X
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Galaxy Short-Term Bond Fund
- --------------------------------------------------------------------------------
Trust Shares X
- --------------------------------------------------------------------------------
BKB Shares X
- --------------------------------------------------------------------------------
Retail A Shares X
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Galaxy High Quality Bond
Fund
- --------------------------------------------------------------------------------
Trust Shares X
- --------------------------------------------------------------------------------
BKB Shares X
- --------------------------------------------------------------------------------
Retail A Shares X
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- 2 -
<PAGE>
- --------------------------------------------------------------------------------
Higher Expenses Lower Expenses Same Expenses
than the than the as the
Fund and Class Corresponding Corresponding Corresponding
-------------- 1784 Fund 1784 Fund 1784 Fund
--------- --------- ---------
- --------------------------------------------------------------------------------
Galaxy Intermediate
Government Income Fund
- --------------------------------------------------------------------------------
Trust Shares X
- --------------------------------------------------------------------------------
BKB Shares X
- --------------------------------------------------------------------------------
Retail A Shares X
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Galaxy Intermediate
Tax-Exempt Bond Fund
- --------------------------------------------------------------------------------
Trust Shares X
- --------------------------------------------------------------------------------
BKB Shares X
- --------------------------------------------------------------------------------
Retail A Shares X
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Galaxy Connecticut
Intermediate Municipal Bond
Fund
- --------------------------------------------------------------------------------
Trust Shares X
- --------------------------------------------------------------------------------
BKB Shares X
- --------------------------------------------------------------------------------
Retail A Shares X
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Galaxy Florida Municipal
Bond Fund
- --------------------------------------------------------------------------------
Shares X
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Galaxy Massachusetts
Intermediate Municipal Bond
Fund
- --------------------------------------------------------------------------------
Trust Shares X
- --------------------------------------------------------------------------------
BKB Shares X
- --------------------------------------------------------------------------------
Retail A Shares X
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Galaxy Rhode Island
Municipal Bond Fund
- --------------------------------------------------------------------------------
Trust Shares X
- --------------------------------------------------------------------------------
BKB Shares X
- --------------------------------------------------------------------------------
Retail A Shares X
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Galaxy Asset Allocation Fund
- --------------------------------------------------------------------------------
Trust Shares X
- --------------------------------------------------------------------------------
BKB Shares X
- --------------------------------------------------------------------------------
Retail A Shares X
- --------------------------------------------------------------------------------
- 3 -
<PAGE>
- --------------------------------------------------------------------------------
Higher Expenses Lower Expenses Same Expenses
than the than the as the
Fund and Class Corresponding Corresponding Corresponding
-------------- 1784 Fund 1784 Fund 1784 Fund
--------- --------- ---------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Galaxy Growth and Income
Fund
- --------------------------------------------------------------------------------
Trust Shares X
- --------------------------------------------------------------------------------
BKB Shares X
- --------------------------------------------------------------------------------
Retail A Shares X
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Galaxy Growth Fund II
- --------------------------------------------------------------------------------
Trust Shares X
- --------------------------------------------------------------------------------
BKB Shares X
- --------------------------------------------------------------------------------
Retail A Shares X
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Galaxy International Equity
Fund
- --------------------------------------------------------------------------------
Trust Shares X
- --------------------------------------------------------------------------------
BKB Shares X
- --------------------------------------------------------------------------------
Retail A Shares X
- --------------------------------------------------------------------------------
- 4 -
<PAGE>
Table I-B
The following table shows (i) the current annualized total expense ratio
as of October 31, 1999 of each of the 1784 Funds, after fee waivers; (ii) the
annualized total expense ratio of each of the Operating Galaxy Funds, after fee
waivers restated to reflect the expenses each Fund expects to incur during the
current fiscal year; and (iii) the pro forma annualized total expense ratio of
the Shell Galaxy Funds or the combined portfolios consisting of a 1784 Fund and
its corresponding Galaxy Fund, as the case may be, after fee waivers, as of
October 31, 1999, based upon the fee arrangements and commitments that will be
in place upon consummation of the reorganization of the 1784 Funds into
corresponding Galaxy Funds (the "Reorganization").
Total Expense Information
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Pro Forma
Total Operating Corresponding Total Operating Combined Fund/ Total Operating
1784 Fund/ Expenses After Galaxy Fund/ Expenses After Share Class Expenses After
Share Class Waivers Share Class Waivers Post-Reorganization Waivers
- ----------- ------- ----------- ------- ------------------- -------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Money Market Funds:
- ------------------------------------------------------------------------------------------------------------------------------------
Boston 1784 Tax-Free Galaxy Tax-Exempt Galaxy Tax-Exempt
Money Market Fund Fund Fund
Shares 0.51% Trust Shares 0.52% Trust Shares 0.47%
BKB Shares n/a BKB Shares 0.52%
Retail A Shares 0.64% Retail A Shares 0.59%
- ------------------------------------------------------------------------------------------------------------------------------------
Boston 1784 U.S. Treasury Galaxy U.S. Treasury Galaxy U.S. Treasury
Money Market Fund Fund Fund
Shares 0.65% Trust Shares 0.51% Trust Shares 0.48%
BKB Shares n/a BKB Shares 0.63%
Retail A Shares 0.65% Retail A Shares 0.63%
- ------------------------------------------------------------------------------------------------------------------------------------
Boston 1784 Institutional Galaxy Institutional Galaxy Institutional
U.S. Treasury Money Treasury Money Treasury Money
Market Fund Market Fund (shell) Market Fund (shell)
Shares 0.31% Shares n/a Shares 0.26%
- ------------------------------------------------------------------------------------------------------------------------------------
Boston 1784 Prime Money Galaxy Money Market Galaxy Money Market
Market Fund Fund Fund
Shares 0.65% Trust Shares 0.47% Trust Shares 0.47%
BKB Shares n/a BKB Shares 0.63%
Retail A Shares 0.64% Retail A Shares 0.63%
- ------------------------------------------------------------------------------------------------------------------------------------
Boston 1784 Institutional Galaxy Institutional Galaxy Institutional
Prime Money Market Money Market Money Market
Fund Fund (shell) Fund (shell)
Shares 0.30% Shares n/a Shares 0.28%
- ------------------------------------------------------------------------------------------------------------------------------------
Bond Funds:
- ------------------------------------------------------------------------------------------------------------------------------------
Boston 1784 Short-Term Galaxy Short-Term Galaxy Short-Term
Income Fund Bond Fund Bond Fund
Shares 0.64% Trust Shares 0.86% Trust Shares 0.79%
BKB Shares n/a BKB Shares 0.78%
Retail A Shares 1.10% Retail A Shares 0.95%
- ------------------------------------------------------------------------------------------------------------------------------------
Boston 1784 Income Galaxy High Quality Galaxy High Quality
Fund Bond Fund Bond Fund
Shares 0.80% Trust Shares 0.85% Trust Shares 0.74%
BKB Shares n/a BKB Shares 0.80%
Retail A Shares 1.00% Retail A Shares 0.96%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- 5 -
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Pro Forma
Total Operating Corresponding Total Operating Combined Fund/ Total Operating
1784 Fund/ Expenses After Galaxy Fund/ Expenses After Share Class Expenses After
Share Class Waivers Share Class Waivers Post-Reorganization Waivers
- ----------- ------- ----------- ------- ------------------- -------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Boston 1784 U.S. Galaxy Intermediate Galaxy Intermediate
Government Medium-Term Government Income Government Income
Income Fund Fund Fund
Shares 0.80% Trust Shares 0.71% Trust Shares 0.68%
BKB Shares n/a BKB Shares 0.80%
Retail A Shares 0.96% Retail A Shares 0.93%
- ------------------------------------------------------------------------------------------------------------------------------------
Tax-Exempt Income Funds:
- ------------------------------------------------------------------------------------------------------------------------------------
Boston 1784 Tax-Exempt Galaxy Intermediate Galaxy Intermediate
Medium-Term Income Tax-Exempt Bond Fund Tax-Exempt Bond Fund
Fund (shell) (shell)
Shares 0.80% Trust Shares n/a Trust Shares 0.76%
BKB Shares n/a BKB Shares 0.80%
Retail A Shares n/a Retail A Shares 0.93%
- ------------------------------------------------------------------------------------------------------------------------------------
Boston 1784 Connecticut Galaxy Connecticut Galaxy Connecticut
Tax-Exempt Intermediate Municipal Intermediate Municipal
Income Fund Bond Fund (shell) Bond Fund (shell)
Shares 0.80% Trust Shares n/a Trust Shares 0.78%
BKB Shares n/a BKB Shares 0.80%
Retail A Shares n/a Retail A Shares 0.95%
- ------------------------------------------------------------------------------------------------------------------------------------
Boston 1784 Florida Galaxy Florida Galaxy Florida
Tax-Exempt Income Municipal Bond Fund Municipal Bond Fund
Fund (shell) (shell)
Shares 0.80% Shares n/a Shares 0.80%
- ------------------------------------------------------------------------------------------------------------------------------------
Boston 1784 Massachusetts Galaxy Massachusetts Galaxy Massachusetts
Tax-Exempt Income Intermediate Municipal Intermediate Municipal
Fund Bond Fund (shell) Bond Fund (shell)
Shares 0.80% Trust Shares n/a Trust Shares 0.78%
BKB Shares n/a BKB Shares 0.80%
Retail A Shares n/a Retail A Shares 0.95%
- ------------------------------------------------------------------------------------------------------------------------------------
Boston 1784 Rhode Island Galaxy Rhode Island Galaxy Rhode Island
Tax-Exempt Income Municipal Bond Municipal Bond
Fund Fund Fund
Shares 0.80% Trust Shares n/a Trust Shares 0.72%
BKB Shares n/a BKB Shares 0.74%
Retail A Shares 0.77% Retail A Shares 0.74%
- ------------------------------------------------------------------------------------------------------------------------------------
Stock Funds:
- ------------------------------------------------------------------------------------------------------------------------------------
Boston 1784 Asset Galaxy Asset Galaxy Asset
Allocation Fund Allocation Fund Allocation Fund
Shares 0.96% Trust Shares 1.11% Trust Shares 1.11%
BKB Shares n/a BKB Shares 0.96%
Retail A Shares 1.30% Retail A Shares 1.29%
- ------------------------------------------------------------------------------------------------------------------------------------
Boston 1784 Growth and Galaxy Growth and Galaxy Growth and
Income Fund Income Fund Income Fund
Shares 0.89% Trust Shares 1.06% Trust Shares 0.96%
BKB Shares n/a BKB Shares 0.92%
Retail A Shares 1.28% Retail A Shares 1.28%
- ------------------------------------------------------------------------------------------------------------------------------------
Boston 1784 Galaxy Growth Fund II Galaxy Growth Fund II
Growth Fund (shell) (shell)
Shares 0.93% Trust Shares n/a Trust Shares 0.90%
BKB Shares n/a BKB Shares 0.94%
Retail A Shares n/a Retail A Shares 1.24%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- 6 -
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Pro Forma
Total Operating Corresponding Total Operating Combined Fund/ Total Operating
1784 Fund/ Expenses After Galaxy Fund/ Expenses After Share Class Expenses After
Share Class Waivers Share Class Waivers Post-Reorganization Waivers
- ----------- ------- ----------- ------- ------------------- -------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Boston 1784 Galaxy Galaxy
International Equity International International
Fund Equity Fund Equity Fund
Shares 1.20% Trust Shares 0.91% Trust Shares 0.85%
BKB Shares n/a BKB Shares 1.10%
Retail A Shares 1.39% Retail A Shares 1.35%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Detailed pro forma expense information for each proposed reorganization is
included in Appendix II.
- 7 -
<PAGE>
SUMMARY
The following is a summary of certain information relating to the proposed
Reorganization between Galaxy and 1784. More complete information is contained
elsewhere in this Proxy/Prospectus, the Prospectuses and Statements of
Additional Information of Galaxy and 1784, and the Appendices attached hereto.
Proposed Reorganization. The Reorganization Agreement provides for and
contemplates: (1) the transfer of substantially all of the assets and
liabilities of each 1784 Fund to a corresponding investment portfolio offered by
Galaxy (each, a "Corresponding Galaxy Fund"), in exchange for shares of the
designated classes of such Corresponding Galaxy Fund of equal value (such shares
of the designated classes of such Corresponding Galaxy Fund, the "Galaxy Fund
Shares"); (2) the distribution of the Galaxy Fund Shares to the shareholders of
the 1784 Funds in liquidation of each of the 1784 Funds; and (3) the
deregistration under the 1940 Act and the termination under state law of 1784.
It is anticipated that the Reorganization will take place in two stages, with
ten of the 1784 Funds first transferring their respective assets and liabilities
to ten corresponding Operating Galaxy Funds with similar objectives and policies
in exchange for the Galaxy Fund Shares issued by such corresponding Operating
Galaxy Funds, and a week later the remaining seven 1784 Funds then transferring
their assets and liabilities to seven Shell Galaxy Funds for the purpose of
acquiring the assets and liabilities, and then continuing the business, of such
1784 Fund, in exchange for the Galaxy Fund Shares issued by such corresponding
Galaxy Shell Funds. The liquidation of each 1784 Fund, and the distribution of
the Galaxy Fund Shares to the respective shareholders of such 1784 Fund, shall
occur immediately after the receipt by such 1784 Fund of all of the Galaxy Fund
Shares to be received by such 1784 Fund in the Reorganization. The
Reorganization is subject to a number of conditions, including approval by both
the Institutional and Retail shareholders of each 1784 Fund.
As a result of the proposed Reorganization, each 1784 Fund shareholder
will become a shareholder of its Corresponding Galaxy Fund and will hold,
immediately after the Reorganization, Galaxy Fund Shares in such Corresponding
Galaxy Fund having a total dollar value equal to the total dollar value of the
shares such shareholder held in the 1784 Fund immediately prior to the
effectiveness of the Reorganization. The exchange of shares in the
Reorganization will be tax-free under federal tax laws and shareholders of the
Galaxy Funds and the 1784 Funds will not pay any sales charge as a result of the
exchange of the shares in the Reorganization. Shareholders of the Boston 1784
Institutional U.S. Treasury Money Market Fund, Boston 1784 Institutional Prime
Money Market Fund and Boston 1784 Florida Tax-Exempt Income Fund will receive
Shares of their corresponding Galaxy Fund. Retail Shareholders of the other 1784
Funds will receive BKB Shares of the corresponding Galaxy Fund. Institutional
Shareholders of the other 1784 Funds will receive Trust Shares of the
corresponding Galaxy Fund. The Reorganization is expected to occur in May, 2000
or such later date as may be determined pursuant to the Reorganization
Agreement. For more information about the Reorganization and the Reorganization
Agreement, see the Section below entitled "The Reorganization-Description of the
Reorganization Agreement."
- 8 -
<PAGE>
Overview Of The Funds.
Comparison of Investment Objectives
- --------------------------------------------------------------------------------
1784 Fund Corresponding Galaxy Fund
--------- -------------------------
- --------------------------------------------------------------------------------
Tax-Free Money Market Fund: Tax-Exempt Fund:
Seeks to preserve the principal value Seeks as high a level of current
of a shareholder's investment and interest income exempt from federal
maintain a high degree of liquidity income tax as is consistent with
while providing current income that is stability of principal.
exempt from federal income tax.
- --------------------------------------------------------------------------------
U.S. Treasury Money Market Fund: U.S. Treasury Fund:
Seeks to preserve the principal value Seeks current income with liquidity
of a shareholder's investment and and stability of principal.
maintain a high degree of liquidity
while providing current income.
- --------------------------------------------------------------------------------
Prime Money Market Fund: Money Market Fund:
Seeks to preserve the principal value Seeks as high a level of current
of a shareholder's investment and income as is consistent with liquidity
maintain a high degree of liquidity and stability of principal.
while providing current income.
- --------------------------------------------------------------------------------
Short-Term Income Fund: Short-Term Bond Fund:
Seeks to provide investors with maximum Seeks a high level of current income
current income, and, as a secondary consistent with preservation of
goal, to preserve investors' capital. capital.
- --------------------------------------------------------------------------------
Income Fund: High Quality Bond Fund:
Seeks to provide investors with maximum Seeks a high level of current income
current income, and, as a secondary consistent with prudent risk of
goal, to preserve investors' capital. capital.
- --------------------------------------------------------------------------------
U.S. Government Medium-Term Income Fund: Intermediate Government Income Fund:
Seeks to provide investors with current Seeks the highest level of current
income consistent with preservation of income consistent with prudent risk of
capital. capital.
- --------------------------------------------------------------------------------
Rhode Island Tax-Exempt Income Fund: Rhode Island Municipal Bond Fund:
Seeks to provide investors with current Seeks as high a level of current
income exempt from federal income tax interest income exempt from federal
and Rhode Island personal income and income tax and, to the extent possible,
business corporation taxes, with a from Rhode Island personal income tax,
secondary goal of preserving capital. as is consistent with relative
stability of principal.
- --------------------------------------------------------------------------------
- 9 -
<PAGE>
- --------------------------------------------------------------------------------
1784 Fund Corresponding Galaxy Fund
--------- -------------------------
- --------------------------------------------------------------------------------
Asset Allocation Fund: Asset Allocation Fund:
Seeks to provide investors with a Seeks a high total return by providing
favorable total rate of return through both a current level of income that is
current income and capital appreciation greater than that provided by the
consistent with preservation of popular stock market averages, as well
capital, derived from investing in as long-term growth in the value of
fixed income and equity securities. the Fund's assets.
- --------------------------------------------------------------------------------
Growth and Income Fund: Growth and Income Fund:
Seeks to provide investors with Seeks to provide a relatively high
long-term growth of capital with a total return through long-term capital
secondary goal of income. appreciation and current income.
- --------------------------------------------------------------------------------
International Equity Fund: International Equity Fund:
Seeks to provide investors with Seeks long-term capital appreciation.
long-term growth of capital. Dividend
income, if any, is incidental to this
goal.
- --------------------------------------------------------------------------------
The investment objective, policies and restrictions of the (i) Boston 1784
Institutional U.S. Treasury Money Market Fund, (ii) Boston 1784 Institutional
Prime Money Market Fund, (iii) Boston 1784 Tax-Exempt Medium-Term Income Fund,
(iv) Boston 1784 Connecticut Tax-Exempt Income Fund, (v) Boston 1784 Florida
Tax-Exempt Income Fund, (vi) Boston 1784 Massachusetts Tax-Exempt Income Fund
and (vii) Boston 1784 Growth Fund (collectively, the "Continuing 1784 Funds")
are substantially the same as those of their Corresponding Galaxy Funds, because
the Galaxy Shell Funds have each been organized solely in connection with this
Reorganization to acquire the assets and continue the business of its
corresponding Continuing 1784 Fund.
The investment objectives, policies and restrictions of each of the other
1784 Funds (collectively, the "Reorganizing 1784 Funds") are, in general,
similar to those of its Corresponding Galaxy Fund. However, there are certain
differences between the investment policies and restrictions of the Reorganizing
1784 Funds and their Corresponding Galaxy Funds. For additional information, see
"Comparison of 1784 Funds and Galaxy Funds - Investment Objectives and Policies"
and Appendix III.
Fleet currently serves or will serve as the investment adviser to each of
the Galaxy Funds. Oechsle International Advisors, LLC ("Oechsle") currently
serves as investment sub-adviser to the Galaxy International Equity Fund.
BankBoston currently serves as the investment adviser to the 1784 Funds, and
Oechsle currently serves as co-investment adviser to the Boston 1784
International Equity Fund. Prior to February 7, 2000, Kleinwort Benson
Investment Management Americas Inc. ("Kleinwort") served as co-investment
adviser with BankBoston to the Boston 1784 International Equity Fund.
- 10 -
<PAGE>
Table II
The following table summarizes whether the contractual advisory fee rate
of a Galaxy Fund (on a pro forma basis, after giving effect to the
Reorganization) is higher, lower or the same as its corresponding 1784 Fund by
showing the differential between the Galaxy Fund (on a pro forma basis, after
giving effect to the Reorganization) and 1784 Fund contractual fee rate.
- --------------------------------------------------------------------------------
Fund Differential between Galaxy
and 1784 contractual advisory
fee rate
- --------------------------------------------------------------------------------
Galaxy Tax-Exempt Fund Same contractual fee rate
- --------------------------------------------------------------------------------
Galaxy U.S. Treasury Fund 0.02% lower
- --------------------------------------------------------------------------------
Galaxy Institutional Treasury Money Market Fund Same contractual fee rate
- --------------------------------------------------------------------------------
Galaxy Money Market Fund Same contractual fee rate
- --------------------------------------------------------------------------------
Galaxy Institutional Money Market Fund Same contractual fee rate
- --------------------------------------------------------------------------------
Galaxy Short-Term Bond Fund 0.25% higher
- --------------------------------------------------------------------------------
Galaxy High Quality Bond Fund 0.01% higher
- --------------------------------------------------------------------------------
Galaxy Intermediate Government Income Fund 0.01% higher
- --------------------------------------------------------------------------------
Galaxy Intermediate Tax-Exempt Bond Fund 0.01% higher
- --------------------------------------------------------------------------------
Galaxy Connecticut Intermediate Municipal Bond Fund 0.01% higher
- --------------------------------------------------------------------------------
Galaxy Florida Municipal Bond Fund 0.01% higher
- --------------------------------------------------------------------------------
Galaxy Massachusetts Intermediate Municipal Bond
Fund 0.01% higher
- --------------------------------------------------------------------------------
Galaxy Rhode Island Municipal Bond Fund 0.01% higher
- --------------------------------------------------------------------------------
Galaxy Asset Allocation Fund 0.01% higher
- --------------------------------------------------------------------------------
Galaxy Growth and Income Fund 0.01% higher
- --------------------------------------------------------------------------------
Galaxy Growth Fund II 0.01% higher
- --------------------------------------------------------------------------------
Galaxy International Equity Fund 0.13% lower
- --------------------------------------------------------------------------------
For more information on advisory fee rates, see "Comparison of 1784 Funds
and Galaxy Funds - Investment Advisory Services - Table V."
Advisory fees, however, are only one type of fee and expense paid by
mutual funds. As noted previously in "Fee Tables - Table I(A) and Table I(B)"
Three of the fourteen corresponding Galaxy Funds which offer Trust Shares, four
of the fourteen corresponding Galaxy Funds which offer BKB Shares, and eleven of
the fourteen corresponding Galaxy Funds which offer Retail A Shares have total
operating expense ratios (after fee waivers) which are higher than the 1784 Fund
Shares. For a more detailed summary of fees and expenses, see Appendix II.
The 1784 Funds and Galaxy Funds have different administrators,
distributors, transfer agents and other service providers. For a detailed
description of the management of the Galaxy Funds, including Fleet and Oechsle
and other service providers to the Galaxy Funds, see "Comparison of 1784 Funds
and Galaxy Funds - Investment Advisory Services" and the Galaxy Fund prospectus
which accompanies this Proxy/Prospectus.
- 11 -
<PAGE>
The purchase, redemption, dividend and other policies and procedures of
the 1784 Funds and their Corresponding Galaxy Funds are generally similar. There
are, however, some differences. For example, 1784 Funds provide check-writing
privileges on shares of the Boston 1784 Short-Term Income Fund, while Galaxy
does not provide check-writing privileges for its Corresponding Galaxy Fund (the
Galaxy Short-Term Bond Fund).
The 1784 Funds and the Corresponding Galaxy Funds also offer generally
similar exchange privileges. For more information, see "Comparison of 1784 Funds
and Galaxy Funds - Shareholder Transactions and Policies," "Comparison of 1784
Funds and Galaxy Funds - Share Structure" and Appendix IV to this
Proxy/Prospectus.
Federal Income Tax Consequences. The exchange of shares in the
Reorganization is not expected to result in the recognition, for federal income
tax purposes, of gain or loss by the 1784 Funds, the Galaxy Funds or their
respective shareholders. The sale of securities by the 1784 Funds prior to the
Reorganization, whether in the ordinary course of business or in anticipation of
the Reorganization, could increase the amount of the taxable capital gains
distribution made prior to the Reorganization. See "The Reorganization-Federal
Income Tax Considerations" for additional information.
1784 and Galaxy Board Consideration. During its deliberations, 1784's
Board of Trustees (with the advice and assistance of its counsel) reviewed,
among other things: (1) the potential effect of the Reorganization on the
shareholders of the 1784 Funds; (2) the capabilities, practices and resources of
Fleet and the Galaxy Funds' other service providers; (3) the investment advisory
and other fees paid by the Galaxy Funds, and the historical and projected
expense ratios of the Galaxy Funds as compared with those of the 1784 Funds and
industry peer groups; (4) the investment objectives, policies and limitations of
the Galaxy Funds and their relative compatibility with those of the 1784 Funds;
(5) the historical investment performance records of the 1784 Funds and the
Galaxy Funds, relative to each other and to peer groups; (6) the shareholder
services offered by Galaxy; (7) the terms and conditions of the Reorganization
Agreement; (8) the anticipated tax consequences of the Reorganization for the
respective 1784 Funds and their shareholders; and (9) the number of investment
portfolio options that would be available to shareholders after the
Reorganization. The 1784 Board also considered Fleet's belief that the
Reorganization would eliminate certain duplicative shareholder costs and market
overlap, facilitate consolidation of Fleet's managerial resources and enhance
generally operational efficiencies and focus with respect to the mutual funds
advised by Fleet. The 1784 Board also considered the viability of the 1784 Funds
absent approval of the proposed Reorganization, including alternatives to
Reorganization. For additional information, see "The Reorganization-1784 Board
Consideration."
Based upon their evaluation of the information presented to them, and in
light of their fiduciary duties under federal and state law, the Board of
Trustees of 1784, including all of the non-interested members of the Board,
determined that participation in the Reorganization, as contemplated by the
Reorganization Agreement, was in the best interests of the shareholders of each
1784 Fund and that the interests of the existing shareholders of each 1784 Fund
will not be diluted as a result of the Reorganization.
- 12 -
<PAGE>
THE 1784 BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS OF
EACH 1784 FUND APPROVE THE REORGANIZATION AGREEMENT.
After considering the relevant factors, the Galaxy Board of Trustees
similarly found that participation in the Reorganization is in the best
interests of the Galaxy Funds and that the interests of the shareholders of the
Galaxy Funds will not be diluted as a result of the Reorganization.
Principal Risk Factors. Because each of the Galaxy Shell Funds is being
created to acquire the assets, and then continue the business, of its
corresponding Continuing 1784 Fund, an investment in a Galaxy Shell Fund
involves risks that are substantially the same as those of investing in its
corresponding Continuing 1784 Fund. The investment objectives, policies and
restrictions of each Operating Galaxy Fund, are, in general, similar to those of
its corresponding Reorganizing 1784 Fund. Accordingly, an investment in an
Operating Galaxy Fund involves risks that are similar to those of investing in
its corresponding Reorganizing 1784 Fund. The principal risks applicable to the
1784 Funds and the Galaxy Funds are described in the table below. The 1784 Funds
and Galaxy Funds are classified in the following groups:
"1784 Money Market Funds" means, collectively the Boston 1784 Tax-Free
Money Market Fund, Boston 1784 U.S. Treasury Money Market Fund, Boston 1784
Institutional U.S. Treasury Money Market Fund, Boston 1784 Prime Money Market
Fund and Boston 1784 Institutional Prime Money Market Fund.
"Galaxy Money Market Funds" means, collectively, the Corresponding Galaxy
Funds of the 1784 Money Market Funds.
"1784 Bond Funds" means, collectively the Boston 1784 Short-Term Income
Fund Boston 1784 Income Fund and Boston 1784 U.S. Government Medium-Term Income
Fund.
"Galaxy Bond Funds" means, collectively, the Corresponding Galaxy Funds of
the 1784 Bond Funds.
"1784 Tax-Exempt Income Funds" means, collectively the Boston 1784
Tax-Exempt Medium-Term Income Fund, Boston 1784 Connecticut Tax-Exempt Income
Fund, Boston 1784 Florida Tax-Exempt Income Fund, Boston 1784 Massachusetts
Tax-Exempt Income Fund and Boston 1784 Rhode Island Tax-Exempt Income Fund.
"Galaxy Tax-Exempt Income Funds" means, collectively, the Corresponding
Galaxy Funds of the 1784 Tax-Exempt Funds.
"1784 Stock Funds" means collectively, the Boston 1784 Asset Allocation
Fund, Boston 1784 Growth and Income Fund, Boston 1784 Growth Fund and Boston
1784 International Equity Fund.
"Galaxy Stock Funds" means, collectively, the Corresponding Galaxy Funds
of the 1784 Stock Funds.
- 13 -
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Principal Risk Funds Subject to Risk
- ----------------------------------------------------------------------------------------------------------------------
<S> <C>
Selection of Investments - The investment adviser evaluates the risks and All 1784 Funds
rewards presented by all securities purchased by the Fund and how they advance
the Fund's investment objective. It's possible, however, that these All Galaxy Funds
evaluations will prove to be inaccurate.
- ----------------------------------------------------------------------------------------------------------------------
Market Risk - All mutual funds are affected by changes in the economy and All 1784 Funds
swings in investment markets. These can occur within or outside the U.S. or
worldwide, and may affect only particular companies or industries. All Galaxy Funds
- ----------------------------------------------------------------------------------------------------------------------
Uninsured Investment Risk - An investment in a Fund is not a deposit of All 1784 Funds
BankBoston or Fleet and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other governmental agency. All Galaxy Funds
- ----------------------------------------------------------------------------------------------------------------------
Temporary Defensive Positions - Under unusual market conditions, a Fund may hold All 1784 Funds
uninvested cash (which will not earn any income) and invest without limit in
money market instruments, including short-term U.S. Government securities. This All Galaxy Funds
strategy could prevent a Fund from achieving its investment objective.
- ----------------------------------------------------------------------------------------------------------------------
Interest Rate Risk - In general, bond prices rise when interest rates fall and All 1784 Funds
fall when interest rates rise. Longer term bonds and zero coupon bonds are
usually more sensitive to interest rate changes than shorter term bonds. Galaxy Money Market, Bond,
Generally, the longer the average maturity of the bonds in a Fund, the more the Tax-Exempt Income and Asset
Fund's share price will fluctuate in response to interest rate changes. Allocation Funds
Changes in interest rates will also affect the amount of income a Fund
receives. A decline in interest rates may lead to a decline in the Fund's
income.
- ----------------------------------------------------------------------------------------------------------------------
Credit Risk - The value of debt securities depends on the ability of issuers to 1784 Bond, Tax-Exempt Income and
make principal and interest payments. If an issuer can't meet its payment Stock Funds
obligations or if its credit rating is lowered, the value of its debt
securities may fall. Galaxy Money Market, Bond,
Tax-Exempt Income and Asset
Allocation Funds
- ----------------------------------------------------------------------------------------------------------------------
Volatility Risk - The value of your investment in a Fund will go up and down 1784 Bond, Tax-Exempt Income and
with the value of the investments which the Fund holds. The Fund's investments Stock Funds
may not perform as well as other investments, even in times of rising markets.
You may lose money if you invest in these Funds. Galaxy Bond, Tax-Exempt Income and
Stock Funds
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
- 14 -
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Principal Risk Funds Subject to Risk
- ----------------------------------------------------------------------------------------------------------------------
<S> <C>
Money Market Risks - There's no guarantee that a money market fund will be able 1784 Money Market Funds
to preserve the value of your investment at $1.00 per share and it is possible
to lose money by investing in the Funds. The yield paid by the Fund will vary Galaxy Money Market Funds
with changes in short-term interest rates. It is possible that a major change
in interest rates or a default on a security or a repurchase agreement held by
a fund could cause the value of your investment or the performance of the Fund
to decline.
- ----------------------------------------------------------------------------------------------------------------------
Zero Coupon Securities - The Funds may invest in zero coupon securities or 1784 Money Market and Bond Funds
Separately Traded Interest and Principal Securities, which are the separately
traded interest and principal component parts of government debt obligations. Galaxy Bond Funds
The interest-only component is extremely sensitive to the rate of principal
payments on the underlying obligation. The market value of the principal-only
component generally is unusually volatile in response to changes in interest
rates.
- ----------------------------------------------------------------------------------------------------------------------
Prepayment/Extension Risk - Changes in interest rates may cause certain debt 1784 Bond, Tax-Exempt Income and
securities held by the Fund, particularly asset-backed and mortgage-backed Stock Funds
securities, to be paid off much sooner or later than expected, which could
adversely affect the Fund's value. Galaxy Bond, Tax-Exempt Income and
Asset Allocation Funds
- ----------------------------------------------------------------------------------------------------------------------
Foreign Investments - Foreign investments may be riskier than U.S. investments 1784 Bond and Stock Funds
because of factors such as foreign government restrictions, changes in currency
exchange rates, incomplete financial information about the issuers of Galaxy Short-Term Bond, Growth II
securities, and political or economic instability. Foreign securities may be and International Equity Funds
more volatile and less liquid than U.S. securities.
- ----------------------------------------------------------------------------------------------------------------------
Mortgage-Backed Securities - A Fund will receive payments on its 1784 Bond Funds
mortgage-backed securities that are part interest and part return of
principal. These payments may vary based on the rate at which homeowners pay Galaxy Bond Funds
off their loans. When a homeowner makes a prepayment, the Fund receives a
larger portion of its principal investment back, which means that there will be
a decrease in monthly interest payments. Some mortgage-backed securities may
have structures that make their reaction to interest rates and other factors
difficult to predict, making their prices very volatile. Mortgage-backed
securities are particularly exposed to prepayment and extension risk and it may
be very difficult for a Fund to predict accurately the maturity of the
securities it holds.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
- 15 -
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Principal Risk Funds Subject to Risk
- ----------------------------------------------------------------------------------------------------------------------
<S> <C>
Frequent Trading - A Fund may trade its investments frequently in trying to 1784 Bond, Tax-Exempt Income and
achieve its investment goal. This usually increases the chance that the Fund Stock Funds
will pay investors short-term capital gains. These gains are taxable at higher
rates than long-term capital gains. Frequent trading could also mean higher Galaxy Bond and Asset Allocation
brokerage commissions and other transaction costs, which could reduce the Funds
Fund's returns.
- ----------------------------------------------------------------------------------------------------------------------
Lack of Diversification - If a Fund is not diversified, then it may invest a 1784 Tax-Exempt Income Funds
large percentage of its assets in a small number of issuers. As a result, a (other than Boston 1784 Tax-Exempt
change in the value of any one investment held by a Fund may affect the overall Medium-Term Income Fund)
value of a Fund more than it would affect a diversified fund which holds more
investments. Galaxy Tax-Exempt Income Funds
- ----------------------------------------------------------------------------------------------------------------------
Municipal Market Risk - There are special factors which may affect the value of 1784 Tax-Exempt Income Funds
municipal securities and, as a result, a Fund's share price. These factors
include the possibility that interest on municipal securities held by a Fund Galaxy Tax-Exempt Income Funds
could be declared taxable, political or legislative changes, and uncertainties
related to the rights of investors in the securities.
- ----------------------------------------------------------------------------------------------------------------------
Single State Risk - Because a Fund invests primarily in a particular state's Boston 1784 Connecticut Tax-Exempt
securities, it is likely to be especially susceptible to economic, political Income Fund, Boston 1784 Florida
and regulatory events that affect that state. Tax-Exempt Income Fund, Boston
1784 Massachusetts Tax-Exempt
Income Fund and Boston 1784 Rhode
Island Tax-Exempt Income Fund.
Each Corresponding Galaxy Fund to
the above-listed Funds.
- ----------------------------------------------------------------------------------------------------------------------
When-Issued Securities - A Fund may enter into agreements to purchase debt 1784 Tax-Exempt Income Funds
securities before the securities have been issued. The Fund takes a risk that
the market value of these securities will decline before the securities are Galaxy Tax-Exempt Income Funds
delivered to the Fund.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
- 16 -
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Principal Risk Funds Subject to Risk
- ----------------------------------------------------------------------------------------------------------------------
<S> <C>
Hedging - Certain Funds may invest in derivatives such as options, futures and 1784 Tax-Exempt Income Funds
options and forward contracts on foreign currencies, to hedge against market (futures and options on futures
risk or the currency risk of its foreign investments. There's no guarantee only) Boston 1784 International
hedging will always work. It can also prevent the Fund from making a gain if Equity Fund (foreign currency
markets move in the opposite direction to the hedge. hedging transactions)
Galaxy International Equity Fund
- ----------------------------------------------------------------------------------------------------------------------
Stock Market Risk - Changes in the U.S. or foreign economies can cause the 1784 Stock Funds
value of stocks and other investments held by the Fund to rise or fall. Stock
prices may decline over short or extended periods. U.S. and foreign stock Galaxy Stock Funds
markets tend to move in cycles, with periods of rising prices and periods of
falling prices.
- ----------------------------------------------------------------------------------------------------------------------
Emerging Markets - The risks associated with foreign investments are heightened 1784 Stock Funds
when investing in emerging markets. The governments and economies of emerging
market countries feature greater instability than those of more developed Galaxy International Equity Fund
countries. Such investments tend to fluctuate in price more widely and to be
less liquid than other foreign investments.
- ----------------------------------------------------------------------------------------------------------------------
Currency Exchange - Although a Fund usually makes investments that are sold in 1784 Stock Funds
foreign currencies, it values its holdings in U.S. dollars. If the U.S. dollar
rises compared to a foreign currency, the Fund loses on the currency exchange. Galaxy International Equity Fund
- ----------------------------------------------------------------------------------------------------------------------
Convertible Securities - Securities that can be converted into common stock, 1784 Stock Funds
such as certain debt securities and preferred stock, are subject to the usual
risks associated with fixed income investments, such as interest rate risk and Galaxy Growth Fund II
credit risk. In addition, because they react to changes in the value of the
equity securities into which they will convert, convertible securities are also
subject to stock market risk.
- ----------------------------------------------------------------------------------------------------------------------
Smaller Companies - The securities of smaller companies may have more risks 1784 Stock Funds
than those of larger companies - they may be more susceptible to market
downturns and their prices may be more volatile.
- ----------------------------------------------------------------------------------------------------------------------
Country Risk - A Fund may invest 25% or more of its assets in the securities of Galaxy International Equity Fund
companies located in one country. When the Fund invests a high percentage of
its assets in a particular country, the Fund will be especially susceptible to
factors affecting that country.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
- 17 -
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Principal Risk Funds Subject to Risk
- ----------------------------------------------------------------------------------------------------------------------
<S> <C>
Portfolio Composition - The level of risk could increase if a larger percentage Galaxy Asset Allocation Fund
of the Fund is invested in one particular asset class, such as stocks or
bonds. However, asset allocation funds are generally less volatile than
portfolios that contain only stocks.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Voting Information. 1784's Board of Trustees is furnishing this
Proxy/Prospectus in connection with the solicitation of proxies. Only
shareholders of record at the close of business on February 29, 2000 will be
entitled to vote at the Meeting. Shares represented by a properly executed proxy
will be voted in accordance with the instructions thereon. If no instruction is
made, the named proxies will vote in favor of each proposal set forth in the
Notice of Meeting. Proxies may be revoked at any time before they are exercised
by submitting to 1784 a written notice of revocation or a subsequently executed
proxy or by attending the Special Meeting and voting in person. For additional
information, see "Voting Matters."
THE REORGANIZATION
Reasons for the Reorganization. Significant features of the Reorganization
are summarized below. This summary is qualified in its entirety by reference to
the Reorganization Agreement, the form of which is attached as Appendix I.
The proposed Reorganization is expected to benefit 1784 Fund shareholders
by, among other things:
(i) Offering shareholders the opportunity to become part of a larger and more
diverse family of more than thirty mutual funds. Many 1784 Fund shareholders
will be able to exchange their shares among most or all of those funds.
(ii) Offering shareholders the opportunity to invest in larger Funds which can
use their increased asset size to achieve greater portfolio diversification,
engage in block trading and other investment transactions on potentially more
advantageous terms, and spread relatively fixed costs, such as legal fees, over
a larger asset base.
(iii) Offering shareholders the opportunity to invest in a family of funds that
has demonstrated ability to attract new investors. Successful marketing and
resulting fund growth, in turn, afford investors the benefits of portfolio
diversification and economies of scale.
(iv) Offering shareholders the opportunity to invest in a family of funds
managed by an investment adviser that has extensive investment management
resources and research capabilities; and
(v) Providing additional shareholder services such as consolidated tax reporting
and problem tracking and resolution services.
- 18 -
<PAGE>
The Trustees also considered the future prospects of the 1784 Funds if the
Reorganization was not effected and 1784's continuing viability using a no-load
distribution channel.
Description of the Reorganization Agreement. There are seventeen separate
1784 Funds. The Reorganization Agreement provides that substantially all of the
assets and liabilities of each of the ten Reorganizing 1784 Funds identified in
column 1 on Table III(A) below will be transferred to, and acquired by, one of
the ten Operating Galaxy Funds identified in column 2 on Table III(A) below, in
exchange for full and fractional shares issued by such Operating Galaxy Fund.
The Reorganization Agreement further provides that substantially all of the
assets and liabilities of each of the Continuing 1784 Funds identified in column
1 on Table III(B) below will be transferred to, and acquired by, one of the
newly-organized Shell Galaxy Funds identified in column 2 on Table III(B) below,
in exchange for full and fractional shares issued by such Galaxy Shell Funds. In
the tables, opposite the name of each 1784 Fund is the name of the Corresponding
Galaxy Fund to which such 1784 Fund will transfer substantially all of its
assets and liabilities and that will issue shares to such 1784 Fund in
consideration of such transfer. The Boston 1784 Institutional U.S. Treasury
Money Market Fund, Boston 1784 Institutional Prime Money Market Fund and Boston
1784 Florida Tax-Exempt Income Fund shall receive Shares of its Corresponding
Galaxy Fund. Each 1784 Fund, other than the Boston 1784 Institutional U.S.
Treasury Money Market Fund, Boston 1784 Institutional Prime Money Market Fund
and Boston 1784 Florida Tax-Exempt Income Fund, shall receive BKB Shares and
Trust Shares issued by its Corresponding Galaxy Fund. Retail Shareholders of a
1784 Fund shall receive BKB Shares of such Corresponding Galaxy Fund. BKB Shares
will convert into Retail A Shares of the respective Galaxy Fund on the first
anniversary of the date such 1784 Fund reorganized into its Corresponding Galaxy
Fund provided that the Galaxy Board of Trustees has determined that such
conversion is in the best interests of BKB shareholders. Institutional
Shareholders of a 1784 Fund shall receive Trust Shares of such corresponding
Galaxy Fund. The Galaxy Fund Shares issued by each Galaxy Fund to its
corresponding 1784 Fund will have the same aggregate dollar value as the
aggregate dollar value of the shares of such 1784 Fund immediately prior to the
effective time of the Reorganization with respect to such fund.
- 19 -
<PAGE>
Table III(A)
Column 1 Column 2
-------- --------
1784 REORGANIZING FUND OPERATING GALAXY FUND AND SHARE
CLASS
Boston 1784 Tax-Free Money Market Fund Galaxy Tax-Exempt Fund
Shares (purchased through an Trust Shares
investment management, trust, custody
or other agency relationship with
BankBoston, N.A.)
Shares (purchased other than through BKB Shares
an investment management, trust,
custody or other agency relationship
with BankBoston, N.A.)
Boston 1784 U.S. Treasury Money Market Fund Galaxy U.S. Treasury Fund
Shares (purchased through an Trust Shares
investment management, trust, custody
or other agency relationship with
BankBoston, N.A.)
Shares (purchased other than through BKB Shares
an investment management, trust,
custody or other agency relationship
with BankBoston, N.A.)
Boston 1784 Prime Money Market Fund Galaxy Money Market Fund
Shares (purchased through an Trust Shares
investment management, trust, custody
or other agency relationship with
BankBoston, N.A.)
Shares (purchased other than through BKB Shares
an investment management, trust,
custody or other agency relationship
with BankBoston, N.A.)
- 20 -
<PAGE>
Column 1 Column 2
-------- --------
1784 REORGANIZING FUND OPERATING GALAXY FUND AND SHARE
CLASS
Boston 1784 Short-Term Income Fund Galaxy Short-Term Bond Fund
Shares (purchased through an Trust Shares
investment management, trust, custody
or other agency relationship with
BankBoston, N.A.)
Shares (purchased other than through BKB Shares
an investment management, trust,
custody or other agency relationship
with BankBoston, N.A.)
Boston 1784 Income Fund Galaxy High Quality Bond Fund
Shares (purchased through an Trust Shares
investment management, trust, custody
or other agency relationship with
BankBoston, N.A.)
Shares (purchased other than through BKB Shares
an investment management, trust,
custody or other agency relationship
with BankBoston, N.A.)
Boston 1784 U.S. Government Medium-Term Galaxy Intermediate Government
Income Fund Fund Income
Shares (purchased through an Trust Shares
investment management, trust, custody
or other agency relationship with
BankBoston, N.A.)
Shares (purchased other than through BKB Shares
an investment management, trust,
custody or other agency relationship
with BankBoston, N.A.)
- 21 -
<PAGE>
Column 1 Column 2
-------- --------
1784 REORGANIZING FUND OPERATING GALAXY FUND AND SHARE
CLASS
Boston 1784 Rhode Island Tax-Exempt Income Galaxy Rhode Island Municipal Bond
Fund Fund
Shares (purchased through an Trust Shares
investment management, trust, custody
or other agency relationship with
BankBoston, N.A.)
Shares (purchased other than through BKB Shares
an investment management, trust,
custody or other agency relationship
with BankBoston, N.A.)
Boston 1784 Asset Allocation Fund Galaxy Asset Allocation Fund
Shares (purchased through an Trust Shares
investment management, trust, custody
or other agency relationship with
BankBoston, N.A.)
Shares (purchased other than through BKB Shares
an investment management, trust,
custody or other agency relationship
with BankBoston, N.A.)
Boston 1784 Growth and Income Fund Galaxy Growth and Income Fund
Shares (purchased through an Trust Shares
investment management, trust, custody
or other agency relationship with
BankBoston, N.A.)
Shares (purchased other than through BKB Shares
an investment management, trust,
custody or other agency relationship
with BankBoston, N.A.)
Boston 1784 International Equity Fund Galaxy International Equity Fund
Shares (purchased through an Trust Shares
investment management, trust, custody
or other agency relationship with
BankBoston, N.A.)
Shares (purchased other than through BKB Shares
an investment management, trust,
custody or other agency relationship
with BankBoston, N.A.)
- 22 -
<PAGE>
Table III(B)
Column 1 Column 2
-------- --------
CONTINUING 1784 FUND SHELL GALAXY FUND AND SHARE CLASS
Boston 1784 Institutional U.S. Treasury Galaxy Institutional Treasury Money
Money Market Fund Market Fund
Shares Shares
Boston 1784 Institutional Prime Money Galaxy Institutional Money Market
Market Fund Fund
Shares Shares
Boston 1784 Tax-Exempt Medium-Term Galaxy Intermediate Tax-Exempt Bond
Income Fund Fund
Shares (purchased through an Trust Shares
investment management, trust,
custody or other agency
relationship with BankBoston,
N.A.)
Shares (purchased other than BKB Shares
through an investment management,
trust, custody or other agency
relationship with BankBoston,
N.A.)
Boston 1784 Connecticut Tax-Exempt Galaxy Connecticut Intermediate
Income Fund Municipal Bond Fund
Shares (purchased through an Trust Shares
investment management, trust,
custody or other agency
relationship with BankBoston,
N.A.)
Shares (purchased other than BKB Shares
through an investment management,
trust, custody or other agency
relationship with BankBoston,
N.A.)
Boston 1784 Florida Tax-Exempt Income Galaxy Florida Municipal Bond Fund
Fund
Shares Shares
- 23 -
<PAGE>
Boston 1784 Massachusetts Tax-Exempt Galaxy Massachusetts Intermediate
Income Fund Municipal Bond Fund
Shares (purchased through an Trust Shares
investment management, trust,
custody or other agency
relationship with BankBoston,
N.A.)
Shares (purchased other than BKB Shares
through an investment management,
trust, custody or other agency
relationship with BankBoston,
N.A.)
Boston 1784 Growth Fund Galaxy Growth Fund II
Shares (purchased through an Trust Shares
investment management, trust,
custody or other agency
relationship with BankBoston,
N.A.)
BKB Shares
Shares (purchased other than
through an investment management,
trust, custody or other agency
relationship with BankBoston,
N.A.)
Immediately after the effective time of the Reorganization, each 1784 Fund
will distribute to its shareholders the Galaxy Fund Shares received by such 1784
Fund in the Reorganization. Each shareholder of record of a particular 1784 Fund
at the effective time of the Reorganization will receive shares of its
Corresponding Galaxy Fund with the same aggregate dollar value of the shares
such shareholder held in such 1784 Fund prior to the effective time of the
Reorganization. Each shareholder of record of the Boston 1784 Institutional
Prime Money Market Fund, Boston 1784 Institutional U.S. Treasury Money Market
Fund and Boston 1784 Florida Tax-Exempt Income Fund will receive Shares of its
Corresponding Galaxy Fund. Shareholders of record of all the other 1784 Funds
will either receive BKB Shares or Trust Shares of the Corresponding Galaxy Fund
as provided in the following sentences. To the extent such record holder is a
Retail Shareholder, such record holder shall receive BKB Shares of such Galaxy
Fund. BKB Shares will convert into Retail A Shares of the respective Galaxy Fund
on the first anniversary of the date such 1784 Fund reorganized into its
Corresponding Galaxy Fund provided that the Galaxy Board of Trustees has
determined that such conversion is in the best interests of BKB shareholders. To
the extent such recordholder is an Institutional Shareholder, such recordholder
will receive Trust Shares of such Galaxy Fund. Moreover, each 1784 Fund
shareholder of record will receive any unpaid dividends or distributions
declared before the effective time of the Reorganization with respect to a 1784
Fund.
Galaxy will establish an account for each former shareholder of the 1784
Funds that will reflect the number and class of Galaxy Fund Shares distributed
to that shareholder. The Galaxy Fund Shares issued in the Reorganization will be
in uncertificated form.
- 24 -
<PAGE>
The Reorganization is subject to a number of conditions, including
approval by the Institutional Shareholders and the Retail Shareholders of the
Reorganization Agreement and the related matters described in this
Proxy/Prospectus; the receipt of certain legal opinions described in the
Reorganization Agreement (which include an opinion of Galaxy's counsel addressed
to 1784 indicating that the Galaxy Fund Shares issued in the Reorganization will
be validly issued, fully paid and non-assessable); the receipt of certain
certificates from the parties concerning the continuing accuracy of the
representations and warranties in the Reorganization Agreement, the receipt of
any necessary exemptive relief or no-action assurances requested from the SEC or
its staff with respect to Section 17(a) of the 1940 Act; and the parties'
performance in all material respects of their respective covenants and
undertakings as described in the Reorganization Agreement.
The Reorganization Agreement provides that in the event the Reorganization
Agreement is approved with respect to less than all of the 1784 Funds, the
failure of a 1784 Fund to consummate the transactions contemplated by the
Reorganization Agreement shall not affect the consummation or validity of the
Reorganization with respect to any other 1784 Funds.
The Reorganization Agreement provides that Fleet has agreed to pay all
expenses associated with the Reorganization. The Reorganization Agreement also
provides, among other things, that the Reorganization may be terminated at any
time upon the mutual consent of both 1784 and Galaxy, or by either Galaxy or
1784 under certain conditions; and that officers of Galaxy and of 1784 may amend
the Reorganization Agreement as authorized by their respective Boards of
Trustees.
1784 Board Consideration. At a meeting held on December 15, 1999, the 1784
Board of Trustees was advised that BankBoston and Fleet were considering
recommending a consolidation of 1784 with the Galaxy. The 1784 Board then met
again on January 19, 2000 and February 4, 2000 to consider the Reorganization
proposal offered by management of Galaxy, Fleet and its affiliates. In
preparation for each meeting, each of the Trustees on the 1784 Board were
provided with detailed information about the Reorganization, Galaxy and Fleet.
These materials summarized the principal terms and conditions of the
Reorganization, including the intention that the Reorganization be consummated
on a tax-free basis for each 1784 Fund and its respective shareholders. In
addition, the 1784 Trustees received comparative information about the 1784
Funds and their respective Corresponding Galaxy Funds, including information
concerning, but not limited to, the following matters: (1) the investment
objectives and policies of such Galaxy Funds; (2) advisory, distribution and
other servicing arrangements of such Galaxy Funds; (3) fund expenses (with and
without giving effect to current expense limitations), including expenses
relative to peer groups and (4) performance of such Galaxy Funds relative to
peer groups. The 1784 Board also was provided with information about Fleet and
its investment advisory organizations, including information regarding those
individuals or teams of individuals with responsibility for managing each Galaxy
Fund.
The 1784 Board of Trustees unanimously approved the Reorganization on
February 4, 2000.
During its deliberations, 1784's Board of Trustees (with the advice and
assistance of its counsel) reviewed, among other things: (1) the potential
effect of the Reorganization on the shareholders of the 1784 Funds; (2) the
capabilities, practices and resources of Fleet and the other service providers
used by
- 25 -
<PAGE>
Galaxy; (3) the investment advisory and other fees paid by the Galaxy Funds, and
the historical and projected expense ratios of the Galaxy Funds as compared with
those of the 1784 Funds and industry peer groups; (4) the investment objectives,
policies and limitations of the Galaxy Funds and their relative compatibility
with those of the 1784 Funds; (5) the historical investment performance records
of the 1784 Funds and the Galaxy Funds, relative to each other and relative to
peer groups; (6) the shareholder services offered by Galaxy; (7) the terms and
conditions of the Reorganization Agreement; (8) the anticipated tax consequences
of the Reorganization for the respective 1784 Funds and their shareholders; and
(9) the number of investment portfolio options that would be available to
shareholders after the Reorganization. The 1784 Board also considered Fleet's
belief that the Reorganization would eliminate certain duplicative shareholder
costs and market overlap, facilitate consolidation of Fleet's managerial
resources and enhance generally operational efficiencies and focus with respect
to the mutual funds advised by Fleet. The 1784 Board also considered the
viability of the 1784 Funds absent approval of the proposed Reorganization,
including alternatives to the Reorganization.
After consideration of the foregoing and other factors, the 1784 Trustees
unanimously determined that the Reorganization is in the best interest of the
shareholders of each 1784 Fund, and that the interests of the existing
shareholders of each 1784 Fund will not be diluted as a result of such
Reorganization.
Capitalization. The following table sets forth, as of October 31, 1999:
(1) the capitalization of each of the 1784 Funds; (2) the capitalization of each
of their Corresponding Galaxy Funds; and (3) the pro forma capitalization of
each of the Corresponding Galaxy Funds as adjusted to give effect to the
Reorganization. The capitalization of each 1784 Fund and its Corresponding
Galaxy Fund is likely to be different at the Closing as a result of daily share
purchase and redemption activity in the 1784 Funds and Galaxy Funds as well as
the effects of the other ongoing operations of the respective Funds prior to the
closing of the Reorganization.
The Galaxy Institutional Treasury Money Market Fund, Galaxy Institutional
Money Market Fund, Galaxy Intermediate Tax-Exempt Bond Fund, Galaxy Connecticut
Intermediate Municipal Bond Fund, Galaxy Florida Municipal Bond Fund, Galaxy
Massachusetts Intermediate Municipal Bond Fund and Galaxy Growth Fund II have
not yet commenced operations but will do so at the time the Reorganization
occurs.
- 26 -
<PAGE>
Table IV
Capitalization (as of October 31, 1999)
1. The table below reflects the Galaxy fiscal year end and pro forma
capitalization information for the combination of the Boston 1784 Tax-Free
Money Market Fund with the Galaxy Tax-Exempt Fund.
- --------------------------------------------------------------------------------
Total Net Shares Net Asset Value
Assets Outstanding Per Share
--------- ----------- ---------------
- --------------------------------------------------------------------------------
Boston 1784 Tax-Free Money $916,206,994 916,321,280 $1.00
Market Fund (Shares) (Shares) (Shares)
- --------------------------------------------------------------------------------
$556,137,407 556,230,987 $1.00
(Trust Shares) (Trust Shares) (Trust Shares)
N/A N/A N/A
Galaxy Tax-Exempt Fund (BKB Shares) (BKB Shares) (BKB Shares)
$160,057,310 160,114,754 $1.00
(Retail A (Retail A (Retail A
Shares) Shares) Shares)
- --------------------------------------------------------------------------------
$1,346,824,043 1,347,016,252 $1.00
(Trust Shares) (Trust Shares) (Trust Shares)
125,520,358 125,536,015 $1.00
Pro Forma Combined Fund (BKB Shares) (BKB Shares) (BKB Shares)
$160,057,310 160,114,754 $1.00
(Retail A (Retail A (Retail A
Shares) Shares) Shares)
- --------------------------------------------------------------------------------
2. The table below reflects the Galaxy fiscal year end and pro forma
capitalization information for the combination of the Boston 1784 U.S.
Treasury Money Market Fund with the Galaxy U.S. Treasury Fund.
- --------------------------------------------------------------------------------
Total Net Shares Net Asset Value
Assets Outstanding Per Share
--------- ----------- ---------------
- --------------------------------------------------------------------------------
Boston 1784 U.S. Treasury $405,165,671 405,158,651 $1.00
Money Market Fund (Shares) (Shares) (Shares)
- --------------------------------------------------------------------------------
$459,791,578 459,651,099 $1.00
(Trust Shares) (Trust Shares) (Trust Shares)
N/A N/A N/A
(BKB Shares) (BKB Shares) (BKB Shares)
Galaxy U.S. Treasury Fund $584,363,843 584,187,785 $1.00
(Retail A (Retail A (Retail A
Shares) Shares) Shares)
- --------------------------------------------------------------------------------
- 27 -
<PAGE>
- --------------------------------------------------------------------------------
Total Net Shares Net Asset Value
Assets Outstanding Per Share
--------- ----------- ---------------
- --------------------------------------------------------------------------------
$492,204,832 492,063,791 $1.00
(Trust Shares) (Trust Shares) (Trust Shares)
$372,752,417 372,745,959 $1.00
Pro Forma Combined Fund (BKB Shares) (BKB Shares) (BKB Shares)
$584,363,843 584,187,785 $1.00
(Retail A (Retail A (Retail A
Shares) Shares) Shares)
- --------------------------------------------------------------------------------
3. The table below reflects the Galaxy fiscal year end and pro forma
capitalization information for the combination of the Boston 1784
Institutional U.S. Treasury Money Market Fund and the Galaxy Institutional
Treasury Money Market Fund.
- --------------------------------------------------------------------------------
Total Net Shares Net Asset Value
Assets Outstanding Per Share
--------- ----------- ---------------
- --------------------------------------------------------------------------------
$4,785,288,837 4,785,240,299 $1.00
Boston 1784 Institutional (Shares) (Shares) (Shares)
U.S. Treasury Money Market
Fund
- --------------------------------------------------------------------------------
Pro Forma Combined Fund $4,785,288,837 4,785,240,299 $1.00
(Shares) (Shares) (Shares)
- --------------------------------------------------------------------------------
4. The table below reflects the Galaxy fiscal year end and pro forma
capitalization information for the combination of the Boston 1784 Prime Money
Market Fund with the Galaxy Money Market Fund.
- --------------------------------------------------------------------------------
Total Net Shares Net Asset Value
Assets Outstanding Per Share
--------- ----------- ---------------
- --------------------------------------------------------------------------------
Boston 1784 Prime Money $169,197,029 169,202,840 $1.00
Market Fund (Shares) (Shares) (Shares)
- --------------------------------------------------------------------------------
$1,679,875,447 1,679,783,724 $1.00
(Trust Shares) (Trust Shares) (Trust Shares)
N/A N/A N/A
Galaxy Money Market Fund (BKB Shares) (BKB Shares) (BKB Shares)
$2,434,662,436 2,434,519,607 $1.00
(Retail A (Retail A (Retail A
Shares) Shares) Shares)
- --------------------------------------------------------------------------------
$1,692,057,633 1,691,966,328 $1.00
(Trust Shares) (Trust Shares) (Trust Shares)
$157,014,843 $157,020,236 $1.00
Pro Forma Combined Fund (BKB Shares) (BKB Shares) (BKB Shares)
$2,434,662,436 2,434,519,607 $1.00
(Retail A (Retail A (Retail A
Shares) Shares) Shares)
- --------------------------------------------------------------------------------
- 28 -
<PAGE>
5. The table below reflects the Galaxy fiscal year end and pro forma
capitalization information for the combination of the Boston 1784
Institutional Prime Money Market Fund with the Galaxy Institutional Money
Market Fund.
- --------------------------------------------------------------------------------
Total Net Shares Net Asset Value
Assets Outstanding Per Share
--------- ----------- ---------------
- --------------------------------------------------------------------------------
Boston 1784 Institutional $846,731,242 846,746,897 $1.00
Prime Money Market Fund (Shares) (Shares) (Shares)
- --------------------------------------------------------------------------------
Pro Forma Combined Fund $846,731,242 846,746,897 $1.00
(Shares) (Shares) (Shares)
- --------------------------------------------------------------------------------
6. The table below reflects the Galaxy fiscal year end and pro forma
capitalization information for the combination of the Boston 1784 Short-Term
Income Fund with the Galaxy Short-Term Bond Fund.
- --------------------------------------------------------------------------------
Total Net Shares Net Asset Value
Assets Outstanding Per Share
--------- ----------- ---------------
- --------------------------------------------------------------------------------
Boston 1784 Short-Term $147,936,314 14,884,495 $9.94
Income Fund (Shares) (Shares) (Shares)
- --------------------------------------------------------------------------------
$31,437,937 3,187,772 $9.86
(Trust Shares) (Trust Shares) (Trust Shares)
N/A N/A N/A
Galaxy Short-Term Bond Fund (BKB Shares) (BKB Shares) (BKB Shares)
$24,652,827 2,499,555 $9.86
(Retail A (Retail A (Retail A
Shares) Shares) Shares)
- --------------------------------------------------------------------------------
$153,189,523 15,535,803 $9.86
(Trust Shares) (Trust Shares) (Trust Shares)
$26,184,728 2,655,652 $9.86
Pro Forma Combined Fund (BKB Shares) (BKB Shares) (BKB Shares)
$24,652,827 2,499,555 $9.86
(Retail A (Retail A (Retail A
Shares) Shares) Shares)
- --------------------------------------------------------------------------------
- 29 -
<PAGE>
7. The table below reflects the Galaxy fiscal year end and pro forma
capitalization information for the combination of the Boston 1784 Income Fund
with the Galaxy High Quality Bond Fund.
- --------------------------------------------------------------------------------
Total Net Shares Net Asset Value
Assets Outstanding Per Share
--------- ----------- ---------------
- --------------------------------------------------------------------------------
Boston 1784 Income Fund $333,501,868 34,329,410 $9.71
(Shares) (Shares) (Shares)
- --------------------------------------------------------------------------------
$237,771,762 23,203,752 $10.25
(Trust Shares) (Trust Shares) (Trust Shares)
N/A N/A N/A
Galaxy High Quality Bond (BKB Shares) (BKB Shares) (BKB Shares)
Fund $42,905,576 4,187,138 $10.25
(Retail A (Retail A (Retail A
Shares) Shares) Shares)
- --------------------------------------------------------------------------------
$560,601,570 54,699,343 $10.25
(Trust Shares) (Trust Shares) (Trust Shares)
$10,672,060 1,041,177 $10.25
Pro Forma Combined Fund (BKB Shares) (BKB Shares) (BKB Shares)
$42,905,576 4,187,138 $10.25
(Retail A (Retail A (Retail A
Shares) Shares) Shares)
- --------------------------------------------------------------------------------
8. The table below reflects the Galaxy fiscal year end and pro forma
capitalization information for the combination of the Boston 1784 U.S.
Government Medium-Term Income Fund with the Galaxy Intermediate Government
Income Fund.
- --------------------------------------------------------------------------------
Total Net Shares Net Asset Value
Assets Outstanding Per Share
--------- ----------- ---------------
- --------------------------------------------------------------------------------
Boston 1784 U.S. $270,660,859 29,079,361 $9.31
Government Medium-Term (Shares) (Shares) (Shares)
Income Fund
- --------------------------------------------------------------------------------
$234,879,571 23,833,798 $9.85
(Trust Shares) (Trust Shares) (Trust Shares)
N/A N/A N/A
Galaxy Intermediate (BKB Shares) (BKB Shares) (BKB Shares)
Government Income Fund $56,453,630 5,728,355 $9.86
(Retail A (Retail A (Retail A
Shares) Shares) Shares)
- --------------------------------------------------------------------------------
$489,571,439 49,690,840 $9.85
(Trust Shares) (Trust Shares) (Trust Shares)
$15,968,991 1,621,217 $9.85
Pro Forma Combined Fund (BKB Shares) (BKB Shares) (BKB Shares)
$56,453,630 5,728,355 $9.86
(Retail A (Retail A (Retail A
Shares) Shares) Shares)
- --------------------------------------------------------------------------------
- 30 -
<PAGE>
9. The table below reflects the Galaxy fiscal year end and pro forma
capitalization information for the combination of the Boston 1784 Tax-Exempt
Medium Term Income Fund with the Galaxy Intermediate Tax-Exempt Bond Fund.
- --------------------------------------------------------------------------------
Total Net Shares Net Asset Value
Assets Outstanding Per Share
--------- ----------- ---------------
- --------------------------------------------------------------------------------
Boston 1784 Tax-Exempt $341,720,551 34,977,709 $9.77
Medium-Term Income Fund (Shares) (Shares) (Shares)
- --------------------------------------------------------------------------------
$317,458,392 32,494,292 $9.77
(Trust Shares) (Trust Shares) (Trust Shares)
$24,262,159 2,483,417 $9.77
Pro Forma Combined Fund (BKB Shares) (BKB Shares) (BKB Shares)
N/A N/A N/A
(Retail A (Retail A (Retail A
Shares) Shares) Shares)
- --------------------------------------------------------------------------------
10. The table below reflects the Galaxy fiscal year end and pro forma
capitalization information for the combination of the Boston 1784 Connecticut
Tax-Exempt Income Fund with the Galaxy Connecticut Intermediate Municipal
Bond Fund.
- --------------------------------------------------------------------------------
Total Net Shares Net Asset Value
Assets Outstanding Per Share
--------- ----------- ---------------
- --------------------------------------------------------------------------------
Boston 1784 Connecticut $178,626,897 17,601,524 $10.15
Tax-Exempt Income Fund (Shares) (Shares) (Shares)
- --------------------------------------------------------------------------------
$143,973,279 14,186,836 $10.15
(Trust Shares) (Trust Shares) (Trust Shares)
$34,653,618 3,414,688 $10.15
Pro Forma Combined Fund (BKB Shares) (BKB Shares) (BKB Shares)
N/A N/A N/A
(Retail A (Retail A (Retail A
Shares) Shares) Shares)
- --------------------------------------------------------------------------------
11. The table below reflects the Galaxy fiscal year end and pro forma
capitalization information for the combination of the Boston 1784 Florida
Tax-Exempt Income Fund with the Galaxy Florida Municipal Bond Fund.
- --------------------------------------------------------------------------------
Total Net Shares Net Asset Value
Assets Outstanding Per Share
--------- ----------- ---------------
- --------------------------------------------------------------------------------
Boston 1784 Florida $69,082,982 7,184,862 $9.62
Tax-Exempt Income Fund (Shares) (Shares) (Shares)
- --------------------------------------------------------------------------------
Pro Forma Combined Fund $69,082,982 7,184,862 $9.62
(Shares) (Shares) (Shares)
- --------------------------------------------------------------------------------
- 31 -
<PAGE>
12. The table below reflects the Galaxy fiscal year end and pro forma
capitalization information for the combination of the Boston 1784
Massachusetts Tax-Exempt Income Fund with the Galaxy Massachusetts
Intermediate Municipal Bond Fund.
- --------------------------------------------------------------------------------
Total Net Shares Net Asset Value
Assets Outstanding Per Share
--------- ----------- ---------------
- --------------------------------------------------------------------------------
Boston 1784 Massachusetts $253,097,322 25,599,066 $9.89
Tax-Exempt Income Fund (Shares) (Shares) (Shares)
- --------------------------------------------------------------------------------
$178,939,807 18,098,540 $9.89
(Trust Shares) (Trust Shares) (Trust Shares)
$74,157,515 7,500,526 $9.89
Pro Forma Combined Fund (BKB Shares) (BKB Shares) (BKB Shares)
N/A N/A N/A
(Retail A (Retail A (Retail A
Shares) Shares) Shares)
- --------------------------------------------------------------------------------
13. The table below reflects the Galaxy fiscal year end and pro forma
capitalization information for the combination of the Boston 1784 Rhode
Island Tax-Exempt Income Fund with the Galaxy Rhode Island Municipal Bond
Fund.
- --------------------------------------------------------------------------------
Total Net Shares Net Asset Value
Assets Outstanding Per Share
--------- ----------- ---------------
- --------------------------------------------------------------------------------
Boston 1784 Rhode Island $96,667,530 9,736,602 $9.93
Tax-Exempt Income Fund (Shares) (Shares) (Shares)
- --------------------------------------------------------------------------------
N/A N/A N/A
(Trust Shares) (Trust Shares) (Trust Shares)
N/A N/A N/A
Galaxy Rhode Island (BKB Shares) (BKB Shares) (BKB Shares)
Municipal Bond Fund $19,833,264 1,914,494 $10.36
(Retail A (Retail A (Retail A
Shares) Shares) Shares)
- --------------------------------------------------------------------------------
$81,200,725 7,837,908 $10.36
(Trust Shares) (Trust Shares) (Trust Shares)
$15,466,805 1,492,935 $10.36
Pro Forma Combined Fund (BKB Shares) (BKB Shares) (BKB Shares)
$19,833,264 1,914,494 $10.36
(Retail A (Retail A (Retail A
Shares) Shares) Shares)
- --------------------------------------------------------------------------------
- 32 -
<PAGE>
14. The table below reflects the Galaxy fiscal year end and pro forma
capitalization information for the combination of the Boston 1784 Asset
Allocation Fund with the Galaxy Asset Allocation Fund.
- --------------------------------------------------------------------------------
Total Net Shares Net Asset Value
Assets Outstanding Per Share
--------- ----------- ---------------
- --------------------------------------------------------------------------------
Boston 1784 Asset $53,645,775 3,462,534 $15.49
Allocation Fund (Shares) (Shares) (Shares)
- --------------------------------------------------------------------------------
$269,850,784 15,222,769 $17.73
(Trust Shares) (Trust Shares) (Trust Shares)
N/A N/A N/A
Galaxy Asset Allocation (BKB Shares) (BKB Shares) (BKB Shares)
Fund $389,077,216 21,935,139 $17.74
(Retail A (Retail A (Retail A
Shares) Shares) Shares)
- --------------------------------------------------------------------------------
$295,278,881 16,656,954 $17.73
(Trust Shares) (Trust Shares) (Trust Shares)
$28,217,678 1,591,522 $17.73
Pro Forma Combined Fund (BKB Shares) (BKB Shares) (BKB Shares)
$389,077,216 21,935,139 $17.74
(Retail A (Retail A (Retail A
Shares) Shares) Shares)
- --------------------------------------------------------------------------------
15. The table below reflects the Galaxy fiscal year end and pro forma
capitalization information for the combination of the Boston 1784 Growth and
Income Fund with the Galaxy Growth and Income Fund.
- --------------------------------------------------------------------------------
Total Net Shares Net Asset Value
Assets Outstanding Per Share
--------- ----------- ---------------
- --------------------------------------------------------------------------------
Boston 1784 Growth and $511,177,972 21,819,394 $23.43
Income Fund (Shares) (Shares) (Shares)
- --------------------------------------------------------------------------------
$309,106,303 19,290,157 $16.02
(Trust Shares) (Trust Shares) (Trust Shares)
N/A N/A N/A
Galaxy Growth and Income (BKB Shares) (BKB Shares) (BKB Shares)
Fund $232,110,404 14,524,500 $15.98
(Retail A (Retail A (Retail A
Shares) Shares) Shares)
- --------------------------------------------------------------------------------
$676,643,265 42,232,539 $16.02
(Trust Shares) (Trust Shares) (Trust Shares)
$143,641,010 8,966,355 $16.02
Pro Forma Combined Fund (BKB Shares) (BKB Shares) (BKB Shares)
$232,110,404 14,524,500 $15.98
(Retail A (Retail A (Retail A
Shares) Shares) Shares)
- --------------------------------------------------------------------------------
16. The table below reflects the Galaxy fiscal year end and pro forma
capitalization information for the combination of the Boston 1784 Growth Fund
with the Galaxy Growth Fund II.
- 33 -
<PAGE>
- --------------------------------------------------------------------------------
Total Net Shares Net Asset Value
Assets Outstanding Per Share
--------- ----------- ---------------
- --------------------------------------------------------------------------------
Boston 1784 Growth Fund $233,057,404 15,207,877 $15.32
(Shares) (Shares) (Shares)
- --------------------------------------------------------------------------------
$185,746,751 12,120,678 $15.32
(Trust Shares) (Trust Shares) (Trust Shares)
$47,310,653 3,087,199 $15.32
Pro Forma Combined Fund (BKB Shares) (BKB Shares) (BKB Shares)
N/A N/A N/A
(Retail A (Retail A (Retail A
Shares) Shares) Shares)
- --------------------------------------------------------------------------------
17. The table below reflects the Galaxy fiscal year end and pro forma
capitalization information for the combination of the Boston 1784
International Equity Fund with the Galaxy International Equity Fund.
- --------------------------------------------------------------------------------
Total Net Shares Net Asset Value
Assets Outstanding Per Share
--------- ----------- ---------------
- --------------------------------------------------------------------------------
Boston 1784 International $446,683,142 27,453,231 $16.27
Equity Fund (Shares) (Shares) (Shares)
- --------------------------------------------------------------------------------
$501,776,006 23,687,146 $21.18
(Trust Shares) (Trust Shares) (Trust Shares)
N/A N/A N/A
Galaxy International (BKB Shares) (BKB Shares) (BKB Shares)
Equity Fund $89,326,639 4,282,082 $20.86
(Retail A (Retail A (Retail A
Shares) Shares) Shares)
- --------------------------------------------------------------------------------
$912,724,497 43,089,813 $21.18
(Trust Shares) (Trust Shares) (Trust Shares)
$35,734,651 1,687,188 $21.18
Pro Forma Combined Fund (BKB Shares) (BKB Shares) (BKB Shares)
$89,326,639 4,282,082 $20.86
(Retail A (Retail A (Retail A
Shares) Shares) Shares)
- --------------------------------------------------------------------------------
Federal Income Tax Considerations. Each Galaxy Fund and each 1784 Fund
intends to qualify as of the effective time of the Reorganization, as a separate
"regulated investment company" under the Internal Revenue Code of 1986, as
amended (the "Code"). Accordingly, each 1784 Fund and each Corresponding Galaxy
Fund has been, and expects to continue to be, relieved of federal income tax
liability.
Consummation of the Reorganization with respect to each 1784 Fund and its
Corresponding Galaxy Fund is subject to the condition that 1784 and Galaxy
receive an opinion from Drinker Biddle & Reath LLP substantially to the effect
that, for federal income tax purposes: (i) the transfer of substantially all of
the assets and liabilities of a 1784 Fund to its Corresponding Galaxy Fund in
exchange for the Galaxy Fund Shares issued by such Corresponding Galaxy Fund,
and the distribution of those Galaxy Fund Shares to shareholders of the 1784
Fund, will consist of seventeen "reorganizations" within the meaning of Section
368(a) of the Code, and each 1784 Fund and its
- 34 -
<PAGE>
Corresponding Galaxy Fund will each be a "party to a reorganization" within the
meaning of Section 368(b) of the Code in respect of the Reorganization; (ii) no
gain or loss will be recognized by any 1784 Fund upon the transfer of its assets
and liabilities to its Corresponding Galaxy Fund solely in exchange for Galaxy
Fund Shares of the Corresponding Galaxy Fund; (iii) no gain or loss will be
recognized by each Galaxy Fund upon the receipt of the assets and assumption of
liabilities of its Corresponding 1784 Fund solely in exchange for the Galaxy
Fund Shares; (iv) the basis of each 1784 Fund's assets received by the
Corresponding Galaxy Fund pursuant to the Reorganization will be the same as the
basis of those assets in the hands of such 1784 Fund immediately prior to the
Reorganization; (v) the holding period of each 1784 Fund's assets in the hands
of its Corresponding Galaxy Fund will include the period for which such assets
have been held by such 1784 Fund; (vi) no gain or loss will be recognized by any
1784 Fund on the distribution to its shareholders of the Galaxy Fund Shares of
its Corresponding Galaxy Fund; (vii) no gain or loss will be recognized by the
shareholders of any 1784 Fund upon their receipt of the Galaxy Fund Shares in
exchange for such shareholders' shares of the 1784 Fund; (viii) the basis of the
Galaxy Fund Shares received by the shareholders of each 1784 Fund will be the
same as the basis of the 1784 Fund Shares surrendered by such shareholders
pursuant to the Reorganization; (ix) the holding period for the Galaxy Fund
Shares received by each 1784 Fund shareholder will include the period during
which such shareholder held the 1784 Fund Shares surrendered in exchange
therefor, provided that such 1784 Fund shares are held as a capital asset in the
hands of such 1784 Fund shareholder on the date of the exchange; and (x) each
Galaxy Fund will succeed to and take into account the tax attributes described
in Section 381 (c) of the Code of the 1784 Fund as of the effective time of the
Reorganization with respect to the 1784 Funds, subject to the conditions and
limitations specified in the Code. Shareholders of the 1784 Funds should note,
however, that the sale of securities by the 1784 Funds prior to the effective
time of the Reorganization, whether in the ordinary course of business or in
anticipation of the Closing, could increase the amount of the taxable capital
gains distribution made prior to the reorganization.
Galaxy and 1784 have not sought, and will not seek, a private ruling from
the Internal Revenue Service ("IRS") with respect to the federal income tax
consequences of the Reorganization. The opinion of Drinker Biddle & Reath LLP
with respect to the federal income tax consequences of the Reorganization is not
binding on the IRS and does not preclude the IRS from adopting a contrary
position. Shareholders should consult their own advisers concerning the
potential tax consequences of the Reorganization to them, including any
applicable foreign, state or local income tax consequences.
COMPARISON OF 1784 FUNDS AND GALAXY FUNDS
Investment Objectives and Policies. The investment objectives, policies
and restrictions of each 1784 Fund are, in general, similar to those of its
Corresponding Galaxy Fund. They are summarized in Appendix III. Moreover, the
investment objective, policies and restrictions of each of the Boston 1784
Institutional U.S. Treasury Money Market Fund, Boston 1784 Institutional Prime
Money Market Fund, Boston 1784 Tax-Exempt Medium-Term Income Fund, Boston 1784
Connecticut Tax-Exempt Income Fund, Boston 1784 Florida Tax-Exempt Income Fund,
Boston 1784 Massachusetts Tax-Exempt Income Fund and Boston 1784 Growth Fund
are, in each case, substantially the same as those of its respective
- 35 -
<PAGE>
Corresponding Shell Galaxy Fund. Each Shell Galaxy Fund is being created to
acquire the assets and continue the business of its respective corresponding
Continuing 1784 Fund. There are, however, certain differences in the types of
securities in which each of the Reorganizing 1784 Funds may invest and the types
of securities in which its Corresponding Galaxy Fund may invest, as well as
differences in certain investment policies of such Funds. A discussion of some
of the more significant differences between some of the Funds follows.
Reorganizing Money Market Funds. The 1784 Money Market Funds and the
Galaxy Money Market Funds are all subject to the general restrictions and
limitations of Rule 2a-7 under the 1940 Act. However, there are differences
between the investment policies and restrictions of the 1784 Money Market Funds
and their Corresponding Galaxy Funds. For example, the Boston 1784 Tax-Free
Money Market Fund and the Boston 1784 U.S. Treasury Money Market Fund reserve
the right to invest more than 25% of their assets in money market instruments
issued by banks, while their Corresponding Galaxy Funds may not so concentrate
their assets. The Boston 1784 Prime Money Market Fund and the Boston 1784 U.S.
Treasury Money Market Fund may invest in securities whose credit is rated in the
top two rating categories for short-term debt while the Galaxy Money Market Fund
and the Galaxy U.S. Treasury Fund are limited to securities having the highest
short-term debt rating. The Boston 1784 Prime Money Market Fund and the Boston
1784 U.S. Treasury Money Market Fund may invest in repurchase agreements
collateralized by securities in which such Funds may otherwise invest, while the
Galaxy Money Market Fund may only invest in repurchase agreements that are
secured by U.S. government obligations and the Galaxy U.S. Treasury Fund may not
invest in repurchase agreements.
Reorganizing Bond Funds. The Boston 1784 Short-Term Income Fund, under
normal circumstances, invests at least 80% of its assets in bond and debentures
while the Galaxy Short-Term Bond Fund normally invests at least 65% of its
assets in bonds and debentures. The Boston 1784 Short-Term Income Fund may
invest up to 30% of its total assets in the securities of foreign issuers while
the Galaxy Short-Term Bond Fund may invest up to 35% of its assets in foreign
issuers. The Boston 1784 Income Fund invests at least 65% of its assets in
securities rated A or better by Standard and Poor's Rating Services ("S&P") or
Moody's Investors Service, Inc. ("Moody's") while the Galaxy High Quality Bond
Fund invests at least 65% of its total assets in securities rated AA or higher
by S&P or Aa or higher by Moody's. The Boston 1784 Income Fund may invest up to
30% of its total assets in the securities of foreign issuers while the Galaxy
High Quality Bond Fund may not invest in foreign issuers.
Reorganizing Equity Funds. The Boston 1784 Growth and Income Fund
emphasizes stocks in U.S. companies with market capitalizations of at least $1
billion and normally invests 80% to 90% of its assets in common stocks, while
the Galaxy Growth and Income Fund seeks to invest at least 65% of its assets in
common stocks of U.S. and foreign issuers, preferred stock, common stock
warrants and securities convertible into common stocks of U.S. companies with
market capitalizations of over $2 billion. While the Boston 1784 Growth and
Income Fund may purchase debt securities rated investment grade or higher (i.e.,
Baa by Moody's or BBB by Standard & Poor's), the Galaxy Growth and Income Fund
may purchase convertible bonds that are rated as low as Ba by Moody's or BB by
Standard & Poor's or Fitch IBCA, Inc. at the time of purchase. With respect to
investment in the securities of foreign issuers, the Galaxy Asset Allocation
Fund and the Galaxy Growth and Income Fund each limit their investment in such
securities to no more than 20% of the Fund's respective assets, while the Boston
1784 Asset Allocation Fund imposes no such limit, and the Boston 1784 Growth and
Income Fund
- 36 -
<PAGE>
limits such investment to 25% of its total assets. In addition, the Galaxy
International Equity Fund limits its investments in emerging markets to 20% of
its assets. The Boston 1784 International Equity Fund imposes no such limits.
The Galaxy International Equity Fund requires that all debt securities be rated
in the top three rating categories (i.e. A or higher by S&P or by Moody's) while
the Boston 1784 International Equity Fund requires that debt securities be in
the top four rating categories (i.e. rated BBB or higher by S&P or Baa or higher
by Moody's). The Boston 1784 International Equity Fund emphasizes equity
securities of foreign issuers with market capitalizations of at least $100
million while the Galaxy International Equity Fund has no comparable policy.
The investment objectives, strategies and policies of the 1784 Funds and
Galaxy Funds are more fully discussed in Appendix III. Additional information
about the investment policies and restrictions of the 1784 Funds and Galaxy
Funds is included in their respective prospectuses and statements of additional
information, which have been incorporated herein by reference.
Investment Advisory Services. Fleet serves as investment adviser to the
Galaxy Funds and will continue to serve as investment adviser to the Galaxy
Funds upon consummation of the Reorganization. Oechsle serves as sub-investment
adviser to the Galaxy International Equity Fund and will continue to serve as
sub-investment adviser to such Fund upon consummation of the Reorganization.
The following table shows the contractual investment advisory and, where
applicable, sub-advisory fee ratios for each 1784 Fund and its Corresponding
Galaxy Fund. The table also shows the respective investment advisory and
sub-advisory fee rates paid to the investment advisor and sub-advisor after
taking into account voluntary fee waivers. The fees for the 1784 Funds are as of
October 31, 1999. The fees for the Galaxy Funds (both before and after waivers)
represent the pro forma annualized advisory fees based upon fee arrangements
that will be in place upon consummation of the Reorganization.
Table V
Investment Advisory and Sub-Advisory Fee Information
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1784 Fund Advisory Fees Corresponding Galaxy Fund Advisory Fees
- --------- Before/After Waivers ------------------------- Before/After Waivers
-------------------- (Pro Forma After Giving
Effect to the Reorganization)
-----------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Boston 1784 Tax-Free Money Market Fund Galaxy Tax-Exempt Fund
Advisory Fee 0.40% / 0.40% Advisory Fee 0.40% / 0.37%
- ------------------------------------------------------------------------------------------------------------------------------------
Boston 1784 U.S. Treasury Money Market Fund Galaxy U.S. Treasury Fund
Advisory Fee 0.40% / 0.33% Advisory Fee 0.38% / 0.38%
- ------------------------------------------------------------------------------------------------------------------------------------
Boston 1784 Institutional U.S. Treasury Money Market Fund Galaxy Institutional Treasury Money Market Fund (shell)
Advisory Fee 0.20% / 0.20% Advisory Fee 0.20% / 0.20%
- ------------------------------------------------------------------------------------------------------------------------------------
Boston 1784 Prime Money Market Fund Galaxy Money Market Fund
Advisory Fee 0.40% / 0.32% Advisory Fee 0.40% / 0.36%
- ------------------------------------------------------------------------------------------------------------------------------------
Boston 1784 Institutional Prime Money Market Fund Galaxy Institutional Money Market Fund (shell)
Advisory Fee 0.20% / 0.15% Advisory Fee 0.20% / 0.20%
- ------------------------------------------------------------------------------------------------------------------------------------
Boston 1784 Short-Term Income Fund Galaxy Short-Term Bond Fund
Advisory Fee 0.50% / 0.50% Advisory Fee 0.75% / 0.55%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- 37 -
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1784 Fund Advisory Fees Corresponding Galaxy Fund Advisory Fees
- --------- Before/After Waivers ------------------------- Before/After Waivers
-------------------- (Pro Forma After Giving
Effect to the Reorganization)
-----------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Boston 1784 Income Fund Galaxy High Quality Bond Fund
Advisory Fee 0.74% / 0.68% Advisory Fee 0.75% / 0.55%
- ------------------------------------------------------------------------------------------------------------------------------------
Boston 1784 U.S. Government Medium -Term Income Fund Galaxy Intermediate Government Income Fund
Advisory Fee 0.74% / 0.67% Advisory Fee 0.75% / 0.55%
- ------------------------------------------------------------------------------------------------------------------------------------
Boston 1784 Tax-Exempt Medium-Term Income Fund Galaxy Intermediate Tax-Exempt Bond Fund (shell)
Advisory Fee 0.74% / 0.68% Advisory Fee 0.75% / 0.63%
- ------------------------------------------------------------------------------------------------------------------------------------
Boston 1784 Connecticut Tax-Exempt Income Fund Galaxy Connecticut Intermediate Municipal Bond Fund (shell)
Advisory Fee 0.74% / 0.67% Advisory Fee 0.75% / 0.63%
- ------------------------------------------------------------------------------------------------------------------------------------
Boston 1784 Florida Tax-Exempt Income Fund Galaxy Florida Municipal Bond Fund (shell)
Advisory Fee 0.74% / 0.65% Advisory Fee 0.75% / 0.58%
- ------------------------------------------------------------------------------------------------------------------------------------
Boston 1784 Massachusetts Tax-Exempt Income Fund Galaxy Massachusetts Intermediate Municipal Bond Fund (shell)
Advisory Fee 0.74% / 0.67% Advisory Fee 0.75% / 0.63%
- ------------------------------------------------------------------------------------------------------------------------------------
Boston 1784 Rhode Island Tax-Exempt Income Fund Galaxy Rhode Island Municipal Bond Fund
Advisory Fee 0.74% / 0.66% Advisory Fee 0.75% / 0.55%
- ------------------------------------------------------------------------------------------------------------------------------------
Boston 1784 Asset Allocation Fund Galaxy Asset Allocation Fund
Advisory Fee 0.74% / 0.74% Advisory Fee 0.75% / 0.75%
- ------------------------------------------------------------------------------------------------------------------------------------
Boston 1784 Growth and Income Fund Galaxy Growth and Income Fund
Advisory Fee 0.74% / 0.74% Advisory Fee 0.75% / 0.75%
- ------------------------------------------------------------------------------------------------------------------------------------
Boston 1784 Growth Fund Galaxy Growth Fund II (shell)
Advisory Fee 0.74% / 0.74% Advisory Fee 0.75% / 0.75%
- ------------------------------------------------------------------------------------------------------------------------------------
Boston 1784 International Equity Fund Galaxy International Equity Fund
Advisory Fee 1.00% / 1.00% Advisory Fee 0.87% / 0.64%
Sub-Advisory Fee 0.36% / 0.36%
(paid by Adviser)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Other Service Providers for the 1784 Funds and the Galaxy Funds
1784 and Galaxy have different service providers. Upon completion of the
Reorganization, Galaxy will continue to engage its existing service providers.
In all cases, the types of services provided to the Funds under these service
arrangements are substantially similar.
<TABLE>
<CAPTION>
1784 Galaxy
---- ------
<S> <C> <C>
Distributor SEI Investments Distribution Co. Provident Distributors, Inc.
(formerly known as SEI Financial
Services Company)
Administrator SEI Investments Mutual Fund Services PFPC Inc. (formerly known as First
(formerly known as SEI Fund Resources) Data Investor Services Group)
Transfer Agent State Street Bank and Trust Company PFPC Inc. (formerly known as First
Data Investor Services Group)
</TABLE>
- 38 -
<PAGE>
<TABLE>
<CAPTION>
1784 Galaxy
---- ------
<S> <C> <C>
Custodian Investors Bank and Trust Company The Chase Manhattan Bank
Independent Accountants PricewaterhouseCoopers LLP Ernst & Young LLP
</TABLE>
Sales Load and Distribution Arrangements for 1784 Funds
Shares of 1784 Funds are offered at net asset value per share with no
front-end sales load or contingent deferred sales charge. 1784 has adopted a
distribution plan with respect to each non-money market fund pursuant to Rule
12b-1 under the 1940 Act ("Plan"). Under the Plan, 1784 will pay its distributor
a fee, calculated daily and paid monthly, at an annual rate of 0.25% of the
average daily net assets of each non-money market portfolio of 1784. The
Distributor can use these fees to compensate broker/dealers and service
providers (including BankBoston and its affiliates) that provide administrative
and/or distribution services to holders of these shares or their customers who
beneficially own these shares. Since 1784's inception, no fees have been paid to
the Distributor under the Plan.
Sales Load and Shareholder Servicing Arrangements for Galaxy
BKB Shares. BKB Shares will be issued in connection with the
Reorganization and will only be available for purchase by shareholders who
received BKB Shares in connection with the Reorganization. BKB Shares are
offered at net asset value per share with no front-end sales load or contingent
deferred sales charge. BKB Shares will convert into Retail A Shares of the same
Galaxy Fund on the first anniversary of the date such 1784 Fund reorganized into
its Corresponding Galaxy Fund provided that the Galaxy Board of Trustees has
determined that such conversion is in the best interests of BKB shareholders.
Galaxy has adopted a Shareholder Services Plan with respect to BKB Shares
pursuant to which it intends to enter into servicing agreements with
institutions (including Fleet Boston Corporation ("New Fleet") 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 intended to supplement
the services provided by PFPC Inc. as administrator and transfer agent to the
shareholders of record of the BKB Shares. The Plan provides that Galaxy will pay
fees for such services as follows:
- 39 -
<PAGE>
- --------------------------------------------------------------------------------
Galaxy Fund Shareholder Servicing Fee
----------- -------------------------
(as a % of average daily net assets)
- --------------------------------------------------------------------------------
Tax Exempt, U.S. Treasury maximum: .25%
and Money Market current limit: .10%
- --------------------------------------------------------------------------------
Short-Term Bond, High Quality maximum: .30%
Bond, Intermediate Government current limit: .15%
Income, Intermediate Tax-Exempt Bond,
Connecticut Intermediate Municipal Bond,
Massachusetts Intermediate Municipal Bond,
and Rhode Island Municipal Bond
- --------------------------------------------------------------------------------
Asset Allocation, Growth and Income, maximum: .50%
Growth II and International Equity current limit: .30%
- --------------------------------------------------------------------------------
The shareholder servicing fee will be waived fully or partially so that
no 1784 shareholder will realize an increase in expenses as a result of the
imposition of such fees for only as long as they hold BKB shares, although as
noted above in Table I-B certain Galaxy Fund BKB shareholders will realize an
increase in expense ratios for other reasons. Institutions may receive up to
one-half of this fee for providing one or more of the following services to
such customers: aggregating and processing purchase and redemption requests
and placing net purchase and redemption orders with Provident Distributors,
Inc.; processing dividend payments from a Fund; providing sub-accounting with
respect to BKB Shares or the information necessary for sub-accounting; and
providing periodic mailings to customers. Institutions may also receive up to
one-half of this fee for providing one or more of these additional services
to such customers: providing customers with information as to their positions
in BKB Shares; responding to customer inquiries; and providing a service to
invest the assets of customers in BKB Shares.
As Retail Shareholders, persons holding BKB shares will receive enhanced
shareholder services such as consolidated tax reporting and problem tracking and
resolution services. The expenses of providing those services to Galaxy Fund
shareholders ordinarily is defrayed through a shareholder servicing fee imposed
on Galaxy Fund Retail A Shares. In connection with the Reorganization, Fleet has
agreed to create the class of BKB Shares that is subject to a waiver, depending
upon the Galaxy Fund, of some or all of the fees that could be imposed under the
shareholder servicing plan for those Funds. The purpose of the waiver is to
allow Retail Shareholders to evaluate those services for a period without an
increase in their current expense ratio as a result of the shareholder servicing
fee, although four of the Galaxy Funds that offer BKB Shares will have higher
expense ratios than their corresponding 1784 Funds notwithstanding the fee
waiver. The conversion of the BKB Shares ends the fee waiver and imposes upon
Retail Shareholders the same expenses borne by similarly situated shareholders
of the Galaxy Funds. Before the conversion can be accomplished, the Board of
Trustees of the Galaxy Fund must determine that the conversion of BKB Shares to
Retail A Shares is in the best interests of Retail Shareholders.
Retail A Shares. There will be no sales load imposed on conversion of BKB
Shares to Retail A Shares. In addition, no sales load will be imposed (nor will
any contingent deferred sales load be imposed on redemptions) on subsequent
purchases of Retail A Shares by former 1784 Fund shareholders so long as an
account remains continuously open from the date of the Reorganization. With the
exception of the Galaxy Money Market Funds, all Galaxy Funds that offer
- 40 -
<PAGE>
Retail A Shares charge a front-end sales load. The maximum front-end sales load
charged for Retail A Shares of each non-money market Galaxy Fund is 3.75%. No
front-end sales load is charged on investments in Retail A Shares of $500,000 or
more. However, if the shares are sold within one year of purchase a contingent
deferred sales charge ("CDSC") of the lesser of 1% of the offering price or 1%
of the net asset value of a shareholder's Retail A Shares, will be incurred. The
CDSC will not be charged if the sale of Retail A Shares was the result of the
death or disability of a shareholder. In addition, Galaxy will waive the 1% CDSC
on the initial sale of Retail A Shares. This waiver will not apply to amounts
reinvested within one year following the initial sale of Retail A Shares.
Galaxy has adopted a Shareholder Services Plan with respect to Retail A
Shares pursuant to which it has entered into servicing agreements with
institutions (including New Fleet 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, Inc. as administrator and transfer agent to the shareholders of record
of the Retail A Shares. The Plan provides that Galaxy will pay fees for such
services as follows:
- --------------------------------------------------------------------------------
Galaxy Fund Shareholder Servicing Fee
----------- -------------------------
(as a % of average daily net assets)
- --------------------------------------------------------------------------------
Tax Exempt, U.S. Treasury maximum: .25%
and Money Market current limit: .10%
- --------------------------------------------------------------------------------
Short-Term Bond, High Quality maximum: .30%
Bond, Intermediate Government current limit: .15%
Income, Intermediate Tax-Exempt Bond,
Connecticut Intermediate Municipal Bond,
Massachusetts Intermediate Municipal Bond,
and Rhode Island Municipal Bond
- --------------------------------------------------------------------------------
Asset Allocation, Growth and Income, maximum: .50%
Growth II and International Equity current limit: .30%
- --------------------------------------------------------------------------------
Institutions may receive up to one-half of this fee for providing one or
more of the following services to such customers: aggregating and processing
purchase and redemption requests and placing net purchase and redemption orders
with Provident Distributors, Inc.; processing dividend payments from a Fund;
providing sub-accounting with respect to Retail A Shares or the information
necessary for sub-accounting; and providing periodic mailings to customers.
Institutions may also receive up to one-half of this fee for providing one or
more of these additional services to such customers: providing customers with
information as to their positions in Retail A Shares; responding to customer
inquiries; and providing a service to invest the assets of customers in Retail A
Shares.
Trust Shares and Shares. Trust Shares and Shares are offered to investors
at net asset value per share without a front-end sales load or contingent
deferred sales charge assessed. Although Galaxy has approved a Shareholder
Services Plan with respect to the Trust Shares of each portfolio, Galaxy has not
entered into servicing agreements under the Shareholder Services Plan.
- 41 -
<PAGE>
Shareholder Servicing Arrangements. Both the 1784 Funds and the Galaxy
Funds provide a variety of shareholder services to shareholders. These services
include financial advisory services, processing purchase and redemption
requests, processing dividends, arranging bank wires and responding to customer
inquiries. In addition to the services listed above, Galaxy also provides
problem tracking and resolution services, consolidated tax reporting, and
dedicated supervision and maintenance of vendor relationships. As described
above, Galaxy provides these services through a Shareholder Services Plan for
BKB Shares and Retail A Shares which compensates financial institutions
(including Fleet) for providing these services to retail shareholders. For
Institutional Shareholders of 1784 and Trust Shareholders of Galaxy, most of the
services described are provided through a shareholder's arrangement with its
financial institution or employer sponsored plan.
Administration Agreements
1784 has entered into an administration agreement (the "1784
Administration Agreement") with SEI Investments Mutual Funds Services (formerly
known as SEI Fund Resources) (the "1784 Administrator").
Under the 1784 Administration Agreement, the 1784 Administrator provides
administrative and fund accounting services (including regulatory reporting,
office facilities, equipment and personnel) to the 1784 Funds. The 1784
Administrator receives a fee for these services, which is computed daily and
paid monthly, at an annual rate of 0.085% of the first $5 billion of the 1784
Funds' combined average daily net assets and 0.045% of combined average daily
net assets in excess of $5 billion. The 1784 Administrator has agreed to waive a
portion of its fees from time to time. The 1784 Administrator may retain
sub-administrators, including BankBoston, whose fees would be paid by the 1784
Administrator.
Galaxy has entered into an administration agreement (the "Galaxy
Administration Agreement") with PFPC Inc. ("PFPC"). Under the Galaxy
Administration Agreement, PFPC has agreed to maintain office facilities for
Galaxy, furnish Galaxy with statistical and research data, clerical, accounting,
and bookkeeping services, provide Galaxy with certain other services such as
internal auditing services required by Galaxy, and compute the net asset value
and net income of the Galaxy Funds. Among other things, PFPC (a) prepares the
annual and semi-annual reports of the Galaxy Funds to the SEC, the federal and
state tax returns of the Galaxy Funds, and the filings the Galaxy Funds make
with state securities commissions, (b) arranges for and bears the cost of
processing share purchase and redemption orders with respect to the Galaxy
Funds, and (c) maintains the financial accounts and records of the Galaxy Funds.
For the services provided to Galaxy, PFPC is entitled to receive administration
fees based on the combined average daily net assets of the Galaxy Funds. From
time to time, PFPC may voluntarily waive all or a portion of the administration
fee payable to it by the Galaxy Funds, but there is no guarantee that it will do
so. 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:
- 42 -
<PAGE>
Combined Average Daily Net Assets Annual Rate
--------------------------------- -----------
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 billion to $18 billion............ 0.060%
Over $18 billion........................... 0.0575%
Shareholder Transactions and Policies. The 1784 Funds and Galaxy Funds
offer generally similar shareholder transactions and policies, but there are
some differences. For example, BKB Shares, Shares and Trust Shares of the Galaxy
Funds, like the shares of the 1784 Funds are offered to investors at net asset
value with no front-end or contingent deferred sales load. Although check
writing privileges are provided with respect to the Boston 1784 Tax-Free Money
Market Fund, the Boston 1784 U.S. Treasury Money Market Fund and the Boston 1784
Prime Money Market Fund, such privileges are only provided for BKB Shares and
Retail A Shares of the Corresponding Galaxy Funds and not for Trust Shares of
such Funds. Another difference is that 1784 Funds provide check-writing
privileges on shares of the Boston 1784 Short-Term Income Fund, while Galaxy
does not provide check-writing privileges for its Corresponding Galaxy Fund (the
Galaxy Short-Term Bond Fund).
The 1784 Funds and the Corresponding Galaxy Funds also offer generally
similar exchange privileges. For a more detailed comparison of shareholder
transactions and policies, see Appendix IV.
Fees and Expenses. Three of the fourteen corresponding Galaxy Funds which
offer Trust Shares, four of the fourteen corresponding Galaxy Funds which offer
BKB Shares, and eleven of the fourteen corresponding Galaxy Funds which offer
Retail A Shares have total operating expense ratios (after fee waivers) which
are higher than the 1784 Fund Shares. For a more detailed summary of fees and
expenses, see Appendix II. Fee waivers, however, are subject to termination.
Furthermore, expenses will not necessarily be the same or lower when BKB Shares
convert into Retail A Shares.
Performance. The total returns of the Galaxy Funds are competitive with
the 1784 Funds. For a comparison of the total return performance of the
Reorganizing 1784 Funds with the Operating Galaxy Fund, see Appendix V. See also
Appendix VI for Management Discussion of Galaxy Fund Performance.
Share Structure. Both 1784 and Galaxy are registered as open-end
management investment companies under the 1940 Act. Currently, 1784 offers
seventeen funds. Galaxy currently offers twenty-nine funds and will offer
thirty-six funds immediately after the Reorganization.
1784 was organized as a Massachusetts business trust on February 5,
1993. It is subject to the provisions of its Agreement and Declaration of Trust
and By-Laws. Galaxy was organized as a Massachusetts business trust on March 31,
1986 and is subject to the provisions of its Declaration of Trust and Code of
Regulations. 1784's Agreement and Declaration of Trust authorizes the Board of
Trustees to divide the beneficial interest in 1784 into an unlimited number of
shares (with no par value) and to divide the shares into one or more classes.
Shares of 1784 may be issued in series and shares of any series will constitute
units of beneficial interest in 1784 specifically allocated to such series.
Galaxy's Declaration of Trust authorizes the Board of Trustees to divide the
beneficial interest in the
- 43 -
<PAGE>
Galaxy Funds into an unlimited number of full and fractional shares ($0.001 par
value per share) and to classify and reclassify any unissued shares into one or
more classes of shares. Each share of 1784 and Galaxy represents an equal
proportionate interest in the related investment portfolio with other shares of
the same class (if applicable) and is entitled to dividends and distributions on
the assets belonging to such investment portfolio as are declared in the
discretion of the Board of Trustees of 1784 or Galaxy, as the case may be.
Shares of both 1784 and Galaxy are entitled to one vote for each full share held
and fractional votes for fractional shares held.
In accordance with 1784's Agreement and Declaration of Trust, shares
of series are entitled to vote separately to approve advisory agreements or
changes in investment policies, but shares of all series vote together in the
election or selection of Trustees and accountants. Matters not affecting all
series or classes shall be voted on only by the shares of the series or classes
affected. There is no cumulative voting in the election of Trustees for the 1784
Funds.
In accordance with Galaxy's Declaration of Trust and Rule 18f-2 of
the 1940 Act, all shares of Galaxy shall be voted on a fund-by-fund basis unless
it is clear that the interests of each Galaxy Fund in the matter are identical
(in which case holders of shares in Galaxy Funds will vote together, in the
aggregate, and not on a fund-by-fund basis) and that the matter does not affect
any interests of a particular Galaxy Fund. Shares of a particular class (e.g.
Retail A Shares or Trust Shares of a particular Galaxy Fund) will vote together
in the aggregate and not by class, except that only shares of a particular class
will be entitled to vote on matters pertaining to any distribution and/or
shareholder servicing plan for such class. There is no cumulative voting with
respect to Galaxy Fund shares.
Additional information concerning the attributes of the shares
issued by 1784 and Galaxy is included in their respective prospectuses, which
are incorporated herein by reference. Information about the dividend and
distribution policies of both the 1784 Funds and the Galaxy Funds can be found
in Appendix IV.
Comparison of Trust Structure. Both 1784 and Galaxy are organized as
Massachusetts business trusts. Under Massachusetts law, interest holders of a
Massachusetts business trust like 1784 and Galaxy, under certain circumstances,
could be held personally liable for the obligations of the trust. Both 1784 and
Galaxy have provisions in their Declaration of Trust that endeavor to protect
shareholders from such liability. Thus, the risk of an interest holder incurring
a financial loss on account of interest holder liability is limited to
circumstances in which the trust itself is unable to meet its obligations.
VOTING MATTERS
General Information. The Board of Trustees of 1784 is furnishing this
Proxy/Prospectus in connection with the solicitation of proxies for the Meeting.
It is expected that the solicitation of proxies will be primarily by mail.
Officers and service contractors of 1784 and Galaxy may also solicit proxies by
telephone or otherwise. In this connection, 1784 has retained PFPC Inc. ("PFPC")
to assist in the solicitation of proxies for the Reorganization. Shareholders
may vote (1) by mail, by marking, signing,
- 44 -
<PAGE>
dating and returning the enclosed Proxy Ballot(s) in the enclosed postage-paid
envelope, (2) by touch-tone voting, or (3) by on-line voting. Any shareholder
giving a proxy may revoke it at any time before it is exercised by submitting to
1784 a written notice of revocation or a subsequently executed proxy or by
attending the Special Meeting and voting in person. As the Special Meeting date
approaches, certain shareholders of each Fund may receive a telephone call from
a representative of PFPC if their votes have not yet been received.
Authorization to permit PFPC to execute proxies may be obtained by telephonic or
electronically transmitted instructions from shareholders of each Fund. Proxies
that are obtained telephonically will be recorded in accordance with the
procedures set forth below. The Trustees believe that these procedures are
reasonably designed to ensure that the identity of the shareholder casting the
vote is accurately determined and that the voting instructions of the
shareholder are accurately determined.
In all cases where a telephonic proxy is solicited, the PFPC
representative is required to ask for each shareholder's full name, address,
social security or employer identification number, title (if the shareholder is
authorized to act on behalf of an entity, such as a corporation), and the number
of shares owned, and to confirm that the shareholder has received the proxy
materials in the mail. If the information solicited agrees with the information
provided to PFPC, then the PFPC representative has the responsibility to explain
the process, read the Proposals on the proxy card, and ask for the shareholder's
instructions on the Proposals. The PFPC representative, although he or she is
permitted to answer questions about the process, is not permitted to recommend
to the shareholder how to vote, other than to read any recommendation set forth
on the proxy statement. PFPC will record the shareholder's instructions on the
card. Within 72 hours, the shareholder will be sent a letter or mailgram to
confirm his or her vote and asking the shareholder to call PFPC immediately if
his or her instructions are not correctly reflected in the confirmation.
Any expenses incurred as a result of hiring PFPC or any other proxy
solicitation agent will be borne by Fleet. It is anticipated that the cost
associated with using a proxy solicitation agent will be approximately $50,000.
Only shareholders of record at the close of business on
February 29, 2000 will be entitled to vote at the Meeting. On that date, the
following 1784 Shares were outstanding and entitled to be voted:
- 45 -
<PAGE>
<TABLE>
<CAPTION>
1784 Fund Shares Outstanding and Entitled to Vote
- --------- ---------------------------------------
<S> <C>
Money Market Funds:
Boston 1784 Tax-Free Money Market Fund _____
Boston 1784 U.S. Treasury Money Market Fund _____
Boston 1784 Institutional U.S. Treasury Money Market Fund _____
Boston 1784 Prime Money Market Fund _____
Boston 1784 Institutional Prime Money Market Fund _____
Bond Funds:
Boston 1784 Short-Term Income Fund _____
Boston 1784 Income Fund _____
Boston 1784 U.S. Government Medium-Term Income Fund _____
Tax-Exempt Funds:
Boston 1784 Tax-Exempt Medium-Term Income Fund _____
Boston 1784 Connecticut Tax-Exempt Income Fund _____
Boston 1784 Florida Tax-Exempt Income Fund _____
Boston 1784 Massachusetts Tax-Exempt Income Fund _____
Boston 1784 Rhode Island Tax-Exempt Income Fund _____
Stock Funds:
Boston 1784 Asset Allocation Fund _____
Boston 1784 Growth and Income Fund _____
Boston 1784 Growth Fund _____
Boston 1784 International Equity Fund _____
</TABLE>
Each whole and fractional share of a 1784 Fund is entitled to a
whole or fractional vote as the case may be.
If an accompanying proxy is executed and returned in time for the
Meeting, the shares covered thereby will be voted in accordance with the proxy
on all matters that may properly come before the Special Meeting.
Shareholder and Board Approvals. The Reorganization Agreement is being
submitted for approval at the Meeting by 1784's shareholders pursuant to 1784's
Agreement and Declaration of Trust and By-Laws, and was unanimously approved by
the 1784 Board of Trustees at a meeting held on February 4, 2000. With respect
to the Boston 1784 Institutional U.S. Treasury Money Market Fund, Boston 1784
Institutional Prime Money Market Fund and Boston 1784 Florida Tax-Exempt Income
- 46 -
<PAGE>
Fund, the Reorganization Agreement must be approved by a majority of the
outstanding shares of each such Fund. With respect to the other Boston 1784
Funds, the Reorganization Agreement must be approved by a majority of the
outstanding shares of those shareholders who will be receiving BKB Shares of
their corresponding Galaxy Fund and by a majority of the outstanding shares of
the shareholders who will be receiving Trust Shares of their corresponding
Galaxy Fund. A vote for the Reorganization Agreement includes a vote for the
reorganization of 1784; conversely, a vote against the Reorganization Agreement
is a vote against the reorganization of 1784.
The Reorganization Agreement provides that in the event the
Reorganization Agreement is approved with respect to less than all of the 1784
Funds, the failure of a 1784 Fund to consummate the transactions contemplated by
the Reorganization Agreement shall not affect the consummation or validity of
the Reorganization with respect to any other 1784 Funds.
With respect to the approval of the Reorganization Agreement, the
term "majority of the outstanding shares" of 1784 or a 1784 Fund means more than
50% of the outstanding shares of 1784, the particular 1784 Fund or with respect
to those 1784 Funds receiving BKB Shares and Trust Shares, 50% of the
outstanding shares of Retail Shareholders or Institutional Shareholders. The
vote of the shareholders of the Galaxy Funds is not being solicited, since their
approval or consent is not necessary for the Reorganization.
Principal Shareholders. As of February 29, 2000, the officers and Trustees
of 1784 as a group owned or controlled less than 1% of each 1784 Fund's
outstanding shares. As of February 29, 2000, the officers and Trustees of Galaxy
as a group owned or controlled less than 1% of each Galaxy Fund's outstanding
shares. Table VI(A) shows the name, address and share ownership of each person
known to 1784 to have ownership with respect to 5% or more of a 1784 Fund as of
February 29, 2000. Table VI(B) shows the name, address and share ownership of
each person known to Galaxy to have ownership with respect to 5% or more of a
class of a Galaxy Fund as of February 29, 2000. The type of ownership of each
entry listed on Tables VI(A) and VI(B) is record ownership.
Table VI(A)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Pro Forma
Name and Amount of Percentage Percentage
1784 Fund Address Shares Owned of Fund of Fund
--------- ------- ------------ ------- Post-Closing
------------
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
Tax-Free Money Market Fund
- ------------------------------------------------------------------------------------------------------------------
U.S. Treasury Money Market Fund
- ------------------------------------------------------------------------------------------------------------------
Institutional U.S. Treasury Money
Market Fund
- ------------------------------------------------------------------------------------------------------------------
Prime Money Market Fund
- ------------------------------------------------------------------------------------------------------------------
Institutional Prime Money Market Fund
- ------------------------------------------------------------------------------------------------------------------
Short-Term Income Fund
- ------------------------------------------------------------------------------------------------------------------
Income Fund
- ------------------------------------------------------------------------------------------------------------------
U.S. Government Medium-Term Income
Fund
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
- 47 -
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Pro Forma
Name and Amount of Percentage Percentage
1784 Fund Address Shares Owned of Fund of Fund
--------- ------- ------------ ------- Post-Closing
------------
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tax-Exempt Medium-Term Income Fund
- ------------------------------------------------------------------------------------------------------------------
Connecticut Tax-Exempt Income Fund
- ------------------------------------------------------------------------------------------------------------------
Florida Tax-Exempt Income Fund
- ------------------------------------------------------------------------------------------------------------------
Massachusetts Tax-Exempt Income Fund
- ------------------------------------------------------------------------------------------------------------------
Rhode Island Tax-Exempt Income Fund
- ------------------------------------------------------------------------------------------------------------------
Asset Allocation Fund
- ------------------------------------------------------------------------------------------------------------------
Growth and Income Fund
- ------------------------------------------------------------------------------------------------------------------
Growth Fund
- ------------------------------------------------------------------------------------------------------------------
International Equity Fund
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Table VI(B)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Class; Percentage
Name and Amount of Percentage Percentage of Fund
Galaxy Fund Address Shares Owned of Class of Fund Post-Closing
----------- ------- ------------ -------- ------- ------------
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
Tax-Exempt Fund
- -----------------------------------------------------------------------------------------------------------------
U.S. Treasury Fund
- -----------------------------------------------------------------------------------------------------------------
Money Market Fund
- -----------------------------------------------------------------------------------------------------------------
Short-Term Bond Fund
- -----------------------------------------------------------------------------------------------------------------
High Quality Bond Fund
- -----------------------------------------------------------------------------------------------------------------
Intermediate Government
Income Fund
- -----------------------------------------------------------------------------------------------------------------
Rhode Island Municipal
Bond Fund
- -----------------------------------------------------------------------------------------------------------------
Asset Allocation Fund
- -----------------------------------------------------------------------------------------------------------------
Growth and Income Fund
- -----------------------------------------------------------------------------------------------------------------
International Equity Fund
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
The Shell Galaxy Funds had not commenced investment operations as of
March __, 2000 and, accordingly, no person owned 5% or more of any such Fund.
For purposes of the 1940 Act, any person who owns directly or
through one or more controlled companies more than 25% of the voting securities
of a company is presumed to "control" such company. Accordingly, to the extent
that a shareholder identified in the foregoing table is identified as the
beneficial holder of more than 25% of a class, or is identified as the holder of
record of more than 25% of a class and has voting and/or investment power, it
may be presumed to control such class.
- 48 -
<PAGE>
Galaxy and 1784 have been advised by BankBoston that, with respect
to the shares of each 1784 Fund over which BankBoston and its affiliates have
voting power, such shares may be voted by BankBoston itself in its capacity as
fiduciary. BankBoston will engage an independent third party to evaluate the
Reorganization proposal and make a recommendation as to how to vote the shares.
Quorum. In the event that a quorum is not present at the Meeting, or in
the event that a quorum is present at the Meeting but sufficient votes to
approve the Reorganization Agreement are not received by 1784 or by one or more
of the 1784 Funds, one or more adjournment(s) may be proposed to permit further
solicitation of proxies. Any adjourned session or sessions may be held after the
date set for the original Meeting without notice except announcement at the
Meeting. Any such adjournment(s) will require the affirmative vote of a majority
of those shares affected by the adjournment(s) that are represented at the
Meeting in person or by proxy. If a quorum is present, the persons named as
proxies will vote those proxies which they are entitled to vote FOR the
particular proposal for which a quorum exists in favor of such adjournment(s),
and will vote those proxies required to be voted AGAINST such proposal against
any adjournment(s). A shareholder vote may be taken with respect to one or more
1784 Funds (but not the other 1784 Funds) on some or all matters before any such
adjournment(s) if a quorum is present and sufficient votes have been received
for approval with respect to such Funds.
A quorum is constituted with respect to a 1784 Fund by the presence
in person or by proxy of the holders of a majority of the shares of the 1784
Fund or a majority of the shares of Retail or Institutional Shareholders
entitled to vote at the Meeting. For purposes of determining the presence of a
quorum for transacting business at the Meeting, abstentions will be treated as
shares that are present at the Meeting but which have not been voted.
Abstentions will have the effect of a "no" vote for purposes of obtaining the
requisite approvals of the Reorganization Agreement. Broker "non-votes" (that
is, proxies from brokers or nominees indicating that such persons have not
received instructions from the beneficial owners or other persons entitled to
vote shares on a particular matter with respect to which the brokers or nominees
do not have discretionary power) will be treated as abstentions.
Annual Meetings and Shareholder Meetings. Neither 1784 nor Galaxy
presently intends to hold annual meetings of shareholders for the election of
trustees and other business unless otherwise required by the 1940 Act. Under
certain circumstances, however, holders of at least 10% of the outstanding
shares of either 1784 or Galaxy have the right to call a meeting of
shareholders.
ADDITIONAL INFORMATION ABOUT GALAXY
Additional information about the Galaxy Funds is included in their
prospectuses and statements of additional information dated February __, 2000,
as supplemented through the date hereof, copies of which, to the extent not
included herewith, may be obtained without charge by writing or calling Galaxy
at the address and telephone number set forth on the first page of this
Proxy/Prospectus. Galaxy is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, and the 1940 Act, and in accordance
therewith it files reports, proxy materials and other information with the SEC.
Reports and other information filed by Galaxy can be inspected and copied at the
Public Reference Facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at
- 49 -
<PAGE>
the offices of Galaxy listed above. In addition, these materials can be
inspected and copied at the SEC's Regional Offices at 7 World Trade Center,
Suite 1300, New York, New York 10048, and Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials
also can be obtained from the Public Reference Branch, Office of Consumer
Affairs and Information Services, Securities and Exchange Commission,
Washington, D.C. 20549, at prescribed rates.
Information included in this Proxy/Prospectus concerning Galaxy was
provided by Galaxy.
ADDITIONAL INFORMATION ABOUT 1784
Additional information about the 1784 Funds is included in their
prospectuses and statements of additional information, dated October 1, 1999, as
supplemented through the date hereof, copies of which have been filed with the
SEC. Copies of these prospectuses and the related statements of additional
information may be obtained without charge by writing or calling 1784 at the
address and telephone number set forth on the first page of this
Proxy/Prospectus. Reports and other information filed by 1784 can be inspected
and copied at the Public Reference Facilities maintained by the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the offices of 1784 listed above. In
addition, these materials can be inspected and copied at the SEC's Regional
Offices at 7 World Trade Center, Suite 1300, New York, New York 10048, and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such materials also can be obtained from the Public
Reference Branch, Office of Consumer Affairs and Information Services,
Securities and Exchange Commission, Washington, D.C. 20549, at prescribed rates.
Information included in this Proxy/Prospectus concerning 1784 was
provided by 1784.
FINANCIAL STATEMENTS
The annual financial statements and financial highlights of the
Galaxy Funds for the fiscal year ended October 31, 1999 have been audited by
Ernst & Young LLP, independent accountants, to the extent indicated in their
reports thereon, have been incorporated by reference in the Statement of
Additional Information to this Proxy/Prospectus, in reliance upon such reports
given upon the authority of such firm as an expert in accounting and auditing.
The annual financial statements and financial highlights of the 1784
Funds for the fiscal year ended May 31, 1999 have been audited by
PricewaterhouseCoopers LLP, independent accountants, to the extent indicated in
their reports thereon, have been incorporated by reference in the Statement of
Additional Information to this Proxy/Prospectus, in reliance upon such reports
given upon the authority of such firm as an expert in accounting and auditing.
The semi-annual financial statements and financial highlights of the 1784 Funds
for the fiscal period ended November 30, 1999 have also been incorporated by
reference in the Statement of Additional Information to the Proxy/Prospectus.
- 50 -
<PAGE>
OTHER BUSINESS
1784's Board of Trustees knows of no other business to be brought
before the Meeting. However, if any other matters properly come before the
Meeting, it is the intention of 1784 that proxies that do not contain specific
restrictions to the contrary will be voted on such matters in accordance with
the judgment of the persons named in the enclosed form of proxy.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to 1784 or to Galaxy in
writing at the address(es), or by phone at the phone number(s), on the cover
page of this Proxy/Prospectuses.
* * *
SHAREHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT THE MEETING ARE
REQUESTED TO MARK, SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT IN THE
ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
SHAREHOLDERS ALSO MAY VOTE ON-LINE OR BY TELEPHONE.
1784 WILL FURNISH, WITHOUT CHARGE, COPIES OF ITS MAY 31, 1999 ANNUAL
REPORTS TO ANY SHAREHOLDER UPON REQUEST ADDRESSED TO: BOSTON 1784 FUNDS AT P.O.
BOX 8524, BOSTON, MA 02266-8524 OR BY TELEPHONE AT 1-800-BKB-1784.
- 51 -
<PAGE>
APPENDIX I
FORM OF AGREEMENT
AND PLAN OF REORGANIZATION
<PAGE>
AGREEMENT AND PLAN OF
REORGANIZATION
BY AND BETWEEN
THE GALAXY FUND
AND
BOSTON 1784 FUNDS
DATED AS OF FEBRUARY 4, 2000
<PAGE>
TABLE OF CONTENTS
Page
1. CERTAIN DEFINITIONS....................................................4
2. THE REORGANIZATION.....................................................5
3. CALCULATIONS...........................................................8
4. VALUATION OF ASSETS....................................................9
5. VALUATION TIMES.......................................................12
6. EFFECTIVE TIME OF THE REORGANIZATION..................................12
7. TERMINATION OF 1784...................................................14
8. CERTAIN REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS OF 1784....................................................14
9. CERTAIN REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS OF GALAXY..................................................21
10. SHAREHOLDER ACTION ON BEHALF OF THE 1784 FUNDS........................25
11. N-14 REGISTRATION STATEMENT...........................................26
12. GALAXY CONDITIONS.....................................................26
13. 1784 CONDITIONS.......................................................30
14. TAX OPINION...........................................................33
15. TAX DOCUMENTS.........................................................36
16. FURTHER ASSURANCES....................................................36
17. TERMINATION AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES............37
-i-
<PAGE>
TABLE OF CONTENTS
(continued)
Page
18. TERMINATION OF AGREEMENT..............................................37
19. AMENDMENT AND WAIVER..................................................37
20. GOVERNING LAW.........................................................38
21. SUCCESSORS AND ASSIGNS................................................38
22. BENEFICIARIES.........................................................38
23. NOTICES...............................................................38
24. EXPENSES AND WAIVERS..................................................40
25. ENTIRE AGREEMENT......................................................41
26. COUNTERPARTS..........................................................41
27. FAILURE OF ONE FUND TO CONSUMMATE THE TRANSACTIONS....................41
28. NO BROKERS OR FINDERS.................................................41
29. VALIDITY..............................................................41
30. EFFECT OF FACSIMILE SIGNATURE.........................................42
31. HEADINGS..............................................................42
32. GALAXY LIABILITY......................................................42
33. 1784 LIABILITY........................................................43
-ii-
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") made as of the
4th day of February, 2000 by The Galaxy Fund ("Galaxy"), a Massachusetts
business trust organized under the laws of the Commonwealth of Massachusetts on
March 31, 1986, and Boston 1784 Funds ("1784"), formerly known as 1784 Funds, a
Massachusetts business trust organized under the laws of the Commonwealth of
Massachusetts on February 5, 1993.
BACKGROUND
WHEREAS, each of the parties hereto is an open-end management investment
company registered with the Securities and Exchange Commission (the "SEC") under
the Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, 1784 offers the following investment portfolios: (1) Boston 1784
Tax-Free Money Market Fund, (2) Boston 1784 U.S. Treasury Money Market Fund, (3)
Boston 1784 Prime Money Market Fund, (4) Boston 1784 Short-Term Income Fund, (5)
Boston 1784 Income Fund, (6) Boston 1784 U.S. Government Medium-Term Income
Fund, (7) Boston 1784 Rhode Island Tax-Exempt Income Fund, (8) Boston 1784 Asset
Allocation Fund, (9) Boston 1784 Growth and Income Fund, and (10) Boston 1784
International Equity Fund (each a "Reorganizing 1784 Fund" and collectively, the
"Reorganizing 1784 Funds");
- 1 -
<PAGE>
WHEREAS, 1784 also offers the following investment portfolios: (1) Boston
1784 Institutional U.S. Treasury Money Market Fund, (2) Boston 1784
Institutional Prime Money Market Fund, (3) Boston 1784 Tax-Exempt Medium-Term
Income Fund, (4) Boston 1784 Connecticut Tax-Exempt Income Fund, (5) Boston 1784
Florida Tax-Exempt Income Fund, (6) Boston 1784 Massachusetts Tax-Exempt Income
Fund and (7) Boston 1784 Growth Fund (each a "Continuing 1784 Fund" and
collectively, the "Continuing 1784 Funds" and together with the "Reorganizing
1784 Funds," each a "1784 Fund" and collectively, the "1784 Funds");
WHEREAS, Galaxy currently offers, among others, the following investment
portfolios: (1) Galaxy Tax-Exempt Fund, (2) Galaxy U.S. Treasury Fund, (3)
Galaxy Money Market Fund, (4) Galaxy Short-Term Bond Fund, (5) Galaxy High
Quality Bond Fund, (6) Galaxy Intermediate Government Income Fund, (7) Galaxy
Rhode Island Municipal Bond Fund, (8) Galaxy Asset Allocation Fund, (9) Galaxy
Growth and Income Fund, and (10) Galaxy International Equity Fund (each an
"Existing Galaxy Fund" and collectively, the "Existing Galaxy Funds");
WHEREAS, Galaxy has recently organized, or will soon organize, the
following additional investment portfolios: (1) Galaxy Institutional Treasury
Money Market Fund, (2) Galaxy Institutional Money Market Fund, (3) Galaxy
Intermediate Tax-Exempt Bond Fund, (4) Galaxy Connecticut Intermediate Municipal
Bond Fund, (5) Galaxy Florida Municipal Bond Fund, (6) Galaxy Massachusetts
Intermediate Municipal Bond Fund and (7) Galaxy Growth
- 2 -
<PAGE>
Fund II (each a "Shell Galaxy Fund" and collectively, the "Shell Galaxy Funds,"
and, together with the Existing Galaxy Funds, each a "Galaxy Fund" and
collectively, the "Galaxy Funds");
WHEREAS, each of the parties hereto desires, upon the terms and subject to
the conditions set forth herein, to enter into and perform the reorganization
described herein (the "Reorganization"), pursuant to which, among other things,
at the respective times hereinafter set forth, (1) each 1784 Fund shall transfer
substantially all of its respective Assets (as hereinafter defined), subject, in
each case, to substantially all of its respective Liabilities (as hereinafter
defined), to its Corresponding Galaxy Fund (as hereinafter defined), in exchange
for BKB Shares, Trust Shares or Shares issued by such Corresponding Galaxy Fund
(the shares issued to a 1784 Fund by its Corresponding Galaxy Fund in exchange
for the Assets subject to the Liabilities of such 1784 Fund in connection with
the Reorganization, collectively, "Galaxy Fund Shares"), and (2) each 1784 Fund
shall then distribute to its shareholders of record, the Galaxy Fund Shares
received by or on behalf of such 1784 Fund;
WHEREAS, each of the parties intend that the Shell Galaxy Funds will have
nominal assets and liabilities before the Reorganization and will continue the
investment operations of the Continuing 1784 Funds; and
WHEREAS, the parties intend that in connection with the Reorganization,
1784 shall be deregistered and terminated as described in this Agreement.
- 3 -
<PAGE>
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants and agreements hereinafter set forth, and for other good and valuable
consideration, the receipt and legal sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound hereby, agree as
follows:
1. Certain Definitions. As used herein,
(a) The term "Corresponding Galaxy Fund" shall mean with respect to
any 1784 Fund, the particular Galaxy Fund, the name of which is set forth
directly opposite the name of such 1784 Fund on Schedule A hereto.
(b) The term "Corresponding 1784 Fund" shall mean with respect to
any Galaxy Fund, the particular 1784 Fund, the name of which is set forth
directly opposite the name of such Galaxy Fund on Schedule A hereto.
(c) The term "Assets" shall mean all property and assets of every
description and of any nature whatsoever including, without limitation, cash,
cash equivalents, securities, claims (whether absolute or contingent, known or
unknown, accrued or unaccrued), receivables (including dividend and interest
receivables), deferred or prepaid expenses, good will and other intangible
property, books and records, and all interests, rights, privileges and powers,
other than with respect to 1784 and each 1784 Fund, cash in an amount necessary
to pay any unpaid dividends and distributions as provided in Section 2(c) hereof
and its rights under this Agreement.
- 4 -
<PAGE>
(d) The term "Liabilities" shall mean all liabilities and
obligations of any nature, whether accrued, absolute, contingent or otherwise
including, with respect to 1784 and each 1784 Fund, any obligation of 1784 to
indemnify 1784's current trustees, acting in their capacities as such, to the
fullest extent permitted by law and 1784's Agreement and Declaration of Trust,
as in effect as of the date of this Agreement.
2. The Reorganization.
(a) At the Applicable Effective Time of the Reorganization (as
hereinafter defined), (i) each 1784 Fund shall transfer, assign and convey to
its Corresponding Galaxy Fund substantially all of the Assets, subject to
substantially all of the Liabilities, of such 1784 Fund, and (ii) each such
Corresponding Galaxy Fund shall accept all such Assets and assume all such
Liabilities, such that at and after the Applicable Effective Time of the
Reorganization: (A) the Assets of each particular 1784 Fund shall become and be
Assets of its Corresponding Galaxy Fund, (B) the Liabilities of each particular
1784 Fund shall become and be liabilities of, and shall attach to, its
Corresponding Galaxy Fund, and (C) the Liabilities of each particular 1784 Fund
may thenceforth be enforced only against its Corresponding Galaxy Fund to the
same extent as if such Liabilities had been incurred by such Corresponding
Galaxy Fund, subject to any defense and/or set off that 1784 or such 1784 Fund
was entitled to assert immediately prior to the Applicable Effective Time of the
Reorganization with respect to any such Liability.
(b) In exchange for the transfer of the Assets of each 1784 Fund to
its Corresponding Galaxy Fund as provided in paragraph (a) above, each Galaxy
Fund shall assume the Liabilities of its Corresponding 1784 Fund as provided in
paragraph (a) above and shall also
- 5 -
<PAGE>
simultaneously issue, at the Applicable Effective Time of the Reorganization, to
its Corresponding 1784 Fund, the number of full and fractional (to the third
decimal place) BKB Shares of such Galaxy Fund, determined and adjusted as
provided in Section 3 hereof, provided that, to the extent that any then current
shareholder or shareholders of any such Corresponding 1784 Fund has or have, as
the case may be, purchased his, her, its or their, shares of such Corresponding
1784 Fund through an investment management, trust, custody or other agency
relationship with BankBoston, N.A. or own shares of such Corresponding 1784 Fund
that represent shares issued as a dividend with respect to shares purchased
through an investment management, trust, custody or other agency relationship
with BankBoston, N.A., then, but only to such extent, such Corresponding 1784
Fund shall receive Trust Shares of such Galaxy Fund in lieu of BKB Shares;
further provided that the Boston 1784 Institutional U.S. Treasury Money Market
Fund, Boston 1784 Institutional Prime Money Market Fund and Boston 1784 Florida
Tax-Exempt Income Fund shall receive Shares of such Corresponding Galaxy Fund.
BKB Shares, Trust Shares and Shares shall have the attributes described in
Galaxy's Amended and Restated Plan pursuant to Rule 18f-3 for Operation of a
Multi-Class System attached hereto as Schedule B.
(c) Immediately upon receipt of the BKB Shares, Trust Shares and/or
Shares of such Galaxy Fund in accordance with paragraph (b) above each 1784 Fund
shall distribute, in complete liquidation, to the shareholders of record of such
1784 Fund at the Applicable Effective Time of the Reorganization (such
shareholders of record of such 1784 Fund as of such time, collectively, the
"Recordholders"), the respective BKB Shares, Trust Shares and/or Shares that
have been so received as further provided in the following two sentences.
Recordholders of the
- 6 -
<PAGE>
Boston 1784 Institutional U.S. Treasury Money Market Fund, Boston 1784
Institutional Prime Money Market Fund and Boston 1784 Florida Tax-Exempt Income
Fund will be credited with full and fractional Shares under this Agreement with
respect to the shares in such 1784 Fund that are held by such Recordholders. All
other Recordholders will be credited with full and fractional BKB Shares under
this Agreement with respect to the shares in a 1784 Fund that are held by such
Recordholders, provided that to the extent that Recordholders purchased their
shares through an investment management, trust, custody or other agency
relationship with BankBoston, N.A. or own shares issued as a dividend with
respect to shares purchased through an investment management, trust, custody or
other agency relationship with BankBoston, N.A., such shareholders will be
credited with full and fractional Trust Shares under this Agreement with respect
to the shares in the 1784 Fund that are held by such Recordholders. In addition,
each Recordholder of a 1784 Fund shall have the right to receive any unpaid
dividends or other distributions which were declared with respect to his, her or
its shares of such 1784 Fund before the Applicable Effective Time of the
Reorganization.
(d) In accordance with instructions Galaxy receives from 1784,
Galaxy shall record on its books the ownership, by the Recordholders, of the
number and type of the Galaxy Fund Shares distributed to such Recordholders.
(e) 1784 shall cancel on its books all of the shares (including,
without limitation, any treasury shares) of each 1784 Fund that has so
liquidated, and any such shares issued and outstanding prior to such
cancellation shall thereafter represent only the right to
- 7 -
<PAGE>
receive the Galaxy Fund Shares issued to such 1784 Fund in accordance with
paragraph (b) above.
(f) The transfer books of 1784 with respect to each 1784 Fund shall
be permanently closed.
3. Calculations.
(a) The number of BKB Shares, Trust Shares and/or Shares of each
Existing and Shell Galaxy Fund issued to its Corresponding 1784 Fund pursuant to
Section 2(b) hereof will be determined as follows:
(1) With respect to the Boston 1784 Institutional U.S.
Treasury Money Market Fund, the Boston 1784 Institutional Prime Money Market
Fund and the Boston 1784 Florida Tax-Exempt Income Fund, the value of such 1784
Fund's Assets less the Liabilities so conveyed as of the Applicable Valuation
Time (as hereinafter defined) shall be divided by the net asset value of one
Galaxy Fund Share that is to be delivered with respect thereto;
(2) With respect to all the other 1784 Funds:
(A) The value of such Corresponding 1784 Fund's Assets
less the Liabilities that are so conveyed as of the Applicable
Valuation Time (as hereinafter defined) and which are attributable
to shares sold through an investment management, trust, custody or
other agency relationship with BankBoston, N.A. or were issued
through dividend reinvestment with respect to
- 8 -
<PAGE>
such shares shall be divided by the net asset value of one Galaxy
Fund Trust Share that is to be delivered with respect thereto;
(B) The value of such Corresponding 1784 Fund's Assets
less the Liabilities that are so conveyed as of the Applicable
Valuation Time (as hereinafter defined) and which are attributable
to shares sold other than through an investment management, trust,
custody or other agency relationship with BankBoston, N.A. or were
issued through dividend reinvestment with respect to such shares
shall be divided by the net asset value of one Galaxy Fund BKB Share
that is to be delivered with respect thereto;
(b) The net asset value of BKB Shares, Trust Shares and Shares of a
Galaxy Fund shall be computed in the manner set forth in such Galaxy Fund's then
current prospectus under the Securities Act of 1933, as amended (the "1933
Act"). The net asset value of Shares of a 1784 Fund shall be computed in the
manner set forth in such 1784 Fund's then current prospectus under the 1933 Act.
4. Valuation of Assets.
(a) With respect to each 1784 Fund, the value of its Assets shall be
the value of such Assets computed as of the time at which its net asset value is
calculated at the Applicable Valuation Time (as hereinafter defined). The net
asset value of the 1784 Fund Assets to be transferred to the Galaxy Funds shall
be computed by 1784 and shall be subject to adjustment by the amount, if any,
agreed to by Galaxy, its board of trustees, and the respective Galaxy Funds and
1784, its board of trustees, and the respective 1784 Funds. In determining the
value of the
- 9 -
<PAGE>
securities transferred by a 1784 Fund to its Corresponding Galaxy Fund, each
security shall be priced in accordance with the pricing policies and procedures
of such 1784 Fund as described in its then current prospectus(es) and statement
of additional information. For such purposes, price quotations and the security
characteristics relating to establishing such quotations shall be determined by
1784, provided that such determination shall be subject to the approval of
Galaxy. Galaxy and 1784 agree to use all commercially reasonable efforts to
resolve, prior to the Applicable Valuation Time, any material pricing
differences between the prices of portfolio securities determined in accordance
with the pricing policies and procedures of a Galaxy Fund and those determined
in accordance with the pricing policies and procedures of its Corresponding 1784
Fund.
(b) It is understood and agreed that the net asset value of the 1784
Fund Assets of those 1784 Funds that are money market funds shall be based on
the amortized cost valuation procedures that have been adopted by the Board of
Trustees of 1784 Funds; provided that if the difference between the per share
net asset values of such 1784 Funds and the Corresponding Galaxy Funds equals or
exceeds $0.0010 on the Applicable Valuation Time, as computed by using market
values in accordance with the policies and procedures established by 1784,
either party shall have the right to postpone the Applicable Valuation Time and
Applicable Effective Time of the Reorganization until such time as the per share
difference is less than $.0010.
(c) At least fifteen (15) business days prior to the Applicable
Effective Time of the Reorganization, each 1784 Fund will provide its
Corresponding Galaxy Fund with a
- 10 -
<PAGE>
schedule of its securities and other Assets and Liabilities of which it is
aware, and such Galaxy Fund will provide the 1784 Fund with a copy of the
current investment objective and policies applicable to such Galaxy Fund. Each
1784 Fund reserves the right to sell any of the securities or other Assets shown
on the list of the Fund's Assets prior to the Applicable Effective Time of the
Reorganization but will not, without the prior approval of Galaxy, acquire any
additional securities other than securities which the Corresponding Galaxy Fund
is permitted to purchase in accordance with its stated investment objective and
policies. At least ten (10) business days prior to the Applicable Effective Time
of the Reorganization, each Galaxy Fund will advise its Corresponding 1784 Fund
of any investments of such 1784 Fund shown on such schedule which the Galaxy
Fund would not be permitted to hold, pursuant to its stated investment objective
and policies or otherwise. In the event that the 1784 Fund holds any investments
that its Corresponding Galaxy Fund would not be permitted to hold under its
stated investment objective or policies, the 1784 Fund, if requested by the
Galaxy Fund and, to the extent permissible and consistent with the 1784 Fund's
own investment objective and policies, will dispose of such securities prior to
the Applicable Effective Time of the Reorganization. In addition, if it is
determined that the portfolios of the 1784 Fund and the Galaxy Fund, when
aggregated, would contain investments exceeding certain percentage limitations
to which the Galaxy Fund is or will be subject with respect to such investments,
the 1784 Fund, if requested by the Galaxy Fund and, to the extent permissible
and consistent with the 1784 Fund's own investment objective and policies, will
dispose of and/or reinvest a sufficient amount of such investments as may be
necessary to avoid violating such limitations as of the Applicable Effective
Time of the Reorganization.
- 11 -
<PAGE>
5. Valuation Times. Subject to Section 4(b) hereof, the valuation time
with respect to the Existing Galaxy Funds and the Reorganizing 1784 Funds shall
be 4:00 p.m., Eastern Time, on April __, 2000, or such earlier or later date and
time as may be mutually agreed in writing by an authorized officer of each of
the parties (the "First Valuation Time"). Subject to Section 4(b) hereof, the
Valuation Time with respect to the Shell Galaxy Funds and the Continuing 1784
Funds shall be 4:00 p.m., Eastern Time, on April __, 2000, or such earlier or
later date and time as may be mutually agreed in writing by an authorized
officer of each of the parties (the "Second Valuation Time" and together with
the First Valuation Time, each an "Applicable Valuation Time"), provided that
the Second Valuation Time shall be no less than one week following the First
Valuation Time, unless otherwise agreed in writing by the parties hereto.
Notwithstanding anything herein to the contrary, in the event that at an
Applicable Valuation Time, (a) the New York Stock Exchange shall be closed to
trading or trading thereon shall be restricted or (b) trading or the reporting
of trading on such exchange or elsewhere shall be disrupted so that, in the
judgment of Galaxy or 1784, accurate appraisal of the value of the net assets of
a Galaxy Fund or a 1784 Fund is impracticable, such Valuation Time shall be
postponed until the first business day after the day when trading shall have
been fully resumed without restriction or disruption, reporting shall have been
restored and accurate appraisal of the value of the net assets of the Galaxy
Funds and the 1784 Funds is practicable in the judgment of Galaxy and 1784.
6. Effective Time of the Reorganization.
(a) Delivery by each Reorganizing 1784 Fund of its respective Assets
to its Corresponding Galaxy Fund, delivery by such Corresponding Galaxy Fund of
its respective
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<PAGE>
Galaxy Fund Shares to such Reorganizing 1784 Fund, and liquidation of each such
Reorganizing 1784 Fund, in each case, pursuant to Section 2 hereof, shall occur
at the opening of business on the next business day following the First
Valuation Time (or on such other date, following the First Valuation Time as is
agreed to in writing by an authorized officer of each of the parties). The date
and time at which the above-described actions are taken shall be the "Applicable
Effective Time of the Reorganization" with respect to the Existing Galaxy Funds
and the Reorganizing 1784 Funds. To the extent any Assets of any Reorganizing
1784 Fund are, for any reason, not transferred to its Corresponding Galaxy Fund
at the Applicable Effective Time of the Reorganization with respect to such
funds, 1784 shall cause such Assets to be transferred in accordance with this
Agreement at the earliest practicable date thereafter.
(b) Delivery by each Continuing 1784 Fund of its respective Assets
to its Corresponding Galaxy Fund, delivery by each such Corresponding Galaxy
Fund, of its respective Galaxy Fund Shares to such Continuing 1784 Fund, and the
liquidation of each such Continuing 1784 Fund, in each case, pursuant to Section
2 hereof, shall occur at the opening of business on the next business day
following the Second Valuation Time (or on such other date following the Second
Valuation Time as is agreed to in writing by an authorized officer of each of
the parties). The date and time at which the above-described actions are taken
shall be the "Applicable Effective Time of the Reorganization" with respect to
the Galaxy Shell Funds and the Continuing 1784 Funds. To the extent any Assets
of any Continuing 1784 Fund are, for any reason, not transferred at the
Applicable Effective Time of the Reorganization with respect to such funds, 1784
shall cause such Assets to be transferred in accordance with this Agreement at
the earliest practicable date thereafter.
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<PAGE>
7. Termination of 1784. Promptly following the Applicable Effective Time
of the Reorganization with respect to the Galaxy Shell Funds and their
Corresponding 1784 Funds, 1784 shall file an application pursuant to Section
8(f) of the 1940 Act for an order declaring that 1784 has ceased to be an
investment company; provided that until such order is granted, 1784 shall
continue to comply with all of its obligations as a registered investment
company under the 1940 Act and under any and all other applicable state and
federal securities laws (including, in the case of each of the foregoing, the
rules and regulations thereunder). 1784 shall, promptly after the Applicable
Effective Time of the Reorganization with respect to the Galaxy Shell Funds and
their Corresponding 1784 Funds, file any final regulatory reports, including,
but not limited to, any Form N-SAR and Rule 24f-2 Notice, with respect to such
1784 Fund(s). All reporting and other obligations of 1784 shall remain the
exclusive responsibility of 1784 up to and including the date on which such 1784
Fund is deregistered and terminated. In addition, promptly following the
Applicable Effective Time of the Reorganization with respect to the Galaxy Shell
Funds and their Corresponding 1784 Funds, 1784 shall be terminated pursuant to
Article IX, Section 4 of its Agreement and Declaration of Trust and shall take
all other steps necessary and proper to effect its complete termination. Without
limiting the generality of the foregoing, (a) the affairs of 1784 shall be
immediately wound up, its contracts discharged and its business liquidated; and
(b) the Trustees of 1784 shall execute and Galaxy shall lodge among the records
of 1784 an instrument in writing setting forth the fact of such termination.
8. Certain Representations, Warranties, Covenants and Agreements of 1784.
1784, on behalf of itself and each of the 1784 Funds, represents, warrants,
covenants and agrees as follows:
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<PAGE>
(a) 1784 is a Massachusetts business trust duly created pursuant to
its Agreement and Declaration of Trust for the purpose of acting as a management
investment company under the 1940 Act and is validly existing under the laws of,
and duly authorized to transact business in, the Commonwealth of Massachusetts.
(b) 1784 is duly and appropriately registered with the SEC as an
open-end, management investment company under the 1940 Act and its registration
with the SEC as such an investment company is in full force and effect as of the
date hereof.
(c) 1784 currently has the power (i) to own all of its Assets, and
(ii) subject to the approval of shareholders referred to in Section 10 hereof,
to carry out and consummate the transactions contemplated herein. 1784 has all
necessary federal, state and local authorizations, licenses and approvals
necessary or desirable to carry on its business as such business is now being
conducted and upon receipt by 1784 of an exemptive order under Section 17 of the
1940 Act, to consummate the transactions contemplated by this Agreement.
(d) This Agreement has been duly and validly authorized, executed
and delivered by 1784, and represents the legal, valid and binding obligation of
1784, enforceable against 1784 in accordance with the terms hereof, subject as
to enforcement to the effect of bankruptcy, insolvency, reorganization,
arrangement, moratorium, fraudulent transfer or conveyance, and other similar
laws of general applicability relating to or affecting creditors' rights and to
general equity principles and provided that the provisions of this Agreement
intended to limit liability for particular matters to an investment portfolio
and its assets, including but not limited to Sections 32 and 33 of this
Agreement, may not be enforceable. The
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<PAGE>
execution and delivery of this Agreement does not, and the consummation of the
transactions contemplated by this Agreement will not, violate the Agreement and
Declaration of Trust or By-laws or any other organizational document of 1784 or
any agreement, contract or other arrangement to which 1784 is a party or by
which 1784 or its properties or Assets may be bound, subject or affected other
than (i) that certain Credit Agreement dated as of August 14, 1998, as amended,
between 1784 and The Chase Manhattan Bank and (ii) that certain Custodian
Agreement, dated as of June 1, 1993 between 1784 and Bank Boston, N.A. and
assigned to Investors Bank & Trust Company pursuant to an Instrument of
Assignment and Assumption dated as of September 30, 1998.
(e) Each 1784 Fund has elected to qualify, and has qualified as of
and since its first taxable year, as a regulated investment company under Part I
of Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"),
and each 1784 Fund currently qualifies, and shall continue to qualify, as a
regulated investment company under such Part of the Code for its taxable year
ending on the date on which the Applicable Effective Time of the Reorganization
occurs. Each 1784 Fund has been a regulated investment company under such Part
of the Code at all times since the end of the first taxable year when it first
so qualified, and shall continue to be a regulated investment company under such
Part of the Code at all times until the Applicable Effective Time of the
Reorganization occurs with respect to such 1784 Fund.
(f) All federal, state, local and foreign income, profits,
franchise, sales, withholding, customs, transfer and other taxes, including,
without limitation, interest, additions to tax, and penalties thereon,
(collectively, "Taxes") that relate to the Assets of 1784 or of any
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<PAGE>
1784 Fund, and that are either due or properly shown to be due on any return
filed by 1784 or of any 1784 Fund have been fully and timely paid or provided
for; and to 1784's knowledge, there are no levies, liens, or other encumbrances
relating to Taxes existing, threatened or pending with respect to the Assets of
1784 (or to any Assets of any 1784 Fund). All federal and other tax returns and
reports of 1784 and each 1784 Fund required by law to be filed on or before the
Applicable Effective Time of the Reorganization, have been or will be filed, and
all federal and other taxes owed by 1784 on behalf of the 1784 Funds, have been
or will be paid so far as due, and to the best of 1784's knowledge, no such
return is currently under audit and no assessment has been asserted with respect
to any such return.
(g) The financial statements of each of the 1784 Funds for its
respective fiscal year ended May 31, 1999, examined by PricewaterhouseCoopers
LLP, copies of which have been previously furnished to Galaxy, present fairly
(i) the financial condition of such 1784 Fund as of the date indicated therein
and (ii) the results of operations of such 1784 Fund for the periods indicated,
in the case of both (i) and (ii), in conformity with generally accepted
accounting principles consistently applied.
(h) Prior to or as of the First Valuation Time, each of the
Reorganizing 1784 Funds shall have declared a dividend or dividends, with a
record date and ex-dividend date prior to or as of the First Valuation Time,
which, together with all previous dividends, shall have the effect of
distributing to its shareholders all of its net investment company income, if
any, for the taxable periods or years ended on or before May 31, 1999 and for
the period from said date to and including the Applicable Effective Time of the
Reorganization (computed without regard to
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<PAGE>
any deduction for dividends paid), and all of its net capital gain, if any,
realized in taxable periods or years ended on or before May 31, 1999 and in the
period from said date to and including the Applicable Effective Time of the
Reorganization.
(i) At the Applicable Valuation Time and the Applicable Effective
Time of the Reorganization with respect to each 1784 Fund, all liabilities of
such 1784 Fund which are required to be reflected in the net asset value per
share of such 1784 Fund in accordance with applicable law are reflected in the
net asset value per share of such 1784 Fund.
(j) To 1784's knowledge, there are currently, and at the Applicable
Valuation Time and the Applicable Effective Time of the Reorganization with
respect to each 1784 Fund there shall be, no legal, administrative or other
proceedings or investigations pending or threatened against or otherwise
involving 1784 or any 1784 Fund which could result in liability on the part of
1784 or a 1784 Fund.
(k) Subject to the approvals of shareholders referred to in Section
10, at both the First Valuation Time and the Applicable Effective Time of the
Reorganization with respect to each Reorganizing 1784 Fund, 1784, on behalf of
each Reorganizing 1784 Fund, shall have full right, power and authority to sell,
assign, transfer and deliver the Assets of such Reorganizing 1784 Fund. Upon
delivery and payment for the Assets of the Reorganizing 1784 Funds as
contemplated in Section 2(b) above, each Corresponding Galaxy Fund shall acquire
good and marketable title to the Assets of its Corresponding 1784 Fund, in each
case, free and clear of all liens and encumbrances, and subject to no
restrictions on the ownership or transfer thereof (except as imposed by federal
or state securities laws).
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<PAGE>
(l) Subject to the approvals of shareholders referred to in Section
10, at both the Second Valuation Time and the Applicable Effective Time of the
Reorganization with respect to each Continuing 1784 Fund, 1784, on behalf of
each Continuing 1784 Fund, shall have full right, power and authority to sell,
assign, transfer and deliver the Assets of such Continuing 1784 Fund. Upon
delivery and payment for the Assets of the Continuing 1784 Fund, as contemplated
in Section 2(b) above, each Shell Galaxy Fund shall acquire good and marketable
title to the Assets of its Corresponding 1784 Fund, in each case, free and clear
of all liens and encumbrances, and subject to no restrictions on the ownership
or transfer thereof (except as imposed by federal or state securities laws).
(m) No consent, approval, authorization or order of any court or
governmental authority, or of any other person or entity, is required for the
consummation by 1784 and by each 1784 Fund of the transactions contemplated by
this Agreement, except as may be required by the 1933 Act, the Securities
Exchange Act of 1934, as amended ("1934 Act"), the 1940 Act, or state securities
laws (including, in the case of each of the foregoing, the rules and regulations
thereunder).
(n) The registration statement filed by Galaxy on Form N-14 relating
to the shares of each Galaxy Fund that will be registered with the SEC pursuant
to this Agreement, together with any and all supplements and amendments thereto
and the documents contained or incorporated therein by reference, as
supplemented and amended, including, without limitation, the proxy statement of
1784 and the prospectuses of 1784 and Galaxy with respect to the transactions
contemplated by this Agreement (such registration statement, together with such
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<PAGE>
supplements and amendments and the documents contained therein or incorporated
therein by reference, as supplemented and amended, the "N-14 Registration
Statement") shall, on the effective date of the N-14 Registration Statement, at
the time of the shareholders' meeting referred to in Section 10 hereof and at
the Applicable Effective Time of the Reorganization, with respect to 1784 or any
of the 1784 Funds: (i) comply in all material respects with the provisions of
the 1933 Act, the 1934 Act, the 1940 Act, and applicable state securities laws
(including, in the case of each of the foregoing, the rules and regulations
thereunder), and (ii) not contain any untrue statement of a material fact or
omit to state a material fact that is required to be stated therein or that is
necessary to make the statements therein not misleading.
(o) All of the issued and outstanding shares of each of the 1784
Funds have been duly and validly issued, are fully paid and non-assessable by
1784 (except that shareholders of a 1784 Fund may under certain circumstances be
held personally liable for its obligations), and were offered for sale and sold
in conformity with all applicable federal and state securities laws (including,
in the case of each of the foregoing, the rules and regulations thereunder). All
shares of any 1784 Fund issued on or after the date hereof shall be duly and
validly issued, fully paid and non-assessable by 1784 (except that shareholders
of a 1784 Fund may under certain circumstances be held personally liable for its
obligations) and offered for sale and sold in conformity with all applicable
federal and state securities laws (including, in the case of each of the
foregoing, the rules and regulations thereunder). No shareholder of any of the
1784 Funds currently has, or will hereafter have, any statutory or contractual
preemptive right of subscription or purchase in respect of any shares of any
1784 Fund.
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<PAGE>
(p) 1784 shall not sell or otherwise dispose of any Galaxy Fund
Shares received in the transactions contemplated herein, except in distribution
to the Recordholders as contemplated herein.
9. Certain Representations, Warranties, Covenants and Agreements of
Galaxy. Galaxy, on behalf of itself and each of the Galaxy Funds, represents,
warrants, covenants and agrees as follows:
(a) Galaxy is a Massachusetts business trust duly created pursuant
to its Declaration of Trust for the purpose of acting as a management investment
company under the 1940 Act and is validly existing under the laws of, and duly
authorized to transact business in, the Commonwealth of Massachusetts.
(b) Galaxy is duly and appropriately registered with the SEC as an
open-end, management investment company under the 1940 Act and its registration
with the SEC as such an investment company is in full force and effect as of the
date hereof.
(c) Galaxy currently has the power to own all of its Assets and to
carry out and consummate the transactions contemplated herein. Galaxy has all
necessary federal, state and local authorizations, licenses and approvals
necessary or desirable to carry on its business as such business is now being
conducted and upon receipt by Galaxy of an exemptive order under Section 17 of
the 1940 Act, to consummate the transactions contemplated by this Agreement.
(d) This Agreement has been duly and validly authorized, executed
and delivered by Galaxy, and represents the legal, valid and binding obligation
of Galaxy,
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<PAGE>
enforceable against Galaxy in accordance with the terms hereof, subject as to
enforcement to the effect of bankruptcy, insolvency, reorganization,
arrangement, moratorium, fraudulent transfer or conveyance, and other similar
laws of general applicability relating to or affecting creditors' rights and to
general equity principles and provided that the provisions of this Agreement
intended to limit liability for particular matters to an investment portfolio
and its assets, including but not limited to Sections 32 and 33 of this
Agreement, may not be enforceable. The execution and delivery of this Agreement
does not, and the consummation of the transactions contemplated by this
Agreement will not, violate the Declaration of Trust or Code of Regulations or
any other organizational document of Galaxy, or any agreement, contract or other
arrangement to which Galaxy is a party or by which Galaxy or its properties or
Assets may be bound, subject or affected.
(e) Each Galaxy Fund has elected to qualify, and has qualified as of
and since its first taxable year, as a regulated investment company under Part I
of Subchapter M of the Code, and each Galaxy Fund has been a regulated
investment company under such Part of the Code at all times since the end of its
first taxable year when it so qualified. Each Galaxy Fund currently qualifies,
and shall continue to qualify, as a regulated investment company under the Code.
(f) All Taxes that relate to the Assets of Galaxy or of any Galaxy
Fund, and that are either due or properly shown to be due on any return filed by
Galaxy or of any Galaxy Fund have been fully and timely paid or provided for;
and to Galaxy's knowledge, there are no levies, liens, or other encumbrances
relating to Taxes existing, threatened or pending with respect
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<PAGE>
to the Assets of Galaxy (or to any Assets of any Galaxy Fund). All federal and
other tax returns and reports of Galaxy and each Galaxy Fund required by law to
be filed on or before the Applicable Effective Time of the Reorganization, have
been or will be filed, and all federal and other taxes owed by Galaxy on behalf
of the Galaxy Funds, have been or will be paid so far as due, and to the best of
Galaxy's knowledge, no such return is currently under audit and no assessment
has been asserted with respect to any such return.
(g) The financial statements of each of the Galaxy Funds for its
respective fiscal year ended October 31, 1999, examined by Ernst & Young LLP,
copies of which have been previously furnished to 1784 Funds, present fairly (i)
the financial condition of such Galaxy Fund as of the date indicated therein and
(ii) the results of operations of such Galaxy Fund for the periods indicated, in
the case of both (i) and (ii), in conformity with generally accepted accounting
principles consistently applied.
(h) At the Applicable Valuation Time and the Applicable Effective
Time of the Reorganization with respect to each Galaxy Fund, all liabilities of
such Galaxy Fund which are required to be reflected in the net asset value per
share of the Galaxy Fund Shares issued by such Galaxy Fund pursuant to this
Agreement in accordance with applicable law are reflected in the net asset value
per share of such Galaxy Fund.
(i) To Galaxy's knowledge, there are currently, and at the
Applicable Valuation Time and the Applicable Effective Time of the
Reorganization with respect to each Galaxy Fund there shall be, no legal,
administrative or other proceedings or investigations
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<PAGE>
pending or threatened against or otherwise involving Galaxy or any Galaxy Fund
which could result in liability on the part of Galaxy or a Galaxy Fund.
(j) No consent, approval, authorization or order of any court or
governmental authority, or of any other person or entity, is required for the
consummation by Galaxy and by each Galaxy Fund of the transactions contemplated
by this Agreement except as may be required by the 1933 Act, 1934 Act, the 1940
Act or state securities laws (including, in the case of each of the foregoing,
the rules and regulations thereunder).
(k) On the effective date of the N-14 Registration Statement, at the
time of the shareholders' meeting referred to in Section 10 hereof and at the
Applicable Effective Time of the Reorganization, with respect to Galaxy or any
of the Galaxy Funds, the N-14 Registration Statement shall: (i) comply in all
material respects with the provisions of the 1933 Act, the 1934 Act, the 1940
Act, and applicable state securities laws (including, in the case of each of the
foregoing, the rules and regulations thereunder), and (ii) not contain any
untrue statement of a material fact or omit to state a material fact that is
required to be stated therein or that is necessary to make the statements
therein not misleading.
(l) The Galaxy Fund Shares to be issued and delivered to each 1784
Fund pursuant to the terms hereof, shall have been duly authorized as of the
Applicable Effective Time of the Reorganization, and, when so issued and
delivered, shall be registered under the 1933 Act, duly and validly issued, and
fully paid and non-assessable by Galaxy (except that shareholders of a Galaxy
Fund may under certain circumstances be held personally liable for its
obligations), and
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<PAGE>
no shareholder of any Galaxy Fund shall have any statutory or contractual
preemptive right of subscription or purchase in respect thereof.
(m) For the period beginning at the Applicable Effective Time of the
Reorganization with respect to the Galaxy Shell Funds and the Continuing 1784
Funds and ending not less than six years thereafter, Galaxy shall provide or
cause to be provided, liability coverage for the officers and trustees of 1784
which covers the actions of such trustees and officers of 1784 for the period
they served as such and is at least comparable to the liability coverage
currently applicable to the trustees and officers of 1784. Galaxy agrees that
all rights to indemnification existing in favor of the 1784 Trustees, acting in
their capacities as such, under 1784's Agreement and Declaration of Trust as in
effect as of the date of this Agreement shall survive the Reorganization as
obligations of Galaxy, shall continue in full force and effect without any
amendment thereto, and shall constitute rights which may be asserted against
Galaxy.
10. Shareholder Action on Behalf of the 1784 Funds. As soon as practicable
after the effective date of the N-14 Registration Statement, but in any event
prior to the Applicable Effective Time of the Reorganization, and as a condition
to the consummation of the transactions contemplated hereby, the Board of
Trustees of 1784 shall call, and subject to obtaining any necessary quorum, 1784
shall hold, a meeting of the shareholders of each of the 1784 Funds for the
purpose of considering and voting upon:
(a) Approval of this Agreement and the transactions contemplated
hereby, including, without limitation, the transfer by such 1784 Fund to its
Corresponding Galaxy Fund,
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<PAGE>
of the Assets belonging to such 1784 Fund and the assumption by such
Corresponding Galaxy Fund of the Liabilities of such 1784 Fund in exchange for
the Galaxy Fund Shares issued by such Corresponding Galaxy Fund to such 1784
Fund, in each case, in accordance with, and at the respective times set forth
in, Section 2 hereof.
(b) The liquidation of such 1784 Fund through the distribution of
the Galaxy Fund Shares received by such 1784 Fund, to the Recordholders of the
1784 Fund as described in this Agreement.
(c) Such other matters as may be determined by the Boards of
Trustees of the parties.
11. N-14 Registration Statement. Galaxy shall file the N-14 Registration
Statement after the N-14 Registration Statement has been approved by 1784.
Galaxy and 1784 have cooperated and shall continue to cooperate with each other,
and have furnished and shall continue to furnish each other with the information
relating to themselves that is required by the 1933 Act, the 1934 Act, the 1940
Act and state securities laws (including, in the case of each of the foregoing,
the rules and regulations thereunder) to be included in the N-14 Registration
Statement (or that is necessary to ensure that the N-14 Registration Statement
does not contain any untrue statement of a material fact and/or to ensure that
the N-14 Registration Statement does not omit to state a material fact that is
required to be stated therein or that is necessary to make the statements
therein not misleading).
12. Galaxy Conditions. The obligations of Galaxy (and of each respective
Galaxy Fund) hereunder shall be subject to the following conditions precedent:
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<PAGE>
(a) This Agreement and the transactions contemplated by this
Agreement shall have been approved by the Board of Trustees of 1784 (including
the determinations required by Rule 17a-8(a) under the 1940 Act) and by the
shareholders of each of the 1784 Funds, in each case, in the manner required by
law.
(b) 1784 shall have duly executed and delivered to Galaxy, on behalf
of each 1784 Fund, such bills of sale, assignments, certificates and other
instruments of transfer ("Transfer Documents") as Galaxy may reasonably deem
necessary or desirable to transfer to the Corresponding Galaxy Fund of such 1784
Fund all of the right, title and interest of such 1784 Fund in and to the
respective Assets of such 1784 Fund. In each case, the Assets of each 1784 Fund
shall be accompanied by all necessary state stock transfer stamps or cash for
the appropriate purchase price therefor.
(c) All representations and warranties of 1784 made in this
Agreement shall be true and correct in all material respects on the date hereof,
on the Applicable Valuation Time and on the Applicable Effective Time of the
Reorganization as if made at and as of such date, and 1784 shall have complied,
in all material respects, with all of its covenants hereunder. As of the
Applicable Valuation Time and at the Applicable Effective Time of the
Reorganization, there shall have been no material adverse change in the
financial position of any 1784 Fund or of 1784 since the date of the financial
statements referred to in Section 8(g), other than those changes (including,
without limitation, changes due to net redemptions) incurred in the ordinary
course of business as an investment company since the date of the financial
statements referred to in Section 8(g). At the Applicable Effective Time of the
Reorganization, Galaxy shall have
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<PAGE>
received a certificate from the President or Vice President of 1784, dated as of
such date, certifying on behalf of 1784, that as of such date each of the
conditions set forth in Section 8 and in this Section 12 have been, and continue
to be, met.
(d) Galaxy shall have received opinions of Bingham Dana LLP,
addressed to Galaxy, in form and substance reasonably satisfactory to Galaxy,
and dated the Applicable Effective Time of the Reorganization, to the effect
that as of the date of such opinion, and subject to qualifications and
conditions reasonably acceptable to Galaxy: (i) 1784 is a Massachusetts business
trust duly organized, validly existing and in good standing under the laws of
the Commonwealth of Massachusetts; (ii) the shares of each Reorganizing or
Continuing 1784 Fund, as appropriate, outstanding at the Applicable Effective
Time of the Reorganization are duly authorized, validly issued, fully paid and
non-assessable by such 1784 Fund (except that shareholders of a 1784 Fund may
under certain circumstances be held personally liable for its obligations), and
to such counsel's knowledge, no shareholder of any 1784 Fund has any statutory
preemptive right to subscription or purchase in respect thereof; (iii) this
Agreement and the Transfer Documents have been duly and validly authorized,
executed and delivered by 1784 and represent the legal, valid and binding
obligations of 1784, enforceable against 1784 in accordance with their terms,
subject to the effect of bankruptcy, insolvency, reorganization, arrangement,
moratorium, marshalling, fraudulent transfer or conveyance and similar laws
relating to or affecting creditors' rights and remedies generally and court
decisions with respect thereto, and such counsel shall express no opinion with
respect to the application of equitable principles in any proceeding, whether at
law or in equity, as to the enforceability of any provision of the Agreement
relating to remedies after default, as to the availability of any specific or
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<PAGE>
equitable relief of any kind, or with respect to the provisions of this
Agreement intended to limit liability for particular matters to a 1784 Fund and
its Assets, including but not limited to Sections 32 and 33 of this Agreement;
(iv) the execution and delivery of this Agreement did not, and the consummation
of the transactions contemplated by this Agreement will not, violate the
Agreement and Declaration of Trust or By-laws of 1784 or except as may be noted
in such opinion, any material agreement known to counsel to which 1784 is a
party or by which 1784 may be bound; and (v) to such counsel's knowledge, no
consent, approval, authorization or order of any court, governmental authority
or agency is required for the consummation by 1784 of the transactions
contemplated by this Agreement, except such as have been obtained under the 1933
Act, the 1934 Act, the 1940 Act, and Massachusetts state securities laws
(including, in the case of each of the foregoing, the rules and regulations
thereunder). Such opinion may rely on a certificate of a 1784 Trustee or the
President or Vice President of 1784 as to factual matters.
(e) The N-14 Registration Statement shall have become effective
under the 1933 Act, and no stop order suspending such effectiveness shall have
been instituted or, to the knowledge of Galaxy, contemplated by the SEC, and the
parties shall have received all permits, licenses and other authorizations
necessary under state securities laws to consummate the transactions
contemplated by this Agreement and all such permits, licenses and other
authorizations shall be in full force and effect at such time.
(f) At the Applicable Effective Time of the Reorganization, 1784
has, as of such date, performed and complied in all material respects with each
of its agreements and covenants required by this Agreement to be performed or
complied with by 1784 prior to or at
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<PAGE>
the Applicable Valuation Time and the Applicable Effective Time of the
Reorganization and Galaxy shall have received a certificate from the President
or Vice President of 1784, dated as of such date, certifying that the conditions
set forth in clause (f) has been satisfied.
(g) 1784's agreements with each of its service contractors shall
have terminated at the Applicable Effective Time of the Reorganization with
respect to the Galaxy Shell Funds and the Continuing 1784 Funds and each party
has received reasonable assurance that no claim for damages (liquidated or
otherwise) will arise as a result of such termination.
(h) Galaxy shall have received the tax opinion provided for in
Section 14 hereof.
(i) Galaxy shall have received any necessary exemptive relief from
the SEC with respect to Section 17(a) of the 1940 Act.
13. 1784 Conditions. The obligations of 1784 (and of each respective 1784
Fund) hereunder shall be subject to the following conditions precedent:
(a) This Agreement and the transactions contemplated by this
Agreement shall have been approved by the Board of Trustees of Galaxy (including
the determinations required by Rule 17a-8(a) under the 1940 Act) and by the
shareholders of each of the 1784 Funds, in each case, in the manner required by
law and further provided that a majority of the shares of those shareholders of
each 1784 Fund who will receive BKB Shares and a majority of the shares of those
shareholders of each 1784 Fund who will receive Trust Shares shall have
separately voted upon and approved this Agreement.
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<PAGE>
(b) All representations and warranties of Galaxy made in this
Agreement shall be true and correct in all material respects on the date hereof,
on the Applicable Valuation Time and on the Applicable Effective Time of the
Reorganization as if made at and as of such date, and Galaxy shall have
complied, in all material respects, with all of its covenants hereunder. As of
the Applicable Valuation Time and at the Applicable Effective Time of the
Reorganization, there shall have been no material adverse change in the
financial position of any Galaxy Fund or of Galaxy since the date of the
financial statements referred to in Section 9(g) other than those changes
(including, without limitation, changes due to net redemptions) incurred in the
ordinary course of business as an investment company since the date of the
financial statements referred to in Section 9(g). At the Applicable Effective
Time of the Reorganization, 1784 shall have received a certificate from the
President or Vice President of Galaxy, dated as of such date, certifying on
behalf of Galaxy, that as of such date each of the conditions set forth in
Section 9 and in this Section 13 have been, and continue to be, met.
(c) 1784 shall have received opinions of Drinker Biddle & Reath LLP,
addressed to 1784 in form and substance reasonably satisfactory to 1784 and
dated the Applicable Effective Time of the Reorganization, to the effect that as
of the date of such opinion, and subject to qualifications and conditions
reasonably acceptable to 1784: (i) Galaxy is a Massachusetts business trust duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Massachusetts; (ii) the shares of each Existing or Shell Galaxy
Fund, as appropriate, to be delivered to its Corresponding 1784 Fund are duly
authorized and upon delivery will be validly issued, fully paid and
non-assessable by such Galaxy Fund (except that shareholders of a Galaxy Fund
may under certain circumstances be held personally liable for
- 31 -
<PAGE>
its obligations), and, to such counsel's knowledge, no shareholder of any Galaxy
Fund has any statutory preemptive right to subscription or purchase in respect
thereof; (iii) this Agreement has been duly and validly authorized, executed and
delivered by Galaxy and represents the legal, valid and binding obligation of
Galaxy, enforceable against Galaxy in accordance with the terms hereof, subject
to the effect of bankruptcy, insolvency, reorganization, arrangement,
moratorium, marshalling, fraudulent transfer or conveyance and similar laws
relating to or affecting creditors' rights and remedies generally and court
decisions with respect thereto, and such counsel shall express no opinion with
respect to the application of equitable principles in any proceeding, whether at
law or in equity, as to the enforceability of any provision of the Agreement
relating to remedies after default, as to the availability of any specific or
equitable relief of any kind, or with respect to the provisions of this
Agreement intended to limit liability for particular matters to a Galaxy Fund
and its Assets, including but not limited to Sections 32 and 33 of this
Agreement; (iv) the execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated by this Agreement will not,
violate the Declaration of Trust or Code of Regulations of Galaxy, or any
material agreement known to such counsel to which Galaxy is a party or by which
Galaxy may be bound; and (v) to such counsel's knowledge, no consent, approval,
authorization or order of any court, governmental authority or agency is
required for the consummation by Galaxy of the transactions contemplated by this
Agreement, except such as have been obtained under the 1933 Act, the 1934 Act,
the 1940 Act, and Massachusetts state securities laws (including, in the case of
each of the foregoing, the rules and regulations thereunder). Such opinion may
rely on the opinion of Ropes & Gray to the extent set forth in such opinion.
- 32 -
<PAGE>
(d) The N-14 Registration Statement shall have become effective
under the 1933 Act and no stop order suspending such effectiveness shall have
been instituted, or, to the knowledge of 1784, contemplated by the SEC, and the
parties shall have received all permits, licenses and other authorizations
necessary under state securities laws to consummate the transactions
contemplated by this Agreement, and all such permits, licenses and other
authorizations shall be in full force and effect at such time.
(e) At the Applicable Effective Time of the Reorganization, Galaxy
has, as of such date, performed and complied in all material respects with each
of its agreements and covenants required by this Agreement to be performed or
complied with by Galaxy prior to or at the Applicable Valuation Time and the
Applicable Effective Time of the Reorganization and 1784 shall have received a
certificate from the President or Vice President of Galaxy, dated as of such
date, certifying that the conditions set forth in this clause (e) has been
satisfied.
(f) 1784 shall have received the tax opinion provided for in Section
14 hereof.
(g) 1784 shall have received any necessary exemptive relief from the
SEC with respect to Section 17(a) of the 1940 Act.
14. Tax Opinion. Galaxy and 1784 Funds shall receive an opinion of Drinker
Biddle & Reath LLP addressed to both Galaxy and 1784 in a form reasonably
satisfactory to them, and dated as of the Applicable Effective Time of the
Reorganization, substantially to the effect that on the basis of facts,
representations, and assumptions set forth in such opinion:
- 33 -
<PAGE>
(a) The Reorganization will consist of seventeen "reorganizations"
within the meaning of Section 368(a) of the Code, and each 1784 Fund and the
Corresponding Galaxy Fund will each be a "party to a reorganization" within the
meaning of Section 368(b) of the Code with respect to such Reorganization;
(b) In accordance with Section 361(a), 361(c)(1) and 357(a) of the
Code, no gain or loss will be recognized by any 1784 Fund upon the transfer of
its Assets and Liabilities to the Corresponding Galaxy Fund in exchange for the
Galaxy Fund Shares of the Corresponding Galaxy Fund;
(c) In accordance with Section 1032(a) of the Code, no gain or loss
will be recognized by each Galaxy Fund upon the receipt of the Assets and
assumption of Liabilities of the Corresponding 1784 Fund in exchange for the
Galaxy Fund Shares;
(d) In accordance with Section 362(b) of the Code, the basis of each
1784 Fund's Assets received by the Corresponding Galaxy Fund pursuant to the
Reorganization will be the same as the basis of those Assets in the hands of the
1784 Fund immediately prior to the Reorganization;
(e) In accordance with Section 1223(2) of the Code, the holding
period of each 1784 Fund's Assets in the hands of the Corresponding Galaxy Fund
will include the period for which such assets have been held by the 1784 Fund;
- 34 -
<PAGE>
(f) In accordance with Section 361(a), 361(c)(1) and 357(a) of the
Code, no gain or loss will be recognized by any 1784 Fund on the distribution to
its shareholders of the Galaxy Fund Shares to be received by the 1784 Fund in
the Reorganization;
(g) In accordance with Section 354(a)(1) of the Code, no gain or
loss will be recognized by the shareholders of any 1784 Fund upon their receipt
of the Corresponding Galaxy Fund Shares in exchange for such shareholders'
shares of the 1784 Fund;
(h) In accordance with Section 358(a)(1) of the Code, the basis of
the Galaxy Fund Shares received by the shareholders of each Corresponding 1784
Fund will be the same as the basis of the 1784 Fund shares surrendered by such
shareholders pursuant to the Reorganization;
(i) In accordance with Section 1223(1) of the Code, the holding
period for the Galaxy Fund Shares received by each 1784 Fund shareholder will
include the period during which such shareholder held the 1784 Fund shares
surrendered therefor, provided that such 1784 Fund shares are held as a capital
asset in the hands of such 1784 Fund shareholder on the date of the exchange;
and
(j) Each Galaxy Fund will succeed to and take into account the tax
attributes described in Section 381(c) of the Code of the Corresponding 1784
Fund as of the Applicable Effective Time of the Reorganization, subject to the
conditions and limitations specified in the Code.
- 35 -
<PAGE>
In rendering such opinion described in this paragraph, Drinker Biddle &
Reath LLP may require and, to the extent it deems necessary and appropriate, may
rely, as to factual matters, upon representations made in certificates of Galaxy
Funds and 1784 Funds, their affiliates, and principal shareholders.
15. Tax Documents. 1784 shall deliver to Galaxy at the Applicable
Effective Time of the Reorganization, confirmations and/or other evidence
satisfactory to Galaxy as to the adjusted tax basis of the Assets of each 1784
Fund delivered to a Galaxy Fund in accordance with the terms of this Agreement.
16. Further Assurances. Subject to the terms and conditions herein
provided, each of the parties hereto shall use its best efforts to take, or
cause to be taken, such action, to execute and deliver, or cause to be executed
and delivered, such additional documents and instruments and to do, or cause to
be done, all things necessary, proper or advisable under the provisions of this
Agreement and under applicable law to consummate and make effective the
transactions contemplated by this Agreement, including, without limitation,
delivering and/or causing to be delivered to the other party hereto each of the
items required under this Agreement as a condition to such party's obligations
hereunder. In addition, 1784 shall deliver or cause to be delivered to Galaxy,
each account, book, record or other document of 1784 required to be maintained
by 1784 pursuant to Section 31(a) of the 1940 Act and Rules 31a-1 to 31a-3
thereunder (regardless of whose possession they are in) (the "Records"). Galaxy
shall maintain such Records for the period required pursuant to Section 31(a) of
the 1940 Act and Rule 31a-2 thereunder.
- 36 -
<PAGE>
17. Termination and Survival of Representations and Warranties. The
representations and warranties of 1784 set forth in this Agreement shall
terminate upon the consummation of the transactions contemplated herein. The
representations and warranties of Galaxy contained in this Agreement shall
survive the consummation of the transactions contemplated herein.
18. Termination of Agreement. This Agreement may be terminated by a party
at any time at or prior to the Applicable Effective Time of the Reorganization
by a vote of a majority of such party's Board of Trustees, as applicable, as
provided below:
(a) By Galaxy if the conditions set forth in Section 12 are not
satisfied as specified in said Section;
(b) By 1784 if the conditions set forth in Section 13 are not
satisfied as specified in said Section; or
(c) By mutual consent of both parties.
If a party terminates this Agreement because one or more of its conditions have
not been fulfilled, or if this Agreement is terminated by mutual consent, this
Agreement will become null and void insofar as it is so terminated without any
liability of any party to the other parties except as otherwise provided herein.
19. Amendment and Waiver. At any time prior to or (to the fullest extent
permitted by law) after approval of this Agreement by the shareholders of 1784
in accordance with Section 10 hereof, (a) the parties hereto may, by written
agreement authorized by their respective Boards
- 37 -
<PAGE>
of Trustees and with or without the approval of their shareholders, amend,
modify or terminate any of the provisions of this Agreement, and (b) any party
may waive any breach by any other party or any failure by any other party to
satisfy any of the conditions to the obligations of the waiving party (such
waiver to be in writing and authorized by an authorized officer of the waiving
party) with or without the approval of such party's shareholders.
20. Governing Law. This Agreement and the transactions contemplated hereby
shall be governed, construed and enforced in accordance with the internal laws
of the Commonwealth of Massachusetts, without giving effect to the conflicts of
law principles of such state.
21. Successors and Assigns. This Agreement shall be binding upon the
respective successors and permitted assigns of the parties hereto. This
Agreement and the rights, obligations and liabilities hereunder may not be
assigned by any party without the prior written consent of all other parties.
22. Beneficiaries. Nothing contained in this Agreement shall be deemed to
create rights in persons not parties hereto (including, without limitation, any
shareholder of Galaxy or 1784) other than (a) the Trustees of 1784 with respect
to the covenants of Galaxy set forth in Section 9(m); and (b) the successors and
permitted assigns of the parties. Nothing in this Section 22 is intended to
limit the rights of shareholders of the 1784 Funds to maintain derivative
actions with respect to this Agreement subject to, and in accordance with,
applicable law.
23. Notices. All notices required or permitted herein shall be in writing
and shall be deemed to be properly given when delivered personally or by
telecopier to the party entitled to receive the notice or when sent by certified
or registered mail, postage prepaid, or delivered to a
- 38 -
<PAGE>
recognized overnight courier service, in each case, properly addressed to the
party entitled to receive such notice at the address or telecopier number stated
below or to such other address or telecopier number as may hereafter be
furnished in writing by notice similarly given by one party to the other party
hereto:
If to Galaxy:
The Galaxy Fund
4400 Computer Drive
Westborough, Massachusetts 01581
With copies to:
W. Bruce McConnel, III, Esq.
Drinker Biddle & Reath LLP
One Logan Square
18th & Cherry Streets
Philadelphia, Pennsylvania 19103
Telecopier Number: (215) 988-2757
If to 1784:
Boston 1784 Funds
c/o SEI Investments Mutual Funds Services
One Freedom Valley Drive
Oaks, Pennsylvania 19458
With copies to:
Roger P. Joseph, Esq.
Bingham Dana LLP
150 Federal Street
Boston, Massachusetts 02110
Telecopier Number: (617) 951-8736
- 39 -
<PAGE>
and
Marianne K. Smythe, Esq.
Wilmer, Cutler & Pickering
2445 M Street, N.W.
Washington, DC 20037-1420
Telecopier Number: (202) 663-6363
24. Expenses and Waivers. With regard to the expenses incurred by 1784 and
Galaxy in connection with this Agreement and the transactions contemplated
hereby, Fleet Investment Advisors Inc. shall bear such expenses or cause one of
its affiliates to bear such expenses. Such expenses shall include but are not
limited to (a) transaction costs incurred in connection with the sale of
securities under paragraph 4(c) of this Agreement but only to the extent that
such sales transactions were entered into because (i) a Galaxy Fund was not
permitted to hold such securities pursuant to its stated investment objectives
or policies; or (ii) the securities of the 1784 Fund when aggregated with its
Corresponding Galaxy Fund would exceed certain percentage limitations to which
the Galaxy Fund is subject; and (b) all expenses incurred to effect the
termination of 1784 and the other actions required under section 7 of this
Agreement. Fleet Investment Advisors, Inc. hereby agrees to waive shareholder
servicing fees as needed to ensure that until the later of one year from the
date of the reorganization or such time as the Galaxy Board of Trustees votes on
the conversion of the BKB Shares to Retail A Shares, the Galaxy Funds total
operating expense ratios will not exceed the pro forma after waiver expense
ratios set forth in Table I-B of the N-14 Registration Statement.
- 40 -
<PAGE>
25. Entire Agreement. This Agreement embodies the entire agreement and
understanding of the parties hereto and supersedes any and all prior agreements,
arrangements and understandings relating to matters provided for herein.
26. Counterparts. This Agreement may be executed in any number of
counterparts, each of which, when executed and delivered shall be deemed to be
an original, but all of which together shall constitute one and the same
instrument.
27. Failure of One Fund to Consummate the Transactions. Subject to the
conditions set forth in this Agreement, and provided that the Reorganization
shall continue to qualify for tax-free treatment under the Code and the opinion
is delivered to Galaxy and 1784 as provided in Section 14 hereof, the failure of
one fund to consummate the transactions contemplated hereby shall not affect the
consummation or validity of the Reorganization with respect to any other fund,
and the provisions of this Agreement shall be construed to effect this intent.
28. No Brokers or Finders. Each of the parties, on behalf of itself and of
each of its funds, hereby represents and warrants to the other party hereto that
that there are no brokers or finders entitled to receive any payments in
connection with the transactions provided for herein.
29. Validity. Whenever possible, each provision and term of this Agreement
shall be interpreted in a manner to be effective and valid, but if any provision
or term of this Agreement is held to be prohibited by law or invalid, then such
provision or term shall be ineffective only in the jurisdiction or jurisdictions
so holding and only to the extent of such prohibition or invalidity,
- 41 -
<PAGE>
without invalidating or affecting in any manner whatsoever the remainder of such
provision or term or the remaining provisions or terms of this Agreement.
30. Effect of Facsimile Signature. A facsimile signature of an authorized
officer of a party hereto on this Agreement and/or any Transfer Document shall
have the same effect as if executed in the original by such officer.
31. Headings. The headings contained herein are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.
32. Galaxy Liability. The names "The Galaxy Fund" and "Trustees of The
Galaxy Fund" refer respectively to the trust created and the trustees, as
trustees but not individually or personally, acting from time to time under a
Declaration of Trust dated March 31, 1986, which is hereby referred to and a
copy of which is on file at the office of the Secretary of State of the
Commonwealth of Massachusetts and at the principal office of Galaxy. The
obligations of Galaxy entered into in the name or on behalf thereof by any of
the trustees, representatives or agents are made not individually, but in such
capacities, and are not binding upon any of the trustees, shareholders or
representatives of Galaxy personally, but bind only the trust property, and all
persons dealing with any series of shares of Galaxy must look solely to the
trust property belonging to such series for the enforcement of any claims
against Galaxy.
- 42 -
<PAGE>
Both parties specifically acknowledge and agree that any liability of
Galaxy under this Agreement with respect to a particular Galaxy Fund, or in
connection with the transactions contemplated herein with respect to a
particular Galaxy Fund, shall be discharged only out of the assets of the
particular Galaxy Fund and that no other portfolio of Galaxy shall be liable
with respect thereto.
33. 1784 Liability. The names "Boston 1784 Funds" and "Trustees of The
Boston 1784 Funds" refer respectively to the trust created and the trustees, as
trustees but not individually or personally, acting from time to time under an
Agreement and Declaration of Trust dated February 5, 1993, which is hereby
referred to and a copy of which is on file at the office of the State Secretary
of the Commonwealth of Massachusetts and at the principal office of 1784. The
obligations of 1784 entered into in the name or on behalf thereof by any of the
trustees, representatives or agents are made not individually, but in such
capacities, and are not binding upon any of the trustees, shareholders or
representatives of 1784 personally, but bind only the trust property, and all
persons dealing with any series of shares of 1784 must look solely to the trust
property belonging to such series for the enforcement of any claims against
1784.
Both parties specifically acknowledge and agree that any liability of 1784
under this Agreement with respect to a 1784 Fund, or in connection with the
transactions contemplated herein with respect to a particular 1784 Fund, shall
be discharged only out of the assets of the particular 1784 Fund and that no
other portfolio of 1784 shall be liable with respect thereto.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their duly authorized officers designated below as of the date first
written above.
THE GALAXY FUND
By: ___________________________
Name:
Title:
BOSTON 1784 FUNDS
By: ___________________________
Name:
Title:
FLEET INVESTMENT ADVISORS INC.,
hereby joins in this Agreement with
respect to, and agrees to be bound by,
Section 24.
By: ___________________________
Name:
Title:
- 44 -
<PAGE>
SCHEDULE A
Column 1 Column 2
-------- --------
1784 FUND GALAXY FUND AND SHARE CLASS
Boston 1784 Tax-Free Money Market Fund Galaxy Tax-Exempt Fund
Shares (purchased other than through BKB Shares
an investment management, trust,
custody or other agency relationship
with BankBoston, N.A.)
Shares (purchased through an Trust Shares
investment management, trust, custody
or other agency relationship with
BankBoston, N.A.)
Boston 1784 U.S. Treasury Money Market Fund Galaxy U.S. Treasury Fund
Shares (purchased other than through BKB Shares
an investment management, trust,
custody or other agency relationship
with BankBoston, N.A.)
Shares (purchased through an Trust Shares
investment management, trust, custody
or other agency relationship with
BankBoston, N.A.)
Boston 1784 Institutional U.S. Treasury Galaxy Institutional Treasury Money
Money Market Fund Market Fund
Shares Shares
Boston 1784 Prime Money Market Fund Galaxy Money Market Fund
Shares (purchased other than through BKB Shares
an investment management, trust,
custody or other agency relationship
with BankBoston, N.A.)
Shares (purchased through an Trust Shares
investment management, trust, custody
or other agency relationship with
BankBoston, N.A.)
A-1
<PAGE>
Column 1 Column 2
-------- --------
1784 FUND GALAXY FUND AND SHARE CLASS
Boston 1784 Institutional Prime Money Galaxy Institutional Money Market
Market Fund Fund
Shares Shares
Boston 1784 Short-Term Income Fund Galaxy Short-Term Bond Fund
Shares (purchased other than through BKB Shares
an investment management, trust,
custody or other agency relationship
with BankBoston, N.A.)
Shares (purchased through an Trust Shares
investment management, trust, custody
or other agency relationship with
BankBoston, N.A.)
Boston 1784 Income Fund Galaxy High Quality Bond Fund
Shares (purchased other than through BKB Shares
an investment management, trust,
custody or other agency relationship
with BankBoston, N.A.)
Shares (purchased through an Trust Shares
investment management, trust, custody
or other agency relationship with
BankBoston, N.A.)
Boston 1784 U.S. Government Medium-Term Galaxy Intermediate Government
Income Fund Income Fund
Shares (purchased other than through BKB Shares
an investment management, trust,
custody or other agency relationship
with BankBoston, N.A.)
Shares (purchased through an Trust Shares
investment management, trust, custody
or other agency relationship with
BankBoston, N.A.)
A-2
<PAGE>
Column 1 Column 2
-------- --------
1784 FUND GALAXY FUND AND SHARE CLASS
Boston 1784 Tax-Exempt Medium-Term Income Galaxy Intermediate Tax-Exempt Bond
Fund Fund
Shares (purchased other than through BKB Shares
an investment management, trust,
custody or other agency relationship
with BankBoston, N.A.)
Shares (purchased through an Trust Shares
investment management, trust, custody
or other agency relationship with
BankBoston, N.A.)
Boston 1784 Connecticut Tax-Exempt Income Galaxy Connecticut Intermediate
Fund Municipal Bond Fund
Shares (purchased other than through BKB Shares
an investment management, trust,
custody or other agency relationship
with BankBoston, N.A.)
Shares (purchased through an Trust Shares
investment management, trust, custody
or other agency relationship with
BankBoston, N.A.)
Boston 1784 Florida Tax-Exempt Income Fund Galaxy Florida Municipal Bond Fund
Shares Shares
Boston 1784 Massachusetts Tax-Exempt Income Galaxy Massachusetts Intermediate
Fund Municipal Bond Fund
Shares (purchased other than through BKB Shares
an investment management, trust,
custody or other agency relationship
with BankBoston, N.A.)
Shares (purchased through an Trust Shares
investment management, trust, custody
or other agency relationship with
BankBoston, N.A.)
A-3
<PAGE>
Column 1 Column 2
-------- --------
1784 FUND GALAXY FUND AND SHARE CLASS
Boston 1784 Rhode Island Tax-Exempt Income Galaxy Rhode Island Municipal Bond
Fund Fund
Shares (purchased other than through BKB Shares
an investment management, trust,
custody or other agency relationship
with BankBoston, N.A.)
Shares (purchased through an Trust Shares
investment management, trust, custody
or other agency relationship with
BankBoston, N.A.)
Boston 1784 Asset Allocation Fund Galaxy Asset Allocation Fund
Shares (purchased other than through BKB Shares
an investment management, trust,
custody or other agency relationship
with BankBoston, N.A.)
Shares (purchased through an Trust Shares
investment management, trust, custody
or other agency relationship with
BankBoston, N.A.)
Boston 1784 Growth and Income Fund Galaxy Growth and Income Fund
Shares (purchased other than through BKB Shares
an investment management, trust,
custody or other agency relationship
with BankBoston, N.A.)
Shares (purchased through an Trust Shares
investment management, trust, custody
or other agency relationship with
BankBoston, N.A.)
Boston 1784 Growth Fund Galaxy Growth Fund II
Shares (purchased other than through BKB Shares
an investment management, trust,
custody or other agency relationship
with BankBoston, N.A.)
Shares (purchased through an Trust Shares
investment management, trust, custody
or other agency relationship with
BankBoston, N.A.)
A-4
<PAGE>
Column 1 Column 2
-------- --------
1784 FUND GALAXY FUND AND SHARE CLASS
Boston 1784 International Equity Fund Galaxy International Equity Fund
Shares (purchased other than through BKB Shares
an investment management, trust,
custody or other agency relationship
with BankBoston, N.A.)
Shares (purchased through an Trust Shares
investment management, trust, custody
or other agency relationship with
BankBoston, N.A.)
<PAGE>
SCHEDULE B
THE GALAXY FUND
("Galaxy")
AMENDED AND RESTATED
PLAN PURSUANT TO RULE 18f-3 FOR OPERATION OF
A MULTI-CLASS SYSTEM
I. INTRODUCTION
On February 23, 1995, the Securities and Exchange Commission (the
"Commission") promulgated Rule 18f-3 under the Investment Company Act of 1940,
as amended (the "1940 Act"), which permits the creation and operation of a
multi-class distribution structure without the need to obtain an exemptive order
under Section 18 of the 1940 Act. Rule 18f-3, which became effective on April 3,
1995, requires an investment company to file with the Commission a written plan
specifying all of the differences among the classes, including the various
services offered to shareholders, the different distribution arrangements for
each class, the methods for allocating expenses relating to those differences
and any conversion features or exchange privileges. On May 25, 1995, the Board
of Trustees of Galaxy authorized Galaxy to operate its multi-class distribution
structure in compliance with Rule 18f-3. On October 10, 1995, Galaxy filed a
Plan pursuant to Rule 18f-3 for operation of a multi-class system (the "Prior
Plan"), which had been approved by the Board of Trustees of Galaxy on September
7, 1995, with the Commission. Prior to the filing of the Prior Plan, Galaxy
operated a multi-class distribution structure pursuant to an exemptive order
granted by the Commission on February 19, 1992. The Amended and Restated Plan
pursuant to Rule 18f-3 for operation of a multi-class system presented herewith,
which was approved by the Board of Trustees of Galaxy on January 25, 2000,
supersedes the Prior Plan and any subsequent Plans pursuant to Rule 18f-3
approved by the Board of Trustees of Galaxy prior to January 25, 2000.
B-1
<PAGE>
II. ATTRIBUTES OF CLASSES
1. Generally
Equity Funds
Galaxy shall offer (a) six classes of shares -- Retail A Shares,
Retail B Shares, Prime A Shares, Prime B Shares, BKB Shares and Trust Shares --
in the Asset Allocation Fund, Growth and Income Fund, and International Equity
Fund, (b) five classes of shares -- Retail A Shares, Retail B Shares, Prime A
Shares, Prime B Shares and Trust Shares -- in the Equity Value Fund, Equity
Income Fund, Small Company Equity Fund, Small Cap Value Fund and Strategic
Equity Fund, (c) three classes of shares -- Retail A Shares, Retail B Shares and
Trust Shares -- in the MidCap Equity Fund and (d) three classes of shares --
Retail A Shares, BKB Shares and Trust Shares -- in the Growth Fund II (each a
"Fund" and collectively, the "Equity Funds").
Bond Funds
Galaxy shall offer (a) six classes of shares -- Retail A Shares,
Retail B Shares, Prime A Shares, Prime B Shares, BKB Shares and Trust Shares --
in the Short-Term Bond Fund, Intermediate Government Income Fund and High
Quality Bond Fund, (b) five classes of shares -- Retail A Shares, Retail B
Shares, Prime A Shares, Prime B Shares and Trust Shares -- in the Tax-Exempt
Bond Fund, (c) three classes of shares -- Retail A Shares, BKB Shares and Trust
Shares -- in the Intermediate Tax-Exempt Bond Fund, Connecticut Intermediate
Municipal Bond Fund, Massachusetts Intermediate Municipal Bond Fund and Rhode
Island Municipal Bond Fund, and (d) two classes of shares -- Retail A Shares and
Trust Shares -- in the Corporate Bond Fund, California Municipal Bond Fund, New
Jersey Municipal Bond Fund, New York Municipal Bond Fund, Connecticut Municipal
Bond Fund and Massachusetts Municipal Bond Fund (each a "Fund" and collectively,
the "Bond Funds").
Money Market Funds
Galaxy shall offer (a) four classes of shares -- Retail A Shares,
Retail B Shares, BKB Shares and Trust Shares -- in the Money Market Fund, (b)
three classes of shares -- Retail A Shares, BKB Shares and Trust Shares -- in
the Tax-Exempt Fund and U.S. Treasury Fund, (c) two classes of shares -- Retail
A Shares and Trust Shares -- in the Government Fund, and (d) two classes of
shares -- Retail A Shares and Prime Shares -- in the Connecticut Municipal Money
Market Fund, Massachusetts Municipal Money Market Fund and New York Municipal
Money Market Fund (each a "Fund" and collectively, the "Money Market Funds").
In general, shares of each class shall be identical except for
different expense variables (which will result in different returns for each
class), certain related rights and certain shareholder services. More
particularly, the Retail A Shares, the Retail B Shares, the Prime A Shares, the
Prime B Shares, the BKB Shares, the Prime Shares and/or the Trust Shares of each
Fund shall represent interests in the same portfolio of investments of the
particular Fund, and
B-2
<PAGE>
shall be identical in all respects, except for: (a) the impact of (i) expenses
assessed to a class pursuant to the Shareholder Services Plan, Distribution and
Services Plan or Distribution Plan adopted for that class, (ii) transfer agency
expenses, and (iii) any other incremental expenses identified from time to time
that should be properly allocated to one class so long as any changes in expense
allocations are reviewed and approved by a vote of the Board of Trustees,
including a majority of the independent Trustees; (b) the fact that (i) the
Retail A Shares shall vote separately on any matter submitted to holders of
Retail A Shares that pertains to the Shareholder Services Plan adopted for that
class; (ii) the Retail B Shares shall vote separately on any matter submitted to
holders of Retail B Shares that pertains to the Distribution and Services Plan
adopted for that class; (iii) the Prime A Shares shall vote separately on any
matter submitted to holders of Prime A Shares that pertains to the Distribution
Plan adopted for that class; (iv) the Prime B Shares shall vote separately on
any matter submitted to holders of B Prime Shares that pertains to the
Distribution and Services Plan adopted for that class; (v) the Prime Shares
shall vote separately on any matter submitted to holders of Prime Shares that
pertains to the Distribution and Services Plan adopted for that class; (vi) the
BKB Shares shall vote separately on any matter submitted to holders of BKB
Shares that pertains to the Shareholder Services Plan adopted for that class;
(vii) the Trust Shares shall vote separately on any matter submitted to holders
of Trust Shares that pertains to the Shareholder Services Plan adopted for that
class; and (viii) each class shall vote separately on any matter submitted to
shareholders that pertains to the class expenses borne by that class; (c) the
exchange privileges of each class of shares; (d) the designation of each class
of shares; and (e) the different shareholder services relating to a class of
shares.
2. Distribution Arrangements, Expenses and Sales Charges
(a) Equity Funds
Retail A Shares
Retail A Shares of the Equity Funds shall be offered to
individuals or corporations who submit a purchase application to Galaxy,
purchasing directly either for their own accounts or for the accounts of others
("Direct Investors") and shall be offered to FIS Securities, Inc., Fleet
Brokerage Securities, Inc., Fleet Securities, Inc., Fleet Enterprises, Inc.,
FleetBoston Corporation, its affiliates, their correspondent banks and other
qualified banks, savings and loan associations and broker/dealers
("Institutions") who purchase the shares on behalf of their customers
("Customers") who are the beneficial owners of the shares.
Retail A Shares of the Equity Funds shall be subject to a
front-end sales charge which shall not initially exceed 3.75% of the offering
price of Retail A Shares of those Funds (subject to the reductions and
exemptions described in the prospectus and Statement of Additional Information
("SAI") for such Shares). When the aggregate offering price of Retail A Shares
of the Equity and Bond Funds purchased by an investor qualifies the investor to
purchase such Retail A Shares without payment of a front-end sales charge, a
contingent deferred sales charge of 1% may be imposed if such Retail A Shares
are redeemed within one year of purchase.
B-3
<PAGE>
Retail A Shares of the Equity Funds shall further be subject
to a fee payable pursuant to the Shareholder Services Plan adopted for that
class of up to .25% (on an annualized basis) of the average daily net asset
value of Retail A Shares beneficially owned by Customers of Institutions.
Services provided by Institutions for such fee may include: (a) aggregating and
processing purchase and redemption requests and placing net purchase and
redemption orders with the distributor; (b) processing dividend payments from an
Equity Fund; (c) providing sub-accounting with respect to Retail A Shares or the
information necessary for sub-accounting; and (d) providing periodic mailings to
Customers.
Retail A Shares of the Equity Funds shall further be subject
to a separate fee payable pursuant to the same Shareholder Services Plan adopted
for that class of up to .25% (on an annualized basis) of the average daily net
asset value of Retail A Shares beneficially owned by Customers of Institutions.
Services provided by Institutions for such separate fee may include: (a)
providing Customers with information as to their positions in Retail A Shares;
(b) responding to Customer inquiries; and (c) providing a service to invest the
assets of Customers in Retail A Shares.
Galaxy shall initially limit the total fees payable by Retail
A Shares of the Equity Funds pursuant to the Shareholder Services Plan adopted
for that class to an amount which shall not initially exceed .30% (on an
annualized basis) of the average daily net asset value of Retail A Shares
beneficially owned by Customers of Institutions.
Retail B Shares
Retail B Shares of the Equity Funds shall be offered to Direct
Investors and to Institutions who purchase the shares on behalf of Customers who
are the beneficial owners of the shares.
Retail B Shares of the Equity Funds, if redeemed within six
years of purchase, shall be subject to a contingent deferred sales charge which
shall not initially exceed 5.0% of the original purchase price or redemption
proceeds, whichever is lower (subject to the reductions and exemptions described
in the prospectus and SAI for such Shares).
Retail B Shares of the Equity Funds shall be further subject
to a fee payable pursuant to the Distribution and Services Plan adopted for the
class (a) for distribution expenses, which shall not initially exceed .65% (on
an annualized basis) of the average daily net asset value of the Equity Funds'
respective outstanding Retail B Shares, (b) for shareholder liaison services,
which shall not initially exceed .25% (on an annualized basis) of the average
daily net assets attributable to Retail B Shares of the respective Equity Funds
that are owned of record or beneficially by customers of securities dealers,
brokers, financial institutions or other industry professionals ("Service
Organizations") that provide shareholder liaison services with respect to such
customers' Retail B Shares, and (c) for administrative support services, which
shall not initially exceed .25% (on an annualized basis) of the average daily
net assets attributable to Retail B Shares of the respective Equity Funds that
are owned of record or
B-4
<PAGE>
beneficially by customers of Service Organizations that provide administrative
support services with respect to such customers' Retail B Shares.
Galaxy shall initially limit the total fees payable by Retail
B Shares of the Equity Funds for shareholder liaison services and administrative
support services pursuant to the Distribution and Services Plan adopted for that
class to an amount not to exceed .30% (on an annualized basis) of the average
daily net asset value of Retail B Shares owned of record or beneficially by
customers of Service Organizations.
Shareholder liaison services provided under the Distribution
and Services Plan means "personal service and/or the maintenance of shareholder
accounts" within the meaning of the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. ("NASD"), such as responding to customer
inquiries and providing information on their investments.
Administrative support services provided under the
Distribution and Services Plan may include, but are not limited to, (a) transfer
agent and subtransfer agent services for beneficial owners of Retail B Shares;
(b) aggregating and processing purchase and redemption orders; (c) providing
beneficial owners with statements showing their positions in Retail B Shares;
(d) processing dividend payments; (e) providing sub-accounting services for
Retail B Shares held beneficially; (f) forwarding shareholder communications,
such as proxies, shareholder reports, dividend and tax notices, and updating
prospectuses to beneficial owners; and (g) reviewing, tabulating and
transmitting proxies executed by beneficial owners.
Prime A Shares
Prime A Shares of the Equity Funds shall be offered through
selected Primes to individual or institutional customers.
Prime A Shares of the Equity Funds shall be subject to a
front-end sales charge which shall not initially exceed 5.50% of the offering
price of Prime A Shares of those Funds (subject to the reductions and exemptions
described in the prospectus and SAI for such Shares). When the aggregate
offering price of Prime A Shares of the Equity and Bond Funds purchased by an
investor qualifies the investor to purchase such Prime A Shares without payment
of a front-end sales charge, a contingent deferred sales charge of 1% may be
imposed if such Prime A Shares are redeemed within one year of purchase.
Prime A Shares of the Equity Funds shall further be subject to
a fee payable pursuant to the Distribution Plan adopted for that class for
distribution expenses, which shall not initially exceed .30% (on an annualized
basis) of the average daily net asset value of the Equity Funds' respective
outstanding Prime A Shares.
B-5
<PAGE>
Prime B Shares
Prime B Shares of the Equity Funds shall be offered through
selected Primes to individual or institutional customers.
Prime B Shares of the Equity Funds, if redeemed within six
years of purchase, shall be subject to a contingent deferred sales charge which
shall not initially exceed 5.0% of the original purchase price or redemption
proceeds, whichever is lower (subject to the reductions and exemptions described
in the prospectus and SAI for such Shares).
Prime B Shares of the Equity Funds shall be further subject to
a fee payable pursuant to the Distribution and Services Plan adopted for the
class (a) for distribution expenses, which shall not initially exceed .75% (on
an annualized basis) of the average daily net asset value of the Equity Funds'
respective outstanding Prime B Shares, (b) for shareholder liaison services,
which shall not initially exceed .25% (on an annualized basis) of the average
daily net assets attributable to Prime B Shares of the respective Equity Funds
that are owned of record or beneficially by customers of securities dealers,
brokers, financial institutions or other industry professionals ("Service
Organizations") that provide shareholder liaison services with respect to such
customers' Prime B Shares, and (c) for administrative support services, which
shall not initially exceed .25% (on an annualized basis) of the average daily
net assets attributable to Prime B Shares of the respective Equity Funds that
are owned of record or beneficially by customers of Service Organizations that
provide administrative support services with respect to such customers' Prime B
Shares.
Galaxy shall initially limit the total fees payable by Prime B
Shares of the Equity Funds for shareholder liaison services and administrative
support services pursuant to the Distribution and Services Plan adopted for that
class to an amount not to exceed .25% (on an annualized basis) of the average
daily net asset value of Prime B Shares owned of record or beneficially by
customers of Service Organizations.
Shareholder liaison services provided under the Distribution
and Services Plan means "personal service and/or the maintenance of shareholder
accounts" within the meaning of the Rules of Fair Practice of the NASD, such as
responding to customer inquiries and providing information on their investments.
Administrative support services provided under the
Distribution and Services Plan may include, but are not limited to, (a) transfer
agent and subtransfer agent services for beneficial owners of Prime B Shares;
(b) aggregating and processing purchase and redemption orders; (c) providing
beneficial owners with statements showing their positions in Prime B Shares; (d)
processing dividend payments; (e) providing subaccounting services for Prime B
Shares held beneficially; (f) forwarding shareholder communications, such as
proxies, shareholder reports, dividend and tax notices, and updating
prospectuses to beneficial owners; and (g) reviewing, tabulating and
transmitting proxies executed by beneficial owners.
B-6
<PAGE>
BKB Shares
BKB Shares of the Equity Funds shall be issued to retail
shareholders of corresponding portfolios of the Boston 1784 Funds (the "1784
Funds") in connection with the reorganization of the 1784 Funds into Galaxy (the
"Galaxy/1784 Reorganization"). Following the Galaxy/1784 Reorganization, BKB
Shares of the Equity Funds shall be available for purchase only by those
shareholders who received BKB Shares in the Galaxy/1784 Reorganization.
BKB Shares of the Equity Funds shall not be subject to a sales
charge.
BKB Shares of the Equity Funds shall be subject to a fee
payable pursuant to the Shareholder Services Plan adopted for that class for
shareholder liaison services, which shall not initially exceed .25% (on an
annualized basis) of the average daily net asset value of BKB Shares
beneficially owned by Customers of Institutions. Services provided by
Institutions for such fee may include: (a) providing Customers with information
as to their positions in BKB Shares; (b) responding to Customer inquiries; and
(c) providing a service to invest the assets of Customers in BKB Shares.
BKB Shares of the Equity Funds shall be subject to a separate
fee payable pursuant to the same Shareholder Services Plan adopted for that
class for administrative support for services, which shall not initially exceed
.25% (on an annualized basis) of the average daily net asset value of BKB Shares
beneficially owned by Customers of Institutions. Services provided by
Institutions for such separate fee may include: (a) aggregating and processing
purchase and redemption requests and placing net purchase and redemption orders
with the distributor; (b) processing dividend payments from an Equity Fund; (c)
providing sub-accounting with respect to BKB Shares or the information necessary
for sub-accounting; and (d) providing periodic mailings to Customers.
Galaxy shall initially limit the total fees payable by BKB
Shares of the Equity Funds pursuant to the Shareholder Services Plan adopted for
that class to an amount which shall not initially exceed .30% (on an annualized
basis) of the average daily net asset value of BKB Shares beneficially owned by
Customers of Institutions.
Trust Shares
Trust Shares of the Equity Funds shall be offered to investors
maintaining qualified accounts at bank and trust institutions, including
subsidiaries of FleetBoston Corporation and to participants in
employer-sponsored defined contribution plans. Trust Shares of the International
Equity Fund also shall be offered to clients, members and employees of Oechsle
International Advisors, LLC, the sub-adviser to that Fund.
Trust Shares of the Equity Funds shall not be subject to a
sales charge and shall not initially be subject to the shareholder servicing fee
payable pursuant to the Shareholder Services Plan adopted but not yet
implemented with respect to such class.
B-7
<PAGE>
(b) Bond Funds
Retail A Shares
Retail A Shares of the Bond Funds shall be offered to Direct
Investors and shall be offered to Institutions who purchase shares on behalf of
Customers. As of the date of filing of this Plan with the Commission, Retail A
Shares of the Corporate Bond Fund shall not initially be offered to investors.
Retail A Shares of the Bond Funds shall be subject to a
front-end sales charge which shall not initially exceed 3.75% of the offering
price of Retail A Shares of those Funds (subject to the reductions and
exemptions described in the prospectus and SAI for such Shares). When the
aggregate offering price of Retail A Shares of the Equity and Bond Funds
purchased by an investor qualifies the investor to purchase such Retail A Shares
without payment of a front-end sales charge, a contingent deferred sales charge
of 1% may be imposed if such Retail A Shares are redeemed within one year of
purchase.
Retail A Shares of the Bond Funds shall further be subject to
a fee payable pursuant to the Shareholder Services Plan adopted for that class
of up to .15% (on an annualized basis) of the average daily net asset value of
Retail A Shares beneficially owned by Customers of Institutions. Services
provided by Institutions for such fee may include: (a) aggregating and
processing purchase and redemption requests and placing net purchase and
redemption orders with the distributor; (b) processing dividend payments from a
Bond Fund; (c) providing sub-accounting with respect to Retail A Shares or the
information necessary for sub-accounting; and (d) providing periodic mailings to
Customers.
Retail A Shares of the Bond Funds shall further be subject to
a separate fee payable pursuant to the same Shareholder Services Plan adopted
for that class of up to .15% (on an annualized basis) of the average daily net
asset value of Retail A Shares beneficially owned by Customers of Institutions.
Services provided by Institutions for such separate fee may include: (a)
providing Customers with information as to their positions in Retail A Shares;
(b) responding to Customer inquiries; and (c) providing a service to invest the
assets of Customers in Retail A Shares.
Galaxy shall initially limit the total fees payable by Retail
A Shares of the Bond Funds pursuant to the Shareholder Services Plan adopted for
that class to an amount which shall not initially exceed .15% (on an annualized
basis) of the average daily net asset value of Retail A Shares beneficially
owned by Customers of Institutions.
B-8
<PAGE>
Retail B Shares
Retail B Shares of the Bond Funds shall be offered to Direct
Investors and to Institutions who purchase the shares on behalf of Customers who
are the beneficial owners of the shares.
Retail B Shares of the Bond Funds, if redeemed within six
years of purchase, shall be subject to a contingent deferred sales charge which
shall not initially exceed 5.0% of the original purchase price or redemption
proceeds, whichever is lower (subject to the reductions and exemptions described
in the prospectus and SAI for such Shares).
Retail B Shares of the Bond Funds shall be further subject to
a fee payable pursuant to the Distribution and Services Plan adopted for the
class (a) for distribution expenses, which shall not initially exceed .65% (on
an annualized basis) of the average daily net asset value of the Bond Funds'
respective outstanding Retail B Shares, (b) for shareholder liaison services,
which shall not initially exceed .25% (on an annualized basis) of the average
daily net assets attributable to Retail B Shares of the respective Bond Funds
that are owned of record or beneficially by customers of securities dealers,
brokers, financial institutions or other industry professionals ("Service
Organizations") that provide shareholder liaison services with respect to such
customers' Retail B Shares, and (c) for administrative support services, which
shall not initially exceed .25% (on an annualized basis) of the average daily
net assets attributable to Retail B Shares of the respective Bond Funds that are
owned of record or beneficially by customers of Service Organizations that
provide administrative support services with respect to such customers' Retail B
Shares.
Galaxy shall initially limit the total fees payable by Retail
B Shares of the Bond Funds for shareholder liaison services and administrative
support services pursuant to the Distribution and Services Plan adopted for that
class to an amount not to exceed .15% (on an annualized basis) of the average
daily net asset value of Retail B Shares owned of record or beneficially by
customers of Service Organizations.
Shareholder liaison services provided under the Distribution
and Services Plan means "personal service and/or the maintenance of shareholder
accounts" within the meaning of the Rules of Fair Practice of the NASD, such as
responding to customer inquiries and providing information on their investments.
Administrative support services provided under the
Distribution and Services Plan may include, but are not limited to, (a) transfer
agent and subtransfer agent services for beneficial owners of Retail B Shares;
(b) aggregating and processing purchase and redemption orders; (c) providing
beneficial owners with statements showing their positions in Retail B Shares;
(d) processing dividend payments; (e) providing subaccounting services for
Retail B Shares held beneficially; (f) forwarding shareholder communications,
such as proxies, shareholder reports, dividend and tax notices, and updating
prospectuses to beneficial owners; and (g) reviewing, tabulating and
transmitting proxies executed by beneficial owners.
B-9
<PAGE>
Prime A Shares
Prime A Shares of the Bond Funds shall be offered through
selected Primes to individual or institutional customers.
Prime A Shares of the Bond Funds shall be subject to a
front-end sales charge which shall not initially exceed 4.75% of the offering
price of Prime A Shares of those Funds (subject to the reductions and exemptions
described in the prospectus and SAI for such Shares). When the aggregate
offering price of Prime A Shares of the Equity and Bond Funds purchased by an
investor qualifies the investor to purchase such Prime A Shares without payment
of a front-end sales charge, a contingent deferred sales charge of 1% may be
imposed if such Prime A Shares are redeemed within one year of purchase.
Prime A Shares of the Bond Funds shall further be subject to a
fee payable pursuant to the Distribution Plan adopted for that class for
distribution expenses, which shall not initially exceed .30% (on an annualized
basis) of the average daily net asset value of the Bond Funds' respective
outstanding Prime A Shares.
Prime B Shares
Prime B Shares of the Bond Funds shall be offered through
selected Primes to individual or institutional customers.
Prime B Shares of the Bond Funds, if redeemed within six years
of purchase, shall be subject to a contingent deferred sales charge which shall
not initially exceed 5.0% of the original purchase price or redemption proceeds,
whichever is lower (subject to the reductions and exemptions described in the
prospectus and SAI for such Shares).
Prime B Shares of the Bond Funds shall be further subject to a
fee payable pursuant to the Distribution and Services Plan adopted for the class
(a) for distribution expenses, which shall not initially exceed .75% (on an
annualized basis) of the average daily net asset value of the Bond Funds'
respective outstanding Prime B Shares, (b) for shareholder liaison services,
which shall not initially exceed .25% (on an annualized basis) of the average
daily net assets attributable to Prime B Shares of the respective Bond Funds
that are owned of record or beneficially by customers of securities dealers,
brokers, financial institutions or other industry professionals ("Service
Organizations") that provide shareholder liaison services with respect to such
customers' Prime B Shares, and (c) for administrative support services, which
shall not initially exceed .25% (on an annualized basis) of the average daily
net assets attributable to Prime B Shares of the respective Bond Funds that are
owned of record or beneficially by customers of Service Organizations that
provide administrative support services with respect to such customers' Prime B
Shares.
B-10
<PAGE>
Galaxy shall initially limit the total fees payable by Prime B
Shares of the Bond Funds for shareholder liaison services and administrative
support services pursuant to the Distribution and Services Plan adopted for that
class to an amount not to exceed .25% (on an annualized basis) of the average
daily net asset value of Prime B Shares owned of record or beneficially by
customers of Service Organizations.
Shareholder liaison services provided under the Distribution
and Services Plan means "personal service and/or the maintenance of shareholder
accounts" within the meaning of the Rules of Fair Practice of the NASD, such as
responding to customer inquiries and providing information on their investments.
Administrative support services provided under the
Distribution and Services Plan may include, but are not limited to, (a) transfer
agent and subtransfer agent services for beneficial owners of Prime B Shares;
(b) aggregating and processing purchase and redemption orders; (c) providing
beneficial owners with statements showing their positions in Prime B Shares; (d)
processing dividend payments; (e) providing subaccounting services for Prime B
Shares held beneficially; (f) forwarding shareholder communications, such as
proxies, shareholder reports, dividend and tax notices, and updating
prospectuses to beneficial owners; and (g) reviewing, tabulating and
transmitting proxies executed by beneficial owners.
BKB Shares
BKB Shares of the Bond Funds shall be issued to retail
shareholders of corresponding portfolios of the 1784 Funds in connection with
the Galaxy/1784 Reorganization. Following the Galaxy/1784 Reorganization, BKB
Shares of the Bond Funds shall be available for purchase only by those
shareholders who received BKB Shares in the Galaxy/1784 Reorganization.
BKB Shares of the Bond Funds shall not be subject to a sales
charge.
BKB Shares of the Bond Funds shall be subject to a fee payable
pursuant to the Shareholder Services Plan adopted for that class for shareholder
liaison services, which shall not initially exceed .15% (on an annualized basis)
of the average daily net asset value of BKB Shares beneficially owned by
Customers of Institutions. Services provided by Institutions for such fee may
include: (a) providing Customers with information as to their positions in BKB
Shares; (b) responding to Customer inquiries; and (c) providing a service to
invest the assets of Customers in BKB Shares.
BKB Shares of the Bond Funds shall further be subject to a
separate fee payable pursuant to the same Shareholder Services Plan adopted for
that class for administrative support services, which shall not initially exceed
.15% (on an annualized basis) of the average daily net asset value of BKB Shares
beneficially owned by Customers of Institutions. Services provided by
Institutions for such separate fee may include: (a) aggregating and processing
B-11
<PAGE>
purchase and redemption requests and placing net purchase and redemption orders
with the distributor; (b) processing dividend payments from a Bond Fund; (c)
providing sub-accounting with respect to BKB Shares or the information necessary
for sub-accounting; and (d) providing periodic mailings to Customers.
Galaxy shall initially limit the total fees payable by BKB
Shares of the Bond Funds pursuant to the Shareholder Services Plan adopted for
that class to an amount which shall not initially exceed .15% (on an annualized
basis) of the average daily net asset value of BKB Shares beneficially owned by
Customers of Institutions.
Trust Shares
Trust Shares of the Bond Funds shall be offered to investors
maintaining qualified accounts at bank and trust institutions, including
subsidiaries of FleetBoston Corporation and, with respect to each Bond Fund
other than the tax-exempt Bond Funds, to participants in employer-sponsored
defined contribution plans. Trust Shares of the Corporate Bond Fund shall also
be offered to Direct Investors and to Institutions who purchase shares on behalf
of Customers. As of the date of filing of this Plan with the Commission, Trust
Shares of the Rhode Island Municipal Bond Fund shall not initially be offered to
investors.
Trust Shares of the Bond Funds shall not be subject to a sales
charge and shall not initially be subject to the shareholder servicing fee
payable pursuant to the Shareholder Services Plan adopted but not yet
implemented with respect to such class.
(c) Money Market Funds
Retail A Shares
Retail A Shares of the Money Market Funds shall be offered to
Direct Investors and shall be offered to Institutions who purchase shares on
behalf of Customers.
Retail A Shares of the Money Market Funds shall not be subject
to a sales charge.
Retail A Shares of the Money Market Funds shall be subject to
a shareholder servicing fee payable pursuant to the Shareholder Services Plan
adopted for that class of up to .25% (on an annualized basis) of the average
daily net asset value of the Retail A Shares beneficially owned by Customers of
Institutions.
Services provided by Institutions for such fee may include:
(a) aggregating and processing purchase and redemption requests and placing net
purchase and redemption orders with Galaxy's distributor; (b) processing
dividend payments from a Money Market Fund; (c) providing Customers with
information as to their position in BKB Shares; (d) providing sub-
B-12
<PAGE>
accounting with respect to Retail A Shares or the information necessary for
sub-accounting; and (e) providing periodic mailings to Customers.
Galaxy shall initially limit the shareholder servicing fee
payable by Retail A Shares of the Money Market Funds pursuant to the Shareholder
Services Plan adopted for that class to an amount which shall not initially
exceed .10% (on an annualized basis) of the average daily net asset value of
Retail A Shares beneficially owned by Customers of Institutions.
Retail B Shares
Retail B Shares of the Money Market Fund shall be offered to
Direct Investors and to Institutions who purchase the shares on behalf of
Customers who are the beneficial owners of the shares.
Retail B Shares of the Money Market Fund, if redeemed within
six years of purchase, shall be subject to a contingent deferred sales charge
which shall not initially exceed 5.0% of the original purchase price or
redemption proceeds, whichever is lower (subject to the reductions and
exemptions described in the prospectus and SAI for such Shares).
Retail B Shares of the Money Market Fund shall be further
subject to a fee payable pursuant to the Distribution and Services Plan adopted
for the class (a) for distribution expenses, which shall not initially exceed
.65% (on an annualized basis) of the average daily net asset value of the Money
Market Fund's outstanding Retail B Shares, (b) for shareholder liaison services,
which shall not initially exceed .05% (on an annualized basis) of the average
daily net assets attributable to Retail B Shares of the Money Market Fund that
are owned of record or beneficially by customers of securities dealers, brokers,
financial institutions or other industry professionals ("Service Organizations")
that provide shareholder liaison services with respect to such customers' Retail
B Shares, and (c) for administrative support services, which shall not initially
exceed .05% (on an annualized basis) of the average daily net assets
attributable to Retail B Shares of the Money Market Fund that are owned of
record or beneficially by customers of Service Organizations that provide
administrative support services with respect to such customers' Retail B Shares.
Shareholder liaison services provided under the Distribution
and Services Plan means "personal service and/or the maintenance of shareholder
accounts" within the meaning of the Rules of Fair Practice of the NASD, such as
responding to customer inquiries and providing information on their investments.
Administrative support services provided under the
Distribution and Services Plan may include, but are not limited to, (a) transfer
agent and subtransfer agent services for beneficial owners of Retail B Shares;
(b) aggregating and processing purchase and redemption orders; (c) providing
beneficial owners with statements showing their positions in Retail B Shares;
(d) processing dividend payments; (e) providing sub-accounting services for
Retail B Shares held beneficially; (f) forwarding shareholder communications,
such as proxies,
B-13
<PAGE>
shareholder reports, dividend and tax notices, and updating prospectuses to
beneficial owners; and (g) reviewing, tabulating and transmitting proxies
executed by beneficial owners.
Prime Shares
Prime Shares of the Money Market Funds shall be offered
through selected Primes to individual or institutional customers.
Prime Shares of the Money Market Funds shall not be subject to
a sales charge.
Prime Shares of the Money Market Funds will be subject to a
fee payable pursuant to the Distribution and Services Plan adopted for the class
(a) for distribution expenses, which shall not initially exceed .75% (on an
annualized basis) of the average daily net asset value of the Money Market
Funds' respective outstanding Prime Shares, and (b) for administrative support
services, which shall not initially exceed .25% (on an annualized basis) of the
average daily net assets attributable to Prime Shares of the respective Money
Market Funds that are owned of record or beneficially by customers of Service
Organizations that provide administrative support services with respect to such
customers' Prime Shares.
Administrative support services provided under the
Distribution and Services Plan may include, but are not limited to, (a)
processing dividend and distribution payments; (b) providing beneficial owners
with statements showing their positions in Prime Shares; (c) arranging for bank
wires; (d) responding to routine inquiries from beneficial owners concerning
their investments in Prime Shares; (e) providing subaccounting services for
Prime Shares; (f) forwarding shareholder communications, such as proxies,
shareholder reports, dividends and tax notices, and updating prospectuses to
beneficial owners; and (g) aggregating and processing purchase and redemption
orders and placing net purchase and redemption orders for beneficial owners.
BKB Shares
BKB Shares of the Money Market Funds shall be issued to retail
shareholders of corresponding portfolios of the 1784 Funds in connection with
the Galaxy/1784 Reorganization. Following the Galaxy/1784 Reorganization, BKB
Shares of the Money Market Funds shall be available for purchase only by those
shareholders who received BKB Shares in the Galaxy/1784 Reorganization.
BKB Shares of the Money Market Funds shall not be subject to a
sales charge.
BKB Shares of the Money Market Funds shall be subject to a fee
payable pursuant to the Shareholder Services Plan adopted for that class for
shareholder liaison and/or
B-14
<PAGE>
administrative support services, which shall not initially exceed .25% (on an
annualized basis) of the average daily net asset value of BKB Shares
beneficially owned by Customers of Institutions.
Services provided by Institutions for such fee may include:
(a) aggregating and processing purchase and redemption requests and placing net
purchase and redemption orders with the distributor; (b) processing dividend
payments from a Money Market Fund; (c) providing Customers with information as
to their position in BKB Shares; (d) providing sub-accounting with respect to
BKB Shares or the information necessary for sub-accounting; and (e) providing
periodic mailings to Customers.
Galaxy shall initially limit the fees payable by BKB Shares of
the Money Market Funds pursuant to the Shareholder Services Plan adopted for
that class to an amount which shall not initially exceed .10% (on an annualized
basis) of the average daily net asset value of BKB Shares beneficially owned by
Customers of Institutions.
Trust Shares
Trust Shares of the Money Market Funds shall be offered to
investors maintaining qualified accounts at bank and trust institutions,
including subsidiaries of FleetBoston Corporation, and with respect to each
Money Market Fund other than the Tax-Exempt Fund, to participants in
employer-sponsored defined contribution plans.
Trust Shares of the Money Market Funds shall not be subject to
a sales charge and shall not initially be subject to the shareholder servicing
fee payable pursuant to the Shareholder Services Plan adopted but not yet
implemented with respect to such class.
3. Exchange Privileges
Retail A Shares
Holders of Retail A Shares generally shall be permitted to exchange
their Retail A Shares in a Fund for Retail A Shares of other Funds of Galaxy or
shares of other funds advised by Fleet Investment Advisors Inc. or its
affiliates in which the shareholders maintain an existing account. No additional
sales charge will be incurred when exchanging Retail A Shares of a Fund for
Retail A Shares of another Fund that imposes a sales charge. Galaxy shall not
initially charge any exchange fee.
Retail B Shares
Holders of Retail B Shares generally shall be permitted to exchange
their Retail B Shares in a Fund for Retail B Shares of other Funds of Galaxy
without paying any exchange fee or contingent deferred sales charge at the time
the exchange is made.
B-15
<PAGE>
Prime A Shares
Holders of Prime A Shares generally shall be permitted to exchange
their Prime A Shares in a Fund for Prime A Shares of other Funds of Galaxy. No
additional sales charge will be incurred when exchanging Prime A Shares of a
Fund for Prime A Shares of another Fund. Galaxy shall not initially charge any
exchange fee.
Prime B Shares
Holders of Prime B Shares generally shall be permitted to exchange
their Prime B Shares in a Fund for Prime B Shares of other Funds of Galaxy
without paying any exchange fee or contingent deferred sales charge at the time
the exchange is made.
BKB Shares
Holders of BKB Shares generally shall be permitted to exchange their
BKB Shares in a Fund for BKB Shares of other Funds of Galaxy. Galaxy shall not
initially charge any exchange fee.
Prime Shares
Galaxy shall not initially offer an exchange privilege to holders of
Prime Shares.
Trust Shares
Galaxy shall not initially offer an exchange privilege to holders of
Trust Shares.
4. Conversion Features
Retail A Shares
Galaxy shall not initially offer a conversion feature to holders of
Retail A Shares.
Retail B Shares
Retail B Shares acquired by purchase generally shall convert
automatically to Retail A Shares, based on relative net asset value, six years
after the beginning of the calendar month in which the Shares were purchased.
Retail B Shares acquired through a reinvestment of dividends or
distributions generally shall convert automatically to Retail A Shares, based on
relative net asset value, at the earlier of (a) six years after the beginning of
the calendar month in which the reinvestment occurred or (b) the date of the
most recently purchased Retail B Shares that were not acquired through
reinvestment of dividends or distributions.
B-16
<PAGE>
Prime A Shares
Galaxy shall not initially offer a conversion feature to holders of
Prime A Shares.
Prime B Shares
Prime B Shares acquired by purchase generally shall convert
automatically to Prime A Shares, based on relative net asset value, eight years
after the beginning of the calendar month in which the Shares were purchased.
Prime B Shares acquired through a reinvestment of dividends or
distributions generally shall convert automatically to Prime A Shares, based on
relative net asset value, at the earlier of (a) eight years after the beginning
of the calendar month in which the reinvestment occurred or (b) the date of the
most recently purchased Prime B Shares that were not acquired through
reinvestment of dividends or distributions.
BKB Shares
BKB Shares generally shall convert to Retail A Shares, based on
relative net asset value, one year after the date of the Galaxy/1784
Reorganization, provided that Galaxy's Board of Trustees has determined that
such conversion is in the best interest of the holders of BKB Shares.
Prime Shares
Galaxy shall not initially offer a conversion feature to holders of
Prime Shares.
Trust Shares
Galaxy shall not initially offer a conversion feature to holders of
Trust Shares.
5. Shareholder Services
(a) Retirement Plans
Retail A Shares, Retail B Shares and BKB Shares
Galaxy shall initially make Retail A Shares, Retail B Shares
and BKB Shares of the Funds (other than the tax-exempt Funds) available for
purchase in connection with the following tax-deferred prototype retirement
plans: individual retirement accounts, simplified employee pension plans,
multi-employee retirement plans and Keogh plans.
B-17
<PAGE>
Prime A Shares, Prime B Shares, Prime Shares and Trust Shares
Galaxy shall not initially make Prime A Shares, Prime B
Shares, Prime Shares or Trust Shares of the Funds available for purchase in
connection with any retirement plans.
(b) Checkwriting Privilege
Retail A Shares, Retail B Shares and BKB Shares - Money Market
Funds
Galaxy shall initially offer a checkwriting privilege to
holders of Retail A Shares, Retail B Shares and BKB Shares of the Money Market
Funds. A charge for use of the checkwriting privilege may be imposed by Galaxy.
Retail A Shares, Retail B Shares and BKB Shares - Equity Funds
and Bond Funds
Galaxy shall not initially offer a checkwriting privilege to
holders of Retail A Shares, Retail B Shares or BKB Shares of the Equity or Bond
Funds.
Prime A Shares, Prime B Shares, Prime Shares and Trust Shares
Galaxy shall not initially offer a checkwriting privilege to
holders of Prime A Shares, Prime B Shares, Prime Shares or Trust Shares.
(c) Automatic Investment Program
Retail A Shares, Retail B Shares and BKB Shares
Direct Investors (with respect to Retail A Shares and Retail B
Shares) and all investors (with respect to BKB Shares) shall initially be
offered an automatic investment program whereby a Direct Investor (with respect
to Retail A Shares and Retail B Shares) or an investor (with respect to BKB
Shares) generally may purchase Retail A Shares, Retail B Shares and/or BKB
Shares, as the case may be, of a Fund on a monthly or quarterly basis by having
a specific amount of money debited from his/her account at a financial
institution.
Galaxy shall not initially offer an automatic investment
program to Customers of Institutions.
Prime A Shares, Prime B Shares, Prime Shares and Trust Shares
Galaxy shall not initially offer an automatic investment
program to holders of Prime A Shares, Prime B Shares, Prime Shares or Trust
Shares.
B-18
<PAGE>
(d) Systematic Withdrawal Plan
Retail A Shares, Retail B Shares and BKB Shares
Direct Investors (with respect to Retail A Shares and Retail B
Shares) and all investors (with respect to BKB Shares) shall initially be
offered a systematic withdrawal plan which, in general, shall permit a Direct
Investor (with respect to Retail A Shares and Retail B Shares) or an investor
(with respect to BKB Shares) to automatically redeem Retail A Shares, Retail B
Shares and/or BKB Shares, as the case may be, on a monthly, quarterly,
semi-annual or annual basis.
Galaxy shall not initially offer a systematic withdrawal plan
to Customers of Institutions.
Prime A Shares, Prime B Shares, Prime Shares and Trust Shares
Galaxy shall not initially offer a systematic withdrawal plan
to holders of Prime A Shares, Prime B Shares, Prime Shares or Trust Shares.
(e) College Investment Program
Retail A Shares, Retail B Shares and BKB Shares
Direct Investors (with respect to Retail A Shares and Retail B
Shares) and all investors (with respect to BKB Shares) shall initially be
offered a college investment program whereby a Direct Investor (with respect to
Retail A Shares and Retail B Shares) or an investor (with respect to BKB Shares)
may purchase Retail A Shares, Retail B Shares and/or BKB Shares of a Fund as a
means to finance a college savings plan.
Galaxy shall not initially offer a college investment program
to Customers of Institutions.
Prime A Shares, Prime B Shares, Prime Shares and Trust Shares
Galaxy shall not initially offer a college investment program
to holders of Prime A Shares, Prime B Shares, Prime Shares or Trust Shares.
(f) Direct Deposit Program
Retail A Shares, Retail B Shares and BKB Shares
Direct Investors (with respect to Retail A Shares and Retail B
Shares) and all investors (with respect to BKB Shares) receiving social security
benefits shall initially be
B-19
<PAGE>
eligible for a direct deposit program whereby a Direct Investor (with respect to
Retail A Shares and Retail B Shares) or an investor (with respect to BKB Shares)
generally may purchase Retail A Shares, Retail B Shares and/or BKB Shares of a
Fund by having social security payments automatically deposited into his or her
Fund account.
Galaxy shall not initially offer a direct deposit program to
Customers of Institutions.
Prime A Shares, Prime B Shares, Prime Shares and Trust Shares
Galaxy shall not initially offer a direct deposit program to
holders of Prime A Shares, Prime B Shares, Prime Shares or Trust Shares.
(g) Information Services
Retail A Shares, Retail B Shares and BKB Shares
Holders of Retail A Shares, Retail B Shares and BKB Shares
shall initially be able to obtain Fund performance and investment information 24
hours a day, 7 days a week by telephoning the Galaxy Information Center - 24
Hour Information Service.
Galaxy shall initially offer Direct Investors (with respect to
Retail A Shares and Retail B Shares) and all investors (with respect to BKB
Shares) a Voice Response System which, in general, will provide a Direct
Investor (with respect to Retail A Shares and Retail B Shares) or an investor
(with respect to BKB Shares) with automated telephone access to Fund and account
information and the ability to make telephone exchanges and redemptions. Galaxy
shall not initially offer Customers of Institutions a voice response system.
Galaxy shall initially offer Direct Investors (with respect to
Retail A Shares and Retail B Shares) and all investors (with respect to BKB
Shares) a Galaxy Shareholder Services telephone number which, in general, will
provide a Direct Investor (with respect to Retail A Shares and Retail B Shares)
or an investor (with respect to BKB Shares) with account information and recent
exchange transaction information. Galaxy shall not initially offer Customers of
Institutions a shareholder services telephone number.
Prime A Shares, Prime B Shares, Prime Shares and Trust Shares
Galaxy shall initially offer holders of Prime A Shares, Prime
B Shares, Prime Shares and Trust Shares a telephone number to call for
applications and information concerning initial purchases and current
performance and a telephone number to call for additional purchases,
redemptions, exchanges and other shareholder services.
Galaxy shall initially offer holders of Trust Shares in the
Corporate Bond Fund the information services described for Retail Shares.
B-20
<PAGE>
(h) Payroll Deduction Program
Retail A Shares, Retail B Shares and BKB Shares
Direct Investors (with respect to Retail A Shares and Retail B
Shares) and all investors (with respect to BKB Shares) shall initially be
offered a payroll deduction program whereby a Direct Investor (with respect to
Retail A Shares and Retail B Shares) or an investor (with respect to BKB Shares)
may purchase Retail A Shares, Retail B Shares and/or BKB Shares of a Fund each
pay period by having a specific amount of money debited from his/her paycheck.
Galaxy shall not initially offer a payroll deduction program
to Customers of Institutions.
Prime A Shares, Prime B Shares, Prime Shares and Trust Shares
Galaxy shall not initially offer a payroll deduction program
to holders of Prime A Shares, Prime B Shares, Prime Shares or Trust Shares.
6. Methodology for Allocating Expenses Among Classes
Class-specific expenses of a Fund shall be allocated to the specific
class of shares of that Fund. Non-class-specific expenses of a Fund shall be
allocated in accordance with Rule 18f-3(c) under the 1940 Act.
B-21
<PAGE>
APPENDIX II
Expense Summaries of the 1784 Funds
and Corresponding Galaxy Funds
The following tables (a) compare the fees and expenses as of October
31, 1999, for the 1784 Funds and their Corresponding Galaxy Funds and (b) show
the estimated fees and expenses for the Corresponding Galaxy Funds on a pro
forma basis after giving effect to the Reorganization. The purpose of these
tables is to assist shareholders in understanding the various costs and expenses
that investors in these portfolios will bear as shareholders. The tables do not
reflect any charges that may be imposed by institutions directly on their
customer accounts in connection with investments in the portfolios. The fund
operating expense levels shown in this Proxy/Prospectus assume current net asset
levels; pro forma expense levels shown should not be considered an actual
representation of future expenses or performance. Such pro forma expense levels
project anticipated levels but may be greater or less than those shown.
The Galaxy Institutional Treasury Money Market Fund, Galaxy
Institutional Money Market Fund, Galaxy Intermediate Tax-Exempt Bond Fund,
Galaxy Connecticut Intermediate Municipal Bond Fund, Galaxy Florida Municipal
Bond Fund, Galaxy Massachusetts Intermediate Municipal Bond Fund and Galaxy
Growth Fund II are new investment portfolios with nominal assets and liabilities
that will commence investment operations upon the completion of the
Reorganization.
In considering the consequences of the Reorganization, if you are a
Retail Shareholder, you should note that BKB Shares of the Galaxy Fund will
convert to Retail A Shares of the Galaxy Fund one year after the Reorganization,
provided that the Galaxy Board of Trustees determines that converting the shares
is in the best interests of the Retail Shareholders holding BKB Shares. Fleet
has committed to waive shareholder servicing fees as needed to ensure that until
the later of one year from the date of the reorganization or such time as the
Galaxy Board of Trustees votes on the conversion of the BKB Shares to Retail A
Shares, the Galaxy Funds total operating expense ratios will not exceed the pro
forma after waiver expense ratios in Table I-B above.
II-1
<PAGE>
BOSTON 1784 TAX-FREE MONEY MARKET FUND - SHARES
GALAXY TAX-EXEMPT FUND - TRUST SHARES,
BKB SHARES AND RETAIL A SHARES
<TABLE>
<CAPTION>
Boston 1784 Tax-
Free Money Galaxy Tax- Combined Fund
Market Fund Exempt Fund Pro Forma
----------- ----------- ---------
Trust BKB Retail A Trust BKB Retail A
All Shares+ Shares Shares Shares Shares Shares Shares
----------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Shareholder Transaction
Expenses:
Maximum Sales Load
Imposed on Purchases
(as a percentage of offering price)......... None None None None None None None
Maximum Sales Load Imposed on
Reinvested Dividends........................ None None None None None None None
Maximum Deferred Sales Load (as a
Percentage of redemption proceeds)......... None None None None None None None
Redemption Fees................................. None None None None None None None
Exchange Fee.................................... None None None None None None None
Annual Fund Operating Expenses:
(as a percentage of average net assets)
Management Fees (before waivers)(1)............. 0.40% 0.40% ++ 0.40% 0.40% 0.40% 0.40%
Distribution and Service (12b-1) Fees........... None None ++ None None None None
Other Expenses(2)............................... 0.11% 0.12% ++ 0.24% 0.10% 0.22% 0.22%
----- ---- ---- ---- ---- ----
Total Fund Operating Expenses(3)
(before waivers)................................. 0.51% 0.52% ++ 0.64% 0.50% 0.62% 0.62%
==== ==== ==== ==== ==== ====
</TABLE>
- ----------
+ Boston 1784 Tax-Free Money Market Fund currently sells its shares
without class designation.
++ BKB Shares will not be issued until the Reorganization is effective.
(1) Management Fees (after waivers) would be 0.37% for the Combined Fund
pro forma.
(2) Affiliates of the Galaxy Fund's investment adviser are currently
waiving a portion of shareholder servicing fees (that are included
in Other Expenses) so that Other Expenses are 0.15% for the BKB
Shares of the Combined Fund Pro Forma.
(3) Total Fund Operating Expenses (after waivers) would be:
Trust Shares BKB Shares Retail A Shares
------------ ---------- ---------------
Combined Fund Pro Forma 0.47% 0.52% 0.59%
II-2
<PAGE>
Example:*
You would pay the following expenses on a $10,000 investment,
assuming (1) 5% gross annual return and (2) the operating expenses remain the
same as those shown on the above table:
<TABLE>
<CAPTION>
Boston 1784
Tax-Free
Money Market Galaxy Tax- Combined Fund
Fund Exempt Fund Pro Forma
---- ----------- ---------
Trust BKB Retail A Trust BKB Retail A
All Shares Shares Shares Shares Shares Shares Shares
---------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
1 year.................. $ 52 $ 53 N/A $ 65 $ 51 $63** $ 63
3 years................. $164 $167 N/A $205 $160 N/A $199
5 years................. $285 $291 N/A $357 $280 N/A $346
10 years................ $640 $653 N/A $798 $628 N/A $774
</TABLE>
- ----------
* This example should not be considered a representation of future
expenses which may be more or less than those shown. The assumed 5%
annual return is hypothetical and should not be considered a
representation of past or future annual return. Actual return may be
greater or less than the assumed amount. This example assumes that
all dividends and other distributions are reinvested.
** BKB Shares will convert to Retail A Shares on the first anniversary
of the Reorganization of the Boston 1784 Tax-Free Money Market Fund
into the Galaxy Tax-Exempt Fund provided that Galaxy's Board of
Trustees determines that the conversion is in the best interests of
the holders of BKB Shares.
The purpose of the foregoing tables is to assist an investor in understanding
the various costs and expenses that an investor in the Funds will bear directly
or indirectly.
II-3
<PAGE>
BOSTON 1784 U.S. TREASURY MONEY MARKET FUND - SHARES
GALAXY U.S. TREASURY FUND - TRUST SHARES,
BKB SHARES AND RETAIL A SHARES
<TABLE>
<CAPTION>
Boston 1784
U.S. Treasury
Money Galaxy U.S. Combined Fund
Market Fund Treasury Fund Pro Forma
----------- ------------- ---------
Trust BKB Retail A Trust BKB Retail A
All Shares+ Shares Shares Shares Shares Shares Shares
----------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price).......... None None None None None None None
Maximum Sales Load Imposed on
Reinvested Dividends......................... None None None None None None None
Maximum Deferred Sales Load (as a
Percentage of redemption proceeds).......... None None None None None None None
Redemption Fees.................................. None None None None None None None
Exchange Fee..................................... None None None None None None None
Annual Fund Operating Expenses:
(as a percentage of average net assets)
Management Fees (before waivers)(1).............. 0.40% 0.39% ++ 0.39% 0.38% 0.38% 0.38%
Distribution and Service (12b-1) Fees............ None None ++ None None None None
Other Expenses................................... 0.32% 0.12% ++ 0.26% 0.10% 0.25% 0.25%
---- ---- ---- ---- ---- ----
Total Fund Operating Expenses (before
waivers)(2)............................................ 0.72% 0.51% ++ 0.65% 0.48% 0.63% 0.63%
==== ==== ==== ==== ==== ====
</TABLE>
- ----------
+ Boston 1784 U.S. Treasury Money Market Fund currently sells its
shares without class designation.
++ BKB Shares will not be issued until the Reorganization is effective.
(1) Management Fees (after waivers) would be:
Boston 1784 U.S. Treasury Money Market Fund 0.33%
(2) Total Fund Operating Expenses (after waivers) would be:
Trust Retail A
Shares Shares BKB Shares Shares
------ ------ ---------- ------
Boston 1784 U.S. Treasury
Money Market Fund 0.65% -- -- --
II-4
<PAGE>
Example:*
You would pay the following expenses on a $10,000 investment,
assuming (1) 5% gross annual return and (2) the operating expenses remain the
same as those shown in the above table:
<TABLE>
<CAPTION>
Boston 1784
U.S. Treasury
Market Money Galaxy U.S. Combined Fund
Fund Treasury Fund Pro Forma
---- ------------- ---------
Trust BKB Retail A Trust BKB Retail A
All Shares Shares Shares Shares Shares Shares Shares
---------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
1 year.................. $ 74 $ 52 N/A $ 66 $ 49 $64** $ 64
3 years................. $230 $164 N/A $208 $154 N/A $202
5 years................. $401 $285 N/A $362 $269 N/A $351
10 years................ $894 $640 N/A $810 $604 N/A $786
</TABLE>
- ----------
* This example should not be considered a representation of future
expenses which may be more or less than those shown. The assumed 5%
annual return is hypothetical and should not be considered a
representation of past or future annual return. Actual return may be
greater or less than the assumed amount. This example assumes that
all dividends and other distributions are reinvested.
** BKB Shares will convert to Retail A Shares on the first anniversary
of the Reorganization of the Boston 1784 U.S. Treasury Money Market
Fund into the Galaxy U.S. Treasury Fund provided that Galaxy's Board
of Trustees determines that the conversion is in the best interests
of the holders of BKB Shares.
The purpose of the foregoing tables is to assist an investor in understanding
the various costs and expenses that an investor in the Funds will bear directly
or indirectly.
II-5
<PAGE>
BOSTON 1784 INSTITUTIONAL U.S. TREASURY
MONEY MARKET FUND - SHARES
GALAXY INSTITUTIONAL TREASURY
MONEY MARKET FUND - SHARES
<TABLE>
<CAPTION>
Boston 1784 Galaxy Institutional
Institutional Treasury
U.S. Treasury Money Market Fund
Money Market Fund Pro Forma
Shares Shares
------ ------
<S> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)..... None None
Maximum Sales Load Imposed on
Reinvested Dividends.................... None None
Maximum Deferred Sales Load (as a percentage
of redemption proceeds)................. None None
Redemption Fees............................. None None
Exchange Fee................................ None None
Annual Fund Operating Expenses:
(as a percentage of average net assets)
Management Fees (before waivers)............ 0.20% 0.20%
Distribution and Service (12b-1) Fees....... None None
Other Expenses(1)........................... 0.11% 0.10%
---- ----
Total Fund Operating Expenses (before waivers)(2). 0.31% 0.30%
==== ====
</TABLE>
- ----------
(1) The administrator of the Galaxy Institutional Treasury Money Market Fund
has agreed to waive fees such that Other Expenses (after waivers) would be
0.06%.
(2) Total Fund Operating Expenses (after waivers) would be:
Shares
------
Galaxy Institutional Treasury Money Market Fund Pro Forma 0.26%
II-6
<PAGE>
Example:*
You would pay the following expenses on a $10,000 investment, assuming (1)
5% gross annual return and (2) the operating expenses remain the same as
those shown in the above table:
Boston 1784 Galaxy Institutional
Institutional U.S. Treasury Money
Treasury Money Market Fund
Market Fund Shares Pro Forma Shares
------------------ ----------------
1 year........................... $ 32 $ 31
3 years.......................... $100 $ 97
5 years.......................... $174 $169
10 years......................... $393 $381
- ----------
* These examples should not be considered a representation of future
expenses which may be more or less than those shown. The assumed 5%
annual return is hypothetical and should not be considered a
representation of past or future annual return. Actual return may be
greater or less than the assumed amount. These examples assume that
all dividends and other distributions are reinvested.
The purpose of the foregoing tables is to assist an investor in understanding
the various costs and expenses that an investor in the Funds will bear directly
or indirectly.
II-7
<PAGE>
BOSTON 1784 PRIME MONEY MARKET FUND - SHARES
GALAXY MONEY MARKET FUND - TRUST SHARES,
BKB SHARES AND RETAIL A SHARES
<TABLE>
<CAPTION>
Boston 1784
Prime Money Galaxy Combined Fund
Market Fund Money Market Fund Pro Forma
----------- ----------------- ---------
Trust BKB Retail A Trust BKB Retail A
All Shares+ Shares Shares Shares Shares Shares Shares
----------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)..... None None None None None None None
Maximum Sales Load Imposed on
Reinvested Dividends.................... None None None None None None None
Maximum Deferred Sales Load (as a
Percentage of redemption proceeds)..... None None None None None None None
Redemption Fees............................. None None None None None None None
Exchange Fee................................ None None None None None None None
Annual Fund Operating Expenses:
(as a percentage of average net assets)
Management Fees (before waivers)(1)......... 0.40% 0.40% ++ 0.40% 0.40% 0.40% 0.40%
Distribution and Service (12b-1) Fees....... None None ++ None None None None
Other Expenses.............................. 0.33% 0.11% ++ 0.28% 0.11% 0.27% 0.27%
---- ---- ---- ---- ---- ----
Total Fund Operating Expenses (before
waivers)(2)....................................... 0.73% 0.51% ++ 0.68% 0.51% 0.67% 0.67%
==== ==== ==== ==== ==== ====
</TABLE>
- ----------
+ Boston 1784 Prime Money Market Fund currently sells its shares
without class designation.
++ BKB Shares will not be issued until the Reorganization is effective.
(1) Management Fees (after waivers) would be:
Boston 1784 Prime Money Market Fund 0.32%
Galaxy Money Market Fund 0.36%
Combined Fund Pro Forma 0.36%
(2) Total Fund Operating Expenses (after waivers) would be:
Retail A
Shares Trust Shares BKB Shares Shares
------ ------------ ---------- ------
Boston 1784 Prime Money
Market Fund 0.65% -- -- --
Galaxy Money Market Fund -- 0.47% -- 0.64%
Combined Fund Pro Forma -- 0.47% 0.63% 0.63%
II-8
<PAGE>
Example:*
You would pay the following expenses on a $10,000 investment,
assuming (1) 5% gross annual return and (2) the operating expenses remain the
same as those shown in the above table:
<TABLE>
<CAPTION>
Boston 1784
Prime Money Combined Fund
Market Fund Galaxy Money Market Fund Pro Forma
----------- ------------------------ ---------
Trust BKB Retail A Trust BKB Retail A
All Shares Shares Shares Shares Shares Shares Shares
---------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
1 year.................. $ 75 $ 52 N/A $ 69 $ 52 $68** $ 68
3 years................. $233 $164 N/A $218 $164 N/A $214
5 years................. $406 $285 N/A $379 $285 N/A $373
10 years................ $906 $640 N/A $847 $640 N/A $835
</TABLE>
- ----------
* This example should not be considered a representation of future
expenses which may be more or less than those shown. The assumed 5%
annual return is hypothetical and should not be considered a
representation of past or future annual return. Actual return may be
greater or less than the assumed amount. This example assumes that
all dividends and other distributions are reinvested.
** BKB Shares will convert to Retail A Shares on the first anniversary
of the reorganization of the Boston 1784 Prime Money Market Fund
into the Galaxy Money Market Fund provided that Galaxy's Board of
Trustees determines that the conversion is in the best interests of
the holders of BKB Shares.
The purpose of the foregoing tables is to assist an investor in understanding
the various costs and expenses that an investor in the Funds will bear directly
or indirectly.
II-9
<PAGE>
BOSTON 1784 INSTITUTIONAL PRIME MONEY MARKET FUND - SHARES
GALAXY INSTITUTIONAL MONEY MARKET FUND - SHARES
<TABLE>
<CAPTION>
Galaxy Institutional
Boston 1784 Money
Institutional Prime Market Fund
Money Market Fund Pro Forma
Shares Shares
------ ------
<S> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)..... None None
Maximum Sales Load Imposed on
Reinvested Dividends.................... None None
Maximum Deferred Sales Load (as a percentage
of redemption proceeds)................. None None
Redemption Fees............................. None None
Exchange Fee................................ None None
Annual Fund Operating Expenses:
(as a percentage of average net assets)
Management Fees (before waivers)(1)......... 0.20% 0.20%
Distribution and Service (12b-1) Fees...... None None
Other Expenses(2)........................... 0.15% 0.10%
---- ----
Total Fund Operating Expenses (before waivers)(3). 0.35% 0.30%
==== ====
</TABLE>
- ----------
(1) Management Fees (after waivers) would be:
Boston 1784 Institutional Prime Money Market Fund 0.15%
(2) The administrator of the Galaxy Institutional Money Market Fund has agreed
to waive fees such that Other Expenses (after waivers) would be 0.08%.
(3) Total Fund Operating Expenses (after waivers) would be:
Boston 1784 Institutional Prime Money Market Fund 0.30%
Galaxy Institutional Money Market Fund Pro Forma 0.28%
II-10
<PAGE>
Example:*
You would pay the following expenses on a $10,000 investment, assuming (1)
5% gross annual return and (2) the operating expenses remain the same as
those shown in the above table:
Galaxy Institutional
Boston 1784 Money
Institional Prime Market Fund
Money Market Fund Pro Forma
Shares Shares
------ ------
1 year............................... $ 36 $ 31
3 years.............................. $113 $ 97
5 years.............................. $197 $169
10 years............................. $443 $381
- ----------
* These examples should not be considered a representation of future
expenses which may be more or less than those shown. The assumed 5%
annual return is hypothetical and should not be considered a
representation of past or future annual return. Actual return may be
greater or less than the assumed amount. These examples assume that
all dividends and other distributions are reinvested.
The purpose of the foregoing tables is to assist an investor in understanding
the various costs and expenses that an investor in the Funds will bear directly
or indirectly.
II-11
<PAGE>
BOSTON 1784 SHORT-TERM INCOME FUND - SHARES
GALAXY SHORT-TERM BOND FUND - TRUST SHARES, BKB SHARES AND RETAIL A SHARES
<TABLE>
<CAPTION>
Boston 1784
Short-Term Galaxy Short- Combined Fund
Income Fund Term Bond Fund Pro Forma
----------- -------------- ---------
Trust BKB Retail A Trust BKB Retail A
All Shares+ Shares Shares Shares Shares Shares Shares
----------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)..... None None None 3.75% None None 3.75%(1)
Maximum Sales Load Imposed on
Reinvested Dividends.................... None None None None None None None
Maximum Deferred Sales Load (as a
Percentage of redemption proceeds)..... None None None None(2) None None None(1),(2)
Redemption Fees............................. None None None None None None None
Exchange Fee................................ None None None None None None None
Annual Fund Operating Expenses:
(as a percentage of average net assets)
Management Fees (before waivers)(3)......... 0.50% 0.75% ++ 0.75% 0.75% 0.75% 0.75%
Distribution and Service (12b-1) Fees(4).... 0.25% None ++ None None None None
Other Expenses (before waivers)(5).......... 0.14% 0.31% ++ 0.55% 0.24% 0.38% 0.40%
---- ---- -- ---- ---- ---- ----
Total Fund Operating Expenses (before
waivers)(6)....................................... 0.89% 1.06% ++ 1.30% 0.99% 1.13% 1.15%
==== ==== == ==== ==== ==== ====
</TABLE>
- ----------
+ The Boston 1784 Short-Term Income Fund currently sells its shares
without class designation.
++ BKB Shares will not be issued until the Reorganization is effective.
(1) There will be no sales load imposed on the conversion of BKB Shares
to Retail A Shares, and no sales front-end or contingent deferred
load will be imposed on subsequent purchases of Retail A Shares by
former 1784 Fund shareholders so long as they keep their account
with Galaxy continuously open.
(2) Except for investments of $500,000 or more. See Appendix IV.
(3) Management Fees (after waivers) would be:
Galaxy Short-Term Bond Fund 0.55%
Combined Fund Pro Forma 0.55%
(4) The Distributor of the 1784 Funds currently waives its entire
Distribution and Service Fee.
(5) Affiliates of the Galaxy Fund's investment adviser are currently
waiving a portion of shareholder servicing fees (that are included
in Other Expenses) so that Other Expenses are 0.23% for BKB Shares
of the Combined Fund Pro Forma.
II-12
<PAGE>
(6) Total Fund Operating Expenses (after waivers) would be:
<TABLE>
<CAPTION>
Trust BKB Retail A
Shares Shares Shares Shares
------ ------ ------ ------
<S> <C> <C> <C> <C>
Boston 1784 Short-Term Income Fund 0.64% -- -- --
Galaxy Short-Term Bond Fund -- 0.86% -- 1.10%
Combined Fund Pro Forma -- 0.79% 0.78% 0.95%
</TABLE>
Example:*
You would pay the following expenses on a $10,000 investment,
assuming (1) 5% gross annual return and (2) the operating expenses remain the
same as those shares in the above table:
<TABLE>
<CAPTION>
Boston 1784
Short-Term Combined Fund
Income Fund Galaxy Short-Term Bond Fund Pro Forma
----------- --------------------------- ---------
Trust BKB Retail A Trust BKB Retail A
All Shares Shares Shares Shares Shares Shares Shares
---------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
1 year ..... $ 91 $ 108 N/A $ 502 $ 101 $115** $ 488
3 years .... $ 284 $ 337 N/A $ 772 $ 315 N/A $ 727
5 years .... $ 493 $ 585 N/A $1,061 $ 547 N/A $ 984
10 years ... $1,096 $1,294 N/A $1,884 $1,213 N/A $1,720
</TABLE>
- ----------
* This example should not be considered a representation of future
expenses which may be more or less than those shown. The assumed 5%
annual return is hypothetical and should not be considered a
representation of past or future annual return. Actual return may be
greater or less than the assumed amount. This example assumes that
all dividends and other distributions are reinvested.
** BKB Shares will convert to Retail A Shares on the first anniversary
of the reorganization of the Boston 1784 Short-Term Income Fund into
the Galaxy Short-Term Bond Fund provided that Galaxy's Board of
Trustees determines that the conversion is in the best interests of
the holders BKB Shares.
The purpose of the foregoing tables is to assist an investor in understanding
the various costs and expenses that an investor in the Funds will bear directly
or indirectly.
II-13
<PAGE>
BOSTON 1784 INCOME FUND - SHARES
GALAXY HIGH QUALITY BOND FUND - TRUST SHARES, BKB SHARES AND RETAIL A SHARES
<TABLE>
<CAPTION>
Boston 1784 Galaxy High Combined Fund
Income Fund Quality Bond Fund Pro Forma
----------- ----------------- ---------
Trust BKB Retail A Trust BKB Retail A
All Shares+ Shares Shares Shares Shares Shares Shares
----------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)..... None None None 3.75% None None 3.75%(1)
Maximum Sales Load Imposed on
Reinvested Dividends.................... None None None None None None None
Maximum Deferred Sales Load (as a
Percentage of redemption proceeds)...... None None None None(2) None None None(1),(2)
Redemption Fees............................. None None None None None None None
Exchange Fee................................ None None None None None None None
Annual Fund Operating Expenses:
(as a percentage of average net assets)
Management Fees (before waivers)(3)......... 0.74% 0.75% ++ 0.75% 0.75% 0.75% 0.75%
Distribution and Service (12b-1) Fees(4).... 0.25% None ++ None None None None
Other Expenses (before waivers)(5).......... 0.12% 0.30% ++ 0.45% 0.19% 0.36% 0.41%
---- ---- ---- ---- ---- ----
Total Fund Operating Expenses (before
waivers)(6)....................................... 1.11% 1.05% ++ 1.20% 0.94% 1.11% 1.16%
==== ==== ==== ==== ==== ====
</TABLE>
- ----------
+ Boston 1784 Income Fund currently sells its shares without class
designation.
++ BKB Shares will not be issued until the Reorganization is effective.
(1) There will be no sales load imposed on the conversion of BKB Shares
to Retail A Shares, and no front-end or contingent deferred sales
load will be imposed on subsequent purchases of Retail A Shares by
former 1784 Fund shareholders so long as they keep the account with
Galaxy continuously open.
(2) Except for investments of $500,000 or more. See Appendix IV.
(3) Management Fees (after waivers) would be:
Boston 1784 Income Fund 0.68%
Galaxy High Quality Bond Fund 0.55%
Combined Fund Pro Forma 0.55%
(4) The Distributor of the 1784 Funds currently waives its entire
Distribution and Service Fee.
(5) Affiliates of the Galaxy Fund's investment adviser are currently
waiving a portion of shareholder servicing fees (that are included
in Other Expenses) so that Other Expenses would be:
BKB
Shares
------
Combined Fund Pro Forma 0.25%
II-14
<PAGE>
(6) Total Fund Operating Expenses (after waivers) would be:
Trust BKB Retail A
Shares Shares Shares Shares
------ ------ ------ ------
Boston 1784 Income Fund 0.80% -- -- --
Galaxy High Quality Bond Fund -- 0.85% -- 1.00%
Combined Fund Pro Forma -- 0.74% 0.80% 0.96%
Example:*
You would pay the following expenses on a $10,000 investment,
assuming (1) 5% gross annual return and (2) the operating expenses remain the
same as those shown in the above table:
<TABLE>
<CAPTION>
Boston 1784 Combined Fund
Income Fund Galaxy High Quality Bond Fund Pro Forma
----------- ----------------------------- ---------
Trust BKB Retail A Trust BKB Retail A
All Shares Shares Shares Shares Shares Shares Shares
---------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
1 year ....... $ 113 $ 107 N/A $ 493 $ 96 $113** $ 489
3 years ...... $ 353 $ 334 N/A $ 742 $ 300 N/A $ 730
5 years ...... $ 612 $ 579 N/A $1,010 $ 520 N/A $ 989
10 years ..... $1,352 $1,283 N/A $1,795 $1,155 N/A $1,731
</TABLE>
- ----------
* This example should not be considered a representation of future
expenses which may be more or less than those shown. The assumed 5%
annual return is hypothetical and should not be considered a
representation of past or future annual return. Actual return may be
greater or less than the assumed amount. This example assumes that
all dividends and other distributions are reinvested.
** BKB Shares will convert to Retail A Shares on the first anniversary
of the reorganization of the Boston 1784 Income Fund into the Galaxy
High Quality Bond Fund provided that Galaxy's Board of Trustees
determines that the conversion is in the best interest of the
holders of BKB Shares.
The purpose of the foregoing tables is to assist an investor in
understanding the various costs and expenses that an investor in the Funds
will bear directly or indirectly.
II-15
<PAGE>
BOSTON 1784 U.S. GOVERNMENT MEDIUM-TERM INCOME FUND - SHARES
GALAXY INTERMEDIATE GOVERNMENT INCOME
FUND - TRUST SHARES, BKB SHARES AND RETAIL A SHARES
<TABLE>
<CAPTION>
Boston 1784
U.S. Galaxy
Government Intermediate
Medium-Term Government Combined Fund
Income Fund Income Fund Pro Forma
----------- ----------- ---------
Trust BKB Retail A Trust BKB Retail A
All Shares+ Shares Shares Shares Shares Shares Shares
----------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)..... None None None 3.75% None None 3.75%(1)
Maximum Sales Load Imposed on
Reinvested Dividends.................... None None None None None None None
Maximum Deferred Sales Load (as a
Percentage of redemption proceeds)..... None None None None(2) None None None(1),(2)
Redemption Fees............................. None None None None None None None
Exchange Fee................................ None None None None None None None
Annual Fund Operating Expenses:
(as a percentage of average net assets)
Management Fees (before waivers)(3)......... 0.74% 0.75% ++ 0.75% 0.75% 0.75% 0.75%
Distribution and Service (12b-1) Fees(4).... 0.25% None ++ None None None None
Other Expenses (before waivers)(5).......... 0.13% 0.16% ++ 0.41% 0.13% 0.33% 0.38%
---- ---- -- ---- ---- ---- ----
Total Fund Operating Expenses (before
waivers)(6)....................................... 1.12% 0.91% ++ 1.16% 0.88% 1.08% 1.13%
==== ==== == ==== ==== ==== ====
</TABLE>
- ----------
+ Boston 1784 U.S. Government Medium-Term Income Fund currently sells
its shares without class designation.
++ BKB Shares will not be issued until the Reorganization is effective.
(1) There will be no sales load imposed on the conversion of BKB Shares
to Retail A Shares, and no front-end or contingent deferred sales
load will be imposed on subsequent purchases of Retail A Shares by
former 1784 Fund shareholders so long as they keep their account
with Galaxy continuously open.
(2) Except for investments of $500,000 or more. See Appendix IV.
(3) Management Fees (after waivers) would be:
Boston 1784 U.S. Government Medium-Term Income Fund 0.67%
Galaxy Intermediate Government Income Fund 0.55%
Combined Fund Pro Forma 0.55%
(4) The Distributor of the 1784 Funds currently waives its entire
Distribution and Service Fee.
(5) Affiliates of the Galaxy Fund's investment adviser are currently
waiving a portion of shareholder servicing fees (that are included
in Other Expenses) so that Other Expenses are 0.25% for BKB Shares
of the Combined Fund Pro Forma.
II-16
<PAGE>
(6) Total Fund Operating Expenses (after waivers) would be:
<TABLE>
<CAPTION>
Trust BKB Retail A
Shares Shares Shares Shares
------ ------ ------ ------
<S> <C> <C> <C> <C>
Boston 1784 U.S. Government Medium-Term Income Fund 0.80% -- -- --
Galaxy Intermediate Government Income Fund -- 0.71% -- 0.96%
Combined Fund Pro Forma -- 0.68% 0.80% 0.93%
</TABLE>
Example:*
You would pay the following expenses on a $10,000 investment,
assuming (1) 5% gross annual return and (2) the operating expenses remain the
same as those shown in the above table:
<TABLE>
<CAPTION>
Boston 1784
U.S.
Government
Medium-Term Galaxy Intermediate Combined Fund
Income Fund Government Income Fund Pro Forma
----------- ---------------------- ---------
Trust BKB Retail A Trust BKB Retail A
All Shares Shares Shares Shares Shares Shares Shares
---------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
1 year ....... $ 114 $ 93 N/A $ 489 $ 90 $110** $ 486
3 years ...... $ 356 $ 290 N/A $ 730 $ 281 N/A $ 721
5 years ...... $ 617 $ 504 N/A $ 989 $ 488 N/A $ 974
10 years ..... $1,363 $1,120 N/A $1,731 $1,084 N/A $1,698
</TABLE>
- ----------
* This example should not be considered a representation of future
expenses which may be more or less than those shown. The assumed 5%
annual return is hypothetical and should not be considered a
representation of past or future annual return. Actual return may be
greater or less than the assumed amount. This example assumes that
all dividends and other distributions are reinvested.
** BKB Shares will convert to Retail A Shares on the first anniversary
of the reorganization of the Boston 1784 U.S. Government Medium-Term
Income Fund into the Galaxy Intermediate Government Income Fund
provided that Galaxy's Board of Trustees determines that the
conversion is in the best interest of the holders of BKB Shares.
The purpose of the foregoing tables is to assist an investor in understanding
the various costs and expenses that an investor in the Funds will bear directly
or indirectly.
II-17
<PAGE>
BOSTON 1784 TAX-EXEMPT MEDIUM-TERM INCOME FUND - SHARES
GALAXY INTERMEDIATE TAX-EXEMPT BOND
FUND - TRUST SHARES, BKB SHARES AND RETAIL A SHARES
<TABLE>
<CAPTION>
Boston 1784 Galaxy Intermediate
Tax-Exempt Tax-Exempt
Medium-Term Bond Fund
Income Fund Pro Forma
----------- ---------
Trust BKB Retail A
All Shares+ Shares Shares Shares++
---------- ------ ------ ------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) .... None None None 3.75%(1)
Maximum Sales Load Imposed on
Reinvested Dividends ................... None None None None
Maximum Deferred Sales Load (as a percentage
of redemption proceeds) ................ None None None None(1),(2)
Redemption Fees ............................ None None None None
Exchange Fee ............................... None None None None
Annual Fund Operating Expenses:
(as a percentage of average net assets)
Management Fees (before waivers)(3)......... 0.74% 0.75% 0.75% 0.75%
Distribution and Service (12b-1) Fees(4) ... 0.25% None None None
Other Expenses(5) .......................... 0.12% 0.13% 0.30% 0.30%
---- ---- ---- ----
Total Fund Operating Expenses (before
waivers)(6) ...................................... 1.11% 0.88% 1.05% 1.05%
==== ==== ==== ====
</TABLE>
- ----------
+ Boston 1784 Tax-Exempt Medium-Term Income Fund currently sells its
shares without class designation.
++ Galaxy does not currently intend to offer Retail A Shares of the
Galaxy Intermediate Tax Exempt Bond Fund until the BKB Shares
convert into Retail A Shares.
(1) There will be no sales load imposed on the conversion of BKB Shares
to Retail A Shares, and no front-end or contingent deferred sales
load will be imposed on subsequent purchases of Retail A Shares by
former 1784 Fund shareholders so long as they keep their account
with Galaxy continuously open.
(2) Except for investments of $500,000 or more. See Appendix IV.
(3) Management Fees (after waivers) would be:
Boston 1784 Tax-Exempt Medium-Term Income Fund 0.68%
Galaxy Intermediate Tax-Exempt Bond Fund Pro Forma 0.63%
(4) The Distributor of the 1784 Funds currently waives its entire
Distribution and Service Fee.
(5) Affiliates of the Galaxy Fund's investment adviser are currently
waiving a portion of shareholder servicing fees (that are included
in Other Expenses) so that Other Expenses are 0.17% for BKB Shares
of the Galaxy Intermediate Tax-Exempt Bond Fund Pro Forma.
II-18
<PAGE>
(6) Total Fund Operating Expenses (after waivers) would be:
<TABLE>
<CAPTION>
Trust BKB Retail A
Shares Shares Shares Shares
------ ------ ------ ------
<S> <C> <C> <C> <C>
Boston 1784 U.S. Tax-Exempt Medium-Term Income Fund 0.80% -- -- --
Galaxy Intermediate Tax-Exempt Bond Fund Pro Forma -- 0.76% 0.80% 0.93%
</TABLE>
Example:*
You would pay the following expenses on a $10,000 investment, assuming (1)
5% gross annual return and (2) the operating expenses remain the same as
those shown in the above table:
<TABLE>
<CAPTION>
Boston 1784 Galaxy Intermediate
Tax-Exempt Tax-Exempt
Medium-Term Bond Fund
Income Fund Pro Forma
----------- ---------
Trust BKB Retail A
Shares Shares Shares Shares
------ ------ ------ ------
<S> <C> <C> <C> <C>
1 year ...................... $ 113 $ 90 $107** $ 478
3 years ..................... $ 353 $ 281 N/A $ 697
5 years ..................... $ 612 $ 488 N/A $ 933
10 years .................... $1,352 $1,084 N/A $1,609
</TABLE>
* These examples should not be considered a representation of future
expenses which may be more or less than those shown. The assumed 5%
annual return is hypothetical and should not be considered a
representation of past or future annual return. Actual return may be
greater or less than the assumed amount. These examples assume that
all dividends and other distributions are reinvested.
** BKB Shares will convert to Retail A Shares on the first anniversary
of the reorganization of the Boston 1784 Tax-Exempt Medium-Term
Income Fund into the Galaxy Intermediate Tax-Exempt Bond Fund
provided that Galaxy's Board of Trustees determines that the
conversion is in the best interests of the holders of BKB Shares.
The purpose of the foregoing tables is to assist an investor in understanding
the various costs and expenses that an investor in the Funds will bear directly
or indirectly.
II-19
<PAGE>
BOSTON 1784 CONNECTICUT TAX-EXEMPT INCOME FUND - SHARES
GALAXY CONNECTICUT INTERMEDIATE MUNICIPAL BOND
FUND - TRUST SHARES, BKB SHARES AND RETAIL A SHARES
<TABLE>
<CAPTION>
Boston 1784 Galaxy Connecticut
Connecticut Intermediate
Tax-Exempt Municipal Bond Fund
Income Fund Pro Forma
----------- ---------
Trust BKB Retail A
All Shares+ Shares Shares Shares++
----------- ------ ------ --------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) .... None None None 3.75%(1)
Maximum Sales Load Imposed on
Reinvested Dividends ................... None None None None
Maximum Deferred Sales Load (as a percentage
of redemption proceeds) ................ None None None None(1),(2)
Redemption Fees ............................ None None None None
Exchange Fee ............................... None None None None
Annual Fund Operating Expenses:
(as a percentage of average net assets)
Management Fees (before waivers)(3) ........ 0.74% 0.75% 0.75% 0.75%
Distribution and Service (12b-1) Fees(4) .. 0.25% None None None
Other Expenses(5)........................... 0.13% 0.15% 0.32% 0.32%
---- ---- ---- ----
Total Fund Operating Expenses (before waivers)(6) 1.12% 0.90% 1.07% 1.07%
==== ==== ==== ====
</TABLE>
- ----------
+ Boston 1784 Connecticut Tax-Exempt Income Fund currently sells its
shares without class designation.
++ Galaxy does not currently intend to offer Retail A Shares of the
Galaxy Connecticut Intermediate Municipal Bond Fund until the BKB
Shares convert into Retail A Shares.
(1) There will be no sales load imposed on the conversion of BKB Shares
to Retail A Shares, and no front-end or contingent deferred sales
load will be imposed on subsequent purchases of Retail A Shares by
former 1784 Fund shareholders so long as they keep their account
with Galaxy continuously open.
(2) Except for investments of $500,000 or more. See Appendix IV.
(3) Management Fees (after waivers) would be:
Boston 1784 Connecticut Tax-Exempt Income Fund 0.67%
Galaxy Connecticut Intermediate Municipal Bond Fund Pro Forma 0.63%
(4) The Distributor of the 1784 Funds currently waives its entire
Distribution and Service Fee.
(5) Affiliates of the Galaxy Fund's investment adviser are currently
waiving a portion of shareholder servicing fees (that are included
in Other Expenses) so that Other Expenses are 0.17% for BKB Shares
of the Galaxy Connecticut Intermediate Municipal Bond Fund Pro
Forma.
II-20
<PAGE>
(6) Total Fund Operating Expenses (after waivers) would be:
<TABLE>
<CAPTION>
Trust BKB Retail A
Shares Shares Shares Shares
------ ------ ------ ------
<S> <C> <C> <C> <C>
Boston 1784 Connecticut Tax-Exempt Income Fund 0.80% -- -- --
Galaxy Connecticut Intermediate Municipal Bond
Fund Pro Forma -- 0.78% 0.80% 0.95%
</TABLE>
Example:*
You would pay the following expenses on a $10,000 investment, assuming (1)
5% gross annual return and (2) the Fund's operating expenses remain the
same as those shown in the above table:
Boston 1784
Connecticut Galaxy Connecticut
Tax-Exempt Intermediate
Income Fund Municipal Bond Fund
----------- -------------------
Trust BKB Retail A
Shares Shares Shares Shares
------ ------ ------ ------
1 year ........................... $ 114 $ 92 $109** $ 480
3 years .......................... $ 356 $ 287 N/A $ 703
5 years .......................... $ 617 $ 498 N/A $ 943
10 years ......................... $1,363 $1,108 N/A $1,632
- ----------
* These examples should not be considered a representation of future
expenses which may be more or less than those shown. The assumed 5% annual
return is hypothetical and should not be considered a representation of
past or future annual return. Actual return may be greater or less than
the assumed amount. These examples assume that all dividends and other
distributions are reinvested.
** BKB Shares will convert to Retail A Shares on the first anniversary of the
reorganization of the Boston 1784 Connecticut Tax-Exempt Income Fund into
the Galaxy Connecticut Intermediate Municipal Bond Fund provided that
Galaxy's Board of Trustees determines that the conversion is in the best
interests of the holders of BKB Shares.
The purpose of the foregoing tables is to assist an investor in understanding
the various costs and expenses that an investor in the Funds will bear directly
or indirectly.
II-21
<PAGE>
BOSTON 1784 FLORIDA TAX-EXEMPT INCOME FUND - SHARES
GALAXY FLORIDA
MUNICIPAL BOND FUND - SHARES
Boston 1784 Galaxy Florida
Florida Municipal Bond
Tax-Exempt Fund
Income Fund Pro Forma
----------- ---------
All Shares Shares
---------- ------
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) .... None None
Maximum Sales Load Imposed on
Reinvested Dividends ................... None None
Maximum Deferred Sales Load (as a percentage
of redemption proceeds) ................ None None
Redemption Fees ............................ None None
Exchange Fee ............................... None None
Annual Fund Operating Expenses:
(as a percentage of average net assets)
Management Fees (before waivers)(1) ........ 0.74% 0.75%
Distribution and Service (12b-1) Fees(2) ... 0.25% None
Other Expenses ............................. 0.15% 0.22%
---- ----
Total Fund Operating Expenses (before waivers)(3) 1.14% 0.97%
==== ====
- ----------
1 Management Fees (after waivers) would be:
Boston 1784 Florida Tax-Exempt Income Fund 0.65%
Galaxy Florida Municipal Bond Fund Pro Forma 0.58%
2 The Distributor of the 1784 Funds currently waives its entire
Distribution and Service Fee.
3 Total Fund Operating Expenses (after waivers) would be:
Boston 1784 Florida Tax-Exempt Income Fund 0.80%
Galaxy Florida Municipal Bond Fund Pro Forma 0.80%
II-22
<PAGE>
Example:*
You would pay the following expenses on a $10,000 investment, assuming (1)
5% gross annual return and (2) the Fund's operating expenses remain the
same as those shown in the above table:
Galaxy Florida
Boston 1784 Municipal Bond
Florida Tax-Exempt Fund
Income Fund Pro Forma
----------- ---------
Shares Shares
------ ------
1 year................................... $116 $ 99
3 years.................................. $362 $309
5 years.................................. $628 $536
10 years................................. $1,386 $1,190
- ----------
* These examples should not be considered a representation of future
expenses which may be more or less than those shown. The assumed 5%
annual return is hypothetical and should not be considered a
representation of past or future annual return. Actual return may be
greater or less than the assumed amount. These examples assume that
all dividends and other distributions are reinvested.
The purpose of the foregoing tables is to assist an investor in understanding
the various costs and expenses that an investor in the Funds will bear directly
or indirectly.
II-23
<PAGE>
BOSTON 1784 MASSACHUSETTS TAX-EXEMPT INCOME FUND - SHARES
GALAXY MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND
FUND - TRUST SHARES, BKB SHARES AND RETAIL A SHARES
<TABLE>
<CAPTION>
Boston 1784 Galaxy Massachusetts
Massachusetts Intermediate
Tax-Exempt Municipal Bond Fund
Income Fund Pro Forma
----------- ---------
Trust BKB Retail A
All Shares+ Shares Shares Shares++
------------- ------ ------ --------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) ...... None None None 3.75%(1)
Maximum Sales Load Imposed on
Reinvested Dividends ..................... None None None None
Maximum Deferred Sales Load (as a percentage
of redemption proceeds) .................. None None None None(1,2)
Redemption Fees ............................ None None None None
Exchange Fee ............................... None None None None
Annual Fund Operating Expenses:
(as a percentage of average net assets)
Management Fees (before waivers)(3) ........ 0.74% 0.75% 0.75% 0.75%
Distribution and Service (12b-1) Fees(4) ... 0.25% None None None
Other Expenses(5) .......................... 0.13% 0.15% 0.32% 0.32%
---- ---- ---- ----
Total Fund Operating Expenses (before
waivers)(6) ................................... 1.12% 0.90% 1.07% 1.07%
==== ==== ==== ====
</TABLE>
- ----------
+ Boston 1784 Massachusetts Tax-Exempt Income Fund currently sells its
shares without class designation.
++ Galaxy does not currently intend to offer Retail A Shares of the
Galaxy Massachusetts Intermediate Municipal Bond Fund until the BKB
Shares convert into Retail A Shares.
(1) There will be no sales load imposed on the conversion of BKB Shares
to Retail A Shares, and no front-end or contingent deferred sales
load will be imposed on subsequent purchases of Retail A Shares by
former 1784 Fund shareholders so long as they keep their account
with Galaxy continuously open.
(2) Except for investments of $500,000 or more. See Appendix IV.
(3) Management Fees (after waivers) would be:
Boston 1784 Massachusetts Tax-Exempt Income Fund 0.67%
Galaxy Massachusetts Intermediate Municipal
Bond Fund Pro Forma 0.63%
(4) The Distributor of the 1784 Funds currently waives its entire
Distribution and Service Fee.
(5) Affiliates of the Galaxy Fund's investment adviser are currently
waiving a portion of shareholder servicing fees (that are included
in Other Expenses) so that Other Expenses are 0.17% for BKB Shares
of the Galaxy Massachusetts Intermediate Municipal Bond Fund Pro
Forma.
II-24
<PAGE>
(6) Total Fund Operating Expenses (after waivers) would be:
<TABLE>
<CAPTION>
Trust BKB Retail A
Shares Shares Shares Shares
------ ------ ------ ------
<S> <C> <C> <C> <C>
Boston 1784 Massachusetts Tax-Exempt Income Fund 0.80% -- -- --
Galaxy Massachusetts Intermediate Municipal Bond
Fund Pro Forma -- 0.78% 0.80% 0.95%
</TABLE>
Example:*
You would pay the following expenses on a $10,000 investment, assuming (1)
5% gross annual return and (2) the Fund's operating expenses remain the
same as those shown in the above table.
Boston 1784 Galaxy Massachusetts
Massachusetts Intermediate
Tax-Exempt Municipal Bond Fund
Income Fund Pro Forma
----------- ---------
Trust BKB Retail A
Shares Shares Shares Shares
------ ------ ------ ------
1 year ....................... $114 $92 $109** $480
3 years ...................... $356 $287 N/A $703
5 years ...................... $617 $498 N/A $943
10 years ..................... $1,363 $1,108 N/A $1,632
- ----------
* These examples should not be considered a representation of future
expenses which may be more or less than those shown. The assumed 5%
annual return is hypothetical and should not be considered a
representation of past or future annual return. Actual return may be
greater or less than the assumed amount. These examples assume that
all dividends and other distributions are reinvested.
** BKB Shares will convert to Retail A Shares on the first anniversary
of the reorganization of the Boston 1784 Massachusetts Tax-Exempt
Income Fund into the Galaxy Massachusetts Intermediate Municipal
Bond Fund provided that Galaxy's Board of Trustees determines that
the conversion is in the best interests of the holders of BKB
Shares.
The purpose of the foregoing tables is to assist an investor in understanding
the various costs and expenses that an investor in the Funds will bear directly
or indirectly.
II-25
<PAGE>
BOSTON 1784 RHODE ISLAND TAX-EXEMPT INCOME FUND - SHARES
GALAXY RHODE ISLAND MUNICIPAL BOND FUND -
TRUST SHARES, BKB SHARES AND RETAIL A SHARES
<TABLE>
<CAPTION>
Boston
1784 Rhode
Island
Tax-Exempt Galaxy Rhode Island Combined Fund
Income Fund Municipal Bond Fund Pro Forma
----------- ------------------- ---------
Trust BKB Retail A Trust BKB Retail A
All Shares+ Shares Shares Shares Shares Shares Shares
----------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price) .................. None None None 3.75% None None 3.75%(1)
Maximum Sales Load Imposed on
Reinvested Dividends ............. None None None None None None None
Maximum Deferred Sales Load (as a
percentage of redemption proceeds) None None None None(1) None None None(1,2)
Redemption Fees ................... None None None None None None None
Exchange Fee ...................... None None None None None None None
Annual Fund Operating Expenses:
(as a percentage of average net
assets)
Management Fees (before waivers)(3) 0.74% + ++ 0.75% 0.75% 0.75% 0.75%
Distribution and Service
(12b-1) Fees(4) ................. 0.25% + ++ None None None None
Other Expenses .................... 0.14% + ++ 0.42% 0.17% 0.19% 0.19%
---- ---- ---- ---- ----
Total Fund Operating Expenses
(before waivers)(5) ............... 1.13% + ++ 1.17% 0.92% 0.94% 0.94%
==== ==== ==== ==== ====
</TABLE>
- ----------
+ Boston 1784 Rhode Island Tax-Exempt Income Fund currently sells its
shares without class designation.
++ BKB Shares will not be issued until the Reorganization is effective.
+ As of October 31, 1999, no Trust Shares of the Galaxy Rhode Island
Municipal Bond Fund were outstanding.
(1) There will be no sales load imposed on the conversion of BKB Shares
to Retail A Shares, and no front-end or contingent deferred sales
load will be imposed on subsequent purchases of Retail A Shares by
former 1784 Fund shareholders so long as they keep their account
with Galaxy continuously open.
(2) Except for investments of $500,000 or more. See Appendix IV.
(3) Management Fees (after waivers) would be:
Boston 1784 Rhode Island Tax-Exempt Income Fund 0.66%
Galaxy Rhode Island Municipal Bond Fund 0.35%
Combined Fund Pro Forma 0.55%
(4) The Distributor of the 1784 Funds currently waives its entire
Distribution and Service Fee.
II-26
<PAGE>
(5) Total Fund Operating Expenses (after waivers) would be:
<TABLE>
<CAPTION>
Trust BKB Retail A
Shares Shares Shares Shares
------ ------ ------ ------
<S> <C> <C> <C> <C>
Boston 1784 U.S. Rhode Island Tax-Exempt Income Fund 0.80% -- -- --
Galaxy Rhode Island Municipal Bond Fund -- -- -- 0.77%
Combined Fund Pro Forma -- 0.72% 0.74% 0.74%
</TABLE>
Example:*
You would pay the following expenses on a $10,000 investment,
assuming (1) 5% gross annual return and (2) the Fund's operating expenses remain
the same as those shown in the table above:
<TABLE>
<CAPTION>
Boston 1784 Rhode
Island Tax-Exempt Galaxy Rhode Island Combined Fund
Income Fund Municipal Bond Fund Pro Forma
----------- ------------------- ---------
Trust BKB Retail A Trust BKB Retail A
Shares Shares Shares Shares Shares Shares Shares
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
1 year.............. $115 N/A N/A $490 $ 94 $ 96** $467
3 years............. $359 N/A N/A $733 $293 N/A $663
5 years............. $622 N/A N/A $995 $509 N/A $876
10 years............ $1,375 N/A N/A $1,742 $1,131 N/A $1,486
</TABLE>
- ----------
* This example should not be considered a representation of future
expenses which may be more or less than those shown. The assumed 5%
annual return is hypothetical and should not be considered a
representation of past or future annual return. Actual return may be
greater or less than the assumed amount. This example assumes that
all dividends and other distributions are reinvested.
** BKB Shares will convert to Retail A Shares on the first anniversary
of the reorganization of the Boston 1784 Rhode Island Tax-Exempt
Income Fund into the Galaxy Rhode Island Municipal Bond Fund
provided that Galaxy's Board of Trustees determines that the
conversion is in the best interests of the holders of BKB Shares.
The purpose of the foregoing tables is to assist an investor in understanding
the various costs and expenses that an investor in the Funds will bear directly
or indirectly.
II-27
<PAGE>
BOSTON 1784 ASSET ALLOCATION FUND - SHARES
GALAXY ASSET ALLOCATION FUND -
TRUST SHARES, BKB SHARES AND RETAIL A SHARES
<TABLE>
<CAPTION>
Boston
1784 Rhode
Island
Tax-Exempt Galaxy Rhode Island Combined Fund
Income Fund Municipal Bond Fund Pro Forma
----------- ------------------- ---------
Trust BKB Retail A Trust BKB Retail A
All Shares+ Shares Shares Shares Shares Shares Shares
----------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price)................ None None None 3.75% None None 3.75%(1)
Maximum Sales Load Imposed on
Reinvested Dividends........... None None None None None None None
Maximum Deferred Sales Load (as a
percentage of redemption proceeds) None None None None(1) None None None(1,2)
Redemption Fees................. None None None None None None None
Exchange Fee.................... None None None None None None None
Annual Fund Operating Expenses:
(as a percentage of average net
assets)
Management Fees (before waivers) 0.74% 0.75% ++ 0.75% 0.75% 0.75% 0.75%
Distribution and Service
(12b-1) Fees(3)............... 0.25% None ++ None None None None
Other Expenses(4)............... 0.22% 0.36% ++ 0.55% 0.36% 0.49% 0.54%
---- ---- ---- ---- ---- ----
Total Fund Operating Expenses:
(before waivers)(5)............. 1.21% 1.11% ++ 1.30% 1.11% 1.24% 1.29%
==== ==== ===== ==== ==== ====
</TABLE>
- ----------
+ Boston 1784 Asset Allocation Fund currently sells its shares without
a class designation.
++ BKB Shares will not be issued until the Reorganization is effective.
(1) There will be no sales load imposed on the conversion of BKB Shares
to Retail A Shares, and no front-end or contingent deferred sales
load will be imposed on subsequent purchases of Retail A Shares by
former 1784 Fund shareholders so long as they keep their account
with Galaxy continuously open.
(2) Except for investments of $500,000 or more. See Appendix IV.
(3) The Distributor of 1784 Funds currently waives its entire
Distribution and Service Fee.
(4) Affiliates of the Galaxy Fund's investment adviser are currently
waiving a portion of shareholder servicing fees (that are included
in Other Expenses) so that Other Expenses are 0.21% for BKB Shares
of the Combined Fund Pro Forma.
(5) Fund Operating Expenses (after waivers) would be:
Shares BKB Shares
------ ----------
Boston 1784 Asset Allocation Fund 0.96% --
Combined Fund Pro Forma -- 0.96%
II-28
<PAGE>
Example:*
You would pay the following expenses on a $10,000 investment,
assuming (1) 5% gross annual return and (2) the Fund's operating expenses remain
the same as those shown in the table above:
<TABLE>
<CAPTION>
Boston 1784
Asset
Allocation Galaxy Asset Combined Fund
Fund Allocation Fund Pro Forma
---- --------------- ---------
Trust BKB Retail A Trust BKB Retail A
Shares Shares Shares Shares Shares Shares Shares
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
1 year......................... $123 $113 N/A $502 $113 $126** $501
3 years........................ $384 $353 N/A $772 $353 N/A $769
5 years........................ $665 $612 N/A $1,061 $612 N/A $1,056
10 years....................... $1,466 $1,352 N/A $1,884 $1,352 N/A $1,873
</TABLE>
- ----------
* This example should not be considered a representation of future
expenses which may be more or less than those shown. The assumed 5%
annual return is hypothetical and should not be considered a
representation of past or future annual return. Actual return may be
greater or less than the assumed amount. This example assumes that
all dividends and other distributions are reinvested.
** BKB Shares will convert into Retail A Shares on the first
anniversary of the reorganization of the Boston 1784 Asset
Allocation Fund into the Galaxy Asset Allocation Fund provided that
Galaxy's Board of Trustees determines that the conversion is in the
best interests of the holders of BKB Shares.
The purpose of the foregoing tables is to assist an investor in understanding
the various costs and expenses that an investor in the Funds will bear directly
or indirectly.
II-29
<PAGE>
BOSTON 1784 GROWTH AND INCOME FUND - SHARES
GALAXY GROWTH AND INCOME FUND -
TRUST SHARES, BKB SHARES AND RETAIL A SHARES
<TABLE>
<CAPTION>
Boston 1784 Galaxy
Growth and Growth and Combined Fund
Income Fund Income Fund Pro Forma
----------- ----------- ---------
Trust BKB Retail A Trust BKB Retail A
All Shares+ Shares Shares Shares Shares Shares Shares
----------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price)................ None None None 3.75% None None 3.75%(1)
Maximum Sales Load Imposed on
Reinvested Dividends........... None None None None None None None
Maximum Deferred Sales Load (as a
percentage of redemption proceeds) None None None None(1) None None None(1,2)
Redemption Fees................. None None None None None None None
Exchange Fee.................... None None None None None None None
Annual Fund Operating Expenses:
(as a percentage of average net
assets)
Management Fees................. 0.74% 0.75% ++ 0.75% 0.75% 0.75% 0.75%
Distribution and Service
(12b-1) Fees(3).............. 0.25% None ++ None None None None
Other Expenses (before waivers)(4) 0.15% 0.31% ++ 0.64% 0.21% 0.47% 0.61%
---- ---- ---- ---- ---- ----
Total Fund Operating Expenses (before
waivers)(5).................... 1.14% 1.06% ++ 1.39% 0.96% 1.22% 1.36%
==== ==== ==== ==== ==== ====
</TABLE>
- ----------
+ Boston 1784 Growth and Income Fund currently sells its shares
without a class designation.
++ BKB Shares will not be issued until the Reorganization is effective.
(1) There will be no sales load imposed on the conversion of BKB Shares
to Retail A Shares, and no front-end or contingent deferred sales
load will be imposed on subsequent purchases of Retail A Shares by
former 1784 Fund shareholders so long as they keep their account
with Galaxy continuously open.
(2) Except for investments of $500,000 or more. See Appendix IV.
(3) The Distributor of 1784 Funds currently waives its entire
Distribution and Service Fee.
(4) Affiliates of the Galaxy Fund's investment adviser are currently
waiving a portion of shareholder servicing fees (that are included
in Other Expenses) so that Other Expenses are 0.17% for BKB Shares
of the Combined Fund Pro Forma and 0.53% for Retail A Shares of the
Galaxy Growth and Income Fund and Combined Fund Pro Forma.
(5) Total Fund Operating Expenses (after waivers) would be
BKB Retail A
Shares Shares Shares
------ ------ ------
Boston 1784 Growth and Income Fund 0.89% -- --
Galaxy Growth and Income Fund -- -- 1.28%
Combined Fund Pro Forma -- 0.92% 1.28%
II-30
<PAGE>
Example:*
You would pay the following expenses on a $10,000 investment,
assuming (1) 5% gross annual return and (2) the Fund operating expenses remain
the same as those shown in the above table:
<TABLE>
<CAPTION>
Boston 1784
Growth and Galaxy Growth Combined Fund
Income Fund and Income Fund Pro Forma
----------- --------------- ---------
Trust BKB Retail A Trust BKB Retail A
Shares Shares Shares Shares Shares Shares Shares
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
1 year.................... $116 $108 N/A $511 $ 98 $ 124** $508
3 years................... $362 $337 N/A $799 $306 N/A $790
5 years................... $628 $585 N/A $1,107 $531 N/A $1,092
10 years.................. $1,386 $1,294 N/A $1,981 $1,178 N/A $1,949
</TABLE>
- ----------
* This example should not be considered a representation of future
expenses which may be more or less than those shown. The assumed 5%
annual return is hypothetical and should not be considered a
representation of past or future annual return. Actual return may be
greater or less than the assumed amount. This example assumes that
all dividends and other distributions are reinvested.
** BKB Shares will convert into Retail A Shares on the first
anniversary of the reorganization of the Boston 1784 Growth and
Income Fund into the Galaxy Growth and Income Fund provided that
Galaxy's Board of Trustees determines that the conversion is in the
best interests of the holders of BKB Shares.
The purpose of the foregoing tables is to assist an investor in understanding
the various costs and expenses that an investor in the Funds will bear directly
or indirectly.
II-31
<PAGE>
BOSTON 1784 GROWTH FUND - SHARES
GALAXY GROWTH FUND II -
TRUST SHARES, BKB SHARES AND RETAIL A SHARES
<TABLE>
<CAPTION>
Boston 1784 Galaxy Growth Fund II
Growth Fund Pro Forma
----------- ---------
Trust BKB Retail A
All Shares+ Shares Shares Shares++
----------- ------ ------ --------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases (as a
percentage of offering price)...................... None None None 3.75%(1)
Maximum Sales Load Imposed on Reinvested Dividends.. None None None None
Maximum Deferred Sales Load (as a percentage of
redemption proceeds)............................... None None None None(1,2)
Redemption Fees..................................... None None None None
Exchange Fee........................................ None None None None
Annual Fund Operating Expenses:
(as a percentage of average net assets) Management
Fees............................................... 0.74% 0.75% 0.75% 0.75%
Distribution and Service (12b-1) Fees(3)............ 0.25% None None None
Other Expenses(4)................................... 0.19% 0.15% 0.49% 0.49%
---- ---- ---- ----
Total Fund Operating Expenses (before waivers)(5)..... 1.18% 0.90% 1.24% 1.24%
==== ==== ==== ====
</TABLE>
- ----------
+ Boston 1784 Growth Fund currently sells its shares without a class
designation.
++ Galaxy does not currently intend to offer Retail A Shares of the
Galaxy Growth Fund II until the BKB Shares convert into Retail A
Shares.
(1) There will be no sales load imposed on the conversion of BKB Shares
to Retail A Shares, and no front-end or contingent deferred sales
load will be imposed on subsequent purchases of Retail A Shares by
former 1784 Fund shareholders so long as they keep their account
with Galaxy continuously open.
(2) Except for investments of $500,000 or more. See Appendix IV.
(3) The Distributor of 1784 Funds currently waives its entire
Distribution and Service Fee.
(4) Affiliates of the Galaxy Fund's investment adviser are currently
waiving a portion of shareholder servicing fees (that are included
in Other Expenses) so that Other Expenses are 0.19% for BKB Shares
of the Combined Fund Pro Forma.
(5) Total Fund Operating Expenses (after waivers) would be:
Shares BKB Shares
------ ----------
Boston 1784 Growth Fund 0.93% --
Combined Fund Pro Forma -- 0.94%
II-32
<PAGE>
Example:*
You would pay the following expenses on a $10,000 investment,
assuming (1) 5% gross annual return and (2) the Fund operating expenses remain
the same as those shown in the above table:
Boston 1784 Galaxy Growth Fund II
Growth Fund Pro Forma
----------- ---------
Trust BKB Retail A
Shares Shares Shares Shares
------ ------ ------ ------
1 year.............. $120 $ 92 $126** $497
3 years............. $375 $287 N/A $754
5 years............. $649 $498 N/A $1,030
10 years............ $1,432 $1,108 N/A $1,819
- ----------
* This example should not be considered a representation of future
expenses which may be more or less than those shown. The assumed 5%
annual return is hypothetical and should not be considered a
representation of past or future annual return. Actual return may be
greater or less than the assumed amount. This example assumes that
all dividends and other distributions are reinvested.
** BKB Shares will convert into Retail A Shares on the first
anniversary of the reorganization of the Boston 1784 Growth Fund
into the Galaxy Growth Fund II provided that Galaxy's Board of
Trustees determines that the conversion is in the best interests of
the holders of BKB Shares.
The purpose of the foregoing tables is to assist an investor in understanding
the various costs and expenses that an investor in the Funds will bear directly
or indirectly.
II-33
<PAGE>
BOSTON 1784 INTERNATIONAL EQUITY FUND - SHARES
GALAXY INTERNATIONAL EQUITY FUND - TRUST SHARES, BKB SHARES AND
RETAIL A SHARES
<TABLE>
<CAPTION>
Boston 1784
International Galaxy International Combined Fund
Equity Fund Equity Fund Pro Forma
----------- ----------- ---------
Trust BKB Retail A Trust BKB Retail A
All Shares+ Shares Shares Shares Shares Shares Shares
----------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price) .................. None None None 3.75% None None 3.75%(1)
Maximum Sales Load Imposed on
Reinvested Dividends ............. None None None None None None None
Maximum Deferred Sales Load (as a
percentage of redemption proceeds) None None None None(1) None None None(1,2)
Redemption Fees ................... None None None None None None None
Exchange Fee ...................... None None None None None None None
Annual Fund Operating Expenses:
(as a percentage of average net
assets)
Management Fees (before waivers)(3) 1.00% 0.89% ++ 0.89% 0.87% 0.87% 0.87%
Distribution and Service Fees(4) .. 0.25% None ++ None None None None
Other Expenses (before waivers)(5) 0.20% 0.27% ++ 0.75% 0.21% 0.51% 0.71%
---- ---- ---- ---- ---- ----
Total Fund Operating Expenses
(before waivers)(6) .............. 1.45% 1.16% ++ 1.64% 1.08% 1.38% 1.58%
==== ==== ==== ==== ==== ====
</TABLE>
- ----------
+ Boston 1784 International Equity Fund currently sells its shares
without a class designation.
++ BKB Shares will not be issued until the Reorganization is effective.
(1) There will be no sales load imposed on the conversion of BKB Shares
to Retail A Shares, and no front-end or contingent deferred sales
load will be imposed on subsequent purchases of Retail A Shares by
former 1784 Fund shareholders so long as they keep their account
with Galaxy continuously open.
(2) Except for investments of $500,000 or more. See Appendix IV.
(3) Management Fees (after waivers) would be:
Galaxy International Equity Fund 0.64%
Combined Fund Pro Forma 0.64%
(4) The Distributor of the 1784 Funds currently waives its entire
Distribution and Service Fee.
(5) Affiliates of the Galaxy Fund's investment adviser are currently
waiving a portion of shareholder servicing fees (that are included
in Other Expenses) so that Other Expenses are 0.46% for BKB Shares
of the Combined Fund Pro Forma.
II-34
<PAGE>
(6) Total Fund Operating Expenses (after waivers) would be:
<TABLE>
<CAPTION>
Trust BKB Retail A
Shares Shares Shares Shares
------ ------ ------ ------
<S> <C> <C> <C> <C>
Boston 1784 International Equity Fund 1.20% -- -- --
Galaxy International Equity Fund -- 0.91% -- 1.39%
Combined Fund Pro Forma -- 0.85% 1.10% 1.35%
</TABLE>
Example:*
You would pay the following expenses on a $10,000 investment,
assuming (1) 5% gross annual return and (2) the Fund operating expenses remain
the same as those shown in the above table:
<TABLE>
<CAPTION>
Boston 1784
International Galaxy International Combined Fund
Equity Fund Equity Fund Pro Forma
----------- ----------- ---------
Trust BKB Retail A Trust BKB Retail A
Shares Shares Shares Shares Shares Shares Shares
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
1 year............... $148 $118 N/A $536 $110 $140** $530
3 years.............. $459 $368 N/A $873 $343 N/A $855
5 years.............. $792 $638 N/A $1,233 $595 N/A $1,203
10 years............. $1,735 $1,409 N/A $2,246 $1,317 N/A $2,183
</TABLE>
- ----------
* This example should not be considered a representation of future
expenses which may be more or less than those shown. The assumed 5%
annual return is hypothetical and should not be considered a
representation of past or future annual return. Actual return may be
greater or less than the assumed amount. This example assumes that
all dividends and other distributions are reinvested.
** BKB Shares will convert to Retail A Shares on the first anniversary
of the reorganization of the Boston 1784 International Equity Fund
into the Galaxy International Equity Fund provided that Galaxy's
Board of Trustees determines that the conversion is in the best
interests of the holders of BKB Shares.
The purpose of the foregoing tables is to assist an investor in understanding
the various costs and expenses that an investor in the Funds will bear directly
or indirectly.
II-35
<PAGE>
APPENDIX III
Investment Objectives, Limitations and Certain Significant Investment Policies
of the Reorganizing 1784 Funds and Corresponding Galaxy Funds.
This Appendix highlights the investment objectives and certain significant
similarities and differences among the investment limitations and policies of
ten 1784 Funds and their Corresponding Galaxy Funds. Because the Boston 1784
Institutional U.S. Treasury Money Market Fund, Boston 1784 Institutional Prime
Money Market Fund, Boston 1784 Tax-Exempt Medium-Term Income Fund, Boston 1784
Connecticut Tax-Exempt Income Fund, Boston 1784 Florida Tax-Exempt Income Fund,
Boston 1784 Massachusetts Tax-Exempt Income Fund and Boston 1784 Growth Fund
will be reorganized into Shell Galaxy Funds that have substantially the same
investment objectives, restrictions and policies as their corresponding
Continuing 1784 Funds, they are not discussed in this Appendix. The following is
qualified in its entirety by the more detailed information included in the
prospectuses and statements of additional information for the 1784 Funds and the
Corresponding Galaxy Funds which are incorporated by reference into this Proxy
Statement/Prospectus.
1. BOSTON 1784 TAX-FREE MONEY MARKET FUND/GALAXY TAX-EXEMPT FUND
Investment Objectives:
(a) Boston 1784 Tax-Free Money Market Fund: seeks to preserve the
principal value of a shareholder's investment and maintain a high degree of
liquidity while providing current income that is exempt from federal income tax.
(b) Galaxy Tax-Exempt Fund: seeks as high a level of current interest
income exempt from federal income tax as is consistent with stability of
principal.
Comment: Each Fund is a money market fund and in accordance with
Rule 2a-7 under the 1940 Act, will generally invest in instruments with
remaining maturities not exceeding 397 days, and each Fund's dollar
weighted average portfolio maturity may not exceed 90 days. Both Funds
invest in securities rated in one of the two highest, short-term rating
categories (i.e., rated AA or higher by S&P or Aa or higher by Moody's).
The Boston 1784 Tax-Free Money Market Fund invests at least 80% of
its net assets in short-term municipal money market instruments that are
issued by states, territories and possessions of the United States
(including the District of Columbia) and their political subdivisions,
agencies and instrumentalities. These securities pay interest exempt from
federal income tax, including the alternative minimum tax. The Boston 1784
Tax-Free Money Market Fund may also invest not more than 20% of its assets
in taxable money market instruments. Further, the Boston 1784 Tax-Free
Money Market Fund, unlike the Galaxy Tax-Exempt Fund, reserves the right
to concentrate its
III-1
<PAGE>
investments (i.e., invest at least 25% of its assets) in money market
instruments issued by domestic banks, foreign branches of domestic banks
and U.S. branches of foreign banks.
The Galaxy Tax-Exempt Fund, like the Boston 1784 Tax-Free Money
Market Fund, invests (as a matter of fundamental policy which cannot be
changed without the requisite consent of the Fund's shareholders) at least
80% of its total assets in municipal securities issued by or on behalf of
states, territories and possessions of the United States, the District of
Columbia, and their authorities, agencies, instrumentalities and political
subdivisions, the interest on which in the opinion of bond counsel or
counsel to the issuer is exempt from regular federal income tax. The
municipal securities in which the Galaxy Tax-Exempt Fund may invest are
generally the same as those eligible for investment by the Boston 1784
Tax-Free Money Market Fund, except that the Galaxy Tax-Exempt Fund may not
invest in participations in municipal leases. The Galaxy Tax-Exempt Fund
(but not the Boston 1784 Tax-Free Money Market Fund) may invest more than
25% of its assets in municipal securities the interest on which is paid
solely from revenues of similar projects, although the Galaxy Tax-Exempt
Fund does not presently intend to do so on a regular basis. In addition,
investments in private activity bonds by the Galaxy Tax-Exempt Fund,
unlike the Boston 1784 Tax-Free Money Market Fund, will not be treated as
investments in municipal securities for purposes of the Fund's 80%
requirement stated above and, under normal market conditions will not
exceed 20% of the Fund's net assets when added together with any taxable
investments held by the Fund.
The Galaxy Tax-Exempt Fund, like the Boston 1784 Tax-Free Money
Market Fund, may invest not more than 20% of its total assets in taxable
obligations under normal conditions. Taxable obligations in which the
Galaxy Tax-Exempt Fund may invest are generally the same as those eligible
for investment by the Boston 1784 Tax-Free Money Market Fund, except that
the Galaxy Tax-Exempt Fund may not invest in asset-backed securities
(including asset-backed commercial paper), foreign securities, forward
commitments, guaranteed investment contracts, loan participations,
Separately Traded Interest and Principal Securities, Treasury Receipts,
Treasury Investment Growth Receipts and Certificates of Accrual on
Treasury Securities, reverse repurchase agreements and zero coupon
securities. The Boston 1784 Tax-Free Money Market Fund, unlike the Galaxy
Tax-Exempt Fund, may engage in securities lending. The Galaxy Tax-Exempt
Fund, unlike the Boston 1784 Tax-Free Money Market Fund, however, may
invest in tender option bonds. The Galaxy Tax-Exempt Fund may borrow from
domestic banks for temporary purposes and then in amounts not in excess of
10% of such Fund's total assets. The 1784 Tax-Free Money Market 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 the Fund's total
assets and then only as a temporary measure for extraordinary or emergency
purposes.
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<PAGE>
2. BOSTON 1784 U.S. TREASURY MONEY MARKET FUND/GALAXY U.S. TREASURY FUND
Investment Objectives:
(a) Boston 1784 U.S. Treasury Money Market Fund: seeks to preserve the
principal value of a shareholder's investment and maintain a high degree of
liquidity while providing current income.
(b) Galaxy U.S. Treasury Fund: seeks current income with liquidity and
stability of principal.
Comment: Each Fund is a money market fund and in accordance with
Rule 2a-7 under the 1940 Act, will generally invest in instruments with a
remaining maturity not exceeding 397 days, and each Fund's dollar weighted
average portfolio maturity may not exceed 90 days. The Boston 1784 U.S.
Treasury Money Market Fund invests, under normal circumstances, at least
65% of its assets in money market instruments issued by the U.S. Treasury,
including bills, notes and bonds, and repurchase agreements secured by
U.S. Treasury securities. The remainder of such Fund's assets may be
invested in obligations of the U.S. Government, its agencies and
instrumentalities (including mortgage-backed securities). The Boston 1784
U.S. Treasury Money Market Fund, unlike the Galaxy U.S. Treasury Fund,
reserves the right to concentrate (i.e., invest at least 25% of its
assets) in money market instruments issued by domestic banks, foreign
branches of domestic banks and U.S. branches of foreign banks.
While the Galaxy U.S. Treasury Fund's main investment strategies are
similar to those of the Boston 1784 U.S. Treasury Money Market Fund, there
are some differences. The Galaxy U.S. Treasury Fund invests at least 65%
of its total assets in direct U.S. government obligations. The Galaxy U.S.
Treasury Fund, unlike the 1784 U.S. Treasury Money Market Fund, may not
engage in repurchase agreements. The Boston 1784 U.S. Treasury Money
Market Fund, unlike the Galaxy Fund, may invest in guaranteed investment
contracts, other investment companies (subject to applicable regulations),
Separately Traded Interest and Principal Securities, Treasury Receipts,
Treasury Investment Growth Receipts, Certificates of Accrual on Treasury
Securities and zero coupon securities. The 1784 Fund, unlike the Galaxy
Fund, may engage in securities lending. The Boston 1784 U.S. Treasury
Money Market 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
its total assets and then only as a temporary measure for extraordinary or
emergency purposes. The Galaxy U.S. Treasury Fund may only borrow from
domestic banks for temporary purposes and then in amounts not in excess of
10% of such Fund's total assets.
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<PAGE>
3. BOSTON 1784 PRIME MONEY MARKET FUND/GALAXY MONEY MARKET FUND
Investment Objectives:
(a) Boston 1784 Prime Money Market Fund: seeks to preserve the principal
value of a shareholder's investment and maintain a high degree of liquidity
while providing current income.
(b) Galaxy Money Market Fund: seeks as high a level of current income as
is consistent with liquidity and stability of principal.
Comment: Each Fund is a money market fund and in accordance with
Rule 2a-7 under the 1940 Act, will invest in instruments with a remaining
maturity not exceeding 397 days, and each Fund's dollar weighted average
portfolio maturity may not exceed 90 days. The Boston 1784 Prime Money
Market Fund only invests in securities rated in the top two short-term
debt rating categories (i.e., rated AA or higher by S&P or Aa or higher by
Moody's) while the Galaxy Money Market Fund only invests in securities
rated in the highest rating category (i.e., rated AAA by S&P or Aaa by
Moody's). The Boston 1784 Prime Money Market Fund invests primarily in
high quality short-term debt obligations issued by banks, U.S.
corporations or the U.S. Government as well as state or local governments,
including various types of commercial paper (such as asset-backed
commercial paper and tax-exempt commercial paper), certificates of
deposit, bankers' acceptances, time deposits, variable rate demand notes,
corporate bonds, U.S. Government agency obligations, taxable municipal
securities, repurchase agreements collateralized by securities in which
the Fund may invest and reverse repurchase agreements. The Boston 1784
Prime Money Market Fund reserves the right to concentrate (i.e., invest at
least 25% of its assets) in money market instruments issued by domestic
banks, foreign branches of domestic banks and U.S. branches of foreign
banks. Similarly, the Galaxy Money Market Fund may invest more than 25% of
its assets in obligations of domestic banks and U.S. branches of foreign
banks.
The Galaxy Money Market Fund, like the Boston 1784 Prime Money
Market Fund, invests in a diversified portfolio of money market
instruments issued by banks, U.S. corporations or the U.S. Government and
its agencies and instrumentalities, including commercial paper,
certificates of deposit, bankers' acceptances, time deposits, certain
variable and floating rate securities, corporate notes and bonds,
obligations of the U.S. Government, its agencies and instrumentalities,
taxable municipal securities, repurchase agreements backed by U.S.
Government obligations and reverse repurchase agreements.
The Boston 1784 Prime Money Market Fund, unlike the Galaxy Money
Market Fund, may invest in forward commitments, loan participations,
securities of other investment companies (subject to applicable
regulations), Separately Traded Interest and Principal Securities,
Treasury Receipts, Treasury Investment Growth Receipts and Certificates of
Accrual on Treasury Securities, certain tax-exempt municipal notes, bonds
III-4
<PAGE>
and participations in municipal leases, stand-by commitments and zero
coupon securities. The Boston 1784 Prime Money Market 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 its total assets and
then only as a temporary measure for extraordinary or emergency purposes.
The Galaxy Money Market Fund limits such borrowings to domestic banks for
temporary purposes and then in amounts not in excess of 10% of its total
assets.
4. BOSTON 1784 SHORT-TERM INCOME FUND/GALAXY SHORT-TERM BOND FUND Investment
Objectives:
(a) Boston 1784 Short-Term Income Fund: seeks to provide investors with
maximum current income, and as a secondary goal, to preserve investors' capital.
(b) Galaxy Short-Term Bond Fund: seeks to provide a high level of current
income consistent with preservation of capital.
Comment: The Boston 1784 Short-Term Income Fund invests primarily in debt
securities, such as U.S. government obligations, corporate bonds, notes,
mortgage- and asset-backed securities, and taxable municipal securities. Under
normal circumstances, at least 80% of the Boston 1784 Short-Term Income Fund's
assets are invested in these securities. The Boston 1784 Short-Term Income Fund
may invest up to 30% of its assets in securities of foreign issuers, including
Yankee bonds, which are dollar-denominated bonds issued in the U.S. by foreign
borrowers, and issuers in developing countries. The Boston 1784 Short-Term
Income Fund generally invests in investment grade securities (i.e., rated BBB or
higher by S&P or Baa or higher by Moody's). Under normal circumstances, the
Boston 1784 Short-Term Income Fund expects to invest at least 65% of its assets
in securities rated A or better by S&P or Moody's or of comparable quality as
determined by the Fund's investment adviser. The Boston 1784 Short-Term Income
Fund may also invest in lower rated investment grade securities, securities that
were investment grade when purchased by the Fund but have since been downgraded
and securities that are not investment grade at the time of purchase but the
investment adviser believes will be upgraded to investment grade. The Boston
1784 Short-Term Income Fund's average weighted maturity is normally expected to
be not more than three years and it generally maintains an average maturity of
between 1.8 and 2.3 years.
The Galaxy Short-Term Bond Fund invests primarily in debt obligations of
U.S. and foreign corporations, including bonds and notes, and in debt
obligations issued or guaranteed by the U.S. Government and its agencies or
instrumentalities or by foreign governments or their political subdivisions and
instrumentalities. The Fund normally invests at least 65% of its total assets in
bonds and debentures. The Galaxy Short-Term Bond Fund, like the Boston 1784
Short-Term Income Fund, may also invest in mortgage- and asset-backed securities
and in money market instruments such as commercial paper and the obligations of
U.S. and foreign banks. Nearly all Fund investments will be of investment grade
quality (i.e., rated BBB or higher by
III-5
<PAGE>
S&P or Baa or higher by Moody's or are unrated securities determined by the
investment adviser to be of comparable quality). Under normal market conditions,
the Fund will invest at least 65% of its total assets in securities that have
one of the top three ratings assigned by S&P or Moody's (i.e., A or higher by
S&P or Moody's) or unrated securities determined to be of comparable quality.
The Galaxy Short-Term Bond Fund may invest up to 35% of its assets in the
securities of foreign issuers which is a higher percentage than permitted for
the Boston 1784 Short-Term Income Fund. The Fund's average weighted maturity
will generally be less than 3 years.
Unlike the Boston 1784 Short-Term Income Fund, the Galaxy Short-Term Bond
Fund limits its investments in securities of other investment companies to money
market mutual funds. The 1784 Short-Term Income Fund may invest up to 15% of its
total assets in illiquid securities while its Galaxy counterpart is limited to
10% of total assets. Both the Boston 1784 Income Fund and the Galaxy Short-Term
Bond Fund may invest in municipal securities, however, the Boston 1784
Short-Term Income Fund may also invest in certificates of indebtedness and
municipal leases. The Galaxy Short-Term Bond Fund may only borrow from domestic
banks for temporary purposes and enter into reverse repurchase agreements and
then in amounts not in excess of 10% of its total assets. The 1784 Boston
Short-Term Income Fund may borrow money from banks and enter into reverse
repurchase agreements in an amount not to exceed 33-1/3% of the Fund's total
assets and then only as a temporary measure for extraordinary or emergency
purposes.
The Boston 1784 Short-Term Income Fund, unlike the Galaxy Short-Term Bond
Fund, may invest in Continental Depository Receipts, convertible securities,
currency swaps, common and preferred stock, options, options on futures
contracts and certain receipts including Treasury Investment Growth Receipts and
Certificates of Accrual on Treasury Securities, Separately Traded Interest and
Principal Securities, loan participations, and warrants.
5. BOSTON 1784 INCOME FUND/GALAXY HIGH QUALITY BOND FUND
Investment Objectives:
(a) Boston 1784 Income Fund: seeks to provide investors with maximum
current income and, as a secondary goal, to preserve investors' capital.
(b) Galaxy High Quality Bond Fund: seeks to provide a high level of
current income consistent with prudent risk of capital.
Comment: The Boston 1784 Income Fund invests primarily in debt securities,
such as U.S. government obligations, corporate bonds, notes, mortgage- and
asset-backed securities, and taxable municipal securities. Under normal
circumstances, at least 80% of the Boston 1784 Income Fund's assets are invested
in these securities. The Boston 1784 Income Fund may invest up to 30% of its
assets in securities of foreign issuers, including Yankee bonds, which are
dollar-denominated bonds issued in the U.S. by foreign borrowers, and issuers in
developing countries. The Boston 1784 Income Fund generally invests in
investment grade securities (i.e., rated BBB or higher by S&P or Baa or higher
by Moody's). Under normal circumstances, the Boston 1784
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<PAGE>
Income Fund expects to invest at least 65% of its assets in securities rated A
or better by S&P or Moody's or of comparable quality as determined by the
investment adviser. The Fund's portfolio may also include lower rated investment
grade securities, securities that were investment grade when purchased by a Fund
but have since been downgraded and securities that are not investment grade at
the time of purchase but the investment adviser believes will be upgraded to
investment grade The Fund is permitted to invest in bonds with any maturity.
However, the Fund's average weighted maturity is normally expected to be between
7 and 30 years.
The Galaxy High Quality Bond Fund invests primarily in obligations issued
or guaranteed by the U.S. Government, its agencies and instrumentalities, as
well as in corporate debt obligations such as notes and bonds. The Galaxy High
Quality Bond Fund, like the Boston 1784 Income Fund, may also invest in
mortgage-backed and asset-backed securities and in money market instruments such
as commercial paper and bank obligations. Nearly all Fund investments will be of
investment grade quality (i.e., rated BBB or higher by S&P or Baa or higher by
Moody's or are unrated and determined to be of comparable quality by the
investment adviser). Under normal conditions, the Fund will invest at least 65%
of its total assets in high quality securities that have one of the top two
ratings assigned by S&P (AA or higher) or by Moody's (Aa or higher) or are
unrated and determined to be of comparable quality by the investment adviser.
The Fund's average weighted maturity will vary from time to time depending on
current market and economic conditions and the investment adviser's assessment
of probable changes in interest rates.
Unlike the Boston 1784 Income Fund, the Galaxy High Quality Bond Fund
limits its investments in securities of other investment companies to money
market mutual funds. Both the Boston 1784 Income Fund and the Galaxy High
Quality Bond Fund may invest in municipal securities, however, the Boston 1784
Income Fund may also invest in certificates of indebtedness and municipal
leases. The Galaxy High Quality Bond Fund may only borrow from domestic banks
for temporary purposes and enter into reverse repurchase agreements and then in
amounts not in excess of 10% of its total assets. The Boston 1784 Income Fund
may borrow money from banks and enter into reverse repurchase agreements in an
amount not to exceed 33-1/3% of the Fund's total assets and then only as a
temporary measure for extraordinary or emergency purposes.
The Boston 1784 Income Fund, unlike the Galaxy High Quality Bond Fund, may
invest in American Depository Receipts, European Depository Receipts and
Continental Depository Receipts, foreign securities, currency swaps, common and
preferred stock, options, options on futures contracts, and certain receipts
including Treasury Investment Growth Receipts and Certificates of Accrual on
Treasury Securities, loan participations, and warrants.
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<PAGE>
6. BOSTON 1784 U.S. GOVERNMENT MEDIUM-TERM INCOME FUND/GALAXY INTERMEDIATE
GOVERNMENT INCOME FUND
Investment Objectives:
(a) Boston 1784 U.S. Government Medium-Term Income Fund: seeks to provide
investors with current income consistent with preservation of capital.
(b) Galaxy Intermediate Government Income Fund: seeks to provide the
highest level of current income consistent with prudent risk of capital.
Comment: The Boston 1784 U.S. Government Medium-Term Income Fund invests
primarily in U.S. government obligations and repurchase agreements secured by
U.S. Government obligations. Under normal circumstances, at least 65% of the
Boston 1784 U.S. Government Medium-Term Income Fund's assets are invested in
these securities. The Boston 1784 U.S. Government Medium-Term Income Fund
invests in both U.S. Treasury obligations and obligations such as
mortgage-backed securities issued or guaranteed by the U.S. government or its
agencies. The Boston 1784 U.S. Government Medium-Term Income Fund also invests
in non-government agency mortgage- and asset-backed securities. The Boston 1784
U.S. Government Medium-Term Income Fund is permitted to invest in bonds with any
maturity. However, the Fund's average weighted maturity is normally expected to
be from 3 to 10 years.
The Galaxy Intermediate Government Income Fund normally invests at least
65% of its total assets in debt obligations issued or guaranteed by the U.S.
Government or its agencies and instrumentalities. The Galaxy Intermediate
Government Income Fund also invests in debt obligations of U.S. corporations,
asset-backed and mortgage-backed securities and money market instruments, such
as commercial paper and obligations of U.S. banks and U.S. branches of foreign
banks. Nearly all of the Galaxy Intermediate Government Income Fund's
investments will be of investment grade quality and will have one of the top
three ratings assigned by S&P or Moody's (i.e., A or higher) or will be unrated
securities determined by the investment adviser to be of comparable quality. The
Galaxy Intermediate Government Income Fund's average weighted maturity will
generally be between 3 to 10 years.
Unlike the Boston 1784 U.S. Government Medium-Term Income Fund, the Galaxy
Intermediate Government Income Fund limits its investments in securities of
other investment companies to money market mutual funds. The Galaxy Intermediate
Government Income Fund may only borrow for temporary purposes from domestic
banks and enter into reverse repurchase agreements and then in amounts not in
excess of 10% of its total assets. The Boston 1784 U.S. Government Medium-Term
Income Fund may borrow money from banks and enter into reverse repurchase
agreements in an amount not to exceed 33-1/3% of the Fund's total assets and
then only as a temporary measure for extraordinary or emergency purposes.
The Boston 1784 U.S. Government Medium-Term Income Fund, unlike the Galaxy
Intermediate Government Income Fund, may invest in American Depository Receipts,
European Depository Receipts and Continental Depository Receipts, convertible
securities, currency swaps, common and preferred stock, options, options on
futures contracts, certain receipts
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<PAGE>
including Treasury Investment Growth Receipts and Certificates of Accrual on
Treasury Securities, and loan participations.
The Galaxy Intermediate Government Income Fund, unlike the Boston 1784
U.S. Government Medium Term Income Fund, may invest in municipal securities,
standby commitments with respect to municipal securities, bank investment
contracts and mortgage dollar rolls.
7. BOSTON 1784 RHODE ISLAND TAX-EXEMPT INCOME FUND/GALAXY RHODE ISLAND
MUNICIPAL BOND FUND
Investment Objectives:
(a) Boston 1784 Rhode Island Tax-Exempt Income Fund: seeks to provide
investors with current income exempt from federal income tax and Rhode Island
personal income and business corporation taxes, with a secondary goal of
preserving capital.
(b) Galaxy Rhode Island Municipal Bond Fund: seeks to provide as high a
level of current interest income exempt from federal income tax and, to the
extent possible, from Rhode Island personal income tax, as is consistent with
relative stability of principal.
Comment: The Boston 1784 Rhode Island Tax-Exempt Income Fund invests
primarily in municipal securities that pay interest that is exempt from federal
income tax and Rhode Island personal income and business corporation taxes. The
Boston 1784 Rhode Island Tax-Exempt Fund may also invest in limited amounts in
municipal securities that pay interest that is exempt from federal income tax
but not exempt from Rhode Island taxes as well as taxable debt securities such
as U.S. government obligations, corporate bonds, money market instruments and
repurchase agreements. Under normal circumstances, at least 80% of the Boston
1784 Rhode Island Tax-Exempt Income Fund's net assets are invested in municipal
securities, or in mutual funds or other investment companies that invest in
municipal securities and at least 65% of the Boston 1784 Rhode Island Tax-Exempt
Income Fund's assets are invested in Rhode Island municipal securities. The
Boston 1784 Rhode Island Tax-Exempt Income Fund may from time to time, invest as
a hedging strategy in a limited amount of futures contracts or options on
futures contracts. The Boston 1784 Rhode Island Tax-Exempt Income Fund may only
use futures contracts or options on futures contracts in an effort to offset
unfavorable changes in the value of securities held by the Fund for investment
purposes. The Boston 1784 Rhode Island Tax-Exempt Income Fund invests primarily
in investment grade securities (i.e. BBB or higher by S&P or Baa or higher by
Moody's) and generally invests in securities rated A or better. The Boston 1784
Rhode Island Tax-Exempt Income Fund's average weighted maturity is expected to
be from 5 to 10 years under normal circumstances. The Boston 1784 Rhode Island
Tax-Exempt Income Fund is non-diversified, which means that it may invest a
relatively high percentage of its assets in the obligations of a limited number
of issuers.
The Galaxy Rhode Island Municipal Bond Fund normally invests at least 80%
of its total assets in municipal securities that pay interest which is exempt
from regular federal income tax,
III-9
<PAGE>
and at least 65% of its total assets in Rhode Island municipal securities. Under
normal conditions, the Galaxy Rhode Island Municipal Bond Fund will invest no
more than 20% of its total assets in taxable obligations such as U.S. Government
obligations, money market instruments and repurchase agreements. Nearly all of
the Galaxy Rhode Island Municipal Bond Fund's investments will be of investment
grade quality (i.e. rated BBB or higher by S&P or Baa or higher by Moody's) or
are unrated securities determined by the investment adviser to be of comparable
quality. Under normal market conditions, the Galaxy Rhode Island Municipal Bond
Fund will invest at least 65% of its total assets in securities that have one of
the top three ratings assigned by S&P or Moody's (A or higher) or unrated
securities determined by the Fund's investment adviser to be of comparable
quality. The Galaxy Rhode Island Municipal Bond Fund is also classified as
non-diversified. Although it has no current intention to do so, the Galaxy Rhode
Island Municipal Bond 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 the investment
adviser.
Unlike the Boston 1784 Rhode Island Tax-Exempt Income Fund, the Galaxy
Rhode Island Municipal Bond Fund limits its investments in securities of other
investment companies to money market mutual funds. Both the Boston 1784 Rhode
Island Tax-Exempt Income Fund and the Galaxy Rhode Island Municipal Bond Fund
may invest in municipal securities, however, the Boston 1784 Rhode Island
Tax-Exempt Income Fund may also invest in certificates of indebtedness and
municipal leases. The Galaxy Rhode Island Municipal Bond Fund may only borrow
from domestic banks for temporary purposes and enter into reverse repurchase
agreements and then in amounts not in excess of 10% of its total assets. The
Boston 1784 Rhode Island Tax-Exempt Income Fund may borrow money from banks and
enter into reverse repurchase agreements in an amount not to exceed 33-1/3% of
the Fund's total assets and then only as a temporary measure for extraordinary
or emergency purposes.
The Boston 1784 Rhode Island Tax-Exempt Income Fund, unlike the Galaxy
Rhode Island Municipal Bond Fund, may invest in American Depository Receipts,
European Depository Receipts and Continental Depository Receipts, convertible
securities, currency swaps, foreign currency exchange transactions, common and
preferred stock, options, options on futures contracts, certain receipts
including Treasury Receipts, Treasury Investment Growth Receipts and
Certificates of Accrual on Treasury Securities, Separately Traded Interest and
Principal Securities, loan participations, and zero coupon securities.
8. BOSTON 1784 ASSET ALLOCATION FUND/GALAXY ASSET ALLOCATION FUND
Investment Objectives:
(a) Boston 1784 Asset Allocation Fund: seeks to provide investors with a
favorable total rate of return through current income and capital appreciation
consistent with preservation of capital, derived from investing in fixed income
and equity securities.
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<PAGE>
(b) Galaxy Asset Allocation Fund: seeks a high total return by providing
both a current level of income that is greater than that provided by the popular
stock market averages (such as the Dow Jones Industrial Average and Standard &
Poor's Composite Stock Price Index), as well as long-term growth in the value of
the Fund's assets.
Comment: The Boston 1784 Asset Allocation Fund invests in a balance of
equity and debt securities and short-term or money market instruments. Normally,
30% to 70% of the Boston 1784 Asset Allocation Fund's assets are invested in
equity securities, 30% to 60% of its assets are invested in intermediate and
long-term debt obligations and 0% to 40% of its assets are invested in
short-term debt and money market instruments.
The equity portion of the Boston 1784 Asset Allocation Fund is primarily
invested in the stocks of large U.S. companies that the Fund's managers believe
offer the prospect for above-average earnings growth and are available at
reasonable prices. From time to time the Boston 1784 Asset Allocation Fund may
also invest in mid-sized U.S. companies and large, multi-national companies
based outside of the U.S. The Boston 1784 Asset Allocation Fund's equity
securities also include warrants to purchase common stock, debt securities
convertible into common stock, convertible and non-convertible preferred stock
and depositary receipts.
The Boston 1784 Asset Allocation Fund's debt securities include investment
grade corporate debt securities and debt obligations issued or guaranteed as to
the payment of principal and interest by the U.S. government or by foreign
governments. The Boston 1784 Asset Allocation Fund may also invest in
mortgage-backed and asset-backed securities rated A or better by Standard &
Poor's or Moody's or of comparable quality as determined by its adviser.
Like the Boston 1784 Asset Allocation Fund, under normal market conditions
the Galaxy Asset Allocation Fund will invest primarily in short-term debt
securities, common stocks, preferred stocks, and bonds. The Galaxy Asset
Allocation Fund seeks a mix of stocks and bonds and keeps at least 25% of its
assets in fixed income securities and preferred stocks. Both Funds limit their
investment to investment grade debt obligations (i.e., securities rated BBB or
higher by S&P or Baa or higher by Moody's).
While the Boston 1784 Asset Allocation Fund and the Galaxy Asset
Allocation Fund generally invest in a similar pool of investments, there are
some differences. For example, the Galaxy Asset Allocation Fund may not invest
in GICs, purchase loan participations, enter into bond and interest rate futures
contracts, purchase and write options on futures contracts, invest in Treasury
Receipts, Treasury Investment Growth Receipts, and Certificates of Accrual on
Treasury Securities, invest in Separately Traded Interest and Principal
Securities, invest in zero coupon securities, invest in forward commitments,
engage in currency swaps, invest in warrants and invest in global depository
receipts.
Although both Funds are permitted to invest in securities of other
investment companies, the Galaxy Asset Allocation Fund is limited to money
market funds while the Boston 1784 Asset Allocation Fund may invest in shares of
other investment companies and foreign investment trusts. The Boston 1784 Asset
Allocation Fund may invest in closed-end investment companies that primarily
hold securities of non-U.S. issuers.
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<PAGE>
The Galaxy Asset Allocation Fund limits its investment in foreign
securities to 20% of its net assets and the Boston 1784 Asset Allocation Fund
has no comparable limits. The Boston 1784 Asset Allocation Fund may invest 15%
of its net assets in illiquid securities, while the Galaxy Asset Allocation Fund
limits its investment in illiquid securities to 10% of its net assets.
The Boston 1784 Asset Allocation Fund, unlike the Galaxy Asset Allocation
Fund, may not enter into mortgage dollar rolls or invest in real estate
investment trusts.
9. BOSTON 1784 GROWTH AND INCOME FUND/GALAXY GROWTH AND INCOME FUND
Investment objectives:
(a) Boston 1784 Growth and Income Fund: seeks to provide investors with
long-term growth of capital with a secondary goal of income.
(b) Galaxy Growth and Income Fund: seeks to provide a relatively high
total return through long-term capital appreciation and current income.
Comment: The Boston 1784 Growth and Income Fund normally invests 80% to
90% or more of the Fund's assets in the common stocks (including depositary
receipts) of U.S. and foreign issuers. The Fund emphasizes the selection of
stocks in U.S. companies with market capitalizations of at least $1 billion but
may also invest in stocks in smaller U.S. companies. The Boston 1784 Growth and
Income Fund may also invest up to 35% of its assets in convertible and
non-convertible debt securities, preferred stock, warrants and money market
instruments. The Boston 1784 Growth and Income Fund may invest up to 25% of the
Fund's assets in securities of foreign companies, including smaller companies
and companies in developing markets.
The Galaxy Growth and Income normally invests at least 65% of its total
assets in the common stocks, preferred stock, common stock warrants and
securities convertible into common stocks of U.S. companies with large market
capitalization (generally over $2 billion as compared to over $1 billion for the
Boston 1784 Growth and Income Fund) that have prospects for above-average growth
and dividends. The Fund may purchase convertible securities, including
convertible preferred stock, convertible bonds or debentures, units consisting
of "usable" bonds and warrants or a combination of the above features. While
both Funds are permitted to invest in the securities of foreign issuers, the
Boston 1784 Growth and Income Fund limits its investment in foreign securities
to 25% of its net assets, while the Galaxy Growth and Income Fund may invest up
to 20% of its total assets in foreign securities that are freely traded on
United States exchanges or in the over-the-counter market in the form of
American Depository Receipts, European Depository Receipts or Global Depository
Receipts.
While the Boston 1784 Growth and Income Fund and Galaxy Growth and Income
Fund generally invest in a similar pool of investments, there are some
differences. For example, the Galaxy Growth and Income Fund may not purchase
loan participations, invest in Treasury
III-12
<PAGE>
Receipts, Treasury Investment Growth Receipts and Certificates of Accrual on
Treasury Securities, invest in Separately Traded Interest and Principal
Securities, invest in zero coupon securities, or purchase GICs.
While the Boston 1784 Growth and Income Fund may purchase debt securities
rated investment grade or higher (i.e., Baa by Moody's or BBB by Standard &
Poor's), the Galaxy Growth and Income Fund may purchase convertible bonds that
are rated as low as Ba by Moody's or BB by Standard & Poor's or Fitch IBCA, Inc.
at the time of purchase. These securities provide questionable protection of
principal and interest.
The Boston 1784 Growth and Income Fund, unlike the Galaxy Growth and
Income Fund, may not invest in REITs.
10. BOSTON 1784 INTERNATIONAL EQUITY FUND/GALAXY INTERNATIONAL EQUITY FUND
Investment objectives:
(a) Boston 1784 International Equity Fund: seeks to provide investors with
long-term growth of capital. Dividend income, if any, is incidental to this
goal.
(b) Galaxy International Equity Fund: seeks long term capital
appreciation.
Comment: The Boston 1784 International Equity Fund invests primarily in
equity securities of foreign issuers including securities of issuers in
developing countries. The Fund is not restricted in the percentage of assets it
may invest in one particular country or region, and from time to time the Fund
may invest a substantial portion of its assets in one or more countries or
regions. The Boston 1784 International Equity Fund emphasizes equity securities
of foreign issuers with market capitalizations of at least $100 million. The
Fund may engage in foreign currency hedging transactions in an attempt to
minimize the affects of currency fluctuations on the Fund. The Fund may also
invest in convertible and non-convertible bonds and other debt securities and
money market instruments.
The Galaxy International Equity Fund invests at least 75% of its total
assets in equity securities of foreign issuers. At all times, the Fund's assets
will be invested in companies located in at least three different foreign
countries. Normally, no more than 20% of the Fund's total assets will be
invested in companies located in countries with emerging economies or emerging
securities markets.
While the Boston 1784 International Equity Fund and the Galaxy
International Equity Fund generally invest in a similar pool of investments,
there are some differences. For example, the Boston 1784 International Equity
Fund, unlike the Galaxy International Equity Fund may purchase GICs, purchase
loan participations, invest in asset backed securities, purchase and write
options on futures contracts, invest in Treasury Receipts, Treasury Investment
Growth Receipts
III-13
<PAGE>
and Certificates of Accrual on Treasury Securities, invest in Separately Traded
Interest and Principal Securities and invest in zero coupon securities.
Unlike the Boston 1784 International Equity Fund which allows securities
to be purchased that are rated investment grade (i.e. Baa by Moody's or BBB by
S&P), the Galaxy International Equity Fund requires all debt securities
purchased to be rated A or higher by Moody's and S&P.
The Galaxy International Equity Fund, unlike the Boston 1784 International
Equity Fund may invest in REITs.
III-14
<PAGE>
APPENDIX IV
Shareholder Transactions and Services of The Galaxy Funds
and the Corresponding 1784 Funds
This Appendix compares the shareholder transactions and services of the
Galaxy Funds and their corresponding 1784 Funds. The following is qualified in
its entirety by the more detailed information included in the prospectuses for
the 1784 Funds and the Galaxy Funds which are incorporated by reference in this
Proxy/Prospectus. Unless otherwise indicated, terms used herein and not
otherwise defined have the same meanings as are given to them in such
prospectuses.
IV-1
<PAGE>
Comparison of Shares of the 1784 Funds to Retail A and Trust Shares of the
Corresponding Galaxy Funds.
A. Sales Charges and Exemptions
Shares of the 1784 Funds and Shares and Trust Shares of the Galaxy Funds
are offered at net asset value with no front-end or contingent deferred sales
charges.
BKB Shares of the Galaxy Funds are offered at net asset value per share
with no front-end or contingent deferred sales charges. BKB Shares will be
issued in connection with the Reorganization and will only be available for
purchase by shareholders who received BKB Shares in connection with the
Reorganization. BKB shares will convert into Retail A Shares on the first
anniversary of the date the 1784 Fund reorganizes into its corresponding Galaxy
Fund provided that Galaxy's Board of Trustees determines that the conversion is
in the best interests of BKB shareholders.
There will be no sales load imposed on the conversion of BKB Shares into
Retail A Shares. In addition, no sales load will be imposed on subsequent
purchases of Retail A Shares (nor will any CDSC be imposed upon redemption of
Retail A Shares) by former 1784 Fund Shareholders so long as they keep an
account with Galaxy continuously open. Otherwise, there is a maximum sales
charge of 3.75% of the offering price per share on Retail A Shares of Galaxy's
non-money market funds. Sales charges are reduced as the amount invested
increases, provided that the amount invested reaches certain specified levels.
There is no sales charge on purchases of Retail A Shares of Galaxy of $500,000
or more. However, a contingent deferred sales charge or CDSC of the lesser of 1%
of the offering price or 1% of the net asset value of the shareholder's shares
is assessed to Galaxy shareholders who sell their Retail A Shares within one
year of purchase unless the redemption is the result of the shareholder's death
or disability. Galaxy, however, will waive the 1% CDSC on the initial sale of
Retail A Shares. This waiver will not apply to amounts reinvested within one
year following the initial sale of Retail A Shares. An investor may also be
entitled to reduced sales charges on Retail A Shares through Rights of
Accumulation, a Letter of Intent or certain reinvestment privileges (including
investing dividends and distributions of a Galaxy Fund or into such Galaxy Fund
or into another Galaxy Fund). In addition, Retail A Shares purchased by certain
qualified groups or for certain retirement accounts may be subject to reduced
sales charges. Finally, the front-end sales charge may be waived with respect to
certain types of investors and transactions, either because of the nature of the
investor or to reduce sales efforts required to attract such investments.
IV-2
<PAGE>
B. Purchase Policies
<TABLE>
<CAPTION>
Trust Shares and Shares BKB Shares of the Retail A Shares of
Shares of the 1784 Funds of the Galaxy Funds Galaxy Fund the Galaxy Funds
------------------------ -------------------- ----------- ----------------
<S> <C> <C> <C> <C>
Minimum Initial $1,000 for a regular Follow established $2500 for a regular $2,500 for a regular
Investment account; $250 for procedures of account (no minimum account (no minimum
tax-sheltered customer's financial investment if you investment if you
retirement plans. institution or employer participate in the participate in the
$100,000 for the Boston sponsored plan. Automatic Investment Automatic Investment
1784 Institutional U.S. $2,000,000 for the Program); $500 for Program); $500 for
Treasury Money Market Galaxy Institutional retirement plan retirement plan
Fund and the Boston Treasury Money Market accounts such as IRA, accounts such as IRA,
1784 Institutional Fund and Institutional SEP and Keogh Plan SEP and Keogh Plan
Prime Money Market Fund. Money Market Fund. accounts; $100 for accounts; $100 for
college savings college savings
accounts, including accounts, including
Education IRA accounts Education IRA accounts;
no minimum investment
for salary reduction
retirement plans such as
401(k) or SIMPLE IRAs.
Minimum subsequent $250 for a regular Follow established Generally, $100; $50 Generally $100; $50 per
investments account; procedures of per month or $150 per month or $150 per
$50 through an customer's financial quarter for regular quarter for regular
automatic investment institution or employer accounts using the accounts using the
plan. sponsored plan. No Automatic Investment Automatic Investment
$5,000 for the Boston minimum for the Program and $40 per Program and $40 per
1784 Institutional U.S. Institutional Treasury month or $125 per month or $125 per
Treasury Money Market Money Market Fund and quarter for Education quarter for Education
Fund and the Boston Institutional Money IRAs using the IRAs using the
1784 Institutional Market Fund. Automatic Investment Automatic Investment
Prime Money Market Fund. Program; $100 through Program; $100 through
the College Investment the College Investment
Program ($50 if you use Program ($50 if you use
the Automatic the Automatic
Investment Program); Investment Program);
and $25 per pay period and $25 per pay period
using the Payroll using the Payroll
Deduction Program. Deduction Program.
Purchase Methods Through SEI Investments Follow established Through Provident Through Provident
Distribution Co. or a procedures of Distributors Inc. or a Distributors Inc. or a
broker/dealer or customer's financial financial institution financial institution
financial institution institution or employer that has an agreement that has an agreement
that has an agreement sponsored plan; through with Provident with Provident
with SEI Investments Provident Distributors Distributors Inc.; by Distributors Inc.; by
Distribution Co.; by Inc.; by mail or by mail; by telephone; or mail; by telephone; or
mail; by telephone; by wire. by wire. by wire.
wire; or electronic
transfer.
</TABLE>
IV-3
<PAGE>
C. Redemption Procedures
<TABLE>
<CAPTION>
Trust Shares and Shares BKB Shares of the Retail A Shares of
Shares of the 1784 Funds of the Galaxy Funds Galaxy Fund the Galaxy Funds
------------------------ -------------------- ----------- ----------------
<S> <C> <C> <C> <C>
Through an Yes Terms set by financial Yes Yes
authorized selling institution or employer
or servicing agent sponsored plan.
Otherwise, yes.
By mail Yes Terms set by financial Yes Yes
institution or employer
sponsored plan.
Otherwise, yes.
By telephone Yes Terms set by financial Yes Yes
institution or employer
sponsored plan.
Otherwise, yes.
By wire Yes Terms set by financial Yes Yes
institution or employer
sponsored plan.
Otherwise, yes.
By systematic Yes (shareholders of Institutional Yes (except that the Yes (except that the
withdrawal plan all 1784 Funds whose Shareholders must account must have a account must have a
accounts maintain an follow established starting value of at starting value of at
aggregate value of procedures of least $10,000). least $10,000).
$10,000 (except customer's financial
shareholders of the institution or employer
Boston 1784 sponsored plan
Institutional U.S.
Treasury Money Market
Fund and Boston 1784
Institutional Prime
Money Market Fund)
may receive
systematic payments
of at least $100).
Institutional
Shareholders must
follow established
procedures of
customer's financial
institution or
employer sponsored
plan
By electronic Yes No No No
transfer
Checkwriting feature Checkwriting privileges Institutional Checkwriting privileges Checkwriting privileges
are available for the Shareholders must are available for the are available for the
Boston 1784 Tax-Free follow established Galaxy Money Market Galaxy Money Market
Money Market Fund, procedures of Fund, Galaxy U.S. Fund, Galaxy U.S.
Boston 1784 U.S. customer's financial Treasury Fund and Treasury Fund and
Treasury Money Market institution or employer Galaxy Tax-Exempt Galaxy Tax-Exempt
Fund, Boston 1784 Prime sponsored plan Fund. ($250 minimum) Fund. ($250 minimum)
Money Market Fund and
Boston 1784 Short-Term
Income Fund. ($250
minimum)
</TABLE>
IV-4
<PAGE>
Due to the high cost of maintaining fund accounts with small balances,
each of the 1784 Funds may redeem Shares in a shareholder's account if the
balance in such shareholder's account with the Fund drops below $250, in the
case of a tax-sheltered retirement plan account, or $1,000 ($100,000 for the
Boston 1784 Institutional U.S. Treasury Money Market Fund and the Boston 1784
Institutional Prime Money Market Fund) in the case of other shareholder
accounts. If a shareholder's account falls below the minimum required investment
as a result of selling or exchanging shares, the shareholder will be given 60
days to re-establish the minimum balance or the account will be closed.
Galaxy may redeem Retail A Shares if the balance in a shareholder's
account (other than a retirement plan account) falls below $250 as a result of
selling or exchanging shares. In such event, Galaxy will provide shareholders
with 60 days' written notice of such fact. If such shareholder does not
re-establish the required minimum balance within such period the account will be
closed.
D. Additional Shareholder Services
<TABLE>
<CAPTION>
Trust Shares and Shares BKB Shares of the Retail A Shares of
Shares of the 1784 Funds of the Galaxy Funds Galaxy Fund the Galaxy Funds
------------------------ -------------------- ----------- ----------------
<S> <C> <C> <C> <C>
Systematic/automatic Yes (minimum initial Institutional Yes ($50 per month or Yes ($50 per month or
investment plan investment amounts Shareholders must $150 per quarter $150 per quarter
described above apply; follow established minimum initial and minimum initial and
$50 minimum for procedures of subsequent investment subsequent investment
subsequent customer's financial for regular accounts, for regular accounts,
investments). institution or employer $40 or $125 per quarter $40 or $125 per quarter
Institutional sponsored plan minimum initial and minimum initial and
Shareholders must subsequent investment subsequent investment
follow established for Education IRAs). for Education IRAs).
procedures of
customer's financial
institution or employer
sponsored plan
</TABLE>
IV-5
<PAGE>
E. Share Exchanges
<TABLE>
<CAPTION>
Trust Shares and Shares BKB Shares of the Retail A Shares of
Shares of the 1784 Funds of the Galaxy Funds Galaxy Fund the Galaxy Funds
------------------------ -------------------- ----------- ----------------
<S> <C> <C> <C> <C>
Through an Yes Institutional N/A N/A Yes
Authorized Selling Shareholders must
or Servicing Agent follow established
procedures of
customer's financial
institution or employer
sponsored plan
By mail Yes Institutional N/A N/A Yes
Shareholders must
follow established
procedures of
customer's financial
institution or employer
sponsored plan
By telephone Yes Institutional N/A N/A Yes
Shareholders must
follow established
procedures of
customer's financial
institution or employer
sponsored plan
Minimum None N/A $100 Retail A Shares
exchanged must have a
value of at least $100
</TABLE>
IV-6
<PAGE>
F. Dividends for each of the 1784 Funds and Galaxy Funds are declared and
paid as follows:
<TABLE>
<CAPTION>
1784 Funds Galaxy Funds
---------- ------------
<S> <C> <C>
Declared daily and paid monthly Tax-Free Money Market Fund Tax Exempt Fund
U.S. Treasury Money Market Fund U.S. Treasury Fund
Institutional U.S. Treasury Money Institutional Treasury Money Market
Market Fund Fund
Prime Money Market Fund Money Market Fund
Institutional Prime Money Market Fund Institutional Money Market Fund
Short-Term Income Fund Short-Term Bond Fund
Income Fund High Quality Bond Fund
U.S. Government Medium-Term Income Intermediate Government Income Fund
Fund Intermediate Tax-Exempt Bond Fund
Tax-Exempt Medium-Term Income Fund Connecticut Intermediate Municipal
Connecticut Tax-Exempt Income Fund Bond Fund
Florida Tax-Exempt Income Fund Florida Municipal Bond Fund
Massachusetts Tax-Exempt Income Fund Massachusetts Intermediate Municipal
Rhode Island Tax-Exempt Income Fund Bond Fund
Rhode Island Municipal Bond Fund
Declared and paid quarterly Asset Allocation Fund Asset Allocation Fund
Growth and Income Fund Growth and Income Fund
Declared and paid semi-annually Growth Fund Growth Fund II
Declared and paid at least annually International Equity Fund International Equity Fund
</TABLE>
IV-7
<PAGE>
APPENDIX V
Performance Comparisons of the
Operating Galaxy Funds and their
Corresponding 1784 Funds
Total Return Performance
(As of 12/31/99)
The total returns of the Galaxy Funds are competitive with, and in many
cases superior to, those of the 1784 Funds as shown below. No BKB Shares or
Shares were outstanding as of 12/31/99. Performance shown is based on historical
earnings and is not predictive of future performance. Performance reflects
reinvestment of dividends and other earnings.
Boston 1784 Tax-Free Money Galaxy Tax-Exempt Fund
Market Fund ----------------------
-----------
Trust Retail A
Shares Shares Shares
------ ------ ------
1 Year 3.03% 2.73% 2.59%
5 Years 3.30% 3.02% 2.87%
10 Years N/A N/A 3.07%
Since Inception 3.14% (6/14/93) 2.73% (11/1/94) 3.43% (6/23/88)
Best Quarter 0.96% 6/95 0.88% 6/95 1.55% 6/89
Worst Quarter 0.58% 3/94 0.59% 3/99 0.45% 9/93
Boston 1784 U.S. Treasury Money Galaxy U.S. Treasury Fund
Market Fund -------------------------
-----------
Trust Retail A
Shares Shares Shares
------ ------ ------
1 Year 4.45% 4.37% 4.20%
5 Years 4.91% 4.81% 4.63%
Since Inception 4.52% (6/7/93) 4.81% (11/1/94) 4.27% (1/22/91)
Best Quarter 1.38% 6/95 1.32% 6/95 1.28% 6/95
Worst Quarter 0.65% 3/94 1.03% 3/99 0.65% 6/93
V-1
<PAGE>
Boston 1784 Prime Money Market Galaxy Money Market Fund
Fund ------------------------
----
Trust Retail A
Shares Shares Shares
------ ------ ------
1 Year 4.65% 4.80% 4.63%
5 Years 5.07% 5.12% 4.92%
10 Years N/A N/A 4.86%
Since Inception 4.48% (6/6/91) 5.11% (11/1/94) 5.50% (11/17/86)
Best Quarter 1.39% 6/95 1.39% 6/95 2.34% 6/89
Worst Quarter 0.66% 3/94 1.11% 6/99 0.65% 9/93
Boston 1784 Short-Term Income Galaxy Short-Term Bond
Fund Fund
---- ----
Trust Retail A
Shares Shares Shares
------ ------ ------
1 Year 2.66% 2.56% -1.49%
5 Years 6.14% 5.89% 4.83%
Since Inception 5.70% (7/1/94) 5.14% (12/30/91) 4.49% (12/30/91)
Best Quarter 3.31% 6/95 4.14% 9/92 4.14% 9/92
Worst Quarter 0.27% 3/96 -0.72% 3/94 -0.66% 6/94
Boston 1784 Income Fund Galaxy High Quality Bond
----------------------- Fund
----
Trust Retail A
Shares Shares Shares
------ ------ ------
1 Year -2.70% -3.99% -7.71%
5 Years 6.47% 7.19% 6.22%
Since Inception 5.88% (7/1/94) 6.98% (12/14/90) 6.44% (12/14/90)
Best Quarter 6.34% 6/95 7.59% 6/95 7.54% 6/95
Worst Quarter -2.42% 3/96 -3.85% 3/94 -3.85% 3/94
Boston 1784 U.S. Government Galaxy Intermediate
Medium-Term Income Fund Government Income Fund
----------------------- ----------------------
Trust Retail A
Shares Shares Shares
------ ------ ------
1 Year -1.57% -1.72% -5.66%
5 Years 6.30% 6.44% 5.35%
10 Years N/A 6.19% 5.67%
Since Inception 4.71% (6/7/93) 6.73% (9/1/88) 6.28% (9/1/88)
Best Quarter 5.51% 6/95 8.56% 6/89 8.56% 6/89
Worst Quarter 2.95% 3/94 -2.90% 3/94 -2.90% 3/94
V-2
<PAGE>
Boston 1784 Rhode Island Galaxy Rhode Island
Tax-Exempt Income Fund Municipal Bond Fund
---------------------- -------------------
Trust Retail A
Shares Shares Shares
------ ------ ------
1 Year -2.69% N/A -6.39%
5 Years 5.87% 4.96%
Since Inception 5.01% (8/1/94) 4.96% (12/20/94)
Best Quarter 5.66% 3/95 4.90% 3/95
Worst Quarter -2.04% 6/99 -1.90% 6/99
Boston 1784 Asset Allocation Galaxy Asset Allocation
Fund Fund
---- ----
Trust Retail A
Shares Shares Shares
------ ------ ------
1 Year 12.43% 7.41% 3.22%
5 Years 16.88% 17.98% 16.89%
Since Inception 12.84% (6/14/93) 12.53% (12/30/91) 11.86% (12/30/91)
Best Quarter 10.79% 6/97 11.74% 12/98 11.74% 12/98
Worst Quarter -5.12% 9/98 -3.75% 9/98 -3.80% 9/98
Boston 1784 Growth and Income Galaxy Growth and Income
Fund Fund
---- ----
Trust Retail A
Shares Shares Shares
------ ------ ------
1 Year 18.14% 7.09% 2.83%
5 Years 22.86% 20.20% 18.98%
Since Inception 18.25% (6/7/93) 16.43% (12/14/92) 15.90% (2/12/93)
Best Quarter 21.88% 12/99 20.76% 12/98 20.66% 12/98
Worst Quarter -12.79% 9/98 -13.49% 9/98 -13.50% 9/98
Boston 1784 International Galaxy International
Equity Fund Equity Fund
----------- -----------
Trust Retail A
Shares Shares Shares
------ ------ ------
1 Year 56.27% 41.89% 35.80%
5 Years N/A 19.56% 17.97%
Since Inception 17.53% (1/3/95) 15.04% (12/30/91) 14.06% (12/30/91)
Best Quarter 37.15% 12/99 24.53% 12/99 24.36% 12/99
Worst Quarter -16.34% 9/98 -14.53% 9/98 -14.61% 9/98
V-3
<PAGE>
APPENDIX VI
Management Discussion of Galaxy Fund
Performance
VI-1
<PAGE>
- --------------------------------------------------------------------------------
Portfolio Reviews
[PHOTO]
Glenn Migliozzi is the managing director of Fixed Income Investments for Fleet
Investment Advisors, Inc. He is also a member of Fleet's Taxable Fixed Income
Strategy Committee, which has managed the Galaxy Short-Term Bond Fund since
October of 1999.
GALAXY SHORT-TERM BOND FUND
By Glenn Migliozzi
Managing Director
Fixed Income Investments
As short-term interest rates edged higher over the past year, the Galaxy
Short-Term Bond Fund benefited from holding sizable investments in Treasury
securities and cash, and from keeping its maturity structure near or somewhat
shorter than that of its market benchmarks. We further enhanced returns by
taking advantage of near-term opportunities to increase yield that market
fluctuations created in individual bond sectors.
For the 12 months ended October 31, 1999, the Fund's Trust Shares
earned a total return of 2.67%, and its Retail A Shares had a total return of
2.43% before deducting the 3.75% maximum front-end sales charge. During this
time, the Fund's Retail B Shares had a total return of 1.71% before deducting
the maximum 5.00% contingement deferred sales charge. (Please see the chart
on page 3 for total returns after deducting the front-end sales charge and
the chart on page 4 for total returns after deducting the contingent deferred
sales charge.)
Over the same period, the average short-term bond fund tracked by Lipper
Analytical Services ("Lipper") earned a total return of 2.98%, and the Lehman
One-to-Three-Year Government Index had a total return of 2.97%.
On October 31, 1999, when the reporting period ended, the Galaxy
Short-Term Bond Fund had an average maturity near that of the Fund's benchmark,
and the Fund's Trust Shares had a 30-day Securities and Exchange Commission
("SEC") annualized yield of 5.31%. On the same date, Retail A Shares of the Fund
had a 30-day SEC annualized yield of 4.96%, and Retail B Shares had a 30-day SEC
annualized yield of 4.34%.
Enhancing Return as Yields Rose
In the final months of 1998 and the first months of 1999, the Fund
benefited from earlier additions of short-term issues, whose prices suffered
less than those with longer maturities as interest rates rose. Of further help
was the Fund's exposure to high-quality corporate bonds, which recorded
relatively good results as the economic outlook indicated continued strength.
Holdings in mortgage-backed securities also performed well, as rising interest
rates reduced the risk of home-loan prepayments. During this time we increased
investments in mortgage-backed securities and made opportunistic trades within
the corporate sector.
In the second quarter of 1999, with robust growth and the Fed's rate hike
of 25 basis points (0.25%), yields for shorter maturities rose 30 to 70 basis
points. While corporate bonds suffered from lighter demand and increased
supplies at this time, the added income from corporates more than compensated
for the slight lag in their price performance. During the second quarter, we
took advan-
1
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO REVIEWS
tage of selected opportunities in corporates, as well as in asset-backed and
mortgage-backed securities.
With a further rise in yields, the higher yields earned on non-Treasury
debt helped offset any extra price loss by those securities. Anticipating a
continued flight to quality, we added Treasury securities to the portfolio and
increased the Fund's cash position. We also continued to take advantage of
selected trading opportunities that arose from market fluctuations.
Defensive Posture to Continue
Given the many uncertainties that investors will face at the end of 1999,
we intend to focus new purchases on issues that mature next year when many of
these concerns should be resolved. In addition, we plan to maintain large
investments in Treasuries and cash. Besides giving the Fund added liquidity,
Treasuries could benefit from any year-end flight to quality. As always, we plan
to focus on high-quality securities in other sectors and make the most of new
investment opportunities that arise.
Galaxy Short-Term Bond Fund
Distribution of Total Net Assets as of October 31, 1999
[The following table was originally a pie chart in the printed materials.]
Repurchase Agreement and Net Other Assets & Liabilities 13%
Commercial Paper 2%
U.S.Government and Agency Obligations 31%
Asset-Backed and Mortgage-Backed Securities 21%
Corporate Notes and Bonds 33%
Galaxy Short-Term Bond Fund
Growth of $10,000 investment*
[The following table was originally a mountain graph in the printed materials.]
<TABLE>
<CAPTION>
12/30/91 10/31/99
<S> <C> <C>
Lehman Brothers One to Three Year Government Bond Index $10,000 $15,562
Galaxy Short-Term Bond Fund - Retail A Shares $ 9,625 $14,164
Galaxy Short-Term Bond Fund - Trust Shares $10,000 $14,888
Galaxy Short-Term Bond Fund - Retail B Shares $10,000 $11,835
</TABLE>
* Since inception on 12/30/91 for Trust and Retail A Shares. Since inception
on 3/4/96 for Retail B Shares. Performance figures for Retail A Shares
include the effect of the maximum 3.75% front-end sales charge.
Performance figures for Retail B Shares reflect the deduction of the 3.00%
contingent deferred sales charge as if shares were redeemed on
October 31, 1999. The Lehman Brothers One to Three Year Government Bond
Index is an unmanaged index in which investors cannot invest. Results for
the index do not reflect investment management fees and other expenses
incurred by the Fund.
2
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO REVIEWS
[PHOTO]
Marie Schofield became manager of the Galaxy Intermediate Government Income Fund
in December of 1996. She has managed fixed-income investments since 1975.
GALAXY INTERMEDIATE GOVERNMENT INCOME FUND
By Marie Schofield
Portfolio Manager
In a climate where investors were concerned that rising interest rates
would curtail future growth and generally favored U.S. Government securities and
other issues with higher credit quality, the Galaxy Intermediate Government
Income Fund benefited from sizable holdings in government debt. We further
enhanced returns during this time by taking advantage of attractive yield
opportunities that arose in other sectors and by emphasizing investments with
longer maturities. While the increased yield from longer maturities was
sometimes offset by the lesser price performance of these issues, we feel the
Fund's longer maturity structure should serve it well once interest rates fall
and bond prices rally.
For the 12 months ended October 31, 1999, the Fund's Trust Shares had a
total return of -0.86% and its Retail A Shares had a total return of -1.11%
before deducting the maximum 3.75% front-end sales charge. During the same
period, the Fund's Retail B Shares had a total return of -1.78% before deducting
the maximum 5.00% contingent deferred sales charge. (Please see the chart on
page 3 for total returns after deducting the front-end charge and the chart on
page 4 for total returns after deducting the contingent deferred sales charge.)
Those returns compare with a total return of -0.83% for the average
intermediate government bond fund tracked by Lipper, a total return of 0.99% for
the Lehman Brothers Intermediate Government/Corporate Intermediate Bond Index
and a total return of 0.53% for the Lehman Brothers Aggregate Bond Index. As of
October 31, 1999, the Fund's Trust Shares had a 30-day SEC annualized yield of
5.76%. On the same date, Retail A Shares of the Fund had a 30-day SEC annualized
yield of 5.38% and Retail B Shares had a 30-day SEC annualized yield of 4.82%.
Adapting to Economic Changes
In the first half of the reporting period, the Fund increased investments
in corporate, asset-backed, and mortgage-backed securities as well as in issues
of U.S. Government agencies. Besides being attractive on an historical basis,
the yields of these "spread products" provided some protection as interest rates
rose and bond prices fell. To facilitate these purchases, we reduced our
allocation in Treasuries. Continually throughout the period, U.S. Government
issues represented more than 70% of the portfolio, which is well above the 65%
threshold required by the Fund's investment policies.
During this time we maintained a "barbelled" maturity structure, which
overweights both long and short maturities and underweights intermediate
maturities. This positioning is optimal when the yield curve flattens, and
serves to minimize the impact of falling prices as short-term interest rates
rise more than long-term interest rates. During this time, interest rates on
long-term Treasuries rose 100 basis points while interest rates on short-term
Treasuries rose nearly 170 basis points, which is typical in an environment of
monetary policy tightening. We reduced the Fund's duration early in the period
when long-term Treasury yields fell below 5.0%. Overall, this gave the Fund a
duration that was about 105% of the duration for the average of the Lehman
Brothers Intermediate Government/Corporate Bond Index and the Lehman Brothers
Aggregate Bond Index. When the 30-year Treasury yield moved above 5.40% in the
first quarter of 1999, we extended the Fund's duration to 109% of that of the
Index.
3
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO REVIEWS
As yield spreads increased in the second quarter of 1999, we added
selectively to bonds of domestic banks and intermediate-term industrials and
consumer non-cyclicals. Throughout the period, however, holdings of corporate
issues remained light versus the Fund's benchmark, a blend of the Lehman
Brothers Intermediate Government/Corporate Bond Index and the Lehman Brothers
Aggregate Bond Index. We did maintain a significant overweight in mortgages due
to their ongoing attractive valuation, and increased holdings as the year
progressed. At the end of the period, weightings in mortgage-backed securities
were about double those of the benchmark. We reduced positions in
intermediate-term corporates in favor of government issues, as spread levels
between these two sectors narrowed dramatically. As real (inflation-adjusted)
yields rose, the Fund's duration was increased periodically when interest rates
spiked to historically attractive levels. While relative value was deemed high,
these moves also made the Fund more sensitive to changes in interest rates. The
Fund's duration was extended a final time in June as long-term Treasury yields
rose above 6%. By the end of June, the duration was approximately 114% of that
for the benchmark.
Strategies for Slower Growth
If slower growth allows yields to fall and prices to rally, as we expect,
longer-maturity issues should enjoy strong gains. In the meantime, they provide
the Fund with added income. The Fund should also benefit from its investments in
agencies and mortgage-backed securities, whose strong credit quality is likely
to attract investors in a less robust economy.
Galaxy Intermediate Government Income Fund
Distribution of Total Net Assets as of October 31, 1999
[The following table was originally a pie chart in the printed materials.]
Asset-Backed Securities, Foreign Bonds, Repurchase Agreement
and Net Other Assets & Liabilities 6%
Mortgage-Backed Securities 30%
U.S. Government and Agency Obligations 49%
Corporate Notes and Bonds 15%
Galaxy Intermediate Government Income Fund
Growth of $10,000 investment*
[The following table was originally a mountain graph in the printed materials.]
<TABLE>
<CAPTION>
9/1/88 10/31/99
<S> <C> <C>
Lehman Brothers Aggregate Bond Index $10,000 $23,892
Lehman Brothers Intermediate Government/Corporate Bond Index $10,000 $23,781
Galaxy Intermediate Government Income Fund - Retail A Shares $ 9,625 $20,046
Galaxy Intermediate Government Income Fund - Trust Shares $10,000 $21,038
Galaxy Intermediate Government Income Fund - Retail B Shares $10,000 $ 9,353
</TABLE>
* Since inception on 9/1/88 for Trust and Retail A Shares. Since inception
on 11/1/98 for Retail B Shares. Performance figures for Retail A Shares
include the effect of the maximum 3.75% front-end sales charge.
Performance figures for Retail B Shares reflect the deduction of the
maximum 5.00% contingent deferred sales charge as if shares were redeemed
on October 31, 1999. The Lehman Brothers Aggregate Bond Index and the
Lehman Brothers Intermediate Government/Corporate Bond Index are unmanaged
indices in which investors cannot invest. Results for the indices do not
reflect investment management fees and other expenses incurred by the
Fund.
4
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO REVIEWS
[PHOTO]
Marie Schofield has managed the Galaxy High Quality Bond Fund since March of
1996. She has managed fixed-income investments since 1975.
GALAXY HIGH QUALITY BOND FUND
By Marie Schofield
Portfolio Manager
In the first half of the reporting period, as the global economic outlook
improved and risk premiums contracted, corporate, asset-backed, and
mortgage-backed securities outperformed Treasuries. Additional commitments made
to these sectors benefited Fund returns. Later in the period, risk premiums in
selected sectors saw renewed widening while certain favored sectors, such as
U.S. Government agency and mortgage-backed issues, asset-backed issues, and
especially the Yankee sector, continued to perform well. Throughout the period
we continued to increase our allocations to mortgage-backed and asset-backed
securities and adjusted our weightings to the corporate sector in order to take
advantage of these changes. During this time, we also remained overweighted in
short and long maturities following a barbell strategy throughout much of the
year. This positioning is optimal when the yield curve flattens and serves to
minimize the impact of falling prices as short-term interest rates rise more
than long-term interest rates. During this time, interest rates on long-term
Treasuries rose 100 basis points while interest rates on short-term Treasuries
rose nearly 170 basis points -- typical in an environment of monetary policy
tightening.
As real yields rose, the Fund's duration was increased periodically when
interest rates spiked to historically attractive levels. While relative value
was deemed high, these moves also made the Fund more sensitive to changes in
interest rates. As rates continued to march upward and top out at levels above
6%, the Fund underperformed for the reporting period. Since the Fund is
generally not permitted to invest in foreign securities, its returns also
suffered from an absence of dollar-denominated "Yankee" bonds issued by foreign
corporations and institutions. Yankee bonds saw stellar performance during the
period in response to exceptional demand, as wide spread levels attracted
investors. Financial issues also performed well during the period.
For the 12 months ended October 31, 1999, the Fund's Trust Shares earned
a total return of -2.52%. Over the same time, Retail A Shares of the Fund had
a total return of -2.66% before deducting the maximum 3.75% front-end sales
charge, and its Retail B Shares had a total return of -3.46% before deducting
the maximum 5.00% contingent deferred sales charge. A Prime Shares of the
Fund had a total return of -2.68% before deducting the maximum 4.75%
front-end sales charge and its B Prime Shares had a total return of -3.46%
before deducting the maximum 5.00% contingent deferred sales charge. (Please
see the charts on page 3 for total returns after deducting the applicable
front-end sales charge and the charts on page 4 for total returns after
deducting the applicable contingent deferred sales charge.)
Over the same 12-month period, the average A-rated corporate bond fund
tracked by Lipper had a total return of -0.92%, the Lehman Brothers
Government/Corporate Bond Index had a total return of -0.66% and the Lehman
Brothers Long-Term Government/ Corporate Bond Index had a total return of
- -4.31%. The Fund has changed its benchmark from the Lehman Brothers Long-Term
Government/ Corporate Bond Index to the Lehman Brothers Government/Corporate
Bond Index, which is comprised of securities with remiaining maturities that
more closely approximate the remaining maturities of those securities held by
the Fund.
On October 31, 1999, the Fund's Trust Shares had a 30-day SEC annualized
yield of 5.76%, its Retail A Shares had a 30-day SEC annualized yield of 5.41%
and its Retail B Shares had a 30-day SEC annualized yield of 5.00%. On such
date, the Fund's A Prime Shares had a 30-day SEC annualized yield of 5.66% and
its B Prime Shares had a 30-day SEC annualized yield of 4.89%.
Portfolio Adjustments
Early in the fiscal year, we reduced Treasuries in favor of additional
corporate, asset-backed, and mortgage-backed securities, as well as U.S.
Government agency issues. As the yield for 30-year
5
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO REVIEWS
Treasuries fell below 5% in December of 1998, we reduced the Fund's duration to
104% of benchmark duration. When the 30-year Treasury yield moved above 5.40% in
the first quarter of 1999, we extended the Fund's duration to 109% of that for
the Index.
As the global economic outlook brightened in the first and second quarters
of 1999, corporate securities performed well versus Treasuries and our higher
allocation to this sector helped Fund performance. Specifically, our overweights
included issues in industrials, consumer non-cyclicals, and telecommunications
due to their stable outlook and strong credit quality. We remained underweighted
in corporate bonds issued by financial firms. We also found opportunities in
high-quality debt of retailers, drug companies, and energy firms. While
corporate bonds underperformed in the second half-year period, due to
expectations of a glut of new supply ahead of Y2K, agency, mortgage-backed and
asset-backed securities continued to contribute positively to Fund returns. In
June, after the yield on the 30-year Treasury bonds reached 6.15%, we further
extended the Fund's duration to 114% of the duration for its benchmark.
As rates rose further in the final months of the period, the Fund
benefited from its focus on better-quality issues and from a barbelled maturity
structure. The higher yields on investments in mortgage-backed securities and
corporate bonds helped to offset the price declines in those sectors. When risk
premiums on U.S. Government agencies became more attractive, we added to
holdings in that sector. As we approached the final quarter of this calendar
year, we increased investments in Treasuries in an effort to highlight
liquidity.
Prepared for Slower Growth
With a duration that remains 114% of its benchmark, the Fund should enjoy
strong gains when growth finally slows and bond prices rally. Tentative evidence
of slowing is already apparent in the housing sector and consumer demand has
slowed somewhat. In addition, employment gains have begun to soften. The Fed is
resolved to slow economic growth to head off any inflationary pressures from
tight labor markets. How much additional tightening, if any, that is required to
achieve this goal remains a major question. With the eventual slowdown, the Fund
should benefit from its emphasis on high credit quality and its longer maturity
structure.
Galaxy High Quality Bond Fund
Distribution of Total Net Assets as of October 31, 1999
[The following table was originally a pie chart in the printed materials.]
Foreign Bond, Repurchase Agreement and
Net Other Assets & Liabilities 4%
Mortgage-Backed Securities 18%
U.S. Government and Agency Obligations 40%
Asset-Backed Securities 6%
Corporate Notes and Bonds 32%
Galaxy High Quality Bond Fund
Growth of $10,000 investment*
[The following table was originally a mountain graph in the printed materials.]
<TABLE>
<CAPTION>
12/14/90 10/31/99
<S> <C> <C>
Lehman Brothers Long-Term Government/Corporate Bond Index $10,000 $20,028
Lehman Brothers Government/Corporate Bond Index $10,000 $23,623
Galaxy High Quality Bond Fund - Retail A Shares $ 9,625 $17,762
Galaxy High Quality Bond Fund - Trust Shares $10,000 $18,602
Galaxy High Quality Bond Fund - Retail B Shares $10,000 $11,362
Galaxy High Quality Bond Fund - A Prime Shares $ 9,525 $ 9,269
Galaxy High Quality Bond Fund - B Prime Shares $10,000 $ 9,197
</TABLE>
* Since inception on 12/14/90 for Trust and Retail A Shares. Since inception
on 3/4/96 for Retail B Shares. Since inception on 11/1/98 for A Prime and
B Prime Shares. Performance figures for Retail A Shares include the effect
of the maximum 3.75% front-end sales charge. Performance figures for Prime
A Shares include the effect of the maximum 4.75% front-end sales charge.
Performance figures for Retail B and B Prime Shares reflect the deduction
of the 3.00% contingent deferred sales charge (applicable to shares
redeemed in the fourth year after purchase) and maximum 5.00% contingent
deferred sales charge, respectively, as if shares were redeemed on October
31, 1999. The Lehman Brothers Long-Term Government/Corporate Bond Index
and the Lehman Brothers Government/Corporate Bond Index are unmanaged
indices in which investors cannot invest. Results for the indices do not
reflect investment management fees and other expenses incurred by the
Fund.
6
<PAGE>
PERFORMANCE AT-A-GLANCE
AVERAGE ANNUAL TOTAL RETURNS -- RETAIL A SHARES*
10 Years/
As of October 31, 1999 1 Year 3 Years 5 Years Life of Fund
- --------------------------------------------------------------------------------
Short-Term Bond Fund
(Inception date 12/30/91) -1.38% 3.48% 4.85% 4.54%
- --------------------------------------------------------------------------------
Intermediate Government
Income Fund (Inception date 9/1/88)** -4.83 3.73 5.45 5.76
- --------------------------------------------------------------------------------
High Quality Bond Fund
(Inception date 12/14/90) -6.34 3.81 6.68 6.68
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS -- A PRIME SHARES*
As of October 31, 1999 1 Year 3 Years 5 Years Life of Fund
- --------------------------------------------------------------------------------
High Quality Bond Fund
(Inception date 11/1/98) -7.31% N/A N/A -7.31%
- --------------------------------------------------------------------------------
* Return figures for Retail A Shares have been restated to include the
effect of the maximum 3.75% front-end sales charge which became effective
on December 1, 1995. Return figures for A Prime Shares include the effect
of the maximum 4.75% front-end sales charge.
** Retail A Shares of the Intermediate Government Income Fund were first
offered during the fiscal year ended October 31, 1992. The returns for
Retail A Shares for prior periods represent the returns for Trust
Shares of the Fund. Prior to November 1, 1993, the returns for Retail A
Shares and Trust Shares of the Fund were the same because each series
of shares had the same expenses.
7
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE AT-A-GLANCE
AVERAGE ANNUAL TOTAL RETURNS -- TRUST SHARES
10 Years/
As of October 31, 1999 1 Year 3 Years 5 Years Life of Fund
- --------------------------------------------------------------------------------
Short-Term Bond Fund
(Inception date 12/30/91) 2.67% 5.03% 5.89% 5.21%
- --------------------------------------------------------------------------------
Intermediate Government Income Fund
(Inception date 9/1/88) -0.86 5.33 6.56 6.27
- --------------------------------------------------------------------------------
High Quality Bond Fund
(Inception date 12/14/90) -2.52 5.29 7.66 7.24
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS -- RETAIL B SHARES**
<TABLE>
<CAPTION>
1 Year 1 Year 3 Year 3 Year Life of Fund Life of Fund
Returns Before Returns After Returns Before Returns After Returns Before Returns After
Contingent Contingent Contingent Contingent Contingent Contingent
As of Deferred Sales Deferred Sales Deferred Sales Deferred Sales Deferred Sales Deferred Sales
October 31, 1999 Charge Deducted Charge Deducted* Charge Deducted Charge Deducted* Charge Deducted Charge Deducted*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Short-Term Bond Fund
(Inception date 3/4/96) 1.71% -3.17% 4.13% 3.21% 3.97% 3.48%
- ------------------------------------------------------------------------------------------------------------------------------------
Intermediate Government
Income Fund
(Inception date 11/1/98) -1.78 -6.47 N/A N/A -1.78 -6.47
- ------------------------------------------------------------------------------------------------------------------------------------
High Quality Bond Fund
(Inception date 3/4/96) -3.25 -7.82 4.53 3.63 4.02 3.55
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS -- B PRIME SHARES**
<TABLE>
<CAPTION>
1 Year 1 Year Life of Fund Life of Fund
Returns Before Returns After Returns Before Returns After
Contingent Contingent Contingent Contingent
As of Deferred Sales Deferred Sales Deferred Sales Deferred Sales
October 31, 1999 Charge Deducted Charge Deducted* Charge Deducted Charge Deducted*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
High Quality Bond Fund
(Inception date 11/1/98) -3.46% -8.03% -3.46% -8.03%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* As if shares were redeemed at end of period.
** Retail B Shares and B Prime Shares are subject to a 5.00% contingent
deferred sales charge if shares are redeemed within the first year. The
charge decreases to 4.00%, 3.00%, 3.00%, 2.00% and 1.00% for redemptions
made during the second through sixth years, respectively. Retail B Shares
automatically convert to Retail A Shares after six years and B Prime
Shares automatically convert to A Prime Shares after eight years.
Past performance is no guarantee of future results. Investment returns and
principal values will vary with market conditions so that an investor's shares,
when redeemed, may be worth more or less than their original cost. The
Investment Advisor is presently waiving fees and/or reimbursing expenses and may
revise or discontinue such practice at any time. Without such waivers and/or
reimbursements, performance would be lower. Total return figures in this report
include changes in share price, reinvestment of dividends and capital gains
distributions and include the deduction of any sales charges, where applicable,
unless otherwise indicated.
8
<PAGE>
PORTFOLIO REVIEWS
GALAXY RHODE ISLAND MUNICIPAL BOND FUND
By Glenn Migliozzi, CFA
Managing Director,
Fixed Income Investments
In the 12 months ended October 31, 1999, the Galaxy Rhode Island Municipal
Bond Fund benefited from additions of intermediate-term investments that tended
to outperform longer maturities as bond prices fell. Attention to attributes
that investors favor in a weakening market also helped returns. At the same
time, the values of existing municipal bonds in Rhode Island were bolstered by
the lack of supply of new issues.
For the 12-month reporting period the Fund's Retail A Shares had a total
return of -2.73% before deducting the maximum 3.75% front-end sales charge.
(Please see chart on page 4 for total returns after deducting the front-end
sales charge.) Over the same time the average Rhode Island municipal bond fund
tracked by Lipper had a total return of -3.34%. The Lehman Brothers Municipal
Bond Index, whose duration is shorter than that for the Fund and its Lipper
group, had a total return of -1.78%.
On October 31, 1999, the Fund's Retail A Shares had a 30-day SEC
annualized yield of 4.54%. This equaled a taxable yield of 7.59% for taxpayers
in the 36% federal income tax bracket that live in Rhode Island.
A Defensive Strategy
For most of 1998, we had maintained sizable holdings in longer-term
municipals to make the most of a bond price rally. As the reporting period
started in the fourth quarter, however, prices seemed to be peaking. Finding
better relative value in intermediate-term issues, which could also help to
buffer the Fund against a price reversal, we increased investments in that
sector.
In a further defense against falling prices, we increased the Fund's cash
position early in 1999. We then deployed these reserves in the months that
followed as we found investments with more attractive yields. As before, we
emphasized issues with premium coupons, strong credit quality, and good
liquidity -- attributes that investors tend to favor when yields are rising.
Although intermediate-term issues underperformed in the second quarter,
they significantly outperformed in the third quarter.
Remaining Prepared for Higher Rates
We expect to maintain these strategies in the months ahead. If interest
rates edge higher, intermediate-term issues could again outperform, and
investors should continue to favor issues with higher coupons, strong credit
quality, and good liquidity. By keeping larger cash reserves, we should be able
to make the most of any further opportunities to enhance the Fund's yield that
might arise.
Galaxy Rhode Island Municipal Bond Fund
Distribution of Total Net Assets as of October 31, 1999
[The following information was depicted as a pie chart in the printed material.]
Other Territories ............................................ 4%
Cash Equivalents & Net Other Assets and Liabilities .......... 5%
Puerto Rico .................................................. 12%
Rhode Island ................................................. 79%
Galaxy Rhode Island Municipal Bond Fund
Growth of $10,000 investment*
[The following information was depicted as a line chart in the printed
material.]
12/20/94 10/31/99
Lehman Brothers Municipal Bond Index $10,000 $13,271
Galaxy Rhode Island Municipal Bond Fund - Retail A Shares $10,000 $12,683
* Since inception on 12/20/94. Performance figures for Retail A Shares
include the effect of the maximum 3.75% front-end sales charge. The Lehman
Brothers Municipal Bond Index is an unmanaged index in which investors
cannot invest. Results for the index do not reflect investment management
fees and other expenses incurred by the Fund. Results for the index are
calculated since 12/31/94 because the index returns are calculated at
month-end only.
9
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS -- RETAIL A SHARES+
<TABLE>
<CAPTION>
As of October 31, 1999 1 Year 3 Years 5 Years Life of Fund
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Rhode Island Municipal Bond Fund
(Inception date 12/20/94) -6.42 2.71 N/A 5.01
- ----------------------------------------------------------------------------------------------------------
</TABLE>
+ Return figures have been restated to include the effect of the maximum
3.75% front-end sales charge which became effective on December 1, 1995
Past performance is no guarantee of future results. Investment returns and
principal values will vary with market conditions so that an investor's shares,
when redeemed, may be worth more or less than their original cost. The
Investment Advisor is presently waiving fees and/or reimbursing expenses and may
revise or discontinue such practice at any time. Without such waivers and/or
reimbursements, performance would be lower. Total return figures in this report
include changes in share price, reinvestment of dividends and capital gains
distributions and include the deduction of any sales charges, where applicable,
unless otherwise indicated.
10
<PAGE>
- --------------------------------------------------------------------------------
Portfolio Reviews
GALAXY ASSET ALLOCATION FUND
By Don Jones
Portfolio Manager
[PHOTO]
Don Jones became manager of the Galaxy Asset Allocation Fund in April 1995. He
has managed investment portfolios for Fleet Investment Advisors Inc., and its
predecessors, since 1977.
As the economic outlook changed over the past year, individual sectors of
the stock and bond markets responded differently. We tried to make the best of
this environment by routinely taking profits in investments that outperformed,
and adding securities that represented better value.
For the 12 months ended October 31, 1999, Trust Shares of the Galaxy Asset
Allocation Fund earned a total return of 9.63%. For the same period, the Fund's
Retail A Shares returned 9.53%, before deducting the maximum 3.75% front-end
sales charge, and its Retail B Shares returned 8.76%, before deducting the
maximum 5.00% contingent deferred sales charge. A Prime Shares of the Fund
returned 9.72% before deducting the maximum 5.50% front-end sales charge, and B
Prime Shares returned 8.91% before deducting the maximum 5.00% contingent
deferred sales charge. (Please see the charts on page 4 for total returns after
deducting the applicable front-end sales charge and the charts on page 5 for
total returns after deducting the applicable contingent deferred sales charge.)
These total returns compare with a total return of 13.59% for the average
flexible fund tracked by Lipper Analytical Services, Inc. ("Lipper"). During the
same time, the S&P 500 Index, which tracks the performance of stocks only,
returned a total of 25.67%.
Allocation Strategies
Early in the period, we found many new investment opportunities in stocks
resulting from the market's sharp correction in the fall of 1998. Using proceeds
from the sale of manufacturing shares, we bought stocks of financial and
technology companies. With investors nervous about the future of financial
markets here and abroad, we reduced the Fund's allocation to corporate bonds in
the fixed-income portfolio from 60% to 50%.
As a strong economy helped stocks rise briskly early in 1999, we continued
to benefit from our emphasis on individual stocks and market sectors that
investors favored, such as shares of consumer staples and technology firms. An
underweighting in economically sensitive issues, which were out of favor at the
time, further enhanced Fund returns. Using profits from medical and energy
stocks that had performed well, we increased shares of capital goods, oil
service, retail, transportation, and Internet firms.
During the second quarter of 1999, a shift away from large-cap growth
stocks into shares of smaller companies and economically sensitive issues
reduced Fund returns. Performance was particularly disappointing for drug and
technology stocks, which represent large portions of the portfolio. The Fund
benefited, however, from additions of capital goods shares that performed well.
We also bought shares of money-center banks and Internet firms at this time.
11
<PAGE>
- --------------------------------------------------------------------------------
Portfolio Reviews
As the period progressed, strong performance by individual stocks and
selected non-Treasury fixed-income issues helped offset the generally
disappointing returns from the Fund's stock and bond portfolios. We took
advantage of price fluctuations to add stocks that offered attractive investment
opportunities. These included stocks of money-center banks as well as shares of
technology, consumer cyclical, and capital goods firms. To finance these
purchases, we sold issues that had performed well or had otherwise reduced their
potential for gains.
Throughout the period, we maintained a 40% weighting in bonds, split
almost evenly between U.S. government and corporate issues.
A Positive Long-Term Outlook
We believe the long-term prospects for stocks are quite favorable, given
the positive outlook for inflation and earnings. In coming months, we may see a
short-term correction that could present attractive buying opportunities among
companies with good prospects for long-term growth. To take advantage of these
opportunities, we will likely reduce the Fund's cash reserves. If stock prices
become especially attractive, we may also trim the Fund's 40% weighting in
bonds.
Recent purchases in the technology area have focused on blue-chip Internet
stocks. Once current economic uncertainties ease, we may look for lesser
Internet names that could offer shareholders greater appreciation potential over
time. For now, we plan to keep the fixed-income portfolio split between
corporate bonds and U.S. Government securities. The higher yields from
corporates should help boost returns as bond prices continue to fluctuate.
Galaxy Asset Allocation Fund
Distribution of Total Net Assets as of October 31, 1999
[The following information was in a pie chart in the printed material.]
U.S. Government and Agency Obligations &
Net Other Assets and Liabilities 23%
Commercial Paper 8%
Corporate Notes and Bonds 14%
Asset-Backed and Mortgage-Backed Securities 2%
Common & Convertible Preferred Stocks 53%
Galaxy Asset Allocation Fund
Growth of $10,000 investment*
[The following information was in a mountain graph in the printed material.]
12/30/91 10/31/99
-------- --------
S&P 500 Index $10,000 $38,978
Galaxy Asset Allocation Fund - Retail A Shares $ 9,625 $23,581
Galaxy Asset Allocation Fund - Retail B Shares $10,000 $15,618
Galaxy Asset Allocation Fund - Trust Shares $10,000 $24,736
Galaxy Asset Allocation Fund - A Prime Shares $ 9,450 $10,366
Galaxy Asset Allocation Fund - B Prime Shares $10,000 $10,391
* Since inception on 12/30/91 for Trust and Retail A Shares. Since inception
on 3/4/96 for Retail B Shares. Since inception on 11/1/98 for A Prime
Shares and B Prime Shares. Performance figures for Retail A Shares include
the effect of the maximum 3.75% front-end sales charge. Performance
figures for A Prime Shares include the effect of the maximum 5.50%
front-end sales charge. Performance figures for Retail B and B Prime
Shares reflect the deduction of the 3.00% contingent deferred sales charge
(applicable to shares redeemed during the fourth year after purchase) and
the maximum 5.00% contingent deferred sales charge, respectively, as if
shares were redeemed on October 31, 1999. The S&P 500 Index is an
unmanaged index in which investors cannot invest. Results for the index do
not reflect the investment management fees and other expenses incurred by
the Fund.
12
<PAGE>
- --------------------------------------------------------------------------------
Portfolio Reviews
[PHOTO]
Greg Miller has managed the Galaxy Growth and Income Fund since July of 1998. He
has managed equity portfolios since 1988.
GALAXY GROWTH AND INCOME FUND
By Greg Miller
Portfolio Manager
During a time when growth stocks outperformed value-oriented issues, we
tried to make the most of the many attractive investment opportunities that were
available. As positions in the Galaxy Growth and Income Fund performed well, we
sold shares of those issues and invested the proceeds in stocks that we felt had
better potential. This strategy helped the Fund outperform other funds with
similar investment objectives.
For the 12 months ended October 31, 1999, the Fund's Trust Shares earned a
total return of 14.85%. Over the same time, the Fund's Retail A Shares earned
14.56% before deducting the maximum 3.75% front-end sales charge and Retail B
Shares earned 13.72% before deducting the maximum 5.00% contingent deferred
sales charge. A Prime Shares of the Fund earned 14.81% before deducting the
maximum 5.50% front-end sales charge and B Prime Shares earned a total return of
13.98% before deducting the maximum 5.00% contingent deferred sales charge.
(Please see the charts on page 4 for total returns after deducting the
applicable front-end sales charge and the charts on page 5 for total returns
after deducting the applicable contingent deferred sales charge.)
These results compare to a total return of 11.72% for the average
multi-cap value fund tracked by Lipper. For the same period, the S&P 500 Index,
which represents a more growth-oriented universe of stocks, had a total return
of 25.67%.
Sector Strategies Enhance Results
When the period began in the fourth quarter of 1998, we used the pullback
in stocks from the third quarter to increase positions in banking, retail, and
energy firms. The Fund benefited during this time from its specific selection of
technology and retail stocks. The strong gains by these shares helped to offset
disappointing results from an overweighted position in energy stocks hurt by
falling oil prices. As additional market fluctuations occurred, we traded
certain technology, health care, and telecommunications shares that had
performed well for stocks with better potential.
The Fund's overweighted position in energy stocks boosted performance in
the first months of 1999, when rising oil prices helped the sector rebound
strongly. During this time, the Fund also enjoyed strong returns from
overweighted positions in the capital goods and basic materials groups and from
its specific selection of capital goods, basic materials, and transportation
stocks. An underweighting in the lesser-performing consumer staples enhanced
returns, as
13
<PAGE>
- --------------------------------------------------------------------------------
Portfolio Reviews
well. With investors favoring issues with greater economic sensitivity, we
continued to take profits in health care issues. Because interest in technology
stocks was ebbing, we focused on shares in the sector with more reasonable
valuations.
As the rally broadened in the second quarter of 1999, the Fund benefited
further from its cyclical positions and from an underweighting in consumer
staples shares. Eventually we traded capital goods and consumer cyclical shares
that had performed well for stocks in the consumer staples area with better
value.
Although investors abandoned economically sensitive and value-oriented
issues in the final months of the period, the Fund's overweighted position in
energy shares and a strong performance from its technology holdings contributed
positively to total returns. During this time, we traded shares of technology,
drug, and banking stocks that had performed well for shares of energy, health
care and other firms with better potential.
Valuations Are Attractive
Many stocks in the Fund's portfolio are more attractive now than they have
been for some time. While it is difficult to know when value investing will be
in favor again, a strong outlook for corporate earnings should lay the
foundation for further gains. Once we get past the uncertainty surrounding
potential Y2K computer problems, we may see value stocks assume market
leadership in the first months of next year. Given our current emphasis on these
securities, the Fund would be well positioned to benefit from such a turnaround.
Galaxy Growth and Income Fund
Distribution of Total Net Assets as of October 31, 1999
[The following information was in a pie chart in the printed material.]
Other Preferred & Common Stocks 17%
Repurchase Agreement & Net Other Assets and Liabilities 7%
Consumer Staples 18%
Technology 16%
Consumer Cyclical 10%
Utilities 9%
Energy 10%
Finance 13%
Galaxy Growth and Income Fund
Growth of $10,000 investment*
[The following information was in a mountain graph in the printed material.]
12/14/92 10/31/99
-------- --------
S&P 500 Index $10,000 $36,669
Galaxy Growth and Income Fund - Retail A Shares $ 9,625 $26,641
Galaxy Growth and Income Fund - Retail B Shares $10,000 $16,912
Galaxy Growth and Income Fund - Trust Shares $10,000 $28,180
Galaxy Growth and Income Fund - A Prime Shares $ 9,450 $10,847
Galaxy Growth and Income Fund - B Prime Shares $10,000 $10,898
* Since inception on 12/14/92 for Trust Shares and 2/12/93 for Retail A
Shares. Since inception on 3/4/96 for Retail B Shares. Since inception on
11/1/98 for A Prime Shares and B Prime Shares. Performance figures for
Retail A Shares include the effect of the maximum 3.75% front-end sales
charge. Performance figures for A Prime Shares include the effect of the
maximum 5.50% front-end sales charge. Performance figures for Retail B and
B Prime Shares reflect the deduction of the 3.00% contingent deferred
sales charge (applicable to shares redeemed during the fourth year after
purchase) and the maximum 5.00% contingent deferred sales charge,
respectively, as if shares were redeemed on October 31, 1999. The S&P 500
is an unmanaged index in which investors cannot invest. Results for the
index do not reflect the investment management fees and other expenses
incurred by the Fund.
14
<PAGE>
- --------------------------------------------------------------------------------
Portfolio Reviews
[PHOTO]
Thomas M. O'Neill is Chief Investment Officer of Fleet Investment Advisors Inc.
and Oechsle International Advisors, LLC, sub-advisor for the Fund. Oechsle is a
firm dedicated to international investing and has approximately $15 billion in
assets under management.
GALAXY INTERNATIONAL EQUITY FUND
By Thomas O'Neill, Chief Investment Officer, Fleet Investment Advisors Inc., and
Oechsle International Advisors, LLC, Sub-Advisor
As foreign economies recovered in the past year, the rebound for stocks in
Japan and other parts of Asia was generally stronger than stock reversals in
European markets. Because the outlook for Asian equities had been so uncertain,
the Galaxy International Equity Fund was underweighted in those securities
versus its market benchmark in the first part of the reporting period. With
exceptional performance by individual issues in Japan and elsewhere and a higher
weighting in Japan later in the period, the Fund performed well against its
benchmarks for the fiscal year.
During the 12 months ended October 31, 1999, the Fund's Trust Shares
earned a total return of 29.71%. Over the same time, Retail A Shares of the Fund
earned 29.04%, before deducting the maximum 3.75% front-end sales charge, and
Retail B Shares earned 28.41% before deducting the maximum 5.00% contingent
deferred sales charge. The Fund's A Prime Shares earned a total return of 29.73%
before deducting the maximum 5.50% front-end sales charge, and B Prime Shares
earned a total return of 28.74% before deducting the maximum 5.00% contingent
deferred sales charge. (Please see the charts on page 4 for total returns after
deducting the applicable front-end sales charge and the charts on page 5 for
total returns after deducting the applicable contingent deferred sales charge.)
Those total returns compare with 25.53% for the average international fund
tracked by Lipper, and 23.37% for the EAFE Index.
Japanese Stocks Help Lift Returns
In the final months of 1998 and the first months of 1999, the Fund enjoyed
strong performance by shares of Japanese telecommunications and financial
companies. Many European stocks also performed well, especially shares of
telecommunications firms and companies involved in mergers.
During this time, we added selectively to investments in Japan, seeking to
improve the earnings quality of shares that we owned. We gave particular
attention to consumer-finance companies and firms that can benefit from
corporate restructuring. In Europe, we reduced shares in French companies that
were particularly sensitive to a weak global economy.
The Fund's increased weighting in Japan, along with modest additions in
the emerging markets of Asia, enhanced performance in the second quarter of
1999. The shift in assets to Asia, reduced investments in Europe somewhat.
Strong stock selection in Asia and Europe further enhanced the Fund's total
returns during this time.
15
<PAGE>
- --------------------------------------------------------------------------------
Portfolio Reviews
By the final months of 1999, the Fund was slightly overweighted in
Japanese stocks, which rallied strongly. Outstanding performance by many
individual Japanese issues made further positive contributions to performance.
As in previous months, we focused on opportunities in stocks that could benefit
most over time from the expansion of economies abroad.
Favorable Growth Prospects
The recent improvement in economies overseas seem to have taken many
corporate purchasing managers by surprise, leading to an inadvertent depletion
in business inventories. Efforts by managers to rebuild those inventories, which
may be boosted by Y2K concerns, could spur further growth in months to come.
Growth may then slow, however, with a return to more normal inventory levels,
higher interest rates and actual Y2K disruptions.
Near term, the Fund should benefit from careful stock selection. Given our
favorable outlook for long-term growth, we plan to continue seeking
opportunities in stocks from economically sensitive sectors. We are particularly
optimistic about opportunities in Europe, where positive economic fundamentals
are not yet reflected in stock valuations. Japanese stocks could also continue
to perform well, if recent economic trends and corporate restructuring continue.
Galaxy International Equity Fund
Distribution of Total Net Assets as of October 31, 1999
[The following information was in a pie chart in the printed material.]
Repurchase Agreement & Net Other Assets and Liabilities 4%
Australia & New Zealand 3%
United Kingdom 16%
Europe 41%
Far East 32%
Canada 4%
Galaxy International Equity Fund
Growth of $10,000 investment*
[The following information was in a mountain graph in the printed material.]
12/30/91 10/31/99
-------- --------
EAFE Index $10,000 $20,349
Galaxy International Equity Fund - Retail A Shares $ 9,625 $23,949
Galaxy International Equity Fund - Retail B Shares $10,000 $12,341
Galaxy International Equity Fund - Trust Shares $10,000 $25,623
Galaxy International Equity Fund - A Prime Shares $ 9,450 $12,260
Galaxy International Equity Fund - B Prime Shares $10,000 $12,374
* Since inception on 12/30/91 for Trust and Retail A Shares. Since inception
on 11/1/98 for Retail B, A Prime Shares and B Prime Shares. Performance
figures for Retail A Shares include the effect of the maximum 3.75%
front-end sales charge. Performance figures for A Prime Shares include the
effect of the maximum 5.50% front-end sales charge. Performance figures
for Retail B and B Prime Shares reflect the deduction of the maximum 5.00%
contingent deferred sales charge as if shares were redeemed on October 31,
1999. The EAFE Index is an unmanaged index in which investors cannot
invest. Results for the index do not reflect the investment management
fees and other expenses incurred by the Fund.
16
<PAGE>
PERFORMANCE AT-A-GLANCE
AVERAGE ANNUAL TOTAL RETURNS -- TRUST SHARES
10 Years/
As of October 31, 1999 1 Year 3 Years 5 Years Life of Fund
- --------------------------------------------------------------------------------
Asset Allocation Fund
(Inception date 12/30/91) 9.63% 14.61% 16.89% 12.25%
- --------------------------------------------------------------------------------
Growth and Income Fund
(Inception date 12/14/92) 14.85 18.15 18.80 16.25
- --------------------------------------------------------------------------------
International Equity Fund
(Inception date 12/30/91) 29.71 20.02 14.02 12.76
- --------------------------------------------------------------------------------
17
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE AT-A-GLANCE (continued)
AVERAGE ANNUAL TOTAL RETURNS -- RETAIL A SHARES*
10 Years/
As of October 31, 1999 1 Year 3 Years 5 Years Life of Fund
- --------------------------------------------------------------------------------
Asset Allocation Fund
(Inception date 12/30/91) 5.42% 12.99% 15.79% 11.57%
- --------------------------------------------------------------------------------
Growth and Income Fund
(Inception date 2/12/93) 10.26 16.39 17.59 15.71
- --------------------------------------------------------------------------------
International Equity Fund
(Inception date 12/30/91) 24.22 17.83 12.50 11.79
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS -- A PRIME SHARES***
10 Years/
As of October 31, 1999 1 Year 3 Years 5 Years Life of Fund
- --------------------------------------------------------------------------------
Asset Allocation Fund
(Inception date 11/1/98) 3.66% N/A N/A 3.66%
- --------------------------------------------------------------------------------
Growth and Income Fund
(Inception date 11/1/98) 8.47 N/A N/A 8.47
- --------------------------------------------------------------------------------
International Equity Fund
(Inception date 11/1/98) 22.60 N/A N/A 22.60
- --------------------------------------------------------------------------------
* Return figures have been restated to include the effect of the maximum
3.75% front-end sales charge which became effective on December 1, 1995.
** Return figures include the effect of the maximum 5.50% front-end sales
charge.
- --------------------------------------------------------------------------------
PERFORMANCE AT-A-GLANCE (continued)
AVERAGE ANNUAL TOTAL RETURNS -- RETAIL B SHARES**
<TABLE>
<CAPTION>
1 Year 1 Year 3 Year 3 Year Life of Fund Life of Fund
Return Before Return After Return Before Return After Return Before Return After
Contingent Contingent Contingent Contingent Contingent Contingent
Deferred Sales Deferred Sales Deferred Sales Deferred Sales Deferred Sales Deferred Sales
As of October 31, 1999 Charge Deducted Charge Deducted* Charge Deducted Charge Deducted* Charge Deducted Charge Deducted*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Asset Allocation Fund
(Inception date 3/4/96) 8.76% 3.76% 13.66% 12.88% 13.35% 12.95%
- ------------------------------------------------------------------------------------------------------------------------------------
Growth and Income Fund
(Inception date 3/4/96) 13.72 8.72 17.00 16.27 15.81 15.44
- ------------------------------------------------------------------------------------------------------------------------------------
International Equity Fund
(Inception date 11/1/98) 28.41 23.41 N/A N/A 28.41 23.41
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS -- B PRIME SHARES**
<TABLE>
<CAPTION>
1 Year 1 Year Life of Fund Life of Fund
Return Before Return After Return Before Return After
Contingent Contingent Contingent Contingent
As of October 31, 1999 Charge Deducted Charge Deducted* Charge Deducted Charge Deducted*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Asset Allocation Fund
(Inception date 11/1/98) 8.91% 3.91% 8.91% 3.91%
- ------------------------------------------------------------------------------------------------------------------------------------
Growth and Income Fund
(Inception date 11/1/98) 13.98 8.98 13.98 8.98
- ------------------------------------------------------------------------------------------------------------------------------------
International Equity Fund
(Inception date 11/1/98) 28.74 23.74 28.74 23.74
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* As if shares were redeemed at end of period.
** Retail B Shares and B Prime Shares are subject to a 5.00% contingent
deferred sales charge if shares are redeemed within the first year. The
charge decreases to 4.00%, 3.00%, 3.00%, 2.00% and 1.00% for redemptions
made during the second through sixth years, respectively. Retail B Shares
automatically convert to Retail A Shares after six years and B Prime
Shares automatically convert to A Prime Shares after eight years.
18
<PAGE>
Past performance is no guarantee of future results. Investment returns and
principal values will vary with market conditions so that an investor's shares,
when redeemed, may be worth more or less than their original cost. The
Investment Advisor is presently waiving fees and/or reimbursing expenses and may
revise or discontinue such practice at any time. Without such waivers and/or
reimbursements, performance would be lower. Total return figures in this report
include changes in share price, reinvestment of dividends and capital gains
distributions and include the deduction of any sales charges, where applicable,
unless otherwise indicated.
19
<PAGE>
BOSTON 1784 FUNDS
2 OLIVER STREET
BOSTON, MASSACHUSETTS 02109
1-(800) 342-5734
THE GALAXY FUND
4400 COMPUTER DRIVE
WESTBOROUGH, MASSACHUSETTS 01581-5108
1-(877) 289-4252
STATEMENT OF ADDITIONAL INFORMATION
(APRIL 28, 2000 SPECIAL MEETING OF SHAREHOLDERS OF BOSTON 1784 FUNDS)
This Statement of Additional Information is not a prospectus but should
be read in conjunction with the Combined Proxy Statement/Prospectus dated
March 8, 2000 ("Combined Proxy Statement/Prospectus") for the Special Meeting of
Shareholders of the Boston 1784 Funds to be held on April 28, 2000. Copies of
the Combined Proxy Statement/Prospectus may be obtained at no charge by writing
or calling Boston 1784 Funds or The Galaxy Fund at the addresses or telephone
numbers set forth above.
Unless otherwise indicated, capitalized terms used herein and not
otherwise defined have the same meanings as are given to them in the Combined
Proxy Statement/Prospectus.
Incorporation of Documents by Reference in Statement of Additional
Information
Further information about the BKB Shares of the Galaxy Money Market Fund,
Galaxy U.S. Treasury Fund, Galaxy Tax-Exempt Fund, Galaxy Short-Term Bond Fund,
Galaxy Intermediate Government Income Fund, Galaxy High Quality Bond Fund,
Galaxy Rhode Island Municipal Bond Fund, Galaxy Asset Allocation Fund, Galaxy
Growth and Income Fund and Galaxy International Equity Fund is contained in and
incorporated herein by reference to the Statement of Additional Information
dated February __, 2000.
Further information about the Retail A Shares and Trust Shares of the
Galaxy Asset Allocation, Galaxy Growth and Income and Galaxy International
Equity Funds is contained in and incorporated herein by reference to the
Statement of Additional Information dated February __, 2000.
Further information about the Retail A Shares and Trust Shares of the
Galaxy Short-Term Bond, Galaxy Intermediate Government Income and Galaxy High
Quality Bond Funds is contained in and incorporated herein by reference to the
Statement of Additional Information dated February __, 2000.
Further information about the Retail A Shares and Trust Shares of the
Galaxy Rhode Island Municipal Bond Funds is contained in and incorporated herein
by reference to the Statement of Additional Information dated February __, 2000.
<PAGE>
Further information about the Retail A Shares and Trust Shares of the
Galaxy Money Market Fund, Galaxy U.S. Treasury and Galaxy Tax-Exempt Funds is
contained in and incorporated herein by reference to the Statement of Additional
Information dated February __, 2000.
Further information about the Shares of the Boston 1784 Tax-Free Money
Market, Boston 1784 U.S. Treasury Money Market, Boston 1784 Institutional U.S.
Treasury Money Market, Boston 1784 Prime Money Market, Boston 1784 Institutional
Prime Money Market, Boston 1784 Short-Term Income, Boston 1784 Income, Boston
1784 U.S. Government Medium-Term Income, Boston 1784 Tax-Exempt Medium-Term
Income, Boston 1784 Connecticut Tax-Exempt Income, Boston 1784 Florida
Tax-Exempt Income, Boston 1784 Massachusetts Tax-Exempt Income, Boston 1784
Rhode Island Tax-Exempt Income, Boston 1784 Asset Allocation, Boston 1784 Growth
and Income, Boston 1784 Growth and Boston 1784 International Equity Funds is
contained in and incorporated herein by reference to the Statement of Additional
Information dated October 1, 1999.
The audited financial statements and related Report of Independent
Auditors for the year ended October 31, 1999 for the Galaxy Asset Allocation,
Galaxy Growth and Income, Galaxy International Equity, Galaxy Short-Term Bond,
Galaxy Intermediate Government Income, Galaxy High Quality Bond, Galaxy Rhode
Island Municipal Bond, Galaxy Money Market, Galaxy U.S. Treasury and Galaxy
Tax-Exempt Funds are incorporated herein by reference. No other parts of the
annual and semi-annual reports are incorporated herein by reference.
The audited financial statements and related Report of Independent
Accountants for the year ended May 31, 1999 and the unaudited financial
statements for the semi-annual period ended November 30, 1999 for the Boston
1784 Tax-Free Money Market, Boston 1784 U.S. Treasury Money Market, Boston 1784
Institutional U.S. Treasury Money Market, Boston 1784 Prime Money Market, Boston
1784 Institutional Prime Money Market, Boston 1784 Short-Term Income, Boston
1784 Income, Boston 1784 U.S. Government Medium-Term Income, Boston 1784
Tax-Exempt Medium-Term Income, Boston 1784 Connecticut Tax-Exempt Income, Boston
1784 Florida Tax-Exempt Income, Boston 1784 Massachusetts Tax-Exempt Income,
Boston 1784 Rhode Island Tax-Exempt Income, Boston 1784 Asset Allocation, Boston
1784 Growth and Income, Boston 1784 Growth and Boston 1784 International Equity
Funds are incorporated herein by reference. No other parts of the annual and
semi-annual reports are incorporated herein by reference.
The date of this Statement of Additional Information is March 8, 2000.
<PAGE>
TABLE OF CONTENTS
PAGE
General Information......................................................
Introductory Note to PRO FORMA Financial Statements......................
PRO FORMA Financial Statements......................................PF-1-
<PAGE>
GENERAL INFORMATION
The Reorganization contemplates the transfer of substantially all of the
assets and liabilities of each 1784 Fund to a Corresponding Galaxy Fund in
exchange for shares of designated classes of the Corresponding Galaxy Fund.
The Shares issued by a Galaxy Fund will have an aggregate value equal to
the aggregate value of the shares of the respective corresponding 1784 Funds
that were outstanding immediately before the effective time of the
Reorganization.
After the transfer of substantially all of their assets and liabilities
in exchange for the Galaxy Fund shares, the 1784 Funds will distribute the
shares to their shareholders in liquidation of such 1784 Fund. Each shareholder
owning shares of a particular 1784 Fund at the effective time of the
Reorganization will receive shares from its Corresponding Galaxy Fund of equal
value, and will receive any unpaid dividends or distributions that were declared
before the effective time of the Reorganization on shares of the 1784 Funds. The
Corresponding Galaxy Fund will establish an account for each former shareholder
of the 1784 Funds reflecting the appropriate number of shares distributed to the
shareholder. These accounts will be substantially identical to the accounts
maintained by 1784 Funds for each shareholder. Upon completion of the
Reorganization with respect to all 1784 Funds, all outstanding shares of the
1784 Funds will have been redeemed and cancelled in exchange for shares
distributed by its Corresponding Galaxy Fund, and 1784 will wind up its affairs
and be deregistered as an investment company under the 1940 Act and terminated
under Massachusetts law.
For further information about the transaction, see the Combined Proxy
Statement/ Prospectus.
INTRODUCTORY NOTE TO PRO FORMA FINANCIAL INFORMATION
The following unaudited PRO FORMA information gives effect to the
proposed transfer of the assets and liabilities of the 1784 Funds to the
Corresponding Galaxy Funds, accounted for as if each transfer had occurred as of
October 31, 1999. In addition, each pro-forma combined statement has been
prepared based upon the proposed fee and expense structure of the applicable
Corresponding Galaxy Fund.
The PRO FORMA financial information should be read in conjunction with
the historical financial statements and notes thereto of the 1784 Funds and
Galaxy Funds incorporated herein by reference in this Statement of Additional
Information. Each combination of the above 1784 Funds and Galaxy Funds will be
accounted for as a tax-free reorganization.
<PAGE>
GALAXY TAX-EXEMPT FUND
BOSTON 1784 TAX-FREE MONEY MARKET FUND
PRO FORMA COMBINING PORTFOLIO OF INVESTMENTS (UNAUDITED)
OCTOBER 31, 1999
<TABLE>
<CAPTION>
PAR VALUE DESCRIPTION VALUE (NOTE 2)
- ----------------------------------------------------------------------------------------------------------------------------------
BOSTON 1784
TAX-FREE BOSTON 1784 TAX-
GALAXY TAX- MONEY MARKET PRO FORMA GALAXY TAX- FREE MONEY PRO FORMA
EXEMPT FUND FUND COMBINED EXEMPT FUND MARKET FUND COMBINED
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MUNICIPAL SECURITIES - 93.46%
ALABAMA - 1.42%
$ 6,000,000 $ - $ 6,000,000 Chatom IDB, PCR
National Rural Utilities CFC
3.45%, 11/17/99 $ 6,000,000 $ - $ 6,000,000
15,000,000 - 15,000,000 Montgomery County, IDB
3.55%, 11/02/99 15,000,000 - 15,000,000
1,200,000 - 1,200,000 North Alabama, PCR
Environmental Improvement Authority
Reynolds Metals
3.65%, 12/01/00 (A)
LOC: Bank of Nova Scotia 1,200,000 - 1,200,000
1,000,000 - 1,000,000 Phoenix County IDB
Environmental Improvements
Georgia Kraft Project
3.60%, 12/01/15 (A)
LOC: Deutsche Bank AG 1,000,000 - 1,000,000
--------------------------------------------
23,200,000 - 23,200,000
--------------------------------------------
ALASKA - 1.12%
- 9,500,000 9,500,000 Valdez
Arco Transportation Project
3.30%, 02/17/00 - 9,500,000 9,500,000
3,400,000 - 3,400,000 Valdez Marine Terminal Revenue
Exxon Pipeline Co. Project, Series B
3.50%, 12/01/33 (A) 3,400,000 - 3,400,000
Guaranteed: Exxon Corp.
5,400,000 - 5,400,000 Valdez Marine Terminal Revenue
Exxon Pipeline Co. Project, Series C
3.50%, 12/01/33 (A) 5,400,000 - 5,400,000
--------------------------------------------
8,800,000 9,500,000 18,300,000
--------------------------------------------
ARIZONA - 3.25%
14,000,000 - 14,000,000 Maricopa County, PCR
Arizona Public Service Co.
Series A
3.50%, 05/01/29 (A)
LOC: Morgan Guaranty Trust 14,000,000 - 14,000,000
- 19,000,000 19,000,000 Pima County IDA
Tucson Electric Power Co. - Irvington
3.45%, 10/01/22 (A) - 19,000,000 19,000,000
- 20,000,000 20,000,000 Salt River Agriculture Improvement &
Power
Series A
3.40%, 02/11/00 - 20,000,000 20,000,000
--------------------------------------------
14,000,000 39,000,000 53,000,000
--------------------------------------------
ARKANSAS - 0.50%
5,900,000 - 5,900,000 Crossett, PCR
Georgia Pacific Corp. Project
3.45%, 10/01/07 (A)
LOC: Wachovia Bank N.A. 5,900,000 - 5,900,000
2,200,000 - 2,200,000 Pulaski County, PCR
Minnesota Mining & Manufacturing
3.40%, 08/01/22 (A) 2,200,000 - 2,200,000
--------------------------------------------
8,100,000 - 8,100,000
--------------------------------------------
CALIFORNIA - 1.14%
1,000,000 - 1,000,000 Los Angeles Regional
Airports Improvement Corp.
American Airlines, Inc., Series A
LA International Airport
3.65%, 12/01/24 (A)
LOC: Wachovia Bank, N.A. 1,000,000 - 1,000,000
<PAGE>
5,000,000 - 5,000,000 Los Angeles Regional
Airports Improvement Corp.
Lease Revenue
LAX Two Corp
3.65%, 12/01/25 (A)
LOC: Societe Generale 5,000,000 - 5,000,000
- 12,500,000 12,500,000 Student Education Loan Marketing Corp.
Revenue, Series A
3.20%, 11/01/02 (A)
LOC: State Street Bank - 12,500,000 12,500,000
--------------------------------------------
6,000,000 12,500,000 18,500,000
--------------------------------------------
COLORADO - 1.84%
3,815,000 - 3,815,000 Colorado State HFA
Boulder Community Hospital Project
Series B
3.45%, 10/01/14 (A)
Insured: MBIA
SPA: Rabobank Nederland NV 3,815,000 - 3,815,000
3,070,000 - 3,070,000 Colorado State HFA
Boulder Community Hospital Project
Series C
3.45%, 10/01/14 (A)
Insured: MBIA
SPA: Rabobank Nederland NV 3,070,000 - 3,070,000
- 23,100,000 23,100,000 Colorado State HFA
Catholic Health Initiatives
Revenue, Series B
3.50%, 12/01/25 (A)
SPA: Toronto Dominion Bank - 23,100,000 23,100,000
--------------------------------------------
6,885,000 23,100,000 29,985,000
--------------------------------------------
FLORIDA - 2.18%
- 25,600,000 25,600,000 Dade County Water and Sewer Systems
3.45%, 10/05/22 (A)
Insured: FGIC
SPA: Commerzbank A.G. - 25,600,000 25,600,000
- 6,300,000 6,300,000 Florida Housing Finance Agency
Multifamily, Series AA
3.40%, 06/15/25 (A)
Insured: FNMA - 6,300,000 6,300,000
10,000,000 - 10,000,000 Putnam County Development
Authority, PCR, Seminole Electric
Cooperative, Series D
3.13%, 12/15/09 (A)
Guaranteed: National Rural
Utilities CFC 10,000,000 - 10,000,000
--------------------------------------------
10,000,000 31,900,000 41,900,000
--------------------------------------------
GEORGIA - 5.08%
8,495,000 - 8,495,000 Burke County Development
Authority, PCR, Oglethorpe
Power Corp., Series A
3.50%, 01/01/16 (A)
Insured: FGIC
SPA: Canadian Imperial
Bank of Commerce 8,495,000 - 8,495,000
- 13,750,000 13,750,000 Burke County Development
Authority, PCR, Oglethorpe
Power Corp., Series A
3.40%, 01/01/19 (A) - 13,750,000 13,750,000
4,955,000 - 4,955,000 Georgia State, GO
Series A
5.80%, 03/01/00 4,997,841 - 4,997,841
9,000,000 - 9,000,000 Municipal Electric Authority
Project One, Series B
3.40%, 01/01/16 (A)
LOC: ABN-AMRO Bank N.V. 9,000,000 - 9,000,000
13,600,000 800,000 14,400,000 Municipal Electric Authority
Project One, Series C
3.40%, 01/01/20 (A)
LOC: ABN-AMRO Bank N.V. 13,600,000 800,000 14,400,000
1,900,000 - 1,900,000 Municipal Electric Authority
Project One, Series D
3.40%, 01/01/22 (A)
LOC: ABN-AMRO Bank N.V. 1,900,000 - 1,900,000
- 24,100,000 24,100,000 Southern Georgia Hospital Authority
Revenue
Georgia Alliance Community Hospital
Series A
3.60%, 04/01/29 (A)
Insured: AMBAC
SPA: Wachovia Bank - 24,100,000 24,100,000
--------------------------------------------
37,992,841 38,650,000 76,642,841
--------------------------------------------
<PAGE>
HAWAII - 0.18%
- 2,925,000 2,925,000 Hawaii, GO
Series CF
4.40%, 07/01/00 - 2,944,833 2,944,833
--------------------------------------------
ILLINOIS - 5.02%
- 10,000,000 Chicago, GO
3.75%, 01/31/00
LOC: Morgan Guaranty Trust - 10,000,000 10,000,000
4,900,000 - 4,900,000 Chicago O'Hare International Airport
American Airlines, Series C
3.60%, 12/01/17(A)
LOC: Royal Bank of Canada 4,900,000 - 4,900,000
5,000,000 - 5,000,000 Illinois Development Finance
Authority, PCR, Illinois Power Co.
Project, Series A
3.45%, 11/01/28 (A)
LOC: ABN-AMRO Bank N.V. 5,000,000 - 5,000,000
- 14,030,000 14,030,000 Illinois Development Finance
Authority, Putters, Series 42A
3.40%, 05/15/13 (A) - 14,030,000 14,030,000
9,800,000 - 9,800,000 Illinois Educational Facility
Authority Revenue
3.60%, 11/17/99 9,800,000 - 9,800,000
- 6,000,000 6,000,000 Illinois Educational Facility
Authority, Shedd Aquarium Society
Revenue, Series B
3.70%, 07/01/27 (A)
LOC: Bank of America - 6,000,000 6,000,000
- 25,000,000 25,000,000 Illinois State Toll Highway Authority
Revenue, Series B
3.50%, 01/01/17 (A)
Insured: FSA
SPA: Landesbank Hessen Thrgn - 25,000,000 25,000,000
5,100,000 - 5,100,000 Joliet Regional Port District
Marine Terminal Revenue
Exxon Project
3.50%, 10/01/24 (A) 5,100,000 - 5,100,000
2,100,000 - 2,100,000 Northbrook, IDR
Euromarket Designs, Inc.
3.50%, 07/01/02 (A)
LOC: Harris Trust & Savings Bank 2,100,000 - 2,100,000
--------------------------------------------
26,900,000 55,030,000 81,930,000
--------------------------------------------
INDIANA - 3.35%
5,205,000 - 5,205,000 Fort Wayne Hospital Authority
Parkview Memorial Hospital
Series B
3.45%, 01/01/16 (A)
LOC: Bank of America NT & SA 5,205,000 - 5,205,000
3,840,000 - 3,840,000 Fort Wayne Hospital Authority
Parkview Memorial Hospital
Series C
3.45%, 01/01/16 (A)
LOC: Bank of America NT & SA 3,840,000 - 3,840,000
- 4,400,000 4,400,000 Indiana Secondary Market for Educational
Loans Inc.
Revenue, Series E
4.20%, 06/01/00
Insured: AMBAC - 4,422,022 4,422,022
5,000,000 - 5,000,000 Indiana State Development Finance
Authority, Environmental Revenue
USX Corp. Project
3.45%, 12/01/22 (A)
LOC: Bank of Nova Scotia 5,000,000 - 5,000,000
16,000,000 - 16,000,000 Mount Vernon County
3.55%, 11/02/99
Guaranteed: General Electric Co. 16,000,000 - 16,000,000
8,700,000 - 8,700,000 Princeton Industrial, PCR
PSI Energy, Inc. Project
3.50%, 03/01/19 (A)
LOC: Canadian Imperial Bank of Commerce 8,700,000 - 8,700,000
11,500,000 - 11,500,000 Sullivan Industrial Pollution Control
3.55%, 11/04/99
Guaranteed: National Rural Utility CFC 11,500,000 - 11,500,000
--------------------------------------------
50,245,000 4,422,022 54,667,022
--------------------------------------------
<PAGE>
IOWA - 0.68%
- 9,190,000 9,190,000 Iowa Financing Authority
Single Family, Revenue, Mortgage-Backed
Securities Programs
Series A
2.95%, 01/01/24 (A)
Insured: FNMA/GNMA - 9,141,753 9,141,753
- 2,000,000 2,000,000 Iowa Student Loan Liquidity Corp.
Revenue, Series A
4.10%, 12/01/99 - 2,000,746 2,000,746
--------------------------------------------
- 11,142,499 11,142,499
--------------------------------------------
KENTUCKY - 2.39%
8,800,000 - 8,800,000 Ashland, PCR
Ashland Oil, Inc. Project
3.35%, 04/01/09 (A)
LOC: Suntrust Bank 8,800,000 - 8,800,000
- 4,100,000 4,100,000 Boone County PCR
Cincinnati Gas and Electric Co.
Revenue, Series A
3.90%, 08/01/13 (A)
LOC: UBS AG - 4,100,000 4,100,000
15,000,000 - 15,000,000 Kentucky Asset Liability Commission
General Fund Revenue, TRAN
Series A
4.25%, 06/28/00 15,083,207 - 15,083,207
- 11,100,000 11,100,000 Ohio County PCR
Big Rivers Electric Corp.
3.50%, 10/01/15 (A)
Insured: AMBAC
SPA: Credit Suisse First Boston - 11,100,000 11,100,000
--------------------------------------------
23,883,207 15,200,000 39,083,207
--------------------------------------------
LOUISIANA - 9.04%
9,800,000 - 9,800,000 Ascension Parish, PCR
Shell Oil Co.
3.35%, 05/01/26 (A) 9,800,000 - 9,800,000
- 10,000,000 10,000,000 De Soto Parish, PCR
Central Louisiana Electric Co.
Revenue, Series B
3.60%, 07/01/18 (A) - 10,000,000 10,000,000
1,800,000 - 1,800,000 Lake Charles Harbor &
Terminal District
Port Facilities Revenue
Citgo Petroleum Corp.
3.50%, 08/01/07 (A)
LOC: Westdeutsche Landesbank 1,800,000 - 1,800,000
1,100,000 - 1,100,000 Lake Charles Harbor &
Terminal District
Revenue Updates
Reynolds Metals Co. Project
3.50%, 05/01/06 (A)
LOC: Canadian Imperial
Bank of Commerce 1,100,000 - 1,100,000
11,700,000 - 11,700,000 Louisiana State Offshore Terminal
Authority, Deepwater Port Revenue
Loop, Inc., 1st Stage
3.55%, 09/01/06
LOC: UBS AG 11,700,000 - 11,700,000
11,100,000 - 11,100,000 Louisiana State Offshore Terminal
Authority, Deepwater Port Revenue
Loop, Inc., 1st Stage A
3.50%, 09/01/08 (A)
LOC: UBS AG 11,100,000 - 11,100,000
- 10,800,000 10,800,000 Louisiana State Offshore Terminal
Authority, Deepwater Port Revenue
Loop, Inc., 1st Stage A
3.40%, 09/01/17 (A) - 10,800,000 10,800,000
1,000,000 - 1,000,000 Louisiana Public Facilities Authority
PCR, Ciba-Geigy Corp. Project
3.45%, 12/01/04 (A)
LOC: UBS AG 1,000,000 - 1,000,000
- 37,000,000 37,000,000 Louisiana Public Facilities Authority
Hospital Revenue
Willis-Knighton Medical Center
3.60%, 09/01/27 (A)
Insured: AMBAC
SPA: Credit Local de France - 37,000,000 37,000,000
- 10,900,000 10,900,000 Plaquemines Port Harbor and Terminal
District
Port Facilities Revenue
International Marine Terminals Project,
Series B
3.05%, 03/15/06 (A)
LOC: Kredietbank N.V. - 10,900,000 10,900,000
<PAGE>
- 9,650,000 9,650,000 Rapides Parish IDB, PCR
Central Louisiana Electric Co. Project
3.60%, 07/01/18 (A) - 9,650,000 9,650,000
- 10,000,000 10,000,000 Southern Louisiana Port Commision
Revenue
Occidental Petroleum Project
3.50%, 07/01/18 (A)
LOC: Wachovia Bank Georgia - 10,000,000 10,000,000
8,800,000 - 8,800,000 St. Charles Parish, PCR
Shell Oil Co. Project
3.35%, 06/01/05 (A) 8,800,000 - 8,800,000
14,000,000 - 14,000,000 St. James Parish, PCR
3.50%, 01/19/00
Guaranteed: Texaco, Inc. 14,000,000 - 14,000,000
--------------------------------------------
59,300,000 88,350,000 147,650,000
--------------------------------------------
MARYLAND - 1.07%
- 17,225,000 17,225,000 Maryland State Department of
Transportation, Revenue
5.00%, 09/01/00 - 17,419,839 17,419,839
--------------------------------------------
MASSACHUSETTS - 1.28%
6,000,000 - 6,000,000 Brookline, BAN, GO
3.25%, 12/16/99 6,002,515 - 6,002,515
- 8,080,000 8,080,000 Massachusetts, GO
Consolidated Loan, Series B
4.00%, 05/01/00 - 8,111,660 8,111,660
3,000,000 - 3,000,000 Massachusetts State Housing Finance
Agency, Multi-Family, Series A
3.35%, 12/01/25 (A)
LOC: GNMA
SPA: Republic National Bank of New York 3,000,000 - 3,000,000
3,850,000 - 3,850,000 Stoneham, BAN, GO
3.25%, 11/16/99 3,850,538 - 3,850,538
--------------------------------------------
12,853,053 8,111,660 20,964,713
--------------------------------------------
MICHIGAN - 1.33%
- 12,200,000 12,200,000 Kent Hospital Finance Authority Revenue
Spectrum Health Project
Series B
3.45%, 01/15/26 (A)
Insured: MBIA
SPA: NBD Bank - 12,200,000 12,200,000
9,535,000 - 9,535,000 Michigan State University
Revenue, Series A-2
3.45%, 08/15/22 (A) 9,535,000 - 9,535,000
--------------------------------------------
9,535,000 12,200,000 21,735,000
--------------------------------------------
MISSISSIPPI - 1.50%
1,100,000 - 1,100,000 Harrison County PCR
duPont (E.I) deNemours & Co.
3.50%, 09/01/10 (A) 1,100,000 - 1,100,000
2,000,000 - 2,000,000 Jackson County
Water System
3.35%, 11/01/24 (A)
Guaranteed: Chevron Corp. 2,000,000 - 2,000,000
1,600,000 - 1,600,000 Jackson County, PCR
Chevron USA, Inc. Project
3.50%, 12/01/16 (A) 1,600,000 - 1,600,000
- 3,925,000 3,925,000 Mississippi State, GO
5.00%, 11/01/99 - 3,925,000 3,925,000
2,240,000 - 2,240,000 Mississippi State, GO
Capital Improvements, Series B
4.50%, 11/01/99 2,240,000 - 2,240,000
13,595,000 - 13,595,000 Mississippi State Highway Revenue
Four Lane Highway Project, Series 39
4.50%, 06/01/00 13,679,552 - 13,679,552
--------------------------------------------
20,619,552 3,925,000 24,544,552
--------------------------------------------
MISSOURI - 0.54%
- 2,715,000 2,715,000 Missouri Higher Education Loan Authority
Revenue, Series CC
3.20%, 02/15/00 - 2,715,000 2,715,000
6,100,000 - 6,100,000 Missouri State Environmental
Improvement and Energy Resources
Authority, PCR
3.30%, 02/18/00
LOC: UBS AG 6,100,000 - 6,100,000
--------------------------------------------
6,100,000 2,715,000 8,815,000
--------------------------------------------
<PAGE>
NEBRASKA - 0.58%
- 3,195,000 3,195,000 American Public Energy Agency
Nebraska Gas Supply Revenue
Nebraska Public Gas Agency Project
Series C
3.55%, 03/01/00
Insured: AMBAC - 3,197,949 3,197,949
- 6,245,000 6,245,000 Omaha Public Power District
Nebraska Electric
Revenue, Series A
4.85%, 02/01/00 - 6,270,743 6,270,743
--------------------------------------------
- 9,468,692 9,468,692
--------------------------------------------
NEVADA - 0.47%
7,700,000 - 7,700,000 Reno Hospital Revenue
St Mary's Regional Medical Center
Series B
3.65%, 05/15/23 (A)
Insured: MBIA
SPA: Rabobank Nederland NV 7,700,000 - 7,700,000
--------------------------------------------
NEW HAMPSHIRE - 1.02%
- 12,600,000 12,600,000 New Hampshire Higher Edcuation and
Health Facilities Authority Revenue
Mary Hitchcock, Series 85-D
3.45%, 07/01/21 (A)
Insured: FGIC
SPA: Chemical Bank - 12,600,000 12,600,000
- 4,000,000 4,000,000 New Hampshire Higher Edcuation and
Health Facilities Authority Revenue
New England Inc., Series C
3.55%, 12/01/25 (A)
Insured: AMBAC
SPA: Mellon Bank N.A. - 4,000,000 4,000,000
--------------------------------------------
- 16,600,000 16,600,000
--------------------------------------------
NEW JERSEY - 0.74%
- 11,992,000 11,992,000 Bayonne, GO, BAN
4.00%, 07/14/00 - 12,008,294 12,008,294
--------------------------------------------
NEW MEXICO - 1.25%
3,900,000 - 3,900,000 Farmington, PCR
El Paso Electric Co.
Series A
3.55%, 11/01/13 (A)
LOC: Barclays Bank Plc 3,900,000 - 3,900,000
16,500,000 - 16,500,000 New Mexico State, TRAN
4.00%, 06/30/00 16,581,282 - 16,581,282
--------------------------------------------
20,481,282 - 20,481,282
--------------------------------------------
NEW YORK - 3.29%
6,300,000 - 6,300,000 Long Island Power Authority
Electric Systems Revenue
Series 6
3.65%, 05/01/33 (A)
LOC: ABN-AMRO Bank NV 6,300,000 - 6,300,000
- 15,400,000 15,400,000 Long Island Power Authority
Revenue, Sub-Series 5
3.50%, 05/01/33 (A) - 15,400,000 15,400,000
- 7,915,000 7,915,000 New York , GO
Subseries A-5
3.55%, 08/01/15 (A)
LOC: KBC Bank N.V. - 7,915,000 7,915,000
- 10,000,000 10,000,000 New York City Municipal Water
Finance Authority, Water & Sewer
System Revenue, Series C
3.55%, 06/15/23 (A)
Insured: FGIC
SPA: FGIC-SPI - 10,000,000 10,000,000
5,000,000 - 5,000,000 New York City Municipal Water
Finance Authority, Water & Sewer
System Revenue, Series G
3.50%, 06/15/24 (A)
LOC: FGIC
SPA: FGIC-SPI 5,000,000 - 5,000,000
- 9,105,000 9,105,000 New York State Housing Finance Agency
Revenue, Series PA 423
3.57%, 11/01/16 (A) - 9,105,000 9,105,000
--------------------------------------------
11,300,000 42,420,000 53,720,000
--------------------------------------------
<PAGE>
NORTH CAROLINA - 2.23%
9,500,000 - 9,500,000 North Carolina Educational
Facilities Finance Agency
Bowman Gray School Project
3.50%, 09/01/26 (A)
LOC: Wachovia Bank, N.A. 9,500,000 - 9,500,000
6,000,000 - 6,000,000 Wake County Industrial Facilities &
Pollution Control Financing Authority
Revenue
Carolina Power & Light
Co. Project, Series A
3.60%, 06/15/14 (A)
LOC: First National Bank 6,000,000 - 6,000,000
- 8,600,000 8,600,000 Wake County Industrial Facilities &
Pollution Control Financing Authority
Revenue
Carolina Power & Light
Co. Project, Series B
3.50%, 09/01/15 (A)
LOC: First Union National Bank - 8,600,000 8,600,000
- 12,250,000 12,250,000 Wake County Industrial Facilities &
Pollution Control Financing Authority
Carolina Power & Light
Co. Project, Series C
3.50%, 10/01/15 (A)
LOC: First Union National Bank - 12,250,000 12,250,000
--------------------------------------------
15,500,000 20,850,000 36,350,000
--------------------------------------------
OHIO - 0.84%
1,700,000 - 1,700,000 Evendale, IDR
SHV Real Estate, Inc.
3.35%, 09/01/15 (A)
LOC: ABN-AMRO Bank NV 1,700,000 - 1,700,000
- 10,000,000 10,000,000 Ohio State, GO
Highway Capital Improvements, Series D
4.00%, 05/01/00 - 10,037,769 10,037,769
1,900,000 - 1,900,000 Ohio State Air Quality
Development Authority Revenue
Cincinnati Gas & Electric, Series A
3.50%, 09/01/30 (A)
LOC: ABN-AMRO Bank NV 1,900,000 - 1,900,000
--------------------------------------------
3,600,000 10,037,769 13,637,769
--------------------------------------------
OKLAHOMA - 1.60%
- 26,160,000 26,160,000 Oklahoma State Water Reserve Board
Student Loan Program
3.60%, 09/01/26 (A)
SPA: Union Bank of Switzerland - 26,160,000 26,160,000
--------------------------------------------
OREGON - 0.40%
6,600,000 - 6,600,000 Port Portland, PCR
Reynolds Metals Co.
3.65%, 12/01/09 (A)
LOC: Bank of Nova Scotia 6,600,000 - 6,600,000
--------------------------------------------
PENNSYLVANIA - 6.34%
2,000,000 - 2,000,000 Beaver County IDA, PCR
Duquesne-Beaver Valley, Series A
3.40%, 08/01/20 (A)
LOC: Barclays Bank Plc 2,000,000 - 2,000,000
6,900,000 - 6,900,000 Beaver County IDA, PCR
Duquesne-Mansfield, Series B
3.40%, 08/01/09 (A)
LOC: Barclays Bank Plc 6,900,000 - 6,900,000
3,500,000 - 3,500,000 Chester County IDA, IDR
General Motors Corp. Project
3.50%, 08/01/01 (A) 3,500,000 - 3,500,000
3,005,000 - 3,005,000 Delaware County IDA
Resource Recovery Facility, Series G
3.40%, 12/01/31 (A)
Guaranteed: General Electric
Capital Corp. 3,005,000 - 3,005,000
2,140,000 - 2,140,000 Delaware County IDA
Resource Recovery Facility
Series G
3.40%, 12/01/31 (A)
Guaranteed: General Electric Capital Corp. 2,140,000 - 2,140,000
6,300,000 - 6,300,000 Delaware County Industrial, PCR
Philadelphia Electric
3.35%, 11/09/99
Insured: FGIC 6,300,000 - 6,300,000
<PAGE>
6,000,000 - 6,000,000 Delaware Valley Regional
Finance Authority, Local
Government Revenue
3.50%, 08/01/16 (A)
LOC: Credit Suisse First Boston 6,000,000 - 6,000,000
3,100,000 - 3,100,000 Delaware Valley Regional
Finance Authority, Local
Government Revenue, Series A
3.50%, 12/01/19 (A)
LOC: Credit Suisse First Boston 3,100,000 - 3,100,000
5,000,000 - 5,000,000 Delaware Valley Regional
Finance Authority, Local
Government Revenue, Series B
3.50%, 12/01/20 (A)
LOC: Credit Suisse First Boston 5,000,000 - 5,000,000
8,100,000 - 8,100,000 Delaware Valley Regional
Finance Authority, Local
Government Revenue, Series C
3.50%, 12/01/20 (A)
LOC: Credit Suisse First Boston 8,100,000 - 8,100,000
12,000,000 11,240,000 23,240,000 Quakertown General Authority Revenue
Pooled Financing Program, Series A
3.60%, 06/01/28 (A)
LOC: PNC Bank, N.A. 12,000,000 11,240,000 23,240,000
- 34,200,000 34,200,000 Quakertown Hospital Authority Revenue
Hospital Group Pooled Financing
3.60%, 07/01/05 (A)
LOC: PNC Bank, N.A. - 34,200,000 34,200,000
--------------------------------------------
58,045,000 45,440,000 103,485,000
--------------------------------------------
SOUTH CAROLINA - 2.61%
- 19,400,000 19,400,000 Piedmont Municipal Power Agency
Electric Revenue, Series C
3.50%, 01/01/22 (A)
Insured: MBIA
SPA: Morgan Guaranty Trust - 19,400,000 19,400,000
13,260,000 - 13,260,000 South Carolina Jobs
Economic Development Authority
St. Francis Hospital
3.65%, 07/01/22 (A)
LOC: Chase Manhattan Bank 13,260,000 - 13,260,000
10,000,000 - 10,000,000 Spartanburg County
Health Services District, Inc.
Hospital Revenue
3.45%, 04/15/23 (A)
LOC: MBIA
SPA: NationsBank N.A. 10,000,000 - 10,000,000
--------------------------------------------
23,260,000 19,400,000 42,660,000
--------------------------------------------
TENNESSEE - 2.30%
- 2,500,000 2,500,000 Metropolitan Government Nashville and
Davidson County, HEFB
Vanderbilt University, Series 85-A
3.10%, 01/15/14 (A) - 2,500,000 2,500,000
8,400,000 - 8,400,000 Metropolitan Nashville Airport
Authority Special Facilities Revenue
American Airlines Project, Series A
3.65%, 10/01/12 (A)
LOC: Credit Suisse First Boston 8,400,000 - 8,400,000
1,200,000 - 1,200,000 Sullivan County IDB, PCR
Mead Corp. Project
3.60%, 10/01/16 (A)
LOC: UBS AG 1,200,000 - 1,200,000
2,300,000 19,600,000 21,900,000 Tennessee State, BAN, GO, Series C
3.50%, 07/02/01 (A)
SPA: Tennessee Conservative
Retirement System 2,300,000 19,600,000 21,900,000
3,450,000 - 3,450,000 Tennessee State, GO
Series A
5.00%, 05/01/00 3,483,137 - 3,483,137
--------------------------------------------
15,383,137 22,100,000 37,483,137
--------------------------------------------
TEXAS - 15.00%
- 7,835,000 7,835,000 Austin
3.45%, 11/17/99 - 7,835,000 7,835,000
- 11,300,000 11,300,000 Bexar County Housing Financing Authority
Multifamily Revenue, Altomonte Apartments
Project
3.45%, 09/15/26 (A)
Insured: FNMA - 11,300,000 11,300,000
2,750,000 - 2,750,000 Dallas, GO
7.50%, 02/15/00 2,785,941 - 2,785,941
<PAGE>
2,300,000 - 2,300,000 Grapevine IDC
American Airlines, Series A2
3.65%, 12/01/24 (A)
LOC: Morgan Guaranty Trust 2,300,000 - 2,300,000
5,690,000 - 5,690,000 Guadalupe-Blanco River Authority
PCR, Central Power & Light Co. Project
3.50%, 11/01/15 (A)
LOC: ABN-AMRO Bank NV 5,690,000 - 5,690,000
11,700,000 - 11,700,000 Gulf Coast Waste Disposal Authority
PCR, Amoco Oil Co. Project
3.50%, 10/01/17 (A) 11,700,000 - 11,700,000
12,500,000 - 12,500,000 Gulf Coast Waste Disposal
Authority, PCR
Exxon Project
3.40%, 10/01/24 (A) 12,500,000 - 12,500,000
13,000,000 - 13,000,000 Harris County IDC
Baytank Houston, Inc. Project
3.40%, 02/01/20 (A)
LOC: Rabobank Nederland 13,000,000 - 13,000,000
- 9,420,000 9,420,000 Harris County HFDC
St Lukes Episcopal Hospital
Revenue, Series B
3.65%, 02/15/27 (A)
SPA: Morgan Guaranty Trust - 9,420,000 9,420,000
- 18,000,000 18,000,000 Harris County HFDC
Texas Childrens Hospital
Revenue, Series B-1
3.50%, 10/01/29 (A)
Insured: MBIA
SPA: Morgan Guaranty Trust - 18,000,000 18,000,000
10,000,000 - 10,000,000 Hockley County IDC, PCR
Amoco Project, Standard Oil Co.
3.60%, 03/01/14 (A) 10,001,042 - 10,001,042
10,000,000 - 10,000,000 Houston Higher Education Finance Corp.
Rice University, Series A
3.75%, 05/10/00 10,000,000 - 10,000,000
15,000,000 - 15,000,000 Houston, TRAN
4.25%, 06/30/00 15,086,424 - 15,086,424
3,700,000 - 3,700,000 Lone Star Airport
Improvement Authority
American Airlines, Inc., Series A-3
3.65%, 12/01/14 (A)
LOC: Royal Bank of Canada 3,700,000 - 3,700,000
2,770,000 - 2,770,000 Lone Star Airport
Improvement Authority
American Airlines, Inc., Series A-4
3.65%, 12/01/14 (A)
LOC: Royal Bank of Canada 2,770,000 - 2,770,000
1,300,000 - 1,300,000 Lone Star Airport
Improvement Authority
American Airlines, Inc., Series A-5
3.65%, 12/01/14 (A)
LOC: Royal Bank of Canada 1,300,000 - 1,300,000
1,800,000 - 1,800,000 Lone Star Airport
American Airlines, Inc., Series B-3
3.65%, 12/01/14 (A)
LOC: Royal Bank of Canada 1,800,000 - 1,800,000
- 15,200,000 15,200,000 Lower Colorado River Authority
Junior Lien, Third Supply Series
3.60%, 01/01/13 (A)
Insured: MBIA
SPA: Bayerische Vereinsbank AG - 15,200,000 15,200,000
13,250,000 - 13,250,000 Lower Neches Valley Authority
Chevron USA, Inc. Project
3.45%, 02/15/17 (A) 13,250,000 13,250,000
- 12,000,000 12,000,000 Midlothian IDC PCR
Box-Crow Cement Co. Project
3.45%, 12/01/09 (A)
LOC: UBS AG - 12,000,000 12,000,000
5,110,000 - 5,110,000 North Central HFDC
Presbyterian Medical Center
Series D
3.65%, 12/01/15 (A)
LOC: MBIA
SPA: NationsBank of Texas 5,110,000 - 5,110,000
14,300,000 - 14,300,000 Sabine River Authority, PCR
Texas Utilities Project, Series A
3.50%, 03/01/26 (A)
Insured: AMBAC
SPA: Bank of New York 14,300,000 - 14,300,000
<PAGE>
10,500,000 35,000,000 45,500,000 Texas, TRAN
Series A
4.50%, 08/31/00 10,567,426 35,220,240 45,787,666
--------------------------------------------
135,860,833 108,975,240 244,836,073
--------------------------------------------
UTAH - 1.87%
10,000,000 11,000,000 21,000,000 Utah State, GO
Series B
3.35%, 07/01/16 (A)
SPA: Toronto Dominion Bank 10,000,000 11,000,000 21,000,000
9,500,000 - 9,500,000 Utah State, GO
Series C
3.40%, 07/01/16 (A)
SPA: Toronto Dominion Bank 9,500,000 - 9,500,000
--------------------------------------------
19,500,000 11,000,000 30,500,000
--------------------------------------------
VERMONT - 0.45%
- 1,500,000 1,500,000 Vermont Education and Health Buildings
Finance Agency Revenue
Middlebury College Project, Series A
3.10%, 11/01/27 (A) - 1,500,000 1,500,000
- 5,900,000 5,900,000 Vermont Education and Health Buildings
Finance Agency Revenue
VHA Hospital of New England, Series D
3.55%, 12/01/25 (A)
Insured: AMBAC
SPA: Mellon Bank N.A. - 5,900,000 5,900,000
--------------------------------------------
- 7,400,000 7,400,000
--------------------------------------------
VIRGINIA - 0.33%
5,400,000 - 5,400,000 Peninsula Ports Authority
Coal Term Revenue
Dominion Terminal Project
Series C
3.65%, 07/01/16 (A)
LOC: Barclays Bank Plc 5,400,000 - 5,400,000
--------------------------------------------
WASHINGTON - 3.73%
6,750,000 - 6,750,000 Seattle Municipal Light and Power
Revenue
3.50%, 11/16/99
SPA: Morgan Guaranty Trust 6,750,000 - 6,750,000
1,000,000 - 1,000,000 Snohomish County Public Utility
District No. 1, Electric Revenue
Generation System
3.45%, 01/01/25 (A)
Insured: MBIA
SPA: Bayerische Vereinsbank 1,000,000 - 1,000,000
5,025,000 - 5,025,000 Washington State
Public Power Supply System
Nuclear Project No. 1 Revenue
Series 1A-1
3.400%, 07/01/17 (A)
LOC: Bank of America NT & SA 5,025,000 - 5,025,000
3,950,000 - 3,950,000 Washington State
Public Power Supply System
Nuclear Project No. 1
Series 1A-3
3.35%, 07/01/17 (A)
LOC: Morgan Guaranty Trust 3,950,000 - 3,950,000
- 10,525,000 10,525,000 Washington State
3.70%, 07/01/16 (A) - 10,525,000 10,525,000
- 17,660,000 17,660,000 Washington State Public Power Supply
System
Nuclear Project Number 2
Revenue, Series A
Pre-Refunded 07/01/00
5.00%, 07/01/00 (C) - 17,864,802 17,864,802
- 5,000,000 5,000,000 Washington State Public Power Supply
System
Nuclear Project Number 2
Revenue, Series A, Project II
Pre-Refunded 07/01/00
7.38%, 07/01/12 (C) - 5,230,728 5,230,728
- 5,500,000 5,500,000 Washington State Public Power Supply
System
Nuclear Project Number 2 Revenue,
Series B Pre-Refunded 07/01/00 7.00%,
07/01/12 (C)
Insured: FSA - 5,741,958 5,741,958
<PAGE>
- 4,640,000 4,640,000 Washington State Public Power Supply
System
Nuclear Project Number 2
Revenue, Series B, Project II
Pre-Refunded 07/01/00
7.00%, 07/01/12 (C) - 4,843,499 4,843,499
--------------------------------------------
16,725,000 44,205,987 60,930,987
--------------------------------------------
WISCONSIN - 1.62%
- 9,000,000 9,000,000 Pleasant Prairie PCR
Wisconsin Electric Power Co. Project
Series A
3.50%, 09/01/30 (A) - 9,000,000 9,000,000
- 3,250,000 3,250,000 Wisconsin Public Power, Inc.
Power Supply System
Revenue, Series A
7.40%, 07/01/20
Insured: AMBAC - 3,400,935 3,400,935
7,355,000 - 7,355,000 Wisconsin State, GO
Series A
4.25%, 05/01/00 7,403,826 - 7,403,826
- 6,550,000 6,550,000 Wisconsin State HEFA Revenue
Gundersen Clinic, La Crosse Inc.
5.50%, 12/01/99
Insured: FSA - 6,560,381 6,560,381
--------------------------------------------
7,403,826 18,961,316 26,365,142
--------------------------------------------
WYOMING - 3.88%
10,000,000 - 10,000,000 Kemmerer, PCR
Exxon Project
3.50%, 11/01/14 (A) 10,000,000 - 10,000,000
- 17,650,000 17,650,000 Lincoln County, GO
3.75%, 01/19/00 - 17,650,000 17,650,000
1,000,000 - 1,000,000 Platte County, PCR
Tri-State G & T, Series A
3.75%, 07/01/14 (A)
LOC: National Rural Utility CFC 1,000,000 - 1,000,000
12,100,000 - 12,100,000 Sweetwater County, PCR
Pacific Corp. Project
3.65%, 02/11/00
LOC: UBS AG 12,100,000 - 12,100,000
2,400,000 - 2,400,000 Sweetwater County, PCR
Pacific Corp. Project
3.75%, 02/11/00
LOC: UBS AG 2,400,000 - 2,400,000
5,800,000 - 5,800,000 Uinta County, PCR
Amoco, Inc.
3.50%, 07/01/26 (A) 5,800,000 - 5,800,000
1,000,000 - 1,000,000 Uinta County, PCR
Chevron USA, Inc.
3.50%, 04/01/10 (A) 1,000,000 - 1,000,000
- 13,400,000 13,400,000 Uinta County, PCR
Chevron USA, Inc.
3.60%, 08/15/20 (A)
Guaranteed: Chevron USA, Inc. - 13,400,000 13,400,000
--------------------------------------------
32,300,000 31,050,000 63,350,000
--------------------------------------------
TOTAL MUNICIPAL SECURITIES 703,472,731 822,188,151 1,525,660,882
--------------------------------------------
CASH EQUIVALENTS - 0.88%
- 10,000,000 10,000,000 ABN AMRO Munitops Certificates Trust
Series 1999-1
3.35%, 12/06/06 (A) (B)
SPA: ABN AMRO Bank N.V. - 10,000,000 10,000,000
- 4,388,088 4,388,088 Clipper Caraval Tax-Exempt Trust
Series 1998-1, Class A-1
3.25%, 01/06/00
Insured: AMBAC - 4,388,088 4,388,088
- 5,000 5,000 Clipper Tax-Exempt Trust
Series A
3.57%, 06/01/05 (A)
SPA: State Street Bank and Trust Co. - 5,000 5,000
--------------------------------------------
TOTAL CASH EQUIVALENTS - 14,393,088 14,393,088
--------------------------------------------
<PAGE>
TAX-EXEMPT MUNICIPAL
TRUST CERTIFICATE - 0.07%
- 1,068,025 1,068,025 Municipal Tax-Exempt Trust Certificate
Class A1
3.10%, 02/07/00
Insured: MBIA - 1,067,897 1,067,897
--------------------------------------------
TOTAL TAX-EXEMPT MUNICIPAL TRUST CERTIFICATE - 1,067,897 1,067,897
--------------------------------------------
REPURCHASE AGREEMENT - 4.66%
Repurchase Agreement with:
- 76,052,840 76,052,840 Goldman Sachs
5.18%, 11/01/99, dated 10/29/99 - 76,052,840 76,052,840
--------------------------------------------
TOTAL REPURCHASE AGREEMENT - 76,052,840 76,052,840
--------------------------------------------
SHARES
- -----------------------------------------
INVESTMENT COMPANY - 0.21%
205,069 - 205,069 Dreyfus Tax Exempt Cash
Management Fund 205,069 - 205,069
3,289,768 - 3,289,768 Federated Investors Tax-Free
Obligations Fund 3,289,768 - 3,289,768
---------------------------------------------
TOTAL INVESTMENT COMPANY 3,494,837 - 3,494,837
---------------------------------------------
TOTAL INVESTMENTS - 99.28%
(Cost $706,967,568, $913,701,976, and $1,620,669,544) 706,967,568 913,701,976 1,620,669,544
---------------------------------------------
NET OTHER ASSETS AND LIABILITIES - 0.72% 9,227,149 2,505,018 11,732,167
--------------------------------------------
NET ASSETS - 100.00% $716,194,717 $ 916,206,994 $1,632,401,711
=============================================
</TABLE>
(A) Variable rate demand notes are payable upon not more than one,
seven or thirty business days notice. Put bonds and notes have
demand features which mature within one year. The interest rate
shown reflects the rate in effect at October 31, 1999.
(B) Securities exempt from registration pursuant to Rule 144A under
the Securities Act of 1933, as amended. These securities may only
be resold in an exempt transaction to qualified institutional
buyers. At October 31, 1999, these securities amounted to
$10,000,000 or 0.61% of the Fund.
(C) Original Issue Discount
AMBAC American Municipal Bond Assurance Corp.
BAN Bond Anticipation Notes
CFC Cooperative Finance Corp.
FGIC Federal Guaranty Insurance Corp.
FNMA Federal National Mortgage Association
FSA Financial Security Assurance
GNMA Government National Mortgage Association
GO General Obligation
HEFA Health and Edcuation Facilities Authority
HEFB Health and Edcuation Facilities Board
HFA Health Facilities Authority
HFDC Health Facilities Development Corp.
IDA Industrial Development Authority
IDB Industrial Development Board
IDC Industrial Development Corporation
IDR Industrial Development Revenue
LOC Letter of Credit
MBIA Municipal Bond Insurance Association
PCR Polution Control Revenue
SPA Stand-by Purchase Agreement
TRAN Tax and Revenue Anticipation Notes
See Notes to Pro Forma Financial Statements
<PAGE>
GALAXY TAX-EXEMPT FUND
BOSTON 1784 TAX-FREE MONEY MARKET FUND
PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
OCTOBER 31, 1999
<TABLE>
<CAPTION>
---------------------------------------------------------------
BOSTON 1784
TAX-FREE PRO FORMA
GALAXY TAX- MONEY MARKET PRO FORMA COMBINED
EXEMPT FUND FUND ADJUSTMENTS (NOTE 1)
---------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investments
Investments at cost $ 706,967,568 $ 837,649,136 $ - $1,544,616,704
Repurchase agreements - 76,052,840 - 76,052,840
---------------------------------------------------------------
Total Investments at Value 706,967,568 913,701,976 - 1,620,669,544
Cash 4,912 68,621 - 73,533
Receivable for shares sold 8,157,742 - - 8,157,742
Interest and dividends receivable 3,631,404 5,389,322 - 9,020,726
---------------------------------------------------------------
Total Assets 718,761,626 919,159,919 - 1,637,921,545
LIABILITIES:
Dividends payable 1,322,859 2,456,260 - 3,779,119
Payable for shares repurchased 864,706 - - 864,706
Advisory fee payable 245,591 316,384 - 561,975
Payable to Fleet affiliates 14,450 - - 14,450
Administration fee payable 49,577 51,550 - 101,127
Trustees' fees and expenses payable 12,955 2,089 - 15,044
Accrued expenses and other payables 56,771 126,642 - 183,413
---------------------------------------------------------------
Total Liabilities 2,566,909 2,952,925 - 5,519,834
NET ASSETS $ 716,194,717 $ 916,206,994 $ - $1,632,401,711
===============================================================
NET ASSETS CONSISTS OF:
Paid-in capital $ 716,345,741 $ 916,321,280 $ - $1,632,667,021
(Overdistributed) net investment income (19,453) (310) - (19,763)
Accumulated net realized (loss) on investments sold (131,571) (113,976) - (245,547)
---------------------------------------------------------------
TOTAL NET ASSETS $ 716,194,717 $ 916,206,994 $ - $1,632,401,711
===============================================================
Net Assets by Class:
Retail A Shares $ 160,057,310 N/A $ - $ 160,057,310
===============================================================
Trust Shares / Shares 556,137,407 916,206,994 (125,520,358) 1,346,824,043
===============================================================
BKB Shares N/A N/A 125,520,358 125,520,358
===============================================================
Shares of beneficial interest outstanding:
Retail A Shares 160,114,754 N/A - 160,114,754
===============================================================
Trust Shares / Shares 556,230,987 916,321,280 (125,536,015) 1,347,016,252
===============================================================
BKB Shares N/A N/A 125,536,015 125,536,015
===============================================================
Net Asset Value, Retail A Shares $ 1.00 N/A $ 1.00
===============================================================
Net Asset Value, Trust Shares / Shares $ 1.00 $ 1.00 $ 1.00
===============================================================
Net Asset Value, BKB Shares N/A N/A $ 1.00
===============================================================
</TABLE>
<PAGE>
GALAXY TAX-EXEMPT FUND
BOSTON 1784 TAX-FREE MONEY MARKET FUND
PRO FORMA COMBINING STATEMENT OF OPERATIONS (UNAUDITED)
OCTOBER 31, 1999
<TABLE>
<CAPTION>
----------------------------------------------------------------
BOSTON 1784
TAX-FREE PRO FORMA
GALAXY TAX- MONEY MARKET PRO FORMA COMBINED
EXEMPT FUND FUND ADJUSTMENTS (NOTE 1)
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income:
Interest Income $ 18,296,350 $ 34,682,484 $ - $ 52,978,834
Dividend Income 113,526 - - 113,526
----------------------------------------------------------------
Total Investment Income 18,409,876 34,682,484 - 53,092,360
----------------------------------------------------------------
Expenses:
Investment Advisory Fees 2,322,782 4,050,083 5,223 (a) 6,378,088
Administrative Fees 435,865 667,594 (6,942) (a) 1,096,517
Custodian Fee 22,075 50,279 (32,386) (b) 39,968
Fund Accounting Fee 90,473 - 47,929 (a) 138,402
Professional Fees 42,306 85,402 (72,319) (b) 55,389
Trustee Fees 14,425 28,817 (17,211) (b) 26,031
Reports to Shareholders 13,365 69,346 (64,213) (b) 18,498
Miscellaneous Expenses 74,037 58,261 - 132,298
----------------------------------------------------------------
Subtotal 3,015,328 5,009,782 (139,919) 7,885,191
Transfer Agent Fee
Retail A Shares 66,023 - - 66,023
Trust Shares / Shares 57 142,668 (142,662) (a) 63
BKB Shares - - 19,375 (a) 19,375
Shareholder Services Fee
Retail A Shares 169,840 - - 169,840
Trust Shares / Shares - - - -
BKB Shares - - 138,709 (a) 138,709
----------------------------------------------------------------
Total Expenses Before Waivers/Reimbursements 3,251,248 5,152,450 (124,497) 8,279,201
Less Waiver/Reimbursements
Fund Level Waivers - - (422,261) (c) (422,261)
Class Specific Waivers/Reimbursements
Retail A Shares (745) - - (745)
Trust Shares / Shares (1,354) - - (1,354)
BKB Shares - - (97,096) (c) (97,096)
----------------------------------------------------------------
Total Waivers/Reimbursements (2,099) - (519,357) (521,456)
Net Expenses 3,249,149 5,152,450 (643,854) 7,757,745
----------------------------------------------------------------
Net Investment Income 15,160,727 29,530,034 643,854 45,334,615
----------------------------------------------------------------
Net Realized Gain on Investments - 22,596 - 22,596
----------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations $ 15,160,727 $ 29,552,630 $ 643,854 $ 45,357,211
================================================================
</TABLE>
(a) Reflects adjustment to the acquiring fund contractual fee level.
(b) Reflects expected savings when the two funds become one.
(c) Reflects adjustment to the acquiring fund's voluntary expense limitation.
See Notes to Pro Forma Financial Statements
<PAGE>
Galaxy Tax Exempt Fund
Boston 1784 Tax-Free Money Market Fund
Notes to Pro Forma Combining Financial Statements (unaudited)
1. Basis of Combination
The Galaxy Fund, a Massachusetts business trust (the "Trust"), is registered
under the Investment Company Act of 1940, as amended, (the "1940 Act") as an
open-end management investment company. As of October 31, 1999, the Trust
offered twenty-nine managed investment portfolios. The unaudited Pro Forma
Combining Portfolio of Investments and the unaudited Pro Forma Statement of
Assets and Liabilities assumes the exchange described in the next paragraph
occurred as of October 31, 1999 and the unaudited Pro Forma Combining Statement
of Operations assumes the exchange occurred as of November 1, 1998. These
statements have been derived from books and records utilized in calculating the
net asset value of each fund at October 31, 1999 and for the twelve-month period
then ended.
The pro forma statements give effect to the proposed transfer of substantially
all of the assets and stated liabilities of the Boston 1784 Tax-Free Money
Market Fund in exchange for Trust and BKB shares of Galaxy Tax Exempt Fund.
Under generally accepted accounting principles, the historical cost of
investment securities will be carried forward to the surviving entity and the
results of operations of the Boston 1784 Tax-Free Money Market Fund for
pre-combination periods will not be restated. The pro forma statements do not
reflect the expenses of either fund in carrying out its obligations under the
proposed Agreement and Plan of Reorganization.
The unaudited Pro Forma Combining Financial Statements should be read in
conjunction with the historical financial statements of the funds incorporated
by reference in the Statement of Additional Information.
For the twelve-month period ended October 31, 1999, the Galaxy Tax Exempt Fund's
investment advisory fee was computed based on the annual rate of 0.40% of its
average daily net assets. The administration fee was computed based on the
annual rate of 0.09% of the first $2.5 billion of the Trust's combined average
daily net assets, 0.085% of the next $2.5 billion, 0.075% of the next $7
billion, 0.065% of the next $3 billion, 0.06% of the next $3 billion, and
0.0575% of the combined average daily net assets in excess of $18 billion, and
was allocated to each fund based on the relative net assets of the Trust.
The Trust has adopted a shareholder services plan (the "Services Plan") with
respect to Retail A, BKB and Trust Shares of the funds to compensate certain
institutions providing administrative and support services to their customers
who own such shares. Currently, the Services Plan has not been implemented for
the Trust shares. Under the Services Plan, aggregate payments may not exceed
0.25% of the average daily net assets of Retail A or BKB shareholders who are
customers of such institutions. Currently, the Trust, under the direction of the
Board of Trustees, is limiting such payments to 0.10% of the average daily net
asset of Retail A or BKB shareholders who are customers of such institutions.
2. Portfolio Valuation
The Galaxy Tax Exempt Fund values its securities utilizing the amortized cost
valuation method permitted in accordance with Rule 2a-7 under the 1940 Act. This
method involves valuing a portfolio security initially at cost and thereafter
assuming a constant amortization to maturity of any discount or premium. The
Boston 1784 Tax-Free Money Market Fund utilizes the same method for determining
portfolio valuation.
<PAGE>
Galaxy Tax Exempt Fund
Boston 1784 Tax-Free Money Market Fund
Notes to Pro Forma Combining Financial Statements (unaudited)
3. Capital Shares
The pro forma net asset value per share assumes the issuance of additional
shares of the Tax Exempt Fund that would have been issued at October 31, 1999 in
connection with the proposed reorganization. The pro forma number of shares
outstanding of 1,632,667,021 consists of 916,321,280 shares assumed issued in
the reorganization plus 716,345,741 shares of the Galaxy Tax Exempt Fund at
October 31, 1999.
<PAGE>
GALAXY U.S. TREASURY FUND
BOSTON 1784 U.S. TREASURY MONEY MARKET FUND
PRO FORMA COMBINING PORTFOLIO OF INVESTMENTS (UNAUDITED)
OCTOBER 31, 1999
<TABLE>
<CAPTION>
PAR VALUE DESCRIPTION VALUE (NOTE 2)
- -----------------------------------------------------------------------------------------------------------------------------------
BOSTON 1784 BOSTON 1784
U.S. TREASURY U.S. TREASURY
GALAXY U.S. MONEY MARKET PRO FORMA GALAXY U.S. MONEY MARKET PRO FORMA
TREASURY FUND FUND COMBINED TREASURY FUND FUND COMBINED
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 84.61%
U.S. TREASURY BILLS - 32.56% (A)
$ 30,000,000 $ - $ 30,000,000 4.72%, 11/04/99 $ 29,988,212 $ - $ 29,988,212
85,000,000 - 85,000,000 4.59%, 11/12/99 84,880,741 - 84,880,741
60,000,000 - 60,000,000 4.63%, 11/18/99 59,868,958 - 59,868,958
- 4,000,000 4,000,000 4.80%, 11/26/99 - 3,986,833 3,986,833
65,000,000 - 65,000,000 4.80%, 12/02/99 64,731,226 - 64,731,226
110,000,000 - 110,000,000 4.57%, 12/09/99 109,463,302 - 109,463,302
40,000,000 - 40,000,000 4.56%, 12/16/99 39,772,000 - 39,772,000
- 5,000,000 5,000,000 4.62%, 12/23/99 - 4,967,283 4,967,283
45,000,000 - 45,000,000 4.68%, 12/23/99 44,696,125 - 44,696,125
15,000,000 - 15,000,000 4.80%, 01/27/00 14,820,200 - 14,820,200
- 5,000,000 5,000,000 4.86%, 02/03/00 - 4,938,117 4,938,117
- 5,000,000 5,000,000 5.03%, 02/17/00 - 4,926,425 4,926,425
- 2,500,000 2,500,000 4.88%, 03/02/00 - 2,458,698 2,458,698
- 2,500,000 2,500,000 4.89%, 03/09/00 - 2,456,239 2,456,239
------------------------------------------------------------
448,220,764 23,733,595 471,954,359
------------------------------------------------------------
FEDERAL HOME LOAN BANK - 22.30%
135,477,000 - 135,477,000 5.16%, 11/01/99 (A) 135,477,000 - 135,477,000
20,000,000 - 20,000,000 5.17%, 11/10/99 (A) 19,974,150 - 19,974,150
- 5,000,000 5,000,000 5.00%, 12/29/99 - 5,000,000 5,000,000
45,000,000 - 45,000,000 5.16%, 03/08/00 44,986,371 - 44,986,371
- 5,000,000 5,000,000 5.10%, 03/09/00 (A) - 4,999,724 4,999,724
- 5,000,000 5,000,000 5.74%, 04/14/00 (A) - 4,872,124 4,872,124
- 4,000,000 4,000,000 5.35%, 06/08/00 - 3,997,907 3,997,907
35,000,000 - 35,000,000 5.23%, 07/28/00 (B) 34,984,508 - 34,984,508
- 5,000,000 5,000,000 5.67%, 07/28/00 (B) - 5,000,000 5,000,000
25,000,000 - 25,000,000 5.71%, 08/09/00 24,987,865 - 24,987,865
25,000,000 - 25,000,000 5.92%, 10/04/00 (B) 24,984,123 - 24,984,123
9,000,000 - 9,000,000 5.92%, 10/13/00 8,992,150 - 8,992,150
- 5,000,000 5,000,000 5.69%, 04/16/01 (B) - 5,000,000 5,000,000
------------------------------------------------------------
294,386,167 28,869,755 323,255,922
------------------------------------------------------------
U.S. TREASURY NOTES - 20.59%
80,000,000 - 80,000,000 5.88%, 11/15/99 80,030,650 - 80,030,650
100,000,000 7,500,000 107,500,000 5.63%, 11/30/99 100,057,723 7,503,822 107,561,545
40,000,000 - 40,000,000 7.75%, 11/30/99 40,089,872 - 40,089,872
20,000,000 - 20,000,000 5.63%, 12/31/99 20,014,960 - 20,014,960
20,000,000 - 20,000,000 7.75%, 12/31/99 20,087,963 - 20,087,963
- 2,500,000 2,500,000 5.38%, 01/31/00 - 2,503,848 2,503,848
- 14,000,000 14,000,000 5.50%, 03/31/00 - 14,033,181 14,033,181
- 5,000,000 5,000,000 5.50%, 05/31/00 - 5,000,574 5,000,574
- 5,000,000 5,000,000 5.38%, 06/30/00 - 5,001,829 5,001,829
- 4,000,000 4,000,000 5.38%, 07/31/00 - 4,002,829 4,002,829
------------------------------------------------------------
260,281,168 38,046,083 298,327,251
------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 3.75% (A)
- 4,760,000 4,760,000 5.34%, 11/12/99 - 4,752,321 4,752,321
- 15,000,000 15,000,000 5.34%, 12/02/99 - 14,931,929 14,931,929
- 10,000,000 10,000,000 5.34%, 12/08/99 - 9,945,836 9,945,836
- 5,000,000 5,000,000 5.29%, 12/13/99 - 4,969,492 4,969,492
- 5,000,000 5,000,000 5.24%, 12/17/99 - 4,966,778 4,966,778
- 5,000,000 5,000,000 5.62%, 01/20/00 - 4,938,444 4,938,444
- 5,000,000 5,000,000 5.59%, 02/07/00 - 4,926,092 4,926,092
- 5,000,000 5,000,000 5.66%, 02/14/00 - 4,918,917 4,918,917
------------------------------------------------------------
- 54,349,809 54,349,809
------------------------------------------------------------
FEDERAL FARM CREDIT BANK - 2.41% (B)
30,000,000 - 30,000,000 5.24%, 09/01/00 29,992,500 - 29,992,500
- 5,000,000 5,000,000 5.65%, 05/07/01 - 4,998,600 4,998,600
------------------------------------------------------------
29,992,500 4,998,600 34,991,100
------------------------------------------------------------
<PAGE>
STUDENT LOAN MARKETING ASSOCATION - 1.51% (B)
- 4,000,000 4,000,000 5.80%, 08/03/00 MTN - 3,998,492 3,998,492
- 3,950,000 3,950,000 5.41%, 03/07/01 - 3,937,668 3,937,668
- 10,000,000 10,000,000 5.63%, 03/12/01 - 9,996,102 9,996,102
- 4,000,000 4,000,000 5.63%, 05/18/01 - 3,999,344 3,999,344
------------------------------------------------------------
- 21,931,606 21,931,606
------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORPORATION - 1.49% (A)
- 5,000,000 5,000,000 5.24%, 11/05/99 - 4,997,128 4,997,128
- 4,000,000 4,000,000 5.31%, 12/10/99 - 3,977,207 3,977,207
- 10,000,000 10,000,000 5.59%, 02/01/00 - 9,859,956 9,859,956
- 2,815,000 2,815,000 5.52%, 06/06/00 - 2,725,847 2,725,847
------------------------------------------------------------
- 21,560,138 21,560,138
------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS 1,032,880,599 193,489,586 1,226,370,185
------------------------------------------------------------
REPURCHASE AGREEMENTS - 14.66%
Repurchase Agreement with:
- 92,407,025 92,407,025 Goldman Sachs
5.18%, 11/01/99, dated 10/29/99 - 92,407,025 92,407,025
- 40,000,000 40,000,000 Greenwich
5.21%, 11/01/99, dated 10/29/99 - 40,000,000 40,000,000
- 40,000,000 40,000,000 J.P. Morgan
5.22%, 11/01/99, dated 10/29/99 - 40,000,000 40,000,000
- 40,000,000 40,000,000 Prudential
5.20%, 11/01/99, dated 10/29/99 - 40,000,000 40,000,000
------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS - 212,407,025 212,407,025
------------------------------------------------------------
TOTAL INVESTMENTS - 99.27%
(Cost $1,032,880,599, $405,896,611, and $1,438,777,210) 1,032,880,599 405,896,611 1,438,777,210
------------------------------------------------------------
NET OTHER ASSETS AND LIABILITIES - .73% 11,274,822 (730,940) 10,543,882
------------------------------------------------------------
NET ASSETS - 100.00% $ 1,044,155,421 $405,165,671 $1,449,321,092
============================================================
</TABLE>
(A) Discount yield at time of purchase.
(B) Interest is reseset at various time intervals. The interest rate shown
reflects the rate in effect at October 31, 1999.
MTN - Medium Term Note
See Notes to Pro Forma Financial Statements
<PAGE>
GALAXY U.S. TREASURY FUND
BOSTON 1784 U.S. TREASURY MONEY MARKET FUND
PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
OCTOBER 31, 1999
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
BOSTON 1784
U.S. TREASURY PRO FORMA
GALAXY U.S. MONEY MARKET PRO FORMA COMBINED
TREASURY FUND FUND ADJUSTMENTS (NOTE 1)
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investments
Investments at cost $ 1,032,880,599 $193,489,586 $ - $ 1,226,370,185
Repurchase agreements - 212,407,025 - 212,407,025
----------------------------------------------------------------------------
Total Investments at Value 1,032,880,599 405,896,611 - 1,438,777,210
Cash 2,457 54,214 - 56,671
Receivable for shares sold 11,004,159 - - 11,004,159
Interest and dividends receivable 7,710,134 1,122,970 - 8,833,104
----------------------------------------------------------------------------
Total Assets 1,051,597,349 407,073,795 - 19,893,934
LIABILITIES:
Dividends payable 1,606,561 1,604,827 - 3,211,388
Payable for shares repurchased 5,251,150 - - 5,251,150
Advisory fee payable 343,565 129,287 - 472,852
Payable to Fleet affiliates 53,437 - - 53,437
Administration fee payable 104,476 22,905 - 127,381
Trustees' fees and expenses payable 27,746 763 - 28,509
Accrued expenses and other payables 54,993 150,342 - 205,335
----------------------------------------------------------------------------
Total Liabilities 7,441,928 1,908,124 - 9,350,052
NET ASSETS $ 1,044,155,421 $405,165,671 $ - $ 1,449,321,092
============================================================================
NET ASSETS CONSISTS OF:
Paid-in capital $ 1,043,838,884 $405,158,651 - $ 1,448,997,535
Undistributed (overdistributed)
net investment income 316,537 (1,228) - 315,309
Accumulated net realized gain
on investments sold - 8,248 - 8,248
----------------------------------------------------------------------------
TOTAL NET ASSETS $ 1,044,155,421 $405,165,671 $ - $ 1,449,321,092
============================================================================
Net Assets by Class:
Retail A Shares $ 584,363,843 N/A $ - $ 584,363,843
============================================================================
Trust Shares / Shares 459,791,578 405,165,671 (372,752,417) 492,204,832
============================================================================
BKB Shares N/A N/A 372,752,417 372,752,417
============================================================================
Shares of beneficial interest outstanding:
Retail A Shares 584,187,785 N/A - 584,187,785
============================================================================
Trust Shares / Shares 459,651,099 405,158,651 (372,745,959) 492,063,791
============================================================================
BKB Shares N/A N/A 372,745,959 372,745,959
============================================================================
Net Asset Value, Retail A Shares $ 1.00 N/A $ 1.00
============================================================================
Net Asset Value, Trust Shares / Shares $ 1.00 $ 1.00 $ 1.00
============================================================================
Net Asset Value, BKB Shares N/A N/A $ 1.00
============================================================================
</TABLE>
<PAGE>
GALAXY U.S. TREASURY FUND
BOSTON 1784 U.S. TREASURY MONEY MARKET FUND
PRO FORMA COMBINING STATEMENT OF OPERATIONS (UNAUDITED)
OCTOBER 31, 1999
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
BOSTON 1784
U.S. TREASURY PRO FORMA
GALAXY U.S. MONEY MARKET PRO FORMA COMBINED
TREASURY FUND FUND ADJUSTMENTS (NOTE 1)
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income:
Interest Income $ 49,150,173 $ 19,737,357 $ - $ 68,887,530
-----------------------------------------------------------------------------
Total Investment Income 49,150,173 19,737,357 - 68,887,530
-----------------------------------------------------------------------------
Expenses:
Investment Advisory Fees 4,011,663 1,596,359 (199,702) (a) 5,408,320
Administrative Fees 779,542 263,007 (53,606) (a) 988,943
Custodian Fee 23,118 22,434 (16,518) (b) 29,034
Fund Accounting Fee 122,360 - 18,184 (a) 140,544
Professional Fees 62,770 32,876 (32,876) (b) 62,770
Trustee Fees 23,514 10,830 (10,830) (b) 23,514
Reports to Shareholders 125,657 26,300 (26,300) (b) 125,657
Miscellaneous Expenses 95,241 65,584 - 160,825
-----------------------------------------------------------------------------
Subtotal 5,243,865 2,017,390 (321,648) 6,939,607
Transfer Agent Fee
Retail A Shares 382,324 - - 382,324
Trust Shares / Shares 24,239 388,519 (388,519) (a) 24,239
BKB Shares - - 163,966 (a) 163,966
Shareholder Services Fee
Retail A Shares 590,338 - - 590,338
Trust Shares / Shares - 399,094 (399,094) (a) -
BKB Shares - - 367,164 (a) 367,164
-----------------------------------------------------------------------------
Total Expenses Before Waivers/
Reimbursements 6,240,766 2,805,003 (578,131) 8,467,638
Less Waiver/Reimbursements
Fund Level Waivers - (210,739) 210,739 (c) -
Class Specific Waivers/Reimbursements
Retail A Shares - - - -
Trust Shares / Shares - - - -
BKB Shares - - - -
-----------------------------------------------------------------------------
Total Waivers/Reimbursements - (210,739) 210,739 -
-----------------------------------------------------------------------------
Net Expenses 6,240,766 2,594,264 (367,392) 8,467,638
-----------------------------------------------------------------------------
Net Investment Income 42,909,407 17,143,093 367,392 60,419,892
-----------------------------------------------------------------------------
Net Realized Gain on Investments 10,820 5,293 - 16,113
-----------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations $ 42,920,227 $ 17,148,386 $ 367,392 $ 60,436,005
=============================================================================
</TABLE>
(a) Reflects adjustment to the acquiring fund contractual fee level.
(b) Reflects expected savings when the two funds become one.
(c) Reflects adjustment to the acquiring fund's voluntary expense
limitation.
See Notes to Pro Forma Financial Statements
<PAGE>
Galaxy U.S. Treasury Fund
Boston 1784 U.S. Treasury Money Market Fund
Notes to Pro Forma Combining Financial Statements (unaudited)
1. Basis of Combination
The Galaxy Fund, a Massachusetts business trust (the "Trust"), is registered
under the Investment Company Act of 1940, as amended, (the "1940 Act") as an
open-end management investment company. As of October 31, 1999, the Trust
offered twenty-nine managed investment portfolios. The unaudited Pro Forma
Combining Portfolio of Investments and the unaudited Pro Forma Statement of
Assets and Liabilities assumes the exchange described in the next paragraph
occurred as of October 31, 1999 and the unaudited Pro Forma Combining Statement
of Operations assumes the exchange occurred as of November 1, 1998. These
statements have been derived from books and records utilized in calculating the
net asset value of each fund at October 31, 1999 and for the twelve-month period
then ended.
The pro forma statements give effect to the proposed transfer of substantially
all of the assets and stated liabilities of the Boston 1784 U.S. Treasury Money
Market Fund in exchange for Trust and BKB shares of Galaxy U.S. Treasury Fund.
Under generally accepted accounting principles, the historical cost of
investment securities will be carried forward to the surviving entity and the
results of operations of the Boston 1784 U.S. Treasury Money Market Fund for
pre-combination periods will not be restated. The pro forma statements do not
reflect the expenses of either fund in carrying out its obligations under the
proposed Agreement and Plan of Reorganization.
The unaudited Pro Forma Combining Financial Statements should be read in
conjunction with the historical financial statements of the funds incorporated
by reference in the Statement of Additional Information.
For the twelve-month period ended October 31, 1999, the Galaxy U.S. Treasury
Fund's investment advisory fee was computed based on the annual rate of 0.40% of
the first $750 million of its average daily net assets plus 0.35% of the net
asset in excess of $750 million. The administration fee was computed based on
the annual rate of 0.09% of the first $2.5 billion of the Trust's combined
average daily net assets, 0.085% of the next $2.5 billion, 0.075% of the next $7
billion, 0.065% of the next $3 billion, 0.06% of the next $3 billion, and
0.0575% of the combined average daily net assets in excess of $18 billion, and
was allocated to each fund based on the relative net assets of the Trust.
The Trust has adopted a shareholder services plan (the "Services Plan") with
respect to Retail A, BKB and Trust Shares of the funds to compensate certain
institutions providing administrative and support services to their customers
who own such shares. Currently, the Services Plan has not been implemented for
the Trust shares. Under the Services Plan, aggregate payments may not exceed
0.25% of the average daily net assets of Retail A or BKB shareholders who are
customers of such institutions. Currently, the Trust, under the direction of the
Board of Trustees, is limiting such payments to 0.10% of the average daily net
asset of Retail A or BKB shareholders who are customers of such institutions.
2. Portfolio Valuation
The Galaxy U.S. Treasury Fund values its securities utilizing the amortized cost
valuation method permitted in accordance with Rule 2a-7 under the 1940 Act. This
method involves valuing a portfolio security initially at cost and thereafter
assuming a constant amortization to maturity of any discount or premium. The
Boston 1784 U.S. Treasury Money Market Fund utilizes the same method for
determining portfolio valuation.
<PAGE>
Galaxy U.S. Treasury Fund
Boston 1784 U.S. Treasury Money Market Fund
Notes to Pro Forma Combining Financial Statements (unaudited) (continued)
3. Capital Shares
The pro forma net asset value per share assumes the issuance of additional
shares of the Galaxy U.S. Treasury Fund that would have been issued at October
31, 1999 in connection with the proposed reorganization. The pro forma number of
shares outstanding of 1,448,997,535 consists of 405,158,651 shares assumed
issued in the reorganization plus 1,043,838,884 shares of the Galaxy U.S.
Treasury Fund at October 31, 1999.
<PAGE>
<TABLE>
<CAPTION>
GALAXY SHORT-TERM BOND FUND
BOSTON 1784 SHORT-TERM INCOME FUND
PRO FORMA COMBINING PORTFOLIO OF INVESTMENTS (UNAUDITED)
OCTOBER 31, 1999
PAR VALUE DESCRIPTION VALUE (NOTE 2)
- ------------------------------------------------------------------------------------------------------------------------------------
GALAXY BOSTON 1784 PRO FORMA GALAXY BOSTON 1784
SHORT-TERM SHORT-TERM COMBINED SHORT-TERM SHORT-TERM PRO FORMA
BOND FUND INCOME FUND BOND FUND INCOME FUND COMBINED
- ------------------------------------------------------------------------------------------------------------------------------------
CORPORATE NOTES AND BONDS - 42.34%
FINANCE - 18.36%
<S> <C> <C> <C> <C> <C> <C>
$ - $ 5,000,000 $ 5,000,000 Aristar, Inc.
6.00%, 05/15/02 $ - $ 4,888,115 $ 4,888,115
- 5,000,000 5,000,000 BankAmerica Capital III (C)
6.75%, 01/15/27 - 4,660,710 4,660,710
2,000,000 - 2,000,000 Caterpillar Financial Services Corp., MTN
5.47%, 09/12/01 1,960,000 1,960,000
- 4,000,000 4,000,000 CIT Group, Inc., MTN
6.50%, 06/14/02 - 3,965,000 3,965,000
- 780,000 780,000 Equitable Cos, Inc.
6.75%, 12/01/00 - 785,109 785,109
- 5,000,000 5,000,000 Finova Capital Corp.
6.50%, 07/28/02 - 4,931,250 4,931,250
1,600,000 1,600,000 General Electric Capital Corp.
Series A, MTN
6.33%, 09/17/01 1,598,000 - 1,598,000
770,000 - 770,000 General Electric Capital Corp., MTN
6.81%, 11/03/03 772,926 - 772,926
- 5,000,000 5,000,000 Heller Financial, Inc.
6.46%, 10/27/00 - 5,025,800 5,025,800
- 2,500,000 2,500,000 Nationsbank Capital Trust III (C)
6.73%, 01/15/27 - 2,450,025 2,450,025
- 5,000,000 5,000,000 Salomon Smith Barney Holdings
7.50%, 05/01/02 - 5,068,750 5,068,750
1,500,000 - 1,500,000 Wells Fargo Company, (C)
5.71%, 10/31/01 1,500,015 - 1,500,015
------------------------------------------
5,830,941 31,774,759 37,605,700
------------------------------------------
AUTOMOBILE FINANCE - 11.32%
1,000,000 - 1,000,000 Associates Corp. of North America
Senior Note
5.50%, 02/15/02 975,000 - 975,000
- 5,000,000 5,000,000 Associates Corp. of North America
Senior Note
5.75%, 11/01/03 - 4,781,250 4,781,250
1,250,000 - 1,250,000 Ford Motor Credit Co.
6.85%, 08/15/00 1,256,051 - 1,256,051
250,000 - 250,000 Ford Motor Credit Co.
6.25%, 11/08/00 249,778 - 249,778
1,200,000 - 1,200,000 Ford Motor Credit Co.
5.75%, 01/25/01 1,191,000 - 1,191,000
500,000 - 500,000 Ford Motor Credit Co.
7.00%, 09/25/01 503,750 - 503,750
- 5,000,000 5,000,000 Ford Motor Credit Co.
6.00%, 01/14/03 - 4,875,000 4,875,000
500,000 - 500,000 General Motors Acceptance Corp.
5.63%, 02/15/01 495,000 - 495,000
- 2,000,000 2,000,000 General Motors Acceptance Corp.
7.88%, 03/07/01 - 2,032,500 2,032,500
2,000,000 - 2,000,000 General Motors Acceptance Corp.
7.13%, 05/01/01 2,017,500 - 2,017,500
- 5,000,000 5,000,000 General Motors Acceptance Corp., MTN
5.48%, 12/16/02 - 4,812,500 4,812,500
------------------------------------------
6,688,079 16,501,250 23,189,329
------------------------------------------
INDUSTRIAL - 5.47%
- 5,000,000 5,000,000 McKesson Corp.
6.60%, 03/01/00 - 5,006,250 5,006,250
1,000,000 - 1,000,000 Pepsi Bottling Holdings, Inc.
5.38%, 02/17/04 (A) 942,500 - 942,500
- 5,000,000 5,000,000 Praxair, Inc.
6.70%, 04/15/01 - 4,968,750 4,968,750
<PAGE>
300,000 - 300,000 Xerox Corp.
5.50%, 11/15/03 285,750 - 285,750
------------------------------------------
1,228,250 9,975,000 11,203,250
------------------------------------------
CONSUMER CYCLICALS - 4.86%
- 5,000,000 5,000,000 Campbell Soup Co.
6.15%, 12/01/02 - 4,975,000 4,975,000
- 5,000,000 5,000,000 Wal-Mart Stores, Inc.
6.15%, 08/10/01 - 4,975,000 4,975,000
------------------------------------------
- 9,950,000 9,950,000
------------------------------------------
TECHNOLOGY - 0.97%
2,000,000 - 2,000,000 International Business
Machines Corp., MTN
5.80%, 05/15/01 1,985,000 - 1,985,000
------------------------------------------
TRANSPORTATION - 0.89%
1,820,000 - 1,820,000 Norfolk Southern Corp.
6.70%, 05/01/00 1,826,825 - 1,826,825
------------------------------------------
UTILITIES - 0.47%
1,000,000 - 1,000,000 Sprint Capital Corp.
5.88%, 05/01/04 961,250 - 961,250
------------------------------------------
TOTAL CORPORATE NOTES AND BONDS 18,520,345 68,201,009 86,721,354
------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 24.46%
U.S. TREASURY NOTES - 11.82%
- 4,000,000 4,000,000 7.75%, 11/30/99 - 4,009,280 4,009,280
- 1,200,000 1,200,000 7.13%, 02/29/00 - 1,207,428 1,207,428
- 6,000,000 6,000,000 6.38%, 09/30/01 - 6,057,960 6,057,960
2,125,000 - 2,125,000 6.25%, 10/31/01 2,142,786 - 2,142,786
- 2,000,000 2,000,000 6.25%, 01/31/02 - 2,015,960 2,015,960
- 2,000,000 2,000,000 6.63%, 03/31/02 - 2,032,920 2,032,920
1,000,000 - 1,000,000 5.88%, 09/30/02 1,000,070 - 1,000,070
- 2,000,000 2,000,000 5.50%, 03/31/03 - 1,972,440 1,972,440
500,000 - 500,000 4.25%, 11/15/03 469,700 - 469,700
1,200,000 - 1,200,000 6.00%, 08/15/04 1,203,324 - 1,203,324
- 2,000,000 2,000,000 7.25%, 08/15/04 - 2,098,640 2,098,640
------------------------------------------
4,815,880 19,394,628 24,210,508
------------------------------------------
FEDERAL HOME LOAN BANK - 4.09%
1,000,000 - 1,000,000 5.63%, 03/19/01 994,100 - 994,100
2,000,000 - 2,000,000 6.23%, 09/19/01 1,999,680 - 1,999,680
- 5,500,000 5,500,000 5.25%, 04/25/02 - 5,375,205 5,375,205
------------------------------------------
2,993,780 5,375,205 8,368,985
------------------------------------------
FEDERAL HOME LOAN
MORTGAGE CORPORATION - 3.88%
1,059,133 - 1,059,133 5.50%, 08/01/00, Pool # M80285 1,053,933 - 1,053,933
- 5,000,000 5,000,000 5.00%, 02/15/01 - 4,937,150 4,937,150
- 120,579 120,579 8.00%, 01/01/02, Pool # 200064 - 122,575 122,575
1,000,000 - 1,000,000 6.25%, 07/15/04 992,500 - 992,500
103,018 - 103,018 7.00%, 05/01/19, Pool # D29158 103,572 - 103,572
745,138 - 745,138 6.50%, 11/15/23, Pool # 002008 738,149 - 738,149
------------------------------------------
2,888,154 5,059,725 7,947,879
------------------------------------------
FEDERAL NATIONAL
MORTGAGE ASSOCIATION - 1.96%
- 2,000,000 2,000,000 5.75%, 04/15/03 - 1,964,420 1,964,420
- 371,961 371,961 8.95%, 05/25/03 - 380,356 380,356
797,869 - 797,869 6.50%, 03/01/12, Pool # 313409 784,066 - 784,066
920,101 - 920,101 6.00%, 01/01/14, Pool # 482523 885,597 - 885,597
------------------------------------------
1,669,663 2,344,776 4,014,439
------------------------------------------
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION - 1.74%
1,421,991 - 1,421,991 6.50%, 09/15/13, Pool # 476201 1,396,652 - 1,396,652
893,628 - 893,628 7.00%, 11/15/13, Pool # 780921 896,693 - 896,693
234,235 - 234,235 7.00%, 04/15/29, Pool # 458548 229,768 - 229,768
982,495 - 982,495 7.00%, 04/15/29, Pool # 458549 963,759 - 963,759
<PAGE>
83,701 - 83,701 7.00%, 05/15/29, Pool # 483358 82,102 - 82,102
------------------------------------------
3,568,974 - 3,568,974
------------------------------------------
FEDERAL FARM CREDIT BANK - 0.97%
2,000,000 - 2,000,000 6.10%, 09/24/01, MTN 1,995,320 - 1,995,320
------------------------------------------
TOTAL U.S. GOVERNMENT
AND AGENCY OBLIGATIONS
17,931,771 32,174,334 50,106,105
------------------------------------------
ASSET- BACKED AND MORTGAGED-BACKED SECURITIES - 20.69%
- 5,000,000 5,000,000 Auto Leasing Investors
Series 1997, Class A-2
5.93%, 08/14/00 - 4,992,150 4,992,150
- 5,500,000 5,500,000 BankAmerica Manufactured Housing Contract Trust
Series 1997-2, Class A5
6.39%, 12/10/12 - 5,466,560 5,466,560
- 552,035 552,035 Centrex Auto Trust
Series 1996-A
6.75%, 10/15/04 - 556,241 556,241
4,000,000 4,000,000 Chemical Master Credit Card Trust I
Series 1995-2, Class A
6.23%, 06/15/03 3,997,480 - 3,997,480
- 181,791 181,791 CIT RV Owners Trust
Series 1995A, Class A
6.25%, 01/15/11 - 181,829 181,829
- 5,000,000 5,000,000 Citibank Credit Card Master Trust I
Series 1999-1, Class A
5.50%, 02/15/06 - 4,770,000 4,770,000
- 2,000,000 2,000,000 Crown Home Equity Loan Trust
Series 1996-1, Class A3
6.81%, 06/25/11 - 1,947,200 1,947,200
1,500,000 - 1,500,000 Discover Card Master Trust I
Series 1999-1, Class A
5.30%, 08/15/04 1,455,930 - 1,455,930
- 592,840 592,840 Federal Deposit Insurance Corp.
REMIC, Series 1996-C1, Class 1A, CMO
6.75%, 05/25/26 - 587,789 587,789
- 504,858 504,858 Fleetwood Credit Grantor Trust
Series 1995-B, Class A
6.55%, 05/16/11 - 502,798 502,798
975,000 - 975,000 Ford Credit Auto Owner Trust
Series 1999-D, Class A3
6.20%, 04/15/02 973,781 - 973,781
- 203,852 203,852 Green Tree Recreational, Equipment
& Consumer Trust
Series 1996-A, Class A1
5.55%, 02/15/18 - 202,674 202,674
1,000,000 - 1,000,000 MBNA Master Credit Card Trust II
Series1995-F, Class A
6.60%, 01/15/03 1,002,500 - 1,002,500
1,433,003 - 1,433,003 Norwest Asset Securities Corp.
Series 1997-17, Class A1, CMO
6.75%, 11/25/27 1,431,212 1,431,212
- 5,000,000 5,000,000 PNC Student Loan Trust I
Series 1997-2, Class A5
6.53%, 01/25/03 - 4,940,250 4,940,250
- 56,646 56,646 Prudential Home Mortgage Securities
Series 1993-31, Class A7, CMO
6.00%, 08/25/00 - 56,422 56,422
1,096,874 - 1,096,874 Prudential Home Mortgage Securities
Series 1996-7, Class A-1, CMO
6.75%, 06/25/11 1,094,132 - 1,094,132
763,262 - 763,262 Prudential Home Mortgage Securities
Series 1993-38, Class A3, CMO
6.15%, 09/25/23 750,615 - 750,615
- 153,430 153,430 Reliance Auto Receivables Corp.
Series 1996-A, Class A
6.10%, 07/15/02 - 153,440 153,440
1,031,250 - 1,031,250 Ryland Mortgage Securities Corp.
Series 1993-3, Class A, CMO
6.71%, 08/25/08 1,028,672 - 1,028,672
250,000 - 250,000 Sears Credit Account Master Trust
Series 1996-2, Class A
6.50%, 10/15/03 250,000 - 250,000
<PAGE>
- 1,000,000 1,000,000 Sears Credit Account Master Trust
Series 1996-4, Class A
6.45%, 10/16/06 - 997,810 997,810
- 36,429 36,429 University Support Services, Inc. (C)
Series 1993-A, Class B
8.87%, 08/20/08 - 36,793 36,793
- 5,000,000 5,000,000 WFS Financial Owner Trust
Series 1997-C, Class A4
6.15%, 09/20/02 5,003,800 5,003,800
TOTAL ASSET-BACKED AND
------------------------------------------
MORTGAGE-BACKED SECURITIES 11,984,322 30,395,756 42,380,078
------------------------------------------
MUNICIPAL BONDS - 3.76%
- 4,000,000 4,000,000 Carondelet Health System
Daniel Freeman Hospitals
6.25%, 07/01/001
Insured: MBIA - 3,985,000 3,985,000
- 2,500,000 2,500,000 New York State Dormitory Authority
Pension Obligation
6.55%, 04/01/00 - 2,498,400 2,498,400
- 1,235,000 1,235,000 Pennsylvania State Housing Financing Agency
Single Family Mortgage, Series 52-C
7.00%, 10/01/06
Insured: FHA - 1,228,825 1,228,825
------------------------------------------
TOTAL MUNICIPAL BONDS - 7,712,225 7,712,225
------------------------------------------
COMMERCIAL PAPER (B) - 0.49%
1,000,000 - 1,000,000 BMW US Capital Corp.
5.29%, 11/26/99 996,333 - 996,333
------------------------------------------
TOTAL COMMERCIAL PAPER 996,333 - 996,333
------------------------------------------
REPURCHASE AGREEMENT - 7.51%
Repurchase Agreement with:
6,805,000 - 6,805,000 Chase Manhattan Bank
5.20%, 11/01/99, dated 10/29/99 6,805,000 - 6,805,000
8,578,845 8,578,845 Lehman Brothers
5.18%, 11/01/99, dated 10/29/99 - 8,578,845 8,578,845
------------------------------------------
TOTAL REPURCHASE AGREEMENT 6,805,000 8,578,845 15,383,845
------------------------------------------
TOTAL INVESTMENTS - 99.25%
(Cost $56,802,042, $148,776,981, and $205,579,023)
56,237,771 147,062,169 203,299,940
==========================================
NET OTHER ASSETS AND
LIABILITIES - 0.75% 665,307 874,145 1,539,452
==========================================
NET ASSETS - 100.00% $ 56,903,078 $147,936,314 $204,839,392
==========================================
</TABLE>
(A) -- Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may not beresold, in transactions exempt from
registration, to qualified institutional buyers. At October 31, 1999, these
securities amounted to $942,500 or 0.46% of net assets.
(B) -- Discount yield at time of purchase.
(C) -- Floating rate note. Interest Rate Shown reflects rate in effect at
October 31, 1999.
CMO -- Collateralized Mortgage Obligation
FHA -- Federal Housing Authority
MBIA -- Municipal Bond Insurance Association
MTN -- Medium Term Note
REMIC -- Real Estate Mortgage Investment Conduit
See Notes to Pro Forma Financial Statements
<PAGE>
<TABLE>
<CAPTION>
GALAXY SHORT-TERM BOND FUND
BOSTON 1784 SHORT-TERM INCOME FUND
PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES (unaudited)
OCTOBER 31, 1999
GALAXY BOSTON 1784 PRO FORMA
SHORT-TERM SHORT-TERM PRO FORMA COMBINED
BOND FUND INCOME FUND ADJUSTMENTS (NOTE 1)
-------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investments
Investments at cost $ 49,997,042 $ 140,198,136 $ - $ 190,195,178
Repurchase agreements 6,805,000 8,578,845 - 15,383,845
Net unrealized (depreciation) (564,271) (1,714,812) - (2,279,083)
-------------------------------------------------------------
Total Investments at Value 56,237,771 147,062,169 - 203,299,940
Receivable for investments sold 1,100,890 - - 1,100,890
Receivable for shares sold 190,590 - - 190,590
Interest and dividends receivable 582,081 1,699,776 - 2,281,857
-------------------------------------------------------------
Total Assets 58,111,332 148,761,945 - 206,873,277
LIABILITIES:
Dividends payable 245,054 685,056 - 930,110
Payable for investments purchased 869,810 - - 869,810
Payable for shares redeemed 16,730 - - 16,730
Advisory fee payable 26,462 63,224 - 89,686
Payable to Fleet affiliates 8,388 - - 8,388
Administration fee payable 15,764 8,237 - 24,001
Trustees' fees and expenses payable 2,943 300 - 3,243
Payable to Custodian 5,597 34,111 - 39,708
Accrued expenses and other payables 17,506 34,703 - 52,209
-------------------------------------------------------------
Total Liabilities 1,208,254 825,631 - 2,033,885
NET ASSETS $ 56,903,078 $ 147,936,314 $ - $ 204,839,392
==============================================================
NET ASSETS CONSISTS OF:
Paid-in capital $ 63,130,207 $ 161,614,261 $ - $ 224,744,468
Undistributed (overdistributed) net investment income 201,761 (966) - 200,795
Accumulated net realized (loss) on investments sold (5,864,619) (11,962,169) - (17,826,788)
Net unrealized (depreciation) of investments (564,271) (1,714,812) - (2,279,083)
-------------------------------------------------------------
TOTAL NET ASSETS $ 56,903,078 $ 147,936,314 $ - $ 204,839,392
=============================================================
Net Assets by Class:
Retail A Shares $ 24,652,827 N/A N/A $ 24,652,827
===================================================================
Retail B Shares 812,314 N/A N/A 812,314
===================================================================
Trust Shares / Shares 31,437,937 147,936,314 (26,184,728) 153,189,523
===================================================================
BKB Shares N/A N/A 26,184,728 26,184,728
===================================================================
Shares of beneficial interest outstanding:
Retail A Shares 2,499,555 N/A - 2,499,555
===================================================================
Retail B Shares 82,355 N/A - 82,355
===================================================================
Trust Shares / Shares 3,187,772 14,884,495 (2,536,464) 15,535,803
===================================================================
BKB Shares N/A N/A 2,655,652 2,655,652
===================================================================
Net Asset Value, Retail A Shares $ 9.86 N/A $ 9.86
===================================================================
Net Asset Value, Retail B Shares $ 9.86 N/A $ 9.86
===================================================================
Net Asset Value, Trust Shares / Shares $ 9.86 $ 9.94 $ 9.86
===================================================================
Net Asset Value, BKB Shares N/A N/A $ 9.86
===================================================================
</TABLE>
See Notes to Pro Forma Financial Statements
<PAGE>
<TABLE>
<CAPTION>
GALAXY SHORT-TERM BOND FUND
BOSTON 1784 SHORT-TERM INCOME FUND
PRO FORMA COMBINING STATEMENT OF OPERATIONS (unaudited)
OCTOBER 31, 1999
GALAXY BOSTON 1784 PRO FORMA
SHORT-TERM SHORT-TERM PRO FORMA COMBINED
BOND FUND INCOME FUND ADJUSTMENTS (NOTE 1)
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income:
Interest Income $ 3,628,243 $ 10,020,625 $ - $ 13,648,868
-------------------------------------------------------------
Total Investment Income 3,628,243 10,020,625 - 13,648,868
-------------------------------------------------------------
Expenses:
Investment Advisory Fees 457,152 847,756 423,613 (a) 1,728,521
Administrative Fees 45,886 111,813 790 (a) 158,489
Custodian Fee 21,969 8,868 (4,000)(b) 26,837
Fund Accounting Fee 45,674 1,672 18,450 (a) 65,796
Professional Fees 16,519 13,615 (9,423)(b) 20,711
Trustee Fees 1,832 4,859 - 6,691
Reports to Shareholders 9,774 10,286 - 20,060
Miscellaneous Expenses 34,248 5,897 - 40,145
-------------------------------------------------------------
Subtotal 633,054 1,004,766 429,430 2,067,250
Transfer Agent Fee
Retail A Shares 29,872 - - 29,872
Retail B Shares 2,168 - - 2,168
Trust Shares / Shares 5,640 70,201 45,229 (a) 121,070
BKB Shares - - 19,241 (a) 19,241
Shareholder Services Fee & 12B-1 Fee
Retail A Shares 37,626 - - 37,626
Retail B Shares 6,900 - - 6,900
Trust Shares / Shares - 423,872 (423,872)(a) -
BKB Shares - - 45,015 (a) 45,015
-------------------------------------------------------------
Total Expenses before reimbursement/waiver 715,260 1,498,839 115,043 2,329,142
Less Waiver/Reimbursements
Fund Level Waivers (121,931) - (339,008)(c) (460,939)
Class Specific Waivers/Reimbursements
Retail A Shares - - - -
Retail B Shares (786) - - (786)
Trust Shares / Shares - (423,872) 423,872 (c) -
BKB Shares - - (45,015)(c) (45,015)
-------------------------------------------------------------
Total Waivers/Reimbursements (122,717) (423,872) 39,849 (506,740)
Net Expenses 592,543 1,074,967 154,892 1,822,402
-------------------------------------------------------------
Net Investment Income 3,035,700 8,945,658 (154,892) 11,826,466
-------------------------------------------------------------
Net Realized Gain on Investments 51,351 89,126 - 140,477
Net Change in Unrealized (Depreciation) on Investments (1,554,809) (4,612,795) - (6,167,604)
-------------------------------------------------------------
Net Realized and Unrealized (Loss) on Investments (1,503,458) (4,523,669) - (6,027,127)
-------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations $ 1,532,242 $ 4,421,989 $ (154,892) $ 5,799,339
=============================================================
</TABLE>
(a) Reflects adjustment to the acquiring fund contractual fee level.
(b) Reflects expected savings when the two funds become one.
(c) Reflects adjustment to the acquiring fund's voluntary expense limitation.
See Notes to Pro Forma Financial Statements
<PAGE>
Galaxy Short-Term Bond Fund
Boston 1784 Short-Term Income Fund
Notes to Pro Forma Combining Financial Statements (unaudited)
1. Basis of Combination
The Galaxy Fund, a Massachusetts business trust (the "Trust"), is registered
under the Investment Company Act of 1940, as amended, (the "1940 Act") as an
open-end management investment company. As of October 31, 1999, the Trust
offered twenty-nine managed investment portfolios. The unaudited Pro Forma
Combining Portfolio of Investments and the unaudited Pro Forma Statement of
Assets and Liabilities assumes the exchange described in the next paragraph
occurred as of October 31, 1999 and the unaudited Pro Forma Combining Statement
of Operations assumes the exchange occurred as of November 1, 1998. These
statements have been derived from books and records utilized in calculating the
net asset value of each fund at October 31, 1999 and for the twelve-month period
then ended.
The pro forma statements give effect to the proposed transfer of substantially
all of the assets and stated liabilities of the Boston 1784 Short-Term Income
Fund in exchange for Trust and BKB shares of Galaxy Short-Term Bond Fund. Under
generally accepted accounting principles, the historical cost of investment
securities will be carried forward to the surviving entity and the results of
operations of the Boston 1784 Short-Term Income Fund for pre-combination periods
will not be restated. The pro forma statements do not reflect the expenses of
either fund in carrying out its obligations under the proposed Agreement and
Plan of Reorganization.
The unaudited Pro Forma Combining Financial Statements should be read in
conjunction with the historical financial statements of the funds incorporated
by reference in the Statement of Additional Information.
For the twelve-month period ended October 31, 1999, the Galaxy Short-Term Bond
Fund's investment advisory fee was computed based on the annual rate of 0.75% of
its average daily net assets. The administration fee was computed based on the
annual rate of 0.09% of the first $2.5 billion of the Trust's combined average
daily net assets, 0.085% of the next $2.5 billion, 0.075% of the next $7
billion, 0.065% of the next $3 billion, 0.06% of the next $3 billion, and
0.0575% of the combined average daily net assets in excess of $18 billion, and
was allocated to each fund based on the relative net assets of the Trust.
The Trust has adopted a shareholder services plan (the "Services Plan") with
respect to Retail A, BKB and Trust Shares of the funds to compensate certain
institutions providing administrative and support services to their customers
who own such shares. Currently, the Services Plan has not been implemented for
the Trust shares. Under the Services Plan, aggregate payments may not exceed
0.30% of the average daily net assets of Retail A or BKB shareholders who are
customers of such institutions. Currently, the Trust, under the direction of the
Board of Trustees, is limiting such payments to 0.15% of the average daily net
asset of Retail A or BKB shareholders who are customers of such institutions.
The Trust has adopted a distribution and services plan (the "12b-1 Plan") with
respect to Retail B shares of the fund. Payments to the Distributor or others
for distribution services (those primarily intended to result in the sale of
Retail B shares) may not exceed 0.65% of the average daily net assets of Retail
B shares. Payments to institutions providing services to their customers owning
Retail B shares for shareholder liaison and administrative support services may
not exceed 0.15% and 0.15%, respectively, of the average daily net assets
attributable to shareholders who are customers of such institutions. The Trust
is currently limiting payments for shareholder liaison and administrative
support to 0.15% of the average daily net assets attributable to shareholders
that are customers of such institutions.
<PAGE>
Galaxy Short-Term Bond Fund
Boston 1784 Short-Term Income Fund
Notes to Pro Forma Combining Financial Statements (unaudited) (continued)
2. Portfolio Valuation
The Galaxy Short-Term Bond Fund's investment securities are valued by an
independent pricing service approved by the Trust's Board of Trustees. When, in
the judgement of the service, quoted bid prices are readily available and are
representative of the bid side of the market, investments are valued at the mean
between quoted bid and asked prices. Other investments are carried at fair value
as determined by the service based on methods which include consideration of
yields or prices of bonds of comparable quality, coupon maturity and type;
indications as to values from dealers and general market conditions. Short-term
obligations that mature in 60 days or less are valued at amortized cost, which
approximated fair value. All other securities and other assets are appraised at
their fair value as determined in good faith under consistently applied
procedures established by and under the general supervision of the Board of
Trustees. Boston 1784 Short-Term Income Fund uses similar rules for determining
portfolio valuation.
3. Capital Shares
The pro forma net asset value per share assumes the issuance of additional
shares of the Galaxy Short-Term Bond Fund that would have been issued at October
31, 1999 in connection with the proposed reorganization. The pro forma number of
shares outstanding of 20,773,365 consists of 15,003,683 shares assumed issued in
the reorganization plus 5,769,682 shares of the Galaxy Short-Term Bond Fund at
October 31, 1999.
<PAGE>
GALAXY HIGH QUALITY BOND FUND
BOSTON 1784 INCOME FUND
PRO FORMA COMBINING PORTFOLIO OF INVESTMENTS (UNAUDITED)
OCTOBER 31, 1999
<TABLE>
<CAPTION>
PAR VALUE DESCRIPTION VALUE (NOTE 2)
- ------------------------------------------------------------------------------------------------------------------------------------
GALAXY GALAXY HIGH
HIGH QUALITY BOSTON 1784 PRO FORMA QUALITY BOSTON 1784 PRO FORMA
BOND FUND INCOME FUND COMBINED BOND FUND INCOME FUND COMBINED
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 34.95%
U.S. TREASURY BONDS - 18.56%
$ 4,450,000 $ - $ 4,450,000 12.00%, 08/15/13 $ 6,100,683 $ - $ 6,100,683
4,000,000 - 4,000,000 13.25%, 05/15/14 5,929,720 - 5,929,720
700,000 - 700,000 7.50%, 11/15/16 772,212 - 772,212
6,760,000 - 6,760,000 8.88%, 08/15/17 8,428,841 - 8,428,841
3,550,000 - 3,550,000 9.00%, 11/15/18 4,506,619 - 4,506,619
- 5,000,000 5,000,000 8.13%, 08/15/19 - 5,731,250 5,731,250
5,500,000 - 5,500,000 8.75%, 05/15/20 6,884,460 - 6,884,460
6,000,000 4,260,000 10,260,000 7.88%, 02/15/21 6,935,460 4,921,493 11,856,953
200,000 - 200,000 8.13%, 05/15/21 237,120 - 237,120
3,500,000 - 3,500,000 8.13%, 08/15/21 4,152,680 - 4,152,680
- 8,750,000 8,750,000 8.00%, 11/15/21 - 10,270,138 10,270,138
- 700,000 700,000 6.00%, 02/15/26 - 663,229 663,229
5,975,000 - 5,975,000 6.38%, 08/15/27 5,947,276 - 5,947,276
7,340,000 - 7,340,000 6.13%, 11/15/27 7,087,504 - 7,087,504
4,250,000 - 4,250,000 5.50%, 08/15/28 3,774,723 - 3,774,723
4,440,000 20,785,000 25,225,000 5.25%, 11/15/28 3,816,802 17,854,523 21,671,325
6,895,000 4,050,000 10,945,000 5.25%, 02/15/29 5,973,000 3,505,883 9,478,883
1,750,000 - 1,750,000 6.13%, 08/15/29 1,743,857 - 1,743,857
-----------------------------------------
72,290,957 42,946,516 115,237,473
-----------------------------------------
U.S. TREASURY NOTES - 5.21%
- 1,510,000 1,510,000 5.63%, 11/30/99 - 1,511,148 1,511,148
5,000,000 - 5,000,000 6.63%, 06/30/01 5,064,750 - 5,064,750
675,000 8,605,000 9,280,000 6.25%, 10/31/01 680,650 8,673,754 9,354,404
2,000,000 - 2,000,000 7.50%, 11/15/01 2,063,620 - 2,063,620
2,100,000 - 2,100,000 6.25%, 02/28/02 2,118,732 - 2,118,732
- 1,000,000 1,000,000 5.50%, 02/28/03 - 986,790 986,790
- 80,000 80,000 5.50%, 05/31/03 - 78,774 78,774
- 1,030,000 1,030,000 5.75%, 08/15/03 - 1,021,616 1,021,616
1,530,000 - 1,530,000 6.00%, 08/15/04 1,534,238 - 1,534,238
- 2,215,000 2,215,000 7.00%, 07/15/06 - 2,311,773 2,311,773
600,000 - 600,000 5.63%, 05/15/08 578,910 - 578,910
755,000 3,000,000 3,755,000 6.00%, 08/15/09 754,358 2,995,560 3,749,918
- 2,000,000 2,000,000 6.13%, 08/15/29 - 1,991,720 1,991,720
-----------------------------------------
12,795,258 19,571,135 32,366,393
-----------------------------------------
FEDERAL NATIONAL
MORTGAGE ASSOCIATION - 4.50%
- 4,000,000 4,000,000 0.00%, 08/15/01 - 3,597,956 3,597,956
- 475,000 475,000 5.75%, 04/15/03 - 466,550 466,550
3,000,000 - 3,000,000 8.50%, 02/01/05 3,017,430 - 3,017,430
- 10,000,000 10,000,000 5.75%, 06/15/05 - 9,664,200 9,664,200
3,199,000 - 3,199,000 6.38%, 06/15/09 3,123,600 - 3,123,600
2,050,000 - 2,050,000 6.16%, 08/07/28 1,854,041 - 1,854,041
- 5,700,000 5,700,000 6.25%, 05/15/29 - 5,244,000 5,244,000
- 1,000,000 1,000,000 6.38%, 06/15/29 - 976,430 976,430
-----------------------------------------
7,995,071 19,949,136 27,944,207
-----------------------------------------
U.S. GOVERNMENT-BACKED BONDS - 2.05%
2,000,000 - 2,000,000 Private Export Funding Corp., Series H
6.45%, 09/30/04 1,987,500 - 1,987,500
4,000,000 - 4,000,000 Private Export Funding Corp., Series B
6.49%, 07/15/07 3,935,000 - 3,935,000
1,800,000 - 1,800,000 A.I.D. State of Israel
Series 7-A
5.45%, 02/15/01 1,784,484 - 1,784,484
5,000,000 - 5,000,000 A.I.D. Israel
Series 8-C
6.63%, 08/15/03 5,038,300 - 5,038,300
-----------------------------------------
12,745,284 - 12,745,284
-----------------------------------------
<PAGE>
FEDERAL HOME LOAN
MORTGAGE CORPORATION - 1.86%
1,000,000 - 1,000,000 6.25%, 07/15/04 992,500 - 992,500
- 5,000,000 5,000,000 8.53%, 02/02/05 - 5,029,150 5,029,150
- 3,500,000 3,500,000 5.75%, 03/15/09 - 3,263,750 3,263,750
2,280,000 - 2,280,000 6.63%, 09/15/09 2,268,600 - 2,268,600
-----------------------------------------
3,261,100 8,292,900 11,554,000
-----------------------------------------
FEDERAL HOME LOAN BANK - 1.70%
- 4,000,000 4,000,000 5.25%, 04/25/02 - 3,909,240 3,909,240
- 1,070,000 1,070,000 5.13%, 09/15/03 - 1,024,471 1,024,471
- 6,000,000 6,000,000 5.80%, 09/02/08 - 5,647,380 5,647,380
-----------------------------------------
- 10,581,091 10,581,091
-----------------------------------------
U.S. TREASURY STRIP - 1.07%
9,000,000 - 9,000,000 4.86%, 05/15/08 Interest only, (A) (B) 5,247,180 - 5,247,180
- 5,000,000 5,000,000 0.00%, 02/15/19 (H) - 1,423,650 1,423,650
-----------------------------------------
5,247,180 1,423,650 6,670,830
-----------------------------------------
TOTAL U.S. GOVERNMENT
AND AGENCY OBLIGATIONS 114,334,850 102,764,428 217,099,278
-----------------------------------------
CORPORATE NOTES AND BONDS - 30.77%
CONSUMER CYCLICALS - 9.86%
1,650,000 - 1,650,000 Coca-Cola Enterprises, Inc.
7.13%, 08/01/17 1,592,250 - 1,592,250
1,900,000 - 1,900,000 Colgate-Palmolive Co., Series C, MTN
5.27%, 12/01/03 1,801,086 - 1,801,086
- 5,000,000 5,000,000 DaimlerChrysler
7.20%, 09/01/09 - 5,012,500 5,012,500
- 6,395,000 6,395,000 Ford Motor Corp.
7.38%, 10/28/09 - 6,458,950 6,458,950
- 4,000,000 4,000,000 Fort James Corp.
6.88%, 09/15/07 - 3,850,000 3,850,000
- 3,600,000 3,600,000 Fortune Brands, Inc.
6.25%, 04/01/08 - 3,433,500 3,433,500
5,050,000 - 5,050,000 Hershey Foods Corp.
7.20%, 08/15/27 4,949,000 - 4,949,000
1,650,000 - 1,650,000 McDonald's Corp., MTN
5.95%, 01/15/08 1,561,313 - 1,561,313
- 700,000 700,000 McKesson Corp.
6.30%, 03/01/05 - 644,875 644,875
2,000,000 - 2,000,000 Minnesota Mining & Manufacturing Co.
Debenture
6.38%, 02/15/28 1,772,500 - 1,772,500
- 2,195,000 2,195,000 News America, Inc.
7.25%, 05/18/18 - 2,000,194 2,000,194
- 3,500,000 3,500,000 Outdoor Systems
8.88%, 06/15/07 - 3,570,000 3,570,000
1,800,000 - 1,800,000 Pepsi Bottling Holdings, Inc.
5.38%, 02/17/04 (D) 1,696,500 - 1,696,500
250,000 - 250,000 Procter & Gamble Co.
8.50%, 08/10/09 279,063 - 279,063
3,000,000 - 3,000,000 Sara Lee Corp., MTN
7.40%, 03/22/02 3,048,750 - 3,048,750
- 3,300,000 3,300,000 Staples, Inc.
7.13%, 08/15/07 - 3,238,125 3,238,125
3,000,000 - 3,000,000 Sysco Corp.
7.00%, 05/01/06 3,007,500 - 3,007,500
3,675,000 - 3,675,000 Sysco Corp.
6.50%, 08/01/28 3,289,125 - 3,289,125
- 4,965,000 4,965,000 Time Warner Entertainment Co.
10.15%, 05/01/12 - 5,982,825 5,982,825
1,450,000 - 1,450,000 Time Warner Entertainment Co.
8.38%, 03/15/23 1,547,875 - 1,547,875
2,500,000 - 2,500,000 Wal-Mart Stores, Inc.
6.88%, 08/10/09 2,512,500 - 2,512,500
-----------------------------------------
27,057,462 34,190,969 61,248,431
-----------------------------------------
FINANCE - 8.26%
- 805,000 805,000 Aristar, Inc.
7.25%, 06/15/06 - 788,900 788,900
2,000,000 - 2,000,000 Associates Corp. of North America
6.63%, 05/15/01 2,002,500 - 2,002,500
2,000,000 - 2,000,000 Associates Corp. of North America, MTN
7.40%, 05/03/02 2,027,500 - 2,027,500
<PAGE>
4,000,000 - 4,000,000 Bank One Milwaukee
National Association, MTN
6.35%, 03/19/01 4,000,000 - 4,000,000
1,500,000 - 1,500,000 Caterpillar Financial Services Corp.
Series F, MTN
5.47%, 09/12/01 1,470,000 - 1,470,000
- 3,000,000 3,000,000 Dime Bancorp, Inc.
7.00%, 07/25/01 - 2,988,750 2,988,750
- 5,000,000 5,000,000 First Security Corp.
6.88%, 11/15/06 - 4,743,750 4,743,750
- 6,000,000 6,000,000 First Union Corp.
6.55%, 10/15/35 - 5,790,000 5,790,000
- 3,525,000 3,525,000 First USA Bank
7.65%, 08/01/03 - 3,586,688 3,586,688
1,285,000 - 1,285,000 General Electric Capital Corp., MTN
6.33%, 09/17/01 1,283,394 - 1,283,394
250,000 - 250,000 General Electric Capital Corp.
8.30%, 09/20/09 271,875 - 271,875
1,165,000 - 1,165,000 Goldman Sachs Group
6.65%, 05/15/09 1,109,663 - 1,109,663
- 2,770,000 2,770,000 Heller Financial
5.88%, 11/01/00 - 2,768,781 2,768,781
2,000,000 - 2,000,000 Key Bank of North America
7.13%, 08/15/06 1,972,500 - 1,972,500
- 5,000,000 5,000,000 Morgan (JP), MTN
6.00%, 01/15/09 - 4,556,250 4,556,250
3,500,000 - 3,500,000 National Rural Utilities
5.50%, 01/15/05 3,259,375 - 3,259,375
1,025,000 - 1,025,000 National Rural Utilities Cooperative Finance Corp.
6.20%, 02/01/08 969,906 - 969,906
3,000,000 - 3,000,000 Suntrust Bank, Atlanta, MTN
7.25%, 09/15/06 3,007,500 - 3,007,500
1,300,000 - 1,300,000 Suntrust Bank of Central Florida, MTN
6.90%, 07/01/07 1,285,375 - 1,285,375
- 3,400,000 3,400,000 U.S. West Capital Corp.
6.88%, 08/15/01 - 3,391,500 3,391,500
-----------------------------------------
22,659,588 28,614,619 51,274,207
-----------------------------------------
UTILITIES - 6.92%
- 3,300,000 3,300,000 AT&T Corp.
6.00%, 03/15/09 - 3,052,500 3,052,500
- 600,000 600,000 Cable & Wireless Communication
6.63%, 03/06/05 - 602,250 602,250
500,000 - 500,000 Emerson Electric Co.
5.85%, 03/15/09 463,125 - 463,125
- 3,380,000 3,380,000 Enron Oil & Gas
6.00%, 12/15/08 - 3,071,700 3,071,700
1,950,000 - 1,950,000 GTE Corp., Debenture
6.46%, 04/15/08 1,869,563 - 1,869,563
6,500,000 - 6,500,000 GTE Florida, Inc., Series A, Debenture
6.31%, 12/15/02 6,418,750 - 6,418,750
- 3,395,000 3,395,000 Hydro-Quebec (E)
8.63%, 05/20/02 - 3,530,671 3,530,671
3,000,000 - 3,000,000 MCI WorldCom, Inc.
6.13%, 04/15/02 2,951,250 - 2,951,250
- 3,940,000 3,940,000 National Rural Utilities
5.75%, 11/01/08 - 3,590,325 3,590,325
5,000,000 - 5,000,000 PacifiCorp, MTN
6.38%, 05/15/08 4,750,000 - 4,750,000
2,750,000 - 2,750,000 Potomac Electric Power Co.
First Mortgage
6.25%, 10/15/07 2,657,187 - 2,657,187
1,000,000 - 1,000,000 Sprint Capital Corp.
5.88%, 05/01/04 961,250 - 961,250
2,250,000 - 2,250,000 Sprint Capital Corp.
6.90%, 05/01/19 2,106,562 - 2,106,562
1,500,000 - 1,500,000 Tele-Communications, Inc.
7.25%, 08/01/05 1,509,375 - 1,509,375
3,300,000 - 3,300,000 Telecom De Puerto Rico
6.15%, 05/15/02 (D) 3,238,926 - 3,238,926
2,250,000 - 2,250,000 Telecom De Puerto Rico
6.65%, 05/15/06 (D) 2,174,062 - 2,174,062
-----------------------------------------
29,100,050 13,847,446 42,947,496
-----------------------------------------
INDUSTRIAL - 3.26%
- 5,070,000 5,070,000 Burlington North
9.25%, 10/01/06 - 5,538,975 5,538,975
2,000,000 - 2,000,000 Illinois Tool Works
5.75%, 03/01/09 1,835,000 - 1,835,000
- 2,750,000 2,750,000 Northrop Grumman Corp.
7.00%, 03/01/06 - 2,667,500 2,667,500
<PAGE>
- 3,340,000 3,340,000 Trans-Canada Pipelines (G)
9.13%, 04/20/06 - 3,603,025 3,603,025
- 5,000,000 5,000,000 Weyerhauser Co.
7.50%, 03/01/13 - 5,043,750 5,043,750
1,650,000 - 1,650,000 Xerox Corp.
5.50%, 11/15/03 1,571,625 - 1,571,625
-----------------------------------------
3,406,625 16,853,250 20,259,875
-----------------------------------------
HEALTH CARE - 1.08%
800,000 - 800,000 Abbott Laboratories
6.40%, 12/01/06 787,000 - 787,000
- 3,190,000 3,190,000 American Home Products
7.70%, 02/15/00 - 3,205,950 3,205,950
3,000,000 - 3,000,000 Becton Dickinson & Co., Debenture
6.70%, 08/01/28 2,703,750 - 2,703,750
-----------------------------------------
3,490,750 3,205,950 6,696,700
-----------------------------------------
AUTOMOBILE FINANCE - 0.56%
3,500,000 - 3,500,000 Ford Motor Credit Co.
6.70%, 07/16/04 3,465,000 - 3,465,000
-----------------------------------------
TECHNOLOGY - 0.55%
2,500,000 - 2,500,000 International Business Machines Corp.
7.25%, 11/01/02 2,546,875 - 2,546,875
- 1,000,000 1,000,000 Lucent Technologies
5.50%, 11/15/08 908,750 908,750
-----------------------------------------
2,546,875 908,750 3,455,625
-----------------------------------------
ENERGY - 0.28%
- 1,900,000 1,900,000 Atlantic Richfield
5.90%, 04/15/09 - 1,745,625 1,745,625
-----------------------------------------
TOTAL CORPORATE NOTES AND BONDS 91,726,350 99,366,609 191,092,959
-----------------------------------------
MORTGAGE-BACKED SECURITIES - 20.23%
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION - 9.46%
246,675 - 246,675 6.50%, 03/15/13, Pool # 458165 242,358 - 242,358
75,943 - 75,943 6.50%, 03/15/13, Pool # 463723 74,589 - 74,589
250,340 - 250,340 6.50%, 04/15/13, Pool # 466013 245,879 - 245,879
279,576 - 279,576 6.50%, 04/15/13, Pool # 473476 274,594 - 274,594
300,284 - 300,284 6.50%, 05/15/13, Pool # 433742 294,933 - 294,933
136,908 - 136,908 6.50%, 05/15/13, Pool # 476292 134,469 - 134,469
46,926 - 46,926 6.50%, 10/15/13, Pool # 434026 46,090 - 46,090
341,920 - 341,920 6.50%, 10/15/13, Pool # 434017 335,827 - 335,827
1,971,733 - 1,971,733 6.50%, 10/15/13, Pool # 471586 1,936,597 - 1,936,597
382,752 - 382,752 6.50%, 10/15/13, Pool # 464249 375,931 - 375,931
126,581 - 126,581 6.50%, 10/15/13, Pool # 484576 124,325 - 124,325
1,108,232 - 1,108,232 6.50%, 11/15/13, Pool # 454228 1,088,140 - 1,088,140
770,765 - 770,765 6.50%, 11/15/13, Pool # 477529 757,030 - 757,030
824,926 - 824,926 6.50%, 11/15/13, Pool # 490795 809,970 - 809,970
922,537 - 922,537 6.63%, 07/20/22, Pool # 008022 (C) 930,038 - 930,038
1,351,881 - 1,351,881 7.00%, 11/15/22, Pool # 330551 1,335,199 - 1,335,199
- 1,128,389 1,128,389 7.00%, 10/15/23, Pool # 369348 - 1,106,521 1,106,521
- 108,388 108,388 8.00%, 06/15/25, Pool # 410041 - 110,759 110,759
- 208,283 208,283 8.00%, 10/15/25, Pool # 399781 - 212,838 212,838
- 78,657 78,657 8.00%, 01/15/26, Pool # 417061 - 80,377 80,377
- 109,653 109,653 8.00%, 02/15/26, Pool # 423487 - 112,051 112,051
- 2,578,601 2,578,601 7.50%, 04/15/26, Pool # 345614 - 2,585,048 2,585,048
- 43,700 43,700 8.00%, 05/15/26, Pool # 423253 - 44,656 44,656
- 91,356 91,356 8.00%, 05/15/26, Pool # 432681 - 93,354 93,354
- 374,106 374,106 8.00%, 06/15/26, Pool # 345638 - 382,287 382,287
- 4,550,469 4,550,469 7.00%, 06/15/26, Pool # 780518 - 4,465,148 4,465,148
- 50,380 50,380 7.50%, 02/15/27, Pool # 433448 - 50,506 50,506
- 1,018,961 1,018,961 8.00%, 03/15/27, Pool # 442009 - 1,041,246 1,041,246
- 8,472,818 8,472,818 6.50%, 05/15/28, Pool # 447920 - 8,094,168 8,094,168
- 9,427,143 9,427,143 6.50%, 06/15/28, Pool # 465536 - 9,005,844 9,005,844
- 977,119 977,119 6.50%, 06/15/28, Pool # 476350 - 933,452 933,452
969,745 - 969,745 6.50%, 01/15/29, Pool # 482909 926,708 - 926,708
3,324,955 - 3,324,955 7.00%, 01/15/29, Pool # 499333 3,261,548 - 3,261,548
742,694 - 742,694 7.00%, 02/15/29, Pool # 470018 728,531 - 728,531
3,473,928 - 3,473,928 7.00%, 02/15/29, Pool # 486937 3,407,680 - 3,407,680
4,699,758 - 4,699,758 7.00%, 02/15/29, Pool # 492173 4,610,134 - 4,610,134
24,372 - 24,372 6.50%, 03/15/29, Pool # 464613 23,291 - 23,291
3,530,962 - 3,530,962 6.00%, 03/15/29, Pool # 464632 3,277,156 - 3,277,156
2,034,553 - 2,034,553 6.50%, 03/15/29, Pool # 503051 1,944,260 - 1,944,260
<PAGE>
1,926,550 - 1,926,550 6.50%, 04/15/29, Pool # 483349 1,841,050 - 1,841,050
1,398,994 - 1,398,994 7.50%, 09/15/29, Pool # 466158 1,402,491 - 1,402,491
-----------------------------------------
30,428,818 28,318,255 58,747,073
-----------------------------------------
FEDERAL NATIONAL
MORTGAGE ASSOCIATION - 6.02%
778,864 778,864 6.50%, 05/01/06, Pool # 348137 773,801 - 773,801
- 2,930,132 2,930,132 6.50%, 05/01/11, Pool # 250554 - 2,872,437 2,872,437
- 852,734 852,734 6.00%, 03/01/13, Pool # 417118 - 819,418 819,418
- 840,404 840,404 6.00%, 04/01/13, Pool # 412825 - 807,569 807,569
- 1,822,717 1,822,717 6.00%, 05/01/13, Pool # 423188 - 1,751,503 1,751,503
- 9,658,539 9,658,539 6.00%, 06/01/13, Pool # 251811 - 9,281,180 9,281,180
- 1,707,538 1,707,538 6.00%, 06/01/13, Pool # 431718 - 1,640,825 1,640,825
- 5,000,000 5,000,000 7.00%, 09/18/14, Series 1997-6, Class K, CMO - 4,866,150 4,866,150
- 1,492,069 1,492,069 6.00%, 12/25/16, Series G-2, Class G, CMO - 1,410,960 1,410,960
2,183,829 - 2,183,829 6.75%, 04/25/21, Pool #0096-4 2,185,860 - 2,185,860
2,617,283 - 2,617,283 8.50%, 12/01/25, Pool # 313420 2,711,322 - 2,711,322
- 4,373,939 4,373,939 6.50%, 06/01/28, Pool # 431718 - 4,190,758 4,190,758
4,000,000 - 4,000,000 8.00%, 10/01/29, Pool # 252875 4,075,000 - 4,075,000
-----------------------------------------
9,745,983 27,640,800 37,386,783
-----------------------------------------
FEDERAL HOME LOAN
MORTGAGE CORPORATION - 3.97%
- 463,480 463,480 7.75%, 09/01/05, Pool # 140661 - 473,616 473,616
3,000,000 - 3,000,000 6.00%, 04/15/22, Pool # 2118QC 2,850,930 - 2,850,930
- 17,306,818 17,306,818 6.00%, 11/01/28, Pool # C00680 - 16,157,223 16,157,223
5,000,000 - 5,000,000 8.50%, 10/01/29, Pool # G01072 5,179,650 - 5,179,650
-----------------------------------------
8,030,580 16,630,839 24,661,419
-----------------------------------------
STRUCTURED MORTGAGE PRODUCT - 0.78%
- 995,241 995,241 General Motors Acceptance Corp.
Commercial Mortgage Securities, Inc., CMO
6.97%, 07/15/32 - 991,171 991,171
1,149,671 - 1,149,671 Prudential Home Mortgage Securities
Series 1993-38, Class A-3, CMO
6.15%, 09/25/23 1,130,621 - 1,130,621
2,799,428 - 2,799,428 Rural Housing Trust
Series 1987-1, Class 1-D, CMO
6.33%, 04/01/26 2,743,877 - 2,743,877
-----------------------------------------
3,874,498 991,171 4,865,669
-----------------------------------------
TOTAL MORTGAGE-BACKED SECURITIES 52,079,879 73,581,065 125,660,944
-----------------------------------------
ASSET-BACKED SECURITIES - 7.13%
- 3,503,221 3,503,221 AFC Home Equity Loan Trust
Series 1996-3, Class 1A4
7.54%, 12/25/27 - 3,560,743 3,560,743
2,216,766 - 2,216,766 Chase Manhattan Auto Owner Trust
Series 1998-C, Class A3
5.80%, 01/15/02 2,211,224 - 2,211,224
6,000,000 - 6,000,000 Citibank Credit Card Master Trust I
Series 1998-6 -
5.85%, 04/10/03 5,951,220 - 5,951,220
1,000,000 - 1,000,000 Citibank Credit Card Master Trust I
. Series 1999-1, Class A
5.50%, 02/15/06 952,810 - 952,810
- 757,286 757,286 Fleetwood Credit Corp.
Series 1995-B, Class A
6.55%, 05/15/11 - 754,196 754,196
3,500,000 - 3,500,000 Ford Credit Auto Owner Trust
Series 1999-D, Class A5
6.52%, 09/15/03 3,498,880 - 3,498,880
- 5,000,000 5,000,000 Green Tree Financial Corp.
Series 1995-5, Class M1
7.65%, 09/15/26 - 4,938,900 4,938,900
850,000 - 850,000 Green Tree Financial Corp.
Series 1998-1, Class A4
6.04%, 11/01/29 835,652 - 835,652
5,050,000 - 5,050,000 MBNA Master Credit Card Trust
Series 1998-J, Class A
5.25%, 02/15/06 4,800,630 - 4,800,630
- 2,492,354 2,492,354 Merrill Lynch Mortgage Investors, Inc.
Series 1989-H, Class B
10.00%, 01/15/10 - 2,495,469 2,495,469
- 5,000,000 5,000,000 Merrill Lynch Mortgage Investors, Inc.
Series 1994-G, Class A3
8.35%, 05/15/14 - 5,445,900 5,445,900
<PAGE>
- 5,000,000 5,000,000 Nomura Asset Securities Corp.
Series 1996-MD5, Class A-1B
7.12%, 04/13/36 - 4,934,350 4,934,350
- 4,040,000 4,040,000 Oakwood Mortgage Investors, Inc.
Series 1995-B, Class A3
6.90%, 01/15/21 - 3,913,750 3,913,750
-----------------------------------------
TOTAL ASSET-BACKED SECURITIES 18,250,416 26,043,308 44,293,724
-----------------------------------------
FOREIGN BOND - 1.38%
1,500,000 - 1,500,000 Heinz (H.J.) Co. (E)
5.75%, 02/03/03 1,454,400 - 1,454,400
- 3,395,000 3,395,000 Province of Ontario (F)
7.38%, 01/27/03 - 3,458,656 3,458,656
4,000,000 - 4,000,000 Province of Quebec (F)
5.75%, 02/15/09 3,640,000 - 3,640,000
-----------------------------------------
TOTAL FOREIGN BOND 5,094,400 3,458,656 8,553,056
-----------------------------------------
REPURCHASE AGREEMENT - 2.81%
Repurchase Agreement with:
4,220,000 - 4,220,000 Chase Manhattan Bank
5.20%, 11/01/99, dated 10/29/99 4,220,000 - 4,220,000
- 13,228,281 13,228,281 Lehman Brothers
5.18%, 11/01/99, dated 10/29/99 - 13,228,281 13,228,281
-----------------------------------------
TOTAL REPURCHASE AGREEMENT 4,220,000 13,228,281 17,448,281
-----------------------------------------
TOTAL INVESTMENTS - 97.27%
(Cost $294,952,306, $327,765,508 and $622,717,814) 285,705,895 318,442,347 604,148,242
=========================================
NET OTHER ASSETS AND LIABILITIES - 2.73% 1,860,432 15,059,521 16,919,953
=========================================
NET ASSETS - 100.00% $ 287,566,327 $ 333,501,868 $ 621,068,195
=========================================
</TABLE>
(A) Discount yield at time of purchase.
(B) Stripped securities represent the splitting of cash flows into
interest and principal. Holders, as indicated, are entitled to
that portion of the payment representing the interest only or
principal only.
(C) Floating rate note. Interest Rate Shown reflects rate in effect
at October 31, 1999.
(D) Securities exempt from registration under Rule 144A of the
Securities Act of 1933. These securities may only be resold, in
transactions exempt from registration, to qualified institutional
buyers. At October 31, 1999, these securities amounted to
$7,109,488 or 1.14% of net assets.
(E) Euro-Dollar Bond
(F) U.S. Dollar Denominated
(G) Yankee Bond
(H) Zero Coupon Bond
CMO Collateralized Mortgage Obligation
MTN Medium Term Note
See Notes to Pro Forma Financial Statements
<PAGE>
GALAXY HIGH QUALITY BOND FUND
BOSTON 1784 INCOME FUND
PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
<TABLE>
<CAPTION>
------------------------------------------------------------
GALAXY PRO FORMA
HIGH QUALITY BOSTON 1784 PRO FORMA COMBINED
BOND FUND INCOME FUND ADJUSTMENTS (NOTE 1)
------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investments
Investments at cost $ 290,732,306 $314,537,227 $ - $ 605,269,533
Repurchase agreements 4,220,000 13,228,281 - 17,448,281
Net unrealized (depreciation) (9,246,411) (9,323,161) - (18,569,572)
------------------------------------------------------------
Total Investments at Value 285,705,895 318,442,347 - 604,148,242
Cash 15,546 287,318 - 302,864
Receivable for investments sold 1,961,287 12,337,553 - 14,298,840
Receivable for shares sold 1,095,375 5,767 - 1,101,142
Interest and dividends receivable 4,505,548 4,596,370 - 9,101,918
------------------------------------------------------------
Total Assets 293,283,651 335,669,355 - 628,953,006
LIABILITIES:
Dividends payable 1,359,916 1,731,909 - 3,091,825
Payable for investments purchased 3,717,395 182,188 - 3,899,583
Payable for shares redeemed 437,303 22 - 437,325
Advisory fee payable 131,993 193,572 - 325,565
Payable to Fleet affiliates 345 - - 345
Administration fee payable 49,443 18,467 - 67,910
Trustees' fees and expenses payable 7,331 666 - 7,997
Accrued expenses and other payables 13,598 40,663 - 54,261
------------------------------------------------------------
Total Liabilities 5,717,324 2,167,487 - 7,884,811
NET ASSETS $ 287,566,327 $333,501,868 $ - $ 621,068,195
============================================================
NET ASSETS CONSISTS OF:
Paid-in capital $ 298,199,551 $346,101,274 $ - $ 644,300,825
Undistributed net investment income 280,469 421,480 - 701,949
Accumulated net realized (loss) on investments sold (1,667,282) (3,697,725) - (5,365,007)
Net unrealized (depreciation) of investments (9,246,411) (9,323,161) - (18,569,572)
------------------------------------------------------------
TOTAL NET ASSETS $ 287,566,327 $333,501,868 $ - $ 621,068,195
============================================================
Net Assets by Class:
Retail A Shares $ 42,905,576 N/A $ - $ 42,905,576
============================================================
Retail B Shares 6,550,339 N/A - 6,550,339
============================================================
Trust Shares / Shares 237,771,762 333,501,868 (10,672,060) 560,601,570
============================================================
Prime A Shares 16,084 N/A - 16,084
============================================================
Prime B Shares 322,566 N/A - 322,566
============================================================
BKB Shares N/A N/A 10,672,060 10,672,060
============================================================
Shares of beneficial interest outstanding:
Retail A Shares 4,187,138 N/A - 4,187,138
============================================================
Retail B Shares 639,249 N/A - 639,249
============================================================
Trust Shares / Shares 23,203,752 34,329,410 (2,833,819) 54,699,343
============================================================
Prime A Shares 1,569 N/A - 1,569
============================================================
Prime B Shares 31,509 N/A - 31,509
============================================================
BKB Shares N/A N/A 1,041,177 1,041,177
============================================================
Net Asset Value - Retail A Shares $ 10.25 N/A $ 10.25
============================================================
Net Asset Value - Retail B Shares $ 10.25 N/A $ 10.25
============================================================
Net Asset Value - Trust Shares / Shares $ 10.25 $ 9.71 $ 10.25
============================================================
Net Asset Value - Prime A Shares $ 10.25 N/A $ 10.25
============================================================
Net Asset Value - Prime B Shares $ 10.24 N/A $ 10.24
============================================================
Net Asset Value - BKB Shares N/A N/A $ 10.25
============================================================
</TABLE>
See Notes to Pro Forma Financial Statements
<PAGE>
GALAXY HIGH QUALITY BOND FUND
BOSTON 1784 INCOME FUND
PRO FORMA COMBINING STATEMENT OF OPERATIONS (UNAUDITED)
OCTOBER 31, 1999
<TABLE>
<CAPTION>
------------------------------------------------------------------------
GALAXY PRO FORMA
HIGH QUALITY BOSTON 1784 PRO FORMA COMBINED
BOND FUND INCOME FUND ADJUSTMENTS (NOTE 1)
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income:
Interest Income $ 17,710,263 $ 22,375,877 $ - $ 40,086,140
------------------------------------------------------------------------
Total Investment Income 17,710,263 22,375,877 - 40,086,140
------------------------------------------------------------------------
Expenses:
Investment Advisory Fees 2,106,150 2,624,175 36,178 (a) 4,766,503
Administrative Fees 211,269 233,792 (8,019) (a) 437,042
Custodian Fee 36,686 20,122 (16,000) (b) 40,808
Fund Accounting Fee 78,661 3,484 27,723 (a) 109,868
Professional Fees 32,362 28,677 (25,000) (b) 36,039
Trustee Fees 6,754 10,100 - 16,854
Reports to Shareholders 32,573 23,569 (20,000) (b) 36,142
Miscellaneous Expenses 58,011 19,158 - 77,169
------------------------------------------------------------------------
Subtotal 2,562,466 2,963,077 (5,118) 5,520,425
Transfer Agent Fee
Retail A Shares 72,862 - - 72,862
Retail B Shares 11,912 - - 11,912
Trust Shares / Shares 297,298 73,422 10,729 (a) 381,449
Prime A Shares 93 - - 93
Prime B Shares 359 - - 359
BKB Shares - - 8,937 (a) 8,937
Shareholder Services Fee & 12B-1 Fee
Retail A Shares 66,090 - - 66,090
Retail B Shares 52,195 - - 52,195
Trust Shares / Shares - 886,536 (886,536) (a) -
Prime A Shares 63 - - 63
Prime B Shares 2,172 - - 2,172
BKB Shares - - 17,022 (a) 17,022
------------------------------------------------------------------------
Total Expenses before reimbursement/waiver 3,065,510 3,923,035 (854,966) 6,133,579
Less Waiver/Reimbursements
Fund Level Waivers (561,640) (199,564) (509,863) (c) (1,271,067)
Class Specific Waivers/Reimbursements
Retail A Shares (6,772) - 6,772 (c) -
Retail B Shares (5,765) - - (5,765)
Trust Shares / Shares - (886,536) 886,536 (c) -
Prime A Shares (92) - - (92)
Prime B Shares (356) - - (356)
BKB Shares - - (11,348) (c) (11,348)
------------------------------------------------------------------------
Total Waivers/Reimbursements (574,625) (1,086,100) 372,097 (1,288,628)
Net Expenses 2,490,885 2,836,935 (482,869) 4,844,952
------------------------------------------------------------------------
Net Investment Income 15,219,378 19,538,942 482,869 35,241,188
------------------------------------------------------------------------
Net Realized (Loss) on Investments (1,517,657) (3,606,496) - (5,124,153)
Net Change in Unrealized (Depreciation) on Investments (21,199,859) (20,713,046) - (41,912,905)
------------------------------------------------------------------------
Net Realized and Unrealized (Loss) on Investments (22,717,516) (24,319,542) - (47,037,058)
------------------------------------------------------------------------
Net (Decrease) in Net Assets Resulting from Operations $ (7,498,138) $ (4,780,600) $ 482,869 $ (11,795,870)
========================================================================
</TABLE>
(a) Reflects adjustment to the acquiring fund contractual fee level.
(b) Reflects expected savings when the two funds become one.
(c) Reflects adjustment to the acquiring fund's voluntary expense limitation.
See Notes to Pro Forma Financial Statements
<PAGE>
Galaxy High Quality Bond Fund
Boston 1784 Income Fund
Notes to Pro Forma Combining Financial Statements (unaudited)
1. Basis of Combination
The Galaxy Fund, a Massachusetts business trust (the "Trust"), is registered
under the Investment Company Act of 1940, as amended, (the "1940 Act") as an
open-end management investment company. As of October 31, 1999, the Trust
offered twenty-nine managed investment portfolios. The unaudited Pro Forma
Combining Portfolio of Investments and the unaudited Pro Forma Statement of
Assets and Liabilities assumes the exchange described in the next paragraph
occurred as of October 31, 1999 and the unaudited Pro Forma Combining Statement
of Operations assumes the exchange occurred as of November 1, 1998. These
statements have been derived from books and records utilized in calculating the
net asset value of each fund at October 31, 1999 and for the twelve-month period
then ended.
The pro forma statements give effect to the proposed transfer of substantially
all of the assets and stated liabilities of the Boston 1784 Income Fund in
exchange for Trust and BKB shares of Galaxy High Quality Bond Fund. Under
generally accepted accounting principles, the historical cost of investment
securities will be carried forward to the surviving entity and the results of
operations of the Boston 1784 Income Fund for pre-combination periods will not
be restated. The pro forma statements do not reflect the expenses of either fund
in carrying out its obligations under the proposed Agreement and Plan of
Reorganization.
The unaudited Pro Forma Combining Financial Statements should be read in
conjunction with the historical financial statements of the funds incorporated
by reference in the Statement of Additional Information.
For the twelve-month period ended October 31, 1999, the Galaxy High Quality Bond
Fund's investment advisory fee was computed based on the annual rate of 0.75% of
its average daily net assets. The administration fee was computed based on the
annual rate of 0.09% of the first $2.5 billion of the Trust's combined average
daily net assets, 0.085% of the next $2.5 billion, 0.075% of the next $7
billion, 0.065% of the next $3 billion, 0.06% of the next $3 billion, and
0.0575% of the combined average daily net assets in excess of $18 billion, and
was allocated to each fund based on the relative net assets of the Trust.
The Trust has adopted a shareholder services plan (the "Services Plan") with
respect to Retail A, BKB and Trust Shares of the funds to compensate certain
institutions providing administrative and support services to their customers
who own such shares. Currently, the Services Plan has not been implemented for
the Trust shares. Under the Services Plan, aggregate payments may not exceed
0.30% of the average daily net assets of Retail A or BKB shareholders who are
customers of such institutions. Currently, the Trust, under the direction of the
Board of Trustees, is limiting such payments to 0.15% of the average daily net
asset of Retail A or BKB shareholders who are customers of such institutions.
The Trust has adopted a distribution and services plan (the "12b-1 Plan") with
respect to Retail B shares of the fund. Payments to the Distributor or others
for distribution services (those primarily intended to result in the sale of
Retail B shares) may not exceed 0.65% of the average daily net assets of Retail
B shares. Payments to institutions providing services to their customers owning
Retail B shares for shareholder liaison and administrative support services may
not exceed 0.15% and 0.15%, respectively, of the average daily net assets
attributable to shareholders who are customers of such institutions. The Trust
is currently limiting payments for shareholder liaison and administrative
support to 0.15% of the average daily net assets attributable to shareholders
that are customers of such institutions.
The Trust has adopted a distribution plan (the "Prime A Plan") with respect to
Prime A shares of the fund. Payments to the Distributor or others for
distribution services (those primarily intended to result in the sale of Prime A
shares) may not exceed 0.30% of the average daily net assets of Prime A shares.
The Trust is currently limiting payments under the Prime A Plan to 0.25% of the
average daily net assets of Prime A shares.
<PAGE>
Galaxy High Quality Bond Fund
Boston 1784 Income Fund
Notes to Pro Forma Combining Financial Statements (unaudited) (continued)
The Trust has adopted a distribution and services plan (the "Prime B Plan") with
respect to Prime B shares of the fund. Payments to the Distributor or others for
distribution services (those primarily intended to result in the sale of Prime B
shares) may not exceed 0.75% of the average daily net assets of Prime B shares.
Payments to institutions providing services to their customers owning Prime B
shares for shareholder liaison and administrative support services may not
exceed 0.25% and 0.25%, respectively, of the average daily net assets
attributable to shareholders who are customers of such institutions. The Trust
is currently limiting payments for shareholder liaison and administrative
support to 0.25% of the average daily net assets attributable to shareholders
that are customers of such institutions.
2. Portfolio Valuation
The Galaxy High Quality Bond Fund's investment securities are valued by an
independent pricing service approved by the Trust's Board of Trustees. When, in
the judgement of the service, quoted bid prices are readily available and are
representative of the bid side of the market, investments are valued at the mean
between quoted bid and asked prices. Other investments are carried at fair value
as determined by the service based on methods which include consideration of
yields or prices of bonds of comparable quality, coupon maturity and type;
indications as to values from dealers and general market conditions. Short-term
obligations that mature in 60 days or less are valued at amortized cost, which
approximated fair value. All other securities and other assets are appraised at
their fair value as determined in good faith under consistently applied
procedures established by and under the general supervision of the Board of
Trustees. Boston 1784 Income Fund uses similar rules for determining portfolio
valuation.
3. Capital Shares
The pro forma net asset value per share assumes the issuance of additional
shares of the Galaxy High Quality Bond Fund that would have been issued at
October 31, 1999 in connection with the proposed reorganization. The pro forma
number of shares outstanding of 60,599,985 consists of 32,536,768 shares assumed
issued in the reorganization plus 28,063,217 shares of the Galaxy High Quality
Bond Fund at October 31, 1999.
<PAGE>
GALAXY INTERMEDIATE GOVERNMENT INCOME FUND
BOSTON 1784 U.S. GOVERNMENT MEDIUM-TERM INCOME FUND
PRO FORMA COMBINING PORTFOLIO OF INVESTMENTS (unaudited)
OCTOBER 31, 1999
<TABLE>
<CAPTION>
PAR VALUE DESCRIPTION VALUE (NOTE 2)
- -----------------------------------------------------------------------------------------------------------------------------------
GALAXY BOSTON 1784 GALAXY BOSTON 1784
INTERMEDIATE U.S. GOV'T INTERMEDIATE U.S. GOV'T
GOV'T INCOME MEDIUM-TERM PRO FORMA GOV'T INCOME MEDIUM-TERM PRO FORMA
FUND INCOME FUND COMBINED FUND INCOME FUND COMBINED
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 62.27%
U.S. TREASURY NOTES - 15.57%
$ - $8,400,000 $ 8,400,000 6.38%, 05/15/00 $ - $ 8,442,588 $ 8,442,588
2,500,000 - 2,500,000 6.38%, 03/31/01 2,520,725 - 2,520,725
- 2,000,000 2,000,000 8.00%, 05/15/01 - 2,064,660 2,064,660
- 463,000 463,000 6.63%, 07/31/01 - 469,125 469,125
- 1,000,000 1,000,000 5.63%, 09/30/01 - 996,280 996,280
- 5,500,000 5,500,000 6.25%, 10/31/01 - 5,543,945 5,543,945
- 1,600,000 1,600,000 7.50%, 11/15/01 - 1,650,272 1,650,272
- 2,000,000 2,000,000 6.25%, 01/31/02 - 2,015,960 2,015,960
2,540,000 - 2,540,000 6.50%, 05/31/02 2,578,227 - 2,578,227
- 1,000,000 1,000,000 6.00%, 07/31/02 - 1,003,140 1,003,140
15,000,000 15,000,000 5.50%, 02/28/03 - 14,801,850 14,801,850
19,420,000 19,420,000 5.50%, 05/31/03 - 19,122,486 19,122,486
- 2,000,000 2,000,000 5.25%, 08/15/03 - 1,950,960 1,950,960
- 2,000,000 2,000,000 5.88%, 11/15/05 - 1,978,200 1,978,200
7,720,000 7,800,000 15,520,000 7.00%, 07/15/06 8,062,150 8,140,782 16,202,932
3,000,000 - 3,000,000 6.50%, 10/15/06 3,053,460 - 3,053,460
- 770,000 770,000 6.25%, 02/15/07 - 772,995 772,995
- 500,000 500,000 6.63%, 05/15/07 - 512,610 512,610
- 2,000,000 2,000,000 6.13%, 08/15/07 - 1,990,560 1,990,560
-----------------------------------------------
16,214,562 71,456,413 87,670,975
-----------------------------------------------
U.S. GOVERNMENT-BACKED BONDS - 11.32%
4,830,000 - 4,830,000 A.I.D. State of Israel
Series 2-D
5.63%, 09/15/03 4,703,116 - 4,703,116
6,450,000 - 6,450,000 A.I.D. State of Israel
Series 8-B
6.05%, 08/15/00 6,450,258 - 6,450,258
5,000,000 - 5,000,000 A.I.D. State of Israel
Series 8-B
6.38%, 08/15/01 5,014,750 - 5,014,750
5,000,000 - 5,000,000 A.I.D. State of Israel
Series 8-C
6.63%, 08/15/03 5,038,300 - 5,038,300
- 11,340,000 11,340,000 Global Industries Ltd.
7.25%, 07/15/22 - 11,518,945 11,518,945
- 5,000,000 5,000,000 Private Export Funding Corp.
6.31%, 09/30/04 - 4,900,000 4,900,000
- 3,800,000 3,800,000 Private Export Funding Corp.
7.11%, 04/15/07 - 3,892,078 3,892,078
6,200,000 - 6,200,000 Private Export Funding Corp.
Series B
6.49%, 07/15/07 6,099,250 - 6,099,250
- 1,740,000 1,740,000 Private Export Funding Corp.
Series WW
6.62%, 10/01/05 - 1,726,950 1,726,950
- 2,500,000 2,500,000 Private Export Funding Corp.
Series XX
5.50%, 03/15/01 - 2,478,125 2,478,125
- 3,762,729 3,762,729 Secunda Atlantic
Title XI
6.70%, 04/01/18 - 3,596,567 3,596,567
5,432,567 - 5,432,567 Small Business Administration
Participation Certificates
Series SBIC-PS 1955-10B
7.25%, 05/10/05 5,351,079 - 5,351,079
- 1,347,133 1,347,133 Sulphur Carriers Inc.
Title XI, Series 2009
8.30%, 10/15/09 - 1,421,670 1,421,670
<PAGE>
- 4,000,000 4,000,000 Tennessee Valley Authority
Principal Strips
0.00%, 04/15/42, (A) - 1,551,880 1,551,880
--------------------------------------------
32,656,753 31,086,215 63,742,968
--------------------------------------------
U.S. TREASURY BONDS - 11.09%
500,000 - 500,000 11.13%, 08/15/03 583,745 - 583,745
1,200,000 - 1,200,000 11.88%, 11/15/03 1,442,772 - 1,442,772
2,350,000 - 2,350,000 12.00%, 08/15/13 3,221,709 - 3,221,709
- 700,000 700,000 11.25%, 02/15/15 - 1,021,195 1,021,195
1,050,000 - 1,050,000 7.50%, 11/15/16 1,158,318 - 1,158,318
6,735,000 - 6,735,000 8.88%, 08/15/17 8,397,669 - 8,397,669
3,000,000 - 3,000,000 8.50%, 02/15/20 3,666,540 - 3,666,540
3,000,000 - 3,000,000 8.75%, 05/15/20 3,755,160 - 3,755,160
1,500,000 - 1,500,000 8.75%, 08/15/20 1,879,605 - 1,879,605
3,500,000 - 3,500,000 7.88%, 02/15/21 4,045,685 - 4,045,685
6,750,000 - 6,750,000 8.13%, 08/15/21 8,008,740 - 8,008,740
4,000,000 - 4,000,000 6.88%, 08/15/25 4,222,160 - 4,222,160
- 6,100,000 6,100,000 6.00%, 02/15/26 - 5,779,567 5,779,567
1,500,000 - 1,500,000 6.38%, 08/15/27 1,493,040 - 1,493,040
800,000 - 800,000 6.13%, 11/15/27 772,480 - 772,480
2,000,000 - 2,000,000 5.50%, 08/15/28 1,776,340 - 1,776,340
3,000,000 2,800,000 5,800,000 5.25%, 11/15/28 2,578,920 2,405,228 4,984,148
1,000,000 3,000,000 4,000,000 5.25%, 02/15/29 866,280 2,596,950 3,463,230
2,750,000 - 2,750,000 6.13%, 08/15/29 2,740,348 - 2,740,348
--------------------------------------------
50,609,511 11,802,940 62,412,451
--------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 8.22%
4,500,000 - 4,500,000 5.72%, 01/09/01, MTN 4,483,305 - 4,483,305
- 4,000,000 4,000,000 0.00%, 08/15/01, MTN, (A) - 3,597,956 3,597,956
- 12,400,000 12,400,000 5.75%, 04/15/03 - 12,179,404 12,179,404
- 805,000 805,000 5.13%, 02/13/04 - 766,119 766,119
- 1,000,000 1,000,000 6.58%, 03/01/06 - 961,420 961,420
- 5,250,000 5,250,000 6.00%, 05/15/08 - 5,017,005 5,017,005
565,000 10,000,000 10,565,000 6.38%, 06/15/09 551,683 9,764,300 10,315,983
2,050,000 - 2,050,000 6.16%, 08/07/28 1,854,041 - 1,854,041
7,000,000 - 7,000,000 8.00%, 09/01/29 7,131,250 - 7,131,250
--------------------------------------------
14,020,279 32,286,204 46,306,483
--------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORPORATION - 5.08%
5,500,000 - 5,500,000 5.20%, 11/15/99, (D) 5,488,878 - 5,488,878
- 3,500,000 3,500,000 5.75%, 07/15/03 - 3,428,950 3,428,950
- 200,113 200,113 7.00%, 07/15/03 - 200,445 200,445
5,000,000 - 5,000,000 6.25%, 07/15/04 4,962,500 - 4,962,500
- 1,000,000 1,000,000 8.53%, 02/02/05 - 1,005,830 1,005,830
- 1,000,000 1,000,000 7.34%, 11/03/06 - 1,000,140 1,000,140
5,000,000 - 5,000,000 5.13%, 10/15/08 4,478,950 - 4,478,950
360,000 - 360,000 6.63%, 09/15/09 358,200 - 358,200
- 1,098,306 1,098,306 7.00%, 12/01/10, REMIC - 1,097,615 1,097,615
1,080,000 1,080,000 Series 1663, Class AD, REMIC
6.75%. 02/15/20 - 1,047,435 1,047,435
5,500,000 - 5,500,000 7.50%, 06/01/28 5,520,625 - 5,520,625
--------------------------------------------
20,809,153 7,780,415 28,589,568
--------------------------------------------
FEDERAL HOME LOAN BANK - 3.59%
- 5,000,000 5,000,000 5.50%, 04/14/00 - 4,995,000 4,995,000
- 7,000,000 7,000,000 5.69%, 04/16/01, FRN - 6,978,930 6,978,930
- 5,000,000 5,000,000 5.25%, 04/25/02 - 4,886,550 4,886,550
- 3,000,000 3,000,000 6.58%, 01/07/03 - 3,002,970 3,002,970
- 350,000 350,000 7.66%, 07/20/04 - 366,349 366,349
--------------------------------------------
- 20,229,799 20,229,799
--------------------------------------------
FEDERAL FARM CREDIT BANK - 3.09%
7,100,000 - 7,100,000 5.13%, 11/15/99, (D) 7,085,836 - 7,085,836
- 10,000,000 10,000,000 5.63%, 05/17/01, FRN - 9,957,500 9,957,500
- 350,000 350,000 7.35%, 03/24/05, MTN - 363,314 363,314
--------------------------------------------
7,085,836 10,320,814 17,406,650
--------------------------------------------
<PAGE>
AGENCY OF HOUSING AND URBAN DEVELOPMENT - 2.05%
- 2,000,000 2,000,000 Series 1995-A
8.24%, 08/01/02 - 2,083,000 2,083,000
- 4,000,000 4,000,000 Series 1997-A
6.21%, 08/01/01 - 4,004,176 4,004,176
- 5,500,000 5,500,000 Series 1997-A
6.36%, 08/01/04 - 5,464,223 5,464,223
--------------------------------------------
- 11,551,399 11,551,399
--------------------------------------------
STUDENT LOAN MARKETING ASSOCIATION - 1.51%
- 6,000,000 6,000,000 5.63%, 05/18/01, FRN - 5,974,500 5,974,500
- 2,529,602 2,529,602 5.69%, 10/25/05, FRN - 2,513,792 2,513,792
--------------------------------------------
- 8,488,292 8,488,292
--------------------------------------------
U.S. TREASURY STRIPS (A) - 0.75%
- 1,000,000 1,000,000 0.00%, 08/15/10 - 500,490 500,490
5,000,000 - 5,000,000 1.78%, 11/15/17
interest only, (B) 1,541,750 - 1,541,750
- 3,000,000 3,000,000 0.00%, 02/15/19 - 854,190 854,190
- 5,000,000 5,000,000 0.00%, 05/15/20 - 1,317,600 1,317,600
--------------------------------------------
1,541,750 2,672,280 4,214,030
--------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS 142,937,844 207,674,771 350,612,615
--------------------------------------------
MORTGAGE-BACKED SECURITIES - 23.27%
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 11.80%
- 41,308 41,308 8.50%, 10/15/04, Pool # 4216 - 42,961 42,961
- 51,508 51,508 8.50%, 01/15/06, Pool # 7946 - 53,567 53,567
5,495,246 - 5,495,246 6.50%, 07/15/09, Pool # 780357 5,423,094 - 5,423,094
21,304 - 21,304 6.50%, 06/15/13, Pool # 462795 20,925 - 20,925
414,344 - 414,344 6.50%, 07/15/13, Pool # 468077 406,960 - 406,960
959,475 - 959,475 6.50%, 09/15/13, Pool # 464192 942,377 - 942,377
351,748 - 351,748 6.50%, 09/15/13, Pool # 476619 345,480 - 345,480
457,093 - 457,093 6.50%, 09/15/13, Pool # 487907 448,947 - 448,947
472,617 - 472,617 7.00%, 09/15/13, Pool # 484233 474,238 - 474,238
94,473 - 94,473 6.50%, 10/15/13, Pool # 464249 92,789 - 92,789
1,873,752 - 1,873,752 6.50%, 10/15/13, Pool # 477500 1,840,362 - 1,840,362
482,995 - 482,995 6.50%, 10/15/13, Pool # 481575 474,388 - 474,388
486,459 - 486,459 6.50%, 11/15/13, Pool # 475712 477,639 - 477,639
475,436 - 475,436 6.50%, 11/15/13, Pool # 492010 466,816 - 466,816
85,632 - 85,632 5.50%, 12/15/13, Pool # 495780 80,869 - 80,869
408,100 - 408,100 5.50%, 01/15/14, Pool # 464491 385,397 - 385,397
484,005 - 484,005 5.50%, 02/15/14, Pool # 464568 457,079 - 457,079
483,020 - 483,020 5.50%, 03/15/14, Pool # 487579 456,149 - 456,149
359,336 - 359,336 5.50%, 03/15/14, Pool # 501523 339,346 - 339,346
66,431 - 66,431 5.50%, 04/15/14, Pool # 496599 62,736 - 62,736
533,479 - 533,479 5.50%, 04/15/14, Pool # 505596 503,801 - 503,801
467,912 - 467,912 5.50%, 04/15/14, Pool # 506448 441,882 - 441,882
630,496 - 630,496 5.50%, 05/15/14, Pool # 480524 595,421 - 595,421
492,037 - 492,037 5.50%, 05/15/14, Pool # 505667 464,665 - 464,665
582,528 - 582,528 5.50%, 06/15/14, Pool # 434398 550,122 - 550,122
450,431 - 450,431 5.50%, 06/15/14, Pool # 507142 425,373 - 425,373
- 722,957 722,957 9.00%, 11/15/17, Pool # 780171 - 768,590 768,590
734,432 - 734,432 6.63%, 07/20/21, Pool # 008809 740,858 - 740,858
2,604,637 - 2,604,637 6.38%, 04/20/22, Pool # 008956 2,630,266 - 2,630,266
- 665,452 665,452 7.00%, 10/15/23, Pool # 360196 - 652,556 652,556
- 1,321,273 1,321,273 7.50%, 02/15/27, Pool # 443052 - 1,324,576 1,324,576
1,468,557 - 1,468,557 6.50%, 12/15/28, Pool # 495775 1,403,382 - 1,403,382
3,976,386 - 3,976,386 7.00%, 12/15/28, Pool # 483886 3,900,557 - 3,900,557
321,134 - 321,134 7.00%, 01/15/29, Pool # 499333 315,011 - 315,011
3,318,610 - 3,318,610 7.00%, 02/15/29, Pool # 486937 3,255,324 - 3,255,324
3,373,092 - 3,373,092 6.00%, 03/15/29, Pool # 464632 3,130,634 - 3,130,634
- 19,544,718 19,544,718 6.50%, 03/15/29, Pool # 498475 - 18,671,264 18,671,264
3,432,582 - 3,432,582 6.00%, 04/15/29, Pool # 499445 3,185,848 - 3,185,848
994,653 - 994,653 6.50%, 04/15/29, Pool # 506494 950,511 - 950,511
5,995,679 - 5,995,679 7.50%, 09/15/29, Pool # 508805 6,010,668 - 6,010,668
3,197,398 - 3,197,398 7.50%, 09/15/29, Pool # 508811 3,205,392 - 3,205,392
--------------------------------------------
44,905,306 21,513,514 66,418,820
--------------------------------------------
<PAGE>
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 5.70%
- 175,970 8.00%, 07/01/07, Pool # 125136 180,313 180,313
2,156,109 - 2,156,109 5.00%, 05/01/09, Pool # 326584 2,023,125 - 2,023,125
1,789 - 1,789 8.00%, 12/01/09, Pool # 313180 1,828 - 1,828
1,459,918 - 1,459,918 6.00%, 04/01/11, Pool # 398072 1,416,120 - 1,416,120
- 1,465,066 1,465,066 6.50%, 05/01/11, Pool #250554 - 1,436,219 1,436,219
- 5,765,548 5,765,548 6.00%, 04/01/13, Pool # 251656 - 5,540,287 5,540,287
- 4,292,282 4,292,282 6.00%, 04/01/13, Pool # 418044 - 4,124,582 4,124,582
- 132,948 132,948 6.00%, 06/01/13, Pool # 421167 - 127,754 127,754
536,742 - 536,742 6.00%, 06/01/14, Pool # 484967 516,276 - 516,276
3,315,163 - 3,315,163 6.00%, 06/01/14, Pool # 495200 3,188,756 - 3,188,756
700,238 - 700,238 6.00%, 06/01/14, Pool # 500131 673,538 - 673,538
- 4,776,299 4,776,299 7.79%, 02/01/19, Pool # 160103 - 5,206,166 5,206,166
- 1,420,798 1,420,798 10.00%, 10/01/20, Pool # 190942 - 1,531,790 1,531,790
- 1,782,476 1,782,476 10.00%, 12/01/20, Pool # 303416 - 1,921,723 1,921,723
2,183,829 - 2,183,829 6.75%, 04/25/21, Pool # 0096-4 2,185,860 - 2,185,860
1,000,000 - 1,000,000 8.00%, 09/01/29, Pool # 515880 1,018,750 - 1,018,750
1,000,100 - 1,000,100 8.00%, 09/01/29, Pool # 518157 1,018,852 - 1,018,852
--------------------------------------------
12,043,105 20,068,834 32,111,939
--------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORPORATION - 4.63%
- 54,874 54,874 7.00%, 10/01/03, Pool # N97059 - 54,874 54,874
5,000,000 - 5,000,000 6.70%, 07/15/06, Pool # 1233-G 4,998,400 - 4,998,400
6,770,733 - 6,770,733 5.00%, 12/01/13, Pool # E73815 6,255,616 - 6,255,616
5,000,000 - 5,000,000 6.00%, 04/15/22, Pool # 2118QC 4,751,550 - 4,751,550
4,348,579 - 4,348,579 6.50%, 10/15/23, Pool # 001990 4,309,137 - 4,309,137
5,508,000 - 5,508,000 8.50%, 10/01/29, Pool # G01072 5,705,902 - 5,705,902
--------------------------------------------
26,020,605 54,874 26,075,479
--------------------------------------------
STRUCTURED MORTGAGE PRODUCT - 1.14%
- 1,482,100 1,482,100 FDIC REMIC Trust
Series 1996, Class 1-A, CMO
6.75%, 05/25/26 - 1,469,472 1,469,472
1,828,124 - 1,828,124 Prudential Home Mortgage Securities
Series 1996-7, Class A-1, CMO
6.75%, 06/25/11 1,823,554 - 1,823,554
3,110,809 - 3,110,809 Rural Housing Trust
Series 1987-1, Class 1-D, CMO
6.33%, 04/01/26 3,049,079 - 3,049,079
- 52,558 52,558 Ryland Acceptance Corp. Four
Series 32, Class B, CMO
8.60%, 05/01/16 - 52,285 52,285
--------------------------------------------
4,872,633 1,521,757 6,394,390
--------------------------------------------
TOTAL MORTGAGE-BACKED SECURITIES 87,841,649 43,158,979 131,000,628
--------------------------------------------
CORPORATE NOTES AND BONDS - 7.89%
BANKING - 2.40%
7,500,000 - 7,500,000 Bank One Milwaukee
National Association, MTN
6.35%, 03/19/01 7,500,000 - 7,500,000
6,000,000 - 6,000,000 NationsBank Texas
National Association, MTN
6.35%, 03/15/01 5,992,500 - 5,992,500
--------------------------------------------
13,492,500 - 13,492,500
--------------------------------------------
UTILITIES - 1.66%
5,125,000 - 5,125,000 Baltimore Gas & Electric
6.50%, 02/15/03 5,080,156 - 5,080,156
1,975,000 - 1,975,000 Emerson Electric Co.
5.85%, 03/15/09 1,829,344 - 1,829,344
2,500,000 - 2,500,000 Potomac Electric Power Co.
First Mortgage
6.25%, 10/15/07 2,415,625 - 2,415,625
--------------------------------------------
9,325,125 - 9,325,125
--------------------------------------------
<PAGE>
CONSUMER CYCLICALS - 1.52%
5,000,000 - 5,000,000 Pepsi Bottling Holdings, Inc.
5.38%, 02/17/04 (C) 4,712,500 - 4,712,500
2,500,000 - 2,500,000 Stanford Jr. University
5.85%, 03/15/09 2,285,050 - 2,285,050
1,575,000 - 1,575,000 Wal-Mart Stores, Inc.
6.88%, 08/10/09 1,582,875 - 1,582,875
--------------------------------------------
8,580,425 - 8,580,425
--------------------------------------------
FINANCE - 1.34%
1,000,000 - 1,000,000 American Express
6.75%, 06/23/04 991,250 - 991,250
1,650,000 - 1,650,000 National Rural Utilities
5.50%, 01/15/05 1,536,563 - 1,536,563
5,000,000 - 5,000,000 Pitney Bowes Credit Corp.
Series C, MTN
6.78%, 07/16/01 5,043,750 - 5,043,750
--------------------------------------------
7,571,563 - 7,571,563
--------------------------------------------
AUTOMOBILE FINANCE - 0.97%
2,100,000 - 2,100,000 Ford Motor Credit Co.
6.25%, 11/08/00 2,098,131 - 2,098,131
910,000 - 910,000 Ford Motor Credit Co.
6.55%, 09/10/02 903,175 - 903,175
2,500,000 - 2,500,000 Ford Motor Credit Co.
6.70%, 07/16/04 2,475,000 - 2,475,000
--------------------------------------------
5,476,306 - 5,476,306
--------------------------------------------
TOTAL CORPORATE NOTES AND BONDS 44,445,919 - 44,445,919
--------------------------------------------
ASSET-BACKED SECURITIES - 4.20%
2,891,434 - 2,891,434 Chase Manhattan Auto Owner Trust
Series 1998-C, Class A3
5.80%, 01/15/02 2,884,205 - 2,884,205
6,000,000 - 6,000,000 Chemical Master Credit Card Trust I
Series 1996-1, Class A
5.55%, 09/15/03 5,938,080 - 5,938,080
6,000,000 - 6,000,000 Ford Credit Auto Owner Trust
Series 1999-D, Class A4
6.40%, 10/15/02 5,996,220 - 5,996,220
850,000 - 850,000 Green Tree Financial Corp.
Series 1998-1, Class A4
6.04%, 11/01/29 835,652 - 835,652
2,500,000 - 2,500,000 MBNA Master Credit Card Trust
Series 1998-J, Class A
5.25%, 02/15/06 2,376,550 - 2,376,550
360,000 - 360,000 Premier Auto Trust
Series 1999-2, Class A4
5.59%, 02/09/04 351,785 - 351,785
1,400,000 - 1,400,000 Premier Auto Trust
Series 1999-3, Class A4
6.43%, 03/08/04 1,401,470 - 1,401,470
4,000,000 - 4,000,000 Standard Credit Card Master Trust
Series 1993-2, Class A
5.95%, 10/07/04 3,888,720 - 3,888,720
--------------------------------------------
TOTAL ASSET-BACKED SECURITIES 23,672,682 - 23,672,682
--------------------------------------------
FOREIGN BONDS - 0.65%
4,000,000 - 4,000,000 Province of Quebec
5.75%, 02/15/09, (E) 3,640,000 - 3,640,000
--------------------------------------------
TOTAL FOREIGN BONDS 3,640,000 - 3,640,000
--------------------------------------------
<PAGE>
REPURCHASE AGREEMENTS - 1.68%
Repurchase Agreement with:
387,000 - 387,000 Chase Manhattan Bank
5.20%, 11/01/99, dated 10/29/99 387,000 - 387,000
- 9,097,504 9,097,504 Lehman Brothers
5.18%, 11/01/99, dated 10/29/99 - 9,097,504 9,097,504
--------------------------------------------
TOTAL REPURCHASE AGREEMENTS 387,000 9,097,504 9,484,504
--------------------------------------------
TOTAL INVESTMENTS - 99.96%
(Cost $309,092,373, $263,748,177, and $572,840,550) 302,925,094 259,931,254 562,856,348
============================================
NET OTHER ASSETS AND LIABILITIES - 0.04% (10,507,415) 10,729,605 222,190
============================================
NET ASSETS - 100.00% $292,417,679 $270,660,859 $563,078,538
============================================
</TABLE>
(A) Zero Coupon Security
(B) Stripped securities represent the splitting of cash flows into interest
and principal. Holders, as indicated, are entitled to that portion of
the payment representing interest only or principal only.
(C) Securities exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may only be resold, in transactions exempt
from registration, to qualified institutional buyers. At October 31,
1999, these securities amounted to $4,712,500 or 0.84% of net assets
(D) Discount yield at time of purchase
(E) U.S. Dollar Denominated
CMO - Collateralized Mortgage Obligation
FRN - Floating Rate Note. Interest rate shown reflects rate in effect at
October 31, 1999.
MTN - Medium Term Note
REMIC - Real Estate Mortgage Investment Conduit
See Notes to Pro Forma Financial Statements
<PAGE>
GALAXY INTERMEDIATE GOVERNMENT INCOME FUND
BOSTON 1784 US GOVERNMENT MEDIUM-TERM INCOME FUND
PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
OCTOBER 31, 1999
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
GALAXY BOSTON 1784 U.S.
INTERMEDIATE GOV'T MEDIUM- PRO FORMA
GOV'T INCOME TERM INCOME PRO FORMA COMBINED
FUND FUND ADJUSTMENTS (NOTE 1)
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investments
Investments at cost $ 308,705,373 $ 254,650,673 $ - $ 563,356,046
Repurchase agreements 387,000 9,097,504 - 9,484,504
Net unrealized (depreciation) (6,167,279) (3,816,923) - (9,984,202)
---------------------------------------------------------------------------------
Total Investments at Value 302,925,094 259,931,254 - 562,856,348
Cash 67,201 228,966 - 296,167
Receivable for investments sold 11,427,453 7,758,125 - 19,185,578
Receivable for shares sold 804,171 - - 804,171
Interest and dividends receivable 3,114,903 4,218,952 - 7,333,855
---------------------------------------------------------------------------------
Total Assets 318,338,822 272,137,297 - 590,476,119
LIABILITIES:
Dividends payable 1,432,135 1,186,721 - 2,618,856
Payable for investments purchased 23,848,199 - - 23,848,199
Payable for shares repurchased 392,997 21 - 393,018
Advisory fee payable 137,278 156,402 - 293,680
Payable to Fleet affiliates 12,733 - - 12,733
Administration fee payable 44,438 14,962 - 59,400
Trustees' fees and expenses payable 9,749 517 - 10,266
Accrued expenses and other payables 43,614 117,815 - 161,429
---------------------------------------------------------------------------------
Total Liabilities 25,921,143 1,476,438 - 27,397,581
NET ASSETS $ 292,417,679 $ 270,660,859 $ - $ 563,078,538
=================================================================================
NET ASSETS CONSISTS OF:
Paid-in capital $ 325,568,322 $ 281,491,027 $ - $ 607,059,349
Undistributed net investment income 418,658 74,349 - 493,007
Accumulated net realized (loss)
on investments sold (27,402,022) (7,087,594) - (34,489,616)
Net unrealized (depreciation) of
investments (6,167,279) (3,816,923) - (9,984,202)
---------------------------------------------------------------------------------
TOTAL NET ASSETS $ 292,417,679 $ 270,660,859 $ - $ 563,078,538
=================================================================================
Net Assets by Class:
Retail A Shares $ 56,453,630 N/A $ - $ 56,453,630
=================================================================================
Retail B Shares 1,084,478 N/A - 1,084,478
=================================================================================
Trust Shares / Shares 234,879,571 270,660,859 (15,968,991) 489,571,439
=================================================================================
BKB Shares N/A N/A 15,968,991 15,968,991
=================================================================================
Shares of beneficial interest outstanding:
Retail A Shares 5,728,355 N/A - 5,728,355
=================================================================================
Retail B Shares 110,102 N/A - 110,102
=================================================================================
Trust Shares / Shares 23,833,798 29,079,361 (3,222,319) 49,690,840
=================================================================================
BKB Shares N/A N/A 1,621,217 1,621,217
=================================================================================
Net Asset Value - Retail A Shares $ 9.86 N/A $ 9.86
=================================================================================
Net Asset Value - Retail B Shares $ 9.85 N/A $ $ 9.85
=================================================================================
Net Asset Value - Trust Shares / Shares $ 9.85 $ 9.31 $ $ 9.85
=================================================================================
Net Asset Value - BKB Shares N/A N/A $ $ 9.85
=================================================================================
</TABLE>
See Notes to Pro Forma Financial Statements
<PAGE>
GALAXY INTERMEDIATE GOVERNMENT INCOME FUND
BOSTON 1784 US GOVERNMENT MEDIUM-TERM INCOME FUND
PRO FORMA COMBINING STATEMENT OF OPERATIONS (UNAUDITED)
OCTOBER 31, 1999
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
GALAXY BOSTON 1784
INTERMEDIATE U.S.GOV'T PRO FORMA
GOV'T INCOME MEDIUM-TERM PRO FORMA COMBINED
FUND INCOME FUND ADJUSTMENTS (NOTE 1)
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income:
Interest Income $ 19,014,124 $ 16,745,073 $ - $ 35,759,197
----------------------------------------------------------------------------
Total Investment Income 19,014,124 16,745,073 - 35,759,197
----------------------------------------------------------------------------
Expenses:
Investment Advisory Fees 2,282,992 2,042,413 27,044 (a) 4,352,449
Administrative Fees 229,022 181,888 (11,833) (a) 399,077
Custodian Fee 32,652 15,511 (10,000) (b) 38,163
Fund Accounting Fee 71,627 2,748 33,603 (a) 107,978
Professional Fees 25,060 22,994 (18,927) (b) 29,127
Trustee Fees 7,562 7,566 (5,650) (b) 9,478
Reports to Shareholders 31,528 19,135 (15,000) (b) 35,663
Miscellaneous Expenses 42,370 24,439 - 66,809
----------------------------------------------------------------------------
Subtotal 2,722,813 2,316,694 (763) 5,038,744
Transfer Agent Fee
Retail A Shares 84,722 - - 84,722
Retail B Shares 2,690 - - 2,690
Trust Shares / Shares 49,447 67,121 (68,144) (a) 48,424
BKB Shares - - 10,660 (a) 10,660
Shareholder Services Fee & 12b-1 Fee
Retail A Shares 87,475 - - 87,475
Retail B Shares 4,739 - - 4,739
Trust Shares / Shares - 690,000 (690,000) (a) -
BKB Shares - - 24,426 (a) 24,426
----------------------------------------------------------------------------
Total Expenses before
reimbursement/waiver 2,951,886 3,073,815 (723,821) 5,301,880
Less Waiver/Reimbursements
Fund Level Waivers (608,798) (175,772) (376,083) (c) (1,160,653)
Class Specific Waivers/Reimbursements
Retail A Shares - - - -
Retail B Shares (1,761) - - (1,761)
Trust Shares / Shares - (690,000) 690,000 (c) -
BKB Shares - - (13,027) (c) (13,027)
----------------------------------------------------------------------------
Total Waivers/Reimbursements (610,559) (865,772) 300,890 (1,175,441)
Net Expenses 2,341,327 2,208,043 (422,931) 4,126,439
----------------------------------------------------------------------------
Net Investment Income 16,672,797 14,537,030 422,931 31,632,758
----------------------------------------------------------------------------
Net Realized (Loss) on Investments (3,699,849) (524,660) - (4,224,509)
Net Change in Unrealized (Depreciation)
of Investments (15,849,529) (16,055,599) - (31,905,128)
----------------------------------------------------------------------------
Net Realized and Unrealized (Loss) on Investments (19,549,378) (16,580,259) - (36,129,637)
----------------------------------------------------------------------------
Net (Decrease) in Net Assets Resulting from
Operations $ (2,876,581) $ (2,043,229) $ 422,931 $ (4,496,879)
============================================================================
</TABLE>
(a) Reflects adjustment to the acquiring fund contractual fee level.
(b) Reflects expected savings when the two funds become one.
(c) Reflects adjustment to the acquiring fund's voluntary expense
limitation.
See Notes to Pro Forma Financial Statements
<PAGE>
Galaxy Intermediate Government Income Fund
Boston 1784 U.S. Government Medium-Term Income Fund
Notes to Pro Forma Combining Financial Statements (unaudited)
1. Basis of Combination
The Galaxy Fund, a Massachusetts business trust (the "Trust"), is registered
under the Investment Company Act of 1940, as amended, (the "1940 Act") as an
open-end management investment company. As of October 31, 1999, the Trust
offered twenty-nine managed investment portfolios. The unaudited Pro Forma
Combining Portfolio of Investments and the unaudited Pro Forma Statement of
Assets and Liabilities assumes the exchange described in the next paragraph
occurred as of October 31, 1999 and the unaudited Pro Forma Combining Statement
of Operations assumes the exchange occurred as of November 1, 1998. These
statements have been derived from books and records utilized in calculating the
net asset value of each fund at October 31, 1999 and for the twelve-month period
then ended.
The pro forma statements give effect to the proposed transfer of substantially
all of the assets and stated liabilities of the Boston 1784 U.S. Government
Medium-Term Income Fund in exchange for Trust and BKB shares of Galaxy
Intermediate Government Income Fund. Under generally accepted accounting
principles, the historical cost of investment securities will be carried forward
to the surviving entity and the results of operations of the Boston 1784 U.S.
Government Medium-Term Income Fund for pre-combination periods will not be
restated. The pro forma statements do not reflect the expenses of either fund in
carrying out its obligations under the proposed Agreement and Plan of
Reorganization.
The unaudited Pro Forma Combining Financial Statements should be read in
conjunction with the historical financial statements of the funds incorporated
by reference in the Statement of Additional Information.
For the twelve-month period ended October 31, 1999, the Galaxy Intermediate
Government Income Fund's investment advisory fee was computed based on the
annual rate of 0.75% of its average daily net assets. The administration fee was
computed based on the annual rate of 0.09% of the first $2.5 billion of the
Trust's combined average daily net assets, 0.085% of the next $2.5 billion,
0.075% of the next $7 billion, 0.065% of the next $3 billion, 0.06% of the next
$3 billion, and 0.0575% of the combined average daily net assets in excess of
$18 billion, and was allocated to each fund based on the relative net assets of
the Trust.
The Trust has adopted a shareholder services plan (the "Services Plan") with
respect to Retail A, BKB and Trust Shares of the funds to compensate certain
institutions providing administrative and support services to their customers
who own such shares. Currently, the Services Plan has not been implemented for
the Trust shares. Under the Services Plan, aggregate payments may not exceed
0.30% of the average daily net assets of Retail A or BKB shareholders who are
customers of such institutions. Currently, the Trust, under the direction of the
Board of Trustees, is limiting such payments to 0.15% of the average daily net
assets of Retail A or BKB shareholders who are customers of such institutions.
The Trust has adopted a distribution and services plan (the "12b-1 Plan") with
respect to Retail B shares of the fund. Payments to the Distributor or others
for distribution services (those primarily intended to result in the sale of
Retail B shares) may not exceed 0.65% of the average daily net assets of Retail
B shares. Payments to institutions providing services to their customers owning
Retail B shares for shareholder liaison and administrative support services may
not exceed 0.15% and 0.15%, respectively, of the average daily net assets
attributable to shareholders who are customers of such institutions. The Trust
is currently limiting payments for shareholder liaison and administrative
support to 0.15% of the average daily net assets attributable to shareholders
that are customers of such institutions.
<PAGE>
Galaxy Intermediate Government Income Fund
Boston 1784 U.S. Government Medium-Term Income Fund
Notes to Pro Forma Combining Financial Statements (unaudited) (continued)
2. Portfolio Valuation
The Galaxy Intermediate Government Income Fund's investment securities are
valued by an independent pricing service approved by the Trust's Board of
Trustees. When, in the judgement of the service, quoted bid prices are readily
available and are representative of the bid side of the market, investments are
valued at the mean between quoted bid and asked prices. Other investments are
carried at fair value as determined by the service based on methods which
include consideration of yields or prices of bonds of comparable quality, coupon
maturity and type; indications as to values from dealers and general market
conditions. Short-term obligations that mature in 60 days or less are valued at
amortized cost, which approximated fair value. All other securities and other
assets are appraised at their fair value as determined in good faith under
consistently applied procedures established by and under the general supervision
of the Board of Trustees. Boston 1784 U.S. Government Medium-Term Income Fund
uses similar rules for determining portfolio valuation.
3. Capital Shares
The pro forma net asset value per share assumes the issuance of additional
shares of the Galaxy Intermediate Government Income Fund that would have been
issued at October 31, 1999 in connection with the proposed reorganization. The
pro forma number of shares outstanding of 57,150,514 consists of 27,478,259
shares assumed issued in the reorganization plus 29,672,255 shares of the Galaxy
Intermediate Government Income Fund at October 31, 1999.
<PAGE>
GALAXY RHODE ISLAND MUNICIPAL BOND FUND
BOSTON 1784 RHODE ISLAND TAX-EXEMPT INCOME FUND
PRO FORMA COMBINING PORTFOLIO OF INVESTMENTS (UNAUDITED)
OCTOBER 31, 1999
<TABLE>
<CAPTION>
PAR VALUE DESCRIPTION VALUE (NOTE 2)
- ------------------------------------------------------------------------------------------------------------------------------------
GALAXY RHODE BOSTON 1784 GALAXY RHODE BOSTON 1784
ISLAND RHODE ISLAND ISLAND RHODE ISLAND
MUNICIPAL TAX EXEMPT PRO FORMA MUNICIPAL TAX EXEMPT PRO FORMA
BOND FUND INCOME FUND COMBINED BOND FUND INCOME FUND COMBINED
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MUNICIPAL SECURITIES - 95.89%
GUAM - 0.85%
$ - $ 1,000,000 $ 1,000,000 Guam Power Authority
Revenue, Series A
5.25%, 10/01/11 $ - $ 993,750 $ 993,750
-------------------------------------------
PUERTO RICO - 12.86%
250,000 - 250,000 Puerto Rico Commonwealth, GO
6.00%, 07/01/16
Insured: MBIA 260,000 - 260,000
- 1,000,000 1,000,000 Puerto Rico Commonwealth, GO
5.75%, 07/01/17
Insured: FSA - 1,002,500 1,002,500
- 3,500,000 3,500,000 Puerto Rico Commonwealth, GO
Capital Appreciation, Public Improvement
4.85%, 07/01/14 (B) - 1,505,000 1,505,000
500,000 - 500,000 Puerto Rico Commonwealth, GO
Public Improvement
5.50%, 07/01/12 505,000 - 505,000
500,000 - 500,000 Puerto Rico Commonwealth
Special Tax Revenue, Series A
Infrastructure Finance Authority
5.00%, 07/01/16
Insured: AMBAC 461,250 - 461,250
500,000 - 500,000 Puerto Rico Electric Power Authority
Revenue, Series EE
5.25%, 07/01/15
Insured: MBIA 480,625 - 480,625
- 3,000,000 3,000,000 Puerto Rico Electric Power Authority
Revenue, Series FF
5.25%, 07/01/14
Insured: MBIA - 2,902,500 2,902,500
- 3,000,000 3,000,000 Puerto Rico Electric Power Authority
Revenue, Series Z
5.50%, 07/01/16 - 2,906,250 2,906,250
- 360,000 360,000 Puerto Rico Industrial Tourist Educational
Medical & Environmental Control Facilities
International American University, Series A
5.25%, 10/01/12
Insured: MBIA - 356,400 356,400
- 1,550,000 1,550,000 Puerto Rico Industrial Tourist Educational
Medical & Environmental Control Facilities
International American University, Series A
5.38%, 10/01/13
Insured: MBIA - 1,524,812 1,524,812
- 350,000 350,000 Puerto Rico Industrial Tourist Educational
Medical & Environmental Control Facilities
International American University, Series A
5.50%, 10/01/14
Insured: MBIA - 346,937 346,937
400,000 - 400,000 Puerto Rico Municipal
Finance Agency, Series A
6.00%, 07/01/14
Insured: FSA 416,000 - 416,000
315,000 - 315,000 Puerto Rico Municipal
Finance Agency, Series A
5.50%, 07/01/17
Insured: FSA 307,912 - 307,912
- 2,000,000 2,000,000 Puerto Rico Public Building Authority
Public Education and Health Facilities, Series M
5.75%, 07/01/15
Insured: CGTD - 2,005,000 2,005,000
-------------------------------------------
2,430,787 12,549,399 14,980,186
-------------------------------------------
<PAGE>
RHODE ISLAND - 81.53%
- 1,080,000 1,080,000 Bristol County Water Authority
Revenue, General, Series A
5.20%, 12/01/13
Insured: MBIA - 1,031,400 1,031,400
- 1,000,000 1,000,000 Bristol County Water Authority
Revenue, General, Series A
5.20%, 12/01/14
Insured: MBIA - 945,000 945,000
500,000 - 500,000 Bristol County Water Authority
Revenue, General, Series A
5.00%, 07/01/16
Insured: MBIA 447,500 - 447,500
200,000 - 200,000 Burrillville, GO
5.85%, 05/01/14 207,750 - 207,750
Insured: FGIC
- 1,505,000 1,505,000 Central Falls Detention Facility
Corporate Detention Facility
Donald W. Wyatt Detention Center
Revenue, Series A
5.25%, 01/15/13 - 1,420,343 1,420,343
- 1,000,000 1,000,000 Central Falls Detention Facility
Corporate Detention Facility
Donald W. Wyatt Detention Center
Revenue, Series A
5.38%, 01/15/18 - 913,750 913,750
- 1,000,000 1,000,000 Central Falls Detention Facility
Corporate Detention Facility
Donald W. Wyatt Detention Center
Revenue, Series A
5.38%, 01/15/18
Insured: FSA - 933,750 933,750
- 1,000,000 1,000,000 Convention Center Authority, Series A
5.50%, 05/15/13
Insured: AMBAC - 1,002,500 1,002,500
500,000 - 500,000 Convention Center Authority, Series A
6.38%, 05/15/23
Insured: MBIA 525,000 - 525,000
- 1,000,000 1,000,000 Cranston, GO
6.10%, 06/15/10
Insured: MBIA - 1,060,000 1,060,000
- 1,500,000 1,500,000 Cranston, GO
6.10%, 06/15/15
Insured: MBIA - 1,573,125 1,573,125
- 1,305,000 1,305,000 Cranston, GO
5.50%, 07/15/15 - 1,283,794 1,283,794
Insured: MBIA
- 500,000 500,000 Cumberland, GO
5.10%, 09/01/14 - 470,000 470,000
Insured: MBIA
- 1,000,000 1,000,000 Exeter West Greenwich
Regional School District, GO
5.40%, 11/15/10
Insured: MBIA - 1,007,500 1,007,500
- 500,000 500,000 Kent County Water Authority
Revenue, Series A
6.00%, 07/15/08
Insured: MBIA - 523,125 523,125
500,000 - 500,000 Lincoln, GO
5.50%, 08/15/10
Insured: MBIA 507,500 - 507,500
- 1,100,000 1,100,000 North Providence, GO
6.00%, 07/01/12
Insured: MBIA - 1,159,125 1,159,125
- 500,000 500,000 North Providence, GO
6.05%, 07/01/13
Insured: MBIA - 526,250 526,250
300,000 - 300,000 Pawtucket, GO
5.63%, 04/15/07
Insured: FGIC 310,875 - 310,875
400,000 - 400,000 Pawtucket, GO
5.75%, 04/15/11
Insured: FGIC 411,000 - 411,000
- 1,085,000 1,085,000 Providence, GO
5.10%, 01/15/06
Insured: FSA - 1,098,562 1,098,562
500,000 - 500,000 Providence, GO
5.70%, 01/15/06
Insured: MBIA 517,500 - 517,500
500,000 - 500,000 Providence, GO
5.45%, 01/15/10
Insured: FSA 503,750 - 503,750
<PAGE>
- 1,825,000 1,825,000 Providence, GO, Series A
5.70%, 07/15/12
Insured: FSA - 1,859,219 1,859,219
- 380,000 380,000 Providence, HDC, FHA
Barbara Jordan Apartments
6.50%, 07/01/09
Insured: MBIA, FHA - 396,150 396,150
- 500,000 500,000 Providence Public Building Authority
Revenue, Series A
5.40%, 12/15/11
Insured: FSA - 496,875 496,875
- 1,035,000 1,035,000 Providence Public Building Authority
School & Public Facilities Projects, Series A
5.38%, 12/15/11
Insured: AMBAC - 1,025,944 1,025,944
- 500,000 500,000 Providence Public Building Authority
School & Public Facilities Projects, Series A
5.13%, 12/15/14
Insured: AMBAC - 463,750 463,750
- 1,500,000 1,500,000 Providence Public Building Authority
School & Public Facilities Projects, Series A
5.25%, 12/15/14
Insured: FSA - 1,413,750 1,413,750
- 1,000,000 1,000,000 Rhode Island Building Authority
State Public Projects, Revenue, Series A
5.25%, 02/01/10 - 991,250 991,250
- 435,000 435,000 Rhode Island Clean Water
Protection Finance Agency
PCR, Series A
5.88%, 10/01/15
Insured: MBIA - 445,331 445,331
500,000 - 500,000 Rhode Island Clean Water
Protection Finance Agency
PCR, Series A
5.25%, 10/01/16
Insured: AMBAC 463,125 - 463,125
150,000 - 150,000 Rhode Island Clean Water
Protection Finance Agency
Safe Drinking Water
Providence, Series A
6.20%, 01/01/06
Insured: AMBAC 159,000 - 159,000
- 500,000 500,000 Rhode Island Clean Water
Protection Finance Agency
Safe Drinking Water
Providence, Series A
6.50%, 01/01/09
Insured: AMBAC - 535,000 535,000
100,000 - 100,000 Rhode Island Clean Water
Protection Finance Agency
Safe Drinking Water
Providence, Series A
6.70%, 01/01/15
Insured: AMBAC 106,875 - 106,875
<PAGE>
250,000 - 250,000 Rhode Island Clean Water
Protection Finance Agency
Wastewater Treatment
System, Cranston
5.80%, 09/01/22
Insured: MBIA 242,187 - 242,187
- 500,000 500,000 Rhode Island Depositors
Economic Protection Corp.
SP OB, Series A
6.50%, 08/01/07
Insured: FSA - 543,125 543,125
- 1,000,000 1,000,000 Rhode Island Depositors
Economic Protection Corp.
SP OB, Series A
5.75%, 08/01/14 - 1,016,250 1,016,250
Insured: FSA
- 1,000,000 1,000,000 Rhode Island Depositors
Economic Protection Corp.
SP OB, Series B
5.80%, 08/01/12
Insured: MBIA - 1,038,750 1,038,750
500,000 - 500,000 Rhode Island Depositors
Economic Protection Corp.
SP OB, Series A
5.75%, 08/01/21 496,875 - 496,875
250,000 - 250,000 Rhode Island Depositors
Economic Protection Corp.
SP OB, Series B
5.25%, 08/01/21
Insured: MBIA 247,187 - 247,187
200,000 - 200,000 Rhode Island State, GO, Series A
6.10%, 06/15/03
Insured: FGIC 210,250 - 210,250
150,000 - 150,000 Rhode Island State, GO, Series A
6.25%, 06/15/07
Unrefunded
Insured: FGIC 158,063 - 158,063
- 3,000,000 3,000,000 Rhode Island State, GO, Series A
Consolidated Capital Development Loan
5.00%, 07/15/07
Insured: FGIC - 3,003,750 3,003,750
- 2,580,000 2,580,000 Rhode Island State, GO, Series A
Consolidated Capital Development Loan
5.25%, 09/01/08 2,612,250 2,612,250
- 1,000,000 1,000,000 Rhode Island State, GO, Series A
Consolidated Capital Development Loan
5.25%, 07/15/10
Insured: FGIC - 998,750 998,750
- 1,530,000 1,530,000 Rhode Island State, GO, Series A
Consolidated Capital Development Loan
5.00%, 08/01/11 - 1,470,713 1,470,713
- 1,250,000 1,250,000 Rhode Island State, GO, Series A
Consolidated Capital Development Loan
5.20%, 09/01/11
Insured: FGIC - 1,223,437 1,223,437
- 1,735,000 1,735,000 Rhode Island State, GO, Series A
Consolidated Capital Development Loan
5.13%, 07/15/12
Insured: FGIC - 1,672,106 1,672,106
- 1,665,000 1,665,000 Rhode Island State, GO, Series A
Consolidated Capital Development Loan
5.00%, 09/01/12 - 1,581,750 1,581,750
- 3,000,000 3,000,000 Rhode Island State, GO, Series A
Consolidated Capital Development Loan
5.13%, 07/15/13
Insured: FGIC - 2,835,000 2,835,000
- 2,680,000 2,680,000 Rhode Island State, GO, Series A
Consolidated Capital Development Loan
5.00%, 09/01/14 - 2,458,900 2,458,900
- 500,000 500,000 Rhode Island State, GO, Series A
Consolidated Capital Development Loan
5.50%, 09/01/15
Insured: FGIC - 486,875 486,875
- 2,425,000 2,425,000 Rhode Island State, GO, Series A
Consolidated Capital Development Loan
5.00%, 09/01/16 - 2,194,625 2,194,625
250,000 - 250,000 Rhode Island State EDC
Airport, Series B
5.25%, 07/01/11
Insured: FSA 245,625 - 245,625
- 1,620,000 1,620,000 Rhode Island State EDC
Airport, Series B
5.00%, 07/01/15
Insured: FSA - 1,462,050 1,462,050
500,000 - 500,000 Rhode Island State EDC
Airport, Series B
5.00%, 07/01/18
Insured: FSA 436,250 - 436,250
250,000 - 250,000 Rhode Island State EDC
Airport, Series B
5.00%, 07/01/23
Insured: FSA 214,063 - 214,063
750,000 - 750,000 Rhode Island State EDC
University of Rhode Island
Steam Generation Facility Project
5.00%, 11/01/19
Insured: FSA 653,438 - 653,438
- 1,215,000 1,215,000 Rhode Island State HEBC
Higher Education Facility
Brown University
4.75%, 09/01/14 - 1,095,019 1,095,019
- 1,000,000 1,000,000 Rhode Island State HEBC
Higher Education Facility
Brown University
5.00%, 09/01/15 - 912,500 912,500
<PAGE>
- 1,000,000 1,000,000 Rhode Island State HEBC
Higher Education Facility
Brown University
5.00%, 09/01/16 - 902,500 902,500
- 1,000,000 1,000,000 Rhode Island State HEBC
Higher Education Facility
Brown University
5.00%, 09/01/17 895,000 895,000
500,000 - 500,000 Rhode Island State HEBC
Higher Education Facility
Brown University
6.00%, 09/01/20 507,500 - 507,500
1,000,000 - 1,000,000 Rhode Island State HEBC
Higher Education Facility
Brown University
5.00%, 09/01/23 858,750 - 858,750
275,000 - 275,000 Rhode Island State HEBC
Higher Education Facility
Bryant College, SP OB
6.50%, 06/01/05
Insured: MBIA 290,813 - 290,813
- 400,000 400,000 Rhode Island State HEBC
Higher Education Facility
New England Institute
5.90%, 03/01/10
Insured: Connie Lee - 405,000 405,000
475,000 - 475,000 Rhode Island State HEBC
Higher Education Facility
New England Institute
6.00%, 03/01/15
Insured: Connie Lee 482,719 - 482,719
300,000 - 300,000 Rhode Island State HEBC
Higher Education Facility
Providence College
5.60%, 11/01/09
Insured: MBIA 304,500 - 304,500
500,000 2,000,000 2,500,000 Rhode Island State HEBC
Higher Education Facility
Rhode Island School of Design
5.63%, 06/01/16
Insured: MBIA 490,625 1,960,000 2,450,625
- 2,000,000 2,000,000 Rhode Island State HEBC
Higher Education Facility
Roger Williams
5.13%, 11/15/14
Insured: AMBAC - 1,845,000 1,845,000
- 1,000,000 1,000,000 Rhode Island State HEBC
Higher Education Facility
Roger Williams
5.25%, 11/15/16
Insured: Connie Lee - 925,000 925,000
- 1,000,000 1,000,000 Rhode Island State HEBC
Higher Education Facility
Roger Williams
5.00%, 11/15/18
Insured: AMBAC - 870,000 870,000
325,000 - 325,000 Rhode Island State HEBC
Higher Education Facility
Roger Williams
6.50%, 11/15/24
Insured: Connie Lee 349,375 - 349,375
260,000 - 260,000 Rhode Island State HEBC
Higher Education Facility
Salve Regina
6.25%, 03/15/13
Insured: Connie Lee 270,725 - 270,725
- 180,000 180,000 Rhode Island State HEBC
Higher Education Facility
Unrefunded
6.50%, 11/15/08
Insured: Connie Lee - 189,000 189,000
175,000 - 175,000 Rhode Island State HEBC
Higher Education Facility
Unrefunded
6.50%, 11/15/24
Insured: Connie Lee 185,063 - 185,063
- 500,000 500,000 Rhode Island State HEBC
Kent Memorial Hospital
7.00%, 07/01/10
Insured: MBIA - 524,375 524,375
<PAGE>
- 2,000,000 2,000,000 Rhode Island State HEBC
Landmark Medical Center
5.60%, 10/01/12
Insured: FSA - 2,005,000 2,005,000
500,000 - 500,000 Rhode Island State HEBC
Miriam Hospital
Series B
6.60%, 04/01/19 539,375 - 539,375
- 1,045,000 1,045,000 Rhode Island State HEBC
Roger Williams Hospital
5.40%, 07/01/13 - 940,500 940,500
- 1,000,000 1,000,000 Rhode Island State HEBC
Roger Williams Hospital
5.50%, 07/01/18 - 850,000 850,000
300,000 - 300,000 Rhode Island State HEBC
Saint Antoine
6.75%, 11/15/18
LOC: Allied Irish Banks NY 328,500 - 328,500
300,000 - 300,000 Rhode Island State HMFC
Homeownership Opportunity
Series 17-A
6.25%, 04/01/17 303,375 - 303,375
- 885,000 885,000 Rhode Island State HMFC
Homeownership Opportunity
Series E-1, AMT
7.50%, 10/01/11
Insured: FHA - 917,081 917,081
- 2,000,000 2,000,000 Rhode Island State HMFC
Homeownership Opportunity
Series 13
6.70%, 10/01/15 - 2,052,500 2,052,500
500,000 1,500,000 2,000,000 Rhode Island State HMFC
Homeownership Opportunity
Series 19-A
5.70%, 04/01/15 488,125 1,460,625 1,948,750
500,000 500,000 1,000,000 Rhode Island State HMFC
Homeownership Opportunity
Series 22-A
5.55%, 04/01/17 476,875 475,625 952,500
- 2,240,000 2,240,000 Rhode Island State HMFC
Homeownership Opportunity
Series 27-B, AMT
5.15%, 10/01/12
Insured: GNMA/FNMA - 2,102,800 2,102,800
500,000 - 500,000 Rhode Island State HMFC
Homeownership Opportunity
Series 29-A
5.05%, 10/01/15
Insured: FHA 452,500 - 452,500
- 2,000,000 2,000,000 Rhode Island State HMFC
Homeownership Opportunity
Series 30-A
4.90%, 10/01/14
Insured: GNMA/FNMA - 1,832,500 1,832,500
500,000 - 500,000 Rhode Island State HMFC
Multifamily Housing
Series A
5.60%, 07/01/10
Insured: AMBAC 505,000 - 505,000
500,000 - 500,000 Rhode Island State HMFC
Multifamily Housing
Series A
6.15%, 07/01/17
Insured: AMBAC 509,375 - 509,375
250,000 1,000,000 1,250,000 Rhode Island State HMFC
Rental Housing Program
Series A
5.65%, 10/01/07 251,562 1,003,750 1,255,312
- 500,000 500,000 Rhode Island State
Industrial Facilities Corp., Revenue, AMT
CRE Corp. Project
6.50%, 03/01/14
LOC: Fleet Bank - 510,000 510,000
500,000 2,250,000 2,750,000 Rhode Island State
Industrial Facilities Corp., Revenue
Marine Terminal, Mobil Oil Refining
6.00%, 11/01/14 527,500 2,370,938 2,898,438
- 1,000,000 1,000,000 Rhode Island State
Turnpike and Bridge Authority, Revenue
5.00%, 12/01/11 - 930,000 930,000
- 2,130,000 2,130,000 Rhode Island State
Turnpike and Bridge Authority, Revenue
5.35%, 12/01/17 - 1,956,938 1,956,938
<PAGE>
100,000 - 100,000 South Kingstown, GO, Series B
5.50%, 06/15/10
Insured: FSA 101,625 - 101,625
- 1,180,000 1,180,000 Warwick, GO
Series A
5.00%, 03/01/15
Insured: FGIC - 1,084,125 1,084,125
- 1,205,000 1,205,000 Warwick, GO
Series A
5.00%, 03/01/16
Insured: FGIC - 1,093,538 1,093,538
140,000 - 140,000 Westerly, GO
6.00%, 09/15/14
Insured: AMBAC 146,650 - 146,650
300,000 - 300,000 Woonsocket, GO
4.75%, 12/15/16
Insured: FGIC 262,125 - 262,125
-------------------------------------------
15,696,470 79,283,138 94,979,608
-------------------------------------------
TEXAS - 0.24%
450,000 - 450,000 Lubbock Independent
School District, GO
Capital Appreciation
6.10%, 02/15/09 (A) 275,062 - 275,062
-------------------------------------------
WASHINGTON - 0.41%
1,000,000 - 1,000,000 Seattle, GO, Series E
4.85%, 12/15/12 (A) 478,750 - 478,750
-------------------------------------------
TOTAL MUNICIPAL SECURITIES 18,881,069 92,826,287 111,707,356
-------------------------------------------
REPURCHASE AGREEMENT - 2.51%
Repurchase Agreement with
- 2,923,403 2,923,403 Lehman Brothers
5.18%, 11/01/99, dated 10/29/99 - 2,923,403 2,923,403
-------------------------------------------
TOTAL REPURCHASE AGREEMENT - 2,923,403 2,923,403
-------------------------------------------
SHARES
- -------------------------------------------
INVESTMENT COMPANY - 0.23%
270,234 - 270,234 Federated Tax-Free Obligations Fund 270,234 - 270,234
-------------------------------------------
TOTAL INVESTMENT COMPANY 270,234 - 270,234
-------------------------------------------
TOTAL INVESTMENTS - 98.63%
(Cost $19,614,554, $99,711,194, and $119,325,748) 19,151,303 95,749,690 114,900,993
===========================================
NET OTHER ASSETS AND LIABILITIES - 1.37% 681,961 917,840 1,599,801
===========================================
NET ASSETS - 100.00% $ 19,833,264 $ 96,667,530 $ 116,500,794
===========================================
</TABLE>
(A) -- Zero Coupon Bond. Rate shown reflects effective yield
to maturity at time of purchase.
(B) -- Zero Coupon Bond. Rate shown reflects effective yield
at time of issue.
AMBAC -- American Municipal Bond Assurance Corp.
AMT -- Alternate Minimum Tax
CGTD -- Commonwealth Guaranteed
Connie Lee -- College Construction Loan Association
EDC -- Economic Development Corp.
FGIC -- Federal Guaranty Insurance Corp.
FHA -- Federal Housing Authority
FNMA -- Federal National Mortgage Association
FSA -- Financial Security Assurance Company
GNMA -- Government National Mortgage Association
GO -- General Obligation
HDC -- Housing Development Corp.
HEBC -- Health and Educational Building Corp.
HMFC -- Housing and Mortgage Finance Corp.
MBIA -- Municipal Bond Investors Assurance
PCR -- Pollution Control Revenue
SP OB -- Special Obligation
See Notes to Pro Forma Financial Statements
<PAGE>
GALAXY RHODE ISLAND MUNICIPAL BOND FUND
BOSTON 1784 RHODE ISLAND TAX-EXEMPT INCOME FUND
PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
OCTOBER 31, 1999
<TABLE>
<CAPTION>
-------------------------------------------------------------------
GALAXY RHODE BOSTON 1784
ISLAND RHODE ISLAND PRO FORMA
MUNICIPAL TAX EXEMPT PRO FORMA COMBINED
BOND FUND INCOME FUND ADJUSTMENTS (NOTE 1)
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investments
Investments at cost $ 19,614,554 $ 96,787,791 $ - $ 116,402,345
Repurchase agreements - 2,923,403 - 2,923,403
Net unrealized (depreciation) (463,251) (3,961,504) - (4,424,755)
-------------------------------------------------------------------
Total Investments at Value 19,151,303 95,749,690 - 114,900,993
Cash 5,418 2 - 5,420
Receivable for investments sold 446,626 - - 446,626
Receivable for shares sold 34,486 - - 34,486
Interest and dividends receivable 297,353 1,370,966 - 1,668,319
-------------------------------------------------------------------
Total Assets 19,935,186 97,120,658 - 117,055,844
LIABILITIES:
Dividends payable 76,995 376,508 - 453,503
Advisory fee payable 6,258 54,527 - 60,785
Administration fee payable 4,649 5,354 - 10,003
Trustees' fees and expenses payable 976 188 - 1,164
Accrued expenses and other payables 13,044 16,551 - 29,595
-------------------------------------------------------------------
Total Liabilities 101,922 453,128 - 555,050
NET ASSETS $ 19,833,264 $ 96,667,530 $ - $ 116,500,794
===================================================================
NET ASSETS CONSISTS OF:
Paid-in capital $ 20,383,782 $ 100,225,868 $ - $ 120,609,650
(Overdistributed) net investment income (11,177) (12) - (11,189)
Accumulated net realized gain (loss) on investments sold (76,090) 403,178 - 327,088
Net unrealized (depreciation) of investments (463,251) (3,961,504) - (4,424,755)
-------------------------------------------------------------------
TOTAL NET ASSETS $ 19,833,264 $ 96,667,530 $ - $ 116,500,794
===================================================================
Net Assets by Class:
Retail A Shares $ 19,833,264 N/A $ - $ 19,833,264
===================================================================
Trust Shares / Shares N/A 96,667,530 (15,466,805) 81,200,725
===================================================================
BKB Shares N/A N/A 15,466,805 15,466,805
===================================================================
Shares of beneficial interest outstanding:
Retail A Shares 1,914,494 N/A - 1,914,494
===================================================================
Trust Shares / Shares N/A 9,736,602 (1,898,694) 7,837,908
===================================================================
BKB Shares N/A N/A 1,492,935 1,492,935
===================================================================
Net Asset Value - Retail A Shares $ 10.36 N/A $ 10.36
===================================================================
Net Asset Value - Trust Shares / Shares N/A $ 9.93 $ 10.36
===================================================================
Net Asset Value - BKB Shares N/A N/A $ 10.36
===================================================================
</TABLE>
See Notes to Pro Forma Financial Statements
<PAGE>
GALAXY RHODE ISLAND MUNICIPAL BOND FUND
BOSTON 1784 RHODE ISLAND TAX-EXEMPT INCOME FUND
PRO FORMA COMBINING STATEMENT OF OPERATIONS (UNAUDITED)
OCTOBER 31, 1999
<TABLE>
<CAPTION>
-------------------------------------------------------------------
GALAXY RHODE BOSTON 1784
ISLAND RHODE ISLAND PRO FORMA
MUNICIPAL TAX EXEMPT PRO FORMA COMBINED
BOND FUND INCOME FUND ADJUSTMENTS (NOTE 1)
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income:
Interest Income $ 1,121,025 $ 5,073,612 $ - $ 6,194,637
Dividend Income 10,674 - - 10,674
--------------------------------------------------------------------
Total Investment Income 1,131,699 5,073,612 - 6,205,311
--------------------------------------------------------------------
Expenses:
Investment Advisory Fees 162,771 715,825 9,659 (a) 888,255
Administrative Fees 16,327 63,753 1,364 (a) 81,444
Custodian Fee 10,832 6,077 - 16,909
Fund Accounting Fee 32,039 969 18,796 (a) 51,804
Professional Fees 13,776 8,157 (5,756) (b) 16,177
Trustee Fees 403 2,547 (1,000) (b) 1,950
Amortization of Deferred Organization Cost 3,439 - - 3,439
Reports to Shareholders 2,977 6,880 (3,000) (b) 6,857
Miscellaneous Expenses 12,600 14,003 - 26,603
--------------------------------------------------------------------
Subtotal 255,164 818,211 20,063 1,093,438
Transfer Agent Fee
Retail A Shares 5,100 - - 5,100
Trust Shares / Shares - 26,920 (26,905) (a) 15
BKB Shares - - 3,114 (a) 3,114
Shareholder Services Fee & 12B-1 Fee
Retail A Shares - - - -
Trust Shares / Shares - 241,826 (241,826) (a) -
BKB Shares - - - -
--------------------------------------------------------------------
Total Expenses before reimbursement/waiver 260,264 1,086,957 (245,554) 1,101,667
Less Waiver/Reimbursements
Fund Level Waivers (86,559) (71,275) (79,034) (c) (236,868)
Class Specific Waivers/Reimbursements
Retail A Shares - - - -
Trust Shares / Shares - (241,826) 241,826 (c) -
BKB Shares - - - -
--------------------------------------------------------------------
Total Waivers/Reimbursements (86,559) (313,101) 162,792 (236,868)
Net Expenses 173,705 773,856 (82,762) 864,799
--------------------------------------------------------------------
Net Investment Income 957,994 4,299,756 82,762 5,340,512
--------------------------------------------------------------------
Net Realized Gain/(Loss) on Investments (76,090) 403,437 - 327,347
Net Change in Unrealized (Depreciation) on Investments (1,483,777) (7,495,685) - (8,979,462)
--------------------------------------------------------------------
Net Realized and Unrealized (Loss) on Investments (1,559,867) (7,092,248) - (8,652,115)
--------------------------------------------------------------------
Net (Decrease) in Net Assets Resulting from Operations $ (601,873) $ (2,792,492) $ 82,762 $ (3,311,603)
====================================================================
</TABLE>
(a) Reflects adjustment to the acquiring fund contractual fee level.
(b) Reflects expected savings when the two funds become one.
(c) Reflects adjustment to the acquiring fund's voluntary expense limitation.
See Notes to Pro Forma Financial Statements
<PAGE>
Galaxy Rhode Island Municipal Bond Fund
Boston 1784 Rhode Island Tax-Exempt Income Fund
Notes to Pro Forma Combining Financial Statements (unaudited)
1. Basis of Combination
The Galaxy Fund, a Massachusetts business trust (the "Trust"), is registered
under the Investment Company Act of 1940, as amended, (the "1940 Act") as an
open-end management investment company. As of October 31, 1999, the Trust
offered twenty-nine managed investment portfolios. The unaudited Pro Forma
Combining Portfolio of Investments and the unaudited Pro Forma Statement of
Assets and Liabilities assumes the exchange described in the next paragraph
occurred as of October 31, 1999 and the unaudited Pro Forma Combining Statement
of Operations assumes the exchange occurred as of November 1, 1998. These
statements have been derived from books and records utilized in calculating the
net asset value of each fund at October 31, 1999 and for the twelve-month period
then ended.
The pro forma statements give effect to the proposed transfer of substantially
all of the assets and stated liabilities of the Boston 1784 Rhode Island
Tax-Exempt Income Fund in exchange for Trust and BKB shares of Galaxy Rhode
Island Municipal Bond Fund. Under generally accepted accounting principles, the
historical cost of investment securities will be carried forward to the
surviving entity and the results of operations of the Boston 1784 Rhode Island
Tax-Exempt Income Fund for pre-combination periods will not be restated. The pro
forma statements do not reflect the expenses of either fund in carrying out its
obligations under the proposed Agreement and Plan of Reorganization.
The unaudited Pro Forma Combining Financial Statements should be read in
conjunction with the historical financial statements of the funds incorporated
by reference in the Statement of Additional Information.
For the twelve-month period ended October 31, 1999, the Galaxy Rhode Island
Municipal Bond Fund's investment advisory fee was computed based on the annual
rate of 0.75% of its average daily net assets. The administration fee was
computed based on the annual rate of 0.09% of the first $2.5 billion of the
Trust's combined average daily net assets, 0.085% of the next $2.5 billion,
0.075% of the next $7 billion, 0.065% of the next $3 billion, 0.06% of the next
$3 billion, and 0.0575% of the combined average daily net assets in excess of
$18 billion, and was allocated to each fund based on the relative net assets of
the Trust.
The Trust has adopted a shareholder services plan (the "Services Plan") with
respect to Retail A, BKB and Trust Shares of the funds to compensate certain
institutions providing administrative and support services to their customers
who own such shares. Currently, the Services Plan has not been implemented for
the Trust shares. Under the Services Plan, aggregate payments may not exceed
0.30% of the average daily net assets of Retail A or BKB shareholders who are
customers of such institutions. Currently, the Trust, under the direction of the
Board of Trustees, is limiting such payments to 0.15% of the average daily net
assets of Retail A or BKB shareholders who are customers of such institutions.
No fees were charged under the Services Plan with respect to the Galaxy Rhode
Island Municipal Bond fund for the twelve-month period ended October 31, 1999.
<PAGE>
Galaxy Rhode Island Municipal Bond Fund
Boston 1784 Rhode Island Tax-Exempt Income Fund
Notes to Pro Forma Combining Financial Statements (unaudited) (continued)
2. Portfolio Valuation
The Galaxy Rhode Island Municipal Bond Fund's investment securities are valued
by an independent pricing service approved by the Trust's Board of Trustees.
When, in the judgement of the service, quoted bid prices are readily available
and are representative of the bid side of the market, investments are valued at
the mean between quoted bid and asked prices. Other investments are carried at
fair value as determined by the service based on methods which include
consideration of yields or prices of bonds of comparable quality, coupon
maturity and type; indications as to values from dealers and general market
conditions. Short-term obligations that mature in 60 days or less are valued at
amortized cost, which approximated fair value. All other securities and other
assets are appraised at their fair value as determined in good faith under
consistently applied procedures established by and under the general supervision
of the Board of Trustees. Boston 1784 Rhode Island Tax-Exempt Income Fund uses
similar rules for determining portfolio valuation.
3. Capital Shares
The pro forma net asset value per share assumes the issuance of additional
shares of the Galaxy Rhode Island Municipal Bond Fund that would have been
issued at October 31, 1999 in connection with the proposed reorganization. The
pro forma number of shares outstanding of 11,245,337 consists of 9,330,843
shares assumed issued in the reorganization plus 1,914,494 shares of the Galaxy
Rhode Island Municipal Bond Fund at October 31, 1999.
<PAGE>
GALAXY ASSET ALLOCATION FUND
BOSTON 1784 ASSET ALLOCATION FUND
PRO FORMA COMBINING PORTFOLIO OF INVESTMENTS (UNAUDITED)
OCTOBER 31, 1999
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE (NOTE 2)
- ------------------------------------------------------------------------------------------------------------------------------------
BOSTON 1784 BOSTON 1784
GALAXY ASSET ASSET GALAXY ASSET ASSET
ALLOCATION ALLOCATION PRO FORMA ALLOCATION ALLOCATION PRO FORMA
FUND FUND COMBINED FUND FUND COMBINED
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCKS - 52.60%
TECHNOLOGY - 13.26%
- 3,200 3,200 ADC Telecommunications, Inc. $ - $ 152,600 $ 152,600
100,000 - 100,000 America On Line, Inc. 12,968,750 - 12,968,750
- 7,300 7,300 Analog Devices, Inc. - 387,812 387,812
180,000 - 180,000 Automatic Data Processing, Inc. 8,673,750 - 8,673,750
230,000 15,000 245,000 Boston Scientific Corp. 4,628,750 301,875 4,930,625
240,000 8,700 248,700 Cisco Systems, Inc. 17,760,000 643,800 18,403,800
130,000 - 130,000 Comcast Corp. 5,476,250 - 5,476,250
150,000 - 150,000 Dell Computer Corp 6,018,750 - 6,018,750
- 700 700 Doubleclick, Inc. - 98,000 98,000
- 4,800 4,800 DST Systems, Inc. - 305,700 305,700
- 4,000 4,000 Electronic Data Systems - 234,000 234,000
180,000 - 180,000 EMC Corp. 13,140,000 - 13,140,000
90,000 - 90,000 Hewlett-Packard Co. 6,665,625 - 6,665,625
140,000 4,100 144,100 Intel Corp. 10,841,250 317,493 11,158,743
- 2,800 2,800 International Business Machines Corp. - 275,450 275,450
160,000 17,000 177,000 Lucent Technologies, Inc. 10,280,000 1,092,250 11,372,250
50,000 4,350 54,350 Microsoft Corp. 4,628,125 402,647 5,030,772
- 3,200 3,200 Motorola, Inc. - 311,800 311,800
- 4,100 4,100 Nippon Telegraph & Telephone Corp., ADR - 317,237 317,237
- 1,150 1,150 Nokia Corp., ADR - 132,897 132,897
- 4,401 4,401 NTL, Inc. - 331,688 331,688
- 1,100 1,100 STMicroelectronics N.V., New York Shares - 99,962 99,962
- 2,150 2,150 Texas Instruments, Inc. - 192,962 192,962
- 4,800 4,800 Vitesse Semiconductor Corp. - 220,200 220,200
- 675 675 Yahoo, Inc. - 120,867 120,867
--------------------------------------------
101,081,250 5,939,240 107,020,490
--------------------------------------------
CONSUMER STAPLES - 12.69%
- 1,500 1,500 Allergan, Inc. - 161,062 161,062
- 1,950 1,950 Amgen, Inc. - 155,512 155,512
190,000 - 190,000 Becton Dickinson & Co. 4,821,250 - 4,821,250
130,000 - 130,000 Bestfoods 7,637,500 - 7,637,500
- 2,400 2,400 Cardinal Health, Inc. - 103,500 103,500
250,000 3,100 253,100 Coca-Cola Enterprises, Inc. 6,390,625 182,900 6,573,525
- 4,400 4,400 Colgate Palmolive Co. - 266,200 266,200
- 3,900 3,900 Costco Wholesale Corp. - 313,219 313,219
165,000 4,400 169,400 CVS Corp. 7,167,188 191,125 7,358,313
250,000 12,000 262,000 Elan Corp. Plc, ADR 6,437,500 309,000 6,746,500
120,000 - 120,000 Forest Laboratories, Inc. 5,505,000 - 5,505,000
80,000 6,900 86,900 Genzyme Corp. 3,060,000 263,925 3,323,925
110,000 - 110,000 Gillette Co. 3,980,625 - 3,980,625
- 9,350 9,350 Johnson & Johnson Co. - 979,412 979,412
100,000 - 100,000 Lilly (Eli) & Co. 6,887,500 - 6,887,500
200,000 - 200,000 McDonald's Corp. 8,250,000 - 8,250,000
- 3,950 3,950 Mediaone Group, Inc. - 280,697 280,697
- 600 600 Medimmune, Inc. - 67,200 67,200
- 8,000 8,000 Medtronic, Inc. - 277,000 277,000
120,000 12,700 132,700 Merck & Co., Inc. 9,547,500 1,010,444 10,557,944
- 6,400 6,400 Nestle S.A., ADR - 617,428 617,428
180,000 - 180,000 PepsiCo, Inc. 6,243,750 - 6,243,750
180,000 7,200 187,200 Pfizer, Inc. 7,110,000 284,400 7,394,400
50,000 6,750 56,750 Procter & Gamble Co. 5,243,750 707,906 5,951,656
- 1,700 1,700 Schering-Plough Corp. - 84,150 84,150
<PAGE>
- 17,500 17,500 Sysco Corp., ADR - 672,656 672,656
80,000 2,700 82,700 Warner-Lambert Co. 6,385,000 215,494 6,600,494
--------------------------------------------
94,667,188 7,143,230 101,810,418
--------------------------------------------
FINANCE - 8.88%
- 3,000 3,000 AFLAC, Inc. - 153,375 153,375
- 1,300 1,300 American Express Co. - 200,200 200,200
151,250 15,525 166,775 American International Group, Inc. 15,569,297 1,598,105 17,167,402
89,998 - 89,998 Associates First Capital Corp. 3,284,927 - 3,284,927
- 9,800 9,800 AXA Financial, Inc. - 314,212 314,212
- 3,900 3,900 Bank of America Corp. - 251,063 251,063
42,000 - 42,000 Bank One Corp. 1,577,625 - 1,577,625
85,000 - 85,000 Chase Manhattan Corp. 7,426,875 - 7,426,875
260,000 10,500 270,500 Citigroup, Inc. 14,072,500 568,312 14,640,812
130,000 3,000 133,000 Fannie Mae 9,197,500 212,250 9,409,750
120,000 - 120,000 Hartford Financial - -
- - Services Group, Inc. 6,217,500 - 6,217,500
100,000 - 100,000 Washington Mutual, Inc. 3,593,750 - 3,593,750
120,000 26,700 146,700 Wells Fargo & Co. 5,745,000 1,278,262 7,023,262
- 3,300 3,300 XLCapital Ltd. - 177,168 177,168
--------------------------------------------
66,684,974 4,752,947 71,437,921
--------------------------------------------
ENERGY - 4.35%
160,000 - 160,000 Anadarko Petrolum Co. 4,930,000 - 4,930,000
- 2,500 2,500 Apache Corp. - 97,500 97,500
- 14,500 14,500 Baker Hughes, Inc. - 405,094 405,094
- 2,500 2,500 Burlington Resources, Inc. - 87,188 87,188
40,000 - 40,000 Chevron Corp. 3,652,500 - 3,652,500
- 3,400 3,400 Exxon Corp. - 251,812 251,812
200,000 - 200,000 Halliburton Co. 7,537,500 - 7,537,500
- 1,600 1,600 Kerr-McGee Corp. - 86,000 86,000
80,000 6,000 86,000 Mobil Corp. 7,720,000 579,000 8,299,000
150,000 9,500 159,500 Schlumberger, Ltd. 9,084,375 575,344 9,659,719
--------------------------------------------
32,924,375 2,081,938 35,006,313
--------------------------------------------
CONSUMER CYCLICAL - 4.24%
100,000 - 100,000 Black & Decker (The), Corp. 4,300,000 - 4,300,000
- 2,650 2,650 Circuit City Stores, Inc. - 113,122 113,122
- 2,150 2,150 Clear Channel Communications, Inc. - 172,806 172,806
- 9,600 9,600 Comcast Corp. - 404,400 404,400
80,000 - 80,000 Dayton Hudson Corp. 5,170,000 - 5,170,000
- 4,400 4,400 Estee Lauder Cos. - 205,150 205,150
- 1,500 1,500 Gannett Co. - 115,687 115,687
220,000 3,300 223,300 Home Depot, Inc. 16,610,000 249,150 16,859,150
- 6,000 6,000 Kroger Co. - 124,875 124,875
- 6,100 6,100 Mattel, Inc. - 81,587 81,587
- 2,400 2,400 New York Times Co. - 96,600 96,600
- 2,650 2,650 Omnicom Group, Inc. - 233,200 233,200
- 5,200 5,200 Time Warner, Inc. - 362,375 362,375
- 6,650 6,650 Tyco International Ltd. - 265,584 265,584
- 9,500 9,500 WalMart Stores, Inc. - 538,531 538,531
200,000 - 200,000 Walgreen Co. 5,037,500 - 5,037,500
--------------------------------------------
31,117,500 2,963,067 34,080,567
--------------------------------------------
CAPITAL GOODS AND CONSTRUCTION - 3.09%
50,000 3,050 53,050 AlliedSignal, Inc. 2,846,875 173,659 3,020,534
170,000 - 170,000 Boeing Co. 7,830,625 - 7,830,625
- 6,900 6,900 Dii Group Inc. - 248,400 248,400
90,000 7,850 97,850 General Electric Co. 12,200,625 1,064,166 13,264,791
- 1,200 1,200 Mannesmann AG ADR - 185,027 185,027
- 5,500 5,500 Molex, Inc. - 200,750 200,750
- 2,650 2,650 Southdown, Inc. - 128,028 128,028
--------------------------------------------
22,878,125 2,000,030 24,878,155
--------------------------------------------
<PAGE>
UTILITIES - 2.94%
- 4,100 4,100 AES Corp. - 231,394 231,394
- 3,350 3,350 ALLTEL Corp. - 278,888 278,888
- 5,050 5,050 Century Telephone Enterprises, Inc. - 204,209 204,209
- 4,700 4,700 El Paso Energy Corp. - 192,700 192,700
- 2,100 2,100 Nextlink Communications, Inc. - 125,606 125,606
180,000 2,900 182,900 MCI WorldCom, Inc. 15,446,250 248,856 15,695,106
125,000 11,400 136,400 SBC Communications, Inc. 6,367,187 580,688 6,947,875
--------------------------------------------
21,813,437 1,862,341 23,675,778
--------------------------------------------
TRANSPORTATION - 1.67%
100,000 - 100,000 AMR Corp. 6,350,000 - 6,350,000
- 1,500 1,500 FDX Corp. - 64,594 64,594
- 4,100 4,100 General Motors Corp. - 298,531 298,531
400,000 - 400,000 Southwest Airlines Co. 6,725,000 - 6,725,000
--------------------------------------------
13,075,000 363,125 13,438,125
--------------------------------------------
BASIC MATERIALS - 1.33%
- 900 900 Alcoa, Inc. - 54,675 54,675
- 2,100 2,100 Georgia Pacific Corp. - 83,344 83,344
100,000 - 100,000 Sonoco Products Co. 2,400,000 - 2,400,000
200,000 - 200,000 Tyco International, Ltd. 7,987,500 - 7,987,500
- 2,500 2,500 Weyerhaeuser Co. - 149,219 149,219
--------------------------------------------
10,387,500 287,238 10,674,738
--------------------------------------------
BROADCASTING - 0.15%
- 12,000 12,000 AT&T Corp., Liberty Media Group - 476,250 476,250
- 5,100 5,100 SBS Broadcasting - 186,788 186,788
- 5,600 5,600 Rogers Communications - 112,700 112,700
- 2,600 2,600 Telewest Communications PLC, ADR - 114,400 114,400
- 2,700 2,700 Telewest Communications PLC Rights - - -
- 400 400 United Global Communications, Inc. - 34,800 34,800
- 2,950 2,950 Univision Communications - 250,934 250,934
--------------------------------------------
1,175,872 1,175,872
--------------------------------------------
TOTAL COMMON STOCKS 394,629,349 28,569,028 423,198,377
--------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 22.10%
PAR VALUE
- --------------------------------------------
U.S. TREASURY BONDS - 8.13%
$ 1,500,000 $ - $ 1,500,000 7.63%, 02/15/07 1,547,310 - 1,547,310
4,200,000 - 4,200,000 12.00%, 08/15/13 5,757,948 - 5,757,948
6,450,000 - 6,450,000 7.50%, 11/15/16 7,115,382 - 7,115,382
6,220,000 - 6,220,000 8.88%, 08/15/17 7,755,531 - 7,755,531
2,500,000 - 2,500,000 8.88%, 02/15/19 3,143,800 - 3,143,800
1,000,000 - 1,000,000 8.13%, 08/15/19 1,178,090 - 1,178,090
750,000 - 750,000 8.50%, 02/15/20 916,635 - 916,635
6,000,000 - 6,000,000 8.75%, 05/15/20 7,510,320 - 7,510,320
6,200,000 - 6,200,000 7.88%, 02/15/21 7,166,642 - 7,166,642
5,900,000 - 5,900,000 8.13%, 08/15/21 7,000,232 - 7,000,232
3,250,000 - 3,250,000 7.63%, 11/15/22 3,691,968 - 3,691,968
2,850,000 300,000 3,150,000 7.13%, 02/15/23 3,072,613 323,244 3,395,857
3,500,000 150,000 3,650,000 6.13%, 11/15/27 3,379,600 144,746 3,524,346
2,775,000 1,390,000 4,165,000 5.25%, 11/15/28 2,385,501 1,194,024 3,579,525
2,245,000 200,000 2,445,000 5.25%, 02/15/29 1,944,799 173,130 2,117,929
--------------------------------------------
63,566,371 1,835,144 65,401,515
--------------------------------------------
<PAGE>
U.S. TREASURY NOTES - 5.22%
- 200,000 200,000 5.50%, 04/15/00 - 200,076 200,076
- 25,000 25,000 6.25%, 05/31/00 - 25,118 25,118
- 400,000 400,000 6.13%, 07/31/00 - 401,764 401,764
- 590,000 590,000 6.13%, 09/30/00 - 592,679 592,679
- 245,000 245,000 5.63%, 11/30/00 - 244,897 244,897
2,000,000 - 2,000,000 4.50%, 01/31/01 1,971,800 - 1,971,800
3,000,000 - 3,000,000 5.63%, 02/28/01 2,997,630 - 2,997,630
5,000,000 - 5,000,000 5.63%, 05/15/01 4,991,500 - 4,991,500
1,500,000 - 1,500,000 6.25%, 10/31/01 1,512,555 - 1,512,555
1,000,000 - 1,000,000 6.25%, 08/31/02 1,009,410 - 1,009,410
2,555,000 - 2,555,000 5.88%, 09/30/02 2,555,179 - 2,555,179
- 275,000 275,000 5.75%, 11/30/02 - 273,686 273,686
4,445,000 - 4,445,000 5.75%, 08/15/03 4,411,796 - 4,411,796
1,800,000 - 1,800,000 4.25%, 11/15/03 1,690,920 - 1,690,920
7,160,000 - 7,160,000 6.00%, 08/15/04 7,179,833 - 7,179,833
5,175,000 - 5,175,000 6.50%, 10/15/06 5,267,219 - 5,267,219
1,500,000 - 1,500,000 7.00%, 07/15/06 1,566,480 - 1,566,480
1,085,000 - 1,085,000 6.13%, 08/15/07 1,080,562 - 1,080,562
2,870,000 - 2,870,000 6.00%, 08/15/09 2,867,561 - 2,867,561
- 1,100,000 1,100,000 7.25%, 05/15/16 - 1,184,436 1,184,436
--------------------------------------------
39,102,445 2,922,656 42,025,101
--------------------------------------------
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION - 2.79%
- 220,186 220,186 6.00%, 04/15/13, Pool # 471839 - 211,523 211,523
229,436 - 229,436 6.50%, 05/15/13, Pool # 473566 225,347 - 225,347
193,212 - 193,212 6.50%, 06/15/13, Pool # 476470 189,769 - 189,769
311,661 - 311,661 6.50%, 08/15/13, Pool # 486453 306,108 - 306,108
83,245 - 83,245 6.50%, 11/15/13, Pool # 454228 81,736 - 81,736
473,495 - 473,495 6.50%, 11/15/13, Pool # 454234 464,910 - 464,910
196,542 - 196,542 6.50%, 11/15/13, Pool # 477529 193,040 - 193,040
1,002,783 - 1,002,783 6.50%, 11/15/13, Pool # 483663 984,914 - 984,914
249,086 - 249,086 6.50%. 11/15/13, Pool # 493623 244,570 - 244,570
2,873,046 - 2,873,046 7.00%, 11/15/13, Pool # 780921 2,882,901 - 2,882,901
389,041 - 389,041 9.00%, 12/15/17, Pool # 780201 410,435 - 410,435
- 90,544 90,544 7.50%, 06/15/23, Pool # 346618 - 90,770 90,770
541,201 - 541,201 7.50%, 01/15/26, Pool # 417191 542,890 - 542,890
2,486,853 - 2,486,853 6.50%, 12/15/28, Pool # 495775 2,376,487 - 2,376,487
194,123 - 194,123 6.50%, 01/15/29, Pool # 482909 185,508 - 185,508
2,425,432 - 2,425,432 6.00%, 03/15/29, Pool # 476986 2,251,092 - 2,251,092
942,292 - 942,292 6.50%, 03/15/29, Pool # 464613 900,473 - 900,473
1,056,881 - 1,056,881 6.50%, 04/15/29, Pool # 473682 1,011,127 - 1,011,127
926,137 - 926,137 6.50%, 04/15/29, Pool # 483349 886,042 - 886,042
1,789,867 - 1,789,867 6.50%, 04/15/29, Pool # 488234 1,710,433 - 1,710,433
996,483 - 996,483 7.00%, 04/15/29, Pool # 498082 977,480 - 977,480
997,445 - 997,445 7.00%, 05/15/29, Pool # 507929 978,423 - 978,423
1,548,822 - 1,548,822 7.50%, 09/15/29, Pool # 466164 1,552,694 - 1,552,694
999,133 - 999,133 7.50%, 09/15/29, Pool # 478707 1,001,631 - 1,001,631
101,489 - 101,489 7.50%, 09/15/29, Pool # 510409 101,743 - 101,743
632,814 - 632,814 7.50%, 09/15/29, Pool # 510424 634,396 - 634,396
999,257 - 999,257 7.50%, 09/15/29, Pool # 511482 1,001,755 - 1,001,755
--------------------------------------------
22,095,904 302,293 22,398,197
--------------------------------------------
FEDERAL NATIONAL
MORTGAGE ASSOCIATION - 2.41%
1,000,000 - 1,000,000 6.74%, 09/19/01, MTN 1,009,690 - 1,009,690
- 235,000 235,000 5.75%, 04/15/03 - 230,819 230,819
1,000,000 - 1,000,000 6.50%, 08/15/04 1,002,480 - 1,002,480
1,000,000 - 1,000,000 6.49%, 01/19/06, MTN 979,410 - 979,410
- 500,000 500,000 7.24%, 01/04/07, MTN - 499,805 499,805
625,394 - 625,394 6.00%, 01/01/09, Pool # 269929 608,383 - 608,383
2,055,000 - 2,055,000 6.38%, 06/15/09 2,006,564 - 2,006,564
- 345,311 345,311 6.50%, 03/01/11, Pool # 343824 - 338,512 338,512
730,000 - 730,000 7.00%, 03/25/13 728,403 - 728,403
- 1,121,268 1,121,268 6.00%, 06/01/13, Pool # 429577 - 1,077,460 1,077,460
162,697 - 162,697 6.00%, 06/01/14, Pool # 484967 156,493 - 156,493
1,799,658 - 1,799,658 6.00%, 06/01/14, Pool # 499193 1,731,037 - 1,731,037
789,001 - 789,001 6.00%, 06/01/14, Pool # 500131 758,916 - 758,916
<PAGE>
963,453 - 963,453 7.00%, 08/01/14, Pool # 492806 961,941 - 961,941
225,359 - 225,359 6.50%, 01/01/26, Pool # 303676 217,330 - 217,330
- 862,219 862,219 6.50%, 05/01/28, Pool # 427837 - 826,109 826,109
6,170,000 - 6,170,000 8.00%, 09/01/29 6,285,688 - 6,285,688
--------------------------------------------
16,446,335 2,972,705 19,419,040
--------------------------------------------
FEDERAL HOME LOAN
MORTGAGE CORPORATION - 2.20%
730,000 - 730,000 5.00%, 11/16/99 (B) 728,424 - 728,424
2,000,000 - 2,000,000 5.00%, 01/15/04 1,895,860 - 1,895,860
4,800,000 - 4,800,000 6.25%, 07/15/04 4,764,000 - 4,764,000
1,000,000 - 1,000,000 7.05%, 06/08/05 989,460 - 989,460
- 500,000 500,000 5.75%, 03/15/09 - 466,250 466,250
5,920,000 - 5,920,000 6.63%, 09/15/09 5,890,400 - 5,890,400
- 2,403,725 2,403,725 6.00%, 11/01/28, Gold, Pool # C00680 - 2,244,059 2,244,059
708,072 - 708,072 7.00%, 04/01/29, Gold, Pool # C00756 695,680 - 695,680
--------------------------------------------
14,963,824 2,710,309 17,674,133
--------------------------------------------
FEDERAL HOME LOAN BANK - 0.77%
5,975,000 - 5,975,000 5.88%, 08/15/01 5,947,873 - 5,947,873
- 250,000 250,000 5.80%, 09/02/08 - 235,308 235,308
--------------------------------------------
5,947,873 235,308 6,183,181
--------------------------------------------
FEDERAL FARM CREDIT BANK - 0.56%
4,500,000 - 4,500,000 5.88%, 07/02/01 4,483,125 - 4,483,125
--------------------------------------------
U.S. GOVERNMENT BACKED - 0.02%
- 500,000 500,000 Tennessee Valley Authority, Strip Principal
4.22%, 04/15/42 (D) - 193,985 193,985
--------------------------------------------
TOTAL U.S. GOVERNMENT
AND AGENCY OBLIGATIONS 166,605,877 11,172,400 177,778,277
--------------------------------------------
CORPORATE NOTES AND BONDS - 13.99%
200,000 - 200,000 American Telephone & Telegraph Corp.
7.00%, 05/15/05 199,000 - 199,000
3,250,000 - 3,250,000 Associates Corp. of North America
Senior Note
6.63%, 05/15/01 3,254,062 - 3,254,062
- 350,000 350,000 Atlantic Richfield
5.90%, 04/15/09 - 321,563 321,563
1,000,000 - 1,000,000 Bank One Milwakee, MTN
6.35%, 03/19/01 1,000,000 - 1,000,000
1,200,000 - 1,200,000 Becton Dickinson & Co.
7.15%, 10/01/09 1,192,986 - 1,192,986
675,000 - 675,000 Becton Dickinson & Co., Debenture
7.00%, 08/01/27 631,125 - 631,125
1,900,000 - 1,900,000 Becton Dickinson & Co., Senior Debenture
6.70%, 08/01/28 1,712,375 - 1,712,375
- 250,000 250,000 Burlington Northern Santa Fe
9.25%, 10/01/06 - 273,125 273,125
200,000 - 200,000 Burlington Northern Santa Fe
6.88%, 02/15/16 185,750 - 185,750
- 200,000 200,000 Cable & Wireless Communication, Yankee
6.38%, 03/06/03 (C) - 200,250 200,250
1,000,000 - 1,000,000 Caterpillar Financial Services Corp.
Series F, MTN
5.47%, 09/12/01 980,000 - 980,000
1,700,000 - 1,700,000 Caterpillar Financial
Services Corp., MTN
6.00%, 05/23/02 1,672,375 - 1,672,375
<PAGE>
1,200,000 - 1,200,000 Citicorp, Senior MTN
8.63%, 11/01/04 1,200,000 - 1,200,000
- 300,000 300,000 Citicorp, MTN
6.38%, 11/15/08 - 282,750 282,750
2,000,000 - 2,000,000 Coca-Cola Enterprises, Inc.
6.38%, 08/01/01 1,992,500 - 1,992,500
1,000,000 - 1,000,000 Coca-Cola Enterprises, Inc.
7.13%, 08/01/17 965,000 - 965,000
2,300,000 - 2,300,000 Colgate-Palmolive Co.
Series C, MTN
5.27%, 12/01/03 2,180,262 - 2,180,262
1,400,000 - 1,400,000 Commercial Credit Co.
6.50%, 08/01/04 1,370,250 - 1,370,250
- 245,000 245,000 DaimlerChrysler, N.A. Holding Corp.
7.20%, 09/01/09 - 245,613 245,613
3,500,000 - 3,500,000 Diageo Capital, Plc
6.00%, 03/27/03 3,399,550 - 3,399,550
3,000,000 - 3,000,000 Diageo Capital, Plc
6.13%, 08/15/05 2,880,000 - 2,880,000
1,000,000 - 1,000,000 Emerson Electric Co.
5.85%, 03/15/09 926,250 - 926,250
- 315,000 315,000 Enron Oil and Gas Resources, Inc.
6.00%, 12/15/08 - 286,268 286,268
- 315,000 315,000 First Union Corp.
7.50%, 07/15/06 - 315,394 315,394
- 265,000 265,000 First USA Bank
7.65%, 08/01/03 - 269,638 269,638
- 250,000 250,000 Ford Motor Co.
7.25%, 10/01/08 - 250,313 250,313
250,000 - 250,000 Ford Motor Credit Co.
6.25%, 11/08/00 249,777 - 249,777
1,000,000 - 1,000,000 Ford Motor Credit Co.
Senior Note
6.50%, 02/28/02 996,250 - 996,250
1,615,000 - 1,615,000 Ford Motor Credit Co.
6.55%, 09/10/02 1,602,887 - 1,602,887
3,195,000 - 3,195,000 Ford Motor Credit Co.
Senior Note
5.75%, 02/23/04 3,055,219 - 3,055,219
405,000 - 405,000 Ford Motor Credit Co.
6.70%, 07/16/04 400,950 - 400,950
- 100,000 100,000 Ford Motor Credit Co.
6.75%, 05/15/05 - 98,000 98,000
- 425,000 425,000 Ford Motor Credit Co.
7.38%, 10/28/09 - 429,250 429,250
- 360,000 360,000 Fort James Corp.
6.88%, 09/15/07 - 346,500 346,500
800,000 - 800,000 G.E. Capital Corp., Series A, MTN
6.33%, 09/17/01 799,000 - 799,000
385,000 - 385,000 G.E. Capital Corp., Series A, MTN
6.81%, 11/03/03 386,463 - 386,463
4,000,000 - 4,000,000 General Motors Acceptance Corp.
6.88%, 07/15/01 4,020,000 - 4,020,000
1,000,000 - 1,000,000 General Motors Acceptance Corp.
7.00%, 09/15/02 1,006,250 - 1,006,250
- 200,000 200,000 General Motors Acceptance Corp.
6.63%, 10/01/02 - 199,250 199,250
250,000 - 250,000 GTE Corp.
6.46%, 04/15/08 239,687 - 239,687
1,000,000 - 1,000,000 GTE North, Inc., Series H
5.65%, 11/15/08 902,500 - 902,500
1,200,000 - 1,200,000 Goldman Sachs Group, Inc.
6.65%, 05/15/09 1,143,000 - 1,143,000
3,000,000 - 3,000,000 Heinz (H.J.) Co., Euro Bond
5.75%, 02/03/03 2,908,800 - 2,908,800
750,000 - 750,000 Heinz (H.J.) Co.
6.88%, 01/15/03 756,562 - 756,562
500,000 - 500,000 Hershey Foods Corp.
6.70%, 10/01/05 501,250 - 501,250
<PAGE>
2,300,000 - 2,300,000 Hershey Foods Corp.
7.20%, 08/15/27 2,254,000 - 2,254,000
1,000,000 - 1,000,000 Hertz Corp., Senior Note
7.00%, 04/15/01 1,005,000 - 1,005,000
- 220,000 220,000 Hydro-Quebec, Euro-Dollar
8.63%, 05/20/02 (C) - 228,792 228,792
750,000 - 750,000 Illinois Tool Works
5.75%, 03/01/09 688,125 - 688,125
1,000,000 - 1,000,000 International Business
Machines Corp.
7.50%, 06/15/13 1,045,000 - 1,045,000
2,000,000 - 2,000,000 International Business
Machines Corp.
6.22%, 08/01/27 1,962,500 - 1,962,500
2,000,000 - 2,000,000 International Business
Machines Credit Corp., MTN
6.64%, 10/29/01 2,007,500 - 2,007,500
500,000 - 500,000 International Paper Co.
7.00%, 06/01/01 500,625 - 500,625
1,500,000 - 1,500,000 Lockheed Martin Corp.
6.85%, 05/15/01 1,492,500 - 1,492,500
- 415,000 415,000 Lucent Technologies, Inc.
5.50%, 11/15/08 - 377,131 377,131
500,000 - 500,000 May Department Stores Co.
6.88%, 11/01/05 495,625 - 495,625
2,025,000 - 2,025,000 McDonald's Corp., Senior MTN
5.95%, 01/15/08 1,916,156 - 1,916,156
500,000 - 500,000 McDonald's Corp.
8.88%, 04/01/11 573,125 - 573,125
3,550,000 - 3,550,000 MCI WorldCom, Inc.
6.13%, 04/15/02 3,492,312 - 3,492,312
500,000 - 500,000 Mead Corp.
6.84%, 03/01/37 500,000 - 500,000
290,000 - 290,000 Merck & Co.
6.40%, 03/01/28 264,262 - 264,262
2,500,000 - 2,500,000 Minnesota Mining & Manufacturing
6.38%, 02/15/28 2,215,625 - 2,215,625
- 400,000 400,000 Morgan (JP) & Co., Inc., MTN, Series A
6.00%, 01/15/09 - 364,500 364,500
1,000,000 - 1,000,000 National City Bank of Kentucky
6.30%, 02/15/11 911,250 - 911,250
1,000,000 - 1,000,000 National Rural Utilities
Cooperative Finance Corp.
6.38%, 10/15/04 978,750 - 978,750
2,500,000 - 2,500,000 National Rural Utilities
Cooperative Finance Corp.
6.13%, 05/15/05 2,387,500 - 2,387,500
1,025,000 300,000 1,325,000 National Rural Utilities
Cooperative Finance Corp.
5.75%, 11/01/08 936,594 273,375 1,209,969
1,400,000 - 1,400,000 National Rural Utilities
Cooperative Finance Corp.
Collateral Trust
5.50%, 01/15/05 1,303,750 - 1,303,750
1,000,000 - 1,000,000 NationsBank Corp.
7.00%, 09/15/01 1,007,500 - 1,007,500
- 375,000 375,000 News America, Inc.
7.25%, 05/18/18 - 341,719 341,719
500,000 - 500,000 Northern Telecom, Ltd.
6.00%, 09/01/03 486,250 - 486,250
- 250,000 250,000 Northrop-Grumman Corp.
7.0%, 03/01/06 - 242,500 242,500
- 220,000 220,000 Ontario Province
7.38%, 01/27/03 (C) - 224,125 224,125
1,620,000 - 1,620,000 PepsiCo, Inc., MTN
5.75%, 01/15/08 1,500,525 - 1,500,525
1,590,000 - 1,590,000 Pitney Bowes Credit Corp.
6.63%, 06/01/02 1,599,938 - 1,599,938
<PAGE>
380,000 - 380,000 Pitney Bowes, Inc.
5.95%, 02/01/05 366,225 - 366,225
1,800,000 - 1,800,000 Potomac Electric Power Co.
6.50%, 09/15/05 1,743,750 - 1,743,750
2,000,000 - 2,000,000 Potomac Electric Power Co.
6.25%, 10/15/07 1,932,500 - 1,932,500
- 25,000 25,000 Private Export Funding Corp.
8.40%, 07/31/01 - 25,875 25,875
325,000 - 325,000 Rite Aid Corp.
6.70%, 12/15/01 264,875 - 264,875
- 500,000 500,000 Sears Roebuck & Co.
6.25%, 01/15/04 - 483,125 483,125
1,000,000 - 1,000,000 Service Corp. International
7.38%, 04/15/04 861,250 - 861,250
3,500,000 - 3,500,000 Sherwin-Williams Co.
6.50%, 02/01/02 3,495,625 - 3,495,625
1,900,000 - 1,900,000 Sherwin-Williams Co.
6.85%, 02/01/07 1,866,750 - 1,866,750
1,000,000 - 1,000,000 Southwest Airlines Co.
8.75%, 10/15/03 1,066,250 - 1,066,250
1,500,000 - 1,500,000 Sprint Capital Corp.
5.88%, 05/01/04 1,441,875 - 1,441,875
- 200,000 200,000 Staples, Inc.
7.13%, 08/15/07 - 196,250 196,250
1,000,000 - 1,000,000 Suntrust Bank of Atlanta, MTN
7.25%, 09/15/06 1,002,500 - 1,002,500
300,000 - 300,000 Suntrust Bank of Central Florida, MTN
6.90%, 07/01/07 296,625 - 296,625
1,000,000 - 1,000,000 Sysco Corp.
7.25%, 04/15/07 1,017,500 - 1,017,500
1,250,000 - 1,250,000 Sysco Corp.
6.50%, 08/01/28 1,118,750 - 1,118,750
3,250,000 - 3,250,000 Tele-Communication, Inc., Senior Note
7.25%, 08/01/05 3,270,313 - 3,270,313
- 200,000 200,000 Tele-Communication, Inc.
9.80%, 02/01/12 - 240,250 240,250
1,000,000 - 1,000,000 Texaco Capital, Inc.
8.50%, 02/15/03 1,055,000 - 1,055,000
500,000 - 500,000 Texas Utilities Electric Co.
7.38%, 11/01/99 500,000 - 500,000
- 210,000 210,000 Time Warner Entertainment
10.15%, 05/01/12 - 253,050 253,050
- 310,000 310,000 Trans-Canada Pipelines, Yankee
9.13%, 04/20/06 (C) - 334,413 334,413
2,000,000 - 2,000,000 United Telecommunications, Inc.
9.50%, 04/01/03 2,147,500 - 2,147,500
- 275,000 275,000 U.S. West Capital Funding, Inc.
6.88%, 08/15/01 - 274,313 274,313
2,000,000 - 2,000,000 Wachovia Bank, N.A.
6.30%, 03/15/01 1,995,000 - 1,995,000
- 260,000 260,000 Wal-Mart Stores, Inc., Euro Bond
6.75%, 05/24/02 - 261,131 261,131
2,000,000 - 2,000,000 Wal-Mart Stores, Inc.
6.75%, 05/15/02 2,012,500 - 2,012,500
575,000 - 575,000 Wal-Mart Stores, Inc.
6.88%, 08/10/09 577,875 - 577,875
600,000 - 600,000 Xerox Corp.
8.13%, 04/15/02 618,000 - 618,000
--------------------------------------------
TOTAL CORPORATE NOTES AND BONDS 104,885,155 7,638,463 112,523,618
--------------------------------------------
ASSET-BACKED SECURITIES - 2.44%
2,950,000 - 2,950,000 Chemical Master Credit Card
Trust 1, Class A
5.55%, 09/15/03 2,919,556 - 2,919,556
1,000,000 - 1,000,000 Citibank Credit Card Master Trust 1
Series 1999-1, Class A
<PAGE>
5.50%, 02/15/06 952,810 - 952,810
4,500,000 - 4,500,000 Discover Card Master Trust 1
Series 1999-1, Class A
5.30%, 08/15/04 4,367,790 - 4,367,790
2,500,000 - 2,500,000 Ford Credit Auto Owner Trust
Series 1999-D, Class A-4
6.40%, 10/15/02 2,498,425 - 2,498,425
- 218,953 218,953 General Motors Acceptance Corp.
Commercial Mortage Securities, Inc.
Series 1999-C3, Class A1A, CMO
6.97%, 05/15/08 - 218,058 218,058
25,000 - 25,000 Green Tree Financial Corp.
Series 1999-5, Class A-2
6.77%, 04/01/31 24,984 - 24,984
1,975,000 - 1,975,000 MBNA Master Credit Card Trust
Series 1998-J, Class A
5.25%, 02/15/06 1,877,474 - 1,877,474
2,500,000 - 2,500,000 MBNA Master Credit Card Trust
Series 1999-I, Class A
6.40%, 01/18/05 2,490,625 - 2,490,625
- 600,000 600,000 PNC Student Loan Trust 1
Series 1997-2, Class A6
6.57%, 01/25/04 - 590,214 590,214
440,000 - 440,000 Premier Auto Trust
Series 1999-2, Class A-4
5.59%, 02/09/04 429,959 - 429,959
1,400,000 - 1,400,000 Premier Auto Trust
Series 1999-3, Class A-4
6.43%, 03/08/04 1,401,470 - 1,401,470
365,625 - 365,625 Prudential Home Mortgage Securities
Class 1996-7, Series A-1, CMO
6.75%, 06/25/11 364,711 - 364,711
553,898 - 553,898 Rural Housing Trust
Series 1987-1, Class 1-D, CMO
6.33%, 04/01/26 542,906 - 542,906
- 500,000 500,000 Sears Credit Account Master Trust
Series 1996-4, Class A
6.45%, 10/16/06 - 498,905 498,905
- 500,000 500,000 Sears Credit Account Master Trust
Series 1997-1, Class A
6.20%, 07/16/07 - 494,560 494,560
--------------------------------------------
TOTAL ASSET-BACKED SECURITIES 17,870,710 1,801,737 19,672,447
--------------------------------------------
FOREIGN BONDS - 0.48%
2,500,000 - 2,500,000 Quebec Province
5.75%, 02/15/09 (C) 2,276,525 - 2,276,525
1,570,000 - 1,570,000 Quebec Province
7.50%, 09/15/29 (C) 1,575,888 - 1,575,888
--------------------------------------------
TOTAL FOREIGN BONDS 3,852,413 - 3,852,413
--------------------------------------------
CONVERTIBLE PREFERRED STOCK - 0.18%
SHARES
- --------------------------------------------
30,000 - 30,000 Loral Space and
Communications, Ltd.,
Series C, 6.00% (A) 1,438,125 - 1,438,125
--------------------------------------------
TOTAL CONVERTIBLE PREFERRED STOCK 1,438,125 - 1,438,125
--------------------------------------------
<PAGE>
PREFERRED STOCK - 0.02%
- 8,000 8,000 Hartford Capital II, Series B
8.35%, 10/30/26 - 198,500 198,500
--------------------------------------------
TOTAL PREFERRED STOCK - 198,500 198,500
--------------------------------------------
REPURCHASE AGREEMENT - 0.50%
PAR VALUE
- --------------------------------------------
Repurchase Agreement with:
$ - $ 4,039,766 $ 4,039,766 Lehman Brothers
5.18%, 11/01/99, dated 10/29/99 - 4,039,766 4,039,766
--------------------------------------------
TOTAL REPURCHASE AGREEMENT - 4,039,766 4,039,766
--------------------------------------------
COMMERCIAL PAPER (B) - 7.43%
29,764,000 - 29,764,000 BP Amoco Capital
5.35%, 11/01/99 29,764,000 - 29,764,000
30,000,000 - 30,000,000 Koch Industries, Inc.
5.35%, 11/01/99 30,000,000 - 30,000,000
--------------------------------------------
TOTAL COMMERCIAL PAPER 59,764,000 - 59,764,000
--------------------------------------------
TOTAL INVESTMENTS - 99.74%
(Cost $628,948,450, $44,343,972, and $673,292,422) 749,045,629 53,419,894 802,465,523
--------------------------------------------
NET OTHER ASSETS AND LIABILITIES - 0.26% 1,838,765 225,881 2,064,646
--------------------------------------------
NET ASSETS - 100.00% $ 750,884,394 $ 53,645,775 $804,530,169
============================================
</TABLE>
(A) -- Securities exempt from registration pursuant to Rule 144A under the
Securities Act of 1933, as amended. These securities may only be resold, in
transactions exempt from registration, to qualified institutional buyers. At
October 31, 1999, these securities amounted to $1,438,125, or 0.18% of net
assets.
(B) -- Discount yield at time of purchase.
(C) -- U.S. Dollar Demoninated
(D) -- Zero Coupon Bond. Yield shown reflects yield in effect at October 31,
1999
ADR -- American Depositary Receipt
CMO -- Collateralized Mortgage Obligation
MTN -- Medium Term Note
See Notes to Pro Forma Financial Statements
<PAGE>
GALAXY ASSET ALLOCATION FUND
BOSTON 1784 ASSET ALLOCATION FUND
PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
OCTOBER 31, 1999
<TABLE>
<CAPTION>
-----------------------------------------------------------
GALAXY BOSTON 1784
ASSET ASSET PRO FORMA
ALLOCATION ALLOCATION PRO FORMA COMBINED
FUND FUND ADJUSTMENTS (NOTE 1)
-----------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investments
Investments at cost $628,948,450 $ 40,304,206 $ - $669,252,656
Repurchase agreements - 4,039,766 - 4,039,766
Net unrealized appreciation 120,097,179 9,075,922 - 129,173,101
-----------------------------------------------------------
Total Investments at Value 749,045,629 53,419,894 - 802,465,523
Cash 3,145 3,489 - 6,634
Receivable for investments sold 12,820,671 32,975 - 12,853,646
Receivable for shares sold 678,348 - - 678,348
Interest and dividends receivable 4,764,568 302,802 - 5,067,370
-----------------------------------------------------------
Total Assets 767,312,361 53,759,160 - 821,071,521
LIABILITIES:
Payable for investments purchased 13,926,364 55,342 - 13,981,706
Payable for shares repurchased 1,585,754 - - 1,585,754
Advisory fee payable 467,232 32,889 - 500,121
Payable to Fleet affiliates 198,664 - - 198,664
Administration fee payable 121,085 2,895 - 123,980
Trustees' fees and expenses payable 17,145 105 - 17,250
Accrued expenses and other payables 111,723 22,154 - 133,877
-----------------------------------------------------------
Total Liabilities 16,427,967 113,385 - 16,541,352
NET ASSETS $750,884,394 $ 53,645,775 $ - $804,530,169
===========================================================
NET ASSETS CONSISTS OF:
Paid-in capital in excess of par value $615,868,022 $ 42,959,245 - $658,827,267
Undistributed net investment income 2,165,168 97,617 - 2,262,785
Accumulated net realized gain on investments sold 12,754,025 1,512,991 - 14,267,016
Net unrealized appreciation of investments 120,097,179 9,075,922 - 129,173,101
-----------------------------------------------------------
TOTAL NET ASSETS $750,884,394 $ 53,645,775 $ - $804,530,169
===========================================================
Net Assets by Class:
Retail A Shares $389,077,216 N/A $ - $389,077,216
===========================================================
Retail B Shares 91,199,117 N/A - 91,199,117
===========================================================
Trust Shares / Shares 269,850,784 53,645,775 (28,217,678) 295,278,881
===========================================================
Prime A Shares 237,778 N/A - 237,778
===========================================================
Prime B Shares 519,499 N/A - 519,499
===========================================================
BKB Shares N/A N/A 28,217,678 28,217,678
===========================================================
Shares of beneficial interest outstanding:
Retail A Shares 21,935,139 N/A - 21,935,139
===========================================================
Retail B Shares 5,153,727 N/A - 5,153,727
===========================================================
Trust Shares / Shares 15,222,769 3,462,534 (2,028,349) 16,656,954
===========================================================
Prime A Shares 13,412 N/A - 13,412
===========================================================
Prime B Shares 29,328 N/A - 29,328
===========================================================
BKB Shares N/A N/A 1,591,522 1,591,522
===========================================================
Net Asset Value, Retail A Shares $ 17.74 N/A $ 17.74
===========================================================
Net Asset Value, Retail B Shares $ 17.70 N/A $ 17.70
===========================================================
Net Asset Value, Trust Shares / Shares $ 17.73 $ 15.49 $ 17.73
===========================================================
Net Asset Value, Prime A Shares $ 17.73 N/A $ 17.73
===========================================================
Net Asset Value, Prime B Shares $ 17.71 N/A $ 17.71
===========================================================
Net Asset Value, BKB Shares N/A N/A $ 17.73
===========================================================
</TABLE>
See Notes to Pro Forma Financial Statements
<PAGE>
GALAXY ASSET ALLOCATION FUND
BOSTON 1784 ASSET ALLOCATION FUND
PRO FORMA COMBINING STATEMENT OF OPERATIONS (UNAUDITED)
OCTOBER 31, 1999
<TABLE>
<CAPTION>
---------------------------------------------------------------
GALAXY BOSTON 1784
ASSET ASSET PRO FORMA
ALLOCATION ALLOCATION PRO FORMA COMBINED
FUND FUND ADJUSTMENTS (NOTE 1)
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income:
Interest Income $ 21,285,878 $ 1,590,780 $ - $ 22,876,658
Dividend Income 3,132,775 233,198 - 3,365,973
---------------------------------------------------------------
Total Investment Income 24,418,653 1,823,978 - 26,242,631
---------------------------------------------------------------
Expenses:
Investment Advisory Fees 5,338,301 393,291 8,432 (a) 5,740,024
Administrative Fees 533,921 35,031 (42,647) (a) 526,305
Custodian Fee 80,573 22,752 (22,752) (b) 80,573
Fund Accounting Fee 135,247 527 (527) (a) 135,247
Professional Fees 47,338 4,327 (4,327) (b) 47,338
Trustee Fees 20,029 1,459 (1,459) (b) 20,029
Reports to Shareholders 151,125 3,584 - 154,709
Miscellaneous Expenses 139,893 1,216 - 141,109
---------------------------------------------------------------
Subtotal 6,446,427 462,187 (63,280) 6,845,334
Transfer Agent Fee
Retail A Shares 515,481 - - 515,481
Retail B Shares 133,280 - - 133,280
Trust Shares / Shares 535,703 58,849 43,491 (a) 638,043
Prime A Shares 244 - - 244
Prime B Shares 530 - - 530
BKB Shares - - 17,424 (a) 17,424
Shareholder Services Fee & 12B-1 Fee
Retail A Shares 1,052,992 - - 1,052,992
Retail B Shares 705,311 - - 705,311
Trust Shares / Shares - 132,867 (132,867) (a) -
Prime A Shares 438 - - 438
Prime B Shares 3,017 - - 3,017
BKB Shares - - 83,872 (a) 83,872
---------------------------------------------------------------
Total Expenses Before Waivers/Reimbursements 9,393,423 653,903 (51,360) 9,995,966
Less Waiver/Reimbursements
Fund Level Waivers - - - -
Class Specific Waivers/Reimbursements
Retail A Shares - - - -
Retail B Shares - - - -
Trust Shares / Shares - (132,867) 132,867 (c) -
Prime A Shares (241) - - (241)
Prime B Shares (523) - - (523)
BKB Shares - - (83,872) (c) (83,872)
---------------------------------------------------------------
Total Waivers/reimbursements (764) (132,867) 48,995 (84,636)
---------------------------------------------------------------
Net Expenses 9,392,659 521,036 (2,365) 9,911,330
---------------------------------------------------------------
Net Investment Income 15,025,994 1,302,942 2,365 16,331,301
---------------------------------------------------------------
Net Realized Gain on Investments 12,946,175 1,590,135 - 14,536,310
Net Change in Unrealized Appreciation on Investments 30,773,026 2,517,550 - 33,290,576
---------------------------------------------------------------
Net Realized and Unrealized Gain on Investments 43,719,201 4,107,685 - 47,826,886
---------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations $ 58,745,195 $ 5,410,627 $ 2,365 $ 64,158,187
===============================================================
</TABLE>
(a) Reflects adjustment to the acquiring fund contractual fee level.
(b) Reflects expected savings when the two funds become one.
(c) Reflects adjustment to the acquiring fund's voluntary expense limitation.
See Notes to Pro Forma Financial Statements
<PAGE>
Galaxy Asset Allocation Fund
Boston 1784 Asset Allocation Fund
Notes to Pro Forma Combining Financial Statements (unaudited)
1. Basis of Combination
The Galaxy Fund, a Massachusetts business trust (the "Trust"), is registered
under the Investment Company Act of 1940, as amended, (the "1940 Act") as an
open-end management investment company. As of October 31, 1999, the Trust
offered twenty-nine managed investment portfolios. The unaudited Pro Forma
Combining Portfolio of Investments and the unaudited Pro Forma Statement of
Assets and Liabilities assumes the exchange described in the next paragraph
occurred as of October 31, 1999 and the unaudited Pro Forma Combining Statement
of Operations assumes the exchange occurred as of November 1, 1998. These
statements have been derived from books and records utilized in calculating the
net asset value of each fund at October 31, 1999 and for the twelve-month period
then ended.
The pro forma statements give effect to the proposed transfer substantially all
of the assets and stated liabilities of the Boston 1784 Asset Allocation Fund in
exchange for Trust and BKB shares of Galaxy Asset Allocation Fund. Under
generally accepted accounting principles, the historical cost of investment
securities will be carried forward to the surviving entity and the results of
operations of the Boston 1784 Asset Allocation Fund for pre-combination periods
will not be restated. The pro forma statements do not reflect the expenses of
either fund in carrying out its obligations under the proposed Agreement and
Plan of Reorganization.
The unaudited Pro Forma Combining Financial Statements should be read in
conjunction with the historical financial statements of the funds incorporated
by reference in the Statement of Additional Information.
For the twelve-month period ended October 31, 1999, the Galaxy Asset Allocation
Fund's investment advisory fee was computed based on the annual rate of 0.75% of
its average daily net assets. The administration fee was computed based on the
annual rate of 0.09% of the first $2.5 billion of the Trust's combined average
daily net assets, 0.085% of the next $2.5 billion, 0.075% of the next $7
billion, 0.065% of the next $3 billion, 0.06% of the next $3 billion, and
0.0575% of the combined average daily net assets in excess of $18 billion, and
was allocated to each fund based on the relative net assets of the Trust.
The Trust has adopted a shareholder services plan (the "Services Plan") with
respect to Retail A, BKB and Trust Shares of the funds to compensate certain
institutions providing administrative and support services to their customers
who own such shares. Currently, the Services Plan has not been implemented for
the Trust shares. Under the Services Plan, aggregate payments may not exceed
0.50% of the average daily net assets of Retail A or BKB shareholders who are
customers of such institutions. Currently, the Trust, under the direction of the
Board of Trustees, is limiting such payments to 0.30% of the average daily net
asset of Retail A or BKB shareholders who are customers of such institutions.
The Trust has adopted a distribution and services plan (the "12b-1 Plan") with
respect to Retail B shares of the fund. Payments to the Distributor or others
for distribution services (those primarily intended to result in the sale of
Retail B shares) may not exceed 0.65% of the average daily net assets of Retail
B shares. Payments to institutions providing services to their customers owning
Retail B shares for shareholder liaison and administrative support services may
not exceed 0.25% and 0.25%, respectively, of the average daily net assets
attributable to shareholders who are customers of such institutions. The Trust
is currently limiting payments for shareholder liaison and administrative
support to 0.30% of the average daily net assets attributable to shareholders
that are customers of such institutions.
The Trust has adopted a distribution plan (the "Prime A Plan") with respect to
Prime A shares of the fund. Payments to the Distributor or others for
distribution services (those primarily intended to result in the sale of Prime A
shares) may not exceed 0.30% of the average daily net assets of Prime A shares.
The Trust is currently limiting payments under the Prime A Plan to 0.25% of the
average daily net assets of Prime A shares.
<PAGE>
Galaxy Asset Allocation Fund
Boston 1784 Asset Allocation Fund
Notes to Pro Forma Combining Financial Statements (unaudited) (continued)
The Trust has adopted a distribution and services plan (the "Prime B Plan") with
respect to Prime B shares of the fund. Payments to the Distributor or others for
distribution services (those primarily intended to result in the sale of Prime B
shares) may not exceed 0.75% of the average daily net assets of Prime B shares.
Payments to institutions providing services to their customers owning Prime B
shares for shareholder liaison and administrative support services may not
exceed 0.25% and 0.25%, respectively, of the average daily net assets
attributable to shareholders who are customers of such institutions. The Trust
is currently limiting payments for shareholder liaison and administrative
support to 0.25% of the average daily net assets attributable to shareholders
that are customers of such institutions.
2. Portfolio Valuation
The Galaxy Asset Allocation Fund's investments in securities 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 sales
price on the national securities market. Securities traded on over-the-counter
markets are valued at the last bid price. Short-term obligations that mature in
60 days or less are valued at amortized cost, which approximates fair value. All
other securities and other assets are appraised at their fair value as
determined in good faith under consistently applied procedures established by
and under the general supervision of the Board of Trustees. The Boston 1784
Asset Allocation Fund uses similar rules for determining portfolio valuation.
3. Capital Shares
The pro forma net asset value per share assumes the issuance of additional
shares of the Galaxy Asset Allocation Fund that would have been issued at
October 31, 1999 in connection with the proposed reorganization. The pro forma
number of shares outstanding of 45,380,082 consists of 3,025,707 shares assumed
issued in the reorganization plus 42,354,375 shares of the Galaxy Asset
Allocation Fund at October 31, 1999.
\<PAGE>
GALAXY GROWTH AND INCOME FUND
BOSTON 1784 GROWTH AND INCOME FUND
PRO FORMA COMBINING PORTFOLIO OF INVESTMENTS (UNAUDITED)
OCTOBER 31, 1999
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE (NOTE 2)
- ----------------------------------------------------------------------------------------------------------------------------------
GALAXY BOSTON 1784 BOSTON 1784
GROWTH & GROWTH & PRO FORMA GALAXY GROWTH GROWTH & PRO FORMA
INCOME FUND INCOME FUND COMBINED & INCOME FUND INCOME FUND COMBINED
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCK - 94.33%
TECHNOLOGY - 21.61%
146,300 - 146,300 Avnet, Inc. $ 7,945,919 $ - $ 7,945,919
173,000 400,000 573,000 Cisco Systems, Inc. 12,802,000 29,600,000 42,402,000
269,000 - 269,000 Compaq Computer Corp. 5,111,000 - 5,111,000
92,000 - 92,000 Computer Sciences Corp. 6,319,250 - 6,319,250
226,000 - 226,000 Electronic Data Systems Corp. 13,221,000 - 13,221,000
- 100,000 100,000 Equant NV, ADR - 9,700,000 9,700,000
270,000 - 270,000 Harris Corp. 6,058,125 - 6,058,125
150,000 - 150,000 Hewlett-Packard Co. 11,109,375 - 11,109,375
- 380,000 380,000 Intel Corp. - 29,426,250 29,426,250
105,000 - 105,000 International Business Machines Corp. 10,329,375 - 10,329,375
- 40,000 40,000 JDS Uniphase Corp. (CAD) - 6,688,418 6,688,418
- 500,000 500,000 Medtronic, Inc. - 17,312,500 17,312,500
- 400,000 400,000 Mircosoft Corp. - 37,025,000 37,025,000
122,000 - 122,000 Motorola, Inc. 11,887,375 - 11,887,375
145,000 150,000 295,000 Texas Instruments, Inc. 13,013,750 13,462,500 26,476,250
-----------------------------------------------
97,797,169 143,214,668 241,011,837
-----------------------------------------------
CONSUMER STAPLES - 17.08%
150,000 - 150,000 American Home Products Corp. 7,837,500 - 7,837,500
118,000 - 118,000 Anheuser-Busch Cos., Inc. 8,473,875 - 8,473,875
140,000 - 140,000 Bestfoods 8,225,000 - 8,225,000
- 160,000 160,000 Coca Cola, Inc. - 9,440,000 9,440,000
430,600 - 430,600 Elan Corp. Plc, ADR 11,087,950 - 11,087,950
170,000 - 170,000 Forest Laboratories, Inc. 7,798,750 - 7,798,750
225,000 - 225,000 Genzyme Corp. 8,606,250 - 8,606,250
1,200,000 - 1,200,000 HEALTHSOUTH Corp. 6,900,000 - 6,900,000
162,000 - 162,000 International Flavors & Fragances, Inc. 6,196,500 - 6,196,500
84,000 120,000 204,000 Johnson & Johnson 8,799,000 12,570,000 21,369,000
- 150,000 150,000 Lilly (Eli) & Co. - 10,331,250 10,331,250
180,000 - 180,000 McDonald's Corp. 7,425,000 - 7,425,000
126,000 - 126,000 Merck & Co., Inc. 10,024,875 - 10,024,875
- 105,000 105,000 Outback Steakhouse Co. - 2,415,000 2,415,000
190,000 - 190,000 PepsiCo, Inc. 6,590,625 - 6,590,625
- 375,000 375,000 Pfizer, Inc. - 14,812,500 14,812,500
130,000 - 130,000 Pharmacia & Upjohn, Inc. 7,011,875 - 7,011,875
- 935,000 935,000 PizzaExpress (UK) - 12,375,452 12,375,452
- 100,000 100,000 Reader's Digest Association, Inc. - 3,225,000 3,225,000
265,000 - 265,000 Rite Aid Corp. 2,318,750 - 2,318,750
- 225,000 225,000 Warner-Lambert Co. - 17,957,813 17,957,813
-----------------------------------------------
107,295,950 83,127,015 190,422,965
-----------------------------------------------
CONSUMER CYCLICAL - 15.23%
- 600,000 600,000 Bed Bath & Beyond, Inc. - 19,987,500 19,987,500
- 250,000 250,000 Cintas Corp. - 15,062,500 15,062,500
215,000 - 215,000 Circuit City Stores 9,177,812 - 9,177,812
392,000 - 392,000 Cooper Tire & Rubber Co. 6,590,500 - 6,590,500
90,000 - 90,000 Eastman Kodak Co. 6,204,375 - 6,204,375
98,000 - 98,000 Ford Motor Co. 5,377,750 - 5,377,750
- 250,000 250,000 Guidant Corp. - 12,343,750 12,343,750
- 500,000 500,000 Home Depot, Inc. - 37,750,000 37,750,000
220,000 - 220,000 Lowe's Cos., Inc. 12,100,000 - 12,100,000
635,000 - 635,000 Office Depot, Inc. 7,897,813 - 7,897,813
140,000 - 140,000 Penney (J.C.) Co., Inc. 3,552,500 - 3,552,500
- 110,000 110,000 Schering Plough Corp. - 5,445,000 5,445,000
385,000 - 385,000 Sherwin-Williams Co. 8,614,375 - 8,614,375
- 3,525,000 3,525,000 Wetherspoon (J.D.) Plc (UK) - 19,676,710 19,676,710
-----------------------------------------------
59,515,125 110,265,460 169,780,585
-----------------------------------------------
<PAGE>
FINANCIAL - 11.63%
- 156,250 156,250 American International Group, Inc. - 16,083,984 16,083,984
172,000 - 172,000 Bank of America Corp. 11,072,500 - 11,072,500
200,000 - 200,000 Bank One Corp. 7,512,500 - 7,512,500
96,000 - 96,000 Chase Manhattan Corp. 8,388,000 - 8,388,000
96,000 - 96,000 Chubb Corp. 5,268,000 - 5,268,000
198,000 - 198,000 Citigroup, Inc. 10,716,750 - 10,716,750
- 200,000 200,000 Concord EFS, Inc. - 5,412,500 5,412,500
170,000 - 170,000 Countrywide Credit Industries, Inc. 5,769,375 5,769,375
- 200,000 200,000 Fifth Third Bancorp - 14,762,500 14,762,500
- 500,000 500,000 Firstar Corp. - 14,687,500 14,687,500
110,000 - 110,000 Hartford Financial Services Group, Inc. 5,699,375 - 5,699,375
136,000 - 136,000 Lincoln National Corp. 6,273,000 - 6,273,000
54,000 - 54,000 Morgan (J.P.) & Co., Inc. 7,067,250 - 7,067,250
230,000 - 230,000 Wells Fargo & Co. 11,011,250 - 11,011,250
-----------------------------------------------
78,778,000 50,946,484 129,724,484
-----------------------------------------------
ENERGY - 9.60%
90,000 - 90,000 Atlantic Richfield Co. 8,386,875 - 8,386,875
200,000 - 200,000 Baker Hughes, Inc. 5,587,500 - 5,587,500
172,032 - 172,032 BP Amoco, Plc, ADR 9,934,848 - 9,934,848
- 500,000 500,000 Enron Corp. - 19,968,750 19,968,750
- 150,000 150,000 Exxon Corp. - 11,109,375 11,109,375
225,000 - 225,000 Halliburton Co. 8,479,687 - 8,479,687
160,000 - 160,000 Kerr-McGee Corp. 8,600,000 - 8,600,000
97,000 - 97,000 Mobil Corp. 9,360,500 - 9,360,500
- 100,000 100,000 Murphy Oil Corp. - 5,606,250 5,606,250
144,400 - 144,400 Schlumberger, Ltd. 8,745,225 - 8,745,225
- 300,000 300,000 Williams Cos., Inc. - 11,250,000 11,250,000
-----------------------------------------------
59,094,635 47,934,375 107,029,010
-----------------------------------------------
UTILITIES - 6.42%
159,000 300,000 459,000 American Telephone & Telegraph Corp. 7,433,250 14,025,000 21,458,250
205,500 - 205,500 Century Telephone Enterprises, Inc. 8,309,906 - 8,309,906
199,000 - 199,000 Entergy Corp. 5,957,563 - 5,957,563
122,000 - 122,000 GTE Corp. 9,150,000 - 9,150,000
170,000 40,000 210,000 MCI WorldCom, Inc. 14,588,125 3,432,500 18,020,625
170,000 - 170,000 SBC Communications, Inc. 8,659,375 - 8,659,375
-----------------------------------------------
54,098,219 17,457,500 71,555,719
-----------------------------------------------
CAPITAL GOODS AND CONSTRUCTION - 5.13%
176,500 - 176,500 Boeing Co. 8,130,031 - 8,130,031
64,000 80,000 144,000 General Electric Co. 8,676,000 10,845,000 19,521,000
66,500 - 66,500 Honeywell, Inc. 7,011,594 - 7,011,594
172,000 - 172,000 Hubbell, Inc., Class A 4,794,500 - 4,794,500
272,632 - 272,632 Tyco International Ltd. 10,888,240 - 10,888,240
370,000 - 370,000 Waste Management, Inc. 6,798,750 - 6,798,750
-----------------------------------------------
46,299,115 10,845,000 57,144,115
-----------------------------------------------
BASIC MATERIALS - 4.10%
38,100 - 38,100 Crown Cork & Seal, Inc. 912,019 - 912,019
190,000 - 190,000 Goodrich (B.F.) Co. 4,500,625 - 4,500,625
90,000 - 90,000 Minnesota Mining & Manufacturing Co. 8,555,625 - 8,555,625
- 125,000 125,000 OM Group, Inc. - 4,687,500 4,687,500
300,000 - 300,000 Pall Corp. 6,581,250 - 6,581,250
190,000 - 190,000 Praxair, Inc. 8,882,500 - 8,882,500
- 1,785,000 1,785,000 Rentokil Initial Plc (UK) - 5,950,489 5,950,489
200,000 - 200,000 Sigma Aldrich Corp. 5,700,000 - 5,700,000
-----------------------------------------------
35,132,019 10,637,989 45,770,008
-----------------------------------------------
BROADCASTING - 2.15%
- 60,000 60,000 Qualcomm, Inc. - 13,365,000 13,365,000
- 100,000 100,000 Qwest Communications International - 3,600,000 3,600,000
- 100,000 100,000 Time Warner, Inc. - 6,968,750 6,968,750
-----------------------------------------------
- 23,933,750 23,933,750
-----------------------------------------------
<PAGE>
TRANSPORTATION - 1.38%
101,500 - 101,500 British Airways Plc, ADR 5,265,313 - 5,265,313
318,000 - 318,000 Burlington Northern Santa Fe Corp. 10,136,250 - 10,136,250
-----------------------------------------------
15,401,563 - 15,401,563
-----------------------------------------------
TOTAL COMMON STOCK 553,411,795 498,362,241 1,051,774,036
-----------------------------------------------
CONVERTIBLE PREFERRED STOCKS - 0.77%
135,000 - 135,000 Crown Cork & Seal Co., Inc., 4.50% 2,978,437 - 2,978,437
37,000 - 37,000 Loral Space and Communications, Ltd.,
6.00%
Series C, 6.00% 1,773,688 - 1,773,688
80,000 - 80,000 Loral Space and Communications, Ltd.,
6.00% 3,835,000 - 3,835,000
-----------------------------------------------
TOTAL CONVERTIBLE PREFFERRED STOCKS 8,587,125 - 8,587,125
-----------------------------------------------
PAR VALUE
- --------------------------------
REPURCHASE AGREEMENTS - 4.49%
Repurchase Agreement with:
$41,135,000 $ - $41,135,000 Chase Manhattan Bank
5.20%, 11/01/99, dated 10/29/99 43,135,000 - 43,135,000
- 6,923,306 6,923,306 Lehman Brothers
5.18%, 11/01/99, dated 10/29/99 - 6,923,306 6,923,306
-----------------------------------------------
TOTAL REPURCHASE AGREEMENTS 43,135,000 6,923,306 50,058,306
-----------------------------------------------
TOTAL INVESTMENTS - 99.59%
(COST $504,020,975, $255,271,545, AND $759,292,520) 605,133,920 505,285,547 1,110,419,467
-----------------------------------------------
NET OTHER ASSETS AND LIABILITIES - 0.41% (1,271,845) 5,892,425 4,620,580
-----------------------------------------------
NET ASSETS - 100.00% $ 603,862,075 $ 511,177,972 $1,115,040,047
===============================================
</TABLE>
ADR - American Depositary Receipt
UK - United Kingdom Equity
CAD - Canadian Equity
See Notes to Pro Forma Financial Statements
<PAGE>
GALAXY GROWTH AND INCOME FUND
BOSTON 1784 GROWTH AND INCOME FUND
PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
OCTOBER 31, 1999
<TABLE>
<CAPTION>
-------------------------------------------------------------------
GALAXY BOSTON 1784 PRO FORMA
GROWTH & GROWTH & PRO FORMA COMBINED
INCOME FUND INCOME FUND ADJUSTMENTS (NOTE 1)
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investments
Investments at cost $ 460,885,975 $248,348,239 $ - $ 709,234,214
Repurchase agreements 43,135,000 6,923,306 - 50,058,306
Net unrealized appreciation 101,112,945 250,014,002 - 351,126,947
------------------------------------------------------------------
Total Investments at Value 605,133,920 505,285,547 - 1,110,419,467
Cash 345 9,795 - 10,140
Receivable for investments sold 2,886,699 12,058,251 - 14,944,950
Receivable for shares sold 250,664 -- - 250,664
Interest and dividends receivable 480,135 199,571 - 679,706
Tax Reclaim Receivable -- 24,578 - 24,578
------------------------------------------------------------------
Tot al Assets 608,751,763 517,577,742 - 1,126,329,505
LIABILITIES:
Payable for investments purchased 3,065,371 5,939,252 - 9,004,623
Payable for shares repurchased 1,263,762 2,591 - 1,266,353
Payable for Forward Contracts -- 5,251 - 5,251
Advisory fee payable 336,545 310,112 - 646,657
Payable to Fleet affiliates 83,093 -- - 83,093
Administration fee payable 71,345 27,305 - 98,650
Trustees' fees and expenses payable 15,235 1,160 - 16,395
Accrued expenses and other payables 54,337 114,099 - 168,436
------------------------------------------------------------------
Total Liabilities 4,889,688 6,399,770 - 11,289,458
NET ASSETS $ 603,862,075 $511,177,972 $ - $ 1,115,040,047
==================================================================
NET ASSETS CONSISTS OF:
Paid-in capital $ 469,231,325 $210,876,791 - $ 680,108,116
Undistributed (overdistributed) net investment income 148,148 (594,738) - (446,590)
Accumulated net realized gain on investments sold 33,369,657 50,881,917 - 84,251,574
Net unrealized appreciation of investments 101,112,945 250,014,002 - 351,126,947
------------------------------------------------------------------
TOTAL NET ASSETS $ 603,862,075 $511,177,972 $ - $ 1,115,040,047
==================================================================
Net Assets by Class:
Retail A Shares $ 232,110,404 N/A $ - $ 232,110,404
==================================================================
Retail B Shares 62,365,649 N/A - 62,365,649
==================================================================
Trust Shares / Shares 309,106,303 511,177,972 (143,641,010) 676,643,265
==================================================================
Prime A Shares 150,276 N/A - 150,276
==================================================================
Prime B Shares 129,443 N/A - 129,443
==================================================================
BKB Shares N/A N/A 143,641,010 143,641,010
==================================================================
Shares of beneficial interest outstanding:
Retail A Shares 14,524,500 N/A - 14,524,500
==================================================================
Retail B Shares 3,921,763 N/A - 3,921,763
==================================================================
Trust Shares / Shares 19,290,157 21,819,394 1,122,988 42,232,539
==================================================================
Prime A Shares 9,392 N/A - 9,392
==================================================================
Prime B Shares 8,107 N/A - 8,107
==================================================================
BKB Shares N/A N/A 8,966,355 8,966,355
==================================================================
Net Asset Value, Retail A Shares $ 15.98 N/A $ 15.98
==================================================================
Net Asset Value, Retail B Shares $ 15.90 N/A $ 15.90
==================================================================
Net Asset Value, Trust Shares / Shares $ 16.02 $ 23.43 $ 16.02
==================================================================
Net Asset Value, Prime A Shares $ 16.00 N/A $ 16.00
==================================================================
Net Asset Value, Prime B Shares $ 15.97 N/A $ 15.97
==================================================================
Net Asset Value, BKB Shares N/A N/A $ 16.02
==================================================================
</TABLE>
See Notes to Pro Forma Financial Statements
<PAGE>
GALAXY GROWTH AND INCOME FUND
BOSTON 1784 GROWTH AND INCOME FUND
PRO FORMA COMBINING STATEMENT OF OPERATIONS (UNAUDITED)
OCTOBER 31, 1999
<TABLE>
<CAPTION>
---------------------------------------------------------------
GALAXY BOSTON 1784 PRO FORMA
GROWTH & GROWTH & PRO FORMA COMBINED
INCOME FUND INCOME FUND ADJUSTMENTS (NOTE 1)
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income:
Interest Income $ 2,381,072 $ 965,191 $ - $ 3,346,263
Dividend Income 8,692,757 3,577,457 - 12,270,214
Less: foreign taxes withheld - (73,234) - (73,234)
---------------------------------------------------------------
Total Investment Income 11,073,829 4,469,414 - 15,543,243
---------------------------------------------------------------
Expenses:
Investment Advisory Fees 4,577,393 4,069,436 58,216 (a) 8,705,045
Administrative Fees 456,860 362,599 (21,291) (a) 798,168
Custodian Fee 34,257 59,827 (50,000) (b) 44,084
Fund Accounting Fee 97,808 5,501 35,370 (a) 138,679
Professional Fees 42,945 45,341 (42,252) (b) 46,034
Trustee Fees 15,416 15,359 (11,827) (b) 18,948
Reports to Shareholders 155,349 37,651 (37,651) (b) 155,349
Miscellaneous Expenses 106,323 29,734 - 136,057
---------------------------------------------------------------
Subtotal 5,486,351 4,625,448 (69,435) 10,042,364
Transfer Agent Fee
Retail A Shares 491,381 - - 491,381
Retail B Shares 133,578 - - 133,578
Trust Shares / Shares 462,089 232,079 (75,034) (a) 619,134
Prime A Shares 161 - - 161
Prime B Shares 156 - - 156
BKB Shares - - 82,686 (a) 82,686
Shareholders Service Fee + 12B-1 Fee
Retail A Shares 678,795 - - 678,795
Retail B Shares 566,968 - - 566,968
Trust Shares / Shares - 1,374,828 (1,374,828) (a) -
Prime A Shares 264 - - 264
Prime B Shares 549 - - 549
BKB Shares - - 463,613 (a) 463,613
---------------------------------------------------------------
Total Expenses Before Waivers/Reimbursements 7,820,292 6,232,355 (972,998) 13,079,649
Less Waiver/Reimbursements
Fund Level Waivers - - - -
Class Specific Waivers/Reimbursements
Retail A Shares (252,526) - 84,130 (c) (168,396)
Retail B Shares (493) - - (493)
Trust Shares / Shares (2,565) (1,374,828) 1,374,828 (c) (2,565)
Prime A Shares (154) - - (154)
Prime B Shares (152) - - (152)
BKB Shares - - (463,613) (c) (463,613)
---------------------------------------------------------------
Total Waivers/Reimbursements (255,890) (1,374,828) 995,345 (635,373)
Net Expenses 7,564,402 4,857,527 22,347 12,444,276
---------------------------------------------------------------
Net Investment Income 3,509,427 (388,113) (22,347) 3,098,967
---------------------------------------------------------------
Net Realized Gain on Investments 33,835,048 50,924,849 - 84,759,897
Net Realized (Loss) on forward foreign currency contracts
and foreign currency - (20,734) - (20,734)
Net Change in Unrealized Appreciation on Investments 38,430,506 34,076,738 - 72,507,244
---------------------------------------------------------------
Net Realized and Unrealized Gain on Investments 72,265,554 84,980,853 - 157,246,407
---------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations $ 75,774,981 $ 84,592,740 $ (22,347) $160,345,374
===============================================================
</TABLE>
(a) Reflects adjustment to the acquiring fund contractual fee level.
(b) Reflects expected savings when the two funds become one.
(c) Reflects adjustment to the acquiring fund's voluntary expense limitation.
See Notes to Pro Forma Financial Statements
<PAGE>
Galaxy Growth and Income Fund
Boston 1784 Growth and Income Fund
Notes to Pro Forma Combining Financial Statements (unaudited)
1. Basis of Combination
The Galaxy Fund, a Massachusetts business trust (the "Trust"), is registered
under the Investment Company Act of 1940, as amended, (the "1940 Act") as an
open-end management investment company. As of October 31, 1999, the Trust
offered twenty-nine managed investment portfolios. The unaudited Pro Forma
Combining Portfolio of Investments and the unaudited Pro Forma Statement of
Assets and Liabilities assumes the exchange described in the next paragraph
occurred as of October 31, 1999 and the unaudited Pro Forma Combining Statement
of Operations assumes the exchange occurred as of November 1, 1998. These
statements have been derived from books and records utilized in calculating the
net asset value of each fund at October 31, 1999 and for the twelve-month period
then ended.
The pro forma statements give effect to the proposed transfer of substantially
all of the assets and stated liabilities of the Boston 1784 Growth and Income
Fund in exchange for Trust and BKB shares of Galaxy Growth and Income Fund.
Under generally accepted accounting principles, the historical cost of
investment securities will be carried forward to the surviving entity and the
results of operations of the Boston 1784 Growth and Income Fund for
pre-combination periods will not be restated. The pro forma statements do not
reflect the expenses of either fund in carrying out its obligations under the
proposed Agreement and Plan of Reorganization.
The unaudited Pro Forma Combining Financial Statements should be read in
conjunction with the historical financial statements of the funds incorporated
by reference in the Statement of Additional Information.
For the twelve-month period ended October 31, 1999, the Galaxy Growth and Income
Fund's investment advisory fee was computed based on the annual rate of 0.75% of
its average daily net assets. The administration fee was computed based on the
annual rate of 0.09% of the first $2.5 billion of the Trust's combined average
daily net assets, 0.085% of the next $2.5 billion, 0.075% of the next $7
billion, 0.065% of the next $3 billion, 0.06% of the next $3 billion, and
0.0575% of the combined average daily net assets in excess of $18 billion, and
was allocated to each fund based on the relative net assets of the Trust.
The Trust has adopted a shareholder services plan (the "Services Plan") with
respect to Retail A, BKB and Trust Shares of the funds to compensate certain
institutions providing administrative and support services to their customers
who own such shares. Currently, the Services Plan has not been implemented for
the Trust shares. Under the Services Plan, aggregate payments may not exceed
0.50% of the average daily net assets of Retail A or BKB shareholders who are
customers of such institutions. Currently, the Trust, under the direction of the
Board of Trustees, is limiting such payments to 0.30% of the average daily net
assets of Retail A or BKB shareholders who are customers of such institutions.
The Trust has adopted a distribution and services plan (the "12b-1 Plan") with
respect to Retail B shares of the fund. Payments to the Distributor or others
for distribution services (those primarily intended to result in the sale of
Retail B shares) may not exceed 0.65% of the average daily net assets of Retail
B shares. Payments to institutions providing services to their customers owning
Retail B shares for shareholder liaison and administrative support services may
not exceed 0.25% and 0.25%, respectively, of the average daily net assets
attributable to shareholders who are customers of such institutions. The Trust
is currently limiting payments for shareholder liaison and administrative
support to 0.30% of the average daily net assets attributable to shareholders
that are customers of such institutions.
The Trust has adopted a distribution plan (the "Prime A Plan") with respect to
Prime A shares of the fund. Payments to the Distributor or others for
distribution services (those primarily intended to result in the sale of Prime A
shares) may not exceed 0.30% of the average daily net assets of Prime A shares.
The Trust is currently limiting payments under the Prime A Plan to 0.25% of the
average daily net assets of Prime A shares.
<PAGE>
Galaxy Growth and Income Fund
Boston 1784 Growth and Income Fund
Notes to Pro Forma Combining Financial Statements (unaudited) (continued)
The Trust has adopted a distribution and services plan (the "Prime B Plan") with
respect to Prime B shares of the fund. Payments to the Distributor or others for
distribution services (those primarily intended to result in the sale of Prime B
shares) may not exceed 0.75% of the average daily net assets of Prime B shares.
Payments to institutions providing services to their customers owning Prime B
shares for shareholder liaison and administrative support services may not
exceed 0.25% and 0.25%, respectively, of the average daily net assets
attributable to shareholders who are customers of such institutions. The Trust
is currently limiting payments for shareholder liaison and administrative
support to 0.25% of the average daily net assets attributable to shareholders
that are customers of such institutions.
2. Portfolio Valuation
The Galaxy Growth and Income Fund's investments in securities 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 sales price on the national securities market. Securities traded on
over-the-counter markets are valued at the last bid price. Short-term
obligations that mature in 60 days or less are valued at amortized cost, which
approximates fair value. All other securities and other assets are appraised at
their fair value as determined in good faith under consistently applied
procedures established by and under the general supervision of the Board of
Trustees. The Boston 1784 Growth and Income Fund uses similar rules for
determining portfolio valuation.
3. Capital Shares
The pro forma net asset value per share assumes the issuance of additional
shares of the Galaxy Growth and Income Fund that would have been issued at
October 31, 1999 in connection with the proposed reorganization. The pro forma
number of shares outstanding of 69,662,656 consists of 31,908,737 shares assumed
issued in the reorganization plus 37,753,919 shares of the Galaxy Growth and
Income Fund at October 31, 1999.
<PAGE>
GALAXY INTERNATIONAL EQUITY FUND
BOSTON 1784 INTERNATIONAL EQUITY FUND
PRO FORMA COMBINING PORTFOLIO OF INVESTMENTS (UNAUDITED)
OCTOBER 31, 1999
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE (NOTE 2)
- -----------------------------------------------------------------------------------------------------------------------------------
BOSTON 1784
GALAXY INT'L INT'L EQUITY PRO FORMA GALAXY INT'L BOSTON 1784 INT'L PRO FORMA
EQUITY FUND FUND COMBINED EQUITY FUND EQUITY FUND COMBINED
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCKS - 93.93%
AUSTRALIA - 1.22%
760,884 - 760,884 Australia & New Zealand $ 5,022,284 $ - $ 5,022,284
- 411,142 411,142 Broken Hill Proprietary Co. - 4,245,813 4,245,813
1,124,169 - 1,124,169 Coca-Cola Amatil, Ltd. 3,470,255 - 3,470,255
----------------------------------------------
8,492,539 4,245,813 12,738,352
----------------------------------------------
BRAZIL - 0.20%
- 100,000 100,000 Aracruz Celulose SA, ADR 2,050,000 2,050,000
----------------------------------------------
CANADA - 2.23%
222,800 - 222,800 BCE, Inc. 13,414,937 - 13,414,937
158,200 - 158,200 Manulife Financial Corp. 1,902,915 - 1,902,915
159,100 - 159,100 Seagram Co., Ltd. 7,887,424 - 7,887,424
----------------------------------------------
23,205,276 - 23,205,276
----------------------------------------------
FINLAND - 2.00%
- 120,348 120,348 Nokia OYJ - 13,813,985 13,813,985
- 70,000 70,000 Sonera - 2,108,218 2,108,218
- 153,000 153,000 UPM-Kymmene OYJ - 4,841,991 4,841,991
----------------------------------------------
- 20,764,194 20,764,194
----------------------------------------------
FRANCE - 9.00%
- 95,000 95,000 Alstom - 2,886,206 2,886,206
- 25,536 25,536 Axa - 3,612,376 3,612,376
- 32,500 32,500 Banque National de Paris - 2,862,735 2,862,735
- 26,189 26,189 Cap Gemini - 3,978,256 3,978,256
50,430 30,500 80,930 Carrefour SA 9,334,999 5,662,703 14,997,702
43,223 - 43,223 Equant 4,205,032 - 4,205,032
- 27,300 27,300 LaFarge - 2,635,088 2,635,088
249,913 - 249,913 Rhodia SA 4,823,226 - 4,823,226
- 100,008 100,008 Sanofi-Synthelabo - 4,425,660 4,425,660
- 131,400 131,400 STMicroelectronics, ADR - 11,940,975 11,940,975
79,490 - 79,490 Suez Lyonnaise 12,833,158 - 12,833,158
- 60,000 60,000 Total Fina - 8,133,279 8,133,279
80,041 - 80,041 Valeo SA 5,749,709 - 5,749,709
139,029 - 139,029 Vivendi 10,535,424 - 10,535,424
----------------------------------------------
47,481,548 46,137,278 93,618,826
----------------------------------------------
GERMANY - 9.67%
- 20,700 20,700 Allianz AG - 6,321,646 6,321,646
253,604 - 253,604 Bayerische Motoren Werke (BMW) AG 8,081,861 - 8,081,861
- 42,200 42,200 Bayerische Vereinsbank - 2,777,847 2,777,847
20,760 - 20,760 Celanese AG 327,515 - 327,515
- 90,000 90,000 Deutsche Bank - 6,474,976 6,474,976
- 60,500 60,500 Epcos AG - 2,476,272 2,476,272
207,600 - 207,600 Hoechst AG 9,137,670 - 9,137,670
116,853 73,600 190,453 Mannesmann AG 18,404,302 11,607,276 30,011,578
263,592 - 263,592 Metallgesellschaft AG 5,489,213 - 5,489,213
- 70,000 70,000 Preussag - 3,802,915 3,802,915
19,895 - 19,895 SAP AG 8,767,396 - 8,767,396
93,070 37,000 130,070 Siemens AG 8,354,604 3,331,321 11,685,925
97,781 - 97,781 Veba AG 5,286,038 - 5,286,038
----------------------------------------------
63,848,599 36,792,253 100,640,852
----------------------------------------------
GREECE - 0.26%
128,360 - 128,360 Hellenic Telecommunications
Organization SA (OTE) 2,719,232 - 2,719,232
----------------------------------------------
HONG KONG - 2.33%
1,496,000 2,548,000 4,044,000 China Telecom, Ltd. 5,122,298 8,725,690 13,847,988
- 2,000,000 2,000,000 Cosco Pacific, Ltd. - 1,480,528 1,480,528
<PAGE>
- 172,800 172,800 HSBC Holdings - 2,074,490 2,074,490
262,000 420,000 682,000 Hutchison Whampoa, Ltd. 2,630,556 4,217,573 6,848,129
----------------------------------------------
7,752,854 16,498,281 24,251,135
----------------------------------------------
HUNGARY - 0.20%
46,270 - 46,270 Gedeon Richter, GDR 2,111,263 - 2,111,263
----------------------------------------------
IRELAND - 0.30%
- 1,194,000 1,194,000 Jefferson Smurfit Group, PLC - 3,082,177 3,082,177
----------------------------------------------
ITALY - 3.56%
3,022,460 - 3,022,460 Banca Nazionale del Lavoro 10,235,972 - 10,235,972
141,700 - 141,700 Banca Popolare di Bergamo 3,047,725 - 3,047,725
1,287,569 - 1,287,569 Unicredito Italiano SPA 6,026,195 - 6,026,195
1,026,881 200,300 1,227,181 Mediaset SPA 10,249,413 2,005,204 12,254,617
630,504 - 630,504 Telecom Italia SPA 5,444,320 - 5,444,320
----------------------------------------------
35,003,625 2,005,204 37,008,829
----------------------------------------------
JAPAN - 31.01%
- 30,000 30,000 Advantest Corp. - 4,524,496 4,524,496
- 12,900 12,900 Aeon Credit Service Co. - 1,883,573 1,883,573
- 30,200 30,200 Aiful Corp. - 4,699,712 4,699,712
- 240,000 240,000 Asahi Bank - 2,134,870 2,134,870
- 95,000 95,000 Credit Saison, Ltd. - 2,340,778 2,340,778
- 656,000 656,000 Daiwa Securities - 7,013,718 7,013,718
1,283,000 - 1,283,000 Fuji Bank, Ltd. 17,595,569 - 17,595,569
265,000 325,000 590,000 Fujitsu, Ltd. 7,980,244 9,803,074 17,783,318
- 16,000 16,000 Funai Electric Ltd. - 7,254,563 7,254,563
- 475,000 475,000 Ind'l Bank of Japan - 6,433,718 6,433,718
80,000 - 80,000 Ito-Yokado Co., Ltd. 6,398,772 - 6,398,772
- 250 250 Japan Telecom - 8,597,502 8,597,502
226,000 - 226,000 Kao Corp. 6,892,491 - 6,892,491
- 52,000 52,000 Matsushita Communications Co. - 8,751,585 8,751,585
107,000 57,000 164,000 Murata Manufacturing Co., Ltd. 13,750,839 7,337,176 21,088,015
- 32,200 32,200 Mycal Card, Inc. - 1,422,863 1,422,863
- 320,000 320,000 NEC Corp. - 6,486,071 6,486,071
649,000 470,000 1,119,000 Nikko Securities 6,099,741 4,424,592 10,524,333
- 35,500 35,500 Nippon System Development - 3,035,062 3,035,062
592 - 592 Nippon Telegraph & Telephone Corp. 9,084,109 - 9,084,109
252,000 135,000 387,000 Nomura Securities Co., Ltd. 4,159,317 2,231,844 6,391,161
1,356 407 1,763 NTT Mobile Communication Network 36,023,017 10,829,875 46,852,892
64,000 - 64,000 Rohm Co., Ltd. 14,362,712 - 14,362,712
- 6,000 6,000 Ryohin Keikaku Co., Ltd. - 1,156,196 1,156,196
- 6,000 6,000 Ryohin Keikaku -- New - 1,156,196 1,156,196
1,566,000 - 1,566,000 Sakura Bank, Ltd. 13,456,757 - 13,456,757
403,000 150,000 553,000 The Sanwa Bank, Ltd. 5,994,562 2,234,870 8,229,432
- 32,500 32,500 Secom - 3,490,394 3,490,394
- 32,500 32,500 Secom - New - 3,465,418 3,465,418
- 144,000 144,000 Shin-Etsu Chemical Co. - 5,948,127 5,948,127
9,338 - 9,338 Shoskoh Fund & Co., Ltd. 5,713,670 - 5,713,670
- 26,800 26,800 Softbank Corp. - 11,147,358 11,147,358
- 48,000 48,000 Sony Corp. - 7,497,406 7,497,406
- 300,000 300,000 Sumitomo Electric - 4,037,464 4,037,464
168,000 - 168,000 Takeda Chemical Industries 9,651,098 - 9,651,098
44,100 - 44,100 Takefuji Corp. 5,709,696 - 5,709,696
82,000 - 82,000 TDK Corp. 8,029,347 - 8,029,347
- 13 13 Yahoo Japan Corp. - 6,868,396 6,868,396
125,000 - 125,000 Yamanouchi Pharmaceutical Co., Ltd. 5,670,375 - 5,670,375
----------------------------------------------
176,572,316 146,206,897 322,779,213
----------------------------------------------
MEXICO - 0.44%
- 53,000 53,000 Telefonos de Mexico, ADR - 4,531,500 4,531,500
----------------------------------------------
NETHERLANDS - 6.77%
- 2,740 2,740 Ahold - 84,400 84,400
- 40,000 40,000 Akzo Nobel - 1,727,504 1,727,504
- 60,500 60,500 ASM Lithography Holdings Common - 4,393,813 4,393,813
- 126 126 Benckiser NV, Series B - 7,470 7,470
- 23,600 23,600 Eqant NV - NY Registered - 2,289,200 2,289,200
123,870 - 123,870 Gucci Group 10,002,503 - 10,002,503
- 55,000 55,000 Heineken - 2,813,366 2,813,366
- 37,500 37,500 ING Groep N.V. - 2,214,499 2,214,499
402,418 - 402,418 Koninklijke Ptt 20,650,039 - 20,650,039
<PAGE>
71,105 - 71,105 Laurus NV 1,581,697 - 1,581,697
- 20,480 20,480 Philips Electronics - 2,106,424 2,106,424
119,332 - 119,332 Royal Dutch Petroleum 7,132,590 - 7,132,590
196,098 - 196,098 Vendex International 5,723,330 - 5,723,330
287,346 - 287,346 VNU NV 9,716,252 - 9,716,252
----------------------------------------------
54,806,411 15,636,676 70,443,087
----------------------------------------------
NEW ZEALAND - 0.56%
1,438,887 - 1,438,887 Telecom Corp. of New Zealand 5,791,211 - 5,791,211
----------------------------------------------
NORWAY - 0.20%
- 54,122 54,122 Tomra Systems - 2,076,292 2,076,292
----------------------------------------------
PHILLIPINES - 0.17%
234,590 - 234,590 Metropolitan Bank & Trust Co. 1,755,040 - 1,755,040
----------------------------------------------
SINGAPORE - 0.42%
- 203,525 203,525 DBS Bank - 2,302,901 2,302,901
- 120,000 120,000 Singapore Press Holdings - 2,058,381 2,058,381
----------------------------------------------
- 4,361,282 4,361,282
----------------------------------------------
SOUTH KOREA - 1.61%
- 55,000 55,000 Housing & Commercial Bank, GDR - 1,465,750 1,465,750
106,700 114,000 220,700 Korea Telecom Corp., ADR 3,761,175 4,018,500 7,779,675
- 117,000 117,000 Pohang Iron & Steel, ADR - 3,904,875 3,904,875
- 42,500 42,500 Samsung Elect, GDR 144A - 3,612,500 3,612,500
----------------------------------------------
3,761,175 13,001,625 16,762,800
----------------------------------------------
SPAIN - 1.41%
69,265 - 69,265 Banco Popular Espnol SA 4,662,367 - 4,662,367
457,884 150,392 608,276 Telefonica de Espana SA 7,531,906 2,481,263 10,013,169
----------------------------------------------
12,194,273 2,481,263 14,675,536
----------------------------------------------
SWEDEN - 1.80%
- 134,000 134,000 Ericsson, Series B - 5,592,190 5,592,190
398,926 - 398,926 Hennes & Mauritz AB, Class B 10,597,609 - 10,597,609
- 425,000 425,000 Nordbanken Holding AB - 2,489,323 2,489,323
----------------------------------------------
10,597,609 8,081,513 18,679,122
----------------------------------------------
SWITZERLAND - 2.97%
18,092 4,000 22,092 Clariant AG 7,918,737 1,754,686 9,673,423
- 4,600 4,600 Holderbk Fin Glarus - 5,678,527 5,678,527
5,831 - 5,831 Novartis AG, Registered 8,724,116 - 8,724,116
- 300 300 Roche Hoding AG-Genussshein - 3,610,654 3,610,654
- 11,000 11,000 UBS AG - Registered - 3,208,484 3,208,484
----------------------------------------------
16,642,853 14,252,351 30,895,204
----------------------------------------------
TAIWAN - 0.48%
- 143,910 143,910 Taiwan Semiconductor ADR - 4,982,884 4,982,884
----------------------------------------------
UNITED KINGDOM - 15.12%
- 300,000 300,000 Allied Zurich - 3,625,452 3,625,452
184,433 - 184,433 AstraZeneca Group, PLC 8,340,722 - 8,340,722
- 2,631 2,631 Bank of Scotland - 32,833 32,833
- 105,044 105,044 Barclays - 3,224,550 3,224,550
616,723 - 616,723 B.A.T. Industries, PLC 4,084,245 - 4,084,245
- 508,000 508,000 BP Amoco - 4,936,337 4,936,337
2,058,624 - 2,058,624 British Aerospace, PLC 12,026,333 - 12,026,333
593,326 - 593,326 British Sky Broadcasting, PLC 6,371,703 - 6,371,703
- 255,878 255,878 British Telecommunications - 4,642,574 4,642,574
- 56,800 56,800 CMG, PLC - 2,209,615 2,209,615
926,084 - 926,084 Diageo, PLC 9,359,272 - 9,359,272
- 250,000 250,000 Dixons Group - 4,431,108 4,431,108
398,541 177,642 576,183 Glaxo Wellcome, PLC 11,762,399 5,245,726 17,008,125
- 388,900 388,900 Hanson, PLC - 3,050,071 3,050,071
465,400 - 465,400 Imperial Chemical Industries, PLC 4,626,988 - 4,626,988
- 250,000 250,000 Imperial Tobacco - 2,651,266 2,651,266
- 151,478 151,478 Lloyds TSB Group, PLC - 2,095,836 2,095,836
- 287,000 287,000 Prudential Corp., PLC - 4,504,135 4,504,135
460,085 - 460,085 Railtrack Group, PLC 9,314,625 - 9,314,625
1,266,999 - 1,266,999 Reed International, PLC 7,391,306 - 7,391,306
- 1,047,000 1,047,000 Shell Transportation & Trading Co., PLC - 8,030,672 8,030,672
<PAGE>
1,322,829 - 1,322,829 Somerfield, PLC 2,771,599 - 2,771,599
- 500,000 500,000 Telewest Communications, PLC - 2,139,510 2,139,510
4,262,925 2,285,045 6,547,970 Vodafone Group, PLC 19,824,886 10,632,485 30,457,371
----------------------------------------------
95,874,078 61,452,170 157,326,248
----------------------------------------------
TOTAL COMMON STOCKS 568,609,902 408,639,653 977,249,555
----------------------------------------------
PREFERRED STOCKS - 0.29%
GERMANY - 0.29%
- 1,120 1,120 Porsche AG - 3,060,054 3,060,054
----------------------------------------------
TOTAL PREFERRED STOCKS - 3,060,054 3,060,054
----------------------------------------------
PAR VALUE
- -----------------------------------
REPURCHASE AGREEMENTS - 5.21%
Repurchase Agreement with:
$ 28,704,000 $ - $ 28,704,000 Chase Manhattan Bank
5.20%, 11/01/99, dated 10/29/99 28,704,000 - 28,704,000
- 25,550,369 25,550,369 Lehman Brothers
5.18%, 11/01/99, dated 10/29/99 - 25,550,369 25,550,369
----------------------------------------------
TOTAL REPURCHASE AGREEMENTS 28,704,000 25,550,369 54,254,369
----------------------------------------------
TOTAL INVESTMENTS - 99.43%
(Cost $449,135,536, $336,365,746, and $785,501,282) 597,313,902 437,250,076 1,034,563,978
----------------------------------------------
NET OTHER ASSETS AND LIABILITIES - 0.57% (3,551,803) 9,433,066 5,881,263
----------------------------------------------
NET ASSETS - 100.00% $ 593,762,099 $ 446,683,142 $1,040,445,241
----------------------------------------------
----------------------------------------------
</TABLE>
ADR - American Depository Receipt
GDR - Global Depository Receipt
See Notes to Pro Forma Financial Statements
<PAGE>
GALAXY INTERNATIONAL EQUITY FUND
BOSTON 1784 INTERNATIONAL EQUITY FUND
PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
OCTOBER 31, 1999
<TABLE>
<CAPTION>
PRO FORMA
GALAXY INT'L BOSTON 1784 INT'L PRO FORMA COMBINED
EQUITY FUND EQUITY FUND ADJUSTMENTS (NOTE 1)
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investments
Investments at cost $ 420,431,536 $ 310,815,377 $ - $ 731,246,913
Repurchase agreements 28,704,000 25,550,369 - 54,254,369
Net unrealized appreciation 148,178,366 100,884,330 - 249,062,696
--------------------------------------------------------------------
Total Investments at Value 597,313,902 437,250,076 - 1,034,563,978
Cash and Foreign Currency 315 3,882,525 - 3,882,840
Receivable for investments sold - 11,466,193 - 11,466,193
Receivable for shares sold 4,036,525 997,467 - 5,033,992
Interest and dividends receivable 513,995 639,125 - 1,153,120
Tax Reclaim Receivable 231,577 703,389 - 934,966
--------------------------------------------------------------------
Total Assets 602,096,314 454,938,775 - 1,057,035,089
LIABILITIES:
Payable for forward foreign currency contracts 11,600 37,510 - 49,110
Payable for investments purchased 7,674,328 7,625,478 - 15,299,806
Payable for shares repurchased 106,611 - - 106,611
Advisory fee payable 306,628 359,404 - 666,032
Payable to Fleet affiliates 44,754 - - 44,754
Administration fee payable 71,473 23,399 - 94,872
Trustees' fees and expenses payable 12,406 752 - 13,158
Accrued expenses and other payables 106,415 209,090 - 315,505
--------------------------------------------------------------------
Total Liabilities 8,334,215 8,255,633 - 16,589,848
NET ASSETS $ 593,762,099 $ 446,683,142 $ - $ 1,040,445,241
====================================================================
NET ASSETS CONSISTS OF:
Paid-in capital $ 407,277,400 $ 267,950,925 $ - $ 675,228,325
Undistributed (overdistributed) net investment income 3,972,887 (2,700,727) - 1,272,160
Accumulated net realized gain on investments sold 34,334,139 80,523,039 - 114,857,178
Net unrealized appreciation of investments 148,177,673 100,909,905 - 249,087,578
--------------------------------------------------------------------
TOTAL NET ASSETS $ 593,762,099 $ 446,683,142 $ - $ 1,040,445,241
====================================================================
Net Assets by Class:
Retail A Shares $ 89,326,639 N/A $ - $ 89,326,639
====================================================================
Retail B Shares 2,188,744 N/A - 2,188,744
====================================================================
Trust Shares / Shares 501,776,006 446,683,142 $ (35,734,651) 912,724,497
====================================================================
Prime A 12,255 N/A - 12,255
====================================================================
Prime B 458,455 N/A - 458,455
====================================================================
BKB Shares N/A N/A 35,734,651 35,734,651
====================================================================
Shares of beneficial interest outstanding:
Retail A Shares 4,282,082 N/A - 4,282,082
====================================================================
Retail B Shares 105,225 N/A - 105,225
====================================================================
Trust Shares / Shares 23,687,146 27,453,231 (8,050,564) 43,089,813
====================================================================
Prime A Shares 584 N/A - 584
====================================================================
Prime B Shares 21,986 N/A - 21,986
====================================================================
BKB Shares N/A N/A 1,687,188 1,687,188
====================================================================
Net Asset Value, Retail A Shares $ 20.86 N/A $ 20.86
====================================================================
Net Asset Value, Retail B Shares $ 20.80 N/A $ 20.80
====================================================================
Net Asset Value, Trust Shares / Shares $ 21.18 $ 16.27 $ 21.18
====================================================================
Net Asset Value, Prime A Shares $ 20.98 N/A $ 20.98
====================================================================
Net Asset Value, Prime B Shares $ 20.85 N/A $ 20.85
====================================================================
Net Asset Value, BKB Shares N/A N/A $ 21.18
====================================================================
</TABLE>
See Notes to Pro Forma Financial Statements
<PAGE>
GALAXY INTERNATIONAL EQUITY FUND
BOSTON 1784 INTERNATIONAL EQUITY FUND
PRO FORMA COMBINING STATEMENT OF OPERATIONS (UNAUDITED)
OCTOBER 31, 1999
<TABLE>
<CAPTION>
PRO FORMA
GALAXY INT'L BOSTON 1784 INT'L PRO FORMA COMBINED
EQUITY EQUITY FUND ADJUSTMENTS (NOTE 1)
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income:
Interest Income $ 713,887 $ 6,179,288 $ - $ 6,893,175
Dividend Income 7,503,713 213,999 - 7,717,712
Less: foreign taxes withheld (875,473) (426,296) - (1,301,769)
-------------------------------------------------------------------
Total Investment Income 7,342,127 5,966,991 - 13,309,118
-------------------------------------------------------------------
Expenses:
Investment Advisory Fees 4,336,206 4,199,395 (624,490)(a) 7,911,111
Administrative Fees 365,677 276,728 (18,551)(a) 623,854
Custodian Fee 498,586 223,866 - 722,452
Fund Accounting Fee 111,998 17,159 17,743 (a) 146,900
Professional Fees 44,453 32,930 (32,930)(b) 44,453
Trustee Fees 14,105 11,719 (11,000)(b) 14,824
Reports to Shareholders 94,558 26,659 (26,659)(b) 94,558
Miscellaneous Expenses 114,870 12,380 - 127,250
-------------------------------------------------------------------
Subtotal 5,580,453 4,800,836 (695,887) 9,685,402
Transfer Agent Fee
Retail A Shares 240,531 - - 240,531
Retail B Shares 6,583 - - 6,583
Trust Shares / Shares 278,950 85,465 - 364,415
Prime A 73 - - 73
Prime B 291 - - 291
BKB Shares - - 13,222 (a) 13,222
Shareholder Services Fee & 12B-1 Fees
Retail A Shares 204,149 - - 204,149
Retail B Shares 7,842 - - 7,842
Trust Shares / Shares - 1,049,849 (1,049,849)(a) -
Prime A - - - -
Prime B 2,177 - - 2,177
BKB Shares - - 100,781 (a) 100,781
-------------------------------------------------------------------
Total Expenses before reimbursement/waiver 6,321,049 5,936,150 (1,631,733) 10,625,466
Less Waiver/Reimbursements
Fund Level Waivers (1,216,531) - (870,004)(c) (2,086,535)
Class Specific Waivers/reimbursements
Retail A Shares - - - -
Retail B Shares (4,614) - - (4,614)
Trust Shares / Shares - (1,049,849) 1,049,849 (c) -
Prime A (71) - - (71)
Prime B (292) - - (292)
BKB Shares - (26,875)(c) (26,875)
-------------------------------------------------------------------
Total Waivers/Reimbursements (1,221,508) (1,049,849) 152,970 (2,118,387)
Net Expenses 5,099,541 4,886,301 (1,478,763) 8,507,079
-------------------------------------------------------------------
Net Investment Income 2,242,586 1,080,690 1,478,763 4,802,039
-------------------------------------------------------------------
Net Realized Gain on Investments 34,349,686 102,165,290 - 136,514,976
Net Realized (Loss) on Forward Foreign Currency
Contracts and Foreign Currency (4,120,655) (3,439,651) - (7,560,306)
Net Change in Unrealized Appreciation on Forward
Foreign Currency Contracts, Foreign Currencies
and Translation of Other Assets and
Liabilities in Foreign Currency - 2,477,204 - 2,477,204
Net Change in Unrealized Appreciation on Investments 94,656,598 30,213,731 - 124,870,329
-------------------------------------------------------------------
Net Realized and Unrealized Gain on Investments 124,885,629 131,416,574 - 256,302,203
-------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations $127,128,215 $ 132,497,264 $ 1,478,763 $ 261,104,242
===================================================================
(a) Reflects adjustment to the acquiring fund contractual
fee level.
(b) Reflects expected savings when the two funds become one.
(c) Reflects adjustment to the acquiring fund's voluntary
expense limitation.
</TABLE>
See Notes to Pro Forma Financial Statements
<PAGE>
Galaxy International Equity Fund
Boston 1784 International Equity Fund
Notes to Pro Forma Combining Financial Statements (unaudited)
1. Basis of Combination
The Galaxy Fund, a Massachusetts business trust (the "Trust"), is registered
under the Investment Company Act of 1940, as amended, (the "1940 Act") as an
open-end management investment company. As of October 31, 1999, the Trust
offered twenty-nine managed investment portfolios. The unaudited Pro Forma
Combining Portfolio of Investments and the unaudited Pro Forma Statement of
Assets and Liabilities assumes the exchange described in the next paragraph
occurred as of October 31, 1999 and the unaudited Pro Forma Combining Statement
of Operations assumes the exchange occurred as of November 1, 1998. These
statements have been derived from books and records utilized in calculating the
net asset value of each fund at October 31, 1999 and for the twelve-month period
then ended.
The pro forma statements give effect to the proposed transfer of substantially
all of the assets and stated liabilities of the Boston 1784 International Equity
Fund in exchange for Trust and BKB shares of Galaxy International Equity Fund.
Under generally accepted accounting principles, the historical cost of
investment securities will be carried forward to the surviving entity and the
results of operations of the Boston 1784 International Equity Fund for
pre-combination periods will not be restated. The pro forma statements do not
reflect the expenses of either fund in carrying out its obligations under the
proposed Agreement and Plan of Reorganization.
The unaudited Pro Forma Combining Financial Statements should be read in
conjunction with the historical financial statements of the funds incorporated
by reference in the Statement of Additional Information.
For the twelve-month period ended October 31, 1999, the Galaxy International
Equity Fund's investment advisory fee was computed based on the annual rate of
1.15% of the first $50 million of its average daily net assets, 0.95% of the
next $50 million and 0.85% as average daily net assets in excess of $100
million. The administration fee was computed based on the annual rate of 0.09%
of the first $2.5 billion of the Trust's combined average daily net assets,
0.085% of the next $2.5 billion, 0.075% of the next $7 billion, 0.065% of the
next $3 billion, 0.06% of the next $3 billion, and 0.0575% of the combined
average daily net assets in excess of $18 billion, and was allocated to each
fund based on the relative net assets of the Trust.
The Trust has adopted a shareholder services plan (the "Services Plan") with
respect to Retail A, BKB and Trust Shares of the funds to compensate certain
institutions providing administrative and support services to their customers
who own such shares. Currently, the Services Plan has not been implemented for
the Trust shares. Under the Services Plan, aggregate payments may not exceed
0.50% of the average daily net assets of Retail A or BKB shareholders who are
customers of such institutions. Currently, the Trust, under the direction of the
Board of Trustees, is limiting such payments to 0.30% of the average daily net
asset of Retail A or BKB shareholders who are customers of such institutions.
The Trust has adopted a distribution and services plan (the "12b-1 Plan") with
respect to Retail B shares of the fund. Payments to the Distributor or others
for distribution services (those primarily intended to result in the sale of
Retail B shares) may not exceed 0.65% of the average daily net assets of Retail
B shares. Payments to institutions providing services to their customers owning
Retail B shares for shareholder liaison and administrative support services may
not exceed 0.25% and 0.25%, respectively, of the average daily net assets
attributable to shareholders who are customers of such institutions. The Trust
is currently limiting payments for shareholder liaison and administrative
support to 0.30% of the average daily net assets attributable to shareholders
that are customers of such institutions.
The Trust has adopted a distribution plan (the "Prime A Plan") with respect to
Prime A shares of the fund. Payments to the Distributor or others for
distribution services (those primarily intended to result in the sale of Prime A
shares) may not exceed 0.30% of the average daily net assets of Prime A shares.
The Trust is
<PAGE>
Galaxy International Equity Fund
Boston 1784 International Equity Fund
Notes to Pro Forma Combining Financial Statements (unaudited) (continued)
currently limiting payments under the Prime A Plan to 0.25% of the average daily
net assets of Prime A shares.
The Trust has adopted a distribution and services plan (the "Prime B Plan") with
respect to Prime B shares of the fund. Payments to the Distributor or others for
distribution services (those primarily intended to result in the sale of Prime B
shares) may not exceed 0.75% of the average daily net assets of Prime B shares.
Payments to institutions providing services to their customers owning Prime B
shares for shareholder liaison and administrative support services may not
exceed 0.25% and 0.25%, respectively, of the average daily net assets
attributable to shareholders who are customers of such institutions. The Trust
is currently limiting payments for shareholder liaison and administrative
support to 0.25% of the average daily net assets attributable to shareholders
that are customers of such institutions.
2. Portfolio Valuation
The Galaxy International Equity Fund's investments in securities 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 sales price on the national securities market. Securities traded on
over-the-counter markets are valued at the last bid price. Short-term
obligations that mature in 60 days or less are valued at amortized cost, which
approximates fair value. All other securities and other assets are appraised at
their fair value as determined in good faith under consistently applied
procedures established by and under the general supervision of the Board of
Trustees. The Boston 1784 International Equity Fund uses similar rules for
determining portfolio valuation.
3. Capital Shares
The pro forma net asset value per share assumes the issuance of additional
shares of the Galaxy International Equity Fund that would have been issued at
October 31, 1999 in connection with the proposed reorganization. The pro forma
number of shares outstanding of 49,186,878 consists of 21,089,855 shares assumed
issued in the reorganization plus 28,097,023 shares of the Galaxy International
Equity Fund at October 31, 1999.
<PAGE>
THE GALAXY FUND
FORM N-14
PART C. OTHER INFORMATION
Item 15. INDEMNIFICATION
Indemnification of the Registrant's principal underwriter, custodian and
transfer agent against certain losses is provided for, respectively, in Section
1.19 of the Distribution Agreement incorporated herein by reference as Exhibit
(7)(a), in Section 12 of the Global Custody Agreement incorporated herein by
reference as Exhibit (9)(a) and in Article 10 of the Transfer Agency and
Services Agreement incorporated herein by reference as Exhibit (13)(g). The
Registrant has obtained from a major insurance carrier a directors' and
officers' liability policy covering certain types of errors and omissions. In
addition, Section 9.3 of the Registrant's Declaration of Trust dated March 31,
1986, incorporated herein by reference as Exhibit (1)(a), provides as follows:
9.3 INDEMNIFICATION OF TRUSTEES, REPRESENTATIVES AND EMPLOYEES. The
Trust shall indemnify each of its Trustees against all liabilities
and expenses (including amounts paid in satisfaction of judgments,
in compromise, as fines and penalties, and as counsel fees)
reasonably incurred by him in connection with the defense or
disposition of any action, suit or other proceeding, whether civil
or criminal, in which he may be involved or with which he may be
threatened, while as a Trustee or thereafter, by reason of his
being or having been such a Trustee EXCEPT with respect to any
matter as to which he shall have been adjudicated to have acted in
bad faith, willful misfeasance, gross negligence or reckless
disregard of his duties, PROVIDED that as to any matter disposed
of by a compromise payment by such person, pursuant to a consent
decree or otherwise, no indemnification either for said payment or
for any other expenses shall be provided unless the Trust shall
have received a written opinion from independent legal counsel
approved by the Trustees to the effect that if either the matter
of willful misfeasance, gross negligence or reckless disregard of
duty, or the matter of bad faith had been adjudicated, it would in
the opinion of such counsel have been adjudicated in favor of such
person. The rights accruing to any person under these provisions
shall not exclude any other right to which he may be lawfully
entitled, PROVIDED that no person may satisfy any right of
indemnity or reimbursement hereunder except out of the property of
the Trust. The Trustees may make advance payments in connection
with the indemnification under this Section 9.3, PROVIDED that the
indemnified person shall have given a written undertaking to
reimburse the Trust in the event it is subsequently determined
that he is not entitled to such indemnification.
<PAGE>
The Trustees shall indemnify representatives and employees of the
Trust to the same extent that Trustees are entitled to
indemnification pursuant to this Section 9.3.
Insofar as indemnification for liability arising under the
Securities Act of 1933, as amended, may be permitted to trustees,
officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the SEC such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant
of expenses incurred or paid by a trustee, officer or controlling
person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such trustee, officer or
controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed
in the Act and will be governed by the final adjudication of such
issue.
Item 16. EXHIBITS
(1) (a) Declaration of Trust dated March 31, 1986.(4)
(b) Amendment No. 1 to the Declaration of Trust dated
as of April 26, 1988.(4)
(c) Certificate pertaining to Classification of Shares
dated May 5, 1986 pertaining to Class A and Class
B shares.(4)
(d) Certificate of Classification of Shares dated
December 9, 1987 pertaining to Class C, Class D
and Class E shares.(4)
(e) Certificate of Classification of Shares dated
November 8, 1989 pertaining to Class C - Special
Series 1 and Class D Special Series 1 shares.(4)
(f) Certificate of Classification of Shares dated
August 16, 1990 pertaining to Class F shares;
Class G - Series 1 shares; Class G - Series 2
shares; Class H - Series 1 shares; Class H -
Series 2 shares; Class I - Series 1 shares; Class
I - Series 2 shares; Class J - Series 1 shares;
and Class J - Series 2 shares.(4)
(g) Certificate of Classification of Shares dated
December 10, 1991 pertaining to Class K - Series 1
shares; Class K - Series 2 shares; Class L -
Series 1 shares; Class L - Series 2 shares; Class
M - Series 1 shares; Class M - Series 2 shares;
Class N - Series 1
-2-
<PAGE>
shares; Class N Series 2 shares; Class O - Series
1 shares; and Class O - Series 2 shares.(4)
(h) Certificate of Classification of Shares dated
February 22, 1993 pertaining to Class P - Series 1
shares; Class P - Series 2 shares; Class Q -
Series 1 shares; Class Q - Series 2 shares; Class
R - Series 1 shares; Class R - Series 2 shares;
and Class S shares.(4)
(i) Certificate of Classification of Shares dated
December 7, 1994 pertaining to Class T - Series 1
shares and Class T - Series 2 shares.(4)
(j) Certificate of Classification of Shares pertaining
to Class U - Series 1 shares and Class U - Series
2 shares; Class V shares; Class W shares; and
Class X - Series 1 shares and Class X - Series 2
shares.(8)
(k) Certificate of Classification of Shares pertaining
to Class C - Special Series 2 shares; Class H -
Series 3 shares; Class J Series 3 shares; Class K
- Series 3 shares; Class L - Series 3 shares;
Class M - Series 3 shares; Class N - Series 3
shares; and Class U - Series 3 shares.(8)
(l) Certificate of Classification of Shares pertaining
to Class A - Special Series 2 shares.(8)
(m) Certificate of Classification of Shares pertaining
to Class Y - Series 1 shares and Class Y - Series
2 shares; Class Z - Series 1 shares, Class Z -
Series 2 shares and Class Z - Series 3 shares; and
Class AA - Series 1 shares, Class AA - Series 2
shares and Class AA - Series 3 shares.(8)
(n) Certificate of Classification of Shares pertaining
to Class BB; Class CC and Class DD shares.(8)
(o) Certificate of Classification of Shares pertaining
to Class C - Special Series 3 shares; Class C -
Special Series 4 shares; Class D - Special Series
3 shares; Class D - Special Series 4 shares; Class
G - Series 4 shares; Class G - Series 5 shares;
Class H - Series 4 shares; Class H - Series 5
shares; Class I - Series 4 shares; Class I -
Series 5 shares; Class J - Series 4 shares; Class
J - Series 5 shares; Class K - Series 4 shares;
Class K - Series 5 shares; Class L - Series 4
shares; Class L - Series 5 shares; Class M -
Series 4 shares; Class M - Series 5 shares; Class
N - Series 4 shares; Class N - Series 5 shares;
Class U - Series 4 shares; Class U - Series 5
-3-
<PAGE>
shares; Class X - Series 4 shares; Class X -
Series 5 shares; Class AA - Series 4 shares; and
Class AA - Series 5 shares.(8)
(p) Certificate of Classification of Shares pertaining
to Class D - Special Series 2 shares; Class G -
Series 3 shares; Class I Series 3 shares; and
Class X - Series 3 shares.(8)
(q) Certificate of Classification of Shares pertaining
to Class EE - Series shares and Class EE - Series
2 shares; Class V - Special Series 1 shares; and
Class W - Special Series 1 shares.(11)
(r) Certificate of Classification of Shares pertaining
to Class A - Special Series 3 shares; Class F -
Special Series 2 shares; Class E - Special Series
2 shares; Class L - Series 6 shares; Class D -
Special Series 5 shares; Class J - Series 6
shares; Class R - Series 3 shares; Class N -
Series 6 shares; Class U - Series 6 shares; Class
H - Series 6 shares and Class G - Series 6
shares.(12)
(2) Code of Regulations.(4)
(3) Not Applicable.
(4) Form of Agreement and Plan of Reorganization,
filed as Appendix II to the Combined
Prospectus/Proxy Statement.(13)
(5) Article V, Section 5.1, and Article VIII, Section
8.1, of Registrant's Declaration of Trust
incorporated herein by reference as Exhibit
(1)(a), and Amendment No. 1 to Registrant's
Declaration of Trust incorporated herein by
reference as Exhibit (1)(b).
(6) (a) Advisory Agreement between the Registrant and
Fleet Investment Advisors Inc. with respect to the
Money Market, Government, U.S. Treasury,
Tax-Exempt, Institutional Government Money Market
(formerly Institutional Treasury Money Market),
Short-Term Bond, Intermediate Government Income
(formerly Intermediate Bond), Corporate Bond, High
Quality Bond, Tax-Exempt Bond, New York Municipal
Bond, Connecticut Municipal Bond, Massachusetts
Municipal Bond, Rhode Island Municipal Bond,
Equity Value, Equity Growth, Equity Income,
International Equity, Small Company Equity and
Asset Allocation Funds dated as of May 19,
1994.(2)
(b) Addendum No. 1 to Advisory Agreement between the
Registrant and Fleet Investment Advisors Inc. with
respect to the Connecticut Municipal Money Market,
Massachusetts Municipal Money
-4-
<PAGE>
Market, Growth and Income and Small Cap Value
Funds dated as of December 1, 1995.(1)
(c) Addendum No. 2 to Advisory Agreement between the
Registrant and Fleet Investment Advisors Inc. with
respect to the New Jersey Municipal Bond Fund,
MidCap Equity Fund and Strategic Equity Fund dated
as of March 3, 1998.(5)
(d) Addendum No. 3 to Advisory Agreement dated
September 18, 1998 between the Registrant and
Fleet Investment Advisors Inc. with respect to the
Prime Reserves, Government Reserves and Tax-Exempt
Reserves.(8)
(e) Form of Addendum No. 4 to Advisory Agreement
between the Registrant and Fleet Investment
Advisors Inc. with respect to the New York
Municipal Money Market Fund.(11)
(f) Sub-Advisory Agreement between Fleet Investment
Advisors Inc. and Oechsle International Advisors,
LLC with respect to the International Equity Fund
dated as of October 8, 1998.(8)
(7) (a) Distribution Agreement between the Registrant and
Provident Distributors, Inc. dated as of December
1, 1999.(12)
(b) Form of Amendment No. 1 to Distribution Agreement
between the Registrant and Provident Distributors,
Inc. with respect to the New York Municipal Money
Market Fund.(11)
(8) The Galaxy Fund/The Galaxy VIP Fund/Galaxy Fund II
Deferred Compensation Plan and Related Agreement
effective as of January 1, 1997.(2)
(9) (a) Global Custody Agreement between the Registrant
and The Chase Manhattan Bank dated as of November
1, 1991.(4)
(b) Form of Amendment to Global Custody Agreement
between the Registrant and The Chase Manhattan
Bank with respect to the New Jersey Municipal
Bond, MidCap Equity and Strategic Equity Funds.(3)
(c) Form of Amendment to Global Custody Agreement
between the Registrant and The Chase Manhattan
Bank with respect to the Prime Reserves,
Government Reserves and Tax-Exempt Reserves.(5)
-5-
<PAGE>
(d) Form of Amendment to Global Custody Agreement
between the Registrant and The Chase Manhattan
Bank with respect to the New York Municipal Money
Market Fund.(11)
(e) Amendment dated December 2, 1998 to Global Custody
Agreement between the Registrant and The Chase
Manhattan Bank with respect to foreign custody
monitoring delegation. (9)
(f) Consent to Assignment of Global Custody Agreement
between the Registrant, The Chase Manhattan Bank,
N.A. and 440 Financial Group of Worcester, Inc. to
The Shareholder Services Group, Inc. d/b/a 440
Financial dated March 31, 1995.(11)
(10) (a) Distribution and Services Plan for Retail B Shares
and Related Form of Servicing Agreement.(6)
(b) Distribution and Services Plan and Related Form of
Servicing Agreement with respect to the Prime
Reserves, Government Reserves and Tax-Exempt
Reserves.(5)
(c) Distribution Plan for Prime A Shares.(6)
(d) Distribution and Services Plan for Prime B Shares
and Related Form of Servicing Agreement.(6)
(e) Distribution and Services Plan and Related Form of
Servicing Agreement with respect to Prime Shares
of the New York Municipal Money Market,
Connecticut Municipal Money Market and
Massachusetts Municipal Money Market Funds.(12)
(f) Shareholder Services Plan for Trust Shares and
Retail A Shares and Related Forms of Servicing
Agreements.(12)
(g) Form of Shareholder Services Plan for BKB Shares
and Related Forms of Servicing Agreements.(12)
(11) (a) Opinion of counsel dated September 28, 1999 that
shares will be validly issued, fully paid and
non-assessable.(10)
(b) Opinion and consent of counsel dated December 3,
1999.(11)
(c) Opinion of Drinker Biddle & Reath LLP that shares
will be validly issued, fully paid and
non-assessable (including consent of firm).(13)
(12) Opinion of Drinker Biddle & Reath LLP as to tax
consequences (including consent of firm).(13)
-6-
<PAGE>
(13) (a) Administration Agreement between the Registrant
and PFPC Inc. (formerly known as First Data
Investor Services Group, Inc.) dated as of June 1,
1997.(3)
(b) Amendment No. 1 dated March 3, 1998 to
Administration Agreement between the Registrant
and PFPC Inc. (formerly known as First Data
Investor Services Group, Inc.) with respect to the
New Jersey Municipal Bond Fund, MidCap Equity Fund
and Strategic Equity Fund.(5)
(c) Amendment No. 2 dated as of March 5, 1998 to
Administration Agreement between the Registrant
and PFPC Inc. (formerly known as First Data
Investor Services Group, Inc.)(6)
(d) Amendment No. 3 dated as of September 18, 1998 to
Administration Agreement between the Registrant
and PFPC Inc. (formerly known as First Data
Investor Services Group, Inc.) with respect to the
Prime Reserves, Government Reserves and Tax-Exempt
Reserves Fund.(8)
(e) Amendment No. 4 dated as of September 10, 1998 to
Administration Agreement between the Registrant
and PFPC Inc. (formerly known as First Data
Investor Services Group, Inc.) (9)
(f) Amendment No. 5 dated as of December 1, 1999 to
Administration Agreement between Registrant and
PFPC Inc. (formerly known as First Data Investor
Services Group, Inc.)(12)
(g) Form of Amendment No. 6 to Administration
Agreement between the Registrant and PFPC Inc.
(formerly known as First Data Investor Services
Group, Inc.) with respect to the New York
Municipal Money Market Fund.(11)
(h) Transfer Agency and Services Agreement between the
Registrant and PFPC Inc. (formerly known as First
Data Investor Services Group, Inc.) dated as of
June 1, 1997.(3)
(i) Amendment No. 1 dated March 3, 1998 to Transfer
Agency and Services Agreement between the
Registrant and PFPC Inc. (formerly known as First
Data Investor Services Group, Inc.) with respect
to the New Jersey Municipal Bond Fund, MidCap
Equity Fund and Strategic Equity Fund.(5)
-7-
<PAGE>
(j) Amendment No. 2 dated as of March 5, 1998 to
Transfer Agency and Services Agreement between the
Registrant and PFPC Inc. (formerly known as First
Data Investor Services Group, Inc.)(6)
(k) Amendment No. 3 dated as of September 18, 1998 to
Transfer Agency and Services Agreement between the
Registrant and PFPC Inc. (formerly known as First
Data Investor Services Group, Inc.) with respect
to the Prime Reserves, Government Reserves and
Tax-Exempt Reserves Fund.(8)
(l) Amendment No. 4 dated as of September 10, 1998 to
Transfer Agency and Services Agreement between
Registrant and PFPC Inc. (formerly known as First
Data Investor Services Group, Inc.) (9)
(m) Amendment No. 5 dated as of September 9, 1999 to
Transfer Agency and Services Agreement between
Registrant and PFPC Inc. (formerly known as First
Data Investor Services Group, Inc.)(12)
(n) Amendment No. 6 dated as of December 2, 1999 to
Transfer Agency and Services Agreement between
Registrant and PFPC Inc. (formerly known as First
Data Investor Services Group, Inc.)(12)
(o) Form of Amendment No. 7 to Transfer Agency and
Services Agreement between Registrant and PFPC
Inc. (formerly known as First Data Investor
Services Group, Inc.) with respect to the New York
Municipal Money Market Fund.(11)
(p) Purchase Agreement between the Registrant and
Shearson Lehman Brothers Inc. dated July 24,
1986.(4)
(q) Purchase Agreement between the Registrant and
Shearson Lehman Brothers Inc. dated October 11,
1990 with respect to the Treasury, Equity Growth,
Equity Income, International Equity and High
Quality Bond Funds.(4)
(r) Purchase Agreement between the Registrant and SMA
Equities, Inc. dated December 30, 1991 with
respect to the Small Company Equity Fund,
Short-Term Bond Fund, Tax-Exempt Bond Fund, Asset
Allocation Fund, and New York Municipal Bond
Fund.(4)
(s) Purchase Agreement between the Registrant and
Allmerica Investments, Inc. dated February 22,
1993 with respect to the Connecticut Municipal
Bond, Massachusetts Municipal Bond, Rhode Island
Municipal Bond and Institutional Government Money
Market (formerly Institutional Treasury Money
Market) Funds.(4)
-8-
<PAGE>
(t) Purchase Agreement between the Registrant and 440
Financial Distributors, Inc. dated May 19, 1994
with respect to the Corporate Bond Fund.(4)
(u) Purchase Agreement between the Registrant and
First Data Investor Services, Inc. dated February
28, 1996 with respect to the Connecticut Municipal
Money Market, Massachusetts Municipal Money Market
Money, Growth and Income and Small Cap Value
Funds.(4)
(v) Purchase Agreement between the Registrant and
First Data Distributors, Inc. with respect to the
New Jersey Municipal Bond Fund.(5)
(w) Form of Purchase Agreement between the Registrant
and First Data Distributors, Inc. with respect to
the MidCap Equity Fund.(3)
(x) Purchase Agreement between the Registrant and
First Data Distributors, Inc. with respect to the
Strategic Equity Fund.(5)
(y) Purchase Agreement between the Registrant and
First Data Distributors, Inc. dated September 18,
1998 with respect to the Prime Reserves,
Government Reserves and Tax-Exempt Reserves.(9)
(14) (a) Consent of Drinker Biddle & Reath LLP.(13)
(b) Consent of Ernst & Young LLP.(13)
(c) Consent of PricewaterhouseCoopers LLP.(13)
(15) None.
(16) Powers of Attorney.(13)
(17) (a) Forms of Proxy Ballot.(13)
(b)(i) Prospectus and Statement of Additional
Information for BKB Shares of the Galaxy Money
Market, U.S. Treasury, Tax-Exempt, Short-Term
Bond, Intermediate Government Income, High
Quality Bond, Rhode Island Municipal Bond, Asset
Allocation, Growth and Income, Equity Growth and
International Equity Funds dated February __,
2000.(13)
(b)(ii) Prospectuses and Statement of Additional
Information for Retail A Shares, Retail B Shares
and Trust Shares of the Galaxy Asset Allocation,
Galaxy Equity Income, Galaxy Growth and Income,
Galaxy Strategic Equity, Galaxy Equity Value,
Galaxy Equity Growth, Galaxy International
Equity, Galaxy Small Cap Value and Galaxy Small
Company Equity Funds dated February __, 2000.(13)
(b)(iii) Prospectuses and Statement of Additional
Information for Retail A Shares, Retail B Shares
and Trust Shares of the Galaxy Short-Term Bond,
Galaxy Intermediate Government
-9-
<PAGE>
Income and Galaxy High Quality Bond Funds and the
Trust Shares of the Galaxy Corporate Bond Fund
dated February __, 2000.(13)
(b)(iv) Prospectuses and Statement of Additional
Information for Retail A Shares, Retail B Shares
and Trust Shares of the Galaxy Tax-Exempt Bond
Fund and the Retail A Shares and Trust Shares
of the Galaxy New Jersey Municipal Bond, Galaxy
New York Municipal Bond, Galaxy Connecticut
Municipal Bond, Galaxy Massachusetts Municipal
Bond and Galaxy Rhode Island Municipal Bond Funds
dated February __, 2000.(13)
(b)(v) Prospectuses and Statement of Additional
Information for Retail A Shares, Retail B Shares
and Trust Shares of the Galaxy Money Market Fund
and the Retail A Shares and Trust Shares of the
Galaxy Government, Galaxy U.S. Treasury and
Galaxy Tax-Exempt Funds, Trust Shares of the
Galaxy Institutional Government Money Market,
and Retail A Shares of the Galaxy Connecticut
Municipal Money Market and Massachusetts
Municipal Money Market Funds February __,
2000.(13)
(b)(vi) Prospectuses and Statement of Additional
Information for Shares of the Boston 1784 Tax-Free
Money Market, Boston 1784 U.S. Treasury Money
Market, Boston 1784 Institutional U.S. Treasury
Money Market, Boston 1784 Prime Money Market,
Boston 1784 Institutional Prime Money Market,
Boston 1784 Short-Term Income, Boston 1784 Income,
Boston 1784 U.S. Government Medium-Term Income,
Boston 1784 Tax-Exempt Medium-Term Income, Boston
1784 Connecticut Tax-Exempt Income, Boston 1784
Florida Tax-Exempt Income, Boston 1784
Massachusetts Tax-Exempt Income, Boston 1784 Rhode
Island Tax-Exempt Income, Boston 1784 Asset
Allocation, Boston 1784 Growth and Income, Boston
1784 Growth and Boston 1784 International Equity
Funds dated October 1, 1999.(13)
(b)(vii) Annual Reports for the fiscal year ended October
31, 1999 for the Galaxy Asset Allocation, Galaxy
Equity Income, Galaxy Growth and Income, Galaxy
Strategic Equity, Galaxy Equity Value, Galaxy
Equity Growth, Galaxy International Equity, Galaxy
Small Cap Value, Galaxy Small Company Equity,
Galaxy Short-Term Bond, Galaxy Intermediate
Government Income, Galaxy High Quality Bond,
Galaxy Corporate Bond, Galaxy Tax-Exempt Bond,
Galaxy New Jersey Municipal Bond, Galaxy New York
Municipal Bond, Galaxy Connecticut Municipal Bond,
Galaxy Massachusetts Municipal Bond, Galaxy Rhode
Island Municipal Bond, Galaxy Money Market, Galaxy
Government, Galaxy U.S. Treasury, Galaxy
Tax-Exempt, Galaxy Institutional Government Money
Market, Galaxy Connecticut Municipal Money Market
and Galaxy Massachusetts Municipal Money Market
Funds.(13)
-10-
<PAGE>
(b)(viii) Annual Reports for the fiscal year ended May 31,
1999 for the Boston 1784 Tax-Free Money Market,
Boston 1784 U.S. Treasury Money Market, Boston
1784 Institutional U.S. Treasury Money Market,
Boston 1784 Prime Money Market, Boston 1784
Institutional Prime Money Market, Boston 1784
Short-Term Income, Boston 1784 Income, Boston 1784
U.S. Government Medium-Term Income, Boston 1784
Tax-Exempt Medium-Term Income, Boston 1784
Connecticut Tax-Exempt Income, Boston 1784 Florida
Tax-Exempt Income, Boston 1784 Massachusetts
Tax-Exempt Income, Boston 1784 Rhode Island
Tax-Exempt Income, Boston 1784 Asset Allocation,
Boston 1784 Growth and Income, Boston 1784 Growth
and Boston 1784 International Equity Funds.(13)
(b)(ix) Semi-Annual Reports for the semi-annual period
ended November 30, 1999 for the Boston 1784
Tax-Free Money Market, Boston 1784 U.S. Treasury
Money Market, Boston 1784 Institutional U.S.
Treasury Money Market, Boston 1784 Prime Money
Market, Boston 1784 Institutional Prime Money
Market, Boston 1784 Short-Term Income, Boston 1784
Income, Boston 1784 U.S. Government Medium-Term
Income, Boston 1784 Tax-Exempt Medium-Term Income,
Boston 1784 Connecticut Tax-Exempt Income, Boston
1784 Florida Tax-Exempt Income, Boston 1784
Massachusetts Tax-Exempt Income, Boston 1784 Rhode
Island Tax-Exempt Income, Boston 1784 Asset
Allocation, Boston 1784 Growth and Income, Boston
1784 Growth and Boston 1784 International Equity
Funds.(13)
(b)(x) Amended and Restated Plan Pursuant to Rule 18f-3
for Operation of a Multi-Class System.(12)
(1) Filed electronically as an Exhibit and incorporated herein by
reference to Post-Effective Amendment No. 27 to the Registrant's
Registration Statement on Form N-1A (File Nos. 33-4806 and 811-4636)
as filed with the Commission on March 4, 1996.
(2) Filed electronically as an Exhibit and incorporated herein by
reference to Post-Effective Amendment No. 29 to the Registrant's
Registration Statement on Form N-1A as filed with the Commission on
December 30, 1996.
(3) Filed electronically as an Exhibit and incorporated herein by
reference to Post-Effective Amendment No. 31 to the Registrant's
Registration Statement on Form N-1A as filed with the Commission on
December 15, 1997.
-11-
<PAGE>
(4) Filed electronically as an Exhibit and incorporated herein by
reference to Post-Effective Amendment No. 32 to the Registrant's
Registration Statement on Form N-1A as filed with the Commission on
February 27, 1998.
(5) Filed electronically as an Exhibit and incorporated herein by
reference to Post-Effective Amendment No. 33 to the Registrant's
Registration Statement on Form N-1A as filed with the Commission on
June 30, 1998.
(6) Filed electronically as an Exhibit and incorporated herein by
reference to Post-Effective Amendment No. 34 to the Registrant's
Registration Statement on Form N-1A as filed with the Commission on
September 11, 1998.
(7) Filed electronically as an Exhibit and incorporated herein by
reference to Post-Effective Amendment No. 35 to the Registrant's
Registration Statement on Form N-1A as filed with the Commission on
October 6, 1998.
(8) Filed electronically as an Exhibit and incorporated herein by
reference to Post-Effective Amendment No. 36 to the Registrant's
Registration Statement on Form N-1A as filed with the Commission on
December 30, 1998.
(9) Filed electronically as an Exhibit and incorporated herein by
reference to Post-Effective Amendment No. 37 to the Registrant's
Registration Statement on Form N-1A as filed with the Commission on
February 26, 1999.
(10) Filed electronically as an Exhibit and incorporated herein by
reference to Post-Effective Amendment No. 38 to the Registrant's
Registration Statement on Form N-1A as filed with the Commission on
September 28, 1999.
(11) Filed electronically as an Exhibit and incorporated herein by
reference to Post-Effective Amendment No. 40 to the Registrant's
Registration Statement on Form N-1A as filed with the commission on
December 3, 1999.
(12) Filed electronically as an Exhibit and incorporated herein by
reference to Post-Effective Amendment No. 41 to the Registrant's
Registration Statement on Form N-1A as filed with the Commission on
December 29, 1999.
(13) Filed herewith.
-12-
<PAGE>
Item 17. UNDERTAKINGS
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of a
prospectus which is a part of this registration statement by
any person or party who is deemed to be an underwriter
within the meaning of Rule 145(c) of the Securities Act of
1933, as amended (the "1933 Act"), the reoffering prospectus
will contain the information called for by the applicable
registration form for reofferings by persons who may be
deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that
is filed under paragraph (1) above will be filed as a part
of an amendment to the registration statement and will not
be used until the amendment is effective, and that, in
determining any liability under the 1933 Act, each
post-effective amendment shall be deemed to be a new
registration statement for the securities offered therein,
and the offering of the securities at that time shall be
deemed to be the initial bona fide offering of them.
-13-
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this registration statement
has been signed on behalf of the registrant in the City of Bonita Springs and
State of Florida, on the 4th day of February, 2000.
THE GALAXY FUND
Registrant
/s/ John T. O'Neill
------------------------
President
John T. O'Neill
As required by the Securities Act of 1933, this registration statement
has been signed by the following persons in the capacities and on the dates
indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ John T. O'Neill Trustee, President February 4, 2000
- --------------------------- and Treasurer
John T. O'Neill
Dwight E. Vicks, Jr. Chairman of the Board February 4, 2000
- --------------------------- of Trustees
*Dwight E. Vicks, Jr.
Donald B. Miller Trustee February 4, 2000
- ---------------------------
*Donald B. Miller
Louis DeThomasis Trustee February 4, 2000
- ---------------------------
*Louis DeThomasis
Bradford S. Wellman Trustee February 4, 2000
- ---------------------------
*Bradford S. Wellman
James M. Seed Trustee February 4, 2000
- ---------------------------
*James M. Seed
*BY: /s/ John T. O'Neill
- ---------------------------
John T. O'Neill
Attorney-In-Fact
-14-
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
(4) Form of Agreement and Plan of Reorganization, filed as
Appendix II to the Combined Prospectus/Proxy Statement.
(11) (c) Opinion of Drinker Biddle & Reath LLP (including consent of
firm).
(12) Opinion of Drinker Biddle & Reath LLP as to tax
consequences (including consent of firm).
(14) (a) Consent of Drinker Biddle & Reath LLP.
(b) Consent of Ernst & Young LLP
(c) Consent of PricewaterhouseCoopers LLP
(16) Powers of Attorney.
(17) (a) Forms of Proxy Ballot.
(b) (i) Prospectus and Statement of Additional Information for
BKB Shares of the Galaxy Money Market, U.S. Treasury,
Tax-Exempt, Short-Term Bond, Intermediate Government
Income, High Quality Bond, Rhode Island Municipal Bond,
Asset Allocation, Growth and Income, Equity Growth and
International Equity Funds dated February __, 2000.
(b) (ii) Prospectuses and Statement of Additional Information for
Retail A Shares, Retail B Shares and Trust Shares of the
Galaxy Asset Allocation, Galaxy Equity Income, Galaxy
Growth and Income, Galaxy Strategic Equity, Galaxy Equity
Value, Galaxy Equity Growth, Galaxy International Equity,
Galaxy Small Cap Value and Galaxy Small Company Equity
Funds dated February __, 2000.
(b) (iii) Prospectuses and Statement of Additional Information for
Retail A Shares, Retail B Shares and Trust Shares of the
Galaxy Short-Term Bond, Galaxy Intermediate Government
Income and Galaxy High Quality Bond Funds and the Trust
Shares of the Galaxy Corporate Bond Fund dated February __,
2000.
(b) (iv) Prospectuses and Statement of Additional Information for
Retail A Shares, Retail B Shares and Trust Shares of the
Galaxy Tax-Exempt Bond Fund and the Retail A Shares and
Trust Shares of the Galaxy New Jersey Municipal Bond,
Galaxy New York Municipal Bond, Galaxy Connecticut
Municipal Bond, Galaxy Massachusetts Municipal Bond and
Galaxy Rhode Island Municipal Bond Funds dated February __,
2000.
(b) (v) Prospectuses and Statement of Additional Information for
Retail A Shares, Retail B Shares and Trust Shares of the
Galaxy Money Market Fund and the Retail A Shares and Trust
Shares of the Galaxy Government, Galaxy U.S. Treasury and
Galaxy Tax-Exempt Funds, Trust Shares of the Galaxy
Institutional Government Money Market, and Retail A Shares
of the Galaxy Connecticut Municipal Money Market and
Massachusetts Municipal Money Market Funds February __,
2000.
(b) (vi) Prospectuses and Statement of Additional Information for
Shares of the Boston 1784 Tax-Free Money Market, Boston
1784 U.S. Treasury Money
<PAGE>
Market, Boston 1784 Institutional U.S. Treasury Money
Market, Boston 1784 Prime Money Market, Boston 1784
Institutional Prime Money Market, Boston 1784 Short-Term
Income, Boston 1784 Income, Boston 1784 U.S. Government
Medium-Term Income, Boston 1784 Tax-Exempt Medium-Term
Income, Boston 1784 Connecticut Tax-Exempt Income, Boston
1784 Florida Tax-Exempt Income, Boston 1784 Massachusetts
Tax-Exempt Income, Boston 1784 Rhode Island Tax-Exempt
Income, Boston 1784 Asset Allocation, Boston 1784 Growth
and Income, Boston 1784 Growth and Boston 1784
International Equity Funds dated October 1, 1999.
(b) (vii) Annual Reports for the fiscal year ended October 31, 1999
for the Galaxy Asset Allocation, Galaxy Equity Income,
Galaxy Growth and Income, Galaxy Strategic Equity, Galaxy
Equity Value, Galaxy Equity Growth, Galaxy International
Equity, Galaxy Small Cap Value, Galaxy Small Company
Equity, Galaxy Short-Term Bond, Galaxy Intermediate
Government Income, Galaxy High Quality Bond, Galaxy
Corporate Bond, Galaxy Tax-Exempt Bond, Galaxy New Jersey
Municipal Bond, Galaxy New York Municipal Bond, Galaxy
Connecticut Municipal Bond, Galaxy Massachusetts Municipal
Bond, Galaxy Rhode Island Municipal Bond, Galaxy Money
Market, Galaxy Government, Galaxy U.S. Treasury, Galaxy
Tax-Exempt, Galaxy Institutional Government Money Market,
Galaxy Connecticut Municipal Money Market and Galaxy
Massachusetts Municipal Money Market Funds.
(b) (viii) Annual Reports for the fiscal year ended May 31, 1999 for
the Boston 1784 Tax-Free Money Market, Boston 1784 U.S.
Treasury Money Market, Boston 1784 Institutional U.S.
Treasury Money Market, Boston 1784 Prime Money Market,
Boston 1784 Institutional Prime Money Market, Boston 1784
Short-Term Income, Boston 1784 Income, Boston 1784 U.S.
Government Medium-Term Income, Boston 1784 Tax-Exempt
Medium-Term Income, Boston 1784 Connecticut Tax-Exempt
Income, Boston 1784 Florida Tax-Exempt Income, Boston 1784
Massachusetts Tax-Exempt Income, Boston 1784 Rhode Island
Tax-Exempt Income, Boston 1784 Asset Allocation, Boston
1784 Growth and Income, Boston 1784 Growth and Boston 1784
International Equity Funds.
(b) (ix) Semi-Annual Reports for the semi-annual period ended
November 30, 1999 for the Boston 1784 Tax-Free Money
Market, Boston 1784 U.S. Treasury Money Market, Boston 1784
Institutional U.S. Treasury Money Market, Boston 1784 Prime
Money Market, Boston 1784 Institutional Prime Money Market,
Boston 1784 Short-Term Income, Boston 1784 Income, Boston
1784 U.S. Government Medium-Term Income, Boston 1784
Tax-Exempt Medium-Term Income, Boston 1784 Connecticut
Tax-Exempt Income, Boston 1784 Florida Tax-Exempt Income,
Boston 1784 Massachusetts Tax-Exempt Income, Boston 1784
Rhode Island Tax-Exempt Income, Boston 1784 Asset
Allocation, Boston 1784 Growth and Income, Boston 1784
Growth and Boston 1784 International Equity Funds.
-2-
<PAGE>
EXHIBIT 11(c)
DRINKER BIDDLE & REATH LLP
ONE LOGAN SQUARE
18TH AND CHERRY STREETS
PHILADELPHIA, PA 19103-6996
215-988-2700
FAX: 215-988-2757
www.dbr.com
February 4, 2000
The Galaxy Fund
4400 Computer Drive
Westborough, MA 01581-5108
Dear Sir or Madam:
We have acted as counsel for The Galaxy Fund (the "Fund"), a
Massachusetts business trust in connection with the proposed acquisition by
certain investment portfolios offered by the Fund (the "Acquiring Galaxy Funds")
of substantially all of the assets and liabilities of the investment portfolios
offered by Boston 1784 Funds (the "Acquired 1784 Funds") in exchange for Trust
Shares, BKB Shares and Shares of the Acquiring Galaxy Funds.
The aforementioned proposed acquisition is referred to herein as the
"Reorganization." This opinion relates to shares of beneficial interest of the
Fund (the "Shares") (par value $0.001 per Share) to be issued in the
Reorganization and is furnished in connection with the Fund's Registration
Statement on Form N-14 under the Securities Act of 1933, as amended (the
"Registration Statement").
As counsel for the Fund, we are familiar with the proceedings taken by
the Fund in connection with the authorization, issuance and sale of the Shares.
In addition, we have examined and are familiar with the Fund's Declaration of
Trust, as amended, its Code of Regulations, resolutions adopted by its Board of
Trustees, the Registration Statement and the combined proxy statement and
prospectus (the "Proxy Statement and Prospectus") contained therein, and such
other legal and factual matters as we have considered necessary to render the
opinion hereinafter set forth.
In our examination, we have assumed that: (i) all documents submitted
to us as originals are authentic, the signatures thereon are genuine and the
persons signing the same were of legal capacity; (ii) all documents submitted to
us as certified or photostatic copies conform to the
<PAGE>
original documents and that such originals are authentic; and (iii) all
certificates of public officials upon which we have relied have been duly and
properly given and that any public records reviewed by us are complete and
accurate.
This opinion is based exclusively on the laws of the Commonwealth of
Massachusetts and the federal law of the United States of America. We have
relied on an opinion of Ropes & Gray, special Massachusetts counsel to the Fund,
insofar as our opinion relates to matters arising under the laws of the
Commonwealth of Massachusetts.
On the basis of, and subject to, the foregoing and such other
considerations as we deem relevant, we are of the opinion that upon the prior
satisfaction of the conditions contained in the Agreement and Plan of
Reorganization, a copy of which is set forth in the Proxy Statement and
Prospectus constituting a part of the Registration Statement, the Shares, when
issued pursuant to the Agreement and Plan of Reorganization and in the manner
referred to in the Registration Statement, will be validly issued, fully paid
and non-assessable by the Fund.
This opinion is solely for the use of the Fund and may not be referred
to or used for any other purpose or relied on by any other persons without our
prior written approval. This opinion is limited to the matters set forth in this
letter and no other opinions should be inferred beyond the matters expressly
stated.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. This does not constitute a consent under section 7 of
the Securities Act of 1933, and in so consenting we have not certified any part
of the Registration Statement and do not otherwise come within the categories of
persons whose consent is required under section 7 or under the rules and
regulations of the Securities and Exchange Commission issued thereunder.
Very truly yours,
/s/ DRINKER BIDDLE & REATH LLP
-2-
<PAGE>
EXHIBIT 12
DRINKER BIDDLE & REATH LLP
One Logan Square
18th and Cherry Streets
Philadelphia, PA 19103-6996
(215) 988-2700
Fax: (215) 988-2757
www.dbr.com
February 4, 2000
The Galaxy Fund
4400 Computer Drive
Westborough, MA 01581-5108
Re: Agreement and Plan of Reorganization By and Between The Galaxy
Fund and Boston 1784 Funds
--------------------------------------------------------------
Dear Sirs and Mesdames:
We have been asked to give our opinion on the Federal income
tax consequences to shareholders of the transactions contemplated in the above
Agreement and Plan of Reorganization. In our opinion, the material Federal
income tax consequences to shareholders of such transactions are accurately
described in the subsection entitled "THE REORGANIZATION -- Federal Income Tax
Considerations" in the Combined Proxy Statement and Prospectus contained in the
Registration Statement being filed this day with the Securities and Exchange
Commission.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement. This does not constitute a consent under section
7 of the Securities Act of 1933, and in so consenting we have not certified any
part of the Registration Statement and do not otherwise come within the
categories of persons whose consent is required under section 7 or under the
rules and regulations of the Securities and Exchange Commission issued
thereunder.
Very truly yours,
/s/ DRINKER BIDDLE & REATH LLP
<PAGE>
EXHIBIT 14(a)
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the references
to our Firm included in the Registration Statement on Form N-14 under the
Securities Act of 1933, as amended (the "1933 Act"), and the Investment Company
Act of 1940, as amended, respectively. This consent does not constitute a
consent under section 7 of the 1933 Act, and in consenting to the use of our
name and the references to our Firm we have not certified any part of the
Registration Statement and do not otherwise come within the categories of
persons whose consent is required under said section 7 or the rules and
regulations of the Securities and Exchange Commission thereunder.
/s/ DRINKER BIDDLE & REATH LLP
Philadelphia, Pennsylvania
February 4, 2000
<PAGE>
EXHIBIT 14(b)
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Combined Proxy
Statement/Prospectus constituting part of this Registration Statement on Form
N-14 (the "Registration Statement") of our report dated December 13, 1999,
relating to the financial statements and financial highlights appearing in
the October 31, 1999 Annual Report of the Galaxy Tax-Exempt, U.S. Treasury,
Money Market, Short-Term Bond, High Quality Bond, Intermediate Government
Income, Rhode Island Municipal Bond, Asset Allocation, Growth and Income, and
International Equity Funds (ten of the twenty-nine portfolios constituting
The Galaxy Fund) which financial statements and financial highlights are also
incorporated by reference into the Combined Proxy Statement/Prospectus and
included in the Registration Statement. We further consent to the references
to us under the headings "Financial Statements", "Other Service Providers for
the 1784 Funds and Galaxy Funds" and in paragraph 9(g) of the Agreement and
Plan of Reorganization in such Combined Proxy Statement/Prospectus.
/s/ERNST & YOUNG LLP
Boston, Massachusetts
February 2, 2000
-2-
<PAGE>
EXHIBIT 14(c)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Registration Statement on Form N-14 (the "Registration Statement") of our report
dated July 9, 1999 on our audit of the financial statements and financial
highlights of the Boston 1784 Tax-Free Money Market Fund, Boston 1784 U.S.
Treasury Money Market Fund, Boston 1784 Institutional U.S. Treasury Money Market
Fund, Boston 1784 Prime Money Market Fund, Boston 1784 Institutional Prime Money
Market Fund, Boston 1784 Short-Term Income Fund, Boston 1784 Income Fund, Boston
1784 U.S. Government Medium-Term Income Fund, Boston 1784 Tax-Exempt Medium-Term
Income Fund, Boston 1784 Connecticut Tax-Exempt Income Fund, Boston 1784 Florida
Tax-Exempt Income Fund, Boston 1784 Massachusetts Tax-Exempt Income Fund, Boston
1784 Rhode Island Tax-Exempt Income Fund, Boston 1784 Asset Allocation Fund,
Boston 1784 Growth and Income Fund, Boston 1784 Growth Fund and Boston 1784
International Equity Fund (collectively hereafter referred to as the "Funds")
which report is included in the Annual Report to Shareholders for the year ended
May 31, 1999 which is incorporated by reference into the Registration Statement.
We also consent to the incorporation by reference in the Prospectuses and
Statement of Additional Information of the Funds dated October 1, 1999, of our
report dated July 9, 1999, relating to the financial statements and financial
highlights appearing in the May 31, 1999 Annual Report of the Funds, which
Prospectuses and Statement of Information are also incorporated by reference in
the Registration Statement. We further consent to the references to our Firm
under the headings "Financial Statements", "Other Service Providers for the 1784
Funds and Galaxy Funds" and in paragraph 8(g) of the Agreement and Plan of
Reorganization and to the references to us under the headings "Financial
Highlights" in the Prospectus dated October 1, 1999 for the Funds and under the
headings "Counsel and Independent Accountant" and "Financial Statements" in the
Statements of Additional Information dated October 1, 1999 for the Funds.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 4, 2000
<PAGE>
THE GALAXY FUND
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby
appoints John T. O'Neill and W. Bruce McConnel, III, and either of them, his
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
trustee or officer, or both, of The Galaxy Fund (the "Trust"), to execute any
and all amendments to the Trust's Registration Statement on Form N-14 pursuant
to the Investment Company Act of 1940, as amended, and the Securities Act of
1933, as amended (the "Acts"), and all instruments necessary or incidental in
connection therewith pursuant to said Acts and any rules, regulations, or
requirements of the Securities and Exchange Commission in respect thereof, and
to file the same with the Securities and Exchange Commission, and either of said
attorneys shall have full power and authority, to do and perform in the name and
on behalf of the undersigned in any and all capacities, every act whatsoever
requisite or necessary to be done, as fully and to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said
attorneys, or either of them, may lawfully do or cause to be done by virtue
hereof.
Dated: January 6, 2000 /s/Dwight E. Vicks, Jr.
---------------------------
Dwight E. Vicks, Jr.
<PAGE>
THE GALAXY FUND
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby
appoints John T. O'Neill and W. Bruce McConnel, III, and either of them, his
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
trustee or officer, or both, of The Galaxy Fund (the "Trust"), to execute any
and all amendments to the Trust's Registration Statement on Form N-14 pursuant
to the Investment Company Act of 1940, as amended, and the Securities Act of
1933, as amended (the "Acts"), and all instruments necessary or incidental in
connection therewith pursuant to said Acts and any rules, regulations, or
requirements of the Securities and Exchange Commission in respect thereof, and
to file the same with the Securities and Exchange Commission, and either of said
attorneys shall have full power and authority, to do and perform in the name and
on behalf of the undersigned in any and all capacities, every act whatsoever
requisite or necessary to be done, as fully and to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said
attorneys, or either of them, may lawfully do or cause to be done by virtue
hereof.
Dated: January 5, 2000 /s/Donald B. Miller
---------------------------
Donald B. Miller
2
<PAGE>
THE GALAXY FUND
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby
appoints John T. O'Neill and W. Bruce McConnel, III, and either of them, his
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
trustee or officer, or both, of The Galaxy Fund (the "Trust"), to execute any
and all amendments to the Trust's Registration Statement on Form N-14 pursuant
to the Investment Company Act of 1940, as amended, and the Securities Act of
1933, as amended (the "Acts"), and all instruments necessary or incidental in
connection therewith pursuant to said Acts and any rules, regulations, or
requirements of the Securities and Exchange Commission in respect thereof, and
to file the same with the Securities and Exchange Commission, and either of said
attorneys shall have full power and authority, to do and perform in the name and
on behalf of the undersigned in any and all capacities, every act whatsoever
requisite or necessary to be done, as fully and to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said
attorneys, or either of them, may lawfully do or cause to be done by virtue
hereof.
Dated: January 5, 2000 /s/Brother Louis DeThomasis
---------------------------
Brother Louis DeThomasis
3
<PAGE>
THE GALAXY FUND
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby
appoints John T. O'Neill and W. Bruce McConnel, III, and either of them, his
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
trustee or officer, or both, of The Galaxy Fund (the "Trust"), to execute any
and all amendments to the Trust's Registration Statement on Form N-14 pursuant
to the Investment Company Act of 1940, as amended, and the Securities Act of
1933, as amended (the "Acts"), and all instruments necessary or incidental in
connection therewith pursuant to said Acts and any rules, regulations, or
requirements of the Securities and Exchange Commission in respect thereof, and
to file the same with the Securities and Exchange Commission, and either of said
attorneys shall have full power and authority, to do and perform in the name and
on behalf of the undersigned in any and all capacities, every act whatsoever
requisite or necessary to be done, as fully and to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said
attorneys, or either of them, may lawfully do or cause to be done by virtue
hereof.
Dated: January 15, 2000 /s/ Bradford S. Wellman
---------------------------
Bradford S. Wellman
4
<PAGE>
THE GALAXY FUND
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby
appoints John T. O'Neill and W. Bruce McConnel, III, and either of them, his
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
trustee or officer, or both, of The Galaxy Fund (the "Trust"), to execute any
and all amendments to the Trust's Registration Statement on Form N-14 pursuant
to the Investment Company Act of 1940, as amended, and the Securities Act of
1933, as amended (the "Acts"), and all instruments necessary or incidental in
connection therewith pursuant to said Acts and any rules, regulations, or
requirements of the Securities and Exchange Commission in respect thereof, and
to file the same with the Securities and Exchange Commission, and either of said
attorneys shall have full power and authority, to do and perform in the name and
on behalf of the undersigned in any and all capacities, every act whatsoever
requisite or necessary to be done, as fully and to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said
attorneys, or either of them, may lawfully do or cause to be done by virtue
hereof.
Dated: January 10, 2000 /s/James M. Seed
---------------------------
James M. Seed
5
<PAGE>
THE GALAXY FUND
("GALAXY")
CERTIFICATE OF SECRETARY
The following resolution was duly adopted by the Board of Trustees of
Galaxy on January 25, 2000 and remains in effect on the date hereof:
FURTHER RESOLVED, that the trustees and officers
of Galaxy who may be required to execute such Registration
Statement on Form N-14 (and any amendments thereto), and each of
them, hereby appoint John T. O'Neill and W. Bruce McConnel, III,
and either of them, their true and lawful attorney or attorneys,
to execute in their name, place and stead, in their capacity as a
trustee or officer, or both, of Galaxy, the Registration
Statement on Form N-14, any amendments thereto, and all
instruments necessary or incidental in connection therewith, and
to file the same with the Securities and Exchange Commission; and
either of said attorneys shall have power to act thereunder with
or without the other of said attorneys and shall have full power
of substitution and re-substitution; and either of said attorneys
shall have full power and authority to do and perform in the name
and on behalf of each of said trustees or officers, or any or all
of them, in any and all capacities, every act whatsoever
requisite or necessary to be done in the premises, as fully and
to all intents and purposes as each of said trustees or officers,
or any or all of them, might or could do in person, said acts of
said attorneys, or either of them, being hereby ratified and
approved.
THE GALAXY FUND
By: /s/ W. Bruce McConnel, III
--------------------------
W. Bruce McConnel, III
Secretary
Dated: February 4, 2000
<PAGE>
PROXY CARD
BOSTON 1784 FUNDS
TAX-FREE MONEY MARKET FUND
(SHARES/TRUST SHARES)
SPECIAL MEETING OF SHAREHOLDERS - APRIL 28, 2000
The undersigned hereby appoints James Foggo, Lynda J. Striegel and
Edward T. Searle (the "Proxies") and each of them, attorneys and Proxies of the
undersigned, each with power of substitution and resubstitution, to attend, vote
and act for the undersigned at the Special Meeting of Shareholders of Boston
1784 Funds (the "Meeting") to be held at the offices of Boston 1784 Funds'
administrator, SEI Investments Mutual Fund Services, 1 Freedom Valley Drive,
Oaks, Pennsylvania at 10:00 a.m. (Eastern Time) on April 28, 2000, and at any
adjournment or adjournments thereof. The Proxies will cast votes according to
the number of shares of the Boston 1784 Tax-Free Money Market Fund which the
undersigned may be entitled to vote with respect to the proposals set forth
below, in accordance with the specification indicated, if any, and with all the
powers which the undersigned would possess if personally present. The
undersigned hereby revokes any prior proxy to vote at such meeting, and hereby
ratifies and confirms all that said attorneys and Proxies, or either of them,
may lawfully do by virtue thereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS AND THE COMBINED PROXY STATEMENT/PROSPECTUS, DATED MARCH 5, 2000.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF BOSTON 1784 FUNDS, WHICH
UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE PROPOSAL.
THIS PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSAL.
(1) To approve the Agreement and Plan of Reorganization, attached to the
Combined Proxy Statement/Prospectus for the Meeting, which provides for
(a) the transfer of substantially all of the assets and liabilities of
the Boston 1784 Tax-Free Money Market Fund to the Tax-Exempt Fund of
The Galaxy Fund in exchange for Trust Shares of the Galaxy Tax-Exempt
Fund of equal value; (b) the distribution of the Trust Shares of the
Galaxy Tax-Exempt Fund to shareholders of the Boston 1784 Tax-Free
Money Market Fund; and (c) the deregistration under the Investment
Company Act of 1940, as amended, and the termination under state law of
Boston 1784 Funds.
| |FOR | |AGAINST | |ABSTAIN
(2) In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Meeting.
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE. EVERY PROPERLY SIGNED PROXY WILL BE VOTED IN THE MANNER SPECIFIED
HEREON AND, IN THE ABSENCE OF SPECIFICATION, WILL BE TREATED AS GRANTING
AUTHORITY TO VOTE "FOR" THE PROPOSAL.
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. WHEN SHARES ARE HELD BY JOINT
TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY OR EXECUTOR, ADMINISTRATOR,
TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A CORPORATION, PLEASE
SIGN IN FULL CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.
- ------------------------------------ ----------------------------------------
SIGNATURE DATE SIGNATURE (JOINT OWNER) DATE
<PAGE>
PROXY CARD
BOSTON 1784 FUNDS
TAX-FREE MONEY MARKET FUND
(SHARES/BKB SHARES)
SPECIAL MEETING OF SHAREHOLDERS - APRIL 28, 2000
The undersigned hereby appoints James Foggo, Lynda J. Striegel and
Edward T. Searle (the "Proxies") and each of them, attorneys and Proxies of the
undersigned, each with power of substitution and resubstitution, to attend, vote
and act for the undersigned at the Special Meeting of Shareholders of Boston
1784 Funds (the "Meeting") to be held at the offices of Boston 1784 Funds'
administrator, SEI Investments Mutual Fund Services, 1 Freedom Valley Drive,
Oaks, Pennsylvania at 10:00 a.m. (Eastern Time) on April 28, 2000, and at any
adjournment or adjournments thereof. The Proxies will cast votes according to
the number of shares of the Boston 1784 Tax-Free Money Market Fund which the
undersigned may be entitled to vote with respect to the proposals set forth
below, in accordance with the specification indicated, if any, and with all the
powers which the undersigned would possess if personally present. The
undersigned hereby revokes any prior proxy to vote at such meeting, and hereby
ratifies and confirms all that said attorneys and Proxies, or either of them,
may lawfully do by virtue thereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS AND THE COMBINED PROXY STATEMENT/PROSPECTUS, DATED MARCH 5, 2000.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF BOSTON 1784 FUNDS, WHICH
UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE PROPOSAL.
THIS PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSAL.
(1) To approve the Agreement and Plan of Reorganization, attached to the
Combined Proxy Statement/Prospectus for the Meeting, which provides for
(a) the transfer of substantially all of the assets and liabilities of
the Boston 1784 Tax-Free Money Market Fund to the Tax-Exempt Fund of
The Galaxy Fund in exchange for BKB Shares of the Galaxy Tax-Exempt
Fund of equal value; (b) the distribution of the BKB Shares of the
Galaxy Tax-Exempt Fund to shareholders of the Boston 1784 Tax-Free
Money Market Fund; and (c) the deregistration under the Investment
Company Act of 1940, as amended, and the termination under state law of
Boston 1784 Funds.
| |FOR | |AGAINST | |ABSTAIN
(2) In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Meeting.
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE. EVERY PROPERLY SIGNED PROXY WILL BE VOTED IN THE MANNER SPECIFIED
HEREON AND, IN THE ABSENCE OF SPECIFICATION, WILL BE TREATED AS GRANTING
AUTHORITY TO VOTE "FOR" THE PROPOSAL.
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. WHEN SHARES ARE HELD BY JOINT
TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY OR EXECUTOR, ADMINISTRATOR,
TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A CORPORATION, PLEASE
SIGN IN FULL CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.
- ------------------------------------ ----------------------------------------
SIGNATURE DATE SIGNATURE (JOINT OWNER) DATE
<PAGE>
PROXY CARD
BOSTON 1784 FUNDS
U.S. TREASURY MONEY MARKET FUND
(SHARES/TRUST SHARES)
SPECIAL MEETING OF SHAREHOLDERS - APRIL 28, 2000
The undersigned hereby appoints James Foggo, Lynda J. Striegel and
Edward T. Searle (the "Proxies") and each of them, attorneys and Proxies of the
undersigned, each with power of substitution and resubstitution, to attend, vote
and act for the undersigned at the Special Meeting of Shareholders of Boston
1784 Funds (the "Meeting") to be held at the offices of Boston 1784 Funds'
administrator, SEI Investments Mutual Fund Services, 1 Freedom Valley Drive,
Oaks, Pennsylvania at 10:00 a.m. (Eastern Time) on April 28, 2000, and at any
adjournment or adjournments thereof. The Proxies will cast votes according to
the number of shares of the Boston 1784 U.S. Treasury Money Market Fund which
the undersigned may be entitled to vote with respect to the proposals set forth
below, in accordance with the specification indicated, if any, and with all the
powers which the undersigned would possess if personally present. The
undersigned hereby revokes any prior proxy to vote at such meeting, and hereby
ratifies and confirms all that said attorneys and Proxies, or either of them,
may lawfully do by virtue thereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS AND THE COMBINED PROXY STATEMENT/PROSPECTUS, DATED MARCH 5, 2000.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF BOSTON 1784 FUNDS, WHICH
UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE PROPOSAL.
THIS PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSAL.
(1) To approve the Agreement and Plan of Reorganization, attached to the
Combined Proxy Statement/Prospectus for the Meeting, which provides for
(a) the transfer of substantially all of the assets and liabilities of
the Boston 1784 U.S. Treasury Money Market Fund to the U.S. Treasury
Fund of The Galaxy Fund in exchange for Trust Shares of the Galaxy U.S.
Treasury Fund of equal value; (b) the distribution of the Trust Shares
of the Galaxy U.S. Treasury Fund to shareholders of the Boston 1784
U.S. Treasury Money Market Fund; and (c) the deregistration under the
Investment Company Act of 1940, as amended, and the termination under
state law of Boston 1784 Funds.
| |FOR | |AGAINST | |ABSTAIN
(2) In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Meeting.
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE. EVERY PROPERLY SIGNED PROXY WILL BE VOTED IN THE MANNER SPECIFIED
HEREON AND, IN THE ABSENCE OF SPECIFICATION, WILL BE TREATED AS GRANTING
AUTHORITY TO VOTE "FOR" THE PROPOSAL.
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. WHEN SHARES ARE HELD BY JOINT
TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY OR EXECUTOR, ADMINISTRATOR,
TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A CORPORATION, PLEASE
SIGN IN FULL CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.
- ------------------------------------ ----------------------------------------
SIGNATURE DATE SIGNATURE (JOINT OWNER) DATE
<PAGE>
PROXY CARD
BOSTON 1784 FUNDS
U.S. TREASURY MONEY MARKET FUND
(SHARES/BKB SHARES)
SPECIAL MEETING OF SHAREHOLDERS - APRIL 28, 2000
The undersigned hereby appoints James Foggo, Lynda J. Striegel and
Edward T. Searle (the "Proxies") and each of them, attorneys and Proxies of the
undersigned, each with power of substitution and resubstitution, to attend, vote
and act for the undersigned at the Special Meeting of Shareholders of Boston
1784 Funds (the "Meeting") to be held at the offices of Boston 1784 Funds'
administrator, SEI Investments Mutual Fund Services, 1 Freedom Valley Drive,
Oaks, Pennsylvania at 10:00 a.m. (Eastern Time) on April 28, 2000, and at any
adjournment or adjournments thereof. The Proxies will cast votes according to
the number of shares of the Boston 1784 U.S. Treasury Money Market Fund which
the undersigned may be entitled to vote with respect to the proposals set forth
below, in accordance with the specification indicated, if any, and with all the
powers which the undersigned would possess if personally present. The
undersigned hereby revokes any prior proxy to vote at such meeting, and hereby
ratifies and confirms all that said attorneys and Proxies, or either of them,
may lawfully do by virtue thereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS AND THE COMBINED PROXY STATEMENT/PROSPECTUS, DATED MARCH 5, 2000.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF BOSTON 1784 FUNDS, WHICH
UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE PROPOSAL.
THIS PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSAL.
(1) To approve the Agreement and Plan of Reorganization, attached to the
Combined Proxy Statement/Prospectus for the Meeting, which provides for
(a) the transfer of substantially all of the assets and liabilities of
the Boston 1784 U.S. Treasury Money Market Fund to the U.S. Treasury
Fund of The Galaxy Fund in exchange for BKB Shares of the Galaxy U.S.
Treasury Fund of equal value; (b) the distribution of the BKB Shares of
the Galaxy U.S. Treasury Fund to shareholders of the Boston 1784 U.S.
Treasury Money Market Fund; and (c) the deregistration under the
Investment Company Act of 1940, as amended, and the termination under
state law of Boston 1784 Funds.
| |FOR | |AGAINST | |ABSTAIN
(2) In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Meeting.
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE. EVERY PROPERLY SIGNED PROXY WILL BE VOTED IN THE MANNER SPECIFIED
HEREON AND, IN THE ABSENCE OF SPECIFICATION, WILL BE TREATED AS GRANTING
AUTHORITY TO VOTE "FOR" THE PROPOSAL.
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. WHEN SHARES ARE HELD BY JOINT
TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY OR EXECUTOR, ADMINISTRATOR,
TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A CORPORATION, PLEASE
SIGN IN FULL CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.
- ------------------------------------ ----------------------------------------
SIGNATURE DATE SIGNATURE (JOINT OWNER) DATE
<PAGE>
PROXY CARD
BOSTON 1784 FUNDS
PRIME MONEY MARKET FUND
(SHARES/TRUST SHARES)
SPECIAL MEETING OF SHAREHOLDERS - APRIL 28, 2000
The undersigned hereby appoints James Foggo, Lynda J. Striegel and
Edward T. Searle (the "Proxies") and each of them, attorneys and Proxies of the
undersigned, each with power of substitution and resubstitution, to attend, vote
and act for the undersigned at the Special Meeting of Shareholders of Boston
1784 Funds (the "Meeting") to be held at the offices of Boston 1784 Funds'
administrator, SEI Investments Mutual Fund Services, 1 Freedom Valley Drive,
Oaks, Pennsylvania at 10:00 a.m. (Eastern Time) on April 28, 2000, and at any
adjournment or adjournments thereof. The Proxies will cast votes according to
the number of shares of the Boston 1784 Prime Money Market Fund which the
undersigned may be entitled to vote with respect to the proposals set forth
below, in accordance with the specification indicated, if any, and with all the
powers which the undersigned would possess if personally present. The
undersigned hereby revokes any prior proxy to vote at such meeting, and hereby
ratifies and confirms all that said attorneys and Proxies, or either of them,
may lawfully do by virtue thereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS AND THE COMBINED PROXY STATEMENT/PROSPECTUS, DATED MARCH 5, 2000.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF BOSTON 1784 FUNDS, WHICH
UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE PROPOSAL.
THIS PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSAL.
(1) To approve an Agreement and Plan of Reorganization, attached to the
Combined Proxy Statement/Prospectus for the Meeting, which provides for
(a) the transfer of substantially all of the assets and liabilities of
the Boston 1784 Prime Money Market Fund to the Money Market Fund of The
Galaxy Fund in exchange for Trust Shares of the Galaxy Money Market
Fund of equal value; (b) the distribution of the Trust Shares of the
Galaxy Money Market Fund to shareholders of the Boston 1784 Prime Money
Market Fund; and (c) the deregistration under the Investment Company
Act of 1940, as amended, and the termination under state law of Boston
1784 Funds.
| |FOR | |AGAINST | |ABSTAIN
(2) In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Meeting.
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE. EVERY PROPERLY SIGNED PROXY WILL BE VOTED IN THE MANNER SPECIFIED
HEREON AND, IN THE ABSENCE OF SPECIFICATION, WILL BE TREATED AS GRANTING
AUTHORITY TO VOTE "FOR" THE PROPOSAL.
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. WHEN SHARES ARE HELD BY JOINT
TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY OR EXECUTOR, ADMINISTRATOR,
TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A CORPORATION, PLEASE
SIGN IN FULL CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.
- ------------------------------------ ----------------------------------------
SIGNATURE DATE SIGNATURE (JOINT OWNER) DATE
<PAGE>
PROXY CARD
BOSTON 1784 FUNDS
PRIME MONEY MARKET FUND
(SHARES/BKB SHARES)
SPECIAL MEETING OF SHAREHOLDERS - APRIL 28, 2000
The undersigned hereby appoints James Foggo, Lynda J. Striegel and
Edward T. Searle (the "Proxies") and each of them, attorneys and Proxies of the
undersigned, each with power of substitution and resubstitution, to attend, vote
and act for the undersigned at the Special Meeting of Shareholders of Boston
1784 Funds (the "Meeting") to be held at the offices of Boston 1784 Funds'
administrator, SEI Investments Mutual Fund Services, 1 Freedom Valley Drive,
Oaks, Pennsylvania at 10:00 a.m. (Eastern Time) on April 28, 2000, and at any
adjournment or adjournments thereof. The Proxies will cast votes according to
the number of shares of the Boston 1784 Prime Money Market Fund which the
undersigned may be entitled to vote with respect to the proposals set forth
below, in accordance with the specification indicated, if any, and with all the
powers which the undersigned would possess if personally present. The
undersigned hereby revokes any prior proxy to vote at such meeting, and hereby
ratifies and confirms all that said attorneys and Proxies, or either of them,
may lawfully do by virtue thereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS AND THE COMBINED PROXY STATEMENT/PROSPECTUS, DATED MARCH 5, 2000.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF BOSTON 1784 FUNDS, WHICH
UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE PROPOSAL.
THIS PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSAL.
(1) To approve an Agreement and Plan of Reorganization, attached to the
Combined Proxy Statement/Prospectus for the Meeting, which provides for
(a) the transfer of substantially all of the assets and liabilities of
the Boston 1784 Prime Money Market Fund to the Money Market Fund of The
Galaxy Fund in exchange for BKB Shares of the Galaxy Money Market Fund
of equal value; (b) the distribution of the BKB Shares of the Galaxy
Money Market Fund to shareholders of the Boston 1784 Prime Money Market
Fund; and (c) the deregistration under the Investment Company Act of
1940, as amended, and the termination under state law of Boston 1784
Funds.
| |FOR | |AGAINST | |ABSTAIN
(2) In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Meeting.
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE. EVERY PROPERLY SIGNED PROXY WILL BE VOTED IN THE MANNER SPECIFIED
HEREON AND, IN THE ABSENCE OF SPECIFICATION, WILL BE TREATED AS GRANTING
AUTHORITY TO VOTE "FOR" THE PROPOSAL.
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. WHEN SHARES ARE HELD BY JOINT
TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY OR EXECUTOR, ADMINISTRATOR,
TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A CORPORATION, PLEASE
SIGN IN FULL CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.
- ------------------------------------ ----------------------------------------
SIGNATURE DATE SIGNATURE (JOINT OWNER) DATE
<PAGE>
PROXY CARD
BOSTON 1784 FUNDS
INSTITUTIONAL U.S. TREASURY MONEY MARKET FUND
SPECIAL MEETING OF SHAREHOLDERS - APRIL 28, 2000
The undersigned hereby appoints James Foggo, Lynda J. Striegel and
Edward T. Searle (the "Proxies") and each of them, attorneys and Proxies of the
undersigned, each with power of substitution and resubstitution, to attend, vote
and act for the undersigned at the Special Meeting of Shareholders of Boston
1784 Funds (the "Meeting") to be held at the offices of Boston 1784 Funds'
administrator, SEI Investments Mutual Fund Services, 1 Freedom Valley Drive,
Oaks, Pennsylvania at 10:00 a.m. (Eastern Time) on April 28, 2000, and at any
adjournment or adjournments thereof. The Proxies will cast votes according to
the number of shares of the Boston 1784 Institutional U.S. Treasury Money Market
Fund which the undersigned may be entitled to vote with respect to the proposals
set forth below, in accordance with the specification indicated, if any, and
with all the powers which the undersigned would possess if personally present.
The undersigned hereby revokes any prior proxy to vote at such meeting, and
hereby ratifies and confirms all that said attorneys and Proxies, or either of
them, may lawfully do by virtue thereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS AND THE COMBINED PROXY STATEMENT/PROSPECTUS, DATED MARCH 5, 2000.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF BOSTON 1784 FUNDS, WHICH
UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE PROPOSAL.
THIS PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSAL.
(1) To approve the Agreement and Plan of Reorganization, attached to the
Combined Proxy Statement/Prospectus for the Meeting, which provides for
(a) the transfer of substantially all of the assets and liabilities of
the Boston 1784 Institutional U.S. Treasury Money Market Fund to the
Institutional Treasury Money Market Fund of The Galaxy Fund in exchange
for shares of the Galaxy Institutional Treasury Money Market Fund of
equal value; (b) the distribution of the shares of the Galaxy
Institutional, Treasury Money Market Fund to shareholders of the Boston
1784 Institutional U.S. Treasury Money Market Fund; and (c) the
deregistration under the Investment Company Act of 1940, as amended,
and the termination under state law of Boston 1784 Funds.
| |FOR | |AGAINST | |ABSTAIN
(2) In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Meeting.
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE. EVERY PROPERLY SIGNED PROXY WILL BE VOTED IN THE MANNER SPECIFIED
HEREON AND, IN THE ABSENCE OF SPECIFICATION, WILL BE TREATED AS GRANTING
AUTHORITY TO VOTE "FOR" THE PROPOSAL.
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. WHEN SHARES ARE HELD BY JOINT
TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY OR EXECUTOR, ADMINISTRATOR,
TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A CORPORATION, PLEASE
SIGN IN FULL CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.
- ------------------------------------ ----------------------------------------
SIGNATURE DATE SIGNATURE (JOINT OWNER) DATE
<PAGE>
PROXY CARD
BOSTON 1784 FUNDS
INSTITUTIONAL PRIME MONEY MARKET FUND
SPECIAL MEETING OF SHAREHOLDERS - APRIL 28, 2000
The undersigned hereby appoints James Foggo, Lynda J. Striegel and
Edward T. Searle (the "Proxies") and each of them, attorneys and Proxies of the
undersigned, each with power of substitution and resubstitution, to attend, vote
and act for the undersigned at the Special Meeting of Shareholders of Boston
1784 Funds (the "Meeting") to be held at the offices of Boston 1784 Funds'
administrator, SEI Investments Mutual Fund Services, 1 Freedom Valley Drive,
Oaks, Pennsylvania at 10:00 a.m. (Eastern Time) on April 28, 2000, and at any
adjournment or adjournments thereof. The Proxies will cast votes according to
the number of shares of the Boston 1784 Institutional Prime Money Market Fund
which the undersigned may be entitled to vote with respect to the proposals set
forth below, in accordance with the specification indicated, if any, and with
all the powers which the undersigned would possess if personally present. The
undersigned hereby revokes any prior proxy to vote at such meeting, and hereby
ratifies and confirms all that said attorneys and Proxies, or either of them,
may lawfully do by virtue thereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS AND THE COMBINED PROXY STATEMENT/PROSPECTUS, DATED MARCH 5, 2000.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF BOSTON 1784 FUNDS, WHICH
UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE PROPOSAL.
THIS PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSAL.
(1) To approve the Agreement and Plan of Reorganization, attached to the
Combined Proxy Statement/Prospectus for the Meeting, which provides for
(a) the transfer of substantially all of the assets and liabilities of
the Boston 1784 Institutional Prime Money Market Fund to the
Institutional Money Market Fund of The Galaxy Fund in exchange for
shares of the Galaxy Institutional Money Market Fund of equal value;
(b) the distribution of the shares of the corresponding Galaxy
Institutional Money Market Fund to shareholders of the Boston 1784
Institutional Prime Money Market Fund; and (c) the deregistration under
the Investment Company Act of 1940, as amended, and the termination
under state law of Boston 1784 Funds.
| |FOR | |AGAINST | |ABSTAIN
(2) In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Meeting.
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE. EVERY PROPERLY SIGNED PROXY WILL BE VOTED IN THE MANNER SPECIFIED
HEREON AND, IN THE ABSENCE OF SPECIFICATION, WILL BE TREATED AS GRANTING
AUTHORITY TO VOTE "FOR" THE PROPOSAL.
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. WHEN SHARES ARE HELD BY JOINT
TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY OR EXECUTOR, ADMINISTRATOR,
TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A CORPORATION, PLEASE
SIGN IN FULL CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.
- ------------------------------------ ----------------------------------------
SIGNATURE DATE SIGNATURE (JOINT OWNER) DATE
<PAGE>
PROXY CARD
BOSTON 1784 FUNDS
SHORT-TERM INCOME FUND
(SHARES/TRUST SHARES)
SPECIAL MEETING OF SHAREHOLDERS - APRIL 28, 2000
The undersigned hereby appoints James Foggo, Lynda J. Striegel and
Edward T. Searle (the "Proxies") and each of them, attorneys and Proxies of the
undersigned, each with power of substitution and resubstitution, to attend, vote
and act for the undersigned at the Special Meeting of Shareholders of Boston
1784 Funds (the "Meeting") to be held at the offices of Boston 1784 Funds'
administrator, SEI Investments Mutual Fund Services, 1 Freedom Valley Drive,
Oaks, Pennsylvania at 10:00 a.m. (Eastern Time) on April 28, 2000, and at any
adjournment or adjournments thereof. The Proxies will cast votes according to
the number of shares of the Boston 1784 Short-Term Income Fund which the
undersigned may be entitled to vote with respect to the proposals set forth
below, in accordance with the specification indicated, if any, and with all the
powers which the undersigned would possess if personally present. The
undersigned hereby revokes any prior proxy to vote at such meeting, and hereby
ratifies and confirms all that said attorneys and Proxies, or either of them,
may lawfully do by virtue thereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS AND THE COMBINED PROXY STATEMENT/PROSPECTUS, DATED MARCH 5, 2000.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF BOSTON 1784 FUNDS, WHICH
UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE PROPOSAL.
THIS PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSAL.
(1) To approve the Agreement and Plan of Reorganization, attached to the
Combined Proxy Statement/Prospectus for the Meeting, which provides for
(a) the transfer of substantially all of the assets and liabilities of
the Boston 1784 Short-Term Income Fund to the Short-Term Bond Fund of
The Galaxy Fund in exchange for Trust Shares of the Galaxy Short-Term
Bond Fund of equal value; (b) the distribution of the Trust Shares of
the corresponding Galaxy Short-Term Bond Fund to shareholders of the
Boston 1784 Short-Term Income Fund; and (c) the deregistration under
the Investment Company Act of 1940, as amended, and the termination
under state law of Boston 1784 Funds.
| |FOR | |AGAINST | |ABSTAIN
(2) In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Meeting.
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE. EVERY PROPERLY SIGNED PROXY WILL BE VOTED IN THE MANNER SPECIFIED
HEREON AND, IN THE ABSENCE OF SPECIFICATION, WILL BE TREATED AS GRANTING
AUTHORITY TO VOTE "FOR" THE PROPOSAL.
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. WHEN SHARES ARE HELD BY JOINT
TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY OR EXECUTOR, ADMINISTRATOR,
TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A CORPORATION, PLEASE
SIGN IN FULL CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.
- ------------------------------------ ----------------------------------------
SIGNATURE DATE SIGNATURE (JOINT OWNER) DATE
<PAGE>
PROXY CARD
BOSTON 1784 FUNDS
SHORT-TERM INCOME FUND
(SHARES/BKB SHARES)
SPECIAL MEETING OF SHAREHOLDERS - APRIL 28, 2000
The undersigned hereby appoints James Foggo, Lynda J. Striegel and
Edward T. Searle (the "Proxies") and each of them, attorneys and Proxies of the
undersigned, each with power of substitution and resubstitution, to attend, vote
and act for the undersigned at the Special Meeting of Shareholders of Boston
1784 Funds (the "Meeting") to be held at the offices of Boston 1784 Funds'
administrator, SEI Investments Mutual Fund Services, 1 Freedom Valley Drive,
Oaks, Pennsylvania at 10:00 a.m. (Eastern Time) on April 28, 2000, and at any
adjournment or adjournments thereof. The Proxies will cast votes according to
the number of shares of the Boston 1784 Short-Term Income Fund which the
undersigned may be entitled to vote with respect to the proposals set forth
below, in accordance with the specification indicated, if any, and with all the
powers which the undersigned would possess if personally present. The
undersigned hereby revokes any prior proxy to vote at such meeting, and hereby
ratifies and confirms all that said attorneys and Proxies, or either of them,
may lawfully do by virtue thereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS AND THE COMBINED PROXY STATEMENT/PROSPECTUS, DATED MARCH 5, 2000.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF BOSTON 1784 FUNDS, WHICH
UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE PROPOSAL.
THIS PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSAL.
(1) To approve the Agreement and Plan of Reorganization, attached to the
Combined Proxy Statement/Prospectus for the Meeting, which provides for
(a) the transfer of substantially all of the assets and liabilities of
the Boston 1784 Short-Term Income Fund to the Short-Term Bond Fund of
The Galaxy Fund in exchange for BKB Shares of the Galaxy Short-Term
Bond Fund of equal value; (b) the distribution of the BKB Shares of the
corresponding Galaxy Short-Term Bond Fund to shareholders of the Boston
1784 Short-Term Income Fund; and (c) the deregistration under the
Investment Company Act of 1940, as amended, and the termination under
state law of Boston 1784 Funds.
| |FOR | |AGAINST | |ABSTAIN
(2) In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Meeting.
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE. EVERY PROPERLY SIGNED PROXY WILL BE VOTED IN THE MANNER SPECIFIED
HEREON AND, IN THE ABSENCE OF SPECIFICATION, WILL BE TREATED AS GRANTING
AUTHORITY TO VOTE "FOR" THE PROPOSAL.
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. WHEN SHARES ARE HELD BY JOINT
TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY OR EXECUTOR, ADMINISTRATOR,
TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A CORPORATION, PLEASE
SIGN IN FULL CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.
- ------------------------------------ ----------------------------------------
SIGNATURE DATE SIGNATURE (JOINT OWNER) DATE
<PAGE>
PROXY CARD
BOSTON 1784 FUNDS
INCOME FUND
(SHARES/TRUST SHARES)
SPECIAL MEETING OF SHAREHOLDERS - APRIL 28, 2000
The undersigned hereby appoints James Foggo, Lynda J. Striegel and
Edward T. Searle (the "Proxies") and each of them, attorneys and Proxies of the
undersigned, each with power of substitution and resubstitution, to attend, vote
and act for the undersigned at the Special Meeting of Shareholders of Boston
1784 Funds (the "Meeting") to be held at the offices of Boston 1784 Funds'
administrator, SEI Investment Mutual Fund Services, 1 Freedom Valley Drive,
Oaks, Pennsylvania at 10:00 a.m. (Eastern Time) on April 28, 2000, and at any
adjournment or adjournments thereof. The Proxies will cast votes according to
the number of shares of the Boston 1784 Income Fund which the undersigned may be
entitled to vote with respect to the proposals set forth below, in accordance
with the specification indicated, if any, and with all the powers which the
undersigned would possess if personally present. The undersigned hereby revokes
any prior proxy to vote at such meeting, and hereby ratifies and confirms all
that said attorneys and Proxies, or either of them, may lawfully do by virtue
thereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS AND THE COMBINED PROXY STATEMENT/PROSPECTUS, DATED MARCH 5, 2000.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF BOSTON 1784 FUNDS, WHICH
UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE PROPOSAL.
THIS PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSAL.
(1) To approve the Agreement and Plan of Reorganization attached to the
Combined Proxy Statement/Prospectus for the Meeting, which provides for
(a) the transfer of substantially all of the assets and liabilities of
the Boston 1784 Income Fund to the High Quality Bond Fund of The Galaxy
Fund in exchange for Trust Shares of the Galaxy High Quality Fund of
equal value; (b) the distribution of the Trust Shares of the
corresponding Galaxy High Quality Bond Fund to shareholders of the
Boston 1784 Income Fund; and (c) the deregistration under the
Investment Company Act of 1940, as amended, and the termination under
state law of Boston 1784 Funds.
| |FOR | |AGAINST | |ABSTAIN
(2) In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Meeting.
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE. EVERY PROPERLY SIGNED PROXY WILL BE VOTED IN THE MANNER SPECIFIED
HEREON AND, IN THE ABSENCE OF SPECIFICATION, WILL BE TREATED AS GRANTING
AUTHORITY TO VOTE "FOR" THE PROPOSAL.
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. WHEN SHARES ARE HELD BY JOINT
TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY OR EXECUTOR, ADMINISTRATOR,
TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A CORPORATION, PLEASE
SIGN IN FULL CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.
- ------------------------------------ ----------------------------------------
SIGNATURE DATE SIGNATURE (JOINT OWNER) DATE
<PAGE>
PROXY CARD
BOSTON 1784 FUNDS
INCOME FUND
(SHARES/BKB SHARES)
SPECIAL MEETING OF SHAREHOLDERS - APRIL 28, 2000
The undersigned hereby appoints James Foggo, Lynda J. Striegel and
Edward T. Searle (the "Proxies") and each of them, attorneys and Proxies of the
undersigned, each with power of substitution and resubstitution, to attend, vote
and act for the undersigned at the Special Meeting of Shareholders of Boston
1784 Funds (the "Meeting") to be held at the offices of Boston 1784 Funds'
administrator, SEI Investment Mutual Fund Services, 1 Freedom Valley Drive,
Oaks, Pennsylvania at 10:00 a.m. (Eastern Time) on April 28, 2000, and at any
adjournment or adjournments thereof. The Proxies will cast votes according to
the number of shares of the Boston 1784 Income Fund which the undersigned may be
entitled to vote with respect to the proposals set forth below, in accordance
with the specification indicated, if any, and with all the powers which the
undersigned would possess if personally present. The undersigned hereby revokes
any prior proxy to vote at such meeting, and hereby ratifies and confirms all
that said attorneys and Proxies, or either of them, may lawfully do by virtue
thereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS AND THE COMBINED PROXY STATEMENT/PROSPECTUS, DATED MARCH 5, 2000.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF BOSTON 1784 FUNDS, WHICH
UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE PROPOSAL.
THIS PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSAL.
(1) To approve the Agreement and Plan of Reorganization attached to the
Combined Proxy Statement/Prospectus for the Meeting, which provides for
(a) the transfer of substantially all of the assets and liabilities of
the Boston 1784 Income Fund to the High Quality Bond Fund of The Galaxy
Fund in exchange for BKB Shares of the Galaxy High Quality Fund of
equal value; (b) the distribution of the BKB Shares of the
corresponding Galaxy High Quality Bond Fund to shareholders of the
Boston 1784 Income Fund; and (c) the deregistration under the
Investment Company Act of 1940, as amended, and the termination under
state law of Boston 1784 Funds.
| |FOR | |AGAINST | |ABSTAIN
(2) In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Meeting.
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE. EVERY PROPERLY SIGNED PROXY WILL BE VOTED IN THE MANNER SPECIFIED
HEREON AND, IN THE ABSENCE OF SPECIFICATION, WILL BE TREATED AS GRANTING
AUTHORITY TO VOTE "FOR" THE PROPOSAL.
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. WHEN SHARES ARE HELD BY JOINT
TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY OR EXECUTOR, ADMINISTRATOR,
TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A CORPORATION, PLEASE
SIGN IN FULL CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.
- ------------------------------------ ----------------------------------------
SIGNATURE DATE SIGNATURE (JOINT OWNER) DATE
<PAGE>
PROXY CARD
BOSTON 1784 FUNDS
U.S. GOVERNMENT MEDIUM-TERM INCOME FUND
(SHARES/TRUST SHARES)
SPECIAL MEETING OF SHAREHOLDERS - APRIL 28, 2000
The undersigned hereby appoints James Foggo, Lynda J. Striegel and
Edward T. Searle (the "Proxies") and each of them, attorneys and Proxies of the
undersigned, each with power of substitution and resubstitution, to attend, vote
and act for the undersigned at the Special Meeting of Shareholders of Boston
1784 Funds (the "Meeting") to be held at the offices of Boston 1784 Funds'
administrator, SEI Investments Mutual Fund Services, 1 Freedom Valley Drive,
Oaks, Pennsylvania at 10:00 a.m. (Eastern Time) on April 28, 2000, and at any
adjournment or adjournments thereof. The Proxies will cast votes according to
the number of shares of the Boston 1784 U.S. Government Medium-Term Income Fund
which the undersigned may be entitled to vote with respect to the proposals set
forth below, in accordance with the specification indicated, if any, and with
all the powers which the undersigned would possess if personally present. The
undersigned hereby revokes any prior proxy to vote at such meeting, and hereby
ratifies and confirms all that said attorneys and Proxies, or either of them,
may lawfully do by virtue thereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS AND THE COMBINED PROXY STATEMENT/PROSPECTUS, DATED MARCH 5, 2000.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF BOSTON 1784 FUNDS, WHICH
UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE PROPOSAL.
THIS PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSAL.
(1) To approve the Agreement and Plan of Reorganization, attached to the
Combined Proxy Statement/Prospectus for the Meeting, which provides for
(a) the transfer of substantially all of the assets and liabilities of
the Boston 1784 U.S. Government Medium-Term Income Fund to the
Intermediate Government Income Fund of The Galaxy Fund in exchange for
Trust Shares of the Galaxy Intermediate Government Income Fund of equal
value; (b) the distribution of the Trust Shares of the Galaxy
Intermediate Government Income Fund to shareholders of the Boston 1784
U.S. Government Medium-Term Income Fund; and (c) the deregistration
under the Investment Company Act of 1940, as amended, and the
termination under state law of Boston 1784 Funds.
| |FOR | |AGAINST | |ABSTAIN
(2) In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Meeting.
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE. EVERY PROPERLY SIGNED PROXY WILL BE VOTED IN THE MANNER SPECIFIED
HEREON AND, IN THE ABSENCE OF SPECIFICATION, WILL BE TREATED AS GRANTING
AUTHORITY TO VOTE "FOR" THE PROPOSAL.
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. WHEN SHARES ARE HELD BY JOINT
TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY OR EXECUTOR, ADMINISTRATOR,
TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A CORPORATION, PLEASE
SIGN IN FULL CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.
- ------------------------------------ ----------------------------------------
SIGNATURE DATE SIGNATURE (JOINT OWNER) DATE
<PAGE>
PROXY CARD
BOSTON 1784 FUNDS
U.S. GOVERNMENT MEDIUM-TERM INCOME FUND
(SHARES/BKB SHARES)
SPECIAL MEETING OF SHAREHOLDERS - APRIL 28, 2000
The undersigned hereby appoints James Foggo, Lynda J. Striegel and
Edward T. Searle (the "Proxies") and each of them, attorneys and Proxies of the
undersigned, each with power of substitution and resubstitution, to attend, vote
and act for the undersigned at the Special Meeting of Shareholders of Boston
1784 Funds (the "Meeting") to be held at the offices of Boston 1784 Funds'
administrator, SEI Investments Mutual Fund Services, 1 Freedom Valley Drive,
Oaks, Pennsylvania at 10:00 a.m. (Eastern Time) on April 28, 2000, and at any
adjournment or adjournments thereof. The Proxies will cast votes according to
the number of shares of the Boston 1784 U.S. Government Medium-Term Income Fund
which the undersigned may be entitled to vote with respect to the proposals set
forth below, in accordance with the specification indicated, if any, and with
all the powers which the undersigned would possess if personally present. The
undersigned hereby revokes any prior proxy to vote at such meeting, and hereby
ratifies and confirms all that said attorneys and Proxies, or either of them,
may lawfully do by virtue thereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS AND THE COMBINED PROXY STATEMENT/PROSPECTUS, DATED MARCH 5, 2000.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF BOSTON 1784 FUNDS, WHICH
UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE PROPOSAL.
THIS PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSAL.
(1) To approve the Agreement and Plan of Reorganization, attached to the
Combined Proxy Statement/Prospectus for the Meeting, which provides for
(a) the transfer of substantially all of the assets and liabilities of
the Boston 1784 U.S. Government Medium-Term Income Fund to the
Intermediate Government Income Fund of The Galaxy Fund in exchange for
BKB Shares of the Galaxy Intermediate Government Income Fund of equal
value; (b) the distribution of the BKB Shares of the Galaxy
Intermediate Government Income Fund to shareholders of the Boston 1784
U.S. Government Medium-Term Income Fund; and (c) the deregistration
under the Investment Company Act of 1940, as amended, and the
termination under state law of Boston 1784 Funds.
| |FOR | |AGAINST | |ABSTAIN
(2) In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Meeting.
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE. EVERY PROPERLY SIGNED PROXY WILL BE VOTED IN THE MANNER SPECIFIED
HEREON AND, IN THE ABSENCE OF SPECIFICATION, WILL BE TREATED AS GRANTING
AUTHORITY TO VOTE "FOR" THE PROPOSAL.
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. WHEN SHARES ARE HELD BY JOINT
TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY OR EXECUTOR, ADMINISTRATOR,
TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A CORPORATION, PLEASE
SIGN IN FULL CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.
- ------------------------------------ ----------------------------------------
SIGNATURE DATE SIGNATURE (JOINT OWNER) DATE
<PAGE>
PROXY CARD
BOSTON 1784 FUNDS
TAX-EXEMPT MEDIUM-TERM INCOME FUND
(SHARES/TRUST SHARES)
SPECIAL MEETING OF SHAREHOLDERS - APRIL 28, 2000
The undersigned hereby appoints James Foggo, Lynda J. Striegel and
Edward T. Searle (the "Proxies") and each of them, attorneys and Proxies of the
undersigned, each with power of substitution and resubstitution, to attend, vote
and act for the undersigned at the Special Meeting of Shareholders of Boston
1784 Funds (the "Meeting") to be held at the offices of Boston 1784 Funds'
administrator, SEI Investments Mutual Fund Services, 1 Freedom Valley Drive,
Oaks, Pennsylvania at 10:00 a.m. (Eastern Time) on April 28, 2000, and at any
adjournment or adjournments thereof. The Proxies will cast votes according to
the number of shares of the Boston 1784 Tax-Exempt Medium-Term Income Fund which
the undersigned may be entitled to vote with respect to the proposals set forth
below, in accordance with the specification indicated, if any, and with all the
powers which the undersigned would possess if personally present. The
undersigned hereby revokes any prior proxy to vote at such meeting, and hereby
ratifies and confirms all that said attorneys and Proxies, or either of them,
may lawfully do by virtue thereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS AND THE COMBINED PROXY STATEMENT/PROSPECTUS, DATED MARCH 5, 2000.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF BOSTON 1784 FUNDS, WHICH
UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE PROPOSAL.
THIS PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSAL.
(1) To approve the Agreement and Plan of Reorganization, attached to the
Combined Proxy Statement/Prospectus for the Meeting, which provides for
(a) the transfer of substantially all of the assets and liabilities of
the Boston 1784 Tax-Exempt Medium-Term Income Fund to the Intermediate
Tax-Exempt Bond Fund of The Galaxy Fund in exchange for Trust Shares of
Galaxy Intermediate Bond Tax-Exempt Fund of equal value; (b) the
distribution of the Trust Shares of the corresponding Galaxy
Intermediate Tax-Exempt Bond Fund to shareholders of the Boston 1784
Tax-Exempt Medium-Term Income Fund; and (c) the deregistration under
the Investment Company Act of 1940, as amended, and the termination
under state law of Boston 1784 Funds.
| |FOR | |AGAINST | |ABSTAIN
(2) In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Meeting.
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE. EVERY PROPERLY SIGNED PROXY WILL BE VOTED IN THE MANNER SPECIFIED
HEREON AND, IN THE ABSENCE OF SPECIFICATION, WILL BE TREATED AS GRANTING
AUTHORITY TO VOTE "FOR" THE PROPOSAL.
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. WHEN SHARES ARE HELD BY JOINT
TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY OR EXECUTOR, ADMINISTRATOR,
TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A CORPORATION, PLEASE
SIGN IN FULL CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.
- ------------------------------------ ----------------------------------------
SIGNATURE DATE SIGNATURE (JOINT OWNER) DATE
<PAGE>
PROXY CARD
BOSTON 1784 FUNDS
TAX-EXEMPT MEDIUM-TERM INCOME FUND
(SHARES/BKB SHARES)
SPECIAL MEETING OF SHAREHOLDERS - APRIL 28, 2000
The undersigned hereby appoints James Foggo, Lynda J. Striegel and
Edward T. Searle (the "Proxies") and each of them, attorneys and Proxies of the
undersigned, each with power of substitution and resubstitution, to attend, vote
and act for the undersigned at the Special Meeting of Shareholders of Boston
1784 Funds (the "Meeting") to be held at the offices of Boston 1784 Funds'
administrator, SEI Investments Mutual Fund Services, 1 Freedom Valley Drive,
Oaks, Pennsylvania at 10:00 a.m. (Eastern Time) on April 28, 2000, and at any
adjournment or adjournments thereof. The Proxies will cast votes according to
the number of shares of the Boston 1784 Tax-Exempt Medium-Term Income Fund which
the undersigned may be entitled to vote with respect to the proposals set forth
below, in accordance with the specification indicated, if any, and with all the
powers which the undersigned would possess if personally present. The
undersigned hereby revokes any prior proxy to vote at such meeting, and hereby
ratifies and confirms all that said attorneys and Proxies, or either of them,
may lawfully do by virtue thereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS AND THE COMBINED PROXY STATEMENT/PROSPECTUS, DATED MARCH 5, 2000.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF BOSTON 1784 FUNDS, WHICH
UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE PROPOSAL.
THIS PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSAL.
(1) To approve the Agreement and Plan of Reorganization, attached to the
Combined Proxy Statement/Prospectus for the Meeting, which provides for
(a) the transfer of substantially all of the assets and liabilities of
the Boston 1784 Tax-Exempt Medium-Term Income Fund to the Intermediate
Tax-Exempt Bond Fund of The Galaxy Fund in exchange for BKB Shares of
Galaxy Intermediate Bond Tax-Exempt Fund of equal value; (b) the
distribution of the BKB Shares of the corresponding Galaxy Intermediate
Tax-Exempt Bond Fund to shareholders of the Boston 1784 Tax-Exempt
Medium-Term Income Fund; and (c) the deregistration under the
Investment Company Act of 1940, as amended, and the termination under
state law of Boston 1784 Funds.
| |FOR | |AGAINST | |ABSTAIN
(2) In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Meeting.
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE. EVERY PROPERLY SIGNED PROXY WILL BE VOTED IN THE MANNER SPECIFIED
HEREON AND, IN THE ABSENCE OF SPECIFICATION, WILL BE TREATED AS GRANTING
AUTHORITY TO VOTE "FOR" THE PROPOSAL.
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. WHEN SHARES ARE HELD BY JOINT
TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY OR EXECUTOR, ADMINISTRATOR,
TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A CORPORATION, PLEASE
SIGN IN FULL CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.
- ------------------------------------ ----------------------------------------
SIGNATURE DATE SIGNATURE (JOINT OWNER) DATE
<PAGE>
PROXY CARD
BOSTON 1784 FUNDS
CONNECTICUT TAX-EXEMPT INCOME FUND
(SHARES/TRUST SHARES)
SPECIAL MEETING OF SHAREHOLDERS - APRIL 28, 2000
The undersigned hereby appoints James Foggo, Lynda J. Striegel and
Edward T. Searle (the "Proxies") and each of them, attorneys and Proxies of the
undersigned, each with power of substitution and resubstitution, to attend, vote
and act for the undersigned at the Special Meeting of Shareholders of Boston
1784 Funds (the "Meeting") to be held at the offices of Boston 1784 Funds'
administrator, SEI Investments Mutual Fund Services, 1 Freedom Valley Drive,
Oaks, Pennsylvania at 10:00 a.m. (Eastern Time) on April 28, 2000, and at any
adjournment or adjournments thereof. The Proxies will cast votes according to
the number of shares of the Boston 1784 Connecticut Tax-Exempt Income Fund which
the undersigned may be entitled to vote with respect to the proposals set forth
below, in accordance with the specification indicated, if any, and with all the
powers which the undersigned would possess if personally present. The
undersigned hereby revokes any prior proxy to vote at such meeting, and hereby
ratifies and confirms all that said attorneys and Proxies, or either of them,
may lawfully do by virtue thereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS AND THE COMBINED PROXY STATEMENT/PROSPECTUS, DATED MARCH 5, 2000.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF BOSTON 1784 FUNDS, WHICH
UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE PROPOSAL.
THIS PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSAL.
(1) To approve the Agreement and Plan of Reorganization, attached to the
Combined Proxy Statement/Prospectus for the Meeting, which provides for
(a) the transfer of substantially all of the assets and liabilities of
the Boston 1784 Connecticut Tax-Exempt Income Fund to the Connecticut
Intermediate Municipal Bond Fund of The Galaxy Fund in exchange for
Trust Shares of the Galaxy Connecticut Intermediate Municipal Bond Fund
of equal value; (b) the distribution of the Trust Shares of the Galaxy
Connecticut Intermediate Municipal Bond Fund to shareholders of the
Boston 1784 Connecticut Tax-Exempt Income Fund; and (c) the
deregistration under the Investment Company Act of 1940, as amended,
and the termination under state law of Boston 1784 Funds.
| |FOR | |AGAINST | |ABSTAIN
(2) In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Meeting.
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE. EVERY PROPERLY SIGNED PROXY WILL BE VOTED IN THE MANNER SPECIFIED
HEREON AND, IN THE ABSENCE OF SPECIFICATION, WILL BE TREATED AS GRANTING
AUTHORITY TO VOTE "FOR" THE PROPOSAL.
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. WHEN SHARES ARE HELD BY JOINT
TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY OR EXECUTOR, ADMINISTRATOR,
TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A CORPORATION, PLEASE
SIGN IN FULL CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.
- ------------------------------------ ----------------------------------------
SIGNATURE DATE SIGNATURE (JOINT OWNER) DATE
<PAGE>
PROXY CARD
BOSTON 1784 FUNDS
CONNECTICUT TAX-EXEMPT INCOME FUND
(SHARES/BKB SHARES)
SPECIAL MEETING OF SHAREHOLDERS - APRIL 28, 2000
The undersigned hereby appoints James Foggo, Lynda J. Striegel and
Edward T. Searle (the "Proxies") and each of them, attorneys and Proxies of the
undersigned, each with power of substitution and resubstitution, to attend, vote
and act for the undersigned at the Special Meeting of Shareholders of Boston
1784 Funds (the "Meeting") to be held at the offices of Boston 1784 Funds'
administrator, SEI Investments Mutual Fund Services, 1 Freedom Valley Drive,
Oaks, Pennsylvania at 10:00 a.m. (Eastern Time) on April 28, 2000, and at any
adjournment or adjournments thereof. The Proxies will cast votes according to
the number of shares of the Boston 1784 Connecticut Tax-Exempt Income Fund which
the undersigned may be entitled to vote with respect to the proposals set forth
below, in accordance with the specification indicated, if any, and with all the
powers which the undersigned would possess if personally present. The
undersigned hereby revokes any prior proxy to vote at such meeting, and hereby
ratifies and confirms all that said attorneys and Proxies, or either of them,
may lawfully do by virtue thereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS AND THE COMBINED PROXY STATEMENT/PROSPECTUS, DATED MARCH 5, 2000.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF BOSTON 1784 FUNDS, WHICH
UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE PROPOSAL.
THIS PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSAL.
(1) To approve the Agreement and Plan of Reorganization, attached to the
Combined Proxy Statement/Prospectus for the Meeting, which provides for
(a) the transfer of substantially all of the assets and liabilities of
the Boston 1784 Connecticut Tax-Exempt Income Fund to the Connecticut
Intermediate Municipal Bond Fund of The Galaxy Fund in exchange for BKB
Shares of the Galaxy Connecticut Intermediate Municipal Bond Fund of
equal value; (b) the distribution of the BKB Shares of the Galaxy
Connecticut Intermediate Municipal Bond Fund to shareholders of the
Boston 1784 Connecticut Tax-Exempt Income Fund; and (c) the
deregistration under the Investment Company Act of 1940, as amended,
and the termination under state law of Boston 1784 Funds.
| |FOR | |AGAINST | |ABSTAIN
(2) In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Meeting.
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE. EVERY PROPERLY SIGNED PROXY WILL BE VOTED IN THE MANNER SPECIFIED
HEREON AND, IN THE ABSENCE OF SPECIFICATION, WILL BE TREATED AS GRANTING
AUTHORITY TO VOTE "FOR" THE PROPOSAL.
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. WHEN SHARES ARE HELD BY JOINT
TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY OR EXECUTOR, ADMINISTRATOR,
TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A CORPORATION, PLEASE
SIGN IN FULL CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.
- ------------------------------------ ----------------------------------------
SIGNATURE DATE SIGNATURE (JOINT OWNER) DATE
<PAGE>
PROXY CARD
BOSTON 1784 FUNDS
FLORIDA TAX-EXEMPT INCOME FUND
SPECIAL MEETING OF SHAREHOLDERS - APRIL 28, 2000
The undersigned hereby appoints James Foggo, Lynda J. Striegel and
Edward T. Searle (the "Proxies") and each of them, attorneys and Proxies of the
undersigned, each with power of substitution and resubstitution, to attend, vote
and act for the undersigned at the Special Meeting of Shareholders of Boston
1784 Funds (the "Meeting") to be held at the offices of Boston 1784 Funds'
administrator, SEI Investments Institutional Mutual Fund Services, 1 Freedom
Valley Drive, Oaks, Pennsylvania at 10:00 a.m. (Eastern Time) on April 28, 2000,
and at any adjournment or adjournments thereof. The Proxies will cast votes
according to the number of shares of the Boston 1784 Florida Tax-Exempt Income
Fund which the undersigned may be entitled to vote with respect to the proposals
set forth below, in accordance with the specification indicated, if any, and
with all the powers which the undersigned would possess if personally present.
The undersigned hereby revokes any prior proxy to vote at such meeting, and
hereby ratifies and confirms all that said attorneys and Proxies, or either of
them, may lawfully do by virtue thereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS AND THE COMBINED PROXY STATEMENT/PROSPECTUS, DATED MARCH 5, 2000.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF BOSTON 1784 FUNDS, WHICH
UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE PROPOSAL.
THIS PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSAL.
(1) To approve the Agreement and Plan of Reorganization, attached to the
Combined Proxy Statement/Prospectus for the Meeting, which provides for
(a) the transfer of substantially all of the assets and liabilities of
the Boston 1784 Florida Tax-Exempt Income Fund to the Florida Municipal
Bond Fund of The Galaxy Fund in exchange for shares of the Galaxy
Florida Municipal Bond Fund of equal value; (b) the distribution of the
shares of the Galaxy Florida Municipal Bond Fund to shareholders of the
Boston 1784 Florida Tax-Exempt Income Fund; and (c) the deregistration
under the Investment Company Act of 1940, as amended, and the
termination under state law of Boston 1784 Funds.
| |FOR | |AGAINST | |ABSTAIN
(2) In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Meeting.
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE. EVERY PROPERLY SIGNED PROXY WILL BE VOTED IN THE MANNER SPECIFIED
HEREON AND, IN THE ABSENCE OF SPECIFICATION, WILL BE TREATED AS GRANTING
AUTHORITY TO VOTE "FOR" THE PROPOSAL.
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. WHEN SHARES ARE HELD BY JOINT
TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY OR EXECUTOR, ADMINISTRATOR,
TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A CORPORATION, PLEASE
SIGN IN FULL CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.
- ------------------------------------ ----------------------------------------
SIGNATURE DATE SIGNATURE (JOINT OWNER) DATE
<PAGE>
PROXY CARD
BOSTON 1784 FUNDS
MASSACHUSETTS TAX-EXEMPT INCOME FUND
(SHARES/TRUST SHARES)
SPECIAL MEETING OF SHAREHOLDERS - APRIL 28, 2000
The undersigned hereby appoints James Foggo, Lynda J. Striegel and
Edward T. Searle (the "Proxies") and each of them, attorneys and Proxies of the
undersigned, each with power of substitution and resubstitution, to attend, vote
and act for the undersigned at the Special Meeting of Shareholders of Boston
1784 Funds (the "Meeting") to be held at the offices of Boston 1784 Funds'
administrator, SEI Investments Mutual Fund Services, 1 Freedom Valley Drive,
Oaks, Pennsylvania at 10:00 a.m. (Eastern Time) on April 28, 2000, and at any
adjournment or adjournments thereof. The Proxies will cast votes according to
the number of shares of the Boston 1784 Massachusetts Tax-Exempt Income Fund
which the undersigned may be entitled to vote with respect to the proposals set
forth below, in accordance with the specification indicated, if any, and with
all the powers which the undersigned would possess if personally present. The
undersigned hereby revokes any prior proxy to vote at such meeting, and hereby
ratifies and confirms all that said attorneys and Proxies, or either of them,
may lawfully do by virtue thereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS AND THE COMBINED PROXY STATEMENT/PROSPECTUS, DATED MARCH 5, 2000.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF BOSTON 1784 FUNDS, WHICH
UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE PROPOSAL.
THIS PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSAL.
(1) To approve the Agreement and Plan of Reorganization, attached to the
Combined Proxy Statement/Prospectus for the Meeting, which provides for
(a) the transfer of substantially all of the assets and liabilities of
the Boston 1784 Massachusetts Tax-Exempt Income Fund to the
Massachusetts Intermediate Municipal Bond Fund of The Galaxy Fund in
exchange for Trust Shares of the Galaxy Massachusetts Intermediate
Municipal Bond Fund of equal value; (b) the distribution of the Trust
Shares of the Galaxy Massachusetts Intermediate Municipal Bond Fund to
shareholders of the Boston 1784 Massachusetts Tax-Exempt Income Fund;
and (c) the deregistration under the Investment Company Act of 1940, as
amended, and the termination under state law of Boston 1784 Funds.
| |FOR | |AGAINST | |ABSTAIN
(2) In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Meeting.
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE. EVERY PROPERLY SIGNED PROXY WILL BE VOTED IN THE MANNER SPECIFIED
HEREON AND, IN THE ABSENCE OF SPECIFICATION, WILL BE TREATED AS GRANTING
AUTHORITY TO VOTE "FOR" THE PROPOSAL.
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. WHEN SHARES ARE HELD BY JOINT
TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY OR EXECUTOR, ADMINISTRATOR,
TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A CORPORATION, PLEASE
SIGN IN FULL CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.
- ------------------------------------ ----------------------------------------
SIGNATURE DATE SIGNATURE (JOINT OWNER) DATE
<PAGE>
PROXY CARD
BOSTON 1784 FUNDS
MASSACHUSETTS TAX-EXEMPT INCOME FUND
(SHARES/BKB SHARES)
SPECIAL MEETING OF SHAREHOLDERS - APRIL 28, 2000
The undersigned hereby appoints James Foggo, Lynda J. Striegel and
Edward T. Searle (the "Proxies") and each of them, attorneys and Proxies of the
undersigned, each with power of substitution and resubstitution, to attend, vote
and act for the undersigned at the Special Meeting of Shareholders of Boston
1784 Funds (the "Meeting") to be held at the offices of Boston 1784 Funds'
administrator, SEI Investments Mutual Fund Services, 1 Freedom Valley Drive,
Oaks, Pennsylvania at 10:00 a.m. (Eastern Time) on April 28, 2000, and at any
adjournment or adjournments thereof. The Proxies will cast votes according to
the number of shares of the Boston 1784 Massachusetts Tax-Exempt Income Fund
which the undersigned may be entitled to vote with respect to the proposals set
forth below, in accordance with the specification indicated, if any, and with
all the powers which the undersigned would possess if personally present. The
undersigned hereby revokes any prior proxy to vote at such meeting, and hereby
ratifies and confirms all that said attorneys and Proxies, or either of them,
may lawfully do by virtue thereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS AND THE COMBINED PROXY STATEMENT/PROSPECTUS, DATED MARCH 5, 2000.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF BOSTON 1784 FUNDS, WHICH
UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE PROPOSAL.
THIS PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSAL.
(1) To approve the Agreement and Plan of Reorganization, attached to the
Combined Proxy Statement/Prospectus for the Meeting, which provides for
(a) the transfer of substantially all of the assets and liabilities of
the Boston 1784 Massachusetts Tax-Exempt Income Fund to the
Massachusetts Intermediate Municipal Bond Fund of The Galaxy Fund in
exchange for BKB Shares of the Galaxy Massachusetts Intermediate
Municipal Bond Fund of equal value; (b) the distribution of the BKB
Shares of the Galaxy Massachusetts Intermediate Municipal Bond Fund to
shareholders of the Boston 1784 Massachusetts Tax-Exempt Income Fund;
and (c) the deregistration under the Investment Company Act of 1940, as
amended, and the termination under state law of Boston 1784 Funds.
| |FOR | |AGAINST | |ABSTAIN
(2) In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Meeting.
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE. EVERY PROPERLY SIGNED PROXY WILL BE VOTED IN THE MANNER SPECIFIED
HEREON AND, IN THE ABSENCE OF SPECIFICATION, WILL BE TREATED AS GRANTING
AUTHORITY TO VOTE "FOR" THE PROPOSAL.
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. WHEN SHARES ARE HELD BY JOINT
TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY OR EXECUTOR, ADMINISTRATOR,
TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A CORPORATION, PLEASE
SIGN IN FULL CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.
- ------------------------------------ ----------------------------------------
SIGNATURE DATE SIGNATURE (JOINT OWNER) DATE
<PAGE>
PROXY CARD
BOSTON 1784 FUNDS
RHODE ISLAND TAX-EXEMPT INCOME FUND
(SHARES/TRUST SHARES)
SPECIAL MEETING OF SHAREHOLDERS - APRIL 28, 2000
The undersigned hereby appoints James Foggo, Lynda J. Striegel and
Edward T. Searle (the "Proxies") and each of them, attorneys and Proxies of the
undersigned, each with power of substitution and resubstitution, to attend, vote
and act for the undersigned at the Special Meeting of Shareholders of Boston
1784 Funds (the "Meeting") to be held at the offices of Boston 1784 Funds'
administrator, SEI Investments Mutual Fund Services, 1 Freedom Valley Drive,
Oaks, Pennsylvania at 10:00 a.m. (Eastern Time) on April 28, 2000, and at any
adjournment or adjournments thereof. The Proxies will cast votes according to
the number of shares of the Boston 1784 Rhode Island Tax-Exempt Income Fund
which the undersigned may be entitled to vote with respect to the proposals set
forth below, in accordance with the specification indicated, if any, and with
all the powers which the undersigned would possess if personally present. The
undersigned hereby revokes any prior proxy to vote at such meeting, and hereby
ratifies and confirms all that said attorneys and Proxies, or either of them,
may lawfully do by virtue thereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS AND THE COMBINED PROXY STATEMENT/PROSPECTUS, DATED MARCH 5, 2000.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF BOSTON 1784 FUNDS, WHICH
UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE PROPOSAL.
THIS PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSAL.
(1) To approve the Agreement and Plan of Reorganization, attached to the
Combined Proxy Statement/Prospectus for the Meeting, which provides for
(a) the transfer of substantially all of the assets and liabilities of
the Boston 1784 Rhode Island Tax-Exempt Income Fund to the Rhode Island
Municipal Bond Fund of The Galaxy Fund in exchange for Trust Shares of
the Galaxy Rhode Island Municipal Bond Fund of equal value; (b) the
distribution of the Trust Shares of the Galaxy Rhode Island Municipal
Bond Fund to shareholders of the Boston 1784 Rhode Island Tax-Exempt
Income Fund; and (c) the deregistration under the Investment Company
Act of 1940, as amended, and the termination under state law of Boston
1784 Funds.
| |FOR | |AGAINST | |ABSTAIN
(2) In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Meeting.
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE. EVERY PROPERLY SIGNED PROXY WILL BE VOTED IN THE MANNER SPECIFIED
HEREON AND, IN THE ABSENCE OF SPECIFICATION, WILL BE TREATED AS GRANTING
AUTHORITY TO VOTE "FOR" THE PROPOSAL.
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. WHEN SHARES ARE HELD BY JOINT
TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY OR EXECUTOR, ADMINISTRATOR,
TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A CORPORATION, PLEASE
SIGN IN FULL CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.
- ------------------------------------ ----------------------------------------
SIGNATURE DATE SIGNATURE (JOINT OWNER) DATE
<PAGE>
PROXY CARD
BOSTON 1784 FUNDS
RHODE ISLAND TAX-EXEMPT INCOME FUND
(SHARES/BKB SHARES)
SPECIAL MEETING OF SHAREHOLDERS - APRIL 28, 2000
The undersigned hereby appoints James Foggo, Lynda J. Striegel and
Edward T. Searle (the "Proxies") and each of them, attorneys and Proxies of the
undersigned, each with power of substitution and resubstitution, to attend, vote
and act for the undersigned at the Special Meeting of Shareholders of Boston
1784 Funds (the "Meeting") to be held at the offices of Boston 1784 Funds'
administrator, SEI Investments Mutual Fund Services, 1 Freedom Valley Drive,
Oaks, Pennsylvania at 10:00 a.m. (Eastern Time) on April 28, 2000, and at any
adjournment or adjournments thereof. The Proxies will cast votes according to
the number of shares of the Boston 1784 Rhode Island Tax-Exempt Income Fund
which the undersigned may be entitled to vote with respect to the proposals set
forth below, in accordance with the specification indicated, if any, and with
all the powers which the undersigned would possess if personally present. The
undersigned hereby revokes any prior proxy to vote at such meeting, and hereby
ratifies and confirms all that said attorneys and Proxies, or either of them,
may lawfully do by virtue thereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS AND THE COMBINED PROXY STATEMENT/PROSPECTUS, DATED MARCH 5, 2000.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF BOSTON 1784 FUNDS, WHICH
UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE PROPOSAL.
THIS PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSAL.
(1) To approve the Agreement and Plan of Reorganization, attached to the
Combined Proxy Statement/Prospectus for the Meeting, which provides for
(a) the transfer of substantially all of the assets and liabilities of
the Boston 1784 Rhode Island Tax-Exempt Income Fund to the Rhode Island
Municipal Bond Fund of The Galaxy Fund in exchange for BKB Shares of
the Galaxy Rhode Island Municipal Bond Fund of equal value; (b) the
distribution of the BKB Shares of the Galaxy Rhode Island Municipal
Bond Fund to shareholders of the Boston 1784 Rhode Island Tax-Exempt
Income Fund; and (c) the deregistration under the Investment Company
Act of 1940, as amended, and the termination under state law of Boston
1784 Funds.
| |FOR | |AGAINST | |ABSTAIN
(2) In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Meeting.
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE. EVERY PROPERLY SIGNED PROXY WILL BE VOTED IN THE MANNER SPECIFIED
HEREON AND, IN THE ABSENCE OF SPECIFICATION, WILL BE TREATED AS GRANTING
AUTHORITY TO VOTE "FOR" THE PROPOSAL.
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. WHEN SHARES ARE HELD BY JOINT
TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY OR EXECUTOR, ADMINISTRATOR,
TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A CORPORATION, PLEASE
SIGN IN FULL CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.
- ------------------------------------ ----------------------------------------
SIGNATURE DATE SIGNATURE (JOINT OWNER) DATE
<PAGE>
PROXY CARD
BOSTON 1784 FUNDS
ASSET ALLOCATION FUND
(SHARES/TRUST SHARES)
SPECIAL MEETING OF SHAREHOLDERS - APRIL 28, 2000
The undersigned hereby appoints James Foggo, Lynda J. Striegel and
Edward T. Searle (the "Proxies") and each of them, attorneys and Proxies of the
undersigned, each with power of substitution and resubstitution, to attend, vote
and act for the undersigned at the Special Meeting of Shareholders of Boston
1784 Funds (the "Meeting") to be held at the offices of Boston 1784 Funds'
administrator, SEI Investments Mutual Fund Services, 1 Freedom Valley Drive,
Oaks, Pennsylvania at 10:00 a.m. (Eastern Time) on April 28, 2000, and at any
adjournment or adjournments thereof. The Proxies will cast votes according to
the number of shares of the Boston 1784 Asset Allocation Fund which the
undersigned may be entitled to vote with respect to the proposals set forth
below, in accordance with the specification indicated, if any, and with all the
powers which the undersigned would possess if personally present. The
undersigned hereby revokes any prior proxy to vote at such meeting, and hereby
ratifies and confirms all that said attorneys and Proxies, or either of them,
may lawfully do by virtue thereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS AND THE COMBINED PROXY STATEMENT/PROSPECTUS, DATED MARCH 5, 2000.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF BOSTON 1784 FUNDS, WHICH
UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE PROPOSAL.
THIS PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSAL.
(1) To approve the Agreement and Plan of Reorganization, attached to the
Combined Proxy Statement/Prospectus for the Meeting, which provides for
(a) the transfer of substantially all of the assets and liabilities of
the Boston 1784 Asset Allocation Fund to the Asset Allocation Fund of
The Galaxy Fund in exchange for Trust Shares of the Galaxy Asset
Allocation Fund of equal value; (b) the distribution of the Trust
Shares of the Galaxy Asset Allocation Fund to shareholders of the
Boston 1784 Asset Allocation Fund; and (c) the deregistration under the
Investment Company Act of 1940, as amended, and the termination under
state law of Boston 1784 Funds.
| |FOR | |AGAINST | |ABSTAIN
(2) In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Meeting.
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE. EVERY PROPERLY SIGNED PROXY WILL BE VOTED IN THE MANNER SPECIFIED
HEREON AND, IN THE ABSENCE OF SPECIFICATION, WILL BE TREATED AS GRANTING
AUTHORITY TO VOTE "FOR" THE PROPOSAL.
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. WHEN SHARES ARE HELD BY JOINT
TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY OR EXECUTOR, ADMINISTRATOR,
TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A CORPORATION, PLEASE
SIGN IN FULL CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.
- ------------------------------------ ----------------------------------------
SIGNATURE DATE SIGNATURE (JOINT OWNER) DATE
<PAGE>
PROXY CARD
BOSTON 1784 FUNDS
ASSET ALLOCATION FUND
(SHARES/BKB SHARES)
SPECIAL MEETING OF SHAREHOLDERS - APRIL 28, 2000
The undersigned hereby appoints James Foggo, Lynda J. Striegel and
Edward T. Searle (the "Proxies") and each of them, attorneys and Proxies of the
undersigned, each with power of substitution and resubstitution, to attend, vote
and act for the undersigned at the Special Meeting of Shareholders of Boston
1784 Funds (the "Meeting") to be held at the offices of Boston 1784 Funds'
administrator, SEI Investments Mutual Fund Services, 1 Freedom Valley Drive,
Oaks, Pennsylvania at 10:00 a.m. (Eastern Time) on April 28, 2000, and at any
adjournment or adjournments thereof. The Proxies will cast votes according to
the number of shares of the Boston 1784 Asset Allocation Fund which the
undersigned may be entitled to vote with respect to the proposals set forth
below, in accordance with the specification indicated, if any, and with all the
powers which the undersigned would possess if personally present. The
undersigned hereby revokes any prior proxy to vote at such meeting, and hereby
ratifies and confirms all that said attorneys and Proxies, or either of them,
may lawfully do by virtue thereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS AND THE COMBINED PROXY STATEMENT/PROSPECTUS, DATED MARCH 5, 2000.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF BOSTON 1784 FUNDS, WHICH
UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE PROPOSAL.
THIS PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSAL.
(1) To approve the Agreement and Plan of Reorganization, attached to the
Combined Proxy Statement/Prospectus for the Meeting, which provides for
(a) the transfer of substantially all of the assets and liabilities of
the Boston 1784 Asset Allocation Fund to the Asset Allocation Fund of
The Galaxy Fund in exchange for BKB Shares of the Galaxy Asset
Allocation Fund of equal value; (b) the distribution of the BKB Shares
of the Galaxy Asset Allocation Fund to shareholders of the Boston 1784
Asset Allocation Fund; and (c) the deregistration under the Investment
Company Act of 1940, as amended, and the termination under state law of
Boston 1784 Funds.
| |FOR | |AGAINST | |ABSTAIN
(2) In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Meeting.
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE. EVERY PROPERLY SIGNED PROXY WILL BE VOTED IN THE MANNER SPECIFIED
HEREON AND, IN THE ABSENCE OF SPECIFICATION, WILL BE TREATED AS GRANTING
AUTHORITY TO VOTE "FOR" THE PROPOSAL.
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. WHEN SHARES ARE HELD BY JOINT
TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY OR EXECUTOR, ADMINISTRATOR,
TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A CORPORATION, PLEASE
SIGN IN FULL CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.
- ------------------------------------ ----------------------------------------
SIGNATURE DATE SIGNATURE (JOINT OWNER) DATE
<PAGE>
PROXY CARD
BOSTON 1784 FUNDS
GROWTH AND INCOME FUND
(SHARES/TRUST SHARES)
SPECIAL MEETING OF SHAREHOLDERS - APRIL 28, 2000
The undersigned hereby appoints James Foggo, Lynda J. Striegel and
Edward T. Searle (the "Proxies") and each of them, attorneys and Proxies of the
undersigned, each with power of substitution and resubstitution, to attend, vote
and act for the undersigned at the Special Meeting of Shareholders of Boston
1784 Funds (the "Meeting") to be held at the offices of Boston 1784 Funds'
administrator, SEI Investments Mutual Fund Services, 1 Freedom Valley Drive,
Oaks, Pennsylvania at 10:00 a.m. (Eastern Time) on April 28, 2000, and at any
adjournment or adjournments thereof. The Proxies will cast votes according to
the number of shares of the Boston 1784 Growth and Income Fund which the
undersigned may be entitled to vote with respect to the proposals set forth
below, in accordance with the specification indicated, if any, and with all the
powers which the undersigned would possess if personally present. The
undersigned hereby revokes any prior proxy to vote at such meeting, and hereby
ratifies and confirms all that said attorneys and Proxies, or either of them,
may lawfully do by virtue thereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS AND THE COMBINED PROXY STATEMENT/PROSPECTUS, DATED MARCH 5, 2000.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF BOSTON 1784 FUNDS, WHICH
UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE PROPOSAL.
THIS PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSAL.
(1) To approve the Agreement and Plan of Reorganization, attached to the
Combined Proxy Statement/Prospectus for the Meeting, which provides for
(a) the transfer of substantially all of the assets and liabilities of
the Boston 1784 Growth and Income Fund to the Growth and Income Fund of
The Galaxy Fund in exchange for Trust Shares of the Galaxy Growth and
Income Fund of equal value; (b) the distribution of the Trust Shares of
the Galaxy Growth and Income Fund to shareholders of the Boston 1784
Growth and Income Fund; and (c) the deregistration under the Investment
Company Act of 1940, as amended, and the termination under state law of
Boston 1784 Funds.
| |FOR | |AGAINST | |ABSTAIN
(2) In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Meeting.
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE. EVERY PROPERLY SIGNED PROXY WILL BE VOTED IN THE MANNER SPECIFIED
HEREON AND, IN THE ABSENCE OF SPECIFICATION, WILL BE TREATED AS GRANTING
AUTHORITY TO VOTE "FOR" THE PROPOSAL.
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. WHEN SHARES ARE HELD BY JOINT
TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY OR EXECUTOR, ADMINISTRATOR,
TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A CORPORATION, PLEASE
SIGN IN FULL CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.
- ------------------------------------ ----------------------------------------
SIGNATURE DATE SIGNATURE (JOINT OWNER) DATE
<PAGE>
PROXY CARD
BOSTON 1784 FUNDS
GROWTH AND INCOME FUND
(SHARES/BKB SHARES)
SPECIAL MEETING OF SHAREHOLDERS - APRIL 28, 2000
The undersigned hereby appoints James Foggo, Lynda J. Striegel and
Edward T. Searle (the "Proxies") and each of them, attorneys and Proxies of the
undersigned, each with power of substitution and resubstitution, to attend, vote
and act for the undersigned at the Special Meeting of Shareholders of Boston
1784 Funds (the "Meeting") to be held at the offices of Boston 1784 Funds'
administrator, SEI Investments Mutual Fund Services, 1 Freedom Valley Drive,
Oaks, Pennsylvania at 10:00 a.m. (Eastern Time) on April 28, 2000, and at any
adjournment or adjournments thereof. The Proxies will cast votes according to
the number of shares of the Boston 1784 Growth and Income Fund which the
undersigned may be entitled to vote with respect to the proposals set forth
below, in accordance with the specification indicated, if any, and with all the
powers which the undersigned would possess if personally present. The
undersigned hereby revokes any prior proxy to vote at such meeting, and hereby
ratifies and confirms all that said attorneys and Proxies, or either of them,
may lawfully do by virtue thereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS AND THE COMBINED PROXY STATEMENT/PROSPECTUS, DATED MARCH 5, 2000.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF BOSTON 1784 FUNDS, WHICH
UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE PROPOSAL.
THIS PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSAL.
(1) To approve the Agreement and Plan of Reorganization, attached to the
Combined Proxy Statement/Prospectus for the Meeting, which provides for
(a) the transfer of substantially all of the assets and liabilities of
the Boston 1784 Growth and Income Fund to the Growth and Income Fund of
The Galaxy Fund in exchange for BKB Shares of the Galaxy Growth and
Income Fund of equal value; (b) the distribution of the BKB Shares of
the Galaxy Growth and Income Fund to shareholders of the Boston 1784
Growth and Income Fund; and (c) the deregistration under the Investment
Company Act of 1940, as amended, and the termination under state law of
Boston 1784 Funds.
| |FOR | |AGAINST | |ABSTAIN
(2) In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Meeting.
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE. EVERY PROPERLY SIGNED PROXY WILL BE VOTED IN THE MANNER SPECIFIED
HEREON AND, IN THE ABSENCE OF SPECIFICATION, WILL BE TREATED AS GRANTING
AUTHORITY TO VOTE "FOR" THE PROPOSAL.
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. WHEN SHARES ARE HELD BY JOINT
TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY OR EXECUTOR, ADMINISTRATOR,
TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A CORPORATION, PLEASE
SIGN IN FULL CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.
- ------------------------------------ ----------------------------------------
SIGNATURE DATE SIGNATURE (JOINT OWNER) DATE
<PAGE>
PROXY CARD
BOSTON 1784 FUNDS
GROWTH FUND
(SHARES/TRUST SHARES)
SPECIAL MEETING OF SHAREHOLDERS - APRIL 28, 2000
The undersigned hereby appoints James Foggo, Lynda J. Striegel and
Edward T. Searle (the "Proxies") and each of them, attorneys and Proxies of the
undersigned, each with power of substitution and resubstitution, to attend, vote
and act for the undersigned at the Special Meeting of Shareholders of Boston
1784 Funds (the "Meeting") to be held at the offices of Boston 1784 Funds'
administrator, SEI Investments Mutual Fund Services, 1 Freedom Valley Drive,
Oaks, Pennsylvania at 10:00 a.m. (Eastern Time) on April 28, 2000, and at any
adjournment or adjournments thereof. The Proxies will cast votes according to
the number of shares of the Boston 1784 Growth Fund which the undersigned may be
entitled to vote with respect to the proposals set forth below, in accordance
with the specification indicated, if any, and with all the powers which the
undersigned would possess if personally present. The undersigned hereby revokes
any prior proxy to vote at such meeting, and hereby ratifies and confirms all
that said attorneys and Proxies, or either of them, may lawfully do by virtue
thereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS AND THE COMBINED PROXY STATEMENT/PROSPECTUS, DATED MARCH 5, 2000.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF BOSTON 1784 FUNDS, WHICH
UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE PROPOSAL.
THIS PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSAL.
(1) To approve the Agreement and Plan of Reorganization, attached to the
Combined Proxy Statement/Prospectus for the Meeting, which provides for
(a) the transfer of substantially all of the assets and liabilities of
the Boston 1784 Growth Fund to the Growth Fund II of The Galaxy Fund in
exchange for Trust Shares of the Galaxy Growth Fund II of equal value;
(b) the distribution of the Trust Shares of the Galaxy Growth Fund II
to shareholders of the Boston 1784 Growth Fund; and (c) the
deregistration under the Investment Company Act of 1940, as amended,
and the termination under state law of Boston 1784 Funds.
| |FOR | |AGAINST | |ABSTAIN
(2) In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Meeting.
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE. EVERY PROPERLY SIGNED PROXY WILL BE VOTED IN THE MANNER SPECIFIED
HEREON AND, IN THE ABSENCE OF SPECIFICATION, WILL BE TREATED AS GRANTING
AUTHORITY TO VOTE "FOR" THE PROPOSAL.
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. WHEN SHARES ARE HELD BY JOINT
TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY OR EXECUTOR, ADMINISTRATOR,
TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A CORPORATION, PLEASE
SIGN IN FULL CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.
- ------------------------------------ ----------------------------------------
SIGNATURE DATE SIGNATURE (JOINT OWNER) DATE
<PAGE>
PROXY CARD
BOSTON 1784 FUNDS
GROWTH FUND
(SHARES/BKB SHARES)
SPECIAL MEETING OF SHAREHOLDERS - APRIL 28, 2000
The undersigned hereby appoints James Foggo, Lynda J. Striegel and
Edward T. Searle (the "Proxies") and each of them, attorneys and Proxies of the
undersigned, each with power of substitution and resubstitution, to attend, vote
and act for the undersigned at the Special Meeting of Shareholders of Boston
1784 Funds (the "Meeting") to be held at the offices of Boston 1784 Funds'
administrator, SEI Investments Mutual Fund Services, 1 Freedom Valley Drive,
Oaks, Pennsylvania at 10:00 a.m. (Eastern Time) on April 28, 2000, and at any
adjournment or adjournments thereof. The Proxies will cast votes according to
the number of shares of the Boston 1784 Growth Fund which the undersigned may be
entitled to vote with respect to the proposals set forth below, in accordance
with the specification indicated, if any, and with all the powers which the
undersigned would possess if personally present. The undersigned hereby revokes
any prior proxy to vote at such meeting, and hereby ratifies and confirms all
that said attorneys and Proxies, or either of them, may lawfully do by virtue
thereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS AND THE COMBINED PROXY STATEMENT/PROSPECTUS, DATED MARCH 5, 2000.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF BOSTON 1784 FUNDS, WHICH
UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE PROPOSAL.
THIS PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSAL.
(1) To approve the Agreement and Plan of Reorganization, attached to the
Combined Proxy Statement/Prospectus for the Meeting, which provides for
(a) the transfer of substantially all of the assets and liabilities of
the Boston 1784 Growth Fund to the Growth Fund II of The Galaxy Fund in
exchange for BKB Shares of the Equity Growth Fund II of equal value;
(b) the distribution of the BKB Shares of the Galaxy Growth Fund II to
shareholders of the Boston 1784 Growth Fund; and (c) the deregistration
under the Investment Company Act of 1940, as amended, and the
termination under state law of Boston 1784 Funds.
| |FOR | |AGAINST | |ABSTAIN
(2) In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Meeting.
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE. EVERY PROPERLY SIGNED PROXY WILL BE VOTED IN THE MANNER SPECIFIED
HEREON AND, IN THE ABSENCE OF SPECIFICATION, WILL BE TREATED AS GRANTING
AUTHORITY TO VOTE "FOR" THE PROPOSAL.
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. WHEN SHARES ARE HELD BY JOINT
TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY OR EXECUTOR, ADMINISTRATOR,
TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A CORPORATION, PLEASE
SIGN IN FULL CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.
- ------------------------------------ ----------------------------------------
SIGNATURE DATE SIGNATURE (JOINT OWNER) DATE
<PAGE>
PROXY CARD
BOSTON 1784 FUNDS
INTERNATIONAL EQUITY FUND
(SHARES/TRUST SHARES)
SPECIAL MEETING OF SHAREHOLDERS - APRIL 28, 2000
The undersigned hereby appoints James Foggo, Lynda J. Striegel and
Edward T. Searle (the "Proxies") and each of them, attorneys and Proxies of the
undersigned, each with power of substitution and resubstitution, to attend, vote
and act for the undersigned at the Special Meeting of Shareholders of Boston
1784 Funds (the "Meeting") to be held at the offices of Boston 1784 Funds'
administrator, SEI Investments Mutual Fund Services, 1 Freedom Valley Drive,
Oaks, Pennsylvania at 10:00 a.m. (Eastern Time) on April 28, 2000, and at any
adjournment or adjournments thereof. The Proxies will cast votes according to
the number of shares of the Boston 1784 International Equity Fund which the
undersigned may be entitled to vote with respect to the proposals set forth
below, in accordance with the specification indicated, if any, and with all the
powers which the undersigned would possess if personally present. The
undersigned hereby revokes any prior proxy to vote at such meeting, and hereby
ratifies and confirms all that said attorneys and Proxies, or either of them,
may lawfully do by virtue thereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS AND THE COMBINED PROXY STATEMENT/PROSPECTUS, DATED MARCH 5, 2000.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF BOSTON 1784 FUNDS, WHICH
UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE PROPOSAL.
THIS PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSAL.
(1) To approve the Agreement and Plan of Reorganization, attached to the
Combined Proxy Statement/Prospectus for the Meeting, which provides for
(a) the transfer of substantially all of the assets and liabilities of
the Boston 1784 International Equity Fund to the International Equity
Fund of The Galaxy Fund in exchange for Trust Shares of the Galaxy
International Equity Fund of equal value; (b) the distribution of the
Trust Shares of the Galaxy International Equity Fund to shareholders of
the Boston 1784 International Equity Fund; and (c) the deregistration
under the Investment Company Act of 1940, as amended, and the
termination under state law of Boston 1784 Funds.
| |FOR | |AGAINST | |ABSTAIN
(2) In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Meeting.
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE. EVERY PROPERLY SIGNED PROXY WILL BE VOTED IN THE MANNER SPECIFIED
HEREON AND, IN THE ABSENCE OF SPECIFICATION, WILL BE TREATED AS GRANTING
AUTHORITY TO VOTE "FOR" THE PROPOSAL.
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. WHEN SHARES ARE HELD BY JOINT
TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY OR EXECUTOR, ADMINISTRATOR,
TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A CORPORATION, PLEASE
SIGN IN FULL CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.
- ------------------------------------ ----------------------------------------
SIGNATURE DATE SIGNATURE (JOINT OWNER) DATE
<PAGE>
PROXY CARD
BOSTON 1784 FUNDS
INTERNATIONAL EQUITY FUND
(SHARES/BKB SHARES)
SPECIAL MEETING OF SHAREHOLDERS - APRIL 28, 2000
The undersigned hereby appoints James Foggo, Lynda J. Striegel and
Edward T. Searle (the "Proxies") and each of them, attorneys and Proxies of the
undersigned, each with power of substitution and resubstitution, to attend, vote
and act for the undersigned at the Special Meeting of Shareholders of Boston
1784 Funds (the "Meeting") to be held at the offices of Boston 1784 Funds'
administrator, SEI Investments Mutual Fund Services, 1 Freedom Valley Drive,
Oaks, Pennsylvania at 10:00 a.m. (Eastern Time) on April 28, 2000, and at any
adjournment or adjournments thereof. The Proxies will cast votes according to
the number of shares of the Boston 1784 International Equity Fund which the
undersigned may be entitled to vote with respect to the proposals set forth
below, in accordance with the specification indicated, if any, and with all the
powers which the undersigned would possess if personally present. The
undersigned hereby revokes any prior proxy to vote at such meeting, and hereby
ratifies and confirms all that said attorneys and Proxies, or either of them,
may lawfully do by virtue thereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS AND THE COMBINED PROXY STATEMENT/PROSPECTUS, DATED MARCH 5, 2000.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF BOSTON 1784 FUNDS, WHICH
UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE PROPOSAL.
THIS PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSAL.
(1) To approve the Agreement and Plan of Reorganization, attached to the
Combined Proxy Statement/Prospectus for the Meeting, which provides for
(a) the transfer of substantially all of the assets and liabilities of
the Boston 1784 International Equity Fund to the International Equity
Fund of The Galaxy Fund in exchange for BKB Shares of the Galaxy
International Equity Fund of equal value; (b) the distribution of the
BKB Shares of the Galaxy International Equity Fund to shareholders of
the Boston 1784 International Equity Fund; and (c) the deregistration
under the Investment Company Act of 1940, as amended, and the
termination under state law of Boston 1784 Funds.
| |FOR | |AGAINST | |ABSTAIN
(2) In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Meeting.
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE. EVERY PROPERLY SIGNED PROXY WILL BE VOTED IN THE MANNER SPECIFIED
HEREON AND, IN THE ABSENCE OF SPECIFICATION, WILL BE TREATED AS GRANTING
AUTHORITY TO VOTE "FOR" THE PROPOSAL.
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. WHEN SHARES ARE HELD BY JOINT
TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY OR EXECUTOR, ADMINISTRATOR,
TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A CORPORATION, PLEASE
SIGN IN FULL CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.
- ------------------------------------ ----------------------------------------
SIGNATURE DATE SIGNATURE (JOINT OWNER) DATE
<PAGE>
EXHIBIT 17(b)(i)
[Front cover page]
The Galaxy Fund
Prospectus
_____________, 2000
Galaxy Money Market Fund
Galaxy U.S. Treasury Fund
Galaxy Tax-Exempt Fund
Galaxy Short-Term Bond Fund
Galaxy Intermediate Government Income Fund
Galaxy High Quality Bond Fund
Galaxy Rhode Island Municipal Bond Fund
Galaxy Asset Allocation Fund
Galaxy Growth and Income Fund
Galaxy Equity Growth Fund
Galaxy International Equity Fund
BKB Shares
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved any shares of these Funds or determined if this
prospectus is accurate or complete. Anyone who tells you otherwise is committing
a crime.
<PAGE>
Contents
1 Risk/return summary
1 Introduction
3 Galaxy Money Market Fund
7 Galaxy U.S. Treasury Fund
10 Galaxy Tax-Exempt Fund
14 Galaxy Short-Term Bond Fund
20 Galaxy Intermediate Government Income Fund
26 Galaxy High Quality Bond Fund
31 Galaxy Rhode Island Municipal Bond Fund
36 Galaxy Asset Allocation Fund
42 Galaxy Growth and Income Fund
47 Galaxy Equity Growth Fund
52 Galaxy International Equity Fund
57 Additional information about risk
59 Fund management
61 How to invest in the Funds
61 How sales charges work
64 Buying, selling and exchanging BKB Shares
65 How to buy BKB shares
68 How to sell BKB Shares
69 Exchange privilege
70 Other transaction policies
71 Dividends, distributions and taxes
74 How to reach Galaxy
75 Financial highlights
<PAGE>
RISK/RETURN SUMMARY
INTRODUCTION
This prospectus describes the BKB Shares of the Galaxy Money Market Fund, Galaxy
U.S. Treasury Fund, Galaxy Tax-Exempt Fund, Galaxy Short-Term Bond Fund, Galaxy
Intermediate Government Income Fund, Galaxy High Quality Bond Fund, Galaxy Rhode
Island Municipal Bond Fund, Galaxy Asset Allocation Fund, Galaxy Growth and
Income Fund, Galaxy Equity Growth Fund and Galaxy International Equity Fund. BKB
Shares are offered through this prospectus without a sales charge (sometimes
called a front-end load) only to those shareholders of the Boston 1784 Funds who
are not eligible to receive Trust Shares of their corresponding Galaxy Funds at
the time the Boston 1784 Funds are reorganized into Galaxy. BKB Shares of each
Fund will convert into Retail A Shares of the same Fund on the first anniversary
of the closing of the reorganization of the Boston 1784 Funds into Galaxy,
provided that prior thereto the Board of Trustees of Galaxy has determined that
such conversion is in the best interests of the holders of BKB Shares. Because
of this conversion feature, some information is provided in this prospectus for
Retail A Shares of the Funds. Retail A Shares of the Galaxy Funds are offered
through separate prospectuses available from Galaxy by calling the phone number
on the back cover of this prospectus. Prior to the date of this prospectus, the
Galaxy Funds had not offered BKB Shares.
On the following pages, you'll find important information about each Fund,
including:
- - the Fund's investment objective (sometimes called the Fund's goal) and the
main investment strategies used by the Fund's investment adviser in trying
to achieve that objective
- - the main risks associated with an investment in the Fund
- - the past performance of the Fund measured on both a year-by-year and
long-term basis
- - the fees and expenses that you will pay as an investor in the Fund
THE FUNDS' INVESTMENT ADVISER
Fleet Investment Advisors Inc., which is referred to in this prospectus as the
ADVISER, is the investment adviser for all of these Funds. The Adviser, an
indirect wholly-owned subsidiary of FleetBoston Corporation, was established in
1984 and has its main office at 75 State Street, Boston, Massachusetts 02109.
The Adviser also provides investment management and advisory services to
individual and institutional clients and manages the other Galaxy investment
portfolios. As of December 31, 1999, the Adviser managed over $___ billion in
assets.
AN INVESTMENT IN THE FUNDS ISN'T A FLEET BANK DEPOSIT AND IT ISN'T INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. ALTHOUGH THE GALAXY
<PAGE>
MONEY MARKET FUND, GALAXY U.S. TREASURY FUND AND
GALAXY TAX-EXEMPT FUND SEEK TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00
PER SHARE, IT'S POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUNDS. YOU COULD ALSO
LOSE MONEY BY INVESTING IN ANY OF THE OTHER FUNDS.
-2-
<PAGE>
Galaxy Money Market Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks as high a level of current income as is consistent with liquidity
and stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests in a diversified portfolio of money market instruments,
including commercial paper, notes and bonds issued by U.S. corporations,
obligations issued by the U.S. Government and its agencies and
instrumentalities, and obligations issued by U.S. and foreign banks, such as
certificates of deposit. The Fund also invests in repurchase agreements backed
by U.S. Government obligations.
The Fund will only buy a security if it has the highest short-term rating from
at least two nationally recognized statistical rating organizations, or one such
rating if only one organization has rated the security. If the security is not
rated, it must be determined by the Adviser to be of comparable credit quality.
[Sidenote:]
MATURITY
The maturity of a security is the date when the issuer must repay the security's
entire principal amount to an investor, such as a Fund.
[Sidenote:]
MONEY MARKET INSTRUMENTS
Money market instruments are short-term debt obligations issued by banks,
corporations, the U.S. Government and state and local governments. Money market
instruments purchased by the Galaxy money market funds must meet strict
requirements as to investment quality, maturity and diversification. The Galaxy
money market funds do not invest in securities with remaining maturities of more
than 397 days (subject to certain exceptions) and the average maturity of all
securities held by a particular Galaxy money market fund must be 90 days or
less. Each Galaxy money market fund tries to maintain its share price at $1.00
to protect your investment from loss.
-3-
<PAGE>
[Sidenote:]
REPURCHASE AGREEMENTS
Repurchase agreements are transactions in which a fund buys securities from a
seller (usually a bank or broker-dealer) who agrees to buy them back from the
fund on a certain date and at a certain price.
THE MAIN RISKS OF INVESTING IN THE FUND
While money market funds are considered to be among the safest of all
investments, they are not risk free. Here are the main risks associated with an
investment in the Fund:
- - INTEREST RATE RISK - The yield paid by the Fund will vary with changes in
short-term interest rates.
- - CREDIT RISK - Although credit risk is very low because the Fund only
invests in high quality obligations, if an issuer fails to pay interest or
repay principal, the value of your investment could decline.
- - REPURCHASE AGREEMENTS - Repurchase agreements carry the risk that the other
party may not fulfill its obligations under the agreement. This could cause
the value of your investment to decline.
- - SHARE PRICE - There's no guarantee the Fund will be able to preserve the
value of your investment at $1.00 per share.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that all
dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
As of the date of this prospectus, the Fund had not offered BKB Shares to
investors. The returns below represent the returns for Retail A Shares of the
Fund which are offered in a separate prospectus. Retail A Shares and BKB Shares
of the Fund should have returns that are substantially the same because they
represent interests in the same portfolio securities and differ only to the
extent that they bear different expenses.
-4-
<PAGE>
YEAR-BY-YEAR TOTAL RETURNS -- CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares of the Fund has
varied from year to year.
[Sidenote:]
Best quarter: ____% for the quarter ending ____________, ____
Worst quarter: ____% for the quarter ending ____________, ____
[bar chart goes here]
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8.01% 6.13% 3.54% 2.73% 3.68% 5.29% 4.73% 4.99% 4.96% ____%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the average annual total returns for the Fund's Retail A Shares
for the periods ended December 31, 1999.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
1 year 5 years 10 years Since inception
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
____% ____% ____% ____% (11/17/86)
-----------------------------------------------------------------------------------------------------
</TABLE>
To obtain the Fund's current 7-day yield, please call 1-877-BUY-GALAXY
(1-877-289-4252).
EXPENSES OF THE FUND
There are no sales charges when you buy or sell BKB Shares or Retail A Shares of
the Fund. The following table shows the expenses you may pay when you buy and
hold BKB Shares of the Fund. Because it is expected that your BKB Shares will
convert into Retail A Shares of the Fund on the first anniversary of the closing
of the reorganization of the Boston 1784 Funds into Galaxy, information is also
provided as to the expenses you may pay when you buy and hold Retail A Shares of
the Fund.
-5-
<PAGE>
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Distribution and Total Fund operating
Management fees service (12b-1) fees Other expenses expenses
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BKB Shares 0.40(1)% None ____% ____%(2)
- ----------------------------------------------------------------------------------------------------------------------
Retail A Shares 0.40(1)% None ____% ____%(3)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
1 The Adviser is waiving a portion of the Management fees so that such fees
are expected to be ____%. This fee waiver may be revised or discontinued at
any time.
2 The Adviser and/or its affiliates have agreed to waive fees and reimburse
expenses in such amounts as are necessary to limit the Total Fund operating
expenses for BKB Shares of the Fund for the first year after the
reorganization to __% of the average daily net assets of the Fund. Total
Fund operating expenses for Retail A Shares of the Fund are higher than
those for BKB Shares because they are market driven.
3 Total Fund operating expenses for Retail A Shares after the waiver of
Management fees by the Adviser are expected to be ____%.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your BKB Shares convert into Retail A Shares after one year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BKB Shares $____ $____ $____ $____
- -------------------------------------------------------------------------------------------------------------
Retail A Shares $____ $____ $____ $____
- -------------------------------------------------------------------------------------------------------------
</TABLE>
-6-
<PAGE>
Galaxy U.S. Treasury Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks current income with liquidity and stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests primarily in securities issued or guaranteed by the U.S.
Treasury and certain U.S. Government agencies and instrumentalities that provide
income that is generally not subject to state income tax.
[Sidenote:]
U.S. TREASURY OBLIGATIONS
U.S. Treasury obligations are among the safest of all investments because they
are backed by the "full faith and credit" of the U.S. Government.
THE MAIN RISKS OF INVESTING IN THE FUND
While money market funds are considered to be among the safest of all
investments, they are not risk free. Here are the main risks associated with an
investment in the Fund:
- - INTEREST RATE RISK - The yield paid by the Fund will vary with changes in
short-term interest rates.
- - CREDIT RISK - Although U.S. Government securities, particularly U.S.
Treasury securities, have historically involved little credit risk, if an
issuer fails to pay interest or repay principal, the value of your
investment could decline.
- - SHARE PRICE - There's no guarantee the Fund will be able to preserve the
value of your investment at $1.00 per share.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that all
dividends and distributions
-7-
<PAGE>
are reinvested in the Fund. How the Fund has performed in the past doesn't
necessarily show how it will perform in the future.
As of the date of this prospectus, the Fund had not offered BKB Shares to
investors. The returns below represent the returns for Retail A Shares of the
Fund which are offered in a separate prospectus. Retail A Shares and BKB Shares
of the Fund should have returns that are substantially the same because they
represent interests in the same portfolio securities and differ only to the
extent that they bear different expenses.
YEAR-BY-YEAR TOTAL RETURNS -- CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares of the Fund has
varied from year to year.
[Sidenote:]
Best quarter: ____% for the quarter ending _______, ____
Worst quarter: ____% for the quarter ending _______, ____
[bar chart goes here]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1997 1998 1999
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
3.39% 2.74% 3.58% 5.05% 4.59% 4.70% 4.63% ____%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the average annual total returns for the Fund's Retail A Shares
for the periods ended December 31, 1999.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
1 year 5 years Since inception
-----------------------------------------------------------------------------
<S> <C> <C>
____% ____% ____% (1/22/91)
-----------------------------------------------------------------------------
</TABLE>
To obtain the Fund's current 7-day yield, please call 1-877-BUY-GALAXY
(1-877-289-4252).
EXPENSES OF THE FUND
There are no sales charges when you buy or sell BKB Shares or Retail A Shares of
the Fund. The following table shows the expenses you may pay when you buy and
hold BKB Shares of the Fund. Because it is expected that your BKB Shares will
convert into Retail A Shares of the Fund
-8-
<PAGE>
on the first anniversary of the closing of the reorganization of the Boston 1784
Funds into Galaxy, information is also provided as to the expenses you may pay
when you buy and hold Retail A Shares of the Fund.
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Distribution Total Fund operating
Management fees (12b-1) fees Other expenses expenses
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BKB Shares 0.39% None ____% ____%(1)
- --------------------------------------------------------------------------------------------------------------------
Retail A Shares 0.39% None ____% ____%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
1 The Adviser and/or its affiliates have agreed to waive fees and reimburse
expenses in such amounts as are necessary to limit the expenses of BKB
Shares of the Fund for the first year after the reorganization to __% of
the average daily net assets of the Fund. Total Fund operating expenses for
Retail A Shares of the Fund are higher than those for BKB Shares because
they are market driven.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your BKB Shares convert into Retail A Shares after one year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BKB Shares $____ $____ $____ $____
- -------------------------------------------------------------------------------------------------------------
Retail A Shares $____ $____ $____ $____
- -------------------------------------------------------------------------------------------------------------
</TABLE>
-9-
<PAGE>
Galaxy Tax-Exempt Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks as high a level of current interest income exempt from federal
income tax as is consistent with stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its total assets in municipal
securities, which are securities issued by state and local governments and other
political or public bodies or agencies and that pay interest which is exempt
from regular federal income tax. Under normal conditions, the Fund will invest
no more than 20% of its total assets in taxable obligations, such as U.S.
Government obligations, money market instruments and repurchase agreements.
Municipal securities purchased by the Fund may include general obligation
securities, revenue securities and private activity bonds. The interest on
private activity bonds may be subject to the federal alternative minimum tax.
Investments in private activity bonds will not be treated as investments in
municipal securities for purposes of the 80% requirement stated above.
The Fund will only buy a security if it has one of the two highest short-term
ratings from at least two nationally recognized statistical rating
organizations, or one such rating if only one organization has rated the
security. If the security is not rated, it must be determined by the Adviser to
be of comparable credit quality.
[Sidenote:]
MUNICIPAL SECURITIES
State and local governments issue municipal securities to raise money to finance
public works, to repay outstanding obligations, to raise funds for general
operating expenses and to make loans to other public institutions. Some
municipal securities, known as private activity bonds, are issued to finance
projects for private companies. Municipal securities, which can be issued as
bonds, notes or commercial paper, usually have fixed interest rates, although
some have interest rates that change from time to time.
-10-
<PAGE>
[Sidenote:]
TYPES OF MUNICIPAL SECURITIES
GENERAL OBLIGATION securities are secured by the issuer's full faith, credit and
taxing power. REVENUE OBLIGATION securities are usually payable only from
revenues derived from specific facilities or revenue sources. PRIVATE ACTIVITY
BONDS are usually revenue obligations since they are typically payable by the
private user of the facilities financed by the bonds.
THE MAIN RISKS OF INVESTING IN THE FUND
While money market funds are considered to be among the safest of all
investments, they are not risk free. Here are the main risks associated with an
investment in the Fund:
- - INTEREST RATE RISK - The yield paid by the Fund will vary with changes in
short-term interest rates.
- - CREDIT RISK - Although credit risk is very low because the Fund only
invests in high quality obligations, if an issuer fails to pay interest or
repay principal, the value of your investment could decline. The ability of
a state or local government issuer to make payments can be affected by many
factors, including economic conditions, the flow of tax revenues and
changes in the level of federal, state or local aid.
- - SHARE PRICE - There's no guarantee the Fund will be able to preserve the
value of your investment at $1.00 per share.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that all
dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
As of the date of this prospectus, the Fund had not offered BKB Shares to
investors. The returns below represent the returns for Retail A Shares of the
Fund which are offered in a separate prospectus. Retail A Shares and BKB Shares
of the Fund should have returns that are substantially the same because they
represent interests in the same portfolio securities and differ only to the
extent that they bear different expenses.
-11-
<PAGE>
YEAR-BY-YEAR TOTAL RETURNS -- CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares of the Fund has
varied from year to year.
[Sidenote:]
Best quarter: ____% for the quarter ending ________, ____
Worst quarter: ____% for the quarter ending ________, ____
[bar chart goes here]
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5.52% 4.18% 2.46% 2.01% 2.27% 3.19% 2.78% 2.99% 2.81% ____%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the average annual total returns for the Fund's Retail A Shares
for the periods ended December 31, 1999.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
1 year 5 years 10 years Since inception
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
____% ____% ____% ____% (6/23/88)
------------------------------------------------------------------------------------------
</TABLE>
To obtain the Fund's current 7-day yield, please call 1-877-BUY-GALAXY
(1-877-289-4252).
[Sidenote:]
TAX-EQUIVALENT YIELD
One way to understand the tax advantages of a tax-exempt fund is to compare its
after-tax return to that of a taxable investment. For example, suppose a taxable
fund pays a return of 10%. If you're in the 36% federal income tax bracket, the
fund's return after taxes is 6.4%. When a tax-exempt fund pays a return of 10%,
you don't pay tax. So if you're in the 36% tax bracket, that's the equivalent of
earning about 15.6% on a taxable fund. If you're in a low tax bracket, however,
it may not be helpful to invest in a tax-exempt fund if you can achieve a higher
after-tax return from a taxable investment.
EXPENSES OF THE FUND
There are no sales charges when you buy or sell BKB Shares or Retail A Shares of
the Fund. The following table shows the expenses you may pay when you buy and
hold BKB Shares of the Fund. Because it is expected that your BKB Shares will
convert into Retail A Shares of the Fund on the first anniversary of the closing
of the reorganization of the Boston 1784 Funds into
-12-
<PAGE>
Galaxy, information is also provided as to the expenses you may pay when you buy
and hold Retail A Shares of the Fund.
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Distribution Total Fund operating
Management fees (12b-1) fees Other expenses expenses
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BKB Shares 0.40% None ____% ____%(1)
- ----------------------------------------------------------------------------------------------------------------------
Retail A Shares 0.40% None ____% ____%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
1 The Adviser and/or its affiliates have agreed to waive fees and reimburse
expenses in such amounts as are necessary to limit the expenses of BKB
Shares of the Fund for the first year after the reorganization to __% of
the average daily net assets of the Fund. Total Fund operating expenses for
Retail A Shares of the Fund are higher than those for BKB Shares because
they are market driven.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your BKB Shares convert into Retail A Shares after one year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BKB Shares $____ $____ $____ $____
- -------------------------------------------------------------------------------------------------------------
Retail A Shares $____ $____ $____ $____
- -------------------------------------------------------------------------------------------------------------
</TABLE>
-13-
<PAGE>
Galaxy Short-Term Bond Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks a high level of current income consistent with preservation of
capital.
[Sidenote:]
PRESERVATION OF CAPITAL
Preservation of capital means protecting the amount of money you invest in a
fund. If a fund seeks to preserve capital, it will try to maintain a relatively
stable share price so your investment is protected.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests primarily in debt obligations of U.S. and foreign corporations,
including bonds and notes, and in debt obligations issued or guaranteed by the
U.S. Government and its agencies or instrumentalities or by foreign governments
or their political subdivisions and instrumentalities. It also invests in
asset-backed and mortgage-backed securities and in money market instruments,
such as commercial paper and the obligations of U.S. and foreign banks. The Fund
normally invests at least 65% of its total assets in bonds and debentures.
In selecting portfolio securities for the Fund, the Adviser monitors and
evaluates economic trends. It establishes duration targets, ranges of interest
payments on bonds of various maturities and determines the appropriate
allocation of the Fund's assets among various market sectors.
Nearly all Fund investments will be of investment grade quality. These are
securities which have one of the top four ratings assigned by Standard & Poor's
Ratings Group (S&P) or Moody's Investors Service, Inc. (Moody's), or are unrated
securities determined by the Adviser to be of comparable quality. Under normal
market conditions, the Fund will invest at least 65% of its total assets in
securities that have one of the top three ratings assigned by S&P or Moody's, or
unrated securities determined by the Adviser to be of comparable quality.
Occasionally, the rating of a security held by the Fund may be downgraded to
below investment grade. If that happens, the Fund doesn't have to sell the
security unless the Adviser determines that under the circumstances the security
is no longer an appropriate investment for the Fund. However, the Fund will sell
promptly any securities that are not rated investment grade by either S&P or
Moody's if the securities exceed 5% of the Fund's net assets.
The Fund's average weighted maturity will be less than three years under normal
circumstances.
-14-
<PAGE>
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective.
[Sidenote:]
AVERAGE WEIGHTED MATURITY
Average weighted maturity gives you the average time until all debt obligations
in a fund come due or MATURE. It is calculated by averaging the time to maturity
of all debt obligations held by a fund with each maturity "weighted" according
to the percentage of assets it represents.
[Sidenote:]
DURATION
Duration is an approximate measure of the price sensitivity of a fund to changes
in interest rates. Unlike maturity which measures only the time until final
payment, duration gives you the average time it takes to receive all expected
cash flows (including interest payments, prepayments and final payments) on the
debt obligations held by a fund.
[Sidenote:]
DEBT OBLIGATION
When a Fund buys a debt obligation such as a bond, it is in effect lending money
to the company, government or other entity that issued the bond. In return, the
issuer has an obligation to make regular interest payments and to repay the
original amount of the loan on a given date, known as the maturity date. A bond
MATURES when it reaches its maturity date. Bonds usually have fixed interest
rates, although some have rates that fluctuate based on market conditions and
other factors.
The Fund may trade its investments frequently in trying to achieve its
investment goal.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets. These can occur within or outside the U.S. or worldwide, and may affect
only particular companies or industries.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities generally tend to move
in the opposite direction to interest rates. When rates are rising, the
prices of debt securities tend to fall.
-15-
<PAGE>
When rates are falling, the prices of debt securities tend to rise.
Generally, the longer the time until maturity, the more sensitive the price
of a debt security is to interest rate changes.
- - CREDIT RISK - The value of debt securities also depends on the ability of
issuers to make principal and interest payments. If an issuer can't meet
its payment obligations or if its credit rating is lowered, the value of
its debt securities may fall. Debt securities which have the lowest of the
top four ratings assigned by S&P or Moody's are considered to have
speculative characteristics. Changes in the economy are more likely to
affect the ability of the issuers of these securities to make payments of
principal and interest than is the case with higher-rated securities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
debt securities held by the Fund, particularly asset-backed and
mortgage-backed securities, to be paid off much sooner or later than
expected, which could adversely affect the Fund's value. In the event that
a security is paid off sooner than expected because of a decline in
interest rates, the Fund may be unable to recoup all of its initial
investment and may also suffer from having to reinvest in lower-yielding
securities. In the event of a later than expected payment because of a rise
in interest rates, the value of the obligation will decrease and the Fund
may suffer from the inability to invest in higher-yielding securities.
- - FOREIGN INVESTMENTS - Foreign investments may be riskier than U.S.
investments because of factors such as foreign government restrictions,
changes in currency exchange rates, incomplete financial information about
the issuers of securities, and political or economic instability. Foreign
securities may be more volatile and less liquid than U.S. securities.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
- - FREQUENT TRADING - Frequent trading of investments usually increases the
chance that the Fund will pay investors short-term capital gains. These
gains are taxable at higher rates than long-term capital gains. Frequent
trading could also mean higher brokerage commissions and other transaction
costs, which could reduce the Fund's returns.
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past
and give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
As of the date of this prospectus, the Fund had not offered BKB Shares to
investors. The returns below represent the returns for Retail A Shares of the
Fund which are offered in a separate prospectus. Retail A Shares and BKB Shares
of the Fund should have returns that are substantially the same because they
represent interests in the same portfolio securities and differ only to the
extent that they bear different expenses.
-16-
<PAGE>
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares of the Fund has
varied from year to year. The figures don't include any sales charges that
investors pay when buying or selling Retail A Shares of the Fund. If sales
charges were included, the returns would be lower.
[Sidenote:]
Best quarter: ____% for the quarter ending _______________, ____
Worst quarter: ____% for the quarter ending _______________, ____
[bar chart goes here]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1997 1998 1999
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
5.81% 6.41% -0.37% 10.96% 3.38% 5.68% 6.07% %
- --------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the average annual total returns for the Fund's Retail A Shares
(after taking into account any sales charges) for the periods ended December 31,
1999, as compared to a broad-based market index. The returns for Retail A Shares
of the Fund for periods prior to December 1, 1995 have been restated to include
the effect of the maximum 3.75% front-end sales charge which went into effect on
that date.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
1 year 5 years Since inception
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares % % % (12/30/91)
- -----------------------------------------------------------------------------------------------------------
Lehman Brothers % % % (since 12/31/91)
One to Three Year
Government Bond
Index
- -----------------------------------------------------------------------------------------------------------
</TABLE>
For current yield information, please call 1-877-BUY-GALAXY (1-877-289-4252).
[Sidenote:]
The Lehman Brothers One to Three Year Government Bond Index is an unmanaged
index which tracks the performance of short-term U.S. Government bonds.
-17-
<PAGE>
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold BKB Shares of the Fund. Because it is expected that your BKB Shares will
convert into Retail A Shares of the Fund on the first anniversary of the closing
of the reorganization of the Boston 1784 Funds into Galaxy, information is also
provided as to the fees and expenses you may pay when you buy and hold Retail A
Shares of the Fund.
<TABLE>
<CAPTION>
Shareholder fees (fees paid directly from your investment)
- ----------------------------------------------------------------------------------------------------------------------
Maximum sales charge (load) on Maximum deferred sales charge
purchases shown as a % of the (load) shown as a % of the offering
offering price price or sale price, whichever is less
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BKB Shares None None
- ----------------------------------------------------------------------------------------------------------------------
Retail A Shares 3.75%(1) None(2)
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
Annual Fund operating expenses (expenses deducted from the Fund's assets)
- ----------------------------------------------------------------------------------------------------------------------
Management fees Distribution and Other Total Fund operating
service (12b-1) fees expenses expenses
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BKB Shares 0.75%(3) None % %(4)
- ----------------------------------------------------------------------------------------------------------------------
Retail A Shares 0.75%(3) None % %(5)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) There will be no sales charge imposed on the conversion of BKB Shares into
Retail A Shares. Reduced sales charges may be available for certain other
investors in Retail A Shares. See "How to invest in the Funds - How sales
charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the
Funds-- How sales charges work."
(3) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be ___%. This fee waiver may be revised or discontinued at
any time.
(4) The Adviser and/or its affiliates have agreed to waive fees and reimburse
expenses in such amounts as are necessary to limit the expenses of BKB
Shares of the Fund for the first year after the reorganization to __% of
the average daily net assets of the Fund. Total Fund operating expenses for
Retail A Shares of the Fund are higher than those for BKB Shares because
they are market driven.
(5) Total Fund operating expenses for Retail A Shares after the waiver of
Management fees by the Adviser are expected to be ____%.
-18-
<PAGE>
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your BKB Shares convert into Retail A Shares after one year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BKB Shares $ $ $ $
- ----------------------------------------------------------------------------------------------------------------------
Retail A Shares $ $ $ $
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Adviser's Taxable Fixed Income Strategy Committee is responsible for the
day-to-day management of the Fund's investment portfolio. The Committee has
managed the Fund since October of 1999.
-19-
<PAGE>
Galaxy Intermediate Government Income Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks the highest level of current income consistent with prudent risk
of capital.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 65% of its total assets in debt obligations
issued or guaranteed by the U.S. Government or its agencies and
instrumentalities. It also invests in debt obligations of U.S. corporations,
asset-backed and mortgage-backed securities and money market instruments, such
as commercial paper and obligations of U.S. banks and U.S. branches of foreign
banks.
In selecting portfolio securities for the Fund, the Adviser monitors and
evaluates economic trends. It establishes duration targets, ranges of interest
rates on bonds of various maturities and determines the appropriate allocation
of the Fund's investments among various market sectors.
Nearly all Fund investments will be of investment grade quality and will have
one of the top three ratings assigned by Standard & Poor's Ratings Group ("S&P")
or Moody's Investors Service, Inc. ("Moody's"), or will be unrated securities
determined by the Adviser to be of comparable quality. Occasionally, the rating
of a security held by the Fund may be downgraded to below the minimum required
rating. If that happens, the Fund doesn't have to sell the security unless the
Adviser determines that under the circumstances the security is no longer an
appropriate investment for the Fund. However, the Fund will sell promptly any
securities that are not rated investment grade by either S&P or Moody's if the
securities exceed 5% of the Fund's net assets.
The Fund's average weighted maturity will be between three and ten years under
normal circumstances.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective.
-20-
<PAGE>
[Sidenote:]
U.S. GOVERNMENT OBLIGATIONS
U.S. Government obligations are debt obligations issued or guaranteed by the
U.S. Government or one of its agencies or instrumentalities. U.S. Government
obligations generally have less credit risk than other debt obligations.
The Fund may trade its investments frequently in trying to achieve its
investment goal.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets. These can occur within or outside the U.S. or worldwide, and may affect
only particular companies or industries.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities generally tend to move
in the opposite direction to interest rates. When rates are rising, the
prices of debt securities tend to fall. When rates are falling, the prices
of debt securities tend to rise. Generally, the longer the time until
maturity, the more sensitive the price of a debt security is to interest
rate changes.
- - CREDIT RISK - The value of debt securities also depends on the ability of
issuers to make principal and interest payments. If an issuer can't meet
its payment obligations or if its credit rating is lowered, the value of
its debt securities may fall.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
debt securities held by the Fund, particularly asset-backed and
mortgage-backed securities, to be paid off much sooner or later than
expected, which could adversely affect the Fund's value. In the event that
a security is paid off sooner than expected because of a decline in
interest rates, the Fund may be unable to recoup all of its initial
investment and may also suffer from having to reinvest in lower-yielding
securities. In the event of a later than expected payment because of a rise
in interest rates, the value of the obligation will decrease and the Fund
may suffer from the inability to invest in higher-yielding securities.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
- - FREQUENT TRADING - Frequent trading of instruments usually increases the
chance that the Fund will pay investors short-term capital gains. These
gains are taxable at higher rates than long-term capital gains. Frequent
trading could also mean higher brokerage commissions and other transaction
costs, which could reduce the Fund's returns.
-21-
<PAGE>
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past
and give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
As of the date of this prospectus, the Fund had not offered BKB Shares to
investors. The returns below represent the returns for Retail A Shares of the
Fund which are offered in a separate prospectus. Retail A Shares and BKB Shares
of the Fund should have returns that are substantially the same because they
represent interests in the same portfolio securities and differ only to the
extent that they bear different expenses.
Retail A Shares of the Fund were first issued during the fiscal year ended
October 31, 1992. The returns for Retail A Shares of the Fund for prior periods
represent the returns for Trust Shares of the Fund which are offered in a
separate prospectus. Prior to November 1, 1993, the returns for Retail A Shares
and Trust Shares of the Fund were the same because each class of shares had the
same expenses.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares of the Fund has
varied from year to year. The figures don't include any sales charges that
investors pay when buying or selling Retail A Shares of the Fund. If sales
charges were included, the returns would be lower.
[Sidenote:]
Best quarter: ____% for the quarter ending _______________, ____
Worst quarter: ____% for the quarter ending _______________, ____
[bar chart goes here]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5.87% 15.77% 7.11% 5.57% -3.77% 15.67% 1.75% 7.83% 8.32% %
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the average annual total returns for the Fund's Retail A Shares
(after taking into account any sales charges) for the periods ended December 31,
1999, as compared to broad-based market indices. The returns for Retail A Shares
of the Fund for periods prior to December 1, 1995 have been restated to include
the effect of the maximum 3.75% front-end sales charge which went into effect on
that date.
-22-
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
1 year 5 years 10 years Since inception
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares % % % % (9/1/88)
- --------------------------------------------------------------------------------------------------------------------
Lehman Brothers
Intermediate Government/
Corporate Bond Index % % % % (since 9/1/88)
- --------------------------------------------------------------------------------------------------------------------
Lehman Brothers Aggregate Bond Index % % % % (since 9/1/88)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
For current yield information, please call 1-877-BUY-GALAXY (1-877-289-4252).
[Sidenote:]
The Lehman Brothers Intermediate Government/Corporate Bond Index is an unmanaged
index which tracks the performance of intermediate U.S. Government and corporate
bonds.
[Sidenote:]
The Lehman Brothers Aggregate Bond Index is an unmanaged index made up of the
Lehman Brothers Government/Corporate Bond Index, its Mortgage Backed Securities
Index and its Asset Backed Securities Index.
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold BKB Shares of the Fund. Because it is expected that your BKB Shares will
convert into Retail A Shares of the Fund on the first anniversary of the closing
of the reorganization of the Boston 1784 Funds into Galaxy, information is also
provided as to the fees and expenses you may pay when you buy and hold Retail A
Shares of the Fund.
<TABLE>
<CAPTION>
Shareholder fees (fees paid directly from your investment)
- ----------------------------------------------------------------------------------------------------------------------
Maximum sales charge (load) on purchases Maximum deferred sales
shown as a % of the offering price charge (load) shown as a %
of the offering price or sale
price, whichever is less
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BKB Shares None None
- ----------------------------------------------------------------------------------------------------------------------
Retail A Shares 3.75%(1) None(2)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
-23-
<PAGE>
<TABLE>
<CAPTION>
Annual Fund operating expenses (expenses deducted from the Fund's assets)
- ----------------------------------------------------------------------------------------------------------------------
Management fees Distribution and Other Total Fund operating
service (12b-1) fees expenses expenses
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BKB Shares 0.75%(3) None %(3) %(4)
- ----------------------------------------------------------------------------------------------------------------------
Retail A Shares 0.75%(3) None % %(5)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) There will be no sales charge imposed on the conversion of BKB Shares into
Retail A Shares. Reduced sales charges may be available for certain other
investors in Retail A Shares. See "How to invest in the Funds - How sales
charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the
Funds-- How sales charges work."
(3) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be ____%. This fee waiver may be revised or discontinued at
any time.
(4) The Adviser and/or its affiliates have agreed to waive fees and reimburse
expenses in such amounts as are necessary to limit the expenses of BKB
Shares of the Fund for the first year after the reorganization to __% of
the average daily net assets of the Fund. Total Fund operating expenses for
Retail A Shares of the Fund are higher than those for BKB Shares because
they are market driven.
(5) Total Fund operating expenses for Retail A Shares after the waiver of
Management fees by the Adviser are expected to be ____%.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your BKB Shares convert into Retail A Shares after one year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BKB Shares $ $ $ $
- ----------------------------------------------------------------------------------------------------------------------
Retail A Shares $ $ $ $
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
-24-
<PAGE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is Marie M. Schofield, CFA, a Senior Vice President
of the Adviser. She's primarily responsible for the day-to-day management of the
Fund's investment portfolio. Ms. Schofield, who has over 20 years of investment
experience, has been with the Adviser since 1990 and served as a Vice President
and Manager of Fixed Income Investments until February 1999. She has managed the
Fund since December 1996.
-25-
<PAGE>
Galaxy High Quality Bond Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks a high level of current income consistent with prudent risk of
capital.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests primarily in obligations issued or guaranteed by the U.S.
Government, its agencies and instrumentalities, as well as in corporate debt
obligations such as notes and bonds. The Fund also invests in asset-backed and
mortgage-backed securities and in money market instruments, such as commercial
paper and bank obligations.
In selecting portfolio securities for the Fund, the Adviser monitors and
evaluates economic trends. It establishes duration targets, ranges of interest
rates on bonds of various maturities and determines the appropriate allocation
of the Fund's investments among various market sectors.
Nearly all Fund investments will be of investment grade quality. These are
securities which have one of the top four ratings assigned by Standard & Poor's
Ratings Group (S&P) or Moody's Investors Service, Inc. (Moody's), or are unrated
securities determined by the Adviser to be of comparable quality. Under normal
market conditions, the Fund will invest at least 65% of its total assets in high
quality securities that have one of the top two ratings assigned by S&P or
Moody's or unrated securities determined by the Adviser to be of comparable
quality. High quality securities tend to pay less income than lower-rated
securities. Occasionally, the rating of a security held by the Fund may be
downgraded to below investment grade. If that happens, the Fund doesn't have to
sell the security unless the Adviser determines that under the circumstances the
security is no longer an appropriate investment for the Fund. However, the Fund
will sell promptly any securities that are not rated investment grade by either
S&P or Moody's if the securities exceed 5% of the Fund's net assets.
The Fund's average weighted maturity will vary from time to time depending on
current market and economic conditions and the Adviser's assessment of probable
changes in interest rates.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective.
The Fund may trade its investments frequently in trying to achieve its
investment goal.
-26-
<PAGE>
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets. These can occur within or outside the U.S. or worldwide, and may affect
only particular companies or industries.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities generally tend to move
in the opposite direction to interest rates. When rates are rising, the
prices of debt securities tend to fall. When rates are falling, the prices
of debt securities tend to rise. Generally, the longer the time until
maturity, the more sensitive the price of a debt security is to interest
rate changes.
- - CREDIT RISK - The value of debt securities also depends on the ability of
issuers to make principal and interest payments. If an issuer can't meet
its payment obligations or if its credit rating is lowered, the value of
its debt securities may fall. Debt securities which have the lowest of the
top four ratings assigned by S&P or Moody's are considered to have
speculative characteristics. Changes in the economy are more likely to
affect the ability of the issuers of these securities to make payments of
principal and interest than is the case with higher-rated securities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
debt securities held by the Fund, particularly asset-backed and
mortgage-backed securities, to be paid off much sooner or later than
expected, which could adversely affect the Fund's value. In the event that
a security is paid off sooner than expected because of a decline in
interest rates, the Fund may be unable to recoup all of its initial
investment and may also suffer from having to reinvest in lower-yielding
securities. In the event of a later than expected payment because of a rise
in interest rates, the value of the obligation will decrease and the Fund
may suffer from the inability to invest in higher-yielding securities.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
- - FREQUENT TRADING - Frequent trading of investments usually increases the
chance that the Fund will pay investors short-term capital gains. These
gains are taxable at higher rates than long-term capital gains. Frequent
trading could also mean higher brokerage commissions and other transaction
costs, which could reduce the Fund's returns.
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past
and give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
-27-
<PAGE>
As of the date of this prospectus, the Fund had not offered BKB Shares to
investors. The returns below represent the returns for Retail A Shares of the
Fund which are offered in a separate prospectus. Retail A Shares and BKB Shares
of the Fund should have returns that are substantially the same because they
represent interests in the same portfolio securities and differ only to the
extent that they bear different expenses.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares of the Fund has
varied from year to year, thereby giving some indication of the risk of
investing in the Fund. The figures don't include any sales charges that
investors pay when buying or selling Retail A Shares of the Fund. If sales
charges were included, the returns would be lower.
[Sidenote:]
Best quarter: ____% for the quarter ending _______________, ____
Worst quarter: ____% for the quarter ending _______________, ____
[bar chart goes here]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
1991 1992 1993 1994 1995 1996 1997 1998 1999
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
15.12% 6.77% 12.81% -6.48% 21.20% 1.37% 9.11% 9.27% %
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the average annual total returns for the Fund's Retail A Shares
(after taking into account any sales charges) for the periods ended December 31,
1999, as compared to a broad-based market index. The returns for Retail A Shares
of the Fund for periods prior to December 1, 1995 have been restated to include
the effect of the maximum 3.75% front-end sales charge which went into effect on
that date.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
1 year 5 years Since inception
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares % % % (12/14/90)
- --------------------------------------------------------------------------------------------------------------------
Lehman Brothers
Intermediate Government/
Corporate Bond Index % % % (since 12/31/90)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
For current yield information, please call 1-877-BUY-GALAXY (1-877-289-4252).
-28-
<PAGE>
[Sidenote:]
The Lehman Brothers Intermediate Government/Corporate Bond Index is an unmanaged
index which tracks the performance of intermediate-term U.S. Government and
corporate bonds.
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold BKB Shares of the Fund. Because it is expected that your BKB Shares will
convert into Retail A Shares of the Fund on the first anniversary of the closing
of the reorganization of the Boston 1784 Funds into Galaxy, information is also
provided as to the fees and expenses you pay may when you buy and hold Retail A
Shares of the Fund.
<TABLE>
<CAPTION>
Shareholder fees (fees paid directly from your investment)
- ----------------------------------------------------------------------------------------------------------------------
Maximum sales charge (load) on Maximum deferred sales charge
purchases shown as a % of the (load) shown as a % of the offering
offering price price or sale price, whichever is less
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BKB Shares None None
- ----------------------------------------------------------------------------------------------------------------------
Retail A Shares 3.75%(1) None(2)
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
Annual Fund operating expenses (expenses deducted from the Fund's assets)
- ----------------------------------------------------------------------------------------------------------------------
Management fees Distribution and Other Total Fund operating
service (12b-1) fees expenses expenses
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BKB Shares 0.75%(3) None % %(4)
- ----------------------------------------------------------------------------------------------------------------------
Retail A Shares 0.75%(3) None % %(5)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) There will be no sales charge imposed on the conversion of BKB Shares into
Retail A Shares. Reduced sales charges may be available for certain other
investors in Retail A Shares. See "How to invest in the Funds - How sales
charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the
Funds-- How sales charges work."
(3) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be ____%. This fee waiver may be revised or discontinued at
any time.
(4) The Adviser and/or its affiliates have agreed to waive fees and reimburse
expenses in such amounts as are necessary to limit the expenses of BKB
Shares of the Fund for the first year after the reorganization to __% of
the average daily net assets of the Fund. Total Fund operating expenses for
Retail A Shares of the Fund are higher than those for BKB Shares because
they are market driven.
(5) Total Fund operating expenses for Retail A Shares after the waiver of
Management fees by the Adviser are expected to be ____%.
-29-
<PAGE>
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your BKB Shares convert into Retail A Shares after one year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BKB Shares $ $ $ $
- ----------------------------------------------------------------------------------------------------------------------
Retail A Shares $ $ $ $
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is Marie M. Schofield, CFA, a Senior Vice President
of the Adviser. She's primarily responsible for the day-to-day management of the
Fund's investment portfolio. Ms. Schofield, who has over 20 years of investment
experience, has been with the Adviser since 1990 and served as a Vice President
and Manager of Fixed Income Investments until February 1999. She has managed the
Fund since December 1996.
-30-
<PAGE>
Galaxy Rhode Island Municipal Bond Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks as high a level of current interest income exempt from federal
income tax and, to the extent possible, from Rhode Island personal income tax,
as is consistent with relative stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its total assets in municipal
securities that pay interest which is exempt from regular federal income tax,
and at least 65% of its total assets in Rhode Island municipal securities, which
are securities issued by the State of Rhode Island and other government issuers
and that pay interest which is exempt from both federal income tax and Rhode
Island personal income tax. Under normal conditions, the Fund will invest no
more than 20% of its total assets in taxable obligations, such as U.S.
Government obligations, money market instruments and repurchase agreements.
Municipal securities purchased by the Fund may include general obligation
securities, revenue securities and private activity bonds. The interest on
private activity bonds may be subject to the federal alternative minimum tax.
Investments in private activity bonds will not be treated as investments in
municipal securities for purposes of the 80% requirement stated above.
In selecting portfolio securities for the Fund, the Adviser evaluates the
suitability of available bonds according to such factors as creditworthiness,
maturity, liquidity and interest rates. It also determines the appropriate
allocation of the Fund's assets among various issuers and industry sectors.
Nearly all of the Fund's investments will be of investment grade quality. These
are securities which have one of the top four ratings assigned by Standard &
Poor's Ratings Group (S&P) or Moody's Investors Service, Inc. (Moody's), or are
unrated securities determined by the Adviser to be of comparable quality. Under
normal market conditions, the Fund will invest at least 65% of its total assets
in securities that have one of the top three ratings assigned by S&P or Moody's
or unrated securities determined by the Adviser to be of comparable quality.
Occasionally, the rating of a security held by the Fund may be downgraded to
below investment grade. If that happens, the Fund doesn't have to sell the
security unless the Adviser determines that under the circumstances the security
is no longer an appropriate investment for the Fund. However, the Fund will sell
promptly any securities that are not rated investment grade by either S&P or
Moody's if the securities exceed 5% of the Fund's net assets.
The Fund's average weighted maturity will vary from time to time depending on
economic and market conditions and the Adviser's assessment of probable changes
in interest rates.
-31-
<PAGE>
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities, including municipal
securities, tend to move in the opposite direction to interest rates. When
rates are rising, the prices of debt securities tend to fall. When rates
are falling, the prices of debt securities tend to rise. Generally, the
longer the time until maturity, the more sensitive the price of a debt
security is to interest rate changes.
- - CREDIT RISK - The value of debt securities, including municipal securities,
also depends on the ability of issuers to make principal and interest
payments. If an issuer can't meet its payment obligations or if its credit
rating is lowered, the value of its debt securities will fall. Debt
securities which have the lowest of the top four ratings assigned by S&P or
Moody's have speculative characteristics. Changes in the economy are more
likely to affect the ability of issuers of these securities to make
payments of principal and interest than is the case with higher-rated
securities. The ability of a state or local government issuer to make
payments can be affected by many factors, including economic conditions,
the flow of tax revenues and changes in the level of federal, state or
local aid. Some municipal obligations are payable only from limited revenue
sources or by private entities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
municipal securities held by the Fund to be paid off much sooner or later
than expected, which could adversely affect the Fund's value. In the event
that a security is paid off sooner than expected because of a decline in
interest rates, the Fund may be unable to recoup all of its initial
investment and may also suffer from having to reinvest in lower-yielding
securities. In the event of a later than expected payment because of a rise
in interest rates, the value of the obligation will decrease and the Fund
may suffer from the inability to invest in higher-yielding securities.
- - LACK OF DIVERSIFICATION - The Fund is not diversified, which means that it
can invest a large percentage of its assets in a small number of issuers.
As a result, a change in the value of any one investment held by the Fund
may affect the overall value of the Fund more than it would affect a
diversified fund which holds more investments.
- - SINGLE STATE RISK - Because the Fund invests primarily in Rhode Island
municipal securities, it is likely to be especially susceptible to
economic, political and regulatory events that affect Rhode Island. Other
considerations affecting the Fund's investments in Rhode Island municipal
securities are summarized in the Statement of Additional Information.
-32-
<PAGE>
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past
and give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
As of the date of this prospectus, the Fund had not offered BKB Shares to
investors. The returns below represent the returns for Retail A Shares of the
Fund which are offered in a separate prospectus. Retail A Shares and BKB Shares
of the Fund should have returns that are substantially the same because they
represent interests in the same portfolio securities and differ only to the
extent that they bear different expenses.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares of the Fund has
varied from year to year. The figures don't include any sales charges that
investors pay when buying or selling Retail A Shares of the Fund. If sales
charges were included, the returns would be lower.
[Sidenote:]
Best quarter: _____% for the quarter ending __________, ____
Worst quarter: _____% for the quarter ending __________, ____
[bar chart goes here]
<TABLE>
<CAPTION>
---------------------------------------------------------------------
1995 1996 1997 1998 1999
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
14.32% 3.63% 8.54% 5.87% _____%
---------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows average annual total returns for the Fund's Retail A Shares
(after taking into account any sales charges) for the periods ended December 31,
1999, as compared to a broad-based market index. The returns for Retail A Shares
of the Fund for periods prior to December 1, 1995 have been restated to include
the effect of the maximum 3.75% front-end sales charge which went into effect on
that date.
-33-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
1 year 5 years Since inception
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares _____% _____% _____% (12/20/94)
- ------------------------------------------------------------------------------------------------------------------------
Lehman Brothers
Municipal Bond
Index _____% _____% _____% (since 12/31/94)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The Lehman Brothers Municipal Bond Index is an unmanaged index which tracks the
performance of municipal bonds.
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold BKB Shares of the Fund. Because it is expected that your BKB Shares will
convert into Retail A Shares of the Fund on the first anniversary of the closing
of the reorganization of the Boston 1784 Funds into Galaxy, information is also
provided as to the fees and expenses you may pay when you buy and hold Retail A
Shares of the Fund.
<TABLE>
<CAPTION>
Shareholder fees (fees paid directly from your investment)
- ------------------------------------------------------------------------------------
Maximum sales charge Maximum deferred
(load) purchases sales on charge (load)
shown as a % of the shown as a % of the
offering price offering price or sale
price, whichever is
less
- ------------------------------------------------------------------------------------
<S> <C> <C>
BKB Shares None None
- ------------------------------------------------------------------------------------
Retail A Shares 3.75%(1) None(2)
- ------------------------------------------------------------------------------------
<CAPTION>
Annual Fund operating expenses (expenses deducted from the Fund's assets)
- ------------------------------------------------------------------------------------------
Total
Fund
Management Distribution Other operating
fees (12b-1) fees expenses expenses
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BKB Shares 0.75%(3) None _____% ____%(4)
- ------------------------------------------------------------------------------------------
Retail A Shares 0.75%(3) None _____% ____%(5)
- ------------------------------------------------------------------------------------------
</TABLE>
-34-
<PAGE>
(1) There will be no sales charge imposed on the conversion of BKB Share into
Retail A Shares. Reduced sales charges may be available for certain other
investors in Retail A Shares. See "How to invest in Funds - How sales
charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the
Funds - How sales charges work."
(3) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be ____%. This fee waiver may be revised or discontinued at
any time.
(4) The Adviser and/or its affiliates have agreed to waive fees and reimburse
expenses in such amounts as are necessary to limit the expenses of BKB
Shares of the Fund for the first year after the reorganization to __% of
the average daily net assets of the Fund. Total Fund operating expenses for
Retail A Shares of the Fund are higher than those for BKB Shares because
they are market driven.
(5) Total Fund operating expenses for Retail A Shares after the waiver of
Management fees by the Adviser are expected to be ____%.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your BKB Shares convert into Retail A Shares after one year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BKB Shares $_____ $_____ $_____ $_____
- -------------------------------------------------------------------------------------------------------------
Retail A Shares $_____ $_____ $_____ $_____
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Adviser's Tax-Exempt Investment Policy Committee is responsible for the
day-to-day management of the Fund's investment portfolio. The Committee has
managed the Fund since 1996.
-35-
<PAGE>
Galaxy Asset Allocation Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks a high total return by providing both a current level of income
that is greater than that provided by the popular stock market averages, as well
as long-term growth in the value of the Fund's assets.
[Sidenote:]
CURRENT INCOME
Current income includes both dividends from stocks and interest income from
fixed income securities, after deducting Fund expenses.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund aims to provide income that is higher than that provided by the popular
stock market averages. The Adviser interprets this to mean the Dow Jones
Industrial Average of 30 major companies and the Standard & Poor's 500 Composite
Stock Price Index (commonly referred to as the S&P 500). Due to the Fund's
expenses, however, net income paid to you may be less than that. The Fund also
seeks long-term growth in the value of its assets. The Adviser attempts to
achieve these goals and reduce risk by allocating the Fund's assets among
short-term debt securities, common stocks, preferred stocks and bonds.
The Fund seeks a mix of stocks and bonds that will produce both income and
long-term capital growth. This mix will change from time to time as a result of
economic and market conditions. However, the Fund keeps at least 25% of its
total assets in fixed income investments, including debt securities and
preferred stocks, at all times.
Debt securities purchased by the Fund will be of investment grade quality, which
means that they will have one of the top four ratings assigned by Standard &
Poor's Ratings Group (S&P) or Moody's Investor Services, Inc. (Moody's) or will
be unrated securities determined by the Adviser to be of comparable quality.
Occasionally, the rating of a security held by the Fund may be downgraded below
investment grade. If that happens, the Fund doesn't have to sell the security
unless the Adviser determines that under the circumstances the security is no
longer an appropriate investment for the Fund. However, the Fund will sell
promptly any securities that are not rated investment grade by either S&P or
Moody's if the securities exceed 5% of the Fund's net assets.
-36-
<PAGE>
In selecting portfolio securities for the Fund, the Adviser's investment policy
committee develops an economic outlook and sets guidelines for the industries
and sectors in which the Fund should invest. In selecting equity securities, the
Adviser favors stocks with long-term growth potential that are expected to
outperform their peers over time. The Adviser also forecasts the direction and
degree of change in long-term interest rates to help in the selection of fixed
income securities.
The Fund will sell a security when, as a result of changes in the economy, the
Adviser determines it appropriate to revise the allocation of the Fund's assets
between stocks and bonds. A security may also be sold as a result of a
deterioration in the performance of the security or in the financial condition
of the issuer of the security.
The Fund may trade its investments frequently in trying to achieve its
investment goal.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
The value of your investment in the Fund will go up and down with the value of
the investments which the Fund holds. The Fund's investments may not perform as
well as other investments, even in times of rising markets.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The value of fixed income investments such as bonds
are affected by movements in interest rates. Bond prices tend to fall when
interest rates rise and to rise when interest rates fall.
- - CREDIT RISK - The value of fixed income investments also depends on the
ability of an issuer to make principal and interest payments. If an issuer
can't meet its payment obligations or if its credit rating is lowered, the
value of its securities will decline. Debt securities which have the lowest
of the top four ratings assigned by S&P or Moody's have speculative
characteristics. Changes in the economy are more likely to affect the
ability of the issuers of these securities to make payments of principal
and interest than is the case with higher-rated securities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
fixed income investments held by the Fund to be paid off much sooner or
later than expected, which could adversely affect the Fund's value. In the
event that a security is paid off sooner than expected because of a decline
in interest rates, the Fund may be unable to recoup all of its initial
investment and may also suffer from having to reinvest in lower-yielding
securities. In the event of a later than expected payment because of a rise
in interest rates, the value of the
-37-
<PAGE>
obligation will decrease and the Fund may suffer from the inability to
invest in higher-yielding securities.
- - PORTFOLIO COMPOSITION - The level of risk could increase if a larger
percentage of the Fund is invested in one particular asset class, such as
stocks or bonds. However, asset allocation funds are generally less
volatile than portfolios that contain only stocks.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
- - FREQUENT TRADING - Frequent trading of investments usually increases the
chance that the Fund will pay investors short-term capital gains. These
gains are taxable at higher rates than long-term capital gains. Frequent
trading could also mean higher brokerage commissions and other transaction
costs, which could reduce the Fund's returns.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that all
dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
As of the date of this prospectus, the Fund had not offered BKB Shares to
investors. The returns below represent the returns for Retail A Shares of the
Fund which are offered in a separate prospectus. Retail A Shares and BKB Shares
of the Fund should have returns that are substantially the same because they
represent interests in the same portfolio securities and differ only to the
extent that they bear different expenses.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares of the Fund has
varied from year to year. The figures don't include any sales charges that
investors pay when buying or selling Retail A Shares of the Fund. If sales
charges were included, the returns would be lower.
[Sidenote:]
Best quarter: ____% for the quarter ending __________, ____
Worst quarter: ____% for the quarter ending __________, ____
-38-
<PAGE>
[bar chart goes here]
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1997 1998 1999
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
6.58% 8.08% -2.47% 30.29% 15.11% 19.76% 17.73% ___%
- -----------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the average annual total returns for the Fund's Retail A Shares
(after taking into account any sales charges) for the periods ended December 31,
1999, as compared to broad-based market indices. The returns for Retail A Shares
of the Fund for periods prior to December 1, 1995 have been restated to include
the effect of the maximum 3.75% front-end sales charge which went into effect on
that date.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 5 years Since inception
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares _____% _____% _____% (12/30/91)
- -------------------------------------------------------------------------------------------------------------
S&P 500 ____% ____% ____% (since 12/31/91)
- -------------------------------------------------------------------------------------------------------------
DJIA ____% ____% ____% (since 12/31/91)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The S&P 500 is an unmanaged index that tracks the performance of 500 widely held
common stocks listed on the New York Stock Exchange, the American Stock Exchange
and NASDAQ. The S&P 500 is heavily weighted with the stocks of large companies.
[Sidenote:]
The Dow Jones Industrial Average (DJIA) is an unmanaged price-weighted average
based on the "price only" performance of 30 blue chip stocks.
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold BKB Shares of the Fund. Because it is expected that your BKB Shares will
convert into Retail A Shares of the Fund on the first anniversary of the closing
of the reorganization of the Boston 1784 Funds into Galaxy, information is also
provided as to the fees and expenses you may pay when you buy and hold Retail A
Shares of the Fund.
-39-
<PAGE>
<TABLE>
<CAPTION>
Shareholder fees (fees paid directly from your investment)
- ------------------------------------------------------------------------------------------
Maximum sales charge Maximum deferred sales
(load) on purchases charge (load) shown as a %
shown as a % of the of the offering price or sale
offering price price, whichever is less
- ------------------------------------------------------------------------------------------
<S> <C> <C>
BKB Shares None None
- ------------------------------------------------------------------------------------------
Retail A Shares 3.75%(1) None(2)
- ------------------------------------------------------------------------------------------
<CAPTION>
Annual Fund operating expenses (expenses deducted from the Fund's assets)
- ------------------------------------------------------------------------------------------
Distribution and Total Fund
service (12b-1) Other operating
Management fees fees expenses expenses
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BKB Shares 0.75% None ____% ____%(3)
- ------------------------------------------------------------------------------------------
Retail A Shares 0.75% None ____% ____%
- ------------------------------------------------------------------------------------------
</TABLE>
(1) There will be no sales charge imposed on the conversion of BKB Shares into
Retail A Shares. Reduced sales charges may be available to certain other
investors in Retail A Shares. See "How to invest in the Funds - How sales
charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the
Funds - How sales charges work."
(3) The Adviser and/or its affiliates have agreed to waive fees and reimburse
expenses in such amounts as are necessary to limit the expenses of BKB
Shares of the Fund for the first year after the reorganization to __% of
the average daily net assets of the Fund. Total Fund operating expenses for
Retail A Shares of the Fund are higher than those for BKB Shares because
they are market driven.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your BKB Shares convert into Retail A Shares after one year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
-40-
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BKB Shares $____ $____ $____ $____
- -------------------------------------------------------------------------------------------------------------
Retail A Shares $____ $____ $____ $____
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGERS
The Fund's portfolio managers are Donald Jones, a Vice President of the Adviser
since 1991, and David Lindsay, CFA, a Senior Vice President of the Adviser since
1992. They are primarily responsible for the day-to-day management of the Fund's
investment portfolio. Mr. Jones has managed the equity portion of the Fund's
portfolio, including determining the allocation of the Fund's assets between
equities and fixed income investments, since May of 1995. He has been with the
Adviser and its predecessors since 1977. Mr. Lindsay has managed the fixed
income portion of the Fund since January of 1997. He has been with the Adviser
and its predecessors since 1986.
-41-
<PAGE>
Galaxy Growth and Income Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks to provide a relatively high total return through long-term
capital appreciation and current income.
[Sidenote:]
CURRENT INCOME
Current income includes both dividends from stocks and interest income from
fixed income securities, after deducting Fund expenses.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 65% of its total assets in the common stocks
of U.S. companies with large market capitalizations (generally over $2 billion)
that the Adviser believes offer above-average growth and dividends. The Adviser
focuses on stocks which are believed to be attractively priced relative to
expectations for the future performance of the issuing company. The Adviser also
seeks a current yield greater than that of the S&P 500, although not all Fund
investments will pay dividends.
The Fund will sell a portfolio security when, as a result of changes in the
economy, the Adviser believes that holding the security is no longer consistent
with the Fund's investment objective. A security may also be sold as a result of
a deterioration in the performance of the security or in the financial condition
of the issuer of the security.
[Sidenote:]
MARKET CAPITALIZATION
A company's market capitalization is the price of a share of its stock,
multiplied by the number of shares held by investors.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
-42-
<PAGE>
The value of your investment in the Fund will go up and down with the value of
the investments which the Fund holds. The Fund's investments may not perform as
well as other investments, even in times of rising markets.
In addition, the Fund also carries the following main risk:
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that all
dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
As of the date of this prospectus, the Fund had not offered BKB Shares to
investors. The returns below represent the returns for Retail A Shares of the
Fund which are offered in a separate prospectus. Retail A Shares and BKB Shares
of the Fund should have returns that are substantially the same because they
represent interests in the same portfolio securities and differ only to the
extent that they bear different expenses.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares of the Fund has
varied from year to year. The figures don't include any sales charges that
investors pay when buying or selling Retail A Shares of the Fund. If sales
charges were included, the returns would be lower.
The Fund began operations on December 14, 1992 as a separate portfolio (the
Predecessor Fund) of The Shawmut Funds. On December 4, 1995, the Predecessor
Fund was reorganized as a new portfolio of Galaxy. Prior to the reorganization,
the Predecessor Fund offered and sold two classes of shares, Investment Shares
(which were first offered on February 12, 1993) and Trust Shares (which were
first offered on December 14, 1992), that were similar to the Fund's Retail A
Shares and Trust Shares. In connection with the reorganization, shareholders of
the Predecessor Fund exchanged their Investment Shares and Trust Shares for
Retail A Shares and Trust Shares of the Fund. The returns for periods prior to
December 4, 1995 are for Investment Shares of the Predecessor Fund.
-43-
<PAGE>
[Sidenote:]
Best quarter: ____% for the quarter ending __________, ____
Worst quarter: ____% for the quarter ending __________, ____
[bar chart goes here]
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
1994 1995 1996 1997 1998 1999
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
4.83% 29.34% 19.85% 29.19% 15.71% ____%
-------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the average annual total returns for the Fund's Retail A Shares
(after taking into account any sales charges) for the periods ended December 31,
1999, as compared to a broad-based market index. The returns for Retail A Shares
of the Fund for periods prior to December 1, 1995 have been restated to include
the effect of the maximum 3.75% front-end sales charge which went into effect on
that date.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 5 years Since inception
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares ____% ____% ____% (2/12/93)
- -------------------------------------------------------------------------------------------------------------
S&P 500 ____% ____% ____% (since 1/31/93)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The S&P 500 is an unmanaged index that tracks the performance of 500 widely held
common stocks listed on the New York Stock Exchange, the American Stock Exchange
and NASDAQ. The S&P 500 is heavily weighted with the stocks of large companies.
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold BKB Shares of the Fund. Because it is expected that your BKB Shares will
convert into Retail A Shares of the Fund on the first anniversary of the closing
of the reorganization of the Boston 1784 Funds into Galaxy, information is also
provided as to the fees and expenses you may pay when you buy and hold Retail A
Shares of the Fund.
-44-
<PAGE>
<TABLE>
<CAPTION>
Shareholder fees (fees paid directly from your investment)
- ------------------------------------------------------------------------------------------
Maximum sales charge Maximum deferred sales
(load) on purchases charge (load) shown as a %
shown as a % of the of the offering price or sale
offering price price, whichever is less
- ------------------------------------------------------------------------------------------
<S> <C> <C>
BKB Shares None None
- ------------------------------------------------------------------------------------------
Retail B Shares 3.75%(1) None(2)
- ------------------------------------------------------------------------------------------
<CAPTION>
Annual Fund operating expenses (expenses deducted from the Fund's assets)
- ------------------------------------------------------------------------------------------
Distribution and Total Fund
service (12b-1) Other operating
Management fees fees expenses expenses
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BKB Shares 0.75% None ____% ___%4
- ------------------------------------------------------------------------------------------
Retail A Shares 0.75% None ____% ___%5
- ------------------------------------------------------------------------------------------
</TABLE>
(1) There will be no sales charge imposed on the conversion of BKB Shares into
Retail A Shares. Reduced sales charges may be available for certain other
investors in Retail A Shares. See "How to invest in the Funds - How sales
charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the
Funds - How sales charges work."
(3) Affiliates of the Adviser are waiving a portion of the shareholder
servicing fees (included in Other expenses) for Retail A Shares so that
Other expenses are expected to be ____% for Retail A Shares.
(4) The Adviser has agreed to waive fees and reimburse expenses in such amounts
as are necessary to limit the expenses of BKB Shares for the first year
after the reorganization to __% of the average daily net assets of the
Fund. Total Fund operating expenses for Retail A Shares of the Fund are
higher than those for BKB Shares because they are market driven.
(5) Total Fund operating expenses for Retail A Shares after the waiver of
Management fees by the Adviser are expected to be ____%.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
-45-
<PAGE>
- - your BKB Shares convert into Retail A Shares after one year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BKB Shares $____ $____ $____ $____
- -------------------------------------------------------------------------------------------------------------
Retail A Shares $____ $____ $____ $____
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is Gregory M. Miller, a Vice President of the
Adviser since 1996. He's been primarily responsible for the day-to-day
management of the Fund's investment portfolio since July 1998. Before that, Mr.
Miller assisted his predecessor in managing the Fund for seven years. He joined
the Adviser in 1985.
-46-
<PAGE>
Galaxy Equity Growth Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 75% of its total assets in a broadly
diversified portfolio of equity securities, primarily common stocks and
securities that can be converted into common stocks. The Fund invests mainly in
the securities of U.S. issuers, but may invest up to 20% of its total assets in
foreign securities.
The Fund invests mainly in companies which the Adviser believes will have faster
earnings growth than the economy in general. The Adviser looks for
large-capitalization companies (generally over $2 billion) in growing
industries, focusing on technological advances, good product development, strong
management and other factors which support future growth. The Adviser seeks out
companies that have a history of strong earnings growth and are projected to
continue a similar pattern of growth over the next three to five years.
The Fund will sell a security if there is an adverse change in the projected
earnings growth of the company issuing the security. A security will also be
sold when, as a result of changes in the economy or the performance of the
security or other circumstances, the Adviser believes that holding the security
is no longer consistent with the Fund's investment objective.
[Sidenote:]
GROWTH STOCKS
Growth stocks offer strong revenue and earnings potential, and accompanying
capital growth, with generally less dividend income than value stocks.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
-47-
<PAGE>
The value of your investment in the Fund will go up and down with the value of
the investments which the Fund holds. The Fund's investments may not perform as
well as other investments, even in times of rising markets.
In addition, the Fund also carries the following main risks:
- - CONVERTIBLE SECURITIES - Securities that can be converted into common
stock, such as certain debt securities and preferred stock, are subject to
the usual risks associated with fixed income investments, such as interest
rate risk and credit risk. In addition, because they react to changes in
the value of the equity securities into which they will convert,
convertible securities are also subject to stock market risk.
- - FOREIGN INVESTMENTS - Foreign investments may be riskier than U.S.
investments because of factors such as foreign government restrictions,
changes in currency exchange rates, incomplete financial information about
the issuers of securities, and political or economic instability. Foreign
stocks may be more volatile and less liquid than U.S. stocks.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that all
dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
As of the date of this prospectus, the Fund had not offered BKB Shares to
investors. The returns below represent the returns for Retail A Shares of the
Fund which are offered in a separate prospectus. Retail A Shares and BKB Shares
of the Fund should have returns that are substantially the same because they
represent interests in the same portfolio securities and differ only to the
extent that they bear different expenses.
Retail A Shares of the Fund were first issued during the fiscal year ended
October 31, 1991. The returns for Retail A Shares of the Fund for prior periods
represent the returns for Trust Shares of the Fund which are offered in a
separate prospectus. Prior to November 1, 1993, Retail A Shares and Trust Shares
of the Fund had the same returns because each class of shares had the same
expenses.
-48-
<PAGE>
YEAR-BY-YEAR TOTAL RETURNS -- CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares of the Fund has
varied from year to year. The figures don't include any sales charges that
investors pay when buying or selling Retail A Shares of the Fund. If sales
charges were included, the returns would be lower.
[Sidenote:]
Best quarter: ____% for the quarter ending ___________, ____
Worst quarter: ____% for the quarter ending ___________, ____
[bar chart goes here]
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
1991 1992 1993 1994 1995 1996 1997 1998 1999
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
30.40% 6.11% 5.37% 0.60% 33.66% 20.46% 30.43% 25.66% ____%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the average annual total returns for the Funds Retail A Shares
(after taking into account any sales charges) for the periods ended December 31,
1999, as compared to a broad-based market index. The returns for Retail A Shares
of the Fund for periods prior to December 1, 1995 have been restated to include
the effect of the maximum 3.75% front-end sales charge which went into effect on
that date.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 5 years Since inception
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares ____% ____% ____% (12/14/90)
- -------------------------------------------------------------------------------------------------------------
S&P 500 ____% ____% ____% (since 11/30/90)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The S&P 500 is an unmanaged index that tracks the performance of 500 widely held
common stocks listed on the New York Stock Exchange, the American Stock Exchange
and NASDAQ. The S&P 500 is heavily weighted with the stocks of large companies.
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold BKB shares of the Fund. Because it is expected that your BKB Shares will
convert into Retail A Shares of the Fund on the first anniversary of the closing
of the reorganization of the Boston
-49-
<PAGE>
1784 Funds into Galaxy, information is also provided as to the fees and expenses
you may pay when you buy and hold Retail A Shares of the Fund.
<TABLE>
<CAPTION>
Shareholder fees (fees paid directly from your investment)
- ------------------------------------------------------------------------------------------
Maximum sales charge Maximum deferred sales
(load) on purchases charge (load) shown as a %
shown as a % of the of the offering price or sale
offering price price, whichever is less
- ------------------------------------------------------------------------------------------
<S> <C> <C>
BKB Shares None None
- ------------------------------------------------------------------------------------------
Retail A Shares 3.75%(1) None(2)
- ------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Annual Fund operating expenses (expenses deducted from the Fund's assets)
- ------------------------------------------------------------------------------------------
Distribution and Total Fund
service (12b-1) Other operating
Management fees fees expenses expenses
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BKB Shares 0.75% None ____% ____%(3)
- ------------------------------------------------------------------------------------------
Retail A Shares 0.75% None ____% ____%
- ------------------------------------------------------------------------------------------
</TABLE>
1 There will be no sales charge imposed on the conversion of BKB Shares into
Retail A Shares. Reduced sales charges may be available for certain other
investors in Retail A Shares. See "How to invest in the Funds - How sales
charges work."
2 Except for investments of $500,000 or more. See "How to invest in the Funds
- How sales charges work."
3 The Adviser and/or its affiliates have agreed to waive fees and reimburse
expenses in such amounts as are necessary to limit the expenses of BKB
Shares of the Fund for the first year after the reorganization to __% of
the average daily net assets of the Fund. Total Fund operating expenses for
Retail A Shares of the Fund are higher than those for BKB Shares because
they are market driven.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your BKB Shares convert into Retail A shares after one year
- - the Fund's operating expenses remain the same
-50-
<PAGE>
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BKB Shares $____ $____ $____ $____
- -------------------------------------------------------------------------------------------------------------
Retail A Shares $____ $____ $____ $____
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is Robert G. Armknecht, CFA, an Executive Vice
President of the Adviser since 1988. He's primarily responsible for the
day-to-day management of the Fund's investment portfolio. Mr. Armknecht has been
with the Adviser and its predecessors since 1988 and has been the Fund's
portfolio manager since it began operations in 1990.
-51-
<PAGE>
Galaxy International Equity Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 75% of its total assets in the equity
securities of foreign issuers. At all times, the Fund's assets will be invested
in companies located in at least three different foreign countries. Normally, no
more than 20% of the Fund's total assets will be invested in companies located
in countries with emerging economies or emerging securities markets. The Fund
emphasizes larger established companies, although it may invest in companies of
any size. The Fund may engage in transactions for the purpose of hedging its
portfolio, such as options, futures and foreign currencies.
The Sub-Adviser determines how much to invest in each country and region by
looking at factors such as prospects for economic growth, expected inflation
levels, government policies and the range of investment opportunities available.
Decisions as to particular investments are made with the guidance of the
Sub-Adviser's Investment Strategy Committee under the supervision of the
Adviser. The Sub-Adviser looks at the potential return of each investment over a
one- to two-year period.
The Fund will sell a security if, as a result of changes in the economy of a
particular country or region, the Sub-Adviser believes that holding the security
is no longer consistent with the Fund's investment objective. A security may
also be sold as a result of a deterioration in the performance of the security
or in the financial condition of the company that issued the security.
[Sidenote:]
SUB-ADVISER
The Adviser has appointed Oechsle International Advisors, LLC as Sub-Adviser to
assist it in the day-to-day management of the Fund's investment portfolio.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. U.S. and foreign stock markets tend to move in cycles, with
periods of rising prices and periods of falling prices.
-52-
<PAGE>
The value of your investment in the Fund will go up and down with the value of
the investments which the Fund holds. The Fund's investments may not perform as
well as other investments, even in times of rising markets.
In addition, the Fund also carries the following main risks:
- - FOREIGN INVESTMENTS - Foreign investments may be riskier than U.S.
investments because of factors such as foreign government restrictions,
changes in currency exchange rates, incomplete financial information about
the issuers of securities, and political or economic instability. Foreign
stocks may be more volatile and less liquid than U.S. stocks.
- - EMERGING MARKETS - The risks associated with foreign investments are
heightened when investing in emerging markets. The governments and
economies of emerging market countries feature greater instability than
those of more developed countries. Such investments tend to fluctuate in
price more widely and to be less liquid than other foreign investments.
- - COUNTRY RISK - The Fund may invest 25% or more of its assets in the
securities of companies located in one country. When the Fund invests a
high percentage of its assets in a particular country, the Fund will be
especially susceptible to factors affecting that country.
- - CURRENCY EXCHANGE - Although the Fund usually makes investments that are
sold in foreign currencies, it values its holdings in U.S. dollars. If the
U.S. dollar rises compared to a foreign currency, the Fund loses on the
currency exchange.
- - HEDGING - The Fund may invest in derivatives, such as options, futures and
foreign currencies, to hedge against market risk or the currency risk of
its foreign investments. There's no guarantee hedging will always work. It
can also prevent the Fund from making a gain if markets move in the
opposite direction to the hedge.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
[Sidenote:]
DERIVATIVES
A derivative is an investment whose value is based on or DERIVED from the
performance of other securities or interest or currency exchange rates or
indices. Derivatives are considered to carry a higher degree of risk than other
types of securities.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that all
dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
-53-
<PAGE>
As of the date of this prospectus, the Fund had not offered BKB Shares to
investors. The returns below represent the returns for Retail A Shares of the
Fund which are offered in a separate prospectus. Retail A Shares and BKB Shares
of the Fund should have returns that are substantially the same because they
represent interests in the same portfolio securities and differ only to the
extent that they bear different expenses.
YEAR-BY-YEAR TOTAL RETURNS--CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares of the Fund has
varied from year to year. The figures don't include any sales charges that
investors pay when buying or selling Retail A Shares of the Fund. If sales
charges were included, the returns would be lower.
[Sidenote:]
Best quarter: ____% for the quarter ending ___________, ____
Worst quarter: ____% for the quarter ending ___________, ____
[bar chart goes here]
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1997 1998 1999
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
-2.29% 31.62% -2.54% 11.04% 10.03% 13.59% 21.24% ____%
- ---------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the average annual total returns for the Fund's Retail A Shares
(after taking into account any sales charges) for the periods ended December 31,
1999, as compared to a broad-based market index. The returns for Retail A Shares
of the Fund for periods prior to December 1, 1995 have been restated to include
the effect of the maximum 3.75% front-end sales charge which went into effect on
that date.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 5 years Since inception
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares ____% ____% ____% (12/30/91)
- -------------------------------------------------------------------------------------------------------------
MSCI EAFE Index ____% ____% ____% (since 12/31/91)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
-54-
<PAGE>
[Sidenote:]
The Morgan Stanley Capital International Europe, Australasia and Far East (MSCI
EAFE) Index is an unmanaged index which tracks the performance of selected
equity securities in Europe, Australia and the Far East.
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold BKB Shares of the Fund. Because it is expected that your BKB Shares will
convert into Retail A Shares of the Fund on the first anniversary of the closing
of the reorganization of the Boston 1784 Funds into Galaxy, information is also
provided as to the fees and expenses you may pay when you buy and hold Retail A
Shares of the Fund.
<TABLE>
<CAPTION>
Shareholder fees (fees paid directly from your investment)
- ------------------------------------------------------------------------------------------
Maximum sales charge Maximum deferred sales
(load) on purchases charge (load) shown as a %
shown as a % of the of the offering price or sale
offering price price, whichever is less
- ------------------------------------------------------------------------------------------
<S> <C> <C>
BKB Shares None None
- ------------------------------------------------------------------------------------------
Retail A Shares 3.75%(1) None(2)
- ------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Annual Fund operating expenses (expenses deducted from the Fund's assets)
- ------------------------------------------------------------------------------------------
Distribution and Total Fund
service (12b-1) Other operating
Management fees fees expenses expenses
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BKB Shares 0.90%(3) None ____% ____%(4)
- ------------------------------------------------------------------------------------------
Retail A Shares 0.90%(3) None ____% ____%(5)
- ------------------------------------------------------------------------------------------
</TABLE>
1 There will be no sales charge imposed on the conversion of BKB Shares into
Retail A Shares. Reduced sales charges may be available for certain other
investors in Retail A Shares. See "How to invest in the Funds - How sales
charges work."
2 Except for investments of $500,000 or more. See "How to invest in the Funds
- How sales charges work."
3 The Adviser is waiving a portion of the Management fees so that such fees
are expected to be ____%. This fee waiver may be revised or discontinued at
any time.
4 The Adviser and/or its affiliates have agreed to waive fees and reimburse
expenses in such amounts as are necessary to limit the expenses of BKB
Shares of the Fund for the first year after the reorganization to __% of
the average daily net assets of the Fund. Total Fund operating expenses for
Retail A Shares of the Fund are higher than those for BKB Shares because
they are market driven.
-55-
<PAGE>
5 Total Fund operating expenses for Retail A Shares after the waiver of
Management fees by the Adviser are expected to be ____%.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your BKB Shares convert into Retail A Shares after one year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BKB Shares $____ $____ $____ $____
- -------------------------------------------------------------------------------------------------------------
Retail A Shares $____ $____ $____ $____
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGERS
The Fund's portfolio managers are Singleton Dewey Keesler, Jr. and Kathleen
Harris, CFA. They're primarily responsible for the day-to-day management of the
Fund's investment portfolio. Mr. Keesler is Chief Investment Officer and
portfolio manager/research analyst with the Sub-Adviser. He has been associated
with the Sub-Adviser and its predecessor since 1986. Ms. Harris has been a
portfolio manager at the Sub-Adviser and its predecessor since January of 1995.
She was previously portfolio manager and investment director for the State of
Wisconsin Investment Board. Mr. Keesler and Ms. Harris have co-managed the Fund
since August of 1996.
-56-
<PAGE>
ADDITIONAL INFORMATION ABOUT RISK
The main risks associated with an investment in each of the Galaxy Funds have
been described above. The following supplements that discussion.
TEMPORARY DEFENSIVE POSITIONS
Each Fund may temporarily hold up to 100% of its total assets in investments
that are not part of its principal investment strategy to try to avoid losses
during unfavorable market conditions.
For the Money Market Fund, U.S. Treasury Fund, Tax-Exempt Fund and Rhode Island
Municipal Bond Fund, these investments may include cash (which will not earn any
income) and, in the case of the Tax-Exempt Fund and Rhode Island Municipal Bond
Fund, taxable investments, such as money market instruments and debt securities
issued or guaranteed by the U.S. Government or its agencies, in excess of 20% of
each Fund's assets.
The Short-Term Bond Fund, Intermediate Government Income Fund and High Quality
Bond Fund may hold uninvested cash and invest without limit in money market
instruments, including short-term U.S. Government securities.
For the Asset Allocation Fund, Growth and Income Fund, Equity Growth Fund and
International Equity Fund, these investments may include cash, money market
instruments, debt securities issued or guaranteed by the U.S. Government or its
agencies and, in the case of the International Equity Fund, foreign money market
instruments, debt securities of foreign national governments and their agencies,
and the securities of U.S. issuers.
These strategies could prevent a Fund from achieving its investment objective
and could reduce the Fund's return and affect its performance during a market
upswing.
OTHER TYPES OF INVESTMENTS
This prospectus describes each Fund's main investment strategies and the
particular types of securities in which each Fund mainly invests. Each Fund may,
from time to time, pursue other investment strategies and make other types of
investments in support of its overall investment goal. These supplemental
investment strategies, which are not considered to be main investment strategies
of the Funds - and the risks involved - are described in detail in the Statement
of Additional Information (SAI) which is referred to on the back cover of this
prospectus.
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<PAGE>
YEAR 2000 RISKS
As with other mutual funds, financial and business organizations and individuals
around the world, the Funds could be adversely affected if the computer systems
used by the Adviser and the Funds' other service providers don't properly
process and calculate date-related information and data from and after January
1, 2000. This is commonly known as the "Year 2000" or "Y2K" problem. The Adviser
is taking steps to address the Y2K problem with respect to the computer systems
that it uses and to obtain assurances that comparable steps are being taken by
the Funds' other major service providers. At this time, however, there can be no
assurance that these steps will be sufficient to avoid any adverse impact on the
Funds. The Y2K problem could have a negative impact on the issuers of the
securities in which the Funds invest, which could hurt the Funds' investment
returns.
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FUND MANAGEMENT
ADVISER
The Adviser, subject to the general supervision of Galaxy's Board of Trustees,
manages each Fund in accordance with its investment objective and policies,
makes decisions with respect to and places orders for all purchases and sales of
its portfolio securities, and maintains related records.
The management fees paid to the Adviser by the Funds during the last fiscal year
are set forth below.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Fund Management fee as a % of average net assets
- -------------------------------------------------------------------------------------------------------------
<S> <C>
Money Market ____%
- -------------------------------------------------------------------------------------------------------------
U.S. Treasury ____%
- -------------------------------------------------------------------------------------------------------------
Tax-Exempt ____%
- -------------------------------------------------------------------------------------------------------------
Short-Term Bond ____%
- -------------------------------------------------------------------------------------------------------------
Intermediate Government Income ____%
- -------------------------------------------------------------------------------------------------------------
High Quality Bond ____%
- -------------------------------------------------------------------------------------------------------------
Rhode Island Municipal Bond ____%
- -------------------------------------------------------------------------------------------------------------
Asset Allocation ____%
- -------------------------------------------------------------------------------------------------------------
Growth and Income ____%
- -------------------------------------------------------------------------------------------------------------
Equity Growth ____%
- -------------------------------------------------------------------------------------------------------------
International Equity ____%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
SUB-ADVISER
The Adviser has delegated some of its advisory responsibilities with respect to
the International Equity Fund to Oechsle International Advisors, LLC as
Sub-Adviser. The Sub-Adviser determines which securities will be purchased,
retained or sold for the Fund, places orders for the Fund and provides the
Adviser with information on international investment and economic developments.
The Adviser assists and consults with the Sub-Adviser as to the Fund's
investment program, approves the list of foreign countries recommended by the
Sub-Adviser for investment and manages the Fund's daily cash position. The
Sub-Adviser's fees are paid by the Adviser.
The Sub-Adviser has its main office at One International Place, Boston,
Massachusetts 02210. The Sub-Adviser is the successor to Oechsle International
Advisors, L.P., an international investment firm founded in 1986. At December
31, 1999, the Sub-Adviser had discretionary
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management authority over approximately $__ billion in assets. The Adviser's
parent company, FleetBoston Corporation, owns an interest in the Sub-Adviser.
ALLOCATION OF ORDERS FOR PORTFOLIO SECURITIES
The Adviser (and Sub-Adviser for the International Equity Fund) may allocate
orders for the purchase and sale of portfolio securities to certain financial
institutions, including those that are affiliated with the Adviser or
Sub-Adviser or that have sold shares of the Funds, to the extent permitted by
law or by order of the Securities and Exchange Commission. The Adviser and
Sub-Adviser will allocate orders to such institutions only if they believe that
the quality of the transaction and the commission are comparable to what they
would be with other qualified brokerage firms.
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HOW TO INVEST IN THE FUNDS
Each of the Funds offers BKB Shares only to those shareholders of the Boston
1784 Funds who are not eligible to receive Trust Shares of their corresponding
Galaxy Fund at the time the Boston 1784 Funds are reorganized into Galaxy.
Each of the Funds offers BKB Shares through this prospectus. However, because
it is expected that BKB Shares of each Fund will convert into Retail A Shares
of the same Fund on the first anniversary of the closing of the reorganization
of the Boston 1784 Funds into Galaxy, some information is provided in this
prospectus for Retail A Shares of the Funds. The Funds offer Retail A Shares
through a separate prospectus.
HOW SALES CHARGES WORK
There is no sales charge (sometimes called a front-end load) when you acquire
BKB Shares in connection with the reorganization of the Boston 1784 Funds
into Galaxy, when you buy additional BKB Shares or when your BKB Shares
convert into Retail A Shares. Retail A Shares of each Fund, except the Money
Market Fund, U.S. Treasury Fund and Tax-Exempt Fund (referred to as the Money
Market Funds), are sold with a sales charge. However, holders of BKB Shares
may purchase Retail A Shares of any of the Funds without incurring the sales
charge otherwise applicable on the purchase of Retail A Shares of certain of
the Galaxy Funds. When these Retail A Shares are purchased, you must tell
your investment professional or Galaxy's distributor that you qualify for a
sales load waiver.
[Sidenote:]
NET ASSET VALUE
The price you pay for your shares is based on the net asset value per share
(NAV). It's the value of a Fund's assets attributable to BKB Shares or Retail A
Shares, minus the value of the Fund's liabilities attributable to BKB Shares or
Retail A Shares, divided by the number of BKB Shares or Retail A Shares held by
investors.
RETAIL A SHARES
The table below shows the sales charge applicable to Retail A Shares of the
Funds, except the Money Market Funds for which there is no sales charge. The
offering price for Retail A Shares is the NAV of the shares purchased, plus any
applicable sales charge.
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<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Total sales charge
- --------------------------------------------------------------------------------------------------
As a % of the offering price As a % of your investment
Amount of your investment per share
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Less than $50,000 3.75% 3.90%
- --------------------------------------------------------------------------------------------------
$50,000 but less than
$100,000 3.50% 3.63%
- --------------------------------------------------------------------------------------------------
$100,000 but less than
$250,000 3.00% 3.09%
- --------------------------------------------------------------------------------------------------
$250,000 but less than
$500,000 2.50% 2.56%
- --------------------------------------------------------------------------------------------------
$500,000 and over 0.00%(1) 0.00%(1)
- --------------------------------------------------------------------------------------------------
</TABLE>
1 There is no front-end sales charge on investments in Retail A Shares of
$500,000 or more. However, if a shareholder sells the shares within one
year after buying them, a contingent deferred sales charge (sometimes
called a back-end load or CDSC) of 1% of the offering price or 1% of the
net asset value of the shares, whichever is less, will be charged unless
the shares were sold because of the death or disability of the shareholder.
In addition, Galaxy will waive the 1% CDSC on a shareholder's initial sale
of shares. This waiver will not apply to amounts reinvested within one year
following a shareholder's initial sale of shares.
Galaxy's distributor may, from time to time, implement programs under which a
broker-dealer's sales force may be eligible to win nominal awards for certain
sales efforts. If any such program is made available to any broker-dealer, it
will be made available to all broker-dealers on the same terms. Payments made
under such programs are made by Galaxy's distributor out of its own assets and
not out of the assets of the Funds. These programs will not change the price of
Retail A Shares or the amount that the Funds will receive from such sales.
Certain affiliates of the Adviser may, at their own expense, provide additional
compensation to affiliated broker-dealers whose customers purchase significant
amounts of Retail A Shares of one or more Funds and to unaffiliated
broker-dealers whose customers purchase Retail A Shares of one or more of the
Funds. Such compensation will not represent an additional expense to the Funds
or their shareholders, since it will be paid from the assets of the Adviser's
affiliates.
There's no sales charge on purchases of Retail A Shares if:
- - an investor buys shares by reinvesting dividends and distributions.
- - an investor was a Galaxy shareholder before December 1, 1995.
- - an investor buys shares for a 401(k) or SIMPLE IRA retirement account (not
applicable for the Rhode Island Municipal Bond Fund).
- - an investor buys shares for any retirement account provided that such
investor held Retail A Shares in a retirement account prior to January 1,
1999 (not applicable for the Rhode Island Municipal Bond Fund).
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<PAGE>
- - an investor buys shares for any retirement account and such investor's
total cumulative Retail A Share retirement account balance was $30,000 or
more between January 1, 1999 and June 30, 1999 (not applicable for the
Rhode Island Municipal Bond Fund).
- - an investor buys shares with money from another Galaxy Fund on which such
investor has already paid a sales charge (as long as the investor buys the
new shares within 90 days after selling their other shares).
- - an investor previously paid a sales charge for the shares of another mutual
fund company (as long as the investor buys the Galaxy shares within 60 days
of selling their other shares).
- - you're an investment professional who places trades for your clients and
charges them a fee
- - an investor buys shares under an all-inclusive fee program (sometimes
called a "wrap fee program") offered by a broker-dealer or other financial
institution.
- - an investor was a shareholder of the Boston 1784 Funds on the date when the
Boston 1784 Funds were reorganized into Galaxy.
DISCOUNT PLANS
Investors may have the sales charges on purchases of Retail A Shares reduced or
waived completely through the discount plans described below:
- - RIGHTS OF ACCUMULATION - Investors can add the value of the Retail A Shares
that they already own in any Galaxy Fund that charges a sales load to their
next investment in Retail A Shares for purposes of calculating the sales
charge.
- - LETTER OF INTENT - Investors can purchase Retail A Shares of any Galaxy
Fund that charges a sales load over a 13-month period and receive the same
sales charge as if all of the shares had been purchased at the same time.
To participate, investors should complete the Letter of Intent section on
the account application.
- - REINVESTMENT PRIVILEGE - Investors can reinvest some or all of the money
that they receive when selling Retail A Shares of the Funds in Retail A
Shares of any Galaxy Fund within 90 days without paying a sales charge.
- - GROUP SALES - If an investor belongs to a qualified group with 50,000 or
more members, such investor can buy Retail A Shares at a reduced sales
charge, based on the number of qualified group members.
[Sidenote:]
Investors should ask their investment professional or Galaxy's distributor, or
consult the SAI for other instances in which the sales load on Retail A Shares
is waived. Investors should tell their investment professional or Galaxy's
distributor that they qualify for a sales load waiver or if they want to take
advantage of any of the discount plans. See the SAI for additional requirements
that apply to the discount plans. To contact Galaxy's distributor, call
1-877-BUY- GALAXY (1-877-289-4252).
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<PAGE>
SHAREHOLDER SERVICE FEES
BKB Shares of the Funds can pay shareholder service fees at an annual rate of up
to 0.50% of each Fund's BKB Share assets. The Money Market Funds do not intend
to pay more than 0.10%, the Short-Term Bond, Intermediate Government Income,
High Quality Bond and Rhode Island Municipal Bond Funds do not intend to pay
more than 0.15% and the Asset Allocation, Growth and Income, Equity Growth and
International Equity Funds do not intend to pay more than 0.30%, respectively,
in shareholder service fees with respect to BKB Shares during the current
fiscal year.
Retail A Shares of the Funds can pay shareholder service fees at an annual rate
of up to 0.50% of each Fund's Retail A Share assets. The Money Market Funds do
not intend to pay more than 0.10%, the Short-Term Bond, Intermediate Government
Income, High Quality Bond and Rhode Island Municipal Bond Funds do not intend to
pay more than 0.15% and the Asset Allocation, Growth and Income, Equity Growth
and International Equity Funds do not intend to pay more than 0.30%,
respectively, in shareholder service fees with respect to Retail A Shares during
the current fiscal year.
CONVERSION OF BKB SHARES INTO RETAIL A SHARES
BKB Shares of a Fund will convert into Retail A Shares of the Fund on the first
anniversary of the reorganization of the Boston 1784 Funds into Galaxy, provided
that the Board of Trustees of Galaxy has determined that such conversion is in
the best interests of the holders of BKB Shares. The conversion of BKB Shares to
Retail A Shares will take place at NAV, so that the value of the Retail A Shares
you receive in the conversion will be the same as the value of your BKB Shares
that were converted.
BUYING, SELLING AND EXCHANGING BKB SHARES
BKB Shares of the Funds are available for purchase only by those shareholders
who received BKB Shares in connection with the reorganization of the Boston
1784 Funds into Galaxy.
[Sidenote]:
MINIMUM INVESTMENT AMOUNT
You can make additional investments in your BKB Share account for as little as
$100.
Usually, you must keep at least $250 in your account. If your account falls
below $250 because you sell or exchange shares, Galaxy may redeem your shares
and close your account. Galaxy will give you 60 days' notice in writing before
closing your account.
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<PAGE>
You may buy and sell BKB Shares of the Funds on any day that the Funds are
open for business, which is any day that the New York Stock Exchange is open.
The New York Stock Exchange is generally open for trading every Monday through
Friday, except for national holidays.
The price at which you buy shares is the NAV next determined after your order
is accepted. The price at which you sell shares is the NAV next determined,
after receipt of your order in proper form as described below. NAV is
determined on each day the New York Stock Exchange is open for trading as of
11:00 a.m. (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 Money Market Funds' assets are valued at amortized cost, which is
approximately equal to market value. For each of the other Funds, if market
prices are readily available for securities owned by a Fund, they're valued at
those prices. If market prices are not readily available for some securities,
they are valued at fair value under the supervision of Galaxy's Board of
Trustees.
Sometimes, the price of a security trading on a foreign stock exchange may be
affected by events that happen after that exchange closes. If this happens, the
fair value of the security may be determined using other factors and may not
reflect the security's last quoted price. In addition, foreign securities may
trade on days when shares of the Funds are not priced. As a result, the net
asset value per share of a Fund holding these securities may change on days
when you won't be able to buy or sell Fund shares.
HOW TO BUY BKB SHARES
You can buy shares through your financial institution or directly from
Galaxy's distributor by calling 1-877-BUY-GALAXY (1-877-289-4252). A broker
or agent who places orders on your behalf may charge you a separate fee for
their services.
BUYING BY MAIL
To make additional investments, send a check made payable to each Fund in
which you want to invest to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
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You must include with your check one of the following:
- - The detachable form that's included with your Galaxy statement or your
confirmation of a prior transaction
- - A letter stating the amount of your investment, the name of the Fund you
want to invest in, and your account number
If your check is returned because of insufficient funds, Galaxy will cancel
your order.
BUYING BY WIRE
To make an additional investment by wire, send U.S. funds through the Federal
Reserve System to Fleet National Bank as agent for Galaxy's distributor. You
should wire money and registration instructions to:
Fleet National Bank
75 State Street
Boston, MA 02109
ABA #0110-0013-8
DDA #79673-5702
Ref: The Galaxy Fund
(Account number)
(Account registration)
Your financial institution may charge you a fee for sending funds by wire.
CUSTOMERS OF FINANCIAL INSTITUTIONS
If you are a customer of a financial institution such as a bank, savings and
loan association or broker-dealer, including a financial institution
affiliated with the Adviser, you should place your order through your
financial institution. Your financial institution is responsible for sending
your order to Galaxy's distributor and wiring the money to Galaxy's custodian.
For details, please contact your financial institution.
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SELLING BKB SHARES
BKB Shares of the Funds may be sold on any day that the Funds are open for
business, which is any day that the New York Stock Exchange is open. The New
York Stock Exchange is generally open for trading every Monday through Friday,
except for national holidays.
The price at which you sell shares is the NAV next determined, after receipt of
your order in proper form as described below, less any applicable CDSC. NAV is
determined on each day the New York Stock Exchange is open for trading as of
11:00 a.m. (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 Money Market Funds' assets are valued at amortized cost, which is
approximately equal to market value. For each of the other Funds, if market
prices are readily available for securities owned by a Fund, they're valued at
those prices. If market prices are not readily available for some securities,
they are valued at fair value under the supervision of Galaxy's Board of
Trustees.
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<PAGE>
Sometimes, the price of a security trading on a foreign stock exchange may be
affected by events that happen after that exchange closes. If this happens, the
fair value of the security may be determined using other factors and may not
reflect the security's last quoted price. In addition, foreign securities may
trade on days when shares of the Funds are not priced. As a result, the net
asset value per share of a Fund holding these securities may change on days when
you won't be able to buy or sell Fund shares.
HOW TO SELL BKB SHARES
You can sell your shares in several ways: by mail, by telephone, by wire, or
through your financial institution.
SELLING BY MAIL
Send your request in writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
You must include the following:
- - The name of the Fund
- - The number of shares or the dollar amount you want to sell
- - Your account number
- - Your Social Security number or tax identification number
- - The signatures of each registered owner of the account (the signatures must
match the names on the account registration)
Additional documents may be required for certain types of shareholders, such as
corporations, partnerships, executors, trustees, administrators or guardians.
[Sidenote:]
SIGNATURE GUARANTEES
When selling your shares by mail or by phone, you must have your signature
guaranteed if:
- - you're selling shares worth more than $50,000
- - you want Galaxy to send your money to an address other than the address on
your account, unless your assets are transferred to a successor custodian
- - you want Galaxy to send your money to the address on your account that's
changed within the last 30 days
- - you want Galaxy to make the check payable to someone else
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Your signature must be guaranteed by a bank that's a member of the FDIC, a trust
company, a member firm of a national securities exchange or any other eligible
institution. A notarized signature is not sufficient.
SELLING BY PHONE
You can sell shares by calling Galaxy's distributor at 1-877-BUY-GALAXY
(1-877-289-4252) unless you tell Galaxy in writing that you don't want this
privilege. If you have difficulty getting through to Galaxy because of unusual
market conditions, consider selling your shares by mail or wire.
SELLING BY WIRE
Notify Galaxy's distributor by phone or wire that you wish to sell shares and
have the sale proceeds wired to your account at any financial institution in the
U.S. To be eligible to use this privilege, you must notify Galaxy in writing
(with a signature guarantee). Your sale proceeds must be more than $1,000.
The sale proceeds must be paid to the same bank and account you named in your
written instructions.
CUSTOMERS OF FINANCIAL INSTITUTIONS
Please contact your financial institution for information on how to sell your
shares. The financial institution is responsible for sending your order to
Galaxy's distributor and for crediting your account with the proceeds. Galaxy
doesn't charge a fee for wiring sale proceeds to your financial institution, but
your financial institution may charge you a fee.
EXCHANGE PRIVILEGE
Shareholders may exchange BKB Shares of a Fund having a value of at least $100
for BKB Shares of any other Galaxy Fund. Shareholders won't pay a sales charge
for exchanging BKB Shares.
Shareholders may exchange Retail A Shares of a Fund having a value of at least
$100 for Retail A Shares of any other Galaxy Fund or for shares of any other
Fund that's managed by the Adviser or any of its affiliates in which they have
an existing account. Shareholders won't pay a sales charge for exchanging Retail
A Shares except that, unless a shareholder qualifies for a waiver, they will
have to pay a sales charge when exchanging Retail A Shares of a Money Market
Fund for Retail A Shares of another Galaxy Fund that imposes a sales charge on
purchases.
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TO EXCHANGE SHARES:
- - call Galaxy's distributor or use the InvestConnect toll-free voice
response line at 1-877-BUY-GALAXY (1-877-289-4252)
- - send your request in writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
- - ask your financial institution
Galaxy doesn't charge any fee for making exchanges but your financial
institution might do so. You are generally limited to three exchanges per year.
Galaxy may change or cancel the exchange privilege with 60 days' advance written
notice to shareholders.
OTHER TRANSACTION POLICIES
If Galaxy doesn't receive full payment for your order to buy shares within
three business days of the order date, Galaxy won't accept your order. Galaxy
will advise you if this happens and return any payment it may eventually
receive. You can only invest in shares of the Funds that are legally available
in your state.
Galaxy may refuse any order to buy shares. Galaxy doesn't issue a certificate
when you buy shares but it does keep a record of shares issued to investors.
Galaxy may refuse your order to sell or exchange shares by wire or telephone if
it believes it is advisable to do so. Galaxy or its distributor may change or
cancel the procedures for selling or exchanging shares by wire or telephone at
any time without notice.
If you sell or exchange shares by telephone, you may be responsible for any
fraudulent telephone orders as long as Galaxy has taken reasonable precautions
to verify your identity, such as requesting information about the way in which
your account is registered or about recent transactions in your account.
Galaxy normally pays you cash when you sell your shares, but it has the right to
deliver securities owned by a Fund instead of cash. When you sell these
securities, you'll pay brokerage charges.
Sales proceeds are normally sent to you within three business days but Galaxy
reserves the right to send sales proceeds within seven days if sending proceeds
earlier could adversely affect a Fund.
If any shares that you're selling are part of an investment you've paid for
with a personal check, Galaxy will delay sending your sales proceeds until the
check clears, which can take up to 15 days from the purchase date.
Galaxy reserves the right to vary or waive any minimum investment requirements.
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DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Money Market Fund and each of the Short-Term Bond Fund, Intermediate
Government Income Fund, High Quality Bond Fund and Rhode Island Municipal Bond
Fund declares dividends from net investment income daily and pays them monthly.
The Money Market Fund and U.S. Treasury Fund expect that all, or substantially
all, of their distributions will consist of ordinary income. It is expected that
the annual distributions of the Short-Term Bond Fund, Intermediate Government
Income and High Quality Bond Funds will normally - but not always - consist
primarily of ordinary income rather than capital gains. It is expected that the
annual distributions of the Tax-Exempt Fund and Rhode Island Municipal Bond Fund
will be mainly income dividends.
The Asset Allocation Fund, Growth and Income Fund and Equity Growth Fund pay any
dividends from net investment income each quarter. The International Equity Fund
pays any dividends from net investment income annually. It's expected that the
annual distributions of these Funds will normally -- but not always -- consist
primarily of capital gains rather than ordinary income.
Each of the Funds pays any realized capital gains at least once annually,
although the Money Market Funds do not expect to realize net long-term capital
gains. Dividends and distributions are paid in cash unless you indicate in a
letter to Galaxy that you want to have dividends and distributions reinvested in
additional shares.
FEDERAL TAXES
MONEY MARKET, U.S. TREASURY, SHORT-TERM BOND, INTERMEDIATE GOVERNMENT INCOME,
HIGH QUALITY BOND, ASSET ALLOCATION, GROWTH AND INCOME, EQUITY GROWTH AND
INTERNATIONAL EQUITY FUNDS
Each Fund contemplates declaring as dividends each year all or substantially all
of its taxable income, including its net capital gain (the excess of long-term
capital gain over short-term capital loss). Distributions attributable to the
net capital gain of a Fund will be taxable to you as long-term capital gain,
regardless of how long you have held your shares. Other Fund distributions will
generally be taxable as ordinary income. You will be subject to income tax on
these distributions regardless of whether they are paid in cash or reinvested in
additional shares. You will be notified annually of the tax status of
distributions to you.
You should note that if you purchase shares just before a distribution, the
purchase price will reflect the amount of the upcoming distribution, but you
will be taxed on the entire amount of the distribution received, even though, as
an economic matter, the distribution simply constitutes a return of capital.
This is known as "buying into a dividend."
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You will recognize taxable gain or loss on a sale, exchange or redemption of
your shares, including an exchange for shares of another Fund, based on the
difference between your tax basis in the shares and the amount you receive for
them. (To aid in computing your tax basis, you generally should retain your
account statements for the periods during which you held shares.) Generally,
this gain or loss will be long-term or short-term depending on whether your
holding period for the shares exceeds 12 months, except that any loss realized
on shares held for six months or less will be treated as a long-term capital
loss to the extent of any capital gain dividends that were received on the
shares. If you receive an exempt-interest dividend with respect to any share and
the shares is held by you for six months or less, any loss on the sale or
exchange of the share will be disallowed to the extent of such dividend amount.
The one major exception to these tax principles is that distributions on, and
sales, exchanges and redemptions of, shares held in an IRA (or other
tax-qualified plan) will not be currently taxable.
A Fund's dividends that are paid to its corporate shareholders and are
attributable to qualifying dividends the Fund receives from U.S. corporations
may be eligible, in the hands of the corporate shareholders, for the corporate
dividends-received deduction, subject to certain holding period requirements and
debt financing limitations.
It is expected that the International Equity Fund will be subject to foreign
withholding taxes with respect to dividends or interest received from sources in
foreign countries. The Fund may make an election to treat a proportionate amount
of these taxes as constituting a distribution to each shareholder, which would
allow each shareholder either (1) to credit this proportionate amount of taxes
against U.S. federal income tax liability or (2) to take this amount as an
itemized deduction.
TAX-EXEMPT AND RHODE ISLAND MUNICIPAL BOND FUNDS
Distributions by these Funds will generally consist of dividends derived from
interest earned on exempt securities, and these "exempt-interest dividends" will
be exempt income for shareholders for federal income tax purposes. It is
possible depending upon a Fund's investments, that a portion of the Fund's
distributions could be taxable to shareholders as ordinary income or capital
gains. The Tax-Exempt Fund does not expect that this will be the case.
If you receive an exempt-interest dividend with respect to any share and the
share is held by you for six months or less, any loss on the sale or exchange of
the share will be disallowed to the extent of such dividend amount.
You should note that a portion of the exempt-interest dividends paid by one or
both of these Funds may constitute an item of tax preference for purposes of
determining federal alternative minimum tax liability. Exempt-interest dividends
will also be considered along with other adjusted gross income in determining
whether any Social Security or railroad retirement payments received by you are
subject to federal income taxes.
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STATE AND LOCAL TAXES
Shareholders may also be subject to state and local taxes on distributions,
redemptions and exchanges. State income taxes may not apply however to the
portions of a Fund's distributions, if any, that are attributable to interest on
U.S. Government securities or on securities of the particular state, its
agencies or municipalities. The Rhode Island Municipal Bond Fund intends to
comply with certain state and/or local tax requirements so that its income and
dividends will be exempt from Rhode Island state or local taxes described above
in the description for such Fund. Dividends, if any, derived from interest on
securities other than the Rhode Island municipal securities in which the Rhode
Island Municipal Bond Fund primarily invests will be subject to tax in the State
of Rhode Island.
MISCELLANEOUS
The foregoing is only a summary of certain tax considerations under current law,
which may be subject to change in the future. You should consult your tax
adviser for further information regarding federal, state, local and/or foreign
tax consequences relevant to your specific situation.
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<PAGE>
HOW TO REACH GALAXY
THROUGH YOUR FINANCIAL INSTITUTION
Your financial institution can help you buy, sell or exchange shares and can
answer questions about your account.
GALAXY SHAREHOLDER SERVICES
Call Galaxy's distributor at 1-877-BUY-GALAXY (1-877-289-4252), Monday through
Friday, 8 a.m. to 6 p.m. (Eastern time) for help from a Galaxy representative.
INVESTCONNECT
InvestConnect is Galaxy's shareholder voice response system. Call
1-877-BUY-GALAXY (1-877-289-4252) from any touch-tone phone for automated access
to account information and current Fund prices and performance, or to place
orders to sell or exchange shares. It's available 24 hours a day, seven days a
week.
If you live outside the United States, you can contact Galaxy by calling
1-508-871-4121.
THE INTERNET
Please visit Galaxy's website at: www.galaxyfunds.com
[Sidenote:]
Galaxy also offers a TDD service for the hearing impaired. Just call
1-800-696-6515, 24 hours a day, seven days a week.
-74-
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables shown below will help you understand the
financial performance for the Funds' Retail A Shares for the past five years (or
the period since a particular Fund began operations). Certain information
reflects the financial performance of a single Retail A Share. The total returns
in the tables represent the rate that an investor would have earned (or lost) on
an investment in Retail A Shares of each Fund, assuming all dividends and
distributions were reinvested. The information for the fiscal year ended October
31, 1999 has been audited by ____________, independent auditors, whose report,
along with the Funds' financial statements, are included in the Funds' Annual
Reports and are incorporated by reference into the SAI. The Annual Reports and
SAI are available free of charge upon request. The information for the fiscal
years ended October 31, 1995, 1996, 1997 and 1998 was audited by Galaxy's former
auditors, _________________. During the periods shown, the Funds did not offer
BKB Shares. Actual investment results for BKB Shares may be different.
-75-
<PAGE>
Galaxy Money Market Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Year Ending October 31,
----------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Retail A Retail A Retail A Retail A Retail A
Shares Shares Shares Shares Shares
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ...... $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------
Income from investment operations:
0.05
Net investment income(1) .................. 0.05 0.05 0.05
Net realized and unrealized gain (loss) on
investments .......................... -- -- -- --
------ ------ ------ ------
Total from investment operations ..... 0.05 0.05 0.05 0.05
------ ------ ------ ------
Less dividends:
Dividends from net investment
income ......................... (0.05) (0.05) (0.05) (0.05)
Dividends from net realized capital
gains .......................... -- -- -- --
------ ------ ------ ------
Total dividends ......................... (0.05) (0.05) (0.05) (0.05)
Net increase (decrease) in net asset value -- -- -- --
------ ------ ------ ------
Net asset value, end of period ............ $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------
------ ------ ------ ------
Total return .............................. 5.04% 4.93% 4.78% 5.23%
Ratios/supplemental data:
Net assets, end of period (000's) ....... $2,139,213 $1,877,889 $1,159,312 $580,762
Ratios to average net assets:
Net investment income including
reimbursement/ waiver ................ 4.94% 4.85% 4.67% 5.12%
Operating expenses including
reimbursement/waiver ................. 0.67% 0.69% 0.77% 0.74%
Operating expenses excluding
reimbursement/waiver ................. 0.71% 0.73% 0.80% 0.76%
</TABLE>
- -------------------
(1) Net investment income per share for Retail A Shares before
reimbursement/waiver of fees by the Adviser and/or the Fund's administrator
for the years ended October 31, 1999, 1998, 1997, 1996 and 1995 was $____,
$0.05, $0.05, $0.05 and $0.05, respectively.
-76-
<PAGE>
Galaxy U.S. Treasury Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Year Ending October 31,
----------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Retail A Retail A Retail A Retail A Retail A
Shares Shares Shares Shares Shares
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period .................................. $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------
Income from investment
operations:
Net investment income(1) ................ 0.05 0.05 0.05 0.05
Net realized and unrealized
gain (loss) on investments ............ -- -- -- --
------ ------ ------ ------
Total from investment
operations ......................... 0.05 0.05 0.05 0.05
------ ------ ------ ------
Less dividends:
Dividends from net investment
income ............................... (0.05) (0.05) (0.05) (0.05)
Dividends from net realized
capital gains ........................ -- -- -- --
------ ------ ------ ------
Total dividends ...................... (0.05) (0.05) (0.05) (0.05)
------ ------ ------ ------
Net increase (decrease) in net
asset value ............................. -- -- -- --
------ ------ ------ ------
Net asset value, end of
period .................................. $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------
------ ------ ------ ------
Total return .............................. 4.73% 4.67% 4.63% 4.99%
Ratios/supplemental data:
Net assets, end of period
(000's) ............................... $559,053 $585,969 $443,230 $318,621
Ratios to average net assets:
Net investment income including
reimbursement/
waiver ............................... 4.63% 4.58% 4.53% 4.90%
Operating expenses including
reimbursement/waiver ................. 0.68% 0.69% 0.69% 0.73%
Operating expenses excluding
reimbursement/waiver ................ 0.68% 0.70% 0.69% 0.73%
</TABLE>
- -------------------------
(1) Net investment income per share for Retail A Shares before
reimbursement/waiver of fees by the Adviser and/or the Fund's administrator
for the years ended October 31, 1999, 1998, 1997, 1996 and 1995 was $_____,
$0.05, $0.05, $0.05 and $0.05, respectively.
-77-
<PAGE>
Galaxy Tax-Exempt Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Year Ending October 31,
----------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Retail A Retail A Retail A Retail A Retail A
Shares Shares Shares Shares Shares
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period .................................. $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------
Income from investment
operations:
Net investment income(1) ................ 0.03 0.03 0.03 0.03
Net realized and unrealized
gain (loss) on investments ........... -- -- -- --
------ ------ ------ ------
Total from investment
operations ......................... 0.03 0.03 0.03 0.03
------ ------ ------ ------
Less dividends:
Dividends from net investment
income ............................... (0.03) (0.03) (0.03) (0.03)
Dividends from net realized
capital gains ........................ -- -- -- --
------ ------ ------ ------
Total dividends ...................... (0.03) (0.03) (0.03) (0.03)
------ ------ ------ ------
Net increase (decrease) in net
asset value ............................. -- -- -- --
------ ------ ------ ------
Net asset value, end of
period .................................. $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------
------ ------ ------ ------
Total return .............................. 2.89% 2.95% 2.82% 3.16%
Ratios/supplemental data:
Net assets, end of period (000's) ....... $164,340 $151,907 $117,548 $127,056
Ratios to average net assets:
Net investment income including
reimbursement/ waiver ................ 2.85% 2.92% 2.78% 3.12%
Operating expenses including
reimbursement/waiver ................. 0.67% 0.68% 0.68% 0.68%
Operating expenses excluding
reimbursement/waiver ................. 0.67% 0.69% 0.69% 0.71%
</TABLE>
- --------------------
(1) Net investment income per share for Retail A Shares before
reimbursement/waiver of fees by the Adviser and/or the Fund's administrator
for the years ended October 31, 1999, 1998, 1997, 1996 and 1995 was $____,
$0.03, $0.03, $0.03 and $0.03, respectively.
-78-
<PAGE>
Galaxy Short-Term Bond Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Year Ending October 31,
-----------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Retail A Retail A Retail A Retail A Retail A
Shares Shares Shares Shares Shares
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ........................ $10.01 $ 9.99 $10.06 $ 9.73
------ ------ ------ ------
Income from investment operations:
Net investment income(1) .............................. 0.51 0.53 0.52 0.55
Net realized and unrealized gain (loss) on investments 0.11 0.02 (0.07) 0.33
------ ------ ------ ------
Total from investment operations ............................ 0.62 0.55 0.45 0.88
------ ------ ------ ------
Less dividends:
Dividends from net investment income .................. (0.53) (0.53) (0.52) (0.55)
Dividends from net realized capital gains ............. -- -- -- --
Dividends in excess of net realized capital gains ..... -- -- -- --
------ ------ ------ ------
Total dividends ............................................. (0.53) (0.53) (0.52) (0.55)
------ ------ ------ ------
Net increase (decrease) in net asset value .................. 0.09 0.02 (0.07) 0.33
------ ------ ------ ------
Net asset value, end of period .............................. $ 10.10 $ 10.01 $ 9.99 $ 10.06
------ ------ ------ ------
------ ------ ------ ------
Total return(2) ............................................. 6.42% 5.64% 4.63% 9.28%
Ratios/supplemental data:
Net assets, end of period (000's) ..................... $29,067 $27,961 $33,388 $31,542
Ratios to average net assets:
Net investment income including reimbursement/waiver .. 5.07% 5.29% 5.22% 5.54%
Operating expenses including reimbursement/waiver ..... 1.11% 1.00% 1.11% 0.99%
Operating expenses excluding reimbursement/waiver ..... 1.31% 1.21% 1.35% 1.32%
Portfolio turnover rate ..................................... 133% 173% 214% 289%
</TABLE>
- -------------------------------
(1) Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or the Fund's administrator for Retail A Shares for the years
ended October 31, 1999, 1998, 1997, 1996 and 1995 was $____, $0.49, $0.51,
$0.50 and $0.52, respectively.
(2) Calculation does not include the effect of
any sales charge.
-79-
<PAGE>
Galaxy Intermediate Government Income Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Year Ending October 31,
-----------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Retail A Retail A Retail A Retail A Retail A
Shares Shares Shares Shares Shares
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period......................... $10.18 $ 10.06 $ 10.28 $ 9.68
------ ------ ------ ------
Income from investment operations:
Net investment income(1)................................. 0.57 0.59 0.57 0.61
Net realized and unrealized gain (loss) on investments 0.34 0.12 (0.22) 0.60
------ ------ ------ ------
Total from investment operations............................. 0.91 0.71 0.35 1.21
------ ------ ------ ------
Less dividends:
Dividends from net investment income................... (0.59) (0.59) (0.57) (0.61)
Dividends in excess of net investment income .......... -- -- -- --
Dividends from net realized capital gains ............. -- -- -- --
Dividends in excess of net realized capital gains ..... -- -- -- --
------ ------ ------ ------
Total dividends.............................................. (0.59) (0.59) (0.57) (0.61)
------ ------ ------ ------
Net increase (decrease) in net asset value................... 0.32 0.12 (0.22) 0.60
------- -------- -------- --------
Net asset value, end of period............................... $ 10.50 $ 10.18 $ 10.06 $ 10.28
------ ------ ------ ------
------ ------ ------ ------
Total return(2)................................................ 9.22% 7.33% 3.58% 12.85%
Ratios/supplemental data:
Net assets, end of period (000's)...................... $66,865 $65,626 $79,741 $79,558
Ratios to average net assets:
Net investment income including reimbursement/waiver .. 5.49% 5.90% 5.69% 6.10%
Operating expenses including reimbursement/waiver ..... 1.01% 1.02% 1.04% 1.02%
Operating expenses excluding reimbursement/waiver ..... 1.21% 1.22% 1.24% 1.26%
Portfolio turnover rate...................................... 210% 128% 235% 145%
</TABLE>
- ----------------------------------
(1) Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or the Fund's administrator for Retail A Shares for the years
ended October 31, 1999, 1998, 1997, 1996 and 1995 was $___, $0.55, $0.57,
$0.55 and $0.58, respectively. Net investment income per share before
reimbursement/waiver of fees by the Adviser and/or the Fund's administrator
for the year ended October 31, 1999 was $_______________.
(2) Calculation does not include the effect of any sales charge.
-80-
<PAGE>
Galaxy High Quality Bond Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Retail Retail Retail Retail Retail
A SHARES A SHARES A SHARES A SHARES A SHARES
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period......... $ 10.70 $ 10.47 $ 10.63 $ 9.54
------ ------- ------- -------
Income from investment operations:
Net investment income(1)............... 0.58 0.60 0.59 0.62
Net realized and unrealized gain (loss)
on investments.................... 0.50 0.23 (0.16) 1.09
------- -------- -------- --------
Total from investment operations............. 1.08 0.83 0.43 1.71
------- -------- -------- --------
Less dividends:
Dividends from net investment income... (0.58) (0.60) (0.59) (0.62)
Dividends from net realized capital gains -- -- -- --
Dividends in excess of net realized capital gains -- -- -- --
------- -------- -------- --------
Total dividends.............................. (0.58) (0.60) (0.59) (0.62)
------- -------- -------- --------
Net increase (decrease) in net asset value... 0.50 0.23 (0.16) 1.09
------- -------- -------- --------
Net asset value, end of period............... $ 11.20 $ 10.70 $ 10.47 $ 10.63
------- -------- -------- --------
------- -------- -------- --------
Total return(2) 10.35% 8.22% 4.24% 18.46%
Ratios/supplemental data:
Net assets, end of period (000's)...... $45,879 $27,950 $30,984 $ 30,093
Ratios to average net assets:
Net investment income including reimbursement/waiver 5.30% 5.73% 5.66% 6.16%
Operating expenses including
Reimbursement/waiver.............. 1.00% 1.01% 1.07% 1.02%
Operating expenses excluding
Reimbursement/waiver.............. 1.20% 1.21% 1.28% 1.26%
Portfolio turnover rate...................... 253% 182% 163% 110%
</TABLE>
- ----------------------------------
1 Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or the Fund's administrator for Retail A Shares for the years
ended October 31, 1999, 1998, 1997, 1996 and 1995 was $___, $0.56, $0.58,
$0.57 and $0.59, respectively.
3 Calculation does not include the effect of any sales charge.
-81-
<PAGE>
Galaxy Rhode Island Municipal Bond Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
------------------------------------------------------------------------------
1999 1998 1997 1996 For the period ending
-------- -------- -------- ---------
Retail Retail Retail Retail OCTOBER 31, 1995(1)
A SHARES A SHARES A SHARES A SHARES RETAIL A SHARES
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.......... $ 10.91 $ 10.65 $ 10.67 $ 10.00
------ -------- --------- --------
Income from investment operations:
Net investment income(2)................... 0.50 0.48 0.51 0.44
Net realized and unrealized gain
on investments........................... 0.29 0.32 0.03 0.67
-------- ---------- --------- ---------
Total from investment operations.............. 0.79 0.80 0.54 1.11
-------- ---------- --------- ---------
Less dividends:
Dividends from net investment
income................................... (0.50) (0.50) (0.51) (0.44)
Dividends from net realized capital gains.. (0.02) (0.04) (0.05) ---
-------- ---------- --------- ---------
Total dividends............................... (0.52) (0.54) (0.56) (0.44)
-------- ---------- --------- ---------
Net increase (decrease) in net asset
value.................................... 0.27 0.26 (0.02) 0.67
-------- ---------- --------- ---------
Net asset value, end of period................ $ 11.18 $ 10.91 $ 10.65 $ 10.67
-------- ---------- --------- ---------
-------- ---------- --------- ---------
Total return(3) 7.35% 7.78% 5.22% 11.29%(4)
Ratios/supplemental data:
Net assets, end of period (000's).......... $20,210 $ 17,134 $ 14,900 $ 10,850
Ratios to average net assets:
Net investment income including
Reimbursement/waiver..................... 4.52% 4.50% 4.78% 5.13%(5)
Operating expenses including
Reimbursement/waiver..................... 0.81% 0.83% 0.77% 0.40%(5)
Operating expenses excluding
Reimbursement/waiver..................... 1.23% 1.34% 1.34% 2.25%(5)
Portfolio turnover rate....................... 41% 19% 13% 34%(4)
</TABLE>
1 The Fund commenced operations on December 20, 1994.
2 Net investment income per share for Retail A Shares before
reimbursement/waiver of fees by the Adviser and/or the Fund's
administrator for the years ended October 31, 1999, 1998, 1997 and 1996
and for the period ended October 31, 1995 was $___, $0.45, $0.43, $0.45
and $0.28, respectively.
3 Calculation does not include the effect of any sales charge.
4 Not annualized.
5 Annualized.
-82-
<PAGE>
Galaxy Asset Allocation Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
FOR THE YEAR ENDING OCTOBER 31,
-------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Retail Retail Retail Retail Retail
A SHARES A SHARES A SHARES A SHARES A SHARES
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.................. $ 16.46 $ 14.52 $ 12.82 $ 10.67
-------- -------- -------- --------
Income from investment operations:
Net investment income(1)............. 0.38 0.40 0.30 0.30
Net realized and unrealized gain
(loss) on investments............ 1.72 2.43 1.83 2.16
-------- -------- -------- --------
Total from investment operations.......... 2.10 2.83 2.13 2.46
-------- -------- -------- --------
Less dividends:
Dividends from net investment
income........................... (0.40) (0.38) (0.30) (0.31)
Dividends from net realized capital
gains............................ (1.21) (0.51) (0.13) --
-------- -------- -------- ---- --
Total dividends........................... (1.61) (0.89) (0.43) (0.31)
-------- -------- -------- --------
Net increase (decrease) in net asset
value............................ 0.49 1.94 1.70 2.15
-------- -------- -------- --------
Net asset value, end of period............ $ 16.95 $ 16.46 $ 14.52 $ 12.82
====== ======== ======== ========
Total return(2)........................... 13.85% 20.23% 16.92% 23.42%
Ratios/supplemental data:
Net assets, end of period (000's).... $323,498 $177,239 $116,852 $76,368
Ratios to average net assets:
Net investment income including
Reimbursement/waiver............. 2.43% 2.66% 2.29% 2.52%
Operating expenses including
Reimbursement/waiver............. 1.33% 1.37% 1.42% 1.48%
Operating expenses excluding
Reimbursement/waiver............. 1.33% 1.37% 1.42% 1.50%
Portfolio turnover rate................... 108% 58% 48% 41%
</TABLE>
- ------------------------------
1 Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or the Fund's administrator for Retail A Shares for the years
ended October 31, 1999, 1998, 1997, 1996 and 1995 was $____, $0.38, $0.40,
$0.30 and $0.30, respectively.
2 Calculation does not include the effect of any sales charge.
-83-
<PAGE>
Galaxy Growth and Income Fund(1)
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
FOR THE YEAR ENDING OCTOBER 31,
-------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Retail Retail Retail Retail Retail
A SHARES A SHARES A SHARES A SHARES A SHARES
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period....................... $ 16.24 $ 13.78 $ 12.35 $ 11.15
-------- -------- -------- --------
Income from investment operations:
Net investment income(2).................. 0.12 0.18 0.21 0.24
Net realized and unrealized gain on 1.32 3.67 2.16 1.70
-------- -------- -------- --------
investments...............................
Total from investment operations............... 1.44 3.85 2.37 1.94
-------- -------- -------- --------
Less dividends:
Dividends from net investment
income................................ (0.13) (0.20) (0.21) (0.25)
Dividends from net realized gains......... (2.68) (1.19) (0.73) (0.49)
-------- -------- -------- --------
Total dividends........................... (2.81) (1.39) (0.94) (0.74)
-------- -------- -------- --------
Net increase (decrease) in net asset value..... (1.37) 2.46 1.43 1.20
-------- -------- -------- --------
Net asset value, end of period................. $ 14.87 $ 16.24 $ 13.78 $ 12.35
-------- -------- -------- --------
-------- -------- -------- --------
Total return(3)................................ 9.93% 30.10% 20.25% 18.52%
Ratios/supplemental data:
Net assets, end of period (000's)......... $214,110 $141,884 $77,776 $51,078
Ratios to average net assets:
Net investment income including
Reimbursement/waiver.................. 0.75% 1.18% 1.65% 2.10%
Operating expenses including
Reimbursement/waiver.................. 1.28% 1.27% 1.34% 1.32%
Operating expenses excluding
Reimbursement/waiver.................. 1.35% 1.45% 1.45% 1.77%
Portfolio turnover rate........................ 38% 93% 59% 51%
</TABLE>
- ------------------------------
1 The Fund commenced operations on December 14, 1992 as a separate investment
portfolio (the "Predecessor Fund") of The Shawmut Funds. The Predecessor
Fund began offering Investment Shares on February 12, 1993. On December 4,
1995, the Predecessor Fund was reorganized as a new portfolio of Galaxy.
Prior to the reorganization, the Predecessor Fund offered and sold two
series of shares, Investment Shares and Trust Shares, that were similar to
the Fund's Retail A Shares and Trust Shares, respectively. In connection
with the reorganization, shareholders of the Predecessor Fund exchanged
Investment Shares and Trust Shares for Retail A Shares and Trust Shares,
respectively, in the Fund.
2 Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or the Fund's administrator for Retail A Shares for the years
ended October 31, 1999, 1998, 1997 and 1996 was $____, $0.10, $0.18 and
$0.19, respectively. Net investment income per share before
reimbursement/waiver of fees by other parties for Retail A Shares for the
year ended October 31, 1995 was $0.22 (unaudited).
3 Calculation does not include the effect of any sales charge.
-84-
<PAGE>
Galaxy Equity Growth Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
FOR THE YEAR ENDING OCTOBER 31,
--------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Retail Retail Retail Retail Retail
A SHARES A SHARES A SHARES A SHARES A SHARES
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.................. $ 25.14 $ 20.37 $ 17.29 $ 14.18
------- -------- -------- --------
Income from investment operations:
Net investment income (loss)(1)...... 0.01 0.07 0.10 0.14
Net realized and unrealized gain
on investments................... 3.19 6.05 3.39 3.28
---------- ---------- ---------- ----------
Total from investment operations.......... 3.20 6.12 3.49 3.42
---------- ---------- ---------- ----------
Less dividends:
Dividends from net investment
income........................... (0.03) (0.07) (0.11) (0.14)
Dividends in excess of net investment
income........................... --(3) -- -- --
------- -------- -------- --------
Dividends from net realized capital
gains............................ (3.84) (1.28) (0.30) (0.17)
---------- ---------- ---------- ----------
Total dividends........................... (3.87) (1.35) (0.41) (0.31)
---------- ---------- ---------- ----------
Net increase (decrease) in net asset value (0.67) 4.77 3.08 3.11
---------- ---------- ---------- ----------
Net asset value, end of period............ $ 24.47 $ 25.14 $ 20.37 $ 17.29
------- -------- -------- --------
------- -------- -------- --------
Total return(2)........................... 14.73% 31.61% 20.51% 24.54%
Ratios/supplemental data:
Net assets, end of period (000's).... $312,951 $226,330 $160,800 $98,911
Ratios to average net assets:
Net investment income including
Reimbursement/waiver............. 0.02% 0.30% 0.50% 0.85%
Operating expenses including
Reimbursement/waiver............. 1.34% 1.37% 1.40% 1.45%
Operating expenses excluding
Reimbursement/waiver............. 1.34% 1.37% 1.40% 1.47%
Portfolio turnover rate................... 60% 66% 36% 14%
</TABLE>
- ------------------------------------
1 Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or the Fund's administrator for Retail A Shares for the years
ended October 31, 1999, 1998, 1997, 1996 and 1995 was $____, $0.01, $0.07,
$0.10 and $0.13, respectively.
2 Calculation does not include the effect of any sales charge.
3 Dividends in excess of net investment income per share were less than
$0.005.
-85-
<PAGE>
Galaxy International Equity Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
Retail Retail Retail Retail Retail
A SHARES A SHARES A SHARES A SHARES A SHARES
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........ $ 15.18 $ 13.94 $ 12.92 $ 13.20
-------- -------- -------- --------
Income from investment operations:
Net investment income(1)............... 0.07 0.01 0.11 0.11
Net realized and unrealized gain
(loss) on investments.............. 1.93 2.09 1.27 (0.21)
-------- -------- -------- ---------
Total from investment operations............ 2.00 2.10 1.38 (0.10)
-------- -------- -------- --------
Less dividends:
Dividends from net investment
income............................. (0.07) (0.18) (0.12) (0.02)
Dividends from net realized capital
gains.............................. (0.36) (0.68) (0.24) (0.16)
--------- -------- -------- --------
Total dividends............................. (0.43) (0.86) (0.36) (0.18)
--------- -------- -------- --------
Net increase (decrease) in net asset value.. 1.57 1.24 1.02 (0.28)
-------- -------- -------- --------
Net asset value, end of period.............. $ 16.75 $ 15.18 $ 13.94 $ 12.92
======== ======= ======= =======
Total return(2)............................. 13.64% 15.88% 10.86% (0.64)%
Ratios/supplemental data:
Net assets, end of period (000's)...... $ 66,541 $56,592 $35,144 $30,104
Ratios to average net assets:
Net investment income including
reimbursement/waiver............... 0.39% 0.03% 0.78% 0.84%
Operating expenses including
reimbursement/waiver............... 1.48% 1.60% 1.70% 1.76%
Operating expenses excluding
reimbursement/waiver............... 1.73% 1.85% 1.98% 2.03%
Portfolio turnover rate..................... 49% 45% 146% 48%
</TABLE>
- -----------------------------
1 The selected per share data was calculated using the weighted average
shares outstanding method for the year. Net investment income (loss) per
share before reimbursement/waiver of fees by the Adviser and/or the Fund's
administrator for Retail A Shares for the years ended October 31, 1999,
1998, 1997, 1996 and 1995 was $____, $0.03, $(0.01), $0.07 and $0.08,
respectively.
2 Calculation does not include the effect of any sales charge.
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<PAGE>
[Back Cover Page]
Where to find more information
You'll find more information about the Funds in the following documents:
ANNUAL AND SEMI-ANNUAL REPORTS
Galaxy's annual and semi-annual reports contain more information about each Fund
and a discussion about the market conditions and investment strategies that had
a significant effect on each Fund's performance during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains detailed information about the Funds and their policies. By
law, it's incorporated by reference into (considered to be part of) this
prospectus.
You can get a free copy of these documents, request other information about the
Funds and make shareholder inquiries by calling Galaxy at 1-877-BUY-GALAXY
(1-877-289-4252) or by writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
If you buy your shares through a financial institution, you may contact your
institution for more information.
You can write to the Securities and Exchange Commission (SEC) Public Reference
Section and ask them to mail you information about the Funds, including the SAI.
They'll charge you a fee for this service. You can also visit the SEC Public
Reference Room and copy the documents while you're there. For information about
the operation of the Public Reference Room, call the SEC.
Public Reference Section of the SEC Washington, DC 20549-0102 1-202-942-8090.
Reports and other information about the Funds are also available on the EDGAR
Database on the SEC's website at http://www.sec.gov. Copies of this information
may also be obtained, after paying a duplicating fee, by electronic request to
SEC's e-mail address at [email protected].
Galaxy's Investment Company Act File No. is 811-4636.
[Fleet assigned code]
-87-
<PAGE>
THE GALAXY FUND
STATEMENT OF ADDITIONAL INFORMATION
______________________, 2000
GALAXY MONEY MARKET FUND
GALAXY U.S. TREASURY FUND
GALAXY TAX-EXEMPT FUND
GALAXY SHORT-TERM BOND FUND
GALAXY INTERMEDIATE GOVERNMENT INCOME FUND
GALAXY HIGH QUALITY BOND FUND
GALAXY RHODE ISLAND MUNICIPAL BOND FUND
GALAXY ASSET ALLOCATION FUND
GALAXY GROWTH AND INCOME FUND
GALAXY EQUITY GROWTH FUND
GALAXY INTERNATIONAL EQUITY FUND
BKB SHARES
This Statement of Additional Information is not a prospectus. It
relates to the prospectus dated _________, 2000 for BKB Shares of the Funds (the
"Prospectus"). The Prospectus, as it may be supplemented or revised from time to
time, as well as the Funds' Annual Reports to Shareholders dated October 31,
1999 (the "Annual Reports"), 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)
The Funds' financial statements and the report thereon of [______________],
The Galaxy Fund's independent accountants, are [____________________________]
this Statement of Additional Information.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
GENERAL INFORMATION..............................................................................................1
DESCRIPTION OF GALAXY AND ITS SHARES.............................................................................1
INVESTMENT STRATEGIES, POLICIES AND RISKS........................................................................5
Money Market Fund.......................................................................................5
U.S. Treasury Fund......................................................................................5
Tax-Exempt Fund.........................................................................................6
Short-Term Bond Fund....................................................................................6
Intermediate Government Income Fund.....................................................................7
High Quality Bond Fund..................................................................................7
Rhode Island Municipal Bond Fund........................................................................8
Asset Allocation Fund...................................................................................9
Growth and Income Fund..................................................................................9
Equity Growth Fund.....................................................................................10
International Equity Fund..............................................................................10
Special Risk Considerations............................................................................11
Foreign Securities.....................................................................................11
European Currency Unification..........................................................................12
General Risk Considerations............................................................................12
Other Investment Policies and Risk Considerations......................................................13
Ratings................................................................................................13
U.S. Government Obligations and Money Market Instruments...............................................14
Variable and Floating Rate Obligations.................................................................16
Municipal Securities...................................................................................17
Stand-by Commitments...................................................................................20
Private Activity Bonds.................................................................................20
Tender Option Bonds....................................................................................21
Custodial Receipts and Certificates of Participation...................................................21
Repurchase and Reverse Repurchase Agreements...........................................................22
Securities Lending.....................................................................................23
Investment Company Securities..........................................................................23
REITs..................................................................................................24
Derivative Securities..................................................................................24
American, European and Global Depository Receipts......................................................34
Asset-Backed Securities................................................................................35
Mortgage-Backed Securities.............................................................................36
Mortgage Dollar Rolls..................................................................................36
Convertible Securities.................................................................................37
When-Issued, Forward Commitment and Delayed Settlement Transactions....................................38
Stripped Obligations...................................................................................40
Guaranteed Investment Contracts........................................................................40
Bank Investment Contracts..............................................................................41
Portfolio Securities Generally.........................................................................41
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
Portfolio Turnover.....................................................................................41
INVESTMENT LIMITATIONS..........................................................................................41
VALUATION OF PORTFOLIO SECURITIES...............................................................................55
Valuation of the Money Market, U.S. Treasury and Tax-Exempt Funds......................................55
Valuation of the Short-Term Bond, Intermediate Government Income, High
Quality Bond and Rhode Island Municipal Bond Funds.............................................56
Valuation of the Asset Allocation, Growth and Income and Equity Growth Funds...........................56
Valuation of the International Equity Fund.............................................................57
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION..................................................................57
Other Purchase Information- Retail A Shares............................................................57
Applicable Sales Charge - Retail A Shares..............................................................58
Computation of Offering Price - Retail A Shares........................................................59
Quantity Discounts.....................................................................................62
Redemption of BKB Shares...............................................................................64
EXCHANGE PRIVILEGE..............................................................................................64
TAXES...........................................................................................................66
In General.............................................................................................66
State and Local........................................................................................67
Taxation of Certain Financial Instruments..............................................................68
Miscellaneous..........................................................................................69
TRUSTEES AND OFFICERS...........................................................................................69
Shareholder and Trustee Liability......................................................................73
INVESTMENT ADVISER AND SUB-ADVISER..............................................................................74
Administrator..........................................................................................77
CUSTODIAN AND TRANSFER AGENT....................................................................................79
EXPENSES........................................................................................................79
PORTFOLIO TRANSACTIONS..........................................................................................80
SHAREHOLDER SERVICES PLANS......................................................................................83
DISTRIBUTOR.....................................................................................................86
AUDITORS........................................................................................................87
COUNSEL.........................................................................................................87
PERFORMANCE AND YIELD INFORMATION...............................................................................87
Money Market, U.S. Treasury and Tax-Exempt Funds.......................................................87
Short-Term Bond, Intermediate Government Income, High Quality Bond, Rhode
Island Municipal Bond, Asset Allocation, Growth and Income, Equity
Growth and International Equity Funds.........................................................88
Tax-Equivalency Table - Rhode Island Municipal Bond Fund...............................................90
Performance Reporting..................................................................................91
MISCELLANEOUS...................................................................................................92
FINANCIAL STATEMENTS...........................................................................................100
APPENDIX A.....................................................................................................A-1
APPENDIX B.....................................................................................................B-1
</TABLE>
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<PAGE>
GENERAL INFORMATION
This Statement of Additional Information should be read in
conjunction with the current Prospectus. This Statement of Additional
Information relates to the Prospectus for BKB Shares of the eleven Funds
listed on the cover page. Each Fund also offers one or more other share
classes (i.e., Trust, Retail A, Retail B, Prime A and Prime B Shares), which
are described in separate statements of additional information and related
prospectuses. This Statement of Additional Information is incorporated by
reference in its entirety into the Prospectus. No investment in BKB Shares of
the Funds should be made without reading the Prospectus.
BKB Shares will initially be issued in connection with the
reorganization of the Boston 1784 Funds into Galaxy (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 the Board of Trustees of Galaxy has determined such conversion
is in the best interests of the holders of BKB Shares. Because of this
conversion feature, some information is provided in this Statement of
Additional Information for Retail A Shares of the 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 MONEY MARKET, U.S. TREASURY AND
TAX-EXEMPT FUNDS SEEK TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER
SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUNDS. YOU ALSO COULD
LOSE MONEY BY INVESTING IN ANY OF THE OTHER FUNDS. AN INVESTMENT IN THE FUNDS
INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT
INVESTED.
DESCRIPTION OF GALAXY AND ITS SHARES
The Galaxy Fund ("Galaxy") is an open-end management investment
company currently offering shares of beneficial interest in twenty-nine
investment portfolios: Money Market Fund, Government Fund, U.S. Treasury
Fund, Tax-Exempt Fund, Connecticut Municipal Money Market Fund, Massachusetts
Municipal Money Market Fund, Institutional Government Money Market Fund,
Prime Reserves, Government Reserves, Tax-Exempt Reserves, Equity Value Fund,
Equity Growth Fund, Equity Income Fund, International Equity Fund, Small
Company Equity Fund, Asset Allocation Fund, Small Cap Value Fund, Growth and
Income Fund, Strategic Equity Fund, Short-Term Bond Fund, Intermediate
Government Income Fund, High Quality Bond Fund, Corporate Bond Fund,
Tax-Exempt Bond Fund, New Jersey Municipal Bond Fund, New York Municipal Bond
Fund, Connecticut Municipal Bond Fund, Massachusetts Municipal Bond Fund and
Rhode Island Municipal Bond Fund. Galaxy is also authorized to issue shares of
<PAGE>
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 have not commenced investment
operations.
The Growth and Income Fund commenced operations on December 14, 1992
as separate investment portfolios (the "Predecessor Growth and Income Fund")
of The Shawmut Funds, which was organized as a Massachusetts business trust.
On December 4, 1995, the Predecessor Growth and Income Fund was reorganized
as a new portfolio of Galaxy. Prior to the reorganization, the Predecessor
Growth and Income Fund offered and sold shares of beneficial interest that
were similar to Galaxy's Trust Shares and Retail A Shares.
Galaxy was organized as a Massachusetts business trust on March 31,
1986. Galaxy's Declaration of Trust authorizes the Board of Trustees to
classify or reclassify any unissued shares into one or more classes or series
of shares by setting or changing in any one or more respects their respective
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption. Pursuant to such authority, the Board of Trustees has authorized
the issuance of an unlimited number of shares in each of the series in the
Funds as follows: Class A Shares (Retail A Shares), Class A -- Special Series
1 Shares (Trust Shares), Class A -- Special Series 2 Shares (Retail B Shares)
and Class A -- Special Series 3 shares (BKB Shares), each series representing
interests in the Money Market Fund; Class D shares (Trust Shares), Class D -
Special Series 1 shares (Retail A Shares), Class D shares - Special Series 2
shares (Retail B Shares), Class D shares - Special Series 3 shares (Prime A
Shares), Class D shares -Special Series 4 shares (Prime B Shares) and Class D
- - Special Series 5 shares (BKB Shares), each series representing interests in
the Intermediate Government Income Fund; Class E Shares (Retail A Shares),
Class E -- Special Series 1 Shares (Trust Shares) and Class E - Special
Series 2 Shares (BKB Shares), each series representing interests in the
Tax-Exempt Fund; Class F Shares (Retail A Shares), Class F -- Special Series
1 Shares (Trust Shares) and Class FF --Special Series 2 Shares (BKB Shares),
each series representing interests in the U.S. Treasury Fund; Class G Series
1 shares (Trust Shares), Class G - Series 2 shares (Retail A Shares), Class G
- - Series 3 shares (Retail B Shares), Class G -Series 4 shares (Prime A
Shares), Class G - Series 5 shares (Prime B Shares) and Class G - Series 6
shares (BKB Shares), each series representing interests in the International
Equity Fund; Class H - Series 1 shares (Trust Shares), Class H - Series 2
shares (Retail A Shares), Class H - Series 3 shares (Retail B Shares), Class
H - Series 4 shares (Prime A Shares), Class H - Series 5 shares (Prime B
Shares) and Class H - Series 6 shares (BKB Shares), each series representing
interests in the Equity Growth Fund; Class J - Series 1 shares (Trust
Shares), Class J - Series 2 shares (Retail A Shares), Class J - Series 3
shares (Retail B Shares), Class J - Series 4 shares (Prime A Shares), Class J
Series 5 shares (Prime B Shares) and Class J - Series 6 shares (BKB Shares),
each series representing interests in the High Quality Bond Fund; Class L
- -Series 1 shares (Trust Shares), Class L - Series 2 shares (Retail A Shares),
Class L Series 3 shares (Retail B Shares), Class L - Series 4 shares (Prime A
Shares), Class L - Series 5 shares (Prime B Shares) and Class L - Series 6
shares (BKB Shares), each series representing interests in the Short-Term
Bond Fund; Class N Series 1 shares (Trust Shares), Class N - Series 2 shares
(Retail A Shares), Class N - Series 3 shares (Retail B Shares), Class N -
Series 4 shares (Prime A Shares), Class N - Series 5 shares (Prime B
-2-
<PAGE>
Shares) and Class N - Series 6 shares (BKB Shares), each series representing
interests in the Asset Allocation Fund; Class R - Series 1 shares (Trust
Shares) , Class R - Series 2 shares (Retail A Shares) and Class R - Series 3
shares (BKB Shares), each series representing interests in the Rhode Island
Municipal Bond Fund; Class U - Series 1 shares (Trust Shares), Class U -
Series 2 shares (Retail A Shares), Class U -Series 3 shares (Retail B
Shares), Class U - Series 4 shares (Prime A Shares), Class U Series 5 shares
(Prime B Shares) and Class U - Series 6 shares (BKB Shares), each series
representing interests in the Growth and Income Fund. Each Fund, except the
Rhode Island Municipal Bond Fund, is classified as a diversified company
under the Investment Company Act of 1940, as amended (the "1940 Act"). The
Rhode Island Municipal Bond Fund 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 Prospectus, shares will be fully paid
and non-assessable. Each series of shares (i.e., BKB Shares, Retail A Shares,
Retail B Shares, Trust Shares, Prime A Shares and Prime B 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 BKB Shares will bear the expenses
of the Shareholder Services Plan for BKB Shares and 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). 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" 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 BKB Shares of a Fund will be
entitled to
-3-
<PAGE>
vote on matters submitted to a vote of shareholders pertaining to Galaxy's
Shareholder Services Plan for BKB Shares and only Retail A 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).
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
-4-
<PAGE>
value. In the event that shares are redeemed in cash at their net asset
value, a shareholder may receive in payment for such shares, due to changes
in the market prices of the Fund's portfolio securities, an amount that is
more or less than the original investment. The exercise of such authority by
the Board of Trustees will be subject to the provisions of the 1940 Act, and
the Board of Trustees will not take any action described in this paragraph
unless the proposed action has been disclosed in writing to the Fund's
shareholders at least 30 days prior thereto.
INVESTMENT STRATEGIES, POLICIES AND RISKS
Fleet Investment Advisors Inc. ("Fleet"), the Funds' investment
adviser, and, with respect to the International Equity Fund, Oechsle
International Advisors, LLC ("Oechsle"), the Fund's sub-adviser, will use
their best efforts to achieve each Fund's investment objective, although such
achievement cannot be assured. The investment objective of a Fund as
described in its Prospectus 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 Money Market, U.S. Treasury and Tax-Exempt Funds 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' Prospectus.
MONEY MARKET FUND
Instruments in which the Money Market Fund invests have remaining
maturities of 397 days or less (except for certain variable and floating rate
notes and securities underlying certain repurchase agreements). For more
information, including applicable quality requirements, see "Other Investment
Policies and Risk Considerations" below.
U.S. TREASURY FUND
Instruments in which the U.S. Treasury Fund invests may include, but
are not limited to, securities issued by the U.S. Treasury and by certain
U.S. Government agencies or instrumentalities such as the Federal Home Loan
Banks and Federal Farm Credit Banks. The Fund invests at least 65% of its
total assets in direct U.S. Government obligations. Shareholders residing in
a particular state that has an income tax law should determine through
consultation with their own tax advisers whether such interest income, when
distributed by the Fund, will be considered by the state to have retained
exempt status and whether the Fund's capital gain and other income, if any,
when so distributed will be subject to the state's income tax. See "Taxes."
Portfolio securities held by the Fund have remaining maturities of
397 days or less (with certain exceptions). The Fund may also invest in
certain variable and floating rate instruments. For more information,
including applicable quality requirements, see "Other Investment Policies and
Risk Considerations" below.
-5-
<PAGE>
TAX-EXEMPT FUND
Municipal Securities in which the Tax-Exempt Fund invests present
minimal credit risk and meet the rating criteria described under "Other
Investment Policies and Risk Considerations - Quality Requirements" below.
Municipal Securities, as that term is used in this Statement of Additional
Information, are debt obligations issued by or on behalf of states,
territories and possessions of the United States, the District of Columbia,
and their authorities, agencies, instrumentalities and political
subdivisions, the interest on which, in the opinion of bond counsel or
counsel to the issuer, is exempt from federal income tax.
As a matter of fundamental policy that cannot be changed without the
requisite consent of the Fund's shareholders, the Fund will invest, except
during temporary defensive periods, at least 80% of its assets in Municipal
Securities. The Fund's investments in private activity bonds will not be
treated as investments in Municipal Securities for purposes of the 80%
requirement mentioned above and, under normal market conditions, will not
exceed 20% of the Fund's net assets when added together with any taxable
investments held by the Fund.
Although the Fund does not presently intend to do so on a regular
basis, it may invest more than 25% of its assets in Municipal Securities the
interest on which is paid solely from revenues of similar projects. To the
extent that the Fund's assets are concentrated in Municipal Securities
payable from revenues on similar projects, the Fund will be subject to the
peculiar risks presented by such projects to a greater extent than it would
be if its assets were not so invested.
The Fund's portfolio securities will generally have remaining
maturities of 397 days or less (except for certain variable and floating rate
notes and securities underlying certain repurchase agreements). See "Other
Investment Policies and Risk Considerations" below.
SHORT-TERM BOND FUND
In addition to its primary investment strategies and policies as
described in the Prospectus, the Short-Term Bond Fund may also invest, from
time to time, in Municipal Securities. The purchase of Municipal Securities
may be advantageous when, as a result of prevailing economic, regulatory or
other circumstances, the performance of such securities, on a pre-tax basis,
is comparable to that of corporate or U.S. Government debt obligations. See
"Other Investment Policies and Risk Consideration - Municipal Securities"
below. The Fund may also enter into interest rate futures contracts to hedge
against changes in market values. See "Other Investment Policies and Risk
Considerations Derivative Securities" below. Any common stock received
through the conversion of convertible debt obligations will be sold in an
orderly manner as soon as possible.
The obligations of foreign banks and obligations issued or
guaranteed by foreign governments or any of their political subdivisions or
instrumentalities in which the Fund may invest include debt obligations
issued by Canadian Provincial Governments, which are similar to
-6-
<PAGE>
U.S. Municipal Securities except that the income derived therefrom is fully
subject to U.S. federal taxation. These instruments are denominated in either
Canadian or U.S. dollars and have an established over-the-counter market in
the United States. Also included are debt obligations of supranational
entities, which include international organizations designated or supported
by governmental entities to promote economic reconstruction or development
and international banking institutions and related government agencies.
Examples of these include the International Bank for Reconstruction and
Development ("World Bank"), the Asian Development Bank and the InterAmerican
Development Bank. Obligations of supranational entities may be supported by
appropriated but unpaid commitments of their member countries, and there is
no assurance that these commitments will be undertaken or met in the future.
The Fund may not invest more than 35% of its total assets in the securities
of foreign issuers. The Fund may also invest in dollar-denominated debt
obligations of U.S. corporations issued outside the United States.
See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the Short-Term Bond
Fund.
INTERMEDIATE GOVERNMENT INCOME FUND
In addition to its primary investment strategies and policies as
described in the Prospectus, the Intermediate Government Income Fund may also
invest, from time to time, in Municipal Securities. See "Other Investment
Policies and Risk Considerations - Municipal Securities" below. The Fund may
also enter into interest rate futures contracts to hedge against changes in
market values. See "Other Investment Policies and Risk Considerations
- -Derivative Securities" below. In addition, the Fund may invest in
obligations issued by Canadian Provincial Governments and in debt obligations
of supranational entities. The Fund may also invest in dollar-denominated
high quality debt obligations of U.S. corporations issued outside the United
States. Any common stock received through the conversion of convertible debt
obligations will be sold in an orderly manner as soon as possible.
See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the Intermediate
Government Income Fund.
HIGH QUALITY BOND FUND
In addition to its primary investment strategies and policies as
described in its Prospectus, the High Quality Bond Fund may also invest, from
time to time, in Municipal Securities. See "Other Investment Policies and
Risk Considerations - Municipal Securities" below. The Fund may enter into
interest rate futures contracts to hedge against changes in the market values
of fixed income instruments that the Fund holds or intends to purchase. See
"Other Investment Policies and Risk Considerations - Derivative Securities"
below. The Fund may also invest in obligations issued by Canadian Provincial
Governments and in debt obligations of supranational entities. The Fund may
also invest in dollar-denominated high quality debt obligations of U.S.
corporations issued outside the United States. Any common stock received
through the conversion of convertible debt obligations will be sold in an
orderly manner as soon as possible.
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See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the High Quality Bond
Fund.
RHODE ISLAND MUNICIPAL BOND FUND
As a matter of fundamental policy that cannot be changed without the
requisite consent of the Fund's shareholders, the Rhode Island Municipal Bond
Fund will invest, except during temporary defensive periods, at least 80% of
its total assets in Municipal Securities, primarily in Municipal Securities
issued by or on behalf of the State of Rhode Island, its political
sub-divisions, authorities, agencies, instrumentalities and corporations, and
certain other governmental issuers such as Puerto Rico, the interest on
which, in the opinion of bond counsel to the issuer, is exempt from federal
and Rhode Island personal income taxes ("Rhode Island Municipal Securities").
Dividends derived from interest on Municipal Securities other than Rhode
Island Municipal Securities will generally be exempt from regular federal
income tax but may be subject to Rhode Island personal income tax. See
"Taxes" below.
The Fund's ability to achieve its investment objective depends on
the ability of issuers of Rhode Island Municipal Securities to meet their
continuing obligations to pay principal and interest. Since the Fund invests
primarily in Rhode Island Municipal Securities, the value of the Fund's
shares may be especially affected by factors pertaining to the economy of
Rhode Island and other factors specifically affecting the ability of issuers
of Rhode Island Municipal Securities to meet their obligations. As a result,
the value of the Fund's shares may fluctuate more widely than the value of
shares of a portfolio investing in securities of issuers in a number of
different states. The ability of Rhode Island and its political subdivisions
to meet their obligations will depend primarily on the availability of tax
and other revenues to those governments and on their fiscal conditions
generally. The amount of tax and other revenues available to governmental
issuers of Rhode Island Municipal Securities may be affected from time to
time by economic, political and demographic conditions within Rhode Island.
In addition, constitutional or statutory restrictions may limit a
government's power to raise revenues or increase taxes. The availability of
federal, state and local aid to an issuer of Rhode Island Municipal
Securities may also affect that issuer's ability to meet its obligations.
Payments of principal and interest on limited obligation bonds will depend on
the economic condition of the facility or specific revenue source from whose
revenues the payments will be made, which in turn could be affected by
economic, political and demographic conditions in Rhode Island or a
particular locality. Any reduction in the actual or perceived ability of an
issuer of Rhode Island Municipal Securities to meet its obligations
(including a reduction in the rating of its outstanding securities) would
likely affect adversely the market value and marketability of its obligations
and could affect adversely the value of other Rhode Island Municipal
Securities as well.
See "Special Considerations and Risks" and "Other Investment
Policies and Risk Considerations" below for information regarding additional
investment policies of the Rhode Island Municipal Bond Fund.
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ASSET ALLOCATION FUND
The Asset Allocation Fund may invest up to 20% of its total assets
in foreign securities. Such foreign investments may be made directly, by
purchasing securities issued or guaranteed by foreign corporations, banks or
governments (or their political subdivisions or instrumentalities) or by
supranational banks or other organizations, or indirectly, by purchasing
American Depository Receipts ("ADRs") and European Depository Receipts
("EDRs"). Examples of supranational banks include the International Bank for
Reconstruction and Development ("World Bank"), the Asian Development Bank and
the InterAmerican Development Bank. Obligations of supranational banks may be
supported by appropriated but unpaid commitments of their member countries
and there is no assurance that those commitments wiall be undertaken or met
in the future. See "Special Risk Considerations -- Foreign Securities" and
"Other Investment Policies and Risk Considerations -- American, European and
Global Depository Receipts" below. The Fund may also invest in
dollar-denominated high quality debt obligations of U.S. corporations issued
outside the United States. The Fund may purchase put options and call options
and write covered call options, purchase asset-backed securities and
mortgage-backed securities and enter into foreign currency exchange
transactions.
See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the Asset Allocation
Fund.
GROWTH AND INCOME FUND
Under normal market conditions, the Growth and Income Fund will
invest at least 65% of its total assets in common stocks, preferred stocks,
common stock warrants and securities convertible into common stock. The Fund
may purchase convertible securities, including convertible preferred stock,
convertible bonds or debentures, units consisting of "usable" bonds and
warrants or a combination of the features of several of these securities. See
"Other Investment Policies and Risk Considerations -- Convertible Securities"
below. The Fund may also buy and sell options and futures contracts and
utilize stock index futures contracts, options, swap agreements, indexed
securities, and options on futures contracts. See "Other Investment Policies
and Risk Considerations -- Derivative Securities" below.
The Fund may invest up to 20% of its total assets in securities of
foreign issuers which are freely traded on United States securities exchanges
or in the over-the-counter market in the form of ADRs, EDRs and Global
Depository Receipts ("GDRs"). Securities of a foreign issuer may present
greater risks in the form of nationalization, confiscation, domestic
marketability, or other national or international restrictions. As a matter
of practice, the Fund will not invest in the securities of foreign issuers if
any such risk appears to Fleet to be substantial. See "Special Risk
Considerations -- Foreign Securities" and "Other Investment Policies and Risk
Considerations -- American, European and Global Depository Receipts" below.
See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the Growth and Income
Fund.
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EQUITY GROWTH FUND
Convertible securities purchased by the Equity Growth Fund may
include both debt securities and preferred stock. By investing in convertible
securities, the Fund will seek the opportunity, through the conversion
feature, to participate in the capital appreciation of the common stock into
which the securities are convertible. See "Other Investment Policies and Risk
Considerations -- Convertible Securities" below. The Fund may also invest in
common stock warrants.
The Fund may invest up to 20% of its total assets in foreign
securities, either directly or indirectly through the purchase of ADRs and
EDRs. In addition, the Fund may invest in securities issued by foreign
branches of U.S. banks and foreign banks. See "Special Risk Considerations --
Foreign Securities" and "Other Investment Policies and Risk Considerations --
American, European and Global Depository Receipts" below. The Fund may also
purchase put options and call options and write covered call options. See
"Other Investment Policies and Risk Considerations -- Derivative Securities"
below.
See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the Equity Growth
Fund.
INTERNATIONAL EQUITY FUND
The International Equity Fund invests at least 75% of its total
assets in equity securities of foreign issuers. The Fund may invest in
securities of issuers located in a variety of different foreign regions and
countries, including, but not limited to, Australia, Austria, Belgium,
Brazil, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong,
Ireland, Italy, Japan, Luxembourg, Malaysia, Mexico, the Netherlands, New
Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, Thailand
and the United Kingdom.
The Fund invests in common stock and may invest in other securities
with equity characteristics, consisting of trust or limited partnership
interests, preferred stock, rights and warrants. The Fund may also invest in
convertible securities, consisting of debt securities or preferred stock that
may be converted into common stock or that carry the right to purchase common
stock. See "Other Investment Policies and Risk Considerations -- Convertible
Securities" below. The Fund invests in securities listed on foreign or
domestic securities exchanges and securities traded in foreign or domestic
over-the-counter markets, and may invest in unlisted securities.
Securities issued in certain countries are currently accessible to
the Fund only through investment in other investment companies that are
specifically authorized to invest in such securities. The limitations on the
Fund's investment in other investment companies are described below under
"Other Investment Policies and Risk Considerations -Investment Company
Securities."
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Subject to applicable securities regulations, the Fund may, for the
purpose of hedging its portfolio, purchase and write covered call options on
specific portfolio securities and may purchase and write put and call options
on foreign stock indexes listed on foreign and domestic stock exchanges. In
addition, the Fund may invest up to 100% of its total assets in securities of
foreign issuers in the form of ADRs, EDRs or GDRs as described under "Other
Investment Policies and Risk Considerations -- American, European and Global
Depository Receipts." Furthermore, the Fund may purchase and sell securities
on a when-issued basis.
See "Other Investment Policies and Risk Considerations" below
regarding additional investment policies of the International Equity Fund.
SPECIAL RISK CONSIDERATIONS
FOREIGN SECURITIES
Investments by the Short-Term Bond, Asset Allocation, Growth and
Income, Equity Growth and International Equity Funds in foreign securities
may involve higher costs than investments in U.S. securities, including
higher transaction costs, as well as the imposition of additional taxes by
foreign governments. In addition, foreign investments may include additional
risks associated with currency exchange rates, less complete financial
information about the issuers, less market liquidity, and political
instability. Future political and economic developments, the possible
imposition of withholding taxes on interest income, the possible seizure or
nationalization of foreign holdings, the possible establishment of exchange
controls, or the adoption of other governmental restrictions, might adversely
affect the payment of dividends or principal and interest on foreign
obligations.
Although these Funds may invest in securities denominated in foreign
currencies, the Funds value their securities and other assets in U.S.
dollars. As a result, the net asset value of a Fund's shares may fluctuate
with U.S. dollar exchange rates as well as with price changes of the Fund's
securities in the various local markets and currencies. Thus, an increase in
the value of the U.S. dollar compared to the currencies in which 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 Funds' securities in
their local markets. In addition to favorable and unfavorable currency
exchange rate developments, the Funds are subject to the possible imposition
of exchange control regulations or freezes on convertibility of currency.
Certain of the risks associated with investments in foreign
securities are heightened with respect to investments in countries with
emerging economies or emerging securities markets. The risks of
expropriation, nationalization and social, political and economic instability
are greater in those countries than in more developed capital markets.
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EUROPEAN CURRENCY UNIFICATION
Many European countries have adopted a single European currency, the
euro. On January 1, 1999, the euro became legal tender for all countries
participating in the Economic and Monetary Union ("EMU"). A new European
Central Bank has been created to manage the monetary policy of the new
unified region. On the same date, the exchange rates were irrevocably fixed
between the EMU member countries. National currencies will continue to
circulate until they are replaced by euro coins and bank notes by the middle
of 2002.
This change is likely to significantly impact the European capital
markets in which the International Equity Fund invests and may result in the
Fund facing additional risks in pursuing its investment objective. These risks,
which include, but are not limited to, uncertainty as to the proper tax
treatment of the currency conversion, volatility of currency exchange rates as a
result of the conversion, uncertainty as to capital market reaction, conversion
costs that may affect 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 Short-Term Bond, Intermediate Government Income, High
Quality Bond and Rhode Island 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.
Although the Rhode Island Municipal Bond Fund does not presently
intend to do so on a regular basis, the 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 the 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 Rhode Island Municipal Bond Fund is classified as a
non-diversified investment company under the 1940 Act. Investment return on a
non-diversified portfolio typically is
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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 Prospectus 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 Money Market, U.S. Treasury and Tax-Exempt Funds will purchase
only those instruments which meet the applicable quality requirements
described below. The Money Market Fund will not purchase a security (other
than a U.S. Government security) unless the security or the issuer with
respect to comparable securities (i) is rated by at least two nationally
recognized statistical rating organizations ("Rating Agencies") (such as
Standard & Poor's Ratings Group ("S&P"), Moody's Investors Service, Inc.
("Moody's") or Fitch IBCA, Inc. ("Fitch IBCA") in the highest category for
short-term debt securities, (ii) is rated by the only Rating Agency that has
issued a rating with respect to such security or issuer in such Rating
Agency's highest category for short-term debt, or (iii) if not rated, the
security is determined to be of comparable quality. The Tax-Exempt Fund will
not purchase a security (other than a U.S. Government security) unless the
security (i) is rated by at least two such Rating Agencies in one of the two
highest categories for short-term debt securities, (ii) is rated by the only
Rating Agency that has assigned a rating with respect to such security in one
of such Rating Agency's two highest categories for short-term debt
securities, or (iii) if not rated, the security is determined to be of
comparable quality. These rating categories are determined without regard to
sub-categories and gradations. The Funds will follow applicable regulations
in determining whether a security rated by more than one Rating Agency can be
treated as being in the highest short-term rating categories. See "Investment
Limitations" below.
All debt obligations, including convertible bonds, purchased by the
Asset Allocation and Equity Growth Funds 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
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Appendix A to this Statement of Additional Information for a description of
S&P's and Moody's rating categories.
The International Equity Fund may only purchase debt securities
rated "A" or higher by Moody's or S&P, or if unrated, determined by Fleet or
Oechsle to be of comparable quality. Issuers of commercial paper, bank
obligations or repurchase agreements in which the International Equity Fund
invests must have, at the time of investment, outstanding debt rated A or
higher by Moody's or S&P, or, if they are not rated, the instrument purchased
must be determined to be of comparable quality.
The Growth and Income Fund may purchase convertible bonds rated "Ba"
or higher by Moody's or "BB" or higher by S&P or Fitch IBCA, at the time of
investment. See "Other Investment Policies and Risk Considerations --
Convertible Securities" below for a discussion of the risks of investing in
convertible bonds rated either "Ba" or "BB." Short-term money market
instruments purchased by the Growth and Income Fund must be rated in one of
the top two rating categories by a nationally recognized statistical rating
agency, such as Moody's, S&P or Fitch IBCA.
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.
Information on the requisite investment quality of debt obligations,
including Municipal Securities, eligible for purchase by the Short-Term Bond,
Intermediate Government Income, High Quality Bond and Rhode Island Municipal
Bond Funds is included in the Prospectus.
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.
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<PAGE>
U.S. Treasury securities differ only in their interest rates,
maturities and time of issuance: Treasury Bills have initial maturities of
one year or less; Treasury Notes have initial maturities of one to ten years;
and Treasury Bonds generally have initial maturities of more than ten years.
Obligations of certain agencies and instrumentalities of the U.S. Government,
such as those of the Government National Mortgage Association, are supported
by the full faith and credit of the U.S. Treasury; others, such as those of
the Federal Home Loan Banks, are supported by the right of the issuer to
borrow from the Treasury; others, such as those of the Federal National
Mortgage Association, are supported by the discretionary authority of the
U.S. Government to purchase the agency's obligations; still others, such as
those of the Federal Home Loan Mortgage Corporation, are supported only by
the credit of the instrumentality. No assurance can be given that the U.S.
Government would provide financial support to U.S. Government-sponsored
instrumentalities if it is not obligated to do so by law. Some of these
instruments may be variable or floating rate instruments.
Securities issued or guaranteed by the U.S. Government, its agencies
and instrumentalities have historically involved little risk of loss of
principal. However, due to fluctuations in interest rates, the market value
of such securities may vary during the period a shareholder owns shares of
the Funds.
The U.S. Treasury Fund will invest in those securities issued or
guaranteed as to principal and interest by the U.S. Government or by agencies
and instrumentalities thereof, the interest income from which, under current
law, generally will not be subject to state income tax by reason of federal
law.
Bank obligations include bankers' acceptances, negotiable
certificates of deposit and non-negotiable time deposits issued for a
definite period of time and earning a specified return by a U.S. bank which
is a member of the Federal Reserve System or is insured by the Federal
Deposit Insurance Corporation ("FDIC"), or by a savings and loan association
or savings bank which is insured by the FDIC. With respect to each Fund other
than the Growth and Income Fund, bank obligations also include U.S.
dollar-denominated obligations of foreign branches of U.S. banks or of U.S.
branches of foreign banks, all of the same type as domestic bank obligations.
Investments in bank obligations are limited to the obligations of financial
institutions having more than $1 billion in total assets at the time of
purchase. Time deposits with a maturity longer than seven days or that do not
provide for payment within seven days after notice will be subject to each
Fund's limitation on illiquid securities described below under "Investment
Limitations." Investments by each Fund in non-negotiable time deposits are
limited to no more than 5% of each Fund's total assets at the time of
purchase. 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.
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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 and/or Oechsle believe that the credit risk with respect to the
instrument is minimal.
Commercial paper may include securities issued by corporations without
registration under the Securities Act of 1933, as amended, (the "1933 Act") in
reliance on the so-called "private placement" exemption in Section 4(2)
("Section 4(2) Paper"). Section 4(2) Paper is restricted as to disposition under
the federal securities laws in that any resale must similarly be made in an
exempt transaction. Section 4(2) Paper is normally resold to other institutional
investors through or with the assistance of investment dealers who make a market
in Section 4(2) Paper, thus providing liquidity. For purposes of each Fund's 10%
limitation on purchases of illiquid instruments described below, Section 4(2)
Paper will not be considered illiquid if Fleet has determined, in accordance
with guidelines approved by the Board of Trustees, that an adequate trading
market exists for such securities. Each Fund except the U.S. Treasury Fund and
Rhode Island Municipal Bond Fund 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
Prospectus 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 these 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.
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If a variable or floating rate instrument is not rated, Fleet or
Oechsle must determine that such instrument is comparable to rated instruments
eligible for purchase by the Funds and will consider the earning power, cash
flows and other liquidity ratios of the issuers and guarantors of such
instruments and will continuously monitor their financial status in order to
meet payment on demand. In determining average weighted portfolio maturity of
each of these Funds, a variable or floating rate instrument issued or guaranteed
by the U.S. Government or an agency or instrumentality thereof will be deemed to
have a maturity equal to the period remaining until the obligation's next
interest rate adjustment. 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 Money
Market, U.S. Treasury and Tax-Exempt Funds may have maturities of more than 397
days, provided the Funds are entitled to payment of principal upon not more than
30 days' notice or at specified intervals not exceeding one year (upon not more
than 30 days' notice).
MUNICIPAL SECURITIES
Municipal Securities acquired by the Tax-Exempt, Short-Term Bond,
Intermediate Government Income, High Quality Bond and Rhode Island 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,
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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
Prospectus 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 security at the time of each interest rate adjustment or at
other fixed intervals. The Tax-Exempt Fund treats variable rate demand notes as
maturing on the later of the date of the next interest rate adjustment or the
date on which the Fund may next tender the security for repurchase. Variable
interest rates generally reduce changes in the market value of Municipal
Securities from their original purchase prices. Accordingly, as interest rates
decrease or increase, the potential for capital appreciation or depreciation is
less for variable rate Municipal Securities than for fixed income obligations.
The terms of these variable rate demand instruments require payment of principal
and accrued interest from the issuer of the Municipal Securities, the issuer of
the participation interest or a guarantor of either issuer.
Municipal Securities purchased by these Funds in some cases may be
insured as to the timely payment of principal and interest. There is no
guarantee, however, that the insurer will meet its obligations in the event of a
default in payment by the issuer. In other cases, Municipal Securities may be
backed by letters of credit or guarantees issued by domestic or foreign banks or
other financial institutions which are not subject to federal deposit insurance.
Adverse developments affecting the banking industry generally or a particular
bank or financial institution that has provided its credit or guarantee with
respect to a Municipal Security held by a Fund, including a change in the credit
quality of any such bank or financial institution, could result in a loss to the
Fund and adversely affect the value of its shares. As described above letters of
credit and guarantees issued by foreign banks and financial institutions involve
certain risks in addition to those of similar instruments issued by domestic
banks and financial institutions.
The payment of principal and interest on most Municipal Securities
purchased by the Funds will depend upon the ability of the issuers to meet their
obligations. Each state, the District of Columbia, each of their political
subdivisions, agencies, instrumentalities and authorities and each multistate
agency of which a state is a member is a separate "issuer" as that term is used
in this Statement of Additional Information and the Prospectus. The
non-governmental user of facilities financed by private activity bonds is also
considered to be an
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"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. 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 Prospectus.
From time to time, proposals have been introduced before Congress for
the purpose of restricting or eliminating the federal income tax exemption for
interest on Municipal Securities. For example, under the Tax Reform Act of 1986,
interest on certain private activity bonds must be included in an investor's
federal alternative minimum taxable income, and corporate investors must include
all tax-exempt interest in their federal alternative minimum taxable income.
Galaxy cannot, of course, predict what legislation may be proposed in the future
regarding the income tax status of interest on Municipal Securities, or which
proposals, if any, might be enacted. Such proposals, while pending or if
enacted, might materially and adversely affect the availability of Municipal
Securities for investment by the Tax-Exempt and Rhode Island 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 Tax-Exempt and Rhode Island Municipal Bond Funds will invest
primarily in Municipal Securities, each of the Short-Term Bond, Intermediate
Government Income and High Quality Bond Funds will invest in Municipal
Securities when such investments are deemed appropriate by Fleet in light of the
Funds' investment objectives. As a result of the favorable tax treatment
afforded such obligations under the Internal Revenue Code of 1986, as amended,
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.
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STAND-BY COMMITMENTS
The Tax-Exempt, Short-Term Bond, Intermediate Government Income, High
Quality Bond and Rhode Island 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 Tax-Exempt, Short-Term Bond, Intermediate Government Income, High
Quality Bond and Rhode Island Municipal Bond Funds may invest in "private
activity bonds," the interest on which, although exempt from regular federal
income tax, may constitute an item of tax preference for purposes of the federal
alternative minimum tax. Investments in such securities, however, will not be
treated as investments in Municipal Securities for purposes of the 80%
requirement mentioned above with respect to the Tax-Exempt and Rhode Island
Municipal Bond Funds and, under normal conditions, will not exceed 20% of each
such Fund's total assets when added together with any taxable investments held
by the Fund.
Private activity bonds are or have been issued to obtain funds to
provide, among other things, privately operated housing facilities, pollution
control facilities, convention or trade show
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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.
TENDER OPTION BONDS
The Tax-Exempt Fund may purchase tender option bonds and similar
securities. A tender option bond generally has a long maturity and bears
interest at a fixed rate substantially higher than prevailing short-term
tax-exempt rates, and is coupled with an agreement by a third party, such as a
bank, broker-dealer or other financial institution, pursuant to which such
institution grants the security holders the option, usually upon not more than
seven days notice or at periodic intervals, to tender their securities to the
institution and receive the face value of the securities. In providing the
option, the financial institution receives a fee that reduces the fixed rate of
the underlying bond and results in a Fund effectively receiving a demand
obligation that bears interest at the prevailing short-term tax-exempt rate.
Fleet will monitor, on an ongoing basis, the creditworthiness of the issuer of
the tender option bond, the financial institution providing the option, and any
custodian holding the underlying long-term bond. The bankruptcy, receivership or
default of any of the parties to a tender option bond will adversely affect the
quality and marketability of the security.
CUSTODIAL RECEIPTS AND CERTIFICATES OF PARTICIPATION
Securities acquired by the Rhode Island Municipal Bond Fund 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 Fund 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 the 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, the 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
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instruments, the Fund intends to exercise its right to demand payment as
needed to provide liquidity, to maintain or improve the quality of its
investment portfolio or upon a default (if permitted under the terms of the
instrument).
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
Each Fund, except the U.S. Treasury Fund, may purchase portfolio
securities subject to the seller's agreement to repurchase them at a mutually
specified date and price ("repurchase agreements"). Repurchase agreements will
be entered into only with financial institutions such as banks and
broker/dealers which are deemed to be creditworthy by Fleet and/or Oechsle. No
Fund will enter into repurchase agreements with Fleet or Oechsle or any of their
affiliates. Unless a repurchase agreement has a remaining maturity of seven days
or less or may be terminated on demand upon notice of seven days or less, the
repurchase agreement will be considered an illiquid security and will be subject
to each Fund's 10% limit (15% with respect to the Growth and Income Fund) 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 Tax-Exempt Fund and Rhode
Island Municipal Bond Fund in repurchase agreements will be, under normal market
conditions, subject to a 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, except the U.S. Treasury and Tax-Exempt Funds 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.
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SECURITIES LENDING
Each Fund, except the U.S. Treasury and Tax-Exempt Funds, may lend its
portfolio securities to financial institutions such as banks and broker/dealers
in accordance with the investment limitations described below. Such loans would
involve risks of delay in receiving additional collateral or in recovering the
securities loaned or even loss of rights in the collateral, should the borrower
of the securities fail financially. Any portfolio securities purchased with cash
collateral would also be subject to possible depreciation. A Fund that loans
portfolio securities would continue to accrue interest on the securities loaned
and would also earn income on the loans. Any cash collateral received by the
Funds would be invested in high quality, short-term "money market" instruments.
Loans will generally be short-term (except in the case of the Growth and Income
Fund which may loan its securities on a long-term or short-term basis or both),
will be made only to borrowers deemed by Fleet and/or Oechsle to be of good
standing and only when, in Fleet's and/or Oechsle's judgment, the income to be
earned from the loan justifies the attendant risks. The Funds currently intend
to limit the lending of their portfolio securities so that, at any given time,
securities loaned by a Fund represent not more than one-third of the value of
its total assets.
INVESTMENT COMPANY SECURITIES
With the exception of the Money Market and U.S. Treasury Funds, each
Fund may invest in securities issued by other investment companies which invest
in high quality, short-term debt securities and which determine their net asset
value per share based on the amortized cost or penny-rounding method, provided,
however, that the Tax-Exempt Fund may only invest in securities of other
investment companies which invest in high quality short-term Municipal
Securities and which determine their net asset value per share based on the
amortized cost or penny-rounding method. The International Equity Fund may also
purchase shares of investment companies investing primarily in foreign
securities, including so-called "country funds." Country funds have portfolios
consisting exclusively of securities of issuers located in one foreign country.
The Funds will invest in other investment companies primarily for the purpose of
investing their short-term cash which has not yet been invested in other
portfolio instruments. However, from time to time, on a temporary basis, the
Growth and Income Fund may invest exclusively in one other investment company
similar to the Fund.
Investments in other investment companies will cause a Fund (and,
indirectly, the Fund's shareholders) to bear proportionately the costs incurred
in connection with the investment companies' operations. Except as provided
above with respect to the Growth and Income Fund, 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
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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 or Oechsle.
REITs
The Asset Allocation, Growth and Income, Equity Growth and
International Equity Funds may invest up to 10% of their respective net assets
in real estate investment trusts ("REITs"). Equity REITs invest directly in real
property while mortgage REITs invest in mortgages on real property. REITs may be
subject to certain risks associated with the direct ownership of real estate,
including declines in the value of real estate, risks related to general and
local economic conditions, overbuilding and increased competition, increases in
property taxes and operating expenses, and variations in rental income.
Generally, increases in interest rates will decrease the value of high yielding
securities and increase the costs of obtaining financing, which could decrease
the value of a REIT's investments. In addition, equity REITs may be affected by
changes in the value of the underlying property owned by the REITs, while
mortgage REITs may be affected by the quality of credit extended. Equity and
mortgage REITs are dependent upon management skill, are not diversified and are
subject to the risks of financing projects. REITs are also subject to heavy cash
flow dependency, defaults by borrowers, self liquidation and the possibility of
failing to qualify for tax-free pass-through of income under the Internal
Revenue Code of 1986, as amended (the "Code"), and to maintain exemption from
the 1940 Act. REITs pay dividends to their shareholders based upon available
funds from operations. It is quite common for these dividends to exceed a REIT's
taxable earnings and profits resulting in the excess portion of such dividends
being designated as a return of capital. Each Fund intends to include the gross
dividends from any investments in REITs in its periodic distributions to its
shareholders and, accordingly, a portion of the Fund's distributions may also be
designated as a return of capital.
DERIVATIVE SECURITIES
Each Fund except the Money Market, U.S. Treasury and Tax-Exempt Funds
may from time to time, in accordance with their respective investment policies,
purchase certain "derivative" securities. Derivative securities are instruments
that derive their value from the performance of underlying assets, interest or
currency exchange rates, or indices, and include, but are not limited to,
municipal bond index and interest rate futures, put and call options, stock
index futures and options, indexed securities and swap agreements, foreign
currency exchange contracts and certain asset-backed and mortgage-backed
securities.
Derivative securities present, to varying degrees, market risk that the
performance of the underlying assets, interest or exchange rates or indices will
decline; credit risk that the dealer or other counterparty to the transaction
will fail to pay its obligations; volatility and leveraging risk that, if
interest or exchange rates change adversely, the value of the derivative
security will decline more than the assets, rates or indices on which it is
based; liquidity risk that a Fund will be unable to sell a derivative security
when it wants because of lack of market depth or market disruption; pricing risk
that the value of a derivative security will not correlate exactly to the
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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 and/or Oechsle will evaluate the risks presented by the
derivative securities purchased by the Funds, and will determine, in connection
with their day-to-day management of the Funds, how such securities will be used
in furtherance of the Funds' investment objectives. It is possible, however,
that Fleet's and/or Oechsle's evaluations will prove to be inaccurate or
incomplete and, even when accurate and complete, it is possible that the Funds
will, because of the risks discussed above, incur loss as a result of their
investments in derivative securities. Further discussion of particular types of
derivative securities follows.
PUT AND CALL OPTIONS -- ASSET ALLOCATION AND EQUITY GROWTH FUNDS. The
Asset Allocation and Equity Growth Funds may purchase put options and call
options on securities and securities indices. A put option gives the buyer the
right to sell, and the writer the obligation to buy, the underlying security at
the stated exercise price at any time prior to the expiration of the option. A
call option gives the buyer the right to buy the underlying security at the
stated exercise price at any time prior to the expiration of the option. Options
involving securities indices provide the holder with the right to make or
receive a cash settlement upon exercise of the option based on movements in the
relevant index. Such options must be listed on a national securities exchange
and issued by the Options Clearing Corporation. Such options may relate to
particular securities or to various stock indexes, except that a Fund may not
write covered call options on an index. A Fund may not purchase options unless
immediately after any such transaction the aggregate amount of premiums paid for
put or call options does not exceed 5% of its total assets. Purchasing options
is a specialized investment technique that may entail the risk of a complete
loss of the amounts paid as premiums to the writer of the option.
In order to close out put or call option positions, a Fund will be
required to enter into a "closing purchase transaction" -- the purchase of a put
or call option (depending upon the position being closed out) on the same
security with the same exercise price and expiration date as the option that it
previously wrote. When a portfolio security subject to a call option is sold, a
Fund will effect a closing purchase transaction to close out any existing call
option on that security. If a Fund is unable to effect a closing purchase
transaction, it will not be able to sell the underlying security until the
option expires or a Fund delivers the underlying security upon exercise.
In contrast to an option on a particular security, an option on an
index provides the holder with the right to make or receive a cash settlement
upon exercise of the option. The amount of this settlement will be equal to the
difference between the closing price of the index at the time of exercise and
the exercise price of the option expressed in dollars, times a specified
multiple.
When a Fund purchases a put or call option, the premium paid by it is
recorded as an asset of the Fund. The amount of this asset will be subsequently
marked-to-market to reflect the
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current value of the option purchased. The current value of the traded option
is the last sale price or, in the absence of a sale, the average of the
closing bid and asked prices. If an option purchased by a Fund expires
unexercised, the Fund realizes a loss equal to the premium paid. If a Fund
enters into a closing sale transaction on an option purchased by it, the Fund
will realize a gain if the premium received by the Fund on the closing
transaction is more than the premium paid to purchase the option, or a loss
if it is less.
There are several risks associated with transactions in options on
securities. For example, there are significant differences between the
securities and options markets which could result in an imperfect correlation
between the markets, causing a given transaction not to achieve its objectives.
In addition, a liquid secondary market for particular options, whether traded
over-the-counter or on a national securities exchange may be absent for reasons
which include the following: there may be insufficient trading interest in
certain options; restrictions may be imposed by an exchange on opening
transactions, closing transactions or both; trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options or underlying securities; unusual or unforeseen circumstances may
interrupt normal operations on an exchange; the facilities of an exchange or the
Options Clearing Corporation may not at all times be adequate to handle current
trading volume; or one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of options
(or a particular class or series of options), in which event the secondary
market on that exchange (or in that class or series of options) would cease to
exist, although outstanding options that had been issued by the Options Clearing
Corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms. A Fund will likely be unable to
control losses by closing its position where a liquid secondary market does not
exist. Moreover, regardless of how much the market price of the underlying
security increases or decreases, the option buyer's risk is limited to the
amount of the original investment for the purchase of the option. However,
options may be more volatile than their underlying securities, and therefore, on
a percentage basis, an investment in options may be subject to greater
fluctuation than an investment in the underlying securities.
A decision as to whether, when and how to use options involves the
exercise of skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or unexpected events.
COVERED CALL OPTIONS -- ASSET ALLOCATION, EQUITY GROWTH AND
INTERNATIONAL EQUITY FUNDS. To further increase return on their portfolio
securities, in accordance with their respective investment objectives and
policies, the Asset Allocation, Equity Growth and International Equity Funds may
engage in writing covered call options (options on securities owned by a Fund)
and may enter into closing purchase transactions with respect to such options.
Such options must be listed on a national securities exchange and issued by the
Options Clearing Corporation. The aggregate value of the securities subject to
options written by the Funds may not exceed 25% of the value of their respective
net assets. By writing a covered call option, a Fund forgoes the opportunity to
profit from an increase in the market price of the underlying security above the
exercise price, except insofar as the premium represents such a profit. A Fund
will not be able to sell the underlying security until the option expires or is
exercised or the Fund effects a closing
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purchase transaction by purchasing an option of the same series. Such
options will normally be written on underlying securities as to which Fleet
and/or Oechsle does not anticipate significant short-term capital
appreciation.
The Funds may write listed covered call options. A listed call option
gives the purchaser of the option the right to buy from a clearing corporation,
and obligates the writer to sell to the clearing corporation, the underlying
security at the stated exercise price at any time prior to the expiration of the
option, regardless of the market price of the security. The premium paid to the
writer is consideration for undertaking the obligations under the option
contract. If an option expires unexercised, the writer realizes a gain in the
amount of the premium. Such a gain may be offset by a decline in the market
price of the underlying security during the option period.
A Fund may terminate its obligation to sell prior to the expiration
date of the option by executing a closing purchase transaction, which is
effected by purchasing on an exchange an option of the same series (I.E., same
underlying security, exercise price and expiration date) as the option
previously written. Such a purchase does not result in the ownership of an
option. A closing purchase transaction will ordinarily be effected to realize a
profit on an outstanding call option, to prevent an underlying security from
being called, to permit the sale of the underlying security or to permit the
writing of a new call option containing different terms on such underlying
security. The cost of such a liquidating purchase plus transaction costs may be
greater than the premium received upon the original option, in which event the
writer will have incurred a loss in the transaction. An option position may be
closed out only on an exchange that provides a secondary market for an option of
the same series. There is no assurance that a liquid secondary market on an
exchange will exist for any particular option. A covered option writer, unable
to effect a closing purchase transaction, will not be able to sell the
underlying security until the option expires or the underlying security is
delivered upon exercise. The writer in such circumstances will be subject to the
risk of market decline of the underlying security during such period. A Fund
will write an option on a particular security only if Fleet and/or Oechsle
believes that a liquid secondary market will exist on an exchange for options of
the same series, which will permit the Fund to make a closing purchase
transaction in order to close out its position.
When a Fund writes an option, an amount equal to the net premium (the
premium less the commission) received by the Fund is included as a deferred
credit in the liability section of the Fund's statement of assets and
liabilities. The amount of the deferred credit will be subsequently
marked-to-market to reflect the current value of the option written. The current
value of the traded option is the last sale price or, in the absence of a sale
price, the average of the closing bid and asked prices. If an option expires on
the stipulated expiration date or if a Fund enters into a closing purchase
transaction, it will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the net premium received when the option is sold), and the
deferred credit related to such option will be eliminated. If an option is
exercised, the Fund may deliver the underlying security from its portfolio and
purchase the underlying security in the open market. In either event, the
proceeds of the sale will be increased by the net premium originally received,
and the Fund will realize a gain or loss. Premiums from expired call options
written by a Fund and net gains from closing purchase transactions are treated
as short-term capital gains for
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federal income tax purposes, and losses on closing purchase transactions are
treated as short-term capital losses.
OPTIONS ON FOREIGN STOCK INDEXES -- INTERNATIONAL EQUITY FUND. The
International Equity Fund may, for the purpose of hedging its portfolio, subject
to applicable securities regulations purchase and write put and call options on
foreign stock indexes listed on foreign and domestic stock exchanges. A stock
index fluctuates with changes in the market values of the stocks included in the
index. Examples of foreign stock indexes are the Canadian Market Portfolio Index
(Montreal Stock Exchange), The Financial Times -- Stock Exchange 100 (London
Stock Exchange) and the Toronto Stock Exchange Composite 300 (Toronto Stock
Exchange).
Options on stock indexes are generally similar to options on stock
except that the delivery requirements are different. Instead of giving the right
to take or make delivery of stock at a specified price, an option on a stock
index gives the holder the right to receive a cash "exercise settlement amount"
equal to (a) the amount, if any, by which the fixed exercise price of the option
exceeds (in the case of a put) or is less than (in the case of a call) the
closing value of the underlying index on the date of exercise, multiplied by (b)
a fixed "index multiplier." Receipt of this cash amount will depend upon the
closing level of the stock index upon which the option is based being greater
than, in the case of a call, or less than, in the case of a put, the exercise
price of the option. The writer of the option is obligated, in return for the
premium received, to make delivery of this amount. The writer may offset its
position in stock index options prior to expiration by entering into a closing
transaction on an exchange or the option may expire unexercised.
The effectiveness of purchasing or writing stock index options as a
hedging technique will depend upon the extent to which price movements in the
portion of the securities portfolio of the International Equity Fund correlate
with price movements of the stock index selected. Because the value of an index
option depends upon movements in the level of the index rather than the price of
a particular stock, whether the Fund realizes a gain or loss from the purchase
or writing of options on an index is dependent upon movements in the level of
stock prices in the stock market generally or, in the case of certain indexes,
in an industry or market segment, rather than movements in the price of a
particular stock. Accordingly, successful use by the Fund of options on stock
indexes will be subject to Fleet's and/or Oechsle's ability to predict correctly
movements in the direction of the stock market generally or of a particular
industry. This requires different skills and techniques than predicting changes
in the price of individual stocks. There can be no assurance that such judgment
will be accurate or that the use of these portfolio strategies will be
successful. The Fund will engage in stock index options transactions that are
determined to be consistent with its efforts to control risk.
When the Fund writes an option on a stock index, the Fund will
establish a segregated account with its custodian or with a foreign
sub-custodian in which the Fund will deposit cash or other liquid assets in an
amount equal to the market value of the option, and will maintain the account
while the option is open.
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OPTIONS AND FUTURES CONTRACTS - GROWTH AND INCOME FUND. The Growth and
Income Fund may buy and sell options and futures contracts to manage its
exposure to changing interest rates, security prices and currency exchange
rates. The Fund may invest in options and futures based on any type of security,
index, or currency, including options and futures based on foreign exchanges
(see "Options on Foreign Stock Indexes -- International Equity Fund" above) and
options not traded on exchanges. Some options and futures strategies, including
selling futures, buying puts, and writing calls, tend to hedge the Fund's
investments against price fluctuations. Other strategies, including buying
futures, writing puts, and buying calls, tend to increase market exposure.
Options and futures may be combined with each other or with forward contracts in
order to adjust the risk and return characteristics of the overall strategy.
Options and futures can be volatile investments, and involve certain
risks. If Fleet applies a hedge at an inappropriate time or judges market
conditions incorrectly, options and futures may lower the Fund's individual
return. The Fund could also experience losses if the prices of its options and
futures positions were poorly correlated with its other investments, or if it
could not close out its positions because of an illiquid secondary market.
The Fund will not hedge more than 20% of its total assets by selling
futures, buying puts, and writing calls under normal conditions. The Fund will
not buy futures or write puts whose underlying value exceeds 20% of its total
assets, and will not buy calls with a value exceeding 5% of its total assets.
FUTURES CONTRACTS - SHORT-TERM BOND, INTERMEDIATE GOVERNMENT INCOME,
HIGH QUALITY BOND AND RHODE ISLAND MUNICIPAL BOND FUNDS. The Rhode Island
Municipal Bond Fund may purchase and sell municipal bond index futures contracts
as a hedge against changes in market conditions. A municipal bond index assigns
values daily to the municipal bonds included in the index based on the
independent assessment of dealer-to-dealer municipal bond brokers. A municipal
bond index futures contract represents a firm commitment by which two parties
agree to take or make delivery of an amount equal to a specified dollar amount
multiplied by the difference between the municipal bond index value on the last
trading date of the contract and the price at which the futures contract is
originally struck. No physical delivery of the underlying securities in the
index is made.
The Short-Term Bond, Intermediate Government Income, High Quality Bond
and Rhode Island Municipal Bond Funds may enter into contracts (both purchase
and sale) for the future delivery of fixed income securities commonly known as
interest rate futures contracts. Interest rate futures contracts are similar to
municipal bond index futures contracts except that, instead of a municipal bond
index, the "underlying commodity" is represented by various types of
fixed-income securities.
The Funds will not engage in futures transactions for speculation, but
only to hedge against changes in the market values of securities which a Fund
holds or intends to purchase. The Funds will engage in futures transactions only
to the extent permitted by the Commodity Futures Trading Commission ("CFTC") and
the Securities and Exchange Commission ("SEC"). The purchase of futures
instruments in connection with securities which the Funds intend to
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purchase will require an amount of cash or other liquid assets, equal to the
market value of the outstanding futures contracts, to be deposited in a
segregated account to collateralize the position and thereby insure that the
use of such futures is unleveraged. The Funds will limit their hedging
transactions in futures contracts so that, immediately after any such
transaction, the aggregate initial margin that is required to be posted by a
Fund under the rules of the exchange on which the futures contract is traded
does not exceed 5% of the Fund's total assets after taking into account any
unrealized profits and unrealized losses on the Fund's open contracts. In
addition, no more than one-third of a Fund's total assets may be covered by
such contracts.
Transactions in futures as a hedging device may subject the Funds to a
number of risks. Successful use of futures by the Funds are subject to the
ability of Fleet to predict correctly movements in the direction of the market.
In addition, there may be an imperfect correlation, or no correlation at all,
between movements in the price of futures contracts and movements in the price
of the instruments being hedged. There is no assurance that a liquid market will
exist for any particular futures contract at any particular time. Consequently,
the Funds may realize a loss on a futures transaction that is not offset by a
favorable movement in the price of securities which it holds or intends to
purchase or may be unable to close a futures position in the event of adverse
price movements. Any income from investments in futures contracts will be
taxable. Additional information concerning futures transactions, including
special rules regarding the taxation of such transactions, is contained in
Appendix B.
STOCK INDEX FUTURES, SWAP AGREEMENTS, INDEXED SECURITIES AND OPTIONS -
GROWTH AND INCOME FUND. The Growth and Income Fund may utilize stock index
futures contracts, options, swap agreements, indexed securities, and options on
futures contracts for the purposes of managing cash flows into and out of its
portfolio and potentially reducing transaction costs, subject to the limitation
that the value of these futures contracts, swap agreements, indexed securities,
and options will not exceed 20% of the Fund's total assets. The Fund will not
purchase options to the extent that more than 5% of the value of its total
assets would be invested in premiums on open put option positions. In addition,
the Fund does not intend to invest more than 5% of the market value of its total
assets in each of the following: futures contracts, swap agreements, and indexed
securities. When the Fund enters into a swap agreement, liquid assets of the
Fund equal to the value of the swap agreement will be segregated by the Fund.
The Fund may not use stock index futures contracts and options for speculative
purposes.
There are several risks accompanying the utilization of futures
contracts. Positions in futures contracts may be closed only on an exchange or
board of trade that furnishes a secondary market for such contracts. While the
Fund plans to utilize futures contracts only if there exists an active market
for such contracts, there is no guarantee that a liquid market will exist for
the contracts at a specified time. Furthermore, because by definition, futures
contracts look to projected price levels in the future and not to current levels
of valuation, market circumstances may result in there being a discrepancy
between the price of the stock index future and the movement in the
corresponding stock index. The absence of a perfect price correlation between
the futures contract and its underlying stock index could stem from investors
choosing to close futures contracts by offsetting transactions, rather than
satisfying additional margin requirements. This could result in a distortion of
the relationship between the index and the futures market. In
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addition, because the futures market imposes less burdensome margin
requirements than the securities market, an increased amount of participation
by speculators in the futures market could result in price fluctuations.
As a means of reducing fluctuations in the net asset value of shares of
the Fund, the Fund may attempt to hedge all or a portion of its portfolio
through the purchase of listed put options on stocks, stock indices and stock
index futures contracts. These options will be used as a form of forward pricing
to protect portfolio securities against decreases in value resulting from market
factors, such as an anticipated increase in interest rates. A purchased put
option gives the Fund, in return for a premium, the right to sell the underlying
security to the writer (seller) at a specified price during the term of the
option. Put options on stock indices are similar to put options on stocks except
for the delivery requirements. Instead of giving the Fund the right to make
delivery of stock at a specified price, a put option on a stock index gives the
Fund, as holder, the right to receive an amount of cash upon exercise of the
option.
The Fund may also write covered call options. As the writer of a call
option, the Fund has the obligation upon exercise of the option during the
option period to deliver the underlying security upon payment of the exercise
price.
The Fund may only: (1) buy listed put options on stock indices and
stock index futures contracts; (2) buy listed put options on securities held in
its portfolio; and (3) sell listed call options either on securities held in its
portfolio or on securities which it has the right to obtain without payment of
further consideration (or have segregated cash in the amount of any such
additional consideration). The Fund will maintain its positions in securities,
option rights, and segregated cash subject to puts and calls until the options
are exercised, closed or expired. The Fund may also enter into stock index
futures contracts. A stock index futures contract is a bilateral agreement which
obligates the seller to deliver (and the purchaser to take delivery of) an
amount of cash equal to a specific dollar amount times the difference between
the value of a specific stock index at the close of trading of the contract and
the price at which the agreement is originally made. There is no physical
delivery of the stocks constituting the index, and no price is paid upon
entering into a futures contract.
In general, option contracts are closed out prior to their expiration.
The Fund, when purchasing or selling a futures contract, will initially be
required to deposit in a segregated account in the broker's name with the Fund's
custodian an amount of cash or liquid portfolio securities approximately equal
to 5% - 10% of the contract value. This amount is known as "initial margin," and
it is subject to change by the exchange or board of trade on which the contract
is traded. Subsequent payments to and from the broker are made on a daily basis
as the price of the index or the securities underlying the futures contract
fluctuates. These payments are known as "variation margins," and the fluctuation
in value of the long and short positions in the futures contract is a process
referred to as "marking to market." The Fund may decide to close its position on
a contract at any time prior to the contract's expiration. This is accomplished
by the Fund taking an opposite position at the then prevailing price, thereby
terminating its existing position in the contract. Because the initial margin
resembles a performance bond or good-faith deposit on the contract, it is
returned to the Fund upon the termination of the contract, assuming
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that all contractual obligations have been satisfied. Therefore, the margin
utilized in futures contracts is readily distinguishable from the margin
employed in security transactions, since the margin employed in futures
contracts does not involve the borrowing of funds to finance the transaction.
The Fund will not enter into futures contracts if, immediately
thereafter, the sum of its initial margin deposits on open contracts exceed 5%
of the market value of its total assets. Further, the Fund will enter into stock
index futures contracts only for bona fide hedging purposes or such other
purposes permitted under Part 4 of the regulations promulgated by the Commodity
Futures Trading Commission. Also, the Fund may not enter into stock index
futures contracts and options to the extent that the value of such contracts
would exceed 20% of the Fund's total net assets and may not purchase put options
to the extent that more than 5% of the value of the Fund's total assets would be
invested in premiums on open put option positions.
The Fund may invest in indexed securities whose value is linked to
foreign currencies, interest rates, commodities, indices or other financial
indicators. Most indexed securities are short- to intermediate-term fixed income
securities whose values at maturity or interest rates rise or fall according to
the change in one or more specified underlying instruments. Indexed securities
may be positively or negatively indexed (i.e., their value may increase or
decrease if the underlying instrument appreciates), and may have return
characteristics similar to direct investments in the underlying instrument or to
one or more options on the underlying instrument. Indexed securities may be more
volatile than the underlying instrument itself.
As one way of managing its exposure to different types of investments,
the Growth and Income Fund may enter into interest rate swaps, currency swaps,
and other types of swap agreements such as caps, collars, and floors. In a
typical interest rate swap, one party agrees to make regular payments equal to a
floating interest rate times a "notional principal amount," in return for
payments equal to a fixed rate times the same amount, for a specified period of
time. If a swap agreement provides for payments in different currencies, the
parties might agree to exchange notional principal amount as well. Swaps may
also depend on other prices or rates, such as the value of an index or mortgage
prepayment rates.
In a typical cap or floor agreement, one party agrees to make payments
only under specified circumstances, usually in return for payment of a fee by
the other party. For example, the buyer of an interest rate cap obtains the
right to receive payments to the extent that a specified interest rate exceeds
an agreed upon level, while the seller of an interest rate floor is obligated to
make payments to the extent that a specified interest rate falls below an agreed
upon level. An interest rate collar combines elements of buying a cap and
selling a floor.
Swap agreements will tend to shift the Fund's investment exposure from
one type of investment to another. For example, if the Fund agreed to exchange
payments in dollars for payments in foreign currency, the swap agreement would
tend to decrease the Fund's exposure to U.S. interest rates and increase its
exposure to foreign currency and interest rates. Caps and floors have an effect
similar to buying or writing options. Depending on how they are used,
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swap agreements may increase or decrease the overall volatility of the
Fund's investments and its share price and yield.
Swap agreements are sophisticated hedging instruments that typically
involve a small investment of cash relative to the magnitude of risks assumed.
As a result, swaps can be highly volatile and may have a considerable impact on
the Fund's performance. Swap agreements are subject to risks related to the
counterparty's ability to perform, and may decline in value if the
counterparty's creditworthiness deteriorates. The Fund may also suffer losses if
it is unable to terminate outstanding swap agreements or reduce their exposure
through offsetting transactions.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Because the Short-Term Bond,
Asset Allocation, Growth and Income, Equity Growth and International Equity
Funds may buy and sell securities denominated in currencies other than the U.S.
dollar, and may receive interest, dividends and sale proceeds in currencies
other than the U.S. dollar, the Funds from time to time may enter into foreign
currency exchange transactions to convert the U.S. dollar to foreign currencies,
to convert foreign currencies to the U.S. dollar and to convert foreign
currencies to other foreign currencies. A Fund either enters into these
transactions on a spot (I.E., cash) basis at the spot rate prevailing in the
foreign currency exchange market, or uses forward contracts to purchase or sell
foreign currencies. Forward foreign currency exchange contracts are agreements
to exchange one currency for another -- for example, to exchange a certain
amount of U.S. dollars for a certain amount of Japanese yen -- at a future date,
which may be any fixed number of days from the date of the contract, and at a
specified price. Typically, the other party to a currency exchange contract will
be a commercial bank or other financial institution. 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 the Funds to
hedge the currency risk of portfolio securities denominated in a foreign
currency. This technique permits the assessment of the merits of a security to
be considered separately from the currency risk. By separating the asset and the
currency decision, it is possible to focus on the opportunities presented by the
security apart from the currency risk. Although forward foreign currency
exchange contracts are of short duration, generally between one and twelve
months, such contracts are rolled over in a manner consistent with a more
long-term currency decision. Because there is a risk of loss to a Fund if the
other party does not complete the transaction, forward foreign currency exchange
contracts will be entered into only with parties approved by Galaxy's Board of
Trustees.
A Fund may maintain "short" positions in forward foreign currency
exchange transactions, which would involve the Fund's agreeing to exchange
currency that it currently does not own for another currency -- for example, to
exchange an amount of Japanese yen that it does not own for a certain amount of
U.S. dollars -- at a future date and at a specified price in anticipation of a
decline in the value of the currency sold short relative to the currency that
the Fund has contracted to receive in the exchange. In order to ensure that the
short position is not
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used to achieve leverage with respect to the 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 Funds will not routinely enter into foreign currency hedging
transactions with respect to portfolio security transactions; however, it is
important to have the flexibility to enter into foreign currency hedging
transactions when it is determined that the transactions would be in the Fund's
best interest. Although these transactions tend to minimize the risk of loss due
to a decline in the value of the hedged currency, at the same time they tend to
limit any potential gain that might be realized should the value of the hedged
currency increase. The precise matching of the forward contract amounts and the
value of the securities involved will not generally be possible because the
future value of these securities in foreign currencies will change as a
consequence of market movements in the value of those securities between the
date the forward contract is entered into and the date it matures. The
projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain.
AMERICAN, EUROPEAN AND GLOBAL DEPOSITORY RECEIPTS
The Short-Term Bond, Asset Allocation, Growth and Income, Equity Growth
and International Equity Funds may invest in ADRs and EDRs. The Growth and
Income and International Equity Funds may also invest in GDRs. ADRs are receipts
issued in registered form by a U.S. bank or trust company evidencing ownership
of underlying securities issued by a foreign issuer. EDRs are receipts issued in
Europe typically by non-U.S. banks or trust companies and foreign branches of
U.S. banks that evidence ownership of foreign or U.S. securities. GDRs are
receipts structured similarly to EDRs and are marketed globally. ADRs may be
listed on a national securities exchange or may be traded in the
over-the-counter market. EDRs are designed for use in European exchange and
over-the-counter markets. GDRs are designed for trading in non-U.S. securities
markets. ADRs, EDRs and GDRs traded in the over-the-counter market which do not
have an active or substantial secondary market will be considered illiquid and
therefore will be subject to the Funds' respective limitations with respect
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to such securities. If a Fund invests in an unsponsored ADR, EDR or GDR,
there may be less information available to the Fund concerning the issuer of
the securities underlying the unsponsored ADR, EDR or GDR than is available
for an issuer of securities underlying a sponsored ADR, EDR or GDR. ADR
prices are denominated in U.S. dollars although the underlying securities are
denominated in a foreign currency. Investments in ADRs, EDRs and GDRs 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
The Money Market, Short-Term Bond, Intermediate Government Income, High
Quality Bond, Rhode Island Municipal Bond and Asset Allocation Funds may
purchase asset-backed securities, which represent a participation in, or are
secured by and payable from, a stream of payments generated by particular
assets, most often a pool of assets similar to one another. Assets generating
such payments will consist of such instruments as motor vehicle installment
purchase obligations, credit card receivables and home equity loans. Payment of
principal and interest may be guaranteed up to certain amounts and for a certain
time period by a letter of credit issued by a financial institution unaffiliated
with entities issuing the securities. The estimated life of an asset-backed
security varies with the prepayment experience with respect to the underlying
debt instruments. The rate of such prepayments, and hence the life of the
asset-backed security, will be primarily a function of current market rates,
although other economic and demographic factors will be involved.
Asset-backed securities are generally issued as pass-through
certificates, which represent undivided fractional ownership interests in an
underlying pool of assets, or as debt instruments, which are also known as
collateralized obligations, and are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt. Asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties.
The yield characteristics of asset-backed securities differ from
traditional debt securities. A major difference is that the principal amount of
the obligations may be prepaid at any time because the underlying assets (i.e.,
loans) generally may be prepaid at any time. As a result, if an asset-backed
security is purchased at a premium, a prepayment rate that is faster than
expected will reduce yield to maturity, while a prepayment rate that is slower
than expected will have the opposite effect of increasing yield to maturity.
Conversely, if an asset-backed security is purchased at a discount, faster than
expected prepayments will increase, while slower than expected prepayments, will
decrease, yield to maturity.
Prepayments on asset-backed securities generally increase with falling
interest rates and decrease with rising interest rates; furthermore prepayment
rates are influenced by a variety of economic and social factors. In general,
the collateral supporting non-mortgage asset-backed securities is of shorter
maturity than mortgage loans and is less likely to experience substantial
prepayments. Like other fixed income securities, when interest rates rise, the
value of an asset-
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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
The Short-Term Bond, Intermediate Government Income, High Quality Bond,
Rhode Island Municipal Bond and Asset Allocation Funds may invest in
mortgage-backed securities (including collateralized mortgage obligations) that
represent pools of mortgage loans assembled for sale to investors by various
governmental agencies and government-related organizations, such as the
Government National Mortgage Association, the Federal National Mortgage
Association, and the Federal Home Loan Mortgage Corporation. Mortgage-backed
securities provide a monthly payment consisting of interest and principal
payments. Additional payment may be made out of unscheduled repayments of
principal resulting from the sale of the underlying residential property,
refinancing or foreclosure, net of fees or costs that may be incurred.
Prepayments of principal on mortgage-backed securities may tend to increase due
to refinancing of mortgages as interest rates decline. To the extent that 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.
Other mortgage-backed securities are issued by private issuers,
generally originators of and investors in mortgage loans, including savings
associations, mortgage bankers, commercial banks, investment bankers, and
special purpose entities. These private mortgage-backed securities may be
supported by U.S. Government mortgage-backed securities or some form of
non-government credit enhancement. Mortgage-backed securities have either fixed
or adjustable interest rates. The rate of return on mortgage-backed securities
may be affected by prepayments of principal on the underlying loans, which
generally increase as interest rates decline; as a result, when interest rates
decline, holders of these securities normally do not benefit from appreciation
in market value to the same extent as holders of other non-callable debt
securities. In addition, like other debt securities, the value of
mortgage-related securities, including government and government-related
mortgage pools, generally will fluctuate in response to market interest rates.
MORTGAGE DOLLAR ROLLS
The Short-Term Bond, Intermediate Government Income, High Quality Bond
and Asset Allocation Funds may enter into mortgage "dollar rolls" in which a
Fund sells securities for
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delivery in the current month and simultaneously contracts with the same
counterparty to repurchase similar (same type, coupon and maturity) but not
identical securities on a specified future date not exceeding 120 days.
During the roll period, a Fund loses the right to receive principal and
interest paid on the securities sold. However, a Fund would benefit to the
extent of any difference between the price received for the securities sold
and the lower forward price for the future purchase (often referred to as the
"drop") or fee income plus the interest earned on the cash proceeds of the
securities sold until the settlement date of the forward purchase. Unless
such benefits exceed the income, capital appreciation and gain or loss due to
mortgage prepayments that would have been realized on the securities sold as
part of the mortgage dollar roll, the use of this technique will diminish the
investment performance of a Fund compared with what such performance would
have been without the use of mortgage dollar rolls. All cash proceeds will be
invested in instruments that are permissible investments for the Funds. The
Funds will hold and maintain in a segregated account until the settlement
date cash or other liquid assets in an amount equal to the forward purchase
price.
For financial reporting and tax purposes, the Funds propose to treat
mortgage dollar rolls as two separate transactions; one involving the purchase
of a security and a separate transaction involving a sale. The Funds do not
currently intend to enter into mortgage dollar rolls that are accounted for as a
financing.
Mortgage dollar rolls involve certain risks. If the broker-dealer to
whom a Fund sells the security becomes insolvent, the Fund's right to purchase
or repurchase the mortgage-related securities may be restricted and the
instrument which the Fund is required to repurchase may be worth less than the
instrument which the Fund originally held. Successful use of mortgage dollar
rolls may depend upon Fleet's ability to predict correctly interest rates and
mortgage prepayments. For these reasons, there is no assurance that mortgage
dollar rolls can be successfully employed.
CONVERTIBLE SECURITIES
The Asset Allocation, Growth and Income, Equity Growth and
International Equity Funds may from time to time, in accordance with their
respective investment policies, invest in convertible securities. Convertible
securities are fixed income securities which may be exchanged or converted into
a predetermined number of shares of the issuer's underlying common stock at the
option of the holder during a specified time period. Convertible securities may
take the form of convertible preferred stock, convertible bonds or debentures,
units consisting of "usable" bonds and warrants or a combination of the features
of several of these securities.
Convertible bonds and convertible preferred stocks generally retain the
investment characteristics of fixed income securities until they have been
converted but also react to movements in the underlying equity securities. The
holder is entitled to receive the fixed income of a bond or the dividend
preference of a preferred stock until the holder elects to exercise the
conversion privilege. Usable bonds are corporate bonds that can be used in whole
or in part, customarily at full face value, in lieu of cash to purchase the
issuer's common stock. When
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owned as part of a unit along with warrants, which are options to buy the
common stock, they function as convertible bonds, except that the warrants
generally will expire before the bond's maturity. Convertible securities are
senior to equity securities and therefore have a claim to the assets of the
issuer prior to the holders of common stock in the case of liquidation.
However, convertible securities are generally subordinated to similar
non-convertible securities of the same issuer. The interest income and
dividends from convertible bonds and preferred stocks provide a stable stream
of income with generally higher yields than common stocks, but lower than
non-convertible securities of similar quality. A Fund will exchange or
convert the convertible securities held in its portfolio into shares of the
underlying common stock in instances in which, in Fleet's and/or Oechsle's
opinion, the investment characteristics of the underlying common shares will
assist the Fund in achieving its investment objective. Otherwise, a Fund will
hold or trade the convertible securities. In selecting convertible securities
for a Fund, Fleet evaluates the investment characteristics of the convertible
security as a fixed income instrument, and the investment potential of the
underlying equity security for capital appreciation. In evaluating these
matters with respect to a particular convertible security, Fleet considers
numerous factors, including the economic and political outlook, the value of
the security relative to other investment alternatives, trends in the
determinants of the issuer's profits, and the issuer's management capability
and practices.
The Growth and Income Fund may invest in convertible bonds rated "BB"
or higher by S&P or Fitch IBCA, or "Ba" or higher by Moody's at the time of
investment. Securities rated "BB" by S&P or Fitch IBCA or "Ba" by Moody's
provide questionable protection of principal and interest in that such
securities either have speculative characteristics or are predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. Debt obligations that are not
rated, or not determined to be, investment grade are high-yield, high-risk
bonds, typically subject to greater market fluctuations, and securities in the
lowest rating category may be in danger of loss of income and principal due to
an issuer's default. To a greater extent than investment grade bonds, the value
of lower-rated bonds tends to reflect short-term corporate, economic, and market
developments, as well as investor perceptions of the issuer's credit quality. In
addition, lower-rated bonds may be more difficult to dispose of or to value than
higher-rated, lower-yielding bonds. Fleet will attempt to reduce the risks
described above through diversification of the Fund's portfolio and by credit
analysis of each issuer, as well as by monitoring broad economic trends and
corporate and legislative developments. If a convertible bond is rated below
"BB" or "Ba" after the Fund has purchased it, the Fund is not required to
eliminate the convertible bond from its portfolio, but will consider appropriate
action. The investment characteristics of each convertible security vary widely,
which allows convertible securities to be employed for different investment
objectives. The Fund does not intend to invest in such lower-rated bonds during
the current fiscal year. A description of the rating categories of S&P, Moody's
and Fitch IBCA is contained in Appendix A to this Statement of Additional
Information.
WHEN-ISSUED, FORWARD COMMITMENT AND DELAYED SETTLEMENT TRANSACTIONS
Each Fund except the Asset Allocation and Equity Growth Funds may
purchase eligible securities on a "when-issued" basis. The Short-Term Bond,
Intermediate Government Income,
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High Quality Bond and Rhode Island Municipal Bond Funds may purchase or sell
securities on a "forward commitment" basis. Each Fund except the Asset
Allocation, Equity Growth and International Equity Funds may also purchase
eligible securities on a "delayed settlement" basis. When-issued and forward
commitment transactions, which involve a commitment by a Fund to purchase or
sell particular securities with payment and delivery taking place at a future
date (perhaps one or two months later), permit the Fund to lock in a price or
yield on a security it owns or intends to purchase, regardless of future
changes in interest rates. Delayed settlement describes settlement of a
securities transaction in the secondary market which will occur sometime in
the future. When-issued, forward commitment and delayed settlement
transactions involve the risk, however, that the yield or price obtained in a
transaction may be less favorable than the yield or price available in the
market when the securities delivery takes place. It is expected that forward
commitments, when-issued purchases and delayed settlements will not exceed
25% of the value of a Fund's total assets absent unusual market conditions.
In the event a Fund's forward commitments, when-issued purchases and delayed
settlements ever exceeded 25% of the value of its total assets, the Fund's
liquidity and the ability of Fleet to manage the Fund might be adversely
affected. The Funds do not intend to engage in when-issued purchases, forward
commitments and delayed settlements for speculative purposes, but only in
furtherance of their investment objectives.
A Fund may dispose of a commitment prior to settlement if Fleet or
Oechsle, as the case may be, deems it appropriate to do so. In addition, a Fund
may enter into transactions to sell its purchase commitments to third parties at
current market values and simultaneously acquire other commitments to purchase
similar securities at later dates. The Funds may realize short-term profits or
losses upon the sale of such commitments.
When a Fund agrees to purchase securities on a "when-issued," "forward
commitment" or "delayed settlement" basis, the Fund's custodian will set aside
cash or liquid portfolio securities equal to the amount of the commitment in a
separate account. In the event of a decline in the value of the securities that
the custodian has set aside, the Fund may be required to place additional assets
in the separate account in order to ensure that the value of the account remains
equal to the amount of the Fund's commitment. A Fund's net assets may fluctuate
to a greater degree if it sets aside portfolio securities to cover such purchase
commitments than if it sets aside cash. Because a Fund sets aside liquid assets
to satisfy its purchase commitments in the manner described, its liquidity and
ability to manage its portfolio might be adversely affected in the event its
commitment to purchase "forward commitments," commitments to purchase
"when-issued" securities or commitments to purchase securities on a "delayed
settlement" basis exceeded 25% of the value of its assets.
When a Fund engages in "when-issued," "forward commitment" or "delayed
settlement" transactions, it relies on the seller to consummate the trade.
Failure of the seller to do so may result in the Fund's incurring a loss or
missing an opportunity to obtain a price considered to be advantageous for a
security. For purposes of determining the average weighted maturity of a Fund's
portfolio, the maturity of "when-issued" securities is calculated from the date
of settlement of the purchase to the maturity date.
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STRIPPED OBLIGATIONS
To the extent consistent with its investment objective, the Short-Term
Bond, Intermediate Government Income and High Quality Bond Funds may purchase
U.S. Treasury receipts and other "stripped" securities that evidence ownership
in either the future interest payments or the future principal payments on U.S.
Government and other obligations. These participations, which may be issued by
the U.S. Government or by private issuers, such as banks and other institutions,
are issued at their "face value," and may include stripped mortgage-backed
securities ("SMBS"), which are derivative multi-class mortgage securities.
Stripped securities, particularly SMBS, may exhibit greater price volatility
than ordinary debt securities because of the manner in which their principal and
interest are returned to investors.
SMBS are usually structured with two or more classes that receive
different proportions of the interest and principal distributions from a pool of
mortgage-backed obligations. A common type of SMBS will have one class receiving
all of the interest, while the other class will receive all of the principal.
However, in some instances, one class will receive some of the interest and most
of the principal while the other class will receive most of the interest and the
remainder of the principal. If the underlying obligations experience greater
than anticipated prepayments of principal, a Fund may fail to fully recoup its
initial investment in these securities. The market value of the class consisting
entirely of principal payments generally is extremely volatile in response to
changes in interest rates. The yields on a class of SMBS that receives all or
most of the interest are generally higher than prevailing market yields on other
mortgage-backed obligations because their cash flow patterns are more volatile
and there is a greater risk that the initial investment will not be fully
recouped. SMBS which are not issued by the U.S. Government (or a U.S. Government
agency or instrumentality) are considered illiquid by the Funds. Obligations
issued by the U.S. Government may be considered liquid under guidelines
established by Galaxy's Board of Trustees if they can be disposed of promptly in
the ordinary course of business at a value reasonably close to that used in the
calculation of net asset value per share.
GUARANTEED INVESTMENT CONTRACTS
The Money Market, Short-Term Bond, Intermediate Government Income, High
Quality Bond and Rhode Island Municipal Bond Funds may invest in guaranteed
investment contracts ("GICs") issued by United States and Canadian insurance
companies. Pursuant to GICs, a Fund makes cash contributions to a deposit fund
of the insurance company's general account. The insurance company then credits
to the Fund payments at negotiated, floating or fixed interest rates. A GIC is a
general obligation of the issuing insurance company and not a separate account.
The purchase price paid for a GIC becomes part of the general assets of the
insurance company, and the contract is paid from the company's general assets.
The Funds will only purchase GICs that are issued or guaranteed by insurance
companies that at the time of purchase are rated at least AA by S&P or receive a
similar high quality rating from a nationally recognized service which provides
ratings of insurance companies. GICs are considered illiquid securities and will
be subject to the Funds' 10% limitation on such investments, unless there is an
active
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and substantial secondary market for the particular instrument and market
quotations are readily available.
BANK INVESTMENT CONTRACTS
The Short-Term Bond, Intermediate Government Income, High Quality Bond
and Rhode Island Municipal Bond Funds may invest in bank investment contracts
("BICs") issued by banks that meet the quality and asset size requirements for
banks described above under "U.S. Government Obligations and Money Market
Instruments." Pursuant to BICs, cash contributions are made to a deposit account
at the bank in exchange for payments at negotiated, floating or fixed interest
rates. A BIC is a general obligation of the issuing bank. BICs are considered
illiquid securities and will be subject to the Funds' 10% limitation on such
investments, unless there is an active and substantial secondary market for the
particular instrument and market quotations are readily available.
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").
PORTFOLIO TURNOVER
Each Fund may sell a portfolio investment soon after its acquisition if
Fleet and/or Oechsle believes that such a disposition is consistent with the
Fund's investment objective. Portfolio investments may be sold for a variety of
reasons, such as a more favorable investment opportunity or other circumstances
bearing on the desirability of continuing to hold such investments. A portfolio
turnover rate of 100% or more is considered high, although the rate of portfolio
turnover will not be a limiting factor in making portfolio decisions. A high
rate of portfolio turnover involves correspondingly greater brokerage commission
expenses and other transaction costs, which must be ultimately borne by a Fund's
shareholders. High portfolio turnover may result in the realization of
substantial net capital gains; distributions derived from such gains will be
treated as ordinary income for federal income tax purposes.
INVESTMENT LIMITATIONS
In addition to each Fund's investment objective as stated in the
Prospectus, 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").
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Each of the Money Market, U.S. Treasury and Tax-Exempt Funds may not:
1. Make loans, except that (i) each Fund may purchase or
hold debt instruments in accordance with its investment
objective and policies, (ii) each Fund, except the U.S.
Treasury Fund, may enter into repurchase agreements
with respect to portfolio securities, and (iii) the
Money Market Fund may lend portfolio securities against
collateral consisting of cash or securities that are
consistent with the Fund's permitted investments, where
the value of the collateral is equal at all times to at
least 100% of the value of the securities loaned.
2. Purchase foreign securities, except that the Money
Market Fund may purchase certificates of deposit,
bankers' acceptances, or other similar obligations
issued by U.S. branches of foreign banks or foreign
branches of U.S. banks.
3. Purchase securities on margin (except such short-term
credits as may be necessary for the clearance of
purchases), make short sales of securities, or maintain
a short position.
4. Act as an underwriter within the meaning of the
Securities Act of 1933; except insofar as a Fund might
be deemed to be an underwriter upon disposition of
restricted portfolio securities; and except to the
extent that the purchase of securities directly from
the issuer thereof in accordance with the Fund's
investment objective, policies and limitations may be
deemed to be underwriting.
5. Purchase or sell real estate; except the Money Market
and U.S. Treasury Funds may purchase securities that
are secured by real estate, and the Money Market Fund
may purchase securities of issuers which deal in real
estate or interests therein; and except that the
Tax-Exempt Fund may invest in Municipal Securities
secured by real estate or interests therein; however
the Funds will not purchase or sell interests in real
estate limited partnerships.
6. Purchase or sell commodities or commodity contracts or
invest in oil, gas or other mineral exploration or
development programs or mineral leases.
7. Invest in or sell put options, call options, straddles,
spreads, or any combination thereof.
8. Invest in companies for the purpose of exercising
management or control.
9. Purchase securities of other investment companies
except in connection with a merger, consolidation,
reorganization or acquisition of assets;
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provided, however, that the Tax-Exempt Fund may acquire
such securities in accordance with the 1940 Act.
10. Purchase securities of any one issuer if immediately
after such purchase more than 5% of the value of its
total assets would be invested in the securities of
such issuer (the "5% limitation"), except that up to
25% of the value of its total assets may be invested
without regard to the 5% limitation; notwithstanding
the foregoing restriction, each Fund may invest without
regard to the 5% limitation in U.S. Government
obligations and as otherwise permitted in accordance
with Rule 2a-7 under the 1940 Act or any successor rule.
With respect to Investment Limitation No. 10 above, (a) a security is
considered to be issued by the governmental entity or entities whose assets and
revenues back the security or, with respect to a private activity bond that is
backed only by the assets and revenues of a non-governmental user, such
non-governmental user; (b) in certain circumstances, the guarantor of a
guaranteed security may also be considered to be an issuer in connection with
such guarantee; (c) securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities (including securities backed by the full faith and
credit of the United States) are deemed to be U.S. Government obligations; and
(d) no Fund intends to acquire more than 10% of the outstanding voting
securities of any one issuer.
Each of the Money Market and U.S. Treasury Funds may not:
11. Borrow money or issue senior securities, except that
each Fund may borrow from domestic banks for temporary
purposes and then in amounts not in excess of 10% of
the value of a Fund's total assets at the time of such
borrowing (provided that the Money Market Fund may
borrow pursuant to reverse repurchase agreements in
accordance with its investment policies and in amounts
not in excess of 10% of the value of its total assets
at the time of such borrowing); or mortgage, pledge, or
hypothecate any assets except in connection with any
such borrowing and in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of the
value of a Fund's total assets at the time of such
borrowing. A Fund will not purchase securities while
borrowings (including reverse repurchase agreements
with respect to the Money Market Fund) in excess of 5%
of its total assets are outstanding.
12. Invest more than 10% of the value of its total assets
in illiquid securities, including, with respect to the
Money Market and U.S. Treasury Funds, repurchase
agreements with remaining maturities in excess of seven
days, time deposits with maturities in excess of seven
days, restricted securities, non-negotiable time
deposits and other securities which are not readily
marketable.
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With respect to Investment Limitation No. 11 above, the Money Market
Fund intends to limit any borrowings, including reverse repurchase agreements,
to not more than 10% of the value of its total assets at the time of such
borrowing.
With respect to Investment Limitation No. 12 above, each Fund intends
to limit investments in illiquid securities to not more than 10% of the value of
its net assets.
The Money Market Fund may not:
13. Purchase any securities other than "money-market"
instruments, some of which may be subject to repurchase
agreements, but the Fund may make interest-bearing
savings deposits not in excess of 5% of the value of
its total assets at the time of deposit and may make
time deposits.
The Tax-Exempt Fund may not:
14. Borrow money or issue senior securities, except that
the Fund may borrow from banks for temporary purposes,
and then in amounts not in excess of 10% of the value
of its total assets at the time of such borrowing; or
mortgage, pledge, or hypothecate any assets except in
connection with any such borrowing and in amounts not
in excess of the lesser of the dollar amounts borrowed
or 10% of the value of its total assets at the time of
such borrowing. The Fund will not purchase any
portfolio securities while borrowings in excess of 5%
of its total assets are outstanding.
15. Knowingly invest more than 10% of the value of its
total assets in illiquid securities, including
repurchase agreements with remaining maturities in
excess of seven days and other securities which are not
readily marketable.
16. Purchase any securities that would cause 25% or more of
the value of its total assets at the time of purchase
to be invested in the securities of one or more issuers
conducting their principal business activities in the
same industry; provided, however, that there is no
limitation with respect to securities issued or
guaranteed by the United States, any state, territory
or possession of the U.S. Government, the District of
Columbia, or any of their authorities, agencies,
instrumentalities, or political subdivisions.
17. Invest in industrial revenue bonds where the payment of
principal and interest are the responsibility of a
company (including its predecessors) with less than
three years of continuous operation.
With respect to Investment Limitation No. 15, The Tax Exempt Fund
intends to limit investments in illiquid securities to not more than 10% of
the value of its net assets.
The Short-Term Bond, Intermediate Government Income and High Quality
Bond Funds may not:
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18. Make loans, except that (i) each Fund may purchase or
hold debt instruments in accordance with its investment
objective and policies, and may enter into repurchase
agreements with respect to portfolio securities, and
(ii) each Fund may lend portfolio securities against
collateral consisting of cash or securities which are
consistent with the Fund's permitted investments, where
the value of the collateral is equal at all times to at
least 100% of the value of the securities loaned.
19. Borrow money or issue senior securities, except that
each Fund may borrow from domestic banks for temporary
purposes and then in amounts not in excess of 10% of
the value of its total assets at the time of such
borrowing (provided that each Fund may borrow pursuant
to reverse repurchase agreements in accordance with its
investment policies and in amounts not in excess of 10%
of the value of its total assets at the time of such
borrowing); or mortgage, pledge, or hypothecate any
assets except in connection with any such borrowing and
in amounts not in excess of the lesser of the dollar
amounts borrowed or 10% of the value of its total
assets at the time of such borrowing. No Fund will
purchase securities while borrowings (including reverse
repurchase agreements) in excess of 5% of its total
assets are outstanding.
20. Invest more than 10% of the value of its net assets in
illiquid securities, including repurchase agreements
with remaining maturities in excess of seven days, time
deposits with maturities in excess of seven days,
restricted securities, non-negotiable time deposits and
other securities which are not readily marketable.
21. Purchase securities of any one issuer, other than
obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, if
immediately after such purchase more than 5% of the
value of its total assets would be invested in such
issuer, except that up to 25% of the value of its total
assets may be invested without regard to this
limitation.
22. Purchase securities on margin (except such short-term
credits as may be necessary for the clearance of
purchases), make short sales of securities, or maintain
a short position.
23. Act as an underwriter within the meaning of the
Securities Act of 1933; except insofar as a Fund might
be deemed to be an underwriter upon disposition of
restricted portfolio securities; and except to the
extent that the purchase of securities directly from
the issuer thereof in accordance with the Fund's
investment objective, policies and limitations may be
deemed to be underwriting.
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24. Purchase or sell real estate; except that each Fund may
purchase securities that are secured by real estate and
may purchase securities of issuers which deal in real
estate or interests therein; however, the Funds will
not purchase or sell interests in real estate limited
partnerships.
25. Purchase or sell commodities or commodity contracts or
invest in oil, gas, or other mineral exploration or
development programs or mineral leases; provided
however, that each Fund may enter into interest rate
futures contracts to the extent permitted under the
Commodity Exchange Act and the 1940 Act; and further
provided that the Short-Term Bond Fund may enter into
forward currency contracts and foreign currency futures
contracts and related options to the extent permitted
by their respective investment objectives and policies.
26. Invest in or sell put options, call options, straddles,
spreads, or any combination thereof.
27. Invest in companies for the purpose of exercising
management or control.
28. Purchase securities of other investment companies
except in connection with a merger, consolidation,
reorganization, or acquisition of assets; provided,
however, that each Fund may acquire such securities in
accordance with the 1940 Act.
With respect to Investment Limitation No. 19 above, (a) each of the
Short-Term Bond, Intermediate Government Income and High Quality Bond Funds
intends to limit any borrowings (including reverse repurchase agreements) to not
more than 10% of the value of its total assets at the time of such borrowing,
and (b) mortgage dollar rolls entered into by one of these Funds that are not
accounted for as financings shall not constitute borrowings.
With respect to Investment Limitation No. 21 above, neither the
Short-Term Bond Fund, Intermediate Government Income Fund nor High Quality Bond
Fund intends to acquire more than 10% of the outstanding voting securities of
any one issuer.
In addition to the above limitations:
29. The Funds, with the exception of the Short-Term Bond
Fund, may not purchase foreign securities, except that
the Funds may purchase certificates of deposit,
bankers' acceptances, or other similar obligations
issued by U.S. branches of foreign banks or foreign
branches of U.S. banks; and provided, however, that the
Funds may also purchase obligations of Canadian
Provincial Governments in accordance with each Fund's
investment objective and policies.
The Rhode Island Municipal Bond Fund may not:
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30. Make loans, except that (i) the Fund may purchase or
hold debt instruments in accordance with its investment
objective and policies, and may enter into repurchase
agreements with respect to portfolio securities, and
(ii) the Fund may lend portfolio securities against
collateral consisting of cash or securities which are
consistent with its permitted investments, where the
value of the collateral is equal at all times to at
least 100% of the value of the securities loaned.
31. Borrow money or issue senior securities, except that
the Fund may borrow from domestic banks for temporary
purposes and then in amounts not in excess of 10% of
the value of its total assets at the time of such
borrowing (provided that the Fund may borrow pursuant
to reverse repurchase agreements in accordance with its
investment policies and in amounts not in excess of 10%
of the value of its total assets at the time of such
borrowing); or mortgage, pledge, or hypothecate any
assets except in connection with any such borrowing and
in amounts not in excess of the lesser of the dollar
amounts borrowed or 10% of the value of its total
assets at the time of such borrowing. The Fund will not
purchase securities while borrowings (including reverse
repurchase agreements) in excess of 5% of its total
assets are outstanding.
32. Invest more than 10% of the value of its net assets in
illiquid securities, including repurchase agreements
with remaining maturities in excess of seven days, time
deposits with maturities in excess of seven days,
restricted securities, non-negotiable time deposits and
other securities which are not readily marketable.
33. Purchase any securities which would cause 25% or more
of the value of the Fund's total assets at the time of
purchase to be invested in the securities of one or
more issuers conducting their principal business
activities in the same industry; provided, however,
that there is no limitation with respect to securities
issued or guaranteed by the U.S. Government, any state,
territory or possession of the U. S. Government, the
District of Columbia, or any of their authorities,
agencies, instrumentalities or political subdivisions.
34. Purchase securities on margin (except such short-term
credits as may be necessary for the clearance of
purchases), make short sales of securities, or maintain
a short position.
35. Act as an underwriter within the meaning of the
Securities Act of 1933; except insofar as the Fund
might be deemed to be an underwriter upon disposition
of restricted portfolio securities; and except to the
extent that the purchase of securities directly from
the issuer thereof in accordance
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with the Fund's investment objective, policies and
limitations may be deemed to be underwriting.
36. Purchase or sell real estate; except that the Fund may
invest in Municipal Securities secured by real estate
or interests therein; however, the Fund will not
purchase or sell interests in real estate limited
partnerships.
37. Purchase or sell commodities or commodity contracts or
invest in oil, gas, or other mineral exploration or
development programs or mineral leases; provided
however, that the Fund may enter into municipal bond
index futures contracts and interest rate futures
contracts to the extent permitted under the Commodity
Exchange Act and the 1940 Act.
38. Invest in or sell put options, call options, straddles,
spreads, or any combination thereof.
39. Invest in companies for the purpose of exercising
management or control.
40. Purchase securities of other investment companies
except in connection with a merger, consolidation,
reorganization, or acquisition of assets; provided,
however, that the Fund may acquire such securities in
accordance with the 1940 Act.
41. Invest in industrial revenue bonds where the payment of
principal and interest are the responsibility of a
company (including its predecessors) with less than
three years of continuous operation.
42. Purchase foreign securities, except that the Fund may
purchase certificates of deposit, bankers' acceptances,
or other similar obligations issued by U.S. branches of
foreign banks or foreign branches of U.S. banks.
43. Purchase securities of any one issuer, other than
obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, if
immediately after such purchase more than 5% of the
value of its total assets would be invested in the
securities of such issuer, except that up to 50% of the
value of its total assets may be invested without
regard to this 5% limitation, provided that no more
than 25% of the value of the Fund's total assets are
invested in the securities of any one issuer.
With respect to Investment Limitation No. 31 above, the Rhode Island
Municipal Bond intends to limit any borrowings (including reverse repurchase
agreements) to not more than 10% of the value of its total assets at the time of
such borrowing.
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With respect to Investment Limitation No. 43 above, the Rhode Island
Municipal Bond Fund does not intend to acquire 10% or more of the outstanding
voting securities of any one issuer.
The Asset Allocation, Equity Growth and International Equity Funds may
not:
44. Make loans, except that (i) each Fund may purchase or
hold debt instruments in accordance with its investment
objective and policies, and may enter into repurchase
agreements with respect to portfolio securities, and
(ii) each Fund may lend portfolio securities against
collateral consisting of cash or securities which are
consistent with its permitted investments, where the
value of the collateral is equal at all times to at
least 100% of the value of the securities loaned.
45. Borrow money or issue senior securities, except that
each Fund may borrow from domestic banks for temporary
purposes and then in amounts not in excess of 33% of
the value of its total assets at the time of such
borrowing (provided that the Funds may borrow pursuant
to reverse repurchase agreements in accordance with
their investment policies and in amounts not in excess
of 33% of the value of their respective total assets at
the time of such borrowing); or mortgage, pledge, or
hypothecate any assets except in connection with any
such borrowing and in amounts not in excess of the
lesser of the dollar amounts borrowed or 33% of the
value of a Fund's total assets at the time of such
borrowing. No Fund will purchase securities while
borrowings (including reverse repurchase agreements) in
excess of 5% of its total assets are outstanding.
46. Invest more than 10% of the value of its net assets in
illiquid securities, including repurchase agreements
with remaining maturities in excess of seven days, time
deposits with maturities in excess of seven days,
securities which are restricted as to transfer in their
principal market (with respect to the International
Equity Fund), non-negotiable time deposits and other
securities which are not readily marketable.
47. Purchase securities of any one issuer, other than
obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, if
immediately after such purchase more than 5% of the
value of a Fund's total assets would be invested in
such issuer, except that up to 25% of the value of its
total assets may be invested without regard to this
limitation.
48. Purchase securities on margin (except such short-term
credits as may be necessary for the clearance of
purchases), make short sales of securities, or maintain
a short position.
49. Act as an underwriter within the meaning of the
Securities Act of 1933; except insofar as a Fund might
be deemed to be an underwriter upon
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disposition of restricted portfolio securities; and
except to the extent that the purchase of securities
directly from the issuer thereof in accordance with the
Fund's investment objective, policies and limitations
may be deemed to be underwriting.
50. Purchase or sell real estate; except that each Fund may
purchase securities that are secured by real estate,
and the Funds may purchase securities of issuers which
deal in real estate or interests therein; however, the
Funds will not purchase or sell interests in real
estate limited partnerships.
51. Purchase or sell commodities or commodity contracts or
invest in oil, gas, or other mineral exploration or
development programs or mineral leases; provided
however, that the Funds may enter into forward currency
contracts and foreign currency futures contracts and
related options to the extent permitted by their
respective investment objectives and policies.
52. Invest in or sell put options, call options, straddles,
spreads, or any combination thereof; provided, however,
that each Fund may write covered call options with
respect to its portfolio securities that are traded on
a national securities exchange, and may enter into
closing purchase transactions with respect to such
options if, at the time of the writing of such options,
the aggregate value of the securities subject to the
options written by the Fund does not exceed 25% of the
value of its total assets; and further provided that
(i) the Funds may purchase put and call options to the
extent permitted by their investment objectives and
policies.
53. Invest in companies for the purpose of exercising
management or control.
54. Purchase securities of other investment companies
except in connection with a merger, consolidation,
reorganization, or acquisition of assets; provided,
however, that the Funds may acquire such securities in
accordance with the 1940 Act.
With respect to Investment Limitation No. 45 above, (a) each of the
Asset Allocation, Equity Growth and International Equity Funds intends to limit
any borrowings (including reverse repurchase agreements) to not more than 33% of
the value of its total assets at the time of such borrowing, and (b) mortgage
dollar rolls entered into by the Asset Allocation Fund that are not accounted
for as financings shall not constitute borrowings.
With respect to Investment Limitation No. 47 above, each of the Asset
Allocation, Equity Growth and International Equity Funds does not intend to
acquire more than 10% of the outstanding voting securities of any one issuer.
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The Growth and Income Fund may not:
55. Borrow money directly or through reverse repurchase
agreements (arrangements in which the Fund sells a
portfolio instrument for a percentage of its cash value
with an arrangement to buy it back on a set date) or
pledge securities except, under certain circumstances,
such Fund may borrow up to one-third of the value of
its total assets and pledge up to 10% of the value of
its total assets to secure such borrowings.
56. With respect to 75% of the value of its total assets,
invest more than 5% in securities of any one issuer,
other than cash, cash items, or securities issued or
guaranteed by the government of the United States or
its agencies or instrumentalities and repurchase
agreements collateralized by such securities, or
acquire more than 10% of the outstanding voting
securities of any one issuer.
57. Sell any securities short or purchase any securities on
margin, but the Fund may obtain such short-term credits
as may be necessary for the clearance of purchases and
sales of portfolio securities. A deposit or payment by
the Fund of initial or variation margin in connection
with futures contracts or related options transactions
is not considered the purchase of a security on margin.
58. Issue senior securities except that the Fund may borrow
money or engage in reverse repurchase agreements in
amounts up to one-third of the value of its total
assets, including the amounts borrowed; and except to
the extent that the Fund may enter into futures
contracts. The Fund will not borrow money or engage in
reverse repurchase agreements for investment leverage,
but rather as a temporary, extraordinary, or emergency
measure to facilitate management of the portfolio by
enabling the Fund to meet redemption requests when the
liquidation of portfolio securities is deemed to be
inconvenient or disadvantageous. The Fund will not
purchase any securities while borrowings in excess of
5% of its total assets are outstanding.
59. Mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, the Fund
may only mortgage, pledge, or hypothecate assets having
a market value not exceeding 10% of the value of its
total assets at the time of purchase. For purposes of
this limitation, the following will not be deemed to be
pledges of the Fund's assets: (a) the deposit of
assets in escrow in connection with the writing of
covered put or call options and the purchase of
securities on a when-issued basis; and (b) collateral
arrangements with respect to: (i) the purchase and sale
of stock options (and options on stock indices) and
(ii) initial or variation margin for futures contracts.
Margin deposits from the purchase and sale of futures
contracts and related options are not deemed to be a
pledge.
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60. Purchase or sell real estate or real estate limited
partnerships, although the Fund may invest in
securities of issuers whose business involves the
purchase or sale of real estate or in securities which
are secured by real estate or interests in real estate.
61. Purchase or sell commodities, commodity contracts, or
commodity futures contracts except to the extent that
the Fund may engage in transactions involving financial
futures contracts or options on financial futures
contracts.
62. Underwrite any issue of securities, except as the Fund
may be deemed to be an underwriter under the Securities
Act of 1933 in connection with the sale of securities
in accordance with its investment objective, policies
and limitations.
63. Lend any of its assets except that the Fund may lend
portfolio securities up to one-third the value of its
total assets. This limitation shall not prevent the
Fund from purchasing or holding money market
instruments, repurchase agreements, obligations of the
U.S. Government, its agencies or instrumentalities,
variable rate demand notes, bonds, debentures, notes,
certificates of indebtedness, or certain debt
instruments as permitted by its investment objective,
policies and limitations or Galaxy's Declaration of
Trust.
64. Invest 25% of more of the value of its total assets in
any one industry (other than securities issued by the
U.S. Government, its agencies or instrumentalities).
However, the Fund may invest as temporary investments
more than 25% of the value of its assets in cash or
cash items, securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, or
instruments secured by these money market instruments,
such as repurchase agreements.
The following investment policies with respect to the Growth and Income
Fund may be changed by Galaxy's Board of Trustees without shareholder approval.
Shareholders will be notified before any material change in these limitations
become effective:
65. The Fund may not invest more than 15% of its net assets
in securities subject to restrictions on resale under
the Securities Act of 1933 (except for commercial paper
issued under Section 4(2) of the Securities Act of 1933
and certain securities which meet the criteria for
liquidity as established by the Board of Trustees).
66. The Fund will limit its investments in other investment
companies to not more than 3% of the total outstanding
voting stock of any investment company; will invest no
more than 5% of its total assets in any one investment
company; and will invest no more than 10% of its total
assets
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<PAGE>
in investment companies in general. However, these
limitations are not applicable if the securities are
acquired in a merger, consolidation, reorganization
or acquisition of assets.
The Fund will purchase the securities of other
investment companies only in open market transactions
involving only customary broker's commissions. It
should be noted that investment companies incur certain
expenses such as management fees, and therefore any
investment by the Fund in shares of another investment
company would be subject to such duplicate expenses.
67. The Fund may not purchase or retain the securities of
any issuer if the officers and Trustees of Galaxy or
Fleet, owning individually more than 1/2 of 1% of the
issuer's securities, together own more than 5% of the
issuer's securities.
68. The Fund may not purchase or sell interests in oil,
gas, or mineral exploration or development programs or
leases; except that the Fund may purchase the
securities of issuers which invest in or sponsor such
programs.
69. The Fund may not purchase put options on securities,
unless the securities are held in the Fund's portfolio
and not more than 5% of the value of the Fund's total
assets would be invested in premiums on open put option
positions.
70. The Fund may not write call options on securities,
unless the securities are held in the Fund's portfolio
or unless the Fund is entitled to them in deliverable
form without further payment or after segregating cash
in the amount of any further payment. The Fund may not
write call options in excess of 5% of the value of its
total assets.
71. The Fund may not invest more than 5% of the value of
its total assets in securities of issuers which have
records of less than three years of continuous
operations, including the operation of any predecessor.
72. The Fund may not invest in companies for the purpose of
exercising management or control.
73. The Fund may not invest more than 5% of its net assets
in warrants. No more than 2% of this 5% may be
warrants which are not listed on the New York Stock
Exchange.
In addition to the foregoing limitations, (a) the Money Market, U.S.
Treasury, Short-Term Bond, Intermediate Government Income, High Quality Bond,
Asset Allocation, Growth & Income, Equity Growth and International Equity Funds
may not purchase securities that would
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cause 25% or more of the value of a Fund's total assets at the time of
purchase to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry; provided, however,
that (i) there is no limitation with respect to obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, or,
with respect to the Money Market Fund, by domestic banks or by U.S. branches
of foreign banks that are subject to the same regulation as domestic banks;
(ii) wholly-owned finance companies will be considered to be in the
industries of their parents if their activities are primarily related to
financing the activities of the parents; and (iii) utilities will be
classified according to their services (for example, gas, gas transmission,
electric and gas, electric and telephone each will be considered a separate
industry.
The Growth and Income Fund intends to invest in restricted securities.
Restricted securities are any securities in which a Fund may otherwise invest
pursuant to its investment objective and policies, but which are subject to
restriction on resale under federal securities law. The Fund will limit its
investments in illiquid securities, including certain restricted securities not
determined by the Board of Trustees to be liquid, non-negotiable fixed time
deposits with maturities over seven days, over-the-counter options, and
repurchase agreements providing for settlement in more than seven days after
notice, to 15% of its net assets.
Except as stated otherwise, 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 Money Market, U.S. Treasury and Tax-Exempt Funds may follow
non-fundamental operating policies that are more restrictive than its
fundamental investment limitations as set forth in the Prospectus and this
Statement of Additional Information, in order to comply with applicable laws and
regulations, including the provisions of and regulations under the 1940 Act. In
particular, each Fund will comply with the various requirements of Rule 2a-7
under the 1940 Act which regulates money market funds. In accordance with Rule
2a-7, the Money Market Fund is subject to the 5% limitation contained in
Investment Limitation No. 10 above as to all of its assets; however in
accordance with such Rule, the Money Market Fund will be able to invest more
than 5% (but no more than 25%) of its total assets in the securities of a single
issuer for a period of up to three business days after the purchase thereof,
provided that the Fund may not hold more than one such investment at any one
time. Adherence by a Fund to the diversification requirements of Rule 2a-7 is
deemed to constitute adherence to the diversification requirements of Investment
Limitation No. 10 above. Each of the Money Market, U.S. Treasury and Tax-Exempt
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
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<PAGE>
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.
Each Fund except the U.S. Treasury Fund and Rhode Island Municipal Bond
Fund 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. For purposes of each
Fund's limitation on purchases of illiquid securities described above, Rule 144A
securities will not be considered to be illiquid if Fleet has determined, in
accordance with guidelines established by the Board of Trustees, that an
adequate trading market exists for such securities.
VALUATION OF PORTFOLIO SECURITIES
VALUATION OF THE MONEY MARKET, U.S. TREASURY AND TAX-EXEMPT FUND
Galaxy uses the amortized cost method of valuation to value shares of
the Money Market, U.S. Treasury and Tax-Exempt Funds. In order to use the
amortized cost method, the Funds comply with the various quality and maturity
restrictions specified in Rule 2a-7 promulgated under the 1940 Act. Pursuant to
this method, a security is valued at its initial acquisition cost, as adjusted
for amortization of premium or accretion of discount, regardless of the impact
of fluctuating interest rates on the market value of the security. Where it is
not appropriate to value a security by the amortized cost method, the security
will be valued either by market quotations or by fair value as determined by or
under the direction of Galaxy's Board of Trustees. This method may result in
periods during which value, as determined by amortized cost, is higher or lower
than the price a Fund would receive if it sold the security. The value of
securities in each of these Funds can be expected to vary inversely with changes
in prevailing interest rates. Thus, if interest rates have increased from the
time a security was purchased, such security, if sold, might be sold at a price
less than its cost. Similarly, if interest rates have declined from the time a
security was purchased, such security, if sold, might be sold at a price greater
than its purchase cost. In either instance, if the security is held to maturity,
no gain or loss will be realized.
The Funds invest only in instruments that meet the applicable quality
requirements of Rule 2a-7 and maintain a dollar-weighted average portfolio
maturity appropriate to their objective of maintaining a stable net asset value
per share, provided that none of the Funds will purchase any security deemed to
have a remaining maturity (as defined in the 1940 Act) of more than 397 days nor
maintain a dollar-weighted average portfolio maturity which exceeds 90 days.
Galaxy's Board of Trustees has established procedures reasonably designed,
taking into account current market conditions and each Fund's investment
objective, to stabilize the net asset value per share of each Fund for purposes
of sales and redemptions at $1.00. These procedures include review by the Board
of Trustees, at such intervals as it deems appropriate, to determine the
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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.
VALUATION OF THE SHORT-TERM BOND, INTERMEDIATE GOVERNMENT INCOME, HIGH
QUALITY BOND AND RHODE ISLAND MUNICIPAL BOND FUNDS
The assets of the Short-Term Bond, Intermediate Government Income, High
Quality Bond and Rhode Island 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 ASSET ALLOCATION, GROWTH AND INCOME AND EQUITY GROWTH FUNDS
In determining market value, the assets in the Asset Allocation, Growth
and Income and Equity Growth Funds which are traded on a recognized stock
exchange are valued at the last sale price on the securities exchange on which
such securities are primarily traded or at the last sale price on the national
securities market. Securities quoted on the NASD National Market System are also
valued at the last sale price. Other securities traded on over-the-counter
markets are valued on the basis of their closing over-the-counter bid prices.
Securities for which there were no transactions are valued at the average of the
most recent bid and asked prices. Investments in debt securities with remaining
maturities of 60 days or less are valued based upon the amortized cost method.
Restricted securities, securities for which market quotations are not readily
available, and other assets are valued at fair value by Fleet under the
supervision of Galaxy's Board of Trustees. An option is generally valued at the
last sale price or, in the absence of a last
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sale price, the last offer price. See "Valuation of International Equity
Fund" below for a description of the valuation of certain foreign securities
held by these Funds.
VALUATION OF THE INTERNATIONAL EQUITY FUND
In determining market value, the International Equity Fund's portfolio
securities which are primarily traded on a domestic exchange are valued at the
last sale price on that exchange or, if there is no recent sale, at the last
current bid quotation. Portfolio securities which are primarily traded on
foreign securities exchanges are generally valued at the preceding closing
values of such securities on their respective exchanges, except when an
occurrence subsequent to the time a value was so established is likely to have
changed such value, then the fair value of those securities may be determined
through consideration of other factors by or under the direction of Galaxy's
Board of Trustees. A security which is listed or traded on more than one
exchange is valued at the quotation on the exchange determined to be the primary
market for such security. Investments in debt securities having a remaining
maturity of 60 days or less are valued based upon the amortized cost method. All
other securities are valued at the last current bid quotation if market
quotations are available, or at fair value as determined in accordance with
policies established in good faith by the Board of Trustees. For valuation
purposes, quotations of foreign securities in foreign currency are converted to
U.S. dollars equivalent at the prevailing market rate on the day of valuation.
An option is generally valued at the last sale price or, in the absence of a
last sale price, the last offer price.
Certain of the securities acquired by the International Equity Fund may
be traded on foreign exchanges or over-the-counter markets on days on which the
Fund's net asset value is not calculated. In such cases, the net asset value of
the Fund's shares may be significantly affected on days when investors can
neither purchase nor redeem shares of the Fund.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares in each Fund are sold on a continuous basis by Galaxy's
distributor, Provident Distributors, Inc. ("PDI"). PDI is a registered
broker/dealer with its principal offices at Four Falls Corporate Center, 6th
Floor, West Conshohocken, Pennsylvania 19428. PDI has agreed to use appropriate
efforts to solicit all purchase orders.
BKB Shares 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 the
Board of Trustees of Galaxy has determined that such conversion is in the best
interests of holders of BKB Shares.
OTHER PURCHASE INFORMATION - BKB SHARES AND RETAIL A SHARES
On a business day (i.e. a day when the New York Stock Exchange (the
"Exchange") is open for trading) when the Stock Exchange closes early due to a
partial holiday or otherwise,
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Galaxy will advance the time at which purchase orders must be received in
order to be processed on that business day.
APPLICABLE SALES CHARGE - RETAIL A SHARES
The public offering price for Retail A Shares of the Funds (other than
Retail A Shares of the Money Market, U.S. Treasury and Tax-Exempt Funds which
are sold without a sales charge) 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 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.
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 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 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;
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- 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 Corporation in February 1998.
COMPUTATION OF OFFERING PRICE - RETAIL A SHARES
An illustration of the computation of the offering price per share of
Retail A Shares of the Funds (other than the Money Market, U.S. Treasury and
Tax-Exempt Funds), using the value of each Fund's net assets attributable to
such Shares and the number of outstanding Retail A Shares of each Fund at the
close of business on October 31, 1999 and the maximum front-end sales charge of
3.75%, is as follows:
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<TABLE>
<CAPTION>
Short Term Intermediate Government
Bond Fund Income Fund
--------- -----------
<S> <C> <C>
Net Assets........................................... $__________ $__________
Outstanding Shares................................... $__________ $__________
Net Asset Value Per Share............................ $__________ $__________
Sales Charge (3.75% of
the offering price).................................. $__________ $__________
Offering Price to Public............................. $__________ $__________
High Quality Rhode Island Municipal
Bond Fund Bond Fund
--------- ---------
Net Assets........................................... $__________ $__________
Outstanding Shares................................... $__________ $__________
Net Asset Value Per Share............................ $__________ $__________
Sales Charge (3.75% of
the offering price).................................. $__________ $__________
Offering Price to Public............................. $__________ $__________
.....................................................
Asset Allocation
Fund
----
Net Assets........................................... $___________
Outstanding Shares................................... $___________
Net Asset Value Per Share............................ $___________
Sales Charge (3.75% of
the offering price).................................. $___________
Offering Price to Public............................. $___________
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<CAPTION>
Growth and
Income Fund
-----------
<S> <C>
Net Assets........................................... $___________
Outstanding Shares................................... $___________
Net Asset Value Per Share............................ $___________
Sales Charge (3.75% of
the offering price).................................. $___________
Offering Price to Public............................. $___________
Equity
Growth Fund
-----------
Net Assets........................................... $___________
Outstanding Shares................................... $___________
Net Asset Value Per Share............................ $___________
Sales Charge (3.75% of
the offering price).................................. $___________
Offering Price to Public............................. $___________
International
Equity Fund
-----------
Net Assets........................................... $__________
Outstanding Shares................................... $__________
Net Asset Value Per Share............................ $__________
Sales Charge (3.75% of
the offering price).................................. $__________
Offering Price to Public............................. $__________
</TABLE>
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QUANTITY DISCOUNTS
Investors may be entitled to reduced sales charges through Rights of
Accumulation, a Letter of Intent or a combination of investments, as described
below, even if the investor does not wish to make an investment of a size that
would normally qualify for a quantity discount.
In order to obtain quantity discount benefits, an investor must notify PDI
at the time of purchase that he or she would like to take advantage of any of
the discount plans described below. Upon such notification, the investor will
receive the lowest applicable sales charge. Quantity discounts may be modified
or terminated at any time and are subject to confirmation of an investor's
holdings through a check of appropriate records. For more information about
quantity discounts, please contact PDI or your financial institution.
RIGHTS OF ACCUMULATION. A reduced sales charge applies to any purchase of
Retail A Shares of any portfolio of Galaxy that is sold with a sales charge
("Eligible Fund") where an investor's then current aggregate investment in
Retail A Shares is $50,000 or more. "Aggregate investment" means the total of:
(a) the dollar amount of the then current purchase of shares of an Eligible
Fund; and (b) the value (based on current net asset value) of previously
purchased and beneficially owned shares of any Eligible Fund on which a sales
charge has been paid. If, for example, an investor beneficially owns shares of
one or more Eligible Funds with an aggregate current value of $49,000 on which a
sales charge has been paid and subsequently purchases shares of an Eligible Fund
having a current value of $1,000, the sales charge applicable to the subsequent
purchase would be reduced to 3.50% of the offering price. Similarly, with
respect to each subsequent investment, all shares of Eligible Funds that are
beneficially owned by the investor at the time of investment may be combined to
determine the applicable sales charge.
LETTER OF INTENT. By completing the Letter of Intent included as part of
the Account Application, an investor becomes eligible for the reduced sales
charge applicable to the total number of Eligible Fund Retail A Shares purchased
in a 13-month period pursuant to the terms and under the conditions set forth
below and in the Letter of Intent. To compute the applicable sales charge, the
offering price of Retail A Shares of an Eligible Fund on which a sales charge
has been paid and that are beneficially owned by an investor on the date of
submission of the Letter of Intent may be used as a credit toward completion of
the Letter of Intent. However, the reduced sales charge will be applied only to
new purchases.
PFPC Inc. ("PFPC"), Galaxy's administrator, will hold in escrow Retail A
Shares equal to 5% of the amount indicated in the Letter of Intent for payment
of a higher sales charge if an investor does not purchase the full amount
indicated in the Letter of Intent. The escrow will be released when the investor
fulfills the terms of the Letter of Intent by purchasing the specified amount.
If purchases qualify for a further sales charge reduction, the sales charge will
be adjusted to reflect the investor's total purchases. If total purchases are
less than the amount specified, the investor will be requested to remit an
amount equal to the difference between the sales charge actually paid and the
sales charge applicable to the total purchases. If such remittance is not
received within 20 days, PFPC, as attorney-in-fact pursuant to the terms of the
Letter of Intent and at PDI's direction, will redeem an appropriate number of
Retail A Shares
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held in escrow to realize the difference. Signing a Letter of Intent does not
bind an investor to purchase the full amount indicated at the sales charge in
effect at the time of signing, but an investor must complete the intended
purchase in accordance with the terms of the Letter of Intent to obtain the
reduced sales charge. To apply, an investor must indicate his or her intention
to do so under a Letter of Intent at the time of purchase.
QUALIFICATION FOR DISCOUNTS. For purposes of applying the Rights of
Accumulation and Letter of Intent privileges described above, the scale of sales
charges applies to the combined purchases made by any individual and/or spouse
purchasing securities for his, her or their own account or for the account of
any minor children, or the aggregate investments of a trustee or custodian of
any qualified pension or profit-sharing plan established (or the aggregate
investment of a trustee or other fiduciary) for the benefit of the persons
listed above.
REINSTATEMENT PRIVILEGE. Investors may reinvest all or any portion of their
redemption proceeds in Retail A Shares of the Funds or in Retail A Shares of
another portfolio of Galaxy within 90 days of the redemption trade date without
paying a sales load. Retail A Shares so reinvested will be purchased at a price
equal to the net asset value next determined after Galaxy's transfer agent
receives a reinstatement request and payment in proper form.
Investors wishing to exercise this Privilege must submit a written
reinstatement request to PFPC as transfer agent stating that the investor is
eligible to use the Privilege. The reinstatement request and payment must be
received within 90 days of the trade date of the redemption. Currently, there
are no restrictions on the number of times an investor may use this Privilege.
Generally, exercising the Reinstatement Privilege will not affect the
character of any gain or loss realized on redemptions for federal income tax
purposes. However, if a redemption results in a loss, the reinstatement may
result in the loss being disallowed under the Code's "wash sale" rules.
GROUP SALES. Members of qualified groups may purchase Retail A Shares of
the Funds at the following group sales rates:
<TABLE>
<CAPTION>
Reallowance
Total Sales Charge to Dealers
------------------ ----------
As a % of As a % of As a % of
Number of Qualified Offering Price Net Asset Value Offering Price
Group Members Per Share Per Share Per Share
- --------------------- --------- --------- ---------
<S> <C> <C> <C>
50,000 but less than 250,000.................... 3.00 3.09 3.00
250,000 but less than 500,000................... 2.75 2.83 2.75
500,000 but less than 750,000................... 2.50 2.56 2.50
750,000 and over................................ 2.00 2.04 2.00
</TABLE>
To be eligible for the discount, a group must meet the requirements set
forth below and be approved in advance as a qualified group by PDI. To receive
the group sales charge rate,
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<PAGE>
group members must purchase Retail A Shares directly from PDI in accordance with
any of the procedures described in the Prospectus. Group members must also
ensure that their qualified group affiliation is identified on the purchase
application.
A qualified group is a group that (i) has at least 50,000 members, (ii) was
not formed for the purpose of buying Fund shares at a reduced sales charge,
(iii) within one year of the initial member purchase, has at least 1% of its
members invested in the Funds or any of the other investment portfolios offered
by Galaxy, (iv) agrees to include Galaxy sales material in publications and
mailings to members at a reduced cost or no cost, and (v) meets certain other
uniform criteria. PDI may request periodic certification of group and member
eligibility. PDI reserves the right to determine whether a group qualifies for a
quantity discount and to suspend this offer at any time.
REDEMPTION OF BKB SHARES
Redemption orders are effected at the net asset value per share next
determined after receipt of the order by PDI. On a 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. Galaxy may require any information reasonably necessary to
ensure that a redemption has been duly authorized. 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.
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.
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.
EXCHANGE PRIVILEGE
The following information supplements the description in the Prospectus as
to the exchange privilege available to holders of BKB Shares and Retail A
Shares of the Funds.
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<PAGE>
An investor may exchange BKB Shares of a Fund having a value of at least
$100 for BKB Shares of any other Galaxy Fund.
An investor may exchange Retail A Shares of a Fund having a value of at
least $100 for Retail A Shares of any other Galaxy Fund without paying a sales
charge. The minimum initial investment to establish an account in another Fund
or portfolio by exchange is $2,500, unless (i) the Retail A 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.
An exchange involves a redemption of all or a portion of the BKB or
Retail A Shares of a Fund and the investment of the redemption proceeds in
Retail A Shares of another Fund or portfolio offered by Galaxy 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 BKB or Retail A 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
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<PAGE>
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.
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.
A 4% non-deductible excise tax is imposed on regulated investment companies
that fail to distribute with respect to each calendar year at least 98% of their
ordinary taxable income and capital gain net income (excess of capital gains
over capital losses) for the one year period ending October 31 of such calendar
year. Each Fund intends to make sufficient distributions or deemed distributions
of its ordinary taxable income and any capital gain net income prior to the end
of each calendar year to avoid liability for this excise tax.
The Funds will be required in certain cases to withhold and remit to the
United States Treasury 31% of taxable dividends or gross sale proceeds paid to
any shareholder who (i) has failed to provide a correct tax identification
number, (ii) is subject to withholding by the Internal Revenue Service for
failure to properly include on his or her return payments of taxable interest or
dividends, or (iii) has failed to certify to the Funds that he or she is not
subject to back up withholding when required to do so or that he or she is an
"exempt recipient."
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 Bond and Equity
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 Tax-Exempt Fund and Rhode Island Municipal
Bond Fund 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
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<PAGE>
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 Tax-Exempt Fund and Rhode Island Municipal
Bond Fund 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 Tax-Exempt Fund and Rhode Island Municipal Bond Fund 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 Tax-Exempt Fund and Rhode Island Municipal Bond Fund 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 Tax-Exempt
Fund and Rhode Island Municipal Bond Fund 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.
The U.S. Treasury Fund is structured to provide shareholders, to the extent
permissible by federal and state law, with income that is exempt or excluded
from taxation at the state and local level. Many states, by statute, judicial
decision or administrative action, have taken the position that dividends of a
regulated investment company, such as the Fund, that are attributable to
interest on direct U.S. Treasury obligations or obligations of certain U.S.
Government
-67-
<PAGE>
agencies, are the functional equivalent of interest from such obligations and
are, therefore, exempt from state and local income taxes. Shareholders should
consult their own tax advisers about the status of distributions from the
Fund in their own state.
Depending upon the extent of Galaxy's activities in states and
localities in which its offices are maintained, in which its agents or
independent contractors are located, or in which it is otherwise deemed to be
conducting business, each Fund may be subject to the tax laws of such states
or localities. In addition, in those states and localities that have income
tax laws, the treatment of a Fund and its shareholders under such laws may
differ from their treatment under federal income tax laws. Under state or
local law, distributions of net investment income may be taxable to
shareholders as dividend income even though a substantial portion of such
distributions may be derived from interest on U.S. Government obligations
which, if realized directly, would be exempt from such income taxes.
Shareholders are advised to consult their tax advisers concerning the
application of state and local taxes.
The Rhode Island Municipal Bond Fund has received a ruling from the
Rhode Island Division of Taxation to the effect that distributions by it to its
shareholders are exempt from Rhode Island personal income taxation and the Rhode
Island business corporation tax to the extent they are derived from (and
designated by the Fund as being derived from) interest earned on Rhode Island
Municipal Securities or obligations of the United States. Distributions from the
Fund's other net investment income and short-term capital gains will be taxable
as ordinary income. Distributions from the Fund's net long-term capital gains
will be taxable as long-term capital gains regardless of how long the
shareholder has owned Fund shares. The tax treatment of distributions is the
same whether distributions are paid in cash or in additional shares of the Fund.
The Rhode Island Municipal Bond Fund will be subject to the Rhode
Island business corporation tax on its "gross income" apportioned to the State
of Rhode Island. For this purpose, gross income does not include interest income
earned by the Fund on Rhode Island Municipal Securities and obligations of the
United States, capital gains realized by the Fund on the sale of certain Rhode
Island Municipal Securities, and 50 percent of the Fund's other net capital
gains.
TAXATION OF CERTAIN FINANCIAL INSTRUMENTS
The tax principles applicable to certain financial instruments and
futures contracts and options that may be acquired by the Funds are complex and,
in some cases, uncertain. Such investments may cause a Fund to recognize taxable
income prior to the receipt of cash, thereby requiring the Fund to liquidate
other positions, or to borrow money, so as to make sufficient distributions to
shareholders to avoid corporate-level tax. Moreover, some or all of the taxable
income recognized may be ordinary income or short-term capital gain, so that the
distributions may be taxable to shareholders as ordinary income.
Generally, futures contracts and options on futures contracts held by
the Funds (as described above) (collectively, the "Instruments") at the close of
their taxable year are treated for federal income tax purposes as sold for their
fair market value on the last business day of such year, a
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<PAGE>
process known as "mark-to-market." Forty percent of any gain or loss resulting
from such constructive sales will be treated as short-term capital gain or loss
and 60% of such gain or loss will be treated as long-term capital gain or loss
without regard to the period a Fund has held the Instruments ("the 40-60 rule").
The amount of any capital gain or loss actually realized by a Fund in a
subsequent sale or other disposition of those Instruments is adjusted to reflect
any capital gain or loss taken into account by the Fund in a prior year as a
result of the constructive sale of the Instruments. With respect to certain
Instruments, deductions for interest and carrying charges may not be allowed.
In accordance with Treasury regulations, certain transactions that are part
of a "Section 988 hedging transaction" (as defined in the Code and Treasury
regulations) may be integrated and treated as a single transaction or otherwise
treated consistently for purposes of the Code. "Section 988 hedging
transactions" are not subject to the mark-to-market or loss deferral rules under
the Code.
MISCELLANEOUS
Shareholders will be advised annually as to the federal income tax
consequences and, with respect to shareholders of the Rhode Island Municipal
Bond Fund, Rhode Island personal income tax consequences of distributions made
each year.
TRUSTEES AND OFFICERS
The business and affairs of the Funds are managed under the direction of
Galaxy's Board of Trustees in accordance with the laws of the Commonwealth of
Massachusetts and the Trust's Declaration of Trust. The trustees and executive
officers of Galaxy, their addresses, principal occupations during the past five
years, and other affiliations are as follows:
<TABLE>
<CAPTION>
Positions Principal Occupation
with The During Past 5 Years
Name and Address and Age Galaxy Fund and Other Affiliations
- ------------------------ ----------- ----------------------
<S> <C> <C>
Dwight E. Vicks, Jr. Chairman & Trustee President & Director, Vicks Lithograph &
Vicks Lithograph & Printing Corporation (book manufacturing
Printing Corporation and commercial printing); Director, Utica
Commercial Drive First Insurance Company; Trustee, Savings
P.O. Box 270 Bank of Utica; Director, Monitor Life
Yorkville, NY 13495 Insurance Company; Director, Commercial
Age 66 Travelers Mutual Insurance Company;
Trustee, The Galaxy VIP Fund; Trustee,
Galaxy Fund II.
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<PAGE>
<CAPTION>
Positions Principal Occupation
with The During Past 5 Years
Name and Address and Age Galaxy Fund and Other Affiliations
- ------------------------ ----------- ----------------------
<S> <C> <C>
John T. O'Neill(1) President, Treasurer Private Investor; Executive Vice President
Hasbro, Inc. & Trustee and CFO, Hasbro, Inc. (toy and game
1011 Newport Avenue manufacturer) until December 31, 1999;
Pawtucket, RI 02862 Trustee, The Galaxy VIP Fund; Trustee,
Age 55 Galaxy Fund II.
Louis DeThomasis Trustee President, Saint Mary's College of
Saint Mary's College Minnesota; Director, Bright Day Travel,
of Minnesota Inc.; Trustee, Religious Communities Trust;
Winona, MN 55987 Trustee, The Galaxy VIP Fund; Trustee,
Age 59 Galaxy Fund II.
Donald B. Miller Trustee Chairman, Horizon Media, Inc. (broadcast
10725 Quail Covey Road services); Director/Trustee, Lexington
Boynton Beach, FL 33436 Funds; Chairman, Executive Committee,
Age 74 Compton International, Inc. (advertising
agency); Trustee, Keuka College; Trustee,
The Galaxy VIP Fund; Trustee, Galaxy Fund
II.
James M. Seed Trustee Chairman and President, The Astra Projects,
The Astra Ventures, Inc. Incorporated (land development); President,
One Citizens Plaza The Astra Ventures, Incorporated
Providence, RI 02903 (previously, Buffinton Box Company -
Age 58 manufacturer of cardboard boxes);
Commissioner, Rhode Island Investment
Commission; Trustee, The Galaxy VIP
Fund; Trustee, Galaxy Fund II.
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<PAGE>
<CAPTION>
Positions Principal Occupation
with The During Past 5 Years
Name and Address and Age Galaxy Fund and Other Affiliations
- ------------------------ ----------- ----------------------
<S> <C> <C>
Bradford S. Wellman(1) Trustee Private Investor; Vice President and
2468 Ohio Street Director, Acadia Management Company
Bangor, ME 04401 (investment services); Director, Essex
Age 68 County Gas Company, until January 1994;
Director, Maine Mutual Fire Insurance Co.;
Member, Maine Finance Authority; Trustee,
The Galaxy VIP Fund; Trustee, Galaxy Fund
II.
W. Bruce McConnel, III Secretary Partner of the law firm Drinker Biddle &
One Logan Square Reath LLP, Philadelphia, Pennsylvania.
18th and Cherry Streets
Philadelphia, PA 19103
Age 57
Jylanne Dunne Vice President and Vice President, PFPC Inc., 1990 to present.
PFPC Inc. Assistant Treasurer
4400 Computer Drive
Westborough, MA 01581-5108
Age 40
William Greilich Vice President Vice President, PFPC Inc., 1991-96; Vice
PFPC Inc. President and Division Manager, PFPC Inc.,
4400 Computer Drive 1996-present.
Westborough, MA 01581-5108
Age 46
</TABLE>
- --------------------------------
1. May be deemed to be an "interested person" within the definition set forth
in Section 2(a)(19) of the 1940 Act.
Effective May 28, 1999, each trustee receives an annual aggregate fee of
$45,000 for his services as a trustee of Galaxy, The Galaxy VIP Fund ("Galaxy
VIP") and Galaxy Fund II ("Galaxy II") (collectively, the "Trusts"), plus an
additional $3,500 for each in-person Galaxy Board meeting attended and $1,500
for each in-person Galaxy VIP or Galaxy II Board meeting attended not held
concurrently with an in-person Galaxy meeting, and is reimbursed for expenses
incurred in attending all meetings. Each trustee also receives $750 for each
telephone Board meeting in which the trustee participates, $1,000 for each
in-person Board committee meeting
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<PAGE>
attended and $500 for each telephone Board committee meeting in which the
trustee participates. The Chairman of the Boards of the Trusts is entitled to an
additional annual aggregate fee in the amount of $4,000, and the President and
Treasurer of the Trusts is entitled to an additional annual aggregate fee of
$2,500 for their services in these respective capacities. The foregoing
trustees' and officers' fees are allocated among the portfolios of the Trusts
based on their relative net assets. Prior to May 28, 1999, each Trustee was
entitled to receive an annual aggregate fee of $40,000 for his services as a
Trustee of the Trusts, plus an additional $2,500 for each in-person Galaxy Board
meeting attended, with all other fees being as those currently in effect.
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 Oechsle,
or any of its affiliates, serves as a trustee, officer or employee of Galaxy.
The trustees and officers of Galaxy own less than 1% of its outstanding shares.
The following chart provides certain information about the fees received by
Galaxy's trustees in the most recently completed fiscal year.
<TABLE>
<CAPTION>
============================================================================================================
Pension or
Retirement
Benefits Total Compensation
Aggregate Accrued as Part from Galaxy and
Compensation From of Fund Fund Complex *Paid
Name of Person/Position Galaxy Expenses to Trustees
----------------------- ------ -------- -----------
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bradford S. Wellman $_______ None $_______
Trustee
- ------------------------------------------------------------------------------------------------------------
Dwight E. Vicks, Jr. $_______ None $_______
Chairman and Trustee
- ------------------------------------------------------------------------------------------------------------
Donald B. Miller** $_______ None $_______
Trustee
- ------------------------------------------------------------------------------------------------------------
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<PAGE>
============================================================================================================
Pension or
Retirement
Benefits Total Compensation
Aggregate Accrued as Part from Galaxy and
Compensation From of Fund Fund Complex *Paid
Name of Person/Position Galaxy Expenses to Trustees
----------------------- ------ -------- -----------
Rev. Louis DeThomasis $_______ None $_______
Trustee
- ------------------------------------------------------------------------------------------------------------
John T. O'Neill $_______ None $_______
President, Treasurer
and Trustee
- ------------------------------------------------------------------------------------------------------------
James M. Seed** $_______ None $_______
Trustee
============================================================================================================
</TABLE>
- ------------------------------------------------
* The "Fund Complex" consists of Galaxy, The Galaxy VIP Fund and Galaxy Fund
II, which comprise a total of 43 separate portfolios.
** Deferred compensation (including interest) in the amounts of $_____ and
$_____ 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.
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.
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<PAGE>
With the exceptions stated, the Declaration of Trust provides that a
trustee is entitled to be indemnified against all liabilities and expenses
reasonably incurred by him in connection with the defense or disposition of any
proceeding in which he may be involved or with which he may be threatened by
reason of his being or having been a trustee, and that the Board of Trustees
shall indemnify representatives and employees of Galaxy to the same extent to
which they themselves are entitled to indemnification.
INVESTMENT ADVISER AND SUB-ADVISER
Fleet serves as investment adviser to the Funds. In its advisory agreement,
Fleet has agreed to provide investment advisory services to the Funds as
described in the Prospectus. 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 Fund and Tax-Exempt Fund, 0.40% of
the average daily net assets of each Fund; (ii) with respect to the U.S.
Treasury Fund, 0.40% of the first $750,000,000 of the Fund's average daily net
assets plus 0.35% of the average daily net assets of the Fund in excess of
$750,000,000; (iii) with respect to the Short-Term Bond, Intermediate Government
Income, High Quality Bond, Rhode Island Municipal Bond, Asset Allocation, Growth
and Income and Equity Growth Funds, 0.75% of each Fund's average daily net
assets; and (iv) with respect to the International Equity Fund, 1.15% of the
first $50 million of the Fund's average daily net assets, plus 0.95% of the next
$50 million of such assets, plus 0.85% of net assets in excess of $100 million.
Fleet is currently waiving a portion of the advisory fees payable by the
Money Market Fund and Tax-Exempt Fund in an amount equal to 0.05% of the average
daily net assets of each Fund to the extent that a Fund's net assets exceed
$750,000,000.
Fleet is currently waiving a portion of the advisory fees payable to it by
the Short-Term Bond, Intermediate Government Income, High Quality Bond and Rhode
Island Municipal Bond Funds so that it is entitled to receive advisory fees at
the annual rate of 0.55% of such Bond Fund's average daily net assets. Fleet may
revise or discontinue this waiver at any time.
During the last three fiscal years, Galaxy paid advisory fees (net of fee
waivers and/or expense reimbursements) to Fleet as set forth below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Money Market(1)....................................................$_________ $11,668,106 $9,458,596
U.S. Treasury(2)...................................................$_________ $3,727,152 $3,439,391
Tax-Exempt(3)......................................................$_________ $1,514,545 $1,275,727
Short-Term Bond(4).................................................$_________ $ 390,913 $ 470,347
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<PAGE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Intermediate Government Income(5)..................................$_________ $1,582,909 $1,535,166
High Quality Bond(6)...............................................$_________ $1,294,758 $1,089,506
Rhode Island Municipal Bond(7).....................................$_________ $ 60,214 $ 37,641
Asset Allocation...................................................$_________ $3,743,922 $2,313,863
Growth and Income..................................................$_________ $3,701,722 $2,361,898
Equity Growth......................................................$_________ $8,345,236 $6,555,045
International Equity(8)............................................$_________ $2,480,868 $1,844,037
</TABLE>
- ---------------
(1) For the fiscal years ended October 31, 1999, October 31, 1998, and October
31, 1997, Fleet waived advisory fees of $__________, $1,238,301 and
$922,657, respectively, with respect to the Money Market Fund.
(2) For the fiscal years ended October 31, 1999, October 31, 1998, and October
31, 1997, Fleet waived advisory fees of $__________, $0 and $0,
respectively, with respect to the U.S. Treasury Fund.
(3) For the fiscal years ended October 31, 1999, October 31, 1998, and October
31, 1997, Fleet waived advisory fees of $__________, $0 and $0,
respectively, with respect to the Tax-Exempt Fund.
(4) For the fiscal years ended October 31, 1999, October 31, 1998, and October
31, 1997, Fleet waived advisory fees of $________, $142,191 and $171,035,
respectively, with respect to the Short-Term Bond Fund.
(5) For the fiscal years ended October 31, 1999, October 31, 1998 and October
31, 1997, Fleet waived advisory fees of $________, $575,603 and $558,241,
respectively, with respect to the Intermediate Government Income Fund.
(6) For the fiscal years ended October 31, 1999, October 31, 1998 and October
31, 1997, Fleet waived advisory fees of $________, $470,821 and $396,183,
respectively, with respect to the High Quality Bond Fund.
(7) For the fiscal years ended October 31, 1999, October 31, 1998 and October
31, 1997, Fleet waived advisory fees of $________, $80,524 and $75,284
respectively, with respect to the Rhode Island Municipal Bond Fund.
(8) For the fiscal years ended October 31, 1999, October 31, 1998, and October
31, 1997, Fleet waived advisory fees of $________, $950,363 and $682,009,
respectively, with respect to the International Equity Fund.
During the last three fiscal years, Fleet reimbursed expenses as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Money Market..................................................... ...$_________ $ 0 $ 17
U.S. Treasury.................................................... ...$_________ $ 0 $ 25,108
Tax-Exempt....................................................... ...$_________ $ 0 $ 15,751
Short-Term Bond Fund.................................................$_________ $ 111 $ 2,300
Intermediate Government Income Fund.............................. ...$_________ $ 0 $ 0
High Quality Bond Fund........................................... ...$_________ $ 0 $ 28,489
Rhode Island Municipal Bond Fund.....................................$_________ $ 0 $ 538
Asset Allocation................................................. ...$_________ $ 0 $ 19,254
Growth and Income....................................................$_________ $150,727 $306,295
Equity Growth.................................................... ...$_________ $ 0 $ 27,033
International Equity............................................. ...$_________ $ 0 $ 18,362
</TABLE>
- ---------------
The advisory agreement provides that Fleet shall not be liable for any
error of judgment
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<PAGE>
or mistake of law or for any loss suffered by the Funds in connection with
the performance of its duties under the advisory agreement, except a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from willful misfeasance, bad
faith or gross negligence on the part of Fleet in the performance of its
duties or from reckless disregard by it of its duties and obligations
thereunder. Unless sooner terminated, the advisory agreement will continue in
effect with respect to a particular Fund from year to year as long as such
continuance is approved at least annually (i) by the vote of a majority of
trustees who are not parties to such advisory agreement or interested persons
(as defined in the 1940 Act) of any such party, cast in person at a meeting
called for the purpose of voting on such approval; and (ii) by Galaxy's Board
of Trustees, or by a vote of a majority of the outstanding shares of such
Fund. The term "majority of the outstanding shares of such Fund" means, with
respect to approval of an advisory agreement, the vote of the lesser of (i)
67% or more of the shares of the Fund present at a meeting, if the holders of
more than 50% of the outstanding shares of the Fund are present or
represented by proxy, or (ii) more than 50% of the outstanding shares of the
Fund. The advisory agreement may be terminated by Galaxy or by Fleet on sixty
days' written notice, and will terminate immediately in the event of its
assignment.
The advisory agreement between Galaxy and Fleet with respect to the
International Equity Fund provides that Fleet will provide a continuous
investment program for the Fund, including research and management with respect
to all securities and investments and cash equivalents in the Fund. In addition,
the advisory agreement authorizes Fleet to engage a sub-adviser to assist it in
the performance of its services. Pursuant to such authorization, Fleet has
appointed Oechsle, a Delaware limited liability company with principal offices
at One International Place, Boston, Massachusetts 02210, as the sub-adviser to
the International Equity Fund. The member manager of Oechsle is Oechsle Group,
LLC. FleetBoston Corporation owns approximately a 35% non-voting interest in
Oechsle. As of December 31, 1999, Oechsle had discretionary management authority
over approximately $___ billion in assets.
Under its sub-advisory agreement with Fleet, Oechsle determines which
securities and other investments will be purchased, retained or sold for the
Fund; places orders for the Fund; manages the Fund's overall cash position; and
provides Fleet with foreign broker research and a quarterly review of
international economic and investment developments. Fleet, among other things,
assists and consults with Oechsle in connection with the Fund's continuous
investment program; approves lists of foreign countries recommended by Oechsle
for investment; reviews the investment policies and restrictions of the Fund and
recommends appropriate changes to the Board of Trustees; and provides the Board
of Trustees and Oechsle with information concerning relevant economic and
political developments. Oechsle will provide services under this agreement in
accordance with the Fund's investment objectives, policies and restrictions.
Unless sooner terminated by Fleet or the Board of Trustees upon sixty days'
written notice or by Oechsle upon ninety days' written notice, the sub-advisory
agreement will continue in effect from year to year as long as such continuance
is approved at least annually as described above.
For the services provided and the expenses assumed pursuant to the
sub-advisory agreement, Fleet pays a fee to Oechsle, computed daily and paid
quarterly, at the annual rate of
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.40% of the first $50 million of the International Equity Fund's average daily
net assets, plus .35% of average daily net assets in excess of $50 million.
For the fiscal years ended October 31, 1999, October 31, 1998 and October
31, 1997; Oechsle and/or its predecessor, Oechsle International Advisors, L.P.,
received sub-advisory fees of $_________, $1,355,508 and $979,810, respectively,
with respect to the International Equity Fund.
Fleet and Oechsle are authorized to allocate purchase and sale orders for
portfolio securities to certain financial institutions, including, to the extent
permitted by law or order of the SEC, financial institutions that are affiliated
with Fleet or Oechsle or that have sold shares of the Funds, if Fleet or
Oechsle, as the case may be, believes that the quality of the transaction and
the commission are comparable to what they would be with other qualified
brokerage firms.
ADMINISTRATOR
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 Bank Corp.
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 with an October 31 fiscal year end, computed daily
and paid monthly, at the following annual rates, effective September 10, 1998:
<TABLE>
<CAPTION>
COMBINED AVERAGE DAILY NET ASSETS ANNUAL RATE
--------------------------------- -----------
<S> <C>
Up to $2.5 billion................. 0.090%
From $2.5 to $5 billion............ 0.085%
From $5 to $12 billion............. 0.075%
From $12 to $15 billion............ 0.065%
From $15 to $18 billion............ 0.060%
Over $18 billion................... 0.0575%
</TABLE>
Prior to September 10, 1998, Galaxy paid PFPC administration fees based on
the combined average daily net assets of the Funds and all other portfolios
offered by Galaxy at the following annual rates:
<TABLE>
<CAPTION>
COMBINED AVERAGE DAILY NET ASSETS ANNUAL RATE
--------------------------------- -----------
<S> <C>
Up to $2.5 billion................. 0.090%
From $2.5 to $5 billion............ 0.085%
Over $5 billion.................... 0.075%
</TABLE>
In addition, PFPC also receives a separate annual fee from each Galaxy portfolio
for certain fund accounting services.
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<PAGE>
From time to time, PFPC may waive voluntarily all or a portion of the
administration fees payable to it by the Funds. For the fiscal year ended
October 31, 1999, the Funds paid PFPC administration fees at the effective
annual rate of ____% of such Fund's average daily net assets.
During the last three fiscal years, PFPC received administration fees (net
of fee waivers) as set forth below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Money Market..................... $_______ $2,596,354 $2,118,433
U.S. Treasury.................... $_______ $ 770,823 $ 720,691
Tax-Exempt....................... $_______ $ 304,716 $ 263,643
Short-Term Bond.................. $_______ $ 57,228 $ 69,851
Intermediate Government Income... $_______ $ 231,595 $ 227,963
High Quality Bond................ $_______ $ 189,406 $ 161,732
Rhode Island Municipal Bond...... $_______ $ 15,172 $ 12,293
Asset Allocation................. $_______ $ 401,495 $ 253,881
Growth and Income................ $_______ $ 413,204 $ 290,324
Equity Growth.................... $_______ $ 895,213 $ 716,320
International Equity............. $_______ $ 305,871 $ 222,620
</TABLE>
During the last three fiscal years, PFPC waived administration fees as set
forth below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Money Market..................... $_______ $0 $0
U.S. Treasury.................... $_______ $0 $0
Tax-Exempt....................... $_______ $0 $0
Short-Term Bond.................. $_______ $0 $0
Intermediate Government Income... $_______ $0 $0
High Quality Bond................ $_______ $0 $0
Rhode Island Municipal Bond...... $_______ $0 $0
Asset Allocation................. $_______ $0 $0
Growth and Income................ $_______ $0 $0
Equity Growth.................... $_______ $0 $0
International Equity............. $_______ $0 $0
</TABLE>
Under the administration agreement between Galaxy and PFPC (the
"Administration Agreement"), Investor Services Group has agreed to maintain
office facilities for Galaxy, furnish Galaxy with statistical and research data,
clerical, accounting, and bookkeeping services, certain other services such as
internal auditing services required by Galaxy, and compute the net asset value
and net income of the Funds. 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.
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<PAGE>
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase Manhattan"), located at One Chase
Manhattan Plaza, New York, New York 10081, a wholly-owned subsidiary of The
Chase Manhattan Corporation, serves as the custodian of the Funds' assets
pursuant to a Global Custody Agreement. Chase Manhattan may employ
sub-custodians for the Funds for the purpose of providing custodial services for
the Funds' foreign assets held outside the United States.
Under the Global Custody Agreement, Chase Manhattan has agreed to: (i)
maintain a separate account or accounts in the name of each Fund; (ii) hold and
disburse portfolio securities on account of each Fund; (iii) collect and make
disbursements of money on behalf of each Fund; (iv) collect and receive all
income and other payments and distributions on account of each Fund's portfolio
securities; (v) respond to correspondence from security brokers and others
relating to its duties; and (vi) make periodic reports to the Board of Trustees
concerning the Funds' operations. Chase Manhattan is authorized to select one or
more banks or trust companies to serve as sub-custodian for the Funds, provided
that Chase Manhattan shall remain responsible for the performance of all of its
duties under the custodian agreement and shall be liable to the Funds for any
loss which shall occur as a result of the failure of a sub-custodian to exercise
reasonable care with respect to the safekeeping of the Funds' assets. In
addition, Chase Manhattan also serves as Galaxy's "foreign custody manager" (as
that term is defined in Rule 17f-5 under the 1940 Act) and in such capacity
employs sub-custodians for the Funds for the purpose of providing custodial
services for the foreign assets of those Funds held outside the U.S. The assets
of the Funds are held under bank custodianship in compliance with the 1940 Act.
PFPC serves as the Funds' transfer and dividend disbursing agent pursuant
to a Transfer Agency and Services Agreement (the "Transfer Agency Agreement").
Communications to PFPC should be directed to PFPC at P.O. Box 5108, 4400
Computer Drive, Westborough, Massachusetts 01581. Under the Transfer Agency
Agreement, PFPC has agreed to: (i) issue and redeem shares of each Fund; (ii)
transmit all communications by each Fund to its shareholders of record,
including reports to shareholders, dividend and distribution notices and proxy
materials for meetings of shareholders; (iii) respond to correspondence by
security brokers and others relating to its duties; (iv) maintain shareholder
accounts; and (v) make periodic reports to the Board of Trustees concerning
Galaxy's operations.
EXPENSES
Fleet, Oechsle 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,
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<PAGE>
administration, shareholder servicing, Rule 12b-1 distribution (if applicable),
fund accounting and custody fees; charges of the transfer agent and dividend
disbursing agent; certain insurance premiums; outside auditing and legal
expenses; costs of independent pricing services; costs of shareholder reports
and meetings; and any extraordinary expenses. The Funds also pay for brokerage
fees and commissions in connection with the purchase of portfolio securities.
PORTFOLIO TRANSACTIONS
Fleet or Oechsle will select specific portfolio investments and effect
transactions for the Funds. Fleet seeks to obtain the best net price and the
most favorable execution of orders. Fleet or Oechsle may, in its discretion,
effect transactions in portfolio securities with dealers who provide research
advice or other services to the Funds, Fleet or Oechsle. Fleet or Oechsle is
authorized to pay a broker or dealer who provides such brokerage and research
services a commission for executing a portfolio transaction for any Fund which
is in excess of the amount of commission another broker or dealer would have
charged for effecting that transaction if Fleet or Oechsle determines in good
faith that such commission was reasonable in relation to the value of the
brokerage and research services provided by such broker or dealer, viewed in
terms of either that particular transaction or Fleet or Oechsle's overall
responsibilities to the particular Fund and to Galaxy. Such brokerage and
research services might consist of reports and statistics relating to specific
companies or industries, general summaries of groups of stocks or bonds and
their comparative earnings and yields, or broad overviews of the stock, bond and
government securities markets and the economy. The fees under the investment
advisory agreements between Galaxy and Fleet and Fleet and Oechsle are not
reduced by reason of receiving such brokerage and research services. The Board
of Trustees will periodically review the commissions paid by the Funds to
determine if the commissions paid over representative periods of time were
reasonable in relation to the benefits inuring to the Funds.
During the fiscal year ended October 31, 1999, the following Funds paid
soft dollar commissions as shown below:
<TABLE>
<CAPTION>
FUND COMMISSIONS
---- -----------
<S> <C>
Asset Allocation.................. $_______
Growth and Income................. $_______
Equity Growth..................... $_______
International Equity.............. $_______
</TABLE>
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
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<PAGE>
agency or instrumentality. No brokerage commissions are typically paid on
purchases and sales of U.S. Government Securities.
The following Funds paid brokerage commissions as shown in the table below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Asset Allocation................. $_______ $225,758 $155,296
Growth and Income................ $_______ $511,307 $851,919
Equity Growth.................... $_______ $1,128,464 $7,006,331
International Equity............. $_______ $841,389 $851,919
</TABLE>
During the period February 1, 1998 through October 31, 1998 and the fiscal
year ended October 31, 1999, certain Funds effected a portion of their portfolio
transactions through Quick & Reilly Institutional Trading ("Quick & Reilly"), a
division of Fleet Securities, Inc., which is an affiliate of Fleet. The table
below discloses (1) the aggregate amount of commissions paid to Quick & Reilly
by the Funds during the period ended October 31, 1998 and the fiscal year ended
October 31, 1999, (2) the percentage of each Fund's aggregate brokerage
commissions for the period ended October 31, 1998 and the fiscal year ended
October 31, 1999 that was paid to Quick & Reilly, and (3) the percentage of each
Fund's aggregate dollar amount of transactions that involved payment of
commissions that was effected through Quick & Reilly during the period ended
October 31, 1998 and the fiscal year ended October 31, 1999.
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1998:
% OF
% OF AGGREGATE
AGGREGATE AGGREGATE COMMISSION
FUND AMOUNT COMMISSIONS TRANSACTIONS
- ---- ------ ----------- ------------
<S> <C> <C> <C>
Asset Allocation................. $130,968 72.93% 78.11%
Growth and Income................ $118,050 32.53% 32.56%
Equity Growth.................... $56,784 5.76% 8.21%
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1999:
% OF
% OF AGGREGATE
AGGREGATE AGGREGATE COMMISSION
FUND AMOUNT COMMISSIONS TRANSACTIONS
- ---- ------ ----------- ------------
<S> <C> <C> <C>
Asset Allocation................. $ % %
Growth and Income................ $ % %
Equity Growth.................... $ % %
</TABLE>
Transactions in the over-the-counter market are generally principal
transactions with dealers and the costs of such transactions involve dealer
spreads rather than brokerage commissions. With respect to over-the-counter
transactions, Fleet will normally deal directly
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<PAGE>
with the dealers who make a market in the securities involved except in those
circumstances where better prices and execution are available elsewhere or as
described below.
Debt securities purchased or sold by the Money Market, U.S. Treasury,
Tax-Exempt, Short-Term Bond, Intermediate Government Income, High Quality Bond
and Rhode Island 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 and underwriting commission or
concession, and the prices at which securities are purchased from and sold to
dealers include a dealers' mark-up or mark-down.
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 Money Market, U.S. Treasury and Tax-Exempt 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, Oechsle, PFPC, or their affiliates, and will
not give preference to affiliates and correspondent banks of Fleet with respect
to such transactions.
Galaxy is required to identify any securities of its "regular brokers or
dealers" that the Funds have acquired during Galaxy's most recent fiscal year.
At October 31, 1999, [to be provided by PFPC].
Investment decisions for each Fund are made independently from those for
the other Funds and portfolios of Galaxy and for any other investment companies
and accounts advised or managed by Fleet or Oechsle. When a purchase or sale of
the same security is made at substantially the same time on behalf of a Fund,
another portfolio of Galaxy, and/or another investment company or account, the
transaction will be averaged as to price, and available investments allocated as
to amount, in a manner which Fleet or Oechsle believes to be equitable to the
Fund and such other portfolio, investment company or account. In some instances,
this investment procedure may adversely affect the price paid or received by a
Fund or the size of the position obtained or sold by such Fund. To the extent
permitted by law, Fleet or Oechsle may aggregate the securities to be sold or
purchased for a Fund with those to be sold or purchased for Galaxy's other Funds
and portfolios, or other investment companies or accounts in order to obtain
best execution.
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<PAGE>
SHAREHOLDER SERVICES PLANS
BKB SHARES
Galaxy has adopted a 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 Money Market, U.S.
Treasury and Tax-Exempt Funds, up to .25% of the average daily net asset value
of BKB Shares owned by customers, (ii) with respect tot he Short-Term Bond,
Intermediate Government Income, High Quality Bond and Rhode Island Municipal
Bond Funds, up to .30% of the average daily net asset value of BKB Shares
owned by customers, and (iii) with respect to the Asset Allocation, Growth and
Income, Equity Growth and International Equity Funds, up to .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: aggregating and processing
purchase and redemption requests and placing net purchase and redemption
orders with PDI; processing dividend payments from a Fund; providing
sub-accounting with respect to BKB Shares or the information necessary for
sub-accounting; and providing periodic mailings to customers. Institutions may
also receive up to one-half of this fee for providing one or more of these
additional services to such customers: providing customers with information as
to their positions in BKB Shares; responding to customer inquiries; and
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 Money
Market, U.S. Treasury and Tax-Exempt Funds, .10% of the average daily net asset
value of the BKB Shares of each Fund beneficially owned by customers of
institutions, (ii) with respect to the Short-Term Bond, Intermediate Government
Income, High Quality Bond and Rhode Island Municipal Bond Funds, .15% of the
average daily net asset value of the BKB Shares of each Fund beneficially owned
by customers of institutions, and (iii) with respect to the Asset Allocation,
Growth and Income, Equity Growth and International Equity Funds, .30% of the
average daily net asset value of the BKB Shares of the Fund beneficially owned
by customers of institutions. Galaxy understands that institutions may charge
fees to their customers who are the beneficial owners of BKB Shares in
connection with their accounts with such institutions. Any such fees would be in
addition to any amounts which may be received by an institution under the BKB
Plan. Under the terms of each servicing agreement entered into with Galaxy,
institutions are required to provide to their customers a schedule of any fees
that they may charge in connection with customer investments in BKB Shares.
Each Servicing Agreement between Galaxy and a Service Organization relating
to the BKB Plan requires that, with respect to those Funds which declare
dividends on a daily basis, the
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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 trustees who are not
"interested persons" of Galaxy as defined in the 1940 Act and who have no direct
or indirect financial interest in such arrangements (the "Disinterested
Trustees").
The Board of Trustees has approved Galaxy's arrangements with Service
Organizations based on information provided by Galaxy's service contractors that
there is a reasonable likelihood that the arrangements will benefit the Funds
and their shareholders by affording Galaxy greater flexibility in connection
with the efficient servicing of the accounts of the beneficial owners of 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.
RETAIL A SHARES
Galaxy has adopted a separate 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 the
Retail A Shares. The Plan provides that Galaxy will pay fees for such services
at the following annual rates: (i) with respect to the Money Market, U.S.
Treasury and Tax-Exempt Funds, up to .25% of the average daily net asset value
of BKB Shares owned by customers, (ii) with respect to the Short-Term Bond,
Intermediate Government Income, High Quality Bond and Rhode Island Municipal
Bond Funds, up to .30% of the average daily net asset value of BKB Shares owned
by customers, and (iii) with respect to the Asset Allocation, Growth and Income,
Equity Growth and International Equity Funds, up to .50% of the average daily
net asset value of Retail A Shares owned beneficially by customers. Institutions
may receive up to one-half of this fee for providing one or more of the
following services to such customers: aggregating and processing purchase and
redemption requests and placing net purchase and redemption orders with PDI;
processing dividend payments from a Fund; providing sub-accounting with respect
to Retail A Shares or the information necessary for sub-accounting; and
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<PAGE>
providing periodic mailings to customers. Institutions may also receive up to
one-half of this fee for providing one or more of these additional services to
such customers: providing customers with information as to their positions in
Retail A Shares; responding to customer inquiries; and providing a service to
invest the assets of customers in Retail A Shares.
Although the Retail A Plan has been approved with respect to both Retail A
Shares and Trust Shares of the Funds, as of the date of this Statement of
Additional Information, Galaxy has entered into servicing agreements under the
Retail A Plan only with respect to Retail A Shares of the Funds and limiting
payments under these servicing agreements for each Fund to an annual aggregate
fee of not more than (i) with respect to the Money Market, U.S. Treasury and
Tax-Exempt Funds, .10% of the average daily net asset value of the Retail A
Shares of each Fund beneficially owned by customers of institutions, (ii) with
respect to the Short-Term Bond, Intermediate Government Income, High Quality
Bond and Rhode Island Municipal Bond Funds, .15% of the average daily net asset
value of BKB Shares beneficially owned by customers of institutions, and (iii)
with respect to the Asset Allocation, Growth and Income, Equity Growth and
International Equity Fund, .30% of the average daily net asset value of the
Retail A Shares of the Fund beneficially owned by customers of institutions.
Galaxy understands that institutions may charge fees to their customers who are
the beneficial owners of Retail A Shares in connection with their accounts with
such institutions. Any such fees would be in addition to any amounts which may
be received by an institution under the Shareholder Services Plan. Under the
terms of each servicing agreement entered into with Galaxy, institutions are
required to provide to their customers a schedule of any fees that they may
charge in connection with customer investments in Retail A Shares. As of October
31, 1999, Galaxy had entered into Servicing Agreements only with Fleet Bank and
affiliates.
Each Servicing Agreement between Galaxy and a 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 agree to waive a portion of
the servicing fee payable to it under the Services Plan to the extent necessary
to ensure that the fees required to be accrued with respect to the Retail A
Shares of such Funds on any day do not exceed the income to be accrued to such
Retail A Shares on that day.
During the last three fiscal years, Galaxy made payments to Service
Organizations with respect to Retail A Shares as shown in the table below:
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<PAGE>
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Money Market..................... $_________ $2,057,474 $1,430,359
U.S. Treasury.................... $_________ $ 569,986 $ 507,400
Tax-Exempt....................... $_________ $ 163,842 $ 133,048
Short-Term Bond.................. $_________ $ 41,334 $ 43,131
Intermediate Government Income... $_________ $ 97,753 $ 102,805
High Quality..................... $_________ $ 52,525 $ 35,749
Rhode Island Municipal Bond...... $_________ $0 $0
Asset Allocation................. $_________ $ 763,611 $ 412,384
Growth and Income................ $_________ $ 472,627 $ 324,069
Equity Growth.................... $_________ $ 841,650 $ 558,695
International Equity............. $_________ $ 191,712 $ 102,465
</TABLE>
Galaxy's Servicing Agreements are governed by the Retail A Plan that has
been adopted by Galaxy's Board of Trustees in connection with the offering of
Retail A Shares of each Fund. Pursuant to the Retail A Plan, the Board of
Trustees reviews, at least quarterly, a written report of the amounts paid under
the Servicing Agreements and the purposes for which the expenditures were made.
In addition, the arrangements with Service Organizations must be approved
annually by a majority of Galaxy's trustees, including a majority of the
trustees who are not "interested persons" of Galaxy as defined in the 1940 Act
and who have no direct or indirect financial interest in such arrangements (the
"Disinterested Trustees").
The Board of Trustees has approved Galaxy's arrangements with Service
Organizations based on information provided by Galaxy's service contractors that
there is a reasonable likelihood that the arrangements will benefit the Funds
and their shareholders by affording Galaxy greater flexibility in connection
with the efficient servicing of the accounts of the beneficial owners of Retail
A Shares of the Funds. Any material amendment to Galaxy's arrangements with
Service Organizations must be approved by a majority of Galaxy's Board of
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.
DISTRIBUTOR
PDI serves as Galaxy's distributor. Jane Haegele is the sole shareholder of
PDI.
Unless otherwise terminated, the Distribution Agreement between Galaxy and
PDI remains in effect until December 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
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<PAGE>
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
[____________], independent auditors, with offices at [____________], serve
as auditors for Galaxy. The financial highlights for the respective Funds
included in the Prospectus and the financial statements for the Funds contained
in Galaxy's Annual Reports and [____________] into this Statement of Additional
Information for the fiscal year ended October 31, 1999 have been audited by
[____________]. For the respective fiscal years and periods prior to October 31,
1999, the financial highlights for the Funds included in the Prospectus and the
financial statements for such years and periods contained in the Annual Reports
were audited by [____________], Galaxy's former auditors.
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 Ropes & Gray, One International Place,
Boston, Massachusetts 02110-2624 serves as special Rhode Island Counsel to
Galaxy and has reviewed this Statement of Additional Information and the
Prospectus with respect to the Rhode Island Municipal Bond Fund concerning Rhode
Island taxes and the description of special consideration relating to Rhode
Island Municipal Securities.
PERFORMANCE AND YIELD INFORMATION
MONEY MARKET, U.S. TREASURY AND TAX-EXEMPT FUNDS
The standardized annualized seven-day yields for the Money Market, U.S.
Treasury and Tax-Exempt 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
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<PAGE>
securities and unrealized appreciation and depreciation. The effective compound
yield quotation for each Fund is computed by adding 1 to the unannualized base
period return (calculated as described above), raising the sum to a power equal
to 365 divided by 7, and subtracting 1 from the result.
In addition, the Tax-Exempt Fund may calculate a "tax equivalent yield."
The tax equivalent yield is computed by dividing that portion of a Fund's yield
which is tax-exempt by one minus a stated income tax rate and adding the product
to that portion, if any, of the Fund's computed yield that is not tax-exempt.
Tax equivalent yields assume the payment of federal income taxes at a rate of
31%.
The current yields for the Funds may be obtained by calling PDI at
1-877-BUY-GALAXY (1-877-289-4252).
The U.S. Treasury Fund may calculate a "state flow through yield," which
shows the level of taxable yield needed to produce an after-tax yield equivalent
to a particular state's tax-exempt yield achieved by the Fund. The state flow
through yield refers to that portion of income that is derived from interest
income on direct obligations of the U.S. Government, its agencies or
instrumentalities and which qualifies for exemption from state taxes. The yield
calculation assumes that 100% of the interest income is exempt from state
personal income tax. A state flow through yield is computed by dividing that
portion of the Fund's yield which is tax-exempt by one minus a stated income tax
rate.
SHORT-TERM BOND, INTERMEDIATE GOVERNMENT INCOME, HIGH QUALITY BOND, RHODE ISLAND
MUNICIPAL BOND, ASSET ALLOCATION, GROWTH AND INCOME, EQUITY GROWTH AND
INTERNATIONAL EQUITY FUNDS
Investment returns and principal values will vary with market conditions so
that an investor's shares, when redeemed, may be worth more or less than their
original cost. Past performance is no guarantee of future results. Unless
otherwise indicated, total return figures include changes in share price,
deduction of any applicable sales charge, and reinvestment of dividends and
capital gains distributions, if any.
The Funds' 30-day (or one month) standard yields are calculated separately
for each series of shares in each Fund in accordance with the method prescribed
by the SEC for mutual funds:
6
YIELD = 2[(a-b)/cd +1 ) - 1]
Where: a = dividends and interest earned by a Fund during the period;
b = expenses accrued for the period (net of reimbursements);
c = average daily number of shares outstanding during the period
entitled to receive dividends; and
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<PAGE>
d = maximum offering price per share on the last day of the period.
For the purpose of determining net investment income earned during the period
(variable "a" in the formula), dividend income on equity securities held by a
Fund is recognized by accruing 1/360 of the stated dividend rate of the security
each day that the security is in the Fund. Except as noted below, interest
earned on debt obligations held by a Fund is calculated by computing the yield
to maturity of each obligation based on the market value of the obligation
(including actual accrued interest) at the close of business on the last
business day of each month, or, with respect to obligations purchased during the
month, the purchase price (plus actual accrued interest) and dividing the result
by 360 and multiplying the quotient by the market value of the obligation
(including actual accrued interest) in order to determine the interest income on
the obligation for each day of the subsequent month that the obligation is held
by the Fund. For purposes of this calculation, it is assumed that each month
contains 30 days. The maturity of an obligation with a call provision is the
next call date on which the obligation reasonably may be expected to be called
or, if none, the maturity date. With respect to debt obligations purchased at a
discount or premium, the formula generally calls for amortization of the
discount or premium. The amortization schedule will be adjusted monthly to
reflect changes in the market value of such debt obligations. Expenses accrued
for the period (variable "b" in the formula) include all recurring fees charged
by a Fund to all shareholder accounts in proportion to the length of the base
period and the Fund's mean (or median) account size. Undeclared earned income
will be subtracted from the offering price per share (variable "d" in the
formula).
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 the then-remaining portion of the original issue discount (market premium),
the yield to maturity is based on the market value.
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<PAGE>
The "tax-equivalent" yield of the Rhode Island Municipal Bond Fund 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.
Each Fund that advertises its "average annual total return" computes such
return separately for each series of shares by determining the average annual
compounded rate of return during specified periods that equates the initial
amount invested to the ending redeemable value of such investment according to
the following formula:
1/n
T = [(ERV/P) - 1]
Where: T = average annual total return;
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the l, 5 or 10 year (or other)
periods at the end of the applicable period (or a
fractional portion thereof);
P = hypothetical initial payment of $1,000; and
n = period covered by the computation, expressed in years.
Each Fund that advertises its "aggregate total return" computes such
returns separately for each series of shares by determining the aggregate
compounded rates of return during specified periods that likewise equate the
initial amount invested to the ending redeemable value of such investment. The
formula for calculating aggregate total return is as follows:
Aggregate Total Return = [(ERV/P) - l]
The calculations are made assuming that (1) all dividends and capital gain
distributions are reinvested on the reinvestment dates at the price per share
existing on the reinvestment date, (2) all recurring fees charged to all
shareholder accounts are included, and (3) for any account fees that vary with
the size of the account, a mean (or median) account size in the Fund during the
periods is reflected. The ending redeemable value (variable "ERV" in the
formula) is determined by assuming complete redemption of the hypothetical
investment after deduction of all nonrecurring charges at the end of the
measuring period.
TAX-EQUIVALENCY TABLE - RHODE ISLAND MUNICIPAL BOND FUND
The Rhode Island Municipal Bond Fund 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 from the regular personal income tax imposed by Rhode
Island. Some portion of the Fund's income may, however, be subject to the
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federal alternative minimum tax and state and local regular or alternative
minimum taxes. As the tables below indicate, "tax-free" investments may be
attractive choices for investors, particularly in times of narrow spreads
between "tax-free" and taxable yields.
The charts below are for illustrative purposes only and use tax brackets
that were in effect beginning January 1, 1999. These are not indicators of past
or future performance of the Rhode Island Municipal Bond Fund.
Note: The maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent for each chart. Furthermore, additional
state and local taxes paid on comparable taxable investments were not used to
increase federal deductions. Moreover, the charts do not reflect the possible
effect of all items relating to the effective marginal tax rate, such as
alternative minimum tax, personal exemptions, tax credits, the phase-out of
exemptions or credits, itemized deductions (including the federal deduction for
state taxes paid) or the possible partial disallowance of deductions.
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1999
STATE OF RHODE ISLAND
<S> <C> <C> <C> <C> <C>
Federal Tax Bracket: 15.00% 28.00% 31.00% 36.00% 39.60%
Combined Federal and State: 18.98% 35.42% 39.22% 45.54% 50.09%
Joint Return: $0-43,050 $43,051-104,050 $104,051-158,550 $158,551-283,150 Over $283,151
Single Return: $0-25,750 $25,751-62,450 $62,451-130,250 $130,251-283,150 Over $283,151
Tax-Exempt Yield:
<CAPTION>
TAXABLE YIELD EQUIVALENT
<S> <C> <C> <C> <C> <C>
1.50% 1.85% 2.32% 2.47% 2.75% 3.01%
2.00% 2.47% 3.10% 3.29% 3.67% 4.01%
2.50% 3.09% 3.87% 4.11% 4.59% 5.01%
3.00% 3.70% 4.65% 4.94% 5.51% 6.01%
3.50% 4.32% 5.42% 5.76% 6.43% 7.01%
4.00% 4.94% 6.19% 6.58% 7.34% 8.01%
4.50% 5.55% 6.97% 7.40% 8.26% 9.02%
5.00% 6.17% 7.74% 8.23% 9.18% 10.02%
5.50% 6.79% 8.52% 9.05% 10.10% 11.02%
6.00% 7.41% 9.29% 9.87% 11.02% 12.02%
</TABLE>
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 Asset Allocation, Growth and
Income, Equity Growth and International Equity Funds 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
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Industrial Average, a recognized unmanaged index of common stocks of 30
industrial companies listed on the New York Stock Exchange. In addition, the
performance of the International Equity Fund may be compared to the Morgan
Stanley Capital International Index or the FT World Actuaries Index.
Performance data as reported in national financial publications including,
but not limited to, MONEY MAGAZINE, FORBES, BARRON'S, THE WALL STREET JOURNAL
and THE NEW YORK TIMES, or publications of a local or regional nature may also
be used in comparing the performance of the Funds. The Money Market, U.S.
Treasury and Tax-Exempt 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.
The performance of the Funds will fluctuate and any quotation of
performance should not be considered as representative of the future performance
of the Funds. Since yields fluctuate, yield data cannot necessarily be used to
compare an investment in a Fund's shares with bank deposits, savings accounts
and similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that
performance data are generally functions of the kind and quality of the
instruments held in a portfolio, portfolio maturity, operating expenses, and
market conditions. Any additional fees charged by institutions with respect to
accounts of customers that have invested in shares of a Fund will not be
included in performance calculations.
The portfolio managers of the Funds and other investment professionals may
from time to time discuss in advertising, sales literature or other material,
including periodic publications, various topics of interest to shareholders and
prospective investors. The topics may include but are not limited to the
advantages and disadvantages of investing in tax-deferred and taxable
investments; Fund performance and how such performance may compare to various
market indices; shareholder profiles and hypothetical investor scenarios; the
economy; the financial and capital markets; investment strategies and
techniques; investment products; and tax, retirement and investment planning.
MISCELLANEOUS
As used in this Statement of Additional Information, "assets belonging to"
a particular Fund or series of a Fund means the consideration received by Galaxy
upon the issuance of shares in that particular Fund or series of the Fund,
together with all income, earnings, profits, and proceeds derived from the
investment thereof, including any proceeds from the sale of such investments,
any funds or payments derived from any reinvestment of such proceeds and a
portion of any general assets of Galaxy not belonging to a particular series or
Fund. In determining the net asset value of a particular series of a Fund,
assets belonging to the particular series of the Fund are charged with the
direct liabilities in respect of that series and with a share of the general
liabilities of Galaxy, which are allocated in proportion to the relative asset
values 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
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<PAGE>
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 November 30, 1999, the name, address and share ownership of the
entities or persons that held of record more than 5% of the outstanding Trust
Shares of each of Galaxy's investment portfolios (including shares of the
Institutional Government Money Market Fund) were as follows: Money Market Fund
- -- Fleet New York, Fleet Investment Services, 159 East Main Street, NY/RO/TO3C,
Rochester, NY 14638, Account 00000150286 (99.87%); Tax-Exempt Money Market Fund
- -- Fleet New York, Fleet Investment Services, 159 East Main Street, NY/RO/TO3C,
Rochester, NY 14638, Account 00000007717 (100.00%); Government Money Market Fund
- --Fleet New York, Fleet Investment Services, 159 East Main Street, NY/RO/TO3C,
Rochester, NY 14638, Account 00000012621 (98.58%); Equity Value Fund -- Gales &
Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000000064 (76.43%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000003204 (14.55%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000011551 (7.23%); Equity Growth Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000082 (70.31%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000010017 (15.31%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000030718 (14.04%); Equity Income Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000015771 (48.75%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000003748 (36.92%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000000037 (13.37%); International Equity Fund --Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000073 (42.99%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000000876 (39.29%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000004088 (14.13%);
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Growth and Income Fund -- Gales & Co., Fleet Investment Services, Mutual Funds
Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638, Account
05000503793 (76.73%); Gales & Co., Fleet Investment Services, Mutual Funds Unit
- - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638, Account 05000503873
(19.78%); Asset Allocation Fund -- Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000000073 (93.27%); Gales & Co., Fleet Investment Services, Mutual
Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638, Account
00000002598 (5.98%); Small Company Equity -- Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000000046 (66.04%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000001492 (24.41%); Gales & Co., Fleet Investment Services, Mutual
Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638, Account
00000006102 (7.33%); Institutional Treasury Money Market Fund -- Fleet New York,
Fleet Investment Services, 159 East Main Street, NY/RO/TO3C, Rochester, NY
14638, Account 00000000019 (91.11%); Luitpold Pharmaceuticals Inc., Kirk
Sobecki, CFO, Attn: Harold Noviello, One Luitpold Drive, Shirley, NY 11967,
Account 05100281441 (7.02%); Small Cap Value Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 05000503999 (48.74%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 05000503917 (31.01%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 05000503953 (19.77%); Strategic Equity Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 5100115522 (97.48%); Intermediate Government Income
Fund -- Gales & Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A,
159 East Main Street, Rochester, NY 14638, Account 00000038408 (38.48%); Gales &
Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000007183 (34.80%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000037 (26.20%); High Quality Bond Fund --
Gales & Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East
Main Street, Rochester, NY 14638, Account 00000000037 (62.76%); Gales & Co.,
Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000001465 (24.53%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000006095 (12.37%); Short-Term Bond Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000008627 (31.48%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000000064 (46.43%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000001090 (21.82%); Tax-Exempt Bond Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000005899 (34.38%) Gales & Co, Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000000028 (38.95%); Gales and Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account
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00000000670 (26.42%); Connecticut Municipal Bond Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000019 (74.69%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000000037 (24.84%); Massachusetts Municipal Bond Fund -- Gales
& Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000000019 (48.96%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000073 (49.06%); Corporate Bond Fund -- Gales
& Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000000046 (44.33%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000006102 (36.50%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000001492 (12.65%); New Jersey Municipal Bond Fund -- Gales &
Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/T04A, 159 East Main
Street, Rochester, NY 14638, Account 5100115489 (51.69%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 5100115504 (35.56%); BOB & Co., c/o Bank of Boston,
Attn: Mutual Fund Dept. 45-02-06, P.O. Box 1809, Boston, MA 02105, Account
5102076990 (12.74%); and New York Municipal Bond Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000019 (9.36%); Gales & Co., Fleet Investment
Services, Mutual Fund Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000001107 (70.04%); Gales & Co., Fleet Investment Services,
Mutual Fund Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000005292 (14.85%); BOB & Co., c/o Bank of Boston, Attn: Mutual Fund
Dept. 45-02-06, P.O. Box 1809, Boston, MA 02105, Account 5102076990 (5.68%).
As of November 30, 1999, the name, address and share ownership of the
entities or persons that held of record more than 5% of the outstanding Retail A
Shares of each of Galaxy's investment portfolios (including shares of the
Connecticut Municipal Money Market and Massachusetts Municipal Money Market
Funds) were as follows: Tax-Exempt Money Market Fund -Ellsworth Kelly, P.O. Box
151, 45 South Street, Spencertown, NY 12165, Account 0000063825 (6.99%); U.S.
Treasury Money Market Fund -- US Clearing, a Division of Fleet Securities Inc.,
26 Broadway, New York, NY 10004, Account 05100115684 (10.40%); Massachusetts
Municipal Money Market Fund -- Fleet New York, Fleet Investment Services, 159
East Main St., NY/RO/TO3C, Rochester, NY 14638, Account 05100058503 (61.34%);
Connecticut Municipal Money Market Fund -- Fleet New York, Fleet Investment
Services, 159 East Main St., NY/RO/TO3C, Rochester, NY 14638, Account
05100058521 (48.64%); William L. Bucknall & Norma Lee Bucknall, 5 Oak Ridge
Drive, Bethany, CT 06524, Account 0000002259 (5.16%); Rhode Island Municipal
Bond Fund --Gales & Co., Fleet Investment Services, Mutual Funds Unit -
NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638, Account 00000001492
(40.88%); James R. McCulloch, c/o Microfibre, PO Box 1208, Pawtucket, RI 02860,
Account 05000414933 (9.11%); New York Municipal Bond Fund -- Marilyn J.
Brantley, 5954 Van Allen Road, Belfast, NY 14711, Account 05100977627 (11.78%);
New Jersey Municipal Bond Fund -- Jeffery W. Golden, 7 Hampton Ridge CT, Old
Tappan, NJ
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07675, Account 05100780704 (16.09%); John W. Maki & Kimberly McGrath Maki JT, 1
Connet Lane, Mendham, NJ, 07945, Account 05100011377 (33.47%); US Clearing
Corp., FBO 979-06374-12, 26 Broadway, New York, NY 10004-1798, Account
07000100574 (27.89%); Serene W. Peng, 70 Chelsea, Watchung, NJ 07060, Account
5101583480 (17.19%); Tax-Exempt Bond Fund -- Danny Schulman, 9 Corn Mill Ct.,
Upper Saddle River, NJ 07458, Account 510116598 (6.11%); and Massachusetts
Municipal Bond Fund -- New England Realty Assoc., Robert Blank, Ronald Brown,
Harold Brown and Carl Veleri, 39 Brighton Ave., Boston MA 02134, Account
5100587013 (6.59%).
As of November 30, 1999, the name, address and share ownership of the
entities or persons that held of record more than 5% of the outstanding Retail B
Shares of each of Galaxy's investment portfolios were as follows: Money Market
Fund -- Worldmark Master Fund, LLC, D. Dean Rhodes auth. officer or Richard J.
Gates (investment adviser), 11466 Old Harber Road, N. Palm Beach, FL 33408,
Account 5102031823 (18.24%); Worldmark Master Fund, LLC, D. Dean Rhodes auth.
officer or Richard J. Gates (investment adviser) 11465 Old Harbor Road, N. Palm
Beach, FL 33408, Account 5102074064 (20.78%); Intermediate Government Income
Fund; Adriana Vita, 345 Park Avenue, New York, NY 10154, Account 05101563377
(8.84%); Short-Term Bond Fund -- Elizabeth Mugar, 10 Chestnut St., Apt. 1808,
Springfield, MA 01103, Account 5100760012 (7.15%); Chelsea Police Relief Assoc.,
John R. Phillips, Treasurer, and Michael McCona, Clerk, 180 Crescent Avenue,
Chelsea, MA 02150, Account 0970036155 (13.23%); Josve Colon, Cust., Hazel Colon
UGMA CT, 400 LaSalle Street, New Britain, CT 06051, Account 5101157039 (7.37%);
U.S. Clearing Corp., FBO 978-02086-18, Eugene J. Margaret Dunscomb, 505 Apple
Tree Lane, Brewster, NY 10509-6004, Account 70000100609 (7.09%); Tax-Exempt Bond
Fund -- David Fendler & Sylvia Fendler JT WROS, 72 Brinkerhoff Ave., Stamford,
CT 06905, Account 05100255354 (7.48%); Frances E. Stady, P.O. Box 433, 3176 Main
Street, Yorkshire, NY 14173, Account 05102027437 (5.84%); and Strategic Equity
Fund -- Betsey Tan, 7 Donovan's Lane, Natick, MA 01760, Account 05101043778
(7.41%).
As of November 30 , 1999, the name, address and share ownership of the
entities or persons that held beneficially more than 5% of the outstanding Trust
Shares of each of Galaxy's investment portfolios were as follows: Money Market
Fund--Stable Asset Fund, c/o Norstar Trust Co., Gales & Co., 159 East Main
Street, Rochester, NY 14638, (12.05%); Hope-Sayles Trust, c/o Norstar Trust Co.,
Gales & Co., 159 East Main Street, Rochester, NY 14638, (10.65%); Government
Money Fund -- AMS Trust Account, c/o Norstar Trust Co., Gales & Co., 159 East
Main Street, Rochester, NY 14638, (9.76%); Beacon Mutual Insurance Co., c/o
Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638 (6.33%); U.S.
Treasury Money Fund -- Loring Walcott Client Sweep Acct., c/o Norstar Trust Co.,
Gales & Co., 159 East Main, Rochester, NY 14638, (23.17%); Equity Value
Fund--Fleet Savings Plus-Equity Value, c/o Norstar Trust Co., Gales & Co., 159
East Main, Rochester, NY 14638, (24.21%); Equity Growth Fund--Fleet Savings
Plus-Equity Growth, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638, (23.54%); Nusco Retiree Health VEBA Trust, c/o Norstar
Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638, (6.82%);
International Equity Fund--FFG International Equity Fund, c/o Norstar Trust Co.,
Gales & Co., 159 East Main, Rochester, NY 14638, (12.68%); Fleet Savings
Plus-Intl. Equity, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester,
NY 14638, (9.82%); Intermediate Government Income Fund -- Nusco Retiree Health
VEBA Trust, c/o Norstar
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Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638 (6.44%); Strategic
Equity Fund--FFG Retirement & Pension VDG, c/o Fleet Financial Group, 159 East
Main, Rochester, NY 14638, (93.39%); High Quality Bond Fund--Fleet Savings Plus
Plan-HQ Bond, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY
14638 (19.60%); Asset Allocation Fund--Fleet Savings Plus-Asset Allocation, c/o
Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638, (26.52%);
Small Company Equity Fund--Fleet Savings Plus-Small Company, c/o Norstar Trust
Co., Gales & Co., 159 East Main, Rochester, NY 14638, (33.58%); Tax Exempt Bond
Fund -- Nusco Retiree Health VEBA Trust, c/o Norstar Trust Co., Gales & Co., 159
East Main, Rochester, NY 14638, (37.64%); Corporate Bond Fund--Cole Hersee
Pension Plan, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY
14638, (8.40%); Growth Income Fund--Fleet Savings Plus-Growth Income, c/o
Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638, (43.81%);
Crumpton & Knowles IARP, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638 (10.11%); Small Cap Value Fund--FFG Emp. Ret. Misc. Assets
SNC, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638,
(25.16%); Institutional Government Fund -- IBEW Local #99 Annuity, c/o Norstar
Trust Co., Gales & Co., 159 East Main Street, Rochester, NY 14638 (5.26%); New
Jersey Municipal Bond Fund--Perillo Tours, c/o Norstar Trust Co., Gales & Co.,
159 East Main, Rochester, NY 14638, (22.47%); Royal Chambord IMA, c/o Norstar
Trust Co., Gales & Co., 159 East Main, Rochester, NY, 14638, (11.24%); McKee
Wendell A. Marital Trust, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638, (11.16%); Varco Inc. IMA, c/o Norstar Trust Co., Gales &
Co., 159 East Main, Rochester, NY 14638, (5.62%); and Tiernan Diana V IA, c/o
Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638, (5.10%).
As of November 30, 1999, the name, address and share ownership of the
entities or persons that held of record or beneficially more than 5% of the
outstanding A Prime Shares of Galaxy's Asset Allocation, Equity Income, Growth
and Income, Strategic Equity, Equity Value, Equity Growth, International Equity,
Small Cap Value, Small Company Equity, Short-Term Bond, Intermediate Government
Income, High Quality Bond and Tax-Exempt Bond Funds were as follows: Asset
Allocation Fund--U.S. Clearing, A Division of Fleet Securities, Inc., FBO
#147-97697-11, Ray Wayne Prince, 11010 Stephens Road, Berlin Heights, OH
44814-9673 (18.52%); U.S. Clearing, A Division of Fleet Securities, Inc., FBO
#135-29801-11, Joseph P. Quinn & Genevieve H. Quinn Trust, 725 N. Riverside
Drive, Apt. 405, Pompano Beach, FL 33062-4536 (12.47%); U.S. Clearing, A
Division of Fleet Securities, Inc., FBO #175-97327-10, Margaret Ann Gillenwater,
2525 E. Prince Road #23, Tucson, AZ 85716-1146 (11.92%); U.S. Clearing, A
Division of Fleet Securities, Inc., FBO #114-97238-17, Sara Mallow, 936
Broadway, New York, NY 10010-6013 (25.26%); U.S. Clearing, A Division of Fleet
Securities, Inc., FBO #166-88586-13, Pamela Ann Radamaker, 1001 Tramway Blvd.
NE, Albuquerque, NM 87112-6280 (10.72%); U.S. Clearing, A Division of Fleet
Securities, Inc., FBO #114-23817-12, John R. Johnson, P.O. Box 4338, Deerfield
Beach, FL 33442-4338 (8.31%); Growth and Income Fund--U.S. Clearing, A Division
of Fleet Securities Inc., FBO #160-27022-17, Linda Shaw, Trustee for the Linda
J. Shaw Trust, 920 Meadows Road, Geneva, IL 60134-3052 (34.66%); U.S. Clearing,
A Division of Fleet Securities Inc., FBO #113-27816-16, Pamela M. Fein, 68 Oak
Ridge Drive, Bethany, CT 06524-3118 (29.85%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO #175-97327-10, Margaret Ann Gillenwater, 2525 E. Prince
Road #23, Tucson, AZ 85716-1146 (23.43%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO #103-80080-19,
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Saint Clare School Endowment Fund, Attn: Fr. O'Shea/Andrew J. Houvouras and/or
Bruce Blatman, 821 Prosperity Farms Road, No. Palm Beach, FL 33408-4299 (6.09%);
Equity Growth Fund--U.S. Clearing, A Division of Fleet Securities Inc., FBO
#104-32732-16, Hilda Brandt, 3900 North Charles Street, Baltimore, MD 21218-1724
(50.91%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #114-97236-17,
Sara Mallow, 936 Broadway, New York, NY 10010-6013 (26.57%); U.S. Clearing, A
Division of Fleet Securities Inc., FBO #120-97689-18, Yook Y. Doo, 4634 Robinson
St., Flushing, NY 11355-3445 (8.84%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO #021-90471-15, Mabel L. Bowman, 35634 Meyers Ct., Fremont,
CA 84536-2540 (7.00%); U.S. Clearing, A Division of Fleet Securities Inc., FBO
#143-27206-11, Mary V. Mastroianni & Pasqual Mastroianni JT Ten, 1811 Randolph
Road, Schenectady, NY 12308-2021 (5.44%); International Equity Fund--U.S.
Clearing, A Division of Fleet Securities Inc., FBO #125-98055-11, Albert F.
Twanmo, 6508 81st St., Cabin John, MD 20818-1203 (94.66%); Small Cap Value Fund
- - U.S. Clearing, A Division of Fleet Securities Inc., FBO # 104-32732-16, Hilda
Brandt, 3900 North Charles Street, Baltimore, MD 21218-1724 (26.87%); U.S.
Clearing, A Division of Fleet Securities Inc., FBO # 150-98301-11, N. Clifford
Nelson Jr., 58 Middlebury Road, Orchard Park, NY 14127-3581 (16.93%); U.S.
Clearing, A Division of Fleet Securities Inc., FBO # 102-60254-19, Frederick W.
Geissinger, 601 NW 2nd Street, Evansville, IN 47708-1013 (16.81%); U.S.
Clearing, A Division of Fleet Securities Inc., FBO # 103-97564-14, Thomas X.
McKenna, 170 Turtle Creek Drive, Tequesta, FL 33469-1547 (12.55%); U.S.
Clearing, A Division of Fleet Securities Inc., FBO # 103-31296-18, Edward U.
Roddy III, 109 Angler Avenue, Palm Beach, FL 33480-3101 (8.27%); U.S. Clearing,
A Division of Fleet Securities Inc., FBO # 180-24606-24, Gary R. Plemons, P.O.
Box 190, Madisonville, TN 37354-0190 (5.56%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO # 165-26664-29, Special Risk Underwriters, P.O. Box 54699,
Phoenix, AZ 85078-4699 (5.31%); High Quality Bond Fund - U.S. Clearing, A
Division of Fleet Securities Inc., FBO # 103-30971-12, Doris G. Schack, FBO #
103-30971-12, Doris G. Schack Living Trust, 9161 East Evans, Scottsdale, AZ
85260-7575 (72.18%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #
013-02964-11, Jane L. Grayhurst, 770 Boylston St., Apt. 10G, Boston, MA
02199-7709 (15.46%); U.S. Clearing, A Division of Fleet Securities, Inc., FBO
#132-90090-11, Virginia Holmes, 303 Bella Vista Drive, Ithaca, NY 14850-5774
(12.10%).
As of November 30, 1999, the name, address and share ownership of the
entities or persons that held of record or beneficially more than 5% of the
outstanding B Prime Shares of Galaxy's Asset Allocation, Equity Income, Growth
and Income, Strategic Equity, Equity Value, Equity Growth, International Equity,
Small Cap Value, Small Company Equity, Short-Term Bond, Intermediate Government
Income, High Quality Bond and Tax-Exempt Bond Funds were as follows: Asset
Allocation Fund -- U.S. Clearing, A Division of Fleet Securities Inc., FBO #
138-97818-14, Carol Y. Foster, 524 Marie Ave., Blountstown, FL 32424-1218
(10.07%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #
102-92974-11, Ann E. Herzog, 74 Tacoma St., Staten Island, NY 10304-4222
(9.61%); U.S. Clearing, A Division of Fleet Securities Inc., FBO # 166-98559-16,
Ann P. Sargent, 422 Los Encinos Ave., San Jose, CA 95134-1336 (6.40%); U.S.
Clearing, A Division of Fleet Securities Inc., FBO # 166-97970-19, Alicia E.
Schober, 10139 Ridgeway Drive, Cupertino, CA 95014-2658 (6.22%); U.S. Clearing,
A Division of Fleet Securities Inc., FBO # 19414889-16, Paul R. Thornton & Karin
Z. Thornton, JT TEN, 1207 Oak Glen Lane, Sugar Land, TX 77479-6175 (5.70%); U.S.
Clearing, A Division of Fleet
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Securities, Inc., FBO #147-29049-19, Randall Prince, Rt. 1, Box 865, Turtletown,
TN 37391-9700 (6.06%); Growth and Income Fund - U.S. Clearing, A Division of
Fleet Securities Inc., FBO # 147-97497-13, Martin Allen Sante, 15222 Birch
Lakeshore Drive, Vandalia, MI 49095-9741 (27.18%); U.S. Clearing, A Division of
Fleet Securities Inc., FBO #103-31744-16, Irwin Luftig & Elaine Luftig, 6119
Bear Creek Ct., Lake Worth, FL 33467-6812 (19.02%); Linda M. Berke & Michael E.
Berke, JT WROS, 30941 Westwood Rd., Farmington Hills, MI 48331-1466 (15.25%);
U.S. Clearing, A Division of Fleet Securities Inc., FBO # 147-29019-15, Walter
W. Quan, 2617 Skyline Drive, Lorain, OH 44053-2243 (14.87%); U.S. Clearing, A
Division of Fleet Securities Inc., FBO #014-90365-19, Peter Burr Bickford, 65 A
Lazell St., Hingham, MA 02043-4403 (7.44%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO #108-00116-10, Michael Kennedy & Carleen Kennedy, JT WROS,
12 Walton Avenue, Locust Valley, NY 11560-1227 (5.48%); Equity Growth Fund -
U.S. Clearing, A Division of Fleet Securities Inc., FBO # 111-98315-17, Thomas
J. Bernfeld, 185 West End Ave., Apt. 21D, New York, NY 10023-5548 (29.52%); U.S.
Clearing, A Division of Fleet Securities Inc., FBO # 166-31108-13, Frank
Catanho, Trustee of the Frank Catanho 1996 Trust dated 10/22/96, 24297 Mission
Blvd., Hayward, CA 94544-1020 (19.07%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO # 183-97247-11, W.P. Fleming, 66500 E. 253rd, Grove, OK
74344-6163 (8.77%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #
131-96122-18, Elaine B. Odessa, 9 Newman Rd., Pawtucket, RI 02860-8183 (6.66%);
International Equity Fund - U.S. Clearing, A Division of Fleet Securities Inc.,
FBO # 102-5924-17, Church & Friary of St. Francis of Assisi, c/o Fr. Ronald P.
Stark OFM, 135 West 31st St., New York, NY 10001-3405 (82.40%); Small Cap Value
Fund - U.S. Clearing, A Division of Fleet Securities Inc., FBO # 147-97574-19,
Ray William Mominey, 1340 San Cristobal Villa, Punta Gorda, FL 33983-6616
(15.90%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #
111-98315-17, Thomas J. Bernfeld, 185 West End Ave., Apt. 21D, New York, NY
10023-5548 (10.13%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #
107-30623-15, Andrejs Zvejnieks, 2337 Christopher Walk, Atlanta, GA 30327-1110
(6.86%); E-Trade: Cust. for the rollover IRA, FBO Rufus O. Eddins, Jr., A/C #
11042697, 360 Dominion Circle, Knoxville, TN 37922-2750 (5.34%); U.S. Clearing,
A Division of Fleet Securities Inc., FBO # 221-97250-13, Micheal A. Veschi, 106
Exmoor Court, Leesburg, VA 20176-2049 (5.13%); High Quality Bond Fund U.S.
Clearing, A Division of Fleet Securities Inc., FBO # 200-70099-19, Neil C.
Feldman, 41 Windham Way, Englishtown, NJ 07726-8216 (25.37%); U.S. Clearing, A
Division of Fleet Securities Inc., FBO # 119-97697-10, Ira Sornborg, 4219
Nautilus Ave., Brooklyn, NY 11224-1019 (10.23%); U.S. Clearing, A Division of
Fleet Securities Inc., FBO # 216-12779-14, Les H. Galex & Nan Galex, JT TEN,
7540 Farragut St., Hollywood, FL 33024-2626 (8.11%); U.S. Clearing, A Division
of Fleet Securities Inc., FBO # 102-93287-11, Marjorie Dion, 301 Raimond St.,
Yaphank, NY 11980-9725 (7.31%); U.S. Clearing, A Division of Fleet Securities
Inc., FBO # 102-68909-11, Marjorie Dion, 301 Raimond St., Yaphank, NY 11980-9725
(8.61%); U.S. Clearing, A Division of Fleet Securities Inc., FBO # 147-24459-13,
Jay Robert Klein, 26800 Amhearst Circle, #209, Cleveland, OH 44122-7572 (8.40%);
U.S. Clearing, A Division of Fleet Securities Inc., FBO # 157-98031-13, Patricia
Fusco, 112 E. Chapel Ave., Cherry Hill, NJ 08034-1204 (6.53%); U.S. Clearing, A
Division of Fleet Securities, Inc., FBO # 216-13463-13, Jerry H. Dunmire, 5151
SW 89 Terrace, Cooper City, FL 33328-3631 (6.48%).
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As of November 30, 1999, the name, address and share ownership of the
entities or persons that held of record or beneficially more than 5% of the
outstanding shares of Galaxy's Prime Reserves, Government Reserves and Tax
Exempt Reserves were as follows: Prime Reserves -- U.S. Clearing, 26 Broadway,
New York, NY 10004 (6.96%); Government Reserves -- U.S. Clearing, 26 Broadway,
New York, NY 10004 (100.00%); and Tax Exempt Reserves -- U.S. Clearing, 26
Broadway, New York, NY 10004 (100.00%).
As of November 30, 1999, no entity or person held of record or beneficially
more than 5% of the outstanding Retail A and Retail B Shares of Galaxy's Equity
Income, New York Municipal Bond, Connecticut Municipal Bond, Massachusetts
Municipal Bond, Rhode Island Municipal Bond, Massachusetts Municipal Money
Market, Connecticut Municipal Money Market and Short Term Bond Funds.
FINANCIAL STATEMENTS
Galaxy's Annual Reports to Shareholders with respect to the Funds for the
fiscal year ended October 31, 1999 have been [___________] with the SEC. The
financial statements contained in such Annual Reports are [ ] into this
Statement of Additional Information. The financial statements and financial
highlights for the Funds for the fiscal year ended October 31, 1999 have been
audited by Galaxy's independent accountants, [ ], whose report thereon also
appears in such Annual Reports and [ ]. The financial statements in such Annual
Reports have been [ ] in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
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APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current opinion of
credit worthiness 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:
"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
A-1
<PAGE>
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 strongest capacity for timely payment of financial commitments and
may have an added "+" to denote any exceptionally strong credit feature.
"F2" - Securities possess good credit quality. This designation
indicates a satisfactory capacity for timely payment of financial commitments,
but the margin of safety is not as great as in the case of the higher ratings.
"F3" - Securities possess fair credit quality. This designation
indicates that the capacity for timely payment of financial commitments is
adequate; however, near-term adverse changes could result in a reduction to
non-investment grade.
"B" - Securities possess speculative credit quality. This designation
indicates minimal capacity for timely payment of financial commitments, plus
vulnerability to near-term adverse changes in financial and economic conditions.
"C" - Securities possess high default risk. This designation indicates
that default is a real possibility and that the capacity for meeting financial
commitments is solely reliant upon a sustained, favorable business and economic
environment.
"D" - Securities are in actual or imminent payment default.
Thomson BankWatch short-term ratings assess the likelihood of an
untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson 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 BankWatch's lowest
investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's lowest
rating category and indicates that the obligation is regarded as non-investment
grade and therefore speculative.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
Obligations rated "BB," "B," "CCC," "CC" and "C" are regarded as
having significant speculative characteristics. "BB" indicates the least degree
of speculation and "C" the highest. While such obligations will likely have some
quality and protective 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.
A-4
<PAGE>
"B" - An obligation rated "B" is more vulnerable to nonpayment than
obligations rated "BB," but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
"CCC" - An obligation rated "CCC" is currently vulnerable to
nonpayment, and is dependent upon favorable business, financial and economic
conditions for the obligor to meet its financial commitment on the obligation.
In the event of adverse business, financial, or economic conditions, the obligor
is not likely to have the capacity to meet its financial commitment on the
obligation.
"CC" - An obligation rated "CC" is currently highly vulnerable to
nonpayment.
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.
"D" - An obligation rated "D" is in payment default. The "D" rating
category is used when payments on an obligation are not made on the date due
even if the applicable grace period has not expired, unless 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.
"r" - This symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or volatility of
expected returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk - such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
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
A-5
<PAGE>
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.
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.
A-6
<PAGE>
"BBB" - Debt possesses below-average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt rated
"B" possesses the risk that obligations will not be met when due. Debt rated
"CCC" is well below investment grade and has considerable uncertainty as to
timely payment of principal, interest or preferred dividends. Debt rated "DD" is
a defaulted debt obligation, and the rating "DP" represents preferred stock with
dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.
The following summarizes the ratings used by Fitch IBCA for corporate
and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest
credit quality. These ratings denote the lowest expectation of credit risk and
are assigned only in case of exceptionally strong capacity for timely payment of
financial commitments. This capacity is highly unlikely to be adversely affected
by foreseeable events.
"AA" - Bonds considered to be investment grade and of very high credit
quality. These ratings denote a very low expectation of credit risk and indicate
very strong capacity for timely payment of financial commitments. This capacity
is not significantly vulnerable to foreseeable events.
"A" - Bonds considered to be investment grade and of high credit
quality. These ratings denote a low expectation of credit risk and indicate
strong capacity for timely payment of financial commitments. This capacity may,
nevertheless, be more vulnerable to changes in circumstances or in economic
conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good credit
quality. These ratings denote that there is currently a low expectation of
credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity.
"BB" - Bonds considered to be speculative. These ratings indicate that
there is a possibility of credit risk developing, particularly as the result of
adverse economic changes over time; however, business or financial alternatives
may be available to allow financial commitments to be met. Securities rated in
this category are not investment grade.
A-7
<PAGE>
"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 show relative standing within these major rating
categories.
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.
A-8
<PAGE>
"BBB" - This designation represents the lowest investment-grade
category and indicates an acceptable capacity to repay principal and interest.
Issues rated "BBB" are more vulnerable to adverse developments (both internal
and external) than obligations with higher ratings.
"BB," "B," "CCC," and "CC" - These designations are assigned by
Thomson Financial BankWatch to non-investment grade long-term debt. Such issues
are regarded as having speculative characteristics regarding the likelihood of
timely repayment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
A Standard and Poor's note rating reflects the liquidity concerns and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Ratings Group for municipal
notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess 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:
A-9
<PAGE>
"MIG-1"/"VMIG-1" - This designation denotes best quality. There is
present strong protection by established cash flows, superior liquidity support
or demonstrated broad-based access to the market for refinancing.
"MIG-2"/"VMIG-2" - This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes favorable quality, with
all security elements accounted for but lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
"SG" - This designation denotes speculative quality. Debt instruments
in this category lack of margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.
A-10
<PAGE>
APPENDIX B
As stated above, the Short-Term Bond, Intermediate Government Income, High
Quality Bond, Rhode Island Municipal Bond and Growth and Income Funds may enter
into futures transactions for hedging purposes. The following is a description
of such transactions.
I. INTEREST RATE FUTURES CONTRACTS
USE OF INTEREST RATE FUTURES CONTRACTS. Bond prices are established in both
the cash market and the futures market. In the cash market, bonds are purchased
and sold with payment for the full purchase price of the bond being made in
cash, generally within five business days after the trade. In the futures
market, only a contract is made to purchase or sell a bond in the future for a
set price on a certain date. Historically, the prices for bonds established in
the futures markets have tended to move generally in the aggregate in concert
with the cash market prices and have maintained fairly predictable
relationships. Accordingly, the Funds may use interest rate futures contracts as
a defense, or hedge, against anticipated interest rate changes and not for
speculation. As described below, this would include the use of futures contract
sales to protect against expected increases in interest rates and futures
contract purchases to offset the impact of interest rate declines.
The Funds presently could accomplish a similar result to that which they
hope to achieve through the use of futures contracts by selling bonds with long
maturities and investing in bonds with short maturities when interest rates are
expected to increase, or conversely, selling short-term bonds and investing in
long-term bonds when interest rates are expected to decline. However, because of
the liquidity that is often available in the futures market, the protection is
more likely to be achieved, perhaps at a lower cost and without changing the
rate of interest being earned by the Funds, through using futures contracts.
DESCRIPTION OF INTEREST RATE FUTURES CONTRACTS. An interest rate futures
contract sale would create an obligation by a Fund, as seller, to deliver the
specific type of financial instrument called for in the contract at a specific
future time for a specified price. A futures contract purchase would create an
obligation by the Fund, as purchaser, to take delivery of the specific type of
financial instrument at a specific future time at a specific price. The specific
securities delivered or taken, respectively, at settlement date, would not be
determined until at or near that date. The determination would be in accordance
with the rules of the exchange on which the futures contract sale or purchase
was made.
Although interest rate futures contracts by their terms call for actual
delivery or acceptance of securities, in most cases the contracts are closed out
before the settlement date without the making or taking of delivery of
securities. Closing out a futures contract sale is effected by a Fund's entering
into a futures contract purchase for the same aggregate amount of the specific
type of financial instrument and the same delivery date. If the price of the
sale exceeds the price of the offsetting purchase, the Fund immediately is paid
the difference and thus realizes a gain. If the offsetting purchase price
exceeds the sale price, the Fund pays the difference and realizes a loss.
Similarly, the closing out of a futures contract purchase is effected
B-1
<PAGE>
by a Fund entering into a futures contract sale. If the offsetting sale price
exceeds the purchase price, the Fund realizes a gain, and if the purchase price
exceeds the offsetting sale price, the Fund realizes a loss.
Interest rate futures contracts are traded in an auction environment on the
floors of several exchanges -- principally, the Chicago Board of Trade, the
Chicago Mercantile Exchange and the New York Futures Exchange. The Funds would
deal only in standardized contracts on recognized exchanges. Each exchange
guarantees performance under contract provisions through a clearing corporation,
a nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering various financial
instruments including long-term United States Treasury Bonds and Notes;
Government National Mortgage Association (GNMA) modified pass-through mortgage
backed securities; three-month United States Treasury Bills; and ninety-day
commercial paper. The Funds may trade in any interest rate futures contracts for
which there exists a public market, including, without limitation, the foregoing
instruments.
EXAMPLE OF FUTURES CONTRACT SALE. The Funds would engage in an interest
rate futures contract sale to maintain the income advantage from continued
holding of a long-term bond while endeavoring to avoid part or all of the loss
in market value that would otherwise accompany a decline in long-term securities
prices. Assume that the market value of a certain security held by a particular
Fund tends to move in concert with the futures market prices of long-term United
States Treasury bonds ("Treasury bonds"). Fleet wishes to fix the current market
value of this portfolio security until some point in the future. Assume the
portfolio security has a market value of 100, and Fleet believes that, because
of an anticipated rise in interest rates, the value will decline to 95. The Fund
might enter into futures contract sales of Treasury bonds for an equivalent of
98. If the market value of the portfolio security does indeed decline from 100
to 95, the equivalent futures market price for the Treasury bonds might also
decline from 98 to 93.
In that case, the five point loss in the market value of the portfolio
security would be offset by the five point gain realized by closing out the
futures contract sale. Of course, the futures market price of Treasury bonds
might well decline to more than 93 or to less than 93 because of the imperfect
correlation between cash and futures prices mentioned below.
Fleet could be wrong in its forecast of interest rates, and the equivalent
futures market price could rise above 98. In this case, the market value of the
portfolio securities, including the portfolio security being protected, would
increase. The benefit of this increase would be reduced by the loss realized on
closing out the futures contract sale.
If interest rate levels did not change, the Fund in the above example might
incur a loss of 2 points (which might be reduced by an offsetting transaction
prior to the settlement date). In each transaction, transaction expenses would
also be incurred.
B-2
<PAGE>
EXAMPLE OF FUTURES CONTRACT PURCHASE. A Fund would engage in an interest
rate futures contract purchase when it is not fully invested in long-term bonds
but wishes to defer for a time the purchase of long-term bonds in light of the
availability of advantageous interim investments, e.g., shorter term securities
whose yields are greater than those available on long-term bonds. A Fund's basic
motivation would be to maintain for a time the income advantage from investing
in the short-term securities; the Fund would be endeavoring at the same time to
eliminate the effect of all or part of an expected increase in market price of
the long-term bonds that the Fund may purchase.
For example, assume that the market price of a long-term bond that the Fund
may purchase, currently yielding 10%, tends to move in concert with futures
market prices of Treasury bonds. Fleet wishes to fix the current market price
(and thus 10% yield) of the long-term bond until the time (four months away in
this example) when it may purchase the bond. Assume the long-term bond has a
market price of 100, and Fleet believes that, because of an anticipated fall in
interest rates, the price will have risen to 105 (and the yield will have
dropped to about 9 1/2%) in four months. The Fund might enter into futures
contracts purchases of Treasury bonds for an equivalent price of 98. At the same
time, the Fund would assign a pool of investments in short-term securities that
are either maturing in four months or earmarked for sale in four months, for
purchase of the long-term bond at an assumed market price of 100. Assume these
short-term securities are yielding 15%. If the market price of the long-term
bond does indeed rise from 100 to 105, the equivalent futures market price for
Treasury bonds might also rise from 98 to 103. In that case, the 5 point
increase in the price that the Fund pays for the long-term bond would be offset
by the 5 point gain realized by closing out the futures contract purchase.
Fleet could be wrong in its forecast of interest rates; long-term interest
rates might rise to above 10%; and the equivalent futures market price could
fall below 98. If short-term rates at the same time fall to 10% or below, it is
possible that the Fund would continue with its purchase program for long-term
bonds. The market price of available long-term bonds would have decreased. The
benefit of this price decrease, and thus yield increase, will be reduced by the
loss realized on closing out the futures contract purchase.
If, however, short-term rates remained above available long-term rates, it
is possible that the Fund would discontinue its purchase program for long-term
bonds. The yield on short-term securities in the portfolio, including those
originally in the pool assigned to the particular long-term bond, would remain
higher than yields on long-term bonds. The benefit of this continued incremental
income will be reduced by the loss realized on closing out the futures contract
purchase. In each transaction, expenses would also be incurred.
II. 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
B-3
<PAGE>
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. The coefficient is
used to maintain the continuity of the Index when its composition changes. The
Chicago Board of Trade, on which futures contracts based on this Index are
traded, as well as other U.S. commodities exchanges, are regulated by the
Commodity Futures Trading Commission. Transactions on such exchange are cleared
through a clearing corporation, which guarantees the performance of the parties
to each contract.
The Rhode Island Municipal Bond 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.
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<PAGE>
To hedge against a decline in the value of the portfolio, resulting from a
rise in interest rates, the portfolio manager can use the municipal bond index
futures contract. The current value of the Municipal Bond Index is 86-09.
Suppose the portfolio manager takes a position in the futures market opposite to
his or her cash market position by selling 50 municipal bond index futures
contracts (each contract represents $100,000 in principal value) at this price.
On March 23, the bonds in the portfolio have the following values:
Ohio HFA 81-28
NYS Power 98-26
San Diego, CA IDB 98-11
Muscatine, IA Elec 99-24
Mass Health & Ed 97-18
The bond prices have fallen, and the portfolio has sustained a loss of
$130,312. This would have been the loss incurred without hedging. However, the
Municipal Bond Index also has fallen, and its value stands at 83-27. Suppose now
the portfolio manager closes out his or her futures position by buying back 50
municipal bond index futures contracts at this price.
The following table provides a summary of transactions and the results of
the hedge.
<TABLE>
<CAPTION>
Cash Market Futures Market
----------- ---------------
<S> <C> <C>
February 2 $5,003,750 long posi- Sell 50 Municipal Bond
tion in municipal futures contracts at
bonds 86-09
March 23 $4,873,438 long posi- Buy 50 Municipal Bond
tion in municipal futures contracts at
bonds 83-27
---------------------- -------------------------
$130,312 Loss $121,875 Gain
</TABLE>
While the gain in the futures market did not entirely offset the loss in
the cash market, the $8,437 loss is significantly lower than the loss which
would have been incurred without hedging.
The numbers reflected in this appendix do not take into account the effect
of brokerage fees or taxes.
III. MARGIN PAYMENTS
Unlike purchases or sales of portfolio securities, no price is paid or
received by a Fund upon the purchase or sale of a futures contract. Initially,
the Fund will be required to deposit with the broker or in a segregated account
with Galaxy's custodian an amount of cash or cash equivalents, known as initial
margin, based on the value of the contract. The nature of initial
B-5
<PAGE>
margin in futures transactions is different from that of margin in security
transactions in that futures contract margin does not involve the borrowing of
funds by the customer to finance the transactions. Rather, the initial margin is
in the nature of a performance bond or good faith deposit on the contract which
is returned to the Fund upon termination of the futures contract assuming all
contractual obligations have been satisfied. Subsequent payments, called
variation margin, to and from the broker, will be made on a daily basis as the
price of the underlying instruments fluctuates making the long and s>hort
positions in the futures contract more or less valuable, a process known as
marking-to-the-market. For example, when a particular Fund has purchased a
futures contract and the price of the contract has risen in response to a rise
in the underlying instruments, that position will have increased in value and
the Fund will be entitled to receive from the broker a variation margin payment
equal to that increase in value. Conversely, where the Fund has purchased a
futures contract and the price of the futures contract has declined in response
to a decrease in the underlying instruments, the position would be less valuable
and the Fund would be required to make a variation margin payment to the broker.
At any time prior to expiration of the futures contract, Fleet may elect to
close the position by taking an opposite position, subject to the availability
of a secondary market, which will operate to terminate the Fund's position in
the futures contract. A final determination of variation margin is then made,
additional cash is required to be paid by or released to the Fund, and the Fund
realizes a loss or gain.
IV. RISKS OF TRANSACTIONS IN FUTURES CONTRACTS
There are several risks in connection with the use of futures by the Funds
as hedging devices. One risk arises because of the imperfect correlation between
movements in the price of the futures and movements in the price of the
instruments that are the subject of the hedge. The price of the futures may move
more than or less than the price of the instruments being hedged. If the price
of the futures moves less than the price of the instruments which are the
subject of the hedge, the hedge will not be fully effective but, if the price of
the instruments being hedged has moved in an unfavorable direction, a Fund would
be in a better position than if it had not hedged at all. If the price of the
instruments being hedged has moved in a favorable direction, this advantage will
be partially offset by the loss on the futures. If the price of the futures
moves more than the price of the hedged instruments, the Funds involved will
experience either a loss or gain on the futures, which will not be completely
offset by movements in the price of the instruments which are the subject of the
hedge. To compensate for the imperfect correlation of movements in the price of
instruments being hedged and movements in the price of futures contracts, a Fund
may buy or sell futures contracts in a greater dollar amount than the dollar
amount of instruments being hedged if the volatility over a particular time
period of the prices of such instruments has been greater than the volatility
over such time period of the futures, or if otherwise deemed to be appropriate
by the investment adviser. Conversely, a Fund may buy or sell fewer futures
contracts if the volatility over a particular time period of the prices of the
instruments being hedged is less than the volatility over such time period of
the futures contract being used, or if otherwise deemed to be appropriate by
Fleet. It is also possible that, where a Fund had sold futures to hedge its
portfolio against a decline in the market, the market may advance and the value
of instruments held in the Fund may decline. If this occurred, the Fund would
lose money on the futures and also experience a decline in value in its
portfolio securities.
B-6
<PAGE>
Where futures are purchased to hedge against a possible increase in the
price of securities before a Fund is able to invest its cash (or cash
equivalents) in an orderly fashion, it is possible that the market may decline
instead; if the Fund then concludes not to invest its cash at that time because
of concern as to possible further market decline or for other reasons, the Fund
will realize a loss on the futures contract that is not offset by a reduction in
the price of the instruments that were to be purchased.
In instances involving the purchase of futures contracts by a Fund, an
amount of cash and cash equivalents, equal to the market value of the futures
contracts, will be deposited in a segregated account with Galaxy's custodian
and/or in a margin account with a broker to collateralize the position and
thereby insure that the use of such futures is unleveraged.
In addition to the possibility that there may be an imperfect correlation,
or no correlation at all, between movements in the futures and the instruments
being hedged, the price of futures may not correlate perfectly with movement in
the cash market due to certain market distortions. Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through off-setting transactions that could distort the normal relationship
between the cash and futures markets. Second, with respect to financial futures
contracts, the liquidity of the futures market depends on participants entering
into off-setting transactions rather than making or taking delivery. To the
extent participants decide to make or take delivery, liquidity in the futures
market could be reduced thus producing distortions. Third, from the point of
view of speculators, the deposit requirements in the futures market are less
onerous than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may also cause temporary
price distortions. Due to the possibility of price distortion in the futures
market, and because of the imperfect correlation between the movements in the
cash market and movements in the price of futures, a correct forecast of general
market trends or interest rate movements by the adviser may still not result in
a successful hedging transaction over a short time frame.
Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Funds
intend to purchase or sell futures only on exchanges or boards of trade where
there appear to be active secondary markets, there is no assurance that a liquid
secondary market on any exchange or board of trade will exist for any particular
contract or at any particular time. In such event, it may not be possible to
close a futures investment position, and in the event of adverse price
movements, a Fund would continue to be required to make daily cash payments of
variation margin. However, in the event futures contracts have been used to
hedge portfolio securities, such securities will not be sold until the futures
contract can be terminated. In such circumstances, an increase in the price of
the securities, if any, may partially or completely offset losses on the futures
contract. However, as described above, there is no guarantee that the price of
the securities will in fact correlate with the price movements in the futures
contract and thus provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary market in a
futures contract may be adversely affected by "daily price fluctuation limits"
established by commodity
B-7
<PAGE>
exchanges which limit the amount of fluctuation in a futures contract price
during a single trading day. Once the daily limit has been reached in the
contract, no trades may be entered into at a price beyond the limit, thus
preventing the liquidation of open futures positions. The trading of futures
contracts is also subject to the risk of trading halts, suspensions, exchange or
clearing house equipment failures, government intervention, insolvency of a
brokerage firm or clearing house or other disruptions of normal activity, which
could at times make it difficult or impossible to liquidate existing positions
or to recover excess variation margin payments.
Successful use of futures by the Funds is also subject to Fleet's ability
to predict correctly movements in the direction of the market. For example, if a
particular Fund has hedged against the possibility of a decline in the market
adversely affecting securities held by it and securities prices increase
instead, the Fund will lose part or all of the benefit to the increased value of
its securities which it has hedged because it will have offsetting losses in its
futures positions. In addition, in such situations, if the Fund has insufficient
cash, it may have to sell securities to meet daily variation margin
requirements. Such sales of securities may be, but will not necessarily be, at
increased prices which reflect the rising market. The Funds may have to sell
securities at a time when it may be disadvantageous to do so.
B-8
<PAGE>
EXHIBIT 17(b)(ii)
[Front cover page]
Galaxy Equity Funds
The Galaxy Fund
Prospectus
_____________, 2000
Galaxy Asset Allocation Fund
Galaxy Equity Income Fund
Galaxy Growth and Income Fund
Galaxy Strategic Equity Fund
Galaxy Equity Value Fund
Galaxy Equity Growth Fund
Galaxy International Equity Fund
Galaxy Small Cap Value Fund
Galaxy Small Company Equity Fund
Retail A Shares and Retail B Shares
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved any shares of these Funds or determined if this
prospectus is accurate or complete. Anyone who tells you otherwise is committing
a crime.
<PAGE>
<TABLE>
<CAPTION>
Contents
<S> <C>
1 Risk/Return Summary
1 Introduction
3 Galaxy Asset Allocation Fund
8 Galaxy Equity Income Fund
12 Galaxy Growth and Income Fund
17 Galaxy Strategic Equity Fund
21 Galaxy Equity Value Fund
26 Galaxy Equity Growth Fund
31 Galaxy International Equity Fund
36 Galaxy Small Cap Value Fund
41 Galaxy Small Company Equity Fund
46 Additional information about risk
47 Investor guidelines
48 Fund management
50 How to invest in the Funds
50 How sales charges work
53 Buying, selling and exchanging shares
54 How to buy shares
56 How to sell shares
57 How to exchange shares
58 Other transaction policies
60 Dividends, distributions and taxes
62 Galaxy investor programs
62 Retirement plans
62 Other programs
64 How to reach Galaxy
65 Financial highlights
</TABLE>
<PAGE>
RISK/RETURN SUMMARY
INTRODUCTION
This prospectus describes the Galaxy Equity Funds. Each Fund invests primarily
or to a significant degree in equity securities, such as common stock, preferred
stock and securities that are convertible into common stock.
On the following pages, you'll find important information about each Fund,
including:
- - the Fund's investment objective (sometimes called the Fund's goal) and the
main investment strategies used by the Fund's investment adviser in trying
to achieve that objective
- - the main risks associated with an investment in the Fund
- - the Fund's past performance measured on both a year-by-year and long-term
basis
- - the fees and expenses that you will pay as an investor in the Fund
WHICH FUND IS RIGHT FOR YOU?
Not all mutual funds are for everyone. Your investment goals and tolerance for
risk will determine which fund is right for you.
Equity funds are generally best suited to investors seeking growth of their
investment over time and who are prepared to accept the risks associated with
equity securities. Equity funds have the potential for higher returns than other
funds, such as bond funds or money market funds, but also carry more risk.
Different equity funds have different levels of risk. They have varying
objectives and investment styles, and some are considered more aggressive than
others. Generally, a fund's objective and the types of investments it makes can
help you gauge its level of risk. On page ___, you'll find a table that gives a
general overview of the risk spectrum of the Galaxy Equity Funds.
THE FUNDS' INVESTMENT ADVISER
Fleet Investment Advisors Inc. (the "Adviser") is the investment adviser for all
of these Funds. The Adviser, an indirect wholly-owned subsidiary of FleetBoston
Corporation, was established in 1984 and has its main office at 75 State Street,
Boston, Massachusetts 02109. The Adviser also provides investment management and
advisory services to individual and institutional clients and manages the other
Galaxy investment portfolios. As of December 31, 1999, the Adviser managed over
$___ billion in assets.
-1-
<PAGE>
AN INVESTMENT IN THE FUNDS ISN'T A FLEET BANK DEPOSIT AND IT ISN'T INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. YOU COULD LOSE MONEY BY INVESTING IN THE FUNDS.
-2-
<PAGE>
Galaxy Asset Allocation Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks a high total return by providing both a current level of income
that is greater than that provided by the popular stock market averages, as well
as long-term growth in the value of the Fund's assets.
[Sidenote:]
CURRENT INCOME
Current income includes both dividends from stocks and interest income from
fixed income securities, after deducting Fund expenses.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund aims to provide income that is higher than that provided by the popular
stock market averages. The Adviser interprets this to mean the Dow Jones
Industrial Average of 30 major companies and the Standard & Poor's 500 Composite
Stock Price Index (commonly referred to as the S&P 500). Due to the Fund's
expenses, however, net income paid to you may be less than that. The Fund also
seeks long-term growth in the value of its assets. The Adviser attempts to
achieve these goals and reduce risk by allocating the Fund's assets among
short-term debt securities, common stocks, preferred stocks and bonds.
The Fund seeks a mix of stocks and bonds that will produce both income and
long-term capital growth. This mix will change from time to time as a result of
economic and market conditions. However, the Fund keeps at least 25% of its
total assets in fixed income investments, including debt securities and
preferred stocks, at all times.
Debt securities purchased by the Fund will be of investment grade quality, which
means that they will have one of the top four ratings assigned by Standard &
Poor's Ratings Group (S&P) or Moody's Investor Services, Inc. (Moody's) or will
be unrated securities determined by the Adviser to be of comparable quality.
Occasionally, the rating of a security held by the Fund may be downgraded below
investment grade. If that happens, the Fund doesn't have to sell the security
unless the Adviser determines that under the circumstances the security is no
longer an appropriate investment for the Fund. However, the Fund will sell
promptly any securities that are not rated investment grade by either S&P or
Moody's if the securities exceed 5% of the Fund's net assets.
In selecting portfolio securities for the Fund, the Adviser's investment
policy committee develops an economic outlook and sets guidelines for the
industries and sectors in which the Fund should invest. In selecting equity
securities, the Adviser favors stocks with long-term growth potential that
are expected to outperform their peers over time. The Adviser also forecasts
the direction and degree of change in long-term interest rates to help in the
selection of fixed income securities.
-3-
<PAGE>
The Fund will sell a security when, as a result of changes in the economy, the
Adviser determines it appropriate to revise the allocation of the Fund's assets
between stocks and bonds. A security may also be sold as a result of a
deterioration in the performance of the security or in the financial condition
of the issuer of the security.
The Fund may trade its investments frequently in trying to achieve its
investment goal.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
The value of your investment in the Fund will go up and down with the value of
the investments which the Fund holds. The Fund's investments may not perform as
well as other investments, even in times of rising markets.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The value of fixed income investments such as bonds
are affected by movements in interest rates. Bond prices tend to fall when
interest rates rise and to rise when interest rates fall.
- - CREDIT RISK - The value of fixed income investments also depends on the
ability of an issuer to make principal and interest payments. If an issuer
can't meet its payment obligations or if its credit rating is lowered, the
value of its securities will decline. Debt securities which have the lowest
of the top four ratings assigned by S&P or Moody's have speculative
characteristics. Changes in the economy are more likely to affect the
ability of the issuers of these securities to make payments of principal
and interest than is the case with higher-rated securities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
fixed income investments held by the Fund to be paid off much sooner or
later than expected, which could adversely affect the Fund's value. In the
event that a security is paid off sooner than expected because of a decline
in interest rates, the Fund may be unable to recoup all of its initial
investment and may also suffer from having to reinvest in lower-yielding
securities. In the event of a later than expected payment because of a rise
in interest rates, the value of the obligation will decrease and the Fund
may suffer from the inability to invest in higher-yielding securities.
- - PORTFOLIO COMPOSITION - The level of risk could increase if a larger
percentage of the Fund is invested in one particular asset class, such as
stocks or bonds. However, asset allocation funds are generally less
volatile than portfolios that contain only stocks.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
-4-
<PAGE>
- - FREQUENT TRADING - Frequent trading of investments usually increases the
chance that the Fund will pay investors short-term capital gains. These
gains are taxable at higher rates than long-term capital gains. Frequent
trading could also mean higher brokerage commissions and other transaction
costs, which could reduce the Fund's returns.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares has varied from
year to year. The returns for Retail B Shares were different than the figures
shown because each class of shares has different expenses. The figures don't
include any sales charges that investors pay when buying or selling shares of
the Fund. If sales charges were included, the returns would be lower.
[Sidenote:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
[bar chart goes here]
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
6.58% 8.08% -2.47% 30.29% 15.11% 19.76% 17.73% %
---- ---- ---- ---- ---- ---- ---- ----
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns (after taking into
account any sales charges) for the periods ended December 31, 1999, as compared
to broad-based market indices. The returns for Retail A Shares of the Fund for
periods prior to December 1, 1995 have been restated to include the effect of
the maximum 3.75% front-end sales charge which went into effect on that date.
<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE INCEPTION
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares % % % (12/30/91)
- -------------------------------------------------------------------------------------------------------------
-5-
<PAGE>
Retail B Shares % % % (3/4/96)
- -------------------------------------------------------------------------------------------------------------
S&P 500 % % % (since 12/31/91)
% (since 2/29/96)
- -------------------------------------------------------------------------------------------------------------
DJIA % % % (since 12/31/91)
% (since 2/29/96)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The S&P 500 is an unmanaged index that tracks the performance of 500 widely held
common stocks listed on the New York Stock Exchange, the American Stock Exchange
and NASDAQ. The S&P 500 is heavily weighted with the stocks of large companies.
[Sidenote:]
The Dow Jones Industrial Average (DJIA) is an unmanaged price-weighted average
based on the "price only" performance of 30 blue chip stocks.
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
MAXIMUM SALES CHARGE MAXIMUM DEFERRED SALES CHARGE
(LOAD) ON PURCHASES SHOWN (LOAD) SHOWN AS A % OF THE
AS A % OF THE OFFERING OFFERING PRICE OR SALE PRICE,
PRICE WHICHEVER IS LESS
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares 3.75%(1) None(2)
- ------------------------------------------------------------------------------------------
Retail B Shares None 5.00%(3)
- ------------------------------------------------------------------------------------------
</TABLE>
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
DISTRIBUTION TOTAL FUND
MANAGEMENT AND SERVICE OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.75% None % %
- ------------------------------------------------------------------------------------------
Retail B Shares 0.75% 0.95% % %
- ------------------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the Funds -
How sales charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the Funds
- How sales charges work."
-6-
<PAGE>
(3) This amount applies if you sell your shares in the first year after
purchase and gradually declines to 1% in the sixth year after purchase.
After six years, your Retail B Shares will automatically convert to Retail
A Shares. See "How to invest in the Funds - How sales charges work."
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your Retail B Shares convert to Retail A Shares after six years
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
Retail B Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
If you hold Retail B Shares, you would pay the following expenses if you didn't sell your shares:
- -------------------------------------------------------------------------------------------------------------
Retail B Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGERS
The Fund's portfolio managers are Donald Jones, a Vice President of the Adviser
since 1991, and David Lindsay, CFA, a Senior Vice President of the Adviser since
1992. They are primarily responsible for the day-to-day management of the Fund's
investment portfolio. Mr. Jones has managed the equity portion of the Fund's
portfolio, including determining the allocation of the Fund's assets between
equities and fixed income investments, since May of 1995. He has been with the
Adviser and its predecessors since 1977. Mr. Lindsay has managed the fixed
income portion of the Fund since January of 1997. He has been with the Adviser
and its predecessors since 1986.
-7-
<PAGE>
Galaxy Equity Income Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks current income and capital appreciation.
[Sidenote:]
CURRENT INCOME
Current income includes both dividends from stocks and interest income from
fixed income securities, after deducting Fund expenses.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 75% of its total assets in a diversified
portfolio of income-producing (dividend-paying) equity securities, primarily
common stocks. The Adviser looks for investments that offer dividends,
prospects for dividend growth and capital appreciation. However, the Fund's
portfolio may include securities that offer only growth potential or only
income potential.
The Fund will sell a portfolio security when, as a result of changes in the
economy, the Adviser believes that holding the security is no longer consistent
with the Fund's investment objective. A security may also be sold as a result of
a deterioration in the performance of the security or in the financial condition
of the issuer of the security.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
The value of your investment in the Fund will go up and down with the value of
the investments which the Fund holds. The Fund's investments may not perform as
well as other investments, even in times of rising markets.
In addition, the Fund also carries the following main risk:
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations will
prove to be inaccurate.
-8-
<PAGE>
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
Retail A Shares of the Fund were first issued during the fiscal year ending
October 31, 1992. The returns for Retail A Shares of the Fund for prior
periods represent the returns for Trust Shares of the Fund which are offered
in a separate prospectus. Prior to November 1, 1993, Retail A Shares and
Trust Shares of the Fund had the same returns because each class of shares
had the same expenses.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares has varied from
year to year. The returns for Retail B Shares would have been different than
the figures shown because each class of shares has different expenses. The
figures don't include any sales charges that investors pay when buying or
selling shares of the Fund. If sales charges were included, the returns would
be lower.
[Sidenote:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
[bar chart goes here]
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
22.37% 7.43% 8.05% 0.75% 32.96% 16.53% 25.51% 15.63% %
---- ---- ---- ---- ---- ---- ---- ---- ----
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns (after taking into
account any sales charges) for the periods ended December 31, 1999, as compared
to a broad-based market index. The returns for Retail A Shares of the Fund for
periods prior to December 1, 1995 have been
-9-
<PAGE>
restated to include the effect of the maximum 3.75% front-end sales charge which
went into effect on that date.
<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE INCEPTION
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares % % % (12/14/90)
- -------------------------------------------------------------------------------------------------------------
Retail B Shares % % % (11/1/98)
- -------------------------------------------------------------------------------------------------------------
S&P 500 % % %(since 1/31/90)
% (since 10/31/98)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The S&P 500 is an unmanaged index that tracks the performance of 500 widely held
common stocks listed on the New York Stock Exchange, the American Stock Exchange
and NASDAQ. The S&P 500 is heavily weighted with the stocks of large companies.
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
MAXIMUM DEFERRED SALES CHARGE
MAXIMUM SALES CHARGE (LOAD) (LOAD) SHOWN AS A %
ON PURCHASES SHOWN AS A % OF OF THE OFFERING PRICE OR
OF THE OFFERING PRICE SALE PRICE, WHICHEVER IS LESS
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares 3.75%(1) None(2)
- ------------------------------------------------------------------------------------------
Retail B Shares None 5.00%(3)
- ------------------------------------------------------------------------------------------
</TABLE>
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
DISTRIBUTION TOTAL FUND
MANAGEMENT AND SERVICE OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.75% None % %
- ------------------------------------------------------------------------------------------
Retail B Shares 0.75% 0.95% % %
- ------------------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the Funds -
How sales charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the Funds
- How sales charges work."
-10-
<PAGE>
(3) This amount applies if you sell your shares in the first year after
purchase and gradually declines to 1% in the sixth year after purchase.
After six years, your Retail B Shares will automatically convert to Retail
A Shares. See "How to invest in the Funds - How sales charges work."
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your Retail B Shares convert to Retail A Shares after six years
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
Retail B Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
If you hold Retail B Shares, you would pay the following expenses if you didn't
sell your shares:
- -------------------------------------------------------------------------------------------------------------
Retail B Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is J. Edward Klisiewicz, a Senior Vice President of
the Adviser. He's primarily responsible for the day-to-day management of the
Fund's investment portfolio. Mr. Klisiewicz has been the Fund's portfolio
manager since it began operations in 1990. He has been with the Adviser and its
predecessors since 1970.
-11-
<PAGE>
Galaxy Growth and Income Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks to provide a relatively high total return through long-term
capital appreciation and current income.
[Sidenote:]
CURRENT INCOME
Current income includes both dividends from stocks and interest income from
fixed income securities, after deducting Fund expenses.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 65% of its total assets in the common
stocks of U.S. companies with large market capitalizations (generally over $2
billion) that the Adviser believes offer above-average growth and dividends.
The Adviser focuses on stocks which are believed to be attractively priced
relative to expectations for the future performance of the issuing company.
The Adviser also seeks a current yield greater than that of the S&P 500,
although not all Fund investments will pay dividends.
The Fund will sell a portfolio security when, as a result of changes in the
economy, the Adviser believes that holding the security is no longer consistent
with the Fund's investment objective. A security may also be sold as a result of
a deterioration in the performance of the security or in the financial condition
of the issuer of the security.
[Sidenote:]
MARKET CAPITALIZATION
A company's market capitalization is the price of a share of its stock,
multiplied by the number of shares held by investors.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
-12-
<PAGE>
The value of your investment in the Fund will go up and down with the value of
the investments which the Fund holds. The Fund's investments may not perform as
well as other investments, even in times of rising markets.
In addition, the Fund also carries the following main risk:
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares has varied from
year to year. The returns for Retail B Shares were different than the figures
shown because each class of shares has different expenses. The figures don't
include any sales charges that investors pay when buying or selling shares of
the Fund. If sales charges were included, the returns would be lower.
The Fund began operations on December 14, 1992 as a separate portfolio (the
Predecessor Fund) of The Shawmut Funds. On December 4, 1995, the Predecessor
Fund was reorganized as a new portfolio of Galaxy. Prior to the reorganization,
the Predecessor Fund offered and sold two classes of shares, Investment Shares
(which were first offered on February 12, 1993) and Trust Shares (which were
first offered on December 14, 1992), that were similar to the Fund's Retail A
Shares and Trust Shares. In connection with the reorganization, shareholders of
the Predecessor Fund exchanged their Investment Shares and Trust Shares for
Retail A Shares and Trust Shares of the Fund. The returns for periods prior to
December 4, 1995 are for Investment Shares of the Predecessor Fund.
[Sidenote:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
-13-
<PAGE>
[bar chart goes here]
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
4.83% 29.34% 19.85% 29.19% 15.71% %
- -------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns (after taking into
account any sales charges) for the periods ended December 31, 1999, as compared
to a broad-based market index. The returns for Retail A Shares of the Fund for
periods prior to December 1, 1995 have been restated to include the effect of
the maximum 3.75% front-end sales charge which went into effect on that date.
<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE INCEPTION
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares % % % (2/12/93)
- -------------------------------------------------------------------------------------------------------------
Retail B Shares % % % (3/4/96)
- -------------------------------------------------------------------------------------------------------------
S&P 500 % % % (since 1/31/93)
% (since 2/29/96)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The S&P 500 is an unmanaged index that tracks the performance of 500 widely held
common stocks listed on the New York Stock Exchange, the American Stock Exchange
and NASDAQ. The S&P 500 is heavily weighted with the stocks of large companies.
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
MAXIMUM SALES CHARGE MAXIMUM DEFERRED SALES
(LOAD)ON PURCHASES SHOWN CHARGE (LOAD) SHOWN AS A %
AS A % OF THE OF THE OFFERING PRICE OR
OFFERING PRICE SALE PRICE, WHICHEVER IS LESS
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares 3.75%(1) None(2)
- ------------------------------------------------------------------------------------------
Retail B Shares None 5.00%(3)
- ------------------------------------------------------------------------------------------
</TABLE>
-14-
<PAGE>
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
DISTRIBUTION TOTAL FUND
MANAGEMENT AND SERVICE OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.75% None %(4) %(4)
- ------------------------------------------------------------------------------------------
Retail B Shares 0.75% 0.95% % %
- ------------------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the Funds -
How sales charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the Funds
- How sales charges work."
(3) This amount applies if you sell your shares in the first year after
purchase and gradually declines to 1% in the sixth year after purchase.
After six years, your Retail B Shares will automatically convert to Retail
A Shares. See "How to invest in the Funds - How sales charges work."
(4) Affiliates of the Adviser are waiving a portion of the shareholder
servicing fees (that are included in Other expenses) for Retail A Shares so
that Other expenses for Retail A Shares are expected to be ____%. Total
Fund operating expenses for Retail A Shares after these fee waivers are
expected to be ____%. These fee waivers may be revised or discontinued at
any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your Retail B Shares convert to Retail A Shares after six years
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
Retail B Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
If you hold Retail B Shares, you would pay the following expenses if you didn't
sell your shares:
- -------------------------------------------------------------------------------------------------------------
Retail B Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
</TABLE>
-15-
<PAGE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is Gregory M. Miller, a Vice President of the
Adviser since 1996. He's been primarily responsible for the day-to-day
management of the Fund's investment portfolio since July 1998. Before that, Mr.
Miller assisted his predecessor in managing the Fund for seven years. He joined
the Adviser in 1985.
-16-
<PAGE>
Galaxy Strategic Equity Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests at least 65% of its total assets in U.S. equity securities,
primarily common stock and securities that can be converted into common
stock. The Fund's "Value Driven Growth" investment process emphasizes
securities believed to have the potential for the best one- to two-year
returns. These securities are generally selected from a universe of large and
medium size companies representative of the S&P 500, although the universe of
stocks monitored by the Adviser is not limited to stocks of companies
included in the S&P 500. The Fund may invest up to 20% of its total assets in
foreign equity securities. In selecting individual stocks, the Adviser looks
at the current price, projected earnings growth, and historical valuations to
derive an estimate of return potential. The Fund may give emphasis to growth
stocks, value stocks or particular industries, depending upon the Adviser's
assessment of a stock's return potential relative to its price in the broader
market.
The Fund will sell a portfolio security when, as a result of a decline in the
security's return potential relative to that of other securities, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective.
[Sidenote:]
VALUE STOCKS AND GROWTH STOCKS
Value stocks are ones that appear to be underpriced based on measures such as
lower price-to-earnings and price-to-book value ratios. Growth stocks offer
strong revenue and earnings potential, and accompanying capital growth, with
generally less dividend income than value stocks.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
The value of your investment in the Fund will go up and down with the value of
the investments which the Fund holds. The Fund's investments may not perform as
well as other investments, even in times of rising markets.
-17-
<PAGE>
In addition, the Fund also carries the following main risks:
- - CONVERTIBLE SECURITIES - Securities that can be converted into common
stock, such as certain debt securities and preferred stock, are subject to
the usual risks associated with fixed income investments, such as interest
rate risk and credit risk. In addition, because they react to changes in
the value of the equity securities into which they will convert,
convertible securities are also subject to stock market risk.
- - FOREIGN INVESTMENTS - Foreign investments may be riskier than U.S.
investments because of factors such as foreign government restrictions,
changes in currency exchange rates, incomplete financial information about
the issuers of securities, and political or economic instability. Foreign
stocks may be more volatile and less liquid than U.S. stocks.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows the performance of Retail A Shares during the last
calendar year. The return for Retail B Shares were different than the figure
shown because each class of shares has different expenses. The figure don't
include any sales charges that investors pay when buying or selling shares of
the Fund. If sales charges were included, the returns would be lower.
[Sidenote:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
[bar chart goes here]
<TABLE>
<CAPTION>
1999
- -----------------
<S><C>
%
- -----------------
</TABLE>
-18-
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns (after taking into
account any sales charges) for the periods ended December 31, 1999, as compared
to a broad-based market index. The returns for Retail A Shares of the Fund for
periods prior to December 1, 1995 have been restated to include the effect of
the maximum 3.75% front-end sales charge which went into effect on that date.
<TABLE>
<CAPTION>
1 YEAR SINCE INCEPTION
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares % % (3/4/98)
- ----------------------------------------------------------------------------------------
Retail B Shares % % (3/4/98)
- ----------------------------------------------------------------------------------------
S&P 500 % % (since 2/28/98)
- ----------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The S&P 500 is an unmanaged index that tracks the performance of 500 widely held
common stocks listed on the New York Stock Exchange, the American Stock Exchange
and NASDAQ. The S&P 500 is heavily weighted with the stocks of large companies.
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
MAXIMUM DEFERRED SALES
MAXIMUM SALES CHARGE (LOAD) CHARGE (LOAD) SHOWN AS A %
ON PURCHASES SHOWN OF THE OFFERING PRICE OR
AS A % OF THE OFFERING PRICE SALE PRICE, WHICHEVER IS LESS
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares 3.75%(1) None(2)
- ------------------------------------------------------------------------------------------
Retail B Shares None 5.00%(3)
- ------------------------------------------------------------------------------------------
</TABLE>
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
DISTRIBUTION TOTAL FUND
MANAGEMENT AND SERVICE OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.75%(4) None % %(4)
- ------------------------------------------------------------------------------------------
Retail B Shares 0.75%(4) 0.95% % %(4)
- ------------------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the Funds -
How sales charges work."
-19-
<PAGE>
(2) Except for investments of $500,000 or more. See "How to invest in the Funds
- How sales charges work."
(3) This amount applies if you sell your shares in the first year after
purchase and gradually declines to 1% in the sixth year after purchase.
After six years, your Retail B Shares will automatically convert to Retail
A Shares. See "How to invest in the Funds - How sales charges work."
(4) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be ____%. Total Fund operating expenses after this waiver
are expected to be ____% for Retail A Shares and ____% for Retail B Shares.
This fee waiver may be revised or discontinued at any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your Retail B Shares convert to Retail A Shares after six years
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
Retail B Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
If you hold Retail B Shares, you would pay the following expenses if you didn't
sell your shares:
- -------------------------------------------------------------------------------------------------------------
Retail B Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is Peter B. Hathaway, CFA, a Senior Vice President
of the Adviser. He's primarily responsible for the day-to-day management of the
Fund's investment portfolio. Mr. Hathaway has been the Fund's portfolio manager
since it began operations in March 1998. He has been in the investment
management business with the Adviser and its predecessors since 1965 and has
been responsible for the Adviser's "Value Driven Growth" investment process
since 1991.
-20-
<PAGE>
Galaxy Equity Value Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation. Income is secondary to the
objective of capital appreciation.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 75% of its total assets in equity securities,
mainly common stocks, that the Adviser believes are undervalued. The Fund
invests most of its assets in companies that have a market capitalization of
more than $1.5 billion.
The Adviser uses proprietary computer models to compare share price and company
value, both compared to the market and over time. This helps the Adviser to
identify out-of-favor, undervalued securities (often called value stocks) which
may subsequently increase in value. These models focus on fundamental aspects
such as earnings and dividend growth, reinvestment of returns and the ability of
companies to finance their own growth. The models also take into account factors
such as how easily the stocks may be traded. The Adviser then reviews the
results and looks for risks that may account for a stock's low price. It
evaluates factors the computer models can't measure, such as the quality of a
company's management and the impact of technological change. Stocks which pass
all tests are eligible to be included in the Fund's portfolio. Fund holdings are
frequently reviewed and are sold automatically when the computer models show
they are overvalued.
[Sidenote:]
MARKET CAPITALIZATION
A company's market capitalization is the price of a share of its stock,
multiplied by the number of shares held by investors.
[Sidenote:]
VALUE STOCKS
Value stocks are ones that appear to be underpriced based on measures such as
lower price-to-earnings and price-to-book value ratios.
-21-
<PAGE>
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
The value of your investment in the Fund will go up and down with the value of
the investments which the Fund holds. The Fund's investments may not perform as
well as other investments, even in times of rising markets.
In addition, the Fund also carries the following main risk:
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance
the Fund's investment objective. It's possible, however, that these
evaluations will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
Retail A Shares of the Fund were first issued during the fiscal year ended
October 31, 1991. The returns for Retail A Shares of the Fund for prior
periods represent the returns for Trust Shares of the Fund which are offered
in a separate prospectus. Prior to November 1, 1993, Retail A Shares and
Trust Shares of the Fund had the same returns because each class of shares
had the same expenses.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares has varied from
year to year. The returns for Retail B Shares were different than the figures
shown because each class of shares has different expenses. The figures don't
include any sales charges that investors pay when buying or selling shares of
the Fund. If sales charges were included, the returns would be lower.
-22-
<PAGE>
[Sidenote:]
BEST QUARTER:
% FOR THE QUARTER ENDING ,
WORST QUARTER:
% FOR THE QUARTER ENDING ,
[bar chart goes here]
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-3.20% 23.36% 8.21% 14.75% 3.51% 27.78% 21.09% 27.66% 23.75% %
- -------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns (after taking into
account any sales charges) for the periods ended December 31, 1999, as compared
to broad-based market indices. The returns for Retail A Shares of the Fund for
periods prior to December 1, 1995 have been restated to include the effect of
the maximum 3.75% front-end sales charge which went into effect on that date.
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares % % % % (9/1/88)
- -----------------------------------------------------------------------------------------------------------------
Retail B Shares % % (3/4/96)
- -----------------------------------------------------------------------------------------------------------------
S&P 500 % % % % (since 9/1/88)
% (since 2/29/96)
- -----------------------------------------------------------------------------------------------------------------
Lipper Growth and Income % % % % (since 9/1/88)
Funds Average % (since 2/29/96)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The S&P 500 is an unmanaged index that tracks the performance of 500 widely held
common stocks listed on the New York Stock Exchange, the American Stock Exchange
and NASDAQ. The S&P 500 is heavily weighted with the stocks of large companies.
[Sidenote:]
The Lipper Growth and Income Funds Average is an unmanaged index that measures
the performance of a select group of mutual funds with investment objectives
similar to that of the Fund.
-23-
<PAGE>
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
MAXIMUM DEFERRED SALES
MAXIMUM SALES CHARGE (LOAD) CHARGE (LOAD) SHOWN AS A %
ON PURCHASES SHOWN OF THE OFFERING PRICE OR
AS A % OF THE OFFERING PRICE SALE PRICE, WHICHEVER IS LESS
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares 3.75%(1) None(2)
- ------------------------------------------------------------------------------------------
Retail B Shares None 5.00%(3)
- ------------------------------------------------------------------------------------------
</TABLE>
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
DISTRIBUTION TOTAL FUND
MANAGEMENT AND SERVICE OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.75% None % %
- ------------------------------------------------------------------------------------------
Retail B Shares 0.75% 0.95% % %
- ------------------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the Funds -
How sales charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the Funds
- How sales charges work."
(3) This amount applies if you sell your shares in the first year after
purchase and gradually declines to 1% in the sixth year after purchase.
After six years, your Retail B Shares will automatically convert to Retail
A Shares. See "How to invest in the Funds - How sales charges work."
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your Retail B Shares convert to Retail A Shares after six years
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
-24-
<PAGE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
Retail B Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
If you hold Retail B Shares, you would pay the following expenses if you didn't
sell your shares:
- -------------------------------------------------------------------------------------------------------------
Retail B Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is G. Jay Evans, CFA, a Senior Vice President of
the Adviser since 1994. He's primarily responsible for the day-to-day management
of the Fund's investment portfolio. Mr. Evans has been the Fund's portfolio
manager since 1993. He has been with the Adviser and its predecessors since
1978.
-25-
<PAGE>
Galaxy Equity Growth Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 75% of its total assets in a broadly
diversified portfolio of equity securities, primarily common stocks and
securities that can be converted into common stocks. The Fund invests mainly in
the securities of U.S. issuers, but may invest up to 20% of its total assets in
foreign securities.
The Fund invests mainly in companies which the Adviser believes will have faster
earnings growth than the economy in general. The Adviser looks for
large-capitalization companies (generally over $2 billion) in growing
industries, focusing on technological advances, good product development, strong
management and other factors which support future growth. The Adviser seeks out
companies that have a history of strong earnings growth and are projected to
continue a similar pattern of growth over the next three to five years.
The Fund will sell a security if there is an adverse change in the projected
earnings growth of the company issuing the security. A security will also be
sold when, as a result of changes in the economy or the performance of the
security or other circumstances, the Adviser believes that holding the security
is no longer consistent with the Fund's investment objective.
[Sidenote:]
GROWTH STOCKS
Growth stocks offer strong revenue and earnings potential, and accompanying
capital growth, with generally less dividend income than value stocks.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
The value of your investment in the Fund will go up and down with the value of
the investments which the Fund holds. The Fund's investments may not perform as
well as other investments, even in times of rising markets.
-26-
<PAGE>
In addition, the Fund also carries the following main risks:
- - CONVERTIBLE SECURITIES - Securities that can be converted into common
stock, such as certain debt securities and preferred stock, are subject to
the usual risks associated with fixed income investments, such as interest
rate risk and credit risk. In addition, because they react to changes in
the value of the equity securities into which they will convert,
convertible securities are also subject to stock market risk.
- - FOREIGN INVESTMENTS - Foreign investments may be riskier than U.S.
investments because of factors such as foreign government restrictions,
changes in currency exchange rates, incomplete financial information about
the issuers of securities, and political or economic instability. Foreign
stocks may be more volatile and less liquid than U.S. stocks.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
Retail A Shares of the Fund were first issued during the fiscal year ended
October 31, 1991. The returns for Retail A Shares of the Fund for prior
periods represent the returns for Trust Shares of the Fund which are offered
in a separate prospectus. Prior to November 1, 1993, Retail A Shares and
Trust Shares of the Fund had the same returns because each class of shares
had the same expenses.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares has varied from
year to year. The returns for Retail B Shares were different than the figures
shown because each class of shares has different expenses. The figures don't
include any sales charges that investors pay when buying or selling shares of
the Fund. If sales charges were included, the returns would be lower.
-27-
<PAGE>
[Sidenote:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
[bar chart goes here]
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996 1997 1998 1999
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
30.40% 6.11% 5.37% 0.60% 33.66% 20.46% 30.43% 25.66% %
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns (after taking into
account any sales charges) for the periods ended December 31, 1999, as compared
to a broad-based market index. The returns for Retail A Shares of the Fund for
periods prior to December 1, 1995 have been restated to include the effect of
the maximum 3.75% front-end sales charge which went into effect on that date.
<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE INCEPTION
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares % % % (12/14/90)
- -------------------------------------------------------------------------------------------------------------
Retail B Shares % % % (3/4/96)
- -------------------------------------------------------------------------------------------------------------
S&P 500 % % % (since 11/30/90)
% since (2/29/96)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The S&P 500 is an unmanaged index that tracks the performance of 500 widely held
common stocks listed on the New York Stock Exchange, the American Stock Exchange
and NASDAQ. The S&P 500 is heavily weighted with the stocks of large companies.
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
-28-
<PAGE>
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
MAXIMUM DEFERRED SALES
MAXIMUM SALES CHARGE (LOAD) CHARGE (LOAD) SHOWN AS A %
ON PURCHASES SHOWN OF THE OFFERING PRICE OR
AS A % OF THE OFFERING PRICE SALE PRICE, WHICHEVER IS LESS
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares 3.75%(1) None(2)
- ------------------------------------------------------------------------------------------
Retail B Shares None 5.00%(3)
- ------------------------------------------------------------------------------------------
</TABLE>
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
DISTRIBUTION TOTAL FUND
MANAGEMENT AND SERVICE OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.75% None % %
- ------------------------------------------------------------------------------------------
Retail B Shares 0.75% 0.95% % %
- ------------------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the Funds -
How sales charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the Funds
- How sales charges work."
(3) This amount applies if you sell your shares in the first year after
purchase and gradually declines to 1% in the sixth year after purchase.
After six years, your Retail B Shares will automatically convert to Retail
A Shares. See "How to invest in the Funds - How sales charges work."
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your Retail B Shares convert to Retail A shares after six years
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
Retail B Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
If you hold Retail B Shares, you would pay the following expenses if you didn't
sell your shares:
- -------------------------------------------------------------------------------------------------------------
Retail B Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
</TABLE>
-29-
<PAGE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is Robert G. Armknecht, CFA, an Executive Vice
President of the Adviser since 1988. He's primarily responsible for the
day-to-day management of the Fund's investment portfolio. Mr. Armknecht has been
with the Adviser and its predecessors since 1988 and has been the Fund's
portfolio manager since it began operations in 1990.
-30-
<PAGE>
Galaxy International Equity Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 75% of its total assets in the equity
securities of foreign issuers. At all times, the Fund's assets will be invested
in companies located in at least three different foreign countries. Normally, no
more than 20% of the Fund's total assets will be invested in companies located
in countries with emerging economies or emerging securities markets. The Fund
emphasizes larger established companies, although it may invest in companies of
any size. The Fund may engage in transactions for the purpose of hedging its
portfolio, such as options, futures and foreign currencies.
The Sub-Adviser determines how much to invest in each country and region by
looking at factors such as prospects for economic growth, expected inflation
levels, government policies and the range of investment opportunities available.
Decisions as to particular investments are made with the guidance of the
Sub-Adviser's Investment Strategy Committee under the supervision of the
Adviser. The Sub-Adviser looks at the potential return of each investment over a
one- to two-year period.
The Fund will sell a security if, as a result of changes in the economy of a
particular country or region, the Sub-Adviser believes that holding the security
is no longer consistent with the Fund's investment objective. A security may
also be sold as a result of a deterioration in the performance of the security
or in the financial condition of the company that issued the security.
[Sidenote:]
SUB-ADVISER
The Adviser has appointed Oechsle International Advisors, LLC as Sub-Adviser to
assist it in the day-to-day management of the Fund's investment portfolio.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. U.S. and foreign stock markets tend to move in cycles, with
periods of rising prices and periods of falling prices.
-31-
<PAGE>
The value of your investment in the Fund will go up and down with the value of
the investments which the Fund holds. The Fund's investments may not perform as
well as other investments, even in times of rising markets.
In addition, the Fund also carries the following main risks:
- - FOREIGN INVESTMENTS - Foreign investments may be riskier than U.S.
investments because of factors such as foreign government restrictions,
changes in currency exchange rates, incomplete financial information about
the issuers of securities, and political or economic instability. Foreign
stocks may be more volatile and less liquid than U.S. stocks.
- - EMERGING MARKETS - The risks associated with foreign investments are
heightened when investing in emerging markets. The governments and
economies of emerging market countries feature greater instability than
those of more developed countries. Such investments tend to fluctuate in
price more widely and to be less liquid than other foreign investments.
- - COUNTRY RISK - The Fund may invest 25% or more of its assets in the
securities of companies located in one country. When the Fund invests a
high percentage of its assets in a particular country, the Fund will be
especially susceptible to factors affecting that country.
- - CURRENCY EXCHANGE - Although the Fund usually makes investments that are
sold in foreign currencies, it values its holdings in U.S. dollars. If the
U.S. dollar rises compared to a foreign currency, the Fund loses on the
currency exchange.
- - HEDGING - The Fund may invest in derivatives, such as options, futures and
foreign currencies, to hedge against market risk or the currency risk of
its foreign investments. There's no guarantee hedging will always work. It
can also prevent the Fund from making a gain if markets move in the
opposite direction to the hedge.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
[Sidenote:]
DERIVATIVES
A derivative is an investment whose value is based on or DERIVED from the
performance of other securities or interest or currency exchange rates or
indices. Derivatives are considered to carry a higher degree of risk than other
types of securities.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
-32-
<PAGE>
YEAR-BY-YEAR TOTAL RETURNS-CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares has varied from year
to year, thereby giving some indication of the risk of investing in the Fund.
The returns for Retail B Shares would have been different than the figures shown
because each class of shares has different expenses. The figures don't include
any sales charges that investors pay when buying or selling shares of the Fund.
If sales charges were included, the returns would be lower.
[Sidenote:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
[bar chart goes here]
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997 1998 1999
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
-2.29% 31.62% -2.54% 11.04% 10.03% 13.59% 21.24% %
- ---------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns (after taking into
account any sales charges) for the periods ended December 31, 1999, as compared
to a broad-based market index. The returns for Retail A Shares of the Fund for
periods prior to December 1, 1995 have been restated to include the effect of
the maximum 3.75% front-end sales charge which went into effect on that date.
<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE INCEPTION
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares % % % (12/30/91)
- -------------------------------------------------------------------------------------------------------------
Retail B Shares % % % (11/1/98)
- -------------------------------------------------------------------------------------------------------------
MSCI EAFE Index % % % (since 12/31/91)
% (since 10/31/98)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The Morgan Stanley Capital International Europe, Australasia and Far East (MSCI
EAFE) Index is an unmanaged index which tracks the performance of selected
equity securities in Europe, Australia and the Far East.
-33-
<PAGE>
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
MAXIMUM DEFERRED SALES
MAXIMUM SALES CHARGE (LOAD) CHARGE (LOAD) SHOWN AS A %
ON PURCHASES SHOWN OF THE OFFERING PRICE OR
AS A % OF THE OFFERING PRICE SALE PRICE, WHICHEVER IS LESS
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares 3.75%(1) None(2)
- ------------------------------------------------------------------------------------------
Retail B Shares None 5.00%(3)
- ------------------------------------------------------------------------------------------
</TABLE>
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
DISTRIBUTION TOTAL FUND
MANAGEMENT AND SERVICE OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.90%(4) None % %(4)
- ------------------------------------------------------------------------------------------
Retail B Shares 0.90%(4) 0.95% % %(4)
- ------------------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the Funds -
How sales charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the Funds
- How sales charges work."
(3) This amount applies if you sell your shares in the first year after
purchase and gradually declines to 1% in the sixth year after purchase.
After six years, your Retail B Shares will automatically convert to Retail
A Shares. See "How to invest in the Funds - How sales charges work."
(4) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be ____%. Total Fund operating expenses after this waiver
are expected to be ____% for Retail A Shares and ____% for Retail B Shares.
This fee waiver may be revised or discontinued at any time.
-34-
<PAGE>
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your Retail B Shares convert to Retail A Shares after six years
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
Retail B Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
If you hold Retail B Shares, you would pay the following expenses if you didn't
sell your shares:
- -------------------------------------------------------------------------------------------------------------
Retail B Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGERS
The Fund's portfolio managers are Singleton Dewey Keesler, Jr. and Kathleen
Harris, CFA. They're primarily responsible for the day-to-day management of the
Fund's investment portfolio. Mr. Keesler is Chief Investment Officer and
portfolio manager/research analyst with the Sub-Adviser. He has been associated
with the Sub-Adviser and its predecessor since 1986. Ms. Harris has been a
portfolio manager at the Sub-Adviser and its predecessor since January of 1995.
She was previously portfolio manager and investment director for the State of
Wisconsin Investment Board. Mr. Keesler and Ms. Harris have co-managed the Fund
since August of 1996.
-35-
<PAGE>
Galaxy Small Cap Value Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks to provide long-term capital appreciation.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests mainly in the common stocks of small companies that the Adviser
believes are undervalued. Under normal market conditions, the Fund invests at
least 65% of its total assets in the common stocks of companies that have market
capitalizations of $1.5 billion or less. The Fund invests primarily in the
common stock of U.S. issuers, but may invest up to 20% of its total assets in
foreign equity securities.
In selecting portfolio securities for the Fund, the Adviser looks at the
underlying strength of companies, their products, their competitive positions
and the quality of their management. It also does research to attempt to
identify companies likely to benefit from emerging industry trends and potential
market recoveries.
A portfolio security may be sold if the Adviser determines that it is no longer
undervalued or if there has been a deterioration in the performance of the
security or in the financial condition of the company that issued the security.
[Sidenote:]
MARKET CAPITALIZATION
A company's market capitalization is the price of a share of its stock,
multiplied by the number of shares held by investors.
[Sidenote:]
VALUE STOCKS
Value stocks are ones that appear to be underpriced based on measures such as
lower price-to-earnings and price-to-book value ratios.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
-36-
<PAGE>
The value of your investment in the Fund will go up and down with the value of
the investments which the Fund holds. The Fund's investments may not perform as
well as other investments, even in times of rising markets.
In addition, the Fund also carries the following risks:
- - SMALL COMPANIES RISK - Smaller companies tend to have limited resources,
product lines and market share. As a result, their share prices tend to
fluctuate more than those of larger companies. Their shares may also trade
less frequently and in limited volume, making them potentially less liquid.
The price of small company stocks might fall regardless of trends in the
broader market.
- - FOREIGN INVESTMENTS - Foreign investments may be riskier than U.S.
investments because of factors such as foreign government restrictions,
changes in currency exchange rates, incomplete financial information about
the issuers of securities, and political or economic instability. Foreign
stocks may be more volatile and less liquid than U.S. stocks.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares has varied from
year to year. The returns for Retail B Shares would have been different than
the figures shown because each class of shares has different expenses. The
figures don't include any sales charges that investors pay when buying or
selling shares of the Fund. If sales charges were included, the returns would
be lower.
The Fund began operations on December 14, 1992 as a separate portfolio (the
Predecessor Fund) of The Shawmut Funds. On December 4, 1995, the Predecessor
Fund was reorganized as a new portfolio of Galaxy. Prior to the reorganization,
the Predecessor Fund offered and sold two classes of shares, Investment Shares
(which were first offered on February 12, 1993) and Trust Shares (which were
first offered on December 14, 1992), that were similar to the Fund's Retail A
Shares and Trust Shares. In connection with the reorganization, shareholders of
the Predecessor Fund exchanged their Investment Shares and Trust Shares for
Retail A Shares and Trust Shares of the Fund. The returns for the periods prior
to December 4, 1995 are for Investment Shares of the Predecessor Fund.
-37-
<PAGE>
[Sidenote:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
[bar chart goes here]
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
0.32% 31.49% 26.74% 31.23% -5.66% %
- --------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns (after taking into
account any sales charges) for the periods ended December 31, 1999, as compared
to broad-based market indices. The returns for Retail A Shares of the Fund for
periods prior to December 1, 1995 have been restated to include the effect of
the maximum 3.75% front-end sales charge which went into effect on that date.
<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE INCEPTION
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares % % % (2/12/93)
- -------------------------------------------------------------------------------------------------------------
Retail B Shares % % % (11/1/98)
- -------------------------------------------------------------------------------------------------------------
Russell 2000 Index % % % (since 1/31/93)
% since 10/31/98)
- -------------------------------------------------------------------------------------------------------------
S&P 600 % % % (since 1/31/93)
% (since 10/31/98)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The Russell 2000 Index is an unmanaged index that tracks the performance of
the 2,000 smallest of the 3,000 largest U.S. companies, based on market
capitalization. Companies included in the Russell 2000 Index have market
capitalizations that range between $30 million and $1.4 billion.
[Sidenote:]
The Standard & Poor's SmallCap 600 Composite Index (S&P 600) is an unmanaged
index that tracks the performance of 600 domestic companies traded on the New
York Stock Exchange, the American Stock Exchange and NASDAQ. The S&P 600 is
heavily weighted with the stocks of small companies with market
capitalizations that currently range between $32.9 million and $2.9 billion.
-38-
<PAGE>
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
MAXIMUM DEFERRED SALES
MAXIMUM SALES CHARGE (LOAD) CHARGE (LOAD) SHOWN AS A %
ON PURCHASES SHOWN OF THE OFFERING PRICE OR
AS A % OF THE OFFERING PRICE SALE PRICE, WHICHEVER IS LESS
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares 3.75%(1) None(2)
- ------------------------------------------------------------------------------------------
Retail B Shares None 5.00%(3)
- ------------------------------------------------------------------------------------------
</TABLE>
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
DISTRIBUTION TOTAL FUND
MANAGEMENT AND SERVICE OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.75% None %(4) %(4)
- ------------------------------------------------------------------------------------------
Retail B Shares 0.75% 0.95% % %
- ------------------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the Funds -
How sales charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the Funds
- How sales charges work."
(3) This amount applies if you sell your shares in the first year after
purchase and gradually declines to 1% in the sixth year after purchase.
After six years, your Retail B Shares will automatically convert to Retail
A Shares. See "How to invest in the Funds - How sales charges work."
(4) Affiliates of the Adviser are waiving a portion of the shareholder
servicing fees (that are included in Other expenses) for Retail A Shares so
that Other expenses are expected to be ____%. Total Fund operating expenses
for Retail A Shares after these fee waivers are expected to be ____%. These
fee waivers may be revised or discontinued at any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your Retail B Shares convert to Retail A Shares after six years
-39-
<PAGE>
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
Retail B Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
If you hold Retail B Shares, you would pay the following expenses if you didn't
sell your shares:
- -------------------------------------------------------------------------------------------------------------
Retail B Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is Peter Larson, a Vice President of the Adviser.
He's primarily responsible for the day-to-day management of the Fund's
investment portfolio. Mr. Larson has been with the Adviser and its predecessors
since 1963 and has managed the Fund, including the Predecessor Fund, since it
began operations in 1992.
-40-
<PAGE>
Galaxy Small Company Equity Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks capital appreciation.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 65% of its total assets in the equity
securities, primarily common stocks, of small companies that have market
capitalizations of $1.5 billion or less. The Fund invests primarily in the
common stock of U.S. companies, but may invest up to 20% of its total assets in
foreign equity securities.
In selecting investments for the Fund, the Adviser looks for promising
industries. It then looks within those industries for what are judged to be
reasonably priced companies that have above-average growth potential. The
Adviser consults a wide range of sources, including management, competitors,
other industry sources and regional brokerage analysts.
The Fund will sell a portfolio security when, as a result of changes in the
economy, the Adviser believes that holding the security is no longer consistent
with the Fund's investment objective. A security may also be sold as a result of
a deterioration in the performance of the security or in the financial condition
of the issuer of the security.
[Sidenote:]
MARKET CAPITALIZATION
A company's market capitalization is the price of a share of its stock,
multiplied by the number of shares held by investors.
[Sidenote:]
GROWTH STOCKS
Growth stocks offer strong revenue and earnings potential, and accompanying
capital growth, with generally less dividend income than value stocks.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
-41-
<PAGE>
The value of your investment in the Fund will go up and down with the value of
the investments which the Fund holds. The Fund's investments may not perform as
well as other investments, even in times of rising markets.
In addition, the Fund also carries the following main risks:
- - SMALL COMPANIES RISK - Smaller companies tend to have limited resources,
product lines and market share. As a result, their share prices tend to
fluctuate more than those of larger companies. Their shares may also trade
less frequently and in limited volume, making them potentially less liquid.
The price of small company stocks might fall regardless of trends in the
broader market.
- - FOREIGN INVESTMENTS - Foreign investments may be riskier than U.S.
investments because of factors such as foreign government restrictions,
changes in currency exchange rates, incomplete financial information about
the issuers of securities, and political or economic instability. Foreign
stocks may be more volatile and less liquid than U.S. stocks.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares has varied from year
to year, thereby giving some indication of the risk of investing in the Fund.
The returns for Retail B Shares were different than the figures shown because
each class of shares has different expenses. The figures don't include any sales
charges that investors pay when buying or selling shares of the Fund. If sales
charges were included, the returns would be lower.
[Sidenote:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
[bar chart goes here]
-42-
<PAGE>
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997 1998 1999
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1.20% 22.75% -0.06% 38.80% 20.84% 14.17% -10.94% %
- ---------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns (after taking into
account any sales charges) for the periods ended December 31, 1999, as compared
to a broad-based market index. The returns for Retail A Shares of the Fund for
periods prior to December 1, 1995 have been restated to include the effect of
the maximum 3.75% front-end sales charge which went into effect on that date.
<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE INCEPTION
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares % % % (12/30/91)
- -------------------------------------------------------------------------------------------------------------
Retail B Shares % % % (3/4/96)
- -------------------------------------------------------------------------------------------------------------
Russell 2000 Index % % % (since 12/31/91)
% (since 2/29/96)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The Russell 2000 Index is an unmanaged index that tracks the performance of
the 2,000 smallest of the 3,000 largest U.S. companies, based on market
capitalization. Companies included in the Russell 2000 Index have market
capitalizations that currently range between $30 million and $1.4 billion.
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
MAXIMUM DEFERRED SALES
MAXIMUM SALES CHARGE (LOAD) CHARGE (LOAD) SHOWN AS A %
ON PURCHASES SHOWN OF THE OFFERING PRICE OR
AS A % OF THE OFFERING PRICE SALE PRICE, WHICHEVER IS LESS
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares 3.75%(1) None(2)
- ------------------------------------------------------------------------------------------
Retail B Shares None 5.00%(3)
- ------------------------------------------------------------------------------------------
</TABLE>
-43-
<PAGE>
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
DISTRIBUTION TOTAL FUND
MANAGEMENT AND SERVICE OTHER OPERATING
FEES (12b-1) FEES EXPENSES EXPENSES
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.75% None %(4) %(4)
- ------------------------------------------------------------------------------------------
Retail B Shares 0.75% 0.95%(4) % %(4)
- ------------------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the Funds -
How sales charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the Funds
- How sales charges work."
(3) This amount applies if you sell your shares in the first year after
purchase and gradually declines to 1% in the sixth year after purchase.
After six years, your Retail B Shares will automatically convert to Retail
A Shares. See "How to invest in the Funds - How sales charges work."
(4) Affiliates of the Adviser are waiving a portion of the shareholder
servicing fees (that are included in Other expenses) for Retail A Shares so
that Other expenses for Retail A Shares are expected to be ____%.
Affiliates of the Adviser are also waiving a portion of the Distribution
and service (12b-1) fees for Retail B Shares so that such fees are expected
to be ____%. Total Fund operating expenses after these fee waivers are
expected to be ____% for Retail A Shares and ____% for Retail B Shares.
These fee waivers may be revised or discontinued at any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your Retail B Shares convert to Retail A Shares after six years
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
Retail B Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
If you hold Retail B Shares, you would pay the following expenses if you didn't
sell your shares:
- -------------------------------------------------------------------------------------------------------------
Retail B Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
</TABLE>
-44-
<PAGE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is Stephen D. Barbaro, CFA, a Senior Vice
President of the Adviser since 1996. He's primarily responsible for the
day-to-day management of the Fund's investment portfolio. Mr. Barbaro has
been the Fund's portfolio manager since it began operations in 1991. He has
been with the Adviser and its predecessors since 1976.
-45-
<PAGE>
ADDITIONAL INFORMATION ABOUT RISK
The main risks associated with an investment in each of the Galaxy Equity Funds
have been described above. The following supplements that discussion.
TEMPORARY DEFENSIVE POSITIONS
Each Fund may temporarily hold up to 100% of its total assets in investments
that are not part of its principal investment strategy to try to avoid losses
during unfavorable market conditions. These investments may include cash (which
will not earn any income), money market instruments, debt securities issued or
guaranteed by the U.S. Government or its agencies and, in the case of the
International Equity Fund, foreign money market instruments, debt securities of
foreign national governments and their agencies, and the securities of U.S.
issuers. This strategy could prevent a Fund from achieving its investment
objective and could reduce the Fund's return and affect its performance during a
market upswing.
OTHER TYPES OF INVESTMENTS
This prospectus describes each Fund's main investment strategies and the
particular types of securities in which each Fund mainly invests. Each Fund
may, from time to time, pursue other investment strategies and make other
types of investments in support of its overall investment goal. These
supplemental investment strategies, which are not considered to be main
investment strategies of the Fund - and the risks involved - are described in
detail in the Statement of Additional Information (SAI) which is referred to
on the back cover of this prospectus.
-46-
<PAGE>
INVESTOR GUIDELINES
The following table gives you a general overview of the risk spectrum for the
Galaxy Equity Funds. This is a guide only. It shows the Adviser's current
assessment of the potential risk of the Funds relative to one another, but this
can change over time. It should not be used to compare the Funds with other
mutual funds or other types of investments. Consult your financial professional
to help you decide which Fund is right for you.
<TABLE>
<CAPTION>
RISK SPECTRUM FUND PRIMARY INVESTMENTS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Asset Allocation Common stocks and fixed income
securities of domestic companies
----------------------------------------------------------------------------
Conservative Equity Income Common stocks of domestic companies
selected primarily for their income
potential
----------------------------------------------------------------------------
Growth and Income Common stocks of companies selected for
their growth and income potential
----------------------------------------------------------------------------
Strategic Equity Equity securities of large and medium
sized growth companies that exhibit above-
average return potential relative to their
market price
----------------------------------------------------------------------------
Moderate Equity Value Common stocks of large and medium sized
companies believed to be undervalued
----------------------------------------------------------------------------
Equity Growth Equity securities of growth-oriented
companies
----------------------------------------------------------------------------
International Equity Equity securities of foreign companies
----------------------------------------------------------------------------
Aggressive Small Cap Value Common stocks of smaller companies
believed to be undervalued
----------------------------------------------------------------------------
Small Company Equity Common stocks of smaller
growth-oriented companies
- -------------------------------------------------------------------------------------------------------------
</TABLE>
-47-
<PAGE>
FUND MANAGEMENT
ADVISER
The Adviser, subject to the general supervision of Galaxy's Board of Trustees,
manages each Fund in accordance with its investment objective and policies,
makes decisions with respect to and places orders for all purchases and sales of
its portfolio securities, and maintains related records.
The management fees paid to the Adviser by the Funds during the last fiscal year
are set forth below.
<TABLE>
<CAPTION>
MANAGEMENT FEE AS
FUND A % OF AVERAGE NET ASSETS
- ----------------------------------------------
<S> <C>
Asset Allocation %
- ----------------------------------------------
Equity Income %
- ----------------------------------------------
Growth and Income %
- ----------------------------------------------
Strategic Equity %
- ----------------------------------------------
Equity Value %
- ----------------------------------------------
Equity Growth %
- ----------------------------------------------
International Equity %
- ----------------------------------------------
Small Cap Value %
- ----------------------------------------------
Small Company Equity %
- ----------------------------------------------
</TABLE>
SUB-ADVISER
The Adviser has delegated some of its advisory responsibilities with respect to
the International Equity Fund to Oechsle International Advisors, LLC as
Sub-Adviser. The Sub-Adviser determines which securities will be purchased,
retained or sold for the Fund, places orders for the Fund and provides the
Adviser with information on international investment and economic developments.
The Adviser assists and consults with the Sub-Adviser as to the Fund's
investment program, approves the list of foreign countries recommended by the
Sub-Adviser for investment and manages the Fund's daily cash position. The
Sub-Adviser's fees are paid by the Adviser.
The Sub-Adviser has its main office at One International Place, Boston,
Massachusetts 02210. The Sub-Adviser is the successor to Oechsle International
Advisors, L.P., an international investment firm founded in 1986. At December
31, 1999, the Sub-Adviser had discretionary management authority over
approximately $__ billion in assets. The Adviser's parent company, FleetBoston
Corporation, owns an interest in the Sub-Adviser.
-48-
<PAGE>
ALLOCATION OF ORDERS FOR PORTFOLIO SECURITIES
The Adviser and Sub-Adviser may allocate orders for the purchase and sale of
portfolio securities to certain financial institutions, including those that are
affiliated with the Adviser or Sub-Adviser or that have sold shares of the
Funds, to the extent permitted by law or by order of the Securities and Exchange
Commission. The Adviser and Sub-Adviser will allocate orders to such
institutions only if they believe that the quality of the transaction and the
commission are comparable to what they would be with other qualified brokerage
firms.
-49-
<PAGE>
HOW TO INVEST IN THE FUNDS
HOW SALES CHARGES WORK
You will normally pay a sales charge to invest in the Funds. If you buy Retail A
Shares, you'll usually pay a sales charge (sometimes called a front-end load) at
the time you buy your shares. If you buy Retail B Shares, you may have to pay a
contingent deferred sales charge (sometimes called a back-end load or CDSC) when
you sell your shares. This section explains these two options.
[Sidenote:]
NET ASSET VALUE
The price you pay for your shares is based on the net asset value per share
(NAV). It's the value of a Fund's assets attributable to Retail A Shares or
Retail B Shares, minus the value of the Fund's liabilities attributable to
Retail A Shares or Retail B Shares, divided by the number of Retail A Shares or
Retail B Shares held by investors.
RETAIL A SHARES
The table below shows the sales charge you'll pay if you buy Retail A Shares of
the Funds. The offering price is the NAV of the shares purchased, plus any
applicable sales charge.
TOTAL SALES CHARGE
----------------------------------------------
AS A % OF AS A % OF
AMOUNT OF THE OFFERING PRICE YOUR
YOUR INVESTMENT PER SHARE INVESTMENT
- --------------------------------------------------------------------
Less than $50,000 3.75% 3.90%
- --------------------------------------------------------------------
$50,000 but less
than $100,000 3.50% 3.63%
- --------------------------------------------------------------------
$100,000 but less
than $250,000 3.00% 3.09%
- --------------------------------------------------------------------
$250,000 but less
than $500,000 2.50% 2.56%
- --------------------------------------------------------------------
$500,000 and over 0.00%(1) 0.00%(1)
- --------------------------------------------------------------------
(1) There is no front-end sales charge on investments in Retail A Shares of
$500,000 or more. However, if you sell the shares within one year after
buying them, you'll pay a CDSC of 1% of the offering price or 1% of the net
asset value of your shares, whichever is less, unless the shares were sold
because of the death or disability of the shareholder. In addition, Galaxy
will waive the 1% CDSC on your initial sale of shares. This waiver will not
apply to amounts reinvested within one year following your initial sale of
shares.
-50-
<PAGE>
Galaxy's distributor may, from time to time, implement programs under which a
broker-dealer's sales force may be eligible to win nominal awards for certain
sales efforts. If any such program is made available to any broker-dealer, it
will be made available to all broker-dealers on the same terms. Payments made
under such programs are made by Galaxy's distributor out of its own assets and
not out of the assets of the Funds. These programs will not change the price of
Retail A Shares or the amount that the Funds will receive from such sales.
Certain affiliates of the Adviser may, at their own expense, provide additional
compensation to affiliated broker-dealers whose customers purchase significant
amounts of Retail A Shares of one or more Funds and to unaffiliated
broker-dealers whose customers purchase Retail A Shares of one or more of the
Funds. Such compensation will not represent an additional expense to the Funds
or their shareholders, since it will be paid from the assets of the Adviser's
affiliates.
There's no sales charge when you buy Retail A Shares if:
- - you buy shares by reinvesting your dividends and distributions
- - you were a Galaxy shareholder before December 1, 1995
- - you buy shares for a 401(k) or SIMPLE IRA retirement account
- - you buy shares for any retirement account provided that you held Retail A
Shares in a retirement account prior to January 1, 1999
- - you buy shares for any retirement account and your total cumulative Retail
A Share retirement account balance was $30,000 or more between January 1,
1999 and June 30, 1999
- - you buy shares with money from another Galaxy Fund on which you've already
paid a sales charge (as long as you buy the new shares within 90 days after
selling your other shares)
- - you previously paid a sales charge for the shares of another mutual fund
company (as long as you buy the Galaxy shares within 60 days of selling
your other shares)
- - you're an investment professional who places trades for your clients and
charges them a fee
- - you buy shares under an all-inclusive fee program (sometimes called a "wrap
fee program") offered by a broker-dealer or other financial institution
[Sidenote:]
Ask your investment professional or Galaxy's distributor, or consult the SAI for
other instances in which the sales load on Retail A Shares is waived. When you
buy your shares, you must tell your investment professional or Galaxy's
distributor that you qualify for a sales load waiver. To contact Galaxy's
distributor, call 1-877-BUY- GALAXY (1-877-289-4252).
-51-
<PAGE>
RETAIL B SHARES
If you buy Retail B Shares of the Funds, you won't pay a CDSC unless you sell
your shares within six years of buying them. The following table shows the
schedule of CDSC charges:
<TABLE>
<CAPTION>
IF YOU SELL
YOUR SHARES YOU'LL PAY A CDSC OF
- ----------------------------------------------
<S> <C>
During the first year 5.00%
- ----------------------------------------------
During the second year 4.00%
- ----------------------------------------------
During the third year 3.00%
- ----------------------------------------------
During the fourth year 3.00%
- ----------------------------------------------
During the fifth year 2.00%
- ----------------------------------------------
During the sixth year 1.00%
- ----------------------------------------------
After the sixth year None
- ----------------------------------------------
</TABLE>
For purposes of calculating the CDSC, all purchases made during a calendar month
are considered to be made on the first day of that month. The CDSC is based on
the value of the Retail B Shares on the date that they are sold or the original
cost of the shares, whichever is lower. To keep your CDSC as low as possible
each time you sell shares, Galaxy will first sell any shares in your account
that are not subject to a CDSC. If there are not enough of these, Galaxy will
sell those shares that have the lowest CDSC. There is no CDSC on Retail B Shares
that you acquire by reinvesting your dividends and distributions.
In addition, there's no CDSC when Retail B Shares are sold because of the death
or disability of a shareholder and in certain other circumstances such as
exchanges. Ask your investment professional or Galaxy's distributor, or consult
the SAI, for other instances in which the CDSC is waived. To contact Galaxy's
distributor, call 1-877-BUY-GALAXY (1-877-289-4252).
DISTRIBUTION AND SHAREHOLDER SERVICE FEES
Retail A Shares of the Funds can pay shareholder service fees at an annual rate
of up to 0.50% of each Fund's Retail A Share assets. The Funds do not intend to
pay more than 0.30% in shareholder service fees with respect to Retail A Shares
during the current fiscal year.
Retail B Shares of the Funds can pay distribution and shareholder service
(12b-1) fees at an annual rate of up to 1.15% of each Fund's Retail B Share
assets. The Funds do not intend to pay more than 0.95% in distribution and
shareholder service (12b-1) fees during the current fiscal year. Galaxy has
adopted a plan under Rule 12b-1 that allows each Fund to pay fees from its
Retail B Share assets for selling and distributing Retail B Shares and for
services provided to shareholders. Because 12b-1 fees are paid on an ongoing
basis, over time they increase the cost of your investment and may cost more
than paying other sales charges.
-52-
<PAGE>
CONVERTING RETAIL B SHARES TO RETAIL A SHARES
Six years after you buy Retail B Shares of a Fund, they will automatically
convert to Retail A Shares of the Fund. This allows you to benefit from the
lower annual expenses of Retail A Shares.
CHOOSING BETWEEN RETAIL A SHARES AND RETAIL B SHARES
Retail B Shares are subject to higher fees than Retail A Shares. For this
reason, Retail A Shares can be expected to pay higher dividends than Retail B
Shares. However, because Retail A Shares are subject to an initial sales
charge which is deducted at the time you purchase Retail A Shares (unless you
qualify for a sales load waiver), you will have less of your purchase price
invested in a particular Fund if you purchase Retail A Shares than if you
purchase Retail B Shares of the Fund.
In deciding whether to buy Retail A Shares or Retail B Shares, you should
consider how long you plan to hold the shares. Over time, the higher fees on
Retail B Shares may equal or exceed the initial sales charge and fees for Retail
A Shares. Retail A Shares may be a better choice if you qualify to have the
sales charge reduced or eliminated or if you plan to sell your shares within one
or two years. Consult your financial professional for help in choosing the
appropriate share class.
BUYING, SELLING AND EXCHANGING SHARES
You can buy and sell Retail A Shares and Retail B Shares of the Funds on any day
that the Funds are open for business, which is any day that the New York Stock
Exchange is open. The New York Stock Exchange is generally open for trading
every Monday through Friday, except for national holidays.
Retail A Shares and Retail B Shares have different prices. The price at which
you buy shares is the NAV next determined after your order is accepted, plus any
applicable sales charge. The price at which you sell shares is the NAV next
determined, after receipt of your order in proper form as described below, less
any applicable CDSC. NAV is determined on each day the New York Stock Exchange
is open for trading at the close of regular trading that day (usually 4:00 p.m.
Eastern time). If market prices are readily available for securities owned by
the Fund, they're valued at those prices. If market prices are not readily
available for some securities, they are valued at fair value under the
supervision of Galaxy's Board of Trustees.
Sometimes, the price of a security trading on a foreign stock exchange may be
affected by events that happen after that exchange closes. If this happens, the
fair value of the security may be determined using other factors and may not
reflect the security's last quoted price. In addition, foreign securities may
trade on days when shares of the Funds are not priced. As a result, the net
asset value per share of a Fund holding these securities may change on days when
you won't be able to buy or sell Fund shares.
-53-
<PAGE>
[Sidenote:]
MINIMUM INVESTMENT AMOUNTS
The minimum initial investment to open a Fund account is:
- - $2,500 for regular accounts
- - $500 for retirement plan accounts, such as IRA, SEP and Keogh Plan accounts
- - $100 for college savings accounts, including Education IRA accounts
There is generally no minimum initial investment if you participate in the
Automatic Investment Program or in a salary reduction retirement plan such as a
SIMPLE IRA or 401(k). You generally can make additional investments for as
little as $100. See GALAXY investor programs below for information on other
minimums for initial and additional investments.
Usually, you must keep at least $250 in your account other than retirement plan
accounts. If your account falls below $250 because you sell or exchange shares,
Galaxy may redeem your shares and close your account. Galaxy will give you 60
days' notice in writing before closing your account.
HOW TO BUY SHARES
You can buy shares through your financial institution or directly from Galaxy's
distributor by calling 1-877-BUY-GALAXY (1-877-289-4252). A broker or agent who
places orders on your behalf may charge you a separate fee for their services.
BUYING BY MAIL
Complete an account application and mail it, together with a check payable to
each Fund in which you want to invest, to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
To make additional investments, send your check to the address above along with
one of the following:
- - The detachable form that's included with your Galaxy statement or your
confirmation of a prior transaction
- - A letter stating the amount of your investment, the name of the Fund you
want to invest in, and your account number
If your check is returned because of insufficient funds, Galaxy will cancel your
order.
-54-
<PAGE>
BUYING BY WIRE
To make an initial or additional investment by wire, send U.S. funds through the
Federal Reserve System to Fleet National Bank as agent for Galaxy's distributor.
You should wire money and registration instructions to:
Fleet National Bank
75 State Street
Boston, MA 02109
ABA #0110-0013-8
DDA #79673-5702
Ref: The Galaxy Fund
(Account number)
(Account registration)
Before making an initial investment by wire, you must complete an account
application and send it to The Galaxy Fund, P.O. Box 6520, Providence, RI
02940-6520. Your order will not be effected until the completed account
application is received by Galaxy. Call Galaxy's distributor at 1-877-BUY-GALAXY
(1-877-289-4252) for an account application.
Your financial institution may charge you a fee for sending funds by wire.
CUSTOMERS OF FINANCIAL INSTITUTIONS
If you are a customer of a financial institution such as a bank, savings and
loan association or broker-dealer, including a financial institution affiliated
with the Adviser, you should place your order through your financial
institution. Your financial institution is responsible for sending your order to
Galaxy's distributor and wiring the money to Galaxy's custodian. For details,
please contact your financial institution.
DISCOUNT PLANS
You may have the sales charges on purchases of Retail A Shares reduced or waived
completely through the discount plans described below:
- - RIGHTS OF ACCUMULATION - You can add the value of the Retail A Shares that
you already own in any Galaxy Fund that charges a sales load to your next
investment in Retail A Shares for purposes of calculating the sales charge.
- - LETTER OF INTENT - You can purchase Retail A Shares of any Galaxy Fund that
charges a sales load over a 13-month period and receive the same sales
charge as if all of the shares had been purchased at the same time. To
participate, complete the Letter of Intent section on the account
application.
-55-
<PAGE>
- - REINVESTMENT PRIVILEGE - You can reinvest some or all of the money that you
receive when you sell Retail A Shares of the Funds in Retail A Shares of
any Galaxy Fund within 90 days without paying a sales charge.
- - GROUP SALES - If you belong to a qualified group with 50,000 or more
members, you can buy Retail A Shares at a reduced sales charge, based on
the number of qualified group members.
[Sidenote:]
You must tell your investment professional or Galaxy's distributor when you buy
your shares that you want to take advantage of any of these discount plans. See
the SAI for additional requirements that may apply. To contact Galaxy's
distributor, call 1-877-BUY-GALAXY (1-877-289-4252).
HOW TO SELL SHARES
You can sell your shares in several ways: by mail, by telephone, by wire, or
through your financial institution.
SELLING BY MAIL
Send your request in writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
You must include the following:
- - The name of the Fund
- - The number of shares or the dollar amount you want to sell
- - Your account number
- - Your Social Security number or tax identification number
- - The signatures of each registered owner of the account (the signatures must
match the names on the account registration)
Additional documents may be required for certain types of shareholders, such as
corporations, partnerships, executors, trustees, administrators or guardians.
-56-
<PAGE>
[Sidenote:]
SIGNATURE GUARANTEES
When selling your shares by mail or by phone, you must have your signature
guaranteed if:
- - you're selling shares worth more than $50,000
- - you want Galaxy to send your money to an address other than the address on
your account, unless your assets are transferred to a successor custodian
- - you want Galaxy to send your money to the address on your account that's
changed within the last 30 days
- - you want Galaxy to make the check payable to someone else
Your signature must be guaranteed by a bank that's a member of the FDIC, a trust
company, a member firm of a national securities exchange or any other eligible
institution. A notarized signature is not sufficient.
SELLING BY PHONE
You can sell shares by calling Galaxy's distributor at 1-877-BUY-GALAXY
(1-877-289-4252) unless you tell Galaxy on the account application or in writing
that you don't want this privilege. If you have difficulty getting through to
Galaxy because of unusual market conditions, consider selling your shares by
mail or wire.
SELLING BY WIRE
Notify Galaxy's distributor by phone or wire that you wish to sell shares and
have the sale proceeds wired to your account at any financial institution in the
U.S. To be eligible to use this privilege, you must complete the appropriate
section on the account application or notify Galaxy in writing (with a signature
guarantee). Your sale proceeds must be more than $1,000.
The sale proceeds must be paid to the same bank and account you named on your
application or in your written instructions.
CUSTOMERS OF FINANCIAL INSTITUTIONS
Please contact your financial institution for information on how to sell your
shares. The financial institution is responsible for sending your order to
Galaxy's distributor and for crediting your account with the proceeds. Galaxy
doesn't charge a fee for wiring sale proceeds to your financial institution, but
your financial institution may charge you a fee.
HOW TO EXCHANGE SHARES
You may exchange Retail A Shares of a Fund having a value of at least $100 for
Retail A Shares of any other Galaxy Fund or for shares of any other Fund that's
managed by the Adviser or any of its affiliates in which you have an existing
account. You won't pay a sales charge for exchanging your Retail A Shares.
-57-
<PAGE>
You may exchange Retail B Shares of a Fund for Retail B Shares of any other
Galaxy Fund. You won't pay a CDSC when you exchange your Retail B Shares.
However, when you sell the Retail B Shares you acquired in the exchange, you'll
pay a contingent deferred sales charge based on the date you bought the Retail B
Shares which you exchanged.
TO EXCHANGE SHARES:
- - call Galaxy's distributor or use the InvestConnect voice response line at
1-877-BUY-GALAXY (1-877-289-4252)
- - send your request in writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
- - ask your financial institution
Galaxy doesn't charge any fee for making exchanges but your financial
institution might do so. You are generally limited to three exchanges per year.
Galaxy may change or cancel the exchange privilege with 60 days' advance written
notice to shareholders.
OTHER TRANSACTION POLICIES
If Galaxy doesn't receive full payment for your order to buy shares within three
business days of the order date, Galaxy won't accept your order. Galaxy will
advise you if this happens and return any payment it may eventually receive. You
can only invest in shares of the Funds that are legally available in your state.
Galaxy may refuse any order to buy shares. Galaxy doesn't issue a certificate
when you buy shares but it does keep a record of shares issued to investors.
Galaxy may refuse your order to sell or exchange shares by wire or telephone if
it believes it is advisable to do so. Galaxy or its distributor may change or
cancel the procedures for selling or exchanging shares by wire or telephone at
any time without notice.
If you sell or exchange shares by telephone, you may be responsible for any
fraudulent telephone orders as long as Galaxy has taken reasonable precautions
to verify your identity, such as requesting information about the way in which
your account is registered or about recent transactions in your account.
-58-
<PAGE>
Galaxy normally pays you cash when you sell your shares, but it has the right to
deliver securities owned by a Fund instead of cash. When you sell these
securities, you'll pay brokerage charges.
Sales proceeds are normally sent to you within three business days but Galaxy
reserves the right to send sales proceeds within seven days if sending proceeds
earlier could adversely affect a Fund.
If any shares that you're selling are part of an investment you've paid for with
a personal check, Galaxy will delay sending your sales proceeds until the check
clears, which can take up to 15 days from the purchase date.
Galaxy reserves the right to vary or waive any minimum investment requirement.
-59-
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Each Fund, except the International Equity Fund, pays any dividends from net
investment income each quarter. The International Equity Fund pays any dividends
from net investment income annually. Each Fund pays any net capital gains at
least once a year. It's expected that the Funds' annual distributions will
normally -- but not always -- consist primarily of capital gains rather than
ordinary income. Dividends and distributions are paid in cash unless you
indicate in the account application or in a letter to Galaxy that you want to
have dividends and distributions reinvested in additional shares.
FEDERAL TAXES
Each Fund contemplates declaring as dividends each year all or substantially all
of its taxable income, including its net capital gain (the excess of long-term
capital gain over short-term capital loss). Distributions attributable to the
net capital gain of a Fund will be taxable to you as long-term capital gain,
regardless of how long you have held your shares. Other Fund distributions will
generally be taxable as ordinary income. You will be subject to income tax on
these distributions regardless of whether they are paid in cash or reinvested in
additional shares. You will be notified annually of the tax status of
distributions to you.
You should note that if you purchase shares just before a distribution, the
purchase price will reflect the amount of the upcoming distribution, but you
will be taxed on the entire amount of the distribution received, even though, as
an economic matter, the distribution simply constitutes a return of capital.
This is known as "buying into a dividend."
You will recognize taxable gain or loss on a sale, exchange or redemption of
your shares, including an exchange for shares of another Fund, based on the
difference between your tax basis in the shares and the amount you receive for
them. (To aid in computing your tax basis, you generally should retain your
account statements for the periods during which you held shares.) Generally,
this gain or loss will be long-term or short-term depending on whether your
holding period for the shares exceeds 12 months, except that any loss realized
on shares held for six months or less will be treated as a long-term capital
loss to the extent of any capital gain dividends that were received on the
shares.
The one major exception to these tax principles is that distributions on, and
sales, exchanges and redemptions of, shares held in an IRA (or other
tax-qualified plan) will not be currently taxable.
A Fund's dividends that are paid to its corporate shareholders and are
attributable to qualifying dividends the Fund receives from U.S. corporations
may be eligible, in the hands of the corporate
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<PAGE>
shareholders, for the corporate dividends-received deduction, subject to certain
holding period requirements and debt financing limitations.
It is expected that the International Equity Fund will be subject to foreign
withholding taxes with respect to dividends or interest received from sources in
foreign countries. The Fund may make an election to treat a proportionate amount
of these taxes as constituting a distribution to each shareholder, which would
allow each shareholder either (1) to credit this proportionate amount of taxes
against U.S. federal income tax liability or (2) to take this amount as an
itemized deduction.
STATE AND LOCAL TAXES
Shareholders may also be subject to state and local taxes on distributions,
redemptions and exchanges. State income taxes may not apply however to the
portions of each Fund's distributions, if any, that are attributable to interest
on U.S. Government securities or on securities of the particular state, its
agencies or municipalities.
MISCELLANEOUS
The foregoing is only a summary of certain tax considerations under current law,
which may be subject to change in the future. You should consult your tax
adviser for further information regarding federal, state, local and/or foreign
tax consequences relevant to your specific situation.
-61-
<PAGE>
GALAXY INVESTOR PROGRAMS
RETIREMENT PLANS
Retail A Shares and Retail B Shares of the Funds are available for purchase in
connection with any of the following retirement plans:
- - Individual Retirement Arrangements (IRAs), including Traditional, Roth,
Rollover and Education IRAs
- - Simplified Employee Pension Plans (SEPs)
- - Keogh money purchase and profit sharing plans
- - Salary reduction retirement plans set up by employers for their employees,
which are qualified under Section 401(k) and 403(b) of the Internal Revenue
Code
- - SIMPLE IRA plans which are qualified under Section 408(p) of the Internal
Revenue Code
For information about eligibility requirements and other matters concerning
these plans and to obtain an application, call Galaxy's distributor at
1-877-BUY-GALAXY (1-877-289-4252).
OTHER PROGRAMS
It's also easy to buy or sell shares of the Funds by using one of the programs
described below. Just tell Galaxy the amount and how frequently you want to buy
or sell shares and Galaxy does the rest. For further information on any of these
programs, call Galaxy's distributor at 1-877-BUY-GALAXY (1-877-289-4252) or your
financial institution.
AUTOMATIC INVESTMENT PROGRAM
You can make automatic investments from your bank account every month or every
quarter. You can choose to make your investment on any day of the month or
quarter. The minimum investment is $50 a month or $150 a quarter except for
Education IRAs, in which case the minimum investment is $40 a month or $125 a
quarter.
PAYROLL DEDUCTION PROGRAM
You can make regular investments from your paycheck. The minimum investment is
$25 per pay period. Send a completed Galaxy Payroll Deduction Application to
your employer's payroll department. They'll arrange to have your investment
deducted from your paycheck.
COLLEGE INVESTMENT PROGRAM
The minimum for initial and additional investments through the College
Investment Program is $100 unless you participate in the Automatic Investment
Program, in which case the minimum
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<PAGE>
for initial and additional investments is $50. You can also save for college by
opening an Education IRA account. The minimum for initial and additional
investments in an Education IRA is $100 unless you participate in the Automatic
Investment Program, in which case the minimum for initial and additional
investments is $40.
DIRECT DEPOSIT PROGRAM
This program lets you deposit your social security payments in your Fund account
automatically. There's no minimum deposit. You can cancel the program by
notifying the Social Security Administration in writing.
SYSTEMATIC WITHDRAWAL PLAN
You can make regular withdrawals from your investment account every month, every
quarter, every six months or once a year. You need a minimum account balance of
$10,000 to participate in the plan. No CDSC will be charged on withdrawals of
Retail B Shares made through the plan that don't annually exceed 12% of your
account's value.
You may cancel your participation in any of these programs, other than the
Direct Deposit Program, by writing to Galaxy at:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
Please allow at least five days for the cancellation to be processed.
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<PAGE>
HOW TO REACH GALAXY
THROUGH YOUR FINANCIAL INSTITUTION
Your financial institution can help you buy, sell or exchange shares and can
answer questions about your account.
GALAXY SHAREHOLDER SERVICES
Call Galaxy's distributor at 1-877-BUY-GALAXY (1-877-289-4252), Monday through
Friday, 8 a.m. to 6 p.m. (Eastern time) for help from a Galaxy representative.
INVESTCONNECT
InvestConnect is Galaxy's shareholder voice response system. Call
1-877-BUY-GALAXY (1-877-289-4252) from any touch-tone phone for automated access
to account information and current Fund prices and performance, or to place
orders to sell or exchange shares. It's available 24 hours a day, seven days a
week.
If you live outside the United States, you can contact Galaxy by calling
1-508-871-4121.
THE INTERNET
Please visit Galaxy's website at: www.galaxyfunds.com
[Sidenote:]
Galaxy also offers a TDD service for the hearing impaired. Just call
1-800-696-6515, 24 hours a day, seven days a week.
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<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables shown below will help you understand the
financial performance for the Funds' Retail A Shares and Retail B Shares for the
past five years (or the period since a particular Fund began operations or a
particular class of shares was first offered). Certain information reflects the
financial performance of a single Retail A Share or Retail B Share. The total
returns in the tables represent the rate that an investor would have earned (or
lost) on an investment in Retail A Shares and Retail B Shares of each Fund,
assuming all dividends and distributions were reinvested. The information for
the fiscal year ended October 31, 1999 has been audited by ____________,
independent auditors, whose report, along with the Funds' financial statements,
are included in the Funds' Annual Report and are incorporated by reference into
the SAI. The Annual Report and SAI are available free of charge upon request.
The information for the fiscal years ended October 31, 1995, 1996, 1997 and 1998
was audited by Galaxy's former auditors, ____________.
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<PAGE>
Galaxy Asset Allocation Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
-----------------------------------------------------
1999 1998
--------------------- ---------------------
Retail Retail Retail Retail
A Shares B Shares A Shares B Shares
<S> <C> <C> <C> <C>
Net asset value,
beginning of period .......................... $ 16.46 $ 16.43
Income from investment operations:
Net investment income(2) ..................... 0.38 0.29
Net realized and unrealized gain
(loss) on investments .................... 1.72 1.71
Total from investment operations .................. 2.10 2.00
Less dividends:
Dividends from net investment income ......... (0.40) (0.30)
Dividends from net realized capital gains ... (1.21) (1.21)
Total dividends ................................... (1.61) (1.51)
Net increase (decrease) in net asset value ........ 0.49 0.49
Net asset value, end of period .................... $ 16.95 $ 16.92
------- -------
Total return(5) ................................... 13.85% 13.14%
Ratios/supplemental data:
Net assets, end of period (000's) ............ $323,498 $57,876
Ratios to average net assets:
Net investment income including
reimbursement/waiver ..................... 2.43% 1.77%
Operating expenses including
reimbursement/waiver ..................... 1.33% 1.99%
Operating expenses excluding
reimbursement/waiver ..................... 1.33% 1.99%
Portfolio turnover rate ........................... 108% 108%
<CAPTION>
For the year ending October 31,
--------------------------------------------------------------------
1997 1996 1995
--------------------- ---------------------- -------------
Retail Retail Retail Retail Retail
A Shares B Shares A Shares B Shares(1) A Shares
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period .......................... $ 14.52 $ 14.51 $ 12.82 $ 13.59 $ 10.67
Income from investment operations:
Net investment income(2) ..................... 0.40 0.29 0.30 0.13 0.30
Net realized and unrealized gain
(loss) on investments .................... 2.43 2.42 1.83 0.91 2.16
Total from investment operations .................. 2.83 2.71 2.13 1.04 2.46
Less dividends:
Dividends from net investment income ......... (0.38) (0.28) (0.30) (0.12) (0.31)
Dividends from net realized capital gains ... (0.51) (0.51) (0.13) -- --
Total dividends ................................... (0.89) (0.79) (0.43) (0.12) (0.31)
Net increase (decrease) in net asset value ........ 1.94 1.92 1.70 0.92 2.15
Net asset value, end of period .................... $ 16.46 $ 16.43 $ 14.52 $14.51 $ 12.82
------- ------- ------- ------- -------
Total return(5) ................................... 20.23% 19.34% 16.92% 7.71%(3) 23.42%
Ratios/supplemental data:
Net assets, end of period (000's) ............ $177,239 $30,688 $116,852 $3,557 $76,368
Ratios to average net assets:
Net investment income including
reimbursement/waiver ..................... 2.66% 1.95% 2.29% 1.73%(4) 2.52%
Operating expenses including
reimbursement/waiver ..................... 1.37% 2.10% 1.42% 1.95%(4) 1.48%
Operating expenses excluding
reimbursement/waiver ..................... 1.37% 2.19% 1.42% 2.15%(4) 1.50%
Portfolio turnover rate ........................... 58% 58% 48% 48% 41%
</TABLE>
- ------------------------------
(1) The Fund began issuing Retail B Shares on March 4, 1996.
(2) Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or the Fund's administrator for Retail A Shares for the years
ended October 31, 1999, 1998, 1997, 1996 and 1995 was $____, $0.38, $0.40,
$0.30 and $0.30, respectively. Net investment income per share before
reimbursement/waiver of fees by the Adviser and/or the Fund's administrator
for Retail B Shares for the years ended October 31, 1999, 1998 and 1997 and
for the period ended October 31, 1996 was $___, $0.29, $0.28 and $0.12,
respectively.
(3) Not Annualized.
(4) Annualized.
(5) Calculation does not include the effect of any sales charge for Retail A
Shares and Retail B Shares.
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<PAGE>
Galaxy Equity Income Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
--------------------------------------------------
1999 1999 1998
------ ------- ------
Retail Retail Retail
A Shares B Shares(1) A Shares
<S> <C> <C> <C>
Net asset value, beginning of period.................. $ 18.82
Income from investment operations:
Net investment income(2)......................... 0.25
Net realized and unrealized gain
on investments............................... 2.43
Total from investment operations...................... 2.68
Less dividends:
Dividends from net investment income........... (0.25)
Dividends from net realized capital gains (1.58)
Total dividends................................... (1.83)
Net increase (decrease) in net asset value.......... 0.85
Net asset value, end of period........................ $ 19.67
--------
Total return(4).................................... 15.23%
Ratios/supplemental data:
Net assets, end of period (000's)................ $207,850
Ratios to average net assets:
Net investment income including
reimbursement/waiver......................... 1.30%
Operating expenses including
reimbursement/waiver......................... 1.34%
Operating expenses excluding
reimbursement/waiver......................... 1.34%
Portfolio turnover rate............................... 46%
<CAPTION>
For the year ending October 31,
------------------------------------------------------------
1997 1996 1995
------ ------ ------
Retail Retail Retail
A Shares A Shares A Shares
<S> <C> <C> <C>
Net asset value, beginning of period.................. $ 16.91 $ 14.98 $ 12.74
Income from investment operations:
Net investment income(2)......................... 0.30 0.30 0.28
Net realized and unrealized gain
on investments............................... 3.35 2.47 2.47
Total from investment operations...................... 3.65 2.77 2.75
Less dividends:
Dividends from net investment income........... (0.30) (0.30) (0.30)
Dividends from net realized capital gains (1.44) (0.54) (0.21)
Total dividends................................... (1.74) (0.84) (0.51)
Net increase (decrease) in net asset value.......... 1.91 1.93 2.24
Net asset value, end of period........................ $ 18.82 $ 16.91 $ 14.98
-------- -------- --------
Total return(4).................................... 23.28% 19.01% 22.23%
Ratios/supplemental data:
Net assets, end of period (000's)................ $169,276 $126,952 $81,802
Ratios to average net assets:
Net investment income including
reimbursement/waiver......................... 1.70% 1.86% 2.08%
Operating expenses including
reimbursement/waiver......................... 1.39% 1.40% 1.49%
Operating expenses excluding
reimbursement/waiver......................... 1.41% 1.40% 1.51%
Portfolio turnover rate............................... 37% 45% 21%
</TABLE>
- -----------------------------
(1) The Fund began issuing Retail B Shares on November 1, 1998.
(2) Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or the Fund's administrator for Retail A Shares for the years
ended October 31, 1999, 1998, 1997, 1996 and 1995 was $____, $0.25, $0.30,
$0.30 and $0.28, respectively. Net investment income per share before
reimbursement/waiver of fees by the Adviser and/or the Fund's administrator
for Retail B Shares for the year ended October 31, 1999 was $_______.
(3) The selected per share data was calculated using the weighted average
shares outstanding method for the period.
(4) Calculation does not include the effect of any sales charge for Retail A
Shares and Retail B Shares.
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<PAGE>
Galaxy Growth and Income Fund(1)
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
--------------------------------------------------
1999 1998
---------------------- ----------------------
Retail Retail Retail Retail
A Shares B Shares A Shares B Shares
<S> <C> <C> <C> <C>
Net asset value,
beginning of period .................................... $16.24 $16.23
Income from investment operations:
Net investment income(3) ............................... 0.12 --(7)
Net realized gain on investments ....................... 1.32 1.31
Total from investment operations ............................ 1.44 1.31
Less dividends:
Dividends from net investment income) .................. (0.13) (0.03)
Dividends from net realized gains) ..................... (2.68) (2.68)
Total dividends ............................................. (2.81) (2.71)
Net increase (decrease) in net asset value) ................. (1.37) (1.40)
Net asset value, end of period .............................. $14.87 $14.83
------ ------
Total return(4) ............................................. 9.93% 9.09%
Ratios/supplemental data:
Net assets, end of period (000's) ...................... $214,110 $53,216
Ratios to average net assets:
Net investment income including
reimbursement/waiver ............................... 0.75% 0.01%
Operating expenses including
reimbursement/waiver ............................... 1.28% 2.02%
Operating expenses excluding
reimbursement/waiver ............................... 1.35% 2.02%
Portfolio turnover rate ..................................... 38% 38%
<CAPTION>
For the year ending October 31,
--------------------------------------------------
1997 1996(2)
---------------------- ----------------------
Retail Retail Retail Retail
A Shares B Shares A Shares B Shares
<S> <C> <C> <C> <C>
Net asset value,
beginning of period .................................... $13.78 $13.77 $12.35 $12.97
Income from investment operations:
Net investment income(3) ............................... 0.18 0.10 0.21 0.07
Net realized gain on investments ....................... 3.67 3.65 2.16 0.81
Total from investment operations ............................ 3.85 3.75 2.37 0.88
Less dividends:
Dividends from net investment income) .................. (0.20) (0.10) (0.21) (0.08)
Dividends from net realized gains) ..................... (1.19) (0.19) (0.73) --
Total dividends ............................................. (1.39) (1.29) (0.94) (0.08)
Net increase (decrease) in net asset value) ................. 2.46 2.46 1.43 0.80
Net asset value, end of period .............................. $16.24 $16.23 $13.78 $13.77
------ ------ ------ ------
Total return(4) ............................................. 30.10% 29.11% 20.25% 6.83%(5)
Ratios/supplemental data:
Net assets, end of period (000's) ...................... $141,884 $35,178 $77,776 $4,562
Ratios to average net assets:
Net investment income including
reimbursement/waiver ............................... 1.18% 0.31% 1.65% 0.79%(6)
Operating expenses including
reimbursement/waiver ............................... 1.27% 2.05% 1.34% 1.96%(6)
Operating expenses excluding
reimbursement/waiver ............................... 1.45% 2.28% 1.45% 2.11%(6)
Portfolio turnover rate ..................................... 93% 93% 59% 59%
<CAPTION>
For the year ending October 31,
--------------------------------------------------
1995
------------
Retail
A Shares
<S> <C>
Net asset value,
beginning of period .................................... $11.15
Income from investment operations:
Net investment income(3) ............................... 0.24
Net realized gain on investments ....................... 1.70
Total from investment operations ............................ 1.94
Less dividends:
Dividends from net investment income) .................. (0.25)
Dividends from net realized gains) ..................... (0.49)
Total dividends ............................................. (0.74)
Net increase (decrease) in net asset value) ................. 1.20
Net asset value, end of period .............................. $12.35
------
Total return(4) ............................................. 18.52%
Ratios/supplemental data:
Net assets, end of period (000's) ...................... $51,078
Ratios to average net assets:
Net investment income including
reimbursement/waiver ............................... 2.10%
Operating expenses including
reimbursement/waiver ............................... 1.32%
Operating expenses excluding
reimbursement/waiver ............................... 1.77%
Portfolio turnover rate ..................................... 51%
</TABLE>
- ------------------------------
(1) The Fund commenced operations on December 14, 1992 as a separate investment
portfolio (the "Predecessor Fund") of The Shawmut Funds. The Predecessor
Fund began offering Investment Shares on February 12, 1993. On December 4,
1995, the Predecessor Fund was reorganized as a new portfolio of Galaxy.
Prior to the reorganization, the Predecessor Fund offered and sold two
series of shares, Investment Shares and Trust Shares, that were similar to
the Fund's Retail A Shares and Trust Shares, respectively. In connection
with the reorganization, shareholders of the Predecessor Fund exchanged
Investment Shares and Trust Shares for Retail A Shares and Trust Shares,
respectively, in the Fund.
(2) The Fund began issuing Retail B Shares on March 4, 1996.
(3) Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or the Fund's administrator for Retail A Shares for the years
ended October 31, 1999, 1998, 1997 and 1996 was $____, $0.10, $0.18 and
$0.19, respectively. Net investment income per share before
reimbursement/waiver of fees by the Adviser and/or the Fund's administrator
for Retail B Shares for the years ended October 31, 1999, 1998 and 1997 and
for the period ended October 31, 1996 was $____, $0.00, $0.08 and $0.05,
respectively. Net investment income per share before reimbursement/waiver
of fees by other parties for Retail A Shares for the year ended October 31,
1995 was $0.22 (unaudited).
(4) Calculation does not include the effect of any sales charge for Retail A
Shares and Retail B Shares.
(5) Not annualized.
(6) Annualized.
(7) Net investment income per share is less than $0.005.
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<PAGE>
Galaxy Strategic Equity Fund
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
For the period ending October 31,
----------------------------------------------------
1999 1998(1)
---- ----
Retail Retail Retail Retail
A Shares B Shares A Shares B Shares
<S> <C> <C> <C> <C>
Net asset value, beginning of period ................. $10.00 $10.00
Income from investment operations:
Net investment income (loss)(2).................. --(3) (0.02)
Net realized and unrealized (loss) on investments (0.38) (0.37)
Total from investment operations...................... (0.38) (0.39)
Less dividends:
Dividends from net investment income............. -- --
Dividends from net realized capital gains........ -- --
Total dividends....................................... -- --
Net (decrease) in net asset value..................... (0.38) (0.39)
Net asset value, end of period........................ $9.62 $9.61
------ ------
Total return(4)....................................... (3.75)%(5) 4.76%(5)
Ratios/supplemental data:
Net assets, end of period (000's)................ $4,051 $583
Ratios to average net assets:
Net investment income including
reimbursement/waiver.................................. 0.06%(6) (0.55)%(6)
Operating expenses including reimbursement/waiver 1.40%(6) 2.01%(6)
Operating expenses excluding reimbursement/waiver 2.41%(6) 3.05%(6)
Portfolio turnover rate............................... 30%(5) 30%(5)
</TABLE>
- ------------------------------
1 The Fund commenced operations on March 4, 1998.
2 Net investment income (loss) per share before reimbursement/waiver of fees
by the Adviser and/or the Fund's administrator for Retail A Shares for the
periods ended October 31, 1999 and 1998 were $____ and $0.00, respectively.
Net investment income (loss) per share before reimbursement/waiver of fees
by the Adviser and/or the Fund's administrator for Retail B Shares for the
periods ended October 31, 1999 and 1998 were $____ and $(0.06),
respectively.
3 Net investment income per share is less than $0.00.
4 Calculation does not include the effect of any sales charge for Retail A
Shares and Retail B Shares.
5 Not annualized.
6 Annualized.
-69-
<PAGE>
Galaxy Equity Value Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
------------------------------------------------------
1999 1998
----------------------- ------------------------
Retail Retail Retail Retail
A Shares B Shares A Shares B Shares
<S> <C> <C> <C> <C>
Net asset value,
beginning of period.................. $ 18.21 $ 18.24
Income from investment operations:
Net investment income (loss)(2)...... 0.03 (0.08)
Net realized and unrealized gain
on investments................... 1.50 1.48
Total from investment operations....... 1.53 1.40
Less dividends:
Dividends from net investment income. (0.04) --
Dividends from net realized capital gains (3.20) (3.20)
Total dividends........................... (3.24) (3.20)
Net increase (decrease) in net asset value (1.71) (1.80)
Net asset value, end of period............ $ 16.50 $ 16.44
-------- --------
Total return(3)........................... 9.88% 9.07%
Ratios/supplemental data:
Net assets, end of period (000's).... $234,730 $23,103
Ratios to average net assets:
Net investment income including
reimbursement/waiver............. 0.15% (0.54)%
Operating expenses including
reimbursement/waiver............. 1.37% 2.06%
Operating expenses excluding
reimbursement/waiver............. 1.37% 2.06%
Portfolio turnover rate................ 82% 82%
<CAPTION>
For the year ending October 31,
------------------------------------------------------------
1997 1996 1995
-------------------- ---------------------- ----------
Retail Retail Retail Retail Retail
A Shares B Shares A Shares B Shares(1) A Shares
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.................. $ 15.96 $ 15.99 $ 14.33 $ 14.74 $ 13.31
Income from investment operations:
Net investment income (loss)(2)...... 0.11 -- 0.14 0.04 0.22
Net realized and unrealized gain
on investments................... 4.16 4.17 2.74 1.25 2.24
Total from investment operations.......... 4.27 4.17 2.88 1.29 2.46
Less dividends:
Dividends from net investment income. (0.12) (0.02) (0.14) (0.04) (0.23)
Dividends from net realized capital gains (1.90) (1.90) (1.11) -- (1.21)
Total dividends........................... (2.02) (1.92) (1.25) (0.04) (1.44)
Net increase (decrease) in net asset value 2.25 2.25 1.63 1.25 1.02
Net asset value, end of period............ $ 18.21 $ 18.24 $ 15.96 $ 15.99 $ 14.33
-------- -------- -------- -------- --------
Total return(3)........................... 29.48% 28.60% 21.49% 8.80%(4) 20.81%
Ratios/supplemental data:
Net assets, end of period (000's).... $182,641 $14,958 $131,998 $ 1,916 $96,555
Ratios to average net assets:
Net investment income including
reimbursement/waiver............. 0.63% (0.13)% 1.00% 0.43%(5) 1.62%
Operating expenses including
reimbursement/waiver............. 1.38% 2.07% 1.45% 1.94%(5) 1.49%
Operating expenses excluding
reimbursement/waiver............. 1.38% 2.38% 1.45% 2.24%(5) 1.50%
Portfolio turnover rate................ 111% 111% 116% 116% 76%
</TABLE>
------------------------------
(1) The Fund began issuing Retail B Shares on March 4, 1996.
(2) Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or the Fund's administrator for Retail A Shares for the years
ended October 31, 1999, 1998, 1997, 1996 and 1995 was $____, $0.03, $0.11,
$0.14 and $0.22 , respectively. Net investment income (loss) per share
before reimbursement/waiver of fees by the Adviser and/or the Fund's
administrator for Retail B Shares for the years ended October 31, 1999,
1998 and 1997 and for the period ended October 31, 1996 was $____, $(0.08),
$(0.03) and $0.01, respectively.
(3) Calculation does not include the effect of any sales charge for Retail A
Shares and Retail B Shares.
(4) Not annualized.
(5) Annualized.
-70-
<PAGE>
Galaxy Equity Growth Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
---------------------------------------------------------
1999 1998
----------------------- ------------------------
Retail Retail Retail Retail
A Shares B Shares A Shares B Shares
<S> <C> <C> <C> <C>
Net asset value,
beginning of period ........................ $25.14 $24.91
Income from investment operations: 0.01 (0.16)(2)
Net investment income (loss)(2) ............
Net realized and unrealized gain
on investments ......................... 3.19 3.16
Total from investment operations ................ 3.20 3.00
Less dividends:
Dividends from net investment income ....... (0.03) --
Dividends in excess of net investment ...... --(5) --
Dividends from net realized capital gains .. (3.84) (3.84)
Total dividends ................................. (3.87) (3.84)
Net increase (decrease) in net asset value ...... (0.67) (0.84)
Net asset value, end of period .................. $24.47 $24.07
------ ------
Total return(3) ................................. 14.73% 13.98%
Ratios/supplemental data:
Net assets, end of period (000's) .......... $312,951 $34,693
Ratios to average net assets:
Net investment income including
reimbursement/waiver ................... 0.02% (0.68)%
Operating expenses including
reimbursement/waiver ................... 1.34% 2.04%
Operating expenses excluding
reimbursement/waiver ................... 1.34% 2.04%
Portfolio turnover rate ......................... 60% 60%
<CAPTION>
For the year ending October 31,
--------------------------------------------------------------
1997 1996 1995
-------------------- ---------------------- ----------
Retail Retail Retail Retail Retail
A Shares B Shares A Shares B Shares(1) A Shares
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period ........................ $20.37 $20.26 $17.29 $18.77 $14.18
Income from investment operations:
Net investment income (loss)(2) ............ 0.07 (0.09)(4) 0.10 (0.01) 0.14
Net realized and unrealized gain
on investments ......................... 6.05 6.02 3.39 1.50 3.28
Total from investment operations ................ 6.12 5.93 3.49 1.49 3.42
Less dividends:
Dividends from net investment income ....... (0.07) -- (0.11) -- (0.14)
Dividends in excess of net investment ...... -- -- -- -- --
Dividends from net realized capital gains .. (1.28) (1.28) (0.30) -- (0.17)
Total dividends ................................. (1.35) (1.28) (0.41) -- (0.31)
Net increase (decrease) in net asset value ...... 4.77 4.65 3.08 1.49 3.11
Net asset value, end of period .................. $25.14 $24.91 $20.37 $20.26 $17.29
------ ------ ------ ------ ------
Total return(3) ................................. 31.61% 30.78% 20.51% 7.95%(6) 24.54%
Ratios/supplemental data:
Net assets, end of period (000's) .......... $226,330 $20,363 $160,800 $3,995 $98,911
Ratios to average net assets:
Net investment income including
reimbursement/waiver ................... 0.30% (0.40)% 0.50% (0.16)%(7) 0.85%
Operating expenses including
reimbursement/waiver ................... 1.37% 2.07% 1.40% 1.92%(7) 1.45%
Operating expenses excluding
reimbursement/waiver ................... 1.37% 2.30% 1.40% 2.29%(7) 1.47%
Portfolio turnover rate ......................... 66% 66% 36% 36% 14%
</TABLE>
- ------------------------------------
(1) The Fund began issuing Retail B Shares on March 4, 1996.
(2) Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or the Fund's administrator for Retail A Shares for the years
ended October 31, 1999, 1998, 1997, 1996 and 1995 was $____, $0.01, $0.07,
$0.10 and $0.13 , respectively. Net investment income (loss) per share
before reimbursement/waiver of fees by the Adviser and/or the Fund's
administrator for Retail B Shares for the years ended October 31, 1999,
1998 and 1997 and for the period ended October 31, 1996 was $____,
$(0.16)4, $(0.14)4 and $(0.03), respectively.
(3) Calculation does not include the effect of any sales charge for Retail A
Shares and Retail B Shares.
(4) The selected per share data was calculated using the weighted average
shares outstanding method for the year.
(5) Dividends in excess of net investment income per share were less than
$0.005.
(6) Not annualized.
(7) Annualized.
-71-
<PAGE>
Galaxy International Equity Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
-----------------------------------------------------------------------------------
1999 1999 1998 1997 1996 1995
--------- ---------- ----------- ----------- ------------ ----------
Retail Retail Retail Retail Retail Retail
A Shares B Shares(1) A Shares A Shares A Shares A Shares
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ........... $ 15.18 $ 13.94 $ 12.92 $ 13.20
Income from investment operations:
Net investment income(2).................... 0.07 0.01 0.11 0.11
Net realized and unrealized gain (loss)
on investments.......................... 1.93 2.09 1.27 (0.21)
Total from investment operations............... 2.00 2.10 1.38 (0.10)
Less dividends:
Dividends from net investment income........ (0.07) (0.18) (0.12) (0.02)
Dividends from net realized capital gains.. (0.36) (0.68) (0.24) (0.16)
Total dividends................................. (0.43) (0.86) (0.36) (0.18)
Net increase (decrease) in net asset value...... 1.57 1.24 1.02 (0.28)
Net asset value, end of period.................. $ 16.75 $ 15.18 $ 13.94 $ 12.92
-------- -------- -------- --------
Total return(3)................................. 13.64% 15.88% 10.86% (0.64)%
Ratios/supplemental data:
Net assets, end of period (000's)............ $66,541 $56,592 $35,144 $30,104
Ratios to average net assets:
Net investment income including
reimbursement/waiver..................... 0.39% 0.03% 0.78% 0.84%
Operating expenses including
reimbursement/waiver..................... 1.48% 1.60% 1.70% 1.76%
Operating expenses excluding
reimbursement/waiver..................... 1.73% 1.85% 1.98% 2.03%
Portfolio turnover rate......................... 49% 45% 146% 48%
</TABLE>
- -----------------------------
(1) The Fund began issuing Retail B Shares on November 1, 1998.
(2) The selected per share data was calculated using the weighted average
shares outstanding method for the year. Net investment income (loss) per
share before reimbursement/waiver of fees by the Adviser and/or the Fund's
administrator for Retail A Shares for the years ended October 31, 1999,
1998, 1997, 1996 and 1995 was $____, $0.03, $(0.01), $0.07 and $0.08,
respectively. Net investment income per share before reimbursement/waiver
of fees by the Adviser and/or the Fund's administrator for Retail B Shares
for the year ended October 31, 1999 was $_______.
(3) Calculation does not include the effect of any sales charge for Retail A
Shares and Retail B Shares.
-72-
<PAGE>
Galaxy Small Cap Value Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
-----------------------------------------------------------------------------------
1999 1999 1998 1997 1996 1995
--------- ---------- ----------- ----------- ------------ ----------
Retail Retail Retail Retail Retail Retail
A Shares B Shares(2) A Shares A Shares A Shares A Shares
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period........... $ 18.29 $ 14.75 $ 12.68 $ 11.06
Income from investment operations:
Net investment income (loss)3 0.08 (0.04)(5) 0.01 (0.02)
Net realized gain (loss) on investments..... (2.08) 5.72 2.95 2.21
Total from investment operations............... (2.00) 5.68 2.96 2.19
Less dividends:
Dividends from net investment income........ (0.08) -- (0.02) --
Dividends in excess of net investment
income.................................. -- -- -- --
Dividends from net realized gains........... (2.68) (2.14) (0.87) (0.57)
Total dividends................................ (2.76) (2.14) (0.89) (0.57)
Net increase (decrease) in net asset value..... (4.76) 3.54 2.07 1.62
Net asset value, end of period................. $ 13.53 $ 18.29 $ 14.75 $ 12.68
-------- -------- -------- --------
Total return(4)................................ (12.52)% 43.58% 24.77% 21.27%
Ratios/supplemental data:
Net assets, end of period (000's............. $87,781 $63,658 $34,402 $27,546
Ratios to average net assets:
Net investment income including
reimbursement/waiver..................... 0.38% (0.25)% 0.08% (0.19)%
Operating expenses including
reimbursement/waiver..................... 1.31% 1.30% 1.40% 1.35%
Operating expenses excluding
reimbursement/waiver..................... 1.45% 1.52% 1.55% 1.85%
Portfolio turnover rate........................ 33% 52% 39% 32%
</TABLE>
- -----------------------------
(1) The Fund commenced operations on December 14, 1992 as a separate investment
portfolio (the "Predecessor Fund") of The Shawmut Funds. The Predecessor
Fund began offering Investment Shares on February 12, 1993. On December 4,
1995, the Predecessor Fund was reorganized as a new portfolio of Galaxy.
Prior to the reorganization, the Predecessor Fund offered and sold two
series of shares, Investment Shares and Trust Shares, that were similar to
the Fund's Retail A and Trust Shares, respectively. In connection with the
reorganization, shareholders of the Predecessor Fund exchanged Investment
Shares and Trust Shares for Retail A Shares and Trust Shares, respectively,
in the Fund.
(2) The Fund began offering Retail B Shares on November 1, 1998.
(3) Net investment income (loss) per share before reimbursement/waiver of fees
by the Adviser and/or the Fund's administrator for Retail A Shares for the
years ended October 31, 1999, 1998, 1997 and 1996 was $____, $0.05, $
(0.02) and $0.01, respectively. Net investment income (loss) per share
before reimbursement/waiver of fees by other parties for Retail A Shares
for the year ended October 31, 1995 was $(0.08) (unaudited). Net investment
income (loss) per share before reimbursement/waiver of fees by the Adviser
and/or the Fund's administrator for Retail B Shares for the year ended
October 31, 1999 was $_______.
(4) Calculation does not include the effect of any sales charge for Retail A
Shares and Retail B Shares.
(5) The selected per share data was calculated using the weighted average
shares outstanding method for the year.
-73-
<PAGE>
Galaxy Small Company Equity Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
-----------------------------------------------------
1999 1998 1997
--------------------- --------------------- --------------------
Retail Retail Retail Retail Retail Retail
A Shares B Shares A Shares B Shares A Shares B Shares
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.............. $ 20.94 $ 20.73 $ 19.96 $ 19.91
Income from investment operations:
Net investment income (loss)(2) (0.19) (0.30) (0.18) (0.21)
Net realized and unrealized gain
(loss) on investments........ (4.86) (4.78) 3.54 3.41
Total from investment operations...... (5.05) (5.08) 3.36 3.20
Less dividends:
Dividends from net investment income -- -- -- --
Dividends from net realized capital gains... (2.26) (2.26) (2.38) (2.38)
Total dividends..................... (2.26) (2.26) (2.38) (2.38)
Net increase (decrease) in net asset value.... (7.31) (7.34) 0.98 0.82
Net asset value, end of period........ $ 13.63 $ 13.39 $ 20.94 $ 20.73
------- ------- -------- --------
Total return(4)...................... (26.26)% (26.72)% 19.08% 18.23%
Ratios/supplemental data:
Net assets, end of period (000's) $95,831 $12,565 $135,593 $14,731
Ratios to average net assets:
Net investment income including
reimbursement/waiver......... (1.13)% (1.78)% (1.02)% (1.76)%
Operating expenses including
reimbursement/waiver......... 1.46% 2.11% 1.46% 2.20%
Operating expenses excluding
reimbursement/waiver......... 1.47% 2.16% 1.48% 2.44%
Portfolio turnover rate............ 78% 78% 69% 69%
<CAPTION>
For the year ending October 31,
-----------------------------------------------------
1996 1995
-------------------------- ----------
Retail Retail Retail
A Shares(1) B Shares(1) A Shares
<S> <C> <C> <C>
Net asset value,
beginning of period.............. $ 16.28 $ 17.27 $ 12.35
Income from investment operations:
Net investment income (loss)(2) (0.14) (0.19)(3) (0.09)
Net realized and unrealized gain
(loss) on investments........ 3.99 2.83 4.21
Total from investment operations...... 3.85 2.64 4.12
Less dividends:
Dividends from net investment income -- -- --
Dividends from net realized capital gains... (0.17) -- (0.19)
Total dividends..................... (0.17) -- (0.19)
Net increase (decrease) in net asset value.... 3.68 2.64 3.93
Net asset value, end of period........ $ 19.96 $ 19.91 $ 16.28
-------- -------- --------
Total return(4)...................... 23.97% 15.34%(5) 34.01%
Ratios/supplemental data:
Net assets, end of period (000's) $111,101 $3,659 $ 45,668
Ratios to average net assets:
Net investment income including
reimbursement/waiver......... (1.03)% (1.50)%(6) (0.85)%
Operating expenses including
reimbursement/waiver......... 1.57% 2.04%(6) 1.60%
Operating expenses excluding
reimbursement/waiver......... 1.57% 2.44%(6) 1.64%
Portfolio turnover rate............ 82% 82% 54%
</TABLE>
- -----------------------------
(1) The Fund began issuing Retail B Shares on March 4, 1996.
(2) Net investment income (loss) per share before reimbursement/waiver of fees
by the Adviser and/or the Fund's administrator for Retail A Shares for the
years ended October 31, 1999, 1998, 1997, 1996 and 1995 was $____, $(0.19),
$(0.18), $(0.14) and $(0.09), respectively. Net investment income (loss)
per share before reimbursement/waiver of fees by the Adviser and/or the
Fund's administrator for Retail B Shares for the years ended October 31,
1999, 1998 and 1997 and for the period ended October 31, 1996 was $____,
$-0.30, $ (0.24) and $ (0.24), respectively.
(3) The selected per share data was calculated using the weighted average
shares outstanding method for the period.
(4) Calculation does not include the effect of any sales charge for Retail A
Shares and Retail B Shares.
(5) Not annualized.
(6) Annualized.
-74-
<PAGE>
[Back Cover Page]
Where to find more information
You'll find more information about the Funds in the following documents:
ANNUAL AND SEMI-ANNUAL REPORTS
Galaxy's annual and semi-annual reports contain more information about each Fund
and a discussion about the market conditions and investment strategies that had
a significant effect on each Fund's performance during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains detailed information about the Funds and their policies. By
law, it's incorporated by reference into (considered to be part of) this
prospectus.
You can get a free copy of these documents, request other information about the
Funds and make shareholder inquiries by calling Galaxy at 1-877-BUY-GALAXY
(1-877-289-4252) or by writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
If you buy your shares through a financial institution, you may contact your
institution for more information.
You can write to the Securities and Exchange Commission (SEC) Public Reference
Section and ask them to mail you information about the Funds, including the SAI.
They'll charge you a fee for this service. You can also visit the SEC Public
Reference Room and copy the documents while you're there. For information about
the operation of the Public Reference Room, call the SEC.
Public Reference Section of the SEC
Washington, DC 20549-0102
1-202-942-8090.
Reports and other information about the Funds are also available on the EDGAR
Database on the SEC's website at http://www.sec.gov. Copies of this information
may also be obtained, after paying a duplicating fee, by electronic request to
SEC's e-mail address at [email protected].
Galaxy's Investment Company Act File No. is 811-4636.
[Fleet assigned code]
<PAGE>
[Front cover page]
Galaxy Equity Funds
The Galaxy Fund
Prospectus
, 2000
- ----------------------
Galaxy Asset Allocation Fund
Galaxy Equity Income Fund
Galaxy Growth and Income Fund
Galaxy Strategic Equity Fund
Galaxy Equity Value Fund
Galaxy Equity Growth Fund
Galaxy International Equity Fund
Galaxy Small Cap Value Fund
Galaxy Small Company Equity Fund
Trust Shares
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved any shares of these Funds or determined if this
prospectus is accurate or complete. Anyone who tells you otherwise is committing
a crime.
<PAGE>
Contents
1 Risk/return summary
1 Introduction
3 Galaxy Asset Allocation Fund
8 Galaxy Equity Income Fund
11 Galaxy Growth and Income Fund
15 Galaxy Strategic Equity Fund
19 Galaxy Equity Value Fund
23 Galaxy Equity Growth Fund
27 Galaxy International Equity Fund
31 Galaxy Small Cap Value Fund
35 Galaxy Small Company Equity Fund
39 Additional information about risk
40 Investor guidelines
41 Fund management
43 How to invest in the Funds
43 Buying and selling shares
44 How to buy shares
44 How to sell shares
44 Other transaction policies
46 Dividends, distributions and taxes
48 Financial highlights
<PAGE>
RISK/RETURN SUMMARY
INTRODUCTION
This prospectus describes the Galaxy Equity Funds. Each Fund invests primarily
or to a significant degree in equity securities, such as common stock, preferred
stock and securities that are convertible into common stock.
On the following pages, you'll find important information about each Fund,
including:
- - the Fund's investment objective (sometimes called the Fund's goal) and the
main investment strategies used by the Fund's investment adviser in trying
to achieve that objective
- - the main risks associated with an investment in the Fund
- - the Fund's past performance measured on both a year-by-year and long-term
basis
- - the fees and expenses that you will pay as an investor in the Fund
WHICH FUND IS RIGHT FOR YOU?
Not all mutual funds are for everyone. Your investment goals and tolerance for
risk will determine which fund is right for you.
Equity funds are generally best suited to investors seeking growth of their
investment over time and who are prepared to accept the risks associated with
equity securities. Equity funds have the potential for higher returns than other
funds, such as bond funds or money market funds, but also carry more risk.
Different equity funds have different levels of risk. They have varying
objectives and investment styles, and some are considered more aggressive than
others. Generally, a fund's objective and the types of investments it makes can
help you gauge its level of risk. On page , you'll find a table that gives a
general overview of the risk spectrum of the Galaxy Equity Funds.
THE FUNDS' INVESTMENT ADVISER
Fleet Investment Advisors Inc. (the "Adviser") is the investment adviser for all
of these Funds. The Adviser, an indirect wholly-owned subsidiary of FleetBoston
Corporation, was established in 1984 and has its main office at 75 State Street,
Boston, Massachusetts 02109. The Adviser also provides investment management and
advisory services to individual and institutional clients and manages the other
Galaxy investment portfolios. As of December 31, 1999, the Adviser managed over
$ billion in assets.
-1-
<PAGE>
AN INVESTMENT IN THE FUNDS ISN'T A FLEET BANK DEPOSIT AND IT ISN'T INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. YOU COULD LOSE MONEY BY INVESTING IN THE FUNDS.
-2-
<PAGE>
Galaxy Asset Allocation Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks a high total return by providing both a current level of income
that is greater than that provided by the popular stock market averages, as well
as long-term growth in the value of the Fund's assets.
[Sidenote:]
CURRENT INCOME
Current income includes both dividends from stocks and interest income from
fixed income securities, after deducting Fund expenses.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund aims to provide income that is higher than that provided by the popular
stock market averages. The Adviser interprets this to mean the Dow Jones
Industrial Average of 30 major companies and the Standard & Poor's 500 Composite
Stock Price Index (commonly referred to as the S&P 500). Due to the Fund's
expenses, however, net income paid to you may be less than that. The Fund also
seeks long-term growth in the value of its assets. The Adviser attempts to
achieve these goals and reduce risk by allocating the Fund's assets among
short-term debt securities, common stocks, preferred stocks and bonds.
The Fund seeks a mix of stocks and bonds that will produce both income and
long-term capital growth. This mix will change from time to time as a result of
economic and market conditions. However, the Fund keeps at least 25% of its
total assets in fixed income investments, including debt securities and
preferred stocks, at all times.
Debt securities purchased by the Fund will be of investment grade quality, which
means that they will have one of the top four ratings assigned by Standard &
Poor's Ratings Group (S&P) or Moody's Investor Services, Inc. (Moody's), or will
be unrated securities determined by the Adviser to be of comparable quality.
Occasionally, the rating of a security held by the Fund may be downgraded below
investment grade. If that happens, the Fund doesn't have to sell the security,
unless the Adviser determines that under the circumstances, the security is no
longer an appropriate investment for the Fund. However, the Fund will sell
promptly any securities that are not rated investment grade by either S&P or
Moody's if the securities exceed 5% of the Fund's net assets.
In selecting portfolio securities for the Fund, the Adviser's investment policy
committee develops an economic outlook and sets guidelines for the industries
and sectors in which the
-3-
<PAGE>
Fund should invest. In selecting equity securities, the Adviser favors stocks
with long-term growth potential that are expected to outperform their peers
over time. The Adviser also forecasts the direction and degree of change in
long-term interest rates to help in the selection of fixed income securities.
The Fund will sell a security when, as a result of changes in the economy, the
Adviser determines it appropriate to revise the allocation of the Fund's assets
between stocks and bonds. A security may also be sold as a result of a
deterioration in the performance of the security or in the financial condition
of the issuer of the security.
The Fund may trade its investments frequently in trying to achieve its
investment goal.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
The value of your investment in the Fund will go up and down with the value of
the investments which the Fund holds. The Fund's investments may not perform as
well as other investments, even in times of rising markets.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The value of fixed income investments such as bonds
are affected by movements in interest rates. Bond prices tend to fall when
interest rates rise and to rise when interest rates fall.
- - CREDIT RISK - The value of fixed income investments also depends on the
ability of an issuer to make principal and interest payments. If an issuer
can't meet its payment obligations or if its credit rating is lowered, the
value of its securities will decline. Debt securities which have the lowest
of the top four ratings assigned by S&P or Moody's have speculative
characteristics. Changes in the economy are more likely to affect the
ability of the issuers of these securities to make payments of principal
and interest than is the case with higher-rated securities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
fixed income investments held by the Fund to be paid off much sooner or
later than expected, which could adversely affect the Fund's value. In the
event that a security is paid off sooner than expected because of a decline
in interest rates, the Fund may be unable to recoup all of its initial
investment and may also suffer from having to reinvest in lower-yielding
securities. In the event of a later than expected payment because of a rise
in interest rates, the value of the obligation will decrease and the Fund
may suffer from the inability to invest in higher-yielding securities.
- - PORTFOLIO COMPOSITION - The level of risk could increase if a larger
percentage of the Fund is invested in one particular asset class, such as
stocks or bonds. However, asset allocation funds are generally less
volatile than portfolios that contain only stocks.
-4-
<PAGE>
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
- - FREQUENT TRADING - Frequent trading of investments usually increases the
chance that the Fund will pay investors short-term capital gains. These
gains are taxable at higher rates than long-term capital gains. Frequent
trading could also mean higher brokerage commissions and other
transaction costs, which could reduce the Fund's returns.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Trust Shares has varied from year to
year.
[Sidenote:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
[bar chart goes here]
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1997 1998 1999
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
6.58% 8.08% -2.29% 30.54% 15.36% 19.86% 17.89% %
- ---------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999, as compared to a broad-based market index.
-5-
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
1 year 5 years Since inception
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Trust Shares % % % (12/30/91)
- ---------------------------------------------------------------------------------------------------------
S&P 500 % % % (since 12/31/91)
- ---------------------------------------------------------------------------------------------------------
DJIA % % % (since 12/31/91)
- ---------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The S&P 500 is an unmanaged index that tracks the performance of 500 widely held
common stocks listed on the New York Stock Exchange, the American Stock Exchange
and NASDAQ. The S&P 500 is heavily weighted with the stocks of large companies.
[Sidenote:]
The Dow Jones Industrial Average (DJIA) is an unmanaged price-weighted average
based on the "price only" performance of 30 blue chip stocks.
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
TOTAL
FUND
Management Distribution Other OPERATING
fees (12b-1) fees expenses EXPENSES
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.75% None % %
- ------------------------------------------------------------------------------------------
</TABLE>
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
</TABLE>
-6-
<PAGE>
[Sidenote:]
PORTFOLIO MANAGERS
The Fund's portfolio managers are Donald Jones, a Vice President of the Adviser
since 1991, and David Lindsay, CFA, a Senior Vice President of the Adviser since
1992. They are primarily responsible for the day-to-day management of the Fund's
investment portfolio. Mr. Jones has managed the equity portion of the Fund's
portfolio, including determining the allocation of the Fund's assets between
equities and fixed income investments, since May of 1995. He has been with the
Adviser and its predecessors since 1977. Mr. Lindsay has managed the fixed
income portion of the Fund since January of 1997. He has been with the Adviser
and its predecessors since 1986.
-7-
<PAGE>
Galaxy Equity Income Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks current income and capital appreciation.
[Sidenote:]
CURRENT INCOME
Current income includes both dividends from stocks and interest income from
fixed income securities, after deducting Fund expenses.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 75% of its total assets in a diversified
portfolio of income-producing (dividend-paying) equity securities, primarily
common stocks. The Adviser looks for investments that offer dividends,
prospects for dividend growth and capital appreciation. However, the Fund's
portfolio may include securities that offer only growth potential or only
income potential.
The Fund will sell a portfolio security when, as a result of changes in the
economy, the Adviser believes that holding the security is no longer consistent
with the Fund's investment objective. A security may also be sold as a result of
a deterioration in the performance of the security or in the financial condition
of the issuer of the security.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
The value of your investment in the Fund will go up and down with the value of
the investments which the Fund holds. The Fund's investments may not perform as
well as other investments, even in times of rising markets.
In addition, the Fund also carries the following main risk:
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
-8-
<PAGE>
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Trust Shares has varied from year to
year.
[Sidenote:]
Best quarter: % for the quarter ending ,
- ------------ -----------------------------------------------------
Worst quarter: % for the quarter ending ,
- ------------ -----------------------------------------------------
[bar chart goes here]
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
1991 1992 1993 1994 1995 1996 1997 1998 1999
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
22.37% 7.43% 8.05% 0.88% 33.73% 17.06% 26.01% 16.10% %
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999, as compared to a broad-based market index.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
1 year 5 years Since inception
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Trust Shares % % % (12/14/90)
- ------------------------------------------------------------------------------------------------------
S&P 500 % % % (since 12/1/90)
- ------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The S&P 500 is an unmanaged index that tracks the performance of 500 widely held
common stocks listed on the New York Stock Exchange, the American Stock Exchange
and NASDAQ. The S&P 500 is heavily weighted with the stocks of large companies.
-9-
<PAGE>
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you pay when you buy and hold
shares of the Fund.
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Total
Fund
Management Distribution Other operating
fees (12b-1) fees expenses expenses
- ------------------------------------------------------------------------------------------
<S> <C> <S> <S> <S>
Trust Shares 0.75% None % %
- ------------------------------------------------------------------------------------------
</TABLE>
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $ $ $ $
- -----------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is J. Edward Klisiewicz, a Senior Vice President of
the Adviser. He's primarily responsible for the day-to-day management of the
Fund's investment portfolio. Mr. Klisiewicz has been the Fund's portfolio
manager since it began operations in 1990. He has been with the Adviser and its
predecessors since 1970.
-10-
<PAGE>
Galaxy Growth and Income Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks to provide a relatively high total return through long-term
capital appreciation and current income.
[Sidenote:]
CURRENT INCOME
Current income includes both dividends from stocks and interest income from
fixed income securities, after deducting Fund expenses.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 65% of its total assets in the common stocks
of U.S. companies with large market capitalizations (generally over $2 billion)
that the Adviser believes offer above-average growth and dividends. The
Adviser focuses on stocks which are believed to be attractively priced
relative to expectations for the future performance of the issuing company.
The Adviser also seeks a current yield greater than that of the S&P 500,
although not all Fund investments will pay dividends.
The Fund will sell a portfolio security when, as a result of changes in the
economy, the Adviser believes that holding the security is no longer consistent
with the Fund's investment objective. A security may also be sold as a result of
a deterioration in the performance of the security or in the financial condition
of the issuer of the security.
[Sidenote:]
MARKET CAPITALIZATION
A company's market capitalization is the price of a share of its stock,
multiplied by the number of shares held by investors.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
-11-
<PAGE>
The value of your investment in the Fund will go up and down with the value of
the investments which the Fund holds. The Fund's investments may not perform as
well as other investments, even in times of rising markets.
In addition, the Fund also carries the following main risk:
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Trust Shares has varied from year to
year.
The Fund began operations on December 14, 1992 as a separate portfolio (the
Predecessor Fund) of The Shawmut Funds. On December 4, 1995, the Predecessor
Fund was reorganized as a new portfolio of Galaxy. Prior to the reorganization,
the Predecessor Fund offered and sold two classes of shares, Investment Shares
(which were first offered on February 12, 1993) and Trust Shares (which were
first offered on December 14, 1992), that were similar to the Fund's Retail A
Shares and Trust Shares. In connection with the reorganization, shareholders of
the Predecessor Fund exchanged their Investment Shares and Trust Shares for
Retail A Shares and Trust Shares of the Fund. The returns for periods prior to
December 4, 1995 are for Trust Shares of the Predecessor Fund.
[Sidenote:]
Best quarter: % for the quarter ending ,
- ------------ -----------------------------------------------------
Worst quarter: % for the quarter ending ,
- ------------ -----------------------------------------------------
[bar chart goes here]
-12-
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
1993 1994 1995 1996 1997 1998 1999
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
9.56% 5.12% 29.67% 20.20% 29.66% 15.96% %
- -------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999, as compared to a broad-based market index.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 5 years Since inception
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Trust Shares % % % (12/14/92)
- -------------------------------------------------------------------------------------------------------------
S&P 500 % % % (since 12/1/92)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The S&P 500 is an unmanaged index that tracks the performance of 500 widely held
common stocks listed on the New York Stock Exchange, the American Stock Exchange
and NASDAQ. The S&P 500 is heavily weighted with the stocks of large companies.
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Total
Fund
Management Distribution Other operating
fees (12b-1) fees expenses expenses
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.75% None % %
- ------------------------------------------------------------------------------------------
</TABLE>
-13-
<PAGE>
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is Gregory M. Miller, a Vice President of the
Adviser since 1996. He's been primarily responsible for the day-to-day
management of the Fund's investment portfolio since July 1998. Before that, Mr.
Miller assisted his predecessor in managing the Fund for seven years. He joined
the Adviser in 1985.
-14-
<PAGE>
Galaxy Strategic Equity Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests at least 65% of its total assets in U.S. equity securities,
primarily common stock and securities that can be converted into common stock.
The Fund's "Value Driven Growth" investment process emphasizes securities
believed to have the potential for the best one- to two-year returns. These
securities are generally selected from a universe of large and medium size
companies representative of the S&P 500, although the universe of stocks
monitored by the Adviser is not limited to stocks of companies included in the
S&P 500. The Fund may invest up to 20% of its total assets in foreign equity
securities. In selecting individual stocks, the Adviser looks at the current
price, projected earnings growth, and historical valuations to derive an
estimate of return potential. The Fund may give emphasis to growth stocks,
value stocks or particular industries, depending upon the Adviser's assessment
of a stock's return potential relative to its price in the broader market.
The Fund will sell a portfolio security when, as a result of a decline in the
security's return potential relative to that of other securities, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective.
[Sidenote:]
VALUE STOCKS AND GROWTH STOCKS
Value stocks are ones that appear to be underpriced based on measures such as
lower price-to-earnings and price-to-book value ratios. Growth stocks offer
strong revenue and earnings potential, and accompanying capital growth, with
generally less dividend income than value stocks.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
-15-
<PAGE>
The value of your investment in the Fund will go up and down with the value of
the investments which the Fund holds. The Fund's investments may not perform as
well as other investments, even in times of rising markets.
In addition, the Fund also carries the following main risks:
- - CONVERTIBLE SECURITIES - Securities that can be converted into common
stock, such as certain debt securities and preferred stock, are subject to
the usual risks associated with fixed income investments, such as interest
rate risk and credit risk. In addition, because they react to changes in
the value of the equity securities into which they will convert,
convertible securities are also subject to stock market risk.
- - FOREIGN INVESTMENTS - Foreign investments may be riskier than U.S.
investments because of factors such as foreign government restrictions,
changes in currency exchange rates, incomplete financial information about
the issuers of securities, and political or economic instability. Foreign
stocks may be more volatile and less liquid than U.S. stocks.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows the performance of Trust Shares during the last calendar
year.
[Sidenote:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
[bar chart goes here]
- ---------------
1999
- ---------------
%
- ---------------
-16-
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999, as compared to a broad-based market index.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
1 year Since inception
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Trust Shares % % (3/4/98)
- ----------------------------------------------------------------------------------------
S&P 500 % % (since 3/ /98)
- ----------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The S&P 500 is an unmanaged index that tracks the performance of 500 widely held
common stocks listed on the New York Stock Exchange, the American Stock Exchange
and NASDAQ. The S&P 500 is heavily weighted with the stocks of large companies.
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Total
Fund
Management Distribution Other operating
fees (12b-1) fees expenses expenses
- ------------------------------------------------------------------------------------------
<S> <C> <S> <S> <S>
Trust Shares 0.75%(1) None % %(1)
- ------------------------------------------------------------------------------------------
</TABLE>
(1)The Adviser is waiving a portion of the Management fees so that such fees are
expected to be %. Total Fund operating expenses after this waiver are
expected to be %. This fee waiver may be revised or discontinued at any
time.
-17-
<PAGE>
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is Peter B. Hathaway, CFA, a Senior Vice President
of the Adviser. He's primarily responsible for the day-to-day management of the
Fund's investment portfolio. Mr. Hathaway has been the Fund's portfolio manager
since it began operations in March 1998. He has been in the investment
management business with the Adviser and its predecessors since 1965 and has
been responsible for the Adviser's "Value Driven Growth" investment process
since 1991.
-18-
<PAGE>
Galaxy Equity Value Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation. Income is secondary to the
objective of capital appreciation.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 75% of its total assets in equity securities,
mainly common stocks, that the Adviser believes are undervalued. The Fund
invests most of its assets in companies that have a market capitalization of
more than $1.5 billion.
The Adviser uses proprietary computer models to compare share price and company
value, both compared to the market and over time. This helps the Adviser to
identify out-of-favor, undervalued securities (often called value stocks) which
may subsequently increase in value. These models focus on fundamental aspects
such as earnings and dividend growth, reinvestment of returns and the ability of
companies to finance their own growth. The models also take into account factors
such as how easily the stocks may be traded. The Adviser then reviews the
results and looks for risks that may account for a stock's low price. It
evaluates factors the computer models can't measure, such as the quality of a
company's management and the impact of technological change. Stocks which pass
all tests are eligible to be included in the Fund's portfolio. Fund holdings are
frequently reviewed and are sold automatically when the computer models show
they are overvalued.
[Sidenote:]
MARKET CAPITALIZATION
A company's market capitalization is the price of a share of its stock,
multiplied by the number of shares held by investors.
[Sidenote:]
VALUE STOCKS
Value stocks are ones that appear to be underpriced based on measures such as
lower price-to-earnings and price-to-book value ratios.
-19-
<PAGE>
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
The value of your investment in the Fund will go up and down with the value of
the investments which the Fund holds. The Fund's investments may not perform as
well as other investments, even in times of rising markets.
In addition, the Fund also carries the following main risk:
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Trust Shares has varied from year to
year.
[Sidenote:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
[bar chart goes here]
-20-
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- ----------------------------------------------------------------------------------------------------------------------
- -3.20% 23.36% 8.21% 14.75% 3.56% 28.45% 21.61% 28.08% 24.15% %
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999, as compared to broad-based market indices.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
1 year 5 years 10 years Since inception
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares % % % % (9/1/88)
- ---------------------------------------------------------------------------------------------------------------------
S&P 500 % % % % (since 9/1/88)
- ---------------------------------------------------------------------------------------------------------------------
Lipper Growth and
Income Funds Average % % % % (since 9/1/88)
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The S&P 500 is an unmanaged index that tracks the performance of 500 widely
held common stocks listed on the New York Stock Exchange, the American Stock
Exchange and NASDAQ. The S&P 500 is heavily weighted with the stocks of large
companies.
[Sidenote:]
The Lipper Growth and Income Funds Average is an unmanaged index that measures
the performance of a select group of mutual funds with investment objectives
similar to that of the Fund.
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Total
Fund
Management Distribution Other operating
fees (12b-1) fees expenses expenses
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.75% None % %
- ------------------------------------------------------------------------------------------
</TABLE>
-21-
<PAGE>
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is G. Jay Evans, CFA, a Senior Vice President of
the Adviser since 1994. He's primarily responsible for the day-to-day management
of the Fund's investment portfolio. Mr. Evans has been the Fund's portfolio
manager since 1993. He has been with the Adviser and its predecessors since
1978.
-22-
<PAGE>
Galaxy Equity Growth Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 75% of its total assets in a broadly
diversified portfolio of equity securities, primarily common stocks and
securities that can be converted into common stocks. The Fund invests mainly in
the securities of U.S. issuers, but may invest up to 20% of its total assets in
foreign securities.
The Fund invests mainly in companies which the Adviser believes will have faster
earnings growth than the economy in general. The Adviser looks for
large-capitalization companies (generally over $2 billion) in growing
industries, focusing on technological advances, good product development, strong
management and other factors which support future growth. The Adviser seeks out
companies that have a history of strong earnings growth and are projected to
continue a similar pattern of growth over the next three to five years.
The Fund will sell a security if there is an adverse change in the projected
earnings growth of the company issuing the security. A security will also be
sold when, as a result of changes in the economy or the performance of the
security or other circumstances, the Adviser believes that holding the security
is no longer consistent with the Fund's investment objective.
[Sidenote:]
GROWTH STOCKS
Growth stocks offer strong revenue and earnings potential, and accompanying
capital growth, with generally less dividend income than value stocks.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
-23-
<PAGE>
The value of your investment in the Fund will go up and down with the value of
the investments which the Fund holds. The Fund's investments may not perform as
well as other investments, even in times of rising markets.
In addition, the Fund also carries the following main risks:
- - CONVERTIBLE SECURITIES - Securities that can be converted into common
stock, such as certain debt securities and preferred stock, are subject to
the usual risks associated with fixed income investments, such as interest
rate risk and credit risk. In addition, because they react to changes in
the value of the equity securities into which they will convert,
convertible securities are also subject to stock market risk.
- - FOREIGN INVESTMENTS - Foreign investments may be riskier than U.S.
investments because of factors such as foreign government restrictions,
changes in currency exchange rates, incomplete financial information about
the issuers of securities, and political or economic instability. Foreign
stocks may be more volatile and less liquid than U.S. stocks.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Trust Shares has varied from year to
year.
[Sidenote:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
[bar chart goes here]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1991 1992 1993 1994 1995 1996 1997 1998 1999
- --------------------------------------------------------------------------------------------------------------------
30.40% 6.11% 5.37% 0.72% 34.29% 20.95% 30.97% 26.15% %
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
-24-
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999 as compared to a broad-based market index.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 5 years Since inception
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Trust Shares % % % (12/14/90)
- -------------------------------------------------------------------------------------------------------------
S&P 500 % % % (since 12/1/90)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The S&P 500 is an unmanaged index that tracks the performance of 500 widely held
common stocks listed on the New York Stock Exchange, the American Stock Exchange
and NASDAQ. The S&P 500 is heavily weighted with the stocks of large companies.
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Management Distribution Other Total Fund operating
fees (12b-1) fees expenses expenses
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.75% None % %
- ---------------------------------------------------------------------------------------------------------
</TABLE>
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
</TABLE>
-25-
<PAGE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is Robert G. Armknecht, CFA, an Executive Vice
President of the Adviser since 1988. He's primarily responsible for the
day-to-day management of the Fund's investment portfolio. Mr. Armknecht has been
with the Adviser and its predecessors since 1988 and has been the Fund's
portfolio manager since it began operations in 1990.
-26-
<PAGE>
Galaxy International Equity Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 75% of its total assets in the equity
securities of foreign issuers. At all times, the Fund's assets will be invested
in companies located in at least three different foreign countries. Normally, no
more than 20% of the Fund's total assets will be invested in companies located
in countries with emerging economies or emerging securities markets. The Fund
emphasizes larger established companies, although it may invest in companies of
any size. The Fund may engage in transactions for the purpose of hedging its
portfolio, such as options, futures and foreign currencies.
The Sub-Adviser determines how much to invest in each country and region by
looking at factors such as prospects for economic growth, expected inflation
levels, government policies and the range of investment opportunities available.
Decisions as to particular investments are made with the guidance of the
Sub-Adviser's Investment Strategy Committee under the supervision of the
Adviser. The Sub-Adviser looks at the potential return of each investment over a
one- to two-year period.
The Fund will sell a security if, as a result of changes in the economy of a
particular country or region, the Sub-Adviser believes that holding the security
is no longer consistent with the Fund's investment objective. A security may
also be sold as a result of a deterioration in the performance of the security
or in the financial condition of the company that issued the security.
[Sidenote:]
SUB-ADVISER
The Adviser has appointed Oechsle International Advisors, LLC as Sub-Adviser to
assist it in the day-to-day management of the Fund's investment portfolio.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. U.S. and
-27-
<PAGE>
foreign stock markets tend to move in cycles, with periods of rising prices and
periods of falling prices.
The value of your investment in the Fund will go up and down with the value of
the investments which the Fund holds. The Fund's investments may not perform as
well as other investments, even in times of rising markets.
In addition, the Fund also carries the following main risks:
- - FOREIGN INVESTMENTS - Foreign investments may be riskier than U.S.
investments because of factors such as foreign government restrictions,
changes in currency exchange rates, incomplete financial information about
the issuers of securities, and political or economic instability. Foreign
stocks may be more volatile and less liquid than U.S. stocks.
- - EMERGING MARKETS - The risks associated with foreign investments are
heightened when investing in emerging markets. The governments and
economies of emerging market countries feature greater instability than
those of more developed countries. Such investments tend to fluctuate in
price more widely and to be less liquid than other foreign investments.
- - COUNTRY RISK - The Fund may invest 25% or more of its assets in the
securities of companies located in one country. When the Fund invests a
high percentage of its assets in a particular country, the Fund will be
especially susceptible to factors affecting that country.
- - CURRENCY EXCHANGE - Although the Fund usually makes investments that are
sold in foreign currencies, it values its holdings in U.S. dollars. If the
U.S. dollar rises compared to a foreign currency, the Fund loses on the
currency exchange.
- - HEDGING - The Fund may invest in derivatives, such as options, futures and
foreign currencies, to hedge against market risk or the currency risk of
its foreign investments. There's no guarantee hedging will always work. It
can also prevent the Fund from making a gain if markets move in the
opposite direction to the hedge.
- - SELECTION OF INVESTMENTS: The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
[Sidenote:]
DERIVATIVES
A derivative is an investment whose value is based on or DERIVED from the
performance of other securities or interest or currency exchange rates or
indices. Derivatives are considered to carry a higher degree of risk than other
types of securities.
-28-
<PAGE>
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Trust Shares has varied from year to
year.
[Sidenote:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
[bar chart goes here]
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1997 1998 1999
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- -2.29% 31.62% -2.39% 11.74% 10.74% 14.09% 21.99% %
- ---------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999 as compared to a broad-based market index.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
1 year 5 years Since inception
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Trust Shares % % % (12/30/91)
- ---------------------------------------------------------------------------------------------------------
MSCI EAFE Index % % % (since 12/31/91)
- ---------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The Morgan Stanley Capital International Europe, Australasia and Far East
(MSCI EAFE) Index is an unmanaged index which tracks the performance of selected
equity securities in Europe, Australia, Asia and the Far East.
-29-
<PAGE>
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Management Distribution Other Total Fund operating
fees (12b-1) fees expenses expenses
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.90%(1) None % %(1)
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be %. Total Fund operating expenses after this waiver
are expected to be %. This fee waiver may be revised or discontinued
at any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGERS
The Fund's portfolio managers are Singleton Dewey Keesler, Jr. and Kathleen
Harris, CFA. They're primarily responsible for the day-to-day management of the
Fund's investment portfolio. Mr. Keesler is Chief Investment Officer and
portfolio manager/research analyst with the Sub-Adviser. He has been associated
with the Sub-Adviser and its predecessor since 1986. Ms. Harris has been a
portfolio manager at the Sub-Adviser and its predecessor since January 1995. She
was previously portfolio manager and investment director for the State of
Wisconsin Investment Board. Mr. Keesler and Ms. Harris have co-managed the Fund
since August 1996.
-30-
<PAGE>
Galaxy Small Cap Value Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks to provide long-term capital appreciation.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests mainly in the common stocks of small companies that the Adviser
believes are undervalued. Under normal market conditions, the Fund invests at
least 65% of its total assets in the common stocks of companies that have market
capitalizations of $1.5 billion or less. The Fund invests primarily in the
common stock of U.S. issuers, but may invest up to 20% of its total assets in
foreign equity securities.
In selecting portfolio securities for the Fund, the Adviser looks at the
underlying strength of companies, their products, their competitive positions
and the quality of their management. It also does research to attempt to
identify companies likely to benefit from emerging industry trends and potential
market recoveries.
A portfolio security may be sold if the Adviser determines that it is no longer
undervalued or if there has been a deterioration in the performance of the
security or in the financial condition of the company that issued the security.
[Sidenote:]
MARKET CAPITALIZATION
A company's market capitalization is the price of a share of its stock,
multiplied by the number of shares held by investors.
[Sidenote:]
VALUE STOCKS
Value stocks are ones that appear to be underpriced based on measures such as
lower price-to-earnings and price-to-book value ratios.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
-31-
<PAGE>
The value of your investment in the Fund will go up and down with the value of
the investments which the Fund holds. The Fund's investments may not perform as
well as other investments, even in times of rising markets.
In addition, the Fund also carries the following risks:
- - SMALL COMPANIES RISK - Smaller companies tend to have limited resources,
product lines and market share. As a result, their share prices tend to
fluctuate more than those of larger companies. Their shares may also trade
less frequently and in limited volume, making them potentially less liquid.
The price of small company stocks might fall regardless of trends in the
broader market.
- - FOREIGN INVESTMENTS - Foreign investments may be riskier than U.S.
investments because of factors such as foreign government restrictions,
changes in currency exchange rates, incomplete financial information about
the issuers of securities, and political or economic instability. Foreign
stocks may be more volatile and less liquid than U.S. stocks.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Trust Shares has varied from year to
year.
The Fund began operations on December 14, 1992 as a separate portfolio (the
Predecessor Fund) of The Shawmut Funds. On December 4, 1995, the Predecessor
Fund was reorganized as a new portfolio of Galaxy. Prior to the reorganization,
the Predecessor Fund offered and sold two classes of shares, Investment Shares
(which were first offered on February 12, 1993) and Trust Shares (which were
first offered on December 14, 1992), that were similar to the Fund's Retail A
Shares and Trust Shares. In connection with the reorganization, shareholders of
the Predecessor Fund exchanged their Investment Shares and Trust Shares for
Retail A Shares and Trust Shares of the Fund. The returns for the periods prior
to December 4, 1995 are for Trust Shares of the Predecessor Fund.
-32-
<PAGE>
[Sidenote:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
[bar chart goes here]
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
1993 1994 1995 1996 1997 1998 1999
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
7.83% 0.53% 31.78% 27.19% 31.67% -5.22% %
- -----------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999 as compared to broad-based market indices.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
1 year 5 years Since inception
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Trust Shares % % % (12/14/92)
- -----------------------------------------------------------------------------------------------------
Russell 2000 Index % % % (since 12/1/92)
- -----------------------------------------------------------------------------------------------------
S&P 600 % % % (since 12/1/92)
- -----------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The Russell 2000 Index is an unmanaged index that tracks the performance of the
2,000 smallest of the 3,000 largest U.S. companies, based on market
capitalization. Companies included in the Russell 2000 Index have market
capitalizations that currently range between $30 million and $1.4 billion.
[Sidenote:]
The Standard & Poor's SmallCap 600 Composite Index (S&P 600) is an unmanaged
index that tracks the performance of 600 domestic companies traded on the New
York Stock Exchange, the American Stock Exchange and NASDAQ. The S&P 600 is
heavily weighted with the stocks of small companies with market
capitalizations that currently range between $32.9 million and $2.9 billion.
-33-
<PAGE>
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold Trust Shares of the Fund.
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Management Distribution Other Total Fund operating
fees (12b-1) fees expenses expenses
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.75% None % %
- ---------------------------------------------------------------------------------------------------------
</TABLE>
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is Peter Larson, a Vice President of the Adviser.
He's primarily responsible for the day-to-day management of the Fund's
investment portfolio. Mr. Larson has been with the Adviser and its predecessors
since 1963 and has managed the Fund, including the Predecessor Fund, since it
began operations in 1992.
-34-
<PAGE>
Galaxy Small Company Equity Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks capital appreciation.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 65% of its total assets in the equity
securities, primarily common stocks, of small companies that have market
capitalizations of $1.5 billion or less. The Fund invests primarily in the
common stock of U.S. companies, but may invest up to 20% of its total assets in
foreign equity securities.
In selecting investments for the Fund, the Adviser looks for promising
industries. It then looks within those industries for what are judged to be
reasonably priced companies that have above-average growth potential. The
Adviser consults a wide range of sources, including management, competitors,
other industry sources and regional brokerage analysts.
The Fund will sell a portfolio security when, as a result of changes in the
economy, the Adviser believes that holding the security is no longer consistent
with the Fund's investment objective. A security may also be sold as a result of
a deterioration in the performance of the security or in the financial condition
of the issuer of the security.
[Sidenote:]
MARKET CAPITALIZATION
A company's market capitalization is the price of a share of its stock,
multiplied by the number of shares held by investors.
[Sidenote:]
GROWTH STOCKS
Growth stocks offer strong revenue and earnings potential, and accompanying
capital growth, with generally less dividend income than value stocks.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
-35-
<PAGE>
The value of your investment in the Fund will go up and down with the value of
the investments which the Fund holds. The Fund's investments may not perform as
well as other investments, even in times of rising markets.
In addition, the Fund also carries the following main risks:
- - SMALL COMPANIES RISK - Smaller companies tend to have limited resources,
product lines and market share. As a result, their share prices tend to
fluctuate more than those of larger companies. Their shares may also trade
less frequently and in limited volume, making them potentially less liquid.
The price of small company stocks might fall regardless of trends in the
broader market.
- - FOREIGN INVESTMENTS - Foreign investments may be riskier than U.S.
investments because of factors such as foreign government restrictions,
changes in currency exchange rates, incomplete financial information about
the issuers of securities, and political or economic instability. Foreign
stocks may be more volatile and less liquid than U.S. stocks.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Trust Shares has varied from year to
year.
[Sidenote:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
[bar chart goes here]
-36-
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1997 1998 1999
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1.20% 22.75% 0.02% 36.67% 21.59% 14.64% -10.66% %
- --------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999, as compared to a broad-based market index.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
1 year 5 years Since inception
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Trust Shares % % % (12/30/91)
- ------------------------------------------------------------------------------------------------------------
Russell 2000 Index % % % (since 12/31/91)
- ------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The Russell 2000 Index is an unmanaged index that tracks the performance of the
2,000 smallest of the 3,000 largest U.S. companies, based on market
capitalization. Companies included in the Russell 2000 Index have market
capitalizations that currently range between $30 million and $1.4 billion.
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you may buy and
hold shares of the Fund.
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
Management Distribution Other Total Fund operating
fees (12b-1) fees expenses expenses
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.75% None % %
- ------------------------------------------------------------------------------------------------------------
</TABLE>
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
-37-
<PAGE>
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is Stephen D. Barbaro, CFA, a Senior Vice President
of the Adviser since 1996. He's primarily responsible for the day-to-day
management of the Fund's investment portfolio. Mr. Barbaro has been the Fund's
portfolio manager since it began operations in 1991. He has been with the
Adviser and its predecessors since 1976.
-38-
<PAGE>
ADDITIONAL INFORMATION ABOUT RISK
The main risks associated with an investment in each of the Galaxy Equity Funds
have been described above. The following supplements that discussion.
TEMPORARY DEFENSIVE POSITIONS
Each Fund may temporarily hold up to 100% of its total assets in investments
that are not part of its principal investment strategy to try to avoid losses
during unfavorable market conditions. These investments may include cash (which
will not earn any income), money market instruments, debt securities issued or
guaranteed by the U.S. Government or its agencies and, in the case of the
International Equity Fund, foreign money market instruments, debt securities of
foreign national governments and their agencies, and the securities of U.S.
issuers. This strategy could prevent a Fund from achieving its investment
objective and could reduce the Fund's return and affect its performance during a
market upswing.
OTHER TYPES OF INVESTMENTS
This prospectus describes each Fund's main investment strategies and the
particular types of securities in which each Fund mainly invests. Each Fund may,
from time to time, pursue other investment strategies and make other types of
investments in support of its overall investment goal. These supplemental
investment strategies, which are not considered to be main investment
strategies of the Fund - and the risks involved - are described in detail in the
Statement of Additional Information (SAI) which is referred to on the back cover
of this prospectus.
-39-
<PAGE>
INVESTOR GUIDELINES
The following table gives you a general overview of the risk spectrum for the
Galaxy Equity Funds. This is a guide only. It shows the Adviser's current
assessment of the potential risk of the Funds relative to one another, but this
can change over time. It should not be used to compare the Funds with other
mutual funds or other types of investments. Consult your financial professional
to help you decide which Fund is right for you.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Risk spectrum Fund Primary investments
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Asset Allocation Common stocks and fixed income securities
of domestic companies
------------------------------------------------------------------------------
Conservative Equity Income Common stocks of domestic companies
selected primarily for their income
potential
------------------------------------------------------------------------------
Growth and Income Common stocks of companies selected for
their growth and income potential
------------------------------------------------------------------------------
Strategic Equity Equity securities of large and medium sized
growth companies that exhibit above-average
return potential relative to their market
price
------------------------------------------------------------------------------
Moderate Equity Value Common stock of large and medium sized
companies believed to be undervalued
------------------------------------------------------------------------------
Equity Growth Equity securities of growth-oriented
companies
------------------------------------------------------------------------------
International Equity Equity securities of foreign companies
------------------------------------------------------------------------------
Aggressive Small Cap Value Common stock of smaller companies believed
to be undervalued
------------------------------------------------------------------------------
Small Company Equity Common stock of smaller growth-oriented
companies
- -------------------------------------------------------------------------------------------------------------
</TABLE>
-40-
<PAGE>
FUND MANAGEMENT
ADVISER
The Adviser, subject to the general supervision of Galaxy's Board of Trustees,
manages each Fund in accordance with its investment objective and policies,
makes decisions with respect to and places orders for all purchases and sales of
its portfolio securities, and maintains related records.
The management fees paid to the Adviser by the Funds during the last fiscal year
are set forth below.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Fund Management fee as a % of average net assets
- --------------------------------------------------------------------------------------------------------------
<S> <C>
Asset Allocation %
- --------------------------------------------------------------------------------------------------------------
Equity Income %
- --------------------------------------------------------------------------------------------------------------
Growth and Income %
- --------------------------------------------------------------------------------------------------------------
Strategic Equity %
- --------------------------------------------------------------------------------------------------------------
Equity Value %
- --------------------------------------------------------------------------------------------------------------
Equity Growth %
- --------------------------------------------------------------------------------------------------------------
International Equity %
- --------------------------------------------------------------------------------------------------------------
Small Cap Value %
- --------------------------------------------------------------------------------------------------------------
Small Company Equity %
- --------------------------------------------------------------------------------------------------------------
</TABLE>
SUB-ADVISER
The Adviser has delegated some of its advisory responsibilities with respect to
the International Equity Fund to Oechsle International Advisors, LLC as
Sub-Adviser. The Sub-Adviser determines which securities will be purchased,
retained or sold for the Fund, places orders for the Fund and provides the
Adviser with information on international investment and economic developments.
The Adviser assists and consults with the Sub-Adviser as to the Fund's
investment program, approves the list of foreign countries recommended by the
Sub-Adviser for investment and manages the Fund's daily cash position. The
Sub-Adviser's fees are paid by the Adviser.
The Sub-Adviser has its main office at One International Place, Boston,
Massachusetts 02210. The Sub-Adviser is the successor to Oechsle International
Advisors, L.P., an international investment firm founded in 1986. At December
31, 1999, the Sub-Adviser had discretionary management authority over
approximately $ billion in assets. The Adviser's parent company,
FleetBoston Corporation, owns an interest in the Sub-Adviser.
-41-
<PAGE>
ALLOCATION OF ORDERS FOR PORTFOLIO SECURITIES
The Adviser and Sub-Adviser may allocate orders for the purchase and sale of
portfolio securities to certain financial institutions, including those that are
affiliated with the Adviser or Sub-Adviser or that have sold shares of the
Funds, to the extent permitted by law or by order of the Securities and Exchange
Commission. The Adviser and Sub-Adviser will allocate orders to such
institutions only if they believe that the quality of the transaction and the
commission are comparable to what they would be with other qualified brokerage
firms.
SUB-ACCOUNT SERVICES
Affiliates of the Adviser and certain other parties may receive fees from
Galaxy's transfer agent for providing certain sub-accounting and administrative
services to participant sub-accounts with respect to Trust Shares of the Funds
held by defined contribution plans. The transfer agency fees payable by Trust
Shares of the Funds have been increased by an amount equal to these fees, so
that the holders of Trust Shares indirectly bear these fees.
-42-
<PAGE>
HOW TO INVEST IN THE FUNDS
BUYING AND SELLING SHARES
Trust Shares of the Funds are available for purchase by the following types of
investors:
- - Investors maintaining a qualified account at a bank or trust institution,
including subsidiaries of FleetBoston Corporation.
- - Participants in employer-sponsored defined contribution plans
Qualified accounts include discretionary investment management accounts,
custodial accounts, agency accounts and different types of tax-advantaged
accounts. Your financial institution can provide more information about which
types of accounts are eligible.
You can buy and sell Trust Shares of the Funds on any business day. A business
day is any day that Galaxy's distributor, Galaxy's custodian and your
institution or employer-sponsored plan are open for business.
The price at which you buy shares is the net asset value (NAV) per share next
determined after your order is accepted. The price at which you sell shares is
the NAV per share next determined after receipt of your order. NAV is determined
on each day the New York Stock Exchange is open for trading at the close of
regular trading that day (usually 4:00 p.m. Eastern time). The New York Stock
Exchange is generally open for trading every Monday through Friday, except for
national holidays.
If market prices are readily available for securities owned by the Fund, they're
valued at those prices. If market prices are not readily available for some
securities, they are valued at fair value under the supervision of Galaxy's
Board of Trustees.
Sometimes, the price of a security trading on a foreign stock exchange may be
affected by events that happen after that exchange closes. If this happens, the
fair value of the security may be determined using other factors and may not
reflect the security's last quoted price. In addition, foreign securities may
trade on days when shares of the Funds are not priced. As a result, the net
asset value per share of a Fund holding these securities may change on days when
you won't be able to buy or sell Fund shares.
-43-
<PAGE>
[Sidenote:]
NET ASSET VALUE
The price you pay for your shares is based on the net asset value per share
(NAV). It's the value of a Fund's assets attributable to Trust Shares, minus the
value of the Fund's liabilities attributable to Trust Shares, divided by the
number of Trust Shares held by investors.
HOW TO BUY SHARES
You can buy Trust Shares by following the procedures established by your
financial institution or your employer-sponsored plan. Your financial
institution or plan administrator is responsible for sending your order to
Galaxy's distributor and wiring payment to Galaxy's custodian. The financial
institution or employer-sponsored plan holds the shares in your name and
receives all confirmations of purchases and sales.
Clients, members and employees of the Sub-Adviser also may buy Trust Shares of
the International Equity Fund by contacting Galaxy's distributor at
1-877-BUY-GALAXY (1-877-289-4252).
[Sidenote:]
INVESTMENT MINIMUMS
Galaxy does not have any minimum investment requirements for initial or
additional investments in Trust Shares but financial institutions and
employer-sponsored plans may. They may also require you to maintain a minimum
account balance.
HOW TO SELL SHARES
You can sell Trust Shares by following the procedures established by your
financial institution or your employer-sponsored plan. Your financial
institution or plan administrator is responsible for sending your order to
Galaxy's distributor and for crediting your account with the proceeds. Galaxy
doesn't charge for wiring the proceeds, but your financial institution or
employer-sponsored plan may do so. Contact your financial institution or plan
administrator for more information.
OTHER TRANSACTION POLICIES
If Galaxy doesn't receive full payment for your order to buy shares by 4:00 p.m.
on the next business day, Galaxy won't accept your order. Galaxy will advise
your financial institution or plan administrator if this happens.
-44-
<PAGE>
Galaxy may refuse any order to buy shares. Galaxy doesn't issue a certificate
when you buy shares but it does keep a record of shares issued to investors.
Sales proceeds are normally wired to your financial institution or plan
administrator on the next business day but Galaxy reserves the right to send
sales proceeds within seven days if sending proceeds earlier could adversely
affect a Fund.
Galaxy may ask for any information it might reasonably need to make sure that
you've authorized a sale of shares.
Galaxy may close any account after 60 days' written notice if the value of the
account drops below $250 as a result of selling shares.
-45-
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Each Fund, except the International Equity Fund, pays any dividends from net
investment income each quarter. The International Equity Fund pays any dividends
from net investment income annually. Each Fund pays any net capital gains at
least once a year. It's expected that the Funds' annual distributions will
normally -- but not always -- consist primarily of capital gains rather than
ordinary income. Dividends and distributions are paid in cash unless you tell
your financial institution or plan administrator in writing that you want to
have dividends and distributions reinvested in additional shares.
FEDERAL TAXES
Each Fund contemplates declaring as dividends each year all or substantially all
of its taxable income, including its net capital gain (the excess of long-term
capital gain over short-term capital loss). Distributions attributable to the
net capital gain of a Fund will be taxable to you as long-term capital gain,
regardless of how long you have held your shares. Other Fund distributions will
generally be taxable as ordinary income. You will be subject to income tax on
these distributions regardless of whether they are paid in cash or reinvested in
additional shares. You will be notified annually of the tax status of
distributions to you.
You should note that if you purchase shares just before a distribution, the
purchase price will reflect the amount of the upcoming distribution, but you
will be taxed on the entire amount of the distribution received, even though, as
an economic matter, the distribution simply constitutes a return of capital.
This is known as "buying into a dividend."
You will recognize taxable gain or loss on a sale or redemption of your shares,
including an exchange for shares of another Fund, based on the difference
between your tax basis in the shares and the amount you receive for them. (To
aid in computing your tax basis, you generally should retain your account
statements for the periods during which you held shares.)
Generally, this gain or loss will be long-term or short-term depending on
whether your holding period for the shares exceeds 12 months, except that any
loss realized on shares held for six months or less will be treated as a
long-term capital loss to the extent of any capital gain dividends that were
received on the shares.
A Fund's dividends that are paid to its corporate shareholders and are
attributable to qualifying dividends the Fund receives from U.S. corporations
may be eligible, in the hands of the corporate
-46-
<PAGE>
shareholders, for the corporate dividends-received deduction, subject to certain
holding period requirements and debt financing limitations.
It is expected that the International Equity Fund will be subject to foreign
withholding taxes with respect to dividends or interest received from sources in
foreign countries. The Fund may make an election to treat a proportionate amount
of these taxes as constituting a distribution to each shareholder, which would
allow each shareholder either (1) to credit this proportionate amount of taxes
against U.S. federal income tax liability or (2) to take this amount as an
itemized deduction.
STATE AND LOCAL TAXES
Shareholders may also be subject to state and local taxes on distributions,
redemptions and exchanges. State income taxes may not apply however to the
portions of each Fund's distributions, if any, that are attributable to interest
on U.S. Government securities, or on securities of the particular state, its
agencies or municipalities.
MISCELLANEOUS
The foregoing is only a summary of certain tax considerations under current law,
which may be subject to change in the future. You should consult your tax
adviser for further information regarding federal, state, local and/or foreign
tax consequences relevant to your specific situation.
-47-
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables shown below will help you understand the
financial performance for the Funds' Trust Shares for the past five years (or
the period since a particular Fund began operations). Certain information
reflects the financial performance of a single Trust Share. The total returns in
the tables represent the rate that an investor would have earned (or lost) on an
investment in Trust Shares of each Fund, assuming all dividends and
distributions were reinvested. The information for the fiscal year ended
October 31, 1999 has been audited by , independent auditors,
whose report, along with the Funds' financial statements, are included in the
Funds' Annual Report and are incorporated by reference into the SAI. The Annual
Report and SAI are available free of charge upon request. The information for
the fiscal years ended October 31, 1995, 1996, 1997 and 1998 was audited by
Galaxy's former auditors, .
-48-
<PAGE>
Galaxy Asset Allocation Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
-----------------------------------------------------------
1999 1998 1997 1996 1995
-----------------------------------------------------------
Trust Shares
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ...................... $ 16.47 $ 14.53 $ 12.83 $ 10.68
Income from investment operations:
Net investment income(1) ................................ 0.42 0.43 0.33 0.32
Net realized and unrealized gain (loss) on investments .. 1.71 2.42 1.83 2.16
Total from investment operations .......................... 2.13 2.85 2.16 2.48
Less dividends:
Dividends from net investment income .................... (0.43) (0.40) (0.33) (0.33)
Dividends from net realized capital gains ............. (1.21) (0.51) (0.13) --
Total dividends ......................................... (1.64) (0.91) (0.46) (0.33)
Net increase (decrease) in net asset value .............. 0.49 1.94 1.70 2.15
Net asset value, end of period ............................ $ 16.96 $ 16.47 $ 14.53 $ 12.83
--------- -------- -------- --------
Total return ........................................... 14.05% 20.42% 17.19% 23.68%
Ratios/supplemental data:
Net assets, end of period (000's) ....................... $ 218,666 $171,741 $123,603 $76,771
Ratios to average net assets:
Net investment income including reimbursement/waiver .... 2.63% 2.82% 2.52% 2.74%
Operating expenses including reimbursement/waiver .. 1.13% 1.21% 1.19% 1.26%
Operating expenses excluding reimbursement/waiver .. 1.13% 1.22% 1.21% 1.30%
Portfolio turnover rate ................................... 108% 58% 48% 41%
</TABLE>
(1) Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or the Fund's administrator for Trust Shares for the years
ended October 31, 1999, 1998, 1997, 1996 and 1995 was $ , $0.42,
$0.43, $0.33, and $0.32, respectively.
-49-
<PAGE>
Galaxy Equity Income Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
-------------------------------------------------------------------
1999 1998 1997 1996 1995
-------------------------------------------------------------------
Trust Shares
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ............... $ 18.84 $ 16.93 $ 14.99 $ 12.75
Income from investment operations:
Net investment income(1) ......................... 0.34 0.38 0.37 0.36
Net realized and unrealized gain on investments .. 2.42 3.35 2.48 2.45
Total from investment operations ................... 2.76 3.73 2.85 2.81
Less dividends
Dividends from net investment income ............. (0.33) (0.38) (0.37) (0.36)
Dividends from net realized capital gains ...... (1.58) (1.44) (0.54) (0.21)
Total dividends .................................. (1.91) (1.82) (0.91) (0.57)
Net increase (decrease) in net asset value ......... 0.85 1.91 1.94 2.24
Net asset value, end of period ..................... $ 19.69 $ 18.84 $ 16.93 $ 14.99
--------- --------- --------- -------
Total return .................................... 15.67% 23.80% 19.65% 22.81%
Ratios/supplemental data:
Net assets, end of period (000's) ................ $ 127,367 $ 119,505 $ 106,094 $87,819
Ratios to average net assets:
Net investment income including
reimbursement/waiver ............................ 1.72% 2.14% 2.32% 2.60%
Operating expenses including
reimbursement/ waiver ........................... 0.92% 0.95% 0.94% 0.98%
Operating expenses excluding
reimbursement/waiver ............................ 0.92% 0.97% 0.94% 1.00%
Portfolio turnover rate .......................... 46% 37% 45% 21%
</TABLE>
(1) Net investment income per share before reimbursement/waiver of fees by
the Adviser and/or the Fund's administrator for Trust Shares for the
years ended October 31, 1999, 1998, 1997, 1996, and 1995 was $ ,
$0.34, $0.38, $0.37, and $0.36, respectively.
-50-
<PAGE>
Galaxy Growth and Income Fund(1)
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
--------------------------------------------------------------------
1999 1998 1997 1996(1) 1995
--------------------------------------------------------------------
Trust Shares
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ................ $ 16.28 13.80 $ 12.35 $ 11.15
Income from investment operations:
Net investment income(2) ....................... 0.15 0.22 0.27 0.28
Net realized and unrealized
gain on investments .......................... 1.31 3.68 2.16 1.69
Total from investment operations .................... 1.46 3.90 2.43 1.97
Less dividends:
Dividends from net investment income ...... (0.16) (0.23) (0.25) (0.28)
Dividends from net realized capital gains .. (2.68) (1.19) (0.73) (0.49)
Total dividends ................................... (2.84) (1.42) (0.98) (0.77)
Net increase (decrease) in net asset value .......... (1.38) 2.48 1.45 1.20
Net asset value, end of period ...................... $ 14.90 $ 16.28 $ 13.80 $ 12.35
--------- ---------- --------- ----------
Total return ..................................... 10.10% 30.43% 20.77% 18.80%
Ratios/supplemental data:
Net assets, end of period (000's) ............ $ 254,060 $ 246,654 $ 186,708 $ 189,011
Ratios to average net assets:
Net investment income including
reimbursement/waiver ...................... 1.00% 1.44% 2.01% 2.42%
Operating expenses including
reimbursement/waiver ...................... 1.03% 1.03% 1.02% 1.07%
Operating expenses excluding
reimbursement/waiver ...................... 1.03% 1.06% 1.03% 1.27%
Portfolio turnover rate .......................... 38% 93% 59% 51%
</TABLE>
(1) The Fund commenced operations on December 14, 1992 as a separate
investment portfolio (the "Predecessor Fund") of The Shawmut Funds. On
December 4, 1995, the Predecessor Fund was reorganized as a new portfolio
of Galaxy. Prior to the reorganization, the Predecessor Fund offered and
sold two series of shares, Investment Shares and Trust Shares, that were
similar to the Fund's Retail A and Trust Shares, respectively. In
connection with the reorganization, shareholders of the Predecessor Fund
exchanged Investment Shares and Trust Shares for Retail A Shares and
Trust Shares, respectively, in the Fund.
(2) Net investment income per share before reimbursement/waiver of fees by
the Adviser and/or the Fund's administrator for the years ended October
31, 1999, 1998, 1997 and 1996 was $ , $0.15, $0.21 and $0.27,
respectively. Net investment income per share before reimbursement/waiver
of fees by other parties for the year ended October 31, 1995 was
$0.25.
-51-
<PAGE>
Galaxy Strategic Equity Fund
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
For the year For the period
ended October 31, ended October 31,
1999 1998(1)
---------------------------------------
Trust Shares
---------------------------------------
<S> <C> <C>
Net asset value, beginning of period................................. $ 10.00
Income from investment operations:
Net investment income(2)........................................ 0.01
Net realized and unrealized (loss) on investments............... (0.37)
Total from investment operations.............................. (0.36)
Less dividends:
Dividends from net investment income.......................... (0.01)
Dividends from net realized capital gains.....................
Total dividends...................................................... (0.01)
Net decrease in net asset value...................................... (0.37)
Net asset value, end of period....................................... $9.63
------
Total return......................................................... (3.62)%(3)
Ratios/supplemental data:
Net assets, end of period (000's)............................... $63,061
Ratios to average net assets:
Net investment income including reimbursement/waiver............ 0.19%(4)
Operating expenses including reimbursement/waiver............... 1.27%(4)
Operating expenses excluding reimbursement/waiver............... 1.47%(4)
Portfolio turnover rate.............................................. 30%(3)
</TABLE>
(1) The Fund commenced operations on March 4, 1998.
(2) Net investment income per share before reimbursement/waiver of fees by
the Adviser and the Fund's administrator for Trust Shares for the
periods ended October 31, 1999 and 1998 was $ and $0.00,
respectively.
(3) Not annualized.
(4) Annualized.
-52-
<PAGE>
Galaxy Equity Value Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
---------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------------------------------------------------------------------------
Trust Shares
---------------------------------------------------------------------------
<S> <S> <C> <C> <C> <C>
Net asset value, beginning of period..... $ 18.21 $ 15.96 $ 14.33 $ 13.32
Income from investment operations:
Net investment income(1)............ 0.08 0.17 0.21 0.28
Net realized and unrealized
gain on investments............... 1.49 4.16 2.74 2.24
Total from investment operations......... 1.57 4.33 2.95 2.52
Less dividends:
Dividends from net investment
income............................ (0.07) (0.18) (0.21) (0.30)
Dividends from net realized
capital gains..................... (3.20) (1.90) (1.11) (1.21)
Total dividends.......................... (3.27) (2.08) (1.32) (1.51)
Net increase (decrease) in net
asset value......................... (1.70) 2.25 1.63 1.01
Net asset value, end of period........... $ 16.51 $ 18.21 $ 15.96 $ 14.33
-------- -------- ------- --------
Total return.......................... 10.27% 29.87% 22.05% 21.31%
Ratios/supplemental data:
Net assets, end of period (000's)... $254,432 $241,532 $194,827 $165,330
Ratios to average net assets:
Net investment income
including reimbursement/
waiver............................ 0.49% 0.98% 1.42% 2.10%
Operating expenses
including reimbursement/
waiver............................ 1.03% 1.04% 1.03% 1.02%
Operating expenses
excluding reimbursement/
waiver............................ 1.03% 1.04% 1.03% 1.02%
Portfolio turnover rate.................. 82% 111% 116% 76%
</TABLE>
(1) Net investment income per share before reimbursement/waiver of fees by
the Adviser and/or the Fund's administrator for Trust Shares for the
years ended October 31, 1999, 1998, 1997, 1996 and 1995 was $ ,
$0.08, $0.17, $0.21 and $0.28, respectively.
-53-
<PAGE>
Galaxy Equity Growth Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
-------------------------------------------------------------------------------
1999 1998 1997 1996 1995
-------------------------------------------------------------------------------
Trust Shares
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period..... $ 25.17 $ 20.39 $ 17.30 $ 14.19
Income from investment operations:
Net investment income(1)............ 0.09 0.16 0.17 0.20
Net realized and unrealized
gain on investments............... 3.20 6.06 3.40 3.28
Total from investment operations......... 3.29 6.22 3.57 3.48
Less dividends:
Dividends from net investment
income............................ (0.09) (0.16) (0.18) (0.20)
Dividends in excess of net
investment income................. (0.01) -- -- --
Dividends from net realized
capital gains..................... (3.84) (1.28) (0.30) (0.17)
Total dividends.......................... (3.94) (1.44) (0.48) (0.37)
Net increase (decrease) in net
asset value......................... (0.65) 4.78 3.09 3.11
Net asset value, end of period........... $ 24.52 $ 25.17 $ 20.39 $ 17.30
------- ------- ------- -------
Total return.......................... 15.17% 32.16% 21.03% 25.08%
Ratios/supplemental data:
Net assets, end of period (000's)... $815,756 $ 745,537 $562,419 $ 420,016
Ratios to average net assets:
Net investment income
including reimbursement/
waiver............................ 0.40% 0.72% 0.92% 1.31%
Operating expenses
including reimbursement/
waiver............................ 0.96% 0.95% 0.98% 1.00%
Operating expenses
excluding reimbursement/
waiver............................ 0.96% 0.95% 0.98% 1.00%
Portfolio turnover rate.................. 60% 66% 36% 14%
</TABLE>
(1) Net investment income per share before reimbursement/waiver of fees by
the Adviser and/or the Fund's administrator for Trust Shares for the
years ended October 31, 1999, 1998, 1997, 1996 and 1995 was $ ,
$0.09, $0.16, $0.17 and $0.20, respectively.
-54-
<PAGE>
Galaxy International Equity Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------------------------------------------------------------------------
Trust Shares
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period..... $ 15.33 $14.01 $12.98 $13.20
Income from investment operations:
Net investment income(1)............... 0.14 0.08 0.17 0.16
Net realized and unrealized
gain (loss) on investments............ 1.98 2.12 1.30 (0.18)
Total from investment operations......... 2.12 2.20 1.47 (0.02)
Less dividends:
Dividends from net investment
income................................ (0.09) (0.20) (0.20) (0.04)
Dividends from net realized
capital gains......................... (0.36) (0.68) (0.24) (0.16)
Total dividends.......................... (0.45) (0.88) (0.44) (0.20)
Net increase (decrease) in net
asset value............................ 1.67 1.32 1.03 (0.22)
Net asset value, end of period........... $ 17.00 $ 15.33 $ 14.01 $ 12.98
------- ------- ------- -------
Total return.......................... 14.32% 16.60% 11.51% (0.02)%
Ratios/supplemental data:
Net assets, end of period
(000's)............................... $345,692 $265,124 $172,561 $89,614
Ratios to average net assets:
Net investment income
including reimbursement/
waiver................................ 0.91% 0.57% 1.40% 1.36%
Operating expenses
including reimbursement/
waiver................................ 0.96% 1.06% 1.08% 1.22%
Operating expenses
excluding reimbursement/
waiver................................ 1.21% 1.32% 1.36% 1.48%
Portfolio turnover rate.................. 49% 45% 146% 48%
</TABLE>
(1) Net investment income per share before reimbursement/waiver of fees by
the Adviser and/or the Fund's administrator for Trust Shares for the
years ended October 31, 1999, 1998, 1997, 1996 and 1995 was $ ,
$0.10, $0.04, $0.13 and $0.13, respectively.
-55-
<PAGE>
Galaxy Small Cap Value Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
-------------------------------------------------------------------------
1999 1998 1997 1996(1) 1995
-------------------------------------------------------------------------
Trust Shares
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........... $ 18.37 $ 14.76 $ 12.71 $ 11.07
Income from investment operations:
Net investment income(2).................. 0.11 0.01(3) 0.05 0.01
Net realized and unrealized
gain (loss) on investments.............. (2.06) 5.74 2.97 2.21
Total from investment operations............... (1.95) 5.75 3.02 2.22
Less dividends:
Dividends from net investment income.... (0.13) -- (0.05) (0.01)
Dividends in excess of net
investment income....................... -- -- (0.01) --
Dividends from net realized
capital gains........................... (2.68) (2.14) (0.91) (0.57)
Total dividends............................... (2.81) (2.14) (0.97) (0.58)
Net increase (decrease) in net asset value... (4.76) 3.61 2.05 1.64
Net asset value, end of period................. $ 13.61 $ 18.37 $ 14.76 $ 12.71
------- ------- ------- -------
Total return................................ (12.07)% 44.08% 25.22% 21.52%
Ratios/supplemental data:
Net assets, end of period (000's)....... $ 202,385 $189,257 $137,341 $121,364
Ratios to average net assets:
Net investment income
including reimbursement/waiver.......... 0.73% 0.09% 0.45% 0.07%
Operating expenses
including reimbursement/waiver.......... 0.96% 0.96% 1.05% 1.10%
Operating expenses
excluding reimbursement/waiver.......... 0.96% 0.96% 1.06% 1.35%
Portfolio turnover rate........................ 33% 52% 39% 32%
</TABLE>
(1) The Fund commenced operations on December 14, 1992 as a separate
investment portfolio (the "Predecessor Fund") of The Shawmut Funds. On
December 4, 1995, the Predecessor Fund was reorganized as a new portfolio
of Galaxy. Prior to the reorganization, the Predecessor Fund offered and
sold two series of shares, Investment Shares and Trust Shares, that were
similar to the Fund's Retail A and Trust Shares, respectively. In
connection with the reorganization, shareholders of the Predecessor Fund
exchanged Investment Shares and Trust Shares for Retail A Shares and
Trust Shares, respectively, in the Fund.
(2) Net investment income per share before reimbursement/waiver of fees by
the Adviser and/or the Fund's administrator for the years ended October
31, 1999, 1998, 1997 and 1996 was $ , $(0.11), $0.05 and $0.05,
respectively. Net investment (loss) per share before reimbursement/waiver
of fees by other parties for the year ended October 31, 1995 was
$(0.03).
(3) The selected per share data was calculated using the weighted average
shares outstanding method for the year.
-56-
<PAGE>
Galaxy Small Company Equity Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
---------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------------------------------------------------------------------------
Trust Shares
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period................................. $21.32 $20.20 $16.38 $12.36
Income from investment operations:
Net investment income (loss)(1)........ (0.14) (0.11) (0.09) (0.04)
Net realized and unrealized
gain (loss) on investments............ (4.96) 3.61 4.08 4.25
Total from investment operations......... (5.10) 3.50 3.99 4.21
Less dividends:
Dividends from net investment
income................................ -- -- -- --
Dividends from net realized
capital gains......................... (2.26) (2.38) (0.17) (0.19)
Total dividends.......................... (2.26) (2.38) (0.17) (0.19)
Net increase (decrease) in net
asset value............................ (7.36) 1.12 3.82 4.02
Net asset value, end of period........... $ 13.96 $ 21.32 $ 20.20 $ 16.38
------- ------- ------- -------
Total return.......................... (26.00)% 19.59% 24.69% 34.73%
Ratios/supplemental data:
Net assets, end of period (000's)...... $222,675 $310,751 $174,990 $94,831
Ratios to average net assets:
Net investment income (loss)
including reimbursement/waiver........ (0.76)% (0.65)% (0.60)% (0.37)%
Operating expenses
including reimbursement/waiver........ 1.09% 1.09% 1.14% 1.12%
Operating expenses
excluding reimbursement/waiver........ 1.09% 1.12% 1.14% 1.12%
Portfolio turnover rate.................. 78% 69% 82% 54%
</TABLE>
(1) Net investment income (loss) per share before reimbursement/waiver of
fees by the Adviser and/or the Fund's administrator for Trust Shares for
the years ended October 31, 1999, 1998, 1997, 1996 and 1995 was
$ , ($0.14), ($0.11), ($0.09) and ($0.04), respectively.
-57-
<PAGE>
[Back Cover Page]
Where to find more information
You'll find more information about the Funds in the following documents:
ANNUAL AND SEMI-ANNUAL REPORTS
Galaxy's annual and semi-annual reports contain more information about each Fund
and a discussion about the market conditions and investment strategies that had
a significant effect on each Fund's performance during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains detailed information about the Funds and their policies. By
law, it's incorporated by reference into (considered to be part of) this
prospectus.
You can get a free copy of these documents, request other information about the
Funds and make shareholder inquiries by calling Galaxy at 1-877-BUY-GALAXY
(1-877-289-4252) or by writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
If you buy your shares through a financial institution, you may contact your
institution for more information.
You can write to the Securities and Exchange Commission (SEC) Public Reference
Section and ask them to mail you information about the Funds, including the SAI.
They'll charge you a fee for this service. You can also visit the SEC Public
Reference Room and copy the documents while you're there. For information about
the operation of the Public Reference Room, call the SEC.
Public Reference Section of the SEC
Washington, DC 20549- 0102
1-202-942-8090.
Reports and other information about the Funds are also available on the EDGAR
Database on the SEC's website at http://www.sec.gov. Copies of this information
may also be obtained, after paying a duplicating fee, by electronic request to
the SEC's e-mail address at [email protected].
Galaxy's Investment Company Act File No. is 811-4636.
[Fleet assigned code]
<PAGE>
THE GALAXY FUND
STATEMENT OF ADDITIONAL INFORMATION
________, 2000
GALAXY ASSET ALLOCATION FUND
GALAXY EQUITY INCOME FUND
GALAXY GROWTH AND INCOME FUND
GALAXY STRATEGIC EQUITY FUND
GALAXY EQUITY VALUE FUND
GALAXY EQUITY GROWTH FUND
GALAXY INTERNATIONAL EQUITY FUND
GALAXY SMALL CAP VALUE FUND
GALAXY SMALL COMPANY EQUITY FUND
RETAIL A SHARES, RETAIL B SHARES AND
TRUST SHARES
This Statement of Additional Information is not a prospectus. The
prospectuses for the Funds as listed below, as they may be supplemented or
revised from time to time (the "Prospectuses"), as well as the Funds' Annual
Report to Shareholders dated October 31, 1999 (the "Annual Report"), may be
obtained, without charge, by writing:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
or by calling 1-877-BUY-GALAXY (1-877-289-4252)
Current Prospectuses
- - Prospectus for Retail A Shares and Retail B Shares of the Funds
dated ________, 2000
- - Prospectus for Trust Shares of the Funds dated ___________, 2000
The ______________ and the report thereon of ___________, The Galaxy
Funds' independent accountants, are incorporated by reference into this
Statement of Additional Information.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
GENERAL INFORMATION......................................................................1
DESCRIPTION OF GALAXY AND ITS SHARES.....................................................1
INVESTMENT STRATEGIES, POLICIES AND RISKS................................................4
Asset Allocation Fund..............................................................5
Equity Income Fund.................................................................5
Growth and Income Fund.............................................................6
Strategic Equity Fund..............................................................6
Equity Value Fund..................................................................6
Equity Growth Fund.................................................................7
International Equity Fund..........................................................7
Small Cap Value Fund...............................................................8
Small Company Equity Fund..........................................................9
Special Risk Considerations........................................................9
Foreign Securities.................................................................9
European Currency Unification.....................................................10
Other Investment Policies and Risk Considerations.................................10
Ratings...........................................................................10
U.S. Government Obligations and Money Market Instruments..........................11
Variable and Floating Rate Obligations............................................13
Repurchase and Reverse Repurchase Agreements......................................13
Securities Lending................................................................14
Investment Company Securities.....................................................15
REITS.............................................................................15
Derivative Securities.............................................................16
American, European and Global Depository Receipts.................................25
Asset-Backed Securities -- Asset Allocation Fund..................................25
Mortgage-Backed Securities -- Asset Allocation Fund...............................26
Mortgage Dollar Rolls -- Asset Allocation Fund....................................27
Convertible Securities............................................................28
When-Issued and Delayed Settlement Transactions - Growth and Income,
Strategic Equity, International Equity and Small Cap Value Funds............29
Restricted and Illiquid Securities................................................30
Portfolio Turnover................................................................31
INVESTMENT LIMITATIONS..................................................................31
VALUATION OF PORTFOLIO SECURITIES.......................................................38
Valuation of the Asset Allocation, Equity Income, Growth and Income, Strategic
Equity, Equity Value, Equity Growth, Small Cap Value and Small
Company Equity Funds........................................................38
Valuation of the International Equity Fund........................................38
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION..........................................39
Purchases of Retail A Shares and Retail B Shares..................................39
General...........................................................................39
Customers of Institutions.........................................................40
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Other Purchase Information........................................................40
Applicable Sales Charge - Retail A Shares.........................................40
Computation of Offering Price - Retail A Shares...................................42
Quantity Discounts................................................................44
Applicable Sales Charge - Retail B Shares.........................................46
Characteristics of Retail A Shares and Retail B Shares............................47
Factors to Consider When Selecting Retail A Shares or Retail B Shares.............48
Purchases of Trust Shares.........................................................49
Redemption of Retail A Shares, Retail B Shares and Trust Shares...................50
INVESTOR PROGRAMS-RETAIL A SHARES AND RETAIL B SHARES...................................50
Exchange Privilege................................................................50
Retirement Plans..................................................................51
Automatic Investment Program and Systematic Withdrawal Plan.......................52
Payroll Deduction Program.........................................................53
College Investment Program........................................................53
Direct Deposit Program............................................................53
TAXES...................................................................................53
Taxation of Certain Financial Instruments and Investments.........................54
TRUSTEES AND OFFICERS...................................................................54
Shareholder and Trustee Liability.................................................58
INVESTMENT ADVISER AND SUB-ADVISER......................................................59
Authority to Act as Investment Adviser............................................62
ADMINISTRATOR...........................................................................62
CUSTODIAN AND TRANSFER AGENT............................................................64
EXPENSES................................................................................66
PORTFOLIO TRANSACTIONS..................................................................66
SHAREHOLDER SERVICES PLAN...............................................................69
DISTRIBUTION AND SERVICES PLAN..........................................................70
DISTRIBUTOR.............................................................................73
AUDITORS................................................................................75
COUNSEL.................................................................................75
PERFORMANCE AND YIELD INFORMATION.......................................................76
Performance Reporting.............................................................79
MISCELLANEOUS...........................................................................80
FINANCIAL STATEMENTS....................................................................87
APPENDIX A.............................................................................A-1
APPENDIX B.............................................................................B-1
</TABLE>
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<PAGE>
GENERAL INFORMATION
This Statement of Additional Information should be read in conjunction
with a current Prospectus. This Statement of Additional Information relates to
the Prospectuses for Trust Shares, Retail A Shares and Retail B Shares of the
nine Funds listed on the cover page. Each Fund also offers Prime A Shares and
Prime B Shares, which are described in a separate statement of additional
information and related prospectus. This Statement of Additional Information is
incorporated by reference in its entirety into the Prospectuses. No investment
in shares of the Funds should be made without reading a Prospectus.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, FLEETBOSTON CORPORATION OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUNDS ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL VARY AS A RESULT OF MARKET CONDITIONS OR OTHER FACTORS
SO THAT SHARES OF THE FUNDS, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN
THEIR ORIGINAL COST. AN INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
DESCRIPTION OF GALAXY AND ITS SHARES
The Galaxy Fund ("Galaxy") is an open-end management investment company
currently offering shares of beneficial interest in twenty-nine investment
portfolios: Money Market Fund, Government Fund, U.S. Treasury Fund, Tax-Exempt
Fund, Connecticut Municipal Money Market Fund, Massachusetts Municipal Money
Market Fund, Institutional Government Money Market Fund, Prime Reserves,
Government Reserves, Tax-Exempt Reserves, Equity Value Fund, Equity Growth Fund,
Equity Income Fund, International Equity Fund, Small Company Equity Fund, Asset
Allocation Fund, Small Cap Value Fund, Growth and Income Fund, Strategic Equity
Fund, Short-Term Bond Fund, Intermediate Government Income Fund, High Quality
Bond Fund, Corporate Bond Fund, Tax-Exempt Bond Fund, New Jersey Municipal Bond
Fund, New York Municipal Bond Fund, Connecticut Municipal Bond Fund,
Massachusetts Municipal Bond Fund and Rhode Island Municipal Bond Fund. Galaxy
is also authorized to issue shares of beneficial interest in 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.
The Growth and Income and Small Cap Value Funds commenced operations on
December 14, 1992 as separate investment portfolios (the "Predecessor Growth and
Income Fund" and "Predecessor Small Cap Value Fund," respectively, and
collectively, the "Predecessor Funds") of The Shawmut Funds, which was organized
as a Massachusetts business trust. On December 4, 1995, the Predecessor Funds
were reorganized as new portfolios of Galaxy. Prior
<PAGE>
to the reorganization, the Predecessor Funds offered and sold shares of
beneficial interest that were similar to Galaxy's Trust Shares and Retail A
Shares.
Galaxy was organized as a Massachusetts business trust on March 31, 1986.
Galaxy's Declaration of Trust authorizes the Board of Trustees to classify or
reclassify any unissued shares into one or more classes or series of shares by
setting or changing in any one or more respects their respective preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption. Pursuant to
such authority, the Board of Trustees has authorized the issuance of an
unlimited number of shares in each of the series in the Funds as follows: Class
C shares (Trust Shares), Class C - Special Series 1 shares (Retail A Shares),
Class C - Special Series 2 shares (Retail B Shares), Class C - Special Series 3
shares (Prime A Shares) and Class C - Special Series 4 shares (Prime B Shares),
each series representing interests in the Equity Value Fund; Class G - Series 1
shares (Trust Shares), Class G - Series 2 shares (Retail A Shares), Class G -
Series 3 shares (Retail B Shares), Class G - Series 4 shares (Prime A Shares)
and Class G - Series 5 shares (Prime B Shares), each series representing
interests in the International Equity Fund; Class H Series 1 shares (Trust
Shares), Class H - Series 2 shares (Retail A Shares), Class H - Series 3 shares
(Retail B Shares), Class H - Series 4 shares (A Prime Shares) and Class H -
Series 5 shares (Prime B Shares), each series representing interests in the
Equity Growth Fund; Class I - Series 1 shares (Trust Shares), Class I- Series 2
shares (Retail A Shares), Class I - Series 3 shares (Retail B Shares),
Class I - Series 4 shares (Prime A Shares) and Class I - Series 5 shares
(Prime B Shares), each series representing interests in the Equity Income Fund;
Class K - Series 1 shares (Trust Shares), Class K - Series 2 shares
(Retail A Shares), Class K - Series 3 shares (Retail B Shares), Class K -
Series 4 shares (Prime A Shares) and Class K - Series 5 shares (Prime B Shares),
each series representing interests in the Small Company Equity Fund; Class N -
Series 1 shares (Trust Shares), Class N - Series 2 shares (Retail A Shares),
Class N - Series 3 shares (Retail B Shares), Class N - Series 4 shares (Prime A
Shares) and Class N - Series 5 shares (Prime B Shares), each series representing
interests in the Asset Allocation Fund; Class U - Series 1 shares (Trust
Shares), Class U - Series 2 shares (Retail A Shares), Class U - Series 3 shares
(Retail B Shares), Class U - Series 4 shares (Prime A Shares) and Class U -
Series 5 shares (Prime B Shares), each series representing interests in the
Growth and Income Fund; Class X - Series 1 shares (Trust Shares), Class X -
Series 2 shares (Retail A Shares), Class X - Series 3 shares (Retail B Shares),
Class X - Series 4 shares (Prime A Shares) and Class X - Series 5 shares
(Prime B Shares), each series representing interests in the Small Cap Value
Fund; and Class AA - Series 1 shares (Trust Shares), Class AA - Series 2 shares
(Retail A Shares), Class AA - Series 3 shares (Retail B Shares), Class AA -
Series 4 shares (Prime A Shares) and Class AA - Series 5 shares (Prime B
Shares), each series representing interests in the Strategic Equity Fund. Each
Fund is classified as a diversified company under the Investment Company Act
of 1940, as amended (the "1940 Act").
Each share of Galaxy (irrespective of series designation) has a par value
of $.001 per share, represents an equal proportionate interest in the related
investment portfolio with other shares of the same class (irrespective of series
designation), and is entitled to such dividends and distributions out of the
income earned on the assets belonging to such investment portfolio as are
declared in the discretion of Galaxy's Board of Trustees.
-2-
<PAGE>
Shares have no preemptive rights and only such conversion or exchange
rights as the Board of Trustees may grant in its discretion. When issued for
payment as described in the Prospectuses, shares will be fully paid and
non-assessable. Each series of shares in a Fund (i.e., Retail A Shares, Retail B
Shares, Trust Shares, Prime A Shares and Prime B Shares) bear pro rata the same
expenses and are entitled equally to the Fund's dividends and distributions
except as follows. Each series will bear the expenses of any distribution and/or
shareholder servicing plans applicable to such series. For example, as described
below, holders of Retail A Shares will bear the expenses of the Shareholder
Services Plan for Retail A Shares and Trust Shares (which is currently
applicable only to Retail A Shares) and holders of Retail B Shares will bear the
expenses of the Distribution and Services Plan for Retail B Shares. In addition,
each series may incur differing transfer agency fees and may have differing
sales charges. Standardized yield and total return quotations are computed
separately for each series of shares. The differences in expenses paid by the
respective series will affect their performance. See "Shareholder Services Plan"
and "Distribution and Services Plan" below.
In the event of a liquidation or dissolution of Galaxy or an individual
Fund, shareholders of a particular Fund would be entitled to receive the assets
available for distribution belonging to such Fund, and a proportionate
distribution, based upon the relative asset values of Galaxy's respective Funds,
of any general assets of Galaxy not belonging to any particular Fund, which are
available for distribution. Shareholders of a Fund are entitled to participate
in the net distributable assets of the particular Fund involved in liquidation
based on the number of shares of the Fund that are held by each shareholder,
except that each series of a Fund would be solely responsible for the Fund's
payments under any distribution and/or shareholder servicing plan applicable to
such series.
Holders of all outstanding shares of a particular Fund will vote together
in the aggregate and not by series on all matters, except that only shares of a
particular series of a Fund will be entitled to vote on matters submitted to a
vote of shareholders pertaining to any distribution and/or shareholder servicing
plan for such series (e.g., only Retail A Shares and Trust Shares of a Fund will
be entitled to vote on matters submitted to a vote of shareholders pertaining to
Galaxy's Shareholder Services Plan for Retail A and Trust Shares and only Retail
B Shares of a Fund will be entitled to vote on matters submitted to a vote of
shareholders pertaining to Galaxy's Distribution and Services Plan for Retail B
Shares). Further, shareholders of all of the Funds, as well as those of any
other investment portfolio now or hereafter offered by Galaxy, will vote
together in the aggregate and not separately on a Fund-by-Fund basis, except as
otherwise required by law or when permitted by the Board of Trustees. Rule 18f-2
under the 1940 Act provides that any matter required to be submitted to the
holders of the outstanding voting securities of an investment company such as
Galaxy shall not be deemed to have been effectively acted upon unless approved
by the holders of a majority of the outstanding shares of each Fund affected by
the matter. A particular Fund is deemed to be affected by a matter unless it is
clear that the interests of each Fund in the matter are substantially identical
or that the matter does not affect any interest of the Fund. Under the Rule, the
approval of an investment advisory agreement or any change in an investment
objective or a fundamental investment policy would be effectively acted upon
with respect to a Fund only if approved by a majority of the
-3-
<PAGE>
outstanding shares of such Fund (irrespective of series designation). However,
the Rule also provides that the ratification of the appointment of independent
public accountants, the approval of principal underwriting contracts, and the
election of trustees may be effectively acted upon by shareholders of Galaxy
voting without regard to class or series.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held, and will vote in
the aggregate and not by class or series, except as otherwise expressly required
by law or when the Board of Trustees determines that the matter to be voted on
affects only the interests of shareholders of a particular class or series.
Voting rights are not cumulative and, accordingly, the holders of more than 50%
in the aggregate of Galaxy's outstanding shares may elect all of the trustees,
irrespective of the votes of other shareholders.
Galaxy is not required under Massachusetts law to hold annual shareholder
meetings and intends to do so only if required by the 1940 Act. Shareholders
have the right to remove Trustees. Galaxy's Declaration of Trust provides that a
meeting of shareholders shall be called by the Board of Trustees upon a written
request of shareholders owning at least 10% of the outstanding shares of Galaxy
entitled to vote.
Galaxy's Declaration of Trust authorizes the Board of Trustees, without
shareholder approval (unless otherwise required by applicable law), to (a) sell
and convey the assets of a Fund to another management investment company for
consideration which may include securities issued by the purchaser and, in
connection therewith, to cause all outstanding shares of the Fund involved to be
redeemed at a price which is equal to their net asset value and which may be
paid in cash or by distribution of the securities or other consideration
received from the sale and conveyance; (b) sell and convert a Fund's assets into
money and, in connection therewith, to cause all outstanding shares of the Fund
involved to be redeemed at their net asset value; or (c) combine the assets
belonging to a Fund with the assets belonging to another Fund of Galaxy and, in
connection therewith, to cause all outstanding shares of any Fund to be redeemed
at their net asset value or converted into shares of another class of Galaxy's
shares at the net asset value. In the event that shares are redeemed in cash at
their net asset value, a shareholder may receive in payment for such shares, due
to changes in the market prices of the Fund's portfolio securities, an amount
that is more or less than the original investment. The exercise of such
authority by the Board of Trustees will be subject to the provisions of the 1940
Act, and the Board of Trustees will not take any action described in this
paragraph unless the proposed action has been disclosed in writing to the Fund's
shareholders at least 30 days prior thereto.
INVESTMENT STRATEGIES, POLICIES AND RISKS
Fleet Investment Advisors Inc. ("Fleet"), the Funds' investment adviser,
and, with respect to the International Equity Fund, Oechsle International
Advisors, LLC ("Oechsle"), the Fund's sub-adviser, will use their best efforts
to achieve each Fund's investment objective, although such achievement cannot be
assured. The investment objective of a Fund as described in its Prospectuses may
not be changed without the approval of the holders of a majority of its
-4-
<PAGE>
outstanding shares (as defined under "Miscellaneous"). Except as noted below
under "Investment Limitations," a Fund's investment policies may be changed
without shareholder approval. An investor should not consider an investment in
the Funds to be a complete investment program. The following investment
strategies, policies and risks supplement those set forth in the Funds'
Prospectuses.
ASSET ALLOCATION FUND
The Asset Allocation Fund may invest up to 20% of its total assets in
foreign securities. Such foreign investments may be made directly, by purchasing
securities issued or guaranteed by foreign corporations, banks or governments
(or their political subdivisions or instrumentalities) or by supranational banks
or other organizations, or indirectly, by purchasing American Depository
Receipts ("ADRs") and European Depository Receipts ("EDRs"). Examples of
supranational banks include the International Bank for Reconstruction and
Development ("World Bank"), the Asian Development Bank and the InterAmerican
Development Bank. Obligations of supranational banks may be supported by
appropriated but unpaid commitments of their member countries and there is no
assurance that those commitments will be undertaken or met in the future. See
"Special Risk Considerations -- Foreign Securities" and "Other Investment
Policies and Risk Considerations -- American, European and Global Depository
Receipts" below. The Fund may also invest in dollar-denominated high quality
debt obligations of U.S. corporations issued outside the United States. The Fund
may purchase put options and call options and write covered call options,
purchase asset-backed securities and mortgage-backed securities and enter into
foreign currency exchange transactions.
See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the Asset Allocation
Fund.
EQUITY INCOME FUND
In addition to common stocks, the Equity Income Fund may also invest in
securities convertible into common stock that offer income potential. See "Other
Investment Policies and Risk Considerations - Convertible Securities" below. The
Fund may invest up to 20% of its total assets in foreign securities, either
directly or indirectly through the purchase of ADRs and EDRs. In addition, the
Fund may invest in securities issued by foreign branches of U.S. banks and
foreign banks. See "Special Risk Considerations -- Foreign Securities" and
"Other Investment Policies and Risk Considerations -- American, European and
Global Depository Receipts" below. The Fund may also purchase put options and
call options and write covered call options. See "Other Investment Policies and
Risk Considerations -- Derivative Securities" below.
See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the Equity Income Fund.
-5-
<PAGE>
GROWTH AND INCOME FUND
Under normal market conditions, the Growth and Income Fund will invest at
least 65% of its total assets in common stocks, preferred stocks, common stock
warrants and securities convertible into common stock. The Fund may purchase
convertible securities, including convertible preferred stock, convertible bonds
or debentures, units consisting of "usable" bonds and warrants or a combination
of the features of several of these securities. See "Other Investment Policies
and Risk Considerations -- Convertible Securities" below. The Fund may also buy
and sell options and futures contracts and utilize stock index futures
contracts, options, swap agreements, indexed securities, and options on futures
contracts. See "Other Investment Policies and Risk Considerations -- Derivative
Securities" below.
The Fund may invest up to 20% of its total assets in securities of
foreign issuers which are freely traded on United States securities exchanges or
in the over-the-counter market in the form of ADRs, EDRs and Global Depository
Receipts ("GDRs"). Securities of a foreign issuer may present greater risks in
the form of nationalization, confiscation, domestic marketability, or other
national or international restrictions. As a matter of practice, the Fund will
not invest in the securities of foreign issuers if any such risk appears to
Fleet to be substantial. See "Special Risk Considerations -- Foreign Securities"
and "Other Investment Policies and Risk Considerations -- American, European and
Global Depository Receipts" below.
See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the Growth and Income
Fund.
STRATEGIC EQUITY FUND
Under normal market and economic conditions, the Strategic Equity Fund
will invest at least 65% of its total assets in equity securities, including
common stocks, preferred stocks, securities convertible into common stock,
rights and warrants. The Fund may invest up to 20% of its total assets in
foreign securities, either directly or indirectly through ADRs, EDRs and GDRs.
See "Special Risk Considerations -- Foreign Securities" and "Other Investment
Policies and Risk Considerations -- American, European and Global Depository
Receipts" below. The Fund may also buy and sell options and futures contracts
and utilize stock index futures contracts, options, swap agreements, indexed
securities and options on futures contracts. See "Other Investment Policies and
Risk Considerations -- Derivative Securities" below.
See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the Strategic Equity
Fund.
EQUITY VALUE FUND
Under normal market and economic conditions, the Equity Value Fund
invests at least 75% of its total assets in common stock, preferred stock
(including convertible preferred stock) and debt securities convertible into
common stock that Fleet believes to be undervalued. Debt securities convertible
into common stock are purchased primarily during periods of relative
-6-
<PAGE>
market instability and are acquired principally for income with the potential
for appreciation being a secondary consideration. See "Other Investment Policies
and Risk Considerations -- Convertible Securities" below.
The Fund may also invest up to 20% of its total assets in foreign
securities, either directly or indirectly through ADRs and EDRs. In addition,
the Fund may invest in securities issued by foreign branches of U.S. banks and
foreign banks. See "Special Risk Considerations -- Foreign Securities" and
"Other Investment Policies and Risk Considerations -- American, European and
Global Depository Receipts" below. The Fund may also write covered call options.
See "Other Investment Policies and Risk Considerations -- Derivative Securities"
below.
See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the Equity Value Fund.
EQUITY GROWTH FUND
Convertible securities purchased by the Equity Growth Fund may include
both debt securities and preferred stock. By investing in convertible
securities, the Fund will seek the opportunity, through the conversion feature,
to participate in the capital appreciation of the common stock into which the
securities are convertible. See "Other Investment Policies and Risk
Considerations -- Convertible Securities" below. The Fund may also invest in
common stock warrants.
The Fund may invest up to 20% of its total assets in foreign securities,
either directly or indirectly through the purchase of ADRs and EDRs. In
addition, the Fund may invest in securities issued by foreign branches of U.S.
banks and foreign banks. See "Special Risk Considerations -- Foreign Securities"
and "Other Investment Policies and Risk Considerations -- American, European and
Global Depository Receipts" below. The Fund may also purchase put options and
call options and write covered call options. See "Other Investment Policies and
Risk Considerations -- Derivative Securities" below.
See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the Equity Growth Fund.
INTERNATIONAL EQUITY FUND
The International Equity Fund invests at least 75% of its total assets in
equity securities of foreign issuers. The Fund may invest in securities of
issuers located in a variety of different foreign regions and countries,
including, but not limited to, Australia, Austria, Belgium, Brazil, Canada,
Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan,
Luxembourg, Malaysia, Mexico, the Netherlands, New Zealand, Norway, Portugal,
Singapore, Spain, Sweden, Switzerland, Thailand and the United Kingdom.
The Fund invests in common stock and may invest in other securities with
equity characteristics, consisting of trust or limited partnership interests,
preferred stock, rights and
-7-
<PAGE>
warrants. The Fund may also invest in convertible securities, consisting of debt
securities or preferred stock that may be converted into common stock or that
carry the right to purchase common stock. See "Other Investment Policies and
Risk Considerations -- Convertible Securities" below. The Fund invests in
securities listed on foreign or domestic securities exchanges and securities
traded in foreign or domestic over-the-counter markets, and may invest in
unlisted securities.
Securities issued in certain countries are currently accessible to the
Fund only through investment in other investment companies that are specifically
authorized to invest in such securities. The limitations on the Fund's
investment in other investment companies are described below under "Other
Investment Policies and Risk Considerations -- Investment Company Securities."
Subject to applicable securities regulations, the Fund may, for the
purpose of hedging its portfolio, purchase and write covered call options on
specific portfolio securities and may purchase and write put and call options on
foreign stock indexes listed on foreign and domestic stock exchanges. In
addition, the Fund may invest up to 100% of its total assets in securities of
foreign issuers in the form of ADRs, EDRs or GDRs as described under "Other
Investment Policies and Risk Considerations -- American, European and Global
Depository Receipts." Furthermore, the Fund may purchase and sell securities on
a when-issued basis.
See "Other Investment Policies and Risk Considerations" below regarding
additional investment policies of the International Equity Fund.
SMALL CAP VALUE FUND
In addition to common stocks, the Small Cap Value Fund may purchase
convertible securities, including convertible preferred stock, convertible bonds
or debentures, units consisting of "usable" bonds and warrants or a combination
of the features of several of these securities. See "Other Investment Policies
and Risk Considerations -- Convertible Securities" below. The Fund may also buy
and sell options and futures contracts and utilize stock index futures
contracts, options, swap agreements, indexed securities, and options on futures
contracts. See "Other Investment Policies and Risk Considerations -- Derivative
Securities" below.
The Fund may invest up to 20% of its total assets in securities of
foreign issuers which are freely traded on United States securities exchanges or
in the over-the-counter market in the form of ADRs, EDRs and GDRs. Securities of
a foreign issuer may present greater risks in the form of nationalization,
confiscation, domestic marketability, or other national or international
restrictions. As a matter of practice, the Fund will not invest in the
securities of a foreign issuer
-8-
<PAGE>
if any such risk appears to Fleet to be substantial. See "Special Risk
Considerations -- Foreign Securities" and "Other Investment Policies and Risk
Considerations -- American, European and Global Depository Receipts" below.
See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the Small Cap Value
Fund.
SMALL COMPANY EQUITY FUND
In addition to common stocks, the Small Company Equity Fund may invest in
preferred stock, securities convertible into common stock, rights and warrants.
Under normal market and economic conditions, at least 65% of the Fund's total
assets will be invested in the equity securities of companies that have market
capitalizations of $1.5 billion or less. The Fund may invest up to 20% of its
total assets in foreign securities, either directly or indirectly through ADRs
and EDRs. See "Special Risk Considerations -- Foreign Securities" and "Other
Investment Policies and Risk Considerations -- American, European and Global
Depository Receipts" below.
The Fund may purchase put options and call options and write covered call
options as a hedge against changes resulting from market conditions and in the
value of the securities held in the Fund or which it intends to purchase and
where the transactions are economically appropriate for the reduction of risks
inherent in the ongoing management of the Fund. See "Other Investment Policies
and Risk Considerations -- Derivative Securities" below.
See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the Small Company Equity
Fund.
SPECIAL RISK CONSIDERATIONS
FOREIGN SECURITIES
Investments in foreign securities may involve higher costs than
investments in U.S. securities, including higher transaction costs, as well as
the imposition of additional taxes by foreign governments. In addition, foreign
investments may include additional risks associated with currency exchange
rates, less complete financial information about the issuers, less market
liquidity, and political instability. Future political and economic
developments, the possible imposition of withholding taxes on interest income,
the possible seizure or nationalization of foreign holdings, the possible
establishment of exchange controls, or the adoption of other governmental
restrictions, might adversely affect the payment of dividends or principal and
interest on foreign obligations.
Although each of the Funds may invest in securities denominated in
foreign currencies, each Fund values its securities and other assets in U.S.
dollars. As a result, the net asset value of a Fund's shares may fluctuate with
U.S. dollar exchange rates as well as with price changes of the Fund's
securities in the various local markets and currencies. Thus, an increase in the
value
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of the U.S. dollar compared to the currencies in which a Fund makes its
investments could reduce the effect of increases and magnify the effect of
decreases in the price of a Fund's securities in their local markets.
Conversely, a decrease in the value of the U.S. dollar will have the opposite
effect of magnifying the effect of increases and reducing the effect of
decreases in the prices of a Fund's securities in their local markets. In
addition to favorable and unfavorable currency exchange rate developments, the
Funds are subject to the possible imposition of exchange control regulations or
freezes on convertibility of currency.
Certain of the risks associated with investments in foreign securities
are heightened with respect to investments in countries with emerging economies
or emerging securities markets. The risks of expropriation, nationalization and
social, political and economic instability are greater in those countries than
in more developed capital markets.
EUROPEAN CURRENCY UNIFICATION
Many European countries have adopted a single European currency, the
euro. On January 1, 1999, the euro became legal tender for all countries
participating in the Economic and Monetary Union ("EMU"). A new European Central
Bank has been created to manage the monetary policy of the new unified region.
On the same date, the exchange rates were irrevocably fixed between the EMU
member countries. National currencies will continue to circulate until they are
replaced by euro coins and bank notes by the middle of 2002.
This change is likely to significantly impact the European capital
markets in which the International Equity Fund invests and may result in the
Fund facing additional risks in pursuing its investment objective. These risks,
which include, but are not limited to, uncertainty as to the proper tax
treatment of the currency conversion, volatility of currency exchange rates as a
result of the conversion, uncertainty as to capital market reaction, conversion
costs that may affect issuer profitability and creditworthiness, and lack of
participation by some European countries, may increase the volatility of the
Fund's net asset value per share.
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Investment methods described in the Prospectuses and this Statement of
Additional Information are among those which one or more of the Funds have the
power to utilize. Some may be employed on a regular basis; others may not be
used at all. Accordingly, reference to any particular method or technique
carries no implication that it will be utilized or, if it is, that it will be
successful.
RATINGS
All debt obligations, including convertible bonds, purchased by the
Asset Allocation, Equity Income, Strategic Equity, Equity Value, Equity
Growth and Small Company Equity Funds are rated investment grade by Moody's
Investors Service, Inc. ("Moody's") ("Aaa," "Aa," "A" and "Baa") or Standard
& Poor's Ratings Group ("S&P") ("AAA," "AA," "A" and "BBB"), or, if not
rated, are determined to be of comparable quality by Fleet. Debt securities
rated "Baa"
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by Moody's or "BBB" by S&P are generally considered to be investment grade
securities although they have speculative characteristics and changes in
economic conditions or circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case for higher
rated debt obligations.
The International Equity Fund may only purchase debt securities rated "A"
or higher by Moody's or S&P, or if unrated, determined by Fleet or Oechsle to be
of comparable quality. Issuers of commercial paper, bank obligations or
repurchase agreements in which the International Equity Fund invests must have,
at the time of investment, outstanding debt rated A or higher by Moody's or S&P,
or, if they are not rated, the instrument purchased must be determined to be of
comparable quality.
The Growth and Income and Small Cap Value Funds may purchase convertible
bonds rated "Ba" or higher by Moody's or "BB" or higher by S&P or Fitch IBCA,
Inc. ("Fitch IBCA"), at the time of investment. See "Other Investment Policies
and Risk Considerations -- Convertible Securities" below for a discussion of the
risks of investing in convertible bonds rated either "Ba" or "BB." Short-term
money market instruments purchased by the Growth and Income and Small Cap Value
Funds must be rated in one of the top two rating categories by a nationally
recognized statistical rating agency, such as Moody's, S&P or Fitch IBCA.
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 or Oechsle, as the case may
be, 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").
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.
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Obligations of certain agencies and instrumentalities of the U.S. Government,
such as those of the Government National Mortgage Association, are supported by
the full faith and credit of the U.S. Treasury; others, such as those of the
Federal Home Loan Banks, are supported by the right of the issuer to borrow from
the Treasury; others, such as those of the Federal National Mortgage
Association, are supported by the discretionary authority of the U.S. Government
to purchase the agency's obligations; still others, such as those of the Federal
Home Loan Mortgage Corporation, are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored instrumentalities if it
is not obligated to do so by law. Some of these instruments may be variable or
floating rate instruments.
Bank obligations include bankers' acceptances, negotiable certificates of
deposit and non-negotiable time deposits issued for a definite period of time
and earning a specified return by a U.S. bank which is a member of the Federal
Reserve System or is insured by the Federal Deposit Insurance Corporation
("FDIC"), or by a savings and loan association or savings bank which is insured
by the FDIC. With respect to each Fund other than the Growth and Income and
Small Cap Value Funds, bank obligations also include U.S. dollar-denominated
obligations of foreign branches of U.S. banks or of U.S. branches of foreign
banks, all of the same type as domestic bank obligations. Investments in bank
obligations are limited to the obligations of financial institutions having more
than $1 billion in total assets at the time of purchase. Time deposits with a
maturity longer than seven days or that do not provide for payment within seven
days after notice will be limited to 10% (15% with respect to the Strategic
Equity Fund, Growth and Income Fund and Small Cap Value Fund) of a Fund's net
assets. Investments by the Funds in non-negotiable time deposits are limited to
no more than 5% of each Fund's total assets at the time of purchase.
Domestic and foreign banks are subject to extensive but different
government regulation which may limit the amount and types of their loans and
the interest rates that may be charged. In addition, the profitability of the
banking industry is largely dependent upon the availability and cost of funds to
finance lending operations and the quality of underlying bank assets.
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 a Fund to investment risks similar to
those accompanying direct investments in foreign securities. See "Special Risk
Considerations -- Foreign Securities." The Funds will invest in the obligations
of U.S. branches of foreign banks or foreign branches of U.S. banks only when
Fleet and/or Oechsle believe that the credit risk with respect to the instrument
is minimal.
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Commercial paper may include variable and floating rate instruments which
are unsecured instruments that permit the indebtedness thereunder to vary.
Variable rate instruments provide for periodic adjustments in the interest rate.
Floating rate instruments provide for automatic adjustment of the interest rate
whenever some other specified interest rate changes. Some variable and floating
rate obligations are direct lending arrangements between the purchaser and the
issuer and there may be no active secondary market. However, in the case of
variable and floating rate obligations with a demand feature, a Fund may demand
payment of principal and accrued interest at a time specified in the instrument
or may resell the instrument to a third party. In the event that an issuer of a
variable or floating rate obligation defaulted on its payment obligation, a Fund
might be unable to dispose of the note because of the absence of a secondary
market and could, for this or other reasons, suffer a loss to the extent of the
default. The Funds may also purchase Rule 144A securities. See "Investment
Limitations" below.
VARIABLE AND FLOATING RATE OBLIGATIONS
The Funds may purchase variable and floating rate instruments in
accordance with their investment objectives and policies as described in the
Prospectuses and this Statement of Additional Information. If such an instrument
is not rated, Fleet or Oechsle, must determine that such instrument is
comparable to rated instruments eligible for purchase by the Funds and will
consider the earning power, cash flows and other liquidity ratios of the issuers
and guarantors of such instruments and will continuously monitor their financial
status in order to meet payment on demand.
In determining average weighted portfolio maturity an instrument will
usually be deemed to have a maturity equal to the longer of the period
remaining until the next regularly scheduled interest rate adjustment or the
time the Fund involved can receive payment of principal as specified in the
instrument. Instruments which are U.S. Government obligation and certain
variable rate instruments having a nominal maturity of 397 days or less when
purchased by the Fund involved, however, will be deemed to have a maturity
equal to the period remaining until the next interest rate adjustment.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
Each Fund may purchase portfolio securities subject to the seller's
agreement to repurchase them at a mutually specified date and price ("repurchase
agreements"). Repurchase agreements will be entered into only with financial
institutions such as banks and broker/dealers which are deemed to be
creditworthy by Fleet and/or Oechsle. No Fund will enter into repurchase
agreements with Fleet or Oechsle or any of their affiliates. Unless a repurchase
agreement has a remaining maturity of seven days or less or may be terminated on
demand upon notice of seven days or less, the repurchase agreement will be
considered an illiquid security and will be subject to the 10% limit (15% with
respect to the Strategic Equity Fund) described below in Investment Limitation
No. 3 under "Investment Limitations" with respect to the Asset Allocation,
Equity Income, Strategic Equity, Equity Value, Equity Growth, International
Equity and Small Company Equity Funds, and to the 15% limit described below in
Investment Limitation No. 23 under "Investment Limitations" with respect to the
Growth and Income and Small Cap Value Funds.
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<PAGE>
The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by a Fund at
not less than the agreed upon repurchase price. If the seller defaulted on its
repurchase obligation, the Fund holding such obligation would suffer a loss to
the extent that the proceeds from a sale of the underlying securities (including
accrued interest) were less than the repurchase price (including accrued
interest) under the agreement. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by the Fund
might be delayed pending court action.
The repurchase price under a repurchase agreement generally equals the
price paid by a Fund plus interest negotiated on the basis of current short-term
rates (which may be more or less than the rate on the securities underlying the
repurchase agreement). Securities subject to a repurchase 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 also borrow funds for temporary purposes by selling
portfolio securities to financial institutions such as banks and broker/dealers
and agreeing to repurchase them at a mutually specified date and price ("reverse
repurchase agreements"). Reverse repurchase agreements involve the risk that the
market value of the securities sold by a Fund may decline below the repurchase
price. The Funds would pay interest on amounts obtained pursuant to a reverse
repurchase agreement. Whenever a Fund enters into a reverse repurchase
agreement, it will place in a segregated custodial account liquid assets such as
cash or liquid portfolio securities equal to the repurchase price (including
accrued interest). The Fund will monitor the account to ensure such equivalent
value is maintained. Reverse repurchase agreements are considered to be
borrowings by a Fund under the 1940 Act.
SECURITIES LENDING
Each Fund may lend its portfolio securities to financial institutions
such as banks and broker/dealers in accordance with the investment limitations
described below. Such loans would involve risks of delay in receiving additional
collateral or in recovering the securities loaned or even loss of rights in the
collateral, should the borrower of the securities fail financially. Any
portfolio securities purchased with cash collateral would also be subject to
possible depreciation. A Fund that loans portfolio securities would continue to
accrue interest on the securities loaned and would also earn income on the
loans. Any cash collateral received by the Funds would be invested in high
quality, short-term "money market" instruments. Loans will generally be
short-term (except in the case of the Growth and Income and Small Cap Value
Funds which may loan their securities on a long-term or short-term basis or
both), will be made only to borrowers deemed by Fleet and/or Oechsle to be of
good standing and only when, in Fleet's and/or Oechsle's judgment, the income to
be earned from the loan justifies the attendant risks. The Funds currently
intend to limit the lending of their portfolio securities so that, at any given
time, securities loaned by a Fund represent not more than one-third of the value
of its total assets.
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INVESTMENT COMPANY SECURITIES
The Asset Allocation, Equity Income, Equity Value, Equity Growth,
International Equity and Small Company Equity Funds may invest in securities
issued by other investment companies which invest in high quality, short-term
debt securities and which determine their net asset value per share based on the
amortized cost or penny-rounding method. The International Equity Fund may also
purchase shares of investment companies investing primarily in foreign
securities, including so-called "country funds." Country funds have portfolios
consisting primarily of securities of issuers located in one foreign country.
The Growth and Income, Strategic Equity and Small Cap Value Funds may invest in
other investment companies primarily for the purpose of investing their
short-term cash which has not yet been invested in other portfolio instruments.
However, from time to time, on a temporary basis, the Growth and Income,
Strategic Equity and Small Cap Value Funds may invest exclusively in one other
investment company similar to the respective Funds. Investments in other
investment companies will cause a Fund (and, indirectly, the Fund's
shareholders) to bear proportionately the costs incurred in connection with the
investment companies' operations. Except as provided above with respect to the
Growth and Income, Strategic Equity and Small Cap Value Funds, securities of
other investment companies will be acquired by a Fund within the limits
prescribed by the 1940 Act. Each Fund currently intends to limit its investments
so that, as determined immediately after a securities purchase is made: (a) not
more than 5% of the value of its total assets will be invested in the securities
of any one investment company; (b) not more than 10% of the value of its total
assets will be invested in the aggregate in securities of other investment
companies as a group; (c) not more than 3% of the outstanding voting stock of
any one investment company will be owned by the Fund; and (d) not more than 10%
of the outstanding voting stock of any one closed-end investment company will be
owned in the aggregate by the Fund, other investment portfolios of Galaxy, or
any other investment companies advised by Fleet or Oechsle.
REITS
Each Fund may invest up to 10% of its net assets in real estate
investment trusts ("REITs"). Equity REITs invest directly in real property while
mortgage REITs invest in mortgages on real property. REITs may be subject to
certain risks associated with the direct ownership of real estate, including
declines in the value of real estate, risks related to general and local
economic conditions, overbuilding and increased competition, increases in
property taxes and operating expenses, and variations in rental income.
Generally, increases in interest rates will decrease the value of high yielding
securities and increase the costs of obtaining financing, which could decrease
the value of a REIT's investments. In addition, equity REITs may be affected by
changes in the value of the underlying property owned by the REITs, while
mortgage REITs may be affected by the quality of credit extended. Equity and
mortgage REITs are dependent upon management skill, are not diversified and are
subject to the risks of financing projects. REITs are also subject to heavy cash
flow dependency, defaults by borrowers, self liquidation and the possibility of
failing to qualify for tax-free pass-through of income under the Internal
Revenue Code of 1986, as amended (the "Code"), and to maintain exemption from
the 1940 Act. REITs pay dividends to their shareholders based upon available
funds from operations. It is quite common for these dividends to exceed a REIT's
taxable earnings and
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profits resulting in the excess portion of such dividends being designated as a
return of capital. Each Fund intends to include the gross dividends from any
investments in REITs in its periodic distributions to its shareholders and,
accordingly, a portion of the Fund's distributions may also be designated as a
return of capital.
DERIVATIVE SECURITIES
The Funds may from time to time, in accordance with their respective
investment policies, purchase certain "derivative" securities. Derivative
securities are instruments that derive their value from the performance of
underlying assets, interest or currency exchange rates, or indices, and include,
but are not limited to, put and call options, stock index futures and options,
indexed securities and swap agreements, foreign currency exchange contracts and
certain asset-backed and mortgage-backed securities.
Derivative securities present, to varying degrees, market risk that the
performance of the underlying assets, interest or exchange rates or indices will
decline; credit risk that the dealer or other counterparty to the transaction
will fail to pay its obligations; volatility and leveraging risk that, if
interest or exchange rates change adversely, the value of the derivative
security will decline more than the assets, rates or indices on which it is
based; liquidity risk that a Fund will be unable to sell a derivative security
when it wants because of lack of market depth or market disruption; pricing risk
that the value of a derivative security will not correlate exactly to the value
of the underlying assets, rates or indices on which it is based; and operations
risk that loss will occur as a result of inadequate systems and controls, human
error or otherwise. Some derivative securities are more complex than others, and
for those instruments that have been developed recently, data are lacking
regarding their actual performance over complete market cycles.
Fleet and/or Oechsle will evaluate the risks presented by the derivative
securities purchased by the Funds, and will determine, in connection with their
day-to-day management of the Funds, how such securities will be used in
furtherance of the Funds' investment objectives. It is possible, however, that
Fleet's and/or Oechsle's evaluations will prove to be inaccurate or incomplete
and, even when accurate and complete, it is possible that the Funds will,
because of the risks discussed above, incur loss as a result of their
investments in derivative securities. Further discussion of particular types of
derivative securities follows.
PUT AND CALL OPTIONS -- ASSET ALLOCATION, EQUITY INCOME, EQUITY GROWTH
AND SMALL COMPANY EQUITY FUNDS. The Asset Allocation, Equity Income, Equity
Growth and Small Company Equity Funds may purchase put options and call options
on securities and securities indices. A put option gives the buyer the right to
sell, and the writer the obligation to buy, the underlying security at the
stated exercise price at any time prior to the expiration of the option. A call
option gives the buyer the right to buy the underlying security at the stated
exercise price at any time prior to the expiration of the option. Options
involving securities indices provide the holder with the right to make or
receive a cash settlement upon exercise of the option based on movements in the
relevant index. Such options must be listed on a national securities exchange
and issued by the Options Clearing Corporation. Such options may relate to
particular securities
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or to various stock indexes, except that a Fund may not write covered call
options on an index. A Fund may not purchase options unless immediately after
any such transaction the aggregate amount of premiums paid for put or call
options does not exceed 5% of its total assets. Purchasing options is a
specialized investment technique that may entail the risk of a complete loss of
the amounts paid as premiums to the writer of the option.
In order to close out put or call option positions, a Fund will be
required to enter into a "closing purchase transaction" -- the purchase of a put
or call option (depending upon the position being closed out) on the same
security with the same exercise price and expiration date as the option that it
previously wrote. When a portfolio security subject to a call option is sold, a
Fund will effect a closing purchase transaction to close out any existing call
option on that security. If a Fund is unable to effect a closing purchase
transaction, it will not be able to sell the underlying security until the
option expires or a Fund delivers the underlying security upon exercise.
In contrast to an option on a particular security, an option on an index
provides the holder with the right to make or receive a cash settlement upon
exercise of the option. The amount of this settlement will be equal to the
difference between the closing price of the index at the time of exercise and
the exercise price of the option expressed in dollars, times a specified
multiple.
When a Fund purchases a put or call option, the premium paid by it is
recorded as an asset of the Fund. The amount of this asset will be subsequently
marked-to-market to reflect the current value of the option purchased. The
current value of the traded option is the last sale price or, in the absence of
a sale, the average of the closing bid and asked prices. If an option purchased
by a Fund expires unexercised, the Fund realizes a loss equal to the premium
paid. If a Fund enters into a closing sale transaction on an option purchased by
it, the Fund will realize a gain if the premium received by the Fund on the
closing transaction is more than the premium paid to purchase the option, or a
loss if it is less.
There are several risks associated with transactions in options on
securities. For example, there are significant differences between the
securities and options markets which could result in an imperfect correlation
between the markets, causing a given transaction not to achieve its objectives.
In addition, a liquid secondary market for particular options, whether traded
over-the-counter or on a national securities exchange may be absent for reasons
which include the following: there may be insufficient trading interest in
certain options; restrictions may be imposed by an exchange on opening
transactions, closing transactions or both; trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options or underlying securities; unusual or unforeseen circumstances may
interrupt normal operations on an exchange; the facilities of an exchange or the
Options Clearing Corporation may not at all times be adequate to handle current
trading volume; or one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of options
(or a particular class or series of options), in which event the secondary
market on that exchange (or in that class or series of options) would cease to
exist, although outstanding options that had been issued by the Options Clearing
Corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms. A Fund
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will likely be unable to control losses by closing its position where a liquid
secondary market does not exist. Moreover, regardless of how much the market
price of the underlying security increases or decreases, the option buyer's risk
is limited to the amount of the original investment for the purchase of the
option. However, options may be more volatile than their underlying securities,
and therefore, on a percentage basis, an investment in options may be subject to
greater fluctuation than an investment in the underlying securities.
A decision as to whether, when and how to use options involves the
exercise of skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or unexpected events.
COVERED CALL OPTIONS -- ASSET ALLOCATION, EQUITY INCOME, EQUITY VALUE,
EQUITY GROWTH, INTERNATIONAL EQUITY AND SMALL COMPANY EQUITY FUNDS. To further
increase return on their portfolio securities, in accordance with their
respective investment objectives and policies, the Asset Allocation, Equity
Income, Equity Value, Equity Growth, International Equity and Small Company
Equity Funds may engage in writing covered call options (options on securities
owned by a Fund) and may enter into closing purchase transactions with respect
to such options. Such options must be listed on a national securities exchange
and issued by the Options Clearing Corporation. The aggregate value of the
securities subject to options written by the Asset Allocation, Equity Income,
Equity Value, Equity Growth, International Equity and Small Company Equity Funds
may not exceed 25% of the value of their respective net assets. By writing a
covered call option, a Fund forgoes the opportunity to profit from an increase
in the market price of the underlying security above the exercise price, except
insofar as the premium represents such a profit. A Fund will not be able to sell
the underlying security until the option expires or is exercised or the Fund
effects a closing purchase transaction by purchasing an option of the same
series. Such options will normally be written on underlying securities as to
which Fleet and/or Oechsle does not anticipate significant short-term capital
appreciation.
The Funds may write listed covered call options. A listed call option
gives the purchaser of the option the right to buy from a clearing corporation,
and obligates the writer to sell to the clearing corporation, the underlying
security at the stated exercise price at any time prior to the expiration of the
option, regardless of the market price of the security. The premium paid to the
writer is consideration for undertaking the obligations under the option
contract. If an option expires unexercised, the writer realizes a gain in the
amount of the premium. Such a gain may be offset by a decline in the market
price of the underlying security during the option period.
A Fund may terminate its obligation to sell prior to the expiration
date of the option by executing a closing purchase transaction, which is
effected by purchasing on an exchange an option of the same series (I.E.,
same underlying security, exercise price and expiration date) as the option
previously written. Such a purchase does not result in the ownership of an
option. A closing purchase transaction will ordinarily be effected to realize
a profit on an outstanding call option, to prevent an underlying security
from being called, to permit the sale of the underlying security or to permit
the writing of a new call option containing different terms on such
underlying security. The cost of such a liquidating purchase plus transaction
costs may be greater than the premium received upon the original option, in
which event the writer will have
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incurred a loss in the transaction. An option position may be closed out only on
an exchange that provides a secondary market for an option of the same series.
There is no assurance that a liquid secondary market on an exchange will exist
for any particular option. A covered option writer, unable to effect a closing
purchase transaction, will not be able to sell the underlying security until the
option expires or the underlying security is delivered upon exercise. The writer
in such circumstances will be subject to the risk of market decline of the
underlying security during such period. A Fund will write an option on a
particular security only if Fleet and/or Oechsle believes that a liquid
secondary market will exist on an exchange for options of the same series, which
will permit the Fund to make a closing purchase transaction in order to close
out its position.
When a Fund writes an option, an amount equal to the net premium (the
premium less the commission) received by the Fund is included as a deferred
credit in the liability section of the Fund's statement of assets and
liabilities. The amount of the deferred credit will be subsequently
marked-to-market to reflect the current value of the option written. The current
value of the traded option is the last sale price or, in the absence of a sale
price, the average of the closing bid and asked prices. If an option expires on
the stipulated expiration date or if a Fund enters into a closing purchase
transaction, it will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the net premium received when the option is sold), and the
deferred credit related to such option will be eliminated. If an option is
exercised, the Fund may deliver the underlying security from its portfolio and
purchase the underlying security in the open market. In either event, the
proceeds of the sale will be increased by the net premium originally received,
and the Fund will realize a gain or loss. Premiums from expired call options
written by a Fund and net gains from closing purchase transactions are treated
as short-term capital gains for federal income tax purposes, and losses on
closing purchase transactions are treated as short-term capital losses.
OPTIONS ON FOREIGN STOCK INDEXES -- INTERNATIONAL EQUITY FUND. The
International Equity Fund may, for the purpose of hedging its portfolio, subject
to applicable securities regulations purchase and write put and call options on
foreign stock indexes listed on foreign and domestic stock exchanges. A stock
index fluctuates with changes in the market values of the stocks included in the
index. Examples of foreign stock indexes are the Canadian Market Portfolio Index
(Montreal Stock Exchange), The Financial Times -- Stock Exchange 100 (London
Stock Exchange) and the Toronto Stock Exchange Composite 300 (Toronto Stock
Exchange).
Options on stock indexes are generally similar to options on stock except
that the delivery requirements are different. Instead of giving the right to
take or make delivery of stock at a specified price, an option on a stock index
gives the holder the right to receive a cash "exercise settlement amount" equal
to (a) the amount, if any, by which the fixed exercise price of the option
exceeds (in the case of a put) or is less than (in the case of a call) the
closing value of the underlying index on the date of exercise, multiplied by (b)
a fixed "index multiplier." Receipt of this cash amount will depend upon the
closing level of the stock index upon which the option is based being greater
than, in the case of a call, or less than, in the case of a put, the exercise
price of the option. The writer of the option is obligated, in return for the
premium received, to make delivery of this amount. The writer may offset its
position in stock index options prior to
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expiration by entering into a closing transaction on an exchange or the option
may expire unexercised.
The effectiveness of purchasing or writing stock index options as a
hedging technique will depend upon the extent to which price movements in the
portion of the securities portfolio of the International Equity Fund correlate
with price movements of the stock index selected. Because the value of an index
option depends upon movements in the level of the index rather than the price of
a particular stock, whether the Fund realizes a gain or loss from the purchase
or writing of options on an index is dependent upon movements in the level of
stock prices in the stock market generally or, in the case of certain indexes,
in an industry or market segment, rather than movements in the price of a
particular stock. Accordingly, successful use by the Fund of options on stock
indexes will be subject to Fleet's and/or Oechsle's ability to predict correctly
movements in the direction of the stock market generally or of a particular
industry. This requires different skills and techniques than predicting changes
in the price of individual stocks. There can be no assurance that such judgment
will be accurate or that the use of these portfolio strategies will be
successful. The Fund will engage in stock index options transactions that are
determined to be consistent with its efforts to control risk.
When the Fund writes an option on a stock index, the Fund will establish
a segregated account with its custodian or with a foreign sub-custodian in which
the Fund will deposit cash or other liquid assets in an amount equal to the
market value of the option, and will maintain the account while the option is
open.
OPTIONS AND FUTURES CONTRACTS - GROWTH AND INCOME, STRATEGIC EQUITY AND
SMALL CAP VALUE FUNDS. The Growth and Income, Strategic Equity and Small Cap
Value Funds may buy and sell options and futures contracts to manage their
exposure to changing interest rates, security prices and currency exchange
rates. The Funds may invest in options and futures based on any type of
security, index, or currency, including options and futures based on foreign
exchanges (see "Options on Foreign Stock Indexes -- International Equity Fund"
above) and options not traded on exchanges. Some options and futures strategies,
including selling futures, buying puts, and writing calls, tend to hedge a
Fund's investments against price fluctuations. Other strategies, including
buying futures, writing puts, and buying calls, tend to increase market
exposure. Options and futures may be combined with each other or with forward
contracts in order to adjust the risk and return characteristics of the overall
strategy.
Options and futures can be volatile investments, and involve certain
risks. If Fleet applies a hedge at an inappropriate time or judges market
conditions incorrectly, options and futures may lower a Fund's individual
return. A Fund could also experience losses if the prices of its options and
futures positions were poorly correlated with its other investments, or if it
could not close out its positions because of an illiquid secondary market.
The Funds will not hedge more than 20% of their respective total assets
by selling futures, buying puts, and writing calls under normal conditions. The
Funds will not buy futures or write puts whose underlying value exceeds 20% of
their respective total assets, and will not buy calls with a value exceeding 5%
of their respective total assets.
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STOCK INDEX FUTURES, SWAP AGREEMENTS, INDEXED SECURITIES AND OPTIONS -
GROWTH AND INCOME, STRATEGIC EQUITY AND SMALL CAP VALUE FUNDS. The Growth and
Income, Strategic Equity and Small Cap Value Funds may utilize stock index
futures contracts, options, swap agreements, indexed securities, and options on
futures contracts for the purposes of managing cash flows into and out of their
respective portfolios and potentially reducing transaction costs, subject to the
limitation that the value of these futures contracts, swap agreements, indexed
securities, and options will not exceed 20% of the Funds' respective total
assets. The Funds will not purchase options to the extent that more than 5% of
the value of their respective total assets would be invested in premiums on open
put option positions. In addition, the Funds do not intend to invest more than
5% of the market value of their respective total assets in each of the
following: futures contracts, swap agreements, and indexed securities. When a
Fund enters into a swap agreement, liquid assets of the Fund equal to the value
of the swap agreement will be segregated by that Fund. The Funds may not use
stock index futures contracts and options for speculative purposes.
There are several risks accompanying the utilization of futures
contracts. Positions in futures contracts may be closed only on an exchange or
board of trade that furnishes a secondary market for such contracts. While the
Funds plan to utilize futures contracts only if there exists an active market
for such contracts, there is no guarantee that a liquid market will exist for
the contracts at a specified time. Furthermore, because by definition, futures
contracts look to projected price levels in the future and not to current levels
of valuation, market circumstances may result in there being a discrepancy
between the price of the stock index future and the movement in the
corresponding stock index. The absence of a perfect price correlation between
the futures contract and its underlying stock index could stem from investors
choosing to close futures contracts by offsetting transactions, rather than
satisfying additional margin requirements. This could result in a distortion of
the relationship between the index and the futures market. In addition, because
the futures market imposes less burdensome margin requirements than the
securities market, an increased amount of participation by speculators in the
futures market could result in price fluctuations.
As a means of reducing fluctuations in the net asset value of shares of
the Funds, the Funds may attempt to hedge all or a portion of their respective
portfolios through the purchase of listed put options on stocks, stock indices
and stock index futures contracts. These options will be used as a form of
forward pricing to protect portfolio securities against decreases in value
resulting from market factors, such as an anticipated increase in interest
rates. A purchased put option gives a Fund, in return for a premium, the right
to sell the underlying security to the writer (seller) at a specified price
during the term of the option. Put options on stock indices are similar to put
options on stocks except for the delivery requirements. Instead of giving a Fund
the right to make delivery of stock at a specified price, a put option on a
stock index gives the Fund, as holder, the right to receive an amount of cash
upon exercise of the option.
The Funds may also write covered call options. As the writer of a call
option, a Fund has the obligation upon exercise of the option during the option
period to deliver the underlying security upon payment of the exercise price.
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The Funds may only: (1) buy listed put options on stock indices and stock
index futures contracts; (2) buy listed put options on securities held in their
respective portfolios; and (3) sell listed call options either on securities
held in their respective portfolios or on securities which they have the right
to obtain without payment of further consideration (or have segregated cash in
the amount of any such additional consideration). A Fund will maintain its
positions in securities, option rights, and segregated cash subject to puts and
calls until the options are exercised, closed or expired. A Fund may also enter
into stock index futures contracts. A stock index futures contract is a
bilateral agreement which obligates the seller to deliver (and the purchaser to
take delivery of) an amount of cash equal to a specific dollar amount times the
difference between the value of a specific stock index at the close of trading
of the contract and the price at which the agreement is originally made. There
is no physical delivery of the stocks constituting the index, and no price is
paid upon entering into a futures contract.
In general, option contracts are closed out prior to their expiration. A
Fund, when purchasing or selling a futures contract, will initially be required
to deposit in a segregated account in the broker's name with the Fund's
custodian an amount of cash or liquid portfolio securities approximately equal
to 5% - 10% of the contract value. This amount is known as "initial margin," and
it is subject to change by the exchange or board of trade on which the contract
is traded. Subsequent payments to and from the broker are made on a daily basis
as the price of the index or the securities underlying the futures contract
fluctuates. These payments are known as "variation margins," and the fluctuation
in value of the long and short positions in the futures contract is a process
referred to as "marking to market." A Fund may decide to close its position on a
contract at any time prior to the contract's expiration. This is accomplished by
the Fund taking an opposite position at the then prevailing price, thereby
terminating its existing position in the contract. Because the initial margin
resembles a performance bond or good-faith deposit on the contract, it is
returned to the Fund upon the termination of the contract, assuming that all
contractual obligations have been satisfied. Therefore, the margin utilized in
futures contracts is readily distinguishable from the margin employed in
security transactions, since the margin employed in futures contracts does not
involve the borrowing of funds to finance the transaction.
None of the Growth and Income, Strategic Equity or Small Cap Value Funds
will enter into futures contracts if, immediately thereafter, the sum of its
initial margin deposits on open contracts exceed 5% of the market value of its
total assets. Further, a Fund will enter into stock index futures contracts only
for bona fide hedging purposes or such other purposes permitted under Part 4 of
the regulations promulgated by the Commodity Futures Trading Commission. Also, a
Fund may not enter into stock index futures contracts and options to the extent
that the value of such contracts would exceed 20% of the Fund's total net assets
and may not purchase put options to the extent that more than 5% of the value of
the Fund's total assets would be invested in premiums on open put option
positions.
The Growth and Income, Strategic Equity and Small Cap Value Funds may
invest in indexed securities whose value is linked to foreign currencies,
interest rates, commodities, indices or other financial indicators. Most indexed
securities are short- to intermediate-term
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fixed income securities whose values at maturity or interest rates rise or fall
according to the change in one or more specified underlying instruments. Indexed
securities may be positively or negatively indexed (i.e., their value may
increase or decrease if the underlying instrument appreciates), and may have
return characteristics similar to direct investments in the underlying
instrument or to one or more options on the underlying instrument. Indexed
securities may be more volatile than the underlying instrument itself.
As one way of managing their exposure to different types of investments,
the Growth and Income, Strategic Equity and Small Cap Value Funds may enter into
interest rate swaps, currency swaps, and other types of swap agreements such as
caps, collars, and floors. In a typical interest rate swap, one party agrees to
make regular payments equal to a floating interest rate times a "notional
principal amount," in return for payments equal to a fixed rate times the same
amount, for a specified period of time. If a swap agreement provides for
payments in different currencies, the parties might agree to exchange notional
principal amount as well. Swaps may also depend on other prices or rates, such
as the value of an index or mortgage prepayment rates.
In a typical cap or floor agreement, one party agrees to make payments
only under specified circumstances, usually in return for payment of a fee by
the other party. For example, the buyer of an interest rate cap obtains the
right to receive payments to the extent that a specified interest rate exceeds
an agreed upon level, while the seller of an interest rate floor is obligated to
make payments to the extent that a specified interest rate falls below an agreed
upon level. An interest rate collar combines elements of buying a cap and
selling a floor.
Swap agreements will tend to shift a Fund's investment exposure from one
type of investment to another. For example, if a Fund agreed to exchange
payments in dollars for payments in foreign currency, the swap agreement would
tend to decrease the Fund's exposure to U.S. interest rates and increase its
exposure to foreign currency and interest rates. Caps and floors have an effect
similar to buying or writing options. Depending on how they are used, swap
agreements may increase or decrease the overall volatility of a Fund's
investments and its share price and yield.
Swap agreements are sophisticated hedging instruments that typically
involve a small investment of cash relative to the magnitude of risks assumed.
As a result, swaps can be highly volatile and may have a considerable impact on
the Funds' performance. Swap agreements are subject to risks related to the
counterparty's ability to perform, and may decline in value if the
counterparty's creditworthiness deteriorates. The Funds may also suffer losses
if they are unable to terminate outstanding swap agreements or reduce their
exposure through offsetting transactions.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Because each Fund may buy and
sell securities denominated in currencies other than the U.S. dollar, and may
receive interest, dividends and sale proceeds in currencies other than the U.S.
dollar, the Funds from time to time may enter into foreign currency exchange
transactions to convert the U.S. dollar to foreign currencies, to convert
foreign currencies to the U.S. dollar and to convert foreign currencies to
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other foreign currencies. A Fund either enters into these transactions on a spot
(I.E., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or uses forward contracts to purchase or sell foreign currencies.
Forward foreign currency exchange contracts are agreements to exchange one
currency for another -- for example, to exchange a certain amount of U.S.
dollars for a certain amount of Japanese yen -- at a future date, which may be
any fixed number of days from the date of the contract, and at a specified
price. Typically, the other party to a currency exchange contract will be a
commercial bank or other financial institution.
Forward foreign currency exchange contracts also allow a Fund to hedge
the currency risk of portfolio securities denominated in a foreign currency.
This technique permits the assessment of the merits of a security to be
considered separately from the currency risk. By separating the asset and the
currency decision, it is possible to focus on the opportunities presented by the
security apart from the currency risk. Although forward foreign currency
exchange contracts are of short duration, generally between one and twelve
months, such contracts are rolled over in a manner consistent with a more
long-term currency decision. Because there is a risk of loss to a Fund if the
other party does not complete the transaction, forward foreign currency exchange
contracts will be entered into only with parties approved by Galaxy's Board of
Trustees.
A Fund may maintain "short" positions in forward foreign currency
exchange transactions, which would involve the Fund's agreeing to exchange
currency that it currently does not own for another currency -- for example, to
exchange an amount of Japanese yen that it does not own for a certain amount of
U.S. dollars -- at a future date and at a specified price in anticipation of a
decline in the value of the currency sold short relative to the currency that
the Fund has contracted to receive in the exchange. In order to ensure that the
short position is not used to achieve leverage with respect to the Fund's
investments, the Fund will establish with its custodian a segregated account
consisting of cash or other liquid assets equal in value to the fluctuating
market value of the currency as to which the short position is being maintained.
The value of the securities in the segregated account will be adjusted at least
daily to reflect changes in the market value of the short position.
Forward foreign currency exchange contracts establish an exchange rate at
a future date. These contracts are transferable in the interbank market
conducted directly between currency traders (usually large commercial banks) and
their customers. A forward foreign currency exchange contract generally has no
deposit requirement and is traded at a net price without commission. Neither
spot transactions nor forward foreign currency exchange contracts eliminate
fluctuations in the prices of a Fund's portfolio securities or in foreign
exchange rates, or prevent loss if the prices of these securities should
decline.
The Funds may enter into foreign currency hedging transactions in an
attempt to protect against changes in foreign currency exchange rates between
the trade and settlement dates of specific securities transactions or changes in
foreign currency exchange rates that would adversely affect a portfolio position
or an anticipated portfolio position. Since consideration of the prospect for
currency parities will be incorporated into a Fund's long-term investment
decisions, the Funds will not routinely enter into foreign currency hedging
transactions with
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respect to portfolio security transactions; however, it is important to have the
flexibility to enter into foreign currency hedging transactions when it is
determined that the transactions would be in the Fund's best interest. Although
these transactions tend to minimize the risk of loss due to a decline in the
value of the hedged currency, at the same time they tend to limit any potential
gain that might be realized should the value of the hedged currency increase.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible because the future value of
these securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. The projection of currency market
movements is extremely difficult, and the successful execution of a hedging
strategy is highly uncertain.
AMERICAN, EUROPEAN AND GLOBAL DEPOSITORY RECEIPTS
Each Fund may invest in ADRs and EDRs. The Growth and Income, Strategic
Equity, International Equity and Small Cap Value Funds may also invest in GDRs.
ADRs are receipts issued in registered form by a U.S. bank or trust company
evidencing ownership of underlying securities issued by a foreign issuer. EDRs
are receipts issued in Europe typically by non-U.S. banks or trust companies and
foreign branches of U.S. banks that evidence ownership of foreign or U.S.
securities. GDRs are receipts structured similarly to EDRs and are marketed
globally. ADRs may be listed on a national securities exchange or may be traded
in the over-the-counter market. EDRs are designed for use in European exchange
and over-the-counter markets. GDRs are designed for trading in non-U.S.
securities markets. ADRs, EDRs and GDRs traded in the over-the-counter market
which do not have an active or substantial secondary market will be considered
illiquid and therefore will be subject to the Funds' respective limitations with
respect to such securities. If a Fund invests in an unsponsored ADR, EDR or GDR,
there may be less information available to the Fund concerning the issuer of the
securities underlying the unsponsored ADR, EDR or GDR than is available for an
issuer of securities underlying a sponsored ADR, EDR or GDR. ADR prices are
denominated in U.S. dollars although the underlying securities are denominated
in a foreign currency. Investments in ADRs, EDRs and GDRs involve risks similar
to those accompanying direct investments in foreign securities. Certain of these
risks are described above under "Special Risk Considerations -- Foreign
Securities."
ASSET-BACKED SECURITIES -- ASSET ALLOCATION FUND
The Asset Allocation Fund may purchase asset-backed securities, which
represent a participation in, or are secured by and payable from, a stream of
payments generated by particular assets, most often a pool of assets similar to
one another. Assets generating such payments will consist of such instruments as
motor vehicle installment purchase obligations, credit card receivables and home
equity loans. Payment of principal and interest may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution unaffiliated with entities issuing the securities. The
estimated life of an asset-backed security varies with the prepayment experience
with respect to the underlying debt instruments. The rate of such prepayments,
and hence the life of the asset-backed security, will
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be primarily a function of current market rates, although other economic and
demographic factors will be involved.
Asset-backed securities are generally issued as pass-through
certificates, which represent undivided fractional ownership interests in an
underlying pool of assets, or as debt instruments, which are also known as
collateralized obligations, and are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt. Asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties.
The yield characteristics of asset-backed securities differ from
traditional debt securities. A major difference is that the principal amount of
the obligations may be prepaid at any time because the underlying assets (i.e.,
loans) generally may be prepaid at any time. As a result, if an asset-backed
security is purchased at a premium, a prepayment rate that is faster than
expected will reduce yield to maturity, while a prepayment rate that is slower
than expected will have the opposite effect of increasing yield to maturity.
Conversely, if an asset-backed security is purchased at a discount, faster than
expected prepayments will increase, while slower than expected prepayments, will
decrease, yield to maturity.
Prepayments on asset-backed securities generally increase with falling
interest rates and decrease with rising interest rates; furthermore prepayment
rates are influenced by a variety of economic and social factors. In general,
the collateral supporting non-mortgage asset-backed securities is of shorter
maturity than mortgage loans and is less likely to experience substantial
prepayments. Like other fixed income securities, when interest rates rise, the
value of an asset-backed security generally will decline; however, when interest
rates decline, the value of an asset-backed security with prepayment features
may not increase as much as that of other fixed income securities.
Asset-backed securities are subject to greater risk of default during
periods of economic downturn. Also, the secondary market for certain
asset-backed securities may not be as liquid as the market for other types of
securities, which could result in a Fund's experiencing difficulty in valuing or
liquidating such securities. For these reasons, under certain circumstances,
asset-backed securities may be considered illiquid securities.
MORTGAGE-BACKED SECURITIES -- ASSET ALLOCATION FUND
The Asset Allocation Fund may invest in mortgage-backed securities
(including collateralized mortgage obligations) that represent pools of mortgage
loans assembled for sale to investors by various governmental agencies and
government-related organizations, such as the Government National Mortgage
Association, the Federal National Mortgage Association, and the Federal Home
Loan Mortgage Corporation. Mortgage-backed securities provide a monthly payment
consisting of interest and principal payments. Additional payment may be made
out of unscheduled repayments of principal resulting from the sale of the
underlying residential property, refinancing or foreclosure, net of fees or
costs that may be incurred. Prepayments of principal on mortgage-backed
securities may tend to increase due to refinancing of mortgages as
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interest rates decline. To the extent that the Fund purchases mortgage-backed
securities at a premium, mortgage foreclosures and prepayments of principal by
mortgagors (which may be made at any time without penalty) may result in some
loss of the Fund's principal investment to the extent of the premium paid. The
yield of the Fund, should it invest in mortgage-backed securities, may be
affected by reinvestment of prepayments at higher or lower rates than the
original investment.
Other mortgage-backed securities are issued by private issuers, generally
originators of and investors in mortgage loans, including savings associations,
mortgage bankers, commercial banks, investment bankers, and special purpose
entities. These private mortgage-backed securities may be supported by U.S.
Government mortgage-backed securities or some form of non-government credit
enhancement. Mortgage-backed securities have either fixed or adjustable interest
rates. The rate of return on mortgage-backed securities may be affected by
prepayments of principal on the underlying loans, which generally increase as
interest rates decline; as a result, when interest rates decline, holders of
these securities normally do not benefit from appreciation in market value to
the same extent as holders of other non-callable debt securities. In addition,
like other debt securities, the value of mortgage-related securities, including
government and government-related mortgage pools, generally will fluctuate in
response to market interest rates.
MORTGAGE DOLLAR ROLLS -- ASSET ALLOCATION FUND
The Asset Allocation Fund may enter into mortgage "dollar rolls" in which
the Fund sells securities for delivery in the current month and simultaneously
contracts with the same counterparty to repurchase similar (same type, coupon
and maturity) but not identical securities on a specified future date not
exceeding 120 days. During the roll period, the Fund loses the right to receive
principal and interest paid on the securities sold. However, the Fund would
benefit to the extent of any difference between the price received for the
securities sold and the lower forward price for the future purchase (often
referred to as the "drop") or fee income plus the interest earned on the cash
proceeds of the securities sold until the settlement date of the forward
purchase. Unless such benefits exceed the income, capital appreciation and gain
or loss due to mortgage prepayments that would have been realized on the
securities sold as part of the mortgage dollar roll, the use of this technique
will diminish the investment performance of the Fund compared with what such
performance would have been without the use of mortgage dollar rolls. All cash
proceeds will be invested in instruments that are permissible investments for
the Fund. The Fund will hold and maintain in a segregated account until the
settlement date cash or other liquid assets in an amount equal to the forward
purchase price.
For financial reporting and tax purposes, the Fund proposes to treat
mortgage dollar rolls as two separate transactions; one involving the purchase
of a security and a separate transaction involving a sale. The Fund does not
currently intend to enter into mortgage dollar rolls that are accounted for as a
financing.
Mortgage dollar rolls involve certain risks. If the broker-dealer to whom
the Fund sells the security becomes insolvent, the Fund's right to purchase or
repurchase the mortgage-related
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securities may be restricted and the instrument which the Fund is required to
repurchase may be worth less than the instrument which the Fund originally held.
Successful use of mortgage dollar rolls may depend upon Fleet's ability to
predict correctly interest rates and mortgage prepayments. For these reasons,
there is no assurance that mortgage dollar rolls can be successfully employed.
CONVERTIBLE SECURITIES
The Funds may from time to time, in accordance with their respective
investment policies, invest in convertible securities. Convertible securities
are fixed income securities which may be exchanged or converted into a
predetermined number of shares of the issuer's underlying common stock at the
option of the holder during a specified time period. Convertible securities may
take the form of convertible preferred stock, convertible bonds or debentures,
units consisting of "usable" bonds and warrants or a combination of the features
of several of these securities.
Convertible bonds and convertible preferred stocks generally retain the
investment characteristics of fixed income securities until they have been
converted but also react to movements in the underlying equity securities. The
holder is entitled to receive the fixed income of a bond or the dividend
preference of a preferred stock until the holder elects to exercise the
conversion privilege. Usable bonds are corporate bonds that can be used in whole
or in part, customarily at full face value, in lieu of cash to purchase the
issuer's common stock. When owned as part of a unit along with warrants, which
are options to buy the common stock, they function as convertible bonds, except
that the warrants generally will expire before the bond's maturity. Convertible
securities are senior to equity securities and therefore have a claim to the
assets of the issuer prior to the holders of common stock in the case of
liquidation. However, convertible securities are generally subordinated to
similar non-convertible securities of the same issuer. The interest income and
dividends from convertible bonds and preferred stocks provide a stable stream of
income with generally higher yields than common stocks, but lower than
non-convertible securities of similar quality. A Fund will exchange or convert
the convertible securities held in its portfolio into shares of the underlying
common stock in instances in which, in Fleet's and/or Oechsle's opinion, the
investment characteristics of the underlying common shares will assist the Fund
in achieving its investment objective. Otherwise, a Fund will hold or trade the
convertible securities. In selecting convertible securities for a Fund, Fleet
evaluates the investment characteristics of the convertible security as a fixed
income instrument, and the investment potential of the underlying equity
security for capital appreciation. In evaluating these matters with respect to a
particular convertible security, Fleet considers numerous factors, including the
economic and political outlook, the value of the security relative to other
investment alternatives, trends in the determinants of the issuer's profits, and
the issuer's management capability and practices.
The Growth and Income and Small Cap Value Funds may invest in convertible
bonds rated "BB" or higher by S&P or Fitch IBCA, or "Ba" or higher by Moody's at
the time of investment. Securities rated "BB" by S&P or Fitch IBCA or "Ba" by
Moody's provide questionable protection of principal and interest in that such
securities either have speculative
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characteristics or are predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation.
Debt obligations that are not rated, or not determined to be, investment grade
are high-yield, high-risk bonds, typically subject to greater market
fluctuations, and securities in the lowest rating category may be in danger of
loss of income and principal due to an issuer's default. To a greater extent
than investment grade bonds, the value of lower-rated bonds tends to reflect
short-term corporate, economic, and market developments, as well as investor
perceptions of the issuer's credit quality. In addition, lower-rated bonds may
be more difficult to dispose of or to value than higher-rated, lower-yielding
bonds. Fleet will attempt to reduce the risks described above through
diversification of each Fund's portfolio and by credit analysis of each issuer,
as well as by monitoring broad economic trends and corporate and legislative
developments. If a convertible bond is rated below "BB" or "Ba" after a Fund has
purchased it, the Fund is not required to eliminate the convertible bond from
its portfolio, but will consider appropriate action. The investment
characteristics of each convertible security vary widely, which allows
convertible securities to be employed for different investment objectives. The
Funds do not intend to invest in such lower-rated bonds during the current
fiscal year. A description of the rating categories of S&P, Moody's and Fitch
IBCA is contained in Appendix A to this Statement of Additional Information.
WHEN-ISSUED AND DELAYED SETTLEMENT TRANSACTIONS - GROWTH AND INCOME, STRATEGIC
EQUITY, INTERNATIONAL EQUITY AND SMALL CAP VALUE FUNDS
The Growth and Income, Strategic Equity, International Equity and Small
Cap Value Funds may purchase eligible securities on a "when-issued" basis. The
Growth and Income, Strategic Equity and Small Cap Value Funds may also purchase
eligible securities on a "delayed settlement" basis. When-issued transactions,
which involve a commitment by a Fund to purchase or sell particular securities
with payment and delivery taking place at a future date (perhaps one or two
months later), permit the Fund to lock in a price or yield on a security it owns
or intends to purchase, regardless of future changes in interest rates. Delayed
settlement describes settlement of a securities transaction in the secondary
market which will occur sometime in the future. When-issued and delayed
settlement transactions involve the risk, however, that the yield or price
obtained in a transaction may be less favorable than the yield or price
available in the market when the securities delivery takes place.
A Fund may dispose of a commitment prior to settlement if Fleet or
Oechsle, as the case may be, deems it appropriate to do so. In addition, a Fund
may enter into transactions to sell its purchase commitments to third parties at
current market values and simultaneously acquire other commitments to purchase
similar securities at later dates. The Funds may realize short-term profits or
losses upon the sale of such commitments.
When a Fund agrees to purchase securities on a "when-issued" or "delayed
settlement" basis, the Fund's custodian will set aside cash or liquid portfolio
securities equal to the amount of the commitment in a separate account. In the
event of a decline in the value of the securities that the custodian has set
aside, the Fund may be required to place additional assets in the separate
account in order to ensure that the value of the account remains equal to the
amount of the Fund's
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commitment. A Fund's net assets may fluctuate to a greater degree if it sets
aside portfolio securities to cover such purchase commitments than if it sets
aside cash.
When a Fund engages in when-issued or delayed settlement transactions, it
relies on the seller to consummate the trade. Failure of the seller to do so may
result in the Fund's incurring a loss or missing an opportunity to obtain a
price considered to be advantageous for a security. For purposes of determining
the average weighted maturity of a Fund's portfolio, the maturity of when-issued
securities is calculated from the date of settlement of the purchase to the
maturity date.
RESTRICTED AND ILLIQUID SECURITIES
Each Fund may invest in commercial paper issued in reliance on the
exemption from registration afforded by Section 4(2) of the Securities Act of
1933, as amended (the "1933 Act"). Section 4(2) commercial paper is restricted
as to disposition under federal securities law and is generally sold to
institutional investors, such as the Funds, who agree that they are purchasing
the paper for investment purposes and not with a view to public distribution.
Any resale by the purchaser must be in an exempt transaction. Section 4(2)
commercial paper is normally resold to other institutional investors like the
Funds through or with the assistance of the issuer or investment dealers who
make a market in Section 4(2) commercial paper, thus providing liquidity. The
Funds believe that Section 4(2) commercial paper and possibly certain other
restricted securities that meet the criteria for liquidity established by
Galaxy's Board of Trustees are quite liquid. The Funds intend, therefore, to
treat the restricted securities that meet the criteria for liquidity established
by the Board of Trustees, including Section 4(2) commercial paper (as determined
by Fleet), as liquid and not subject to the investment limitation applicable to
illiquid securities. In addition, because Section 4(2) commercial paper is
liquid, the Funds do not intend to subject such paper to the limitation
applicable to restricted securities.
Rule 144A under the 1933 Act allows for a broader institutional trading
market for securities otherwise subject to restrictions on resale to the general
public. Rule 144A establishes a "safe harbor" from the registration requirements
of the 1933 Act for resales of certain securities to qualified institutional
buyers. A Fund's investment in Rule 144A securities could have the effect of
increasing the level of illiquidity of the Fund during any period that qualified
institutional buyers were no longer interested in purchasing these securities.
For purposes of each Fund's 10% limitation (15% with respect to the Growth and
Income, Small Cap Value and Strategic Equity Funds) on purchases of illiquid
instruments described under "Investment Limitations" below, Rule 144A securities
will not be considered to be illiquid if Fleet and/or Oechsle has determined, in
accordance with guidelines established by the Board of Trustees, that an
adequate trading market exists for such securities.
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PORTFOLIO TURNOVER
Each Fund may sell a portfolio investment soon after its acquisition if
Fleet and/or Oechsle believes that such a disposition is consistent with the
Fund's investment objective. Portfolio investments may be sold for a variety of
reasons, such as a more favorable investment opportunity or other circumstances
bearing on the desirability of continuing to hold such investments. A portfolio
turnover rate of 100% or more is considered high, although the rate of portfolio
turnover will not be a limiting factor in making portfolio decisions. A high
rate of portfolio turnover involves correspondingly greater brokerage commission
expenses and other transaction costs, which must be ultimately borne by a Fund's
shareholders. High portfolio turnover may result in the realization of
substantial net capital gains; distributions derived from such gains will be
treated as ordinary income for federal income tax purposes.
INVESTMENT LIMITATIONS
In addition to each Fund's investment objective as stated in its
Prospectuses, the following investment limitations are matters of fundamental
policy and may not be changed with respect to a particular Fund without the
affirmative vote of the holders of a majority of its outstanding shares (as
defined under "Miscellaneous").
The Asset Allocation, Equity Income, Strategic Equity, Equity Value,
Equity Growth, International Equity and Small Company Equity Funds may not:
1. Make loans, except that (i) each Fund may purchase or hold
debt instruments in accordance with its investment
objective and policies, and may enter into repurchase
agreements with respect to portfolio securities, and (ii)
each Fund may lend portfolio securities against collateral
consisting of cash or securities which are consistent with
its permitted investments, where the value of the
collateral is equal at all times to at least 100% of the
value of the securities loaned.
2. Borrow money or issue senior securities, except that each
Fund may borrow from domestic banks for temporary purposes
and then in amounts not in excess of 10%, with respect to
the Equity Value Fund, or 33%, with respect to the Asset
Allocation, Equity Income, Strategic Equity, Equity Growth,
International Equity and Small Company Equity Funds, of the
value of its total assets at the time of such borrowing
(provided that the Funds may borrow pursuant to reverse
repurchase agreements in accordance with their investment
policies and in amounts not in excess of 10%, with respect
to the Equity Value Fund, or 33%, with respect to the Asset
Allocation, Equity Income, Strategic Equity, Equity Growth,
International Equity and Small Company Equity Funds, of the
value of their respective total assets at the time of such
borrowing); or mortgage, pledge, or hypothecate any assets
except in connection with any such borrowing and in amounts
not in excess of the lesser of the dollar amounts borrowed
or 10%, with respect to the Equity Value Fund, or 33%, with
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respect to the Equity Growth, Equity Income, International
Equity, Small Company Equity, Asset Allocation and
Strategic Equity Funds, of the value of a Fund's total
assets at the time of such borrowing. No Fund will purchase
securities while borrowings (including reverse repurchase
agreements) in excess of 5% of its total assets are
outstanding.
3. Invest more than 10% (15% with respect to the Strategic
Equity Fund) of the value of its net assets in illiquid
securities, including repurchase agreements with remaining
maturities in excess of seven days, time deposits with
maturities in excess of seven days, restricted securities
(with respect to the Equity Value Fund), securities which
are restricted as to transfer in their principal market
(with respect to the International Equity Fund),
non-negotiable time deposits and other securities which are
not readily marketable.
4. Purchase securities of any one issuer, other than
obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities, if immediately after
such purchase more than 5% of the value of a Fund's total
assets would be invested in such issuer, except that up to
25% of the value of its total assets may be invested
without regard to this limitation.
5. Purchase securities on margin (except such short-term
credits as may be necessary for the clearance of
purchases), make short sales of securities, or maintain a
short position.
6. Act as an underwriter within the meaning of the Securities
Act of 1933; except insofar as a Fund might be deemed to be
an underwriter upon disposition of restricted portfolio
securities; and except to the extent that the purchase of
securities directly from the issuer thereof in accordance
with the Fund's investment objective, policies and
limitations may be deemed to be underwriting.
7. Purchase or sell real estate; except that each Fund may
purchase securities that are secured by real estate, and
the Funds may purchase securities of issuers which deal in
real estate or interests therein; however, the Funds will
not purchase or sell interests in real estate limited
partnerships.
8. Purchase or sell commodities or commodity contracts or
invest in oil, gas, or other mineral exploration or
development programs or mineral leases; provided however,
that (i) the Asset Allocation, Equity Income, Equity Value,
Equity Growth, International Equity and Small Company
Equity Funds may enter into forward currency contracts and
foreign currency futures contracts and related options to
the extent permitted by their respective investment
objectives and policies, and (ii) the Strategic Equity Fund
may engage in transactions involving financial futures
contracts or options on financial futures contracts.
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<PAGE>
9. Invest in or sell put options, call options, straddles,
spreads, or any combination thereof; provided, however,
that each of the Asset Allocation, Equity Income, Equity
Value, Equity Growth, International Equity and Small
Company Equity Funds may write covered call options with
respect to its portfolio securities that are traded on a
national securities exchange, and may enter into closing
purchase transactions with respect to such options if, at
the time of the writing of such options, the aggregate
value of the securities subject to the options written by
the Fund does not exceed 25% of the value of its total
assets; and further provided that (i) the Asset Allocation,
Equity Income, Equity Growth, International Equity and
Small Company Equity Funds may purchase put and call
options to the extent permitted by their investment
objectives and policies, and (ii) the Strategic Equity Fund
may buy and sell options, including without limit buying or
writing puts and calls, based on any type of security,
index or currency, including options on foreign exchanges
and options not traded on exchanges.
10. Invest in companies for the purpose of exercising
management or control.
11. Purchase securities of other investment companies except in
connection with a merger, consolidation, reorganization, or
acquisition of assets; provided, however, that the Funds
may acquire such securities in accordance with the 1940
Act; and further provided, that the Strategic Equity Fund
may from time to time, on a temporary basis, invest
exclusively in one other investment company similar to the
Fund.
The Growth and Income and Small Cap Value Funds may not:
12. Borrow money directly or through reverse repurchase
agreements (arrangements in which the Fund sells a
portfolio instrument for a percentage of its cash value
with an arrangement to buy it back on a set date) or pledge
securities except, under certain circumstances, such Funds
may borrow up to one-third of the value of their respective
total assets and pledge up to 10% of the value of their
respective total assets to secure such borrowings.
13. With respect to 75% of the value of their respective total
assets, invest more than 5% in securities of any one
issuer, other than cash, cash items, or securities issued
or guaranteed by the government of the United States or its
agencies or instrumentalities and repurchase agreements
collateralized by such securities, or acquire more than 10%
of the outstanding voting securities of any one issuer.
14. Sell any securities short or purchase any securities on
margin, but each Fund may obtain such short-term credits as
may be necessary for the clearance of purchases and sales
of portfolio securities. A deposit or
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payment by a Fund of initial or variation margin in
connection with futures contracts or related options
transactions is not considered the purchase of a security
on margin.
15. Issue senior securities except that each Fund may borrow
money or engage in reverse repurchase agreements in amounts
up to one-third of the value of its total assets, including
the amounts borrowed; and except to the extent that the
Funds may enter into futures contracts. No Fund will borrow
money or engage in reverse repurchase agreements for
investment leverage, but rather as a temporary,
extraordinary, or emergency measure to facilitate
management of the portfolio by enabling a Fund to meet
redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous.
No Fund will purchase any securities while borrowings in
excess of 5% of its total assets are outstanding.
16. Mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, a Fund may
only mortgage, pledge, or hypothecate assets having a
market value not exceeding 10% of the value of its total
assets at the time of purchase. For purposes of this
limitation, the following will not be deemed to be pledges
of a Fund's assets: (a) the deposit of assets in escrow in
connection with the writing of covered put or call options
and the purchase of securities on a when-issued basis; and
(b) collateral arrangements with respect to: (i) the
purchase and sale of stock options (and options on stock
indices) and (ii) initial or variation margin for futures
contracts. Margin deposits from the purchase and sale of
futures contracts and related options are not deemed to be
a pledge.
17. Purchase or sell real estate or real estate limited
partnerships, although each Fund may invest in securities
of issuers whose business involves the purchase or sale of
real estate or in securities which are secured by real
estate or interests in real estate.
18. Purchase or sell commodities, commodity contracts, or
commodity futures contracts except to the extent that a
Fund may engage in transactions involving financial futures
contracts or options on financial futures contracts.
19. Underwrite any issue of securities, except as a Fund may be
deemed to be an underwriter under the Securities Act of
1933 in connection with the sale of securities in
accordance with its investment objective, policies and
limitations.
20. Lend any of its assets except that a Fund may lend
portfolio securities up to one-third the value of its total
assets. This limitation shall not prevent a Fund from
purchasing or holding money market instruments, repurchase
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<PAGE>
agreements, obligations of the U.S. Government, its
agencies or instrumentalities, variable rate demand notes,
bonds, debentures, notes, certificates of indebtedness, or
certain debt instruments as permitted by its investment
objective, policies and limitations or Galaxy's Declaration
of Trust.
21. With respect to securities comprising 75% of the value of
its total assets, purchase securities issued by any one
issuer (other than cash, cash items, or securities issued
or guaranteed by the government of the United States or its
agencies or instrumentalities and repurchase agreements
collateralized by such securities) if, as a result, more
than 5% of the value of its total assets would be invested
in the securities of that issuer. A Fund will not acquire
more than 10% of the outstanding voting securities of any
one issuer.
22. Invest 25% of more of the value of its total assets in any
one industry (other than securities issued by the U.S.
Government, its agencies or instrumentalities). However, a
Fund may invest as temporary investments more than 25% of
the value of its assets in cash or cash items, securities
issued or guaranteed by the U.S. Government, its agencies
or instrumentalities, or instruments secured by these money
market instruments, such as repurchase agreements.
The following investment policies with respect to the Growth and Income
and Small Cap Value Funds may be changed by Galaxy's Board of Trustees without
shareholder approval. Shareholders will be notified before any material change
in these limitations become effective:
23. The Funds may not invest more than 15% of their respective
net assets in securities subject to restrictions on resale
under the Securities Act of 1933 (except for commercial
paper issued under Section 4(2) of the Securities Act of
1933 and certain securities which meet the criteria for
liquidity as established by the Board of Trustees).
24. Each Fund will limit its investments in other investment
companies to not more than 3% of the total outstanding
voting stock of any investment company; will invest no more
than 5% of its total assets in any one investment company;
and will invest no more than 10% of its total assets in
investment companies in general. However, these limitations
are not applicable if the securities are acquired in a
merger, consolidation, reorganization or acquisition of
assets.
The Funds will purchase the securities of other investment
companies only in open market transactions involving only
customary broker's commissions. It should be noted that
investment companies incur certain expenses such as
management fees, and therefore any investment by a
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Fund in shares of another investment company would be
subject to such duplicate expenses.
25. Neither Fund may purchase or retain the securities of any
issuer if the officers and Trustees of Galaxy or Fleet,
owning individually more than 1/2 of 1% of the issuer's
securities, together own more than 5% of the issuer's
securities.
26. Neither Fund may purchase or sell interests in oil, gas, or
mineral exploration or development programs or leases;
except that the Funds may purchase the securities of
issuers which invest in or sponsor such programs.
27. Neither Fund may purchase put options on securities, unless
the securities are held in the Fund's portfolio and not
more than 5% of the value of the Fund's total assets would
be invested in premiums on open put option positions.
28. Neither Fund may write call options on securities, unless
the securities are held in the Fund's portfolio or unless
the Fund is entitled to them in deliverable form without
further payment or after segregating cash in the amount of
any further payment. Neither Fund may write call options in
excess of 5% of the value of its total assets.
29. Neither Fund may invest more than 5% of the value of its
total assets in securities of issuers which have records of
less than three years of continuous operations, including
the operation of any predecessor.
30. Neither Fund will invest more than 15% of the value of its
respective net assets in illiquid securities, including
repurchase agreements providing for settlement in more than
seven days after notice, non-negotiable fixed time deposits
with maturities over seven days, and certain securities not
determined by the Board of Trustees to be liquid.
31. Neither Fund may invest in companies for the purpose of
exercising management or control.
32. Neither Fund may invest more than 5% of its net assets in
warrants. No more than 2% of this 5% may be warrants which
are not listed on the New York Stock Exchange.
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In addition, the Funds may not purchase any securities which would cause
25% or more of the value of a Fund's total assets at the time of purchase to be
invested in the securities of one or more issuers conducting their principal
business activities in the same industry; provided, however that (a) there is no
limitation with respect to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents, and
(c) utilities will be classified according to their services. (For example, gas,
gas transmission, electric and gas, electric and telephone each will be
considered a separate industry.)
With respect to Investment Limitation No. 2 above, (a) the Equity Value
Fund intends to limit any borrowings (including reverse repurchase agreements)
to not more than 10% of the value of its total assets at the time of such
borrowing and each of the Asset Allocation, Equity Income, Strategic Equity,
Equity Growth, International Equity and Small Company Equity Funds intends to
limit any borrowings (including reverse repurchase agreements) to not more than
33% of the value of its total assets at the time of such borrowing, and (b)
mortgage dollar rolls entered into by the Asset Allocation Fund that are not
accounted for as financings shall not constitute borrowings.
With respect to Investment Limitation No. 4 above, each of the Asset
Allocation, Equity Income, Strategic Equity, Equity Value, Equity Growth,
International Equity and Small Company Equity Funds does not intend to
acquire more than 10% of the outstanding voting securities of any one issuer.
The Growth and Income and Small Cap Value Funds intend to invest in
restricted securities. Restricted securities are any securities in which a Fund
may otherwise invest pursuant to its investment objective and policies, but
which are subject to restriction on resale under federal securities law. Each
such Fund will limit its investments in illiquid securities, including certain
restricted securities not determined by the Board of Trustees to be liquid,
non-negotiable fixed time deposits with maturities over seven days,
over-the-counter options, and repurchase agreements providing for settlement in
more than seven days after notice, to 15% of its net assets.
Except as stated otherwise, 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.
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VALUATION OF PORTFOLIO SECURITIES
VALUATION OF THE ASSET ALLOCATION, EQUITY INCOME, GROWTH AND INCOME, STRATEGIC
EQUITY, EQUITY VALUE, EQUITY GROWTH, SMALL CAP VALUE AND SMALL COMPANY EQUITY
FUNDS
In determining market value, the assets in the Asset Allocation, Equity
Income, Growth and Income, Strategic Equity, Equity Value, Equity Growth, Small
Cap Value and Small Company Equity Funds which are traded on a recognized stock
exchange are valued at the last sale price on the securities exchange on which
such securities are primarily traded or at the last sale price on the national
securities market. Securities quoted on the NASD National Market System are also
valued at the last sale price. Other securities traded on over-the-counter
markets are valued on the basis of their closing over-the-counter bid prices.
Securities for which there were no transactions are valued at the average of the
most recent bid and asked prices. Investments in debt securities with remaining
maturities of 60 days or less are valued based upon the amortized cost method.
Restricted securities, securities for which market quotations are not readily
available, and other assets are valued at fair value by Fleet under the
supervision of Galaxy's Board of Trustees. An option is generally valued at the
last sale price or, in the absence of a last sale price, the last offer price.
See "Valuation of International Equity Fund" below for a description of the
valuation of certain foreign securities held by these Funds.
VALUATION OF THE INTERNATIONAL EQUITY FUND
In determining market value, the International Equity Fund's portfolio
securities which are primarily traded on a domestic exchange are valued at the
last sale price on that exchange or, if there is no recent sale, at the last
current bid quotation. Portfolio securities which are primarily traded on
foreign securities exchanges are generally valued at the preceding closing
values of such securities on their respective exchanges, except when an
occurrence subsequent to the time a value was so established is likely to have
changed such value, then the fair value of those securities may be determined
through consideration of other factors by or under the direction of Galaxy's
Board of Trustees. A security which is listed or traded on more than one
exchange is valued at the quotation on the exchange determined to be the primary
market for such security. Investments in debt securities having a remaining
maturity of 60 days or less are valued based upon the amortized cost method. All
other securities are valued at the last current bid quotation if market
quotations are available, or at fair value as determined in accordance with
policies established in good faith by the Board of Trustees. For valuation
purposes, quotations of foreign securities in foreign currency are converted to
U.S. dollars equivalent at the prevailing market rate on the day of valuation.
An option is generally valued at the last sale price or, in the absence of a
last sale price, the last offer price.
Certain of the securities acquired by the International Equity Fund may
be traded on foreign exchanges or over-the-counter markets on days on which the
Fund's net asset value is not calculated. In such cases, the net asset value of
the Fund's shares may be significantly affected on days when investors can
neither purchase nor redeem shares of the Fund.
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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 Four Fall Corporate Center, 6th
Floor, West Conshohocken, Pennsylvania 19428. PDI has agreed to use appropriate
efforts to solicit all purchase orders.
This Statement of Additional Information provides additional purchase and
redemption information for Trust Shares, Retail A Shares and Retail B Shares of
the Funds. Purchase and redemption information for Prime A Shares and Prime B
Shares of the Funds is provided in a separate prospectus and statement of
additional information.
PURCHASES OF RETAIL A SHARES AND RETAIL B SHARES
GENERAL
Investments in Retail A Shares of the Funds are subject to a front-end
sales charge. Investments in Retail B Shares of the Funds are subject to a
back-end sales charge. This back-end sales charge declines over time and is
known as a "contingent deferred sales charge."
Investors should read "Characteristics of Retail A Shares and Retail B
Shares" and "Factors to Consider When Selecting Retail A Shares or Retail B
Shares" below before deciding between the two.
PDI has established several procedures to enable different types of
investors to purchase Retail A Shares and Retail B Shares (collectively,
"Retail Shares") of the Funds. Retail Shares may be purchased by individuals
or corporations who submit a purchase application to Galaxy, purchasing
directly either for their own accounts or for the accounts of others. Retail
Shares may also be purchased by FIS Securities, Inc., Fleet Securities, Inc.,
Fleet Enterprises, Inc., FleetBoston Corporation, its affiliates, their
correspondent banks and other qualified banks, savings and loan associations
and broker/dealers on behalf of their customers. Purchases may take place
only on days on which PDI and Galaxy's custodian and Galaxy's transfer agent
are open for business ("Business Days"). If an institution accepts a purchase
order from a customer on a non-Business Day, the order will not be executed
until it is received and accepted by PDI on a Business Day in accordance with
PDI's procedures.
Galaxy has authorized certain brokers to accept purchase, exchange and
redemption orders on behalf of Galaxy with respect to Retail A Shares of the
Funds. Such brokers are authorized to designate other intermediaries to accept
purchase, exchange and redemption orders on behalf of Galaxy. Galaxy will be
deemed to have received a purchase, exchange or redemption order when such an
authorized broker or designated intermediary accepts the order. Orders for the
purchase, exchange or redemption of Retail A Shares of the Funds accepted by any
such authorized broker or designated intermediary will be effected at the Funds'
respective net asset values per share next determined after acceptance of such
order and will not be subject
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to the front-end sales charge with respect to Retail A Shares described in the
applicable Prospectus and in this Statement of Additional Information.
CUSTOMERS OF INSTITUTIONS
Retail Shares purchased by institutions on behalf of their customers will
normally be held of record by the institution and beneficial ownership of Retail
Shares will be recorded by the institution and reflected in the account
statements provided to its customers. Galaxy's transfer agent may establish an
account of record for each customer of an institution reflecting beneficial
ownership of Retail Shares. Depending on the terms of the arrangement between a
particular institution and Galaxy's transfer agent, confirmations of Retail
Share purchases and redemptions and pertinent account statements will either be
sent by Galaxy's transfer agent directly to a customer with a copy to the
institution, or will be furnished directly to the customer by the institution.
Other procedures for the purchase of Retail Shares established by institutions
in connection with the requirements of their customer accounts may apply.
Customers wishing to purchase Retail Shares through their institution should
contact such entity directly for appropriate purchase instructions.
OTHER PURCHASE INFORMATION
On a Business Day when the New York Stock Exchange (the "Exchange")
closes early due to a partial holiday or otherwise, Galaxy will advance the time
at which purchase orders must be received in order to be processed on that
Business Day.
APPLICABLE SALES CHARGE - RETAIL A SHARES
The public offering price for Retail A Shares of the Funds is the sum of
the net asset value of the Retail A Shares purchased plus any applicable
front-end sales charge as described in the applicable Prospectus. A deferred
sales charge of up to 1.00% is assessed on certain redemptions of Retail A
Shares that are purchased with no initial sales charge as part of an investment
of $500,000 or more. A portion of the front-end sales charge may be reallowed to
broker-dealers as follows:
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REALLOWANCE TO
DEALERS
-------
<TABLE>
<CAPTION>
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.
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 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;
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<PAGE>
- 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 Corporation in February 1998.
COMPUTATION OF OFFERING PRICE - RETAIL A SHARES
An illustration of the computation of the offering price per share of
Retail A Shares of the Funds, using the value of each Fund's net assets
attributable to such Shares and the number of outstanding Retail A Shares of
each Fund at the close of business on October 31, 1999 and the maximum front-end
sales charge of 3.75%, is as follows:
<TABLE>
<CAPTION>
Asset Allocation Equity Income
Fund Fund
---- ----
<S> <C> <C>
Net Assets........................................... $ _________ $ _________
Outstanding Shares................................... _________ _________
Net Asset Value Per Share............................ $ _________ $ _________
Sales Charge (3.75% of
the offering price).................................. $ _________ $ _________
Offering Price to Public............................. $ _________ $ _________
</TABLE>
-42-
<PAGE>
<TABLE>
<CAPTION>
Growth and Strategic
Income Fund Equity Fund
----------- -----------
<S> <C> <C>
Net Assets........................................... $ _________ $ _________
Outstanding Shares................................... _________ _________
Net Asset Value Per Share............................ $ _________ $ _________
Sales Charge (3.75% of
the offering price).................................. $ _________ $ _________
Offering Price to Public............................. $ _________ $ _________
</TABLE>
<TABLE>
<CAPTION>
Equity Equity
Value Fund Growth Fund
---------- -----------
<S> <C> <C>
Net Assets........................................... $ _________ $ _________
Outstanding Shares................................... _________ _________
Net Asset Value Per Share............................ $ _________ $ _________
Sales Charge (3.75% of
the offering price).................................. $ _________ $ _________
Offering Price to Public............................. $ _________ $ _________
</TABLE>
<TABLE>
<CAPTION>
International Small Cap
Equity Fund Value Fund
----------- ----------
<S> <C> <C>
Net Assets........................................... $ _________ $ _________
Outstanding Shares................................... _________ _________
Net Asset Value Per Share............................ $ _________ $ _________
Sales Charge (3.75% of
the offering price).................................. $ _________ $ _________
Offering Price to Public............................. $ _________ $ _________
</TABLE>
-43-
<PAGE>
<TABLE>
<CAPTION>
Small Company
Equity Fund
-----------
<S> <C>
Net Assets........................................... $ _________
Outstanding Shares................................... _________
Net Asset Value Per Share............................ $ _________
Sales Charge (3.75% of
the offering price).................................. $ _________
Offering Price to Public............................. $ _________
</TABLE>
QUANTITY DISCOUNTS
Investors may be entitled to reduced sales charges through Rights of
Accumulation, a Letter of Intent or a combination of investments, as described
below, even if the investor does not wish to make an investment of a size that
would normally qualify for a quantity discount.
In order to obtain quantity discount benefits, an investor must notify
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
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<PAGE>
has been paid and that are beneficially owned by an investor on the date of
submission of the Letter of Intent may be used as a credit toward completion of
the Letter of Intent. However, the reduced sales charge will be applied only to
new purchases.
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.
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.
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<PAGE>
GROUP SALES. Members of qualified groups may purchase Retail A Shares of
the Funds at the following group sales rates:
<TABLE>
<CAPTION>
REALLOWANCE
TOTAL SALES CHARGE TO DEALERS
--------------------------------------- ----------
AS A % OF AS A % OF AS A % OF
NUMBER OF QUALIFIED OFFERING PRICE NET ASSET VALUE OFFERING PRICE
GROUP MEMBERS PER SHARE PER SHARE PER SHARE
- --------------------- --------- --------- ---------
<S> <C> <C> <C>
50,000 but less than 250,000............ 3.00 3.09 3.00
250,000 but less than 500,000........... 2.75 2.83 2.75
500,000 but less than 750,000........... 2.50 2.56 2.50
750,000 and over........................ 2.00 2.04 2.00
</TABLE>
To be eligible for the discount, a group must meet the requirements set
forth below and be approved in advance as a qualified group by 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
applicable Prospectus. Group members must also ensure that their qualified group
affiliation is identified on the purchase application.
A qualified group is a group that (i) has at least 50,000 members, (ii)
was not formed for the purpose of buying Fund shares at a reduced sales charge,
(iii) within one year of the initial member purchase, has at least 1% of its
members invested in the Funds or any of the other investment portfolios offered
by Galaxy, (iv) agrees to include Galaxy sales material in publications and
mailings to members at a reduced cost or no cost, and (v) meets certain other
uniform criteria. 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 Funds is the net
asset value of the Retail B Shares purchased. Although investors pay no
front-end sales charge on purchases of Retail B Shares, such Shares are subject
to a contingent deferred sales charge at the rates set forth below if they are
redeemed within six years of purchase. Securities dealers, brokers, financial
institutions and other industry professionals will receive commissions from 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 Fleet Enterprises, Inc., a broker-dealer
affiliate of Fleet, whose customers purchase significant amounts of Retail B
Shares of a Fund. See "Applicable Sales Charge -- Retail A Shares." The
contingent deferred sales charge on Retail B Shares is based on the lesser of
the net asset value of the Shares on the redemption date or the original cost of
the Shares being redeemed. As a result, no sales charge is imposed on any
increase in the principal value of an investor's Retail B
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<PAGE>
Shares. In addition, a contingent deferred sales charge will not be assessed on
Retail B Shares purchased through reinvestment of dividends or capital gains
distributions.
The proceeds from the contingent deferred sales charge that an investor
may pay upon redemption go to 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 a
Fund's right to liquidate a shareholder's account if the aggregate net asset
value of Retail B Shares held in the account is less than the minimum account
size; (iv) redemptions in connection with the combination of a Fund with any
other investment company registered under the 1940 Act by merger, acquisition of
assets, or by any other transaction; (v) redemptions resulting from a tax-free
return of an excess contribution pursuant to Section 408(d)(4) or (5) of the
Code; or (vi) any redemption of Retail B Shares held by an investor, provided
the investor was the beneficial owner of shares of a Fund (or any of the other
portfolios offered by Galaxy or otherwise advised by Fleet or its affiliates)
before December 1, 1995. In addition to the foregoing exemptions, no contingent
deferred sales charge will be imposed on redemptions made pursuant to the
Systematic Withdrawal Plan, subject to the limitations set forth under "Investor
Programs - Retail A Shares and Retail B Shares -- Automatic Investment Program
and Systematic Withdrawal Plan" below.
CHARACTERISTICS OF RETAIL A SHARES AND RETAIL B SHARES
The primary difference between Retail A Shares and Retail B Shares lies
in their sales charge structures and shareholder servicing/distribution
expenses. An investor should understand that the purpose and function of the
sales charge structures and shareholder servicing/distribution arrangements for
both Retail A Shares and Retail B Shares are the same.
Retail A Shares of the Funds are sold at their net asset value plus a
front-end sales charge of up to 3.75%. This front-end sales charge may be
reduced or waived in some cases. See the applicable Prospectus and "Applicable
Sales Charges -- Retail A Shares" and "Quantity Discounts" above. Retail A
Shares of a Fund are currently subject to ongoing shareholder servicing fees at
an annual rate of up to .30% of the Fund's average daily net assets attributable
to its Retail A Shares.
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<PAGE>
Retail B Shares of the Funds are sold at net asset value without an
initial sales charge. Normally, however, a deferred sales charge is paid if the
Shares are redeemed within six years of investment. See the applicable
Prospectus and "Applicable Sales Charges - Retail B Shares" above. Retail B
Shares of a Fund are currently subject to ongoing shareholder servicing and
distribution fees at an annual rate of up to .95% of the Fund's average daily
net assets attributable to its Retail B Shares. These ongoing fees, which are
higher than those charged on Retail A Shares, will cause Retail B Shares to have
a higher expense ratio and pay lower dividends than Retail A Shares.
Six years after purchase, Retail B Shares of the Funds will convert
automatically to Retail A Shares of the Funds. The purpose of the conversion is
to relieve a holder of Retail B Shares of the higher ongoing expenses charged to
those shares, after enough time has passed to allow 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 a Fund, and subsequently
acquires additional Retail B Shares of such Fund only through reinvestment of
dividends and/or distributions, all of such investor's Retail B Shares in the
Fund, including those acquired through reinvestment, will convert to Retail A
Shares of such Fund on the same date.
FACTORS TO CONSIDER WHEN SELECTING RETAIL A SHARES OR RETAIL B SHARES
Before purchasing Retail A Shares or Retail B Shares of the Funds,
investors should consider whether, during the anticipated periods of their
investments in the particular Funds, the accumulated distribution and
shareholder servicing fees and potential contingent deferred sales charge on
Retail B Shares prior to conversion would be less than the initial sales charge
and accumulated shareholder servicing fees on Retail A Shares purchased at the
same time, and to what extent such differential would be offset by the higher
yield of Retail A Shares. In this regard, to the extent that the sales charge
for Retail A Shares is waived or reduced by one of the methods described above,
investments in Retail A Shares become more desirable. An investment of $250,000
or more in Retail B Shares would not be in most shareholders' best interest.
Shareholders should consult their financial advisers and/or brokers with respect
to the advisability of purchasing Retail B Shares in amounts exceeding $250,000.
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<PAGE>
Although Retail A Shares are subject to a shareholder servicing fee, they
are not subject to the higher distribution and shareholder servicing fee
applicable to Retail B Shares. For this reason, Retail A Shares can be expected
to pay correspondingly higher dividends per Share. However, because initial
sales charges are deducted at the time of purchase, purchasers of Retail A
Shares (that do not qualify for exemptions from or reductions in the initial
sales charge) would have less of their purchase price initially invested in
these Funds than purchasers of Retail B Shares in the Funds.
As described above, purchasers of Retail B Shares will have more of their
initial purchase price invested. Any positive investment return on this
additional invested amount would partially or wholly offset the expected higher
annual expenses borne by Retail B Shares. Because a Fund's future returns cannot
be predicted, there can be no assurance that this will be the case. Holders of
Retail B Shares would, however, own shares that are subject to a contingent
deferred sales charge of up to 5.00% upon redemption, depending upon the year of
redemption. Investors expecting to redeem during this six-year period should
compare the cost of the contingent deferred sales charge plus the aggregate
distribution and shareholder servicing fees on Retail B Shares to the cost of
the initial sales charge and shareholder servicing fees on the Retail A Shares.
Over time, the expense of the annual distribution and shareholder servicing fees
on the Retail B Shares may equal or exceed the initial sales charge and annual
shareholder servicing fee applicable to Retail A Shares. For example, if net
asset value remains constant, the aggregate distribution and shareholder
servicing fees with respect to Retail B Shares of a Fund would equal or exceed
the initial sales charge and aggregate shareholder servicing fees of Retail A
Shares approximately six years after the purchase. In order to reduce such fees
for investors that hold Retail B Shares for more than six years, Retail B Shares
will be automatically converted to Retail A Shares as described above at the end
of such six-year period.
PURCHASES OF TRUST SHARES
Trust Shares are sold to investors maintaining qualified accounts at
bank and trust institutions, including subsidiaries of FleetBoston
Corporation, and to participants in employer-sponsored defined contribution
plans (such institutions and plans are referred to herein collectively as
"Institutions"). Trust Shares sold to such investors ("Customers") will be
held of record by Institutions. Purchases of Trust Shares will be effected
only on days on which 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.
Trust Shares of the International Equity Fund may also be sold to
clients, members and employees of Oechsle.
On a Trust Business Day when the Exchange closes early due to a partial
holiday or otherwise, Galaxy will advance the time at which purchase orders must
be received in order to be processed on that Trust Business Day.
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<PAGE>
REDEMPTION OF RETAIL A SHARES, RETAIL B SHARES
AND TRUST SHARES
Redemption orders are effected at the net asset value per share next
determined after receipt of the order by 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 the redemptions of Retail B
Shares of the Funds will be reduced by the amount of any applicable contingent
deferred sales charge. Galaxy reserves the right to transmit redemption proceeds
within seven days after receiving the redemption order if, in its judgment, an
earlier payment could adversely affect a Fund.
If the Board of Trustees determines that conditions exist which make
payment of redemption proceeds wholly in cash unwise or undesirable, Galaxy may
make payment wholly or partly in securities or other property. Such redemptions
will only be made in "readily marketable" securities. In such an event, a
shareholder would incur transaction costs in selling the securities or other
property.
Galaxy may suspend the right of redemption or postpone the date of
payment for shares for more than seven days during any period when (a) trading
in the markets the Funds normally utilize is restricted, or an emergency, as
defined by the rules and regulations of the SEC exists making disposal of a
Fund's investments or determination of its net asset value not reasonably
practicable; (b) the Exchange is closed (other than customary weekend and
holiday closings); or (c) the SEC by order has permitted such suspension.
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.
INVESTOR PROGRAMS-RETAIL A SHARES AND RETAIL B SHARES
The following information supplements the description in the applicable
Prospectus as to the various Investor Programs available to holders of Retail
Shares of the Funds.
EXCHANGE PRIVILEGE
The minimum initial investment to establish an account in another Fund or
portfolio by exchange, except for the Institutional Government Money Market
Fund, is $2,500, unless (i) the Retail Shares being redeemed were purchased
through a registered representative who is a Fleet
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<PAGE>
Bank employee, in which event there is no minimum investment requirement, or
(ii) at the time of the exchange the investor elects, with respect to the Fund
or portfolio into which the exchange is being made, to participate in the
Automatic Investment Program described below, in which event there is no minimum
initial investment requirement, or in the College Investment Program described
below, in which event the minimum initial investment is generally $100. The
minimum initial investment to establish an account by exchange in the
Institutional Government Money Market Fund is $2 million.
An exchange involves a redemption of all or a portion of the Retail
Shares of a Fund and the investment of the redemption proceeds in Retail Shares
of another Fund or portfolio offered by Galaxy or, with respect to Retail A
Shares, otherwise advised by Fleet or its affiliates. The redemption will be
made at the per share net asset value next determined after the exchange request
is received. The Retail Shares of a Fund or portfolio to be acquired will be
purchased at the per share net asset value next determined after acceptance of
the exchange request, plus any applicable sales charge.
Investors may find the exchange privilege useful if their investment
objectives or market outlook should change after they invest in any of the
Funds. For further information regarding Galaxy's exchange privilege,
investors should call PFPC at 1-877-BUY-GALAXY (1-877-289-4252). Customers of
institutions should call their institution for such information. Investors
exercising the exchange privilege into other portfolios should request and
review these portfolios' prospectuses prior to making an exchange. Telephone
1-877-BUY-GALAXY (1-877-289-4252) for a prospectus or to make an exchange.
In order to prevent abuse of this privilege to the disadvantage of other
shareholders, Galaxy reserves the right to terminate the exchange privilege of
any shareholder who requests more than three exchanges a year. Galaxy will
determine whether to do so based on a consideration of both the number of
exchanges that any particular shareholder or group of shareholders has requested
and the time period over which their exchange requests have been made, together
with the level of expense to Galaxy which will result from effecting additional
exchange requests. The exchange privilege may be modified or terminated at any
time. At least 60 days' notice of any material modification or termination will
be given to shareholders except where notice is not required under the
regulations of the SEC.
For federal income tax purposes, an exchange of shares is a taxable event
and, accordingly, a capital gain or loss may be realized by an investor. Before
making an exchange request, an investor should consult a tax or other financial
adviser to determine the tax consequences.
RETIREMENT PLANS
Retail Shares of the Funds are available for purchase in connection with
the following tax-deferred prototype retirement plans:
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<PAGE>
INDIVIDUAL RETIREMENT ACCOUNTS ("IRAS") (including traditional, Roth and
Education IRAs and "roll-overs" from existing retirement plans), a
retirement-savings vehicle for qualifying individuals. The minimum initial
investment for an IRA account is $500 (including a spousal account).
SIMPLIFIED EMPLOYEE PENSION PLANS ("SEPS"), a form of retirement plan for
sole proprietors, partnerships and corporations. The minimum initial investment
for a SEP account is $500.
MULTI-EMPLOYEE RETIREMENT PLANS ("MERPS"), a retirement vehicle
established by employers for their employees which is qualified under Section
401(k) and 403(b) of the Code. The minimum initial investment for a MERP is
$500.
KEOGH PLANS, a retirement vehicle for self-employed individuals. The
minimum initial investment for a Keogh Plan is $500.
Investors purchasing Retail Shares pursuant to a retirement plan are not
subject to the minimum investment provisions described in the applicable
Prospectus. Detailed information concerning eligibility and other matters
related to these plans and the form of application is available from 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
The Automatic Investment Program permits an investor to purchase Retail
Shares of a Fund each month or each quarter. Provided an investor's financial
institution allows automatic withdrawals, Retail Shares are purchased by
transferring funds from the investor's checking, bank money market, NOW or
savings account designated by the investor. The account designated will be
debited in the specified amount, and Retail Shares will be purchased, on a
monthly or quarterly basis, on any Business Day designated by the investor. If
the designated day falls on a weekend or holiday, the purchase will be made on
the Business Day closest to the designated day. Only an account maintained at a
domestic financial institution which is an Automated Clearing House ("ACH")
member may be so designated.
The Systematic Withdrawal Plan permits an investor to automatically
redeem Retail Shares on a monthly, quarterly, semi-annual, or annual basis on
any Business Day designated by the investor. If the designated day falls on a
weekend or holiday, the redemption will be made on the Business Day closest
to the designated day. Proceeds of the redemption will be sent to the
shareholder's address of record or financial institution within three
Business Days of the redemption. If redemptions exceed purchases and
dividends, the number of shares in the account will be reduced. Investors may
terminate the Systematic Withdrawal Plan at any time upon written notice to
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
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assessed on redemptions of Retail B Shares made through the Systematic
Withdrawal Plan that do not exceed 12% of an account's net asset value on an
annualized basis. For example, monthly, quarterly and semi-annual Systematic
Withdrawal Plan redemptions of Retail B Shares will not be subject to the
contingent deferred sales charge if they do not exceed 1%, 3% and 6%,
respectively, of an account's net asset value on the redemption date. Systematic
Withdrawal Plan redemptions of Retail B Shares in excess of this limit are still
subject to the applicable contingent deferred sales charge.
PAYROLL DEDUCTION PROGRAM
To be eligible for the Payroll Deduction Program, the payroll department
of an investor's employer must have the capability to forward transactions
directly through the ACH, or indirectly through a third party payroll processing
company that has access to the ACH. An investor must complete and submit a
Galaxy Payroll Deduction Application to his or her employer's payroll
department, which will arrange for the specified amount to be debited from the
investor's paycheck each pay period. Retail Shares of Galaxy will be purchased
within three days after the debit occurred. If the designated day falls on a
weekend or non-Business Day, the purchase will be made on the Business Day
closest to the designated day. An investor should allow between two to four
weeks for the Payroll Deduction Program to be established after submitting an
application to the employer's payroll department.
COLLEGE INVESTMENT PROGRAM
Galaxy reserves the right to redeem accounts participating in the College
Investment Program involuntarily, upon 60 days' written notice, if the account's
net asset value falls below the applicable minimum initial investment as a
result of redemptions. Investors participating in the College Investment Program
will receive consolidated monthly statements of their accounts. Detailed
information concerning College Investment Program accounts and applications may
be obtained from PDI (call 1-877-BUY-GALAXY (1-877-289-4252)).
DIRECT DEPOSIT PROGRAM
Death or legal incapacity will terminate an investor's participation in
the Direct Deposit Program. An investor may elect at any time to terminate his
or her participation by notifying in writing the Social Security Administration.
Further, Galaxy may terminate an investor's participation upon 30 days' notice
to the investor.
TAXES
Each Fund qualified during its last taxable year and intends to continue
to qualify as a regulated investment company under Subchapter M of the Code, and
to distribute out its income to shareholders each year, so that each Fund itself
generally will be relieved of federal income and excise taxes. If a Fund were to
fail to so qualify: (1) the Fund would be taxed at regular corporate rates
without any deduction for distributions to shareholders; and (2) shareholders
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<PAGE>
would be taxed as if they received ordinary dividends, although corporate
shareholders could be eligible for the dividends received deduction.
A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to currently distribute specified percentages of their
ordinary taxable income and capital gain net income (excess of capital gains
over capital losses). Each Fund intends to make sufficient distributions or
deemed distributions of its ordinary taxable income and any capital gain net
income prior to the end of each calendar year to avoid liability for this excise
tax.
The Funds will be required in certain cases to withhold and remit to the
United States Treasury 31% of taxable dividends or gross sale proceeds paid to
any shareholder who (i) has failed to provide a correct tax identification
number, (ii) is subject to backup withholding due to prior failure to properly
include on his or her return payments of taxable interest or dividends, or (iii)
has failed to certify to the Funds that he or she is not subject to back-up
withholding when required to do so or that he or she is an "exempt recipient."
Dividends declared in October, November or December of any year that are
payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by a Fund on December 31
of such year if such dividends are actually paid during January of the following
year.
TAXATION OF CERTAIN FINANCIAL INSTRUMENTS AND INVESTMENTS
The tax principles applicable to transactions in financial instruments
and futures contacts and options that may be engaged in by a Fund, and
investments in passive foreign investment companies ("PFICs"), are complex and,
in some cases, uncertain. Such transactions and 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.
In addition, in the case of any shares of a PFIC in which a Fund invests,
the Fund may be liable for corporate-level tax on any ultimate gain or
distributions on the shares if the Fund fails to make an election to recognize
income annually during the period of its ownership of the shares.
TRUSTEES AND OFFICERS
The business and affairs of the Funds are managed under the direction of
Galaxy's Board of Trustees in accordance with the laws of the Commonwealth of
Massachusetts and the Trust's Declaration of Trust. The trustees and executive
officers of Galaxy, their addresses, principal occupations during the past five
years, and other affiliations are as follows:
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<PAGE>
<TABLE>
<CAPTION>
Positions Principal Occupation
with The During Past 5 Years
Name and Address Galaxy Fund and Other Affiliations
- ---------------- ----------- ----------------------
<S> <C> <C>
Dwight E. Vicks, Jr. Chairman & Trustee President & Director, Vicks Lithograph &
Vicks Lithograph & Printing Corporation (book manufacturing
Printing Corporation and commercial printing); Director, Utica
Commercial Drive First Insurance Company; Trustee, Savings
P.O. Box 270 Bank of Utica; Director, Monitor Life
Yorkville, NY 13495 Insurance Company; Director, Commercial
Age 66 Travelers Mutual Insurance Company;
Trustee, The Galaxy VIP Fund; Trustee,
Galaxy Fund II.
John T. O'Neill(1) President, Treasurer Executive Vice President and CFO, Hasbro,
Hasbro, Inc. & Trustee Inc. (toy and game manufacturer); Trustee,
1011 Newport Avenue The Galaxy VIP Fund; Trustee, Galaxy Fund
Pawtucket, RI 02862 II.
Age 55
Louis DeThomasis Trustee President, Saint Mary's College of
Saint Mary's College Minnesota; Director, Bright Day Travel,
of Minnesota Inc.; Trustee, Religious Communities Trust;
Winona, MN 55987 Trustee, The Galaxy VIP Fund; Trustee,
Age 59 Galaxy Fund II.
Donald B. Miller Trustee Chairman, Horizon Media, Inc. (broadcast
10725 Quail Covey Road services); Director/Trustee, Lexington
Boynton Beach, FL 33436 Funds; Chairman, Executive Committee,
Age 74 Compton International, Inc. (advertising
agency); Trustee, Keuka College; Trustee,
The Galaxy VIP Fund; Trustee, Galaxy Fund
II.
-55-
<PAGE>
<CAPTION>
Positions Principal Occupation
with The During Past 5 Years
Name and Address Galaxy Fund and Other Affiliations
- ---------------- ----------- ----------------------
<S> <C> <C>
James M. Seed Trustee Chairman and President, The Astra Projects,
The Astra Ventures, Inc. Incorporated (land development); President,
One Citizens Plaza The Astra Ventures, Incorporated
Providence, RI 02903 (previously, Buffinton Box Company -
Age 58 manufacturer of cardboard boxes);
Commissioner, Rhode Island Investment
Commission; Trustee, The Galaxy VIP Fund;
Trustee, Galaxy Fund II.
Bradford S. Wellman(1) Trustee Private Investor; Vice President and
2468 Ohio Street Director, Acadia Management Company
Bangor, ME 04401 (investment services); Director, Essex
Age 68 County Gas Company, until January 1994;
Director, Maine Mutual Fire Insurance Co.;
Member, Maine Finance Authority; Trustee,
The Galaxy VIP Fund; Trustee, Galaxy Fund
II.
W. Bruce McConnel, III Secretary Partner of the law firm Drinker Biddle &
One Logan Square Reath LLP, Philadelphia, Pennsylvania.
18th and Cherry Streets
Philadelphia, PA 19103
Age 57
Jylanne Dunne Vice President and Vice President, PFPC Inc., 1990 to present.
PFPC Inc. Assistant Treasurer
4400 Computer Drive
Westborough, MA 01581-5108
Age 40
William Greilich Vice President Vice President, PFPC Inc., 1991-96; Vice
PFPC Inc. President and Division Manager, PFPC Inc.,
4400 Computer Drive 1996-present.
Westborough, MA 01581-5108
Age 46
</TABLE>
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<PAGE>
- -------------------------
1. May be deemed to be an "interested person" within the definition set
forth in Section 2(a)(19) of the 1940 Act.
Effective May 28, 1999, each trustee receives an annual aggregate fee of
$45,000 for his services as a trustee of Galaxy, The Galaxy VIP Fund ("Galaxy
VIP") and Galaxy Fund II ("Galaxy II") (collectively, the "Trusts"), plus an
additional $3,500 for each in-person Galaxy Board meeting attended and $1,500
for each in-person Galaxy VIP or Galaxy II Board meeting attended not held
concurrently with an in-person Galaxy meeting, and is reimbursed for expenses
incurred in attending all meetings. Each trustee also receives $750 for each
telephone Board meeting in which the trustee participates, $1,000 for each
in-person Board committee meeting attended and $500 for each telephone Board
committee meeting in which the trustee participates. The Chairman of the Boards
of the Trusts is entitled to an additional annual aggregate fee in the amount of
$4,000, and the President and Treasurer of the Trusts is entitled to an
additional annual aggregate fee of $2,500 for their services in these respective
capacities. The foregoing trustees' and officers' fees are allocated among the
portfolios of the Trusts based on their relative net assets. Prior to May 28,
1999, each Trustee was entitled to receive an annual aggregate fee of $40,000
for his services as a Trustee of the Trusts plus an additional $2,500 for each
in-person Galaxy Board meeting attended, with all other fees being the same as
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
Oechsle, or any of its affiliates, serves as a trustee, officer or employee
of Galaxy. The trustees and officers of Galaxy own less than 1% of its
outstanding shares.
The following chart provides certain information about the fees received
by Galaxy's trustees in the most recently completed fiscal year.
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<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Pension or
Retirement Total Compensation
Benefits Accrued from Galaxy and Fund
Aggregate Compensation as Part of Fund Complex *Paid to
Name of Person/Position from Galaxy Expenses Trustees
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bradford S. Wellman $_______ None $________
Trustee
- ------------------------------------------------------------------------------------------------------------
Dwight E. Vicks, Jr. $_______ None $________
Chairman and Trustee
- ------------------------------------------------------------------------------------------------------------
Donald B. Miller** $_______ None $________
Trustee
- ------------------------------------------------------------------------------------------------------------
Rev. Louis DeThomasis $_______ None $________
Trustee
- ------------------------------------------------------------------------------------------------------------
John T. O'Neill $_______ None $________
President, Treasurer
and Trustee
- ------------------------------------------------------------------------------------------------------------
James M. Seed** $_______ None $_______
Trustee
- ------------------------------------------------------------------------------------------------------------
</TABLE>
- -------------
* The "Fund Complex" consists of Galaxy, The Galaxy VIP Fund and Galaxy
Fund II which comprise a total of 43 separate portfolios.
** Deferred compensation (including interest) in the amounts of $_____ and
$______ 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.
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
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<PAGE>
any action or failure to act except by reason of his own bad faith, willful
misfeasance, gross negligence or reckless disregard of his duties as trustee.
The Declaration of Trust also provides that all persons having any claim against
the trustees or Galaxy shall look solely to the trust property for payment.
With the exceptions stated, the Declaration of Trust provides that a
trustee is entitled to be indemnified against all liabilities and expenses
reasonably incurred by him in connection with the defense or disposition of any
proceeding in which he may be involved or with which he may be threatened by
reason of his being or having been a trustee, and that the Board of Trustees
shall indemnify representatives and employees of Galaxy to the same extent to
which they themselves are entitled to indemnification.
INVESTMENT ADVISER AND SUB-ADVISER
Fleet serves as investment adviser to the Funds. In its advisory
agreement, Fleet has agreed to provide investment advisory services to the Funds
as described in the Prospectuses. Fleet has also agreed to pay all expenses
incurred by it in connection with its activities under the advisory agreement
other than the cost of securities (including brokerage commissions) purchased
for the Funds. See "Expenses" below.
For the services provided and expenses assumed with respect to the Funds,
Fleet is entitled to receive advisory fees, computed daily and paid monthly, at
the annual rate of 0.75% of the average daily net assets of each Fund other than
the International Equity Fund. For the services provided and the expenses
assumed with respect to the International Equity Fund, Fleet is entitled to
receive advisory fees, computed daily and paid monthly, at the annual rate of
1.15% of the first $50 million of the Fund's average daily net assets, plus
0.95% of the next $50 million of such assets, plus 0.85% of net assets in excess
of $100 million.
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<PAGE>
During the last three fiscal years, Galaxy paid advisory fees (net of fee
waivers and/or expense reimbursements) to Fleet as set forth below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Asset Allocation....................................................... $3,743,922 $2,313,863
Equity Income.......................................................... $2,457,188 $1,947,792
Growth and Income...................................................... $3,701,722 $2,361,898
Strategic Equity....................................................... $70,206(1) *
Equity Value........................................................... $3,782,620 $2,860,410
Equity Growth.......................................................... $8,345,236 $6,555,045
International Equity(2)................................................ $2,480,868 $1,844,037
Small Cap Value........................................................ $2,042,588 $1,370,449
Small Company Equity................................................... $3,166,852 $2,610,431
</TABLE>
- ---------------
* Not in operation during the period.
(1) For the period from March 4, 1998 (commencement of operations) through
October 31, 1998. Fleet waived advisory fees of $26,590 with respect to
the Strategic Equity Fund during this period.
(2) For the fiscal years ended October 31, 1999, October 31, 1998 and October
31, 1997, Fleet waived advisory fees of $_______, $950,363 and $682,009,
respectively, with respect to the International Equity Fund.
During the last three fiscal years, Fleet reimbursed expenses as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Asset Allocation....................................................... $0 $19,254
Equity Income.......................................................... $0 $38,298
Growth and Income...................................................... $150,727 $306,295
Strategic Equity....................................................... $2,915(1) *
Equity Value........................................................... $0 $26,294
Equity Growth.......................................................... $0 $27,033
International Equity................................................... $0 $18,362
Small Cap Value........................................................ $115,022 $103,101
Small Company Equity................................................... $27,376 $118,118
</TABLE>
- ---------------
* Not in operation during the period.
(1) For the period from March 4, 1998 (commencement of operations) through
October 31, 1998.
The advisory agreement provides that Fleet shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Funds in
connection with the performance of its duties under the advisory agreement,
except a loss resulting from a breach of fiduciary duty with respect to the
receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of Fleet in the
performance of its duties or from reckless disregard by it of its duties and
obligations thereunder. Unless sooner terminated, the advisory 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
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<PAGE>
such party, cast in person at a meeting called for the purpose of voting on such
approval; and (ii) by Galaxy's Board of Trustees, or by a vote of a majority of
the outstanding shares of such Fund. The term "majority of the outstanding
shares of such Fund" means, with respect to approval of an advisory agreement,
the vote of the lesser of (i) 67% or more of the shares of the Fund present at a
meeting, if the holders of more than 50% of the outstanding shares of the Fund
are present or represented by proxy, or (ii) more than 50% of the outstanding
shares of the Fund. The advisory agreement may be terminated by Galaxy or by
Fleet on sixty days' written notice, and will terminate immediately in the event
of its assignment.
The advisory agreement between Galaxy and Fleet with respect to the
International Equity Fund provides that Fleet will provide a continuous
investment program for the Fund, including research and management with respect
to all securities and investments and cash equivalents in the Fund. In addition,
the advisory agreement authorizes Fleet to engage a sub-adviser to assist it in
the performance of its services. Pursuant to such authorization, Fleet has
appointed Oechsle, a Delaware limited liability company with principal offices
at One International Place, Boston, Massachusetts 02210, as the sub-adviser to
the International Equity Fund. The member manager of Oechsle is Oechsle Group,
LLC. FleetBoston Corporation owns approximately a 35% non-voting
interest in Oechsle. As of December 31, 1999, Oechsle had discretionary
management authority over approximately $____________ in assets.
Under its sub-advisory agreement with Fleet, Oechsle determines which
securities and other investments will be purchased, retained or sold for the
Fund; places orders for the Fund; manages the Fund's overall cash position; and
provides Fleet with foreign broker research and a quarterly review of
international economic and investment developments. Fleet, among other things,
assists and consults with Oechsle in connection with the Fund's continuous
investment program; approves lists of foreign countries recommended by Oechsle
for investment; reviews the investment policies and restrictions of the Fund and
recommends appropriate changes to the Board of Trustees; and provides the Board
of Trustees and Oechsle with information concerning relevant economic and
political developments. Oechsle will provide services under this agreement in
accordance with the Fund's investment objectives, policies and restrictions.
Unless sooner terminated by Fleet or the Board of Trustees upon sixty days'
written notice or by Oechsle upon ninety days' written notice, the sub-advisory
agreement will continue in effect from year to year as long as such continuance
is approved at least annually as described above.
For the services provided and the expenses assumed pursuant to the
sub-advisory agreement, Fleet pays a fee to Oechsle, computed daily and paid
quarterly, at the annual rate of .40% of the first $50 million of the
International Equity Fund's average daily net assets, plus .35% of average daily
net assets in excess of $50 million.
For the fiscal years ended October 31, 1999, October 31, 1998 and October
31, 1997, Oechsle and /or its predecessor, Oechsle International Advisors, L.P.,
received sub-advisory fees of $________, $1,355,508 and $979,810, respectively,
with respect to the International Equity Fund.
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<PAGE>
Fleet and Oechsle are authorized to allocate purchase and sale orders for
portfolio securities to certain financial institutions, including, to the extent
permitted by law or order of the SEC, financial institutions that are affiliated
with Fleet or Oechsle or that have sold shares of the Funds, if Fleet or
Oechsle, as the case may be, believes that the quality of the transaction and
the commission are comparable to what they would be with other qualified
brokerage firms.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling, or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling, or distributing securities such as shares
of the Funds, but do not prohibit such a bank holding company or its affiliates
or banks generally from acting as investment adviser, transfer agent, or
custodian to such an investment company or from purchasing shares of such a
company as agent for and upon the order of customers. Fleet, the custodian and
institutions which agree to provide shareholder support services that are banks
or bank affiliates are subject to such banking laws and regulations. Should
legislative, judicial or administrative action prohibit or restrict the
activities of such companies in connection with their services to the Funds,
Galaxy might be required to alter materially or discontinue its arrangements
with such companies and change its method of operation. It is anticipated,
however, that any resulting change in the Funds' method of operation would not
affect a Fund's net asset value per share or result in financial loss to any
shareholder.
ADMINISTRATOR
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 Bank
Corp.
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
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Galaxy with an October 31 fiscal year end, computed daily and paid monthly, at
the following annual rates, effective September 10, 1998:
<TABLE>
<CAPTION>
COMBINED AVERAGE DAILY NET ASSETS ANNUAL RATE
--------------------------------- -----------
<S> <C>
Up to $2.5 billion.......................... 0.090%
From $2.5 to $5 billion..................... 0.085%
From $5 to $12 billion...................... 0.075%
From $12 to $15 billion..................... 0.065%
From $15 to $18 billion..................... 0.060%
Over $18 billion............................ 0.0575%
</TABLE>
Prior to September 10, 1998, Galaxy paid PFPC administration fees
based on the combined average daily net assets of the Funds and all other
portfolios offered by Galaxy at the following annual rates:
<TABLE>
<CAPTION>
COMBINED AVERAGE DAILY NET ASSETS ANNUAL RATE
--------------------------------- -----------
<S> <C>
Up to $2.5 billion.......................... 0.090%
From $2.5 to $5 billion..................... 0.085%
Over $5 billion............................. 0.075%
</TABLE>
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. For the fiscal year ended
October 31, 1999, each Fund paid PFPC administration fees at the effective
annual rate of ____% of such Fund's average daily net assets. During the last
three fiscal years, PFPC received administration fees (net of fee waivers) as
set forth below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Asset Allocation....................................................... $401,495 $253,881
Equity Income.......................................................... $263,640 $216,835
Growth and Income...................................................... $413,204 $290,324
Strategic Equity....................................................... $10,624(1) *
Equity Value........................................................... $405,740 $314,236
Equity Growth.......................................................... $895,213 $716,320
International Equity................................................... $305,871 $222,620
Small Cap Value........................................................ $231,440 $160,350
Small Company Equity................................................... $342,901 $222,620
</TABLE>
- ---------------------
* Not in operation during the period.
(1) For the period from March 4, 1998 (commencement of operations) through
October 31, 1998.
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<PAGE>
During the last three fiscal years, PFPC waived administration fees as
set forth below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Asset Allocation....................................................... $0 $0
Equity Income.......................................................... $0 $0
Growth and Income...................................................... $0 $0
Strategic Equity....................................................... $0(1) *
Equity Value........................................................... $0 $0
Equity Growth.......................................................... $0 $0
International Equity................................................... $0 $0
Small Cap Value........................................................ $0 $0
Small Company Equity................................................... $0 $0
</TABLE>
- ---------------------
* Not in operation during the period.
(1) For the period from March 4, 1998 (commencement of operations) through
October 31, 1998.
Under the administration agreement between Galaxy and 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.
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
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<PAGE>
relating to its duties; and (vi) make periodic reports to the Board of Trustees
concerning the Funds' operations. Chase Manhattan is authorized to select one or
more banks or trust companies to serve as sub-custodian for the Funds, provided
that Chase Manhattan shall remain responsible for the performance of all of its
duties under the custodian agreement and shall be liable to the Funds for any
loss which shall occur as a result of the failure of a sub-custodian to exercise
reasonable care with respect to the safekeeping of the Funds' assets. In
addition, Chase Manhattan also serves as Galaxy's "foreign custody manager" (as
that term is defined in Rule 17f-5 under the 1940 Act) and in such capacity
employs sub-custodians for the Funds for the purpose of providing custodial
services for the foreign assets of those Funds held outside the U.S. The assets
of the Funds are held under bank custodianship in compliance with the 1940 Act.
PFPC serves as the Funds' transfer and dividend disbursing agent
pursuant to a Transfer Agency and Services Agreement (the "Transfer Agency
Agreement"). Communications to PFPC should be directed to PFPC at P.O. Box
5108, 4400 Computer Drive, Westborough, Massachusetts 01581. Under the
Transfer Agency Agreement, PFPC has agreed to: (i) issue and redeem shares of
each Fund; (ii) transmit all communications by each Fund to its shareholders
of record, including reports to shareholders, dividend and distribution
notices and proxy materials for meetings of shareholders; (iii) respond to
correspondence by security brokers and others relating to its duties; (iv)
maintain shareholder accounts; and (v) make periodic reports to the Board of
Trustees concerning Galaxy's operations.
PFPC may enter into agreements with one or more entities, including
affiliates of Fleet, pursuant to which such entities agree to perform certain
sub-accounting and administrative functions ("Sub-Account Services") on a per
account basis with respect to Trust Shares of each Fund held by defined
contribution plans, including maintaining records reflecting separately with
respect to each plan participant's sub-account all purchases and redemptions
of Trust Shares and the dollar value of Trust Shares in each sub-account;
crediting to each participant's sub-account all dividends and distributions
with respect to that sub-account; and transmitting to each participant a
periodic statement regarding the sub-account as well as any proxy materials,
reports and other material Fund communications. Such entities are compensated
by PFPC for the Sub-Account Services and in connection therewith the transfer
agency fees payable by Trust Shares of the Funds to PFPC have been increased
by an amount equal to these fees. In substance, therefore, the holders of
Trust Shares of these Funds indirectly bear these fees.
Fleet Bank, an affiliate of Fleet, is paid a fee for Sub-Account Services
performed with respect to Trust Shares of the Funds held by defined contribution
plans. Pursuant to an agreement between Fleet Bank and PFPC,
Fleet Bank will be paid $21.00 per year for each defined contribution plan
participant account. For the fiscal year ended October 31, 1999, Fleet Bank
received $__________ for Sub-Account Services.
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<PAGE>
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 or Oechsle will select specific portfolio investments and effect
transactions for the Funds. Fleet seeks to obtain the best net price and the
most favorable execution of orders. Fleet or Oechsle may, in its discretion,
effect transactions in portfolio securities with dealers who provide research
advice or other services to the Funds, Fleet or Oechsle. Fleet or Oechsle is
authorized to pay a broker or dealer who provides such brokerage and research
services a commission for executing a portfolio transaction for any Fund which
is in excess of the amount of commission another broker or dealer would have
charged for effecting that transaction if Fleet or Oechsle determines in good
faith that such commission was reasonable in relation to the value of the
brokerage and research services provided by such broker or dealer, viewed in
terms of either that particular transaction or Fleet or Oechsle's overall
responsibilities to the particular Fund and to Galaxy. Such brokerage and
research services might consist of reports and statistics relating to specific
companies or industries, general summaries of groups of stocks or bonds and
their comparative earnings and yields, or broad overviews of the stock, bond and
government securities markets and the economy. The fees under the investment
advisory agreements between Galaxy and Fleet and Fleet and Oechsle are not
reduced by reason of receiving such brokerage and research services. The Board
of Trustees will periodically review the commissions paid by the Funds to
determine if the commissions paid over representative periods of time were
reasonable in relation to the benefits inuring to the Funds.
-66-
<PAGE>
During the fiscal year ended October 31, 1999, the Funds paid soft dollar
commissions as shown below:
<TABLE>
<CAPTION>
FUND COMMISSIONS
<S> <C>
Asset Allocation.............. $
Equity Income................. $
Growth and Income............. $
Strategic Equity.............. $
Equity Value.................. $
Equity Growth................. $
International Equity.......... $
Small Cap Value............... $
Small Company Equity.......... $
</TABLE>
Transactions on U.S. stock exchanges involve the payment of negotiated
brokerage commissions. On exchanges on which commissions are negotiated, the
cost of transactions may vary among different brokers. There is generally no
stated commission in the case of securities traded in U.S. over-the-counter
markets, but the prices of those securities include undisclosed commissions or
mark-ups. The cost of securities purchased from underwriters includes an
underwriting commission or concession, and the prices at which securities are
purchased from and sold to dealers include a dealer's mark-up or mark-down. U.S.
Government Securities are generally purchased from underwriters or dealers,
although certain newly issued U.S. Government Securities may be purchased
directly from the U.S. Treasury or from the issuing agency or instrumentality.
No brokerage commissions are typically paid on purchases and sales of U.S.
Government Securities.
The Funds paid brokerage commissions as shown in the table below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Asset Allocation....................................................... $225,758 $155,296
Equity Income.......................................................... $304,645 $201,407
Growth and Income...................................................... $511,307 $851,919
Strategic Equity....................................................... $118,965(1) *
Equity Value........................................................... $965,718 $934,709
Equity Growth.......................................................... $1,128,464 $7,006,331
International Equity................................................... $841,389 $851,919
Small Cap Value........................................................ $223,853 $173,335
Small Company Equity................................................... $579,137 $354,910
</TABLE>
- -----------------
* Not in operation during the period.
(1) For the period from March 4, 1998 (commencement of operations) through
October 31, 1998.
-67-
<PAGE>
During the period February 1, 1998 through October 31, 1998 and the
fiscal year ended October 31, 1999, certain Funds effected a portion of their
portfolio transactions through Quick & Reilly Institutional Trading ("Quick &
Reilly"), a division of Fleet Securities, Inc. which is an affiliate of Fleet.
The table below discloses (1) the aggregate amount of commissions paid to Quick
& Reilly by the Funds during the period ended October 31, 1998 and the fiscal
year ended October 31, 1999, (2) the percentage of each Fund's aggregate
brokerage commissions for the fiscal year ended October 31, 1999 that was paid
to Quick & Reilly, and (3) the percentage of each Fund's aggregate dollar amount
of transactions that involved payment of commissions that was effected through
Quick & Reilly during the fiscal year ended October 31, 1999.
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1999:
1999
1999 % OF
1999 % OF 1998 AGGREGATE
AGGREGATE AGGREGATE AGGREGATE COMMISSION
FUND AMOUNT COMMISSIONS AMOUNT TRANSACTIONS
- ---- ------ ----------- ------ ------------
<S> <C> <C> <C> <C>
Asset Allocation.................... $_______ ______% $130,968 ______%
Equity Income....................... $_______ ______% $108,651 ______%
Growth and Income................... $_______ ______% $118,050 ______%
Strategic Equity(1)................. $_______ ______% $26,480 ______%
Equity Value........................ $_______ ______% $298,078 ______%
Equity Growth....................... $_______ ______% $56,784 ______%
</TABLE>
The Funds may engage in short-term trading to achieve their investment
objectives. Portfolio turnover may vary greatly from year to year as well as
within a particular year. Except as permitted by the SEC or applicable law,
the Funds will not acquire portfolio securities from, make savings deposits
in, enter into repurchase or reverse repurchase agreements with, or sell
securities to, Fleet, Oechsle, PFPC, or their affiliates, and will not give
preference to affiliates and correspondent banks of Fleet with respect to
such transactions.
Galaxy is required to identify any securities of its "regular brokers or
dealers" that the Funds have acquired during Galaxy's most recent fiscal year.
At October 31, 1999 [TO BE PROVIDED BY FIRST DATA.]
Investment decisions for each Fund are made independently from those for
the other Funds and portfolios of Galaxy and for any other investment companies
and accounts advised or managed by Fleet or Oechsle. When a purchase or sale of
the same security is made at substantially the same time on behalf of a Fund,
another portfolio of Galaxy, and/or another investment company or account, the
transaction will be averaged as to price, and available investments allocated as
to amount, in a manner which Fleet or Oechsle believes to be equitable to the
Fund and such other portfolio, investment company or account. In some instances,
this investment procedure may adversely affect the price paid or received by a
Fund or the size of the position obtained or sold by such Fund. To the extent
permitted by law, Fleet or Oechsle may aggregate the securities to be sold or
purchased for a Fund with those to be sold or purchased for
-68-
<PAGE>
Galaxy's other Funds and portfolios, or other investment companies or
accounts in order to obtain best execution.
SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan pursuant to which it
intends to enter into servicing agreements with institutions (including Fleet
Bank and its affiliates). Pursuant to these servicing agreements,
institutions render certain administrative and support services to customers
who are the beneficial owners of Retail A Shares. Such services are provided
to customers who are the beneficial owners of Retail A Shares and are
intended to supplement the services provided by PFPC as administrator and
transfer agent to the shareholders of record of the Retail A Shares. The Plan
provides that Galaxy will pay fees for such services at an annual rate of up
to .50% of the average daily net asset value of Retail A Shares owned
beneficially by customers. Institutions may receive up to one-half of this
fee for providing one or more of the following services to such customers:
aggregating and processing purchase and redemption requests and placing net
purchase and redemption orders with PDI; processing dividend payments from a
Fund; providing sub-accounting with respect to Retail A Shares or the
information necessary for sub-accounting; and providing periodic mailings to
customers. Institutions may also receive up to one-half of this fee for
providing one or more of these additional services to such customers:
providing customers with information as to their positions in Retail A
Shares; responding to customer inquiries; and providing a service to invest
the assets of customers in Retail A Shares.
Although the Shareholder Services Plan has been approved with respect to
both Retail A Shares and Trust Shares of the Funds, as of the date of this
Statement of Additional Information, Galaxy has entered into servicing
agreements under the Shareholder Services Plan only with respect to Retail A
Shares of each Fund, and to limit the payment under these servicing agreements
for each Fund to an aggregate fee of not more than .30% (on an annualized basis)
of the average daily net asset value of the Retail A Shares of the Fund
beneficially owned by customers of institutions. Galaxy understands that
institutions may charge fees to their customers who are the beneficial owners of
Retail A Shares in connection with their accounts with such institutions. Any
such fees would be in addition to any amounts which may be received by an
institution under the Shareholder Services Plan. Under the terms of each
servicing agreement entered into with Galaxy, institutions are required to
provide to their customers a schedule of any fees that they may charge in
connection with customer investments in Retail A Shares. As of October 31, 1999,
Galaxy had entered into Servicing Agreements only with Fleet Bank and
affiliates.
Each Servicing Agreement between Galaxy and a Service Organization
relating to the Services Plan requires that, with respect to those Funds which
declare dividends on a daily basis, the Service Organization agrees to waive a
portion of the servicing fee payable to it under the Services Plan to the extent
necessary to ensure that the fees required to be accrued with respect to the
Retail A Shares of such Funds on any day do not exceed the income to be accrued
to such Retail A Shares on that day.
-69-
<PAGE>
During the last three fiscal years, Galaxy made payments to Service
Organizations with respect to Retail A Shares as shown in the table below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Asset Allocation....................................................... $763,611 $412,384
Equity Income.......................................................... $599,940 $434,674
Growth and Income...................................................... $472,627 $324,069
Strategic Equity....................................................... $4,356(1) *
Equity Value........................................................... $667,247 $440,920
Equity Growth.......................................................... $841,650 $558,695
International Equity................................................... $191,712 $102,465
Small Cap Value........................................................ $250,077 $130,739
Small Company Equity................................................... $343,948 $287,068
</TABLE>
- -------------------
* Not in operation during the period.
(1) For the period from March 4, 1998 (commencement of operations) through
October 31, 1998.
Galaxy's Servicing Agreements are governed by the Services Plan that has
been adopted by Galaxy's Board of Trustees in connection with the offering of
Retail A Shares of each Fund. Pursuant to the Services Plan, the Board of
Trustees reviews, at least quarterly, a written report of the amounts paid under
the Servicing Agreements and the purposes for which the expenditures were made.
In addition, the arrangements with Service Organizations must be approved
annually by a majority of Galaxy's trustees, including a majority of the
trustees who are not "interested persons" of Galaxy as defined in the 1940 Act
and who have no direct or indirect financial interest in such arrangements (the
"Disinterested Trustees").
The Board of Trustees has approved Galaxy's arrangements with Service
Organizations based on information provided by Galaxy's service contractors that
there is a reasonable likelihood that the arrangements will benefit the Funds
and their shareholders by affording Galaxy greater flexibility in connection
with the efficient servicing of the accounts of the beneficial owners of Retail
A Shares of the Funds. Any material amendment to Galaxy's arrangements with
Service Organizations must be approved by a majority of Galaxy's Board of
Trustees (including a majority of the Disinterested Trustees). So long as
Galaxy's arrangements with Service Organizations are in effect, the selection
and nomination of the members of Galaxy's Board of Trustees who are not
"interested persons" (as defined in the 1940 Act) of Galaxy will be committed to
the discretion of such Disinterested Trustees.
DISTRIBUTION AND SERVICES PLAN
Galaxy has adopted a Distribution and Services Plan pursuant to Rule
12b-1 under the 1940 Act (the "Rule") with respect to Retail B Shares of the
Funds (the "12b-1 Plan"). Under the 12b-1 Plan, Galaxy may pay (a) PDI or
another person for expenses and activities intended to
-70-
<PAGE>
result in the sale of Retail B Shares, including the payment of commissions to
broker-dealers and other industry professionals who sell Retail B Shares and the
direct or indirect cost of financing such payments, (b) institutions for
shareholder liaison services, which means personal services for holders of
Retail B Shares and/or the maintenance of shareholder accounts, such as
responding to customer inquiries and providing information on accounts, and (c)
institutions for administrative support services, which include but are not
limited to (i) transfer agent and sub-transfer agent services for beneficial
owners of Retail B Shares; (ii) aggregating and processing purchase and
redemption orders; (iii) providing beneficial owners with statements showing
their positions in Retail B Shares; (iv) processing dividend payments; (v)
providing sub-accounting services for Retail B Shares held beneficially; (vi)
forwarding shareholder communications, such as proxies, shareholder reports,
dividend and tax notices, and updating prospectuses to beneficial owners; and
(vii) receiving, translating and transmitting proxies executed by beneficial
owners.
Under the 12b-1 Plan, payments by Galaxy (i) for distribution expenses
may not exceed the annualized rate of .65% of the average daily net assets
attributable to each such Fund's outstanding Retail B Shares, and (ii) to an
institution for shareholder liaison services and/or administrative support
services may not exceed the annual rates of .25% and .25%, respectively, of the
average daily net assets attributable to each such Fund's outstanding Retail B
Shares which are owned of record or beneficially by that institution's customers
for whom the institution is the dealer of record or shareholder of record or
with whom it has a servicing relationship. As of the date of this Statement of
Additional Information, Galaxy intends to limit each Fund's payments for
shareholder liaison and administrative support services under the 12b-1 Plan to
an aggregate fee of not more than .30% (on an annualized basis) of the average
daily net asset value of Retail B Shares owned of record or beneficially by
customers of institutions.
Payments for distribution expenses under the 12b-1 Plan are subject to
the Rule. The Rule defines distribution expenses to include the cost of "any
activity which is primarily intended to result in the sale of shares issued by"
Galaxy. The Rule provides, among other things, that an investment company may
bear such expenses only pursuant to a plan adopted in accordance with the Rule.
In accordance with the Rule, the 12b-1 Plan provides that a report of the
amounts expended under the 12b-1 Plan, and the purposes for which such
expenditures were incurred, will be made to the Board of Trustees for its review
at least quarterly. The 12b-1 Plan provides that it may not be amended to
increase materially the costs which Retail B Shares of a Fund may bear for
distribution pursuant to the 12b-1 Plan without shareholder approval, and that
any other type of material amendment must be approved by a majority of the Board
of Trustees, and by a majority of the trustees who are neither "interested
persons" (as defined in the 1940 Act) of Galaxy nor have any direct or indirect
financial interest in the operation of the 12b-1 Plan or in any related
agreements (the "12b-1 Trustees"), by vote cast in person at a meeting called
for the purpose of considering such amendments.
During the last three fiscal years, Retail B Shares of the Funds bore the
following distribution fees under the 12b-1 Plan:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Asset Allocation....................................................... $292,256 $99,219
-71-
<PAGE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Equity Income.......................................................... * *
Growth and Income...................................................... $306,933 $122,300
Strategic Equity....................................................... $1,300(1) **
Equity Value........................................................... $132,464 $50,897
Equity Growth.......................................................... $184,524 $75,906
International Equity................................................... * *
Small Cap Value........................................................ * *
Small Company Equity................................................... $97,785 $55,371
</TABLE>
- ------------------
* The Equity Income, International Equity and Small Cap Value Funds did not
offer Retail B Shares until November 1, 1998.
** Not in operation during the period.
(1) For the period from March 4, 1998 (commencement of operations) through
October 31, 1998.
During the last three the fiscal years, Retail B Shares of the Funds bore
the following shareholder servicing fees under the 12b-1 Plan:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Asset Allocation....................................................... $134,888 $44,293
Equity Income.......................................................... * *
Growth and Income...................................................... $124,879 $54,046
Strategic Equity....................................................... $600(1) **
Equity Value........................................................... $61,137 $21,199
Equity Growth.......................................................... $85,165 $34,034
International Equity................................................... * *
Small Cap Value........................................................ * *
Small Company Equity................................................... $45,132 $23,556
</TABLE>
- ------------------
* The Equity Income, International Equity and Small Cap Value Funds did not
offer Retail B Shares until November 1, 1998.
** Not in operation during the period.
(1) For the period from March 4, 1998 (commencement of operations) through
October 31, 1998.
All amounts paid under the 12b-1 Plan for these periods were attributable to
payments to broker-dealers.
Galaxy's Board of Trustees has concluded that there is a reasonable
likelihood that the 12b-1 Plan will benefit the Funds and holders of Retail B
Shares. The 12b-1 Plan is subject to annual reapproval by a majority of the
12b-1 Trustees and is terminable at any time with respect to any Fund by a vote
of a majority of the 12b-1 Trustees or by vote of the holders of a majority of
the Retail B Shares of the Fund involved. Any agreement entered into pursuant to
the 12b-1 Plan with a Service Organization is terminable with respect to any
Fund without penalty, at any time, by vote of a majority of the 12b-1 Trustees,
by vote of the holders of a majority of the Retail B Shares of such Fund, by PDI
or by the Service Organization. An agreement will also terminate automatically
in the event of its assignment.
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<PAGE>
As long as the 12b-1 Plan is in effect, the nomination of the trustees
who are not interested persons of Galaxy (as defined in the 1940 Act) must be
committed to the discretion of the 12b-1 Trustees.
DISTRIBUTOR
PDI serves as Galaxy's distributor. PDI is a registered broker-dealer
with principal offices located at Four Falls Corporate Center, 6th Floor, West
Conshohocken, Pennsylvania 19428-2961. Jane Haegele is the sales shareholder of
PDI.
Unless otherwise terminated, the Distribution Agreement between Galaxy
and PDI remains in effect until November 30, 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.
PDI is entitled to the payment of a front-end sales charge on the sale
of Retail A Shares of the Funds as described in the applicable Prospectus and
this Statement of Additional Information. Prior to December 1, 1999, First
Data Distributors, Inc. ("FD Distributors") a wholly-owned subsidiary of
PFPC, served as Galaxy's distributor, and was entitled to the payment of the
front-end sales charge on the sale of Retail A Shares of the Funds. During
the last three fiscal years, FD Distributors received front-end sales charges
in connection with Retail A Share purchases as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Asset Allocation....................................................... $1,208,453 $1,010,359
Equity Income.......................................................... $312,155 $592,347
Growth and Income...................................................... $681,018 $988,216
Strategic Equity....................................................... $21,677(1) *
Equity Value........................................................... $364,586 $451,771
Equity Growth.......................................................... $548,901 $491,165
International Equity................................................... $126,093 $320,935
Small Cap Value........................................................ $398,478 $300,152
Small Company Equity................................................... $103,755 $343,614
</TABLE>
- -----------------
* Not in operation during the period.
(1) For the period from March 4, 1998 (commencement of operations) through
October 31, 1998.
FD Distributors retained none of the amounts shown in the table above.
-73-
<PAGE>
PDI is also entitled to the payment of contingent deferred sales charges
upon the redemption of Retail B Shares of the Funds. During the last three
fiscal years, FD Distributors, as distributor for the Funds, was entitled to the
payment of the contingent deferred sales charges upon the redemption of Retail B
Shares and received contingent deferred sales charges in connection with Retail
B Share redemptions as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Asset Allocation....................................................... $142,492 $57,559
Equity Income.......................................................... * *
Growth and Income...................................................... $107,798 $49,278
Strategic Equity....................................................... $112(1) **
Equity Value........................................................... $44,300 $21,384
Equity Growth.......................................................... $65,766 $28,379
International Equity................................................... * *
Small Cap Value........................................................ * *
Small Company Equity................................................... $38,792 $34,481
</TABLE>
- -----------------
* The Equity Income, International Equity and Small Cap Value Funds did not
offer Retail B Shares until November 1, 1998.
** Not in operation during the period.
(1) For the period from March 4, 1998 (commencement of operations) through
October 31, 1998.
FD Distributors retained none of the amounts shown in the table above.
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<PAGE>
The following table shows all sales charges, commissions and other
compensation received by FD Distributors directly or indirectly from the Funds
during the fiscal year ended October 31, 1999:
<TABLE>
<CAPTION>
Brokerage
Net Underwriting Compensation on Commissions in
Discounts and Redemption and Connection with Other
Fund Commissions(1) Repurchase(2) Fund Transactions Compensation(3)
- ---- -------------- ------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Asset
Allocation ------ ------ ------ ------
Equity Income ------ ------ ------ ------
Growth and Income ------ ------ ------ ------
Strategic Equity ------ ------ ------ ------
Equity Value ------ ------ ------ ------
Equity Growth ------ ------ ------ ------
International
Equity ------ ------ ------ ------
Small Cap Value ------ ------ ------ ------
Small Company
Equity ------ ------ ------ ------
</TABLE>
- ----------------
(1) Represents amounts received from front-end sales charges on Retail A
Shares and commissions received in connection with sales of Retail B
Shares.
(2) Represents amounts received from contingent deferred sales charges on
Retail B Shares. The basis on which such sales charges are paid is
described in the Prospectus relating to Retail B Shares. All such amounts
were paid to affiliates of Fleet.]
(3) Represents payments made under the Shareholder Services Plan and
Distribution and Services Plan during the fiscal year ended October 31,
1999, which includes fees accrued in the fiscal year ended October 31,
1998, which were paid in 1997 (see "Shareholder Services Plan" and
"Distribution and Services Plan" above).
AUDITORS
, independent auditors, with offices at , serve
as auditors for Galaxy. The financial highlights for the respective Funds
included in their Prospectuses and the financial statements for the Funds
contained in Galaxy's Annual Report and into this Statement of
Additional Information for the fiscal year ended October 31, 1999 have been
audited by . For the respective fiscal years and periods prior
to October 31, 1999, the financial highlights for the Funds included in the
Prospectuses and the financial statements for such years and periods contained
in the Annual Report were audited by , Galaxy's former auditors.
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.
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<PAGE>
PERFORMANCE AND YIELD INFORMATION
Investment returns and principal values will vary with market conditions
so that an investor's shares, when redeemed, may be worth more or less than
their original cost. Past performance is no guarantee of future results. Unless
otherwise indicated, total return figures include changes in share price,
deduction of any applicable sales charge, and reinvestment of dividends and
capital gains distributions, if any.
The Funds' 30-day (or one month) standard yields are calculated
separately for each series of shares in each Fund in accordance with the method
prescribed by the SEC for mutual funds:
6
YIELD = 2[(a-b)/cd +1 ) - 1]
Where: a = dividends and interest earned by a Fund during the
period;
b = expenses accrued for the period (net of
reimbursements);
c = average daily number of shares outstanding during
the period entitled to receive dividends; and
d = maximum offering price per share on the last day of
the period.
For the purpose of determining net investment income earned during the period
(variable "a" in the formula), dividend income on equity securities held by a
Fund is recognized by accruing 1/360 of the stated dividend rate of the security
each day that the security is in the Fund. Except as noted below, interest
earned on debt obligations held by a Fund is calculated by computing the yield
to maturity of each obligation based on the market value of the obligation
(including actual accrued interest) at the close of business on the last
business day of each month, or, with respect to obligations purchased during the
month, the purchase price (plus actual accrued interest) and dividing the result
by 360 and multiplying the quotient by the market value of the obligation
(including actual accrued interest) in order to determine the interest income on
the obligation for each day of the subsequent month that the obligation is held
by the Fund. For purposes of this calculation, it is assumed that each month
contains 30 days. The maturity of an obligation with a call provision is the
next call date on which the obligation reasonably may be expected to be called
or, if none, the maturity date. With respect to debt obligations purchased at a
discount or premium, the formula generally calls for amortization of the
discount or premium. The amortization schedule will be adjusted monthly to
reflect changes in the market value of such debt obligations. Expenses accrued
for the period (variable "b" in the formula) include all recurring fees charged
by a Fund to all shareholder accounts in proportion to the length of the
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<PAGE>
base period and the Fund's mean (or median) account size. Undeclared earned
income will be subtracted from the offering price per share (variable "d" in the
formula).
With respect to mortgage or other receivables-backed obligations that are
expected to be subject to monthly payments of principal and interest
("pay-downs"), (i) gain or loss attributable to actual monthly pay-downs are
accounted for as an increase or decrease to interest income during the period,
and (ii) each Fund may elect either (a) to amortize the discount and premium on
the remaining security, based on the cost of the security, to the weighted
average maturity date, if such information is available, or to the remaining
term of the security, if any, if the weighted average date is not available or
(b) not to amortize discount or premium on the remaining security.
Based on the foregoing calculation, the standard yields for Retail A
Shares, Retail B Shares and Trust Shares of the Funds for the 30-day period
ended October 31, 1999 were as set forth below:
<TABLE>
<CAPTION>
FUND RETAIL A RETAIL B TRUST
- ---- -------- -------- -----
<S> <C> <C> <C>
Asset Allocation............................ ___% ___% ___%
Equity Income............................... ___% ___% ___%
Growth and Income........................... ___% ___% ___%
Strategic Equity............................ ___% ___% ___%
Equity Value................................ ___% ___% ___%
Equity Growth............................... ___% ___% ___%
International Equity........................ ___% ___% ___%
Small Cap Value............................. ___% ___% ___%
Small Company Equity........................ ___% ___% ___%
</TABLE>
Each Fund that advertises its "average annual total return" computes
such return separately for each series of shares by determining the average
annual compounded rate of return during specified periods that equates the
initial amount invested to the ending redeemable value of such investment
according to the following formula:
1/n
T = [(ERV/P) - 1]
Where: T = average annual total return;
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the l, 5 or 10 year (or other)
periods at the end of the applicable period (or a
fractional portion thereof);
P = hypothetical initial payment of $1,000; and
n = period covered by the computation, expressed in years.
Each Fund that advertises its "aggregate total return" computes such
returns separately for each series of shares by determining the aggregate
compounded rates of return during
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<PAGE>
specified periods that likewise equate the initial amount invested to the ending
redeemable value of such investment. The formula for calculating aggregate total
return is as follows:
Aggregate Total Return = [(ERV/P) - l]
The calculations are made assuming that (1) all dividends and capital
gain distributions are reinvested on the reinvestment dates at the price per
share existing on the reinvestment date, (2) all recurring fees charged to all
shareholder accounts are included, and (3) for any account fees that vary with
the size of the account, a mean (or median) account size in the Fund during the
periods is reflected. The ending redeemable value (variable "ERV" in the
formula) is determined by assuming complete redemption of the hypothetical
investment after deduction of all nonrecurring charges at the end of the
measuring period. In addition, the Funds' Retail Shares average annual total
return and aggregate total return quotations will reflect the deduction of the
maximum sales load charged in connection with purchases of Retail A Shares or
redemptions of Retail B Shares, as the case may be.
The aggregate total returns for Retail A Shares, Retail B Shares and
Trust Shares (as applicable) of the Funds from the date of initial public
offering to October 31, 1999 are set forth below:
<TABLE>
<CAPTION>
FUND RETAIL A(1) RETAIL B TRUST
- ---- -------- -------- -----
<S> <C> <C> <C>
Asset Allocation............................. _____%(2) _____%(3) _____%(2)
Equity Income................................ _____%(4) _____%* _____%(4)
Growth and Income............................ _____%(5) _____%(3) _____%(6)
Strategic Equity(7).......................... _____% _____% _____%
Equity Value................................. _____%(8) _____%(3) _____%(8)
Equity Growth................................ _____%(4) _____%(3) _____%(4)
International Equity......................... _____%(2) _____%* _____%(2)
Small Company Equity......................... _____%(2) _____%(3) _____%(2)
Small Cap Value.............................. _____%(5) _____%* _____%(6)
</TABLE>
- ----------------
* For the period from November 1, 1998 (initial public offering date)
through October 31, 1999.
(1) On September 7, 1995, Retail Shares of the Funds were redesignated
"Retail A Shares."
(2) For the period from December 30, 1991 (initial public offering date)
through October 31, 1999.
(3) For the period from March 4, 1996 (initial public offering date) through
October 31, 1999.
(4) For the period from December 14, 1990 (initial public offering date)
through October 31, 1999.
(5) For the period from February 12, 1993 through October 31, 1999. The
Predecessor Growth and Income Fund and Predecessor Small Cap Value Fund
began offering Investment Shares, which were similar to Retail A Shares,
on February 13, 1993.
(6) For the period from December 14, 1992 (initial public offering date)
through October 31, 1999. The Predecessor Growth and Income Fund and
Predecessor Small Cap Value Fund commenced operations on December 14,
1992, and initially offered Trust Shares, which were similar to Galaxy
Trust Shares.
(7) For the period from March 4, 1998 (initial public offering date) through
October 31, 1999.
(8) For the period from September 1, 1988 (initial public offering date)
through October 31, 1999.
The average annual total returns for Retail A Shares, Retail B Shares and
Trust Shares of the Funds for the one-year, five-year and ten-year periods (as
applicable) ended October 31, 1998 are as set forth below:
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<PAGE>
<TABLE>
<CAPTION>
RETAIL A RETAIL B TRUST
ONE- FIVE- TEN- ONE- FIVE- TEN- ONE- FIVE- TEN-
FUND YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Asset Allocation ...... ____% ____% * ____% * * ____% ____% *
Equity Income ......... ____% ____% * ** ** ____% ____% *
Growth and Income ..... ____% ____% * ____% * * ____% ____% *
Strategic Equity ...... * * * * * *
Equity Value .......... ____% ____% ____% ____% * * ____% ____% ____%
Equity Growth ......... ____% ____% * ____% * * ____% ____% *
International Equity .. ____% ____% * ** ** ____% ____% *
Small Cap Value ....... ____% ____% * ** ** ____% ____% *
Small Company Equity .. ____% ____% * ____% * * ____% ____% *
</TABLE>
- -----------------------
* Not offered during the full period.
** The Equity Income, International Equity and Small Cap Value Funds did not
offer Retail B Shares until November 1, 1998.
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to shareholders, the
performance of the Funds may be quoted and compared to that of other mutual
funds with similar investment objectives and to stock or other relevant indices
or to rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
performance of the Funds may be compared to data prepared by Lipper Analytical
Services, Inc., a widely recognized independent service which monitors the
performance of mutual funds, the S&P 500 Index, an unmanaged index of groups of
common stocks, the Consumer Price Index, or the Dow Jones Industrial Average, a
recognized unmanaged index of common stocks of 30 industrial companies listed on
the New York Stock Exchange. In addition, the performance of the International
Equity Fund may be compared to the Morgan Stanley Capital International Index or
the FT World Actuaries Index and the performance of the Small Company Equity
Fund and Small Cap Value Fund may be compared to the NASDAQ Composite Index, an
unmanaged index of over-the-counter stock prices.
Performance data as reported in national financial publications
including, but not limited to, MONEY MAGAZINE, FORBES, BARRON'S, THE WALL STREET
JOURNAL and THE NEW YORK TIMES, or publications of a local or regional nature
may also be used in comparing the performance of the Funds. Performance data
will be calculated separately for Trust Shares, Retail A Shares, Retail B
Shares, Prime A Shares and Prime B Shares of the Funds.
The standard yield is computed as described above. Each Fund may also
advertise its "effective yield" which is calculated similarly but, when
annualized, the income earned by an investment in the Fund is assumed to be
reinvested.
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<PAGE>
The Funds may also advertise their performance using "average annual
total return" figures over various periods of time. Such total return figures
reflect the average percentage change in the value of an investment in a Fund
from the beginning date of the measuring period to the end of the measuring
period and are calculated as described above. Average total return figures will
be given for the most recent one-, five- and ten-year periods (if applicable),
and may be given for other periods as well, such as from the commencement of a
Fund's operations, or on a year-by-year basis. Each Fund may also use "aggregate
total return" figures for various periods, representing the cumulative change in
the value of an investment in a Fund for the specified period. Both methods of
calculating total return reflect the maximum front-end sales load for Retail A
Shares of the Funds and the applicable contingent deferred sales charge for
Retail B Shares of the Funds and assume that dividends and capital gain
distributions made by a Fund during the period are reinvested in Fund shares.
The Funds may also advertise total return data without reflecting the
sales charges imposed on the purchase of Retail A Shares or the redemption of
Retail B Shares in accordance with the rules of the SEC. Quotations that do not
reflect the sales charges will be higher than quotations that do reflect the
sales charges.
The performance of the Funds will fluctuate and any quotation of
performance should not be considered as representative of the future performance
of the Funds. Since yields fluctuate, yield data cannot necessarily be used to
compare an investment in a Fund's shares with bank deposits, savings accounts
and similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that
performance data are generally functions of the kind and quality of the
instruments held in a portfolio, portfolio maturity, operating expenses, and
market conditions. Any additional fees charged by institutions with respect to
accounts of customers that have invested in shares of a Fund will not be
included in performance calculations.
The portfolio managers of the Funds and other investment professionals
may from time to time discuss in advertising, sales literature or other
material, including periodic publications, various topics of interest to
shareholders and prospective investors. The topics may include but are not
limited to the advantages and disadvantages of investing in tax-deferred and
taxable investments; Fund performance and how such performance may compare to
various market indices; shareholder profiles and hypothetical investor
scenarios; the economy; the financial and capital markets; investment strategies
and techniques; investment products; and tax, retirement and investment
planning.
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
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<PAGE>
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 November 30, 1999, the name, address and share ownership of the
entities or persons that held of record more than 5% of the outstanding Trust
Shares of each of Galaxy's investment portfolios (including shares of the
Institutional Government Money Market Fund) were as follows: Money Market Fund
- -- Fleet New York, Fleet Investment Services, 159 East Main Street, NY/RO/TO3C,
Rochester, NY 14638, Account 00000150286 (99.87%); Tax-Exempt Money Market Fund
- -- Fleet New York, Fleet Investment Services, 159 East Main Street, NY/RO/TO3C,
Rochester, NY 14638, Account 00000007717 (100.00%); Government Money Market Fund
- --Fleet New York, Fleet Investment Services, 159 East Main Street, NY/RO/TO3C,
Rochester, NY 14638, Account 00000012621 (98.58%); Equity Value Fund -- Gales &
Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000000064 (76.43%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000003204 (14.55%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000011551 (7.23%); Equity Growth Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000082 (70.31%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000010017 (15.31%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000030718 (14.04%); Equity Income Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000015771 (48.75%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000003748 (36.92%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000000037 (13.37%); International Equity Fund --Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000073 (42.99%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000000876 (39.29%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000004088 (14.13%); Growth and Income Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 05000503793 (76.73%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 05000503873 (19.78%); Asset Allocation Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000073 (93.27%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000002598 (5.98%); Small Company Equity -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000046 (66.04%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000001492 (24.41%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000006102 (7.33%); Institutional Treasury Money Market Fund -- Fleet
New York, Fleet Investment Services, 159 East Main Street, NY/RO/TO3C,
Rochester, NY 14638, Account 00000000019 (91.11%); Luitpold Pharmaceuticals
Inc., Kirk Sobecki, CFO, Attn: Harold Noviello, One Luitpold Drive, Shirley,
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NY 11967, Account 05100281441 (7.02%); Small Cap Value Fund -- Gales & Co.,
Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 05000503999 (48.74%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 05000503917 (31.01%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 05000503953 (19.77%); Strategic Equity Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 5100115522 (97.48%); Intermediate Government Income
Fund -- Gales & Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A,
159 East Main Street, Rochester, NY 14638, Account 00000038408 (38.48%); Gales &
Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000007183 (34.80%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000037 (26.20%); High Quality Bond Fund --
Gales & Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East
Main Street, Rochester, NY 14638, Account 00000000037 (62.76%); Gales & Co.,
Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000001465 (24.53%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000006095 (12.37%); Short-Term Bond Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000008627 (31.48%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000000064 (46.43%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000001090 (21.82%); Tax-Exempt Bond Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000005899 (34.38%) Gales & Co, Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000000028 (38.95%); Gales and Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000000670 (26.42%); Connecticut Municipal Bond Fund -- Gales & Co.,
Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000019 (74.69%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000000037 (24.84%); Massachusetts Municipal Bond Fund -- Gales
& Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000000019 (48.96%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000073 (49.06%); Corporate Bond Fund -- Gales
& Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000000046 (44.33%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000006102 (36.50%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000001492 (12.65%); New Jersey Municipal Bond Fund -- Gales &
Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/T04A, 159 East Main
Street, Rochester, NY 14638, Account 5100115489 (51.69%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 5100115504 (35.56%); BOB & Co., c/o Bank
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of Boston, Attn: Mutual Fund Dept. 45-02-06, P.O. Box 1809, Boston, MA 02105,
Account 5102076990 (12.74%); and New York Municipal Bond Fund -- Gales & Co.,
Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000019 (9.36%); Gales & Co., Fleet Investment
Services, Mutual Fund Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000001107 (70.04%); Gales & Co., Fleet Investment Services,
Mutual Fund Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000005292 (14.85%); BOB & Co., c/o Bank of Boston, Attn: Mutual Fund
Dept. 45-02-06, P.O. Box 1809, Boston, MA 02105, Account 5102076990 (5.68%).
As of November 30, 1999, the name, address and share ownership of the
entities or persons that held of record more than 5% of the outstanding Retail A
Shares of each of Galaxy's investment portfolios (including shares of the
Connecticut Municipal Money Market and Massachusetts Municipal Money Market
Funds) were as follows: Tax-Exempt Money Market Fund -- Ellsworth Kelly, P.O.
Box 151, 45 South Street, Spencertown, NY 12165, Account 0000063825 (6.99%);
U.S. Treasury Money Market Fund -- US Clearing, a Division of Fleet Securities
Inc., 26 Broadway, New York, NY 10004, Account 05100115684 (10.40%);
Massachusetts Municipal Money Market Fund -- Fleet New York, Fleet Investment
Services, 159 East Main St., NY/RO/TO3C, Rochester, NY 14638, Account
05100058503 (61.34%); Connecticut Municipal Money Market Fund -- Fleet New York,
Fleet Investment Services, 159 East Main St., NY/RO/TO3C, Rochester, NY 14638,
Account 05100058521 (48.64%); William L. Bucknall & Norma Lee Bucknall, 5 Oak
Ridge Drive, Bethany, CT 06524, Account 0000002259 (5.16%); Rhode Island
Municipal Bond Fund --Gales & Co., Fleet Investment Services, Mutual Funds Unit
- - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638, Account 00000001492
(40.88%); James R. McCulloch, c/o Microfibre, PO Box 1208, Pawtucket, RI 02860,
Account 05000414933 (9.11%); New York Municipal Bond Fund -- Marilyn J.
Brantley, 5954 Van Allen Road, Belfast, NY 14711, Account 05100977627 (11.78%);
New Jersey Municipal Bond Fund -- Jeffery W. Golden, 7 Hampton Ridge CT, Old
Tappan, NJ 07675, Account 05100780704 (16.09%); John W. Maki & Kimberly McGrath
Maki JT, 1 Connet Lane, Mendham, NJ, 07945, Account 05100011377 (33.47%); US
Clearing Corp., FBO 979-06374-12, 26 Broadway, New York, NY 10004-1798, Account
07000100574 (27.89%); Serene W. Peng, 70 Chelsea, Watchung, NJ 07060, Account
5101583480 (17.19%); Tax-Exempt Bond Fund -- Danny Schulman, 9 Corn Mill Ct.,
Upper Saddle River, NJ 07458, Account 510116598 (6.11%); and Massachusetts
Municipal Bond Fund -- New England Realty Assoc., Robert Blank, Ronald Brown,
Harold Brown and Carl Veleri, 39 Brighton Ave., Boston MA 02134, Account
5100587013 (6.59%).
As of November 30, 1999, the name, address and share ownership of the
entities or persons that held of record more than 5% of the outstanding Retail B
Shares of each of Galaxy's investment portfolios were as follows: Money Market
Fund -- Worldmark Master Fund, LLC, D. Dean Rhodes auth. officer or Richard J.
Gates (investment adviser), 11466 Old Harber Road, N. Palm Beach, FL 33408,
Account 5102031823 (18.24%); Worldmark Master Fund, LLC, D. Dean Rhodes auth.
officer or Richard J. Gates (investment adviser) 11465 Old Harbor Road, N. Palm
Beach, FL 33408, Account 5102074064 (20.78%); Intermediate Government Income
Fund; Adriana Vita, 345 Park Avenue, New York, NY 10154, Account 05101563377
(8.84%); Short-Term Bond Fund -- Elizabeth Mugar, 10 Chestnut St., Apt. 1808,
Springfield, MA 01103,
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Account 5100760012 (7.15%); Chelsea Police Relief Assoc., John R. Phillips,
Treasurer, and Michael McCona, Clerk, 180 Crescent Avenue, Chelsea, MA 02150,
Account 0970036155 (13.23%); Josve Colon, Cust., Hazel Colon UGMA CT, 400
LaSalle Street, New Britain, CT 06051, Account 5101157039 (7.37%); U.S. Clearing
Corp., FBO 978-02086-18, Eugene J. Margaret Dunscomb, 505 Apple Tree Lane,
Brewster, NY 10509-6004, Account 70000100609 (7.09%); Tax-Exempt Bond Fund --
David Fendler & Sylvia Fendler JT WROS, 72 Brinkerhoff Ave., Stamford, CT 06905,
Account 05100255354 (7.48%); Frances E. Stady, P.O. Box 433, 3176 Main Street,
Yorkshire, NY 14173, Account 05102027437 (5.84%); and Strategic Equity Fund --
Betsey Tan, 7 Donovan's Lane, Natick, MA 01760, Account 05101043778 (7.41%).
As of November 30, 1999, the name, address and share ownership of the
entities or persons that held beneficially more than 5% of the outstanding Trust
Shares of each of Galaxy's investment portfolios were as follows: Money Market
Fund--Stable Asset Fund, c/o Norstar Trust Co., Gales & Co., 159 East Main
Street, Rochester, NY 14638, (12.05%); Hope-Sayles Trust, c/o Norstar Trust Co.,
Gales & Co., 159 East Main Street, Rochester, NY 14638, (10.65%); Government
Money Fund -- AMS Trust Account, c/o Norstar Trust Co., Gales & Co., 159 East
Main Street, Rochester, NY 14638, (9.76%); Beacon Mutual Insurance Co., c/o
Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638 (6.33%); U.S.
Treasury Money Fund -- Loring Walcott Client Sweep Acct., c/o Norstar Trust Co.,
Gales & Co., 159 East Main, Rochester, NY 14638, (23.17%); Equity Value
Fund--Fleet Savings Plus-Equity Value, c/o Norstar Trust Co., Gales & Co., 159
East Main, Rochester, NY 14638, (24.21%); Equity Growth Fund--Fleet Savings
Plus-Equity Growth, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638, (23.54%); Nusco Retiree Health VEBA Trust, c/o Norstar
Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638, (6.82%);
International Equity Fund--FFG International Equity Fund, c/o Norstar Trust Co.,
Gales & Co., 159 East Main, Rochester, NY 14638, (12.68%); Fleet Savings
Plus-Intl. Equity, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester,
NY 14638, (9.82%); Intermediate Government Income Fund -- Nusco Retiree Health
VEBA Trust, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY
14638 (6.44%); Strategic Equity Fund--FFG Retirement & Pension VDG, c/o Fleet
Financial Group, 159 East Main, Rochester, NY 14638, (93.39%); High Quality Bond
Fund--Fleet Savings Plus Plan-HQ Bond, c/o Norstar Trust Co., Gales & Co., 159
East Main, Rochester, NY 14638 (19.60%); Asset Allocation Fund--Fleet Savings
Plus-Asset Allocation, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638, (26.52%); Small Company Equity Fund--Fleet Savings
Plus-Small Company, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638, (33.58%); Tax Exempt Bond Fund -- Nusco Retiree Health VEBA
Trust, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638,
(37.64%); Corporate Bond Fund--Cole Hersee Pension Plan, c/o Norstar Trust Co.,
Gales & Co., 159 East Main, Rochester, NY 14638, (8.40%); Growth Income
Fund--Fleet Savings Plus-Growth Income, c/o Norstar Trust Co., Gales & Co., 159
East Main, Rochester, NY 14638, (43.81%); Crumpton & Knowles IARP, c/o Norstar
Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638 (10.11%); Small Cap
Value Fund--FFG Emp. Ret. Misc. Assets SNC, c/o Norstar Trust Co., Gales & Co.,
159 East Main, Rochester, NY 14638, (25.16%); Institutional Government Fund --
IBEW Local #99 Annuity, c/o Norstar Trust Co., Gales & Co., 159 East Main
Street, Rochester, NY 14638 (5.26%); New Jersey Municipal Bond Fund--Perillo
Tours, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638,
(22.47%); Royal Chambord IMA, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY, 14638, (11.24%); McKee Wendell A. Marital Trust, c/o Norstar
Trust Co., Gales & Co., 159 East Main, Rochester,
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NY 14638, (11.16%); Varco Inc. IMA, c/o Norstar Trust Co., Gales & Co., 159 East
Main, Rochester, NY 14638, (5.62%); and Tiernan Diana V IA, c/o Norstar Trust
Co., Gales & Co., 159 East Main, Rochester, NY 14638, (5.10%).
As of November 30, 1999, the name, address and share ownership of the
entities or persons that held of record or beneficially more than 5% of the
outstanding A Prime Shares of Galaxy's Asset Allocation, Equity Income, Growth
and Income, Strategic Equity, Equity Value, Equity Growth, International Equity,
Small Cap Value, Small Company Equity, Short-Term Bond, Intermediate Government
Income, High Quality Bond and Tax-Exempt Bond Funds were as follows: Asset
Allocation Fund--U.S. Clearing, A Division of Fleet Securities, Inc., FBO
#147-97697-11, Ray Wayne Prince, 11010 Stephens Road, Berlin Heights, OH
44814-9673 (18.52%); U.S. Clearing, A Division of Fleet Securities, Inc., FBO
#135-29801-11, Joseph P. Quinn & Genevieve H. Quinn Trust, 725 N. Riverside
Drive, Apt. 405, Pompano Beach, FL 33062-4536 (12.47%); U.S. Clearing, A
Division of Fleet Securities, Inc., FBO #175-97327-10, Margaret Ann Gillenwater,
2525 E. Prince Road #23, Tucson, AZ 85716-1146 (11.92%); U.S. Clearing, A
Division of Fleet Securities, Inc., FBO #114-97238-17, Sara Mallow, 936
Broadway, New York, NY 10010-6013 (25.26%); U.S. Clearing, A Division of Fleet
Securities, Inc., FBO #166-88586-13, Pamela Ann Radamaker, 1001 Tramway Blvd.
NE, Albuquerque, NM 87112-6280 (10.72%); U.S. Clearing, A Division of Fleet
Securities, Inc., FBO #114-23817-12, John R. Johnson, P.O. Box 4338, Deerfield
Beach, FL 33442-4338 (8.31%); Growth and Income Fund--U.S. Clearing, A Division
of Fleet Securities Inc., FBO #160-27022-17, Linda Shaw, Trustee for the Linda
J. Shaw Trust, 920 Meadows Road, Geneva, IL 60134-3052 (34.66%); U.S. Clearing,
A Division of Fleet Securities Inc., FBO #113-27816-16, Pamela M. Fein, 68 Oak
Ridge Drive, Bethany, CT 06524-3118 (29.85%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO #175-97327-10, Margaret Ann Gillenwater, 2525 E. Prince
Road #23, Tucson, AZ 85716-1146 (23.43%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO #103-80080-19, Saint Clare School Endowment Fund, Attn: Fr.
O'Shea/Andrew J. Houvouras and/or Bruce Blatman, 821 Prosperity Farms Road, No.
Palm Beach, FL 33408-4299 (6.09%); Equity Growth Fund--U.S. Clearing, A Division
of Fleet Securities Inc., FBO #104-32732-16, Hilda Brandt, 3900 North Charles
Street, Baltimore, MD 21218-1724 (50.91%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO #114-97236-17, Sara Mallow, 936 Broadway, New York, NY
10010-6013 (26.57%); U.S. Clearing, A Division of Fleet Securities Inc., FBO
#120-97689-18, Yook Y. Doo, 4634 Robinson St., Flushing, NY 11355-3445 (8.84%);
U.S. Clearing, A Division of Fleet Securities Inc., FBO #021-90471-15, Mabel L.
Bowman, 35634 Meyers Ct., Fremont, CA 84536-2540 (7.00%); U.S. Clearing, A
Division of Fleet Securities Inc., FBO #143-27206-11, Mary V. Mastroianni &
Pasqual Mastroianni JT Ten, 1811 Randolph Road, Schenectady, NY 12308-2021
(5.44%); International Equity Fund--U.S. Clearing, A Division of Fleet
Securities Inc., FBO #125-98055-11, Albert F. Twanmo, 6508 81st St., Cabin John,
MD 20818-1203 (94.66%); Small Cap Value Fund U.S. Clearing, A Division of Fleet
Securities Inc., FBO # 104-32732-16, Hilda Brandt, 3900 North Charles Street,
Baltimore, MD 21218-1724 (26.87%); U.S. Clearing, A Division of Fleet Securities
Inc., FBO # 150-98301-11, N. Clifford Nelson Jr., 58 Middlebury Road, Orchard
Park, NY 14127-3581 (16.93%); U.S. Clearing, A Division of Fleet Securities
Inc., FBO # 102-60254-19, Frederick W. Geissinger, 601 NW 2nd Street,
Evansville, IN 47708-1013 (16.81%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO # 103-97564-14, Thomas X. McKenna, 170 Turtle Creek Drive,
Tequesta, FL 33469-1547 (12.55%); U.S. Clearing, A Division of Fleet Securities
Inc., FBO # 103-31296-18, Edward U.
-85-
<PAGE>
Roddy III, 109 Angler Avenue, Palm Beach, FL 33480-3101 (8.27%); U.S. Clearing,
A Division of Fleet Securities Inc., FBO # 180-24606-24, Gary R. Plemons, P.O.
Box 190, Madisonville, TN 37354-0190 (5.56%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO # 165-26664-29, Special Risk Underwriters, P.O. Box 54699,
Phoenix, AZ 85078-4699 (5.31%); High Quality Bond Fund - U.S. Clearing, A
Division of Fleet Securities Inc., FBO # 103-30971-12, Doris G. Schack, FBO #
103-30971-12, Doris G. Schack Living Trust, 9161 East Evans, Scottsdale, AZ
85260-7575 (72.18%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #
013-02964-11, Jane L. Grayhurst, 770 Boylston St., Apt. 10G, Boston, MA
02199-7709 (15.46%); U.S. Clearing, A Division of Fleet Securities, Inc., FBO
#132-90090-11, Virginia Holmes, 303 Bella Vista Drive, Ithaca, NY 14850-5774
(12.10%).
As of November 30, 1999, the name, address and share ownership of the
entities or persons that held of record or beneficially more than 5% of the
outstanding B Prime Shares of Galaxy's Asset Allocation, Equity Income, Growth
and Income, Strategic Equity, Equity Value, Equity Growth, International Equity,
Small Cap Value, Small Company Equity, Short-Term Bond, Intermediate Government
Income, High Quality Bond and Tax-Exempt Bond Funds were as follows: Asset
Allocation Fund -- U.S. Clearing, A Division of Fleet Securities Inc., FBO #
138-97818-14, Carol Y. Foster, 524 Marie Ave., Blountstown, FL 32424-1218
(10.07%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #
102-92974-11, Ann E. Herzog, 74 Tacoma St., Staten Island, NY 10304-4222
(9.61%); U.S. Clearing, A Division of Fleet Securities Inc., FBO # 166-98559-16,
Ann P. Sargent, 422 Los Encinos Ave., San Jose, CA 95134-1336 (6.40%); U.S.
Clearing, A Division of Fleet Securities Inc., FBO # 166-97970-19, Alicia E.
Schober, 10139 Ridgeway Drive, Cupertino, CA 95014-2658 (6.22%); U.S. Clearing,
A Division of Fleet Securities Inc., FBO # 19414889-16, Paul R. Thornton & Karin
Z. Thornton, JT TEN, 1207 Oak Glen Lane, Sugar Land, TX 77479-6175 (5.70%); U.S.
Clearing, A Division of Fleet Securities, Inc., FBO #147-29049-19, Randall
Prince, Rt. 1, Box 865, Turtletown, TN 37391-9700 (6.06%); Growth and Income
Fund - U.S. Clearing, A Division of Fleet Securities Inc., FBO # 147-97497-13,
Martin Allen Sante, 15222 Birch Lakeshore Drive, Vandalia, MI 49095-9741
(27.18%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #103-31744-16,
Irwin Luftig & Elaine Luftig, 6119 Bear Creek Ct., Lake Worth, FL 33467-6812
(19.02%); Linda M. Berke & Michael E. Berke, JT WROS, 30941 Westwood Rd.,
Farmington Hills, MI 48331-1466 (15.25%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO # 147-29019-15, Walter W. Quan, 2617 Skyline Drive, Lorain,
OH 44053-2243 (14.87%); U.S. Clearing, A Division of Fleet Securities Inc., FBO
#014-90365-19, Peter Burr Bickford, 65 A Lazell St., Hingham, MA 02043-4403
(7.44%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #108-00116-10,
Michael Kennedy & Carleen Kennedy, JT WROS, 12 Walton Avenue, Locust Valley, NY
11560-1227 (5.48%); Equity Growth Fund - U.S. Clearing, A Division of Fleet
Securities Inc., FBO # 111-98315-17, Thomas J. Bernfeld, 185 West End Ave., Apt.
21D, New York, NY 10023-5548 (29.52%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO # 166-31108-13, Frank Catanho, Trustee of the Frank Catanho
1996 Trust dated 10/22/96, 24297 Mission Blvd., Hayward, CA 94544-1020 (19.07%);
U.S. Clearing, A Division of Fleet Securities Inc., FBO # 183-97247-11, W.P.
Fleming, 66500 E. 253rd, Grove, OK 74344-6163 (8.77%); U.S. Clearing, A Division
of Fleet Securities Inc., FBO # 131-96122-18, Elaine B. Odessa, 9 Newman Rd.,
Pawtucket, RI 02860-8183 (6.66%); International Equity Fund - U.S. Clearing, A
Division of Fleet Securities Inc., FBO # 102-5924-17, Church & Friary of St.
Francis of Assisi, c/o Fr.
-86-
<PAGE>
Ronald P. Stark OFM, 135 West 31st St., New York, NY 10001-3405 (82.40%); Small
Cap Value Fund - U.S. Clearing, A Division of Fleet Securities Inc., FBO #
147-97574-19, Ray William Mominey, 1340 San Cristobal Villa, Punta Gorda, FL
33983-6616 (15.90%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #
111-98315-17, Thomas J. Bernfeld, 185 West End Ave., Apt. 21D, New York, NY
10023-5548 (10.13%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #
107-30623-15, Andrejs Zvejnieks, 2337 Christopher Walk, Atlanta, GA 30327-1110
(6.86%); E-Trade: Cust. for the rollover IRA, FBO Rufus O. Eddins, Jr., A/C #
11042697, 360 Dominion Circle, Knoxville, TN 37922-2750 (5.34%); U.S. Clearing,
A Division of Fleet Securities Inc., FBO # 221-97250-13, Micheal A. Veschi, 106
Exmoor Court, Leesburg, VA 20176-2049 (5.13%); High Quality Bond Fund - U.S.
Clearing, A Division of Fleet Securities Inc., FBO # 200-70099-19, Neil C.
Feldman, 41 Windham Way, Englishtown, NJ 07726-8216 (25.37%); U.S. Clearing, A
Division of Fleet Securities Inc., FBO # 119-97697-10, Ira Sornborg, 4219
Nautilus Ave., Brooklyn, NY 11224-1019 (10.23%); U.S. Clearing, A Division of
Fleet Securities Inc., FBO # 216-12779-14, Les H. Galex & Nan Galex, JT TEN,
7540 Farragut St., Hollywood, FL 33024-2626 (8.11%); U.S. Clearing, A Division
of Fleet Securities Inc., FBO # 102-93287-11, Marjorie Dion, 301 Raimond St.,
Yaphank, NY 11980-9725 (7.31%); U.S. Clearing, A Division of Fleet Securities
Inc., FBO # 102-68909-11, Marjorie Dion, 301 Raimond St., Yaphank, NY 11980-9725
(8.61%); U.S. Clearing, A Division of Fleet Securities Inc., FBO # 147-24459-13,
Jay Robert Klein, 26800 Amhearst Circle, #209, Cleveland, OH 44122-7572 (8.40%);
U.S. Clearing, A Division of Fleet Securities Inc., FBO # 157-98031-13, Patricia
Fusco, 112 E. Chapel Ave., Cherry Hill, NJ 08034-1204 (6.53%); U.S. Clearing, A
Division of Fleet Securities, Inc., FBO # 216-13463-13, Jerry H. Dunmire, 5151
SW 89 Terrace, Cooper City, FL 33328-3631 (6.48%).
As of November 30, 1999, the name, address and share ownership of the
entities or persons that held of record or beneficially more than 5% of the
outstanding shares of Galaxy's Prime Reserves, Government Reserves and Tax
Exempt Reserves were as follows: Prime Reserves -- U.S. Clearing, 26 Broadway,
New York, NY 10004 (6.96%); Government Reserves -- U.S. Clearing, 26 Broadway,
New York, NY 10004 (100.00%); and Tax Exempt Reserves -- U.S. Clearing, 26
Broadway, New York, NY 10004 (100.00%).
As of November 30, 1999, no entity or person held of record or
beneficially more than 5% of the outstanding Retail A and Retail B Shares of
Galaxy's Equity Income, New York Municipal Bond, Connecticut Municipal Bond,
Massachusetts Municipal Bond, Rhode Island Municipal Bond, Massachusetts
Municipal Money Market, Connecticut Municipal Money Market and Short Term Bond
Funds.
FINANCIAL STATEMENTS
Galaxy's Annual Report to Shareholders with respect to the Funds for
the fiscal year ended October 31, 1999 with the SEC. The financial statements
contained in such Annual Report are [ ] into this Statement of
Additional Information. The financial statements and financial highlights for
the Funds for the fiscal year ended October 31, 1999 have been audited by
Galaxy's independent accountants, [ ], whose report thereon also appears
in such Annual Report and [ ]. The financial statements in such
Annual Report have been [ ] in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
-87-
<PAGE>
APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current opinion of
credit worthiness 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:
"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
A-1
<PAGE>
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 strongest capacity for timely payment of financial commitments and
may have an added "+" to denote any exceptionally strong credit feature.
"F2" - Securities possess good credit quality. This designation
indicates a satisfactory capacity for timely payment of financial commitments,
but the margin of safety is not as great as in the case of the higher ratings.
"F3" - Securities possess fair credit quality. This designation
indicates that the capacity for timely payment of financial commitments is
adequate; however, near-term adverse changes could result in a reduction to
non-investment grade.
"B" - Securities possess speculative credit quality. This designation
indicates minimal capacity for timely payment of financial commitments, plus
vulnerability to near-term adverse changes in financial and economic conditions.
"C" - Securities possess high default risk. This designation indicates
that default is a real possibility and that the capacity for meeting financial
commitments is solely reliant upon a sustained, favorable business and economic
environment.
"D" - Securities are in actual or imminent payment default.
Thomson BankWatch short-term ratings assess the likelihood of an
untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson 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 BankWatch's lowest
investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's lowest
rating category and indicates that the obligation is regarded as non-investment
grade and therefore speculative.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
Obligations rated "BB," "B," "CCC," "CC" and "C" are regarded as
having significant speculative characteristics. "BB" indicates the least degree
of speculation and "C" the highest. While such obligations will likely have some
quality and protective 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.
A-4
<PAGE>
"B" - An obligation rated "B" is more vulnerable to nonpayment than
obligations rated "BB," but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
"CCC" - An obligation rated "CCC" is currently vulnerable to
nonpayment, and is dependent upon favorable business, financial and economic
conditions for the obligor to meet its financial commitment on the obligation.
In the event of adverse business, financial, or economic conditions, the obligor
is not likely to have the capacity to meet its financial commitment on the
obligation.
"CC" - An obligation rated "CC" is currently highly vulnerable to
nonpayment.
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.
"D" - An obligation rated "D" is in payment default. The "D" rating
category is used when payments on an obligation are not made on the date due
even if the applicable grace period has not expired, unless 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.
"r" - This symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or volatility of
expected returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk - such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
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
A-5
<PAGE>
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.
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.
A-6
<PAGE>
"BBB" - Debt possesses below-average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt rated
"B" possesses the risk that obligations will not be met when due. Debt rated
"CCC" is well below investment grade and has considerable uncertainty as to
timely payment of principal, interest or preferred dividends. Debt rated "DD" is
a defaulted debt obligation, and the rating "DP" represents preferred stock with
dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.
The following summarizes the ratings used by Fitch IBCA for corporate
and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest
credit quality. These ratings denote the lowest expectation of credit risk and
are assigned only in case of exceptionally strong capacity for timely payment of
financial commitments. This capacity is highly unlikely to be adversely affected
by foreseeable events.
"AA" - Bonds considered to be investment grade and of very high credit
quality. These ratings denote a very low expectation of credit risk and indicate
very strong capacity for timely payment of financial commitments. This capacity
is not significantly vulnerable to foreseeable events.
"A" - Bonds considered to be investment grade and of high credit
quality. These ratings denote a low expectation of credit risk and indicate
strong capacity for timely payment of financial commitments. This capacity may,
nevertheless, be more vulnerable to changes in circumstances or in economic
conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good credit
quality. These ratings denote that there is currently a low expectation of
credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity.
"BB" - Bonds considered to be speculative. These ratings indicate that
there is a possibility of credit risk developing, particularly as the result of
adverse economic changes over time; however, business or financial alternatives
may be available to allow financial commitments to be met. Securities rated in
this category are not investment grade.
A-7
<PAGE>
"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 show relative standing within these major rating
categories.
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.
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"BBB" - This designation represents the lowest investment-grade
category and indicates an acceptable capacity to repay principal and interest.
Issues rated "BBB" are more vulnerable to adverse developments (both internal
and external) than obligations with higher ratings.
"BB," "B," "CCC," and "CC" - These designations are assigned by
Thomson Financial BankWatch to non-investment grade long-term debt. Such issues
are regarded as having speculative characteristics regarding the likelihood of
timely repayment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
A Standard and Poor's note rating reflects the liquidity concerns and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Ratings Group for municipal
notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess 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:
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"MIG-1"/"VMIG-1" - This designation denotes best quality. There is
present strong protection by established cash flows, superior liquidity support
or demonstrated broad-based access to the market for refinancing.
"MIG-2"/"VMIG-2" - This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes favorable quality, with
all security elements accounted for but lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
"SG" - This designation denotes speculative quality. Debt instruments
in this category lack of margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.
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APPENDIX B
As stated above, the Growth and Income, Strategic Equity and Small Cap
Value Funds may enter into futures transactions for hedging purposes. The
following is a description of such transactions.
I. INTEREST RATE FUTURES CONTRACTS
USE OF INTEREST RATE FUTURES CONTRACTS. Bond prices are established in
both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, only a contract is made to purchase or sell a bond in the future
for a set price on a certain date. Historically, the prices for bonds
established in the futures markets have tended to move generally in the
aggregate in concert with the cash market prices and have maintained fairly
predictable relationships. Accordingly, the Funds may use interest rate futures
contracts as a defense, or hedge, against anticipated interest rate changes and
not for speculation. As described below, this would include the use of futures
contract sales to protect against expected increases in interest rates and
futures contract purchases to offset the impact of interest rate declines.
The Funds presently could accomplish a similar result to that which they
hope to achieve through the use of futures contracts by selling bonds with long
maturities and investing in bonds with short maturities when interest rates are
expected to increase, or conversely, selling short-term bonds and investing in
long-term bonds when interest rates are expected to decline. However, because of
the liquidity that is often available in the futures market, the protection is
more likely to be achieved, perhaps at a lower cost and without changing the
rate of interest being earned by the Funds, through using futures contracts.
DESCRIPTION OF INTEREST RATE FUTURES CONTRACTS. An interest rate futures
contract sale would create an obligation by a Fund, as seller, to deliver the
specific type of financial instrument called for in the contract at a specific
future time for a specified price. A futures contract purchase would create an
obligation by the Fund, as purchaser, to take delivery of the specific type of
financial instrument at a specific future time at a specific price. The specific
securities delivered or taken, respectively, at settlement date, would not be
determined until at or near that date. The determination would be in accordance
with the rules of the exchange on which the futures contract sale or purchase
was made.
Although interest rate futures contracts by their terms call for actual
delivery or acceptance of securities, in most cases the contracts are closed out
before the settlement date without the making or taking of delivery of
securities. Closing out a futures contract sale is effected by a Fund's entering
into a futures contract purchase for the same aggregate amount of the specific
type of financial instrument and the same delivery date. If the price of the
sale exceeds the price of the offsetting purchase, the Fund immediately is paid
the difference and thus realizes a gain. If the offsetting purchase price
exceeds the sale price, the Fund pays the difference and realizes a loss.
Similarly, the closing out of a futures contract purchase is effected
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by a Fund entering into a futures contract sale. If the offsetting sale price
exceeds the purchase price, the Fund realizes a gain, and if the purchase price
exceeds the offsetting sale price, the Fund realizes a loss.
Interest rate futures contracts are traded in an auction environment on
the floors of several exchanges -- principally, the Chicago Board of Trade, the
Chicago Mercantile Exchange and the New York Futures Exchange. The Funds would
deal only in standardized contracts on recognized exchanges. Each exchange
guarantees performance under contract provisions through a clearing corporation,
a nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering various
financial instruments including long-term United States Treasury Bonds and
Notes; Government National Mortgage Association (GNMA) modified pass-through
mortgage backed securities; three-month United States Treasury Bills; and
ninety-day commercial paper. The Funds may trade in any interest rate futures
contracts for which there exists a public market, including, without limitation,
the foregoing instruments.
EXAMPLE OF FUTURES CONTRACT SALE. The Funds would engage in an interest
rate futures contract sale to maintain the income advantage from continued
holding of a long-term bond while endeavoring to avoid part or all of the loss
in market value that would otherwise accompany a decline in long-term securities
prices. Assume that the market value of a certain security held by a particular
Fund tends to move in concert with the futures market prices of long-term United
States Treasury bonds ("Treasury bonds"). Fleet wishes to fix the current market
value of this portfolio security until some point in the future. Assume the
portfolio security has a market value of 100, and Fleet believes that, because
of an anticipated rise in interest rates, the value will decline to 95. The Fund
might enter into futures contract sales of Treasury bonds for an equivalent of
98. If the market value of the portfolio security does indeed decline from 100
to 95, the equivalent futures market price for the Treasury bonds might also
decline from 98 to 93.
In that case, the five point loss in the market value of the portfolio
security would be offset by the five point gain realized by closing out the
futures contract sale. Of course, the futures market price of Treasury bonds
might well decline to more than 93 or to less than 93 because of the imperfect
correlation between cash and futures prices mentioned below.
Fleet could be wrong in its forecast of interest rates, and the
equivalent futures market price could rise above 98. In this case, the market
value of the portfolio securities, including the portfolio security being
protected, would increase. The benefit of this increase would be reduced by the
loss realized on closing out the futures contract sale.
If interest rate levels did not change, the Fund in the above example
might incur a loss of 2 points (which might be reduced by an offsetting
transaction prior to the settlement date). In each transaction, transaction
expenses would also be incurred.
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EXAMPLE OF FUTURES CONTRACT PURCHASE. A Fund would engage in an interest
rate futures contract purchase when it is not fully invested in long-term bonds
but wishes to defer for a time the purchase of long-term bonds in light of the
availability of advantageous interim investments, e.g., shorter term securities
whose yields are greater than those available on long-term bonds. A Fund's basic
motivation would be to maintain for a time the income advantage from investing
in the short-term securities; the Fund would be endeavoring at the same time to
eliminate the effect of all or part of an expected increase in market price of
the long-term bonds that the Fund may purchase.
For example, assume that the market price of a long-term bond that the
Fund may purchase, currently yielding 10%, tends to move in concert with futures
market prices of Treasury bonds. Fleet wishes to fix the current market price
(and thus 10% yield) of the long-term bond until the time (four months away in
this example) when it may purchase the bond. Assume the long-term bond has a
market price of 100, and Fleet believes that, because of an anticipated fall in
interest rates, the price will have risen to 105 (and the yield will have
dropped to about 9 1/2%) in four months. The Fund might enter into futures
contracts purchases of Treasury bonds for an equivalent price of 98. At the same
time, the Fund would assign a pool of investments in short-term securities that
are either maturing in four months or earmarked for sale in four months, for
purchase of the long-term bond at an assumed market price of 100. Assume these
short-term securities are yielding 15%. If the market price of the long-term
bond does indeed rise from 100 to 105, the equivalent futures market price for
Treasury bonds might also rise from 98 to 103. In that case, the 5 point
increase in the price that the Fund pays for the long-term bond would be offset
by the 5 point gain realized by closing out the futures contract purchase.
Fleet could be wrong in its forecast of interest rates; long-term
interest rates might rise to above 10%; and the equivalent futures market price
could fall below 98. If short-term rates at the same time fall to 10% or below,
it is possible that the Fund would continue with its purchase program for
long-term bonds. The market price of available long-term bonds would have
decreased. The benefit of this price decrease, and thus yield increase, will be
reduced by the loss realized on closing out the futures contract purchase.
If, however, short-term rates remained above available long-term rates,
it is possible that the Fund would discontinue its purchase program for
long-term bonds. The yield on short-term securities in the portfolio, including
those originally in the pool assigned to the particular long-term bond, would
remain higher than yields on long-term bonds. The benefit of this continued
incremental income will be reduced by the loss realized on closing out the
futures contract purchase. In each transaction, expenses would also be incurred.
II. MARGIN PAYMENTS
Unlike purchases or sales of portfolio securities, no price is paid or
received by a Fund upon the purchase or sale of a futures contract. Initially,
the Fund will be required to deposit with the broker or in a segregated account
with Galaxy's custodian an amount of cash or liquid portfolio securities, known
as initial margin, based on the value of the contract. The nature of
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initial margin in futures transactions is different from that of margin in
security transactions in that futures contract margin does not involve the
borrowing of funds by the customer to finance the transactions. Rather, the
initial margin is in the nature of a performance bond or good faith deposit on
the contract which is returned to the Fund upon termination of the futures
contract assuming all contractual obligations have been satisfied. Subsequent
payments, called variation margin, to and from the broker, will be made on a
daily basis as the price of the underlying instruments fluctuates making the
long and short positions in the futures contract more or less valuable, a
process known as marking-to-the-market. For example, when a particular Fund has
purchased a futures contract and the price of the contract has risen in response
to a rise in the underlying instruments, that position will have increased in
value and the Fund will be entitled to receive from the broker a variation
margin payment equal to that increase in value. Conversely, where the Fund has
purchased a futures contract and the price of the future contract has declined
in response to a decrease in the underlying instruments, the position would be
less valuable and the Fund would be required to make a variation margin payment
to the broker. At any time prior to expiration of the futures contract, Fleet
may elect to close the position by taking an opposite position, subject to the
availability of a secondary market, which will operate to terminate the Fund's
position in the futures contract. A final determination of variation margin is
then made, additional cash is required to be paid by or released to the Fund,
and the Fund realizes a loss or gain.
III. RISKS OF TRANSACTIONS IN FUTURES CONTRACTS
There are several risks in connection with the use of futures by the
Growth and Income, Strategic Equity and Small Cap Value Funds as hedging
devices. One risk arises because of the imperfect correlation between movements
in the price of the futures and movements in the price of the instruments that
are the subject of the hedge. The price of the futures may move more than or
less than the price of the instruments being hedged. If the price of the futures
moves less than the price of the instruments which are the subject of the hedge,
the hedge will not be fully effective but, if the price of the instruments being
hedged has moved in an unfavorable direction, a Fund would be in a better
position than if it had not hedged at all. If the price of the instruments being
hedged has moved in a favorable direction, this advantage will be partially
offset by the loss on the futures. If the price of the futures moves more than
the price of the hedged instruments, the Funds involved will experience either a
loss or gain on the futures, which will not be completely offset by movements in
the price of the instruments which are the subject of the hedge. To compensate
for the imperfect correlation of movements in the price of instruments being
hedged and movements in the price of futures contracts, a Fund may buy or sell
futures contracts in a greater dollar amount than the dollar amount of
instruments being hedged if the volatility over a particular time period of the
prices of such instruments has been greater than the volatility over such time
period of the futures, or if otherwise deemed to be appropriate by the
investment adviser. Conversely, a Fund may buy or sell fewer futures contracts
if the volatility over a particular time period of the prices of the instruments
being hedged is less than the volatility over such time period of the futures
contract being used, or if otherwise deemed to be appropriate by Fleet. It is
also possible that, where a Fund had sold futures to hedge its portfolio against
a decline in the market, the market may advance and the
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value of instruments held in the Fund may decline. If this occurred, the Fund
would lose money on the futures and also experience a decline in value in its
portfolio securities.
Where futures are purchased to hedge against a possible increase in the
price of securities before a Fund is able to invest its cash (or cash
equivalents) in an orderly fashion, it is possible that the market may decline
instead; if the Fund then concludes not to invest its cash at that time because
of concern as to possible further market decline or for other reasons, the Fund
will realize a loss on the futures contract that is not offset by a reduction in
the price of the instruments that were to be purchased.
In instances involving the purchase of futures contracts by a Fund, an
amount of cash and liquid portfolio securities, equal to the market value of the
futures contracts, will be deposited in a segregated account with Galaxy's
custodian and/or in a margin account with a broker to collateralize the position
and thereby insure that the use of such futures is unleveraged.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures and the
instruments being hedged, the price of futures may not correlate perfectly with
movement in the cash market due to certain market distortions. Rather than
meeting additional margin deposit requirements, investors may close futures
contracts through off-setting transactions that could distort the normal
relationship between the cash and futures markets. Second, with respect to
financial futures contracts, the liquidity of the futures market depends on
participants entering into off-setting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced thus producing distortions. Third, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities market. Therefore,
increased participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price distortion in the
futures market, and because of the imperfect correlation between the movements
in the cash market and movements in the price of futures, a correct forecast of
general market trends or interest rate movements by the adviser may still not
result in a successful hedging transaction over a short time frame.
Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Funds
intend to purchase or sell futures only on exchanges or boards of trade where
there appear to be active secondary markets, there is no assurance that a liquid
secondary market on any exchange or board of trade will exist for any particular
contract or at any particular time. In such event, it may not be possible to
close a futures investment position, and in the event of adverse price
movements, a Fund would continue to be required to make daily cash payments of
variation margin. However, in the event futures contracts have been used to
hedge portfolio securities, such securities will not be sold until the futures
contract can be terminated. In such circumstances, an increase in the price of
the securities, if any, may partially or completely offset losses on the futures
contract. However, as described above, there is no guarantee that the price of
the securities will in fact correlate with the price movements in the futures
contract and thus provide an offset on a futures contract.
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Further, it should be noted that the liquidity of a secondary market in a
futures contract may be adversely affected by "daily price fluctuation limits"
established by commodity exchanges which limit the amount of fluctuation in a
futures contract price during a single trading day. Once the daily limit has
been reached in the contract, no trades may be entered into at a price beyond
the limit, thus preventing the liquidation of open futures positions. The
trading of futures contracts is also subject to the risk of trading halts,
suspensions, exchange or clearing house equipment failures, government
intervention, insolvency of a brokerage firm or clearing house or other
disruptions of normal activity, which could at times make it difficult or
impossible to liquidate existing positions or to recover excess variation margin
payments.
Successful use of futures by the Funds is also subject to Fleet's ability
to predict correctly movements in the direction of the market. For example, if a
particular Fund has hedged against the possibility of a decline in the market
adversely affecting securities held by it and securities prices increase
instead, the Fund will lose part or all of the benefit to the increased value of
its securities which it has hedged because it will have offsetting losses in its
futures positions. In addition, in such situations, if the Fund has insufficient
cash, it may have to sell securities to meet daily variation margin
requirements. Such sales of securities may be, but will not necessarily be, at
increased prices which reflect the rising market. The Funds may have to sell
securities at a time when it may be disadvantageous to do so.
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EXHIBIT 17(b)(iii)
[Front cover page]
Galaxy Taxable Bond Funds
The Galaxy Fund
Prospectus
_______________, 2000
Galaxy Short-Term Bond Fund
Galaxy Intermediate Government Income Fund
Galaxy High Quality Bond Fund
Retail A Shares and Retail B Shares
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved any shares of these Funds or determined if this
prospectus is accurate or complete. Anyone who tells you otherwise is committing
a crime.
<PAGE>
Contents
1 Risk/return summary
1 Introduction
2 Galaxy Short-Term Bond Fund
7 Galaxy Intermediate Government Income Fund
12 Galaxy High Quality Bond Fund
17 Additional information about risk
18 Investor guidelines
19 Fund management
20 How to invest in the Funds
20 How sales charges work
23 Buying, selling and exchanging shares
24 How to buy shares
26 How to sell shares
27 How to exchange shares
28 Other transaction policies
29 Dividends, distributions and taxes
31 Galaxy investor programs
31 Retirement plans
31 Other programs
33 How to reach Galaxy
34 Financial highlights
<PAGE>
RISK/RETURN SUMMARY
INTRODUCTION
This prospectus describes the Galaxy Taxable Bond Funds. Each Fund invests
primarily in debt obligations, such as bonds, notes and commercial paper.
On the following pages, you'll find important information about each Fund,
including:
- - the Fund's investment objective (sometimes called the Fund's goal) and
the main investment strategies used by the Fund's investment adviser in
trying to achieve that objective
- - the main risks associated with an investment in the Fund
- - the Fund's past performance measured on both a year-by-year and long-term
basis
- - the fees and expenses that you will pay as an investor in the Fund
WHICH FUND IS RIGHT FOR YOU?
Not all mutual funds are for everyone. Your investment goals and tolerance
for risk will determine which fund is right for you. On page 18, you'll find
a table that provides a general guide to help you decide which of the Galaxy
Taxable Bond Funds is best suited to you.
THE FUNDS' INVESTMENT ADVISER
Fleet Investment Advisors Inc. (the "Adviser") is the investment adviser for
all of these Funds. The Adviser, an indirect wholly-owned subsidiary of
FleetBoston Corporation, was established in 1984 and has its main office at
75 State Street, Boston, Massachusetts 02109. The Adviser also provides
investment management and advisory services to individual and institutional
clients and manages the other Galaxy investment portfolios. As of
December 31, 1999, the Adviser managed over $__ billion in assets.
AN INVESTMENT IN THE FUNDS ISN'T A FLEET BANK DEPOSIT AND IT ISN'T INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. YOU COULD LOSE MONEY BY INVESTING IN THE FUNDS.
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Galaxy Short-Term Bond Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks a high level of current income consistent with preservation of
capital.
[Sidenote:]
PRESERVATION OF CAPITAL
Preservation of capital means protecting the amount of money you invest in a
fund. If a fund seeks to preserve capital, it will try to maintain a relatively
stable share price so your investment is protected.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests primarily in debt obligations of U.S. and foreign corporations,
including bonds and notes, and in debt obligations issued or guaranteed by the
U.S. Government and its agencies or instrumentalities or by foreign governments
or their political subdivisions and instrumentalities. It also invests in
asset-backed and mortgage-backed securities and in money market instruments,
such as commercial paper and the obligations of U.S. and foreign banks. The Fund
normally invests at least 65% of its total assets in bonds and debentures.
In selecting portfolio securities for the Fund, the Adviser monitors and
evaluates economic trends. It establishes duration targets, ranges of interest
payments on bonds of various maturities and determines the appropriate
allocation of the Fund's assets among various market sectors.
In selecting portfolio securities for the Fund, the Adviser evaluates the
suitability of available bonds according to such factors as creditworthiness,
maturity, liquidity and interest rates. It also determines the appropriate
allocation of the Fund's assets among various geographic regions, issuers and
industry sectors.
Nearly all Fund investments will be of investment grade quality. These are
securities which have one of the top four ratings assigned by Standard &
Poor's Ratings Group (S&P) or Moody's Investors Service, Inc. (Moody's), or
are unrated securities determined by the Adviser to be of comparable quality.
Under normal market conditions, the Fund will invest at least 65% of its
total assets in securities that have one of the top three ratings assigned by
S&P or Moody's, or unrated securities determined by the Adviser to be of
comparable quality. Occasionally, the rating of a security held by the Fund
may be downgraded to below investment grade. If that happens, the Fund
doesn't have to sell the security unless the Adviser determines that under
the circumstances the security is no longer an appropriate investment for the
Fund. However, the Fund will sell promptly any securities that are not rated
investment grade by either S&P or Moody's if the securities exceed 5% of the
Fund's net assets.
The Fund's average weighted maturity will be less than three years under
normal cicumstances.
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The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective.
[Sidenote:]
AVERAGE WEIGHTED MATURITY
Average weighted maturity gives you the average time until all debt obligations
in a fund come due or MATURE. It is calculated by averaging the time to maturity
of all debt obligations held by a fund with each maturity "weighted" according
to the percentage of assets it represents.
DURATION
Duration is an approximate measure of the price sensitivity of a fund to
changes in interest rates. Unlike maturity which measures only the time
until final payment, duration gives you the average time it takes to receive
all expected cash flows (including interest payments, prepayments and final
payments) on the debt obligations held by a fund.
[Sidenote:]
DEBT OBLIGATION
When a Fund buys a debt obligation such as a bond, it is in effect lending money
to the company, government or other entity that issued the bond. In return, the
issuer has an obligation to make regular interest payments and to repay the
original amount of the loan on a given date, known as the maturity date. A bond
MATURES when it reaches its maturity date. Bonds usually have fixed interest
rates, although some have rates that fluctuate based on market conditions and
other factors.
The Fund may trade its investments frequently in trying to achieve its
investment goal.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets. These can occur within or outside the U.S. or worldwide, and may affect
only particular companies or industries.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities generally tend to move
in the opposite direction to interest rates. When rates are rising, the
prices of debt securities tend to fall. When rates are falling, the prices
of debt securities tend to rise. Generally, the longer the time until
maturity, the more sensitive the price of a debt security is to interest
rate changes.
- - CREDIT RISK - The value of debt securities also depends on the ability of
issuers to make principal and interest payments. If an issuer can't meet
its payment obligations or if its credit rating is lowered, the value of
its debt securities may fall. Debt securities which have the lowest of the
top four ratings assigned by S&P or Moody's are considered to have
speculative characteristics. Changes in the economy are more likely to
affect the ability of the issuers of these securities to make payments of
principal and interest than is the case with higher-rated securities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
debt securities held by the Fund, particularly asset-backed and
mortgage-backed securities, to be paid off much sooner or later than
expected, which could adversely affect the Fund's value. In the event that
a security is paid off sooner than expected because of a decline in
interest rates, the Fund
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may be unable to recoup all of its initial investment and may also suffer
from having to reinvest in lower-yielding securities. In the event of a
later than expected payment because of a rise in interest rates, the value
of the obligation will decrease and the Fund may suffer from the inability
to invest in higher-yielding securities.
- - FOREIGN INVESTMENTS - Foreign investments may be riskier than U.S.
investments because of factors such as foreign government restrictions,
changes in currency exchange rates, incomplete financial information about
the issuers of securities, and political or economic instability. Foreign
securities may be more volatile and less liquid than U.S. securities.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
- - FREQUENT TRADING - Frequent trading of investments usually increases the
chance that the Fund will pay investors short-term capital gains. These
gains are taxable at higher rates than long-term capital gains. Frequent
trading could also mean higher brokerage commissions and other transaction
costs, which could reduce the Fund's returns.
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past
and give some indication of the risk of investing in the Fund. Both assume
that all dividends and distributions are reinvested in the Fund. How the Fund
has performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares of the Fund has
varied from year to year. The returns for Retail B Shares were different
than the figures shown because each class of shares has different expenses.
The figures don't include any sales charges that investors pay when buying or
selling shares of the Fund. If sales charges were included, the returns would
be lower.
[Sidenote:]
BEST QUARTER:
% for the quarter ending ,
WORST QUARTER:
% for the quarter ending ,
[bar chart goes here]
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C> <C>
5.81% 6.41% -0.37% 10.96% 3.38% 5.68% 6.07% %
</TABLE>
-4-
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns (after taking into
account any sales charges) for the periods ended December 31, 1999, as
compared to a broad-based market index. The returns for Retail A Shares of the
Fund for periods prior to December 1, 1995 have been restated to include the
effect of the maximum 3.75% front-end sales charge which went into effect on
that date.
<TABLE>
<CAPTION>
1 year 5 years Since inception
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares % % % (12/30/91)
- -----------------------------------------------------------------------------
Retail B Shares % % % (3/4/96)
- -----------------------------------------------------------------------------
Lehman Brothers One to % % % (since 12/31/91)
Three Year Government Bond % (since 2/29/96)
Index
- -----------------------------------------------------------------------------
</TABLE>
For current yield information, please call 1-877-BUY-GALAXY (1-877-289-4252).
[Sidenote:]
The Lehman Brothers One to Three Year Government Bond Index is an unmanaged
index which tracks the performance of short-term U.S. Government bonds.
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
Shareholder fees (fees paid directly from your investment)
<TABLE>
<CAPTION>
Maximum sales charge (load) on purchases Maximum deferred sales charge (load)
shown as a % of the offering price shown as a % of the offering price or
sale price, whichever is less
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares 3.75%(1) None(2)
- ------------------------------------------------------------------------------------------------------------
Retail B Shares None 5.00%(3)
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
Management fees Distribution and Other expenses Total Fund operating
service (12b-1) fees expenses
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.75%(4) None % %(4)
- --------------------------------------------------------------------------------------------------------------
Retail B Shares 0.75%(4) 0.80% % %(4)
- --------------------------------------------------------------------------------------------------------------
</TABLE>
-5-
<PAGE>
(1) Reduced sales charges may be available. See "How to invest in the Funds -
How sales charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the
Funds -- How sales charges work."
(3) This amount applies if you sell your shares in the first year after purchase
and gradually declines to 1% in the sixth year after purchase. After six
years, your Retail B Shares will automatically convert to Retail A Shares.
See "How to invest in the Funds -- How sales charges work."
(4) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be %. Affiliates of the Adviser are waiving a portion of
the Distribution and service (12b-1) fees for Retail B Shares so that such
fees are expected to be %. Total Fund operating expenses after these
waivers are expected to be % for Retail A Shares and % for Retail B
Shares. These fee waivers may be revised or discontinued at any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your Retail B Shares convert to Retail A Shares after six years
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $ $ $ $
- --------------------------------------------------------------------------------
Retail B Shares $ $ $ $
- --------------------------------------------------------------------------------
If you hold Retail B Shares, you would pay the following expenses if you didn't
sell your shares:
- --------------------------------------------------------------------------------
Retail B Shares $ $ $ $
- --------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Adviser's Taxable Fixed Income Strategy Committee is responsible for the
day-to-day management of the Fund's investment portfolio.
-6-
<PAGE>
Galaxy Intermediate Government Income Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks the highest level of current income consistent with prudent risk
of capital.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 65% of its total assets in debt obligations
issued or guaranteed by the U.S. Government or its agencies and
instrumentalities. It also invests in debt obligations of U.S. corporations,
asset-backed and mortgage-backed securities and money market instruments, such
as commercial paper and obligations of U.S. banks and U.S. branches of foreign
banks.
In selecting portfolio securities for the Fund, the Adviser monitors and
evaluates economic trends. It establishes duration targets, ranges of interest
rates on bonds of various maturities and determines the appropriate allocation
of the Fund's investments among various market sectors.
In selecting portfolio securities for the Fund, the Adviser evaluates the
suitability of available bonds according to such factors as creditworthiness,
maturity, liquidity and interest rates. It also determines the appropriate
allocation of the Fund's assets among various geographic regions, issuers and
industry sectors.
Nearly all Fund investments will be of investment grade quality and will have
one of the top three ratings assigned by Standard & Poor's Ratings Group
("S&P") or Moody's Investors Service, Inc. ("Moody's"), or will be unrated
securities determined by the Adviser to be of comparable quality.
Occasionally, the rating of a security held by the Fund may be downgraded to
below the minimum required rating. If that happens, the Fund doesn't have to
sell the security unless the Adviser determines that under the circumstances
the security is no longer an appropriate investment for the Fund. However,
the Fund will sell promptly any securities that are not rated investment
grade by either S&P or Moody's if the securities exceed 5% of the Fund's net
assets.
The Fund's average weighted maturity will be between three and ten years
under normal circumstances.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective.
[Sidenote:]
U.S. GOVERNMENT OBLIGATIONS
U.S. Government obligations are debt obligations issued or guaranteed by the
U.S. Government or one of its agencies or instrumentalities. U.S. Government
obligations generally have less credit risk than other debt obligations.
-7-
<PAGE>
The Fund may trade its investments frequently in trying to achieve its
investment goal.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets. These can occur within or outside the U.S. or worldwide, and may affect
only particular companies or industries.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities generally tend to move in
the opposite direction to interest rates. When rates are rising, the prices
of debt securities tend to fall. When rates are falling, the prices of debt
securities tend to rise. Generally, the longer the time until maturity, the
more sensitive the price of a debt security is to interest rate changes.
- - CREDIT RISK - The value of debt securities also depends on the ability of
issuers to make principal and interest payments. If an issuer can't meet its
payment obligations or if its credit rating is lowered, the value of its
debt securities may fall.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
debt securities held by the Fund, particularly asset-backed and
mortgage-backed securities, to be paid off much sooner or later than
expected, which could adversely affect the Fund's value. In the event that a
security is paid off sooner than expected because of a decline in interest
rates, the Fund may be unable to recoup all of its initial investment and
may also suffer from having to reinvest in lower-yielding securities. In the
event of a later than expected payment because of a rise in interest rates,
the value of the obligation will decrease and the Fund may suffer from the
inability to invest in higher-yielding securities.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
- - FREQUENT TRADING - Frequent trading of investments usually increases the
chance that the Fund will pay investors short-term capital gains. These
gains are taxable at higher rates than long-term capital gains. Frequent
trading could also mean higher brokerage commissions and other transaction
costs, which could reduce the Fund's returns.
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past
and give some indication of the risk of investing in the Fund. Both assume
that all dividends and distributions are reinvested in the Fund. How the Fund
has performed in the past doesn't necessarily show how it will perform in the
future.
Retail A Shares of the Fund were first issued during the fiscal year ended
October 31, 1992. The returns for Retail A Shares of the Fund for prior periods
represent the returns for Trust Shares of the Fund which are offered in a
separate prospectus. Prior to November 1, 1993, the returns for Retail A Shares
and Trust Shares of the Fund were the same because each class of shares had the
same expenses.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
-8-
<PAGE>
The bar chart shows how the performance of Retail A Shares of the Fund has
varied from year to year. The returns for Retail B Shares were different than
the figures shown because each class of shares has different expenses. The
figures don't include any sales charges that investors pay when buying or
selling shares of the Fund. If sales charges were included, the returns would
be lower.
[Sidenote:]
BEST QUARTER:
% for the quarter ending ,
WORST QUARTER:
% for the quarter ending ,
[bar chart goes here]
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5.87% 15.77% 7.11% 5.57% -3.77% 15.67% 1.75% 7.83% 8.32% %
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns (after taking into
account any sales charges) for the periods ended December 31, 1999, as
compared to broad-based market indices. The returns for Retail A Shares of the
Fund for periods prior to December 1, 1995 have been restated to include the
effect of the maximum 3.75% front-end sales charge which went into effect on
that date.
<TABLE>
<CAPTION>
1 year 5 years 10 years Since inception
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares % % % % (9/1/88)
- -------------------------------------------------------------------------------------------------------------------
Retail B Shares(1) % % % % (11/1/98)
- -------------------------------------------------------------------------------------------------------------------
Lehman Brothers Intermediate
Government/ % (since 9/1/88)
Corporate Bond Index % % % % (since 11/1/98)
- -------------------------------------------------------------------------------------------------------------------
Lehman Brothers Aggregate Bond Index % (since 9/1/88)
% % % % (since 11/1/98)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Retail B shares were first offered on November 1, 1998.
For current yield information, please call 1-877-BUY-GALAXY (1-877-289-4252).
[Sidenote:]
The Lehman Brothers Intermediate Government/Corporate Bond Index is an unmanaged
index which tracks the performance of intermediate U.S. Government and corporate
bonds.
[Sidenote:]
-9-
<PAGE>
The Lehman Brothers Aggregate Bond Index is on unmanaged index made up of the
Lehman Brothers Government/Corporate Bond Index, its Mortgage Backed Securities
Index and its Asset Backed Securities Index.
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
Shareholder fees (fees paid directly from your investment)
<TABLE>
<CAPTION>
Maximum sales charge (load) on purchases Maximum deferred sales of the
shown as a % of the offering price charge (load) shown as a %
of the offering price or sale
price, whichever is less
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares 3.75%(1) None(2)
- ---------------------------------------------------------------------------------------------------
Retail B Shares None 5.00%(3)
- ---------------------------------------------------------------------------------------------------
</TABLE>
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
Management fees Distribution and Other expenses Total Fund operating
service (12b-1) fees expenses
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.75%(4) None % %(4)
- ----------------------------------------------------------------------------------------------------------------------
Retail B Shares 0.75%(4) 0.80% % %(4)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the Funds -
How sales charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the
Funds -- How sales charges work."
(3) This amount applies if you sell your shares in the first year after purchase
and gradually declines to 1% in the sixth year after purchase. After six
years, your Retail B Shares will automatically convert to Retail A Shares.
See "How to invest in the Funds -- How sales charges work."
(4) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be %. Total Fund operating expenses after this waiver
are expected to be % for Retail A Shares and % for Retail B
Shares. This fee waiver may be revised or discontinued at any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
-10-
<PAGE>
- - your investment has a 5% return each year
- - your Retail B Shares convert to Retail A Shares after six years
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $ $ $ $
- ------------------------------------------------------------------------------------------------------------------
Retail B Shares $ $ $ $
- ------------------------------------------------------------------------------------------------------------------
If you hold Retail B Shares, you would pay the following expenses if you didn't
sell your shares:
- ------------------------------------------------------------------------------------------------------------------
Retail B Shares $ $ $ $
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is Marie M. Schofield, CFA, a Senior Vice President
of the Adviser. She's primarily responsible for the day-to-day management of the
Fund's investment portfolio. Ms. Schofield, who has over 20 years of investment
experience, has been with the Adviser since 1990 and served as a Vice President
and Manager of Fixed Income Investments until February 1999. She has managed the
Fund since December 1996.
-11-
<PAGE>
Galaxy High Quality Bond Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks a high level of current income consistent with prudent risk of
capital.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests primarily in obligations issued or guaranteed by the U.S.
Government, its agencies and instrumentalities, as well as in corporate debt
obligations such as notes and bonds. The Fund also invests in asset-backed and
mortgage-backed securities and in money market instruments, such as commercial
paper and bank obligations.
In selecting portfolio securities for the Fund, the Adviser monitors and
evaluates economic trends. It establishes duration targets, ranges of interest
rates on bonds of various maturities and determines the appropriate allocation
of the Fund's investments among various market sectors.
In selecting portfolio securities for the Fund, the Adviser evaluates the
suitability of available bonds according to such factors as creditworthiness,
maturity, liquidity and interest rates. It also determines the appropriate
allocation of the Fund's assets among various geographic regions, issuers and
industry sectors.
Nearly all Fund investments will be of investment grade quality. These are
securities which have one of the top four ratings assigned by Standard &
Poor's Ratings Group (S&P) or Moody's Investors Service, Inc. (Moody's), or
are unrated securities determined by the Adviser to be of comparable quality.
Under normal market conditions, the Fund will invest at least 65% of its
total assets in high quality securities that have one of the top two ratings
assigned by S&P or Moody's or unrated securities determined by the Adviser to
be of comparable quality. High quality securities tend to pay less income
than lower-rated securities. Occasionally, the rating of a security held by
the Fund may be downgraded to below investment grade. If that happens, the
Fund doesn't have to sell the security unless the Adviser determines that
under the circumstances the security is no longer an appropriate investment
for the Fund. However, the Fund will sell promptly any securities that are
not rated investment grade by either S&P or Moody's if the securities exceed
5% of the Fund's net assets.
The Fund's average weighted maturity will vary from time to time depending on
current market and economic conditions and the Adviser's assessment of probable
changes in interest rates.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective.
The Fund may trade its investments frequently in trying to achieve its
investment goal.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets. These can occur within or outside the U.S. or worldwide, and may affect
only particular companies or industries.
-12-
<PAGE>
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities generally tend to move in
the opposite direction to interest rates. When rates are rising, the prices
of debt securities tend to fall. When rates are falling, the prices of debt
securities tend to rise. Generally, the longer the time until maturity, the
more sensitive the price of a debt security is to interest rate changes.
- - CREDIT RISK - The value of debt securities also depends on the ability of
issuers to make principal and interest payments. If an issuer can't meet its
payment obligations or if its credit rating is lowered, the value of its
debt securities may fall. Debt securities which have the lowest of the top
four ratings assigned by S&P or Moody's are considered to have speculative
characteristics. Changes in the economy are more likely to affect the
ability of the issuers of these securities to make payments of principal and
interest than is the case with higher-rated securities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain debt
securities held by the Fund, particularly asset-backed and mortgage-backed
securities, to be paid off much sooner or later than expected, which could
adversely affect the Fund's value. In the event that a security is paid off
sooner than expected because of a decline in interest rates, the Fund may be
unable to recoup all of its initial investment and may also suffer from
having to reinvest in lower-yielding securities. In the event of a later
than expected payment because of a rise in interest rates, the value of the
obligation will decrease and the Fund may suffer from the inability to
invest in higher-yielding securities.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
- - FREQUENT TRADING - Frequent trading of investments usually increases the
chance that the Fund will pay investors short-term capital gains. These
gains are taxable at higher rates than long-term capital gains. Frequent
trading could also mean higher brokerage commissions and other transaction
costs, which could reduce the Fund's returns.
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past
and give some indication of the risk of investing in the Fund. Both assume
that all dividends and distributions are reinvested in the Fund. How the Fund
has performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares of the Fund has
varied from year to year. The returns for Retail B Shares were different than
the figures shown because each class of shares has different expenses. The
figures don't include any sales charges that investors pay when buying or
selling shares of the Fund. If sales charges were included, the returns would
be lower.
-13-
<PAGE>
[Sidenote:]
BEST QUARTER:
% for the quarter ending ,
WORST QUARTER:
% for the quarter ending ,
[bar chart goes here]
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C> <C> <C>
15.12% 6.77% 12.81% -6.48% 21.20% 1.37% 9.11% 9.27% %
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns (after taking into
account any sales charges) for the periods ended December 31, 1999, as
compared to a broad-based market index. The returns for Retail A Shares of the
Fund for periods prior to December 1, 1995 have been restated to include the
effect of the maximum 3.75% front-end sales charge which went into effect on
that date.
<TABLE>
<CAPTION>
1 year 5 years Since inception
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares % % % (12/14/90)
- -----------------------------------------------------------------------------------------
Retail B Shares % % % (3/4/96)
- -----------------------------------------------------------------------------------------
Lehman Brothers Intermediate
Government/ % (since 12/31/90)
Corporate Bond Index % % % (since 2/29/96)
- -----------------------------------------------------------------------------------------
</TABLE>
For current yield information, please call 1-877-BUY-GALAXY (1-877-289-4252).
[Sidenote:]
The Lehman Brothers Intermediate Government/Corporate Bond Index is an unmanaged
index which tracks the performance of intermediate-term U.S. Government and
corporate bonds.
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
Shareholder fees (fees paid directly from your investment)
<TABLE>
<CAPTION>
Maximum sales charge (load) on purchases Maximum deferred sales of the
shown as a % of the offering price charge (load) shown as a %
of the offering price or sale
price, whichever is less
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares 3.75%(1) None(2)
- ---------------------------------------------------------------------------------------------------
Retail B Shares None 5.00%(3)
- ---------------------------------------------------------------------------------------------------
</TABLE>
-14-
<PAGE>
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
Distribution and Other Total Fund
Management fees service (12b-1) fees expenses operating expenses
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.75%(4) None % %(4)
- ---------------------------------------------------------------------------------------------------
Retail B Shares 0.75%(4) 0.80% % %(4)
- ---------------------------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the Funds -
How sales charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the
Funds -- How sales charges work."
(3) This amount applies if you sell your shares in the first year after purchase
and gradually declines to 1% in the sixth year after purchase. After six
years, your Retail B Shares will automatically convert to Retail A Shares.
See "How to invest in the Funds -- How sales charges work."
(4) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be %. Total Fund operating expenses after this waiver
are expected to be % for Retail A Shares and % for Retail B
Shares. This fee waiver may be revised or discontinued at any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your Retail B Shares convert to Retail A Shares after six years
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $ $ $ $
- --------------------------------------------------------------------------------------------------------
Retail B Shares $ $ $ $
- --------------------------------------------------------------------------------------------------------
If you hold Retail B Shares, you would pay the following expenses if you didn't
sell your shares:
- ---------------------------------------------------------------------------------------------------------
Retail B Shares $ $ $ $
- ---------------------------------------------------------------------------------------------------------
</TABLE>
-15-
<PAGE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is Marie M. Schofield, CFA, a Senior Vice President
of the Adviser. She's primarily responsible for the day-to-day management of the
Fund's investment portfolio. Ms. Schofield, who has over 20 years of investment
experience, has been with the Adviser since 1990 and served as a Vice President
and Manager of Fixed Income Investments until February 1999. She has managed the
Fund since December 1996.
-16-
<PAGE>
ADDITIONAL INFORMATION ABOUT RISK
The main risks associated with an investment in each of the Galaxy Taxable
Bond Funds have been described above. The following supplements that discussion.
TEMPORARY DEFENSIVE POSITIONS
Under unusual market conditions, each Fund may hold uninvested cash (which will
not earn any income) and invest without limit in money market instruments,
including short-term U.S. Government securities. This strategy could prevent a
Fund from achieving its investment objective.
OTHER TYPES OF INVESTMENTS
This prospectus describes each Fund's main investment strategies and the
particular types of securities in which each Fund mainly invests. Each Fund
may, from time to time, pursue other investment strategies and make other
types of investments in support of its overall investment goal. These
supplemental investment strategies, which are not considered to be main
investment strategies of the Fund - and the risks involved - are described in
detail in the Statement of Additional Information (SAI) which is referred to on
the back cover of this prospectus.
-17-
<PAGE>
INVESTOR GUIDELINES
The table below provides information as to which type of investor might want to
invest in each of the Galaxy Taxable Bond Funds. It's meant as a general guide
only. Consult your financial professional to help you decide which Fund is right
for you.
<TABLE>
<CAPTION>
Galaxy Fund May be best suited for...
- ------------------------------------------------------------------------------------------------
<S> <C>
Galaxy Short-Term Bond Fund investors who want current income greater
than that normally provided by a money market
fund
investors who want less change in the value
of their investment than normally associated
with long-term funds
- ------------------------------------------------------------------------------------------------
Galaxy Intermediate Government Income Fund investors who want current income
investors who want the extra margin of
safety associated with U.S. Government
securities
investors who can accept fluctuations in
price and yield
- ------------------------------------------------------------------------------------------------
Galaxy High Quality Bond Fund investors who want current income
investors who want the added safety
associated with bonds with lower credit risk
than other debt securities
investors who can accept fluctuations in
price and yield
- ------------------------------------------------------------------------------------------------
</TABLE>
-18-
<PAGE>
FUND MANAGEMENT
ADVISER
The Adviser, subject to the general supervision of Galaxy's Board of Trustees,
manages each Fund in accordance with its investment objective and policies,
makes decisions with respect to and places orders for all purchases and sales of
portfolio securities, and maintains related records.
ALLOCATION OF ORDERS FOR PORTFOLIO SECURITIES
The Adviser may allocate orders for the purchase and sale of portfolio
securities to certain financial institutions, including those that are
affiliated with the Adviser or that have sold shares of the Funds, to the extent
permitted by law or by order of the Securities and Exchange Commission. The
Adviser will allocate orders to such institutions only if it believes that the
quality of the transaction and the commission are comparable to what they would
be with other qualified brokerage firms.
MANAGEMENT FEES
The management fees paid to the Adviser by the Funds during the last fiscal year
are set forth below.
<TABLE>
<CAPTION>
Fund Management fee as a % of average net assets
- ---------------------------------------------------------------------------------
<S> <C>
Short-Term Bond Fund %
- ---------------------------------------------------------------------------------
Intermediate Government Income Fund %
- ---------------------------------------------------------------------------------
High Quality Bond Fund %
- ---------------------------------------------------------------------------------
</TABLE>
-19-
<PAGE>
HOW TO INVEST IN THE FUNDS
HOW SALES CHARGES WORK
You will normally pay a sales charge to invest in the Funds. If you buy Retail A
Shares, you'll usually pay a sales charge (sometimes called a front-end load) at
the time you buy your shares. If you buy Retail B Shares, you may have to pay a
contingent deferred sales charge (sometimes called a back-end load or CDSC) when
you sell your shares. This section explains these two options.
[Sidenote:]
NET ASSET VALUE
The price you pay for your shares is based on the net asset value per share
(NAV). It's the value of a Fund's assets attributable to Retail A Shares or
Retail B Shares, minus the value of the Fund's liabilities attributable to
Retail A Shares or Retail B Shares, divided by the number of Retail A Shares or
Retail B Shares held by investors.
RETAIL A SHARES
The table below shows the sales charge you'll pay if you buy Retail A Shares of
the Funds. The offering price is the NAV of the shares purchased, plus any
applicable sales charge.
<TABLE>
<CAPTION>
Total sales charge
- --------------------------------------------------------------------------------------------------------------------
As a % of the offering price per
Amount of your investment share As a % of your investment
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Less than $50,000 3.75% 3.90%
- --------------------------------------------------------------------------------------------------------------------
$50,000 but less than $100,000
3.50% 3.63%
- --------------------------------------------------------------------------------------------------------------------
$100,000 but less than $250,000
3.00% 3.09%
- --------------------------------------------------------------------------------------------------------------------
$250,000 but less than $500,000
2.50% 2.56%
- --------------------------------------------------------------------------------------------------------------------
$500,000 and over 0.00%(1) 0.00%(1)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) There is no front-end sales charge on investments in Retail A Shares of
$500,000 or more. However, if you sell the shares within one year after
buying them, you'll pay a CDSC of 1% of the offering price or 1% of the net
asset value of your shares, whichever is less, unless the shares were sold
because of the death or disability of the shareholder. In addition, Galaxy
will waive the 1% CDSC on your initial sale of shares. This waiver will not
apply to amounts reinvested within one year following your initial sale of
shares.
-20-
<PAGE>
Galaxy's distributor may from time to time implement programs under which a
broker-dealer's sales force may be eligible to win nominal awards for certain
sales efforts. If any such program is made available to any broker-dealer, it
will be made available to all broker-dealers on the same terms. Payments made
under such programs are made by Galaxy's distributor out of its own assets and
not out of the assets of the Funds. These programs will not change the price of
Retail A Shares or the amount that the Funds will receive from such sales.
Certain affiliates of the Adviser may, at their own expense, provide additional
compensation to affiliated broker-dealers whose customers purchase significant
amounts of Retail A Shares of one or more Funds and to unaffiliated
broker-dealers whose customers purchase Retail A Shares of one or more of the
Funds. Such compensation will not represent an additional expense to the Funds
or their shareholders, since it will be paid from the assets of the Adviser's
affiliates.
There's no sales charge when you buy Retail A Shares if:
- - you buy shares by reinvesting your dividends and distributions
- - you were a Galaxy shareholder before December 1, 1995
- - you buy shares for a 401(k) or SIMPLE IRA retirement account
- - you buy shares for any retirement account provided that you held Retail
A Shares in a retirement account prior to January 1, 1999
- - you buy shares for any retirement account and your total cumulative
Retail A Share retirement account balance was $30,000 or more between
January 1, 1999 and June 30, 1999
- - you buy shares with money from another Galaxy Fund on which you've already
paid a sales charge (as long as you buy the new shares within 90 days after
selling your other shares)
- - you previously paid a sales charge for the shares of another mutual fund
company (as long as you buy the Galaxy shares within 60 days of selling your
other shares)
- - you're an investment professional who places trades for your clients and
charges them a fee
- - you buy shares under an all-inclusive fee program (sometimes called a
"wrap fee program") offered by a broker-dealer or other financial
institution
[Sidenote:]
Ask your investment professional or Galaxy's distributor, or consult the SAI,
for other instances in which the sales load on Retail A Shares is waived. When
you buy your shares, you must tell your investment professional or Galaxy's
distributor that you qualify for a sales load waiver. To contact Galaxy's
distributor call 1-877-BUY- GALAXY (1-877-289-4252).
RETAIL B SHARES
If you buy Retail B Shares of the Funds, you won't pay a CDSC unless you sell
your shares within six years of buying them. The following table shows the
schedule of CDSC charges:
-21-
<PAGE>
<TABLE>
<CAPTION>
If you sell your shares You'll pay a CDSC of
- --------------------------------------------------------------------------------
<S> <C>
during the first year 5.00%
- --------------------------------------------------------------------------------
during the second year 4.00%
- --------------------------------------------------------------------------------
during the third year 3.00%
- --------------------------------------------------------------------------------
during the fourth year 3.00%
- --------------------------------------------------------------------------------
during the fifth year 2.00%
- --------------------------------------------------------------------------------
during the sixth year 1.00%
- --------------------------------------------------------------------------------
after the sixth year None
- --------------------------------------------------------------------------------
</TABLE>
For purposes of calculating the CDSC, all purchases made during a calendar month
are considered to be made on the first day of that month. The CDSC is based on
the value of the Retail B Shares on the date that they are sold or the original
cost of the shares, whichever is lower. To keep your CDSC as low as possible
each time you sell shares, Galaxy will first sell any shares in your account
that are not subject to a CDSC. If there are not enough of these, Galaxy will
sell those shares that have the lowest CDSC. There is no CDSC on Retail B Shares
that you acquire by reinvesting your dividends and distributions.
In addition, there's no CDSC when Retail B Shares are sold because of the death
or disability of a shareholder and in certain other circumstances such as
exchanges. Ask your investment professional or Galaxy's distributor, or consult
the SAI, for other instances in which the CDSC is waived. To contact Galaxy's
distributor, call 1-877-BUY-GALAXY (1-877-289-4252).
DISTRIBUTION AND SHAREHOLDER SERVICE FEES
Retail A Shares of the Funds can pay shareholder service fees at an annual rate
of up to 0.50% of each Fund's Retail A Share assets. The Funds do not intend to
pay more than 0.15% in shareholder service fees with respect to Retail A Shares
during the current fiscal year.
Retail B Shares of the Funds can pay distribution and shareholder service
(12b-1) fees at an annual rate of up to 1.15% of each Fund's Retail B Share
assets. The Funds do not intend to pay more than 0.80% in distribution and
service (12b-1) fees during the current fiscal year. Galaxy has adopted a plan
under Rule 12b-1 that allows each Fund to pay fees from its Retail B Share
assets for selling and distributing Retail B Shares and for services provided to
shareholders. Because 12b-1 fees are paid on an ongoing basis, over time they
increase the cost of your investment and may cost more than paying other sales
charges.
CONVERTING RETAIL B SHARES TO RETAIL A SHARES
Six years after you buy Retail B Shares of a Fund, they will automatically
convert to Retail A Shares of the Fund. This allows you to benefit from the
lower annual expenses of Retail A Shares.
-22-
<PAGE>
CHOOSING BETWEEN RETAIL A SHARES AND RETAIL B SHARES
Retail B Shares are subject to higher fees than Retail A Shares. For this
reason, Retail A Shares can be expected to pay higher dividends than Retail B
Shares. However, because Retail A Shares are subject to an initial sales
charge which is deducted at the time you purchase Retail A Shares (unless you
qualify for a sales load waiver), you will have less of your purchase price
invested in a particular Fund if you purchase Retail A Shares than if you
purchase Retail B Shares of the Fund.
In deciding whether to buy Retail A Shares or Retail B Shares, you should
consider how long you plan to hold the shares. Over time, the higher fees on
Retail B Shares may equal or exceed the initial sales charge and fees for Retail
A Shares. Retail A Shares may be a better choice if you qualify to have the
sales charge reduced or eliminated or if you plan to sell your shares within one
or two years. Consult your financial professional for help in choosing the
appropriate share class.
BUYING, SELLING AND EXCHANGING SHARES
You can buy and sell Retail A Shares and Retail B Shares of the Funds on any day
that the Funds are open for business, which is any day that the New York Stock
Exchange is open. The New York Stock Exchange is generally open for trading
every Monday through Friday, except for national holidays.
Retail A Shares and Retail B Shares have different prices. The price at which
you buy shares is the NAV next determined after your order is accepted, plus any
applicable sales charge. The price at which you sell shares is the NAV next
determined after receipt of your order in proper form, as described below, less
any applicable CDSC. NAV is determined on each day the New York Stock Exchange
is open for trading at the close of regular trading that day (usually 4:00 p.m.
Eastern time). If market prices are readily available for securities owned by
the Fund, they're valued at those prices. If market prices are not readily
available for some securities, they are valued at fair value under the
supervision of Galaxy's Board of Trustees.
Sometimes, the price of a security trading on a foreign stock exchange may be
affected by events that happen after that exchange closes. If this happens, the
fair value of the security may be determined using other factors and may not
reflect the security's last quoted price. In addition, foreign securities may
trade on days when shares of the Funds are not priced. As a result, the net
asset value per share of a Fund holding these securities may change on days when
you won't be able to buy or sell Fund shares.
[Sidenote:]
MINIMUM INVESTMENT AMOUNTS
The minimum initial investment to open a Fund account is:
- - $2,500 for regular accounts
- - $500 for retirement plan accounts such as IRA, SEP and Keogh Plan accounts
- - $100 for college savings accounts, including Education IRA accounts
There is generally no minimum initial investment if you participate in the
Automatic Investment Program or in a salary reduction retirement plan such as a
SIMPLE IRA or 401(k). You generally can make additional investments for as
little as $100. See GALAXY INVESTOR PROGRAMS below for information on other
minimums for initial and additional investments.
-23-
<PAGE>
Usually, you must keep at least $250 in your account other than retirement plan
accounts. If your account falls below $250 because you sell or exchange shares,
Galaxy may redeem your shares and close your account. Galaxy will give you 60
days' notice in writing before closing your account.
HOW TO BUY SHARES
You can buy shares through your financial institution or directly from Galaxy's
distributor by calling 1-877-BUY-GALAXY (1-877-289-4252). A broker or agent who
places orders on your behalf may charge you a separate fee for their services.
BUYING BY MAIL
Complete an account application and mail it, together with a check payable to
each Fund in which you want to invest, to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
To make additional investments, send your check to the address above along with
one of the following:
- - The detachable form that's included with your Galaxy statement or your
confirmation of a prior transaction
- - A letter stating the amount of your investment, the name of the Fund you
want to invest in, and your account number
If your check is returned because of insufficient funds, Galaxy will cancel your
order.
BUYING BY WIRE
To make an initial or additional investment by wire, send U.S. funds through the
Federal Reserve System to Fleet National Bank as agent for Galaxy's distributor.
You should wire money and registration instructions to:
Fleet National Bank
75 State Street
Boston, MA 02109
ABA #0110-0013-8
DDA #79673-5702
Ref: The Galaxy Fund
(Account number)
(Account registration)
Before making an initial investment by wire, you must complete an account
application and send it to The Galaxy Fund, P.O. Box 6520, Providence, RI
02940-6520. Your order will not be
-24-
<PAGE>
effected until the completed account application is received by Galaxy. Call
Galaxy's distributor at 1-877-BUY-GALAXY (1-877-289-4252) for an account
application.
Your financial institution may charge you a fee for sending funds by wire.
CUSTOMERS OF FINANCIAL INSTITUTIONS
If you are a customer of a financial institution such as a bank, savings and
loan association or broker-dealer, including a financial institution affiliated
with the Adviser, you should place your order through your financial
institution. Your financial institution is responsible for sending your order to
Galaxy's distributor and wiring the money to Galaxy's custodian. For details,
please contact your financial institution.
DISCOUNT PLANS
You may have the sales charges on purchases of Retail A Shares reduced or waived
completely through the discount plans described below:
- - RIGHTS OF ACCUMULATION - You can add the value of the Retail A Shares that
you already own in any Galaxy Fund that charges a sales load to your next
investment in Retail A Shares for purposes of calculating the sales charge.
- - LETTER OF INTENT - You can purchase Retail A Shares of any Galaxy Fund that
charges a sales load over a 13-month period and receive the same sales
charge as if all of the shares had been purchased at the same time. To
participate, complete the Letter of Intent section on the account
application.
- - REINVESTMENT PRIVILEGE - You can reinvest some or all of the money that you
receive when you sell Retail A Shares of the Funds in Retail A Shares of
any Galaxy Fund within 90 days without paying a sales charge.
- - GROUP SALES - If you belong to a qualified group with 50,000 or more
members, you can buy Retail A Shares at a reduced sales charge, based on
the number of qualified group members.
[Sidenote:]
You must tell your investment professional or Galaxy's distributor when you buy
your shares that you want to take advantage of any of these discount plans. See
the SAI for additional requirements that may apply. To contact Galaxy's
distributor, call 1-877-BUY-GALAXY (1-877-289-4252).
HOW TO SELL SHARES
You can sell your shares in several ways: by mail, by telephone, by wire, or
through your financial institution.
-25-
<PAGE>
SELLING BY MAIL
Send your request in writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
You must include the following:
- - The name of the Fund
- - The number of shares or the dollar amount you want to sell
- - Your account number
- - Your Social Security number or tax identification number
- - The signatures of each registered owner of the account (the signatures must
match the names on the account registration)
Additional documents may be required for certain types of shareholders, such as
corporations, partnerships, executors, trustees, administrators or guardians.
[Sidenote:]
SIGNATURE GUARANTEES
When selling your shares EITHER by mail or by phone, you must have your
signature guaranteed if:
- - you're selling shares worth more than $50,000
- - you want Galaxy to send your money to an address other than the address on
your account, unless your assets are transferred to a successor custodian
- - you want Galaxy to send your money to the address on your account that's
changed within the last 30 days
- - you want Galaxy to make the check payable to someone else
Your signature must be guaranteed by a bank that's a member of the FDIC, a trust
company, a member firm of a national securities exchange or any other eligible
institution. A notarized signature is not sufficient.
SELLING BY PHONE
You can sell shares by calling Galaxy's distributor at 1-877-BUY-GALAXY
(1-877-289-4252) unless you tell Galaxy on the account application or in writing
that you don't want this privilege. If you have difficulty getting through to
Galaxy because of unusual market conditions, consider selling your shares by
mail or wire.
SELLING BY WIRE
Notify Galaxy's distributor by phone or wire that you wish to sell shares and
have the sale proceeds wired to your account at any financial institution in the
U.S. To be eligible to use this privilege, you must complete the appropriate
section on the account application or notify Galaxy in writing (with a signature
guarantee). Your sale proceeds must be more than $1,000.
-26-
<PAGE>
The sale proceeds must be paid to the same bank and account you named on your
application or in your written instructions.
CUSTOMERS OF FINANCIAL INSTITUTIONS
Please contact your financial institution for information on how to sell your
shares. The financial institution is responsible for sending your order to
Galaxy's distributor and for crediting your account with the proceeds. Galaxy
doesn't charge a fee for wiring sale proceeds to your financial institution, but
your financial institution may charge you a fee.
HOW TO EXCHANGE SHARES
You may exchange Retail A Shares of a Fund having a value of at least $100 for
Retail A Shares of any other Galaxy Fund or for shares of any other Fund that's
managed by the Adviser or any of its affiliates in which you have an existing
account. You won't pay a sales charge for exchanging your Retail A Shares.
You may exchange Retail B Shares of a Fund for Retail B Shares of any other
Galaxy Fund. You won't pay a CDSC when you exchange your Retail B Shares.
However, when you sell the Retail B Shares you acquired in the exchange, you'll
pay a contingent deferred sales charge based on the date you bought the Retail B
Shares which you exchanged.
TO EXCHANGE SHARES:
- - call Galaxy's distributor or use the InvestConnect voice response line at
1-877-BUY-GALAXY (1-877-289-4252)
- - send your request in writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
- - ask your financial institution
Galaxy doesn't charge any fee for making exchanges but your financial
institution might do so. You are generally limited to three exchanges per year.
Galaxy may change or cancel the exchange privilege by giving 60 days' advance
written notice to shareholders.
-27-
<PAGE>
OTHER TRANSACTION POLICIES
If Galaxy doesn't receive full payment for your order to buy shares within three
business days of the order date, Galaxy won't accept your order. Galaxy will
advise you if this happens and return any payment it may eventually receive. You
can only invest in shares of the Funds that are legally available in your state.
Galaxy may refuse any order to buy shares. Galaxy doesn't issue a certificate
when you buy shares but it does keep a record of shares issued to investors.
Galaxy may refuse your order to sell or exchange shares by wire or telephone if
it believes it is advisable to do so. Galaxy or its distributor may change or
cancel the procedures for selling or exchanging shares by wire or telephone at
any time without notice.
If you sell or exchange shares by telephone you may be responsible for any
fraudulent telephone orders as long as Galaxy has taken reasonable precautions
to verify your identify, such as requesting information about the way in which
your account is registered or about recent transactions in your account.
Galaxy normally pays you cash when you sell your shares, but it has the right to
deliver securities owned by a Fund instead of cash. When you sell these
securities, you'll pay brokerage charges.
Sales proceeds are normally sent to you within three business days but Galaxy
reserves the right to send sales proceeds within seven days if sending proceeds
earlier could adversely affect a Fund.
If any shares that you're selling are part of an investment you've paid for with
a personal check, Galaxy will delay sending your sales proceeds until the check
clears, which can take up to 15 days from the purchase date.
Galaxy reserves the right to vary or waive any minimum investment requirement.
-28-
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Each Fund declares any dividends from net investment income daily and pays them
monthly. Each Fund pays any net capital gains at least once a year. It's
expected that the Funds' annual distributions will normally -- but not always --
consist primarily of ordinary income rather than capital gains. Dividends and
distributions are paid in cash unless you indicate in the account application or
in a letter to Galaxy that you want to have dividends and distributions
reinvested in additional shares.
FEDERAL TAXES
Each Fund contemplates declaring as dividends each year all or substantially all
of its taxable income, including its net capital gain (the excess of long-term
capital gain over short-term capital loss). Distributions attributable to the
net capital gain of a Fund will be taxable to you as long-term capital gain,
regardless of how long you have held your shares. Other Fund distributions will
generally be taxable as ordinary income. You will be subject to income tax on
these distributions regardless of whether they are paid in cash or reinvested in
additional shares. You will be notified annually of the tax status of
distributions to you.
You should note that if you purchase shares just before a distribution, the
purchase price will reflect the amount of the upcoming distribution, but you
will be taxed on the entire amount of the distribution received, even though, as
an economic matter, the distribution simply constitutes a return of capital.
This is known as "buying into a dividend."
You will recognize taxable gain or loss on a sale, exchange or redemption of
your shares, including an exchange for shares of another Fund, based on the
difference between your tax basis in the shares and the amount you receive for
them. (To aid in computing your tax basis, you generally should retain your
account statements for the periods during which you held shares.) Generally,
this gain or loss will be long-term or short-term depending on whether your
holding period for the shares exceeds 12 months, except that any loss realized
on shares held for six months or less will be treated as a long-term capital
loss to the extent of any capital gain dividends that were received on the
shares.
The one major exception to these tax principles is that distributions on, and
sales, exchanges and redemptions of, shares held in an IRA (or other
tax-qualified plan) will not be currently taxable.
The foregoing is only a summary of certain tax considerations under current law,
which may be subject to change in the future. You should consult your tax
adviser for further information regarding federal, state, local and/or foreign
tax consequences relevant to your specific situation.
-29-
<PAGE>
STATE AND LOCAL TAXES
Shareholders may also be subject to state and local taxes on distributions,
redemptions and exchanges. State income taxes may not apply however to the
portions of each Fund's distributions, if any, that are attributable to interest
on U.S. Government securities or on securities of a particular state, its
agencies or municipalities.
-30-
<PAGE>
GALAXY INVESTOR PROGRAMS
RETIREMENT PLANS
Retail A Shares and Retail B Shares of the Funds are available for purchase in
connection with any of the following retirement plans:
- - Individual Retirement Arrangements (IRAs), including Traditional, Roth,
Rollover and Education IRAs
- - Simplified Employee Pension Plans (SEPs)
- - Keogh money purchase and profit sharing plans
- - Salary reduction retirement plans set up by employers for their employees
which are qualified under Section 401(k) and 403(b) of the Internal Revenue
Code
- - SIMPLE IRA plans which are qualified under Section 408(p) of the Internal
Revenue Code
For information about eligibility requirements and other matters concerning
these plans and to obtain an application, call Galaxy's distributor at
1-877-BUY-GALAXY (1-877-289-4252).
OTHER PROGRAMS
It's also easy to buy or sell shares of the Funds by using one of the programs
described below. Just tell Galaxy the amount and how frequently you want to buy
or sell shares and Galaxy does the rest. For further information on any of these
programs, call Galaxy's distributor at 1-877-BUY-GALAXY (1-877-289-4252) or your
financial institution.
AUTOMATIC INVESTMENT PROGRAM
You can make automatic investments from your bank account every month or every
quarter. You can choose to make your investment on any day of the month or
quarter. The minimum investment is $50 a month or $150 a quarter except for
Education IRAs, in which case the minimum investment is $40 a month or $125 a
quarter.
PAYROLL DEDUCTION PROGRAM
You can make regular investments from your paycheck. The minimum investment is
$25 per pay period. Send a completed Galaxy Payroll Deduction Application to
your employer's payroll department. They'll arrange to have your investment
deducted from your paycheck.
COLLEGE INVESTMENT PROGRAM
The minimum for initial and additional investments through the College
Investment Program is $100 unless you participate in the Automatic Investment
Program, in which case the minimum for initial and additional investments is
$50. You can also save for college by opening an Education IRA account. The
minimum for initial and additional investments in an Education
-31-
<PAGE>
IRA is $100 unless you participate in the Automatic Investment Program, in which
case the minimum for initial and additional investments is $40.
DIRECT DEPOSIT PROGRAM
This program lets you deposit your social security payments in your Fund account
automatically. There's no minimum deposit. You can cancel the program by
notifying the Social Security Administration in writing.
SYSTEMATIC WITHDRAWAL PLAN
You can make regular withdrawals from your investment account every month, every
quarter, every six months or once a year. You need a minimum account balance of
$10,000 to participate in the plan. No CDSC will be charged on withdrawals of
Retail B Shares made through the plan that don't annually exceed 12% of your
account's value.
You may cancel your participation in any of these programs, other than the
Direct Deposit Program, by writing to Galaxy at:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
Please allow at least five days for the cancellation to be processed.
-32-
<PAGE>
HOW TO REACH GALAXY
THROUGH YOUR FINANCIAL INSTITUTION
Your financial institution can help you buy, sell or exchange shares and can
answer questions about your account.
GALAXY SHAREHOLDER SERVICES
Call Galaxy's distributor at 1-877-BUY-GALAXY (1-877-289-4252), Monday through
Friday, 8 a.m. to 6 p.m. (Eastern time) for help from a Galaxy representative.
INVESTCONNECT
InvestConnect is Galaxy's shareholder voice response system. Call
1-877-BUY-GALAXY (1-877-289-4252) from any touch-tone phone for automated access
to account information and current Fund prices and performance, or to place
orders to sell or exchange shares. It's available 24 hours a day, seven days a
week.
If you live outside the United States, you can contact Galaxy by calling
1-508-871-4121.
THE INTERNET
Please visit Galaxy's website at: www.galaxyfunds.com
[Sidenote:]
Galaxy also offers a TDD service for the hearing impaired. Just call
1-800-696-6515, 24 hours a day, seven days a week.
-33-
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables shown below will help you understand the
financial performance for the Funds' Retail A Shares and Retail B Shares for the
past five years (or the period since a particular Fund began operations or a
particular class of shares was first offered). Certain information reflects the
financial performance of a single Retail A Share or Retail B Share. The total
returns in the tables represent the rate that an investor would have earned (or
lost) on an investment in Retail A Shares and Retail B Shares of each Fund,
assuming all dividends and distributions were reinvested. The information for
the fiscal year ended October 31, 1999 has been audited by _________________,
independent auditors, whose report, along with the Funds' financial
statements, are included in the Funds' Annual Report and are incorporated by
reference into the SAI. The Annual Report and SAI are available free of charge
upon request. The information for the fiscal years ended October 31, 1995,
1996, 1997 and 1998 was audited by Galaxy's former auditors, _______________.
-34-
<PAGE>
Galaxy Short-Term Bond Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
-------------------------------------------------
1999 1998
--------------------- ---------------------
Retail Retail Retail Retail
A Shares B Shares A Shares B Shares
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period................. $10.01 $10.01
Income from investment operations:
Net investment income(2)....................... 0.51 0.45
Net realized and unrealized gain (loss) on 0.11 0.11
investments....................................
Total from investment operations..................... 0.62 0.56
Less dividends:
Dividends from net investment income........... (0.53) (0.47)
Dividends from net realized capital gains...... -- --
Dividends in excess of net realized capital gains -- --
Total dividends...................................... (0.53) (0.47)
Net increase (decrease) in net asset value........... 0.09 0.09
Net asset value, end of period..................... $ 10.10 $ 10.10
------ ------
Total return(3)........................................ 6.42% 5.73%
Ratios/supplemental data:
Net assets, end of period (000's).............. $29,067 $1,087
Ratios to average net assets:
Net investment income including 5.07% 4.40%
reimbursement/waiver...........................
Operating expenses including reimbursement/waiver 1.11% 1.78%
Operating expenses excluding reimbursement/waiver 1.31% 1.99%
Portfolio turnover rate........................... 133% 133%
<CAPTION>
For the year ending October 31,
-----------------------------------------------------------
1997 1996 1995
---------------------- ---------------------- ---------
Retail Retail Retail Retail Retail
A Shares B Shares A Shares B Shares(1) A Shares
--------- ------------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period................. $ 9.99 $ 9.99 $ 10.06 $ 10.09 $ 9.73
Income from investment operations:
Net investment income(2)....................... 0.53 0.46 0.52 0.31 0.55
Net realized and unrealized gain (loss) on 0.02 0.03 (0.07) (0.10) 0.33
investments....................................
Total from investment operations..................... 0.55 0.49 0.45 0.21 0.88
Less dividends:
Dividends from net investment income........... (0.53) (0.47) (0.52) (0.31) (0.55)
Dividends from net realized capital gains...... -- -- -- -- --
Dividends in excess of net realized capital gains -- -- -- -- --
Total dividends.................................... (0.53) (0.47) (0.52) (0.31) (0.55)
Net increase (decrease) in net asset value........... 0.02 0.02 (0.07) (0.10) 0.33
Net asset value, end of period..................... $ 10.01 $ 10.01 $ 9.99 $ 9.99 $10.06
------- -------- -------- -------- --------
Total return(3)...................................... 5.64% 4.99% 4.63% 2.12%(4) 9.28%
Ratios/supplemental data:
Net assets, end of period (000's).............. $27,961 $ 905 $33,388 $ 260 $31,542
Ratios to average net assets:
Net investment income including 5.29% 4.56% 5.22% 4.73%(5) 5.54%
reimbursement/waiver...........................
Operating expenses including reimbursement/waiver 1.00% 1.75% 1.11% 1.77%(5) 0.99%
Operating expenses excluding reimbursement/waiver 1.21% 2.01% 1.35% 1.98%(5) 1.32%
Portfolio turnover rate........................... 173% 173% 214% 214% 289%
</TABLE>
- -------------------------------
(1) The Fund began offering Retail B Shares on March 4, 1996.
(2) Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or the Fund's administrator for Retail A Shares for the years
ended October 31, 1999, 1998, 1997, 1996 and 1995 was $ , $0.49,
$0.51, $0.50 and $0.52, respectively. Net investment income per share
before reimbursement/waiver of fees by the Adviser and/or the Fund's
administrator for Retail B Shares for the years ended October 31, 1999, 1998
and 1997 and for the period ended October 31, 1996 was $ , $0.42, $0.44 and
$0.29, respectively.
(3) Calculation does not include the effect of any sales charge for Retail A
Shares and Retail B Shares.
(4) Not annualized.
(5) Annualized.
-35-
<PAGE>
Galaxy Intermediate Government Income Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
-----------------------------------------------------------------
1999 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ----
Retail Retail Retail Retail Retail Retail
A
A Shares B Shares(1) A Shares A Shares A Shares Shares
--------- ----------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period......... $10.18 $ 10.06 $ 10.28 $ 9.68
Income from investment operations:
Net investment income(2).............. 0.57 0.59 0.57 0.61
Net realized and unrealized gain (loss)
on investments......................... 0.34 0.12 (0.22) 0.60
Total from investment operations............. 0.91 0.71 0.35 1.21
Less dividends:
Dividends from net investment income... (0.59) (0.59) (0.57) (0.61)
Dividends in excess of net investment income -- -- -- --
Dividends from net realized capital gains -- -- -- --
Dividends in excess of net realized
capital gains.......................... -- -- -- --
Total dividends.............................. (0.59) (0.59) (0.57) (0.61)
Net increase (decrease) in net asset value. 0.32 0.12 (0.22) 0.60
Net asset value, end of period............... $ 10.50 $ 10.18 $ 10.06 $ 10.28
------- -------- -------- --------
Total return(3)............................. 9.22% 7.33% 3.58% 12.85%
Ratios/supplemental data:
Net assets, end of period (000's)...... $66,865 $65,626 $79,741 $79,558
Ratios to average net assets:
Net investment income including reimbursement/waiver 5.49% 5.90% 5.69% 6.10%
Operating expenses including reimbursement/waiver 1.01% 1.02% 1.04% 1.02%
Operating expenses excluding reimbursement/waiver 1.21% 1.22% 1.24% 1.26%
Portfolio turnover rate...................... 210% 128% 235% 145%
</TABLE>
- ----------------------------------
(1) The Fund began offering Retail B Shares on November 1, 1998.
(2) Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or the Fund's administrator for Retail A Shares for the years
ended October 31, 1999, 1998, 1997, 1996 and 1995 was $ , $0.55, $0.57,
$0.55 and $0.58, respectively. Net investment income per share before
reimbursement/waiver of fees by the Adviser and/or the Fund's administrator
for Retail B Shares for the year ended October 31, 1999 was $ .
Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or the Fund's administrator for the year ended October 31, 1999
was $ .
(3) Calculation does not include the effect of any sales charge for Retail A
Shares and Retail B Shares
-36-
<PAGE>
Galaxy High Quality Bond Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
-------------------------------------------
1999 1998
---- ----
Retail Retail Retail Retail
A Shares B Shares A Shares B Shares
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net asset value, beginning of period......... $10.70 $10.70
Income from investment operations:
Net investment income(2)............... 0.58 0.51
Net realized and unrealized gain (loss) on
investments............................ 0.50 0.51
Total from investment operations............. 1.08 1.02
Less dividends:
Dividends from net investment income... (0.58) (0.52)
Dividends from net realized capital gains -- --
Dividends in excess of net realized
capital gains.......................... -- --
Total dividends.............................. (0.58) (0.52)
Net increase (decrease) in net asset value... 0.50 0.50
Net asset value, end of period............... $ 11.20 $ 11.20
------ ------
Total return(3).............................. 10.35% 9.73%
Ratios/supplemental data:
Net assets, end of period (000's)...... $45,879 $5,420
Ratios to average net assets:
Net investment income including reimbursement/waiver 5.30% 4.69%
Operating expenses including reimbursement/waiver 1.00% 1.61%
Operating expenses excluding reimbursement/waiver 1.20% 1.81%
Portfolio turnover rate...................... 253% 253%
<CAPTION>
For the year ending October 31,
--------------------------------------------------------
1997 1996 1995
---- ---- ------
Retail Retail Retail Retail Retail
A Shares B Shares A Shares B Shares(1) A Shares
-------- ----------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period......... $ 10.47 $ 10.47 $ 10.63 $ 10.72 $ 9.54
Income from investment operations:
Net investment income(2)............... 0.60 0.53 0.59 0.36 0.62
Net realized and unrealized gain (loss) on
investments............................ 0.23 0.24 (0.16) (0.25) 1.09
Total from investment operations............. 0.83 0.77 0.43 0.11 1.71
Less dividends:
Dividends from net investment income... (0.60) (0.54) (0.59) (0.36) (0.62)
Dividends from net realized capital gains -- -- -- -- --
Dividends in excess of net realized
capital gains.......................... -- -- -- -- --
Total dividends.............................. (0.60) (0.54) (0.59) (0.36) (0.62)
Net increase (decrease) in net asset value... 0.23 0.23 (0.16) (0.25) 1.09
Net asset value, end of period............... $ 10.70 $ 10.70 $ 10.47 $ 10.47 $ 10.63
-------- -------- -------- -------- --------
Total return(3).............................. 8.22% 7.59% 4.24% 1.14%(4) 18.46%
Ratios/supplemental data:
Net assets, end of period (000's)...... $27,950 $1,998 $30,984 $ 646 $30,093
Ratios to average net assets:
Net investment income including reimbursement/waiver 5.73% 5.07% 5.66% 5.34%(5) 6.16%
Operating expenses including reimbursement/waiver 1.01% 1.69% 1.07% 1.60%(5) 1.02%
Operating expenses excluding reimbursement/waiver 1.21% 1.95% 1.28% 1.81%(5) 1.26%
Portfolio turnover rate................... 182% 182% 163% 163% 110%
</TABLE>
- ----------------------------------
(1) The Fund began offering Retail B Shares on March 4, 1996.
(2) Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or the Fund's administrator for Retail A Shares for the years
ended October 31, 1999, 1998, 1997, 1996 and 1995 was $ , $0.56, $0.58,
$0.57 and $0.59, respectively. Net investment income per share before
reimbursement/waiver of fees by the Adviser and/or the Fund's administrator
for Retail B Shares for the years ended October 31, 1999, 1998, 1997 and for
the period ended October 31, 1996 was $ , $0.49, $0.51 and $0.34,
respectively.
(3) Calculation does not include the effect of any sales charge for Retail A
Shares and Retail B Shares.
(4) Not annualized.
(5) Annualized.
-37-
<PAGE>
[Back Cover Page]
Where to find more information
You'll find more information about the Funds in the following documents:
ANNUAL AND SEMI-ANNUAL REPORTS
Galaxy's annual and semi-annual reports contain more information about each Fund
and a discussion about the market conditions and investment strategies that had
a significant effect on each Fund's performance during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains detailed information about the Funds and their policies. By
law, it's incorporated by reference into (considered to be part of) this
prospectus.
You can get a free copy of these documents, request other information about the
Funds and make shareholder inquiries by calling Galaxy at 1-877-BUY-GALAXY
(1-877-289-4252) or writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
If you buy your shares through a financial institution, you may contact your
institution for more information.
You can write to the Securities and Exchange Commission (SEC) Public Reference
Section and ask them to mail you information about the Funds, including the SAI.
They'll charge you a fee for this service. You can also visit the SEC Public
Reference Room and copy the documents while you're there. For information about
the operation of the Public Reference Room, call the SEC.
Public Reference Section of the SEC
Washington, DC 20549-0102
1-202-942-8090.
Reports and other information about the Funds are also available on the EDGAR
Database on the SEC's website at http://www.sec.gov. Copies of this information
may also be obtained, after paying a duplicating fee, by electronic request to
the SEC's e-mail address at [email protected].
Galaxy's Investment Company Act File No. is 811-4636.
[Fleet assigned Code]
<PAGE>
[Front cover page]
Galaxy Taxable Bond Funds
The Galaxy Fund
Prospectus
, 2000
- ---------------------
Galaxy Short-Term Bond Fund
Galaxy Intermediate Government Income Fund
Galaxy High Quality Bond Fund
Galaxy Corporate Bond Fund
Trust Shares
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved any shares of these Funds or determined if this
prospectus is accurate or complete. Anyone who tells you otherwise is committing
a crime.
<PAGE>
Contents
1 Introduction
2 Galaxy Short-Term Bond Fund
7 Galaxy Intermediate Government Income Fund
11 Galaxy High Quality Bond Fund
15 Galaxy Corporate Bond Fund
19 Additional information about risk
20 Investor guidelines
21 Fund management
22 How to invest in the Funds
22 Buying and selling shares
23 How to buy shares
24 How to sell shares
25 Other transaction policies
27 Dividends, distributions and taxes
29 How to reach Galaxy
30 Financial highlights
<PAGE>
INTRODUCTION
This prospectus describes the Galaxy Taxable Bond Funds. Each Fund invests
primarily in debt obligations, such as bonds, notes and commercial paper.
On the following pages, you'll find important information about each Fund,
including:
- - the Fund's investment objective (sometimes called the Fund's goal) and the
main investment strategies used by the Fund's investment adviser in trying
to achieve that objective
- - the main risks associated with an investment in the Fund
- - the Fund's past performance measured on both a year-by-year and long-term
basis
- - the fees and expenses that you will pay as an investor in the Fund
WHICH FUND IS RIGHT FOR YOU?
Not all mutual funds are for everyone. Your investment goals and tolerance for
risk will determine which fund is right for you. On page __, you'll find a table
that provides a general guide to help you decide which of the Galaxy Taxable
Bond Funds is best suited to you.
THE FUNDS' INVESTMENT ADVISER
Fleet Investment Advisors Inc. (the "Adviser") is the investment adviser for all
of these Funds. The Adviser, an indirect wholly-owned subsidiary of FLeetBoston
Corporation, was established in 1984 and has its main office at 75 State Street,
Boston, Massachusetts 02109. The Adviser also provides investment management and
advisory services to individual and institutional clients and manages the other
Galaxy investment portfolios. As of December 31, 1999, the Adviser managed over
$___ billion in assets.
AN INVESTMENT IN THE FUNDS ISN'T A FLEET BANK DEPOSIT AND IT ISN'T INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. YOU COULD LOSE MONEY BY INVESTING IN THE FUNDS.
-1-
<PAGE>
Galaxy Short-Term Bond Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks a high level of current income consistent with preservation of
capital.
[Sidenote:]
PRESERVATION OF CAPITAL
Preservation of capital means protecting the amount of money you invest in a
fund. If a fund seeks to preserve capital, it will try to maintain a relatively
stable share price so your investment is protected.
[Sidenote:]
DURATION
Duration is an approximate measure of the price sensitivity of a fund to
changes in interest rates. Unlike maturity which measures only the time until
final payment, duration gives you the average time it takes to receive all
expected cash flows (including interest payments, prepayments and final
payments) on the debt obligations held by a fund.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests primarily in debt obligations of U.S. and foreign corporations,
including bonds and notes, and in debt obligations issued or guaranteed by the
U.S. Government and its agencies or instrumentalities or by foreign governments
or their political subdivisions and instrumentalities. It also invests in
asset-backed and mortgage-backed securities and in money market instruments,
such as commercial paper and the obligations of U.S. and foreign banks. The Fund
normally invests at least 65% of its total assets in bonds and debentures.
In selecting portfolio securities for the Fund, the Adviser monitors and
evaluates economic trends. It establishes duration targets, ranges of interest
payments on bonds of various maturities and determines the appropriate
allocation of the Fund's assets among various market sectors.
In selecting portfolio securities for the Fund, the Adviser evaluates the
suitability of available bonds according to such factors as creditworthiness,
maturity, liquidity and interest rates. It also determines the appropriate
allocation of the Fund's assets among various geographic regions, issuers and
industry sectors.
Nearly all Fund investments will be of investment grade quality. These are
securities which have one of the top four ratings assigned by Standard & Poor's
Ratings Group (S&P) or Moody's Investors Service, Inc. (Moody's), or are unrated
securities determined by the Adviser to be of comparable quality. Under normal
market conditions, the Fund will invest at least 65% of its total assets in
securities that have one of the top three ratings assigned by S&P or Moody's, or
unrated securities determined by the Adviser to be of comparable quality.
Occasionally, the rating of a security held by the Fund may be downgraded to
below investment grade. If that happens, the Fund doesn't have to sell the
security unless the Adviser determines that under the circumstances the security
is no longer an appropriate investment for the Fund. However, the Fund will
sell promptly any securities that are not rated investment grade by either
S&P or Moody's if the securities exceed 5% of the Fund's net assets.
The Fund's average weighted maturity will be less than three years under
normal circumstances.
-2-
<PAGE>
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective.
The Fund may trade its investments frequently in trying to achieve its
investment goal.
[Sidenote:]
AVERAGE WEIGHTED MATURITY
Average weighted maturity gives you the average time until all debt obligations
in a fund come due or mature. It is calculated by averaging the time to maturity
of all debt obligations held by a fund with each maturity "weighted" according
to the percentage of assets it represents.
[Sidenote:]
DEBT OBLIGATION
When a Fund buys a debt obligation such as a bond, it is in effect lending money
to the company, government or other entity that issued the bond. In return, the
issuer has an obligation to make regular interest payments and to repay the
original amount of the loan on a given date, known as the maturity date. A bond
MATURES when it reaches its maturity date. Bonds usually have fixed interest
rates, although some have rates that fluctuate based on market conditions and
other factors.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets. These can occur within or outside the U.S. or worldwide, and may affect
only particular companies or industries.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities generally tend to move
in the opposite direction to interest rates. When rates are rising, the
prices of debt securities tend to fall. When rates are falling, the prices
of debt securities tend to rise. Generally, the longer the time until
maturity, the more sensitive the price of a debt security is to interest
rate changes.
- - CREDIT RISK - The value of debt securities also depends on the ability of
issuers to make principal and interest payments. If an issuer can't meet
its payment obligations or if its credit rating is lowered, the value of
its debt securities may fall. Debt securities which have the lowest of the
top four ratings assigned by S&P or Moody's are considered to have
speculative characteristics. Changes in the economy are more likely to
affect the ability of THE issuers of these securities to make payments of
principal and interest than is the case with higher-rated securities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
debt securities held by the Fund, particularly asset-backed and
mortgage-backed securities, to be paid off much sooner or later than
expected, which could adversely affect the Fund's value. In the event that
a security is paid off sooner than expected because of a decline in
interest rates, the Fund
-3-
<PAGE>
may be unable to recoup all of its initial investment and may also suffer
from having to reinvest in lower-yielding securities. In the event of a
later than expected payment because of a rise in interest rates, the value
of the obligation will decrease and the Fund may suffer from the inability
to invest in higher-yielding securities.
- - FOREIGN INVESTMENTS - Foreign investments may be riskier than U.S.
investments because of factors such as foreign government restrictions,
changes in currency exchange rates, incomplete financial information about
the issuers of securities, and political or economic instability. Foreign
securities may be more volatile and less liquid than U.S. securities.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
- - FREQUENT TRADING - Frequent trading of investments usually increases the
chance that the Fund will pay investors short-term capital gains. These
gains are taxable at higher rates than long-term capital gains. Frequent
trading could also mean higher brokerage commissions and other transaction
costs, which could reduce the Fund's returns.
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past
and give some indication of the risk of investing in the Fund. Both assume
that all dividends and distributions are reinvested in the Fund. How the Fund
has performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Trust Shares has varied from year to
year.
[SIDENOTE:]
Best quarter: % for the quarter ending ,
worst quarter: % for the quarter ending ,
[bar chart goes here]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1992 1993 1994 1995 1996 1997 1998 1999
5.81% 6.41% -0.33% 11.26% 3.65% 5.82% 6.34% %
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
-4-
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999, as compared to a broad-based market index.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
1 year 5 years Since inception
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Trust Shares % % % (12/30/91)
- ---------------------------------------------------------------------------------------------------------------
Lehman Brothers One to
Three Year Government Bond
Index % % % (since 12/31/91)
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
For current yield information, please call 1-877-BUY-GALAXY (1-877-289-4252).
[Sidenote:]
The Lehman Brothers One to Three Year Government Bond Index is an unmanaged
index which tracks the performance of short-term U.S. Government bonds.
FEES AND EXPENSES OF THE FUND
The following Table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Total Fund
Management Distribution Other operating
fees (12b-1) fees expenses expenses
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.75%(1) None % %(1)
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be ____%. Total Fund operating expenses after this waiver
are expected to be ____%. This fee waiver may be revised or discontinued at
any time.
-5-
<PAGE>
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $ $ $ $
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Adviser's Taxable Fixed Income Strategy Committee is responsible for the
day-to-day management of the Fund's investment portfolio.
-6-
<PAGE>
Galaxy Intermediate Government Income Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks the highest level of current income consistent with prudent risk
of capital.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 65% of its total assets in debt obligations
issued or guaranteed by the U.S. Government or its agencies and
instrumentalities. It also invests in debt obligations of U.S. corporations,
asset-backed and mortgage-backed securities and money market instruments, such
as commercial paper and obligations of U.S. banks and U.S. branches of foreign
banks.
In selecting portfolio securities for the Fund, the Adviser monitors and
evaluates economic trends. It establishes duration targets, ranges of interest
rates on bonds of various maturities and determines the appropriate allocation
of the Fund's investments among various market sectors.
In selecting portfolio securities for the Fund, the Adviser evaluates the
suitability of available bonds according to such factors as creditworthiness,
maturity, liquidity and interest rates. It also determines the appropriate
allocation of the Fund's assets among various geographic regions, issuers and
industry sectors.
Nearly all Fund investments will be of investment grade quality and will have
one of the top three ratings assigned by Standard & Poor's Ratings Group ("S&P")
or Moody's Investors Service, Inc. ("Moody's"), or will be unrated securities
determined by the Adviser to be of comparable quality. Occasionally, the rating
of a security held by the Fund may be downgraded to below minimum required
rating. If that happens, the Fund doesn't have to sell the security unless the
Adviser determines that under the circumstances the security is no longer an
appropriate investment for the Fund. However, the Fund will sell promptly
any securities that are not rated investment grade by either S&P or Moody's
if the securities exceed 5% of the Fund's net assets.
The Fund's average weighted maturity will be between three and ten
years under normal circumstances.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective.
The Fund may trade its investments frequently in trying to achieve its
investment goal.
[Sidenote:]
U.S. GOVERNMENT OBLIGATIONS
U.S. Government obligations are debt obligations issued or guaranteed by the
U.S. Government or one of its agencies or instrumentalities. U.S. Government
obligations generally have less credit risk than other debt obligations.
-7-
<PAGE>
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets. These can occur within or outside the U.S. or worldwide, and may affect
only particular companies or industries.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities generally tend to move
in the opposite direction to interest rates. When rates are rising, the
prices of debt securities tend to fall. When rates are falling, the prices
of debt securities tend to rise. Generally, the longer the time until
maturity, the more sensitive the price of a debt security is to interest
rate changes.
- - CREDIT RISK - The value of debt securities also depends on the ability of
issuers to make principal and interest payments. If an issuer can't meet
its payment obligations or if its credit rating is lowered, the value of
its debt securities may fall.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
debt securities held by the Fund, particularly asset-backed and
mortgage-backed securities, to be paid off much sooner or later than
expected, which could adversely affect the Fund's value. In the event that
a security is paid off sooner than expected because of a decline in
interest rates, the Fund may be unable to recoup all of its initial
investment and may also suffer from having to reinvest in lower-yielding
securities. in the event of a later than expected payment because of a rise
in interest rates, the value of the obligation will decrease and the Fund
may suffer from the inability to invest in higher-yielding securities.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
- - FREQUENT TRADING - Frequent trading of investments usually increases the
chance that the Fund will pay investors short-term capital gains. These
gains are taxable at higher rates than long-term capital gains. Frequent
trading could also mean higher brokerage commissions and other transaction
costs, which could reduce the Fund's returns.
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past
and give some indication of the risk of investing in the Fund. Both assume
that all dividends and distributions are reinvested in the Fund. How the Fund
has performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Trust Shares has varied from year to
year.
-8-
<PAGE>
[SIDENOTE:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
[bar chart goes here]
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
5.87% 15.77% 7.11% 5.58% -3.70% 16.01% 2.05% 8.12% 8.62% %
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999 as compared to broad-based market indices.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
1 year 5 years 10 years Since inception
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares % % % % (9/1/88)
- ---------------------------------------------------------------------------------------------------------------
Lehman Brothers
Intermediate Government/
Corporate Bond Index % % % % (since 9/1/88)
- ---------------------------------------------------------------------------------------------------------------
Lehman Brothers Aggregate
Bond Index % % % % (since 9/1/88)
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
For current yield information, please call 1-877-BUY-GALAXY (1-877-289-4252).
[Sidenote:]
The Lehman Brothers Intermediate Government/Corporate Bond Index is an unmanaged
index which tracks the performance of intermediate U.S. Government and corporate
bonds.
[SIDENOTE:]
The Lehman Brothers Aggregate Bond Index is on unmanaged index made up of the
Lehman Brothers Government/Corporate Bond Index, its Mortgage Backed Securities
Index and its Asset Backed Securities Index.
-9-
<PAGE>
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
Annual Fund operating expenses (fees deducted from the Fund's assets)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Total Fund
Management Distribution Other operating
fees (12b-1) fees expenses expenses
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.75%(1) None % %(1)
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be ____%. Total Fund operating expenses after this waiver
are expected to be ____%. This fee waiver may be revised or discontinued at
any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year o the Fund's operating expenses
remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $ $ $ $
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is Marie M. Schofield, CFA, a Senior Vice President
of the Adviser. She's primarily responsible for the day-to-day management of the
Fund's investment portfolio. Ms. Schofield, who has over 20 years of investment
experience, has been with the Adviser since 1990 and served as a Vice President
and Manager of Fixed Income Investments until February 1999. She has managed the
Fund since December 1996.
-10-
<PAGE>
Galaxy High Quality Bond Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks a high level of current income consistent with prudent risk of
capital.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests primarily in obligations issued or guaranteed by the U.S.
Government, its agencies and instrumentalities, as well as in corporate debt
obligations such as notes and bonds. The Fund also invests in asset-backed and
mortgage-backed securities and in money market instruments, such as commercial
paper and bank obligations.
In selecting portfolio securities for the Fund, the Adviser monitors and
evaluates economic trends. It establishes duration targets, ranges of interest
rates on bonds of various maturities and determines the appropriate allocation
of the Fund's investments among various market sectors.
In selecting portfolio securities for the Fund, the Adviser evaluates the
suitability of available bonds according to such factors as creditworthiness,
maturity, liquidity and interest rates. It also determines the appropriate
allocation of the Fund's assets among various geographic regions, issuers and
industry sectors.
Nearly all Fund investments will be of investment grade quality. These are
securities which have one of the top four ratings assigned by Standard & Poor's
Ratings Group (S&P) or Moody's Investors Service, Inc. (Moody's), or are unrated
securities determined by the Adviser to be of comparable quality. Under normal
market conditions, the Fund will invest at least 65% of its total assets in high
quality securities that have one of the top two ratings assigned by S&P or
Moody's, or unrated securities determined by the Adviser to be of comparable
quality. High quality securities tend to pay less income than lower-rated
securities. Occasionally, the rating of a security held by the Fund may be
downgraded to below investment grade. If that happens, the Fund doesn't have to
sell the security unless the Adviser determines that under the circumstances the
security is no longer an appropriate investment for the Fund. However, the
Fund will promptly sell any securities that are not rated investment grade
by S&P or Moody's if the securities exceed 5% of the Fund's net assets.
The Fund's average weighted maturity will vary from time to time depending on
current market and economic conditions and the Adviser's assessment of probable
changes in interest rates.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective.
The Fund may trade its investments frequently in trying to achieve its
investment goal.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets. These can occur within or outside the U.S. or worldwide, and may affect
only particular companies or industries.
-11-
<PAGE>
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities generally tend to move
in the opposite direction to interest rates. When rates are rising, the
prices of debt securities tend to fall. When rates are falling, the prices
of debt securities tend to rise. Generally, the longer the time until
maturity, the more sensitive the price of a debt security is to interest
rate changes.
- - CREDIT RISK - The value of debt securities also depends on the ability of
issuers to make principal and interest payments. If an issuer can't meet
its payment obligations or if its credit rating is lowered, the value of
its debt securities may fall. Debt securities which have the lowest of the
top four ratings assigned by S&P or Moody's are considered to have
speculative characteristics. Changes in the economy are more likely to
affect the ability of THE issuers of these securities to make payments of
principal and interest than is the case with higher-rated securities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
debt securities held by the Fund, particularly asset-backed and
mortgage-backed securities, to be paid off much sooner or later than
expected, which could adversely affect the Fund's value. In the event that
a security is paid off sooner than expected because of a decline in
interest rates, the Fund may be unable to recoup all of its initial
investment and may also suffer from having to reinvest in lower-yielding
securities. In the event of a later than expected payment because of a rise
in interest rates, the value of the obligation will decrease and the Fund
may suffer from the inability to invest in higher-yielding securities.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
- - FREQUENT TRADING - Frequent trading of investments usually increases the
chance that the Fund will pay investors short-term capital gains. These
gains are taxable at higher rates than long-term capital gains. Frequent
trading could also mean higher brokerage commissions and other transaction
costs, which could reduce the Fund's returns.
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past
and give some indication of the risk of investing in the Fund. Both assume
that all dividends and distributions are reinvested in the Fund. How the Fund
has performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Trust Shares has varied from year to
year.
-12-
<PAGE>
[SIDENOTE:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
[bar chart goes here]
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
1991 1992 1993 1994 1995 1996 1997 1998 1999
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
15.12% 6.77% 12.81% -6.43% 21.41% 1.59% 9.23% 9.42% %
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999, as compared to a broad-based market index.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
1 year 5 years Since inception
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Trust Shares % % % (12/14/90)
- ---------------------------------------------------------------------------------------------------------------
Lehman Brothers
Intermediate Government/
Corporate Bond Index % % % (since 11/30/90)
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
For current yield information, please call 1-877-BUY-GALAXY (1-877-289-4252).
[Sidenote:]
The Lehman Brothers Intermediate Government/Corporate Bond Index is an unmanaged
index which tracks the performance of intermediate-term U.S. Government and
corporate bonds.
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Total Fund
Management Distribution Other operating
fees (12b-1) fees expenses expenses
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.75%(1) None % %(1)
- --------------------------------------------------------------------------------------------
</TABLE>
-13-
<PAGE>
(1) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be _____%. Total Fund operating expenses after this waiver
are expected to be ____%. This fee waiver may be revised or discontinued at
any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $ $ $ $
- --------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is Marie M. Schofield, CFA, a Senior Vice President
of the Adviser. She's primarily responsible for the day-to-day management of the
Fund's investment portfolio. Ms. Schofield, who has over 20 years of investment
experience, has been with the Adviser since 1990 and served as a Vice President
and Manager of Fixed Income Investments until February 1999. She has managed the
Fund since December 1996.
-14-
<PAGE>
Galaxy Corporate Bond Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks a high level of current income.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 65% of its total assets in corporate debt
obligations. These include obligations that are issued by U.S. and foreign
business corporations and obligations issued by agencies, instrumentalities or
authorities that are organized as corporations by the U.S., by states or
political subdivisions of the U.S., or by foreign governments or political
subdivisions. The Fund also invests in obligations issued or guaranteed by U.S.
or foreign governments, their agencies or instrumentalities, asset-backed and
mortgage-backed securities and money market instruments, such as commercial
paper and obligations of U.S. and foreign banks.
In selecting portfolio securities for the Fund, the Adviser monitors and
evaluates economic trends. It establishes duration targets, ranges of interest
payments on bonds of various maturities and determines the appropriate
allocation of the Fund's assets among various market sectors.
In selecting portfolio securities for the Fund, the Adviser evaluates the
suitability of available bonds according to such factors as creditworthiness,
maturity, liquidity and interest rates. It also determines the appropriate
allocation of the Fund's assets among various geographic regions, issuers and
industry sectors.
Substantially all of the Fund's investments will be of investment grade quality.
These are securities which have one of the top four ratings assigned by Standard
& Poor's Ratings Group (S&P) or Moody's Investors Service, Inc. (Moody's), or
are unrated securities determined by the Adviser to be of comparable quality.
Occasionally, the rating of a security held by the Fund may be downgraded to
below investment grade. If that happens, the Fund doesn't have to sell the
security unless the Adviser determines that under the circumstances the security
is no longer an appropriate investment for the Fund. However, the Fund will
promptly sell any securities that are not rated investment grade by S&P or
Moody's if the securities exceed 5% of the Fund's net assets.
The Fund's average weighted maturity will be three to ten years under normal
circumstances.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective. A portfolio security may also be sold if the Adviser
determines that a more attractive security is available for purchase by the
Fund.
The Fund may trade its investments frequently in trying to achieve its
investment goal.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets. These can occur within or outside the U.S. or worldwide, and may affect
only particular companies or industries.
-15-
<PAGE>
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities generally tend to move
in the opposite direction to interest rates. When rates are rising, the
prices of debt securities tend to fall. When rates are falling, the prices
of debt securities tend to rise. Generally, the longer the time until
maturity, the more sensitive the price of a debt security is to interest
rate changes.
- - CREDIT RISK - The value of debt securities also depends on the ability of
issuers to make principal and interest payments. If an issuer can't meet
its payment obligations or if its credit rating is lowered, the value of
its debt securities may fall. Debt securities which have the lowest of the
top four ratings assigned by S&P or Moody's have speculative
characteristics. Changes in the economy are more likely to affect the
ability of issuers of these securities to make payments of principal and
interest than is the case with higher-rated securities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
debt securities held by the Fund, particularly asset-backed and
mortgage-backed securities, to be paid off much sooner or later than
expected, which could adversely affect the Fund's value. In the event that
a security is paid off sooner than expected because of a decline in
interest rates, the Fund may be unable to recoup all of its initial
investment and may also suffer from having to reinvest in lower-yielding
securities. In the event of a later than expected payment because of a rise
in interest rates, the value of the obligation will decrease and the Fund
may suffer from the inability to invest in higher-yielding securities.
- - FOREIGN INVESTMENTS - Foreign investments may be riskier than U.S.
investments because of factors such as foreign government restrictions,
changes in currency exchange rates, incomplete financial information about
the issuers of securities, and political or economic instability. Foreign
securities may be more volatile and less liquid than U.S. securities.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
- - FREQUENT TRADING - Frequent trading of investments usually increases the
chance that the Fund will pay investors short-term capital gains. These
gains are taxable at higher rates than long-term capital gains. Frequent
trading could also mean higher brokerage commissions and other transaction
costs, which could reduce the Fund's returns.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Trust Shares has varied from year to
year.
-16-
<PAGE>
[SIDENOTE:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
[bar chart goes here]
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
1995 1996 1997 1998 1999
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
15.91% 3.10% 8.13% 8.18% %
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
For current yield information, please call 1-877-BUY-GALAXY (1-877-289-4252).
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999, as compared to a broad-based market index.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
1 year 5 YEARS Since Inception
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Trust Shares % % % (12/12/94)
- ---------------------------------------------------------------------------------------------------------------
Lehman Brothers
Intermediate Government/
Corporate Bond Index % % % (since 11/30/94)
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The Lehman Brothers Intermediate Government/Corporate Bond Index is an unmanaged
index which tracks the performance of intermediate-term U.S. Government and
corporate bonds.
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Total
Fund
Management Distribution Other operating
fees (12b-1) fees expenses expenses
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.75%(1) None % %(1)
- --------------------------------------------------------------------------------------
</TABLE>
-17-
<PAGE>
(1) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be ____%. Total Fund operating expenses after this waiver
are expected to be ____%. This fee waiver may be revised or discontinued at
any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio manager is David Lindsay, CFA, a Senior Vice President of
the Adviser since 1992. He's primarily responsible for the day-to-day management
of the Fund's investment portfolio. Mr. Lindsay has managed the Fund since it
began operations in 1994. He has been with the Adviser and its predecessors
since 1986.
-18-
<PAGE>
ADDITIONAL INFORMATION ABOUT RISK
The main risks associated with an investment in each of the Galaxy Taxable Bond
Funds have been described above. The following supplements that discussion.
TEMPORARY DEFENSIVE POSITIONS
Under unusual market conditions, each Fund may hold uninvested cash (which will
not earn any income) and invest without limit in money market instruments,
including short-term U.S. Government securities. This strategy could prevent a
Fund from achieving its investment objective.
OTHER TYPES OF INVESTMENTS
This prospectus describes each Fund's main investment strategies and the
particular types of securities in which each Fund mainly invests. Each Fund may,
from time to time, pursue other investment strategies and make other types of
investments in support of its overall investment goal. These supplemental
investment strategies, which are not considered to be main investment
strategies of the Fund - and the risks involved - are described in detail in the
Statement of Additional Information (SAI) which is referred to on the back cover
of this prospectus.
-19-
<PAGE>
INVESTOR GUIDELINES
The table below provides information as to which type of investor might want to
invest in each of the Galaxy Taxable Bond Funds. It's meant as a general guide
only. Consult your financial professional to help you decide which Fund is right
for you.
Galaxy Fund May be best suited for...
- -----------------------------------------------------------------------
Galaxy Short-Term Bond Fund investors who want current income
greater than that normally provided by a
money market fund
investors who want less change in the
value of their investment than normally
associated with long-term funds
- -----------------------------------------------------------------------
Galaxy Intermediate Government investors who want current income
Income Fund investors who want the extra margin of
safety associated with U.S. Government
securities
investors who can accept fluctuations in
price and yield
- -----------------------------------------------------------------------
Galaxy High Quality Bond Fund investors who want current income
investors who want the added
safety associated with bonds
with lower credit risk than
other debt securities
investors who can accept fluctuations in
price and yield
- -----------------------------------------------------------------------
Galaxy Corporate Bond Fund investors who want current income from
corporate debt securities
investors who can accept
fluctuations in price and yield
- -----------------------------------------------------------------------
-20-
<PAGE>
FUND MANAGEMENT
ADVISER
The Adviser, subject to the general supervision of Galaxy's Board of Trustees,
manages each Fund in accordance with its investment objective and policies,
makes decisions with respect to and places orders for all purchases and sales of
portfolio securities, and maintains related records.
ALLOCATION OF ORDERS FOR PORTFOLIO SECURITIES
The Adviser may allocate orders for the purchase and sale of portfolio
securities to certain financial institutions, including those that are
affiliated with the Adviser or that have sold shares of the Funds, to the extent
permitted by law or by order of the Securities and Exchange Commission. The
Adviser will allocate orders to such institutions only if it believes that the
quality of the transaction and the commission are comparable to what they would
be with other qualified brokerage firms.
MANAGEMENT FEES
The management fees paid to the Adviser by the Funds during the last fiscal year
are set forth below.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Fund Management fee as a % of average net assets
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
Short-Term Bond Fund %
- --------------------------------------------------------------------------------------------------------------------
Intermediate Government Income Fund %
- --------------------------------------------------------------------------------------------------------------------
High Quality Bond Fund %
- --------------------------------------------------------------------------------------------------------------------
Corporate Bond Fund %
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
SUB-ACCOUNT SERVICES
Affiliates of the Adviser and certain other parties may receive fees from
Galaxy's transfer agent for providing certain sub-accounting and administrative
services to participant sub-accounts with respect to Trust Shares of the Funds
held by defined contribution plans. The transfer agency fees payable by Trust
Shares of the Funds have been increased by an amount equal to these fees, so
that the holders of Trust Shares indirectly bear these fees.
-21-
<PAGE>
HOW TO INVEST IN THE FUNDS
BUYING AND SELLING SHARES
Trust Shares of the Funds are available for purchase by the following types of
investors:
- - Investors maintaining a qualified account at a bank or trust institution,
including subsidiaries of FleetBoston Corporation
- - Participants in employer-sponsored defined contribution plans
Qualified accounts include discretionary investment management accounts,
custodial accounts, agency accounts and different types of tax-advantaged
accounts. Your institution can provide more information about which types of
accounts are eligible.
In addition to the above types of investors, Trust Shares of the Corporate Bond
Fund are also available for purchase by:
- - customers of financial institutions, such as banks, savings and loan
associations and broker-dealers, including financial institutions
affiliated with the Adviser
- - investors purchasing shares directly from Galaxy's distributor
You can buy and sell Trust Shares of the Funds on any business day. For
customers of financial institutions (including customers maintaining qualified
accounts) and participants in employer-sponsored plans, a business day is any
day that Galaxy's distributor, Galaxy's custodian and your financial institution
or employer-sponsored plan are open for business. For investors purchasing
shares directly from Galaxy's distributor, a business day is any day that
Galaxy's distributor, Galaxy's custodian and Galaxy's transfer agent are open
for business.
The price at which you buy shares is the net asset value (NAV) per share next
determined after your order is accepted. The price at which you sell shares is
the NAV per share next determined after receipt of your order. NAV is determined
on each day the New York Stock Exchange is open for trading at the close of
regular trading that day (usually 4:00 p.m. Eastern time). The New York Stock
Exchange is generally open for trading every Monday through Friday, except for
national holidays.
If market prices are readily available for securities owned by the Fund, they're
valued at those prices. If market prices are not readily available for some
securities, they are valued at fair value under the supervision of Galaxy's
Board of Trustees.
Sometimes, the price of a security trading on a foreign stock exchange may be
affected by events that happen after that exchange closes. If this happens, the
fair value of the security may be determined using other factors and may not
reflect the security's last quoted price. In addition, foreign securities may
trade on days when shares of the Funds are not priced. As a result, the net
asset value per share of a Fund holding these securities may change on days when
you won't be able to buy or sell Fund shares.
-22-
<PAGE>
[Sidenote:]
NET ASSET VALUE
The price you pay for your shares is based on the net asset value per share
(NAV). It's the value of a Fund's assets attributable to Trust Shares, minus the
value of the Fund's liabilities attributable to Trust Shares, divided by the
number of Trust Shares held by investors.
HOW TO BUY SHARES
If you are a customer of a financial institution (including a customer who
maintains a qualified account) or a participant in an employer-sponsored plan,
you can buy Trust Shares by following the procedures established by your
financial institution or your employer-sponsored plan. Your financial
institution or plan administrator is responsible for sending your order and
payment to Galaxy's distributor and wiring payments to Galaxy's custodian. The
financial institution or employer-sponsored plan holds the shares in your name
and receives all confirmations of purchases and sales.
You can also buy Trust Shares of the Corporate Bond Fund directly from Galaxy's
distributor in any of the following ways:
BUYING BY MAIL
Complete an account application and mail it, together with a check payable to
the Galaxy Corporate Bond Fund, to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
To make additional investments, send your check to the address above along with
one of the following:
- - The detachable form that's included with your Galaxy statement or your
confirmation of a prior transaction
- - A letter stating the amount of your investment, the name of the Fund and
your account number
If your check is returned because of insufficient funds, Galaxy will cancel your
order.
BUYING BY WIRE
To make an initial or additional investment by wire, send U.S. funds through the
Federal Reserve System to Fleet National Bank as agent for Galaxy's distributor.
You should wire money and registration instructions to:
Fleet National Bank
75 State Street
Boston, MA 02109
-23-
<PAGE>
ABA #0110-0013-8
DDA #79673-5702
Ref: The Galaxy Fund
(Account number)
(Account registration)
Before making an initial investment by wire, you must complete an account
application and send it to The Galaxy Fund, P.O. Box 6520, Providence, RI
02940-6520. Your order will not be effective until the completed account
application is received by Galaxy. Call Galaxy's distributor at 1-877-BUY-GALAXY
(1-877-289-4252) for an account application.
Your financial institution may charge you a fee for sending funds by wire.
[Sidenote:]
INVESTMENT MINIMUMS
Galaxy does not have any minimum investment requirements for initial or
additional investments in Trust Shares but financial institutions and
employer-sponsored plans may do so. They may also require you to maintain a
minimum account balance.
HOW TO SELL SHARES
If you are a customer of a financial institution (including a customer who
maintains a qualified account) or a participant in an employer-sponsored plan,
you can sell Trust Shares by following the procedures established by your
financial institution or your employer-sponsored plan. Your financial
institution or plan administrator is responsible for sending your order to
Galaxy's distributor and for crediting your account with the proceeds. Galaxy
doesn't charge for wiring the proceeds, but your financial institution or
employer-sponsored plan may do so. Contact your financial institution or plan
administrator for more information.
You can also sell Trust Shares of the Corporate Bond Fund directly through
Galaxy's distributor in any of the following ways:
SELLING BY MAIL
Send your request in writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
You must include the following:
- - The name of the Fund
- - The number of shares or the dollar amount you want to sell
- - Your account number
- - Your Social Security number or tax identification number
-24-
<PAGE>
- - The signatures of each registered owner of the account (the signatures
must match the names on the account registration)
Additional documents may be required for certain types of shareholders, such as
corporations, partnerships, executors, trustees, administrators or guardians.
[Sidenote:]
SIGNATURE GUARANTEES
When selling your shares either by mail or by phone, you must have your
signature guaranteed if:
- - you're selling shares worth more than $50,000
- - you want Galaxy to send your money to an address other than the address on
your account, unless your assets are transferred to a successor custodian
- - you want Galaxy to send your money to the address on your account that's
changed within the last 30 days
- - you want Galaxy to make the check payable to someone else
Your signature must be guaranteed by a bank that's a member of the FDIC, a trust
company, a member firm of a national securities exchange or any other eligible
institution. A notarized signature is not sufficient.
SELLING BY PHONE
You can sell shares by calling Galaxy's distributor at 1-877-BUY-GALAXY
(1-877-289-4252) unless you tell Galaxy on the account application or in writing
that you don't want this privilege. If you have difficulty getting through to
Galaxy because of unusual market conditions, consider selling your shares by
mail or wire.
SELLING BY WIRE
Notify Galaxy's distributor by phone or wire that you wish to sell shares and
have the sale proceeds wired to your account at any financial institution in the
U.S. To be eligible to use this privilege, you must complete the appropriate
section on the account application or notify Galaxy in writing (with a signature
guarantee). Your sale proceeds must be more than $1,000.
The sale proceeds must be paid to the same bank and account you named on your
application or in your written instructions.
OTHER TRANSACTION POLICIES
If you purchased your shares through a financial institution or
employer-sponsored plan and Galaxy doesn't receive full payment for your order
to buy shares by 4:00 p.m. on the next business day, Galaxy won't accept your
order. Galaxy will advise your financial institution or plan administrator if
this happens.
-25-
<PAGE>
If you purchased shares directly from Galaxy's distributor and Galaxy doesn't
receive full payment for your order to buy shares within three business days of
the order date, Galaxy won't accept your order. Galaxy will advise you if this
happens and return any payment it may eventually receive.
Galaxy may refuse any order to buy shares. Galaxy doesn't issue a certificate
when you buy shares but it does keep a record of shares issued to investors.
Galaxy may refuse your order to sell shares by wire or telephone if it believes
it is advisable to do so. Galaxy may change or cancel the procedures for selling
or exchanging shares by wire or telephone at any time without notice.
If you purchased your shares directly from Galaxy's distributor and you sell
your shares by telephone, you may be responsible for any fraudulent telephone
orders as long as Galaxy has taken reasonable precautions to verify your
identity, such as requesting information about the way in which your account is
registered or about recent transactions on your account.
If you sell your shares through a financial institution or employer-sponsored
plan, sales proceeds are normally wired to your financial institution or plan
administrator on the next business day. If you sell your shares directly through
Galaxy's distributor, sales proceeds are normally sent to you within three
business days. In each case, Galaxy reserves the right to send sales proceeds
within seven days if sending proceeds earlier could adversely affect a Fund.
Galaxy may ask for any information it might reasonably need to make sure that
you've authorized a sale of shares.
Galaxy may close any account after 60 days' written notice if the value of the
account drops below $250 as a result of selling shares.
-26-
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Each Fund declares any dividends from net investment income daily and pays them
monthly. Each Fund pays any net capital gains at least once a year. It's
expected that the Funds' annual distributions will normally -- but not always --
consist primarily of ordinary income rather than capital gains. Dividends and
distributions are paid in cash unless you tell your financial institution or
plan administrator in writing or, if you purchased your shares directly from
Galaxy's distributor, you indicate in the account application or in a letter to
Galaxy that you want to have dividends and distributions reinvested in
additional shares.
FEDERAL TAXES
Each Fund contemplates declaring as dividends each year all or substantially all
of its taxable income, including its net capital gain (the excess of long-term
capital gain over short-term capital loss). Distributions attributable to the
net capital gain of a Fund will be taxable to you as long-term capital gain,
regardless how long you have held your shares. Other Fund distributions will
generally be taxable as ordinary income. You will be subject to income tax on
these distributions whether they are paid in cash or reinvested in additional
shares. You will be notified annually of the tax status of distributions to you.
You should note that if you purchase shares just before a distribution, the
purchase price will reflect the amount of the upcoming distribution, but you
will be taxed on the entire amount of the distribution received, even though, as
an economic matter, the distribution simply constitutes a return of capital.
This is known as "buying into a dividend."
You will recognize taxable gain or loss on a sale, exchange or redemption of
your shares, based on the difference between your tax basis in the shares and
the amount you receive for them. (To aid in computing your tax basis, you
generally should retain your account statements for the periods during which you
held shares.) Generally, this gain or loss will be long-term or short-term
depending on whether your holding period for the shares exceeds 12 months,
except that any loss realized on shares held for six months or less will be
treated as a long-term capital loss to the extent of any capital gain dividends
that were received on the shares.
The one major exception to these tax principles is that distributions on, and
sales, exchanges and redemptions of, shares held in an IRA (or other
tax-qualified plan) will not be currently taxable.
The foregoing is only a summary of certain tax considerations under current law,
which may be subject to change in the future. You should consult your tax
adviser for further information regarding federal, state, local and/or foreign
tax consequences relevant to your specific situation.
-27-
<PAGE>
STATE AND LOCAL TAXES
Shareholders may also be subject to state and local taxes on distributions,
redemptions and exchanges. State income taxes may not apply however to the
portions of each Fund's distributions, if any, that are attributable to interest
on U.S. Government securities or on securities of the particular state, its
agencies or municipalities. Shareholders should consult their tax advisers
regarding the tax status of distributions in their state and locality.
-28-
<PAGE>
HOW TO REACH GALAXY
If you purchased your shares directly from Galaxy's distributor, you can reach
Galaxy in any of the following ways:
GALAXY SHAREHOLDER SERVICES
Call Galaxy's distributor at 1-877-BUY-GALAXY (1-877-289-4252), Monday through
Friday, 8 a.m. to 6 p.m. (Eastern time) for help from a Galaxy representative.
INVESTCONNECT
InvestConnect is Galaxy's shareholder voice response system. Call
1-877-BUY-GALAXY (1-877-289-4252) from any touch-tone phone for automated access
to account information and current Fund prices and performance, or to place
orders to sell or exchange shares. It's available 24 hours a day, seven days a
week.
If you live outside the United States, you can contact Galaxy by calling
1-508-871-4121.
THE INTERNET
Please visit Galaxy's website at: www.galaxyfunds.com
[Sidenote:]
Galaxy also offers a TDD service for the hearing impaired. Just call
1-800-696-6515, 24 hours a day, seven days a week.
-29-
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables shown below will help you understand the
financial performance for the Funds' Trust Shares for the past five years (or
the period since a particular Fund began operations). Certain information
reflects the financial performance of a single Trust Share. The total returns in
the tables represent the rate that an investor would have earned (or lost) on an
investment in Trust Shares of each Fund, assuming all dividends and
distributions were reinvested. The information for the fiscal year ended October
31, 1999 has been audited by ______________, independent auditors, whose report,
along with the Funds' financial statements, are included in the Funds' Annual
Report and are incorporated by reference into the SAI. The Annual Report and SAI
are available free of charge upon request. The information for the fiscal years
ended October 31, 1995, 1996, 1997 and 1998 was audited by Galaxy's former
auditors, ____________________.
-30-
<PAGE>
Galaxy Short-Term Bond Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
----------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Trust Shares
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........ $10.01 $ 9.99 $10.06 $ 9.73
Income from investment operations:
Net investment income(1).................. 0.54 0.54 0.55 0.57
Net realized and unrealized gain (loss)
on investments........................... 0.11 0.02 (0.07) 0.33
Total from investment operations........... 0.65 0.56 0.48 0.90
Less dividends:
Dividends from net investment income....... ( 0.56) (0.54) (0.55) (0.57)
Dividends from net realized capital
gains..................................... -- -- -- --
Dividends in excess of net realized capital
gains..................................... -- -- -- --
Total dividends........................... (0.56) (0.54) (0.55) (0.57)
Net increase (decrease)
in net asset value........................ 0.09 0.02 (0.07) 0.33
Net asset value, end of period.............. $10.10 $10.01 $ 9.99 $10.06
------- ------- ------- -------
Total return.............................. 6.68% 5.77% 4.91% 9.55%
Ratios/supplemental data:
Net assets, end of period (000's).......... $38,071 $49,837 $58,227 $35,088
Ratios to average net assets:
Net investment income including
reimbursement/waiver...................... 5.33% 5.43% 5.49% 5.79%
Operating expenses including
reimbursement/waiver...................... 0.85% 0.86% 0.84% 0.74%
Operating expenses excluding
reimbursement/waiver...................... 1.05% 1.07% 1.08% 1.02%
Portfolio turnover rate................... 133% 173% 214% 289%
</TABLE>
- ------------------------------
(1) Net investment income per share for Trust Shares before reimbursement/waiver
of fees by the Adviser and/or the Fund's administrator for the years ended
October 31, 1999, 1998, 1997, 1996 and 1995 was $____, $0.52, $0.52, $0.53
AND $0.54, respectively.
-31-
<PAGE>
Galaxy Intermediate Government Income Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
-------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Trust Shares
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period....................... $10.18 $10.06 $10.28 $ 9.68
Income from investment operations:
Net investment income(1) 0.59 0.62 0.60 0.64
Net realized and
unrealized gain (loss)
on investments................. 0.35 0.12 (0.22) 0.60
Total from investment
operations...................... 0.94 0.74 0.38 1.24
Less dividends:
Dividends from net
investment income............... (0.62) (0.62) (0.60) (0.64)
Dividends in excess of
net investment income.......... -- -- -- --
--
Dividends from net
realized capital
Gains.......................... -- -- -- --
Dividends in excess of
Net realized capital
Gains.......................... -- -- -- --
Total dividends................ (0.62) (0.62) (0.60) (0.64)
Net increase (decrease)
IN net asset value............ 0.32 0.12 (0.22) 0.60
Net asset value, end of
period......................... $10.50 $10.18 $10.06 $10.28
------- ------- ------- -------
Total return..................... 9.52% 7.63% 3.88% 13.18%
Ratios/supplemental data:
Net assets, end of
period (000's)................ $239,763 $209,215 $213,750 $186,037
Ratios to average net assets:
Net investment
income including
reimbursement/waiver........... 5.77% 6.19% 5.98% 6.39%
Operating expenses
including
reimbursement/waiver........... 0.73% 0.74% 0.75% 0.73%
Operating expenses
excluding
reimbursement/waiver........... 0.93% 0.94% 0.95% 0.94%
Portfolio turnover rate........ 210% 128% 235% 145%
--------------------
</TABLE>
(1) Net investment income per share for Trust Shares before reimbursement/waiver
of fees by the Adviser and/or the Fund's administrator for the years ended
October 31, 1999, 1998, 1997, 1996 and 1995 was $______, $0.57, $0.60, $0.58
and $0.62, respectively.
-32-
<PAGE>
Galaxy High Quality Bond Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
-------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Trust Shares
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period......................... $10.70 $10.47 $10.63 $ 9.54
Income from investment operations:
Net investment income(1).......... 0.59 0.61 0.62 0.64
Net realized and
unrealized gain (loss)
on investments................... 0.50 0.23 (0.16) 1.09
Total from investment
operations..................... 1.09 0.84 0.46 1.73
Less dividends:
Dividends from net
investment income.................. (0.59) (0.61) (0.62) (0.64)
Dividends from net
realized capital
gains............................. -- -- -- --
Dividends in excess of
net realized capital
gains............................ -- -- -- --
Total dividends................... (0.59) (0.61) (0.62) (0.64)
Net increase (decrease)
in net asset value................ 0.50 0.23 (0.16) 1.09
Net asset value, end of
period............................ $11.20 $10.70 $10.47 $10.63
------- ------- ------- -------
Total return........................ 10.50% 8.36% 4.46% 18.66%
Ratios/supplemental data:
Net assets, end of
period (000's)..................... $217,143 $182,398 $149,075 $134,631
Ratios to average net assets:
Net investment
income including
reimbursement/waiver.............. 5.43% 5.88% 5.88% 6.33%
Operating expenses
including
reimbursement/waiver.............. 0.87% 0.87% 0.85% 0.85%
Operating expenses
excluding
reimbursement/waiver.............. 1.07% 1.09% 1.06% 1.07%
Portfolio turnover rate........... 253% 182% 163% 110%
--------------------
</TABLE>
(1) Net investment income per share for Trust Shares before reimbursement/waiver
of fees by the Adviser and/or the Fund's administrator for the years ended
October 31, 1999, 1998, 1997, 1996 and 1995 was $_____, $0.56, $0.59, $0.60
and $0.62, respectively.
-33-
<PAGE>
Galaxy Corporate Bond Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
-------------------------------------------------------------------------------
period ended
October 31,
1999 1998 1997 1996 1995(1)
---- ---- ---- ---- ----
Trust Shares
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period....................... $10.63 $10.53 $10.74 $10.00
Income from investment
operations:
Net investment income(2) 0.62 0.66 0.64 0.61
Net realized and
unrealized gain (loss)
on investments................. 0.30 0.11 (0.13) 0.74
Total from investment
operations.................... 0.92 0.77 0.51 1.35
Less dividends:
Dividends from net
investment income.............. (0.65) (0.66) (0.64) (0.61)
Dividends from net
realized capital
gains.......................... -- (0.01) (0.08) --
Total dividends.................. (0.65) (0.67) (0.72) (0.61)
Net increase (decrease)
in net asset value.............. 0.27 0.10 (0.21) 0.74
Net asset value, end of
period......................... $10.90 $10.63 $10.53 $10.74
------- ------- ------- -------
Total return..................... 8.96% 7.56% 5.00% 13.85%(3)
Ratios/supplemental data:
Net assets, end of
period (000's)................. $83,565 $91,728 $107,728 $37,391
Ratios to average net assets:
Net investment
income including
reimbursement/waiver........... 5.80% 6.27% 6.13% 6.61%(4)
Operating expenses
including
reimbursement/waiver........ 0.82% 0.80% 0.85% 1.06%(4)
Operating expenses
excluding
reimbursement/waiver........ 1.02% 1.00% 1.05% 1.26%(4)
Portfolio turnover rate.......... 155% 37% 84% 41%(3)
</TABLE>
(1) The Fund commenced operations on December 30, 1994.
(2) Net investment income per share before reimbursement/waiver of fees by
the Adviser and/or the Fund's administrator for the fiscal years ended
October 31, 1999, 1998, 1997 and 1996 and for the period ended October
31, 1995 was $____, $0.60, $0.64, $0.62 and $0.57, respectively.
(3) Not annualized.
(4) Annualized.
-34-
<PAGE>
[Back Cover Page]
Where to find more information
You'll find more information about the Funds in the following documents:
ANNUAL AND SEMI-ANNUAL REPORTS
Galaxy's annual and semi-annual reports contain more information about each Fund
and a discussion about the market conditions and investment strategies that had
a significant effect on each Fund's performance during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains detailed information about the Funds and their policies. By
law, it's incorporated by reference into (considered to be part of) this
prospectus.
You can get a free copy of these documents, request other information about the
Funds and make shareholder inquiries by calling Galaxy at 1-877-BUY-GALAXY
(1-877-289-4252) or writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
If you buy your shares through a financial institution, you may contact your
institution for more information.
You can write to the Securities and Exchange Commission (SEC) Public Reference
Section and ask them to mail you information about the Funds, including the SAI.
They'll charge you a fee for this service. You can also visit the Public
Reference Room and copy the documents while you're there. For information about
the operation of the Public Reference Room, call the SEC.
Public Reference Section of the SEC
Washington, DC 20549-0102
1-202-942-8090
Reports and other information about the Funds are also available on the EDGAR
Database on the SEC's website at http://www.sec.gov. Copies of this information
may also be obtained, after paying a duplicating fee, by electronic request to
the SEC's e-mail address at [email protected].
Galaxy's Investment Company Act File No. is 811-4636.
[FLEET ASSIGNED CODE]
<PAGE>
THE GALAXY FUND
STATEMENT OF ADDITIONAL INFORMATION
, 2000
GALAXY SHORT-TERM BOND FUND
GALAXY INTERMEDIATE GOVERNMENT INCOME FUND
GALAXY HIGH QUALITY BOND FUND
RETAIL A SHARES, RETAIL B SHARES AND
TRUST SHARES
GALAXY CORPORATE BOND FUND
TRUST SHARES
This Statement of Additional Information is not a prospectus. The
prospectuses for the Funds as listed below, as they may be supplemented or
revised from time to time (the "Prospectuses"), as well as the Funds' Annual
Report to Shareholders dated October 31, 1999 (the "Annual Report"), may be
obtained, without charge, by writing:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
or by calling 1-877-BUY-GALAXY (1-877-289-4252)
CURRENT PROSPECTUSES
- - Prospectus for Retail A Shares and Retail B Shares of the Short-Term Bond,
Intermediate Government Income and High Quality Bond Funds
dated , 2000
- - Prospectus for Trust Shares of the Funds dated , 2000
The and the report thereon of , The Galaxy Funds'
independent accountants, are incorporated by reference into this Statement of
Additional Information.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GENERAL INFORMATION..............................................................1
DESCRIPTION OF GALAXY AND ITS SHARES.............................................1
INVESTMENT STRATEGIES, POLICIES AND RISKS........................................4
Short-Term Bond Fund........................................................4
Intermediate Government Income Fund.........................................5
High Quality Bond Fund......................................................6
Corporate Bond Fund.........................................................6
Special Risk Considerations.................................................7
Foreign Securities..........................................................7
Ratings.....................................................................8
Other Investment Policies and Risk Considerations...........................8
Variable and Floating Rate Obligations......................................8
U.S. Government Obligations and Money Market Instruments....................8
Municipal Securities.......................................................10
Stand-by Commitments.......................................................12
Repurchase and Reverse Repurchase Agreements...............................13
Securities Lending.........................................................14
Investment Company Securities..............................................14
Derivative Securities......................................................14
When-Issued, Forward Commitment and Delayed Settlement Transactions........16
Asset-Backed Securities....................................................17
Mortgage-Backed Securities.................................................18
Mortgage Dollar Rolls......................................................19
Stripped Obligations.......................................................20
Guaranteed Investment Contracts............................................20
Bank Investment Contracts..................................................21
Zero Coupon Bonds..........................................................21
Portfolio Turnover.........................................................21
INVESTMENT LIMITATIONS..........................................................22
VALUATION OF PORTFOLIO SECURITIES...............................................24
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION..................................25
Purchases of Retail Shares and Trust Shares of the Corporate Bond Fund.....25
General....................................................................25
Customers of Institutions..................................................26
Other Purchase Information.................................................26
Applicable Sales Charge -- Retail A Shares.................................27
Computation of Offering Price - Retail A Shares............................28
Quantity Discounts.........................................................29
Applicable Sales Charge - Retail B Shares..................................32
Characteristics of Retail A Shares and Retail B Shares.....................33
Factors to Consider When Selecting Retail A Shares or Retail B Shares......34
Purchases of Trust Shares..................................................34
-i-
<PAGE>
Redemption of Retail A Shares, Retail B Shares and Trust Shares............35
INVESTOR PROGRAMS - RETAIL A SHARES AND RETAIL B SHARES.........................36
Exchange Privilege.........................................................36
Retirement Plans...........................................................37
Automatic Investment Program and Systematic Withdrawal Plan................37
Payroll Deduction Program..................................................38
College Investment Program.................................................38
Direct Deposit Program.....................................................38
TAXES...........................................................................39
Taxation of Certain Financial Instruments..................................39
TRUSTEES AND OFFICERS...........................................................40
Shareholder and Trustee Liability..........................................43
INVESTMENT ADVISER..............................................................44
Authority to Act as Investment Adviser.....................................45
ADMINISTRATOR...................................................................46
CUSTODIAN AND TRANSFER AGENT....................................................47
EXPENSES........................................................................48
PORTFOLIO TRANSACTIONS..........................................................49
SHAREHOLDER SERVICES PLAN.......................................................50
DISTRIBUTION AND SERVICES PLAN..................................................51
DISTRIBUTOR.....................................................................53
AUDITORS........................................................................55
COUNSEL.........................................................................56
PERFORMANCE AND YIELD INFORMATION...............................................56
Performance Reporting......................................................59
MISCELLANEOUS...................................................................60
FINANCIAL STATEMENTS............................................................67
APPENDIX A.....................................................................A-1
APPENDIX B.....................................................................B-1
</TABLE>
-ii-
<PAGE>
GENERAL INFORMATION
This Statement of Additional Information should be read in conjunction with
a current Prospectus. This Statement of Additional Information relates to the
Prospectuses for Trust Shares of the four Funds listed on the cover page and
Retail A Shares and Retail B Shares of each of the Short-Term Bond, Intermediate
Government Income and High Quality Bond Funds. The Corporate Bond Fund is
authorized to offer Retail A Shares and Trust Shares but currently offers only
Trust Shares. The Short-Term Bond, Intermediate Government Income and High
Quality Bond Funds also offer Prime A Shares and Prime B Shares, which are
described in a separate statement of additional information and related
prospectus. This Statement of Additional Information is incorporated by
reference in its entirety into the Prospectuses. No investment in shares of the
Funds should be made without reading a Prospectus.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, FLEETBOSTON CORPORATION OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUNDS ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL VARY AS A RESULT OF MARKET CONDITIONS OR OTHER FACTORS
SO THAT SHARES OF THE FUNDS, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN
THEIR ORIGINAL COST. AN INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
DESCRIPTION OF GALAXY AND ITS SHARES
The Galaxy Fund ("Galaxy") is an open-end management investment company
currently offering shares of beneficial interest in twenty-nine investment
portfolios: Money Market Fund, Government Fund, U.S. Treasury Fund, Tax-Exempt
Fund, Connecticut Municipal Money Market Fund, Massachusetts Municipal Money
Market Fund, Institutional Government Money Market Fund, Prime Reserves,
Government Reserves, Tax-Exempt Reserves, Equity Value Fund, Equity Growth Fund,
Equity Income Fund, International Equity Fund, Small Company Equity Fund, Asset
Allocation Fund, Small Cap Value Fund, Growth and Income Fund, Strategic Equity
Fund, Short-Term Bond Fund, Intermediate Government Income Fund, High Quality
Bond Fund, Corporate Bond Fund, Tax-Exempt Bond Fund, New Jersey Municipal Bond
Fund, New York Municipal Bond Fund, Connecticut Municipal Bond Fund,
Massachusetts Municipal Bond Fund and Rhode Island Municipal Bond Fund. Galaxy
is also authorized to issue shares of beneficial interest in 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
<PAGE>
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 D shares (Trust Shares), Class D - Special
Series 1 shares (Retail A Shares), Class D shares - Special Series 2 shares
(Retail B Shares), Class D shares - Special Series 3 shares, (Prime A Shares)
and Class D shares - Special Series 4 shares (Prime B Shares), each series
representing interests in the Intermediate Government Income Fund; Class J -
Series 1 shares (Trust Shares), Class J - Series 2 shares (Retail A Shares),
Class J - Series 3 shares (Retail B Shares), Class J - Series 4 shares (Prime A
Shares) and Class J - Series 5 shares (Prime B Shares), each series representing
interests in the High Quality Bond Fund; Class L - Series 1 shares (Trust
Shares), Class L - Series 2 shares (Retail A Shares), Class L - Series 3 shares
(Retail B Shares), Class L - Series 4 shares (Prime A Shares) and Class L -
Series 5 shares (Prime B Shares), each series representing interests in the
Short-Term Bond Fund; and Class T - Series 1 shares (Trust Shares) and Class T -
Series 2 shares (Retail A Shares), each series representing interests in the
Corporate Bond Fund. Each Fund is classified as a diversified company under the
Investment Company Act of 1940, as amended (the "1940 Act").
Each share of Galaxy (irrespective of series designation) has a par value
of $.001 per share, represents an equal proportionate interest in the related
investment portfolio with other shares of the same class (irrespective of series
designation), and is entitled to such dividends and distributions out of the
income earned on the assets belonging to such investment portfolio as are
declared in the discretion of Galaxy's Board of Trustees.
Shares have no preemptive rights and only such conversion or exchange
rights as the Board of Trustees may grant in its discretion. When issued for
payment as described in the Prospectuses, shares will be fully paid and
non-assessable. Each series of shares in a Fund (i.e., Retail A Shares, Retail B
Shares, Trust Shares, Prime A Shares and Prime B Shares) bear pro rata the same
expenses and are entitled equally to the Fund's dividends and distributions
except as follows. Each series will bear the expenses of any distribution and/or
shareholder servicing plans applicable to such series. For example, as described
below, holders of Retail A Shares will bear the expenses of the Shareholder
Services Plan for Retail A Shares and Trust Shares (which is currently
applicable only to Retail A Shares) and holders of Retail B Shares will bear the
expenses of the Distribution and Services Plan for Retail B Shares. In addition,
each series may incur differing transfer agency fees and may have differing
sales charges. Standardized yield and total return quotations are computed
separately for each series of shares. The differences in expenses paid by the
respective series will affect their performance. See "Shareholder Services Plan"
and "Distribution and Services Plan" below.
In the event of a liquidation or dissolution of Galaxy or an individual
Fund, shareholders of a particular Fund would be entitled to receive the assets
available for distribution belonging to such Fund, and a proportionate
distribution, based upon the relative asset values of Galaxy's respective Funds,
of any general assets of Galaxy not belonging to any particular Fund, which are
available for distribution. Shareholders of a Fund are entitled to participate
in the net distributable assets of the particular Fund involved in liquidation,
based on the number of shares
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of the Fund that are held by each shareholder, except that each series of a Fund
would be solely responsible for the Fund's payments under any distribution
and/or shareholder servicing plan applicable to such series.
Holders of all outstanding shares of a particular Fund will vote together
in the aggregate and not by series on all matters, except that only shares of a
particular series of a Fund will be entitled to vote on matters submitted to a
vote of shareholders pertaining to any distribution and/or shareholder servicing
plan for such series (E.G., only Retail A Shares and Trust Shares of a Fund will
be entitled to vote on matters submitted to a vote of shareholders pertaining to
Galaxy's Shareholder Services Plan for Retail A and Trust Shares and only Retail
B Shares of a Fund will be entitled to vote on matters submitted to a vote of
shareholders pertaining to Galaxy's Distribution and Services Plan for Retail B
Shares). Further, shareholders of all of the Funds, as well as those of any
other investment portfolio now or hereafter offered by Galaxy, will vote
together in the aggregate and not separately on a Fund-by-Fund basis, except as
otherwise required by law or when permitted by the Board of Trustees. Rule 18f-2
under the 1940 Act provides that any matter required to be submitted to the
holders of the outstanding voting securities of an investment company such as
Galaxy shall not be deemed to have been effectively acted upon unless approved
by the holders of a majority of the outstanding shares of each Fund affected by
the matter. A particular Fund is deemed to be affected by a matter unless it is
clear that the interests of each Fund in the matter are substantially identical
or that the matter does not affect any interest of the Fund. Under the Rule, the
approval of an investment advisory agreement or any change in an investment
objective or a fundamental investment policy would be effectively acted upon
with respect to a Fund only if approved by a majority of the outstanding shares
of such Fund (irrespective of series designation). However, the Rule also
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
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securities issued by the purchaser and, in connection therewith, to cause all
outstanding shares of the Fund involved to be redeemed at a price which is equal
to their net asset value and which may be paid in cash or by distribution of the
securities or other consideration received from the sale and conveyance; (b)
sell and convert a Fund's assets into money and, in connection therewith, to
cause all outstanding shares of the Fund involved to be redeemed at their net
asset value; or (c) combine the assets belonging to a Fund with the assets
belonging to another Fund of Galaxy and, in connection therewith, to cause all
outstanding shares of any Fund to be redeemed at their net asset value or
converted into shares of another class of Galaxy's shares at the net asset
value. In the event that shares are redeemed in cash at their net asset value, a
shareholder may receive in payment for such shares, due to changes in the market
prices of the Fund's portfolio securities, an amount that is more or less than
the original investment. The exercise of such authority by the Board of Trustees
will be subject to the provisions of the 1940 Act, and the Board of Trustees
will not take any action described in this paragraph unless the proposed action
has been disclosed in writing to the Fund's shareholders at least 30 days prior
thereto.
INVESTMENT STRATEGIES, POLICIES AND RISKS
Fleet Investment Advisors Inc. ("Fleet"), the Funds' investment adviser,
will use its best efforts to achieve each Fund's investment objective, although
such achievement cannot be assured. The investment objective of a Fund as
described in its Prospectus(es) may not be changed without the approval of the
holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Except as noted below under "Investment Limitations," a Fund's
investment policies may be changed without shareholder approval. An investor
should not consider an investment in the Funds to be a complete investment
program. The following investment strategies, policies and risks supplement
those set forth in the Funds' Prospectuses.
SHORT-TERM BOND FUND
In addition to its primary investment strategies and policies as described
in its Prospectuses, the Short-Term Bond Fund may also invest, from time to
time, in municipal securities. The purchase of municipal securities may be
advantageous when, as a result of prevailing economic, regulatory or other
circumstances, the performance of such securities, on a pre-tax basis, is
comparable to that of corporate or U.S. Government debt obligations. See "Other
Investment Policies and Risk Consideration-Municipal Securities" below. The Fund
may also enter into interest rate futures contracts to hedge against changes in
market values. See "Other Investment Policies and Risk Considerations -
Derivative Securities" below. Any common stock received through the conversion
of convertible debt obligations will be sold in an orderly manner as soon as
possible.
Debt obligations rated in the lowest of the four highest rating categories
assigned by Standard & Poor's Rating Group ("S&P") ("BBB") or Moody's Investors
Service, Inc. ("Moody's") ("Baa") (or which, if unrated, are determined by Fleet
to be of comparable quality) are considered to have speculative characteristics,
even though they are of investment grade quality, and changes in economic
conditions or other circumstances are more likely to lead to a
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weakened capacity to make principal and interest payments than is the case with
higher grade debt obligations. Unrated securities will be determined to be of
comparable quality to rated debt obligations if, among other things, other
outstanding obligations of the issuers of such securities are rated BBB/Baa or
better. See Appendix A to this Statement of Additional Information for a
description of S&P's and Moody's rating categories.
The obligations of foreign banks and obligations issued or guaranteed by
foreign governments or any of their political subdivisions or instrumentalities
in which the Fund may invest include debt obligations issued by Canadian
Provincial Governments, which are similar to U.S. municipal securities except
that the income derived therefrom is fully subject to U.S. federal taxation.
These instruments are denominated in either Canadian or U.S. dollars and have an
established over-the-counter market in the United States. Also included are debt
obligations of supranational entities, which include international organizations
designated or supported by governmental entities to promote economic
reconstruction or development and international banking institutions and related
government agencies. Examples of these include the International Bank for
Reconstruction and Development ("World Bank"), the Asian Development Bank and
the InterAmerican Development Bank. Obligations of supranational entities may be
supported by appropriated but unpaid commitments of their member countries, and
there is no assurance that these commitments will be undertaken or met in the
future. The Fund may not invest more than 35% of its total assets in the
securities of foreign issuers. The Fund may also invest in dollar-denominated
debt obligations of U.S. corporations issued outside the United States.
See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the Short-Term Bond
Fund.
INTERMEDIATE GOVERNMENT INCOME FUND
In addition to its primary investment strategies and policies as described
in its Prospectuses, the Intermediate Government Income Fund may also invest,
from time to time, in municipal securities. See "Other Investment Policies and
Risk Considerations - Municipal Securities" below. The Fund may also enter into
interest rate futures contracts to hedge against changes in market values. See
"Other Investment Policies and Risk Considerations - Derivative Securities"
below. In addition, the Fund may invest in obligations issued by Canadian
Provincial Governments and in debt obligations of supranational entities. The
Fund may also invest in dollar-denominated high quality debt obligations of U.S.
corporations issued outside the United States. Any common stock received through
the conversion of convertible debt obligations will be sold in an orderly manner
as soon as possible.
See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the Intermediate
Government Income Fund and Appendix A to this Statement of Additional
Information for a description of S&P's and Moody's rating categories.
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HIGH QUALITY BOND FUND
In addition to its primary investment strategies and policies as described
in its Prospectuses, the High Quality Bond Fund may also invest, from time to
time, in municipal securities. See "Other Investment Policies and Risk
Considerations - Municipal Securities" below. The Fund may enter into interest
rate futures contracts to hedge against changes in the market values of fixed
income instruments that the Fund holds or intends to purchase. See "Other
Investment Policies and Risk Considerations - Derivative Securities" below. The
Fund may also invest in obligations issued by Canadian Provincial Governments
and in debt obligations of supranational entities. The Fund may also invest in
dollar-denominated high quality debt obligations of U.S. corporations issued
outside the United States. Any common stock received through the conversion of
convertible debt obligations will be sold in an orderly manner as soon as
possible.
See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the High Quality Bond
Fund. See "Short-Term Bond Fund" above for a description of the risks associated
with the Fund's investments in debt obligations that are rated in the lowest of
the four highest rating categories. See Appendix A to this Statement of
Additional Information for a description of S&P's and Moody's rating categories.
CORPORATE BOND FUND
In addition to its primary investment strategies and policies as described
in its Prospectus, the Corporate Bond Fund may also invest in obligations issued
or guaranteed by the U.S. or foreign governments, their agencies or
instrumentalities, or by supranational banks or other organizations. Examples of
supranational banks include the World Bank, the Asian Development Bank and the
InterAmerican Development Bank. Obligations of supranational banks may be
supported by appropriated but unpaid commitments of their member countries and
there is no assurance that those commitments will be undertaken or met in the
future. The Fund may invest, from time to time, in municipal securities. The
purchase of municipal securities may be advantageous when, as a result of their
tax status or prevailing economic, regulatory or other circumstances, the
performance of such securities is expected to be comparable to that of corporate
or U.S. Government debt obligations. See "Other Investment Policies and Risk
Considerations - Municipal Securities" below. The Fund may enter into interest
rate futures contracts to hedge against changes in market values. See "Other
Investment Policies and Risk Considerations Derivative Securities" below. The
Fund may also invest in "money market" instruments.
The value of convertible securities in which the Fund may invest fluctuates
in relation to changes in interest rates like bonds and, in addition, fluctuates
in relation to the underlying common stock. Any common stock received through
the conversion of convertible debt obligations will be sold in an orderly manner
as soon as possible.
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The Fund may also invest in debt obligations of foreign issuers such as
foreign corporations and banks, as well as foreign governments and their
political subdivisions. Such investments may subject the Fund to special
investment risks. See "Special Risk Considerations - Foreign Securities" below.
The Fund will not invest more than 20% of its net assets in the securities of
foreign issuers. The Fund may also invest in dollar-denominated debt obligations
of U.S. corporations issued outside the United States.
The Fund may enter into currency forward contracts (agreements to exchange
one currency for another at a future date) to manage currency risks and to
facilitate transactions in foreign securities. Although currency forward
contracts can be used to protect the Fund from adverse rate changes, they
involve a risk of loss if Fleet fails to predict foreign currency values
correctly. See "Other Investment Policies and Risk Considerations Derivative
Securities" below.
See "Short-Term Bond Fund" above for a description of the risks associated
with the Fund's investments in debt obligations that are rated in the lowest of
the four highest rating categories and Appendix A to this Statement of
Additional Information for a description of S&P's and Moody's rating categories.
See "Other Investment Policies and Risk Considerations" below for information
regarding additional investment policies of the Fund.
SPECIAL RISK CONSIDERATIONS
FOREIGN SECURITIES
Investments by the Short-Term Bond and Corporate Bond Funds in foreign
securities may involve higher costs than investments in U.S. securities,
including higher transaction costs, as well as the imposition of additional
taxes by foreign governments. In addition, foreign investments may include
additional risks associated with currency exchange rates, less complete
financial information about the issuers, less market liquidity, and political
instability. Future political and economic developments, the possible imposition
of withholding taxes on interest income, the possible seizure or nationalization
of foreign holdings, the possible establishment of exchange controls, or the
adoption of other governmental restrictions, might adversely affect the payment
of principal and interest on foreign obligations.
Although the Short-Term Bond and Corporate Bond Funds may invest in
securities denominated in foreign currencies, the Funds value their securities
and other assets in U.S. dollars. As a result, the net asset value of the Funds'
shares may fluctuate with U.S. dollar exchange rates as well as with price
changes of the Funds' foreign securities in the various local markets and
currencies. Thus, an increase in the value of the U.S. dollar compared to the
currencies in which the Funds make their foreign investments could reduce the
effect of increases and magnify the effect of decreases in the price of the
Funds' foreign securities in their local markets. Conversely, a decrease in the
value of the U.S. dollar will have the opposite effect of magnifying the effect
of increases and reducing the effect of decreases in the prices of the Funds'
foreign securities in their local markets. In addition to favorable and
unfavorable currency exchange rate developments, the Funds are subject to the
possible imposition of exchange control regulations or freezes on convertibility
of currency.
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RATINGS
The Corporate Bond Fund's investments in obligations rated below the four
highest ratings assigned by S&P and Moody's have different risks than
investments in securities that are rated "investment grade." Risk of loss upon
default by the issuer is significantly greater because lower-rated securities
are generally unsecured and are often subordinated to other creditors of the
issuer, and because the issuers frequently have high levels of indebtedness and
are more sensitive to adverse economic conditions, such as recessions,
individual corporate developments and increasing interest rates than are
investment grade issuers. As a result, the market price of such securities may
be particularly volatile.
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Investment methods described in the Prospectuses and this Statement of
Additional Information are among those which one or more of the Funds have the
power to utilize. Some may be employed on a regular basis; others may not be
used at all. Accordingly, reference to any particular method or technique
carries no implication that it will be utilized or, if it is, that it will be
successful.
VARIABLE AND FLOATING RATE OBLIGATIONS
The Funds may purchase variable and floating rate instruments in accordance
with their investment objectives and policies as described in the Prospectuses
and this Statement of Additional Information. If such an instrument is not
rated, Fleet must determine that such instrument is comparable to rated
instruments eligible for purchase by a Fund and will consider the earning power,
cash flows and other liquidity ratios of the issuers and guarantors of such
instruments and will continuously monitor their financial status in order to
meet payment on demand.
In determining average weighted portfolio maturity an instrument will
usually be deemed to have a maturity equal to the longer of the period
remaining until the next regularly scheduled interest rate adjustment or the
time the Fund involved can receive payment of principal as specified in the
instrument. Instruments which are U.S. Government obligations and certain
variable rate instruments having a nominal maturity of 397 days or less when
purchased by the Fund involved, however, will be deemed to have a maturity
equal to the period remaining until the next interest rate adjustment.
U.S. GOVERNMENT OBLIGATIONS AND MONEY MARKET INSTRUMENTS
Each Fund may, in accordance with its investment policies, invest from time
to time in obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities and in "money market" instruments, including bank
obligations and commercial paper.
Examples of the types of obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities (hereinafter, "U.S. Government
obligations") that may be held by the Funds include, without limitation, direct
obligations of the U.S. Treasury, and securities issued or guaranteed by the
Federal Home Loan Banks, Federal Farm Credit Banks, Federal
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Land Banks, Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the United States, Small Business Administration,
Government National Mortgage Association, Federal National Mortgage Association,
General Services Administration, Central Bank for Cooperatives, Federal Home
Loan Mortgage Corporation, Federal Intermediate Credit Banks, Resolution Trust
Corporation and Maritime Administration.
U.S. Treasury securities differ only in their interest rates, maturities
and time of issuance: Treasury Bills have initial maturities of one year or
less; Treasury Notes have initial maturities of one to ten years; and Treasury
Bonds generally have initial maturities of more than ten years. Obligations of
certain agencies and instrumentalities of the U.S. Government, such as those of
the Government National Mortgage Association, are supported by the full faith
and credit of the U.S. Treasury; others, such as those of the Federal Home Loan
Banks, are supported by the right of the issuer to borrow from the Treasury;
others, such as those of the Federal National Mortgage Association, are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; still others, such as those of the Federal Home Loan
Mortgage Corporation, are supported only by the credit of the instrumentality.
No assurance can be given that the U.S. Government would provide financial
support to U.S. Government-sponsored instrumentalities if it is not obligated to
do so by law. Some of these instruments may be variable or floating rate
instruments.
Bank obligations include bankers' acceptances, negotiable certificates of
deposit, and non-negotiable time deposits issued for a definite period of time
and earning a specified return by a U.S. bank which is a member of the Federal
Reserve System or is insured by the Federal Deposit Insurance Corporation
("FDIC"), or by a savings and loan association or savings bank which is insured
by the FDIC. Bank obligations also include U.S. dollar-denominated obligations
of foreign branches of U.S. banks or of U.S. branches of foreign banks, all of
the same type as domestic bank obligations. Investments in bank obligations are
limited to the obligations of financial institutions having more than $1 billion
in total assets at the time of purchase. Investments by the Funds in
non-negotiable time deposits are limited to no more than 5% of each such Fund's
total assets at the time of purchase.
Domestic and foreign banks are subject to extensive but different
government regulation which may limit the amount and types of their loans and
the interest rates that may be charged. In addition, the profitability of the
banking industry is largely dependent upon the availability and cost of funds to
finance lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and of U.S.
branches of foreign banks may subject a Fund to additional risks, including
future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on such obligations. In addition, foreign
branches of U.S. banks and U.S. branches of foreign banks may be subject to less
stringent reserve requirements and to different accounting, auditing, reporting,
and recordkeeping standards than those applicable to domestic branches of U.S.
banks. Such investments may also subject a Fund to investment risks similar to
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those accompanying direct investments in foreign securities. See "Special Risk
Considerations - Foreign Securities." The Funds will invest in the obligations
of U.S. branches of foreign banks or foreign branches of U.S. banks only when
Fleet believes that the credit risk with respect to the instrument is minimal.
Commercial paper may include variable and floating rate instruments which
are unsecured instruments that permit the indebtedness thereunder to vary.
Variable rate instruments provide for periodic adjustments in the interest rate.
Floating rate instruments provide for automatic adjustment of the interest rate
whenever some other specified interest rate changes. Some variable and floating
rate obligations are direct lending arrangements between the purchaser and the
issuer and there may be no active secondary market. However, in the case of
variable and floating rate obligations with a demand feature, a Fund may demand
payment of principal and accrued interest at a time specified in the instrument
or may resell the instrument to a third party. In the event that an issuer of a
variable or floating rate obligation defaulted on its payment obligation, a Fund
might be unable to dispose of the note because of the absence of a secondary
market and could, for this or other reasons, suffer a loss to the extent of the
default. The Funds may also purchase Rule 144A securities. See "Investment
Limitations" below.
MUNICIPAL SECURITIES
The Funds may invest in municipal securities when such investments are
deemed appropriate by Fleet in light of the Funds' investment objectives. As a
result of the favorable tax treatment afforded such obligations under the
Internal Revenue Code of 1986, as amended (the "Code"), yields on municipal
obligations can generally be expected under normal market conditions to be lower
than yields on corporate and U.S. Government obligations, although from time to
time municipal securities have outperformed, on a total return basis, comparable
corporate and federal debt obligations as a result of prevailing economic,
regulatory or other circumstances.
Municipal securities acquired by the Funds include debt obligations issued
by governmental entities to obtain funds for various public purposes, including
the construction of a wide range of public facilities, the refunding of
outstanding obligations, the payment of general operating expenses, and the
extension of loans to public institutions and facilities. Private activity bonds
that are issued by or on behalf of public authorities to finance various
privately operated facilities are "municipal securities" if the interest paid
thereon is exempt from regular federal income tax and not treated as a specific
tax preference item under the federal alternative minimum tax.
The two principal classifications of municipal securities which may be held
by the Funds are "general obligation" securities and "revenue" securities.
General obligation securities are secured by the issuer's pledge of its full
faith, credit and taxing power for the payment of principal and interest.
Revenue securities are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source such as the user of the
facility being financed. Private activity bonds held by the Funds are in most
cases revenue securities and are not payable from the
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unrestricted revenues of the issuer. Consequently, the credit quality of such
private activity bonds is usually directly related to the credit standing of the
corporate user of the facility involved.
Each Fund's portfolio may also include "moral obligation" securities, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation securities is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer.
There are, of course, variations in the quality of municipal securities,
both within a particular category and between categories, and the yields on
municipal securities depend upon a variety of factors, including general market
conditions, the financial condition of the issuer, general conditions of the
municipal bond market, the size of a particular offering, the maturity of the
obligation, and the rating of the issue. The ratings of a nationally recognized
statistical rating organization ("NRSRO"), such as Moody's and S&P, described in
Appendix A to this Statement of Additional Information, represent such NRSRO's
opinion as to the quality of municipal securities. It should be emphasized that
these ratings are general and are not absolute standards of quality. Municipal
securities with the same maturity, interest rate and rating may have different
yields. Municipal securities of the same maturity and interest rate with
different ratings may have the same yield. Subsequent to its purchase by a Fund,
an issue of municipal securities may cease to be rated or its rating may be
reduced below the minimum rating required for purchase by the Fund.
The payment of principal and interest on most municipal securities
purchased by the Funds will depend upon the ability of the issuers to meet their
obligations. Each state, the District of Columbia, each of their political
subdivisions, agencies, instrumentalities and authorities and each multistate
agency of which a state is a member is a separate "issuer" as that term is used
in this Statement of Additional Information. The non-governmental user of
facilities financed by private activity bonds is also considered to be an
"issuer." An issuer's obligations under its municipal securities are subject to
the provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors, such as the federal Bankruptcy Code and laws, if any,
which may be enacted by federal or state legislatures extending the time for
payment of principal or interest, or both, or imposing other constraints upon
enforcement of such obligations or upon the ability of municipalities to levy
taxes. The power or ability of an issuer to meet its obligations for the payment
of interest on and principal of its municipal securities may be materially
adversely affected by litigation or other conditions.
Among other instruments, the Funds may purchase short-term general
obligation notes, tax anticipation notes, bond anticipation notes, revenue
anticipation notes, tax-exempt commercial paper, construction loan notes and
other forms of short-term loans. Such instruments are issued with a short-term
maturity in anticipation of the receipt of tax funds, the proceeds of bond
placements or other revenues. In addition, the Funds may invest in long-term
tax-exempt instruments, such as municipal bonds and private activity bonds to
the extent consistent with the limitations set forth for each Fund.
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Private activity bonds are or have been issued to obtain funds to provide,
among other things, privately operated housing facilities, pollution control
facilities, convention or trade show facilities, mass transit, airport, port or
parking facilities and certain local facilities for water supply, gas,
electricity or sewage or solid waste disposal. Private activity bonds are also
issued to privately held or publicly owned corporations in the financing of
commercial or industrial facilities. State and local governments are authorized
in most states to issue private activity bonds for such purposes in order to
encourage corporations to locate within their communities. The principal and
interest on these obligations may be payable from the general revenues of the
users of such facilities.
Opinions relating to the validity of municipal securities and to the
exemption of interest thereon from regular federal income tax are rendered by
bond counsel to the respective issuers at the time of issuance. Neither the
Funds nor Fleet will review the proceedings relating to the issuance of
municipal securities or the bases for such opinions.
VARIABLE AND FLOATING RATE MUNICIPAL SECURITIES. Municipal securities
purchased by the Funds may include rated and unrated variable and floating rate
tax-exempt instruments. There may be no active secondary market with respect to
a particular variable or floating rate instrument. Nevertheless, the periodic
readjustments of their interest rates tend to assure that their value to a Fund
will approximate their par value. Illiquid variable and floating rate
instruments (instruments which are not payable upon seven days' notice and do
not have an active trading market) that are acquired by the Funds are subject to
the 10% (15% with respect to the Corporate Bond Fund) limit described in
Investment Limitation No. 3 under "Investment Limitations" below.
STAND-BY COMMITMENTS
Each Fund may acquire "stand-by commitments" with respect to municipal
securities held by them. Under a stand-by commitment, a dealer agrees to
purchase, at a Fund's option, specified municipal securities at a specified
price. The Funds will acquire stand-by commitments solely to facilitate
portfolio liquidity and do not intend to exercise their rights thereunder for
trading purposes. The Funds expect that stand-by commitments will generally be
available without the payment of any direct or indirect consideration. However,
if necessary or advisable, a Fund may pay for a stand-by commitment either
separately in cash or by paying a higher price for municipal securities which
are acquired subject to the commitment (thus reducing the yield otherwise
available for the same securities). Where a Fund pays any consideration directly
or indirectly for a stand-by commitment, its cost will be reflected as
unrealized depreciation for the period during which the commitment is held by
the Fund. Stand-by commitments acquired by a Fund would be valued at zero in
determining the Fund's net asset value.
Stand-by commitments are exercisable by a Fund at any time before the
maturity of the underlying municipal security, and may be sold, transferred or
assigned by the Fund only with respect to the underlying instruments. A Fund
will enter into stand-by commitments only with
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banks and broker/dealers that present minimal credit risks. In evaluating the
creditworthiness of the issuer of a stand-by commitment, Fleet will review
periodically the issuer's assets, liabilities, contingent claims and other
relevant financial information.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
Each Fund may purchase portfolio securities subject to the seller's
agreement to repurchase them at a mutually specified date and price ("repurchase
agreements"). Repurchase agreements will be entered into only with financial
institutions such as banks and broker/dealers which are deemed to be
creditworthy by Fleet. No Fund will enter into repurchase agreements with Fleet
or any of its affiliates. Unless a repurchase agreement has a remaining maturity
of seven days or less or may be terminated on demand upon notice of seven days
or less, the repurchase agreement will be considered an illiquid security and
will be subject to the 10% (15% with respect to the Corporate Bond Fund) limit
described in Investment Limitation No. 3 under "Investment Limitations" below.
The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by a Fund at
not less than the agreed upon repurchase price. If the seller defaulted on its
repurchase obligation, the Fund holding such obligation would suffer a loss to
the extent that the proceeds from a sale of the underlying securities (including
accrued interest) were less than the repurchase price (including accrued
interest) under the agreement. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by the Fund
might be delayed pending court action.
The repurchase price under a repurchase agreement generally equals the
price paid by a Fund plus interest negotiated on the basis of current short-term
rates (which may be more or less than the rate on the securities underlying the
repurchase agreement). Securities subject to repurchase agreements will be held
by a Fund's custodian or sub-custodian in a segregated account or in the Federal
Reserve/Treasury book-entry system. Repurchase agreements are considered to be
loans by a Fund under the 1940 Act.
Each Fund may also borrow funds for temporary purposes by selling portfolio
securities to financial institutions such as banks and broker/dealers and
agreeing to repurchase them at a mutually specified date and price ("reverse
repurchase agreements"). Reverse repurchase agreements involve the risk that the
market value of the securities sold by a Fund may decline below the repurchase
price. A Fund would pay interest on amounts obtained pursuant to a reverse
repurchase agreement. Whenever a Fund enters into a reverse repurchase
agreement, it will place in a segregated custodial account liquid assets such as
cash or liquid portfolio securities equal to the repurchase price (including
accrued interest). The Fund will monitor the account to ensure such equivalent
value is maintained. Reverse repurchase agreements are considered to be
borrowings by a Fund under the 1940 Act.
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SECURITIES LENDING
Each Fund may lend its portfolio securities to financial institutions such
as banks and broker/dealers in accordance with the investment limitations
described below. Such loans would involve risks of delay in receiving additional
collateral or in recovering the securities loaned or even loss of rights in the
collateral, should the borrower of the securities fail financially. Any
portfolio securities purchased with cash collateral would also be subject to
possible depreciation. A Fund that loans portfolio securities would continue to
accrue interest on the securities loaned and would also earn income on the
loans. Any cash collateral received by a Fund would be invested in high quality,
short-term "money market" instruments. Loans will generally be short-term, will
be made only to borrowers deemed by Fleet to be of good standing and only when,
in Fleet's judgment, the income to be earned from the loan justifies the
attendant risks. The Funds currently intend to limit the lending of their
portfolio securities so that, at any given time, securities loaned by a Fund
represent not more than one-third of the value of its total assets.
INVESTMENT COMPANY SECURITIES
The Funds may invest in securities issued by other investment companies
which invest in high quality, short-term debt securities and which determine
their net asset value per share based on the amortized cost or penny-rounding
method. Investments in other investment companies will cause a Fund (and,
indirectly, the Fund's shareholders) to bear proportionately the costs incurred
in connection with the investment companies' operations. Securities of other
investment companies will be acquired by the Funds within the limits prescribed
by the 1940 Act. Each Fund currently intends to limit its investments so that,
as determined immediately after a securities purchase is made: (a) not more than
5% of the value of its total assets will be invested in the securities of any
one investment company; (b) not more than 10% of the value of its total assets
will be invested in the aggregate in securities of other investment companies as
a group; (c) not more than 3% of the outstanding voting stock of any one
investment company will be owned by the Fund; and (d) not more than 10% of the
outstanding voting stock of any one closed-end investment company will be owned
in the aggregate by the Funds, other investment portfolios of Galaxy, or any
other investment companies advised by Fleet.
DERIVATIVE SECURITIES
The Funds may from time to time, in accordance with their respective
investment policies, purchase certain "derivative" securities. Derivative
securities are instruments that derive their value from the performance of
underlying assets, interest or currency exchange rates, or indices, and include,
but are not limited to, interest rate futures, certain asset-backed and
mortgage-backed securities, certain zero coupon bonds and currency forward
contracts.
Derivative securities present, to varying degrees, market risk that the
performance of the underlying assets, interest or exchange rates or indices will
decline; credit risk that the dealer or other counterparty to the transaction
will fail to pay its obligations; volatility and leveraging risk that, if
interest or exchange rates change adversely, the value of the derivative
security will decline more than the assets, rates or indices on which it is
based; liquidity risk that a Fund will
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be unable to sell a derivative security when it wants because of lack of market
depth or market disruption; pricing risk that the value of a derivative security
will not correlate exactly to the value of the underlying assets, rates or
indices on which it is based; and operations risk that loss will occur as a
result of inadequate systems and controls, human error or otherwise. Some
derivative securities are more complex than others, and for those instruments
that have been developed recently, data are lacking regarding their actual
performance over complete market cycles.
Fleet will evaluate the risks presented by the derivative securities
purchased by the Funds, and will determine, in connection with its day-to-day
management of the Funds, how they will be used in furtherance of the Funds'
investment objectives. It is possible, however, that Fleet's evaluations will
prove to be inaccurate or incomplete and, even when accurate and complete, it is
possible that the Funds will, because of the risks discussed above, incur loss
as a result of their investments in derivative securities.
INTEREST RATE FUTURES CONTRACTS. The Funds may enter into contracts (both
purchase and sales) which provide for the future delivery of fixed income
securities (commonly known as interest rate futures contracts). The Funds will
not engage in futures transactions for speculation, but only to hedge against
changes in the market values of securities which the Funds hold or intend to
purchase. The Funds will engage in futures transactions only to the extent
permitted by the Commodity Futures Trading Commission ("CFTC") and the
Securities and Exchange Commission ("SEC"). The purchase of futures instruments
in connection with securities which a Fund intends to purchase will require an
amount of cash and/or liquid assets, equal to the market value of the
outstanding futures contracts, to be deposited in a segregated account to
collateralize the position and thereby insure that the use of such futures is
unleveraged. Each Fund will limit its hedging transactions in futures contracts
so that, immediately after any such transaction, the aggregate initial margin
that is required to be posted by the Fund under the rules of the exchange on
which the futures contract is traded does not exceed 5% of the Fund's total
assets after taking into account any unrealized profits and unrealized losses on
the Fund's open contracts. In addition, no more than one-third of each Fund's
total assets may be covered by such contracts.
Transactions in futures as a hedging device may subject the Funds to a
number of risks. Successful use of futures by the Funds is subject to the
ability of Fleet to predict correctly movements in the direction of the market.
In addition, there may be an imperfect correlation, or no correlation at all,
between movements in the price of futures contracts and movements in the price
of the instruments being hedged. There is no assurance that a liquid market will
exist for any particular futures contract at any particular time. Consequently,
a Fund may realize a loss on a futures transaction that is not offset by a
favorable movement in the price of securities which it holds or intends to
purchase or a Fund may be unable to close a futures position in the event of
adverse price movements. Additional information concerning futures transactions
is contained in Appendix B to this Statement of Additional Information.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS - SHORT-TERM BOND AND CORPORATE BOND
FUNDS. Because the Short-Term Bond and Corporate Bond Funds may buy and sell
securities denominated in currencies other than the U.S. dollar, and receive
interest, dividends and sale
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proceeds in currencies other than the U.S. dollar, the Funds may enter into
foreign currency exchange transactions to convert United States currency to
foreign currency and foreign currency to United States currency as well as
convert foreign currency to other foreign currencies. A Fund either enters into
these transactions on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign currency exchange market, or uses forward contracts to purchase or
sell foreign currencies.
A forward foreign currency exchange contract is an obligation by a Fund to
purchase or sell a specific currency at a specified price and future date, which
may be any fixed number of days from the date of the contract. Forward foreign
currency exchange contracts establish an exchange rate at a future date. These
contracts are transferable in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A forward
foreign currency exchange contract generally has no deposit requirement and is
traded at a net price without commission. Neither spot transactions nor forward
foreign currency exchange contracts eliminate fluctuations in the prices of a
Fund's portfolio securities or in foreign exchange rates, or prevent loss if the
prices of these securities should decline.
The Short-Term Bond and Corporate Bond Funds may enter into foreign
currency hedging transactions in an attempt to protect against changes in
foreign currency exchange rates between the trade and settlement dates of
specific securities transactions or changes in foreign currency exchange rates
that would adversely affect a portfolio position or an anticipated portfolio
position. Since consideration of the prospect for currency parities will be
incorporated into a Fund's long-term investment decisions, neither Fund will
routinely enter into foreign currency hedging transactions with respect to
portfolio security transactions; however, it is important to have the
flexibility to enter into foreign currency hedging transactions when it is
determined that the transactions would be in a Fund's best interest. Although
these transactions tend to minimize the risk of loss due to a decline in the
value of the hedged currency, at the same time they tend to limit any potential
gain that might be realized should the value of the hedged currency increase.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible because the future value of
these securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. The projection of currency market
movements is extremely difficult, and the successful execution of a hedging
strategy is highly uncertain.
WHEN-ISSUED, FORWARD COMMITMENT AND DELAYED SETTLEMENT TRANSACTIONS
Each Fund may purchase eligible securities on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" basis. Each Fund may also
purchase or sell securities on a "delayed settlement" basis. When-issued and
forward commitment transactions, which involve a commitment by a Fund to
purchase or sell particular securities with payment and delivery taking place at
a future date (perhaps one or two months later), permit the Fund to lock in a
price or yield on a security it owns or intends to purchase, regardless of
future changes in interest rates. Delayed settlement describes settlement of a
securities transaction in the secondary market which will occur sometime in the
future. When-issued, forward commitment
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and delayed settlement transactions involve the risk, however, that the yield or
price obtained in a transaction may be less favorable than the yield or price
available in the market when the security delivery takes place. It is expected
that forward commitments, when-issued purchases and delayed settlements will not
exceed 25% of the value of a Fund's total assets absent unusual market
conditions. In the event a Fund's forward commitments, when-issued purchases and
delayed settlements ever exceeded 25% of the value of its total assets, the
Fund's liquidity and the ability of Fleet to manage the Fund might be adversely
affected. The Funds do not intend to engage in when-issued purchases, forward
commitments and delayed settlements for speculative purposes, but only in
furtherance of their investment objectives.
When a Fund agrees to purchase securities on a "when-issued," "forward
commitment" or "delayed settlement" basis, the Fund's custodian will set aside
cash or liquid portfolio securities equal to the amount of the commitment in a
separate account. In the event of a decline in the value of the securities that
the custodian has set aside, the Fund may be required to place additional assets
in the separate account in order to ensure that the value of the account remains
equal to the amount of the Fund's commitment. A Fund's net assets may fluctuate
to a greater degree if it sets aside portfolio securities to cover such purchase
commitments than if it sets aside cash. Because a Fund sets aside liquid assets
to satisfy its purchase commitments in the manner described, its liquidity and
ability to manage its portfolio might be adversely affected in the event its
commitments to purchase "forward commitments," commitments to purchase
"when-issued" securities or commitments to purchase securities on a "delayed
settlement" basis exceeded 25% of the value of its assets.
When a Fund engages in "when-issued," "forward commitment" or "delayed
settlement" transactions, it relies on the seller to consummate the trade.
Failure of the seller to do so may result in the Fund's incurring a loss or
missing an opportunity to obtain a price considered to be advantageous for a
security. For purposes of determining the average weighted maturity of a Fund's
portfolio, the maturity of "when-issued" securities is calculated from the date
of settlement of the purchase to the maturity date.
ASSET-BACKED SECURITIES
Each Fund may purchase asset-backed securities, which represent a
participation in, or are secured by and payable from, a stream of payments
generated by particular assets, most often a pool of assets similar to one
another. Assets generating such payments will consist of such instruments as
motor vehicle installment purchase obligations, credit card receivables and home
equity loans. Payment of principal and interest may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution unaffiliated with entities issuing the securities. The
estimated life of an asset-backed security varies with the prepayment experience
with respect to the underlying debt instruments. The rate of such prepayments,
and hence the life of the asset-backed security, will be primarily a function of
current market rates, although other economic and demographic factors will be
involved.
Asset-backed securities are generally issued as pass-through certificates,
which represent undivided fractional ownership interests in an underlying pool
of assets, or as debt instruments,
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which are also known as collateralized obligations, and are generally issued as
the debt of a special purpose entity organized solely for the purpose of owning
such assets and issuing such debt. Asset-backed securities are often backed by a
pool of assets representing the obligations of a number of different parties.
The yield characteristics of asset-backed securities differ from
traditional debt securities. A major difference is that the principal amount of
the obligations may be prepaid at any time because the underlying assets (i.e.,
loans) generally may be prepaid at any time. As a result, if an asset-backed
security is purchased at a premium, a prepayment rate that is faster than
expected will reduce yield to maturity, while a prepayment rate that is slower
than expected will have the opposite effect of increasing yield to maturity.
Conversely, if an asset-backed security is purchased at a discount, faster than
expected prepayments will increase, while slower than expected prepayments, will
decrease, yield to maturity.
Prepayments on asset-backed securities generally increase with falling
interest rates and decrease with rising interest rates; furthermore prepayment
rates are influenced by a variety of economic and social factors. In general,
the collateral supporting non-mortgage asset-backed securities is of shorter
maturity than mortgage loans and is less likely to experience substantial
prepayments. Like other fixed income securities, when interest rates rise, the
value of an asset-backed security generally will decline; however, when interest
rates decline, the value of an asset-backed security with prepayment features
may not increase as much as that of other fixed income securities.
Asset-backed securities are subject to greater risk of default during
periods of economic downturn. Also, the secondary market for certain
asset-backed securities may not be as liquid as the market for other types of
securities, which could result in a Fund's experiencing difficulty in valuing or
liquidating such securities. For these reasons, under certain circumstances,
asset-backed securities may be considered illiquid securities.
MORTGAGE-BACKED SECURITIES
Each Fund may invest in mortgage-backed securities (including
collateralized mortgage obligations) that represent pools of mortgage loans
assembled for sale to investors by various governmental agencies and
government-related organizations, such as the Government National Mortgage
Association, the Federal National Mortgage Association, and the Federal Home
Loan Mortgage Corporation. Mortgage-backed securities provide a monthly payment
consisting of interest and principal payments. Additional payments may be made
out of unscheduled repayments of principal resulting from the sale of the
underlying residential property, refinancing or foreclosure, net of fees or
costs that may be incurred. Prepayments of principal on mortgage-backed
securities may tend to increase due to refinancing of mortgages as interest
rates decline. To the extent that the Fund purchases mortgage-backed securities
at a premium, mortgage foreclosures and prepayments of principal by mortgagors
(which may be made at any time without penalty) may result in some loss of the
Fund's principal investment to the extent of the premium paid. The yield of a
Fund that invests in mortgage-backed securities may be affected by reinvestment
of prepayments at higher or lower rates than the original investment.
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Other mortgage-backed securities are issued by private issuers, generally
originators of and investors in mortgage loans, including savings associations,
mortgage bankers, commercial banks, investment bankers and special purpose
entities. These private mortgage-backed securities may be supported by U.S.
Government mortgage-backed securities or some form of non-government credit
enhancement. Mortgage-backed securities have either fixed or adjustable interest
rates. The rate of return on mortgage-backed securities may be affected by
prepayments of principal on the underlying loans, which generally increase as
interest rates decline; as a result, when interest rates decline, holders of
these securities normally do not benefit from appreciation in market value to
the same extent as holders of other non-callable debt securities. In addition,
like other debt securities, the value of mortgage-related securities, including
government and government-related mortgage pools, generally will fluctuate in
response to market interest rates.
MORTGAGE DOLLAR ROLLS
Each Fund may enter into mortgage "dollar rolls" in which a Fund sells
securities for delivery in the current month and simultaneously contracts with
the same counterparty to repurchase similar (same type, coupon and maturity) but
not identical securities on a specified future date not exceeding 120 days.
During the roll period, a Fund loses the right to receive principal and interest
paid on the securities sold. However, the Fund would benefit to the extent of
any difference between the price received for the securities sold and the lower
forward price for the future purchase (often referred to as the "drop") or fee
income plus the interest earned on the cash proceeds of the securities sold
until the settlement date of the forward purchase. Unless such benefits exceed
the income, capital appreciation and gain or loss due to mortgage prepayments
that would have been realized on the securities sold as part of the mortgage
dollar roll, the use of this technique will diminish the investment performance
of a Fund compared with what such performance would have been without the use of
mortgage dollar rolls. All cash proceeds will be invested in instruments that
are permissible investments for each Fund. The Funds will hold and maintain in a
segregated account until the settlement date cash or other liquid assets in an
amount equal to the forward purchase price.
For financial reporting and tax purposes, the Funds propose to treat
mortgage dollar rolls as two separate transactions, one involving the purchase
of a security and a separate transaction involving a sale. The Funds do not
currently intend to enter into mortgage dollar rolls that are accounted for as a
financing.
Mortgage dollar rolls involve certain risks. If the broker-dealer to whom a
Fund sells the security becomes insolvent, the Fund's right to purchase or
repurchase the mortgage-related securities may be restricted and the instrument
which the Fund is required to repurchase may be worth less than the instrument
which the Fund originally held. Successful use of mortgage dollar rolls may
depend upon Fleet's ability to predict correctly interest rates and mortgage
prepayments. For these reasons, there is no assurance that mortgage dollar rolls
can be successfully employed.
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STRIPPED OBLIGATIONS
To the extent consistent with its investment objective, each Fund may
purchase U.S. Treasury receipts and other "stripped" securities that evidence
ownership in either the future interest payments or the future principal
payments on U.S. Government and other obligations. These participations, which
may be issued by the U.S. Government or by private issuers, such as banks and
other institutions, are issued at their "face value," and may include stripped
mortgage-backed securities ("SMBS"), which are derivative multi-class mortgage
securities. Stripped securities, particularly SMBS, may exhibit greater price
volatility than ordinary debt securities because of the manner in which their
principal and interest are returned to investors.
SMBS are usually structured with two or more classes that receive different
proportions of the interest and principal distributions from a pool of
mortgage-backed obligations. A common type of SMBS will have one class receiving
all of the interest, while the other class will receive all of the principal.
However, in some instances, one class will receive some of the interest and most
of the principal while the other class will receive most of the interest and the
remainder of the principal. If the underlying obligations experience greater
than anticipated prepayments of principal, the Fund may fail to fully recoup its
initial investment in these securities. The market value of the class consisting
entirely of principal payments generally is extremely volatile in response to
changes in interest rates. The yields on a class of SMBS that receives all or
most of the interest are generally higher than prevailing market yields on other
mortgage-backed obligations because their cash flow patterns are more volatile
and there is a greater risk that the initial investment will not be fully
recouped. SMBS which are not issued by the U.S. Government (or a U.S. Government
agency or instrumentality) are considered illiquid by the Funds. Obligations
issued by the U.S. Government may be considered liquid under guidelines
established by Galaxy's Board of Trustees if they can be disposed of promptly in
the ordinary course of business at a value reasonably close to that used in the
calculation of net asset value per share.
GUARANTEED INVESTMENT CONTRACTS
Each Fund, except the Corporate Bond Fund, may invest in guaranteed
investment contracts ("GICs") issued by United States and Canadian insurance
companies. Pursuant to GICs, a Fund makes cash contributions to a deposit fund
of the insurance company's general account. The insurance company then credits
to the Fund payments at negotiated, floating or fixed interest rates. A GIC is a
general obligation of the issuing insurance company and not a separate account.
The purchase price paid for a GIC becomes part of the general assets of the
insurance company, and the contract is paid from the company's general assets.
The Funds will only purchase GICs that are issued or guaranteed by insurance
companies that at the time of purchase are rated at least AA by S&P or receive a
similar high quality rating from a nationally recognized service which provides
ratings of insurance companies. GICs are considered illiquid securities and will
be subject to the Funds' 10% limitation on such investments, unless there is an
active and substantial secondary market for the particular instrument and market
quotations are readily available.
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BANK INVESTMENT CONTRACTS
Each Fund may invest in bank investment contracts ("BICs") issued by banks
that meet the quality and asset size requirements for banks described above
under "U.S. Government Obligations and Money Market Instruments." Pursuant to
BICs, cash contributions are made to a deposit account at the bank in exchange
for payments at negotiated, floating or fixed interest rates. A BIC is a general
obligation of the issuing bank. BICs are considered illiquid securities and will
be subject to the Funds' 10% (15% with respect to the Corporate Bond Fund)
limitation on such investments, unless there is an active and substantial
secondary market for the particular instrument and market quotations are readily
available.
ZERO COUPON BONDS
The Corporate Bond Fund may invest in zero coupon bonds. Zero coupon bonds
do not make interest payments; instead, they are sold at a deep discount from
their face value and are redeemed at face value when they mature. Because zero
coupon bonds do not pay current income, their prices can be very volatile when
interest rates change. In calculating its daily dividend, the Fund takes into
account as income a portion of the difference between a zero coupon bond's
purchase price and its face value.
A broker/dealer creates a derivative zero by separating the interest and
principal components of a U.S. Treasury security and selling them as two
individual securities. CATS (Certificates of Accrual on Treasury Securities),
TIGRs (Treasury Investment Growth Receipts), TRs (Treasury Receipts), and
STRIPS (Separate Trading of Registered Interest and Principal of
Securities) are examples of derivative zeros. Bonds issued by the Resolution
Funding Corporation (REFCORP) and the Financing Corporation (FICO) can also be
separated in this fashion. Original issue zeros are zero coupon securities
originally issued by the U.S. Government, a U.S. Government agency or a
corporation in zero coupon form.
PORTFOLIO TURNOVER
Each Fund may sell a portfolio investment soon after its acquisition if
Fleet believes that such a disposition is consistent with the Fund's investment
objective. Portfolio investments may be sold for a variety of reasons, such as a
more favorable investment opportunity or other circumstances bearing on the
desirability of continuing to hold such investments. A portfolio turnover rate
of 100% or more is considered high, although the rate of portfolio turnover will
not be a limiting factor in making portfolio decisions. A high rate of portfolio
turnover may result in the realization of substantial capital gains and involves
correspondingly greater transaction costs. To the extent that net capital gains
are realized, distributions derived from such gains are treated as ordinary
income for federal income tax purposes.
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INVESTMENT LIMITATIONS
In addition to each Fund's investment objective as stated in its
Prospectus(es), the following investment limitations are matters of fundamental
policy and may not be changed with respect to any Fund without the affirmative
vote of the holders of a majority of its outstanding shares (as defined under
"Miscellaneous").
No Fund may:
1. Make loans, except that (i) each Fund may purchase or hold debt
instruments in accordance with its investment objective and
policies, and may enter into repurchase agreements with respect
to portfolio securities, and (ii) each Fund may lend portfolio
securities against collateral consisting of cash or securities
which are consistent with the Fund's permitted investments, where
the value of the collateral is equal at all times to at least
100% of the value of the securities loaned.
2. Borrow money or issue senior securities, except that each Fund
may borrow from domestic banks for temporary purposes and then in
amounts not in excess of 10% of the value of its total assets at
the time of such borrowing (provided that each Fund may borrow
pursuant to reverse repurchase agreements in accordance with its
investment policies and in amounts not in excess of 10% of the
value of its total assets at the time of such borrowing); or
mortgage, pledge, or hypothecate any assets except in connection
with any such borrowing and in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of the value of its
total assets at the time of such borrowing. None of the
Short-Term Bond, Intermediate Government Bond or High Quality
Bond Funds will purchase securities while borrowings (including
reverse repurchase agreements) in excess of 5% of its total
assets are outstanding.
3. Invest more than 10% (15% with respect to the Corporate Bond
Fund) of the value of its net assets in illiquid securities,
including repurchase agreements with remaining maturities in
excess of seven days, time deposits with maturities in excess of
seven days, restricted securities, non-negotiable time deposits
and other securities which are not readily marketable.
4. Purchase securities of any one issuer, other than obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, if immediately after such purchase more than
5% of the value of its total assets would be invested in such
issuer, except that up to 25% of the value of its total assets
may be invested without regard to this limitation.
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5. Purchase securities on margin (except such short-term credits as
may be necessary for the clearance of purchases), make short
sales of securities, or maintain a short position.
6. Act as an underwriter within the meaning of the Securities Act of
1933; except insofar as a Fund might be deemed to be an
underwriter upon disposition of restricted portfolio securities;
and except to the extent that the purchase of securities directly
from the issuer thereof in accordance with the Fund's investment
objective, policies and limitations may be deemed to be
underwriting.
7. Purchase or sell real estate; except that each Fund may purchase
securities that are secured by real estate and may purchase
securities of issuers which deal in real estate or interests
therein; however, the Funds will not purchase or sell interests
in real estate limited partnerships.
8. Purchase or sell commodities or commodity contracts or invest in
oil, gas, or other mineral exploration or development programs or
mineral leases; provided however, that each Fund may enter into
interest rate futures contracts to the extent permitted under the
Commodity Exchange Act and the 1940 Act; and further provided
that the Short-Term Bond Fund and Corporate Bond Fund may enter
into forward currency contracts and foreign currency futures
contracts and related options to the extent permitted by their
respective investment objectives and policies.
9. Invest in or sell put options, call options, straddles, spreads,
or any combination thereof.
10. Invest in companies for the purpose of exercising management or
control.
11. Purchase securities of other investment companies except in
connection with a merger, consolidation, reorganization, or
acquisition of assets; provided, however, that each Fund may
acquire such securities in accordance with the 1940 Act.
In addition to the above limitations:
12. The Funds, with the exception of the Short-Term Bond and
Corporate Bond Funds, may not purchase foreign securities, except
that the Intermediate Government Income and High Quality Bond
Funds may purchase certificates of deposit, bankers' acceptances,
or other similar obligations issued by U.S. branches of foreign
banks or foreign branches of U.S. banks; and provided, however,
that the Intermediate Government Income and High Quality Bond
Funds may also purchase obligations of
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Canadian Provincial Governments in accordance with each Fund's
investment objective and policies.
In addition, the Funds may not purchase any securities which would cause
25% or more of the value of a Fund's total assets at the time of purchase to be
invested in the securities of one or more issuers conducting their principal
business activities in the same industry; provided, however, that (a) there is
no limitation with respect to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents, and
(c) utilities will be classified according to their services. (For example, gas,
gas transmission, electric and gas, electric and telephone each will be
considered a separate industry.)
With respect to Investment Limitation No. 2 above, (a) each Fund intends to
limit any borrowings (including reverse repurchase agreements) to not more than
10% of the value of its total assets at the time of such borrowing, and (b)
mortgage dollar rolls entered into by a Fund that are not accounted for as
financings shall not constitute borrowings.
Rule 144A under the Securities Act of 1933, as amended, (the "1933 Act")
allows for a broader institutional trading market for securities otherwise
subject to restrictions on resale to the general public. Rule 144A establishes a
"safe harbor" from the registration requirements of the 1933 Act for resales of
certain securities to qualified institutional buyers. A Fund's investment in
Rule 144A securities could have the effect of increasing the level of
illiquidity of the Fund during any period that qualified institutional buyers
were no longer interested in purchasing these securities. For purposes of the
10% (15% with respect to the Corporate Bond Fund) limitation on purchases of
illiquid instruments described under Investment Limitation No. 3 above, Rule
144A securities will not be considered to be illiquid if Fleet has determined,
in accordance with guidelines established by the Board of Trustees, that an
adequate trading market exists for such securities.
Except as stated otherwise, a percentage limitation is satisfied at the
time of investment, a later increase in such percentage resulting from a change
in the value of a Fund's portfolio securities generally will not constitute a
violation of the limitation. If the value of a Fund's holdings of illiquid
securities at any time exceeds the percentage limitation applicable at the time
of acquisition due to subsequent fluctuations in value or other reasons, the
Board of Trustees will consider what actions, if any, are appropriate to
maintain adequate liquidity.
VALUATION OF PORTFOLIO SECURITIES
The Funds' assets are valued for purposes of pricing sales and redemptions
by an independent pricing service ("Service") approved by Galaxy's Board of
Trustees. When, in the judgment of the Service, quoted bid prices for portfolio
securities are readily available and are representative of the bid side of the
market, these investments are valued at the mean between quoted bid prices (as
obtained by the Service from dealers in such securities) and asked prices (as
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<PAGE>
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.
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 Four Falls Corporate Center, 6th Floor, West Conshohocken,
Pennsylvania 19428. PDI has agreed to use appropriate efforts to solicit all
purchase orders.
This Statement of Additional Information provides additional purchase
and redemption information for Trust Shares of the Funds and Retail A Shares and
Retail B Shares of the Tax-Exempt Bond, Intermediate Government Income and High
Quality Bond Funds. Purchase and redemption information for Prime A Shares and
Prime B Shares of the Short-Term Bond, Intermediate Government Income and High
Quality Bond Funds is provided in a separate prospectus and statement of
additional information.
PURCHASES OF RETAIL SHARES AND TRUST SHARES OF THE CORPORATE BOND FUND
GENERAL
Investments in Retail A Shares of the Short-Term Bond, Intermediate
Government Income and High Quality Bond Funds are subject to a front-end sales
charge. Investments in Retail B Shares of such Funds are subject to a back-end
sales charge. This back-end sales charge declines over time and is known as a
"contingent deferred sales charge." Investors should read "Characteristics of
Retail A Shares and Retail B Shares" and "Factors to Consider When Selecting
Retail A Shares or Retail B Shares" below before deciding between the two.
PDI has established several procedures to enable different types of
investors to purchase Retail A Shares and Retail B Shares of the Short-Term
Bond, Intermediate Government Income and High Quality Bond Funds (collectively,
"Retail Shares"). These procedures also apply to purchases of Trust Shares of
the Corporate Bond Fund, in addition to the purchase information described below
under "Purchases of Trust Shares." Retail Shares and Trust Shares of the
Corporate Bond Fund may be purchased by individuals or corporations who submit a
purchase application to Galaxy, purchasing directly either for their own
accounts or for the accounts of others. Retail Shares and Trust Shares of the
Corporate Bond Fund may also be purchased by FIS Securities, Inc., Fleet
Securities, Inc., Fleet Enterprises, Inc., FleetBoston
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Corporation, its affiliates, their correspondent banks and other qualified
banks, savings and loan associations and broker/dealers on behalf of their
customers. Purchases may take place only on days on which PDI and Galaxy's
custodian and Galaxy's transfer agent are open for business ("Business
Days"). If an institution accepts a purchase order from a customer on a
non-Business Day, the order will not be executed until it is received and
accepted by PDI on a Business Day in accordance with PDI's procedures.
Galaxy has authorized certain brokers to accept purchase, exchange and
redemption orders on behalf of Galaxy with respect to Retail A Shares of the
Short-Term Bond, Intermediate Government Income and High Quality Bond Funds.
Such brokers are authorized to designate other intermediaries to accept
purchase, exchange and redemption orders on behalf of Galaxy. Galaxy will be
deemed to have received a purchase, exchange or redemption order when such an
authorized broker or designated intermediary accepts the order. Orders for
purchase, exchange or redemption of Retail A Shares of the Short-Term Bond,
Intermediate Government Income and High Quality Bond Funds accepted by any such
authorized broker or designated intermediary will be effected at the Funds'
respective net asset values per share next determined after acceptance of such
order and will not be subject to the front-end sales charge with respect to
Retail A Shares described in the applicable Prospectus and in this Statement of
Additional Information.
CUSTOMERS OF INSTITUTIONS
Retail Shares and Trust Shares of the Corporate Bond Fund purchased by
institutions on behalf of their customers will normally be held of record by the
institution and beneficial ownership of Retail Shares and Trust Shares of the
Corporate Bond Fund will be recorded by the institution and reflected in the
account statements provided to its customers. Galaxy's transfer agent may
establish an account of record for each customer of an institution reflecting
beneficial ownership of Retail Shares and Trust Shares of the Corporate Bond
Fund. Depending on the terms of the arrangement between a particular institution
and Galaxy's transfer agent, confirmations of purchases and redemptions of
Retail Shares and Trust Shares of the Corporate Bond Fund and pertinent account
statements will either be sent by Galaxy's transfer agent directly to a customer
with a copy to the institution, or will be furnished directly to the customer by
the institution. Other procedures for the purchase of Retail Shares and Trust
Shares of the Corporate Bond Fund established by institutions in connection with
the requirements of their customer accounts may apply. Customers wishing to
purchase Retail Shares or Trust Shares of the Corporate Bond Fund through their
institution should contact such entity directly for appropriate purchase
instructions.
OTHER PURCHASE INFORMATION
On a Business Day when the New York Stock Exchange (the "Exchange') closes
early due to a partial holiday or otherwise, Galaxy will advance the time at
which purchase orders must be received in order to be processed on that Business
Day.
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<PAGE>
APPLICABLE SALES CHARGE -- RETAIL A SHARES
The public offering price for Retail A Shares of the Funds is the sum of
the net asset value of the Retail A Shares purchased plus any applicable
front-end sales charge as described in the applicable Prospectus. A deferred
sales charge of up to 1.00% is assessed on certain redemptions of Retail A
Shares that are purchased with no initial sales charge as part of an investment
of $500,000 or more. A portion of the front-end sales charge may be reallowed to
broker-dealers as follows:
<TABLE>
<CAPTION>
REALLOWANCE TO
DEALERS
-------
AS A % OF
OFFERING PRICE
AMOUNT OF TRANSACTION PER SHARE
- --------------------- ---------
<S> <C>
Less than $50,000 3.25
$50,000 but less than $100,000 3.00
$100,000 but less than $250,000 2.50
$250,000 but less than $500,000 2.00
$500,000 and over 0.00
</TABLE>
The appropriate reallowance to dealers will be paid by PDI to broker-dealer
organizations which have entered into agreements with PDI. The reallowance to
dealers may be changed from time to time.
In certain situations or for certain individuals, the front-end sales
charge for Retail A Shares of the Funds may be waived either because of the
nature of the investor or the reduced sales effort required to attract such
investments. In order to receive the sales charge waiver, an investor must
explain the status of his or her investment at the time of purchase. In addition
to the sales charge waivers described in the applicable Prospectus, no sales
charge is assessed on purchases of Retail A Shares of the Funds by the following
categories of investors or in the following types of transactions:
- purchases by directors, officers and employees of broker-dealers
having agreements with 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 Corporation, and any of its affiliates and members of
their immediate families;
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<PAGE>
- 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 Corporation in February 1998.
COMPUTATION OF OFFERING PRICE - RETAIL A SHARES
An illustration of the computation of the offering price per share of
Retail A Shares of the Funds, using the value of each Fund's net assets
attributable to such Shares and the number of outstanding Retail A Shares of
each Fund at the close of business on October 31, 1999 and the maximum front-end
sales charge of 3.75%, is as follows:
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<PAGE>
<TABLE>
<CAPTION>
Short-Term Intermediate Government
Bond Fund Income Fund
---------- -----------------------
<S> <C> <C>
Net Assets............................
Outstanding Shares....................
Net Asset Value Per Share.............
Sales Charge (3.75% of
the offering price)...................
Offering Price to Public..............
<CAPTION>
High Quality
Bond Fund
-----------
<S> <C>
Net Assets............................
Outstanding Shares....................
Net Asset Value Per Share.............
Sales Charge (3.75% of
the offering price)...................
Offering Price to Public..............
</TABLE>
QUANTITY DISCOUNTS
Investors may be entitled to reduced sales charges through Rights of
Accumulation, a Letter of Intent or a combination of investments, as described
below, even if the investor does not wish to make an investment of a size that
would normally qualify for a quantity discount.
In order to obtain quantity discount benefits, an investor must notify 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
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<PAGE>
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.
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.
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<PAGE>
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
applicable Prospectus. Group members must also ensure that their qualified group
affiliation is identified on the purchase application.
A qualified group is a group that (i) has at least 50,000 members, (ii) was
not formed for the purpose of buying Fund shares at a reduced sales charge,
(iii) within one year of the initial member purchase, has at least 1% of its
members invested in the Funds or any of the other investment portfolios offered
by Galaxy, (iv) agrees to include Galaxy sales material in publications and
mailings to members at a reduced cost or no cost, and (v) meets certain other
uniform criteria. 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.
-31-
<PAGE>
APPLICABLE SALES CHARGE - RETAIL B SHARES
The public offering price for Retail B Shares of the Funds is the net asset
value of the Retail B Shares purchased. Although investors pay no front-end
sales charge on purchases of Retail B Shares, such Shares are subject to a
contingent deferred sales charge at the rates set forth below if they are
redeemed within six years of purchase. Securities dealers, brokers, financial
institutions and other industry professionals will receive commissions from 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 Fleet Enterprises, Inc., a broker-dealer
affiliate of Fleet, whose customers purchase significant amounts of Retail B
Shares of a Fund. See "Applicable Sales Charge -- Retail A Shares." The
contingent deferred sales charge on Retail B Shares is based on the lesser of
the net asset value of the Shares on the redemption date or the original cost of
the Shares being redeemed. As a result, no sales charge is imposed on any
increase in the principal value of an investor's Retail B 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 a
Fund's right to liquidate a shareholder's account if the aggregate net asset
value of Retail B Shares held in the account is less than the minimum account
size; (iv) redemptions in connection with the combination of a Fund with any
other investment company registered under the 1940 Act by merger, acquisition of
assets, or by any other transaction; (v) redemptions resulting from a tax-free
return of an excess contribution pursuant to Section 408(d)(4) or (5) of the
Code; or (vi) any redemption of Retail B Shares held by an investor, provided
the investor was the beneficial owner of shares of a Fund (or any of the other
portfolios offered by Galaxy or otherwise advised by Fleet or its affiliates)
before December 1, 1995. In addition to the foregoing exemptions, no contingent
deferred sales charge will be imposed on redemptions made pursuant to the
Systematic Withdrawal Plan, subject to the limitations set forth under "Investor
Programs - Retail A Shares and Retail B Shares - Automatic Investment Program
and Systematic Withdrawal Plan" below.
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<PAGE>
CHARACTERISTICS OF RETAIL A SHARES AND RETAIL B SHARES
The primary difference between Retail A Shares and Retail B Shares lies in
their sales charge structures and shareholder servicing/distribution expenses.
An investor should understand that the purpose and function of the sales charge
structures and shareholder servicing/distribution arrangements for both Retail A
Shares and Retail B Shares are the same.
Retail A Shares of the Funds are sold at their net asset value plus a
front-end sales charge of up to 3.75%. This front-end sales charge may be
reduced or waived in some cases. See the applicable Prospectus and "Applicable
Sales Charges -- Retail A Shares" and "Quantity Discounts" above. Retail A
Shares of a Fund are currently subject to ongoing shareholder servicing fees at
an annual rate of up to .15% of the Fund's average daily net assets attributable
to its Retail A Shares.
Retail B Shares of the Funds are sold at net asset value without an initial
sales charge. Normally, however, a deferred sales charge is paid if the Shares
are redeemed within six years of investment. See the applicable Prospectus and
"Applicable Sales Charges -- Retail B Shares" above. Retail B Shares of a Fund
are currently subject to ongoing shareholder servicing and distribution fees at
an annual rate of up to .80% of the Fund's average daily net assets attributable
to its Retail B Shares. These ongoing fees, which are higher than those charged
on Retail A Shares, will cause Retail B Shares to have a higher expense ratio
and pay lower dividends than Retail A Shares.
Six years after purchase, Retail B Shares of the Funds will convert
automatically to Retail A Shares of the Funds. The purpose of the conversion is
to relieve a holder of Retail B Shares of the higher ongoing expenses charged to
those shares, after enough time has passed to allow 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 a Fund, and subsequently
acquires additional Retail B Shares of such Fund only through reinvestment of
dividends and/or distributions, all of such investor's Retail B Shares in the
Fund, including those acquired through reinvestment, will convert to Retail A
Shares of such Fund on the same date.
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<PAGE>
FACTORS TO CONSIDER WHEN SELECTING RETAIL A SHARES OR RETAIL B SHARES
Before purchasing Retail A Shares or Retail B Shares of the Funds,
investors should consider whether, during the anticipated periods of their
investments in the particular Funds, the accumulated distribution and
shareholder servicing fees and potential contingent deferred sales charge on
Retail B Shares prior to conversion would be less than the initial sales charge
and accumulated shareholder servicing fees on Retail A Shares purchased at the
same time, and to what extent such differential would be offset by the higher
yield of Retail A Shares. In this regard, to the extent that the sales charge
for Retail A Shares is waived or reduced by one of the methods described above,
investments in Retail A Shares become more desirable. An investment of $250,000
or more in Retail B Shares would not be in most shareholders' best interest.
Shareholders should consult their financial advisers and/or brokers with respect
to the advisability of purchasing Retail B Shares in amounts exceeding $250,000.
Although Retail A Shares are subject to a shareholder servicing fee, they
are not subject to the higher distribution and shareholder servicing fee
applicable to Retail B Shares. For this reason, Retail A Shares can be expected
to pay correspondingly higher dividends per Share. However, because initial
sales charges are deducted at the time of purchase, purchasers of Retail A
Shares (that do not qualify for exemptions from or reductions in the initial
sales charge) would have less of their purchase price initially invested in
these Funds than purchasers of Retail B Shares in the Funds.
As described above, purchasers of Retail B Shares will have more of their
initial purchase price invested. Any positive investment return on this
additional invested amount would partially or wholly offset the expected higher
annual expenses borne by Retail B Shares. Because a Fund's future returns cannot
be predicted, there can be no assurance that this will be the case. Holders of
Retail B Shares would, however, own shares that are subject to a contingent
deferred sales charge of up to 5.00% upon redemption, depending upon the year of
redemption. Investors expecting to redeem during this six-year period should
compare the cost of the contingent deferred sales charge plus the aggregate
distribution and shareholder servicing fees on Retail B Shares to the cost of
the initial sales charge and shareholder servicing fees on the Retail A Shares.
Over time, the expense of the annual distribution and shareholder servicing fees
on the Retail B Shares may equal or exceed the initial sales charge and annual
shareholder servicing fee applicable to Retail A Shares. For example, if net
asset value remains constant, the aggregate distribution and shareholder
servicing fees with respect to Retail B Shares of a Fund would equal or exceed
the initial sales charge and aggregate shareholder servicing fees of Retail A
Shares approximately six years after the purchase. In order to reduce such fees
for investors that hold Retail B Shares for more than six years, Retail B Shares
will be automatically converted to Retail A Shares as described above at the end
of such six-year period.
PURCHASES OF TRUST SHARES
Trust Shares of the Funds are sold to investors maintaining qualified
accounts at bank and trust institutions, including subsidiaries of
FleetBoston Corporation, and to participants in employer-sponsored defined
contribution plans (such institutions and plans
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<PAGE>
referred to herein collectively as "Institutions"). Trust Shares sold to such
investors ("Customers") will be held of record by Institutions. Purchases of
Trust Shares will be effected only on days on which 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.
On a Trust Business Day when the Exchange closes early due to a partial
holiday or otherwise, Galaxy will advance the time at which purchase orders must
be received in order to be processed on that Trust Business Day.
REDEMPTION OF RETAIL A SHARES, RETAIL B SHARES AND TRUST SHARES
Redemption orders are effected at the net asset value per share next
determined after receipt of the order by 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 the redemptions of Retail B
Shares of the Funds will be reduced by the amount of any applicable contingent
deferred sales charge. Galaxy reserves the right to transmit redemption proceeds
within seven days after receiving the redemption order if, in its judgment, an
earlier payment could adversely affect a Fund.
If the Board of Trustees determines that conditions exist which make
payment of redemption proceeds wholly in cash unwise or undesirable, Galaxy may
make payment wholly or partly in securities or other property. Such redemptions
will only be made in "readily marketable" securities. In such an event, a
shareholder would incur transaction costs in selling the securities or other
property.
Galaxy may suspend the right of redemption or postpone the date of payment
for shares for more than seven days during any period when (a) trading in the
markets the Funds normally utilize is restricted, or an emergency, as defined by
the rules and regulations of the SEC exists making disposal of a Fund's
investments or determination of its net asset value not reasonably practicable;
(b) the Exchange is closed (other than customary weekend and holiday closings);
or (c) the SEC by order has permitted such suspension.
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 Securities and Exchange
Commission ("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.
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<PAGE>
INVESTOR PROGRAMS - RETAIL A SHARES AND RETAIL B SHARES
The following information supplements the description in the applicable
Prospectus as to the various Investor Programs available to holders of Retail
Shares of the Funds.
EXCHANGE PRIVILEGE
The minimum initial investment to establish an account in another Fund or
portfolio by exchange, except for the Institutional Government Money Market
Fund, is $2,500, unless (i) the Retail Shares being redeemed were purchased
through a registered representative who is a Fleet Bank employee, in which event
there is no minimum investment requirement, or (ii) at the time of the exchange
the investor elects, with respect to the Fund or portfolio into which the
exchange is being made, to participate in the Automatic Investment Program
described below, in which event there is no minimum initial investment
requirement, or in the College Investment Program described below, in which
event the minimum initial investment is generally $100. The minimum initial
investment to establish an account by exchange in the Institutional Government
Money Market Fund is $2 million.
An exchange involves a redemption of all or a portion of the Retail Shares
of a Fund and the investment of the redemption proceeds in Retail Shares of
another Fund or portfolio offered by Galaxy or, with respect to Retail A Shares,
otherwise advised by Fleet or its affiliates. The redemption will be made at the
per share net asset value next determined after the exchange request is
received. The Retail Shares of a Fund or portfolio to be acquired will be
purchased at the per share net asset value next determined after acceptance of
the exchange request, plus any applicable sales charge.
Investors may find the exchange privilege useful if their investment
objectives or market outlook should change after they invest in any of the
Funds. For further information regarding Galaxy's exchange privilege,
investors should call PFPC 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.
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<PAGE>
For federal income tax purposes, an exchange of shares is a taxable event
and, accordingly, a capital gain or loss may be realized by an investor. Before
making an exchange request, an investor should consult a tax or other financial
adviser to determine the tax consequences.
RETIREMENT PLANS
Retail Shares of the Funds are available for purchase in connection with
the following tax-deferred prototype retirement plans:
INDIVIDUAL RETIREMENT ACCOUNTS ("IRAS") (including traditional, Roth and
Education IRAs and "roll-overs" from existing retirement plans), a
retirement-savings vehicle for qualifying individuals. The minimum initial
investment for an IRA account is $500 (including a spousal account).
SIMPLIFIED EMPLOYEE PENSION PLANS ("SEPS"), a form of retirement plan for
sole proprietors, partnerships and corporations. The minimum initial investment
for a SEP account is $500.
MULTI-EMPLOYEE RETIREMENT PLANS ("MERPS"), a retirement vehicle established
by employers for their employees which is qualified under Section 401(k) and
403(b) of the Code. The minimum initial investment for a MERP is $500.
KEOGH PLANS, a retirement vehicle for self-employed individuals. The
minimum initial investment for a Keogh Plan is $500.
Investors purchasing Retail Shares pursuant to a retirement plan are not
subject to the minimum investment provisions described in the applicable
Prospectus. Detailed information concerning eligibility and other matters
related to these plans and the form of application is available from 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
The Automatic Investment Program permits an investor to purchase Retail
Shares of a Fund each month or each quarter. Provided an investor's financial
institution allows automatic withdrawals, Retail Shares are purchased by
transferring funds from the investor's checking, bank money market, NOW or
savings account designated by the investor. The account designated will be
debited in the specified amount, and Retail Shares will be purchased, on a
monthly or quarterly basis, on any Business Day designated by an investor. If
the designated day falls on a weekend or holiday, the purchase will be made on
the Business Day closest to the designated day. Only an account maintained at a
domestic financial institution which is an Automated Clearing House ("ACH")
member may be so designated.
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<PAGE>
The Systematic Withdrawal Plan permits an investor to automatically
redeem Retail Shares on a monthly, quarterly, semi-annual, or annual basis on
any Business Day designated by the investor. If the designated day falls on a
weekend or holiday, the redemption will be made on the Business Day closest
to the designated day. Proceeds of the redemption will be sent to the
shareholder's address of record or financial institution within three
Business Days of the redemption. If redemptions exceed purchases and
dividends, the number of shares in the account will be reduced. Investors may
terminate the Systematic Withdrawal Plan at any time upon written notice to
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 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
To be eligible for the Payroll Deduction Program, the payroll department of
an investor's employer must have the capability to forward transactions directly
through the ACH, or indirectly through a third party payroll processing company
that has access to the ACH. An investor must complete and submit a Galaxy
Payroll Deduction Application to his or her employer's payroll department, which
will arrange for the specified amount to be debited from an investor's paycheck
each pay period. Retail Shares of Galaxy will be purchased within three days
after the debit occurred. If the designated day falls on a weekend or
non-Business Day, the purchase will be made on the Business Day closest to the
designated day. An investor should allow between two to four weeks for the
Payroll Deduction Program to be established after submitting an application to
the employer's payroll department.
COLLEGE INVESTMENT PROGRAM
Galaxy reserves the right to redeem accounts participating in the College
Investment Program involuntarily, upon 60 days' written notice, if the account's
net asset value falls below the applicable minimum initial investment as a
result of redemptions. Investors participating in the College Investment Program
will receive consolidated monthly statements of their accounts. Detailed
information concerning College Investment Program accounts and applications may
be obtained from PDI (call 1-877-BUY-GALAXY (1-877-289-4252)).
DIRECT DEPOSIT PROGRAM
Death or legal incapacity will terminate an investor's participation in the
Direct Deposit Program. An investor may elect at any time to terminate his or
her participation by notifying in
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<PAGE>
writing the Social Security Administration. Further, Galaxy may terminate an
investor's participation upon 30 days' notice to the investor.
TAXES
Each Fund qualified during its last taxable year and intends to continue to
qualify as a regulated investment company under Subchapter M of the Code, and to
distribute out its income to shareholders each year, so that each Fund itself
generally will be relieved of federal income and excise taxes. If a Fund were to
fail to so qualify: (1) the Fund would be taxed at regular corporate rates
without any deduction for distributions to shareholders; and (2) shareholders
would be taxed as if they received ordinary dividends, although corporate
shareholders could be eligible for the dividends received deduction.
A 4% non-deductible excise tax is imposed on regulated investment companies
that fail to currently distribute specified percentages of their ordinary
taxable income and capital gain net income (excess of capital gains over capital
losses). Each Fund intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and any capital gain net income
prior to the end of each calendar year to avoid liability for this excise tax.
The Funds will be required in certain cases to withhold and remit to the
United States Treasury 31% of taxable dividends or gross sale proceeds paid to
any shareholder who (i) has failed to provide a correct tax identification
number, (ii) is subject to backup withholding due to prior failure to properly
include on his or her return payments of taxable interest or dividends, or (iii)
has failed to certify to the Funds that he or she is not subject to back up
withholding when required to do so or that he or she is an "exempt recipient."
Dividends declared in October, November or December of any year that are
payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by a Fund on December 31
of such year if such dividends are actually paid during January of the following
year.
TAXATION OF CERTAIN FINANCIAL INSTRUMENTS
The tax principles applicable to certain financial instruments and futures
contracts and options that may be acquired by a Fund are complex and, in some
cases, uncertain. Such investments may cause a Fund to recognize taxable income
prior to the receipt of cash, thereby requiring the Fund to liquidate other
positions, or to borrow money, so as to make sufficient distributions to
shareholders to avoid corporate-level tax. Moreover, some or all of the taxable
income recognized may be ordinary income or short-term capital gain, so that the
distributions may be taxable to shareholders as ordinary income.
-39-
<PAGE>
TRUSTEES AND OFFICERS
The business and affairs of the Funds are managed under the direction of
Galaxy's Board of Trustees in accordance with the laws of the Commonwealth of
Massachusetts and the Trust's Declaration of Trust. The trustees and executive
officers of Galaxy, their addresses, principal occupations during the past five
years, and other affiliations are as follows:
<TABLE>
<CAPTION>
Positions Principal Occupation
with The During Past 5 Years
Name and Address and Age Galaxy Fund and Other Affiliations
- ------------------------ ----------- ----------------------
<S> <C> <C>
Dwight E. Vicks, Jr. Chairman & Trustee President & Director, Vicks Lithograph &
Vicks Lithograph & Printing Corporation (book manufacturing
Printing Corporation and commercial printing); Director, Utica
Commercial Drive First Insurance Company; Trustee, Savings
P.O. Box 270 Bank of Utica; Director, Monitor Life
Yorkville, NY 13495 Insurance Company; Director, Commercial
Age 66 Travelers Mutual Insurance Company;
Trustee, The Galaxy VIP Fund; Trustee,
Galaxy Fund II.
John T. O'Neill(1) President, Treasurer Executive Vice President and CFO, Hasbro,
Hasbro, Inc. & Trustee Inc. (toy and game manufacturer); Trustee,
1011 Newport Avenue The Galaxy VIP Fund; Trustee, Galaxy Fund
Pawtucket, RI 02862 II.
Age 55
Louis DeThomasis Trustee President, Saint Mary's College of
Saint Mary's College Minnesota; Director, Bright Day Travel,
of Minnesota Inc.; Trustee, Religious Communities Trust;
Winona, MN 55987 Trustee, The Galaxy VIP Fund; Trustee,
Age 59 Galaxy Fund II.
Donald B. Miller Trustee Chairman, Horizon Media, Inc. (broadcast
10725 Quail Covey Road services); Director/Trustee, Lexington
Boynton Beach, FL 33436 Funds; Chairman, Executive Committee,
Age 74 Compton International, Inc. (advertising
agency); Trustee, Keuka College; Trustee,
The Galaxy VIP Fund; Trustee, Galaxy Fund
II.
</TABLE>
-40-
<PAGE>
<TABLE>
<CAPTION>
Positions Principal Occupation
with The During Past 5 Years
Name and Address and Age Galaxy Fund and Other Affiliations
- ------------------------ ----------- ----------------------
<S> <C> <C>
James M. Seed Trustee Chairman and President, The Astra Projects,
The Astra Ventures, Inc. Incorporated (land development); President,
One Citizens Plaza The Astra Ventures, Incorporated
Providence, RI 02903 (previously, Buffinton Box Company -
Age 58 manufacturer of cardboard boxes);
Commissioner, Rhode Island Investment
Commission; Trustee, The Galaxy VIP Fund;
Trustee, Galaxy Fund II.
Bradford S. Wellman(1) Trustee Private Investor; Vice President and
2468 Ohio Street Director, Acadia Management Company
Bangor, ME 04401 (investment services); Director, Essex
Age 68 County Gas Company, until January 1994;
Director, Maine Mutual Fire Insurance Co.;
Member, Maine Finance Authority; Trustee,
The Galaxy VIP Fund; Trustee, Galaxy Fund
II.
W. Bruce McConnel, III Secretary Partner of the law firm Drinker Biddle &
One Logan Square Reath LLP, Philadelphia, Pennsylvania.
18th & Cherry Streets
Philadelphia, PA 19103
Age 57
Jylanne Dunne Vice President and Vice President, PFPC Inc., 1990 to present.
PFPC Inc. Assistant Treasurer
4400 Computer Drive
Westborough, MA 01581-5108
Age 40
</TABLE>
-41-
<PAGE>
<TABLE>
<CAPTION>
Positions Principal Occupation
with The During Past 5 Years
Name and Address and Age Galaxy Fund and Other Affiliations
- ------------------------ ----------- ----------------------
<S> <C> <C>
William Greilich Vice President Vice President, PFPC Inc., 1991-96; Vice
PFPC Inc. President and Division Manager, PFPC Inc.,
4400 Computer Drive 1996-present.
Westborough, MA 01581-5108
Age 46
</TABLE>
- -------------------------
(1.) May be deemed to be an "interested person" within the definition set forth
in Section 2(a)(19) of the 1940 Act.
Effective May 28, 1999, each trustee receives an annual aggregate fee of
$45,000 for his services as a trustee of Galaxy, The Galaxy VIP Fund ("Galaxy
VIP") and Galaxy Fund II ("Galaxy II") (collectively, the "Trusts"), plus an
additional $3,500 for each in-person Galaxy Board meeting attended and $1,500
for each in-person Galaxy VIP or Galaxy II Board meeting attended not held
concurrently with an in-person Galaxy meeting, and is reimbursed for expenses
incurred in attending all meetings. Each trustee also receives $750 for each
telephone Board meeting in which the trustee participates, $1,000 for each
in-person Board committee meeting attended and $500 for each telephone Board
committee meeting in which the trustee participates. The Chairman of the Boards
of the Trusts is entitled to an additional annual aggregate fee in the amount of
$4,000, and the President and Treasurer of the Trusts is entitled to an
additional annual aggregate fee of $2,500 for their services in these respective
capacities. The foregoing trustees' and officers' fees are allocated among the
portfolios of the Trusts based on their relative net assets. Prior to May 28,
1999, each Trustee was entitled to receive an annual aggregate fee of $40,000
for his services as a Trustee of the Trusts plus an additional $2,500 for each
in-person Galaxy Board meeting attended, with all other fees being the same as
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.
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<PAGE>
No employee of PFPC receives any compensation from Galaxy for acting as
an officer. No person who is an officer, director or employee of Fleet, or
any of its affiliates, serves as a trustee, officer or employee of Galaxy.
The trustees and officers of Galaxy own less than 1% of its outstanding
shares.
The following chart provides certain information about the fees received by
Galaxy's trustees in the most recently completed fiscal year.
<TABLE>
<CAPTION>
Pension or
Retirement Total Compensation
Benefits Accrued from Galaxy and Fund
Aggregate Compensation as Part of Fund Complex*Paid to
Name of Person/Position from Galaxy Expenses Trustees
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bradford S. Wellman $ None $
Trustee
Dwight E. Vicks, Jr. $ None $
Chairman and Trustee
Donald B. Miller** $ None $
Trustee
Rev. Louis DeThomasis $ None $
Trustee
John T. O'Neill $ None $
President, Treasurer
and Trustee
James M. Seed** $ None $
Trustee
</TABLE>
- -------------
* The "Fund Complex" consists of Galaxy, The Galaxy VIP Fund and Galaxy Fund
II, which comprise a total of 43 separate portfolios.
** Deferred compensation (including interest) in the amounts of $ and
$ 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
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<PAGE>
having been a shareholder and not because of his or her acts or omissions
outside such capacity or some other reason. The Declaration of Trust also
provides that Galaxy shall, upon request, assume the defense of any claim made
against any shareholder for any act or obligation of Galaxy, and shall satisfy
any judgment thereon. Thus, the risk of shareholder liability is limited to
circumstances in which Galaxy itself would be unable to meet its obligations.
The Declaration of Trust states further that no trustee, officer or agent
of Galaxy shall be personally liable for or on account of any contract, debt,
claim, damage, judgment or decree arising out of or connected with the
administration or preservation of the trust estate or the conduct of any
business of Galaxy; nor shall any trustee be personally liable to any person for
any action or failure to act except by reason of his own bad faith, willful
misfeasance, gross negligence or reckless disregard of his duties as trustee.
The Declaration of Trust also provides that all persons having any claim against
the trustees or Galaxy shall look solely to the trust property for payment.
With the exceptions stated, the Declaration of Trust provides that a
trustee is entitled to be indemnified against all liabilities and expenses
reasonably incurred by him in connection with the defense or disposition of any
proceeding in which he may be involved or with which he may be threatened by
reason of his being or having been a trustee, and that the Board of Trustees
shall indemnify representatives and employees of Galaxy to the same extent to
which they themselves are entitled to indemnification.
INVESTMENT ADVISER
Fleet serves as investment adviser to the Funds. In its advisory agreement,
Fleet has agreed to provide investment advisory services to the Funds as
described in the Prospectuses. Fleet has also agreed to pay all expenses
incurred by it in connection with its activities under the advisory agreement
other than the cost of securities (including brokerage commissions) purchased
for the Funds. See "Expenses" below.
For the services provided and expenses assumed with respect to the Funds,
Fleet is entitled to receive advisory fees, computed daily and paid monthly, at
an annual rate of .75% of the average daily net assets of each Fund. During the
last three fiscal years, Galaxy paid advisory fees (net of fee waivers and/or
expense reimbursements) to Fleet as set forth below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Short-Term Bond................................... $390,913 $470,347
Intermediate Government Income.................... $1,582,909 $1,535,166
High Quality Bond................................. $1,294,758 $1,089,506
Corporate Bond.................................... $489,512 $507,794
</TABLE>
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<PAGE>
During the last three fiscal years, Fleet waived advisory fees as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Short-Term Bond................................... $142,191 $171,035
Intermediate Government Income.................... $575,603 $558,241
High Quality Bond................................. $470,821 $396,183
Corporate Bond.................................... $178,004 $184,653
</TABLE>
During the last three fiscal years, Fleet reimbursed expenses as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Short-Term Bond................................... $111 $2,300
Intermediate Government Income.................... $0 $0
High Quality Bond................................. $0 $28,489
Corporate Bond.................................... $0 $0
</TABLE>
The advisory agreement provides that Fleet shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Funds in
connection with the performance of its duties under the advisory agreement,
except a loss resulting from a breach of fiduciary duty with respect to the
receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of Fleet in the
performance of its duties or from reckless disregard by it of its duties and
obligations thereunder. Unless sooner terminated, the advisory agreement will
continue in effect with respect to a particular Fund from year to year as long
as such continuance is approved at least annually (i) by the vote of a majority
of trustees who are not parties to such advisory agreement or interested persons
(as defined in the 1940 Act) of any such party, cast in person at a meeting
called for the purpose of voting on such approval; and (ii) by Galaxy's Board of
Trustees, or by a vote of a majority of the outstanding shares of such Fund. The
term "majority of the outstanding shares of such Fund" means, with respect to
approval of an advisory agreement, the vote of the lesser of (i) 67% or more of
the shares of the Fund present at a meeting, if the holders of more than 50% of
the outstanding shares of the Fund are present or represented by proxy, or (ii)
more than 50% of the outstanding shares of the Fund. The advisory agreement may
be terminated by Galaxy or by Fleet on sixty days' written notice, and will
terminate immediately in the event of its assignment.
Fleet is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, to the extent permitted
by law or order of the SEC, financial institutions that are affiliated with
Fleet or that have sold shares of the Funds, if Fleet believes that the quality
of the transaction and the commission are comparable to what they would be with
other qualified brokerage firms.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof
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<PAGE>
from sponsoring, organizing, controlling, or distributing the shares of a
registered, open-end investment company continuously engaged in the issuance of
its shares, and prohibit banks generally from issuing, underwriting, selling, or
distributing securities such as shares of the Funds, but do not prohibit such a
bank holding company or its affiliates or banks generally from acting as
investment adviser, transfer agent, or custodian to such an investment company
or from purchasing shares of such a company as agent for and upon the order of
customers. Fleet, the custodian and institutions which agree to provide
shareholder support services that are banks or bank affiliates are subject to
such banking laws and regulations. Should legislative, judicial or
administrative action prohibit or restrict the activities of such companies in
connection with their services to the Funds, Galaxy might be required to alter
materially or discontinue its arrangements with such companies and change its
method of operation. It is anticipated, however, that any resulting change in
the Funds' method of operation would not affect a Fund's net asset value per
share or result in financial loss to any shareholder.
ADMINISTRATOR
PFPC (formerly known as First Data Investors 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 Bank
Corp.
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 with an October 31 fiscal year end,
computed daily and paid monthly, at the following annual rates, effective
September 10, 1998:
<TABLE>
<CAPTION>
COMBINED AVERAGE DAILY NET ASSETS ANNUAL RATE
--------------------------------- -----------
<S> <C>
Up to $2.5 billion................... 0.090%
From $2.5 to $5 billion.............. 0.085%
From $5 to $12 billion............... 0.075%
From $12 to $15 billion.............. 0.065%
From $15 to $18 billion.............. 0.060%
Over $18 billion..................... 0.0575%
</TABLE>
Prior to September 10, 1998, Galaxy paid PFPC administration fees based
on the combined average daily net assets of the Funds and all other
portfolios offered by Galaxy at the following annual rates:
<TABLE>
<CAPTION>
COMBINED AVERAGE DAILY NET ASSETS ANNUAL RATE
--------------------------------- -----------
<S> <C>
Up to $2.5 billion................... 0.090%
From $2.5 to $5 billion.............. 0.085%
Over $5 billion...................... 0.075%
</TABLE>
PFPC also receives a separate annual fee from each Galaxy portfolio for
certain fund accounting services.
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<PAGE>
From time to time, PFPC may waive voluntarily all or a portion of the
administration fees payable to it by the Funds. For the fiscal year ended
October 31, 1999 PFPC received administration fees at the effective annual
rate of ____% of each Fund's average daily net assets. During the last three
fiscal years, PFPC received administration fees as set forth below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Short-Term Bond...................................... $ $57,228 $69,851
Intermediate Government Income....................... $ $231,595 $227,963
High Quality Bond.................................... $ $189,406 $161,732
Corporate Bond....................................... $ $71,640 $75,411
</TABLE>
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 approval of Galaxy's
Board of Trustees.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase Manhattan"), located at One Chase
Manhattan Plaza, New York, New York 10081, a wholly-owned subsidiary of The
Chase Manhattan Corporation, serves as the custodian of the Funds' assets
pursuant to a Global Custody Agreement. Chase Manhattan may employ
sub-custodians for the Short-Term Bond and Corporate Bond Funds for the purpose
of providing custodial services for the Funds' foreign assets held outside the
United States.
Under the Global Custody Agreement, Chase Manhattan has agreed to: (i)
maintain a separate account or accounts in the name of each Fund; (ii) hold and
disburse portfolio securities on account of each Fund; (iii) collect and make
disbursements of money on behalf of each Fund; (iv) collect and receive all
income and other payments and distributions on account of each Fund's portfolio
securities; (v) respond to correspondence from security brokers and others
relating to its duties; and (vi) make periodic reports to the Board of Trustees
concerning the Funds' operations. Chase Manhattan is authorized to select one or
more banks or trust companies to serve as sub-custodian for the Funds, provided
that Chase Manhattan shall remain responsible for the performance of all of its
duties under the custodian agreement and shall be
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<PAGE>
liable to the Funds for any loss which shall occur as a result of the failure of
a sub-custodian to exercise reasonable care with respect to the safekeeping of
the Funds' assets. In addition, Chase Manhattan also serves as Galaxy's "foreign
custody manager" (as that term is defined in Rule 17f-5 under the 1940 Act) and
in such capacity employs sub-custodians for the Funds for the purpose of
providing custodial services for the foreign assets of those Funds held outside
the U.S. The assets of the Funds are held under bank custodianship in compliance
with the 1940 Act.
PFPC serves as the Funds' transfer and dividend disbursing agent
pursuant to a Transfer Agency and Services Agreement (the "Transfer Agency
Agreement"). Communications to PFPC should be directed to PFPC at P.O. Box
5108, 4400 Computer Drive, Westborough, Massachusetts 01581. Under the
Transfer Agency Agreement, PFPC has agreed to: (i) issue and redeem shares of
each Fund; (ii) transmit all communications by each Fund to its shareholders
of record, including reports to shareholders, dividend and distribution
notices and proxy materials for meetings of shareholders; (iii) respond to
correspondence by security brokers and others relating to its duties; (iv)
maintain shareholder accounts; and (v) make periodic reports to the Board of
Trustees concerning Galaxy's operations.
PFPC may enter into agreements with one or more entities, including
affiliates of Fleet, pursuant to which such entities agree to perform certain
sub-accounting and administrative functions ("Sub-Account Services") on a per
account basis with respect to Trust Shares of each Fund held by defined
contribution plans, including maintaining records reflecting separately with
respect to each plan participant's sub-account all purchases and redemptions
of Trust Shares and the dollar value of Trust Shares in each sub-account;
crediting to each participant's sub-account all dividends and distributions
with respect to that sub-account; and transmitting to each participant a
periodic statement regarding the sub-account as well as any proxy materials,
reports and other material Fund communications. Such entities are compensated
by PFPC for the Sub-Account Services and in connection therewith the transfer
agency fees payable by Trust Shares of the Funds to PFPC have been increased
by an amount equal to these fees. In substance, therefore, the holders of
Trust Shares of these Funds indirectly bear these fees.
Fleet Bank, an affiliate of Fleet, is paid a fee for Sub-Account
Services performed with respect to Trust Shares of the Funds held by defined
contribution plans. Pursuant to an agreement between Fleet Bank and PFPC,
Fleet Bank will be paid $21.00 per year for each defined contribution plan
participant sub-account. For the fiscal year ended October 31, 1999, Fleet
Bank received $ _____ for Sub-Account Services. PFPC bears this expense
directly, and shareholders of Trust Shares of the Funds 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'
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<PAGE>
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
Debt securities purchased or sold by the Funds are generally traded in the
over-the-counter market on a net basis (i.e., without commission) through
dealers, or otherwise involve transactions directly with the issuer of an
instrument. The cost of securities purchased from underwriters includes an
underwriting commission or concession, and the prices at which securities are
purchased from and sold to dealers include a dealer's mark-up or mark-down.
The Funds may engage in short-term trading to achieve their investment
objectives. Portfolio turnover may vary greatly from year to year as well as
within a particular year. In purchasing or selling securities for the Funds,
Fleet will seek to obtain the best net price and the most favorable execution of
orders. To the extent that the execution and price offered by more than one
broker/dealer are comparable, Fleet may effect transactions in portfolio
securities with broker/dealers who provide research, advice or other services
such as market investment literature.
Except as permitted by the SEC or applicable law, the Funds will not
acquire portfolio securities from, make savings deposits in, enter into
repurchase or reverse repurchase agreements with, or sell securities to,
Fleet, PFPC, or their affiliates, and will not give preference to affiliates
and correspondent banks of Fleet with respect to such transactions.
Galaxy is required to identify any securities of its "regular brokers or
dealers" that the Funds have acquired during Galaxy's most recent fiscal year.
During fiscal year ended October 31, 1999, [FIRST DATA TO PROVIDE]
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
-49-
<PAGE>
for a Fund with those to be sold or purchased for Galaxy's other Funds and
portfolios, or other investment companies or accounts in order to obtain best
execution.
SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan pursuant to which it
intends to enter into servicing agreements with institutions (including Fleet
Bank and its affiliates). Pursuant to these servicing agreements,
institutions render certain administrative and support services to customers
who are the beneficial owners of Retail A Shares. Such services are provided
to customers who are the beneficial owners of Retail A Shares and are
intended to supplement the services provided by PFPC as administrator and
transfer agent to the shareholders of record of the Retail A Shares. The Plan
provides that Galaxy will pay fees for such services at an annual rate of up
to .30% of the average daily net asset value of Retail A Shares owned
beneficially by customers. Institutions may receive up to one-half of this
fee for providing one or more of the following services to such customers:
aggregating and processing purchase and redemption requests and placing net
purchase and redemption orders with PDI; processing dividend payments from a
Fund; providing sub-accounting with respect to Retail A Shares or the
information necessary for sub-accounting; and providing periodic mailings to
customers. Institutions may also receive up to one-half of this fee for
providing one or more of these additional services to such customers:
providing customers with information as to their positions in Retail A
Shares; responding to customer inquiries; and providing a service to invest
the assets of customers in Retail A Shares.
Although the Shareholder Services Plan has been approved with respect to
both Retail A Shares and Trust Shares of the Funds, as of the date of this
Statement of Additional Information, Galaxy has entered into servicing
agreements under the Shareholder Services Plan only with respect to Retail A
Shares of the Short-Term Bond, Intermediate Government Income and High Quality
Bond Funds, and to limit the payment under these servicing agreements for each
Fund to an aggregate fee of not more than .15% (on an annualized basis) of the
average daily net asset value of the Retail A Shares of the Fund beneficially
owned by customers of institutions. Galaxy understands that institutions may
charge fees to their customers who are the beneficial owners of Retail A Shares
in connection with their accounts with such institutions. Any such fees would be
in addition to any amounts which may be received by an institution under the
Shareholder Services Plan. Under the terms of each servicing agreement entered
into with Galaxy, institutions are required to provide to their customers a
schedule of any fees that they may charge in connection with customer
investments in Retail A Shares. As of October 31, 1999, Galaxy had entered into
Servicing Agreements only with Fleet Bank and affiliates.
Each Servicing Agreement between Galaxy and a Service Organization relating
to the Services Plan requires that, with respect to those Funds which declare
dividends on a daily basis, the Service Organization agree to waive a portion of
the servicing fee payable to it under the Services Plan to the extent necessary
to ensure that the fees required to be accrued with respect to the Retail A
Shares of such Funds on any day do not exceed the income to be accrued to such
Retail A Shares on that day.
-50-
<PAGE>
During the last three fiscal years, Galaxy made payments to Service
Organizations with respect to Retail A Shares as shown in the table below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Short-Term Bond................................... $ $41,334 $43,131
Intermediate Government Income.................... $ $97,753 $102,805
High Quality Bond................................. $ $52,525 $35,749
</TABLE>
Galaxy's Servicing Agreements are governed by the Services Plan that has
been adopted by Galaxy's Board of Trustees in connection with the offering of
Retail A Shares of each Fund. Pursuant to the Services Plan, the Board of
Trustees reviews, at least quarterly, a written report of the amounts paid under
the Servicing Agreements and the purposes for which the expenditures were made.
In addition, the arrangements with Service Organizations must be approved
annually by a majority of Galaxy's trustees, including a majority of the
trustees who are not "interested persons" of Galaxy as defined in the 1940 Act
and who have no direct or indirect financial interest in such arrangements (the
"Disinterested Trustees").
The Board of Trustees has approved Galaxy's arrangements with Service
Organizations based on information provided by Galaxy's service contractors that
there is a reasonable likelihood that the arrangements will benefit the Funds
and their shareholders by affording Galaxy greater flexibility in connection
with the efficient servicing of the accounts of the beneficial owners of Retail
A Shares of the Funds. Any material amendment to Galaxy's arrangements with
Service Organizations must be approved by a majority of Galaxy's Board of
Trustees (including a majority of the Disinterested Trustees). So long as
Galaxy's arrangements with Service Organizations are in effect, the selection
and nomination of the members of Galaxy's Board of Trustees who are not
"interested persons" (as defined in the 1940 Act) of Galaxy will be committed to
the discretion of such Disinterested Trustees.
DISTRIBUTION AND SERVICES PLAN
Galaxy has adopted a Distribution and Services Plan pursuant to Rule 12b-1
under the 1940 Act (the "Rule") with respect to Retail B Shares of the
Short-Term Bond, Intermediate Government Income and High Quality Bond Funds (the
"12b-1 Plan"). Under the 12b-1 Plan, Galaxy may pay (a) 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
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<PAGE>
Retail B Shares held beneficially; (vi) forwarding shareholder communications,
such as proxies, shareholder reports, dividend and tax notices, and updating
prospectuses to beneficial owners; and (vii) receiving, translating and
transmitting proxies executed by beneficial owners.
Under the 12b-1 Plan, payments by Galaxy (i) for distribution expenses may
not exceed the annualized rate of .65% of the average daily net assets
attributable to each such Fund's outstanding Retail B Shares, and (ii) to an
Institution for shareholder liaison services and/or administrative support
services may not exceed the annual rates of .15% and .15%, respectively, of the
average daily net assets attributable to each such Fund's outstanding Retail B
Shares which are owned of record or beneficially by that institution's customers
for whom the institution is the dealer of record or shareholder of record or
with whom it has a servicing relationship. As of the date of this Statement of
Additional Information, Galaxy intends to limit each Fund's payments for
shareholder liaison and administrative support services under the 12b-1 Plan to
an aggregate fee of not more than .15% (on an annualized basis) of the average
daily net asset value of Retail B Shares owned of record or beneficially by
customers of institutions.
Payments for distribution expenses under the 12b-1 Plan are subject to the
Rule. The Rule defines distribution expenses to include the cost of "any
activity which is primarily intended to result in the sale of shares issued by"
Galaxy. The Rule provides, among other things, that an investment company may
bear such expenses only pursuant to a plan adopted in accordance with the Rule.
In accordance with the Rule, the 12b-1 Plan provides that a report of the
amounts expended under the 12b-1 Plan, and the purposes for which such
expenditures were incurred, will be made to the Board of Trustees for its review
at least quarterly. The 12b-1 Plan provides that it may not be amended to
increase materially the costs which Retail B Shares of a Fund may bear for
distribution pursuant to the 12b-1 Plan without shareholder approval, and that
any other type of material amendment must be approved by a majority of the Board
of Trustees, and by a majority of the trustees who are neither "interested
persons" (as defined in the 1940 Act) of Galaxy nor have any direct or indirect
financial interest in the operation of the 12b-1 Plan or in any related
agreements (the "12b-1 Trustees"), by vote cast in person at a meeting called
for the purpose of considering such amendments.
During the last three fiscal years, Retail B Shares of the Short-Term Bond
and High Quality Bond Funds bore the following distribution fees under the 12b-1
Plan:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Short-Term Bond..................................... $ $6,185 $3,443
High Quality Bond................................... $ $22,171 $7,645
</TABLE>
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<PAGE>
During the last three fiscal years, Retail B Shares of the Short-Term Bond
and High Quality Bond Funds bore the following shareholder servicing fees under
the 12b-1 Plan:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Short-Term Bond..................................... $ $1,427 $788
High Quality Bond................................... $ $5,116 $1,729
</TABLE>
All amounts paid under the 12b-1 Plan for these periods were attributable to
payments to broker-dealers.
Galaxy's Board of Trustees has concluded that there is a reasonable
likelihood that the 12b-1 Plan will benefit the Funds and holders of Retail B
Shares. The 12b-1 Plan is subject to annual reapproval by a majority of the
12b-1 Trustees and is terminable at any time with respect to any Fund by a vote
of a majority of the 12b-1 Trustees or by vote of the holders of a majority of
the Retail B Shares of the Fund involved. Any agreement entered into pursuant to
the 12b-1 Plan with a Service Organization is terminable with respect to any
Fund without penalty, at any time, by vote of a majority of the 12b-1 Trustees,
by vote of the holders of a majority of the Retail B Shares of such Fund, by PDI
or by the Service Organization. An agreement will also terminate automatically
in the event of its assignment.
As long as the 12b-1 Plan is in effect, the nomination of the trustees who
are not interested persons of Galaxy (as defined in the 1940 Act) must be
committed to the discretion of the 12b-1 Trustees.
DISTRIBUTOR
PDI serves as Galaxy's distributor. PDI is a registered broker-dealer with
principal offices located at Four Falls Corporate Center, 6th floor, West
Conshohocken, Pennsylvania 19428-2961. Jane Haegele is the sole shareholder of
PDI.
Unless otherwise terminated, the Distribution Agreement between Galaxy and
PDI remains in effect until November 30, 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.
PDI is entitled to the payment of a front-end sales charge on the sale of
Retail A Shares of the Short-Term Bond, Intermediate Government Income and High
Quality Bond Funds as described in the applicable Prospectus and this Statement
of Additional Information.
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<PAGE>
Prior to December 1, 1999, First Data Distributors, Inc. ("FD
Distributors"), a wholly-owned subsidiary of PFPC, served as Galaxy's
distributor and was entitled to the payment of the front-end sales charges on
the sale of Retail A Shares of the Short-Term Bond, Intermediate Government
Income and High Quality Bond Funds. During the last three fiscal years, FD
Distributors received front-end sales charges in connection with Retail A
Share purchases as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Short-Term Bond..................................... $ $32,006 $15,074
Intermediate Government Income...................... $ $46,625 $28,979
High Quality Bond................................... $ $95,494 $43,211
</TABLE>
FD Distributors retained none of the amounts shown in the table above.
PDI is also entitled to the payment of contingent deferred sales charges
upon the redemption of Retail B Shares of the Funds. Prior to _______, 1999, FD
Distributors was entitled to the payment of such contingent deferred sales
charges. During the last three fiscal years, FD Distributors received contingent
deferred sales charges in connection with Retail B Share redemptions as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Short-Term Bond..................................... $ $2,849 $3,662
Intermediate Government Income...................... $ * *
High Quality Bond................................... $ $9,250 $5,970
</TABLE>
- -----------------
* The Intermediate Government Income Fund did not offer Retail B Shares
until November 1, 1998.
FD Distributors retained none of the amounts shown in the table above.
-54-
<PAGE>
The following table shows all sales charges, commissions and other
compensation received by FD Distributors directly or indirectly from the Funds
during the fiscal year ended October 31, 1999:
<TABLE>
<CAPTION>
Brokerage
Net Commissions in
Underwriting Compensation on Connection
Discounts and Redemption and with Fund Other
Fund Commissions(1) Repurchase(2) Transactions Compensation(3)
- ---- -------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
Short-Term $ $ $ $
Bond
Intermediate $ $ $ $
Government
Income
High Quality $ $ $ $
Bond
Corporate Bond $ $ $ $
</TABLE>
- ----------------------
(1) Represents amounts received from front-end sales charges on Retail A Shares
and commissions received in connection with sales of Retail B Shares.
(2) Represents amounts received from contingent deferred sales charges on
Retail B Shares. The basis on which such sales charges are paid is
described in the Prospectus relating to Retail B Shares. All such amounts
were paid to affiliates of Fleet.
(3) Represents payments made under the Shareholder Services Plan and
Distribution and Services Plan during the fiscal year ended October 31,
1999, which includes fees accrued in the fiscal year ended October 31, 1998
which were paid in 1999 (see "Shareholder Services Plan" and "Distribution
and Services Plan" above).
AUDITORS
[ ], independent auditors, with offices at
[ ], serve as auditors for Galaxy. The financial
highlights for the respective Funds included in their Prospectuses and the
financial statements for the Funds contained in Galaxy's Annual Report to
Shareholders with respect to the Funds (the "Annual Report") and
[ ] into this Statement of Additional Information for the
fiscal year ended October 31, 1999 have been audited by [ ].
For the respective fiscal years and periods prior to October 31, 1999, the
financial highlights for the Funds included in the Prospectuses and the
financial statements for such years and periods contained in the Annual Report
were audited by [ ], Galaxy's former auditors.
-55-
<PAGE>
COUNSEL
Drinker Biddle & Reath LLP (of which W. Bruce McConnel, III, Secretary of
Galaxy, is a partner), One Logan Square, 18th & Cherry Streets, Philadelphia,
Pennsylvania 19103, are counsel to Galaxy and will pass upon certain legal
matters on its behalf.
PERFORMANCE AND YIELD INFORMATION
Investment returns and principal values will vary with market conditions so
that an investor's shares, when redeemed, may be worth more or less than their
original cost. Past performance is no guarantee of future results. Unless
otherwise indicated, total return figures include changes in share price,
deduction of any applicable sales charge, and reinvestment of dividends and
capital gains distributions, if any.
The Funds' 30-day (or one month) standard yields are calculated separately
for each series of shares in each Fund in accordance with the method prescribed
by the SEC for mutual funds:
6
YIELD = 2[(a-b)/cd+1) - 1]
Where: a = dividends and interest earned by a Fund during the period;
b = expenses accrued for the period (net of reimbursements);
c = average daily number of shares outstanding during the period,
entitled to receive dividends; and
d = maximum offering price per share on the last day of the period.
For the purpose of determining net investment income earned during the period
(variable "a" in the formula), dividend income on equity securities held by a
Fund is recognized by accruing 1/360 of the stated dividend rate of the security
each day that the security is in the Fund. Except as noted below, interest
earned on debt obligations held by a Fund is calculated by computing the yield
to maturity of each obligation based on the market value of the obligation
(including actual accrued interest) at the close of business on the last
business day of each month, or, with respect to obligations purchased during the
month, the purchase price (plus actual accrued interest) and dividing the result
by 360 and multiplying the quotient by the market value of the obligation
(including actual accrued interest) in order to determine the interest income on
the obligation for each day of the subsequent month that the obligation is held
by the Fund. For purposes of this calculation, it is assumed that each month
contains 30 days. The maturity of an obligation with a
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<PAGE>
call provision is the next call date on which the obligation reasonably may be
expected to be called or, if none, the maturity date. With respect to debt
obligations purchased at a discount or premium, the formula generally calls for
amortization of the discount or premium. The amortization schedule will be
adjusted monthly to reflect changes in the market value of such debt
obligations. Expenses accrued for the period (variable "b" in the formula)
include all recurring fees charged by a Fund to all shareholder accounts in
proportion to the length of the base period and the Fund's mean (or median)
account size. Undeclared earned income will be subtracted from the offering
price per share (variable "d" in the formula).
Interest earned on tax-exempt obligations that are issued without original
issue discount and have a current market discount is calculated by using the
coupon rate of interest instead of the yield to maturity. In the case of
tax-exempt obligations that are issued with original issue discount but which
have discounts based on current market value that exceed the then-remaining
portion of the original issue discount (market discount), the yield to maturity
is the imputed rate based on the original issue discount calculation. On the
other hand, in the case of tax-exempt obligations that are issued with original
issue discount but which have discounts based on current market value that are
less than the then-remaining portion of the original issue discount (market
premium), the yield to maturity is based on the market value.
With respect to mortgage or other receivables-backed obligations that are
expected to be subject to monthly payments of principal and interest
("pay-downs"), (i) gain or loss attributable to actual monthly pay-downs are
accounted for as an increase or decrease to interest income during the period,
and (ii) each Fund may elect either (a) to amortize the discount and premium on
the remaining security, based on the cost of the security, to the weighted
average maturity date, if such information is available, or to the remaining
term of the security, if any, if the weighted average date is not available or
(b) not to amortize discount or premium on the remaining security.
Based on the foregoing calculation, the standard yields for Retail A
Shares, Retail B Shares and Trust Shares (as applicable) of the Funds for the
30-day period ended October 31, 1999 were as set forth below:
<TABLE>
<CAPTION>
FUND RETAIL A RETAIL B TRUST
- ---- -------- -------- -----
<S> <C> <C> <C>
Short-Term Bond.....................................$ 3.44% $
Intermediate Government Income......................$ $ $
High Quality Bond...................................$ 3.64% $
Corporate Bond...................................... * * $
</TABLE>
- ----------------------
* The Corporate Bond Fund does not offer Retail A Shares or Retail B Shares.
Each Fund that advertises its "average annual total return" computes such
return separately for each series of shares by determining the average annual
compounded rate of return during specified periods that equates the initial
amount invested to the ending redeemable value of such investment according to
the following formula:
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<PAGE>
1/n
T = [(ERV/P)-1]
Where: T = average annual total return;
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the l, 5 or 10 year
(or other) periods at the end of the applicable
period (or a fractional portion thereof);
P = hypothetical initial payment of $1,000; and
n = period covered by the computation, expressed in
years.
Each Fund that advertises its "aggregate total return" computes such
returns separately for each series of shares by determining the aggregate
compounded rates of return during specified periods that likewise equate the
initial amount invested to the ending redeemable value of such investment. The
formula for calculating aggregate total return is as follows:
Aggregate Total Return = [(ERV/P) - l]
The calculations are made assuming that (1) all dividends and capital gain
distributions are reinvested on the reinvestment dates at the price per share
existing on the reinvestment date, (2) all recurring fees charged to all
shareholder accounts are included, and (3) for any account fees that vary with
the size of the account, a mean (or median) account size in the Fund during the
periods is reflected. The ending redeemable value (variable "ERV" in the
formula) is determined by assuming complete redemption of the hypothetical
investment after deduction of all nonrecurring charges at the end of the
measuring period. In addition, the Funds' Retail Shares average annual total
return and aggregate total return quotations will reflect the deduction of the
maximum sales load charged in connection with purchases of Retail A Shares or
redemptions of Retail B Shares, as the case may be.
The aggregate total returns for Retail A Shares, Retail B Shares and Trust
Shares (as applicable) of the Funds from the date of initial public offering to
October 31, 1999 are set forth below:
<TABLE>
<CAPTION>
FUND RETAIL A(1) RETAIL B TRUST
- ---- ----------- -------- -----
<S> <C> <C> <C>
Short-Term Bond................................... $ (2) $ (3) $ (2)
Intermediate Government Income.................... $ (4) $ $ (4)
High Quality Bond................................. $ (5) $ (3) $ (5)
Corporate Bond.................................... * * $ (6)
</TABLE>
- ----------------------
* The Corporate Bond Fund does not offer Retail A Shares or Retail B Shares.
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<PAGE>
(1) On September 7, 1995, Retail Shares of the Funds were redesignated "Retail
A Shares."
(2) For the period from December 30, 1991 (initial public offering date)
through October 31, 1999.
(3) For the period from March 4, 1996 (initial public offering date) through
October 31, 1999.
(4) For the period from September 1, 1988 (initial public offering date)
through October 31, 1999.
(5) For the period from December 14, 1990 (initial public offering date)
through October 31, 1999.
(6) For the period from December 12, 1994 (initial public offering date)
through October 31, 1999.
The average annual total returns for Retail A Shares, Retail B Shares and
Trust Shares (as applicable) of the Funds for the one-year, five-year and
ten-year periods (as applicable) are as set forth below:
<TABLE>
<CAPTION>
RETAIL A RETAIL B TRUST
FIVE- TEN- ONE- FIVE- TEN- ONE- FIVE- TEN-
FUND ONE-YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR
- ---- -------- --------- -------- -------- --------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Short-Term Bond............. $ $ $ $ $ $ $ $ $
Intermediate Government
Income...................... $ $ $ $ $ $ $ $ $
High Quality Bond........... $ $ $ $ $ $ $ $ $
Corporate Bond.............. ** ** ** ** ** ** $ $ $
</TABLE>
- ----------------------
** The Corporate Bond Fund does not offer Retail A Shares or Retail B Shares.
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to shareholders, the
performance of the Funds may be quoted and compared to that of other mutual
funds with similar investment objectives and to stock or other relevant indices
or to rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
performance of the Funds may be compared to data prepared by Lipper Analytical
Services, Inc., a widely recognized independent service which monitors the
performance of mutual funds.
Performance data as reported in national financial publications including,
but not limited to, MONEY MAGAZINE, FORBES, BARRON'S, THE WALL STREET JOURNAL
and THE NEW YORK TIMES, or publications of a local or regional nature may also
be used in comparing the performance of the Funds. Performance data will be
calculated separately for Trust Shares, Retail A Shares, Retail B Shares,
Prime A Shares and Prime B Shares of the Funds.
The standard yield is computed as described above. Each Fund may also
advertise its "effective yield" which is calculated similarly but, when
annualized, the income earned by an investment in the Fund is assumed to be
reinvested.
The Funds may also advertise their performance using "average annual total
return" figures over various periods of time. Such total return figures reflect
the average percentage change in the value of an investment in a Fund from the
beginning date of the measuring period to the end of the measuring period and
are calculated as described above. Average total return
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<PAGE>
figures will be given for the most recent one-, five- and ten-year periods (if
applicable), and may be given for other periods as well, such as from the
commencement of a Fund's operations, or on a year-by-year basis. Each Fund may
also use "aggregate total return" figures for various periods, representing the
cumulative change in the value of an investment in a Fund for the specified
period. Both methods of calculating total return reflect the maximum front-end
sales load for Retail A Shares of the Funds and the applicable contingent
deferred sales charge for Retail B Shares of the Funds and assume that dividends
and capital gain distributions made by a Fund during the period are reinvested
in Fund shares.
The Funds may also advertise total return data without reflecting the sales
charges imposed on the purchase of Retail A Shares or the redemption of Retail B
Shares in accordance with the rules of the SEC. Quotations that do not reflect
the sales charges will be higher than quotations that do reflect the sales
charges.
The performance of the Funds will fluctuate and any quotation of
performance should not be considered as representative of the future performance
of the Funds. Since yields fluctuate, yield data cannot necessarily be used to
compare an investment in a Fund's shares with bank deposits, savings accounts
and similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that
performance data are generally functions of the kind and quality of the
instruments held in a portfolio, portfolio maturity, operating expenses, and
market conditions. Any additional fees charged by institutions with respect to
accounts of customers that have invested in shares of a Fund will not be
included in performance calculations.
The portfolio managers of the Funds and other investment professionals may
from time to time discuss in advertising, sales literature or other material,
including periodic publications, various topics of interest to shareholders and
prospective investors. The topics may include but are not limited to the
advantages and disadvantages of investing in tax-deferred and taxable
investments; Fund performance and how such performance may compare to various
market indices; shareholder profiles and hypothetical investor scenarios; the
economy; the financial and capital markets; investment strategies and
techniques; investment products; and tax, retirement and investment planning.
MISCELLANEOUS
As used in this Statement of Additional Information, "assets belonging to"
a particular Fund or series of a Fund means the consideration received by Galaxy
upon the issuance of shares in that particular Fund or series of the Fund,
together with all income, earnings, profits, and proceeds derived from the
investment thereof, including any proceeds from the sale of such investments,
any funds or payments derived from any reinvestment of such proceeds and a
portion of any general assets of Galaxy not belonging to a particular series or
Fund. In determining the net asset value of a particular series of a Fund,
assets belonging to the particular series of the Fund are charged with the
direct liabilities in respect of that series and with a share of the general
liabilities of Galaxy, which are allocated in proportion to the relative asset
values
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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 December 3, 1999, the name, address and share ownership of the
entities or persons that held of record more than 5% of the outstanding Trust
Shares of each of Galaxy's investment portfolios (including shares of the
Institutional Government Money Market Fund) were as follows: Money Market Fund
- -- Fleet New York, Fleet Investment Services, 159 East Main Street, NY/RO/TO3C,
Rochester, NY 14638, Account 00000150286 (99.87%); Tax-Exempt Money Market Fund
- -- Fleet New York, Fleet Investment Services, 159 East Main Street, NY/RO/TO3C,
Rochester, NY 14638, Account 00000007717 (100.00%); Government Money Market Fund
- --Fleet New York, Fleet Investment Services, 159 East Main Street, NY/RO/TO3C,
Rochester, NY 14638, Account 00000012621 (98.58%); Equity Value Fund -- Gales &
Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000000064 (76.43%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000003204 (14.55%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000011551 (7.23%); Equity Growth Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000082 (70.31%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000010017 (15.31%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000030718 (14.04%); Equity Income Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000015771 (48.75%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000003748 (36.92%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000000037 (13.37%); International Equity Fund --Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000073 (42.99%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000000876 (39.29%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000004088 (14.13%); Growth and Income Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 05000503793 (76.73%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 05000503873 (19.78%); Asset Allocation Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000073 (93.27%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000002598 (5.98%); Small Company Equity -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000046 (66.04%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000001492 (24.41%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000006102 (7.33%); Institutional Treasury Money Market Fund -- Fleet
New York, Fleet Investment Services, 159 East Main Street, NY/RO/TO3C,
Rochester, NY 14638, Account 00000000019 (91.11%); Luitpold Pharmaceuticals
Inc., Kirk Sobecki, CFO, Attn: Harold Noviello, One Luitpold Drive, Shirley,
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NY 11967, Account 05100281441 (7.02%); Small Cap Value Fund -- Gales & Co.,
Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 05000503999 (48.74%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 05000503917 (31.01%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 05000503953 (19.77%); Strategic Equity Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 5100115522 (97.48%); Intermediate Government Income
Fund -- Gales & Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A,
159 East Main Street, Rochester, NY 14638, Account 00000038408 (38.48%); Gales &
Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000007183 (34.80%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000037 (26.20%); High Quality Bond Fund --
Gales & Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East
Main Street, Rochester, NY 14638, Account 00000000037 (62.76%); Gales & Co.,
Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000001465 (24.53%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000006095 (12.37%); Short-Term Bond Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000008627 (31.48%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000000064 (46.43%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000001090 (21.82%); Tax-Exempt Bond Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000005899 (34.38%) Gales & Co, Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000000028 (38.95%); Gales and Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000000670 (26.42%); Connecticut Municipal Bond Fund -- Gales & Co.,
Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000019 (74.69%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000000037 (24.84%); Massachusetts Municipal Bond Fund -- Gales
& Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000000019 (48.96%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000073 (49.06%); Corporate Bond Fund -- Gales
& Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000000046 (44.33%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000006102 (36.50%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000001492 (12.65%); New Jersey Municipal Bond Fund -- Gales &
Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/T04A, 159 East Main
Street, Rochester, NY 14638, Account 5100115489 (51.69%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 5100115504 (35.56%); BOB & Co., c/o Bank
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of Boston, Attn: Mutual Fund Dept. 45-02-06, P.O. Box 1809, Boston, MA 02105,
Account 5102076990 (12.74%); and New York Municipal Bond Fund -- Gales & Co.,
Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000019 (9.36%); Gales & Co., Fleet Investment
Services, Mutual Fund Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000001107 (70.04%); Gales & Co., Fleet Investment Services,
Mutual Fund Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000005292 (14.85%); BOB & Co., c/o Bank of Boston, Attn: Mutual Fund
Dept. 45-02-06, P.O. Box 1809, Boston, MA 02105, Account 5102076990 (5.68%).
As of December 3, 1999, the name, address and share ownership of the
entities or persons that held of record more than 5% of the outstanding Retail A
Shares of each of Galaxy's investment portfolios (including shares of the
Connecticut Municipal Money Market and Massachusetts Municipal Money Market
Funds) were as follows: Tax-Exempt Money Market Fund -- Ellsworth Kelly, P.O.
Box 151, 45 South Street, Spencertown, NY 12165, Account 0000063825 (6.99%);
U.S. Treasury Money Market Fund -- US Clearing, a Division of Fleet Securities
Inc., 26 Broadway, New York, NY 10004, Account 05100115684 (10.40%);
Massachusetts Municipal Money Market Fund -- Fleet New York, Fleet Investment
Services, 159 East Main St., NY/RO/TO3C, Rochester, NY 14638, Account
05100058503 (61.34%); Connecticut Municipal Money Market Fund -- Fleet New York,
Fleet Investment Services, 159 East Main St., NY/RO/TO3C, Rochester, NY 14638,
Account 05100058521 (48.64%); William L. Bucknall & Norma Lee Bucknall, 5 Oak
Ridge Drive, Bethany, CT 06524, Account 0000002259 (5.16%); Rhode Island
Municipal Bond Fund --Gales & Co., Fleet Investment Services, Mutual Funds Unit
- - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638, Account 00000001492
(40.88%); James R. McCulloch, c/o Microfibre, PO Box 1208, Pawtucket, RI 02860,
Account 05000414933 (9.11%); New York Municipal Bond Fund -- Marilyn J.
Brantley, 5954 Van Allen Road, Belfast, NY 14711, Account 05100977627 (11.78%);
New Jersey Municipal Bond Fund -- Jeffery W. Golden, 7 Hampton Ridge CT, Old
Tappan, NJ 07675, Account 05100780704 (16.09%); John W. Maki & Kimberly McGrath
Maki JT, 1 Connet Lane, Mendham, NJ, 07945, Account 05100011377 (33.47%); US
Clearing Corp., FBO 979-06374-12, 26 Broadway, New York, NY 10004-1798, Account
07000100574 (27.89%); Serene W. Peng, 70 Chelsea, Watchung, NJ 07060, Account
5101583480 (17.19%); Tax-Exempt Bond Fund -- Danny Schulman, 9 Corn Mill Ct.,
Upper Saddle River, NJ 07458, Account 510116598 (6.11%); and Massachusetts
Municipal Bond Fund -- New England Realty Assoc., Robert Blank, Ronald Brown,
Harold Brown and Carl Veleri, 39 Brighton Ave., Boston MA 02134, Account
5100587013 (6.59%).
As of December 3, 1999, the name, address and share ownership of the
entities or persons that held of record more than 5% of the outstanding Retail B
Shares of each of Galaxy's investment portfolios were as follows: Money Market
Fund -- Worldmark Master Fund, LLC, D. Dean Rhodes auth. officer or Richard J.
Gates (investment adviser), 11466 Old Harber Road, N. Palm Beach, FL 33408,
Account 5102031823 (18.24%); Worldmark Master Fund, LLC, D. Dean Rhodes auth.
officer or Richard J. Gates (investment adviser) 11465 Old Harbor Road, N. Palm
Beach, FL 33408, Account 5102074064 (20.78%); Intermediate Government Income
Fund; Adriana Vita, 345 Park Avenue, New York, NY 10154, Account 05101563377
(8.84%); Short-Term Bond Fund -- Elizabeth Mugar, 10 Chestnut St., Apt. 1808,
Springfield, MA 01103,
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Account 5100760012 (7.15%); Chelsea Police Relief Assoc., John R. Phillips,
Treasurer, and Michael McCona, Clerk, 180 Crescent Avenue, Chelsea, MA 02150,
Account 0970036155 (13.23%); Josve Colon, Cust., Hazel Colon UGMA CT, 400
LaSalle Street, New Britain, CT 06051, Account 5101157039 (7.37%); U.S. Clearing
Corp., FBO 978-02086-18, Eugene J. Margaret Dunscomb, 505 Apple Tree Lane,
Brewster, NY 10509-6004, Account 70000100609 (7.09%); Tax-Exempt Bond Fund --
David Fendler & Sylvia Fendler JT WROS, 72 Brinkerhoff Ave., Stamford, CT 06905,
Account 05100255354 (7.48%); Frances E. Stady, P.O. Box 433, 3176 Main Street,
Yorkshire, NY 14173, Account 05102027437 (5.84%); and Strategic Equity Fund --
Betsey Tan, 7 Donovan's Lane, Natick, MA 01760, Account 05101043778 (7.41%).
As of November 30, 1999, the name, address and share ownership of the
entities or persons that held beneficially more than 5% of the outstanding Trust
Shares of each of Galaxy's investment portfolios were as follows: Money Market
Fund--Stable Asset Fund, c/o Norstar Trust Co., Gales & Co., 159 East Main
Street, Rochester, NY 14638, (12.05%); Hope-Sayles Trust, c/o Norstar Trust Co.,
Gales & Co., 159 East Main Street, Rochester, NY 14638, (10.65%); Government
Money Fund -- AMS Trust Account, c/o Norstar Trust Co., Gales & Co., 159 East
Main Street, Rochester, NY 14638, (9.76%); Beacon Mutual Insurance Co., c/o
Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638 (6.33%); U.S.
Treasury Money Fund -- Loring Walcott Client Sweep Acct., c/o Norstar Trust Co.,
Gales & Co., 159 East Main, Rochester, NY 14638, (23.17%); Equity Value
Fund--Fleet Savings Plus-Equity Value, c/o Norstar Trust Co., Gales & Co., 159
East Main, Rochester, NY 14638, (24.21%); Equity Growth Fund--Fleet Savings
Plus-Equity Growth, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638, (23.54%); Nusco Retiree Health VEBA Trust, c/o Norstar
Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638, (6.82%);
International Equity Fund--FFG International Equity Fund, c/o Norstar Trust Co.,
Gales & Co., 159 East Main, Rochester, NY 14638, (12.68%); Fleet Savings
Plus-Intl. Equity, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester,
NY 14638, (9.82%); Intermediate Government Income Fund -- Nusco Retiree Health
VEBA Trust, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY
14638 (6.44%); Strategic Equity Fund--FFG Retirement & Pension VDG, c/o Fleet
Financial Group, 159 East Main, Rochester, NY 14638, (93.39%); High Quality Bond
Fund--Fleet Savings Plus Plan-HQ Bond, c/o Norstar Trust Co., Gales & Co., 159
East Main, Rochester, NY 14638 (19.60%); Asset Allocation Fund--Fleet Savings
Plus-Asset Allocation, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638, (26.52%); Small Company Equity Fund--Fleet Savings
Plus-Small Company, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638, (33.58%); Tax Exempt Bond Fund -- Nusco Retiree Health VEBA
Trust, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638,
(37.64%); Corporate Bond Fund--Cole Hersee Pension Plan, c/o Norstar Trust Co.,
Gales & Co., 159 East Main, Rochester, NY 14638, (8.40%); Growth Income
Fund--Fleet Savings Plus-Growth Income, c/o Norstar Trust Co., Gales & Co., 159
East Main, Rochester, NY 14638, (43.81%); Crumpton & Knowles IARP, c/o Norstar
Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638 (10.11%); Small Cap
Value Fund--FFG Emp. Ret. Misc. Assets SNC, c/o Norstar Trust Co., Gales & Co.,
159 East Main, Rochester, NY 14638, (25.16%); Institutional Government Fund --
IBEW Local #99 Annuity, c/o Norstar Trust Co., Gales & Co., 159 East Main
Street, Rochester, NY 14638 (5.26%); New Jersey Municipal Bond Fund--Perillo
Tours, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638,
(22.47%); Royal Chambord IMA, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY, 14638, (11.24%); McKee Wendell A. Marital Trust, c/o Norstar
Trust Co., Gales & Co., 159 East Main, Rochester,
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NY 14638, (11.16%); Varco Inc. IMA, c/o Norstar Trust Co., Gales & Co., 159 East
Main, Rochester, NY 14638, (5.62%); and Tiernan Diana V IA, c/o Norstar Trust
Co., Gales & Co., 159 East Main, Rochester, NY 14638, (5.10%).
As of November 30, 1999, the name, address and share ownership of the
entities or persons that held of record or beneficially more than 5% of the
outstanding A Prime Shares of Galaxy's Asset Allocation, Equity Income, Growth
and Income, Strategic Equity, Equity Value, Equity Growth, International Equity,
Small Cap Value, Small Company Equity, Short-Term Bond, Intermediate Government
Income, High Quality Bond and Tax-Exempt Bond Funds were as follows: Asset
Allocation Fund--U.S. Clearing, A Division of Fleet Securities, Inc., FBO
#147-97697-11, Ray Wayne Prince, 11010 Stephens Road, Berlin Heights, OH
44814-9673 (18.52%); U.S. Clearing, A Division of Fleet Securities, Inc., FBO
#135-29801-11, Joseph P. Quinn & Genevieve H. Quinn Trust, 725 N. Riverside
Drive, Apt. 405, Pompano Beach, FL 33062-4536 (12.47%); U.S. Clearing, A
Division of Fleet Securities, Inc., FBO #175-97327-10, Margaret Ann Gillenwater,
2525 E. Prince Road #23, Tucson, AZ 85716-1146 (11.92%); U.S. Clearing, A
Division of Fleet Securities, Inc., FBO #114-97238-17, Sara Mallow, 936
Broadway, New York, NY 10010-6013 (25.26%); U.S. Clearing, A Division of Fleet
Securities, Inc., FBO #166-88586-13, Pamela Ann Radamaker, 1001 Tramway Blvd.
NE, Albuquerque, NM 87112-6280 (10.72%); U.S. Clearing, A Division of Fleet
Securities, Inc., FBO #114-23817-12, John R. Johnson, P.O. Box 4338, Deerfield
Beach, FL 33442-4338 (8.31%); Growth and Income Fund--U.S. Clearing, A Division
of Fleet Securities Inc., FBO #160-27022-17, Linda Shaw, Trustee for the Linda
J. Shaw Trust, 920 Meadows Road, Geneva, IL 60134-3052 (34.66%); U.S. Clearing,
A Division of Fleet Securities Inc., FBO #113-27816-16, Pamela M. Fein, 68 Oak
Ridge Drive, Bethany, CT 06524-3118 (29.85%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO #175-97327-10, Margaret Ann Gillenwater, 2525 E. Prince
Road #23, Tucson, AZ 85716-1146 (23.43%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO #103-80080-19, Saint Clare School Endowment Fund, Attn: Fr.
O'Shea/Andrew J. Houvouras and/or Bruce Blatman, 821 Prosperity Farms Road, No.
Palm Beach, FL 33408-4299 (6.09%); Equity Growth Fund--U.S. Clearing, A Division
of Fleet Securities Inc., FBO #104-32732-16, Hilda Brandt, 3900 North Charles
Street, Baltimore, MD 21218-1724 (50.91%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO #114-97236-17, Sara Mallow, 936 Broadway, New York, NY
10010-6013 (26.57%); U.S. Clearing, A Division of Fleet Securities Inc., FBO
#120-97689-18, Yook Y. Doo, 4634 Robinson St., Flushing, NY 11355-3445 (8.84%);
U.S. Clearing, A Division of Fleet Securities Inc., FBO #021-90471-15, Mabel L.
Bowman, 35634 Meyers Ct., Fremont, CA 84536-2540 (7.00%); U.S. Clearing, A
Division of Fleet Securities Inc., FBO #143-27206-11, Mary V. Mastroianni &
Pasqual Mastroianni JT Ten, 1811 Randolph Road, Schenectady, NY 12308-2021
(5.44%); International Equity Fund--U.S. Clearing, A Division of Fleet
Securities Inc., FBO #125-98055-11, Albert F. Twanmo, 6508 81st St., Cabin John,
MD 20818-1203 (94.66%); Small Cap Value Fund U.S. Clearing, A Division of Fleet
Securities Inc., FBO # 104-32732-16, Hilda Brandt, 3900 North Charles Street,
Baltimore, MD 21218-1724 (26.87%); U.S. Clearing, A Division of Fleet Securities
Inc., FBO # 150-98301-11, N. Clifford Nelson Jr., 58 Middlebury Road, Orchard
Park, NY 14127-3581 (16.93%); U.S. Clearing, A Division of Fleet Securities
Inc., FBO # 102-60254-19, Frederick W. Geissinger, 601 NW 2nd Street,
Evansville, IN 47708-1013 (16.81%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO # 103-97564-14, Thomas X. McKenna, 170 Turtle Creek Drive,
Tequesta, FL 33469-1547 (12.55%); U.S. Clearing, A Division of Fleet Securities
Inc., FBO # 103-31296-18, Edward U.
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Roddy III, 109 Angler Avenue, Palm Beach, FL 33480-3101 (8.27%); U.S. Clearing,
A Division of Fleet Securities Inc., FBO # 180-24606-24, Gary R. Plemons, P.O.
Box 190, Madisonville, TN 37354-0190 (5.56%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO # 165-26664-29, Special Risk Underwriters, P.O. Box 54699,
Phoenix, AZ 85078-4699 (5.31%); High Quality Bond Fund - U.S. Clearing, A
Division of Fleet Securities Inc., FBO # 103-30971-12, Doris G. Schack, FBO #
103-30971-12, Doris G. Schack Living Trust, 9161 East Evans, Scottsdale, AZ
85260-7575 (72.18%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #
013-02964-11, Jane L. Grayhurst, 770 Boylston St., Apt. 10G, Boston, MA
02199-7709 (15.46%); U.S. Clearing, A Division of Fleet Securities, Inc., FBO
#132-90090-11, Virginia Holmes, 303 Bella Vista Drive, Ithaca, NY 14850-5774
(12.10%).
As of November 30, 1999, the name, address and share ownership of the
entities or persons that held of record or beneficially more than 5% of the
outstanding B Prime Shares of Galaxy's Asset Allocation, Equity Income, Growth
and Income, Strategic Equity, Equity Value, Equity Growth, International Equity,
Small Cap Value, Small Company Equity, Short-Term Bond, Intermediate Government
Income, High Quality Bond and Tax-Exempt Bond Funds were as follows: Asset
Allocation Fund -- U.S. Clearing, A Division of Fleet Securities Inc., FBO #
138-97818-14, Carol Y. Foster, 524 Marie Ave., Blountstown, FL 32424-1218
(10.07%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #
102-92974-11, Ann E. Herzog, 74 Tacoma St., Staten Island, NY 10304-4222
(9.61%); U.S. Clearing, A Division of Fleet Securities Inc., FBO # 166-98559-16,
Ann P. Sargent, 422 Los Encinos Ave., San Jose, CA 95134-1336 (6.40%); U.S.
Clearing, A Division of Fleet Securities Inc., FBO # 166-97970-19, Alicia E.
Schober, 10139 Ridgeway Drive, Cupertino, CA 95014-2658 (6.22%); U.S. Clearing,
A Division of Fleet Securities Inc., FBO # 19414889-16, Paul R. Thornton & Karin
Z. Thornton, JT TEN, 1207 Oak Glen Lane, Sugar Land, TX 77479-6175 (5.70%); U.S.
Clearing, A Division of Fleet Securities, Inc., FBO #147-29049-19, Randall
Prince, Rt. 1, Box 865, Turtletown, TN 37391-9700 (6.06%); Growth and Income
Fund - U.S. Clearing, A Division of Fleet Securities Inc., FBO # 147-97497-13,
Martin Allen Sante, 15222 Birch Lakeshore Drive, Vandalia, MI 49095-9741
(27.18%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #103-31744-16,
Irwin Luftig & Elaine Luftig, 6119 Bear Creek Ct., Lake Worth, FL 33467-6812
(19.02%); Linda M. Berke & Michael E. Berke, JT WROS, 30941 Westwood Rd.,
Farmington Hills, MI 48331-1466 (15.25%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO # 147-29019-15, Walter W. Quan, 2617 Skyline Drive, Lorain,
OH 44053-2243 (14.87%); U.S. Clearing, A Division of Fleet Securities Inc., FBO
#014-90365-19, Peter Burr Bickford, 65 A Lazell St., Hingham, MA 02043-4403
(7.44%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #108-00116-10,
Michael Kennedy & Carleen Kennedy, JT WROS, 12 Walton Avenue, Locust Valley, NY
11560-1227 (5.48%); Equity Growth Fund - U.S. Clearing, A Division of Fleet
Securities Inc., FBO # 111-98315-17, Thomas J. Bernfeld, 185 West End Ave., Apt.
21D, New York, NY 10023-5548 (29.52%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO # 166-31108-13, Frank Catanho, Trustee of the Frank Catanho
1996 Trust dated 10/22/96, 24297 Mission Blvd., Hayward, CA 94544-1020 (19.07%);
U.S. Clearing, A Division of Fleet Securities Inc., FBO # 183-97247-11, W.P.
Fleming, 66500 E. 253rd, Grove, OK 74344-6163 (8.77%); U.S. Clearing, A Division
of Fleet Securities Inc., FBO # 131-96122-18, Elaine B. Odessa, 9 Newman Rd.,
Pawtucket, RI 02860-8183 (6.66%); International Equity Fund - U.S. Clearing, A
Division of Fleet Securities Inc., FBO # 102-5924-17, Church & Friary of St.
Francis of Assisi, c/o Fr.
-66-
<PAGE>
Ronald P. Stark OFM, 135 West 31st St., New York, NY 10001-3405 (82.40%); Small
Cap Value Fund - U.S. Clearing, A Division of Fleet Securities Inc., FBO #
147-97574-19, Ray William Mominey, 1340 San Cristobal Villa, Punta Gorda, FL
33983-6616 (15.90%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #
111-98315-17, Thomas J. Bernfeld, 185 West End Ave., Apt. 21D, New York, NY
10023-5548 (10.13%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #
107-30623-15, Andrejs Zvejnieks, 2337 Christopher Walk, Atlanta, GA 30327-1110
(6.86%); E-Trade: Cust. for the rollover IRA, FBO Rufus O. Eddins, Jr., A/C #
11042697, 360 Dominion Circle, Knoxville, TN 37922-2750 (5.34%); U.S. Clearing,
A Division of Fleet Securities Inc., FBO # 221-97250-13, Micheal A. Veschi, 106
Exmoor Court, Leesburg, VA 20176-2049 (5.13%); High Quality Bond Fund - U.S.
Clearing, A Division of Fleet Securities Inc., FBO # 200-70099-19, Neil C.
Feldman, 41 Windham Way, Englishtown, NJ 07726-8216 (25.37%); U.S. Clearing, A
Division of Fleet Securities Inc., FBO # 119-97697-10, Ira Sornborg, 4219
Nautilus Ave., Brooklyn, NY 11224-1019 (10.23%); U.S. Clearing, A Division of
Fleet Securities Inc., FBO # 216-12779-14, Les H. Galex & Nan Galex, JT TEN,
7540 Farragut St., Hollywood, FL 33024-2626 (8.11%); U.S. Clearing, A Division
of Fleet Securities Inc., FBO # 102-93287-11, Marjorie Dion, 301 Raimond St.,
Yaphank, NY 11980-9725 (7.31%); U.S. Clearing, A Division of Fleet Securities
Inc., FBO # 102-68909-11, Marjorie Dion, 301 Raimond St., Yaphank, NY 11980-9725
(8.61%); U.S. Clearing, A Division of Fleet Securities Inc., FBO # 147-24459-13,
Jay Robert Klein, 26800 Amhearst Circle, #209, Cleveland, OH 44122-7572 (8.40%);
U.S. Clearing, A Division of Fleet Securities Inc., FBO # 157-98031-13, Patricia
Fusco, 112 E. Chapel Ave., Cherry Hill, NJ 08034-1204 (6.53%); U.S. Clearing, A
Division of Fleet Securities, Inc., FBO # 216-13463-13, Jerry H. Dunmire, 5151
SW 89 Terrace, Cooper City, FL 33328-3631 (6.48%).
As of November 30, 1999, the name, address and share ownership of the
entities or persons that held of record or beneficially more than 5% of the
outstanding shares of Galaxy's Prime Reserves, Government Reserves and Tax
Exempt Reserves were as follows: Prime Reserves -- U.S. Clearing, 26 Broadway,
New York, NY 10004 (6.96%); Government Reserves -- U.S. Clearing, 26 Broadway,
New York, NY 10004 (100.00%); and Tax Exempt Reserves -- U.S. Clearing, 26
Broadway, New York, NY 10004 (100.00%).
As of November 30, 1999, no entity or person held of record or
beneficially more than 5% of the outstanding Retail A and Retail B Shares of
Galaxy's Equity Income, New York Municipal Bond, Connecticut Municipal Bond,
Massachusetts Municipal Bond, Rhode Island Municipal Bond, Massachusetts
Municipal Money Market, Connecticut Municipal Money Market and Short Term Bond
Funds.
FINANCIAL STATEMENTS
Galaxy's Annual Report to Shareholders with respect to the Funds for the
fiscal year ended October 31, 1999 [ ] with the SEC. The financial
statements contained in such Annual Report are [ ] into this
Statement of Additional Information. The financial statements and financial
highlights for the Funds for the fiscal year ended October 31, 1999 have been
audited by Galaxy's independent accountants, [ ], whose report thereon also
appears in such Annual Report and [ ]. The financial
statements in such Annual Report have been [ ] in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
-67-
<PAGE>
APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current opinion of
credit worthiness 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:
"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
A-1
<PAGE>
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 strongest capacity for timely payment of financial commitments and
may have an added "+" to denote any exceptionally strong credit feature.
"F2" - Securities possess good credit quality. This designation
indicates a satisfactory capacity for timely payment of financial commitments,
but the margin of safety is not as great as in the case of the higher ratings.
"F3" - Securities possess fair credit quality. This designation
indicates that the capacity for timely payment of financial commitments is
adequate; however, near-term adverse changes could result in a reduction to
non-investment grade.
"B" - Securities possess speculative credit quality. This designation
indicates minimal capacity for timely payment of financial commitments, plus
vulnerability to near-term adverse changes in financial and economic conditions.
"C" - Securities possess high default risk. This designation indicates
that default is a real possibility and that the capacity for meeting financial
commitments is solely reliant upon a sustained, favorable business and economic
environment.
"D" - Securities are in actual or imminent payment default.
Thomson BankWatch short-term ratings assess the likelihood of an
untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson 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 BankWatch's lowest
investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's lowest
rating category and indicates that the obligation is regarded as non-investment
grade and therefore speculative.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
Obligations rated "BB," "B," "CCC," "CC" and "C" are regarded as
having significant speculative characteristics. "BB" indicates the least degree
of speculation and "C" the highest. While such obligations will likely have some
quality and protective 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.
A-4
<PAGE>
"B" - An obligation rated "B" is more vulnerable to nonpayment than
obligations rated "BB," but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
"CCC" - An obligation rated "CCC" is currently vulnerable to
nonpayment, and is dependent upon favorable business, financial and economic
conditions for the obligor to meet its financial commitment on the obligation.
In the event of adverse business, financial, or economic conditions, the obligor
is not likely to have the capacity to meet its financial commitment on the
obligation.
"CC" - An obligation rated "CC" is currently highly vulnerable to
nonpayment.
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.
"D" - An obligation rated "D" is in payment default. The "D" rating
category is used when payments on an obligation are not made on the date due
even if the applicable grace period has not expired, unless 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.
"r" - This symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or volatility of
expected returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk - such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
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
A-5
<PAGE>
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.
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.
A-6
<PAGE>
"BBB" - Debt possesses below-average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt rated
"B" possesses the risk that obligations will not be met when due. Debt rated
"CCC" is well below investment grade and has considerable uncertainty as to
timely payment of principal, interest or preferred dividends. Debt rated "DD" is
a defaulted debt obligation, and the rating "DP" represents preferred stock with
dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.
The following summarizes the ratings used by Fitch IBCA for corporate
and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest
credit quality. These ratings denote the lowest expectation of credit risk and
are assigned only in case of exceptionally strong capacity for timely payment of
financial commitments. This capacity is highly unlikely to be adversely affected
by foreseeable events.
"AA" - Bonds considered to be investment grade and of very high credit
quality. These ratings denote a very low expectation of credit risk and indicate
very strong capacity for timely payment of financial commitments. This capacity
is not significantly vulnerable to foreseeable events.
"A" - Bonds considered to be investment grade and of high credit
quality. These ratings denote a low expectation of credit risk and indicate
strong capacity for timely payment of financial commitments. This capacity may,
nevertheless, be more vulnerable to changes in circumstances or in economic
conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good credit
quality. These ratings denote that there is currently a low expectation of
credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity.
"BB" - Bonds considered to be speculative. These ratings indicate that
there is a possibility of credit risk developing, particularly as the result of
adverse economic changes over time; however, business or financial alternatives
may be available to allow financial commitments to be met. Securities rated in
this category are not investment grade.
A-7
<PAGE>
"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 show relative standing within these major rating
categories.
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.
A-8
<PAGE>
"BBB" - This designation represents the lowest investment-grade
category and indicates an acceptable capacity to repay principal and interest.
Issues rated "BBB" are more vulnerable to adverse developments (both internal
and external) than obligations with higher ratings.
"BB," "B," "CCC," and "CC" - These designations are assigned by
Thomson Financial BankWatch to non-investment grade long-term debt. Such issues
are regarded as having speculative characteristics regarding the likelihood of
timely repayment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
A Standard and Poor's note rating reflects the liquidity concerns and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Ratings Group for municipal
notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess 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:
A-9
<PAGE>
"MIG-1"/"VMIG-1" - This designation denotes best quality. There is
present strong protection by established cash flows, superior liquidity support
or demonstrated broad-based access to the market for refinancing.
"MIG-2"/"VMIG-2" - This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes favorable quality, with
all security elements accounted for but lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
"SG" - This designation denotes speculative quality. Debt instruments
in this category lack of margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.
A-10
<PAGE>
APPENDIX B
As stated above, the Funds may enter into futures transactions for hedging
purposes. The following is a description of such transactions.
I. INTEREST RATE FUTURES CONTRACTS
USE OF INTEREST RATE FUTURES CONTRACTS. Bond prices are established in both
the cash market and the futures market. In the cash market, bonds are purchased
and sold with payment for the full purchase price of the bond being made in
cash, generally within five business days after the trade. In the futures
market, only a contract is made to purchase or sell a bond in the future for a
set price on a certain date. Historically, the prices for bonds established in
the futures markets have tended to move generally in the aggregate in concert
with the cash market prices and have maintained fairly predictable
relationships. Accordingly, the Funds may use interest rate futures contracts as
a defense, or hedge, against anticipated interest rate changes and not for
speculation. As described below, this would include the use of futures contract
sales to protect against expected increases in interest rates and futures
contract purchases to offset the impact of interest rate declines.
The Funds presently could accomplish a similar result to that which they
hope to achieve through the use of futures contracts by selling bonds with long
maturities and investing in bonds with short maturities when interest rates are
expected to increase, or conversely, selling short-term bonds and investing in
long-term bonds when interest rates are expected to decline. However, because of
the liquidity that is often available in the futures market, the protection is
more likely to be achieved, perhaps at a lower cost and without changing the
rate of interest being earned by the Funds, through using futures contracts.
DESCRIPTION OF INTEREST RATE FUTURES CONTRACTS. An interest rate futures
contract sale would create an obligation by a Fund, as seller, to deliver the
specific type of financial instrument called for in the contract at a specific
future time for a specified price. A futures contract purchase would create an
obligation by the Fund, as purchaser, to take delivery of the specific type of
financial instrument at a specific future time at a specific price. The specific
securities delivered or taken, respectively, at settlement date, would not be
determined until at or near that date. The determination would be in accordance
with the rules of the exchange on which the futures contract sale or purchase
was made.
Although interest rate futures contracts by their terms call for actual
delivery or acceptance of securities, in most cases the contracts are closed out
before the settlement date without the making or taking of delivery of
securities. Closing out a futures contract sale is effected by a Fund's entering
into a futures contract purchase for the same aggregate amount of the specific
type of financial instrument and the same delivery date. If the price of the
sale exceeds the price of the offsetting purchase, the Fund immediately is paid
the difference and thus realizes a gain. If the offsetting purchase price
exceeds the sale price, the Fund pays the difference and realizes a loss.
Similarly, the closing out of a futures contract purchase is effected by a Fund
entering into a futures contract sale. If the offsetting sale price exceeds the
purchase
B-1
<PAGE>
price, the Fund realizes a gain, and if the purchase price exceeds the
offsetting sale price, the Fund realizes a loss.
Interest rate futures contracts are traded in an auction environment on the
floors of several exchanges -- principally, the Chicago Board of Trade, the
Chicago Mercantile Exchange and the New York Futures Exchange. The Funds would
deal only in standardized contracts on recognized exchanges. Each exchange
guarantees performance under contract provisions through a clearing corporation,
a nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering various financial
instruments including long-term United States Treasury Bonds and Notes;
Government National Mortgage Association (GNMA) modified pass-through mortgage
backed securities; three-month United States Treasury Bills; and ninety-day
commercial paper. The Funds may trade in any interest rate futures contracts for
which there exists a public market, including, without limitation, the foregoing
instruments.
EXAMPLE OF FUTURES CONTRACT SALE. The Funds would engage in an interest
rate futures contract sale to maintain the income advantage from continued
holding of a long-term bond while endeavoring to avoid part or all of the loss
in market value that would otherwise accompany a decline in long-term securities
prices. Assume that the market value of a certain security held by a particular
Fund tends to move in concert with the futures market prices of long-term United
States Treasury bonds ("Treasury bonds"). The adviser wishes to fix the current
market value of this portfolio security until some point in the future. Assume
the portfolio security has a market value of 100, and the adviser believes that,
because of an anticipated rise in interest rates, the value will decline to 95.
The Fund might enter into futures contract sales of Treasury bonds for an
equivalent of 98. If the market value of the portfolio security does indeed
decline from 100 to 95, the equivalent futures market price for the Treasury
bonds might also decline from 98 to 93.
In that case, the five point loss in the market value of the portfolio
security would be offset by the five point gain realized by closing out the
futures contract sale. Of course, the futures market price of Treasury bonds
might well decline to more than 93 or to less than 93 because of the imperfect
correlation between cash and futures prices mentioned below.
The adviser could be wrong in its forecast of interest rates, and the
equivalent futures market price could rise above 98. In this case, the market
value of the portfolio securities, including the portfolio security being
protected, would increase. The benefit of this increase would be reduced by the
loss realized on closing out the futures contract sale.
If interest rate levels did not change, the Fund in the above example might
incur a loss of 2 points (which might be reduced by an offsetting transaction
prior to the settlement date). In each transaction, transaction expenses would
also be incurred.
EXAMPLE OF FUTURES CONTRACT PURCHASE. A Fund would engage in an interest
rate futures contract purchase when it is not fully invested in long-term bonds
but wishes to defer for a time
B-2
<PAGE>
the purchase of long-term bonds in light of the availability of advantageous
interim investments, e.g., shorter term securities whose yields are greater than
those available on long-term bonds. A Fund's basic motivation would be to
maintain for a time the income advantage from investing in the short-term
securities; the Fund would be endeavoring at the same time to eliminate the
effect of all or part of an expected increase in market price of the long-term
bonds that the Fund may purchase.
For example, assume that the market price of a long-term bond that the Fund
may purchase, currently yielding 10%, tends to move in concert with futures
market prices of Treasury bonds. The adviser wishes to fix the current market
price (and thus 10% yield) of the long-term bond until the time (four months
away in this example) when it may purchase the bond. Assume the long-term bond
has a market price of 100, and the adviser believes that, because of an
anticipated fall in interest rates, the price will have risen to 105 (and the
yield will have dropped to about 9 1/2%) in four months. The Fund might enter
into futures contracts purchases of Treasury bonds for an equivalent price of
98. At the same time, the Fund would assign a pool of investments in short-term
securities that are either maturing in four months or earmarked for sale in four
months, for purchase of the long-term bond at an assumed market price of 100.
Assume these short-term securities are yielding 15%. If the market price of the
long-term bond does indeed rise from 100 to 105, the equivalent futures market
price for Treasury bonds might also rise from 98 to 103. In that case, the 5
point increase in the price that the Fund pays for the long-term bond would be
offset by the 5 point gain realized by closing out the futures contract
purchase.
The adviser could be wrong in its forecast of interest rates; long-term
interest rates might rise to above 10%; and the equivalent futures market price
could fall below 98. If short-term rates at the same time fall to 10% or below,
it is possible that the Fund would continue with its purchase program for
long-term bonds. The market price of available long-term bonds would have
decreased. The benefit of this price decrease, and thus yield increase, will be
reduced by the loss realized on closing out the futures contract purchase.
If, however, short-term rates remained above available long-term rates, it
is possible that the Fund would discontinue its purchase program for long-term
bonds. The yield on short-term securities in the portfolio, including those
originally in the pool assigned to the particular long-term bond, would remain
higher than yields on long-term bonds. The benefit of this continued incremental
income will be reduced by the loss realized on closing out the futures contract
purchase. In each transaction, expenses would also be incurred.
II. MUNICIPAL BOND INDEX FUTURES CONTRACTS
A municipal bond index assigns relative values to the bonds included in the
index and the index fluctuates with changes in the market values of the bonds so
included. The Chicago Board of Trade has designed a futures contract based on
the Bond Buyer Municipal Bond Index. This Index is composed of 40 term revenue
and general obligation bonds, and its composition is updated regularly as new
bonds meeting the criteria of the Index are issued and existing bonds mature.
The Index is intended to provide an accurate indicator of trends and changes in
the
B-3
<PAGE>
municipal bond market. Each bond in the Index is independently priced by six
dealer-to-dealer municipal bond brokers daily. The 40 prices then are averaged
and multiplied by a coefficient. The coefficient is used to maintain the
continuity of the Index when its composition changes. The Chicago Board of
Trade, on which futures contracts based on this Index are traded, as well as
other U.S. commodities exchanges, are regulated by the Commodity Futures Trading
Commission. Transactions on such exchange are cleared through a clearing
corporation, which guarantees the performance of the parties to each contract.
EXAMPLE OF A MUNICIPAL BOND INDEX FUTURES CONTRACT
Consider a portfolio manager holding $1 million par value of each of the
following municipal bonds on February 2 in a particular year.
<TABLE>
<CAPTION>
Current Price
(points and
Maturity thirty-seconds
Issue Coupon Issue Date Date of a point)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ohio HFA 9 3/8 5/05/83 5/1/13 94-2
NYS Power 9 3/4 5/24/83 1/1/17 102-0
San Diego, CA IDR 10 6/07/83 6/1/18 100-14
Muscatine, IA Elec 10 5/8 8/24/83 1/1/08 103-16
Mass Health & Ed 10 9/23/83 7/1/16 100-12
</TABLE>
The current value of the portfolio is $5,003,750.
To hedge against a decline in the value of the portfolio, resulting from a
rise in interest rates, the portfolio manager can use the municipal bond index
futures contract. The current value of the Municipal Bond Index is 86-09.
Suppose the portfolio manager takes a position in the futures market opposite to
his or her cash market position by selling 50 municipal bond index futures
contracts (each contract represents $100,000 in principal value) at this price.
On March 23, the bonds in the portfolio have the following values:
<TABLE>
<S> <C>
Ohio HFA 81-28
NYS Power 98-26
San Diego, CA IDB 98-11
Muscatine, IA Elec 99-24
Mass Health & Ed 97-18
</TABLE>
The bond prices have fallen, and the portfolio has sustained a loss of
$130,312. This would have been the loss incurred without hedging. However, the
Municipal Bond Index also has fallen, and its value stands at 83-27. Suppose now
the portfolio manager closes out his or her futures position by buying back 50
municipal bond index futures contracts at this price.
B-4
<PAGE>
The following table provides a summary of transactions and the results of
the hedge.
<TABLE>
<CAPTION>
Cash Market Futures Market
----------- --------------
<S> <C> <C>
February 2 $5,003,750 long posi- Sell 50 Municipal Bond
tion in municipal futures contracts at
bonds 86-09
March 23 $4,873,438 long posi- Buy 50 Municipal Bond
tion in municipal futures contracts at
bonds 83-27
--------------------- ----------------------
$130,312 Loss $121,875 Gain
</TABLE>
While the gain in the futures market did not entirely offset the loss in
the cash market, the $8,437 loss is significantly lower than the loss which
would have been incurred without hedging.
The numbers reflected in this appendix do not take into account the effect
of brokerage fees or taxes.
III. MARGIN PAYMENTS
Unlike purchases or sales of portfolio securities, no price is paid or
received by a Fund upon the purchase or sale of a futures contract. Initially,
the Fund will be required to deposit with the broker or in a segregated account
with Galaxy's custodian an amount of cash or cash equivalents, known as initial
margin, based on the value of the contract. The nature of initial margin in
futures transactions is different from that of margin in security transactions
in that futures contract margin does not involve the borrowing of funds by the
customer to finance the transactions. Rather, the initial margin is in the
nature of a performance bond or good faith deposit on the contract which is
returned to the Fund upon termination of the futures contract assuming all
contractual obligations have been satisfied. Subsequent payments, called
variation margin, to and from the broker, will be made on a daily basis as the
price of the underlying instruments fluctuates making the long and short
positions in the futures contract more or less valuable, a process known as
marking-to-the-market. For example, when a particular Fund has purchased a
futures contract and the price of the contract has risen in response to a rise
in the underlying instruments, that position will have increased in value and
the Fund will be entitled to receive from the broker a variation margin payment
equal to that increase in value. Conversely, where the Fund has purchased a
futures contract and the price of the future contract has declined in response
to a decrease in the underlying instruments, the position would be less valuable
and the Fund would be required to make a variation margin payment to the broker.
At any time prior to expiration of the futures contract, the adviser may elect
to close the position by taking an opposite position, subject to the
availability of a secondary market, which will operate to terminate the Fund's
position in the futures contract. A final determination of variation margin is
then made, additional cash is required to be paid by or released to the Fund,
and the Fund realizes a loss or gain.
B-5
<PAGE>
IV. RISKS OF TRANSACTIONS IN FUTURES CONTRACTS
There are several risks in connection with the use of futures by the Funds
as hedging devices. One risk arises because of the imperfect correlation between
movements in the price of the futures and movements in the price of the
instruments that are the subject of the hedge. The price of the futures may move
more than or less than the price of the instruments being hedged. If the price
of the futures moves less than the price of the instruments which are the
subject of the hedge, the hedge will not be fully effective but, if the price of
the instruments being hedged has moved in an unfavorable direction, a Fund would
be in a better position than if it had not hedged at all. If the price of the
instruments being hedged has moved in a favorable direction, this advantage will
be partially offset by the loss on the futures. If the price of the futures
moves more than the price of the hedged instruments, the Funds involved will
experience either a loss or gain on the futures, which will not be completely
offset by movements in the price of the instruments which are the subject of the
hedge. To compensate for the imperfect correlation of movements in the price of
instruments being hedged and movements in the price of futures contracts, a Fund
may buy or sell futures contracts in a greater dollar amount than the dollar
amount of instruments being hedged if the volatility over a particular time
period of the prices of such instruments has been greater than the volatility
over such time period of the futures, or if otherwise deemed to be appropriate
by the investment adviser. Conversely, a Fund may buy or sell fewer futures
contracts if the volatility over a particular time period of the prices of the
instruments being hedged is less than the volatility over such time period of
the futures contract being used, or if otherwise deemed to be appropriate by
Fleet. It is also possible that, where a Fund had sold futures to hedge its
portfolio against a decline in the market, the market may advance and the value
of instruments held in the Fund may decline. If this occurred, the Fund would
lose money on the futures and also experience a decline in value in its
portfolio securities.
Where futures are purchased to hedge against a possible increase in the
price of securities before a Fund is able to invest its cash (or cash
equivalents) in an orderly fashion, it is possible that the market may decline
instead; if the Fund then concludes not to invest its cash at that time because
of concern as to possible further market decline or for other reasons, the Fund
will realize a loss on the futures contract that is not offset by a reduction in
the price of the instruments that were to be purchased.
In instances involving the purchase of futures contracts by a Fund, an
amount of cash and cash equivalents, equal to the market value of the futures
contracts, will be deposited in a segregated account with Galaxy's custodian
and/or in a margin account with a broker to collateralize the position and
thereby insure that the use of such futures is unleveraged.
In addition to the possibility that there may be an imperfect correlation,
or no correlation at all, between movements in the futures and the instruments
being hedged, the price of futures may not correlate perfectly with movement in
the cash market due to certain market distortions. Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through off-setting transactions that could distort the normal relationship
between the cash and futures markets. Second, with respect to financial futures
contracts, the liquidity of the
B-6
<PAGE>
futures market depends on participants entering into off-setting transactions
rather than making or taking delivery. To the extent participants decide to make
or take delivery, liquidity in the futures market could be reduced thus
producing distortions. Third, from the point of view of speculators, the deposit
requirements in the futures market are less onerous than margin requirements in
the securities market. Therefore, increased participation by speculators in the
futures market may also cause temporary price distortions. Due to the
possibility of price distortion in the futures market, and because of the
imperfect correlation between the movements in the cash market and movements in
the price of futures, a correct forecast of general market trends or interest
rate movements by the adviser may still not result in a successful hedging
transaction over a short time frame.
Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Funds
intend to purchase or sell futures only on exchanges or boards of trade where
there appear to be active secondary markets, there is no assurance that a liquid
secondary market on any exchange or board of trade will exist for any particular
contract or at any particular time. In such event, it may not be possible to
close a futures investment position, and in the event of adverse price
movements, a Fund would continue to be required to make daily cash payments of
variation margin. However, in the event futures contracts have been used to
hedge portfolio securities, such securities will not be sold until the futures
contract can be terminated. In such circumstances, an increase in the price of
the securities, if any, may partially or completely offset losses on the futures
contract. However, as described above, there is no guarantee that the price of
the securities will in fact correlate with the price movements in the futures
contract and thus provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary market in a
futures contract may be adversely affected by "daily price fluctuation limits"
established by commodity exchanges which limit the amount of fluctuation in a
futures contract price during a single trading day. Once the daily limit has
been reached in the contract, no trades may be entered into at a price beyond
the limit, thus preventing the liquidation of open futures positions. The
trading of futures contracts is also subject to the risk of trading halts,
suspensions, exchange or clearing house equipment failures, government
intervention, insolvency of a brokerage firm or clearing house or other
disruptions of normal activity, which could at times make it difficult or
impossible to liquidate existing positions or to recover excess variation margin
payments.
Successful use of futures by the Funds is also subject to the adviser's
ability to predict correctly movements in the direction of the market. For
example, if a particular Fund has hedged against the possibility of a decline in
the market adversely affecting securities held by it and securities prices
increase instead, the Fund will lose part or all of the benefit to the increased
value of its securities which it has hedged because it will have offsetting
losses in its futures positions. In addition, in such situations, if the Fund
has insufficient cash, it may have to sell securities to meet daily variation
margin requirements. Such sales of securities may be, but will not necessarily
be, at increased prices which reflect the rising market. The Funds may have to
sell securities at a time when it may be disadvantageous to do so.
B-7
<PAGE>
EXHIBIT 17(b)(iv)
[Front cover page]
Galaxy Tax-Exempt Bond Funds
The Galaxy Fund
Prospectus
___________, 2000
Galaxy Tax-Exempt Bond Fund
Galaxy New Jersey Municipal Bond Fund
Galaxy New York Municipal Bond Fund
Galaxy Connecticut Municipal Bond Fund
Galaxy Massachusetts Municipal Bond Fund
Galaxy Rhode Island Municipal Bond Fund
Retail A Shares and Retail B Shares
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved any shares of these Funds or determined if this
prospectus is accurate or complete. Anyone who tells you otherwise is committing
a crime.
<PAGE>
Contents
Contents
- --------
1 Introduction
3 Galaxy Tax-Exempt Bond Fund
8 Galaxy New Jersey Municipal Bond Fund
13 Galaxy New York Municipal Bond Fund
18 Galaxy Connecticut Municipal Bond Fund
23 Galaxy Massachusetts Municipal Bond Fund
29 Galaxy Rhode Island Municipal Bond Fund
33 Additional information about risk
34 Fund management
35 How to invest in the Funds
35 How sales charges work
38 Buying, selling and exchanging shares
39 How to buy shares
40 How to sell shares
42 How to exchange shares
42 Other transaction policies
44 Dividends, distributions and taxes
46 Galaxy investor programs
48 How to reach Galaxy
49 Financial highlights
<PAGE>
RISK/RETURN SUMMARY
INTRODUCTION
This prospectus describes the Galaxy Tax-Exempt Bond Funds. The Funds invest
primarily in municipal securities, which are debt obligations of state and local
governments and other political or public bodies or agencies. The interest paid
on municipal securities is generally exempt from federal income tax and, in some
cases, from state and local income tax.
On the following pages, you'll find important information about each of the
Galaxy Tax-Exempt Bond Funds, including:
- - the Fund's investment objective (sometimes called the Fund's goal) and
the main investment strategies used by the Fund's investment adviser in
trying to achieve that objective
- - the main risks associated with an investment in the Fund
- - the Fund's past performance measured on both a year-by-year and long-term
basis
- - the fees and expenses that you will pay as an investor in the Fund
[Sidenote:]
TAX-EQUIVALENT YIELD
One way to understand the tax advantages of a tax-exempt fund is to compare its
after-tax return to that of a taxable investment. For example, suppose a taxable
fund pays a return of 10%. If you're in the 36% federal income tax bracket, the
fund's return after taxes is 6.4%. When a tax-exempt fund pays a return of 10%,
you don't pay tax. So if you're in the 36% tax bracket, that's the equivalent of
earning about 15.6% on a taxable fund. If you're in a low tax bracket, however,
it may not be helpful to invest in a tax-exempt fund if you can achieve a higher
after-tax return from a taxable investment.
WHICH FUND IS RIGHT FOR YOU?
The Funds are designed for investors who are looking for income that's free of
federal income tax and who can accept fluctuations in price and yield. A Fund
that specializes in a particular state is best suited to residents of that state
who are also looking for income that is free of the state's income tax.
TAX-EXEMPT FUNDS ARE NOT APPROPRIATE INVESTMENTS FOR TAX-DEFERRED RETIREMENT
ACCOUNTS, SUCH AS IRAS, BECAUSE THEIR RETURNS BEFORE TAXES ARE GENERALLY LOWER
THAN THOSE OF TAXABLE FUNDS.
THE FUNDS' INVESTMENT ADVISER
Fleet Investment Advisors Inc. (the "Adviser") is the investment adviser for all
of these Funds. The Adviser, an indirect wholly-owned subsidiary of FleetBoston
Corporation, was
-1-
<PAGE>
established in 1984 and has its main office at 75 State Street, Boston,
Massachusetts 02109. The Adviser also provides investment management and
advisory services to individual and institutional clients and manages the other
Galaxy investment portfolios. As of December 31, 1999, the Adviser managed over
$__ billion in assets.
AN INVESTMENT IN THE FUNDS ISN'T A FLEET BANK DEPOSIT AND IT ISN'T INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. YOU COULD LOSE MONEY BY INVESTING IN THE FUNDS.
-2-
<PAGE>
Galaxy Tax-Exempt Bond Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks to provide shareholders with as high a level of current interest
income free of federal income tax as is consistent with preservation of capital.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its total assets in municipal
securities that pay interest which is exempt from regular federal income tax,
primarily bonds (normally 65% of total assets). Under normal conditions, the
Fund will invest no more than 20% of its total assets in taxable obligations,
such as U.S. Government obligations, money market instruments and repurchase
agreements.
Municipal securities purchased by the Fund may include general obligation
securities, revenue securities and private activity bonds. The interest on
private activity bonds may be subject to the federal alternative minimum tax.
Investments in private activity bonds will not be treated as investments in
municipal securities for purposes of the 80% requirement stated above.
In selecting portfolio securities for the Fund, the Adviser evaluates the
suitability of available bonds according to such factors as creditworthiness,
maturity, liquidity and interest rates. It also determines the appropriate
allocation of the Fund's assets among various geographic regions, issuers,
and industry sectors.
Nearly all of the Fund's investments will be of investment grade quality. These
are securities which have one of the top four ratings assigned by Standard &
Poor's Ratings Group (S&P) or Moody's Investors Service, Inc. (Moody's), or are
unrated securities determined by the Adviser to be of comparable quality. Under
normal market conditions, the Fund will invest at least 65% of its total assets
in securities that have one of the top three ratings assigned by S&P or Moody's
or unrated securities determined by the Adviser to be of comparable quality.
Occasionally, the rating of a security held by the Fund may be downgraded to
below investment grade. If that happens, the Fund doesn't have to sell the
security unless the Adviser determines that under the circumstances the security
is no longer an appropriate investment for the Fund. However, the Fund will
sell promptly any securities that are not rated investment grade by either
S&P or Moody's if the securities exceed 5% of the Fund's net assets.
The Fund's average weighted maturity will vary from time to time depending on
current economic and market conditions and the Adviser's assessment of probable
changes in interest rates.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective.
[Sidenote:]
MUNICIPAL SECURITIES
State and local governments issue municipal securities to raise money to finance
public works, to repay outstanding obligations, to raise funds for general
operating expenses and to make loans to other public institutions. Some
municipal securities, known as private activity bonds, are backed
-3-
<PAGE>
by private entities and are used to finance various non-public projects.
Municipal securities, which can be issued as bonds, notes or commercial paper,
usually have fixed interest rates, although some have interest rates that change
from time to time.
[Sidenote:]
TYPES OF MUNICIPAL SECURITIES
GENERAL OBLIGATION securities are secured by the issuer's full faith, credit and
taxing power. REVENUE OBLIGATION securities are usually payable only from
revenues derived from specific facilities or revenue sources. PRIVATE ACTIVITY
BONDS are usually revenue obligations since they are typically payable by the
private user of the facilities financed by the bonds.
[Sidenote:]
AVERAGE WEIGHTED MATURITY
Average weighted maturity gives you the average time until all debt securities
in a Fund come due or MATURE. It is calculated by averaging the time to maturity
of all debt securities held by a Fund with each maturity "weighted" according to
the percentage of assets it represents.
[Sidenote:]
DURATION
Duration is an approximate measure of the price sensitivity of a fund to
changes in interest rates. Unlike maturity which measures only the time until
final payment, duration gives you the average time it takes to receive all
expected cash flows (including interest payments, prepayments and final
payments) on the debt obligations held by a fund.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities, including municipal
securities, tend to move in the opposite direction to interest rates.
When rates are rising, the prices of debt securities tend to fall. When
rates are falling, the prices of debt securities tend to rise. Generally,
the longer the time until maturity, the more sensitive the price of a
debt security is to interest rate changes.
- - CREDIT RISK - The value of debt securities, including municipal
securities, also depends on the ability of issuers to make principal and
interest payments. If an issuer can't meet its payment obligations or if
its credit rating is lowered, the value of its debt securities will fall.
Debt securities which have the lowest of the top four ratings assigned by
S&P or Moody's have speculative characteristics. Changes in the economy
are more likely to affect the ability of issuers of these securities to
make payments of principal and interest than is the case with
higher-rated securities. The ability of a state or local government
issuer to make payments can be affected by many factors, including
economic conditions, the flow of tax revenues and changes in the level of
federal, state or local aid. Some municipal obligations are payable only
from limited revenue sources or private entities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
municipal securities held by the Fund to be paid off much sooner or later
than expected, which could adversely affect the Fund's value. In the
event that a security is paid off sooner than expected because of a
decline in interest rates, the Fund may be unable to recoup all of its
initial investment and may also suffer from having to reinvest in
lower-yielding securities. In the event of a later than expected payment
because of a rise in interest rates, the value of the obligation will
decrease and the Fund may suffer from the inability to invest in
higher-yielding securities.
-4-
<PAGE>
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance
the Fund's investment objective. It's possible, however, that these
evaluations will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past
and give some indication of the risk of investing in the Fund. Both assume
that all dividends and distributions are reinvested in the Fund. How the Fund
has performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares has varied from
year to year.The returns for Retail B Shares were different than the figures
shown because each class of shares has different expenses. The figures don't
include any sales charges that investors pay when buying or selling shares of
the Fund. If sales charges were included, the returns would be lower.
[Sidenote:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
[bar chart goes here]
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1997 1998 1999
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
9.25% 11.95% -5.37% 15.79% 3.31% 8.72% 5.73% %
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns (after taking into
account any sales charges) for the periods ended December 31, 1999, as compared
to a broad-based market index. The returns for Retail A Shares of the Fund for
periods prior to December 1, 1995 have been restated to include the effect of
the maximum 3.75% front-end sales charge which went into effect on that date.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
1 year 5 years Since inception
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares % % % (12/30/91)
- -----------------------------------------------------------------------------------------------------------------
Retail B Shares % % % (3/4/96)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
-5-
<PAGE>
<TABLE>
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Lehman Brothers Municipal % (since 12/31/91)
Bond Index % % % (since 2/29/96)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
For current yield information, please call 1-877-BUY-GALAXY (1-877-289-4252).
[Sidenote:]
The Lehman Brothers Municipal Bond Index is an unmanaged index which tracks the
performance of municipal bonds.
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
Shareholder fees (fees paid directly from your investment)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Maximum sales charge Maximum deferred
(load) on purchases sales charge (load)
shown as a % of the shown as a % of the
offering price offering price or sale
price, whichever is
less
- ------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares 3.75%(1) None(2)
- ------------------------------------------------------------------------------------
Retail B Shares None 5.00%(3)
- ------------------------------------------------------------------------------------
</TABLE>
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Total
Distribution Fund
Management and service Other operating
fees (12b-1) fees expenses expenses
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.75%(4) None % %(4)
- ------------------------------------------------------------------------------------------
Retail B Shares 0.75%(4) 0.80% % %(4)
- ------------------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the Funds -
How sales charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the Funds
- How sales charges work."
(3) This amount applies if you sell your shares in the first year after
purchase and gradually declines to 1% in the sixth year after purchase.
After six years, your Retail B Shares will automatically convert to Retail
A Shares. See "How to invest in the Funds - How sales charges work."
(4) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be %. Total Fund operating expenses after this waiver
are expected to be % for
-6-
<PAGE>
Retail A Shares and % for Retail B Shares. This fee waiver may be
revised or discontinued at any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your Retail B Shares convert to Retail A Shares after six years
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
Retail B Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
</TABLE>
If you hold Retail B Shares, you would pay the following expenses if you didn't
sell your shares:
<TABLE>
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail B Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Adviser's Tax-Exempt Investment Policy Committee is responsible for the
day-to-day management of the Fund's investment portfolio.
-7-
<PAGE>
Galaxy New Jersey Municipal Bond Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks as high a level of current interest income exempt from federal
income tax and, to the extent possible, from New Jersey personal income tax, as
is consistent with relative stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its total assets in municipal
securities that pay interest which is exempt from regular federal income tax,
and at least 65% of its total assets in New Jersey municipal securities, which
are securities issued by the State of New Jersey and other government issuers
and that pay interest which is exempt from both federal income tax and New
Jersey personal income tax. Under normal conditions, the Fund will invest no
more than 20% of its total assets in taxable obligations, such as U.S.
Government obligations, money market instruments and repurchase agreements.
Municipal securities purchased by the Fund may include general obligation
securities, revenue securities and private activity bonds. The interest on
private activity bonds may be subject to the federal alternative minimum tax.
Investments in private activity bonds will not be treated as investments in
municipal securities for purposes of the 80% requirement stated above.
In selecting portfolio securities for the Fund, the Adviser evaluates the
suitability of available bonds according to such factors as creditworthiness,
maturity, liquidity and interest rates. It also determines the appropriate
allocation of the Fund's assets among various issuers and industry sectors.
Nearly all of the Fund's investments will be of investment grade quality.
These are securities which have one of the top four ratings assigned by
Standard & Poor's Ratings Group (S&P) or Moody's Investors Service, Inc.
(Moody's), or are unrated securities determined by the Adviser to be of
comparable quality. Under normal market conditions, the Fund will invest at
least 65% of its total assets in securities that have one of the top three
ratings assigned by S&P or Moody's or unrated securities determined by the
Adviser to be of comparable quality. Occasionally, the rating of a security
held by the Fund may be downgraded to below investment grade. If that
happens, the Fund doesn't have to sell the security, unless the Adviser
determines that under the circumstances the security is no longer an
appropriate investment for the Fund. However, the Fund will sell promptly any
securities that are not rated investment grade by S&P or Moody's if the
securities exceed 5% of the Fund's net assets. The Fund's average weighted
maturity will vary from time to time depending on current economic and market
conditions and the Adviser's assessment of probable changes in interest rates.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective.
-8-
<PAGE>
[Sidenote:]
AVERAGE WEIGHTED MATURITY
Average weighted maturity gives you the average time until all debt securities
in a fund come due or mature. It is calculated by averaging the time to maturity
of all debt securities held by a fund with each maturity "weighted" according to
the percentage of assets it represents.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and by swings in
investment markets.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities, including municipal
securities, tend to move in the opposite direction to interest rates.
When rates are rising, the prices of debt securities tend to fall. When
rates are falling, the prices of debt securities tend to rise. Generally,
the longer the time until maturity, the more sensitive the price of a
debt security is to interest rate changes.
- - CREDIT RISK - The value of debt securities, including municipal
securities, also depends on the ability of issuers to make principal and
interest payments. If an issuer can't meet its payment obligations or if
its credit rating is lowered, the value of its debt securities will fall.
Debt securities which have the lowest of the top four ratings assigned by
S&P or Moody's have speculative characteristics. Changes in the economy
are more likely to affect the ability of issuers of these securities to
make payments of principal and interest than is the case with
higher-rated securities. The ability of a state or local government
issuer to make payments can be affected by many factors, including
economic conditions, the flow of tax revenues and changes in the level of
federal, state or local aid. Some municipal obligations are payable only
from limited revenue sources or private entities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
municipal securities held by the Fund to be paid off much sooner or later
than expected, which could adversely affect the Fund's value. In the
event that a security is paid off sooner than expected because of a
decline in interest rates, the Fund may be unable to recoup all of its
initial investment and may also suffer from having to reinvest in
lower-yielding securities. In the event of a later than expected payment
because of a rise in interest rates, the value of the obligation will
decrease and the Fund may suffer from the inability to invest in
higher-yielding securities.
- - LACK OF DIVERSIFICATION - The Fund is not diversified, which means that
it can invest a large percentage of its assets in a small number of
issuers. As a result, a change in the value of any one investment held by
the Fund may affect the overall value of the Fund more than it would
affect a diversified fund which holds more investments.
- - SINGLE STATE RISK - Because the Fund invests primarily in New Jersey
municipal securities, it is likely to be especially susceptible to
economic, political and regulatory events that affect New Jersey. Other
considerations affecting the Fund's investments in New Jersey municipal
securities are summarized in the Statement of Additional Information.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance
the Fund's investment objective. It's possible, however, that these
evaluations will prove to be inaccurate.
-9-
<PAGE>
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past
and give some indication of the risk of investing in the Fund. Both assume
that all dividends and distributions are reinvested in the Fund. How the Fund
has performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows the performance of Retail A Shares during the last
calendar year. The figures don't include any sales charges that investors pay
when buying or selling shares of the Fund. If sales charges were included,
the returns would be lower.
[Sidenote:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
[bar chart goes here]
- --------------
1999
- --------------
%
- --------------
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns (after taking into
account any sales charges) for the periods ended December 31, 1999, as compared
to a broad-based market index.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
1 year Since inception
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares % % (4/3/98)
- -------------------------------------------------------------------------------------------
Lehman Brothers Municipal
Bond Index % % (since 3/31/98)
- -------------------------------------------------------------------------------------------
</TABLE>
For current yield information, please call 1-877-BUY-GALAXY (1-877-289-4252).
[Sidenote:]
Lehman Brothers Municipal Bond Index is an unmanaged index which tracks the
performance of municipal bonds.
-10-
<PAGE>
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
Shareholder fees (fees paid directly from your investment)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Maximum sales charge Maximum deferred
(load) on purchases sales charge (load)
shown as a % of the shown as a % of the
offering price offering price or sale
price, whichever is
less
- ------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares 3.75%(1) None(2)
- ------------------------------------------------------------------------------------
</TABLE>
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Total
Fund
Management Distribution Other operating
fees (12b-1) fees expenses expenses
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.75%(3) None %(3) %(3)
- ------------------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the Funds -
How sales charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the Funds
- How sales charges work."
(3) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be %. The Fund's administrator is waiving a portion of
the administration fees and reimbursing certain expenses so that Other
expenses are expected to be %. Total Fund operating expenses after
these waivers and reimbursements are expected to be %. These fee
waivers and expense reimbursements may be revised or discontinued at any
time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
-11-
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Adviser's Tax-Exempt Investment Policy Committee is responsible for the
day-to-day management of the Fund's investment portfolio.
-12-
<PAGE>
Galaxy New York Municipal Bond Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks as high a level of current interest income exempt from federal
income tax and, to the extent possible, from New York State and New York City
personal income tax, as is consistent with relative stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its total assets in municipal
securities that pay interest which is exempt from regular federal income tax,
and at least 65% of its total assets in New York municipal securities, which are
securities issued by the State of New York and other government issuers and that
pay interest which is exempt from federal income tax and New York State and New
York City personal income tax. Under normal conditions, the Fund will invest no
more than 20% of its total assets in taxable obligations, such as U.S.
Government obligations, money market instruments and repurchase agreements.
Municipal securities purchased by the Fund may include general obligation
securities and private activity bonds. The interest on private activity bonds
may be subject to the federal alternative minimum tax. Investments in private
activity bonds will not be treated as investments in municipal securities for
purposes of the 80% requirement stated above.
In selecting portfolio securities for the Fund, the Adviser evaluates the
suitability of available bonds according to such factors as creditworthiness,
maturity, liquidity, and interest rates. It also determines the appropriate
allocation of the Fund's assets among various issuers and industry sectors.
Nearly all of the Fund's investments will be of investment grade quality. These
are securities which have one of the top four ratings assigned by Standard &
Poor's Ratings Group (S&P) or Moody's Investors Service, Inc. (Moody's), or are
unrated securities determined by the Adviser to be of comparable quality. Under
normal market conditions, the Fund will invest at least 65% of its total assets
in securities that have one of the top three ratings assigned by S&P or Moody's
or unrated securities determined by the Adviser to be of comparable quality.
Occasionally, the rating of a security held by the Fund may be downgraded to
below investment grade. If that happens, the Fund doesn't have to sell the
security unless the Adviser determines that under the circumstances the security
is no longer an appropriate investment for the Fund. However, the Fund will
sell promptly any securities that are not rated investmetn grade by S&P or
Moody's if the securities exceed 5% of the Fund's net assets.
The Fund's average weighted maturity will vary from time to time depending on
current economic and market conditions and the Adviser's assessment of probable
changes in interest rates.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective.
-13-
<PAGE>
[Sidenote:]
AVERAGE WEIGHTED MATURITY
Average weighted maturity gives you the average time until all debt securities
in a fund come due or mature. It is calculated by averaging the time to maturity
of all debt securities held by a fund with each maturity "weighted" according to
the percentage of assets it represents.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities, including municipal
securities, tend to move in the opposite direction to interest rates.
When rates are rising, the prices of debt securities tend to fall. When
rates are falling, the prices of debt securities tend to rise. Generally,
the longer the time until maturity, the more sensitive the price of a
debt security is to interest rate changes.
- - CREDIT RISK - The value of debt securities, including municipal
securities, also depends on the ability of issuers to make principal and
interest payments. If an issuer can't meet its payment obligations or if
its credit rating is lowered, the value of its debt securities will fall.
Debt securities which have the lowest of the top four ratings assigned by
S&P or Moody's have speculative characteristics. Changes in the economy
are more likely to affect the ability of issuers of these securities to
make payments of principal and interest than is the case with
higher-rated securities. The ability of a state or local government
issuer to make payments can be affected by many factors, including
economic conditions, the flow of tax revenues and changes in the level of
federal, state or local aid. Some municipal obligations are payable only
from limited revenue sources or private entities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
municipal securities held by the Fund to be paid off much sooner or later
than expected, which could adversely affect the Fund's value. In the
event that a security is paid off sooner than expected because of a
decline in interest rates, the Fund may be unable to recoup all of its
initial investment and may also suffer from having to reinvest in
lower-yielding securities. In the event of a later than expected payment
because of a rise in interest rates, the value of the obligation will
decrease and the Fund may suffer from the inability to invest in
higher-yielding securities.
- - LACK OF DIVERSIFICATION - The Fund is not diversified, which means that
it can invest a large percentage of its assets in a small number of
issuers. As a result, a change in the value of any one investment held by
the Fund may affect the overall value of the Fund more than it would
affect a diversified fund which holds more investments.
- - SINGLE STATE RISK - Because the Fund invests primarily in New York
municipal securities, the Fund's ability to achieve its investment
objective is dependent upon the ability of the issuers of New York
municipal securities to meet their continuing obligations for the payment
of principal and interest. New York State and New York City face
long-term economic problems that could seriously affect their ability and
that of other issuers of New York municipal securities to meet their
financial obligations. Other considerations affecting the
-14-
<PAGE>
Fund's investments in New York municipal securities are summarized in the
Statement of Additional Information.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance
the Fund's investment objective. It's possible, however, that these
evaluations will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past
and give some indication of the risk of investing in the Fund. Both assume
that all dividends and distributions are reinvested in the Fund. How the Fund
has performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares has varied from
year to year. The figures don't include any sales charges that investors pay
when buying or selling shares of the Fund. If sales charges were included,
the returns would be lower.
[Sidenote:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
[bar chart goes here]
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1997 1998 1999
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
8.29% 12.30% -7.26% 16.85% 3.38% 8.66% 5.96% %
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns (after taking into
account any sales charges) for the periods ended December 31, 1999, as compared
to a broad-based market index. The returns for Retail A Shares of the Fund for
periods prior to December 1, 1995 have been restated to include the effect of
the maximum 3.75% front-end sales charge which went into effect on that date.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
1 year 5 years Since inception
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares % % % (12/31/91)
- ------------------------------------------------------------------------------------------------------------------
Lehman Brothers
Municipal Bond
Index % % % (since 12/31/91)
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
-15-
<PAGE>
For current yield information, please call 1-877-BUY-GALAXY (1-877-289-4252).
[Sidenote:]
The Lehman Brothers Municipal Bond Index is an unmanaged index which tracks the
performance of municipal bonds.
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
Shareholder fees (fees paid directly from your investment)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Maximum sales charge Maximum deferred
(load) on purchases sales charge (load)
shown as a % of the shown as a % of the
offering price offering price or sale
price, whichever is
less
- ------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares 3.75%(1) None(2)
- ------------------------------------------------------------------------------------
</TABLE>
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Total
Fund
Management Distribution Other operating
fees (12b-1) fees expenses expenses
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.75%(3) None % %(3)
- ------------------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the
Funds - How sales charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the
Funds - How sales charges work."
(3) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be %. Total Fund operating expenses after this waiver
are expected to be %. This fee waiver may be revised or discontinued
at any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
-16-
<PAGE>
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Adviser's Tax-Exempt Investment Policy Committee is responsible for the
day-to-day management of the Fund's investment portfolio.
-17-
<PAGE>
Galaxy Connecticut Municipal Bond Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks as high a level of current interest income exempt from federal
income tax and, to the extent possible, from Connecticut personal income tax, as
is consistent with relative stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its total assets in municipal
securities that pay interest which is exempt from regular federal income tax,
and at least 65% of its total assets in Connecticut municipal securities, which
are securities issued by the State of Connecticut and other government issuers
and that pay interest which is exempt from both federal income tax and
Connecticut state income tax on individuals, trusts and estates. Under normal
conditions, the Fund will invest no more than 20% of its total assets in taxable
obligations, such as U.S. Government obligations, money market instruments and
repurchase agreements.
Municipal securities purchased by the Fund may include general obligation
securities, revenue securities and private activity bonds. The interest on
private activity bonds may be subject to the federal alternative minimum tax.
Investments in private activity bonds will not be treated as investments in
municipal securities for purposes of the 80% requirement stated above.
In selecting portfolio securities for the Fund, the Adviser evaluates the
suitability of available bonds according to such factors as creditworthiness,
maturity, liquidity, and interest rates. It also determines the appropriate
allocation of the Fund's assets among various issuers and industry sectors.
Nearly all of the Fund's investments will be of investment grade quality. These
are securities which have one of the top four ratings assigned by Standard &
Poor's Ratings Group (S&P) or Moody's Investors Service, Inc. (Moody's), or are
unrated securities determined by the Adviser to be of comparable quality. Under
normal market conditions, the Fund will invest at least 65% of its total assets
in securities that have one of the top three ratings assigned by S&P or Moody's
or unrated securities determined by the Adviser to be of comparable quality.
Occasionally, the rating of a security held by the Fund may be downgraded to
below investment grade. If that happens, the Fund doesn't have to sell the
security unless the Adviser determines that under the circumstances the security
is no longer an appropriate investment for the Fund. However, the Fund will
sell promptly any securities that are not rated investment grade by S&P or
Moody's if the securities exceed 5% of the Fund's net assets.
The Fund's average weighted maturity will vary from time to time depending on
current market conditions and the Adviser's assessment of probable changes in
interest rates.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective.
-18-
<PAGE>
[Sidenote:]
AVERAGE WEIGHTED MATURITY
Average weighted maturity gives you the average time until all debt securities
in a fund come due or mature. It is calculated by averaging the time to maturity
of all debt securities held by a fund with each maturity "weighted" according to
the percentage of assets it represents.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities, including municipal
securities, tend to move in the opposite direction to interest rates.
When rates are rising, the prices of debt securities tend to fall. When
rates are falling, the prices of debt securities tend to rise. Generally,
the longer the time until maturity, the more sensitive the price of a
debt security is to interest rate changes.
- - CREDIT RISK - The value of debt securities, including municipal
securities, also depends on the ability of issuers to make principal and
interest payments. If an issuer can't meet its payment obligations or if
its credit rating is lowered, the value of its debt securities will fall.
Debt securities which have the lowest of the top four ratings assigned by
S&P or Moody's have speculative characteristics. Changes in the economy
are more likely to affect the ability of issuers of these securities to
make payments of principal and interest than is the case with
higher-rated securities. The ability of a state or local government
issuer to make payments can be affected by many factors, including
economic conditions, the flow of tax revenues and changes in the level of
federal, state or local aid. Some municipal obligations are payable only
from limited revenue sources or by private entities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
municipal securities held by the Fund to be paid off much sooner or later
than expected, which could adversely affect the Fund's value. In the
event that a security is paid off sooner than expected because of a
decline in interest rates, the Fund may be unable to recoup all of its
initial investment and may also suffer from having to reinvest in
lower-yielding securities. In the event of a later than expected payment
because of a rise in interest rates, the value of the obligation will
decrease and the Fund may suffer from the inability to invest in
higher-yielding securities.
- - LACK OF DIVERSIFICATION - The Fund is not diversified, which means that
it can invest a large percentage of its assets in a small number of
issuers. As a result, a change in the value of any one investment held by
the Fund may affect the overall value of the Fund more than it would
affect a diversified fund which holds more investments.
- - SINGLE STATE RISK - Because the Fund invests primarily in Connecticut
municipal securities, it is likely to be especially susceptible to
economic, political and regulatory events that affect Connecticut. Other
considerations affecting the Fund's investments in Connecticut municipal
securities are summarized in the Statement of Additional Information.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance
the Fund's investment objective. It's possible, however, that these
evaluations will prove to be inaccurate.
-19-
<PAGE>
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past
and give some indication of the risk of investing in the Fund. Both assume
that all dividends and distributions are reinvested in the Fund. How the Fund
has performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares has varied from
year to year. The figures don't include any sales charges that investors pay
when buying or selling shares of the Fund. If sales charges were included,
the returns would be lower.
[Sidenote:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
[bar chart goes here]
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
1994 1995 1996 1997 1998 1999
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
-8.07% 18.02% 3.35% 8.61% 5.84% %
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns (after taking into
account any sales charges) for the periods ended December 31, 1999, as compared
to a broad-based market index. The returns for Retail A Shares of the Fund for
periods prior to December 1, 1995 have been restated to include the effect of
the maximum 3.75% front-end sales charge which went into effect on that date.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
1 year 5 years Since inception
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares % % % (3/16/93)
- ---------------------------------------------------------------------------------------------------------------
Lehman Brothers
Municipal Bond
Index % % % (since 3/31/93)
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
For current yield information, please call 1-877-BUY-GALAXY (1-877-289-4252).
-20-
<PAGE>
[Sidenote:]
The Lehman Brothers Municipal Bond Index is an unmanaged index which tracks the
performance of municipal bonds.
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
Shareholder fees (fees paid directly from your investment)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Maximum sales charge Maximum deferred
(load) on purchases sales charge (load)
shown as a % of the shown as a % of the
offering price offering price or sale
price, whichever is
less
- ------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares 3.75%(1) None (2)
- ------------------------------------------------------------------------------------
</TABLE>
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Total
Fund
Management Distribution Other operating
fees (12b-1) fees expenses expenses
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.75%(3) None % %(3)
- ------------------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the
Funds - How sales charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the
Funds - How sales charges work."
(3) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be %. Total Fund operating expenses after this waiver
are expected to be %. This fee waiver may be revised or discontinued
at any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
-21-
<PAGE>
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
Adviser's Tax-Exempt Investment Policy Committee is responsible for the
day-to-day management of the Fund's investment portfolio.
-22-
<PAGE>
Galaxy Massachusetts Municipal Bond Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks as high a level of current interest income exempt from federal
income tax and, to the extent possible, from Massachusetts personal income tax,
as is consistent with relative stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its total assets in municipal
securities that pay interest which is exempt from regular federal income tax,
and at least 65% of its total assets in Massachusetts municipal securities,
which are securities issued by the Commonwealth of Massachusetts and other
government issuers and that pay interest which is exempt from both federal
income tax and Massachusetts personal income tax. Under normal conditions, the
Fund will invest no more than 20% of its total assets in taxable obligations,
such as U.S. Government obligations, money market instruments and repurchase
agreements.
Municipal securities purchased by the Fund may include general obligation
securities, revenue securities and private activity bonds. The interest on
private activity bonds may be subject to the federal alternative minimum tax.
Investments in private activity bonds will not be treated as investments in
municipal securities for purposes of the 80% requirement stated above.
In selecting portfolio securities for the Fund, the Adviser evaluates the
suitability of available bonds according to such factors as creditworthiness,
maturity, liquidity, and interest rates. It also determines the appropriate
allocation of the Fund's assets among various issuers and industry sectors.
Nearly all of the Fund's investments will be of investment grade quality. These
are securities which have one of the top four ratings assigned by Standard &
Poor's Ratings Group (S&P) or Moody's Investors Service, Inc. (Moody's), or are
unrated securities determined by the Adviser to be of comparable quality. Under
normal market conditions, the Fund will invest at least 65% of its total assets
in securities that have one of the top three ratings assigned by S&P or Moody's
or unrated securities determined by the Adviser to be of comparable quality.
Occasionally, the rating of a security held by the Fund may be downgraded to
below investment grade. If that happens, the Fund doesn't have to sell the
security unless the Adviser determines that under the circumstances the security
is no longer an appropriate investment for the Fund. However, the Fund will
sell promptly any securities that are not rated investment grade by S&P or
Moody's if the securities exceed 5% of the Fund's net assets.
The Fund's average weighted maturity will vary from time to time depending on
current economic and market conditions and the Adviser's assessment of probable
changes in interest rates.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective.
-23-
<PAGE>
[Sidenote:]
AVERAGE WEIGHTED MATURITY
Average weighted maturity gives you the average time until all debt securities
in a fund come due or mature. It is calculated by averaging the time to maturity
of all debt securities held by a fund with each maturity "weighted" according to
the percentage of assets it represents.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities, including municipal
securities, tend to move in the opposite direction to interest rates.
When rates are rising, the prices of debt securities tend to fall. When
rates are falling, the prices of debt securities tend to rise. Generally,
the longer the time until maturity, the more sensitive the price of a
debt security is to interest rate changes.
- - CREDIT RISK - The value of debt securities, including municipal
securities, also depends on the ability of issuers to make principal and
interest payments. If an issuer can't meet its payment obligations or if
its credit rating is lowered, the value of its debt securities will fall.
Debt securities which have the lowest of the top four ratings assigned by
S&P or Moody's have speculative characteristics. Changes in the economy
are more likely to affect the ability of issuers of these securities to
make payments of principal and interest than is the case with
higher-rated securities. The ability of a state or local government
issuer to make payments can be affected by many factors, including
economic conditions, the flow of tax revenues and changes in the level of
federal, state or local aid. Some municipal obligations are payable only
from limited revenue sources or by private entities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
municipal securities held by the Fund to be paid off much sooner or later
than expected, which could adversely affect the Fund's value. In the
event that a security is paid off sooner than expected because of a
decline in interest rates, the Fund may be unable to recoup all of its
initial investment and may also suffer from having to reinvest in
lower-yielding securities. In the event of a later than expected payment
because of a rise in interest rates, the value of the obligation will
decrease and the Fund may suffer from the inability to invest in
higher-yielding securities.
- - LACK OF DIVERSIFICATION - The Fund is not diversified, which means that
it can invest a large percentage of its assets in a small number of
issuers. As a result, a change in the value of any one investment held by
the Fund may affect the overall value of the Fund more than it would
affect a diversified fund which holds more investments.
- - SINGLE STATE RISK - Because the Fund invests primarily in Massachusetts
municipal securities, it is likely to be especially susceptible to
economic, political and regulatory events that affect Massachusetts.
Other considerations affecting the Fund's investments in Massachusetts
municipal securities are summarized in the Statement of Additional
Information.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance
the Fund's investment objective. It's possible, however, that these
evaluations will prove to be inaccurate.
-24-
<PAGE>
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past
and give some indication of the risk of investing in the Fund. Both assume
that all dividends and distributions are reinvested in the Fund. How the Fund
has performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares has varied from
year to year. The figures don't include any sales charges that investors pay
when buying or selling shares of the Fund. If sales charges were included,
the returns would be lower than shown.
[Sidenote:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
[bar chart goes here]
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
1994 1995 1996 1997 1998 1999
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
-7.71% 17.15% 3.04% 8.95% 5.63% %
- -----------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns (after taking into
account any sales charges) for the periods ended December 31, 1999, as compared
to a broad-based market index. The returns for Retail A Shares of the Fund for
periods prior to December 1, 1995 have been restated to include the effect of
the maximum 3.75% front-end sales charge which went into effect on that date.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 5 years Since inception
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares % % (3/12/93)
- -------------------------------------------------------------------------------------------------------------
Lehman Brothers Municipal
Bond Index
% % % (since 2/28/93)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
For current yield information, please call 1-877-BUY-GALAXY (1-877-289-4252).
-25-
<PAGE>
[Sidenote:]
The Lehman Brothers Municipal Bond Index is an unmanaged index which tracks the
performance of municipal bonds.
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
-26-
<PAGE>
Shareholder fees (fees paid directly from your investment)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Maximum sales charge Maximum deferred
(load) on purchases sales charge (load)
shown as a % of the shown as a % of the
offering price offering price or sale
price, whichever is
less
- ------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares 3.75%(1) None(2)
- ------------------------------------------------------------------------------------
</TABLE>
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Total
Fund
Management Distribution Other operating
fees (12b-1) fees expenses expenses
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.75%(3) None % %(3)
- ------------------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in the
Funds - How sales charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the
Funds - How sales charges work."
(3) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be %. Total Fund operating expenses after this waiver
are expected to be %. This fee waiver may be revised or discontinued
at any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
</TABLE>
-27-
<PAGE>
[Sidenote:]
PORTFOLIO MANAGER
The Adviser's Tax-Exempt Investment Policy Committee is responsible for the
day-to-day management of the Fund's investment portfolio.
-28-
<PAGE>
Galaxy Rhode Island Municipal Bond Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks as high a level of current interest income exempt from federal
income tax and, to the extent possible, from Rhode Island personal income tax,
as is consistent with relative stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its total assets in municipal
securities that pay interest which is exempt from regular federal income tax,
and at least 65% of its total assets in Rhode Island municipal securities, which
are securities issued by the State of Rhode Island and other government issuers
and that pay interest which is exempt from both federal income tax and Rhode
Island personal income tax. Under normal conditions, the Fund will invest no
more than 20% of its total assets in taxable obligations, such as U.S.
Government obligations, money market instruments and repurchase agreements.
Municipal securities purchased by the Fund may include general obligation
securities, revenue securities and private activity bonds. The interest on
private activity bonds may be subject to the federal alternative minimum tax.
Investments in private activity bonds will not be treated as investments in
municipal securities for purposes of the 80% requirement stated above.
In selecting portfolio securities for the Fund, the Adviser evaluates the
suitability of available bonds according to such factors as creditworthiness,
maturity, liquidity, and interest rates. It also determines the appropriate
allocation of the Fund's assets among various issuers and industry sectors.
Nearly all of the Fund's investments will be of investment grade quality. These
are securities which have one of the top four ratings assigned by Standard &
Poor's Ratings Group (S&P) or Moody's Investors Service, Inc. (Moody's), or are
unrated securities determined by the Adviser to be of comparable quality. Under
normal market conditions, the Fund will invest at least 65% of its total assets
in securities that have one of the top three ratings assigned by S&P or Moody's
or unrated securities determined by the Adviser to be of comparable quality.
Occasionally, the rating of a security held by the Fund may be downgraded to
below investment grade. If that happens, the Fund doesn't have to sell the
security unless the Adviser determines that under the circumstances the security
is no longer an appropriate investment for the Fund. However, the Fund will
sell promptly any securities that are not rated investmetn grade by S&P or
Moody's if the securities exceed 5% of the Fund's net assets.
The Fund's average weighted maturity will vary from time to time depending on
economic and market conditions and the Adviser's assessment of probable changes
in interest rates.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective.
-29-
<PAGE>
[Sidenote:]
AVERAGE WEIGHTED MATURITY:
Average weighted maturity gives you the average time until all debt securities
in a fund come due or mature. It is calculated by averaging the time to maturity
of all debt securities held by a fund with each maturity "weighted" according to
the percentage of assets it represents.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities, including municipal
securities, tend to move in the opposite direction to interest rates.
When rates are rising, the prices of debt securities tend to fall. When
rates are falling, the prices of debt securities tend to rise. Generally,
the longer the time until maturity, the more sensitive the price of a
debt security is to interest rate changes.
- - CREDIT RISK - The value of debt securities, including municipal
securities, also depends on the ability of issuers to make principal and
interest payments. If an issuer can't meet its payment obligations or if
its credit rating is lowered, the value of its debt securities will fall.
Debt securities which have the lowest of the top four ratings assigned by
S&P or Moody's have speculative characteristics. Changes in the economy
are more likely to affect the ability of issuers of these securities to
make payments of principal and interest than is the case with
higher-rated securities. The ability of a state or local government
issuer to make payments can be affected by many factors, including
economic conditions, the flow of tax revenues and changes in the level of
federal, state or local aid. Some municipal obligations are payable only
from limited revenue sources or by private entities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
municipal securities held by the Fund to be paid off much sooner or later
than expected, which could adversely affect the Fund's value. In the
event that a security is paid off sooner than expected because of a
decline in interest rates, the Fund may be unable to recoup all of its
initial investment and may also suffer from having to reinvest in
lower-yielding securities. In the event of a later than expected payment
because of a rise in interest rates, the value of the obligation will
decrease and the Fund may suffer from the inability to invest in
higher-yielding securities.
- - LACK OF DIVERSIFICATION - The Fund is not diversified, which means that
it can invest a large percentage of its assets in a small number of
issuers. As a result, a change in the value of any one investment held by
the Fund may affect the overall value of the Fund more than it would
affect a diversified fund which holds more investments.
- - SINGLE STATE RISK - Because the Fund invests primarily in Rhode Island
municipal securities, it is likely to be especially susceptible to
economic, political and regulatory events that affect Rhode Island. Other
considerations affecting the Fund's investments in Rhode Island municipal
securities are summarized in the Statement of Additional Information.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance
the Fund's investment objective. It's possible, however, that these
evaluations will prove to be inaccurate.
-30-
<PAGE>
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past
and give some indication of the risk of investing in the Fund. Both assume
that all dividends and distributions are reinvested in the Fund. How the Fund
has performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares has varied from
year to year. The figures don't include any sales charges that investors pay
when buying or selling shares of the Fund. If sales charges were included,
the returns would be lower.
[Sidenote:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
[bar chart goes here]
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
1995 1996 1997 1998 1999
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
14.32% 3.63% 8.54% 5.87% %
- ---------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns (after taking into
account any sales charges) for the periods ended December 31, 1999, as compared
to a broad-based market index. The returns for Retail A Shares of the Fund for
periods prior to December 1, 1995 have been restated to include the effect of
the maximum 3.75% front-end sales charge which went into effect on that date.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
1 year 5 years Since inception
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares % % % (12/20/94)
- ------------------------------------------------------------------------------------------------------------------------
Lehman Brothers
Municipal Bond
Index % % % (since 12/31/94)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The Lehman Brothers Municipal Bond Index is an unmanaged index which tracks the
performance of municipal bonds.
-31-
<PAGE>
FEES AND EXPENSES OF THE FUND
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
Shareholder fees (fees paid directly from your investment)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Maximum sales charge Maximum deferred
(load) on purchases sales charge (load)
shown as a % of the shown as a % of the
offering price offering price or sale
price, whichever is
less
- ------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares 3.75%(1) None(2)
- ------------------------------------------------------------------------------------
</TABLE>
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Total
Fund
Management Distribution Other operating
fees (12b-1) fees expenses expenses
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail A Shares 0.75%(3) None % %(3)
- ------------------------------------------------------------------------------------------
</TABLE>
(1) Reduced sales charges may be available. See "How to invest in
Funds - How sales charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the
Funds - How sales charges work."
(3) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be %. Total Fund operating expenses after this waiver
are expected to be %. This fee waiver may be revised or discontinued
at any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------------------------------------
-32-
<PAGE>
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Adviser's Tax-Exempt Investment Policy Committee is responsible for the
day-to-day management of the Fund's investment portfolio.
-33-
<PAGE>
ADDITIONAL INFORMATION ABOUT RISK
The main risks associated with an investment in each of the Galaxy Tax-Exempt
Bond Funds have been described above. The following supplements that discussion.
TEMPORARY DEFENSIVE POSITIONS
Each Fund may temporarily hold up to 100% of its total assets in investments
that are not part of its main investment strategy to try to avoid losses during
unfavorable market conditions. These investments may include cash (which will
not earn any income) and taxable investments, such as money market instruments
and debt securities issued or guaranteed by the U.S. Government or its agencies,
in excess of 20% of its total assets. This strategy could prevent a Fund from
achieving its investment objective.
OTHER TYPES OF INVESTMENTS
This prospectus describes each Fund's main investment strategies and the
particular types of securities in which the Fund mainly invests. Each Fund
may, from time to time, pursue other investment strategies and make other
types of investments in support of its overall investment goal. These
supplemental investment strategies which are not considered to be main
investment strategies by the Fund - and the risks involved - are described in
detail in the Statement of Additional Information (SAI) which is referred to
on the back cover of this prospectus.
-34-
<PAGE>
FUND MANAGEMENT
ADVISER
The Adviser, subject to the general supervision of Galaxy's Board of Trustees,
manages each Fund in accordance with its investment objective and policies,
makes decisions with respect to, and places orders for, all purchases and sales
of portfolio securities, and maintains related records.
ALLOCATION OF ORDERS FOR PORTFOLIO SECURITIES
The Adviser may allocate orders for the purchase and sale of portfolio
securities to certain financial institutions, including those that are
affiliated with the Adviser or that have sold shares of the Funds, to the extent
permitted by law or by order of the Securities and Exchange Commission. The
Adviser will allocate orders to such institutions only if it believes that the
quality of the transaction and the commission are comparable to what they would
be with other qualified brokerage firms.
MANAGEMENT FEES
The management fees paid to the Adviser by the Funds during the last fiscal year
are set forth below.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Fund Management fee as a % of average net assets
- --------------------------------------------------------------------------------------------------------------
<S> <C>
Tax-Exempt Bond %
- --------------------------------------------------------------------------------------------------------------
New Jersey Municipal Bond %
- --------------------------------------------------------------------------------------------------------------
New York Municipal Bond %
- --------------------------------------------------------------------------------------------------------------
Connecticut Municipal Bond %
- --------------------------------------------------------------------------------------------------------------
Massachusetts Municipal Bond %
- --------------------------------------------------------------------------------------------------------------
Rhode Island Municipal Bond %
- --------------------------------------------------------------------------------------------------------------
</TABLE>
-35-
<PAGE>
HOW TO INVEST IN THE FUNDS
All of the Funds offer Retail A Shares. The Tax-Exempt Bond Fund also offers
Retail B Shares.
HOW SALES CHARGES WORK
You will normally pay a sales charge to invest in the Funds. If you buy Retail A
Shares of a Fund, you'll usually pay a sales charge (sometimes called a
front-end load) at the time you buy your shares. If you buy Retail B Shares of
the Tax-Exempt Bond Fund, you may have to pay a contingent deferred sales charge
(sometimes called a back-end load or CDSC) when you sell your shares. This
section explains these two options.
[Sidenote:]
NET ASSET VALUE
The price you pay for your shares is based on the net asset value per share
(NAV). It's the value of a Fund's assets attributable to Retail A Shares or
Retail B Shares, minus the value of the Fund's liabilities attributable to
Retail A Shares or Retail B Shares, divided by the number of Retail A Shares or
Retail B Shares held by investors.
RETAIL A SHARES
The table below shows the sales charge you'll pay if you buy Retail A Shares of
the Funds. The offering price is the NAV of the shares purchased, plus any
applicable sales charge.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Total sales charge
- ------------------------------------------------------------------------------------------------
Amount of your investment As a % of the offering As a % of your
price per share investment
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Less than $50,000 3.75% 3.90%
- ------------------------------------------------------------------------------------------------
$50,000 but less than
$100,000 3.50% 3.63%
- ------------------------------------------------------------------------------------------------
$100,000 but less than
$250,000 3.00% 3.09%
- ------------------------------------------------------------------------------------------------
$250,000 but less than
$500,000 2.50% 2.56%
- ------------------------------------------------------------------------------------------------
$500,000 and over 0.00%(1) 0.00%(1)
- ------------------------------------------------------------------------------------------------
</TABLE>
(1) There is no front-end sales charge on investments in Retail A Shares of
$500,000 or more. However, if you sell the shares within one year after
buying them, you'll pay a CDSC of 1% of the offering price or 1% of the net
asset value of your shares, whichever is less, unless the shares were sold
because of the death or disability of the shareholder. In addition, Galaxy
will
-36-
<PAGE>
waive the 1% CDSC on your initial sale of shares. This waiver will not
apply to amounts reinvested within one year following your initial sale of
shares.
Galaxy's distributor may from time to time implement programs under which a
broker-dealer's sales force may be eligible to win nominal awards for certain
sales efforts. If any such program is made available to any broker-dealer, it
will be made available to all broker-dealers on the same terms. Payments made
under such programs are made by Galaxy's distributor out of its own assets and
not out of the assets of the Funds. These programs will not change the price of
Retail A Shares or the amount that the Funds will receive from such sales.
Certain affiliates of the Adviser may, at their own expense, provide additional
compensation to affiliated broker-dealers whose customers purchase significant
amounts of Retail A Shares of one or more Funds and to unaffiliated
broker-dealers whose customers purchase Retail A Shares of one or more of the
Funds. Such compensation will not represent an additional expense to the Funds
or their shareholders, since it will be paid from the assets of the Adviser's
affiliates.
There's no sales charge when you buy Retail A Shares if:
- - you buy shares by reinvesting your dividends and distributions
- - you buy shares with money from another Galaxy Fund on which you've
already paid a sales charge (as long as you buy the new shares within 90
days after selling your other shares)
- - you're an investment professional who places trades for your clients and
charges them a fee.
- - you buy shares under an all-inclusive fee program (sometimes called a
"wrap fee program") offered by a broker-dealer or other financial
institution
- - you were a Galaxy shareholder before December 1, 1995
- - you previously paid a sales charge for the shares of another mutual fund
company (as long as you buy the Galaxy shares within 60 days of selling
your other shares)
[Sidenote:]
Ask your investment professional or Galaxy's distributor, or consult the SAI,
for other instances in which the sales load on Retail A Shares is waived. When
you buy your shares, you must tell your investment professional or Galaxy's
distributor that you qualify for a sales load waiver. To contact Galaxy's
distributor call 1-877-BUY- GALAXY (1-877-289-4252).
RETAIL B SHARES
If you buy Retail B Shares of the Tax-Exempt Bond Fund, you won't pay a CDSC
unless you sell your shares within six years of buying them. The following table
shows the schedule of CDSC charges:
-37-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
If you sell all your shares You'll pay a CDSC of
- ------------------------------------------------------------------------------------------------------------
<S> <C>
during the first year 5.00%
- ------------------------------------------------------------------------------------------------------------
during the second year 4.00%
- ------------------------------------------------------------------------------------------------------------
during the third year 3.00%
- ------------------------------------------------------------------------------------------------------------
during the fourth year 3.00%
- ------------------------------------------------------------------------------------------------------------
during the fifth year 2.00%
- ------------------------------------------------------------------------------------------------------------
during the sixth year 1.00%
- ------------------------------------------------------------------------------------------------------------
after the sixth year None
- ------------------------------------------------------------------------------------------------------------
</TABLE>
For purposes of calculating the CDSC, all purchases made during a calendar month
are considered to be made on the first day of that month. The CDSC is based on
the value of the Retail B Shares on the date that they are sold or the original
cost of the shares, whichever is lower. To keep your CDSC as low as possible
each time you sell shares, Galaxy will first sell any shares in your account
that are not subject to a CDSC. If there are not enough of these, Galaxy will
sell those shares that have the lowest CDSC. There is no CDSC on Retail B Shares
that you acquire by reinvesting your dividends and distributions. In addition,
there's no CDSC when Retail B Shares are sold because of the death or disability
of a shareholder and in certain other circumstances such as exchanges. Ask your
investment professional or Galaxy's distributor, or consult the SAI, for other
instances in which the CDSC is waived. To contact Galaxy's distributor, call
1-877-BUY-GALAXY (1-877-289-4252).
DISTRIBUTION AND SHAREHOLDER SERVICE FEES
Retail A Shares of the Funds can pay shareholder service fees at an annual rate
of up to 0.50% of each Fund's Retail A Share assets. The Fund does not intend to
pay more than 0.15% in shareholder service fees with respect to Retail A Shares
during the current fiscal year.
Retail B Shares of the Tax-Exempt Bond Fund pay distribution and shareholder
service (12b-1) fees at an annual rate of up to 1.15% of the Fund's Retail B
Share assets. The Fund does not intend to pay more than 0.80% in distribution
and shareholder service (12b-1) fees during the current fiscal year. Galaxy has
adopted a plan under Rule 12b-1 that allows the Tax-Exempt Bond Fund to pay fees
from its Retail B Share assets for selling and distributing Retail B Shares and
for services provided to shareholders. Because 12b-1 fees are paid on an ongoing
basis, over time they increase the cost of your investment and may cost more
than paying other sales charges.
CONVERTING RETAIL B SHARES TO RETAIL A SHARES
Six years after you buy Retail B Shares of the Tax-Exempt Bond Fund, they will
automatically convert to Retail A Shares of the Fund. This allows you to benefit
from the lower annual expenses of Retail A Shares.
-38-
<PAGE>
CHOOSING BETWEEN RETAIL A SHARES AND RETAIL B SHARES
Retail B Shares are subject to higher fees than Retail A Shares. For this
reason, Retail A Shares can be expected to pay higher dividends than Retail B
Shares. However, because Retail A Shares are subject to an initial sales
charge which is deducted at the time you purchase Retail A Shares (unless you
qualify for a sales load waiver), you will have less of your purchase price
invested in a particular Fund if you purchase Retail A Shares than if you
purchase Retail B Shares of the Fund.
In deciding whether to buy Retail A Shares or Retail B Shares of the Tax-Exempt
Bond Fund, you should consider how long you plan to hold the shares. Over time,
the higher fees on Retail B Shares may equal or exceed the initial sales charge
and fees for Retail A Shares. Retail A Shares may be a better choice if you
qualify to have the sales charge reduced or eliminated or if you plan to sell
your shares within one or two years. Consult your financial professional for
help in choosing the appropriate share class.
BUYING, SELLING AND EXCHANGING SHARES
You can buy and sell Retail A Shares and Retail B Shares of the Funds on any day
that the Funds are open for business, which is any day that the New York Stock
Exchange is open. The New York Stock Exchange is generally open for trading
every Monday through Friday, except for national holidays.
Retail A Shares and Retail B Shares have different prices. The price at which
you buy shares is the NAV next determined after your order is accepted, plus any
applicable sales charge. The price at which you sell shares is the NAV next
determined after receipt of your order in proper form as described below, less
any applicable CDSC in the case of Retail B Shares of the Tax-Exempt Bond Fund.
NAV is determined on each day the New York Stock Exchange is open for trading at
the close of regular trading that day (usually 4:00 p.m. Eastern time). If
market prices are readily available for securities owned by the Fund, they're
valued at those prices. If market prices are not readily available for some
securities, they are valued at fair value under the supervision of Galaxy's
Board of Trustees.
[Sidenote:]
MINIMUM INVESTMENT AMOUNTS
The minimum initial investment to open a Fund account is:
- - $2,500 for regular accounts
- - $100 for college savings accounts
There is generally no minimum initial investment if you participate in the
Automatic Investment Program. You generally can make additional investments for
as little as $100. See GALAXY INVESTOR PROGRAMS below for information on other
minimums for initial and additional investments.
Usually, you must keep at least $250 in your account. If your account falls
below $250 because you sell or exchange shares, Galaxy may redeem your shares
and close your account. Galaxy will give you 60 days' notice in writing before
closing your account.
HOW TO BUY SHARES
-39-
<PAGE>
You can buy shares through your financial institution or directly from Galaxy's
distributor by calling 1-877-BUY-GALAXY (1-877-289-4252). A broker or agent who
places orders on your behalf may charge you a separate fee for their services.
BUYING BY MAIL
Complete an account application and mail it, together with a check payable to
each Fund in which you want to invest, to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
To make additional investments, send your check to the address above along with
one of the following:
- - The detachable form that's included with your Galaxy statement or your
confirmation of a prior transaction
- - A letter stating the amount of your investment, the name of the Fund you
want to invest in, and your account number
If your check is returned because of insufficient funds, Galaxy will cancel your
order.
BUYING BY WIRE
To make an initial or additional investment by wire, send U.S. funds through the
Federal Reserve System to Fleet National Bank as agent for Galaxy's distributor.
You should wire money and registration instructions to:
Fleet National Bank
75 State Street
Boston, MA 02109
ABA #0110-0013-8
DDA #79673-5702
Ref: The Galaxy Fund
(Account number)
(Account registration)
Before making an initial investment by wire, you must complete an account
application and send it to The Galaxy Fund, P.O. Box 6520, Providence, RI
02940-6520. Your order will not be effected until the completed account
application is received by Galaxy. Call Galaxy's distributor at 1-877-BUY-GALAXY
(1-877-289-4252) for an account application.
Your financial institution may charge you a fee for sending funds by wire.
CUSTOMERS OF FINANCIAL INSTITUTIONS
If you are a customer of a financial institution such as a bank, savings and
loan association or broker-dealer, including a financial institution affiliated
with the Adviser, you should place your order through your financial
institution. Your financial institution is responsible for sending your
-40-
<PAGE>
order to Galaxy's distributor and wiring the money to Galaxy's custodian. For
details, please contact your financial institution.
DISCOUNT PLANS
You may have the sales charges on purchases of Retail A Shares reduced or waived
completely through the discount plans described below:
- - RIGHTS OF ACCUMULATION - You can add the value of the Retail A Shares
that you already own in any Galaxy Fund that charges a sales load to your
next investment in Retail A Shares for purposes of calculating the sales
charge.
- - LETTER OF INTENT - You can purchase Retail A Shares of any Galaxy Fund
that charges a sales load over a 13-month period and receive the same
sales charge as if all of the shares had been purchased at the same time.
To participate, complete the Letter of Intent section on the account
application.
- - REINVESTMENT PRIVILEGE - You can reinvest some or all of the money that
you receive when you sell Retail A Shares of the Funds in Retail A Shares
of any Galaxy Fund within 90 days without paying a sales charge.
- - GROUP SALES - If you belong to a qualified group with 50,000 or more
members, you can buy Retail A Shares at a reduced sales charge, based on
the number of qualified group members.
[Sidenote:]
You must tell your investment professional or Galaxy's distributor when you buy
your shares that you want to take advantage of any of these discount plans. See
the SAI for additional requirements that may apply. To contact Galaxy's
distributor call 1-877-BUY-GALAXY (1-877-289-4252).
HOW TO SELL SHARES
You can sell your shares in several ways: by mail, by telephone, by wire, or
through your financial institution.
SELLING BY MAIL
Send your request in writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
You must include the following:
- - The name of the Fund
- - The number of shares or the dollar amount you want to sell
-41-
<PAGE>
- - Your account number
- - Your Social Security number or tax identification number
- - The signatures of each registered owner of the account (the signatures
must match the names on the account registration)
Additional documents may be required for certain types of shareholders, such as
corporations, partnerships, executors, trustees, administrators or guardians.
[Sidenote:]
SIGNATURE GUARANTEES
When selling your shares by mail or by phone, you must have your signature
guaranteed if:
- - you're selling shares worth more than $50,000
- - you want Galaxy to send your money to an address other than the address
on your account, unless your assets are transferred to a successor
custodian
- - you want Galaxy to send your money to the address on your account that's
changed within the last 30 days
- - you want Galaxy to make the check payable to someone else
Your signature must be guaranteed by a bank that's a member of the FDIC, a trust
company, a member firm of a national securities exchange or any other eligible
institution. A notarized signature is not sufficient.
SELLING BY PHONE
You can sell shares by calling Galaxy's distributor at 1-877-BUY-GALAXY
(1-877-289-4252) unless you tell Galaxy on the account application or in writing
that you don't want this privilege. If you have difficulty getting through to
Galaxy because of unusual market conditions, consider selling your shares by
mail or wire.
SELLING BY WIRE
Notify Galaxy's distributor by phone or wire that you wish to sell shares and
have the sale proceeds wired to your account at any financial institution in the
U.S. To be eligible to use this privilege, you must complete the appropriate
section on the account application or notify Galaxy in writing (with a signature
guarantee). Your sale proceeds must be more than $1,000.
The sale proceeds must be paid to the same bank and account you named on your
application or in your written instructions.
CUSTOMERS OF FINANCIAL INSTITUTIONS
Please contact your financial institution for information on how to sell your
shares. The financial institution is responsible for sending your order to
Galaxy's distributor and for crediting your account with the proceeds. Galaxy
doesn't charge a fee for wiring sale proceeds to your financial institution, but
your financial institution may charge you a fee.
-42-
<PAGE>
HOW TO EXCHANGE SHARES
You may exchange Retail A Shares of a Fund having a value of at least $100 for
Retail A Shares of any other Galaxy Fund or for shares of any other Fund that's
managed by the Adviser or any of its affiliates in which you have an existing
account. You won't pay a sales charge for exchanging your Retail A Shares.
You may exchange Retail B Shares of the Tax-Exempt Bond Fund for Retail B Shares
of any other Galaxy Fund. You won't pay a CDSC when you exchange your Retail B
Shares. However, when you sell the Retail B Shares you acquired in the exchange,
you'll pay a contingent deferred sales charge based on the date you bought the
Retail B Shares which you exchanged.
TO EXCHANGE SHARES:
- - call Galaxy's distributor or use the InvestConnect voice response line at
1-877-BUY-GALAXY (1-877-289-4252)
- - send your request in writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
- - ask your financial institution
Galaxy doesn't charge any fee for making exchanges but your financial
institution might do so. You are generally limited to three exchanges per year.
Galaxy may change or cancel the exchange privilege with 60 days' advance written
notice to shareholders.
OTHER TRANSACTION POLICIES
If Galaxy doesn't receive full payment for your order to buy shares within three
business days of the order date, Galaxy won't accept your order. Galaxy will
advise you if this happens and return any payment it may eventually receive. You
can only invest in shares of the Funds that are legally available in your state.
Galaxy may refuse any order to buy shares. Galaxy doesn't issue a certificate
when you buy shares but it does keep a record of shares issued to investors.
Galaxy may refuse your order to sell or exchange shares by wire or telephone if
it believes it is advisable to do so. Galaxy or its distributor may change or
cancel the procedures for selling or exchanging shares by wire or telephone at
any time without notice.
If you sell or exchange shares by telephone, you may be responsible for any
fraudulent telephone orders as long as Galaxy has taken reasonable precautions
to verify your identity, such as
-43-
<PAGE>
requesting information about the way in which your account is registered or
about recent transactions in your account.
Galaxy normally pays you cash when you sell your shares, but it has the right to
deliver securities owned by a Fund instead of cash. When you sell these
securities, you'll pay brokerage charges.
Sales proceeds are normally sent to you within three business days but Galaxy
reserves the right to send sales proceeds within seven days if sending proceeds
earlier could adversely affect a Fund.
If any shares that you're selling are part of an investment you've paid for with
a personal check, Galaxy will delay sending your sales proceeds until the check
clears, which can take up to 15 days from the purchase date.
Galaxy reserves the right to vary or waive any minimum investment requirement.
-44-
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
The Funds generally declare dividends from net investment income daily and pay
them monthly. They normally distribute net capital gains annually. It's expected
that the Funds' annual distributions will be mainly income dividends. Dividends
and distributions are paid in cash unless you indicate in the account
application or in a letter to Galaxy that you want to have dividends and
distributions reinvested in additional shares.
FEDERAL TAXES
It is expected that the Funds will distribute dividends derived from interest
earned on exempt securities, and these "exempt-interest dividends" will be
exempt income for shareholders for federal income tax purposes. However,
distributions, if any, derived from net capital gains of each Fund will
generally be taxable to you as capital gains. Dividends, if any, derived from
short-term capital gains or taxable interest income will be taxable to you as
ordinary income. You will be notified annually of the tax status of
distributions to you.
You should note that if you purchase shares just prior to a capital gain
distribution, the purchase price will reflect the amount of the upcoming
distribution, but you will be taxed on the entire amount of the distribution
received, even though, as an economic matter, the distribution simply
constitutes a return of capital. This is known as "buying into a dividend."
You will recognize taxable gain or loss on a sale, exchange or redemption of
your shares, including an exchange for shares of another Fund, based on the
difference between your tax basis in the shares and the amount you receive
for them. (To aid in computing your tax basis, you generally should retain
your account statements for the periods during which you held shares.)
Generally, this gain or loss will be long-term or short-term depending on
whether your holding period for the shares exceeds 12 months except that any
loss realized on shares held for six months or less will be treated as a
long-term capital loss to the extent of any capital gain dividends that were
received on the shares. If you receive an exempt-interest dividend with
respect to any share and the share is held by you for six months or less, any
loss on the sale or exchange of the share will be disallowed to the extent of
such dividend amount.
Interest on indebtedness incurred by a shareholder to purchase or carry shares
of a Fund generally will not be deductible for federal income tax purposes.
You should note that a portion of the exempt-interest dividends paid by each
Fund may constitute an item of tax preference for purposes of determining
federal alternative minimum tax liability. Exempt-interest dividends will also
be considered along with other adjusted gross income in determining whether any
Social Security or railroad retirement payments received by you are subject to
federal income taxes.
-45-
<PAGE>
STATE AND LOCAL TAXES
Dividends paid by the Tax-Exempt Bond Fund that are attributable to interest
earned by the Fund may be taxable to shareholders under state or local law. Each
state-specific Fund intends to comply with certain state and/or local tax
requirements so that its income and dividends will be exempt from the applicable
state and/or local taxes described above in the description for such Fund.
Dividends, if any, derived from interest on securities other than the
state-specific municipal securities in which each Fund primarily invests will be
subject to the particular state's taxes.
MISCELLANEOUS
The foregoing is only a summary of certain tax considerations under current law,
which may be subject to change in the future. You should consult your tax
adviser for further information regarding federal, state, local and/or foreign
tax consequences relevant to your specific situation.
-46-
<PAGE>
GALAXY INVESTOR PROGRAMS
It's also easy to buy or sell shares of the Funds by using one of the programs
described below. Just tell Galaxy the amount and how frequently you want to buy
or sell shares and Galaxy does the rest. For further information on any of these
programs, call Galaxy's distributor at 1-877-BUY-GALAXY (1-877-289-4252) or your
financial institution.
AUTOMATIC INVESTMENT PROGRAM
You can make automatic investments from your bank account every month or every
quarter. You can choose to make your investment on any day of the month or
quarter. The minimum investment is $50 a month or $150 a quarter.
PAYROLL DEDUCTION PROGRAM
You can make regular investments from your paycheck. The minimum investment is
$25 per pay period. Send a completed Galaxy Payroll Deduction Application to
your employer's payroll department. They'll arrange to have your investment
deducted from your paycheck.
COLLEGE INVESTMENT PROGRAM
The minimum for initial and additional investments through the College
Investment Program is $100 unless you participate in the Automatic Investment
Program, in which case the minimum for initial and additional investments is
$50.
DIRECT DEPOSIT PROGRAM
This program lets you deposit your social security payments in your Fund account
automatically. There's no minimum deposit. You can cancel the program by
notifying the Social Security Administration in writing.
SYSTEMATIC WITHDRAWAL PLAN
You can make regular withdrawals from your investment account every month, every
quarter, every six months or once a year. You need a minimum account balance of
$10,000 to participate in the plan. No CDSC will be charged on withdrawals of
Retail B Shares of the Tax-Exempt Bond Fund made through the plan that don't
annually exceed 12% of your account's value.
You may cancel your participation in any of these programs, other than the
Direct Deposit Program, by writing to Galaxy at:
-47-
<PAGE>
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
Please allow at least five days for the cancellation to be processed.
-48-
<PAGE>
HOW TO REACH GALAXY
THROUGH YOUR FINANCIAL INSTITUTION
Your financial institution can help you buy, sell or exchange shares and can
answer questions about your account.
GALAXY SHAREHOLDER SERVICES
Call Galaxy's distributor at 1-877-BUY-GALAXY (1-877-289-4252), Monday through
Friday, 8 a.m. to 6 p.m. (Eastern time) for help from a Galaxy representative.
INVESTCONNECT
InvestConnect is Galaxy's Shareholder Voice Response System. Call
1-877-BUY-GALAXY (1-877-289-4252) from any touch-tone phone for automated access
to account information and current Fund prices and performance, or to place
orders to sell or exchange shares. It's available 24 hours a day, seven days a
week.
If you live outside the United States, you can contact Galaxy by calling
1-508-871-4121.
THE INTERNET
Please visit Galaxy's website at: www.galaxyfunds.com
[Sidenote:]
Galaxy also offer a TDD service for the hearing impaired. Just call
1-800-696-6515, 24 hours a day, seven days a week.
-49-
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables shown below will help you understand the
financial performance for the Funds' Retail A and Retail B Shares for the past
five years (or the period since a particular Fund began operations or a
particular class of shares was first offered). Certain information reflects the
financial performance of a single Retail A Share or Retail B Share. The total
returns in the tables represent the rate that an investor would have earned (or
lost) on an investment in Retail A Shares and/or Retail B Shares of each Fund,
assuming all dividends and distributions were reinvested. The information for
the fiscal year ended October 31, 1999 has been audited by _________________,
independent auditors, whose report, along with the Funds' financial statements,
are included in the Funds' Annual Report and are incorporated by reference into
the SAI. The Annual Report and SAI are available free of charge upon request.
The information for the fiscal years ended October 31, 1995, 1996, 1997 and 1998
was audited by Galaxy's former auditors, _________________.
-50-
<PAGE>
Galaxy Tax-Exempt Bond Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
------------------------------------------------------------------------------------
1999 1998 1997
------------------- ------------------- -------------------
Retail Retail Retail Retail Retail Retail
A Shares B Shares A Shares B Shares A Shares B Shares
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ......... $ 11.06 $ 11.06 $ 10.78 $ 10.78
Income from investment operations: 0.48 0.42 0.50 0.43
Net investment income(2) ..................
Net realized and unrealized gain 0.34 0.33 0.29 0.29
(loss) on investments ...................
Total from investment operations ............. 0.82 0.75 0.79 0.72
(0.49) (0.42) (0.50) (0.43)
Less dividends:
Dividends from net investment
income ....................................
Dividends from net realized
capital gains ......................... (0.09) (0.09) (0.01) (0.01)
Dividends in excess of
net realized capital gains ............ -- -- -- --
Total dividends .............................. (0.58) (0.51) (0.51) (0.44)
0.24 0.24 0.28 0.28
Net increase (decrease) in net asset
value ...................................
Net asset value, end of period ............... $ 11.30 $ 11.30 $ 11.06 $ 11.06
-------- -------- -------- --------
Total return(3) ............................ 7.60% 6.95% 7.49% 6.83%
Ratios/supplemental data: $ 24,764 $ 2,715 $ 25,465 $ 1,690
Net assets, end of period (000's) ..........
Ratios to average net assets: 4.32% 3.71% 4.60% 3.95%
Net investment income including
Reimbursement/waiver ....................
Operating expenses including 0.94% 1.55% 0.95% 1.60%
Reimbursement/waiver ...................
Operating expenses excluding 1.15% 1.76% 1.18% 1.83%
Reimbursement/waiver ....................
Portfolio turnover rate ................... 59% 59% 78% 78%
<CAPTION>
1996 1995
------------------- ------
Retail Retail Retail
A Shares B Shares(1) A Shares
-------- ----------- --------
<S> <C> <C> <C>
Net asset value, beginning of period ......... $ 10.78 $ 10.94 $ 9.99
Income from investment operations: 0.50 0.27 0.52
Net investment income(2) ..................
Net realized and unrealized gain -- (0.16) 0.79
(loss) on investments ...................
Total from investment operations ............. 0.50 0.11 1.31
(0.50) (0.27) (0.52)
Less dividends:
Dividends from net investment
income ....................................
Dividends from net realized
capital gains ......................... -- -- --
Dividends in excess of
net realized capital gains ............ -- -- --
Total dividends .............................. (0.50) (0.27) (0.52)
-- (0.16) 0.79
Net increase (decrease) in net asset
value ...................................
Net asset value, end of period ............... $ 10.78 $ 10.78 $ 10.78
Total return(3) ............................ 4.77% 1.08%(4) 13.40%
-------- -------- --------
Ratios/supplemental data: $ 28,339 $ 787 $ 31,609
Net assets, end of period (000's) ..........
Ratios to average net assets: 4.68% 4.08%(5) 4.99%
Net investment income including
Reimbursement/waiver ....................
Operating expenses including 0.93% 1.57%(5) 0.91%
Reimbursement/waiver ...................
Operating expenses excluding 1.18% 1.77%(5) 1.24%
Reimbursement/waiver ....................
Portfolio turnover rate ................... 15% 15% 11%
</TABLE>
- -------------------------------------
(1) The Fund began offering Retail B Shares on March 4, 1996.
(2) Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or the Fund's administrator for Retail A Shares for the years
ended October 31, 1999, 1998, 1997, 1996 and 1995 was $___, $0.46, $0.47,
$0.48 and $0.48 , respectively. Net investment income per share before
reimbursement/waiver of fees by the Adviser and/or the Fund's administrator
for Retail B Shares for the years ended October 31, 1999, 1998 and 1997 and
the period ended October 31, 1996 was $___, $0.40, $0.40 and $0.25,
respectively.
(3) Calculation does not include the effect of any sales charge for Retail A
Shares and Retail B Shares.
(4) Not annualized.
(5) Annualized.
-51-
<PAGE>
Galaxy New Jersey Municipal Bond Fund
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
For the year ending For the period ending
October 31, 1999 October 31,1998(1)
---------------- ----------------
Retail A Shares
---------------
<S> <C> <C> <C>
Net asset value, beginning of period........................ $10.00
Income from investment operations:
Net investment income(2)................................. 0.20
Net realized and unrealized gain on investments.......... 0.24
Total from investment operations......................... 0.44
Less dividends:
Dividends from net investment income..................... (0.20)
Dividends from net realized capital gains................ --
Total dividends............................................ (0.20)
Net increase in net asset value............................. 0.24
Net asset value, end of period.............................. $10.24
------
Total return(3)............................................. 4.34%
Ratios/supplemental data:
Net assets, end of period (000's)........................ $815
Ratios to average net assets:
Net investment income including reimbursement/waiver..... 3.62%(5)
Operating expenses including reimbursement/waiver........ 1.09%(5)
Operating expenses excluding reimbursement/waiver........ 3.65%(5)
Portfolio turnover rate..................................... 53%(4)
</TABLE>
- ---------------------------
(1) The Fund commenced operations on April 3, 1998.
(2) Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or the Fund's administrator for Retail A Shares for the periods
ended October 31, 1999 and 1998 was $___ and $0.06, respectively.
(3) Calculation does not include the effect of any sales charge for Retail A
Shares.
(4) Not annualized.
(5) Annualized.
-52-
<PAGE>
Galaxy New York Municipal Bond Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
-------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
Retail Retail Retail Retail Retail
A Shares A Shares A Shares A Shares A Shares
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .............. $ 11.09 $ 10.75 $ 10.78 $ 9.89
Income from investment operations: 0.48 0.49 0.48 0.49
Net investment income(1) .......................
Net realized and unrealized gain 0.35 0.34 (0.03) 0.89
(loss) on investments ........................
0.83 0.83 0.45 1.38
Total from investment operations .................
(0.48) (0.49) (0.48) (0.49)
Less dividends:
Dividends from net investment
Income .......................................
Dividends from net realized capital gains ...... -- -- -- --
Total dividends .................................. (0.48) (0.49) (0.48) (0.49)
0.35 0.34 (0.03) 0.89
Net increase (decrease) in net asset
value ........................................
Net asset value, end of period ................... $ 11.44 $ 11.09 $ 10.75 $ 10.78
---------- ---------- ---------- ----------
Total return(2) ................................. 7.65% 7.93% 4.31% 14.03%
Ratios/supplemental data: $ 48,218 $ 38,434 $ 40,154 $ 42,870
Net assets, end of period (000's) ..............
Ratios to average net assets: 4.27% 4.52% 4.50% 4.73%
Net investment income including
Reimbursement/waiver .........................
Operating expenses including 0.87% 0.94% 0.95% 0.92%
Reimbursement/waiver .........................
Operating expenses excluding 1.20% 1.26% 1.35% 1.31%
Reimbursement/waiver .........................
Portfolio turnover rate ......................... 27% 61% 12% 5%
</TABLE>
- -----------------------------------------
1 Net investment income per share for Retail A Shares before
reimbursement/waiver of fees by the Adviser and/or the Fund's administrator
for the years ended October 31, 1999, 1998, 1997, 1996 and 1995 was $___,
$0.45, $0.45, $0.44 and $0.44 , respectively.
2 Calculation does not include the effect of any sales charge for Retail A
Shares.
-53-
<PAGE>
Galaxy Connecticut Municipal Bond Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
-------------------------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- --------
Retail Retail Retail Retail Retail
A Shares A Shares A Shares A Shares A Shares
--------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ....... $ 10.47 $ 10.14 $ 10.13 $ 9.22
Income from investment operations: 0.43 0.45 0.42 0.44
Net investment income(1) ................
Net realized and unrealized gain 0.35 0.33 0.01 0.91
(loss) on investments .................
0.78 0.78 0.43 1.35
Total from investment operations ..........
(0.43) (0.45) (0.42) (0.44)
Less dividends:
Dividends from net investment
Income ................................
Dividends from net realized capital gains -- -- -- --
Total dividends ........................... (0.43) (0.45) (0.42) (0.44)
0.35 0.33 (0.01) 0.91
Net increase (decrease) in net asset
Value .................................
Net asset value, end of period ............. $ 10.82 $ 10.47 $ 10.14 $ 10.13
--------- ---------- --------- ---------
Total return(2) ........................... 7.58% 7.86% 4.32% 14.94%
Ratios/supplemental data: $ 24,856 $ 23,355 $ 23,244 $ 18,066
Net assets, end of period (000's) .......
Ratios to average net assets: 4.02% 4.30% 4.13% 4.53%
Net investment income including
Reimbursement/waiver ..................
Operating expenses including 0.88% 0.70% 0.70% 0.68%
Reimbursement/waiver ..................
Operating expenses excluding 1.31% 1.31% 1.38% 1.48%
Reimbursement/waiver ..................
Portfolio turnover rate .................. 46% 42% 3% 7%
</TABLE>
- -----------------------------------
(1) Net investment income per share for Retail A Shares before
reimbursement/waiver of fees by the Adviser and/or the Fund's administrator
for the years ended October 31, 1999, 1998, 1997, 1996 and 1995 was $___,
$0.38, $0.38, $0.35 and $0.37 , respectively.
(2) Calculation does not include the effect of any sales charge for Retail A
Shares.
-54-
<PAGE>
Galaxy Massachusetts Municipal Bond Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
-------------------------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- --------
Retail Retail Retail Retail Retail
A Shares A Shares A Shares A Shares A Shares
--------- --------- --------- --------- --------
<S> <C> <C> <C> <C>
Net asset value, beginning of period......... $ 10.25 $ 9.94 $ 9.98 $ 9.12
Income from investment operations: 0.46 0.45 0.43 0.44
Net investment income(1) .................
Net realized and unrealized gain 0.27 0.32 (0.04) 0.86
(loss) on investments...................
0.73 0.77 0.39 1.30
Total from investment operations............
(0.45) (0.46) (0.43) (0.44)
Less dividends:
Dividends from net investment
income..................................
Dividends from net realized capital gains. -- -- -- --
Total dividends............................. (0.45) (0.46) (0.43) (0.44)
0.28 0.31 (0.04) 0.86
Net increase (decrease) in net asset
value...................................
Net asset value, end of period............... $ 10.53 $ 10.25 $ 9.94 $ 9.98
--------- --------- --------- --------
Total return(2) ............................ 7.22% 7.92% 4.05% 14.52%
Ratios/supplemental data: $ 44,189 $ 33,318 $ 26,275 $ 16,113
Net assets, end of period (000's).........
Ratios to average net assets: 4.30% 4.38% 4.42% 4.56%
Net investment income including
Reimbursement/waiver....................
Operating expenses including 0.78% 0.63% 0.66% 0.70%
Reimbursement/waiver....................
Operating expenses excluding 1.21% 1.20% 1.32% 1.58%
Reimbursement/waiver....................
Portfolio turnover rate.................... 44% 48% 16% 19%
</TABLE>
- ----------------------------------
1 Net investment income per share for Retail A Shares before
reimbursement/waiver of fees by the Adviser and/or the Fund's administrator
for the years ended October 31, 1999, 1998, 1997, 1996 and 1995 was $___,
$0.41, $0.39, $0.37 and $0.36 , respectively.
2 Calculation does not include the effect of any sales charge for Retail A
Shares.
-55-
<PAGE>
Galaxy Rhode Island Municipal Bond Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
----------------------------------------------------------------------------
1999 1998 1997 1996 For the period ending
--------- --------- --------- --------- October 31, 1995(1)
Retail Retail Retail Retail ---------------------
A Shares A Shares A Shares A Shares Retail A Shares
--------- --------- --------- --------- ---------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.......... $ 10.91 $ 10.65 $ 10.67 $ 10.00
Income from investment operations: 0.50 0.48 0.51 0.44
Net investment income(2)...................
Net realized and unrealized gain 0.29 0.32 0.03 0.67
on investments...........................
0.79 0.80 0.54 1.11
Total from investment operations..............
(0.50) (0.50) (0.51) (0.44)
Less dividends:
Dividends from net investment
income...................................
Dividends from net realized capital gains.. (0.02) (0.04) (0.05) --
Total dividends............................... (0.52) (0.54) (0.56) (0.44)
0.27 0.26 (0.02) 0.67
Net increase (decrease) in net asset
value....................................
Net asset value, end of period................ $ 11.18 $ 10.91 $ 10.65 $ 10.67
--------- --------- --------- --------
Total return3 7.35% 7.78% 5.22% 11.29%(4)
Ratios/supplemental data: $ 20,210 $ 17,134 $ 14,900 $ 10,850
Net assets, end of period (000's)..........
Ratios to average net assets: 4.52% 4.50% 4.78% 5.13%(5)
Net investment income including
Reimbursement/waiver.....................
Operating expenses including 0.81% 0.83% 0.77% 0.40%(5)
Reimbursement/waiver.....................
Operating expenses excluding 1.23% 1.34% 1.34% 2.25%(5)
Reimbursement/waiver.....................
Portfolio turnover rate....................... 41% 19% 13% 34%(4)
</TABLE>
- -------------------------------------
(1) The Fund commenced operations on December 20, 1994.
(2) Net investment income per share for Retail A Shares before
reimbursement/waiver of fees by the Adviser and/or the Fund's administrator
for the years ended October 31, 1999, 1998, 1997 and 1996 and for the
period ended October 31, 1995 was $___, $0.45, $0.43, $0.45 and $0.28,
respectively.
(3) Calculation does not include the effect of any sales charge for Retail A
Shares.
(4) Not annualized.
(5) Annualized.
-56-
<PAGE>
[Back Cover Page]
Where to find more information
You'll find more information about the Funds in the following documents:
ANNUAL AND SEMI-ANNUAL REPORTS
Galaxy's annual and semi-annual reports contain more information about each Fund
and a discussion about the market conditions and investment strategies that had
a significant effect on each Fund's performance during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains detailed information about the Funds and their policies. By
law, it's incorporated by reference into (considered to be part of) this
prospectus.
You can get a free copy of these documents, request other information about the
Funds and make shareholder inquiries by calling Galaxy at 1-877-BUY-GALAXY
(1-877-289-4252) or writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
If you buy your shares through a financial institution, you may contact your
institution for more information.
You can write to the Securities and Exchange Commission (SEC) Public Reference
Section and ask them to mail you information about the Funds, including the SAI.
They'll charge you a fee for this service. You can also visit the SEC Public
Reference Room and copy the documents while you're there. For information about
the operation of the Public Reference Room, call the SEC.
Public Reference Section of the SEC
Washington, DC 20549-0102
1-202-942-8090.
Reports and other information about the Funds are also available on the EDGAR
Database on the SEC's website at http://www.sec.gov. Copies of this information
may also be obtained, after paying a duplicating fee, by electronic request to
the SEC's e-mail address at [email protected].
Galaxy's Investment Company Act File No. is 811-4636.
<PAGE>
[Front cover page]
Galaxy Tax-Exempt Bond Funds
The Galaxy Fund
Prospectus
_________, 2000
Galaxy Tax-Exempt Bond Fund
Galaxy New Jersey Municipal Bond Fund
Galaxy New York Municipal Bond Fund
Galaxy Connecticut Municipal Bond Fund
Galaxy Massachusetts Municipal Bond Fund
Galaxy Rhode Island Municipal Bond Fund
Trust Shares
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved any shares of these Funds or determined if this
prospectus is accurate or complete. Anyone who tells you otherwise is committing
a crime.
<PAGE>
Contents
CONTENTS
1 Risk/return summary
1 Introduction
3 Galaxy Tax-Exempt Bond Fund
7 Galaxy New Jersey Municipal Bond Fund
11 Galaxy New York Municipal Bond Fund
15 Galaxy Connecticut Municipal Bond Fund
19 Galaxy Massachusetts Municipal Bond Fund
23 Galaxy Rhode Island Municipal Bond Fund
28 Additional information about risk
29 Fund Management
30 How to invest in the funds
30 Buying and selling shares
31 How to buy shares
31 How to sell shares
31 Other transaction policies
32 Dividends, distributions and taxes
34 Financial highlights
<PAGE>
RISK/RETURN SUMMARY
INTRODUCTION
This prospectus describes the Galaxy Tax-Exempt Bond Funds. The Funds invest
primarily in municipal securities, which are debt obligations of state and local
governments and other political or public bodies or agencies. The interest paid
on municipal securities is generally exempt from federal income tax and, in some
cases, from state and local income tax.
On the following pages, you'll find important information about each of the
Galaxy Tax-Exempt Bond Funds, including:
- - the Fund's investment objective (sometimes called the Fund's goal) and the
main investment strategies used by the Fund's investment adviser in trying
to achieve that objective
- - the main risks associated with an investment in the Fund
- - the Fund's past performance measured on both a year-by-year and long-term
basis
- - the fees and expenses that you will pay as an investor in the Fund
[Sidenote:]
TAX-EQUIVALENT YIELD
One way to understand the tax advantages of a tax-exempt fund is to compare its
after-tax return to that of a taxable investment. For example, suppose a taxable
fund pays a return of 10%. If you're in the 36% federal income tax bracket, the
fund's return after taxes is 6.4%. When a tax-exempt fund pays a return of 10%,
you don't pay tax. So if you're in the 36% tax bracket, that's the equivalent of
earning about 15.6% on a taxable fund. If you're in a low tax bracket, however,
it may not be helpful to invest in a tax-exempt fund if you can achieve a higher
after-tax return from a taxable investment.
WHICH FUND IS RIGHT FOR YOU?
The Funds are designed for investors who are looking for income that's free of
federal income tax and who can accept fluctuations in price and yield. A Fund
that specializes in a particular state is best suited to residents of that state
who are also looking for income that is free of the state's income tax.
TAX-EXEMPT FUNDS ARE NOT APPROPRIATE INVESTMENTS FOR TAX-DEFERRED RETIREMENT
ACCOUNTS, SUCH AS IRAS, BECAUSE THEIR RETURNS BEFORE TAXES ARE GENERALLY LOWER
THAN THOSE OF TAXABLE FUNDS.
-1-
<PAGE>
THE FUNDS' INVESTMENT ADVISER
Fleet Investment Advisors Inc. (the "Adviser") is the investment adviser for all
of these Funds. The Adviser, an indirect wholly-owned subsidiary of FLEETBOSTON
Corporation, was established in 1984 and has its main office at 75 State Street,
Boston, Massachusetts 02109. The Adviser also provides investment management and
advisory services to individual and institutional clients and manages the other
Galaxy investment portfolios. As of December 31, 1999, the Adviser managed over
$______ billion in assets.
AN INVESTMENT IN THE FUNDS ISN'T A FLEET BANK DEPOSIT AND IT ISN'T INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. YOU COULD LOSE MONEY BY INVESTING IN THE FUNDS.
-2-
<PAGE>
Galaxy Tax-Exempt Bond Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks to provide shareholders with as high a level of current interest
income free of federal income tax as is consistent with preservation of capital.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its total assets in municipal
securities that pay interest which is exempt from regular federal income tax,
primarily bonds (normally 65% of total assets). Under normal conditions, the
Fund will invest no more than 20% of its total assets in taxable obligations,
such as U.S. Government obligations, money market instruments and repurchase
agreements.
Municipal securities purchased by the Fund may include general obligation
securities, revenue securities and private activity bonds. The interest on
private activity bonds may be subject to the federal alternative minimum tax.
Investments in private activity bonds will not be treated as investments in
municipal securities for purposes of the 80% requirement stated above.
In selecting portfolio securities for the Fund, the Adviser evaluates the
suitability of available bonds according to such factors as creditworthiness,
maturity, liquidity and interest rates. It also determines the appropriate
allocation of the Fund's assets among various geographic regions, issuers and
industry sectors.
Nearly all of the Fund's investments will be of investment grade quality. These
are securities which have one of the top four ratings assigned by Standard &
Poor's Ratings Group (S&P) or Moody's Investors Service, Inc. (Moody's), or are
unrated securities determined by the Adviser to be of comparable quality. Under
normal market conditions, the Fund will invest at least 65% of its total assets
in securities that have one of the top three ratings assigned by S&P or Moody's,
or unrated securities determined by the Adviser to be of comparable quality.
Occasionally, the rating of a security held by the Fund may be downgraded below
investment grade. If that happens, the Fund doesn't have to sell the security,
unless the Adviser determines that under the circumstances the security is no
longer an appropriate investment for the Fund. However, the Fund will sell
promptly any securities that are not rated investment grade by S&P or Moody's
if the securities exceed 5% of the Fund's net assets.
The Fund's average weighted maturity will vary from time to time depending on
current economic and market conditions and the Adviser's assessment of probable
changes in interest rates.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective.
[Sidenote:]
MUNICIPAL SECURITIES
State and local governments issue municipal securities to raise money to finance
public works, to repay outstanding obligations, to raise funds for general
operating expenses and to make loans to other public institutions. Some
municipal securities, known as private activity bonds, are backed
-3-
<PAGE>
by private entities and are used to finance various non-public projects.
Municipal securities, which can be issued as bonds, notes or commercial paper,
usually have fixed interest rates, although some have interest rates that change
from time to time.
[Sidenote:]
TYPES OF MUNICIPAL SECURITIES
GENERAL OBLIGATION securities are secured by the issuer's full faith, credit and
taxing power. REVENUE OBLIGATION securities are usually payable only from
revenues derived from specific facilities or revenue sources. PRIVATE ACTIVITY
BONDS are usually revenue obligations since they are typically payable by the
private user of the facilities financed by the bonds.
[Sidenote:]
AVERAGE WEIGHTED MATURITY
average weighted maturity gives you the average time until all debt securities
in a fund come due or MATURE. It is calculated by averaging the time to maturity
of all debt securities held by a Fund with each maturity "weighted" according to
the percentage of assets it represents.
[Sidenote:]
DURATION
Duration is an approximate measure of the price sensitivity of a fund to
changes in interest rates. Unlike maturity which measures only the time
until final payment, duration gives you the average time it takes to receive
all expected cash flows (including interest payments, prepayments and final
payments) on the debt obligations held by a fund.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets.
In addition, the Fund also carries the following Main risks:
- - INTEREST RATE RISK - The prices of debt securities, including municipal
securities, tend to move in the opposite direction to interest rates. When
rates are rising, the prices of debt securities tend to fall. When rates
are falling, the prices of debt securities tend to rise. Generally, the
longer the time until maturity, the more sensitive the price of a debt
security is to interest rate changes.
- - CREDIT RISK - The value of debt securities, including municipal securities,
also depends on the ability of issuers to make principal and interest
payments. If an issuer can't meet its payment obligations or if its credit
rating is lowered, the value of its debt securities will fall. Debt
securities which have the lowest of the top four ratings assigned by S&P or
Moody's have speculative characteristics. Changes in the economy are more
likely to affect the ability of issuers of these securities to make
payments of principal and interest than is the case with higher-rated
securities. The ability of a state or local government issuer to make
payments can be affected by many factors, including economic conditions,
the flow of tax revenues and changes in the level of federal, state or
local aid. Some municipal obligations are payable only from limited revenue
sources or private entities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
municipal securities held by the Fund to be paid off much sooner or later
than expected, which could adversely affect the Fund's value. In the event
that a security is paid off sooner than expected because of a decline in
interest rates, the Fund may be unable to recoup all of its initial
investment and may also suffer from having to reinvest in lower-yielding
securities. In the event of a later than expected payment because of a rise
in interest rates, the value of the obligation will decrease and the Fund
may suffer from the inability to invest in higher-yielding securities.
-4-
<PAGE>
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past
and give some indication of the risk of investing in the Fund. Both assume
that all dividends and distributions are reinvested in the Fund. How the
Fund has performed in the past doesn't necessarily show how it will perform
in the future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Trust Shares has varied from year to
year.
[SIDENOTE:]
<TABLE>
<CAPTION>
<S> <C>
BEST QUARTER: % FOR THE QUARTER ENDING ,
- ------------- ------------------------------------------------
WORST QUARTER: % FOR THE QUARTER ENDING ,
- -------------- ------------------------------------------------
</TABLE>
[bar chart goes here]
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997 1998 1999
- -------------- ----------- ----------- ------------ ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
9.25% 11.95% -5.35% 16.04% 3.57% 8.99% 5.96% %
- -------------- ----------- ----------- ------------ ----------- ----------- ------------ -----------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999, as compared to a broad-based market index.
<TABLE>
<CAPTION>
- ----------------------------------- ------------------ ------------------- ------------------------------
1 year 5 years Since inception
- ----------------------------------- ------------------ ------------------- ------------------------------
<S> <C> <C> <C>
Trust Shares % % % (12/30/91)
- ----------------------------------- ------------------ ------------------- ------------------------------
Lehman Brothers Municipal Bond
Index % % % (since 12/31/91)
- ----------------------------------- ------------------ ------------------- ------------------------------
</TABLE>
For current yield information, please call 1-877-BUY-GALAXY (1-877-289-4252).
-5-
<PAGE>
[Sidenote:]
The Lehman Brothers Municipal Bond Index is an unmanaged index which tracks the
performance of municipal bonds.
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
- ----------------------- ------------------- ------------------- -------------- -----------------------------
Management Distribution Other Total Fund operating
fees (12b-1) fees expenses expenses
- ----------------------- ------------------- ------------------- -------------- -----------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.75%(1) None % %(1)
- ----------------------- ------------------- ------------------- -------------- -----------------------------
</TABLE>
(1) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be ____%. Total Fund operating expenses after this waiver
are expected to be ____%. This fee waiver may be revised or discontinued at
any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- ----------------------- --------------------- -------------------- --------------------- --------------------
1 year 3 years 5 years 10 years
- ----------------------- --------------------- -------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Trust Shares $ $ $ $
- ----------------------- --------------------- -------------------- --------------------- --------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Adviser's Tax-Exempt Investment Policy Committee is responsible for the
day-to-day management of the Fund's investment portfolio.
-6-
<PAGE>
Galaxy New Jersey Municipal Bond Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks as high a level of current interest income exempt from federal
income tax and, to the extent possible, from New Jersey personal income tax, as
is consistent with relative stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its total assets in municipal
securities that pay interest which is exempt from regular federal income tax,
and at least 65% of its total assets in New Jersey municipal securities, which
are securities issued by the State of New Jersey and other government issuers
and that pay interest which is exempt from both federal income tax and New
Jersey personal income tax. Under normal conditions, the Fund will invest no
more than 20% of its total assets in taxable obligations, such as U.S.
Government obligations, money market instruments and repurchase agreements.
Municipal securities purchased by the Fund may include general obligation
securities, revenue securities and private activity bonds. The interest on
private activity bonds may be subject to the federal alternative minimum tax.
Investments in private activity bonds will not be treated as investments in
municipal securities for purposes of the 80% requirement stated above.
In selecting portfolio securities for the Fund, the Adviser evaluates the
suitability of available bonds according to such factors as creditworthiness,
maturity, liquidity and interest rates. It also determines the appropriate
allocation of the Fund's assets among various issuers and industry sectors.
Nearly all of the Fund's investments will be of investment grade quality.
These are securities which have one of the top four ratings assigned by
Standard & Poor's Ratings Group (S&P) or Moody's Investors Service, Inc.
(Moody's), or unrated securities determined by the Adviser to be of
comparable quality. Under normal market conditions, the Fund will invest at
least 65% of its total assets in securities that have one of the top three
ratings assigned by S&P or Moody's or ARE unrated securities determined by
the Adviser to be of comparable quality. Occasionally, the rating of a
security held by the Fund may be downgraded TO below investment grade. If
that happens, the Fund doesn't have to sell the security, unless the Adviser
determines that under the circumstances the security is no longer an
appropriate investment for the Fund. However, the Fund will sell promptly any
securities that are not rated investment grade by S&P or Moody's if the
securities exceed 5% of the Fund's net assets.
The Fund's average weighted maturity will vary from time to time depending on
current economic and market conditions and the Adviser's assessment of probable
changes in interest rates.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective.
-7-
<PAGE>
[Sidenote:]
AVERAGE WEIGHTED MATURITY
Average weighted maturity gives you the average time until all debt securities
in a fund come due or MATURE. It is calculated by averaging the time to maturity
of all debt securities held by a fund with each maturity "weighted" according to
the percentage of assets it represents.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and by swings in
investment markets.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities, including municipal
securities, tend to move in the opposite direction to interest rates. When
rates are rising, the prices of debt securities tend to fall. When rates
are falling, the prices of debt securities tend to rise. Generally, the
longer the time until maturity, the more sensitive the price of a debt
security is to interest rate changes.
- - CREDIT RISK - The value of debt securities, including municipal securities,
also depends on the ability of issuers to make principal and interest
payments. If an issuer can't meet its payment obligations or if its credit
rating is lowered, the value of its debt securities will fall. Debt
securities which have the lowest of the top four ratings assigned by S&P or
Moody's have speculative characteristics. Changes in the economy are more
likely to affect the ability of issuers of these securities to make
payments of principal and interest than is the case with higher-rated
securities. The ability of a state or local government issuer to make
payments can be affected by many factors, including economic conditions,
the flow of tax revenues and changes in the level of federal, state or
local aid. Some municipal obligations are payable only from limited revenue
sources or private entities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
municipal securities held by the Fund to be paid off much sooner or later
than expected, which could adversely affect the Fund's value. IN THE EVENT
THAT A SECURITY IS PAID OFF SOONER THAN EXPECTED BECAUSE OF A DECLINE IN
INTEREST RATES, THE FUND MAY BE UNABLE TO RECOUP ALL OF ITS INITIAL
INVESTMENT AND MAY ALSO SUFFER FROM HAVING TO REINVEST IN LOWER-YIELDING
SECURITIES. IN THE EVENT OF A LATER THAN EXPECTED PAYMENT BECAUSE OF A RISE
IN INTEREST RATES, THE VALUE OF THE OBLIGATION WILL DECREASE AND THE FUND
MAY SUFFER FROM THE INABILITY TO INVEST IN HIGHER-YIELDING SECURITIES.
- - LACK OF DIVERSIFICATION - The Fund is not diversified, which means that it
can invest a large percentage of its assets in a small number of issuers.
As a result, a change in the value of any one investment held by the Fund
may affect the overall value of the Fund more than it would affect a
diversified fund which holds more investments.
- - SINGLE STATE RISK - Because the Fund invests primarily in New Jersey
municipal securities, it is likely to be especially susceptible to
economic, political and regulatory events that affect New Jersey. Other
considerations affecting the Fund's investments in New Jersey municipal
securities are summarized in the Statement of Additional Information.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
-8-
<PAGE>
HOW THE FUND HAS PERFORMED
The Bar Chart and the Table Below Show How the Fund has Performed in the
Past and give some indication of the risk of investing in the Fund. Both
Assume That All Dividends and Distributions are Reinvested in the Fund How
the fund has performed in the past doesn't necessarily show how it will
perform in the future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
THE BAR CHART SHOWS THE PERFORMANCE OF TRUST SHARES DURING THE LAST CALENDAR
YEAR.
[SIDENOTE:]
<TABLE>
<S> <C>
BEST QUARTER: % FOR THE QUARTER ENDING ,
- ------------- ------------------------------------------------
WORST QUARTER: % FOR THE QUARTER ENDING ,
- -------------- ------------------------------------------------
</TABLE>
[BAR CHART GOES HERE]
- --------------
1999
- --------------
%
- --------------
AVERAGE ANNUAL TOTAL RETURNS
The table shows the fund's average annual total returns for the periods ended
December 31, 1999, as compared to a broad-based market index.
<TABLE>
<CAPTION>
- ----------------------------------- ------------------ ------------------------------
1 YEAR SINCE INCEPTION
- ----------------------------------- ------------------ ------------------------------
<S> <C> <C>
TRUST SHARES % % (4/3/98)
- ----------------------------------- ------------------ ------------------------------
LEHMAN BROTHERS
MUNICIPAL BOND INDEX % % (SINCE 3/31/98)
- ----------------------------------- ------------------ ------------------------------
</TABLE>
For current yield information, PLEASE call 1-877-BUY-GALAXY (1-877-289-4252).
[Sidenote:]
THE LEHMAN BROTHERS MUNICIPAL BOND INDEX IS AN UNMANAGED INDEX WHICH TRACKS THE
PERFORMANCE OF MUNICIPAL BONDS.
-9-
<PAGE>
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
- ----------------------- ------------------- ------------------- -------------- -----------------------------
Management Distribution Other Total Fund operating
fees (12b-1) fees expenses expenses
- ----------------------- ------------------- ------------------- -------------- -----------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.75%(1) None %(1) %(1)
- ----------------------- ------------------- ------------------- -------------- -----------------------------
</TABLE>
(1) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be ____%. The Fund's administrator is waiving a portion of
the administration fees and reimbursing certain expenses so that Other
expenses are expected to be ____%. Total Fund operating expenses after
these waivers and reimbursements are expected to be ____%. These fee
waivers and expense reimbursements may be revised or discontinued at any
time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- ----------------------- --------------------- -------------------- --------------------- --------------------
1 year 3 years 5 years 10 years
- ----------------------- --------------------- -------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Trust Shares $ $ $ $
- ----------------------- --------------------- -------------------- --------------------- --------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Adviser's Tax-Exempt Investment Policy Committee is responsible for the
day-to-day management of the Fund's investment portfolio.
-10-
<PAGE>
Galaxy New York Municipal Bond Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks as high a level of current interest income exempt from federal
income tax and, to the extent possible, from New York State and New York City
personal income tax, as is consistent with relative stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its total assets in municipal
securities that pay interest which is exempt from regular federal income tax,
and at least 65% of its total assets in New York municipal securities, which are
securities issued by the State of New York and other government issuers and that
pay interest which is exempt from federal income tax and New York State and New
York City personal income tax. Under normal conditions, the Fund will invest no
more than 20% of its total assets in taxable obligations, such as U.S.
Government obligations, money market instruments and repurchase agreements.
Municipal securities purchased by the Fund may include general obligation
securities and private activity bonds. The interest on private activity bonds
may be subject to the federal alternative minimum tax. Investments in private
activity bonds will not be treated as investments in municipal securities for
purposes of the 80% requirement stated above.
In selecting portfolio securities for the Fund, the Adviser evaluates the
suitability of available bonds according to such factors as creditworthiness,
maturity, liquidity and interest rates. It also determines the appropriate
allocation of the Fund's assets among various issuers and industry sectors.
Nearly all of the Fund's investments will be of investment grade quality.
These are securities which have one of the top four ratings assigned by
Standard & Poor's Ratings Group (S&P) or Moody's Investors Service, Inc.
(Moody's), or are unrated securities determined by the Adviser to be of
comparable quality. Under normal market conditions, the Fund will invest at
least 65% of its total assets in securities that have one of the top three
ratings assigned by S&P or Moody's or unrated securities determined by the
Adviser to be of comparable quality. Occasionally, THE RATING OF a security
held by the Fund may be downgraded to below investment grade. If that
happens, the Fund doesn't have to sell the security, unless the Adviser
determines that under the circumstances the security is no longer an
appropriate investment for the Fund. However, the Fund will sell promptly any
securities that are not rated investment grade by S&P or Moody's if the
securities exceed 5% of the Fund's net assets.
The Fund's average weighted maturity will vary from time to time depending on
current economic and market conditions and the Adviser's assessment of probable
changes in interest rates.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective.
-11-
<PAGE>
[Sidenote:]
AVERAGE WEIGHTED MATURITY
Average weighted maturity gives you the average time until all debt securities
in a fund come due or MATURE. It is calculated by averaging the time to maturity
of all debt securities held by a fund with each maturity "weighted" according to
the percentage of assets it represents.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities, including municipal
securities, tend to move in the opposite direction to interest rates. When
rates are rising, the prices of debt securities tend to fall. When rates
are falling, the prices of debt securities tend to rise. Generally, the
longer the time until maturity, the more sensitive the price of a debt
security is to interest rate changes.
- - CREDIT RISK - The value of debt securities, including municipal securities,
also depends on the ability of issuers to make principal and interest
payments. If an issuer can't meet its payment obligations or if its credit
rating is lowered, the value of its debt securities will fall. Debt
securities which have the lowest of the top four ratings assigned by S&P or
Moody's have speculative characteristics. Changes in the economy are more
likely to affect the ability of issuers of these securities to make
payments of principal and interest than is the case with higher-rated
securities. The ability of a state or local government issuer to make
payments can be affected by many factors, including economic conditions,
the flow of tax revenues and changes in the level of federal, state or
local aid. Some municipal obligations are payable only from limited revenue
sources or private entities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
municipal securities held by the Fund to be paid off much sooner or later
than expected, which could adversely affect the Fund's value. IN THE EVENT
THAT A SECURITY IS PAID OFF SOONER THAN EXPECTED BECAUSE OF A DECLINE IN
INTEREST RATES, THE FUND MAY BE UNABLE TO RECOUP ALL OF ITS INITIAL
INVESTMENT AND MAY ALSO SUFFER FROM HAVING TO REINVEST IN LOWER-YIELDING
SECURITIES. IN THE EVENT OF A LATER THAN EXPECTED PAYMENT BECAUSE OF A RISE
IN INTEREST RATES, THE VALUE OF THE OBLIGATION WILL DECREASE AND THE FUND
MAY SUFFER FROM THE INABILITY TO INVEST IN HIGHER-YIELDING SECURITIES.
- - LACK OF DIVERSIFICATION - The Fund is not diversified, which means that it
can invest a large percentage of its assets in a small number of issuers.
As a result, a change in the value of any one investment held by the Fund
may affect the overall value of the Fund more than it would affect a
diversified fund which holds more investments.
- - SINGLE STATE RISK - Because the Fund invests primarily in New York
municipal securities, the Fund's ability to achieve its investment
objective is dependent upon the ability of the issuers of New York
municipal securities to meet their continuing obligations for the payment
of principal and interest. New York State and New York City face long-term
economic problems that could seriously affect their ability and that of
other issuers of New York municipal securities to meet their financial
obligations. Other considerations affecting the
-12-
<PAGE>
Fund's investments in New York municipal securities are summarized in
the Statement of Additional Information.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Trust Shares has varied from year to
year.
[SIDENOTE:]
<TABLE>
<S> <C>
BEST QUARTER: % FOR THE QUARTER ENDING ,
- ------------- ---------------------------------------------
WORST QUARTER: % FOR THE QUARTER ENDING ,
- -------------- ---------------------------------------------
</TABLE>
[bar chart goes here]
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997 1998 1999
- -------------- ----------- ----------- ------------ ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
8.29% 12.30% -7.26% 17.09% 3.62% 8.89% 6.13% %
- -------------- ----------- ----------- ------------ ----------- ----------- ------------ -----------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
DECEMBER 31, 1999, as compared to a broad-based market index.
<TABLE>
<CAPTION>
- ----------------------------------- ------------------ ------------------- ------------------------------
1 year 5 years Since inception
- ----------------------------------- ------------------ ------------------- ------------------------------
<S> <C> <C> <C>
Trust Shares % % % (12/31/91)
- ---------------------------------- ------------------ ------------------- ------------------------------
Lehman Brothers
Municipal Bond Index % % % (since
12/31/91)
- ----------------------------------- ------------------ ------------------- ------------------------------
</TABLE>
FOR CURRENT YIELD INFORMATION, PLEASE CALL 1-877-BUY-GALAXY (1-877-289-4252).
-13-
<PAGE>
[Sidenote:]
THE LEHMAN BROTHERS MUNICIPAL BOND INDEX IS AN UNMANAGED INDEX WHICH TRACKS THE
PERFORMANCE OF MUNICIPAL BONDS.
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
Annual Fund operating expenses (expenses from the Fund's assets)
<TABLE>
<CAPTION>
- ----------------------- ------------------- ------------------- -------------- -----------------------------
Management Distribution Other Total Fund operating
fees (12b-1) fees expenses expenses
- ----------------------- ------------------- ------------------- -------------- -----------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.75%(1) None % %(1)
- ----------------------- ------------------- ------------------- -------------- -----------------------------
</TABLE>
(1) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be ____%. Total Fund operating expenses after this waiver
are expected to be ____%. This fee waiver may be revised or discontinued at
any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- ----------------------- --------------------- -------------------- --------------------- --------------------
1 year 3 years 5 years 10 years
- ----------------------- --------------------- -------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Trust Shares $ $ $ $
- ----------------------- --------------------- -------------------- --------------------- --------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Adviser's Tax-Exempt Investment Policy Committee is responsible for the
day-to-day management of the Fund's investment portfolio.
-14-
<PAGE>
Galaxy Connecticut Municipal Bond Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks as high a level of current interest income exempt from federal
income tax and, to the extent possible, from Connecticut personal income tax, as
is consistent with relative stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its total assets in municipal
securities that pay interest which is exempt from regular federal income tax,
and at least 65% of its total assets in Connecticut municipal securities, which
are securities issued by the State of Connecticut and other government issuers
and that pay interest which is exempt from both federal income tax and
Connecticut state income tax on individuals, trusts and estates. Under normal
conditions, the Fund will invest no more than 20% of its total assets in taxable
obligations, such as U.S. Government obligations, money market instruments and
repurchase agreements.
Municipal securities purchased by the Fund may include general obligation
securities, revenue securities and private activity bonds. The interest on
private activity bonds may be subject to the federal alternative minimum tax.
Investments in private activity bonds will not be treated as investments in
municipal securities for purposes of the 80% requirement stated above.
In selecting portfolio securities for the Fund, the Adviser evaluates the
suitability of available bonds according to such factors as creditworthiness,
maturity, liquidity and interest rates. It also determines the appropriate
allocation of the Fund's assets among various issuers and industry sectors.
Nearly all of the Fund's investments will be of investment grade quality. These
are securities which have one of the top four ratings assigned by Standard &
Poor's Ratings Group (S&P) or Moody's Investors Service, Inc. (Moody's), or are
unrated securities determined by the Adviser to be of comparable quality. Under
normal market conditions, the Fund will invest at least 65% of its total assets
in securities that have one of the top three ratings assigned by S&P or Moody's
or unrated securities determined by the Adviser to be of comparable quality.
Occasionally, THE RATING OF a security held by the Fund may be downgraded below
investment grade. If that happens, the Fund doesn't have to sell the security,
unless the Adviser determines that under the circumstances the security is no
longer an appropriate investment for the Fund. However, the Fund will sell
promptly any securities that are not rated investment grade by S&P or Moody's
if the securities exceed 5% of the Fund's net assets.
The Fund's average weighted maturity will vary from time to time depending on
current market conditions and the Adviser's assessment of probable changes in
interest rates.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective.
-15-
<PAGE>
[Sidenote:]
AVERAGE WEIGHTED MATURITY
Average weighted maturity gives you the average time until all debt securities
in a fund come due or MATURE. It is calculated by averaging the time to maturity
of all debt securities held by a fund with each maturity "weighted" according to
the percentage of assets it represents.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets.
In addition, the Fund also carries the following MAIN risks:
- - INTEREST RATE RISK - The prices of debt securities, including municipal
securities, tend to move in the opposite direction to interest rates. When
rates are rising, the prices of debt securities tend to fall. When rates
are falling, the prices of debt securities tend to rise. Generally, the
longer the time until maturity, the more sensitive the price of a debt
security is to interest rate changes.
- - CREDIT RISK - The value of debt securities, including municipal securities,
also depends on the ability of issuers to make principal and interest
payments. If an issuer can't meet its payment obligations or if its credit
rating is lowered, the value of its debt securities will fall. Debt
securities which have the lowest of the top four ratings assigned by S&P or
Moody's have speculative characteristics. Changes in the economy are more
likely to affect the ability of issuers of these securities to make
payments of principal and interest than is the case with higher-rated
securities. The ability of a state or local government issuer to make
payments can be affected by many factors, including economic conditions,
the flow of tax revenues and changes in the level of federal, state or
local aid. Some municipal obligations are payable only from limited revenue
sources or by private entities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
municipal securities held by the Fund to be paid off much sooner or later
than expected, which could adversely affect the Fund's value. In the event
that a security is paid off sooner than expected because of a decline in
interest rates, the Fund may be unable to recoup all of its initial
investment and may also suffer from having to reinvest in lower-yielding
securities. In the event of a later than expected payment because of a rise
in interest rates, the value of the obligation will decrease and the Fund
may suffer from the inability to invest in higher-yielding securities.
- - LACK OF DIVERSIFICATION - The Fund is not diversified, which means that it
can invest a large percentage of its assets in a small number of issuers.
As a result, a change in the value of any one investment held by the Fund
may affect the overall value of the Fund more than it would affect a
diversified fund which holds more investments.
- - SINGLE STATE RISK - Because the Fund invests primarily in Connecticut
municipal securities, it is likely to be especially susceptible to
economic, political and regulatory events that affect Connecticut. Other
considerations AFFECTING the Fund's investments in Connecticut municipal
securities are summarized in the Statement of Additional Information.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
-16-
<PAGE>
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past
and give some indication of the risk of investing in the Fund. Both assume
that all dividends and distributions are reinvested in the Fund. How the Fund
has performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Trust Shares has varied from year to
year.
[SIDENOTE:]
<TABLE>
<S> <C>
BEST QUARTER: % FOR THE QUARTER ENDING ,
- ------------- --------------------------------------------
WORST QUARTER: % FOR THE QUARTER ENDING ,
- -------------- --------------------------------------------
</TABLE>
[bar chart goes here]
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999
- -------------- ----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
-8.01% 18.29% 3.56% 8.81% 6.07% %
- -------------- ----------- ----------- ------------ ----------- -----------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999, as compared to a broad-based market index.
<TABLE>
<CAPTION>
- ----------------------------------- ------------------ ------------------- ------------------------------
1 year 5 years Since inception
- ----------------------------------- ------------------ ------------------- ------------------------------
<S> <C> <C> <C>
Trust Shares % % % (3/16/93)
- ----------------------------------- ------------------ ------------------- ------------------------------
Lehman Brothers
Municipal Bond Index % % % (Since 3/31/93)
- ----------------------------------- ------------------ ------------------- ------------------------------
</TABLE>
FOR CURRENT YIELD INFORMATION, PLEASE CALL 1-877-BUY-GALAXY (1-877-289-4252).
[SIDENOTE:]
THE LEHMAN BROTHERS MUNICIPAL BOND INDEX IS AN UNMANAGED INDEX WHICH TRACKS THE
PERFORMANCE OF MUNICIPAL BONDS.
FEES AND EXPENSES OF THE FUND
-17-
<PAGE>
The following TABLE SHOWS the fees and expenses you may pay when you buy and
hold shares of the Fund.
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
- ----------------------- ------------------- ------------------- -------------- -----------------------------
Management fees Distribution Other Total Fund operating
(12b-1) fees expenses expenses
- ----------------------- ------------------- ------------------- -------------- -----------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.75%(1) None % %(1)
- ----------------------- ------------------- ------------------- -------------- -----------------------------
</TABLE>
(1) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be ____%. Total Fund operating expenses after this waiver
are expected to be ____%. This fee waiver may be revised or discontinued
at any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- ----------------------- --------------------- -------------------- --------------------- --------------------
1 year 3 years 5 years 10 years
- ----------------------- --------------------- -------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Trust Shares $ $ $ $
- ----------------------- --------------------- -------------------- --------------------- --------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Adviser's Tax-Exempt Investment Policy Committee is responsible for the
day-to-day management of the Fund's investment portfolio.
-18-
<PAGE>
Galaxy Massachusetts Municipal Bond Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks as high a level of current interest income exempt from federal
income tax and, to the extent possible, from Massachusetts personal income tax,
as is consistent with relative stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its total assets in municipal
securities that pay interest which is exempt from regular federal income tax,
and at least 65% of its total assets in Massachusetts municipal securities,
which are securities issued by the Commonwealth of Massachusetts and other
government issuers and that pay interest which is exempt from both federal
income tax and Massachusetts personal income tax. Under normal conditions,
the Fund will invest no more than 20% of its total assets in taxable
obligations, such as U.S. Government obligations, money market instruments
and repurchase agreements.
Municipal securities purchased by the Fund may include general obligation
securities, revenue securities and private activity bonds. The interest on
private activity bonds may be subject to the federal alternative minimum tax.
Investments in private activity bonds will not be treated as investments in
municipal securities for purposes of the 80% requirement stated above.
In selecting portfolio securities for the Fund, the Adviser evaluates the
suitability of available bonds according to such factors as creditworthiness,
maturity, liquidity and interest rates. It also determines the appropriate
allocation of the Fund's assets among various issuers and industry sectors.
Nearly all of the Fund's investments will be of investment grade quality. These
are securities which have one of the top four ratings assigned by Standard &
Poor's Ratings Group (S&P) or Moody's Investors Service, Inc. (Moody's), ARE or
unrated securities determined by the Adviser to be of comparable quality. Under
normal market conditions, the Fund will invest at least 65% of its total assets
in securities that have one of the top three ratings assigned by S&P or Moody's
or unrated securities determined by the Adviser to be of comparable quality.
Occasionally, THE RATING OF a security held by the Fund may be downgraded below
investment grade. If that happens, the Fund doesn't have to sell the security,
unless the Adviser determines that under the circumstances the security is no
longer an appropriate investment for the Fund. However, the Fund will sell
promptly any securities that are noted rated investment grade by S&P or
Moody's if the securities exceed 5% of the Fund's net assets.
The Fund's average weighted maturity will vary from time to time depending on
current economic and market conditions and the Adviser's assessment of probable
changes in interest rates.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective.
-19-
<PAGE>
[Sidenote:]
AVERAGE WEIGHTED MATURITY
Average weighted maturity gives you the average time until all debt securities
in a fund come due or MATURE. It is calculated by averaging the time to maturity
of all debt securities held by a fund with each maturity "weighted" according to
the percentage of assets it represents.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities, including municipal
securities, tend to move in the opposite direction to interest rates. When
rates are rising, the prices of debt securities tend to fall. When rates
are falling, the prices of debt securities tend to rise. Generally, the
longer the time until maturity, the more sensitive the price of a debt
security is to interest rate changes.
- - CREDIT RISK - The value of debt securities, including municipal securities,
also depends on the ability of issuers to make principal and interest
payments. If an issuer can't meet its payment obligations or if its credit
rating is lowered, the value of its debt securities will fall. Debt
securities which have the lowest of the top four ratings assigned by S&P or
Moody's have speculative characteristics. Changes in the economy are more
likely to affect the ability of issuers of these securities to make
payments of principal and interest than is the case with higher-rated
securities. The ability of a state or local government issuer to make
payments can be affected by many factors, including economic conditions,
the flow of tax revenues and changes in the level of federal, state or
local aid. Some municipal obligations are payable only from limited revenue
sources or by private entities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
municipal securities held by the Fund to be paid off much sooner or later
than expected, which could adversely affect the Fund's value. In the event
that a security is paid off sooner than expected because of a decline in
interest rates, the Fund may be unable to recoup all of its initial
investment and may also suffer from having to reinvest in lower-yielding
securities. In the event of a later than expected payment because of a rise
in interest rates, the value of the obligation will decrease and the Fund
may suffer from the inability to invest in higher-yielding securities.
- - LACK OF DIVERSIFICATION - The Fund is not diversified, which means that it
can invest a large percentage of its assets in a small number of issuers.
As a result, a change in the value of any one investment held by the Fund
may affect the overall value of the Fund more than it would affect a
diversified fund which holds more investments.
- - SINGLE STATE RISK - Because the Fund invests primarily in Massachusetts
municipal securities, it is likely to be especially susceptible to
economic, political and regulatory events that affect Massachusetts. Other
considerations AFFECTING the Fund's investments in Massachusetts municipal
securities are summarized in the Statement of Additional Information.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
-20-
<PAGE>
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past
and give some indication of the risk of investing in the Fund. Both assume
that all dividends and distributions are reinvested in the Fund. How the
Fund has performed in the past doesn't necessarily show how it will perform
in the future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Trust Shares has varied from year to
year.
[SIDENOTE:]
<TABLE>
<S> <C>
BEST QUARTER: % FOR THE QUARTER ENDING ,
- ------------- ---------------------------------------------
WORST QUARTER: % FOR THE QUARTER ENDING ,
- -------------- ---------------------------------------------
</TABLE>
[bar chart goes here]
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999
- -------------- ----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
-7.71% 17.40% 3.26% 9.09% 5.83% %
- -------------- ----------- ----------- ------------ ----------- -----------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999, as compared to a broad-based market index.
<TABLE>
<CAPTION>
- ----------------------------------- ------------------ ------------------- ------------------------------
1 year 5 years Since inception
- ----------------------------------- ------------------ ------------------- ------------------------------
<S> <C> <C> <C>
Trust Shares % % % (3/12/93)
- ----------------------------------- ------------------ ------------------- ------------------------------
Lehman Brothers
Municipal Bond Index % % % (since 2/28/93)
- ----------------------------------- ------------------ ------------------- ------------------------------
</TABLE>
FOR CURRENT YIELD INFORMATION, PLEASE CALL 1-877-BUY-GALAXY (1-877-289-4252).
[SIDENOTE:]
THE LEHMAN BROTHERS MUNICIPAL BOND INDEX IS AN UNMANAGED INDEX WHICH TRACKS THE
PERFORMANCE OF MUNICIPAL BONDS.
FEES AND EXPENSES OF THE FUND
-21-
<PAGE>
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
- ----------------------- ------------------- ------------------- -------------- -----------------------------
Management Distribution Other Total Fund operating
fees (12b-1) fees expenses expenses
- ----------------------- ------------------- ------------------- -------------- -----------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.75%(1) None % %(1)
- ----------------------- ------------------- ------------------- -------------- -----------------------------
</TABLE>
(1) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be _____%. Total Fund operating expenses after this waiver
are expected to be _____%. This fee waiver may be revised or discontinued
at any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- ----------------------- --------------------- -------------------- --------------------- --------------------
1 year 3 years 5 years 10 years
- ----------------------- --------------------- -------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Trust Shares $ $ $ $
- ----------------------- --------------------- -------------------- --------------------- --------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Adviser's Tax-Exempt Investment Policy Committee is responsible for the
day-to-day management of the Fund's investment portfolio.
-22-
<PAGE>
Galaxy Rhode Island Municipal Bond Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks as high a level of current interest income exempt from federal
income tax and, to the extent possible, from Rhode Island personal income tax,
as is consistent with relative stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its total assets in municipal
securities that pay interest which is exempt from regular federal income tax,
and at least 65% of its total assets in Rhode Island municipal securities, which
are securities issued by the State of Rhode Island and other government issuers
and that pay interest which is exempt from both federal income tax and Rhode
Island personal income tax. Under normal conditions, the Fund will invest no
more than 20% of its total assets in taxable obligations, such as U.S.
Government obligations, money market instruments and repurchase agreements.
Municipal securities purchased by the Fund may include general obligation
securities, revenue securities and private activity bonds. The interest on
private activity bonds may be subject to the federal alternative minimum tax.
Investments in private activity bonds will not be treated as investments in
municipal securities for purposes of the 80% requirement stated above.
In selecting portfolio securities for the Fund, the Adviser evaluates the
suitability of available bonds according to such factors as creditworthiness,
maturity, liquidity and interest rates. It also determines the appropriate
allocation of the Fund's assets among various issuers and industry sectors.
Nearly all of the Fund's investments will be of investment grade quality. These
are securities which have one of the top four ratings assigned by Standard &
Poor's Ratings Group (S&P) or Moody's Investors Service, Inc. (Moody's), or ARE
unrated securities determined by the Adviser to be of comparable quality. Under
normal market conditions, the Fund will invest at least 65% of its total assets
in securities that have one of the top three ratings assigned by S&P or Moody's
or unrated securities determined by the Adviser to be of comparable quality.
Occasionally, the rating of a security held by the Fund may be downgraded below
investment grade. If that happens, the Fund doesn't have to sell the security,
unless the Adviser determines that under the circumstances the security is no
longer an appropriate investment for the Fund. However, the Fund will sell
promptly any securities that are not rated investment grade by S&P or Moody's
if the securities exceed 5% of the Fund's net assets.
The Fund's average weighted maturity will vary from time to time depending on
economic and market conditions and the Adviser's assessment of probable changes
in interest rates.
The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective.
-23-
<PAGE>
[Sidenote:]
AVERAGE WEIGHTED MATURITY
Average weighted maturity gives you the average time until all debt securities
in a fund come due or MATURE. It is calculated by averaging the time to maturity
of all debt securities held by a fund with each maturity "weighted" according to
the percentage of assets it represents.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets.
In addition, the Fund also carries the following main risks:
- - INTEREST RATE RISK - The prices of debt securities, including municipal
securities, tend to move in the opposite direction to interest rates. When
rates are rising, the prices of debt securities tend to fall. When rates
are falling, the prices of debt securities tend to rise. Generally, the
longer the time until maturity, the more sensitive the price of a debt
security is to interest rate changes.
- - CREDIT RISK - The value of debt securities, including municipal securities,
also depends on the ability of issuers to make principal and interest
payments. If an issuer can't meet its payment obligations or if its credit
rating is lowered, the value of its debt securities will fall. Debt
securities which have the lowest of the top four ratings assigned by S&P or
Moody's have speculative characteristics. Changes in the economy are more
likely to affect the ability of issuers of these securities to make
payments of principal and interest than is the case with higher-rated
securities. The ability of a state or local government issuer to make
payments can be affected by many factors, including economic conditions,
the flow of tax revenues and changes in the level of federal, state or
local aid. Some municipal obligations are payable only from limited revenue
sources or by private entities.
- - PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
municipal securities held by the Fund to be paid off much sooner or later
than expected, which could adversely affect the Fund's value. In the event
that a security is paid off sooner than expected because of a decline in
interest rates, the Fund may be unable to recoup all of its initial
investment and may also suffer from having to reinvest in lower-yielding
securities. In the event of a later than expected payment because of a rise
in interest rates, the value of the obligation will decrease and the Fund
may suffer from the inability to invest in higher-yielding securities.
- - LACK OF DIVERSIFICATION - The Fund is not diversified, which means that it
can invest a large percentage of its assets in a small number of issuers.
As a result, a change in the value of any one investment held by the Fund
may affect the overall value of the Fund more than it would affect a
diversified fund which holds more investments.
- - SINGLE STATE RISK - Because the Fund invests primarily in Rhode Island
municipal securities, it is likely to be especially susceptible to
economic, political and regulatory events that affect Rhode Island. Other
considerations AFFECTING the Fund's investments in Rhode Island municipal
securities are summarized in the Statement of Additional Information.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the RISKS and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
-24-
<PAGE>
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past
and give some indication of the risk of investing in the Fund. Both assume
that all dividends and distributions are reinvested in the Fund. How the Fund
has performed in the past doesn't necessarily show how it will perform in the
future.
As of the date of this prospectus, the Fund had not offered Trust Shares to
investors. The returns below represent the returns for Retail A Shares of the
Fund which are offered in a separate prospectus. Retail A Shares and Trust
Shares of the Fund have returns that are substantially the same because they
represent interests in the same portfolio securities and differ only to the
extent that they bear separate expenses. Unlike Trust Shares, Retail A Shares of
the Fund are also subject to a front-end sales charge on purchases and, in
certain cases, to a contingent deferred sales charge at the time shares are
sold.
YEAR-BY-YEAR RETURNS
The bar chart shows how the performance of Retail A Shares has varied from
year to year. The figures don't include any sales charges that investors pay
when buying or selling Retail A Shares of the Fund. If sales charges were
included, the returns would be lower.
[SIDENOTE:]
<TABLE>
<CAPTION>
<S> <C>
BEST QUARTER: % FOR THE QUARTER ENDING ,
- ------------- --------------------------------------------
WORST QUARTER: % FOR THE QUARTER ENDING ,
- -------------- --------------------------------------------
</TABLE>
[bar chart goes here]
<TABLE>
<CAPTION>
- -------------- ----------- ----------- ------------ -----------
1995 1996 1997 1998 1999
---- ---- ---- ---- ---
- -------------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
14.32% 3.63% 8.54% 5.87% %
- -------------- ----------- ----------- ------------ -----------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns (after taking into
account any sales charges) for the periods ended December 31, 1999, as compared
to a broad-based market index.
<TABLE>
<CAPTION>
- ----------------------------------- ------------------------ ------------------------- -------------------------------
1 year 5 YEARS Since inception
- ----------------------------------- ------------------------ ------------------------- -------------------------------
<S> <C> <C> <C>
Retail A Shares % % % (12/20/94)
- ----------------------------------- ------------------------ ------------------------- -------------------------------
Lehman Brothers
Municipal Bond Index % % % (since 12/31/94)
- ----------------------------------- ------------------------ ------------------------- -------------------------------
</TABLE>
-25-
<PAGE>
[SIDENOTE:]
The Lehman Brothers Municipal Bond Index is an unmanaged index which tracks the
performance of municipal bonds.
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
- ----------------------- ------------------- ------------------- -------------- -----------------------------
Management Distribution Other Total Fund operating
fees (12b-1) fees expenses expenses
- ----------------------- ------------------- ------------------- -------------- -----------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.75%(1) None % %(1)
- ----------------------- ------------------- ------------------- -------------- -----------------------------
</TABLE>
(1) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be ____%. Total Fund operating expenses after this waiver
are expected to be ____%. This fee waiver may be revised or discontinued
at any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year o the Fund's operating expenses
remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- ----------------------- --------------------- -------------------- --------------------- --------------------
1 year 3 years 5 years 10 years
- ----------------------- --------------------- -------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Trust Shares $ $ $ $
- ----------------------- --------------------- -------------------- --------------------- --------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The adviser's tax-exempt investment policy committee is responsible for the
day-to-day management of the fund's investment portfolio.
-26-
<PAGE>
ADDITIONAL INFORMATION ABOUT RISK
The main risks associated with an investment in each of the Galaxy Tax-Exempt
Bond Funds have been described above. The following supplements that discussion.
TEMPORARY DEFENSIVE POSITIONS
Each Fund may temporarily hold up to 100% of its total assets in investments
that are not part of its main investment strategy to try to avoid losses during
unfavorable market conditions. These investments may include cash (which will
not earn any income) and taxable investments, such as money market instruments
and debt securities issued or guaranteed by the U.S. Government or its agencies,
in excess of 20% of its total assets.
This strategy could prevent a Fund from achieving its investment objective.
OTHER TYPES OF INVESTMENTS
This prospectus describes each Fund's main investment strategies and the
particular types of securities in which each Fund mainly invests. Each Fund
may, from time to time, pursue other investment strategies and make other
types of investments in support of its overall investment goal. These
supplemental investment strategies, which are not considered to be main
investment strategies of the Fund - and the risks involved - are described in
detail in the Statement of Additional Information (SAI) which is referred to
on the back cover of this prospectus.
-27-
<PAGE>
FUND MANAGEMENT
ADVISER
The Adviser, subject to the general supervision of Galaxy's Board of Trustees,
manages each Fund in accordance with its investment objective and policies,
makes decisions with respect to, and places orders for, all purchases and sales
of portfolio securities, and maintains related records.
ALLOCATION OF ORDERS FOR PORTFOLIO SECURITIES
The Adviser may allocate orders for the purchase and sale of portfolio
securities to certain financial institutions, including those that are
affiliated with the Adviser or that have sold shares of the Funds, to the extent
permitted by law or by order of the Securities and Exchange Commission. The
Adviser will allocate orders to such institutions only if it believes that the
quality of the transaction and the commission are comparable to what they would
be with other qualified brokerage firms.
MANAGEMENT FEES
The management fees paid to the Adviser by the Funds during the last fiscal year
are set forth below.
<TABLE>
<CAPTION>
- ------------------------------------------------------- -----------------------------------------------------------
Fund Management fee as a % of average net assets
- ------------------------------------------------------- -----------------------------------------------------------
<S> <C>
Tax-Exempt Bond %
- ------------------------------------------------------- -----------------------------------------------------------
New Jersey Municipal Bond %
- ------------------------------------------------------- -----------------------------------------------------------
New York Municipal Bond %
- ------------------------------------------------------- -----------------------------------------------------------
Connecticut Municipal Bond %
- ------------------------------------------------------- -----------------------------------------------------------
Massachusetts Municipal Bond %
- ------------------------------------------------------- -----------------------------------------------------------
Rhode Island Municipal Bond %
- ------------------------------------------------------- -----------------------------------------------------------
</TABLE>
-28-
<PAGE>
HOW TO INVEST IN THE FUNDS
BUYING AND SELLING SHARES
Trust Shares of the Funds are available for purchase by investors maintaining a
qualified account at a bank or trust institution, including subsidiaries of
FleetBoston Corporation. Qualified accounts include discretionary investment
management accounts, custodial accounts and agency accounts. Your institution
can provide more information about which types of accounts are eligible.
You can buy and sell Trust Shares of the Funds on any business day. A business
day is any day that Galaxy's distributor, Galaxy's custodian and your
institution are open for business.
The price at which you buy shares is the net asset value (NAV) per share next
determined after your order is accepted. The price at which you sell shares is
the NAV per share next determined after receipt of your order. NAV is determined
on each day the New York Stock Exchange is open for trading at the close of
regular trading that day (usually 4:00 p.m. Eastern time). The New York Stock
Exchange is generally open for trading every Monday through Friday, except for
national holidays.
If market prices are readily available for securities owned by the Fund, they're
valued at those prices. If market prices are not readily available for some
securities, they are valued at fair value under the supervision of Galaxy's
Board of Trustees.
[Sidenote:]
NET ASSET VALUE
The price you pay for your shares is based on the net asset value per share
(NAV). It's the value of a Fund's assets attributable to Trust Shares, minus the
value of the Fund's liabilities attributable to Trust Shares, divided by the
number of Trust Shares held by investors.
[Sidenote:]
INVESTMENT MINIMUMS
Galaxy does not have any minimum investment requirements for initial or
additional investments in Trust Shares but financial institutions may . They may
also require you to maintain a minimum account balance.
HOW TO BUY SHARES
You can buy Trust Shares by following the procedures established by your
financial institution. Your financial institution is responsible for sending
your order to Galaxy's distributor and wiring payment to Galaxy's custodian. The
institution holds the shares in your name and receives all confirmations of
purchases and sales.
-29-
<PAGE>
HOW TO SELL SHARES
You can sell Trust Shares by following the procedures established by your
financial institution. Your financial institution is responsible for sending
your order to Galaxy's distributor and for crediting your account with the
proceeds. Galaxy doesn't charge for wiring sale proceeds to your financial
institution, but your financial institution may do so. Contact your financial
institution for more information.
OTHER TRANSACTION POLICIES
If Galaxy doesn't receive full payment for your order to buy shares by 4:00 p.m.
on the next business day, Galaxy won't accept your order. Galaxy will advise
your institution if this happens.
Galaxy may refuse any order to buy shares. Galaxy doesn't issue a certificate
when you buy shares but it does keep a record of shares issued to investors.
Sales proceeds are normally wired to your institution on the next business day
but Galaxy reserves the right to send sales proceeds within seven days if
sending proceeds earlier could adversely affect a Fund.
Galaxy may ask for any information it might reasonably need to make sure that
you've authorized a sale of shares.
Galaxy may close any account after 60 days' written notice if the value of the
account drops below $250 as a result of selling shares.
-30-
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
The Funds generally declare dividends from net investment income daily and pay
them monthly. They normally distribute net capital gains annually. It's expected
that the Funds' annual distributions will be mainly income dividends. Dividends
and distributions are paid in cash unless you indicate in the account
application or in a letter to Galaxy that you want to have dividends and
distributions reinvested in additional shares.
FEDERAL TAXES
It is expected that the Funds will distribute dividends derived from interest
earned on exempt securities, and these "exempt-interest dividends" will be
exempt income for shareholders for federal income tax purposes. However,
distributions, if any, derived from net capital gains of each Fund will
generally be taxable to you as capital gains. Dividends, if any, derived from
short-term capital gains or taxable interest income will be taxable to you as
ordinary income. You will be notified annually of the tax status of
distributions to you.
You should note that if you purchase shares just prior to a capital gain
distribution, the purchase price will reflect the amount of the upcoming
distribution, but you will be taxed on the entire amount of the distribution
received, even though, as an economic matter, the distribution simply
constitutes a return of capital. This is known as "buying into a dividend."
You will recognize taxable gain or loss on a sale or redemption of your shares,
based on the difference between your tax basis in the shares and the amount you
receive for them. (To aid in computing your tax basis, you generally should
retain your account statements for the periods during which you held shares.)
Generally, this gain or loss will be long-term or short-term depending on
whether your holding period for the shares exceeds 12 months, except that any
loss realized on shares held for six months or less will be treated as a
long-term capital loss to the extent of any capital gain dividends that were
received on the shares. Moreover, if you receive an exempt-interest dividend
with respect to any share and the share is held by you for six months or less,
any loss on the sale or exchange of the share will be disallowed to the extent
of such dividend amount.
Interest on indebtedness incurred by a shareholder to purchase or carry shares
of a Fund generally will not be deductible for federal income tax purposes.
You should note that a portion of the exempt-interest dividends paid by each
Fund may constitute an item of tax preference for purposes of determining
federal alternative minimum tax liability. Exempt-interest dividends will also
be considered along with other adjusted gross income in determining whether any
Social Security or railroad retirement payments received by you are subject to
federal income taxes.
-31-
<PAGE>
STATE AND LOCAL TAXES
Dividends paid by the Tax-Exempt Bond Fund that are attributable to interest
earned by the Fund may be taxable to shareholders under state or local law. Each
state-specific Fund intends to comply with certain state and/or local tax
requirements so that its dividends will be exempt from the applicable state
and/or local taxes described above in the description for such Fund. Dividends,
if any, derived from interest on securities other than the state-specific
municipal securities in which each Fund primarily invests or from any capital
gains, will be subject to the particular state's taxes.
MISCELLANEOUS
The foregoing is only a summary of certain tax considerations under current law,
which may be subject to change in the future. You should consult your tax
adviser for further information regarding federal, state, local and/or foreign
tax consequences relevant to your specific situation.
-32-
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables shown below will help you understand the
financial performance for the Funds' Trust Shares for the past five years (or
the period since a particular Fund began operations). As of the date of this
Prospectus, Trust Shares of the Rhode Island Municipal Bond Fund had not been
offered to investors. The financial highlights table shown below with respect to
the Rhode Island Municipal Bond Fund reflects the financial performance of the
Fund's Retail A Shares and is intended to provide you with a long-term
perspective as to the Fund's financial history. Certain information in the
financial highlights tables reflects the financial performance of a single Trust
Share or, in the case of the Rhode Island Municipal Bond Fund, a single Retail A
Share. The total returns in the tables represent the rate that an investor would
have earned (or lost) on an investment in Trust Shares (Retail A Shares in the
case of the Rhode Island Municipal Bond Fund) of each Fund, assuming all
dividends and distributions were reinvested. The information for the fiscal year
ended October 31, 1999 has been audited by _______________, independent
auditors, whose report, along with the Funds' financial statements, are included
in the Funds' Annual Report and are incorporated by reference into the SAI. The
Annual Report and SAI are available free of charge upon request. The information
for the fiscal years ended october 31, 1995, 1996, 1997 and 1998 was audited by
Galaxy's former auditors, ___________________.
-33-
<PAGE>
Galaxy Tax-Exempt Bond Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
------------------------------------------------------------------------------
1998 1998 1997 1996 1995
---- ---- ---- ---- -----
Trust Shares
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period............... $11.06 $10.78 $10.78 $9.99
------ ------ ------ ------
Income from investment operations:
Net investment income(1)........................ 0.50 0.53 0.53 0.54
Net realized and unrealized gain (loss)
on investments................................ 0.34 0.29 -- 0.79
---- ---- ---- -----
Total from investment operations................... 0.84 0.82 0.53 1.33
---- ---- ---- ----
Less dividends:
Dividends from net investment income............. (0.51) (0.53) (0.53) (0.54)
Dividends from net realized capital gains........ (0.09) (0.01) -- --
Dividends in excess of net realized capital gains -- -- -- --
------ ------ ------ -----
Total dividends.................................... (0.60) (0.54) (0.53) (0.54)
------ ------ ------ ------
Net increase (decrease) in net asset value......... 0.24 0.28 -- 0.79
------ ------ ------- ------
Net asset value, end of period..................... $11.30 $11.06 $10.78 $10.78
------ ------ ------- ------
Total return.................................... 7.85% 7.75% 5.03% 13.62%
Ratios/supplemental data:
Net assets, end of period (000's)................ $135,664 $122,218 $103,163 $91,740
------
Ratios to average net assets:
Net investment income including
reimbursement/waiver.......................... 4.55% 4.85% 4.91% 5.18%
Operating expenses including
reimbursement/waiver.......................... 0.71% 0.70% 0.70% 0.72%
Operating expenses excluding
reimbursement/waiver.......................... 0.92% 0.96% 0.95% 0.97%
Portfolio turnover rate............................ 59% 78% 15% 11%
------
</TABLE>
- -----------------------------
(1) Net investment income per share for Trust Shares before
reimbursement/waiver of fees by the Adviser and/or the Fund's
administrator for the years ended October 31, 1999, 1998, 1997, 1996
and 1995 was $____, $0.48, 0.51, $0.51 and $0.51, respectively.
-34-
<PAGE>
Galaxy New Jersey Municipal Bond Fund
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE PERIOD
ENDING OCTOBER ENDING OCTOBER
31, 31,
---------------- ----------------
1999 1998(1)
---- -----
TRUST SHARES
------------
<S> <C>
Net asset value, beginning of period............................................ $10.00
Income from investment operations:
Net investment income(2)...................................................... 0.21
Net realized and unrealized gain on investments............................... 0.24
Total from investment operations................................................ 0.45
Less dividends:
Dividends from net investment income.......................................... (0.21)
Dividends from net realized capital gains.....................................
Total dividends................................................................ (0.21)
Net increase in net asset value................................................. 0.24
Net asset value, end of period.................................................. $10.24
Total return.................................................................... 4.48%(3)
Ratios/supplemental data:
Net assets, end of period (000's)............................................. $7,701
Ratios to average net assets:
Net investment income including reimbursement/waiver.......................... 3.79%(4)
Operating expenses including reimbursement/waiver............................. 0.92%(4)
Operating expenses excluding reimbursement/waiver............................. 2.07%(4)
Portfolio turnover rate......................................................... 53%(3)
</TABLE>
---------------------
(1) The Fund commenced operations on April 3, 1998.
(2) Net investment income per share before reimbursement/waiver of
fees by the Adviser and the Fund's administrator for Trust
Shares for the periods ended October 31, 1999 and 1998 was
$_____ and $0.15, respectively.
(3) Not annualized.
(4) Annualized.
-35-
<PAGE>
Galaxy New York Municipal Bond Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
-------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- -----
Trust Shares
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period............. $11.09 $10.75 $10.78 $9.89
------ ------ ------ -----
Income from investment operations:
Net investment income(1)....................... 0.50 0.52 0.51 0.51
Net realized and unrealized gain (loss)
on investments.............................. 0.35 0.34 (0.03) 0.89
------ ------ ------ -----
Total from investment operations................. 0.85 0.86 0.48 1.40
------ ------ ------ -----
Less dividends:
Dividends from net investment income........... (0.50) (0.52) (0.51) (0.51)
Dividends from net realized capital gains...... -- -- -- --
------ ------ ------ -----
Total dividends.................................. (0.50) (0.52) (0.51) (0.51)
------ ------ ------ -----
Net increase (decrease) in net asset value....... 0.35 0.34 (0.03) 0.89
------ ------ ------ -----
Net asset value, end of period................... $11.44 $11.09 $10.75 $10.78
------ ------ ------ -----
Total return................................... 7.82% 8.17% 4.55% 14.23%
Ratios/supplemental data:
Net assets, end of period (000's).............. $34,801 $27,562 $23,762 $23,077
Ratios to average net assets:
Net investment income including
reimbursement/waiver........................ 4.42% 4.75% 4.75% 4.91%
Operating expenses including
reimbursement/waiver........................ 0.72% 0.71% 0.70% 0.74%
Operating expenses excluding
reimbursement/waiver........................ 0.99% 1.02% 1.10% 1.07%
Portfolio turnover rate.......................... 27% 61% 12% 5%
</TABLE>
- -----------------------------
(1) Net investment income per share for Trust Shares before
reimbursement/waiver of fees by the Adviser and/or the Fund's
administrator for the years ended October 31, 1999, 1998, 1997, 1996
and 1995 was $____, $0.47, $0.49, $0.47 and $0.48 , respectively.
-36-
<PAGE>
Galaxy Connecticut Municipal Bond Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- -----
Trust Shares
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period............... $10.47 $10.14 $10.13 $9.22
------ ------ ------ ------
Income from investment operations:
Net investment income(1)......................... 0.45 0.47 0.44 0.46
Net realized and unrealized gain (loss)
on investments................................ 0.35 0.33 0.01 0.91
------ ------ ------ ------
Total from investment operations................... 0.80 0.80 0.45 1.37
------ ------ ------ ------
Less dividends:
Dividends from net investment income............. (0.45) (0.47) (0.44) (0.46)
Dividends from net realized capital gains........ -- -- -- --
------ ------ ------ ------
Total dividends.................................... (0.45) (0.47) (0.44) (0.46)
------ ------ ------ ------
Net increase (decrease) in net asset value......... 0.35 0.33 0.01 0.91
------ ------ ------ ------
Net asset value, end of period..................... $10.82 $10.47 $10.14 $10.13
------ ------ ------ ------
Total return.................................... 7.81% 8.06% 4.54% 15.21%
Ratios/supplemental data:
Net assets, end of period (000's)................ $13,913 $9,866 $6,348 $4,083
Ratios to average net assets:
Net investment income including
reimbursement/waiver.......................... 4.24% 4.51% 4.34% 4.76%
Operating expenses including
reimbursement/waiver.......................... 0.67% 0.49% 0.49% 0.45%
Operating expenses excluding
reimbursement/waiver.......................... 1.10% 1.10% 1.17% 1.24%
Portfolio turnover rate............................ 46% 42% 3% 7%
</TABLE>
- -----------------------------
(1) Net investment income per share for Trust Shares before
reimbursement/waiver of fees by the Adviser and/or the Fund's
administrator for the years ended October 31, 1999, 1998, 1997, 1996
and 1995 was $____ $0.40, $0.41, $0.37 and $0.38 , respectively.
-37-
<PAGE>
Galaxy Massachusetts Municipal Bond Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- -----
Trust Shares
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period............... $10.25 $ 9.94 $ 9.98 $9.12
------ ------ ------ -----
Income from investment operations:
Net investment income(1)......................... 0.47 0.46 0.46 0.45
Net realized and unrealized gain (loss)
on investments................................ 0.27 0.32 (0.04) 0.86
------ ------ ------ -----
Total from investment operations................... 0.74 0.78 0.42 1.31
------ ------ ------ -----
Less dividends:
Dividends from net investment income............. (0.46) (0.47) (0.46) (0.45)
Dividends from net realized capital gains........ -- -- -- --
------ ------ ------ -----
Total dividends.................................... (0.46) (0.47) (0.46) (0.45)
------ ------ ------ -----
Net increase (decrease) in net asset value......... 0.28 0.31 (0.04) 0.86
------ ------ ------ -----
Net asset value, end of period..................... $10.53 $10.25 $ 9.94 $9.98
------ ------ ------ -----
Total return.................................... 7.42% 8.06% 4.27% 14.72%
Ratios/supplemental data:
Net assets, end of period (000's)................ $23,371 $13,986 $11,047 $7,607
Ratios to average net assets:
Net investment income including
reimbursement/waiver.......................... 4.49% 4.57% 4.60% 4.73%
Operating expenses including
reimbursement/waiver.......................... 0.60% 0.44% 0.48% 0.52%
Operating expenses excluding
reimbursement/waiver.......................... 1.03% 1.01% 1.14% 1.31%
Portfolio turnover rate............................ 44% 48% 16% 19%
</TABLE>
- -----------------------------
(1) Net investment income per share for Trust Shares before
reimbursement/waiver of fees by the Adviser and/or the Fund's
administrator for the years ended October 31, 1999, 1998, 1997, 1996
and 1995 was $____, $0.42, $0.40, $0.40 and $0.38, respectively.
-38-
<PAGE>
Galaxy Rhode Island Municipal Bond Fund
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
For the year ending October 31, Period ended
----------------------------------------------------------------
October 31,
1999 1998 1997 1996 1995(1)
---- ---- ---- ---- -------
Retail A Shares
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period............ $10.91 $10.65 $10.67 $10.00
------ ------ ------ ------
Income from investment operations:
Net investment income(2)...................... 0.50 0.48 0.51 0.44
Net realized and unrealized gain
on investments............................. 0.29 0.32 0.03 0.67
------ ------ ------ ------
Total from investment operations................ 0.79 0.80 0.54 1.11
------ ------ ------ ------
Less dividends:
Dividends from net investment income.......... (0.50) (0.50) (0.51) (0.44)
Dividends from net realized capital gains..... (0.02) (0.04) (0.05) --
------ ------ ------ ------
Total dividends................................. (0.52) (0.54) (0.56) (0.44)
------ ------ ------ ------
Net increase (decrease) in net asset value...... 0.27 0.26 (0.02) 0.67
------ ------ ------ ------
Net asset value, end of period.................. $11.18 $10.91 $10.65 $10.67
------ ------ ------ ------
Total return(3)................................. 7.35% 7.78% 5.22% 11.29%(4)
Ratios/supplemental data:
Net assets, end of period (000's)............. $20,210 $17,134 $14,900 $10,850
Ratios to average net assets:
Net investment income including
reimbursement/waiver....................... 4.52% 4.50% 4.78% 5.13%(5)
Operating expenses including
reimbursement/waiver....................... 0.81% 0.83% 0.77% 0.40%(5)
Operating expenses excluding
reimbursement/waiver....................... 1.23% 1.34% 1.34% 2.25%(5)
Portfolio turnover rate......................... 41% 19% 13% 34%(4)
</TABLE>
------------------------
(1) The Fund commenced operations on December 20, 1994.
(2) Net investment income per share before reimbursement/waiver of fees by
the Adviser and/or the Fund's administrator for the fiscal years ended
October 31, 1999, 1998, 1997 and 1996 and for the period ended October
31, 1995 was $____, $0.45, $0.43, $0.45, and $0.28, respectively.
(3) Calculation does not include the effect of any sales charge for Retail
A Shares.
(4) Not annualized.
(5) Annualized.
-39-
<PAGE>
[Back Cover Page]
Where to find more information
You'll find more information about the Funds in the following documents:
ANNUAL AND SEMI-ANNUAL REPORTS
Galaxy's annual and semi-annual reports contain more information about each Fund
and a discussion about the market conditions and investment strategies that had
a significant effect on each Fund's performance during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains detailed information about the Funds and their policies. By
law, it's incorporated by reference into (considered to be part of) this
prospectus.
You can get a free copy of these documents, request other information about the
Funds and make shareholder inquiries by calling Galaxy at 1-877-BUY-GALAXY
(1-877-289-4252) or writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
If you buy your shares through a financial institution, you may contact your
institution for more information.
You can write to the Securities and Exchange Commission (SEC) Public Reference
Section and ask them to mail you information about the Funds, including the SAI.
They'll charge you a fee for this service. You can also visit the SEC Public
Reference Room and copy the documents while you're there. For information about
the operation of the Public Reference Room, call the SEC.
Public Reference Section of the SEC
Washington, DC 20549- 0102
1-202-942-8090.
Reports and other information about the Funds are also available ON THE EDGAR
DATABASE on the SEC's website at http://www.sec.gov. COPIES OF THIS INFORMATION
MAY ALSO BE OBTAINED, AFTER PAYING A DUPLICATING FEE, BY ELECTRONIC REQUEST TO
THE SEC'S E-MAIL ADDRESS AT [email protected].
Galaxy's Investment Company Act File No. is 811-4636.
[FLEET ASSIGNED CODE]
<PAGE>
THE GALAXY FUND
STATEMENT OF ADDITIONAL INFORMATION
__________, 2000
GALAXY TAX-EXEMPT BOND FUND
RETAIL A SHARES, RETAIL B SHARES AND
TRUST SHARES
GALAXY NEW JERSEY MUNICIPAL BOND FUND
GALAXY NEW YORK MUNICIPAL BOND FUND
GALAXY CONNECTICUT MUNICIPAL BOND FUND
GALAXY MASSACHUSETTS MUNICIPAL BOND FUND
GALAXY RHODE ISLAND MUNICIPAL BOND FUND
RETAIL A SHARES AND TRUST SHARES
This Statement of Additional Information is not a prospectus. The
prospectuses for the Funds as listed below, as they may be supplemented or
revised from time to time (the "Prospectuses"), as well as the Funds' Annual
Report to Shareholders dated October 31, 1999 (the "Annual Report"), may be
obtained, without charge by writing:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
or by calling 1-877-BUY-GALAXY (1-877-289-4252)
Current Prospectuses
- - Prospectus for Retail A Shares of the Funds and Retail B Shares of the
Tax-Exempt Bond Fund dated __________, 2000
- - Prospectus for Trust Shares of the Funds dated __________, 2000
The________________ and the report thereon of______________________
The Galaxy Funds' independent accountants, are incorporated by reference into
this Statement of Additional Information.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
GENERAL INFORMATION....................................................... 1
DESCRIPTION OF GALAXY AND ITS SHARES...................................... 1
INVESTMENT STRATEGIES, POLICIES AND RISKS................................. 4
Tax-Exempt Bond Fund.....................................................4
New Jersey Municipal Bond Fund...........................................5
New York Municipal Bond Fund.............................................5
Connecticut Municipal Bond Fund..........................................5
Massachusetts Municipal Bond Fund........................................6
Rhode Island Municipal Bond Fund.........................................7
Special Considerations and Risks.........................................8
Investment Quality.......................................................8
General Risk Consideration...............................................8
Other Investment Policies and Risk Considerations........................9
Variable and Floating Rate Obligations...................................9
U.S. Government Obligations and Money Market Instruments.................9
Municipal Securities....................................................11
Stand-by Commitments....................................................12
Private Activity Bonds..................................................13
Repurchase and Reverse Repurchase Agreements............................13
Securities Lending......................................................14
Investment Company Securities...........................................15
Custodial Receipts and Certificates of Participation....................15
Derivative Securities...................................................15
Futures Contracts.......................................................16
When-Issued, Forward Commitment and Delayed Settlement Transactions.....17
Asset-Backed Securities.................................................18
Mortgage-Backed Securities..............................................19
Guaranteed Investment Contracts.........................................19
Bank Investment Contracts...............................................20
Special Considerations Relating to New Jersey Municipal Securities......20
Special Considerations Relating to New York Municipal Securities........23
Special Considerations Relating to Connecticut Municipal Securities.....35
Portfolio Turnover......................................................38
INVESTMENT LIMITATIONS....................................................38
VALUATION OF PORTFOLIO SECURITIES.........................................41
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION............................41
Purchases Of Retail A Shares And Retail B Shares........................42
General.................................................................42
Customers of Institutions...............................................42
Other Purchase Information..............................................43
Applicable Sales Charge -- Retail A Shares..............................43
Computation of Offering Price - Retail A Shares.........................44
Quantity Discounts......................................................45
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
Applicable Sales Charge - Retail B Shares...............................48
Characteristics of Retail A Shares and Retail B Shares..................49
Factors to Consider When Selecting Retail A Shares or Retail B Shares...49
Purchases of Trust Shares...............................................50
Redemption of Retail A Shares, Retail B Shares
and Trust Shares........................................................51
INVESTOR PROGRAMS - RETAIL A SHARES AND RETAIL B SHARES...................52
Exchange Privilege......................................................52
Retirement Plans........................................................53
Automatic Investment Program and Systematic Withdrawal Plan.............53
Payroll Deduction Program...............................................54
College Investment Program..............................................54
Direct Deposit Program..................................................54
TAXES.....................................................................54
State and Local.........................................................55
Rider B.................................................................58
Miscellaneous...........................................................58
TRUSTEES AND OFFICERS.....................................................58
Shareholder and Trustee Liability.......................................62
INVESTMENT ADVISER........................................................62
Authority to Act as Investment Adviser..................................65
ADMINISTRATOR.............................................................65
CUSTODIAN AND TRANSFER AGENT..............................................67
EXPENSES..................................................................68
PORTFOLIO TRANSACTIONS....................................................68
SHAREHOLDER SERVICES PLAN.................................................69
DISTRIBUTION AND SERVICES PLAN............................................71
DISTRIBUTOR...............................................................72
AUDITORS..................................................................74
COUNSEL...................................................................75
PERFORMANCE AND YIELD INFORMATION.........................................75
Tax Equivalency Tables - New Jersey Municipal Bond and
New York Municipal
Bond Funds..........................................................82
Performance Reporting.....................................................85
MISCELLANEOUS.............................................................86
FINANCIAL STATEMENTS......................................................93
APPENDIX A...............................................................A-1
APPENDIX B...............................................................B-1
</TABLE>
-ii-
<PAGE>
GENERAL INFORMATION
This Statement of Additional Information should be read in conjunction with
a current Prospectus. This Statement of Additional Information relates to the
Prospectuses for Trust Shares and Retail A Shares of the six Funds listed on the
cover page and Retail B Shares of the Tax-Exempt Bond Fund. The Tax-Exempt Bond
Fund is the only Fund that currently offers Retail B Shares. The Tax-Exempt Bond
Fund also offers Prime A Shares and Prime B Shares, which are described in a
separate statement of additional information and related prospectus. As of the
date of this Statement of Additional Information and the Prospectus for Trust
Shares of the Funds, Trust Shares of the Rhode Island Municipal Bond Fund were
not being offered to investors. This Statement of Additional Information is
incorporated by reference in its entirety into the Prospectuses. No investment
in shares of the Funds should be made without reading a Prospectus.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, FLEETBOSTON CORPORATION OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUNDS ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL VARY AS A RESULT OF MARKET CONDITIONS OR OTHER FACTORS SO THAT SHARES
OF THE FUNDS, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
AN INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
THE PRINCIPAL AMOUNT INVESTED.
DESCRIPTION OF GALAXY AND ITS SHARES
The Galaxy Fund ("Galaxy") is an open-end management investment
company currently offering shares of beneficial interest in twenty-nine
investment portfolios: Money Market Fund, Government Fund, U.S. Treasury Fund,
Tax-Exempt Fund, Connecticut Municipal Money Market Fund, Massachusetts
Municipal Money Market Fund, Institutional Government Money Market Fund, Prime
Reserves, Government Reserves, Tax-Exempt Reserves, Equity Value Fund, Equity
Growth Fund, Equity Income Fund, International Equity Fund, Small Company Equity
Fund, Asset Allocation Fund, Small Cap Value Fund, Growth and Income Fund,
Strategic Equity Fund, Short-Term Bond Fund, Intermediate Government Income
Fund, High Quality Bond Fund, Corporate Bond Fund, Tax-Exempt Bond Fund, New
Jersey Municipal Bond Fund, New York Municipal Bond Fund, Connecticut Municipal
Bond Fund, Massachusetts Municipal Bond Fund and Rhode Island Municipal Bond
Fund. Galaxy is also authorized to issue shares of beneficial interest in 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 have 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
<PAGE>
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
M - Series 1 shares (Trust Shares), Class M - Series 2 shares (Retail A Shares),
Class M - Series 3 shares (Retail B Shares), Class M - Series 4 shares (Prime A
Shares) and Class M - Series 5 shares (Prime B Shares), each series representing
interests in the Tax-Exempt Bond Fund; Class O - Series 1 shares (Trust Shares)
and Class O - Series 2 shares (Retail A Shares), each series representing
interests in the New York Municipal Bond Fund; Class P Series 1 shares (Trust
Shares) and Class P - Series 2 shares (Retail A Shares), each series
representing interests in the Connecticut Municipal Bond Fund; Class Q - Series
1 shares (Trust Shares) and Class Q - Series 2 shares (Retail A Shares), each
series representing interests in the Massachusetts Municipal Bond Fund; Class R
- - Series 1 shares (Trust Shares) and Class R - Series 2 shares (Retail A
Shares), each series representing interests in the Rhode Island Municipal Bond
Fund; and Class Y - Series 1 shares (Trust Shares) and Class Y - Series 2 shares
(Retail A Shares), each series representing interests in the New Jersey
Municipal Bond Fund. The Tax-Exempt Bond Fund is classified as a diversified
investment company and the New Jersey Municipal Bond, New York Municipal Bond,
Connecticut Municipal Bond, Massachusetts Municipal Bond and Rhode Island
Municipal Bond Funds are classified as non-diversified companies under the
Investment Company Act of 1940, as amended (the "1940 Act").
Each share of Galaxy (irrespective of series designation) has a par value
of $.001 per share, represents an equal proportionate interest in the related
investment portfolio with other shares of the same class (irrespective of series
designation), and is entitled to such dividends and distributions out of the
income earned on the assets belonging to such investment portfolio as are
declared in the discretion of Galaxy's Board of Trustees.
Shares have no preemptive rights and only such conversion or exchange
rights as the Board of Trustees may grant in its discretion. When issued for
payment as described in the Prospectuses, shares will be fully paid and
non-assessable. Each series of shares in a Fund (i.e., Retail A Shares, Retail B
Shares and Trust Shares) bear pro rata the same expenses and are entitled
equally to the Fund's dividends and distributions except as follows. Each series
will bear the expenses of any distribution and/or shareholder servicing plans
applicable to such series. For example, as described below, holders of Retail A
Shares will bear the expenses of the Shareholder Services Plan for Retail A
Shares and Trust Shares (which is currently applicable only to Retail A Shares)
and holders of Retail B Shares will bear the expenses of the Distribution and
Services Plan for Retail B Shares. In addition, each series may incur differing
transfer agency fees and may have differing sales charges. Standardized yield
and total return quotations are computed separately for each series of shares.
The differences in expenses paid by the respective series will affect their
performance. See "Shareholder Services Plan" and Distribution and Services Plan"
below.
In the event of a liquidation or dissolution of Galaxy or an individual
Fund, shareholders of a particular Fund would be entitled to receive the assets
available for distribution belonging to such Fund, and a proportionate
distribution, based upon the relative asset values of Galaxy's respective Funds,
of any general assets of Galaxy not belonging to any particular Fund, which are
available for distribution. Shareholders of a Fund are entitled to participate
in the net distributable assets of the particular Fund involved in liquidation,
based on the number of shares of the Fund that are held by each shareholder,
except that each series of a Fund would be solely
-2-
<PAGE>
responsible for the Fund's payments under any distribution and/or shareholder
servicing plan applicable to such series.
Holders of all outstanding shares of a particular Fund will vote together
in the aggregate and not by series on all matters, except that only shares of a
particular series of a Fund will be entitled to vote on matters submitted to a
vote of shareholders pertaining to any distribution and/or shareholder servicing
plan for such series (e.g., only Retail A Shares and Trust Shares of a Fund will
be entitled to vote on matters submitted to a vote of shareholders pertaining to
Galaxy's Shareholder Services Plan for Retail A and Trust Shares and only Retail
B Shares of a Fund will be entitled to vote on matters submitted to a vote of
shareholders pertaining to Galaxy's Distribution and Services Plan for Retail B
Shares). Further, shareholders of all of the Funds, as well as those of any
other investment portfolio now or hereafter offered by Galaxy, will vote
together in the aggregate and not separately on a Fund-by-Fund basis, except as
otherwise required by law or when permitted by the Board of Trustees. Rule 18f-2
under the 1940 Act provides that any matter required to be submitted to the
holders of the outstanding voting securities of an investment company such as
Galaxy shall not be deemed to have been effectively acted upon unless approved
by the holders of a majority of the outstanding shares of each Fund affected by
the matter. A particular Fund is deemed to be affected by a matter unless it is
clear that the interests of each Fund in the matter are substantially identical
or that the matter does not affect any interest of the Fund. Under the Rule, the
approval of an investment advisory agreement or any change in an investment
objective or a fundamental investment policy would be effectively acted upon
with respect to a Fund only if approved by a majority of the outstanding shares
of such Fund (irrespective of series designation). However, the Rule also
provides that the ratification of the appointment of independent public
accountants, the approval of principal underwriting contracts, and the election
of trustees may be effectively acted upon by shareholders of Galaxy voting
without regard to class or series.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held, and will vote in
the aggregate and not by class or series, except as otherwise expressly required
by law or when the Board of Trustees determines that the matter to be voted on
affects only the interests of shareholders of a particular class or series.
Voting rights are not cumulative and, accordingly, the holders of more than 50%
in the aggregate of Galaxy's outstanding shares may elect all of the trustees,
irrespective of the votes of other shareholders.
Galaxy is not required under Massachusetts law to hold annual shareholder
meetings and intends to do so only if required by the 1940 Act. Shareholders
have the right to remove Trustees. Galaxy's Declaration of Trust provides that a
meeting of shareholders shall be called by the Board of Trustees upon a written
request of shareholders owning at least 10% of the outstanding shares of Galaxy
entitled to vote.
Galaxy's Declaration of Trust authorizes the Board of Trustees, without
shareholder approval (unless otherwise required by applicable law), to (a) sell
and convey the assets of a Fund to another management investment company for
consideration which may include securities issued by the purchaser and, in
connection therewith, to cause all outstanding shares of 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
-3-
<PAGE>
therewith, to cause all outstanding shares of the Fund involved to be redeemed
at their net asset value; or (c) combine the assets belonging to a Fund with the
assets belonging to another Fund of Galaxy and, in connection therewith, to
cause all outstanding shares of any Fund to be redeemed at their net asset value
or converted into shares of another class of Galaxy's shares at the net asset
value. In the event that shares are redeemed in cash at their net asset value, a
shareholder may receive in payment for such shares, due to changes in the market
prices of the Fund's portfolio securities, an amount that is more or less than
the original investment. The exercise of such authority by the Board of Trustees
will be subject to the provisions of the 1940 Act, and the Board of Trustees
will not take any action described in this paragraph unless the proposed action
has been disclosed in writing to the Fund's shareholders at least 30 days prior
thereto.
INVESTMENT STRATEGIES, POLICIES AND RISKS
Fleet Investment Advisors Inc. ("Fleet"), the Funds' investment adviser,
will use its best efforts to achieve each Fund's investment objective, although
such achievement cannot be assured. The investment objective of a Fund as
described in its Prospectuses may not be changed without the approval of the
holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Except as noted herein under "New Jersey Municipal Bond Fund,"
"New York Municipal Bond Fund," "Connecticut Municipal Bond Fund,"
"Massachusetts Municipal Bond Fund" and "Rhode Island Municipal Bond Fund" and
below under "Investment Limitations," a Fund's investment policies may be
changed without shareholder approval. An investor should not consider an
investment in the Funds to be a complete investment program. The following
investment strategies, policies and risks supplement those set forth in the
Funds' Prospectuses.
TAX-EXEMPT BOND FUND
As a matter of fundamental policy that cannot be changed without the
requisite consent of the Tax-Exempt Bond Fund's shareholders, the Fund will
invest, except during temporary defensive periods, at least 80% of its total
assets in debt obligations issued by or on behalf of states, territories and
possessions of the United States, the District of Columbia and their respective
authorities, agencies, instrumentalities and political subdivisions, the
interest on which, in the opinion of bond counsel to the issuer, is exempt from
regular federal income tax ("Municipal Securities"), primarily bonds (at least
65% under normal market conditions).
Although there is no present intention to do so on a regular basis, the
Fund may invest 25% or more of its assets in Municipal Securities the interest
on which is paid solely from revenues on similar projects if such investment is
deemed necessary or appropriate by Fleet. To the extent that 25% or more of the
Fund's assets are invested in Municipal Securities payable from revenues on
similar projects, the Fund will be subject to the particular risks presented by
such projects to a greater extent than it would be if its assets were not so
concentrated.
See "Special Considerations and Risks" and "Other Investment Policies
and Risk Considerations" below for information regarding additional investment
policies of the Tax-Exempt Bond Fund.
-4-
<PAGE>
NEW JERSEY MUNICIPAL BOND FUND
As a matter of fundamental policy that cannot be changed without the
requisite consent of the Fund's shareholders, the New Jersey Municipal Bond Fund
will invest, except during temporary defensive periods, at least 80% of its
total assets in Municipal Securities. The Fund expects that except during
temporary defensive periods or when, in Fleet's opinion, suitable obligations
are unavailable for investment, at least 65% of the Fund's total assets will be
invested in Municipal Securities issued by or on behalf of the State of New
Jersey, its political sub-divisions, authorities, agencies, instrumentalities
and corporations, and certain other governmental issuers such as Puerto Rico,
the interest on which, in the opinion of bond counsel to the issuer, is exempt
from federal and New Jersey personal income taxes ("New Jersey Municipal
Securities"). See "Other Investment Policies and Risk Considerations - Special
Considerations Relating to New Jersey Municipal Securities" below for a
discussion of certain risks in investing in New Jersey Municipal Securities.
Dividends derived from interest on Municipal Securities other than New Jersey
Municipal Securities will generally be exempt from regular federal income tax
but may be subject to New Jersey personal income tax. See "Taxes" below.
See "Special Considerations and Risks" and "Other Investment Policies and
Risk Considerations" below for information regarding additional investment
policies of the New Jersey Municipal Bond Fund.
NEW YORK MUNICIPAL BOND FUND
As a matter of fundamental policy that cannot be changed without the
requisite consent of the Fund's shareholders, the New York Municipal Bond Fund
will invest, except during temporary defensive periods, at least 80% of its
total assets in Municipal Securities, primarily in Municipal Securities issued
by or on behalf of the State of New York, its political sub-divisions,
authorities, agencies, instrumentalities and corporations, and certain other
governmental issuers such as Puerto Rico, the interest on which, in the opinion
of bond counsel to the issuer, is exempt from federal, New York State and New
York City personal income taxes ("New York Municipal Securities"). See "Other
Investment Policies and Risk Considerations - Special Considerations Relating to
New York Municipal Securities" below for a discussion of certain risks in
investing in New York Municipal Securities. Dividends derived from interest on
Municipal Securities other than New York Municipal Securities will generally be
exempt from regular federal income tax but may be subject to New York State and
New York City personal income tax. See "Taxes" below.
See "Special Considerations and Risks" and "Other Investment Policies and
Risk Considerations" below for information regarding additional investment
policies of the New York Municipal Bond Fund.
CONNECTICUT MUNICIPAL BOND FUND
As a matter of fundamental policy that cannot be changed without the
requisite consent of the Fund's shareholders, the Connecticut Municipal Bond
Fund will invest, except during temporary defensive periods, at least 80% of its
total assets in Municipal Securities, primarily in Municipal Securities issued
by or on behalf of the State of Connecticut, its political sub-
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divisions, or any public instrumentality, state or local authority, district
or similar public entity created under the laws of Connecticut and certain other
governmental issuers such as Puerto Rico, the interest on which is, in the
opinion of qualified legal counsel, exempt from federal income tax and from
Connecticut personal income tax by virtue of federal law ("Connecticut Municipal
Securities"). See "Other Investment Policies and Risk Considerations - Special
Considerations Relating to Connecticut Municipal Securities" below, for a
discussion of certain risks in investing in Connecticut Municipal Securities.
Dividends derived from interest on Municipal Securities other than Connecticut
Municipal Securities will generally be exempt from regular federal income tax
but may be subject to Connecticut personal income tax. See "Taxes" below.
See "Special Considerations and Risks" and "Other Investment Policies and
Risk Considerations" below for information regarding additional investment
policies of the Connecticut Municipal Bond Fund.
MASSACHUSETTS MUNICIPAL BOND FUND
As a matter of fundamental policy that cannot be changed without the
requisite consent of the Fund's shareholders, the Massachusetts Municipal Bond
Fund will invest, except during temporary defensive periods, at least 80% of its
total assets in Municipal Securities, primarily in Municipal Securities issued
by or on behalf of the Commonwealth of Massachusetts, its political
sub-divisions, authorities, agencies, instrumentalities and corporations, and
certain other governmental issuers such as Puerto Rico, the interest on which,
in the opinion of bond counsel to the issuer, is exempt from federal and
Massachusetts personal income taxes ("Massachusetts Municipal Securities").
Dividends derived from interest on Municipal Securities other than Massachusetts
Municipal Securities will generally be exempt from regular federal income tax
but may be subject to Massachusetts personal income tax. See "Taxes" below.
The Fund's ability to achieve its investment objective depends on the
ability of issuers of Massachusetts Municipal Securities to meet their
continuing obligations to pay principal and interest. Since the Fund invests
primarily in Massachusetts Municipal Securities, the value of the Fund's shares
may be especially affected by factors pertaining to the economy of Massachusetts
and other factors specifically affecting the ability of issuers of Massachusetts
Municipal Securities to meet their obligations. As a result, the value of the
Fund's shares may fluctuate more widely than the value of shares of a portfolio
investing in securities of issuers in a number of different states. The ability
of Massachusetts and its political subdivisions to meet their obligations will
depend primarily on the availability of tax and other revenues to those
governments and on their fiscal conditions generally. The amount of tax and
other revenues available to governmental issuers of Massachusetts Municipal
Securities may be affected from time to time by economic, political and
demographic conditions within Massachusetts. In addition, constitutional or
statutory restrictions may limit a government's power to raise revenues or
increase taxes. The availability of federal, state and local aid to an issuer of
Massachusetts Municipal Securities may also affect that issuer's ability to meet
its obligations. Payments of principal and interest on limited obligation bonds
will depend on the economic condition of the facility or specific revenue source
from whose revenues the payments will be made, which in turn could be affected
by economic, political and demographic conditions in Massachusetts or a
particular locality. Any reduction in the actual or perceived ability of an
issuer of Massachusetts Municipal Securities to meet its obligations (including
a reduction in the rating of its outstanding
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securities) would likely affect adversely the market value and marketability of
its obligations and could affect adversely the values of other Massachusetts
Municipal Securities as well.
See "Special Considerations and Risks" and "Other Investment Policies and
Risk Considerations" below for information regarding additional investment
policies of the Massachusetts Municipal Bond Fund.
RHODE ISLAND MUNICIPAL BOND FUND
As a matter of fundamental policy that cannot be changed without the
requisite consent of the Fund's shareholders, the Rhode Island Municipal Bond
Fund will invest, except during temporary defensive periods, at least 80% of its
total assets in Municipal Securities, primarily in Municipal Securities issued
by or on behalf of the State of Rhode Island, its political sub-divisions,
authorities, agencies, instrumentalities and corporations, and certain other
governmental issuers such as Puerto Rico, the interest on which, in the opinion
of bond counsel to the issuer, is exempt from federal and Rhode Island personal
income taxes ("Rhode Island Municipal Securities"). Dividends derived from
interest on Municipal Securities other than Rhode Island Municipal Securities
will generally be exempt from regular federal income tax but may be subject to
Rhode Island personal income tax. See "Taxes" below.
The Fund's ability to achieve its investment objective depends on the
ability of issuers of Rhode Island Municipal Securities to meet their continuing
obligations to pay principal and interest. Since the Fund invests primarily in
Rhode Island Municipal Securities, the value of the Fund's shares may be
especially affected by factors pertaining to the economy of Rhode Island and
other factors specifically affecting the ability of issuers of Rhode Island
Municipal Securities to meet their obligations. As a result, the value of the
Fund's shares may fluctuate more widely than the value of shares of a portfolio
investing in securities of issuers in a number of different states. The ability
of Rhode Island and its political subdivisions to meet their obligations will
depend primarily on the availability of tax and other revenues to those
governments and on their fiscal conditions generally. The amount of tax and
other revenues available to governmental issuers of Rhode Island Municipal
Securities may be affected from time to time by economic, political and
demographic conditions within Rhode Island. In addition, constitutional or
statutory restrictions may limit a government's power to raise revenues or
increase taxes. The availability of federal, state and local aid to an issuer of
Rhode Island Municipal Securities may also affect that issuer's ability to meet
its obligations. Payments of principal and interest on limited obligation bonds
will depend on the economic condition of the facility or specific revenue source
from whose revenues the payments will be made, which in turn could be affected
by economic, political and demographic conditions in Rhode Island or a
particular locality. Any reduction in the actual or perceived ability of an
issuer of Rhode Island Municipal Securities to meet its obligations (including a
reduction in the rating of its outstanding securities) would likely affect
adversely the market value and marketability of its obligations and could affect
adversely the value of other Rhode Island Municipal Securities as well.
See "Special Considerations and Risks" and "Other Investment Policies and
Risk Considerations" below for information regarding additional investment
policies of the Rhode Island Municipal Bond Fund.
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SPECIAL CONSIDERATIONS AND RISKS
INVESTMENT QUALITY
Municipal Securities purchased by the Funds will consist primarily of
issues which are rated at the time of purchase within the four highest rating
categories assigned by S&P or Moody's or unrated instruments determined by Fleet
to be of comparable quality. Municipal Securities rated within the four highest
rating categories assigned by S&P ("AAA," "AA," "A" and "BBB") or Moody's
("Aaa," "Aa," "A" and "Baa") are considered to be investment grade. Municipal
Securities rated in the lowest of the four highest rating categories assigned by
S&P or Moody's are considered to have speculative characteristics, even though
they are of investment grade quality, and changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case with higher grade Municipal
Securities. Such Municipal Securities will be purchased (and retained) only when
Fleet believes the issuers have an adequate capacity to pay interest and repay
principal. If the ratings of a particular Municipal Security purchased by a Fund
are subsequently downgraded below the four highest ratings categories assigned
by S&P or Moody's, such factor will be considered by Fleet in its evaluation of
the overall merits of that Municipal Security, but such ratings will not
necessarily result in an automatic sale of the Municipal Security. Under normal
market and economic conditions, at least 65% of each Fund's total assets will be
invested in Municipal Securities rated in the three highest rating categories
assigned by S&P or Moody's. See Appendix A to this Statement of Additional
Information for a description of S&P's and Moody's rating categories.
GENERAL RISK CONSIDERATION
Generally, the market value of fixed income securities, such as Municipal
Securities, in the Funds can be expected to vary inversely to changes in
prevailing interest rates. During periods of declining interest rates, the
market value of investment portfolios comprised primarily of fixed income
securities, such as the Funds, will tend to increase, and during periods of
rising interest rates, the market value will tend to decrease. In addition,
during periods of declining interest rates, the yields of investment portfolios
comprised primarily of fixed income securities will tend to be higher than
prevailing market rates and, in periods of rising interest rates, yields will
tend to be somewhat lower. Fixed income securities with longer maturities, which
tend to produce higher yields, are subject to potentially greater capital
appreciation and depreciation than obligations with shorter maturities. Changes
in the financial strength of an issuer or changes in the ratings of any
particular security may also offset the value of these investments. Fluctuations
in the market value of fixed income securities subsequent to their acquisition
will not offset cash income from such securities but will be reflected in a
Fund's net asset value.
Although no Fund presently intends to do so on a regular basis, each Fund
may invest more than 25% of its assets in Municipal Securities the interest on
which is paid solely from revenues on similar projects if such investment is
deemed necessary or appropriate by Fleet. To the extent that a Fund's assets are
concentrated in Municipal Securities payable from revenues on similar projects,
the Fund will be subject to the particular risks presented by such projects to a
greater extent than it would be if its assets were not so concentrated.
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The New Jersey Municipal Bond, New York Municipal Bond, Connecticut
Municipal Bond, Massachusetts Municipal Bond and Rhode Island Municipal Bond
Funds are classified as non-diversified investment companies under the 1940 Act.
Investment return on a non-diversified portfolio typically is dependent upon the
performance of a smaller number of securities relative to the number held in a
diversified portfolio. Consequently, the change in value of any one security may
affect the overall value of a non-diversified portfolio more than it would a
diversified portfolio, and thereby subject the market-based net asset value per
share of the non-diversified portfolio to greater fluctuations. In addition, a
non-diversified portfolio may be more susceptible to economic, political and
regulatory developments than a diversified investment portfolio with similar
objectives may be.
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Investment methods described in the Prospectuses and this Statement of
Additional Information are among those which one or more of the Funds have the
power to utilize. Some may be employed on a regular basis; others may not be
used at all. Accordingly, reference to any particular method or technique
carries no implication that it will be utilized or, if it is, that it will be
successful.
VARIABLE AND FLOATING RATE OBLIGATIONS
The Funds may purchase variable and floating rate instruments. If such an
instrument is not rated, Fleet must determine that such instrument is comparable
to rated instruments eligible for purchase by a Fund and will consider the
earning power, cash flows and other liquidity ratios of the issuers and
guarantors of such instruments and will continuously monitor their financial
status in order to meet payment on demand.
In determining average weighted portfolio maturity an instrument will
usually be deemed to have a maturity equal to the longer of the period
remaining until the next regularly scheduled interest rate adjustment or the
time the Fund involved can receive payment of principal as specified in the
instrument. Instruments which are U.S. Government obligations and certain
variable rate instruments having a nominal maturity of 397 days or less when
purchased by the Fund involved, however, will be deemed to have a maturity
equal to the period remaining until the next interest rate adjustment.
U.S. GOVERNMENT OBLIGATIONS AND MONEY MARKET INSTRUMENTS
The Funds may, in accordance with their investment policies, invest from
time to time in obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities and in "money market" instruments, including bank
obligations and commercial paper.
Examples of the types of obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities (hereinafter, "U.S. Government
obligations") that may be held by the Funds include, without limitation, direct
obligations of the U.S. Treasury, and securities issued or guaranteed by the
Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, Federal
Housing Administration, Farmers Home Administration, Export-Import Bank of the
United States, Small Business Administration, Government National Mortgage
Association, Federal National Mortgage Association, General Services
Administration, Central Bank for Cooperatives, Federal Home Loan Mortgage
Corporation, Federal Intermediate Credit Banks, Resolution Trust Corporation and
Maritime Administration.
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<PAGE>
U.S. Treasury securities differ only in their interest rates, maturities
and time of issuance: Treasury Bills have initial maturities of one year or
less; Treasury Notes have initial maturities of one to ten years; and Treasury
Bonds generally have initial maturities of more than ten years. Obligations of
certain agencies and instrumentalities of the U.S. Government, such as those of
the Government National Mortgage Association, are supported by the full faith
and credit of the U.S. Treasury; others, such as those of the Federal Home Loan
Banks, are supported by the right of the issuer to borrow from the Treasury;
others, such as those of the Federal National Mortgage Association, are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; still others, such as those of the Federal Home Loan
Mortgage Corporation, are supported only by the credit of the instrumentality.
No assurance can be given that the U.S. Government would provide financial
support to U.S. Government-sponsored instrumentalities if it is not obligated to
do so by law. Some of these instruments may be variable or floating rate
instruments.
Bank obligations include bankers' acceptances, negotiable certificates of
deposit, and non-negotiable time deposits issued for a definite period of time
and earning a specified return by a U.S. bank which is a member of the Federal
Reserve System or is insured by the Federal Deposit Insurance Corporation
("FDIC"), or by a savings and loan association or savings bank which is insured
by the FDIC. Bank obligations also include U.S. dollar-denominated obligations
of foreign branches of U.S. banks or of U.S. branches of foreign banks, all of
the same type as domestic bank obligations. Investments in bank obligations are
limited to the obligations of financial institutions having more than $1 billion
in total assets at the time of purchase. Investments by the Funds in
non-negotiable time deposits are limited to no more than 5% of each such Fund's
total assets at the time of purchase.
Domestic and foreign banks are subject to extensive but different
government regulation which may limit the amount and types of their loans and
the interest rates that may be charged. In addition, the profitability of the
banking industry is largely dependent upon the availability and cost of funds to
finance lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and of U.S.
branches of foreign banks may subject a Fund to additional risks, including
future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on such obligations. In addition, foreign
branches of U.S. banks and U.S. branches of foreign banks may be subject to less
stringent reserve requirements and to different accounting, auditing, reporting,
and recordkeeping standards than those applicable to domestic branches of U.S.
banks. The Funds will invest in the obligations of U.S. branches of foreign
banks or foreign branches of U.S. banks only when Fleet believes that the credit
risk with respect to the instrument is minimal.
Commercial paper may include variable and floating rate instruments which
are unsecured instruments that permit the indebtedness thereunder to vary.
Variable rate instruments provide for periodic adjustments in the interest rate.
Floating rate instruments provide for automatic adjustment of the interest rate
whenever some other specified interest rate changes. Some variable and floating
rate obligations are direct lending arrangements between the purchaser and the
issuer and there may be no active secondary market. However, in the case of
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variable and floating rate obligations with a demand feature, a Fund may demand
payment of principal and accrued interest at a time specified in the instrument
or may resell the instrument to a third party. In the event that an issuer of a
variable or floating rate obligation defaulted on its payment obligation, a Fund
might be unable to dispose of the note because of the absence of a secondary
market and could, for this or other reasons, suffer a loss to the extent of the
default.
MUNICIPAL SECURITIES
Municipal Securities acquired by the Funds include debt obligations issued
by governmental entities to obtain funds for various public purposes, including
the construction of a wide range of public facilities, the refunding of
outstanding obligations, the payment of general operating expenses, and the
extension of loans to public institutions and facilities. Private activity bonds
that are issued by or on behalf of public authorities to finance various
privately operated facilities are "Municipal Securities" if the interest paid
thereon is exempt from regular federal income tax and not treated as a specific
tax preference item under the federal alternative minimum tax.
The two principal classifications of Municipal Securities which may be held
by the Funds are "general obligation" securities and "revenue" securities.
General obligation securities are secured by the issuer's pledge of its full
faith, credit and taxing power for the payment of principal and interest.
Revenue securities are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source such as the user of the
facility being financed.
Each Fund's portfolio may also include "moral obligation" securities, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation securities is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer.
There are, of course, variations in the quality of Municipal Securities,
both within a particular category and between categories, and the yields on
Municipal Securities depend upon a variety of factors, including general market
conditions, the financial condition of the issuer, general conditions of the
municipal bond market, the size of a particular offering, the maturity of the
obligation, and the rating of the issue. The ratings of a nationally recognized
statistical rating organization ("NRSRO"), such as Moody's and S&P, represent
such NRSRO's opinion as to the quality of Municipal Securities. It should be
emphasized that these ratings are general and are not absolute standards of
quality. Municipal Securities with the same maturity, interest rate and rating
may have different yields. Municipal Securities of the same maturity and
interest rate with different ratings may have the same yield. Subsequent to its
purchase by a Fund, an issue of Municipal Securities may cease to be rated or
its rating may be reduced below the minimum rating required for purchase by the
Fund.
The payment of principal and interest on most Municipal Securities
purchased by the Funds will depend upon the ability of the issuers to meet their
obligations. Each state, the District of Columbia, each of their political
subdivisions, agencies, instrumentalities and authorities and each multistate
agency of which a state is a member is a separate "issuer" as that term is used
in this Statement of Additional Information. The non-governmental user of
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facilities financed by private activity bonds is also considered to be an
"issuer." An issuer's obligations under its Municipal Securities are subject to
the provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors, such as the federal Bankruptcy Code and laws, if any,
which may be enacted by federal or state legislatures extending the time for
payment of principal or interest, or both, or imposing other constraints upon
enforcement of such obligations or upon the ability of municipalities to levy
taxes. The power or ability of an issuer to meet its obligations for the payment
of interest on and principal of its Municipal Securities may be materially
adversely affected by litigation or other conditions.
Among other instruments, the Funds may purchase short-term general
obligation notes, tax anticipation notes, bond anticipation notes, revenue
anticipation notes, tax-exempt commercial paper, construction loan notes and
other forms of short-term loans. Such instruments are issued with a short-term
maturity in anticipation of the receipt of tax funds, the proceeds of bond
placements or other revenues. In addition, the Funds may invest in long-term
tax-exempt instruments, such as municipal bonds and private activity bonds to
the extent consistent with the limitations set forth for each Fund. See "Private
Activity Bonds" below.
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on Municipal Securities. For example, under the Tax Reform Act of 1986,
interest on certain private activity bonds must be included in an investor's
federal alternative minimum taxable income, and corporate investors must include
all tax-exempt interest in their federal alternative minimum taxable income.
Galaxy cannot, of course, predict what legislation may be proposed in the future
regarding the income tax status of interest on Municipal Securities, or which
proposals, if any, might be enacted. Such proposals, while pending or if
enacted, might materially and adversely affect the availability of Municipal
Securities for investment by the Funds and the liquidity and value of their
respective portfolios. In such an event, each Fund would re-evaluate its
investment objective and policies and consider possible changes in its structure
or possible dissolution.
Opinions relating to the validity of Municipal Securities and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the Funds nor
Fleet will review the proceedings relating to the issuance of Municipal
Securities or the bases for such opinions.
VARIABLE AND FLOATING RATE MUNICIPAL SECURITIES. Municipal Securities
purchased by the Funds may include rated and unrated variable and floating rate
tax-exempt instruments. There may be no active secondary market with respect to
a particular variable or floating rate instrument. Nevertheless, the periodic
readjustments of their interest rates tend to assure that their value to a Fund
will approximate their par value. Illiquid variable and floating rate
instruments (instruments which are not payable upon seven days' notice and do
not have an active trading market) that are acquired by the Funds are subject to
the 10% (15% with respect to the New Jersey Municipal Bond Fund) limit described
in Investment Limitation No. 3 under "Investment Limitations" below.
STAND-BY COMMITMENTS
The Funds may acquire "stand-by commitments" with respect to Municipal
Securities held by them. Under a stand-by commitment, a dealer agrees to
purchase, at a Fund's option,
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specified Municipal Securities at a specified price. The Funds will acquire
stand-by commitments solely to facilitate portfolio liquidity and do not intend
to exercise their rights thereunder for trading purposes. The Funds expect that
stand-by commitments will generally be available without the payment of any
direct or indirect consideration. However, if necessary or advisable, a Fund may
pay for a stand-by commitment either separately in cash or by paying a higher
price for portfolio securities which are acquired subject to the commitment
(thus reducing the yield otherwise available for the same securities). Where a
Fund pays any consideration directly or indirectly for a stand-by commitment,
its cost will be reflected as unrealized depreciation for the period during
which the commitment is held by the Fund. Stand-by commitments acquired by a
Fund would be valued at zero in determining the Fund's net asset value.
Stand-by commitments are exercisable by a Fund at any time before the
maturity of the underlying Municipal Security, and may be sold, transferred or
assigned by the Fund only with respect to the underlying instruments. A Fund
will enter into stand-by commitments only with banks and broker/dealers that
present minimal credit risks. In evaluating the creditworthiness of the issuer
of a stand-by commitment, Fleet will review periodically the issuer's assets,
liabilities, contingent claims and other relevant financial information.
PRIVATE ACTIVITY BONDS
Each Fund may invest in "private activity bonds," the interest on which,
although exempt from regular federal income tax, may constitute an item of tax
preference for purposes of the federal alternative minimum tax. Investments in
such securities, however, will not be treated as investments in Municipal
Securities for purposes of the 80% requirement mentioned above and, under normal
conditions, will not exceed 20% of a Fund's total assets when added together
with any taxable investments held by the Fund.
Private activity bonds are or have been issued to obtain funds to provide,
among other things, privately operated housing facilities, pollution control
facilities, convention or trade show facilities, mass transit, airport, port or
parking facilities and certain local facilities for water supply, gas,
electricity or sewage or solid waste disposal. Private activity bonds are also
issued to privately held or publicly owned corporations in the financing of
commercial or industrial facilities. State and local governments are authorized
in most states to issue private activity bonds for such purposes in order to
encourage corporations to locate within their communities. The principal and
interest on these obligations may be payable from the general revenues of the
users of such facilities.
Private activity bonds held by the Fund are in most cases revenue
securities and are not payable from the unrestricted revenues of the issuer.
Consequently, the credit quality of such private activity bonds is usually
directly related to the credit standing of the corporate user of the facility
involved.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
Each Fund may purchase portfolio securities subject to the seller's
agreement to repurchase them at a mutually specified date and price ("repurchase
agreements"). Repurchase agreements will be entered into only with financial
institutions such as banks and broker/dealers
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which are deemed to be creditworthy by Fleet. No Fund will enter into
repurchase agreements with Fleet or any of its affiliates. Unless a repurchase
agreement has a remaining maturity of seven days or less or may be terminated on
demand upon notice of seven days or less, the repurchase agreement will be
considered an illiquid security and will be subject to the 10% (15% with respect
to the New Jersey Municipal Bond Fund) limit described in Investment Limitation
No. 3 under "Investment Limitations" below.
The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by a Fund at
not less than the agreed upon repurchase price. If the seller defaulted on its
repurchase obligation, the Fund holding such obligation would suffer a loss to
the extent that the proceeds from a sale of the underlying securities (including
accrued interest) were less than the repurchase price (including accrued
interest) under the agreement. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by the Fund
might be delayed pending court action.
The repurchase price under a repurchase agreement generally equals the
price paid by a Fund plus interest negotiated on the basis of current short-term
rates (which may be more or less than the rate on the securities underlying the
repurchase agreement). Securities subject to repurchase agreements will be held
by a Fund's custodian or sub-custodian in a segregated account or in the Federal
Reserve/Treasury book-entry system. Repurchase agreements are considered to be
loans by a Fund under the 1940 Act.
Each Fund may also borrow funds for temporary purposes by selling portfolio
securities to financial institutions such as banks and broker/dealers and
agreeing to repurchase them at a mutually specified date and price ("reverse
repurchase agreements"). Reverse repurchase agreements involve the risk that the
market value of the securities sold by a Fund may decline below the repurchase
price. A Fund would pay interest on amounts obtained pursuant to a reverse
repurchase agreement. Whenever a Fund enters into a reverse repurchase
agreement, it will place in a segregated custodial account liquid assets such as
cash or liquid portfolio securities equal to the repurchase price (including
accrued interest). The Fund will monitor the account to ensure such equivalent
value is maintained. Reverse repurchase agreements are considered to be
borrowings by a Fund under the 1940 Act.
SECURITIES LENDING
Each Fund may lend its portfolio securities to financial institutions such
as banks and broker/dealers in accordance with the investment limitations
described below. Such loans would involve risks of delay in receiving additional
collateral or in recovering the securities loaned or even loss of rights in the
collateral, should the borrower of the securities fail financially. Any
portfolio securities purchased with cash collateral would also be subject to
possible depreciation. A Fund that loans portfolio securities would continue to
accrue interest on the securities loaned and would also earn income on the
loans. Any cash collateral received by a Fund would be invested in high quality,
short-term "money market" instruments. Loans will generally be short-term, will
be made only to borrowers deemed by Fleet to be of good standing and only when,
in Fleet's judgment, the income to be earned from the loan justifies the
attendant risks. The Funds 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.
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INVESTMENT COMPANY SECURITIES
The Funds may invest in securities issued by other investment companies
which invest in high quality, short-term debt securities and which determine
their net asset value per share based on the amortized cost or penny-rounding
method, provided, however, that the Tax-Exempt Bond Fund may only invest in
securities of other investment companies which invest in high quality short-term
Municipal Securities and which determine their net asset value per share based
on the amortized cost or penny-rounding method. Investments in other investment
companies will cause a Fund (and, indirectly, the Fund's shareholders) to bear
proportionately the costs incurred in connection with the investment companies'
operations. Securities of other investment companies will be acquired by a Fund
within the limits prescribed by the 1940 Act. Each Fund currently intends to
limit its investments so that, as determined immediately after a securities
purchase is made: (a) not more than 5% of the value of its total assets will be
invested in the securities of any one investment company; (b) not more than 10%
of the value of its total assets will be invested in the aggregate in securities
of other investment companies as a group; (c) not more than 3% of the
outstanding voting stock of any one investment company will be owned by the
Fund; and (d) not more than 10% of the outstanding voting stock of any one
closed-end investment company will be owned in the aggregate by the Fund, other
investment portfolios of Galaxy, or any other investment companies advised by
Fleet.
CUSTODIAL RECEIPTS AND CERTIFICATES OF PARTICIPATION
Securities acquired by the Funds may be in the form of custodial receipts
evidencing rights to receive a specific future interest payment, principal
payment or both on certain Municipal Securities. Such obligations are held in
custody by a bank on behalf of holders of the receipts. These custodial receipts
are known by various names, including "Municipal Receipts," "Municipal
Certificates of Accrual on Tax-Exempt Securities" ("M-CATS") and "Municipal
Zero-Coupon Receipts." The Funds may also purchase from time to time
certificates of participation that, in the opinion of counsel to the issuer, are
exempt from federal income tax. A certificate of participation gives a Fund an
undivided interest in a pool of Municipal Securities held by a bank.
Certificates of participation may have fixed, floating or variable rates of
interest. If a certificate of participation is unrated, Fleet will have
determined that the instrument is of comparable quality to those instruments in
which the Fund may invest pursuant to guidelines approved by Galaxy's Board of
Trustees. For certain certificates of participation, a Fund will have the right
to demand payment, on not more than 30 days' notice, for all or any part of the
Fund's participation interest, plus accrued interest. As to these instruments,
each Fund intends to exercise its right to demand payment as needed to provide
liquidity, to maintain or improve the quality of its investment portfolio or
upon a default (if permitted under the terms of the instrument).
DERIVATIVE SECURITIES
The Funds may from time to time, in accordance with their respective
investment policies, purchase certain "derivative" securities. Derivative
securities are instruments that derive their value from the performance of
underlying assets, interest rates, or indices, and include, but are not limited
to, municipal bond index and interest rate futures and certain asset-backed and
mortgage-backed securities.
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Derivative securities present, to varying degrees, market risk that the
performance of the underlying assets, interest rates or indices will decline;
credit risk that the dealer or other counterparty to the transaction will fail
to pay its obligations; volatility and leveraging risk that, if interest rates
change adversely, the value of the derivative security will decline more than
the assets, rates or indices on which it is based; liquidity risk that the Funds
will be unable to sell a derivative security when it wants because of lack of
market depth or market disruption; pricing risk that the value of a derivative
security will not correlate exactly to the value of the underlying assets, rates
or indices on which it is based; and operations risk that loss will occur as a
result of inadequate systems and controls, human error or otherwise. Some
derivative securities are more complex than others, and for those instruments
that have been developed recently, data are lacking regarding their actual
performance over complete market cycles.
Fleet will evaluate the risks presented by the derivative securities
purchased by the Funds, and will determine, in connection with its day-to-day
management of the Funds, how they will be used in furtherance of each Fund's
investment objective. It is possible, however, that Fleet's evaluations will
prove to be inaccurate or incomplete and, even when accurate and complete, it is
possible that the Funds will, because of the risks discussed above, incur loss
as a result of their investments in derivative securities.
FUTURES CONTRACTS
Each Fund may purchase and sell municipal bond index futures contracts as a
hedge against changes in market conditions. A municipal bond index assigns
values daily to the municipal bonds included in the index based on the
independent assessment of dealer-to-dealer municipal bond brokers. A municipal
bond index futures contract represents a firm commitment by which two parties
agree to take or make delivery of an amount equal to a specified dollar amount
multiplied by the difference between the municipal bond index value on the last
trading date of the contract and the price at which the futures contract is
originally struck. No physical delivery of the underlying securities in the
index is made.
Each Fund may also enter into contracts for the future delivery of fixed
income securities commonly known as interest rate futures contracts. Interest
rate futures contracts are similar to municipal bond index futures contracts
except that, instead of a municipal bond index, the "underlying commodity" is
represented by various types of fixed-income securities.
The Funds will not engage in futures transactions for speculation, but only
to hedge against changes in the market values of securities which the Funds hold
or intend to purchase. The Funds will engage in futures transactions only to the
extent permitted by the Commodity Futures Trading Commission ("CFTC") and the
Securities and Exchange Commission ("SEC"). The purchase of futures instruments
in connection with securities which the Funds intend to purchase will require an
amount of cash or other liquid assets, equal to the market value of the
outstanding futures contracts, to be deposited in a segregated account to
collateralize the position and thereby insure that the use of such futures is
unleveraged. Each Fund will limit its hedging transactions in futures contracts
so that, immediately after any such transaction, the aggregate initial margin
that is required to be posted by the Fund under the rules of the exchange on
which the futures contract is traded does not exceed 5% of the Fund's total
assets after taking into
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account any unrealized profits and unrealized losses on the Fund's open
contracts. In addition, no more than one-third of each Fund's total assets may
be covered by such contracts.
Transactions in futures as a hedging device may subject the Funds to a
number of risks. Successful use of futures by the Funds is subject to the
ability of Fleet to predict correctly movements in the direction of the market.
In addition, there may be an imperfect correlation, or no correlation at all,
between movements in the price of futures contracts and movements in the price
of the instruments being hedged. There is no assurance that a liquid market will
exist for any particular futures contract at any particular time. Consequently,
a Fund may realize a loss on a futures transaction that is not offset by a
favorable movement in the price of securities which it holds or intends to
purchase or may be unable to close a futures position in the event of adverse
price movements. Any income from investments in futures contracts will be
taxable. Additional information concerning futures transactions, including
special rules regarding the taxation of such transactions, is contained in this
Statement of Additional Information and in Appendix B.
WHEN-ISSUED, FORWARD COMMITMENT AND DELAYED SETTLEMENT TRANSACTIONS
Each Fund may purchase eligible securities on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" basis. Each Fund may also
purchase or sell eligible securities on a "delayed settlement" basis.
When-issued and forward commitment transactions, which involve a commitment by a
Fund to purchase or sell particular securities with payment and delivery taking
place at a future date (perhaps one or two months later), permit the Fund to
lock in a price or yield on a security it owns or intends to purchase,
regardless of future changes in interest rates. Delayed settlement describes
settlement of a securities transaction in the secondary market which will occur
sometime in the future. When-issued, forward commitment and delayed settlement
transactions involve the risk, however, that the yield or price obtained in a
transaction may be less favorable than the yield or price available in the
market when the security delivery takes place. It is expected that forward
commitments, when issued purchases and delayed settlements will not exceed 25%
of the value of a Fund's total assets absent unusual market conditions. In the
event a Fund's forward commitments, when-issued purchases and delayed
settlements ever exceeded 25% of the value of its total assets, the Fund's
liquidity and the ability of Fleet to manage the Fund might be adversely
affected. The Funds do not intend to engage in when-issued purchases, forward
commitments and delayed settlements for speculative purposes, but only in
furtherance of their investment objectives.
When a Fund agrees to purchase securities on a "when-issued," "forward
commitment" or "delayed settlement" basis, the Fund's custodian will set aside
cash or liquid portfolio securities equal to the amount of the commitment in a
separate account. In the event of a decline in the value of the securities that
the custodian has set aside, the Fund may be required to place additional assets
in the separate account in order to ensure that the value of the account remains
equal to the amount of the Fund's commitment. A Fund's net assets may fluctuate
to a greater degree if it sets aside portfolio securities to cover such purchase
commitments than if it sets aside cash. Because a Fund sets aside liquid assets
to satisfy its purchase commitments in the manner described, its liquidity and
ability to manage its portfolio might be adversely affected in the event its
commitments to purchase "forward commitments," commitments to purchase
"when-issued" securities or commitments to purchase securities on a "delayed
settlement" basis exceeded 25% of the value of its assets.
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When a Fund engages in "when-issued," "forward commitment" or "delayed
settlement" transactions, it relies on the seller to consummate the trade.
Failure of the seller to do so may result in the Fund's incurring a loss or
missing an opportunity to obtain a price considered to be advantageous for a
security. For purposes of determining the average weighted maturity of a Fund's
portfolio, the maturity of "when-issued" securities is calculated from the date
of settlement of the purchase to the maturity date.
ASSET-BACKED SECURITIES
Each Fund may purchase asset-backed securities, which represent a
participation in, or are secured by and payable from, a stream of payments
generated by particular assets, most often a pool of assets similar to one
another. Assets generating such payments will consist of such instruments as
motor vehicle installment purchase obligations, credit card receivables and home
equity loans. Payment of principal and interest may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution unaffiliated with entities issuing the securities. The
estimated life of an asset-backed security varies with the prepayment experience
with respect to the underlying debt instruments. The rate of such prepayments,
and hence the life of the asset-backed security, will be primarily a function of
current market rates, although other economic and demographic factors will be
involved. A Fund will not invest more than 10% of its total assets in
asset-backed securities.
Asset-backed securities are generally issued as pass-through certificates,
which represent undivided fractional ownership interests in an underlying pool
of assets, or as debt instruments, which are also known as collateralized
obligations, and are generally issued as the debt of a special purpose entity
organized solely for the purpose of owning such assets and issuing such debt.
Asset-backed securities are often backed by a pool of assets representing the
obligations of a number of different parties.
The yield characteristics of asset-backed securities differ from
traditional debt securities. A major difference is that the principal amount of
the obligations may be prepaid at any time because the underlying assets (i.e.,
loans) generally may be prepaid at any time. As a result, if an asset-backed
security is purchased at a premium, a prepayment rate that is faster than
expected will reduce yield to maturity, while a prepayment rate that is slower
than expected will have the opposite effect of increasing yield to maturity.
Conversely, if an asset-backed security is purchased at a discount, faster than
expected prepayments will increase, while slower than expected prepayments, will
decrease, yield to maturity.
Prepayments on asset-backed securities generally increase with falling
interest rates and decrease with rising interest rates; furthermore prepayment
rates are influenced by a variety of economic and social factors. In general,
the collateral supporting non-mortgage asset-backed securities is of shorter
maturity than mortgage loans and is less likely to experience substantial
prepayments. Like other fixed income securities, when interest rates rise, the
value of an asset-backed security generally will decline; however, when interest
rates decline, the value of an asset-backed security with prepayment features
may not increase as much as that of other fixed income securities.
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
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the market for other types of securities, which could result in a Fund's
experiencing difficulty in valuing or liquidating such securities. For these
reasons, under certain circumstances, asset-backed securities may be considered
illiquid securities.
MORTGAGE-BACKED SECURITIES
Each Fund may invest in mortgage-backed securities (including
collateralized mortgage obligations) that represent pools of mortgage loans
assembled for sale to investors by various governmental agencies and
government-related organizations, such as the Government National Mortgage
Association, the Federal National Mortgage Association, and the Federal Home
Loan Mortgage Corporation. Mortgage-backed securities provide a monthly payment
consisting of interest and principal payments. Additional payments may be made
out of unscheduled repayments of principal resulting from the sale of the
underlying residential property, refinancing or foreclosure, net of fees or
costs that may be incurred. Prepayments of principal on mortgage-backed
securities may tend to increase due to refinancing of mortgages as interest
rates decline. To the extent that the Fund purchases mortgage-backed securities
at a premium, mortgage foreclosures and prepayments of principal by mortgagors
(which may be made at any time without penalty) may result in some loss of the
Fund's principal investment to the extent of the premium paid. The yield of a
Fund that invests in mortgage-backed securities may be affected by reinvestment
of prepayments at higher or lower rates than the original investment.
Other mortgage-backed securities are issued by private issuers, generally
originators of and investors in mortgage loans, including savings associations,
mortgage bankers, commercial banks, investment bankers, and special purpose
entities. These private mortgage-backed securities may be supported by U.S.
Government mortgage-backed securities or some form of non-government credit
enhancement. Mortgage-backed securities have either fixed or adjustable interest
rates. The rate of return on mortgage-backed securities may be affected by
prepayments of principal on the underlying loans, which generally increase as
interest rates decline; as a result, when interest rates decline, holders of
these securities normally do not benefit from appreciation in market value to
the same extent as holders of other non-callable debt securities. In addition,
like other debt securities, the value of mortgage-related securities, including
government and government-related mortgage pools, generally will fluctuate in
response to market interest rates.
GUARANTEED INVESTMENT CONTRACTS
Each Fund may invest in guaranteed investment contracts ("GICs") issued by
United States and Canadian insurance companies. Pursuant to GICs, a Fund makes
cash contributions to a deposit fund of the insurance company's general account.
The insurance company then credits to the Fund payments at negotiated, floating
or fixed interest rates. A GIC is a general obligation of the issuing insurance
company and not a separate account. The purchase price paid for a GIC becomes
part of the general assets of the insurance company, and the contract is paid
from the company's general assets. The Funds will only purchase GICs that are
issued or guaranteed by insurance companies that at the time of purchase are
rated at least AA by S&P or receive a similar high quality rating from a
nationally recognized service which provides ratings of insurance companies.
GICs are considered illiquid securities and will be subject to the Funds' 10%
(15% with respect to the New Jersey Municipal Bond Fund) limitation on such
investments,
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unless there is an active and substantial secondary market for the particular
instrument and market quotations are readily available.
BANK INVESTMENT CONTRACTS
Each Fund may invest in bank investment contracts ("BICs") issued by banks
that meet the quality and asset size requirements for banks described above
under "U.S. Government Obligations and Money Market Instruments." Pursuant to
BICs, cash contributions are made to a deposit account at the bank in exchange
for payments at negotiated, floating or fixed interest rates. A BIC is a general
obligation of the issuing bank. BICs are considered illiquid securities and will
be subject to the Funds' 10% (15% with respect to the New Jersey Municipal Bond
Fund) limitation on such investments, unless there is an active and substantial
secondary market for the particular instrument and market quotations are readily
available.
SPECIAL CONSIDERATIONS RELATING TO NEW JERSEY MUNICIPAL SECURITIES
The New Jersey Municipal Bond Fund's ability to achieve its investment
objective is dependent upon the ability of the issuers of New Jersey Municipal
Securities to meet their continuing obligations for the payment of principal and
interest. Since the Fund invests primarily in New Jersey Municipal Securities,
the value of the Fund's shares may be especially affected by factors pertaining
to the economy of New Jersey and other factors specifically affecting the
ability of issuers of New Jersey Municipal Securities to meet their obligations.
The State of New Jersey generally has a diversified economic base
consisting of, among others, commerce and service industries, selective
commercial agriculture, insurance, tourism, petroleum refining and
manufacturing, although New Jersey's manufacturing industry has experienced a
downward trend in the last few years. New Jersey is a major recipient of federal
assistance and, of all the states, is among the highest in the amount of federal
aid received. Therefore, a decrease in federal financial assistance may
adversely affect the financial condition of New Jersey and its political
subdivisions and instrumentalities. While New Jersey's economic base has become
more diversified over time and thus its economy appears to be less vulnerable
during recessionary periods, a recurrence of high levels of unemployment could
adversely affect New Jersey's overall economy and the ability of New Jersey and
its political subdivisions and instrumentalities to meet their financial
obligations. In addition, New Jersey maintains a balanced budget which restricts
total appropriation increases to only 5% annually with respect to any
municipality or county. This balanced budget plan may adversely affect a
particular municipality's or county's ability to repay its obligations.
The State of New Jersey and its political subdivisions, agencies and public
authorities are authorized to issue two general classes of indebtedness: general
obligation bonds and revenue bonds. Both classes of bonds may be included in the
Fund's portfolio. The repayment of principal and interest on general obligation
bonds is secured by the full faith and credit of the issuer, backed by the
issuer's taxing authority, without recourse to any special project or source of
revenue. Special obligation or revenue bonds may be repaid only from revenues
received in connection with the project for which the bonds are issued, special
excise taxes, or other special revenue sources and generally are issued by
entities without taxing power. Neither the State of New Jersey nor any of its
subdivisions is liable for the repayment of principal or interest on revenue
bonds except to the extent stated in the preceding sentences.
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General obligation bonds of the State are repaid from revenues obtained
through the State's general taxing authority. An inability to increase taxes may
adversely affect the State's ability to authorize or repay debt.
Public authorities, private non-profit corporations, agencies and similar
entities of New Jersey ("Authorities") are established for a variety of
beneficial purposes, including economic development, housing and mortgage
financing, health care facilities and public transportation. The Authorities are
not operating entities of the State of New Jersey, but are separate legal
entities that are managed independently. The State oversees the Authorities by
appointing the governing boards, designating management, and by significantly
influencing operations. The Authorities are not subject to New Jersey
constitutional restrictions on the incurrence of debt, applicable to the State
of New Jersey itself, and may issue special obligation or private activity bonds
in legislatively authorized amounts.
An absence or reduction of revenue will affect a bond-issuing Authority's
ability to repay debt on special obligation bonds and no assurance can be given
that sufficient revenues will be obtained to make such payments, although in
some instances repayment may be guaranteed or otherwise secured.
Various Authorities have issued bonds for the construction of health care
facilities, transportation facilities, office buildings and related facilities,
housing facilities, pollution control facilities, water and sewage facilities
and power and electric facilities. Each of these facilities may incur different
difficulties in meeting its debt repayment obligations. Hospital facilities, for
example, are subject to changes in Medicare and Medicaid reimbursement
regulations, attempts by Federal and state legislatures to limit the costs of
health care and management's ability to complete construction projects on a
timely basis as well as to maintain projected rates of occupancy and
utilization. At any given time, there are several proposals pending on a federal
and state level concerning health care which may further affect a hospital's
debt service obligation.
Housing facilities may be subject to increases in operating costs,
management's ability to maintain occupancy levels, rent restrictions and
availability of federal or state subsidies, while power and electric facilities
may be subject to increased costs resulting from environmental restrictions,
fluctuations in fuel costs, delays in licensing procedures and the general
regulatory framework in which these facilities operate. All of these entities
are constructed and operated under rigid regulatory guidelines.
Some entities which financed facilities with proceeds of private activity
bonds issued by the New Jersey Economic Development Authority, a major issuer of
special obligation bonds, have defaulted on their debt service obligations.
Because these special obligation bonds were repayable only from revenue received
from the specific projects which they funded, the New Jersey Economic
Development Authority was unable to repay the debt service to bondholders for
such facilities. Each issue of special obligation bonds, however, depends on its
own revenue for repayment, and thus these defaults should not affect the ability
of the New Jersey Economic Development Authority to repay obligations on other
bonds that it issues in the future.
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The State has experienced a gradual economic recovery in the past five
years. While unemployment in manufacturing has declined, employment gains have
been recorded in business services, construction and retail sectors. Business
investment expenditures and consumer spending have also increased substantially
in the State as well as in the Nation. To the extent that any adverse conditions
exist in the future which affect the obligor's ability to repay debt, the value
of the New Jersey Municipal Bond Fund may be immediately and substantially
affected.
Certain litigation is pending against the State in which the State has a
potential for either a significant loss of revenue or a significant
unanticipated expenditure including as of August 1, 1999, suits relating to the
following matters: (i) A coalition of churches and church leaders in Hudson
County have filed suit asserting the State-owned Liberty State Park in Jersey
City violates environmental standards; (ii) Representatives of the trucking
industry have filed a constitutional challenge to annual hazardous and solid
waste licensure renewal fees; (iii) Several suits have been filed against the
State to compel the State to close the spending gap between poor urban school
districts and wealthy rural school districts; (iv) a group of insurance
companies have filed a constitutional challenge to the challenge to the State's
assessment of monies pursuant to the Fair Automobile Insurance Reform Act of
1990; (v) A class action consisting of prisoners with serious mental disorders
has been filed against officers of the Department of Corrections, alleging sex
discrimination, violation of the Americans with Disabilities Act of 1990, and
constitutional violations; (vi) A class action brought in federal court
challenging the State's method of determining the monthly needs of a spouse of
an institutionalized person under the Medicare Catastrophic Act is now being
appealed to the U.S. Supreme Court by the plaintiff; (vii) Several suits have
been filed against the State in federal court alleging that the State committed
securities fraud and environmental violations in the financing of a new Atlantic
City highway and tunnel; (viii) A class action filed against the State alleging
the State's breach of contract for not paying certain Medicare co-insurance and
deductibles has been appealed by the plaintiff; and (ix) An action has been
filed challenging the State's issuance of bonds to fund the accrued liability in
its pension funds under the Pension Bond Financing Act of 1997. (x) Several
cases have been filed by state hospitals with respect to Medicaid hospital
reimbursement that challenge the state's compliance with federal regulations and
the correctness of reimbursement rates. This Chapter 11 case commenced when
United Hospital closed and demands that the bankruptcy court take jurisdiction
of and decide certain Medicaid reimbursement matters pending in New Jersey
administrative proceedings or the New Jersey appellate courts. (xi) Several
plaintiffs have filed a complaint seeking damages and injunctive relief on
constitutional grounds on behalf of individuals who did not obtain an increase
in welfare benefits under the "family cap" provisions of the State Work First
New Jersey Act. (xii) Several cases have been filed by various hospitals
alleging the $10 per adjusted hospital admission charge is a "tax" as opposed to
a "regulatory fee" and is in violation of the State's constitution. (xiii)The
owner of a resource recovery facility in South Camden who filed suit to have the
county's solid waste process halted to clarify bid specifications has filed a
motion for leave to appeal to the Supreme Court of New Jersey.
Although the New Jersey Municipal Bond Fund generally intends to invest its
assets primarily in New Jersey Municipal Securities rated within the four
highest rating categories assigned by S&P or Moody's, there can be no assurance
that such ratings will remain in effect until such obligations mature or are
redeemed or will not be revised downward or withdrawn. Such revisions or
withdrawals may have an adverse affect on the market price of such securities.
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Although there can be no assurance that such conditions will continue,
the State's general obligation bonds are currently rated "AA+" by S&P and "Aa1"
by Moody's.
SPECIAL CONSIDERATIONS RELATING TO NEW YORK MUNICIPAL SECURITIES
Certain substantial issuers of New York municipal securities (including
issuers whose obligations may be acquired by the Fund) have experienced
serious financial difficulties in recent years. These difficulties have at
times jeopardized the credit standing and impaired the borrowing abilities of
all New York issuers and have generally contributed to higher interest costs
for their borrowings and fewer markets for their outstanding debt obligations.
Although several different issues of municipal securities of New York State and
its agencies and instrumentalities and of New York City have been downgraded
by Standard & Poor's and Moody's in recent years, of Standard & Poor's and
Moody's have recently placed the debt obligations of New York State and New
York City on CreditWatch with positive implications and upgraded the debt
obligations of New York City, respectively. Strong demand for New York municipal
securities has also at times had the effect of permitting New York municipal
securities to be issued with yields relatively lower, and after issuance, to
trade in the market at prices relatively higher, than comparably rated municipal
obligations issued by other jurisdictions. A recurrence of the financial
difficulties previously experienced by certain issuers of New York municipal
securities could result in defaults or declines in the market values of those
issuers' existing obligations and, possibly, in the obligations of other
issuers of New York municipal securities. Although as of the date of this
statement of additional information, no issuers of New York municipal
securities are in default with respect to the payment of their municipal
securities, the occurrence of any such default could affect adversely the
market values and marketability of all New York municipal securities and,
consequently, the net asset value of the Fund's portfolio.
Some of the significant financial considerations relating to the New York
Tax Exempt Fund's investments in New York Municipal Securities are summarized
below. This summary information is not intended to be a complete description and
is principally derived from the Annual Information Statement of the State of New
York as supplemented and contained in official statements relating to issues of
New York Municipal Securities that were available prior to the date of this
Statement of Additional Information. The accuracy and completeness of the
information contained in those official statements have not been independently
verified.
STATE ECONOMY. New York is one of the most populous states in the nation
and has a relatively high level of personal wealth. The State's economy is
diverse with a comparatively large share of the nation's finance, insurance,
transportation, communications and services employment, and a very small share
of the nation's farming and mining activity. The State's location and its
excellent air transport facilities and natural harbors have made it an important
link in international commerce. Travel and tourism constitute an important part
of the economy. Like the rest of the nation, New York has a declining proportion
of its workforce engaged in manufacturing, and an increasing proportion engaged
in service industries.
State per capita personal income has historically been significantly higher
than the national average, although the ratio has varied substantially. Because
New York City (the "City") is a regional employment center for a multi-state
region, State personal income measured on a residence basis understates the
relative importance of the State to the national economy and the size of the
base to which State taxation applies.
There can be no assurance that the State economy will not experience
worse-than-predicted results, with corresponding material and adverse effects on
the State's projections of receipts and disbursements.
STATE BUDGET. The State Constitution requires the governor (the "Governor")
to submit to the State legislature (the "Legislature") a balanced executive
budget which contains a complete plan of expenditures for the ensuing fiscal
year and all moneys and revenues estimated to be available therefor, accompanied
by bills containing all proposed appropriations or reappropriations and any new
or modified revenue measures to be enacted in connection with the executive
budget. The entire plan constitutes the proposed State financial plan for that
fiscal year. The Governor is required to submit to the Legislature quarterly
budget updates which include a revised cash-basis state financial plan, and an
explanation of any changes from the previous state financial plan.
State law requires the Governor to propose a balanced budget each year. In
recent years, the State has closed projected budget gaps of $5.0 billion
(1995-96), $3.9 billion (1996-97), $2.3 billion (1997-98), and less than $1
billion (1998-99). The State's current fiscal year began on April 1, 1999 and
ends on March 31, 2000. On March 31, 1999, the State adopted the debt service
portion of the State budget for the 1999-2000 fiscal year; four months later, on
August 4, 1999, it enacted the remainder of the budget. The Governor approved
the budget as
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passed by the Legislature. Prior to passing the budget in its entirety for the
current fiscal year, the State enacted appropriations that permitted the State
to continue its operations.
In 1999-2000, General Fund disbursements, including transfer to support
capital projects, debt service and other funds, are estimated at $37.36 billion,
an increase of $868 million or 2.38 percent over 1998-99. Projected spending
under the 1999-2000 enacted budget is $215 million above the Governor's
Executive Budget recommendations, including 30-day amendments. This change is
the net result of spending actions that occurred during negotiations on the
Budget. The increase in General Fund spending is comprised of $1.1 billion in
legislative additions to the Executive Budget (primarily in education), offset
by various actions, including re-estimates of required spending based on
year-to-date results and the identification of certain other resources that
offset spending, such as $250 million from commencing the process of privatizing
the Medical Malpractice Insurance Association (MMIA), $250 million from the
retention of the Debt Reduction Reserve Fund within the General Fund and about
$100 million in excess fund balances. The MMIA was established in 1983 to
provide excess liability insurance to doctors and medical providers. Legislation
enacted with the 1999-2000 budget initiates the process of MMIA privatization
and transfers excess fund balances to the State.
The 1999-2000 enacted budget provides for $831 million in new funding for
public schools, the largest year-to-year increase in State history. The budget
also enacts several new tax cuts valued at $375 million when fully phased in by
2003-04. None of the $1.82 billion cash surplus from 1998-99 is assumed to
support spending in 1999-2000, but instead is reserved to help offset the costs
of previously enacted tax cuts that take effect after 1999-2000.
The 1999-2000 Financial Plan projects a closing balance of $2.85 billion in
the General Fund. The balance is comprised of the $1.82 billion surplus from
1998-99 that has been set aside to finance already-enacted tax cuts, $473
million in the Tax Stabilization Reserve Fund (TSRF), $250 million in the Debt
Reduction Reserve Fund (DRRF), $107 million in the Contingency Reserve Fund
(CRF), and $200 million in the Community Projects Fund (CPF), which finances
legislative initiatives. The State expects to close 1999-2000 with cash balances
in these funds at their highest level ever.
Preliminary analysis by Division of Budget ("DOB") indicates that the State
will have a 2000-01 budget gap of approximately $1.9 billion, or about $300
million above the 1999-2000 Executive Budget estimate (after adjusting for the
projected costs of collective bargaining). This estimate includes an assumption
for the projected costs of new collective bargaining agreements, $500 million in
assumed operating efficiencies, as well as the planned application of
approximately $615 million of the $1.82 billion tax reduction reserve. In recent
years, the State has closed projected budget gaps which DOB estimates at $5.0
billion (1995-96), $3.9 billion (1996-97), $2.3 billion (1997-98), and less than
$1 billion (1998-99). DOB will formally update its projections of receipts and
disbursements for future years as part of the Governor's 2000-01 Executive
Budget submission. The revised expectations for these years will reflect the
cumulative impact of tax reductions and spending commitments enacted over the
last several years as well as new 2000-01 Executive Budget recommendations.
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The General Fund is the principal operating fund of the State and is used
to account for all financial transactions except those required to be accounted
for in another fund. It is the State's largest fund and received almost all
State taxes and other resources not dedicated to particular purposes. In the
State's 1999-2000 fiscal year, the General Fund (exclusive of transfers) is
expected to account for approximately 47.1 percent of all Governmental Funds
disbursements and 69.3 percent of total State Funds disbursements. General Fund
moneys are also transferred to other funds, primarily to support certain capital
projects and debt service payments in other fund types.
Total receipts and transfers from other funds are projected to be $39.31
billion in 1999-2000, an increase of $2.57 billion over 1998-99. Total General
Fund disbursements and transfers to other funds are projected to be $37.36
billion, an increase of $868 million over 1998-99. Total General Fund receipts
and transfers in 1999-2000 are now projected to be $39.31 billion, an increase
of $2.57 billion from the $36.74 billion recorded in 1998-99. This total
includes $35.93 billion in tax receipts, $1.36 billion in miscellaneous
receipts, and $2.02 billion in transfers from other funds. The transfer of the
$1.82 billion surplus recorded in 1998-99 to the 1999-2000 fiscal period has the
effect of exaggerating the growth in State receipts from year to year by
depressing reported 1998-99 figures and inflating 1999-2000 projections.
Receipts from user taxes and fees are projected to total $7.35 billion, an
increase of $105 million from reported collections in the prior year. The sales
tax component of this category accounts for virtually all of the 1999-2000
growth. Growth in base sales tax yield, after adjusting for tax law and other
changes, is projected at 5.6 percent. Modest increases in motor fuel and auto
rental tax receipts over 1998-99 levels are also expected. However, receipts
from other user taxes and fees are estimated to decline by $177 million.
The yield of other excise taxes in this category, particularly the
cigarette and alcoholic beverage taxes, show long-term declining trends. General
Fund declines in 1999-2000 motor vehicle fee receipts, in contrast, reflect
statutory fee reductions and an increased amount of collections earmarked to the
Dedicated Highway and Bridge Trust Fund.
Significant statutory changes in this category during the 1999-2000
legislative session include: delaying until March 1, 2000 the implementation of
the exemption from State sales tax of clothing and footwear priced under $110;
providing week-long sales tax exemptions in September 1999 and January 2000 for
clothing and footwear priced under $500; enactment of a variety of small sales
tax exemptions including certain equipment used in providing telecommunications
service for sale, property and services used in theatrical productions, computer
hardware used to design Internet web sites, and building materials used in
farming; a reduction in the beer tax rate; and an expanded exemption from the
alcoholic beverage tax for small brewers.
Following the pattern of the last two fiscal years, education programs
receive the largest share of new funding contained in the 1999-2000 Financial
Plan. School aid is expected to grow by $831 million or 8.58 percent over
1998-99 levels (on a State fiscal year basis). Outside of education, the largest
growth in spending is for State Operations ($207 million, including $100 million
reserved for possible collective bargaining costs); Debt Service ($183
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million), and mental hygiene programs, including funding for a cost of living
increase for care providers ($114 million). These increases were offset, in
part, by spending reductions or actions in health and social welfare ($280
million), and in general State charges ($222 million).
Under the 1999-2000 enacted budget, General Fund spending on school aid is
projected at $10.52 billion on a State fiscal year basis, an increase of $831
million from the prior year. The budget provides additional funding for
operating aid, building aid, and several other targeted aid programs. It also
funds the balance of aid payable for the 1998-99 school year that is due
primarily in the first quarter of the 1999-2000 fiscal year. For all other
educational programs, disbursements are projected to grow by $78 million to
$2.99 billion.
Many complex political, social and economic forces influence the State's
economy and finances, which may in turn affect the State's Financial Plan. These
forces may affect the State unpredictably from fiscal year to fiscal year and
are influenced by governments, institutions, and organizations that are not
subject to the State's control. The State Financial Plan is also necessarily
based upon forecasts of national and State economic activity. Economic forecasts
have frequently failed to predict accurately the timing and magnitude of changes
in the national and the State economies. The DOB believes that its projections
of receipts and disbursements relating to the current State Financial Plan, and
the assumptions on which they are based, are reasonable. The projections assume
no changes in federal tax law, which could substantially alter the current
receipts forecast. In addition, these projections do not include funding for new
collective bargaining agreements after the current contracts expire. Actual
results, however, could differ materially and adversely from their projections,
and those projections may be changed materially and adversely from time to time.
DEBT LIMITS AND OUTSTANDING DEBT. There are a number of methods by which
the State of New York may incur debt. Under the State Constitution, the State
may not, with limited exceptions for emergencies, undertake long-term general
obligation borrowing (I.E., borrowing for more than one year) unless the
borrowing is authorized in a specific amount for a single work or purpose by the
Legislature and approved by the voters. There is no limitation on the amount of
long-term general obligation debt that may be so authorized and subsequently
incurred by the State.
The State may undertake short-term borrowings without voter approval (i) in
anticipation of the receipt of taxes and revenues, by issuing tax and revenue
anticipation notes, and (ii) in anticipation of the receipt of proceeds from the
sale of duly authorized but unissued general obligation bonds, by issuing bond
anticipation notes. The State may also, pursuant to specific constitutional
authorization, directly guarantee certain obligations of the State of New York's
authorities and public benefit corporations ("Authorities"). Payments of debt
service on New York State general obligation and New York State-guaranteed bonds
and notes are legally enforceable obligations of the State of New York.
The State employs additional long-term financing mechanisms, lease-purchase
and contractual-obligation financings, which involve obligations of public
authorities or municipalities that are State-supported but are not general
obligations of the State. Under these financing arrangements, certain public
authorities and municipalities have issued obligations to
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finance the construction and rehabilitation of facilities or the acquisition and
rehabilitation of equipment, and expect to meet their debt service requirements
through the receipt of rental or other contractual payments made by the State.
Although these financing arrangements involve a contractual agreement by the
State to make payments to a public authority, municipality or other entity, the
State's obligation to make such payments is generally expressly made subject to
appropriation by the Legislature and the actual availability of money to the
State for making the payments. The State has also entered into a
contractual-obligation financing arrangement with the LGAC to restructure the
way the State makes certain local aid payments.
Sustained growth in the State's economy could contribute to closing
projected budget gaps over the next several years, both in terms of
higher-than-projected tax receipts and in lower-than-expected entitlement
spending. The State assumes that the 2000-01 Financial Plan will achieve $500
million in savings from initiatives by State agencies to deliver services more
efficiently, workforce management efforts, maximization of federal and
non-General Fund spending offsets, and other actions necessary to help bring
projected disbursements and receipts into balance. The projections do not assume
any gap-closing benefit from the potential settlement of State claims against
the tobacco industry.
Spending from Debt Service Funds are estimated at $3.64 billion in
1999-2000, up $370 million or 11.31 percent from 1998-99. Transportation
purposes, including debt service on bonds issued for State and local highway and
bridge programs financed through the New York State Thruway Authority and
supported by the Dedicated Highway and Bridge Trust Fund, account for $124
million of the year-to-year growth. Debt service for educational purposes,
including State and City University programs financed through the Dormitory
Authority, will increase by $80 million. The remaining growth is for a variety
of programs in mental health and corrections, and for general obligation
financings.
On January 13, 1992, S&P reduced its ratings on the State's general
obligation bonds from A to A- and, in addition, reduced its ratings on the
State's moral obligation, lease purchase, guaranteed and contractual obligation
debt. On August 28, 1997, S&P revised its ratings on the State's general
obligation bonds from A- to A and revised its ratings on the State's moral
obligation, lease purchase, guaranteed and contractual obligation debt. On March
5, 1999, S&P affirmed its A rating on the State's outstanding bonds.
On January 6, 1992, Moody's reduced its ratings on outstanding
limited-liability State lease purchase and contractual obligations from A to
Baal. On February 28, 1994, Moody's reconfirmed its A rating on the State's
general obligation long-term indebtedness. On March 20, 1998, Moody's assigned
the highest commercial paper rating of P-1 to the short-term notes of the State.
On March 5, 1999, Moody's affirmed its A2 rating with a stable outlook to the
State's general obligations.
New York State has never defaulted on any of its general obligation
indebtedness or its obligations under lease-purchase or contractual-obligation
financing arrangements and has never been called upon to make any direct
payments pursuant to its guarantees.
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LITIGATION. Certain litigation pending against New York State or its
officers or employees could have a substantial or long-term adverse effect on
New York State finances. Among the more significant of these cases are those
that involve (1) the validity of agreements and treaties by which various Indian
tribes transferred title to New York State of certain land in central and
upstate New York; (2) certain aspects of New York State's Medicaid policies,
including its rates, regulations and procedures; (3) challenges to the
constitutionality of Public Health Law 2807-d, which imposes a gross receipts
tax from certain patient care services; (4) action seeking enforcement of
certain sales and excise taxes and tobacco products and motor fuel sold to
non-Indian consumers on Indian reservations; (5) a challenge to the Governor's
application of his constitutional line item veto authority; and (6) a challenge
to the enactment of the CLEAN WATER/CLEAN AIR BOND ACT OF 1996.
Several actions challenging the constitutionality of legislation enacted
during the 1990 legislative session which changed actuarial funding methods for
determining state and local contributions to state employee retirement systems
have been decided against the State. As a result, the Comptroller developed a
plan to restore the State's retirement systems to prior funding levels. Such
funding is expected to exceed prior levels by $116 million in fiscal 1996-97,
$193 million in fiscal 1997-98, peaking at $241 million in fiscal 1998-99.
Beginning in fiscal 2001-02, State contributions required under the
Comptroller's plan are projected to be less than that required under the prior
funding method. As a result of the United States Supreme Court decision in the
case of STATE OF DELAWARE V. STATE OF NEW YORK, on January 21, 1994, the State
entered into a settlement agreement with various parties. Pursuant to all
agreements executed in connection with the action, the State was required to
make aggregate payments of $351.4 million. Annual payments to the various
parties will continue through the State's 2002-03 fiscal year in amounts which
will not exceed $48.4 million in any fiscal year subsequent to the State's
1994-95 fiscal year. Litigation challenging the constitutionality of the
treatment of certain moneys held in a reserve fund was settled in June 1996 and
certain amounts in a Supplemental Reserve Fund previously credited by the State
against prior State and local pension contributions were paid in 1998.
The legal proceedings noted above involve State finances, State programs
and miscellaneous cure rights, tort, real property and contract claims in which
the State is a defendant and the monetary damages sought are substantial,
generally in excess of $100 million. These proceedings could affect adversely
the financial condition of the State in the current fiscal year or thereafter.
Adverse developments in these proceedings, other proceedings for which there are
unanticipated, unfavorable and material judgments, or the initiation of new
proceedings could affect the ability of the State to maintain a balanced
financial plan. An adverse decision in any of these proceedings could exceed the
amount of the reserve established in the State's financial plan for the payment
of judgments and, therefore, could affect the ability of the State to maintain a
balanced financial plan.
Although other litigation is pending against New York State, except as
described herein, no current litigation involves New York State's authority, as
a matter of law, to contract indebtedness, issue its obligations, or pay such
indebtedness when it matures, or affects New York State's power or ability, as a
matter of law, to impose or collect significant amounts of taxes and revenues.
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AUTHORITIES. The fiscal stability of New York State is related, in part, to
the fiscal stability of its Authorities, which generally have responsibility for
financing, constructing and operating revenue-producing public benefit
facilities. Authorities are not subject to the constitutional restrictions on
the incurrence of debt which apply to the State itself, and may issue bonds and
notes within the amounts of, and as otherwise restricted by, their legislative
authorization. The State's access to the public credit markets could be
impaired, and the market price of its outstanding debt may be materially and
adversely affected, if any of the Authorities were to default on their
respective obligations, particularly with respect to debt that is
State-supported or State-related.
Authorities are generally supported by revenues generated by the projects
financed or operated, such as fares, user fees on bridges, highway tolls and
rentals for dormitory rooms and housing. In recent years, however, New York
State has provided financial assistance through appropriations, in some cases of
a recurring nature, to certain of the Authorities for operating and other
expenses and, in fulfillment of its commitments on moral obligation indebtedness
or otherwise, for debt service. This operating assistance is expected to
continue to be required in future years. In addition, certain statutory
arrangements provide for State local assistance payments otherwise payable to
localities to be made under certain circumstances to certain Authorities. The
State has no obligation to provide additional assistance to localities whose
local assistance payments have been paid to Authorities under these
arrangements. However, in the event that such local assistance payments are so
diverted, the affected localities could seek additional State funds.
In February 1997, the Job Development Authority ("JDA") issued
approximately $85 million of State-guaranteed bonds to refinance certain of its
outstanding bonds and notes in order to restructure and improve JDA's capital
structure. Due to concerns regarding the economic viability of its programs,
JDA's loan and loan guarantee activities had been suspended since 1995. As a
result of the structural imbalances in JDA's capital structure, and defaults in
its loan portfolio and loan guarantee program incurred between 1991 and 1996,
JDA would have experienced a debt service cash flow shortfall had it not
completed its recent refinancing. JDA anticipates that it will transact
additional refinancings in 1999, 2000 and 2003 to complete its long-term plan of
finance and further alleviate cash flow imbalances which are likely to occur in
future years. JDA recently resumed its lending activities under a revised set of
lending programs and underwriting guidelines.
NEW YORK CITY AND OTHER LOCALITIES. The fiscal health of the State may also
be impacted by the fiscal health of its localities, particularly the City, which
has required and continues to require significant financial assistance from the
State. The City depends on State aid both to enable the City to balance its
budget and to meet its cash requirements. There can be no assurance that there
will not be reductions in State aid to the City from amounts currently projected
or that State budgets will be adopted by the April 1 statutory deadline or that
any such reductions or delays will not have adverse effects on the City's cash
flow or expenditures. In addition, the Federal budget negotiation process could
result in a reduction in or a delay in the receipt of Federal grants which could
have additional adverse effects on the City's cash flow or revenues.
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In 1975, New York City suffered a fiscal crisis that impaired the borrowing
ability of both the City and New York State. In that year the City lost access
to the public credit markets. The City was not able to sell short-term notes to
the public again until 1979. In 1975, S&P suspended its A rating of City bonds.
This suspension remained in effect until March 1981, at which time the City
received an investment grade rating of BBB from S&P.
On July 2, 1985, S&P revised its rating of City bonds upward to BBB+ and on
November 19, 1987, to A-. On February 3, 1998 and again on May 27, 1998, S&P
assigned a BBB+ rating to the City's general obligation debt and placed the
ratings on CreditWatch with positive implications. On March 9, 1999, S&P
assigned its A- rating to Series 1999H of New York City general obligation bonds
and affirmed the A- rating on various previously issued New York City bonds.
Moody's ratings of City bonds were revised in November 1981 from B (in
effect since 1977) to Bal, in November 1983 to Baa, in December 1985 to Baal, in
May 1988 to A and again in February 1991 to Baal. On February 25, 1998, Moody's
upgraded approximately $28 billion of the City's general obligations from Baal
to A3. On June 9, 1998, Moody's affirmed its A3 rating to the City's general
obligations and stated that its outlook was stable.
On March 8, 1999, Fitch IBCA upgraded New York City's $26 billion
outstanding general obligation bonds from A- to A.
New York City is heavily dependent on New York State and federal assistance
to cover insufficiencies in its revenues. There can be no assurance that in the
future federal and State assistance will enable the City to make up its budget
deficits. To help alleviate the City's financial difficulties, the Legislature
created the Municipal Assistance Corporation ("MAC") in 1975. Since its
creation, MAC has provided, among other things, financing assistance to the City
by refunding maturing City short-term debt and transferring to the City funds
received from sales of MAC bonds and notes. MAC is authorized to issue bonds and
notes payable from certain stock transfer tax revenues, from the City's portion
of the State sales tax derived in the City and, subject to certain prior claims,
from State per capita aid otherwise payable by the State to the City. Failure by
the State to continue the imposition of such taxes, the reduction of the rate of
such taxes to rates less than those in effect on July 2, 1975, failure by the
State to pay such aid revenues and the reduction of such aid revenues below a
specified level are included among the events of default in the resolutions
authorizing MAC's long-term debt. The occurrence of an event of default may
result in the acceleration of the maturity of all or a portion of MAC's debt.
MAC bonds and notes constitute general obligations of MAC and do not constitute
an enforceable obligation or debt of either the State or the City.
Since 1975, the City's financial condition has been subject to oversight
and review by the New York State Financial Control Board (the "Control Board")
and since 1978 the City's financial statements have been audited by independent
accounting firms. To be eligible for guarantees and assistance, the City is
required during a "control period" to submit annually for Control Board
approval, and when a control period is not in effect for Control Board review, a
financial plan for the next four fiscal years covering the City and certain
agencies showing
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balanced budgets determined in accordance with GAAP. New York State also
established the Office of the State Deputy Comptroller for New York City
("OSDC") to assist the Control Board in exercising its powers and
responsibilities. On June 30, 1986, the City satisfied the statutory
requirements for termination of the control period. This means that the Control
Board's powers of approval are suspended, but the Board continues to have
oversight responsibilities.
On June 10, 1997, the City submitted to the Control Board the Financial
Plan (the "1998-2001 Financial Plan") for the 1998 through 2001 fiscal years,
relating to the City, the Board of Education ("BOE") and City University of New
York ("CUNY") and reflected the City's expense and capital budgets for the 1998
fiscal year, which were adopted on June 6, 1997. The 1998-2001 Financial Plan
projected revenues and expenditures for the 1998 fiscal year balanced in
accordance with GAAP. The 1998-99 Financial Plan projected General Fund receipts
(including transfers from other funds) of $36.22 billion, an increase of $1.02
billion over the estimated 1997-1998 level. Recurring growth in the State
General Fund tax base is projected to be approximately six percent during
1998-99, after adjusting for tax law and administrative changes. This growth
rate is lower than the rates for 1996-97 or 1997-98, but roughly equivalent to
the rate for 1995-96.
Although the City has consistently maintained balanced budgets and is
projected to achieve balanced operating results for the current fiscal year,
there can be no assurance that the gap-closing actions proposed in the 1998-2001
Financial Plan can be successfully implemented or that the City will maintain a
balanced budget in future years without additional State aid, revenue increases
or expenditure reductions. Additional tax increases and reductions in essential
City services could adversely affect the City's economic base.
The projections set forth in the 1998-2001 Financial Plan were based on
various assumptions and contingencies which are uncertain and which may not
materialize. Changes in major assumptions could significantly affect the City's
ability to balance its budget as required by State law and to meet its annual
cash flow and financing requirements. Such assumptions and contingencies include
the condition of the regional and local economies, the impact on real estate tax
revenues of the real estate market, wage increases for City employees consistent
with those assumed in the 1998-2001 Financial Plan, employment growth, the
ability to implement proposed reductions in City personnel and other cost
reduction initiatives, the ability of the Health and Hospitals Corporation and
the BOE to take actions to offset reduced revenues, the ability to complete
revenue generating transactions, provision of State and Federal aid and mandate
relief and the impact on City revenues and expenditures of Federal and State
welfare reform and any future legislation affecting Medicare or other
entitlements.
Implementation of the 1998-2001 Financial Plan is also dependent upon the
City's ability to market its securities successfully. The City's financing
program for fiscal years 1998 through 2001 contemplates the issuance of $5.7
billion of general obligation bonds and $5.7 billion of bonds to be issued by
the proposed New York City Transitional Finance Authority (the "Finance
Authority") to finance City capital projects. The Finance Authority, was created
as part of the City's effort to assist in keeping the City's indebtedness within
the forecast level of the constitutional restrictions on the amount of debt the
City is authorized to incur. Despite this additional financing mechanism, the
City currently projects that, if no further action is taken, it
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will reach its debt limit in City fiscal year 1999-2000. Indebtedness subject to
the constitutional debt limit includes liability on capital contracts that are
expected to be funded with general obligation bonds, as well as general
obligation bonds. On June 2, 1997, an action was commenced seeking a declaratory
judgment declaring the legislation establishing the Transitional Finance
Authority to be unconstitutional. If such legislation which is currently on
appeal to the Court of Appeals were voided, projected contracts for the City
capital projects would exceed the City's debt limit. Future developments
concerning the City or entities issuing debt for the benefit of the City, and
public discussion of such developments, as well as prevailing market conditions
and securities credit ratings, may affect the ability or cost to sell securities
issued by the City or such entities and may also affect the market for their
outstanding securities.
The City Comptroller and other agencies and public officials have issued
reports and made public statements which, among other things, state that
projected revenues and expenditures may be different from those forecast in the
City's financial plans. It is reasonable to expect that such reports and
statements will continue to be issued and to engender public comment.
The City since 1981 has fully satisfied its seasonal financing needs in the
public credit markets, repaying all short-term obligations within their fiscal
year of issuance. Although the City's 1998 fiscal year financial plan projected
$2.4 billion of seasonal financing, the City expected to undertake only
approximately $1.4 billion of seasonal financing. The City issued $2.4 billion
of short-term obligations in fiscal year 1997. The delay in the adoption of the
State's budget in certain past fiscal years has required the City to issue
short-term notes in amounts exceeding those expected early in such fiscal years.
Certain localities, in addition to the City, have experienced financial
problems and have requested and received additional New York State assistance
during the last several State fiscal years. The potential impact on the State of
any future requests by localities for additional assistance is not included in
the State's projections of its receipts and disbursements for the fiscal year.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers") resulted
in the re-establishment of the Financial Control Board for the City of Yonkers
(the "Yonkers Board") by New York State in 1984. The Yonkers Board is charged
with oversight of the fiscal affairs of Yonkers. Future actions taken by the
State to assist Yonkers could result in increased State expenditures for
extraordinary local assistance.
On June 30, 1998, the City of Yonkers satisfied the statutory conditions
for ending the supervision of its finances by a State-ordered control board.
Pursuant to State law, the control board's powers over City finances lapsed six
months after the satisfaction of these conditions, on December 31, 1998.
Beginning in 1990, the City of Troy experienced a series of budgetary
deficits that resulted in the establishment of a Supervisory Board for the City
of Troy in 1994. The Supervisory Board's powers were increased in 1995, when
Troy MAC was created to help Troy avoid default on certain obligations. The
legislation creating Troy MAC prohibits the city of
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Troy from seeking federal bankruptcy protection while Troy MAC bonds are
outstanding. Troy MAC has issued bonds to effect a restructuring of the City of
Troy's obligations.
The 1998-99 budget included $29.4 million in unrestricted aid targeted to
57 municipalities across the State. Other assistance for municipalities with
special needs totals more than $25.6 million. Twelve upstate cities received
$24.2 million in one-time assistance from a cash flow acceleration of State aid.
Municipalities and school districts have engaged in substantial short-term
and long-term borrowings. State law requires the Comptroller to review and make
recommendations concerning the budgets of those local government units other
than New York City that are authorized by State law to issue debt to finance
deficits during the period that such deficit financing is outstanding.
From time to time, federal expenditure reductions could reduce, or in some
cases eliminate, federal funding of some local programs and accordingly might
impose substantial increased expenditure requirements on affected localities. If
the State, the City or any of the Authorities were to suffer serious financial
difficulties jeopardizing their respective access to the public credit markets,
the marketability of notes and bonds issued by localities within the State could
be adversely affected. Localities also face anticipated and potential problems
resulting from certain pending litigation, judicial decisions and long-range
economic trends. Long-range potential problems of declining urban population,
increasing expenditures and other economic trends could adversely affect
localities and require increasing the State assistance in the future.
YEAR 2000 COMPLIANCE. The State is currently addressing Year 2000 ("Y2K")
data processing compliance issues. Since its inception, the computer industry
has used a two-digit date convention to represent the year. In the year 2000,
the date field will contain "00" and, as a result, many computer systems and
equipment may not be able to process dates properly or may fail since they may
not be able to distinguish between the years 1900 and 2000. The Year 2000 issue
not only affects computer programs, but also the hardware, software and networks
on which they operate. In addition, any system or equipment that is dependent on
an embedded chip, such as telecommunication equipment and security systems, may
also be adversely affected.
In April 1999, the State Comptroller released an audit on the State's Year
2000 compliance. The audit, which reviewed the State's Y2K compliance activities
through October 1998, found that the State had made progress in achieving Y2K
compliance, but needed to improve its activities in several areas, including
data interchanges and contingency planning.
The Office for Technology (OFT) will continue to monitor compliance
progress for the States mission-critical and high-priority systems and is
reporting compliance progress to the Governor's Office on a quarterly basis. The
1999-2000 enacted budget allocates $19 million for priority embedded systems and
$20 million for unanticipated expenses related to bringing technology into Y2K
compliance. OFT reports that as of June 1999, the State had completed over 98
percent of the overall compliance effort for its mission-critical systems; 55 of
the 56 systems are now Year 2000 compliant. As of June 1999, the State had
completed 87 percent of
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the overall compliance effort on the high-priority systems; 236 systems are now
Year 2000 compliant. The State has also procured independent validation and
verification services from a qualified vendor to perform an automated review of
code that has been fixed and a testing review process for all mission-critical
systems which is scheduled to be completed by September 1999.
While New York State is taking what it believes to be appropriate action to
address Year 2000 compliance, there can be no guarantee that all of the State's
systems and equipment will be Year 2000 compliant and that there will not be an
adverse impact upon State operations or finances as a result. Since Year 2000
compliance by outside parties is beyond the State's control to remediate, the
failure of outside parties to achieve Year 2000 compliance could have an adverse
impact on State operations or finances as well.
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SPECIAL CONSIDERATIONS RELATING TO CONNECTICUT MUNICIPAL SECURITIES
The following information is a brief summary of factors affecting the
economies and financial strengths of the State of Connecticut, its
municipalities and its political subdivisions
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and does not purport to be a complete description of such factors. Other factors
will affect issuers. The summary is based primarily upon one or more publicly
available offering statements relating to debt offerings of this State of
Connecticut that were available prior to the date of this Statement of
Additional Information. The accuracy and completeness of the information
contained in such offering statements have not been independently verified.
The ability of the issuers of Connecticut Municipal Securities to pay the
principal and interest on their obligations may be impacted by a variety of
factors relating to the economy of Connecticut and to the fiscal stability of
issuers of Connecticut Municipal Securities. The latter may include such matters
as the ability of issuers to raise sufficient tax and other revenues to meet
their needs, the availability of aid from other governmental bodies, and the
burdens that may be imposed on issuers by law or necessity. To the extent that
the Fund invests in obligations that are not general obligations of their
issuers, payments of principal and interest will depend on all factors affecting
the revenue sources from which payments thereon are to be derived. The value of
the obligations held by the Fund would be adversely affected not only by any
actual inability of their issuers to pay the principal and interest thereon,
but also by a public perception that such ability is in doubt.
Manufacturing has historically been of prime economic importance to
Connecticut (sometimes referred to as the "State"). The State's manufacturing
industry is diversified, with transportation equipment (primarily aircraft
engines, helicopters and submarines) the dominant industry, followed by
fabricated metals, non-electrical machinery, and electrical equipment. As a
result of a rise in employment in service-related industries and a decline in
manufacturing employment, however, manufacturing accounted for only 17.09% of
total non-agricultural employment in Connecticut in 1997. Defense-related
business represents a relatively high proportion of the manufacturing sector.
On a per capita basis, defense awards to Connecticut have traditionally been
among the highest in the nation, and reductions in defense spending have had
a substantial adverse impact on Connecticut's economy.
The average annual unemployment rate in Connecticut increased from a low
of 3.0% in 1988 to a high of 7.6% in 1992 and, after a number of important
changes in the method of calculation, was reported to be 5.8% in 1996. Average
per capita personal income of Connecticut residents increased in every year
from 1989 to 1997, rising from $25,443 to $36,434. However, pockets of
significant unemployment and poverty exist in several Connecticut cities and
towns.
For the four fiscal years ended June 30, 1991, the General Fund experienced
operating deficits but, for the eight fiscal years ended June 30, 1999, the
General Fund recorded operating surpluses, based on Connecticut's budgetary
method of accounting. General Fund budgets adopted for the biennium ending
June 30, 2001, authorize expenditures of $10,581,600,000 for the 1999-2000
fiscal year and $11,085,200,000 for the 2000-2001 fiscal year and project
surpluses of $64,400,000 and $4,800,000, respectively, for those years. As of
August 31, 1999, the Comptroller estimated expenditures of $10,689,600,000 and
a surplus of only $11,200,000 for the 1999-2000 fiscal year. Connecticut's
general obligation bonds are rated Aa3 by Moody's and AA by Fitch. On
October 8, 1998, S&P upgraded its ratings of Connecticut's general
obligations bonds from AA- to AA.
The State's primary method for financing capital projects is through the
sale of general obligation bonds. These bonds are backed by the full faith
and credit of the State. As of October 15, 1999, the State had authorized
direct general obligation bond indebtedness totaling $13,310,385,000, of which
$11,144,149,000 had been approved for issuance by the State Bond Commission
and $9,625,537,000 had been issued. As of October 15, 1999, net State direct
general obligation indebtedness outstanding was $6,890,968,000.
In 1995, the State established the University of Connecticut as a
separate corporate entity to issue bonds and construct certain infrastructure
improvements. The University was authorized to issue bonds totaling
$962,000,000 by June 30, 2005, that are secured by a State debt service
commitment to finance the improvements, $359,475,000 of which were
outstanding on October 15, 1999.
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In addition, the State has limited or contingent liability on a
significant amount of other bonds. Such bonds have been issued by the
following quasi-public agencies: the Connecticut Housing Finance Authority,
the Connecticut Development Authority, the Connecticut Higher Education
Supplemental Loan Authority, the Connecticut Resources Recovery Authority and
the Connecticut Health and Educational Facilities Authority. Such bonds have
also been issued by the cities of Bridgeport and West Haven and the
Southeastern Connecticut Water Authority. As of December 1, 1998, the amount
of bonds outstanding on which the State has limited or contingent liability
totaled $4,154,900,000.
In 1984, the State established a program to plan, construct and improve
the State's transportation system (other than Bradley International Airport).
The total cost of the program through June 30, 2002, is currently estimated
to be $12.6 billion, to be met from federal, state, and local funds. The
State expects to finance most of its $5.1 billion share of such cost by
issuing $4.6 billion of special tax obligation ("STO") bonds. The STO bonds
are payable solely from specified motor fuel taxes, motor vehicle receipts,
and license, permit and fee revenues pledged therefor and credited to the
Special Transportation Fund, which was established to budget and account for
such revenues.
The State, its officers and its employees are defendants in numerous
lawsuits. Although it is not possible to determine the outcome of these
lawsuits, the Attorney General has opined that an adverse decision in any of
the following cases might have a significant impact on the State's financial
position: (i) 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; and (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.
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 is reviewing the
State's Year 2000 exposure and developing plans for modification or
replacement of existing software that it believes will prevent significant
operations problems. There is a risk that the plan will not be
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completed on time, that planned testing will not reveal all problems, or that
systems of others on whom the State relies will not be timely updated. If
the necessary remediations are not completed in a timely fashion, the Year
2000 problem may have a material impact on the operations of the State.
General obligation bonds issued by municipalities are payable primarily
from ad valorem taxes on property located in the municipality. A
municipality's property tax base is subject to many factors outside the
control of the municipality, including the decline in Connecticut's
manufacturing industry. Certain Connecticut municipalities have experienced
severe fiscal difficulties and have reported operating and accumulated deficits.
The most notable of these is the City of Bridgeport, which filed a bankruptcy
petition on June 7, 1991. The State opposed the petition. The United States
Bankruptcy Court for the District of Connecticut held that Bridgeport had
authority to file such a petition but that its petition should be dismissed on
the grounds that Bridgeport was not insolvent when the petition was filed.
State legislation enacted in 1993 prohibits municipal bankruptcy filings without
the prior written consent of the Governor. Regional economic difficulties,
reductions in revenues, and increased expenses could lead to further fiscal
problems for the State and its political subdivisions, authorities, and
agencies. Difficulties in payment of debt service on borrowings could result in
declines, possibly severe, in the value of their outstanding obligations,
increases in their future borrowing costs, and impairment of their ability to
pay debt service on their obligations.
In addition to general obligation bonds backed by the full faith and
credit of the municipality, certain municipal authorities finance projects by
issuing bonds that are not considered to be debts of the municipality. Such
bonds may be repaid only from revenues of the financed project, the revenues
from which may be insufficient to service the related debt obligations.
PORTFOLIO TURNOVER
Each Fund may sell a portfolio investment soon after its acquisition if
Fleet believes that such a disposition is consistent with the Fund's investment
objective. Portfolio investments may be sold for a variety of reasons, such as a
more favorable investment opportunity or other circumstances bearing on the
desirability of continuing to hold such investments. A portfolio turnover rate
of 100% or more is considered high, although the rate of portfolio turnover will
not be a limiting factor in making portfolio decisions. A high rate of portfolio
turnover may result in the realization of substantial capital gains and involves
correspondingly greater transaction costs. To the extent that net capital gains
are realized, distributions derived from such gains are treated as ordinary
income for federal income tax purposes.
INVESTMENT LIMITATIONS
In addition to each Fund's investment objective as stated in its
Prospectuses, the following investment limitations are matters of fundamental
policy and may not be changed with respect to any Fund without the
affirmative vote of the holders of a majority of its outstanding shares (as
defined under "Miscellaneous").
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No Fund may:
1. Make loans, except that (i) each Fund may purchase or hold debt
instruments in accordance with its investment objective and policies,
and may enter into repurchase agreements with respect to portfolio
securities, and (ii) each Fund may lend portfolio securities against
collateral consisting of cash or securities which are consistent with
its permitted investments, where the value of the collateral is equal
at all times to at least 100% of the value of the securities loaned.
2. Borrow money or issue senior securities, except that each Fund may
borrow from domestic banks for temporary purposes and then in amounts
not in excess of 10% of the value of its total assets at the time of
such borrowing (provided that each Fund may borrow pursuant to reverse
repurchase agreements in accordance with its investment policies and
in amounts not in excess of 10% of the value of its total assets at
the time of such borrowing); or mortgage, pledge, or hypothecate any
assets except in connection with any such borrowing and in amounts not
in excess of the lesser of the dollar amounts borrowed or 10% of the
value of its total assets at the time of such borrowing. No Fund will
purchase securities while borrowings (including reverse repurchase
agreements) in excess of 5% of its total assets are outstanding.
3. Invest more than 10% (15% with respect to the New Jersey Municipal
Bond Fund) of the value of its net assets in illiquid securities,
including repurchase agreements with remaining maturities in excess of
seven days, time deposits with maturities in excess of seven days,
restricted securities, non-negotiable time deposits and other
securities which are not readily marketable.
4. Purchase any securities which would cause 25% or more of the value of
a Fund's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry; provided, however, that there is no
limitation with respect to securities issued or guaranteed by the U.S.
Government, any state, territory or possession of the U. S.
Government, the District of Columbia, or any of their authorities,
agencies, instrumentalities or political subdivisions.
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5. Purchase securities on margin (except such short-term credits as may
be necessary for the clearance of purchases), make short sales of
securities, or maintain a short position.
6. Act as an underwriter within the meaning of the Securities Act of
1933; except insofar as a Fund might be deemed to be an underwriter
upon disposition of restricted portfolio securities; and except to the
extent that the purchase of securities directly from the issuer
thereof in accordance with the Fund's investment objective, policies
and limitations may be deemed to be underwriting.
7. Purchase or sell real estate; except that each Fund may invest in
Municipal Securities secured by real estate or interests therein;
however, the Funds will not purchase or sell interests in real estate
limited partnerships.
8. Purchase or sell commodities or commodity contracts or invest in oil,
gas, or other mineral exploration or development programs or mineral
leases; provided however, that the Funds may enter into municipal bond
index futures contracts and interest rate futures contracts to the
extent permitted under the Commodity Exchange Act and the 1940 Act.
9. Invest in or sell put options, call options, straddles, spreads, or
any combination thereof.
10. Invest in companies for the purpose of exercising management or
control.
11. Purchase securities of other investment companies except in
connection with a merger, consolidation, reorganization, or
acquisition of assets; provided, however, that each Fund may acquire
such securities in accordance with the 1940 Act.
12. Invest in industrial revenue bonds where the payment of principal and
interest are the responsibility of a company (including its
predecessors) with less than three years of continuous operation.
13. Purchase foreign securities, except that the Funds may purchase
certificates of deposit, bankers' acceptances, or other similar
obligations issued by U.S. branches of foreign banks or foreign
branches of U.S. banks.
In addition, the Tax-Exempt Bond Fund may not:
14. Purchase securities of any one issuer, other than obligations issued
or guaranteed by the U.S. Government, its agencies or
instrumentalities, if immediately after such purchase more than 5% of
the value of its total assets would be invested in the securities of
such issuer, except that up to 25% of the value of its total assets
may be invested without regard to this limitation.
In addition, the New Jersey Municipal Bond, New York Municipal Bond,
Connecticut Municipal Bond, Massachusetts Municipal Bond and Rhode Island
Municipal Bond Funds may not:
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15. Purchase securities of any one issuer, other than obligations issued
or guaranteed by the U.S. Government, its agencies or
instrumentalities, if immediately after such purchase more than 5% of
the value of its total assets would be invested in the securities of
such issuer, except that up to 50% of the value of a Fund's total
assets may be invested without regard to this 5% limitation, provided
that no more than 25% of the value of a Fund's total assets are
invested in the securities of any one issuer.
With respect to Investment Limitation No. 2 above, each Fund intends to
limit any borrowings (including reverse repurchase agreements) to not more than
10% of the value of its total assets at the time of such borrowing.
Except as stated otherwise, a percentage limitation is satisfied at the
time of investment, a later increase in such percentage resulting from a change
in the value of a Fund's portfolio securities generally will not constitute a
violation of the limitation. If the value of a Fund's holdings of illiquid
securities at any time exceeds the percentage limitation applicable at the time
of acquisition due to subsequent fluctuations in value or other reasons, the
Board of Trustees will consider what actions, if any, are appropriate to
maintain adequate liquidity.
VALUATION OF PORTFOLIO SECURITIES
The Funds' assets are valued for purposes of pricing sales and redemptions
by an independent pricing service ("Service") approved by Galaxy's Board of
Trustees. When, in the judgment of the Service, quoted bid prices for portfolio
securities are readily available and are representative of the bid side of the
market, these investments are valued at the mean between quoted bid prices (as
obtained by the Service from dealers in such securities) and asked prices (as
calculated by the Service based upon its evaluation of the market for such
securities). Other investments are carried at fair value as determined by the
Service, based on methods which include consideration of yields or prices of
bonds of comparable quality, coupon, maturity and type; indications as to values
from dealers; and general market conditions. The Service may also employ
electronic data processing techniques and matrix systems to determine value.
Short-term securities are valued at amortized cost, which approximates market
value. The amortized cost method involves valuing a security at its cost on the
date of purchase and thereafter assuming a constant amortization to maturity of
the difference between the principal amount due at maturity and cost.
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 Four Falls Corporate Center, 6th Floor, West Conshohocken,
Pennsylvania 19428. PDI has agreed to use appropriate efforts to solicit all
purchase orders.
This Statement of Additional Information provides additional purchase
and redemption information for Trust Shares and Retail A Shares of each Fund and
Retail B Shares of the Tax-
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Exempt Bond Fund. Purchase and redemption information for Prime A Shares and
Prime B Shares of the Tax-Exempt Bond Fund are described in a separate
prospectus and statement of additional information.
PURCHASES OF RETAIL A SHARES AND RETAIL B SHARES
GENERAL
Investments in Retail A Shares of the Funds are subject to a front-end
sales charge. Investments in Retail B Shares of the Tax-Exempt Bond Fund are
subject to a back-end sales charge. This back-end sales charge declines over
time and is known as a "contingent deferred sales charge."
Investors should read "Characteristics of Retail A Shares and Retail B
Shares" and "Factors to Consider When Selecting Retail A Shares or Retail B
Shares" below before deciding between the two with respect to the Tax-Exempt
Bond Fund.
PDI has established several procedures to enable different types of
investors to purchase Retail A Shares of the Funds and Retail B Shares of the
Tax-Exempt Bond Fund (collectively, "Retail Shares"). Retail Shares may be
purchased by individuals or corporations who submit a purchase application to
Galaxy, purchasing directly either for their own accounts or for the accounts
of others. Retail Shares may also be purchased by FIS Securities, Inc., Fleet
Securities, Inc., Fleet Enterprises, Inc., FleetBoston Corportion, its
affiliates, their correspondent banks and other qualified banks, savings and
loan associations and broker/dealers on behalf of their customers. Purchases
may take place only on days on which PDI and Galaxy's custodian and Galaxy's
transfer agent are open for business ("Business Days"). If an institution
accepts a purchase order from a customer on a non-Business Day, the order
will not be executed until it is received and accepted by PDI on a Business
Day in accordance with PDI's procedures.
CUSTOMERS OF INSTITUTIONS
Retail Shares purchased by institutions on behalf of their customers will
normally be held of record by the institution and beneficial ownership of Retail
Shares will be recorded by the institution and reflected in the account
statements provided to its customers. Galaxy's transfer agent may establish an
account of record for each customer of an institution reflecting beneficial
ownership of Retail Shares. Depending on the terms of the arrangement between a
particular institution and Galaxy's transfer agent, confirmations of Retail
Share purchases and redemptions and pertinent account statements will either be
sent by Galaxy's transfer agent directly to a customer with a copy to the
institution, or will be furnished directly to the customer by the institution.
Other procedures for the purchase of Retail Shares established by institutions
in connection with the requirements of their customer accounts may apply.
Customers wishing to purchase Retail Shares through their institution should
contact such entity directly for appropriate purchase instructions.
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OTHER PURCHASE INFORMATION
On a Business Day when the New York Stock Exchange (the "Exchange") closes
early due to a partial holiday or otherwise, Galaxy will advance the time at
which purchase orders must be received in order to be processed on that Business
Day.
APPLICABLE SALES CHARGE -- RETAIL A SHARES
The public offering price for Retail A Shares of the Funds is the sum of
the net asset value of the Retail A Shares purchased plus any applicable
front-end sales charge as described in the applicable Prospectus. A deferred
sales charge of up to 1.00% is assessed on certain redemptions of Retail A
Shares that are purchased with no initial sales charge as part of an investment
of $500,000 or more. A portion of the front-end sales charge may be reallowed to
broker-dealers as follows:
<TABLE>
<CAPTION>
REALLOWANCE TO
DEALERS
--------------
AS A % OF
OFFERING PRICE
AMOUNT OF TRANSACTION PER SHARE
- --------------------- --------------
<S> <C>
Less than $50,000 3.25
$50,000 but less than $100,000 3.00
$100,000 but less than $250,000 2.50
$250,000 but less than $500,000 2.00
$500,000 and over 0.00
</TABLE>
The appropriate reallowance to dealers will be paid by PDI to
broker-dealer organizations which have entered into agreements with PDI. The
reallowance to dealers may be changed from time to time.
In certain situations or for certain individuals, the front-end sales
charge for Retail A Shares of the Funds may be waived either because of the
nature of the investor or the reduced sales effort required to attract such
investments. In order to receive the sales charge waiver, an investor must
explain the status of his or her investment at the time of purchase. In addition
to the sales charge waivers described in the applicable Prospectus, no sales
charge is assessed on purchases of Retail A Shares of the Funds by the following
categories of investors or in the following types of transactions:
- purchases by directors, officers and employees of broker-dealers
having agreements with 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;
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- purchases by officers, directors, employees and retirees of
FleetBoston 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 Corporation. in February 1998.
COMPUTATION OF OFFERING PRICE - RETAIL A SHARES
An illustration of the computation of the offering price per share of
Retail A Shares of the Funds, using the value of each Fund's net assets
attributable to such Shares and the number of outstanding Retail A Shares of
each Fund at the close of business on October 31, 1999 and the maximum front-end
sales charge of 3.75%, is as follows:
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<TABLE>
<CAPTION>
New Jersey
Tax-Exempt Municipal
Bond Fund Bond Fund
---------- ----------
<S> <C> <C>
Net Assets............................... $ $
Outstanding Shares....................... $ $
Net Asset Value Per Share................ $ $
Sales Charge (3.75% of
the offering price)...................... $ $
Offering Price to Public................. $ $
<CAPTION>
New York Connecticut
Municipal Municipal
Bond Fund Bond Fund
---------- ----------
<S> <C> <C>
Net Assets............................... $ $
Outstanding Shares....................... $ $
Net Asset Value Per Share................ $ $
Sales Charge (3.75% of
the offering price)...................... $ $
Offering Price to Public................. $ $
<CAPTION>
Massachusetts Rhode Island
Municipal Municipal
Bond Fund Bond Fund
---------- ----------
<S> <C> <C>
Net Assets............................... $ $
Outstanding Shares....................... $ $
Net Asset Value Per Share................ $ $
Sales Charge (3.75% of
the offering price)...................... $ $
Offering Price to Public................. $ $
</TABLE>
QUANTITY DISCOUNTS
Investors may be entitled to reduced sales charges through Rights of
Accumulation, a Letter of Intent or a combination of investments, as described
below, even if the investor does not wish to make an investment of a size that
would normally qualify for a quantity discount.
In order to obtain quantity discount benefits, an investor must notify 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.
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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.
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
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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 "wash sale" rules of the Internal
Revenue Code of 1986, as amended (the "Code").
GROUP SALES. Members of qualified groups may purchase Retail A Shares of
the Funds at the following group sales rates:
<TABLE>
<CAPTION>
REALLOWANCE
TOTAL SALES CHARGE TO DEALERS
------------------------ -----------
AS A % OF AS A % OF AS A % OF
NUMBER OF QUALIFIED OFFERING 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
applicable Prospectus. Group members must also ensure that their qualified group
affiliation is identified on the purchase application.
A qualified group is a group that (i) has at least 50,000 members, (ii) was
not formed for the purpose of buying Fund shares at a reduced sales charge,
(iii) within one year of the initial member purchase, has at least 1% of its
members invested in the Funds or any of the other investment portfolios offered
by Galaxy, (iv) agrees to include Galaxy sales material in publications and
mailings to members at a reduced cost or no cost, and (v) meets certain other
uniform criteria. 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.
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APPLICABLE SALES CHARGE - RETAIL B SHARES
The public offering price for Retail B Shares of the Tax-Exempt Bond Fund
is the net asset value of the Retail B Shares purchased. Although investors pay
no front-end sales charge on purchases of Retail B Shares, such Shares are
subject to a contingent deferred sales charge at the rates set forth below if
they are redeemed within six years of purchase. Securities dealers, brokers,
financial institutions and other industry professionals will receive commissions
from 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 Fleet Enterprises, Inc., a
broker-dealer affiliate of Fleet, whose customers purchase significant amounts
of Retail B Shares of the Fund. See "Applicable Sales Charge -- Retail A
Shares." The contingent deferred sales charge on Retail B Shares is based on the
lesser of the net asset value of the Shares on the redemption date or the
original cost of the Shares being redeemed. As a result, no sales charge is
imposed on any increase in the principal value of an investor's Retail B Shares.
In addition, a contingent deferred sales charge will not be assessed on Retail B
Shares purchased through reinvestment of dividends or capital gains
distributions.
The proceeds from the contingent deferred sales charge that an investor may
pay upon redemption go to 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 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.
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CHARACTERISTICS OF RETAIL A SHARES AND RETAIL B SHARES
The primary difference between Retail A Shares and Retail B Shares lies in
their sales charge structures and shareholder servicing/distribution expenses.
An investor should understand that the purpose and function of the sales charge
structures and shareholder servicing/distribution arrangements for both Retail A
Shares and Retail B Shares are the same.
Retail A Shares of the Funds are sold at their net asset value plus a
front-end sales charge of up to 3.75%. This front-end sales charge may be
reduced or waived in some cases. See the applicable Prospectus and "Applicable
Sales Charges -- Retail A Shares" and "Quantity Discounts" above. Retail A
Shares of a Fund are currently subject to ongoing shareholder servicing fees at
an annual rate of up to .30% of the Fund's average daily net assets attributable
to its Retail A Shares.
Retail B Shares of the Tax-Exempt Bond Fund are sold at net asset value
without an initial sales charge. Normally, however, a deferred sales charge is
paid if the Shares are redeemed within six years of investment. See the
applicable Prospectus and "Applicable Sales Charges -- Retail B Shares" above.
Retail B Shares of the Fund are currently subject to ongoing shareholder
servicing and distribution fees at an annual rate of up to .95% of the Fund's
average daily net assets attributable to its Retail B Shares. These ongoing
fees, which are higher than those charged on Retail A Shares, will cause Retail
B Shares to have a higher expense ratio and pay lower dividends than Retail A
Shares.
Six years after purchase, Retail B Shares of the Fund will convert
automatically to Retail A Shares of the Fund. The purpose of the conversion is
to relieve a holder of Retail B Shares of the higher ongoing expenses charged to
those shares, after enough time has passed to allow 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 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 Tax-Exempt Bond Fund should consider whether, during the anticipated
periods of their investments
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in the Fund, the accumulated distribution and shareholder servicing fees and
potential contingent deferred sales charge on Retail B Shares prior to
conversion would be less than the initial sales charge and accumulated
shareholder servicing fees on Retail A Shares purchased at the same time, and to
what extent such differential would be offset by the higher yield of Retail A
Shares. In this regard, to the extent that the sales charge for Retail A Shares
is waived or reduced by one of the methods described above, investments in
Retail A Shares become more desirable. An investment of $250,000 or more in
Retail B Shares would not be in most shareholders' best interest. Shareholders
should consult their financial advisers and/or brokers with respect to the
advisability of purchasing Retail B Shares in amounts exceeding $250,000.
Although Retail A Shares are subject to a shareholder servicing fee, they
are not subject to the higher distribution and shareholder servicing fee
applicable to Retail B Shares. For this reason, Retail A Shares can be expected
to pay correspondingly higher dividends per Share. However, because initial
sales charges are deducted at the time of purchase, purchasers of Retail A
Shares (that do not qualify for exemptions from or reductions in the initial
sales charge) would have less of their purchase price initially invested in the
Fund than purchasers of Retail B Shares in the Fund.
As described above, purchasers of Retail B Shares will have more of their
initial purchase price invested. Any positive investment return on this
additional invested amount would partially or wholly offset the expected higher
annual expenses borne by Retail B Shares. Because the Fund's future returns
cannot be predicted, there can be no assurance that this will be the case.
Holders of Retail B Shares would, however, own shares that are subject to a
contingent deferred sales charge of up to 5.00% upon redemption, depending upon
the year of redemption. Investors expecting to redeem during this six-year
period should compare the cost of the contingent deferred sales charge plus the
aggregate distribution and shareholder servicing fees on Retail B Shares to the
cost of the initial sales charge and shareholder servicing fees on the Retail A
Shares. Over time, the expense of the annual distribution and shareholder
servicing fees on the Retail B Shares may equal or exceed the initial sales
charge and annual shareholder servicing fee applicable to Retail A Shares. For
example, if net asset value remains constant, the aggregate distribution and
shareholder servicing fees with respect to Retail B Shares of a Fund would equal
or exceed the initial sales charge and aggregate shareholder servicing fees of
Retail A Shares approximately six years after the purchase. In order to reduce
such fees for investors that hold Retail B Shares for more than six years,
Retail B Shares will be automatically converted to Retail A Shares as described
above at the end of such six-year period.
PURCHASES OF TRUST SHARES
Trust Shares are sold to investors maintaining qualified accounts at bank
and trust institutions, including subsidiaries of FleetBoston Corporation, and
to participants in employer-sponsored defined contribution plans (such
institutions and plans referred to herein collectively as "Institutions").
Trust Shares sold to such investors ("Customers") will be held of record by
Institutions. Purchases of Trust Shares will be effected only on days on which
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.
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On a Trust Business Day when the Exchange closes early due to a partial
holiday or otherwise, Galaxy will advance the time at which purchase orders must
be received in order to be processed on that Trust Business Day.
REDEMPTION OF RETAIL A SHARES, RETAIL B SHARES
AND TRUST SHARES
Redemption orders are effected at the net asset value per share next
determined after receipt of the order by 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 the redemptions of Retail B
Shares of the Funds will be reduced by the amount of any applicable contingent
deferred sales charge. Galaxy reserves the right to transmit redemption proceeds
within seven days after receiving the redemption order if, in its judgment, an
earlier payment could adversely affect a Fund.
If the Board of Trustees determines that conditions exist which make
payment of redemption proceeds wholly in cash unwise or undesirable, Galaxy may
make payment wholly or partly in securities or other property. Such redemptions
will only be made in "readily marketable" securities. In such an event, a
shareholder would incur transaction costs in selling the securities or other
property.
Galaxy may suspend the right of redemption or postpone the date of payment
for shares for more than seven days during any period when (a) trading in the
markets the Funds normally utilize is restricted, or an emergency, as defined by
the rules and regulations of the SEC exists making disposal of a Fund's
investments or determination of its net asset value not reasonably practicable;
(b) the Exchange is closed (other than customary weekend and holiday closings);
or (c) the SEC by order has permitted such suspension.
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.
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INVESTOR PROGRAMS - RETAIL A SHARES AND RETAIL B SHARES
The following information supplements the description in the applicable
Prospectus as to the various Investor Programs available to holders of Retail
Shares of the Funds.
EXCHANGE PRIVILEGE
The minimum initial investment to establish an account in another Fund or
portfolio by exchange, except for the Institutional Government Money Market
Fund, is $2,500, unless (i) the Retail Shares being redeemed were purchased
through a registered representative who is a Fleet Bank employee, in which event
there is no minimum investment requirement, or (ii) at the time of the exchange
the investor elects, with respect to the Fund or portfolio into which the
exchange is being made, to participate in the Automatic Investment Program
described below, in which event there is no minimum initial investment
requirement, or in the College Investment Program described below, in which
event the minimum initial investment is generally $100. The minimum initial
investment to establish an account by exchange in the Institutional Government
Money Market Fund is $2 million.
An exchange involves a redemption of all or a portion of the Retail Shares
of a Fund and the investment of the redemption proceeds in Retail Shares of
another Fund or portfolio offered by Galaxy or, with respect to Retail A Shares,
otherwise advised by Fleet or its affiliates. The redemption will be made at the
per share net asset value next determined after the exchange request is
received. The Retail Shares of a Fund or portfolio to be acquired will be
purchased at the per share net asset value next determined after acceptance of
the exchange request, plus any applicable sales charge.
Investors may find the exchange privilege useful if their investment
objectives or market outlook should change after they invest in any of the
Funds. For further information regarding Galaxy's exchange privilege, investors
should call PFPC at 1-877-BUY-GALAXY (1-877-289-4252). Customers of institutions
should call their institution for such information. Customers exercising the
exchange privilege into other portfolios should request and review these
portfolios' prospectuses prior to making an exchange. Telephone 1-877-BUY-GALAXY
(1-877-289-4252) for a prospectus or to make an exchange.
In order to prevent abuse of this privilege to the disadvantage of other
shareholders, Galaxy reserves the right to terminate the exchange privilege of
any shareholder who requests more than three exchanges a year. Galaxy will
determine whether to do so based on a consideration of both the number of
exchanges that any particular shareholder or group of shareholders has requested
and the time period over which their exchange requests have been made, together
with the level of expense to Galaxy which will result from effecting additional
exchange requests. The exchange privilege may be modified or terminated at any
time. At least 60 days' notice of any material modification or termination will
be given to shareholders except where notice is not required under the
regulations of the SEC.
For federal income tax purposes, an exchange of shares is a taxable event
and, accordingly, a capital gain or loss may be realized by an investor. Before
making an exchange request, an investor should consult a tax or other financial
adviser to determine the tax consequences.
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RETIREMENT PLANS
Retail Shares of the Funds are available for purchase in connection with
the following tax-deferred prototype retirement plans:
INDIVIDUAL RETIREMENT ACCOUNTS ("IRAs") (including traditional, Roth and
Education IRAs and "roll-overs" from existing retirement plans), a
retirement-savings vehicle for qualifying individuals. The minimum initial
investment for an IRA account is $500 (including a spousal account).
SIMPLIFIED EMPLOYEE PENSION PLANS ("SEPs"), a form of retirement plan for
sole proprietors, partnerships and corporations. The minimum initial investment
for a SEP account is $500.
MULTI-EMPLOYEE RETIREMENT PLANS ("MERPs"), a retirement vehicle established
by employers for their employees which is qualified under Section 401(k) and
403(b) of the Code. The minimum initial investment for a MERP is $500.
KEOGH PLANS, a retirement vehicle for self-employed individuals. The
minimum initial investment for a Keogh Plan is $500.
Investors purchasing Retail Shares pursuant to a retirement plan are not
subject to the minimum investment provisions described in the applicable
Prospectus. Detailed information concerning eligibility and other matters
related to these plans and the form of application is available from 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
The Automatic Investment Program permits an investor to purchase Retail
Shares of a Fund each month or each quarter. Provided an investor's financial
institution allows automatic withdrawals, Retail Shares are purchased by
transferring funds from the investor's checking, bank money market, NOW or
savings account designated by the investor. The account designated will be
debited in the specified amount, and Retail Shares will be purchased, on a
monthly or quarterly basis, on any Business Day designated by the investor. If
the designated day falls on a weekend or holiday, the purchase will be made on
the Business Day closest to the designated day. Only an account maintained at a
domestic financial institution which is an Automated Clearing House ("ACH")
member may be so designated.
The Systematic Withdrawal Plan permits an investor to automatically redeem
Retail Shares on a monthly, quarterly, semi-annual, or annual basis on any
Business Day designated by an investor, if the account has a starting value of
at least $10,000. If the designated day falls on a weekend or holiday, the
redemption will be made on the Business Day closest to the designated day.
Proceeds of the redemption will be sent to the shareholder's address of record
or financial institution within three Business Days of the redemption. If
redemptions exceed purchases and dividends, the number of shares in the account
will be reduced. Investors may terminate the Systematic Withdrawal Plan at any
time upon written notice to PFPC,
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Galaxy's transfer agent (but not less than five days before a payment date).
There is no charge for this service. Purchases of additional Retail A Shares
concurrently with withdrawals are ordinarily not advantageous because of the
sales charge involved in the additional purchases. No contingent deferred sales
charge will be assessed on redemptions of Retail B Shares made through the
Systematic Withdrawal Plan that do not exceed 12% of an account's net asset
value on an annualized basis. For example, monthly, quarterly and semi-annual
Systematic Withdrawal Plan redemptions of Retail B Shares will not be subject to
the contingent deferred sales charge if they do not exceed 1%, 3% and 6%,
respectively, of an account's net asset value on the redemption date. Systematic
Withdrawal Plan redemptions of Retail B Shares in excess of this limit are still
subject to the applicable contingent deferred sales charge.
PAYROLL DEDUCTION PROGRAM
To be eligible for the Payroll Deduction Program, the payroll department of
an investor's employer must have the capability to forward transactions directly
through the ACH, or indirectly through a third party payroll processing company
that has access to the ACH. An investor must complete and submit a Galaxy
Payroll Deduction Application to his or her employer's payroll department, which
will arrange for the specified amount to be debited from the investor's paycheck
each pay period. Retail Shares of Galaxy will be purchased within three days
after the debit occurred. If the designated day falls on a weekend or
non-Business Day, the purchase will be made on the Business Day closest to the
designated day. An investor should allow between two to four weeks for the
Payroll Deduction Program to be established after submitting an application to
the employer's payroll department.
COLLEGE INVESTMENT PROGRAM
Galaxy reserves the right to redeem accounts participating in the College
Investment Program involuntarily, upon 60 days' written notice, if the account's
net asset value falls below the applicable minimum initial investment as a
result of redemptions. Investors participating in the College Investment Program
will receive consolidated monthly statements of their accounts. Detailed
information concerning College Investment Program accounts and applications may
be obtained from PDI (call 1-877-BUY-GALAXY (1-877-289-4252)).
DIRECT DEPOSIT PROGRAM
Death or legal incapacity will terminate an investor's participation in the
Direct Deposit Program. An investor may elect at any time to terminate his or
her participation by notifying in writing the Social Security Administration.
Further, Galaxy may terminate an investor's participation upon 30 days' notice
to the investor.
TAXES
Each Fund qualified during its last taxable year and intends to continue to
qualify as a regulated investment company under Subchapter M of the Code, and to
invest all, or substantially all, of its assets in debt obligations the interest
on which is exempt for federal income tax purposes, so that the Fund itself
generally will be relieved of federal income and excise taxes. If a Fund were to
fail to so qualify: (1) the Fund would be taxed on its taxable
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income at regular corporate rates without any deduction for distributions to
shareholders; and (2) shareholders would be taxed as if they received ordinary
dividends, although corporate shareholders could be eligible for the dividends
received deduction. For a Fund to pay tax-exempt dividends for any taxable year,
at least 50% of the aggregate value of the Fund's assets at the close of each
quarter of the Fund's taxable year must consist of exempt-interest obligations.
A 4% non-deductible excise tax is imposed on regulated investment companies
that fail to distribute with respect to each calendar year at least 98% of their
ordinary taxable income and capital gain net income (excess of capital gains
over capital losses) for the one year period ending October 31 of such calendar
year. Each Fund intends to make sufficient distributions or deemed distributions
of its ordinary taxable income and any capital gain net income prior to the end
of each calendar year to avoid liability for this excise tax.
The Funds will be required in certain cases to withhold and remit to the
United States Treasury 31% of taxable dividends or gross sale proceeds paid to
any shareholder who (i) has failed to provide a correct tax identification
number, (ii) is subject to withholding by the Internal Revenue Service for
failure to properly include on his or her return payments of taxable interest or
dividends, or (iii) has failed to certify to the Funds that he or she is not
subject to back up withholding when required to do so or that he or she is an
"exempt recipient."
Dividends declared in October, November or December of any year which are
payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by a Fund on December 31
of such year if such dividends are actually paid during January of the following
year.
An investment in a Fund is not intended to constitute a balanced investment
program. Shares of the Funds would not be suitable for tax-exempt institutions
and may not be suitable for retirement plans qualified under Section 401 of the
Code, H.R. 10 plans and individual retirement accounts because such plans and
accounts are generally tax-exempt and, therefore, not only would the shareholder
not gain any additional benefit from the Funds' dividends being tax-exempt, but
such dividends would be ultimately taxable to the beneficiaries when
distributed. In addition, the Funds may not be an appropriate investment for
entities which are "substantial users" of facilities financed by "private
activity bonds" or "related persons" thereof. "Substantial user" is defined
under U.S. Treasury Regulations to include a non-exempt person who (i) regularly
uses a part of such facilities in his or her trade or business and whose gross
revenues derived with respect to the facilities financed by the issuance of
bonds are more than 5% of the total revenues derived by all users of such
facilities, (ii) occupies more than 5% of the usable area of such facilities or
(iii) are persons for whom such facilities or a part thereof were specifically
constructed, reconstructed or acquired. "Related persons" include certain
related natural persons, affiliated corporations, a partnership and its partners
and an S corporation and its shareholders.
STATE AND LOCAL
Exempt-interest dividends and other distributions paid by the Funds may be
taxable to shareholders under state or local law as dividend income, even though
all or a portion of such distributions may be derived from interest on
tax-exempt obligations which, if realized directly, would be exempt from such
income taxes.
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It is anticipated that substantially all dividends paid by the New Jersey
Municipal Bond Fund will not be subject to New Jersey personal income tax. In
accordance with the provisions of New Jersey law as currently in effect,
distributions paid by a "qualified investment fund" will not be subject to the
New Jersey personal income tax to the extent that the distributions are
attributable to income received as interest or gain from New Jersey Municipal
Securities (as defined above), or as interest or gain from direct U.S.
Government obligations. Distributions by a "qualified investment fund" that are
attributable to most other sources will be subject to the New Jersey personal
income tax. Shares of the Fund are not subject to property taxation by New
Jersey or its political subdivisions.
The New Jersey personal income tax is not applicable to corporations. For
all corporations subject to the New Jersey Corporation Business Tax, dividends
and distributions from a "qualified investment fund" are included in the net
income tax base for purposes of computing the Corporation Business Tax.
Furthermore, any gain upon the redemption or sale of shares by a corporate
shareholder is also included in the net income tax base for purposes of
computing the Corporation Business Tax.
With respect to the New York Municipal Bond Fund, exempt-interest dividends
(as defined for federal income tax purposes), derived from interest on New York
Municipal Securities (as defined above) will be exempt from New York State and
New York City personal income taxes (but not corporate franchise taxes),
provided the interest on such obligations is and continues to be exempt from
applicable federal, New York State and New York City income taxes. To the extent
that investors are subject to state and local taxes outside of New York State
and New York City, dividends by the Fund may be taxable income for purposes
thereof. Dividends and distributions derived from income (including capital
gains on all New York Municipal Securities) other than interest on New York
Municipal Securities described above are not exempt from New York State and New
York City taxes. Interest or indebtedness incurred or continued by a shareholder
to purchase or carry shares of the Fund is not deductible for federal, New York
State or New York City personal income tax purposes.
Dividends paid by the Connecticut Municipal Bond Fund that qualify as
exempt-interest dividends for federal income tax purposes are not subject to the
Connecticut personal income tax imposed on resident and non-resident
individuals, trusts and estates to the extent that they are derived from
Connecticut Municipal Securities (as defined above). Other Fund dividends and
distributions, whether received in cash or additional shares, are subject to
this tax, except that, in the case of shareholders who hold their shares of the
Fund as capital assets, distributions treated as capital gain dividends for
federal income tax purposes are not subject to the tax to the extent that they
are derived from obligations issued by or on behalf of the State of Connecticut,
its political subdivisions, or public instrumentalities, state or local
authorities, districts or similar public entities created under Connecticut law.
Dividends and distributions paid by the Fund that constitute items of tax
preference for purposes of the federal alternative minimum tax, other than any
derived from Connecticut Municipal Securities, could cause liability for the net
Connecticut minimum tax applicable to investors subject to the Connecticut
personal income tax who are required to pay the federal alternative minimum tax.
Dividends paid by the Fund, including those that qualify as exempt-interest
dividends for federal income tax purposes, are taxable for purposes of the
Connecticut Corporation Business Tax; however, 70% (100% if the investor owns at
least 20% of the total voting power and value of the Fund's shares) of amounts
that are
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treated as dividends and not as exempt-interest dividends or capital gain
dividends for federal income tax purposes are deductible for purposes of this
tax, but no deduction is allowed for expenses related thereto. Shares of the
Fund are not subject to property taxation by Connecticut or its political
subdivisions.
Distributions by the Massachusetts Municipal Bond Fund to its shareholders
are exempt from Massachusetts personal income taxation to the extent they are
derived from (and designated by the Fund as being derived from) (i) interest on
Massachusetts Municipal Securities (as defined above), (ii) capital gains
realized by the Fund from the sale of certain Massachusetts Municipal
Securities, or (iii) interest on U.S. Government obligations exempt from state
income taxation. Distributions from the Fund's other net investment income and
short-term capital gains will be taxable as ordinary income. Distributions from
the Fund's net long-term capital gains will be taxable as long-term capital
gains regardless of how long the shareholder has owned Fund shares. The tax
treatment of distributions is the same whether distributions are paid in cash or
in additional shares of the Fund. In 1994, the Massachusetts personal income tax
statute was modified to provide for graduated rates of tax (with some
exceptions) on gains from the sale or exchange of capital assets held for more
than one year based on the length of time the asset has been held since January
1, 1995. The Massachusetts Department of Revenue has released proposed
regulations providing that the holding period of the mutual fund (rather than
that of its shareholders) will be determinative for purposes of applying the
revised statute to shareholders that receive capital gain distributions (other
than exempt capital gain distributions, as discussed above), so long as the
mutual fund separately designates the amount of such distributions attributable
to each of six classes of gains from the sale or exchange of capital assets held
for more than one year in a notice provided to shareholders and the Commissioner
of Revenue on or before March 1 of the calendar year after the calendar year of
such distributions. In the absence of such notice, the holding period of the
assets giving rise to such gain is deemed to be more than one but not more than
two years. Shareholders should consult their tax advisers with respect to the
Massachusetts tax treatment of capital gain distributions from the Fund.
Distributions by the Massachusetts Municipal Bond Fund to corporate
shareholders, including exempt-interest dividends, may be subject to
Massachusetts corporate excise tax. Fund shares are not, however, subject to
property taxation by Massachusetts or its political subdivisions.
The Rhode Island Municipal Bond Fund has received a ruling from the Rhode
Island Division of Taxation to the effect that distributions by it to its
shareholders are exempt from Rhode Island personal income taxation and the Rhode
Island business corporation tax to the extent they are derived from (and
designated by the Fund as being derived from) interest earned on Rhode Island
Municipal Securities (as defined above) or obligations of the United States.
Distributions from the Fund's other net investment income and short-term capital
gains will be taxable as ordinary income. Distributions from the Fund's net
long-term capital gains will be taxable as long-term capital gains regardless of
how long the shareholder has owned Fund shares. The tax treatment of
distributions is the same whether distributions are paid in cash or in
additional shares of the Fund.
The Rhode Island Municipal Bond Fund will be subject to the Rhode Island
business corporation tax on its "gross income" apportioned to the State of Rhode
Island. For this purpose, gross income does not include interest income earned
by the Fund on Rhode Island Municipal
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Securities and obligations of the United States, capital gains realized by the
Fund on the sale of certain Rhode Island Municipal Securities, and 50 percent of
the Fund's other net capital gains.
Depending upon the extent of Galaxy's activities in states and localities
in which its offices are maintained, in which its agents or independent
contractors are located, or in which it is otherwise deemed to be conducting
business, each Fund may be subject to the tax laws of such states or localities.
In addition, in those states and localities that have income tax laws, the
treatment of a Fund and its shareholders under such laws may differ from their
treatment under 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.
RIDER B
The tax principles applicable to certain financial investments and futures
contracts and options that may be acquired by a Fund are complex and, in some
cases, uncertain. Such investments may cause a Fund to recognize taxable income
prior to the receipt of cash, thereby requiring the Fund to liquidate other
positions, or to borrow money, so as to make sufficient distributions to
shareholders to avoid corporate-level tax. Moreover, some or all of the taxable
income recognized may be ordinary income or short-term capital gain, so that the
distributions may be taxable to shareholders as ordinary income.
MISCELLANEOUS
Shareholders will be advised annually as to the federal income tax
consequences and, with respect to shareholders of the New Jersey Municipal Bond,
New York Municipal Bond, Connecticut Municipal Bond, Massachusetts Municipal
Bond and Rhode Island Municipal Bond Funds, the New Jersey personal income tax,
New York State and New York City personal income tax, Connecticut personal
income tax, Massachusetts personal income tax and Rhode Island personal income
tax consequences, respectively, of distributions made each year.
TRUSTEES AND OFFICERS
The business and affairs of the Funds are managed under the direction of
Galaxy's Board of Trustees in accordance with the laws of the Commonwealth of
Massachusetts and the Trust's Declaration of Trust. The trustees and executive
officers of Galaxy, their addresses, principal occupations during the past five
years, and other affiliations are as follows:
-58-
<PAGE>
<TABLE>
<CAPTION>
Positions Principal Occupation
with The During Past 5 Years
Name and Address and Age Galaxy Fund and Other Affiliations
- ------------------------ ----------- ----------------------
<S> <C> <C>
Dwight E. Vicks, Jr. Chairman & Trustee President & Director, Vicks Lithograph &
Vicks Lithograph & Printing Corporation (book manufacturing
Printing Corporation and commercial printing); Director, Utica
Commercial Drive First Insurance Company; Trustee, Savings
P.O. Box 270 Bank of Utica; Director, Monitor Life
Yorkville, NY 13495 Insurance Company; Director, Commercial
Age 66 Travelers Mutual Insurance Company;
Trustee, The Galaxy VIP Fund; Trustee,
Galaxy Fund II.
John T. O'Neill(1) President, Treasurer Executive Vice President and CFO, Hasbro,
Hasbro, Inc. & Trustee Inc. (toy and game manufacturer); Trustee,
1011 Newport Avenue The Galaxy VIP Fund; Trustee, Galaxy Fund
Pawtucket, RI 02862 II.
Age 55
Louis DeThomasis Trustee President, Saint Mary's College of
Saint Mary's College Minnesota; Director, Bright Day Travel,
of Minnesota Inc.; Trustee, Religious Communities Trust;
Winona, MN 55987 Trustee, The Galaxy VIP Fund; Trustee,
Age 59 Galaxy Fund II.
Donald B. Miller Trustee Chairman, Horizon Media, Inc. (broadcast
10725 Quail Covey Road services); Director/Trustee, Lexington
Boynton Beach, FL 33436 Funds; Chairman, Executive Committee,
Age 74 Compton International, Inc. (advertising
agency); Trustee, Keuka College; Trustee,
The Galaxy VIP Fund; Trustee, Galaxy Fund
II.
James M. Seed Trustee Chairman and President, The Astra Projects,
The Astra Ventures, Inc. Incorporated (land development); President,
One Citizens Plaza The Astra Ventures, Incorporated
Providence, RI 02903 (previously, Buffinton Box Company -
Age 58 manufacturer of cardboard boxes);
Commissioner,Rhode Island Investment
Commission; Trustee, The Galaxy VIP
Fund; Trustee, Galaxy Fund II.
</TABLE>
-59-
<PAGE>
<TABLE>
<CAPTION>
Positions Principal Occupation
with The During Past 5 Years
Name and Address and Age Galaxy Fund and Other Affiliations
- ------------------------ ----------- ----------------------
<S> <C> <C>
Bradford S. Wellman(1) Trustee Private Investor; Vice President and
2468 Ohio Street Director, Acadia Management Company
Bangor, ME 04401 (investment services); Director, Essex
Age 68 County Gas Company, until January 1994;
Director, Maine Mutual Fire Insurance Co.;
Member, Maine Finance Authority; Trustee,
The Galaxy VIP Fund; Trustee, Galaxy Fund
II.
W. Bruce McConnel, III Secretary Partner of the law firm Drinker Biddle &
One Logan Square Reath LLP, Philadelphia, Pennsylvania.
18th & Cherry Streets
Philadelphia, PA 19103
Age 57
Jylanne Dunne Vice President and Vice President, PFPC Inc.
PFPC Inc. Assistant Treasurer
4400 Computer Drive
Westborough, MA 01581-5108
Age 40
William Greilich Vice President Vice President, PFPC Inc. 1991-96;
PFPC Inc. Vice President and Division Manager,
4400 Computer Drive PFPC Inc., 1996-present.
Westborough, MA 01581-5108
Age 46
</TABLE>
- -------------------------
1. May be deemed to be an "interested person" within the definition set
forth in Section 2(a)(19) of the 1940 Act.
Effective May 28, 1999, each trustee receives an annual aggregate fee of
$45,000 for his services as a trustee of Galaxy, The Galaxy VIP Fund ("Galaxy
VIP") and Galaxy Fund II ("Galaxy II") (collectively, the "Trusts"), plus an
additional $3,500 for each in-person Galaxy Board meeting attended and $1,500
for each in-person Galaxy VIP or Galaxy II Board meeting attended not held
concurrently with an in-person Galaxy meeting, and is reimbursed for expenses
incurred in attending all meetings. Each trustee also receives $750 for each
telephone Board meeting in which the trustee participates, $1,000 for each
in-person Board committee meeting attended and $500 for each telephone Board
committee meeting in which the trustee participates.
-60-
<PAGE>
The Chairman of the Boards of the Trusts is entitled to an additional annual
aggregate fee in the amount of $4,000, and the President and Treasurer of the
Trusts is entitled to an additional annual aggregate fee of $2,500 for their
services in these respective capacities. The foregoing trustees' and officers'
fees are allocated among the portfolios of the Trusts based on their relative
net assets. Prior to May 28, 1999, each Trustee was entitled to receive an
annual aggregate fee of $40,000 for his services as a Trustee of the Trusts plus
an additional $2,500 for each in-person Galaxy Board meeting attended, with all
other fees being the same as 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.
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 to
Name of Person/Position from Galaxy Expenses Trustees
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bradford S. Wellman $ None $
Trustee
- -------------------------------------------------------------------------------------------------------------------
Dwight E. Vicks, Jr. $ None $
Chairman and Trustee
- -------------------------------------------------------------------------------------------------------------------
Donald B. Miller** $ None $
Trustee
- -------------------------------------------------------------------------------------------------------------------
Rev. Louis DeThomasis $ None $
Trustee
- -------------------------------------------------------------------------------------------------------------------
John T. O'Neill $ None $
President, Treasurer
and Trustee
- -------------------------------------------------------------------------------------------------------------------
James M. Seed** $ None $
Trustee
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
-61-
<PAGE>
- ----------------------
* The "Fund Complex" consists of Galaxy, The Galaxy VIP Fund and Galaxy
Fund II, which comprise a total of 43 separate portfolios.
** Deferred compensation (including interest) in the amounts of $______
and $______ 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.
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
-62-
<PAGE>
advisory agreement other than the cost of securities (including brokerage
commissions) purchased for the Funds. See "Expenses" below.
For the services provided and expenses assumed with respect to the Funds,
Fleet is entitled to receive advisory fees, computed daily and paid monthly, at
the annual rate of .75% of the average daily net assets of each Fund. Fleet is
currently waiving a portion of the advisory fees payable to it by the Funds so
that it is entitled to receive advisory fees at the annual rate of .55% of each
Fund's average daily net assets, but Fleet may in its discretion revise or
discontinue this waiver at any time. During the last three fiscal years, Galaxy
paid advisory fees (net of fee waivers and/or expense reimbursements) to Fleet
as set forth below:
-63-
<PAGE>
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Tax-Exempt Bond...................................................... $ $864,035 $789,598
New Jersey Municipal Bond............................................ $ $ 7,348(1) *
New York Municipal Bond.............................................. $ $406,853 $351,041
Connecticut Municipal Bond........................................... $ $118,625 $ 74,799
Massachusetts Municipal Bond......................................... $ $184,536 $102,040
Rhode Island Municipal Bond.......................................... $ $ 60,214 $ 37,641
</TABLE>
- -----------------------
* Not in operation during the period.
(1) For the period from April 3, 1998 (commencement of operations)
through October 31, 1998.
During the last three fiscal years, Fleet waived advisory fees as set
forth below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Tax-Exempt Bond...................................................... $ $318,713 $287,127
New Jersey Municipal Bond............................................ $ $ 20,153(1) *
New York Municipal Bond.............................................. $ $148,595 $127,651
Connecticut Municipal Bond........................................... $ $160,488 $149,599
Massachusetts Municipal Bond......................................... $ $246,101 $204,080
Rhode Island Municipal Bond.......................................... $ $ 80,524 $ 75,284
</TABLE>
- -----------------------
* Not in operation during the period.
(1) For the period from April 3, 1998 (commencement of operations)
through October 31, 1998.
During the last three fiscal years, Fleet reimbursed expenses as
follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Tax-Exempt Bond...................................................... $ $12,427 $73,334
New Jersey Municipal Bond............................................ $ $ 2,729(1) *
New York Municipal Bond.............................................. $ $ 1,784 $48,842
Connecticut Municipal Bond........................................... $ $ 0 $ 0
Massachusetts Municipal Bond......................................... $ $ 0 $ 0
Rhode Island Municipal Bond.......................................... $ $ 0 $ 538
</TABLE>
- -----------------------
* Not in operation during the period.
(1) For the period from April 3, 1998 (commencement of operations)
through October 31, 1998.
The advisory agreement provides that Fleet shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Funds in
connection with the performance of its duties under the advisory agreement,
except a loss resulting from a breach of fiduciary duty with respect to the
receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of Fleet in the
performance of its duties or from reckless disregard by it of its duties and
obligations thereunder. Unless sooner terminated, the advisory 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
-64-
<PAGE>
such party, cast in person at a meeting called for the purpose of voting on such
approval; and (ii) by Galaxy's Board of Trustees, or by a vote of a majority of
the outstanding shares of such Fund. The term "majority of the outstanding
shares of such Fund" means, with respect to approval of an advisory agreement,
the vote of the lesser of (i) 67% or more of the shares of the Fund present at a
meeting, if the holders of more than 50% of the outstanding shares of the Fund
are present or represented by proxy, or (ii) more than 50% of the outstanding
shares of the Fund. The advisory agreement may be terminated by Galaxy or by
Fleet on sixty days' written notice, and will terminate immediately in the event
of its assignment.
The organizational arrangements of Fleet require that all investment
decisions with respect to the Funds be made by Fleet's Tax-Exempt Investment
Policy Committee and no one person is responsible for making recommendations to
that Committee.
Fleet is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, to the extent permitted
by law or order of the SEC, financial institutions that are affiliated with
Fleet or that have sold shares of the Funds, if Fleet believes that the quality
of the transaction and the commission are comparable to what they would be with
other qualified brokerage firms.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling, or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling, or distributing securities such as shares
of the Funds, but do not prohibit such a bank holding company or its affiliates
or banks generally from acting as investment adviser, transfer agent, or
custodian to such an investment company or from purchasing shares of such a
company as agent for and upon the order of customers. Fleet, the custodian and
institutions which agree to provide shareholder support services that are banks
or bank affiliates are subject to such banking laws and regulations. Should
legislative, judicial or administrative action prohibit or restrict the
activities of such companies in connection with their services to the Funds,
Galaxy might be required to alter materially or discontinue its arrangements
with such companies and change its method of operation. It is anticipated,
however, that any resulting change in the Funds' method of operation would not
affect a Fund's net asset value per share or result in financial loss to any
shareholder.
ADMINISTRATOR
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 Bank Corp.
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
-65-
<PAGE>
Galaxy with an October 31 fiscal year end, computed daily and paid monthly, at
the following rates, effective September 10, 1998:
<TABLE>
<CAPTION>
COMBINED AVERAGE DAILY NET ASSETS ANNUAL RATE
-------------------------------- -----------
<S> <C>
Up to $2.5 billion.......................... 0.090%
From $2.5 to $5 billion..................... 0.085%
From $5 to $12 billion...................... 0.075%
From $12 to $15 billion..................... 0.065%
From $15 to $18 billion..................... 0.060%
Over $18 billion............................ 0.0575%
</TABLE>
Prior to September 10, 1998, Galaxy paid PFPC administration fees based
on the combined average daily net assets of the Funds and all other portfolios
offered by Galaxy at the following annual rates:
<TABLE>
COMBINED AVERAGE DAILY NET ASSETS ANNUAL RATE
-------------------------------- -----------
<S> <C> <C>
Up to $2.5 billion.......................... 0.090%
From $2.5 to $5 billion..................... 0.085%
Over $5 billion............................. 0.075%
</TABLE>
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 fee payable to it by the Funds. For the fiscal year ended
October 31, 1999 PFPC received administration fees at the effective annual rate
of % of each Fund's average daily net assets.
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.
-66-
<PAGE>
During the last three fiscal years, PFPC received administration fees (net
of fee waivers) as set forth below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Tax-Exempt Bond..................................................... $ $127,627 $117,223
New Jersey Municipal Bond........................................ .. $ - (1) *
New York Municipal Bond............................................. $ $9,775 $26,292
Connecticut Municipal Bond.......................................... $ $29,946 $ 0
Massachusetts Municipal Bond........................................ $ $46,188 $2,406
Rhode Island Municipal Bond......................................... $ $15,172 $12,293
</TABLE>
- --------------------------------
* Not in operation during the period.
(1) For the period from April 3, 1998 (commencement of operations) through
October 31, 1998.
During the last three fiscal years, PFPC waived administration fees as
set forth below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Tax-Exempt Bond.................................................... $ $0 $0
New Jersey Municipal Bond.......................................... $ $3,235(1) *
New York Municipal Bond............................................ $ $50,001 $25,827
Connecticut Municipal Bond......................................... $ $0 $39,755
Massachusetts Municipal Bond....................................... $ $0 $30,919
Rhode Island Municipal Bond........................................ $ $0 $0
</TABLE>
- --------------------------------
* Not in operation during the period.
(1) For the period from April 3, 1998 (commencement of operations) through
October 31, 1998.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase Manhattan"), located at One Chase
Manhattan Plaza, New York, New York 10081, a wholly-owned subsidiary of The
Chase Manhattan Corporation, serves as the custodian of the Funds' assets
pursuant to a Global Custody Agreement.
Under the Global Custody Agreement, Chase Manhattan has agreed to: (i)
maintain a separate account or accounts in the name of each Fund; (ii) hold and
disburse portfolio securities on account of each Fund; (iii) collect and make
disbursements of money on behalf of each Fund; (iv) collect and receive all
income and other payments and distributions on account of each Fund's portfolio
securities; (v) respond to correspondence from security brokers and others
relating to its duties; and (vi) make periodic reports to the Board of Trustees
concerning the Funds' operations. Chase Manhattan is authorized to select one or
more banks or trust companies to serve as sub-custodian for the Funds, provided
that Chase Manhattan shall remain responsible for the performance of all of its
duties under the custodian agreement and shall be liable to the Funds for any
loss which shall occur as a result of the failure of a sub-custodian to
-67-
<PAGE>
exercise reasonable care with respect to the safekeeping of the Funds' assets.
The assets of the Funds are held under bank custodianship in compliance with the
1940 Act.
PFPC serves as the Funds' transfer and dividend disbursing agent pursuant
to a Transfer Agency and Services Agreement (the "Transfer Agency Agreement").
Communications to PFPC should be directed to PFPC at P.O. Box 5108, 4400
Computer Drive, Westborough, Massachusetts 01581. Under the Transfer Agency
Agreement, PFPC has agreed to: (i) issue and redeem shares of each Fund; (ii)
transmit all communications by each Fund to its shareholders of record,
including reports to shareholders, dividend and distribution notices and proxy
materials for meetings of shareholders; (iii) respond to correspondence by
security brokers and others relating to its duties; (iv) maintain shareholder
accounts; and (v) make periodic reports to the Board of Trustees concerning
Galaxy's operations.
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
Debt securities purchased or sold by the Funds are generally traded in the
over-the-counter market on a net basis (i.e., without commission) through
dealers, or otherwise involve transactions directly with the issuer of an
instrument. The cost of securities purchased from underwriters includes an
underwriting commission or concession, and the prices at which securities are
purchased from and sold to dealers include a dealer's mark-up or mark-down.
The Funds may engage in short-term trading to achieve their investment
objectives. Portfolio turnover may vary greatly from year to year as well as
within a particular year. In purchasing or selling securities for the Funds,
Fleet will seek to obtain the best net price and the most favorable execution of
orders. To the extent that the execution and price offered by more than one
broker/dealer are comparable, Fleet may effect transactions in portfolio
securities with broker/dealers who provide research, advice or other services
such as market investment literature.
Except as permitted by the SEC or applicable law, the Funds will not
acquire portfolio securities from, make savings deposits in, enter into
repurchase or reverse repurchase agreements
-68-
<PAGE>
with, or sell securities to, Fleet, PFPC, or their affiliates, and will not give
preference to affiliates and correspondent banks of Fleet with respect to such
transactions.
Galaxy is required to identify any securities of its "regular brokers or
dealers" that the Funds have acquired during Galaxy's most recent fiscal year.
During the fiscal year ended October 31, 1999, [INSERT UPDATED REGULAR
BROKER-DEALER INFO.]
Investment decisions for each Fund are made independently from those for
the other Funds and portfolios of Galaxy and for any other investment companies
and accounts advised or managed by Fleet. When a purchase or sale of the same
security is made at substantially the same time on behalf of a Fund, another
portfolio of Galaxy, and/or another investment company or account, the
transaction will be averaged as to price, and available investments allocated as
to amount, in a manner which Fleet believes to be equitable to the Fund and such
other portfolio, investment company or account. In some instances, this
investment procedure may adversely affect the price paid or received by a Fund
or the size of the position obtained or sold by such Fund. To the extent
permitted by law, Fleet may aggregate the securities to be sold or purchased for
a Fund with those to be sold or purchased for Galaxy's other Funds and
portfolios, or other investment companies or accounts in order to obtain best
execution.
SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan pursuant to which it intends
to enter into servicing agreements with institutions (including Fleet Bank and
its affiliates). Pursuant to these servicing agreements, institutions render
certain administrative and support services to customers who are the beneficial
owners of Retail A Shares. Such services are provided to customers who are the
beneficial owners of Retail A Shares and are intended to supplement the services
provided by PFPC as administrator and transfer agent to the shareholders of
record of the Retail A Shares. The Plan provides that Galaxy will pay fees for
such services at an annual rate of up to .30% of the average daily net asset
value of Retail A Shares owned beneficially by customers. Institutions may
receive up to one-half of this fee for providing one or more of the following
services to such customers: aggregating and processing purchase and redemption
requests and placing net purchase and redemption orders with FD Distributors;
processing dividend payments from a Fund; providing sub-accounting with respect
to Retail A Shares or the information necessary for sub-accounting; and
providing periodic mailings to customers. Institutions may also receive up to
one-half of this fee for providing one or more of these additional services to
such customers: providing customers with information as to their positions in
Retail A Shares; responding to customer inquiries; and providing a service to
invest the assets of customers in Retail A Shares.
Although the Shareholder Services Plan has been approved with respect to
both Retail A Shares and Trust Shares of the Funds, as of the date of this
Statement of Additional Information, Galaxy has entered into servicing
agreements under the Shareholder Services Plan only with respect to Retail A
Shares of each Fund, and to limit the payment under these servicing agreements
for each Fund to an aggregate fee of not more than .15% (on an annualized basis)
of the average daily net asset value of the Retail A Shares of the Fund
beneficially owned by customers of institutions. Galaxy understands that
institutions may charge fees to their customers who are the beneficial owners of
Retail A Shares in connection with their accounts
-69-
<PAGE>
with such institutions. Any such fees would be in addition to any amounts which
may be received by an institution under the Shareholder Services Plan. Under the
terms of each servicing agreement entered into with Galaxy, institutions are
required to provide to their customers a schedule of any fees that they may
charge in connection with customer investments in Retail A Shares. As of October
31, 1999, Galaxy had entered into Servicing Agreements only with Fleet Bank and
affiliates.
Each Servicing Agreement between Galaxy and a Service Organization relating
to the Services Plan requires that, with respect to those Funds which declare
dividends on a daily basis, the Service Organization agrees to waive a portion
of the servicing fee payable to it under the Services Plan to the extent
necessary to ensure that the fees required to be accrued with respect to the
Retail A Shares of such Funds on any day do not exceed the income to be accrued
to such Retail A Shares on that day.
During the last three fiscal years, Galaxy made payments to Service
Organizations with respect to Retail A Shares as shown in the table below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Tax-Exempt Bond.......................... $ $38,181 $37,652
New Jersey Municipal Bond................ $ $ 386(1) *
New York Municipal Bond.................. $ $64,145 $56,596
Connecticut Municipal Bond............... $ $37,207 $32,160
Massachusetts Municipal Bond............. $ $58,742 $40,842
Rhode Island Municipal Bond.............. $ $ 0 $ 0
</TABLE>
- ----------------------
* Not in operation during the period.
(1) For the period from April 3, 1998 (commencement of operations) through
October 31, 1998.
Galaxy's Servicing Agreements are governed by the Services Plan that has
been adopted by Galaxy's Board of Trustees in connection with the offering of
Retail A Shares of each Fund. Pursuant to the Services Plan, the Board of
Trustees reviews, at least quarterly, a written report of the amounts paid under
the Servicing Agreements and the purposes for which the expenditures were made.
In addition, the arrangements with Service Organizations must be approved
annually by a majority of Galaxy's trustees, including a majority of the
trustees who are not "interested persons" of Galaxy as defined in the 1940 Act
and who have no direct or indirect financial interest in such arrangements (the
"Disinterested Trustees").
The Board of Trustees has approved Galaxy's arrangements with Service
Organizations based on information provided by Galaxy's service contractors that
there is a reasonable likelihood that the arrangements will benefit the Funds
and their shareholders by affording Galaxy greater flexibility in connection
with the efficient servicing of the accounts of the beneficial owners of Retail
A Shares of the Funds. Any material amendment to Galaxy's arrangements with
Service Organizations must be approved by a majority of Galaxy's Board of
Trustees (including a majority of the Disinterested Trustees). So long as
Galaxy's arrangements with Service Organizations are in effect, the selection
and nomination of the members of Galaxy's Board of Trustees who are not
"interested persons" (as defined in the 1940 Act) of Galaxy will be committed to
the discretion of such Disinterested Trustees.
-70-
<PAGE>
DISTRIBUTION AND SERVICES PLAN
Galaxy has adopted a Distribution and Services Plan pursuant to Rule 12b-1
under the 1940 Act (the "Rule") with respect to Retail B Shares of the
Tax-Exempt Bond Fund (the "12b-1 Plan"). Under the 12b-1 Plan, Galaxy may pay
(a) PDI or another person for expenses and activities intended to result in the
sale of Retail B Shares, including the payment of commissions to broker-dealers
and other industry professionals who sell Retail B Shares and the direct or
indirect cost of financing such payments, (b) institutions for shareholder
liaison services, which means personal services for holders of Retail B Shares
and/or the maintenance of shareholder accounts, such as responding to customer
inquiries and providing information on accounts, and (c) institutions for
administrative support services, which include but are not limited to (i)
transfer agent and sub-transfer agent services for beneficial owners of Retail B
Shares; (ii) aggregating and processing purchase and redemption orders; (iii)
providing beneficial owners with statements showing their positions in Retail B
Shares; (iv) processing dividend payments; (v) providing sub-accounting services
for Retail B Shares held beneficially; (vi) forwarding shareholder
communications, such as proxies, shareholder reports, dividend and tax notices,
and updating prospectuses to beneficial owners; and (vii) receiving, translating
and transmitting proxies executed by beneficial owners.
Under the 12b-1 Plan for Retail B Shares, payments by Galaxy (i) for
distribution expenses may not exceed the annualized rate of .65% of the average
daily net assets attributable to the Fund's outstanding Retail B Shares, and
(ii) to an institution for shareholder liaison services and/or administrative
support services may not exceed the annual rates of .15% and .15%, respectively,
of the average daily net assets attributable to the Fund's outstanding Retail B
Shares which are owned of record or beneficially by that institution's customers
for whom the institution is the dealer of record or shareholder of record or
with whom it has a servicing relationship. As of the date of this Statement of
Additional Information, Galaxy intends to limit the Fund's payments for
shareholder liaison and administrative support services under the 12b-1 Plan to
an aggregate fee of not more than .15% (on an annualized basis) of the average
daily net asset value of Retail B Shares owned of record or beneficially by
customers of institutions.
Payments for distribution expenses under the 12b-1 Plan are subject to the
Rule. The Rule defines distribution expenses to include the cost of "any
activity which is primarily intended to result in the sale of shares issued by"
Galaxy. The Rule provides, among other things, that an investment company may
bear such expenses only pursuant to a plan adopted in accordance with the Rule.
In accordance with the Rule, the 12b-1 Plan provides that a report of the
amounts expended under the 12b-1 Plan, and the purposes for which such
expenditures were incurred, will be made to the Board of Trustees for its review
at least quarterly. The 12b-1 Plan provides that it may not be amended to
increase materially the costs which Retail B Shares of a Fund may bear for
distribution pursuant to the 12b-1 Plan without shareholder approval, and that
any other type of material amendment must be approved by a majority of the Board
of Trustees, and by a majority of the trustees who are neither "interested
persons" (as defined in the 1940 Act) of Galaxy nor have any direct or indirect
financial interest in the operation of the 12b-1 Plan or in any related
agreements (the "12b-1 Trustees"), by vote cast in person at a meeting called
for the purpose of considering such amendments.
-71-
<PAGE>
During the last three fiscal years, Retail B Shares of the Tax-Exempt Bond
Fund bore the following distribution fees and shareholder servicing fees under
the 12b-1 Plan:
<TABLE>
<CAPTION>
SHAREHOLDER
FOR THE FISCAL YEAR ENDED OCTOBER 31: DISTRIBUTION FEES SERVICING FEES
- ------------------------------------- ----------------- --------------
<S> <C> <C>
1999................................................... $ $
1998................................................... $15,405 $3,555
1997................................................... $ 7,788 $1,784
</TABLE>
During these periods, all amounts paid under the 12b-1 Plan were attributable to
payments to broker-dealers.
Galaxy's Board of Trustees has concluded that there is a reasonable
likelihood that the 12b-1 Plan will benefit the Fund and holders of Retail B
Shares. The 12b-1 Plan is subject to annual reapproval by a majority of the
12b-1 Trustees and is terminable at any time with respect to the Fund by a vote
of a majority of such Trustees or by vote of the holders of a majority of the
Retail B Shares of the Fund. Any agreement entered into pursuant to the 12b-1
Plan with a Service Organization is terminable with respect to the Fund without
penalty, at any time, by vote of a majority of the 12b-1 Trustees, by vote of
the holders of a majority of the Retail B Shares of the Fund, by PDI or by the
Service Organization. An agreement will also terminate automatically in the
event of its assignment.
As long as the 12b-1 Plan is in effect, the nomination of the trustees who
are not interested persons of Galaxy (as defined in the 1940 Act) must be
committed to the discretion of the 12b-1 Trustees.
DISTRIBUTOR
PDI serves as Galaxy's distributor. PDI is a registered broker-dealer with
principal offices located at Four Falls Corporate Center, 6th floor, West
Conshohocken, Pennsylvania 19428-2961. Jane Haegele is the sole shareholder of
PDI.
Unless otherwise terminated, the Distribution Agreement between Galaxy and
PDI remains in effect until November 30, 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.
PDI is entitled to the payment of a front-end sales charge on the sale of
Retail A Shares of the Funds as described in the applicable Prospectus and this
Statement of Additional Information. Prior to ______, 1999, First Data
Distributors, Inc. ("FD Distributors"), a wholly-owned subsidiary of Investor
Services Group, served as Galaxy's distributor and was entitled to the payment
of the front-end sales charge on Retail A Shares of the Funds. During the last
three fiscal years, FD Distributors received front-end sales charges in
connection with Retail A Share purchases as follows:
-72-
<PAGE>
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Tax-Exempt Bond.............................. $ $ 18,288 $ 19,403
New Jersey Municipal Bond.................... $ $ 4,020(1) *
New York Municipal Bond...................... $ $ 71,005 $ 49,295
Connecticut Municipal Bond................... $ $ 54,683 $ 46,322
Massachusetts Municipal Bond................. $ $175,611 $140,492
Rhode Island Municipal Bond.................. $ $ 38,348 $ 22,941
</TABLE>
- ----------------------
* Not in operation during the period.
(1) For the period from April 3, 1998 (commencement of operations)
through October 31, 1998.
FD Distributors retained none of the amounts shown in the table above.
PDI is also entitled to the payment of contingent deferred sales charges
upon the redemption of Retail B Shares of the Tax-Exempt Bond Fund. Prior to
______, 1999, FD Distributors was entitled to the payment of such contingent
deferred sales charges. For the fiscal years ended October 31, 1999, October 31,
1998 and October 31, 1997, FD Distributors received contingent deferred sales
charges in connection with Retail B Share redemptions of the Tax-Exempt Bond
Fund in the amounts of $_________ , $7,124 and $5,353, respectively. FD
Distributors retained none of this amount.
-73-
<PAGE>
The following table shows all sales charges, commissions and other
compensation received by FD Distributors directly or indirectly from the Funds
during the fiscal year ended October 31, 1999:
<TABLE>
<CAPTION>
Net Underwriting Compensation on Brokerage Commissions
Discounts and Redemption and in Connection with Other
Fund Commissions(1) Repurchase(2) Fund Transactions Compensation(3)
---- ---------------- --------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Tax-Exempt
Bond
$ $ $ $
New Jersey
Municipal
Bond
$ $ $ $
New York
Municipal
Bond
$ $ $ $
Connecticut
Municipal
Bond
$ $ $ $
Massachusetts
Municipal
Bond
$ $ $ $
Rhode Island
Municipal
Bond
$ $ $ $
</TABLE>
- ----------------------
(1) Represents amounts received from front-end sales charges on Retail A
Shares and commissions received in connection with sales of Retail B
Shares.
(2) Represents amounts received from contingent deferred sales charges on
Retail B Shares. The basis on which such sales charges are paid is
described in the Prospectus relating to Retail B Shares. All such
amounts were paid to affiliates of Fleet.
(3) Represents payments made under the Shareholder Services Plan and
Distribution and Services Plan during the fiscal year ended October 31,
1999, which includes fees accrued in the fiscal year ended October 31,
1998 which were paid in 1999 (see "Shareholder Services Plan" and
"Distribution and Services Plan" above).
AUDITORS
[ ], independent auditors, with offices at [ ],
serve as auditors for Galaxy. The financial highlights for the respective Funds
included in their Prospectuses and the financial statements for the Funds
contained in Galaxy's Annual Report to Shareholders with respect to the Funds
(the "Annual Report") and
-74-
<PAGE>
[ ] into this Statement of Additional Information for the
fiscal year ended October 31, 1999 have been audited by [ ].
For the respective fiscal years and periods prior to October 31, 1999, the
financial highlights for the Funds included in the Prospectuses and the
financial statements for such years and periods contained in the Annual
Report were audited by [ ], Galaxy's former auditors.
COUNSEL
Drinker Biddle & Reath LLP (of which W. Bruce McConnel, III, Secretary of
Galaxy, is a partner), One Logan Square, 18th & Cherry Streets, Philadelphia,
Pennsylvania 19103, are counsel to Galaxy, will pass upon certain legal matters
on its behalf, and has reviewed the portion of this Statement of Additional
Information and the Prospectuses with respect to the New Jersey Municipal Bond
Fund concerning New Jersey taxes and the description of special considerations
relating to New Jersey Municipal Securities. The law firm of Willkie Farr &
Gallagher, One Citicorp Center, 153 East 53rd Street, New York, New York 10022,
serves as special New York counsel to Galaxy and has reviewed the portion of
this Statement of Additional Information and the Prospectuses with respect to
the New York Municipal Bond Fund concerning New York taxes and the description
of special considerations relating to New York Municipal Securities. The law
firm of Day, Berry & Howard, Cityplace, Hartford, Connecticut 06103-3499 serves
as special Connecticut counsel to Galaxy and has reviewed the portion of this
Statement of Additional Information and the Prospectuses with respect to the
Connecticut Municipal Bond Fund concerning Connecticut taxes and the description
of special considerations relating to Connecticut Municipal Securities. The law
firm of Ropes & Gray, One International Place, Boston, Massachusetts 02110-2624
serves as special Massachusetts counsel and special Rhode Island counsel to
Galaxy and has reviewed the portion of this Statement of Additional Information
and the Prospectuses with respect to the Massachusetts Municipal Bond Fund
concerning Massachusetts taxes and the description of special considerations
relating to Massachusetts Municipal Securities and the portion of this Statement
of Additional Information and the Prospectus with respect to the Rhode Island
Municipal Bond Fund concerning Rhode Island taxes and the description of Special
Considerations relating to Rhode Island Municipal Securities.
PERFORMANCE AND YIELD INFORMATION
Investment returns and principal values will vary with market conditions so
that an investor's shares, when redeemed, may be worth more or less than their
original cost. Past performance is no guarantee of future results. Unless
otherwise indicated, total return figures include changes in share price,
deduction of any applicable sales charge, and reinvestment of dividends and
capital gains distributions, if any.
The Funds' 30-day (or one month) standard yields are calculated separately
for each series of shares in each Fund in accordance with the method prescribed
by the SEC for mutual funds:
-75-
<PAGE>
6
YIELD = 2[((a-b)/cd+1)-1]
Where: a = dividends and interest earned by a Fund during the period;
b = expenses accrued for the period (net of reimbursements);
c = average daily number of shares outstanding during the period,
entitled to receive dividends; and
d = maximum offering price per share on the last day of the
period.
For the purpose of determining net investment income earned during the period
(variable "a" in the formula), dividend income on equity securities held by a
Fund is recognized by accruing 1/360 of the stated dividend rate of the security
each day that the security is in the Fund. Except as noted below, interest
earned on debt obligations held by a Fund is calculated by computing the yield
to maturity of each obligation based on the market value of the obligation
(including actual accrued interest) at the close of business on the last
business day of each month, or, with respect to obligations purchased during the
month, the purchase price (plus actual accrued interest) and dividing the result
by 360 and multiplying the quotient by the market value of the obligation
(including actual accrued interest) in order to determine the interest income on
the obligation for each day of the subsequent month that the obligation is held
by the Fund. For purposes of this calculation, it is assumed that each month
contains 30 days. The maturity of an obligation with a call provision is the
next call date on which the obligation reasonably may be expected to be called
or, if none, the maturity date. With respect to debt obligations purchased at a
discount or premium, the formula generally calls for amortization of the
discount or premium. The amortization schedule will be adjusted monthly to
reflect changes in the market value of such debt obligations. Expenses accrued
for the period (variable "b" in the formula) include all recurring fees charged
by a Fund to all shareholder accounts in proportion to the length of the base
period and the Fund's mean (or median) account size. Undeclared earned income
will be subtracted from the offering price per share (variable "d" in the
formula).
Interest earned on tax-exempt obligations that are issued without original
issue discount and have a current market discount is calculated by using the
coupon rate of interest instead of the yield to maturity. In the case of
tax-exempt obligations that are issued with original issue discount but which
have discounts based on current market value that exceed the then-remaining
portion of the original issue discount (market discount), the yield to maturity
is the imputed rate based on the original issue discount calculation. On the
other hand, in the case of tax-exempt obligations that are issued with original
issue discount but which have discounts based on current market value that are
less than the then-remaining portion of the original issue discount (market
premium), the yield to maturity is based on the market value.
With respect to mortgage or other receivables-backed obligations that are
expected to be subject to monthly payments of principal and interest
("pay-downs"), (i) gain or loss attributable
-76-
<PAGE>
to actual monthly pay-downs are accounted for as an increase or decrease to
interest income during the period, and (ii) each Fund may elect either (a) to
amortize the discount and premium on the remaining security, based on the cost
of the security, to the weighted average maturity date, if such information is
available, or to the remaining term of the security, if any, if the weighted
average date is not available or (b) not to amortize discount or premium on the
remaining security.
The "tax-equivalent" yield of the New Jersey Municipal Bond, New York
Municipal Bond, Connecticut Municipal Bond, Massachusetts Municipal Bond and
Rhode Island Municipal Bond Funds is computed by: (a) dividing the portion of
each Fund's yield (calculated as above) that is exempt from both federal and
state income taxes by one minus a stated combined federal and state income tax
rate; (b) dividing the portion of the Fund's yield (calculated as above) that is
exempt from federal income tax only by one minus a stated federal income tax
rate; and (c) adding the figures resulting from (a) and (b) above to that
portion, if any, of the yield that is not exempt from federal income tax. The
tax-equivalent yield of the Tax-Exempt Bond Fund is computed by (a) dividing the
portion of the yield (calculated as above) that is exempt from federal income
tax by one minus a stated federal income tax rate and (b) adding that figure to
that portion, if any, of the yield that is not exempt from federal income tax.
Based on the foregoing calculations, the standard yields and tax-equivalent
yields for Retail A Shares and Trust Shares of the Funds for the 30-day period
ended October 31, 1999 were as set forth below:
<TABLE>
<CAPTION>
RETAIL A TRUST
FUND STANDARD TAX-EQUIVALENT STANDARD TAX-EQUIVALENT
- ---- -------- -------------- -------- --------------
<S> <C> <C> <C> <C>
Tax-Exempt Bond...................... % % % %
New Jersey Municipal Bond............ % % % %
New York Municipal Bond.............. % % % %
Connecticut Municipal Bond........... % % % %
Massachusetts Municipal Bond......... % % % %
Rhode Island Municipal Bond.......... % % * *
</TABLE>
- ----------------------
* The Rhode Island Municipal Bond Fund does not offer Trust Shares.
Based on the foregoing calculations, (i) the standard yield for Retail B
Shares of the Tax-Exempt Bond Fund for the 30-day period ended October 31, 1999
was ____%, and (ii) the tax-equivalent yield for Retail B Shares of the
Tax-Exempt Bond Fund for the 30-day period ended October 31, 1999 was ____%.
Each Fund that advertises its "average annual total return" computes such
return separately for each series of shares by determining the average annual
compounded rate of return during specified periods that equates the initial
amount invested to the ending redeemable value of such investment according to
the following formula:
1/n
T = [(ERV/P)-1]
-77-
<PAGE>
Where: T = average annual total return;
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
l, 5 or 10 year (or other) period at the end
of the applicable period (or a fractional
portion thereof);
P = hypothetical initial payment of $1,000; and
n = period covered by the computation, expressed in years.
Each Fund that advertises its "aggregate total return" computes such
returns separately for each series of shares by determining the aggregate
compounded rates of return during specified periods that likewise equate the
initial amount invested to the ending redeemable value of such investment. The
formula for calculating aggregate total return is as follows:
Aggregate Total Return = [(ERV/P)-1]
The calculations are made assuming that (1) all dividends and capital gain
distributions are reinvested on the reinvestment dates at the price per share
existing on the reinvestment date, (2) all recurring fees charged to all
shareholder accounts are included, and (3) for any account fees that vary with
the size of the account, a mean (or median) account size in the Fund during the
periods is reflected. The ending redeemable value (variable "ERV" in the
formula) is determined by assuming complete redemption of the hypothetical
investment after deduction of all nonrecurring charges at the end of the
measuring period. In addition, the Funds' Retail Shares average annual return
and aggregate total return quotations will reflect the deduction of the maximum
sales load charged in connection with purchases of Retail A shares or
redemptions of Retail B shares, as the case may be.
The aggregate total returns for Retail A Shares and Trust Shares of the
Funds from the date of initial public offering through October 31, 1999 are set
forth below:
<TABLE>
<CAPTION>
FUND RETAIL A TRUST
- ---- -------- -----
<S> <C> <C>
Tax-Exempt Bond...................... %(1) %(1)
New Jersey Municipal Bond............ %(2) %(2)
New York Municipal Bond.............. %(3) %(3)
Connecticut Municipal Bond........... %(4) %(4)
Massachusetts Municipal Bond......... %(5) %(5)
Rhode Island Municipal Bond.......... %(6) %*
</TABLE>
- ----------------------
* The Rhode Island Municipal Bond Fund does not offer Trust Shares.
(1) For the period from December 30, 1991 (initial public offering date)
through October 31, 1999.
(2) For the period from April 3, 1998 (initial public offering date)
through October 31, 1999.
(3) For the period from December 31, 1991 (initial public offering date)
through October 31, 1999.
(4) For the period from March 16, 1993 (initial public offering date)
through October 31, 1999.
(5) For the period from March 12, 1993 (initial public offering date)
through October 31, 1999.
(6) For the period from December 20, 1994 (initial public offering date)
through October 31, 1999.
The aggregate total return for Retail B Shares of the Tax-Exempt Bond Fund
from March 4, 1996 (initial public offering date) through October 31, 1999 was
_____%.
-78-
<PAGE>
The average annual total returns for Retail A Shares and Trust Shares (as
applicable) of the Funds for the one-year and five-year periods (as applicable)
ended October 31, 1999 are as set forth below:
<TABLE>
<CAPTION>
RETAIL A TRUST
FUND ONE-YEAR FIVE-YEAR ONE-YEAR FIVE-YEAR
- ---- -------- --------- -------- ---------
<S> <C> <C> <C> <C>
Tax-Exempt Bond.............................. % % % %
New Jersey Municipal Bond.................... % %* % %*
New York Municipal Bond...................... % % % %
Connecticut Municipal Bond................... % % % %
Massachusetts Municipal Bond................. % % % %
Rhode Island Municipal Bond.................. % %* %** %**
</TABLE>
- ----------------------
* Not offered during the full period.
** The Rhode Island Municipal Bond Fund does not offer Trust Shares.
The average annual total return for Retail B Shares of the Tax-Exempt
Bond Fund for the one-year period ended October 31, 1999 was ____%.
TAX EQUIVALENCY TABLES - NEW JERSEY MUNICIPAL BOND AND NEW YORK MUNICIPAL BOND
FUNDS
The New Jersey Municipal Bond and New York Municipal Bond Funds may use
tax-equivalency tables in advertising and sales. These tables are intended to
demonstrate the advantages of investing in tax free investments such as the New
Jersey Municipal Bond and New York Municipal Bond Funds. The tax exempt yields
used here are hypothetical and no assurance can be made that the Fund will
obtain any particular yield. A Fund's yield fluctuates as market conditions
change.
The tax brackets and related yield calculations are based on the expected
2000 Federal and state marginal tax rates. The combined Federal and state rate
reflects an assumed deduction of the state tax liability. In fact, however,
certain limitations on this deductibility may apply. Also, the tables do not
reflect the phase out of personal exemptions and itemized deductions which will
apply to certain higher income taxpayers.
Investors are urged to consult their tax advisors as to these matters.
-79-
<PAGE>
New Jersey 1999
Equivalent yields: Tax-exempt
<TABLE>
<CAPTION>
New Jersey New Jersey Tax Equivalent Yields:**
$ Taxable Income* State Federal & Federal -----------------------------------
Single Rate Rate Effective Rate 1.5%
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
0-20,000 1.40% 15.0% 16.19% 1.79%
20,001-25,750 1.75% 15.0% 16.49% 1.80%
25,751-35,000 1.75% 28.0% 29.26% 2.12%
35,001-40,000 3.50% 28.0% 30.52% 2.16%
40,001-62,450 5.525% 28.0% 31.98% 2.21%
62,451-75,000 5.525% 31.0% 34.81% 2.30%
75,001-130,250 6.37% 31.0% 35.40% 2.32%
130,251-283,150 6.37% 36.0% 40.08% 2.50%
Over 283,150 6.37% 39.6% 43.45% 2.65%
- --------------------------------------------------------------------------------------------
<CAPTION>
New Jersey Tax Equivalent Yields:**
$ Taxable Income* -----------------------------------------------------------------------
Single 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0%
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0-20,000 2.39% 2.98% 3.58% 4.18% 4.77% 5.37% 5.97% 6.56% 7.16%
20,001-25,750 2.39% 2.99% 3.59% 4.19% 4.79% 5.39% 5.99% 6.59% 7.18%
25,751-35,000 2.83% 3.53% 4.24% 4.95% 5.65% 6.36% 7.07% 7.77% 8.48%
35,001-40,000 2.88% 3.60% 4.32% 5.04% 5.76% 6.48% 7.20% 7.92% 8.64%
40,001-62,450 2.94% 3.68% 4.41% 5.15% 5.88% 6.62% 7.35% 8.09% 8.82%
62,451-75,000 3.07% 3.84% 4.60% 5.37% 6.14% 6.90% 7.67% 8.44% 9.20%
75,001-130,250 3.10% 3.87% 4.64% 5.42% 6.19% 6.97% 7.74% 8.51% 9.29%
130,251-283,150 3.34% 4.17% 5.01% 5.84% 6.68% 7.51% 8.34% 9.18% 10.01%
Over 283,150 3.54% 4.42% 5.30% 6.19% 7.07% 7.96% 8.84% 9.73% 10.61%
- -------------------------------------------------------------------------------------------
<CAPTION>
New Jersey New Jersey Tax Equivalent Yields:**
$ Taxable Income State Federal & Federal -----------------------------------
Married Filing Jointly Rate Rate Effective rate 1.5% 2.0%
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
0-20,000 1.40% 15.0% 16.19% 1.79% 2.39%
20,001-43,050 1.75% 15.0% 16.49% 1.80% 2.39%
43,051-50,000 1.75% 28.0% 29.26% 2.12% 2.83%
50,001-70,000 2.45% 28.0% 29.76% 2.14% 2.85%
70,001-80,000 3.50% 28.0% 30.52% 2.16% 2.88%
80,001-104,050 5.525% 28.0% 31.98% 2.21% 2.94%
104,051-150,000 5.525% 31.0% 34.81% 2.30% 3.07%
150,001-158,550 6.37% 31.0% 35.40% 2.32% 3.10%
158,551-283,150 6.37% 36.0% 40.08% 2.50% 3.34%
Over 283,150 6.37% 39.6% 43.45% 2.65% 3.54%
- ------------------------------------------------------------------------------------------------------
<CAPTION>
New Jersey Tax Equivalent Yields:**
$ Taxable Income ---------------------------------------------------------------
Married Filing Jointly 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0%
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0-20,000 2.98% 3.58% 4.18% 4.77% 5.37% 5.97% 6.56% 7.16%
20,001-43,050 2.99% 3.59% 4.19% 4.79% 5.39% 5.99% 6.59% 7.18%
43,051-50,000 3.53% 4.24% 4.95% 5.65% 6.36% 7.07% 7.77% 8.48%
50,001-70,000 3.56% 4.27% 4.98% 5.70% 6.41% 7.12% 7.83% 8.54%
70,001-80,000 3.60% 4.32% 5.04% 5.76% 6.48% 7.20% 7.92% 8.64%
80,001-104,050 3.68% 4.41% 5.15% 5.88% 6.62% 7.35% 8.09% 8.82%
104,051-150,000 3.84% 4.60% 5.37% 6.14% 6.90% 7.67% 8.44% 9.20%
150,001-158,550 3.87% 4.64% 5.42% 6.19% 6.97% 7.74% 8.51% 9.29%
158,551-283,150 4.17% 5.01% 5.84% 6.68% 7.51% 8.34% 9.18% 10.01%
Over 283,150 4.42% 5.30% 6.19% 7.07% 7.96% 8.84% 9.73% 10.61%
- -------------------------------------------------------------------------------------------
</TABLE>
* This amount represents taxable income as defined in the Internal Revenue
Code. It is assumed that taxable income for New Jersey tax purposes is
the same as defined in the Internal Revenue Code. In fact, however, New
Jersey taxable income may differ due to differences in exemptions,
itemized deductions and other items.
** Each entry represents the taxable yield that is the equivalent to the
specified Federal and New Jersey tax-exempt yield for a New Jersey
taxpayer in the specified income bracket.
-80-
<PAGE>
NEW YORK STATE AND CITY: 1999
Equivalent yields: Tax-exempt
<TABLE>
<CAPTION>
Taxable Income* State New York State New York State
- ------------------------------ State City Federal and Federal City and Federal
Single City rate*** rate Combined rate Effective Date Effective Rate**
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
0 - 8,000 3.05% 4% 7.04950% 15% 18.40% 20.99%
8,001 - 11,000 3.05% 4.5% 7.54950% 15% 18.83% 21.42%
11,001 - 12,000 3.05% 5.25% 8.29950% 15% 19.46% 22.05%
12,001 - 13,000 3.71% 5.25% 8.96355% 15% 19.46% 22.62%
13,001 - 20,000 3.71% 5.9% 9.61355% 15% 20.02% 23.17%
20,001 - 25,000 3.71% 6.85% 10.56355% 15% 20.82% 23.98%
25,001 - 25,750 3.77% 6.85% 10.62055% 15% 20.82% 24.03%
25,751 - 50,000 3.77% 6.85% 10.62055% 28% 32.93% 35.65%
50,001 - 61,450 3.83% 6.85% 10.62055% 28% 32.93% 35.69%
61,451 - 130,250 3.83% 6.85% 10.67755% 31% 35.73% 38.37%
130,251 - 283,150 3.83% 6.85% 10.67755% 36% 40.38% 42.83%
over 283,150 3.83% 6.85% 10.67755% 39.6% 43.74% 46.05%
- ---------------------------------------------------------------------------------------------
<CAPTION>
New York Tax Equivalent Yields:****
Taxable Income*
- ------------------ ---------------------------------------------------------------------------
Single 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 5.0% 5.5% 6.0%
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 - 8,000 1.90% 2.53% 3.16% 3.80% 4.43% 5.06% 6.33% 6.96% 7.59%
8,001 - 11,000 1.91% 2.55% 3.18% 3.82% 4.45% 5.09% 6.36% 7.00% 7.64%
11,001 - 12,000 1.92% 2.57% 3.21% 3.85% 4.49% 5.13% 6.41% 7.06% 7.70%
12,001 - 13,000 1.94% 2.58% 3.23% 3.88% 4.52% 5.17% 6.46% 7.11% 7.75%
13,001 - 20,000 1.95% 2.60% 3.25% 3.90% 4.56% 5.21% 6.51% 7.16% 7.81%
20,001 - 25,000 1.97% 2.63% 3.29% 3.95% 4.60% 5.26% 6.58% 7.23% 7.89%
25,001 - 25,750 1.97% 2.63% 3.29% 3.95% 4.61% 5.27% 6.58% 7.24% 7.90%
25,751 - 50,000 2.33% 3.11% 3.88% 4.66% 5.44% 6.22% 7.77% 8.55% 9.32%
50,001 - 61,450 2.33% 3.11% 3.89% 4.66% 5.44% 6.22% 7.77% 8.55% 9.33%
61,451 - 130,250 2.43% 3.25% 4.06% 4.87% 5.68% 6.49% 8.11% 8.92% 9.74%
130,251 - 283,150 2.62% 3.50% 4.37% 5.25% 6.12% 7.00% 8.75% 9.62% 10.50%
over 283,150 2.78% 3.71% 4.63% 5.55% 6.49% 7.41% 9.27% 10.19% 11.12%
- ------------------------------------------------------------------------------------------------
<CAPTION>
Taxable Income* State New York State New York State
- ------------------------------ State City Federal and Federal City and Federal
Joint City rate*** rate Combined rate Effective Date Effective Rate**
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
0 - 16,000 3.05% 4% 7.04950% 15% 18.40% 20.99%
16,001 - 21,600 3.05% 4.5% 7.54950% 15% 18.83% 21.42%
21,601 - 22,000 3.71% 4.5% 8.21355% 15% 18.83% 21.88%
22,001 - 26,000 3.71% 5.25% 8.96355% 15% 19.46% 22.62%
26,001 - 40,000 3.71% 5.9% 9.61355% 15% 20.02% 23.17%
40,001 - 43,050 3.71% 6.85% 10.56355% 15% 20.82% 23.98%
43,051 - 45,000 3.71% 6.85% 10.56355% 28% 32.93% 35.61%
45,001 - 90,000 3.77% 6.85% 10.62055% 28% 32.93% 35.65%
90,001 - 104,050 3.83% 6.85% 10.67755% 28% 32.93% 35.69%
104,051 - 158,550 3.83% 6.85% 10.67755% 31% 35.73% 38.37%
158,551 - 283,150 3.83% 6.85% 10.67755% 36% 40.38% 42.83%
over 283,150 3.83% 6.85% 10.67755% 39.6% 43.74% 46.05%
- ---------------------------------------------------------------------------------------------
<CAPTION>
New York Tax Equivalent Yields:****
Taxable Income*
- ------------------ ---------------------------------------------------------------------------
Joint 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 5.0% 5.5% 6.0%
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 - 16,000 1.90% 2.53% 3.16% 3.80% 4.43% 5.06% 6.33% 6.96% 7.59%
16,001 - 21,600 1.91% 2.55% 3.18% 3.82% 4.45% 5.09% 6.36% 7.00% 7.64%
21,601 - 22,000 1.92% 2.56% 3.20% 3.85% 4.49% 5.13% 6.41% 7.05% 7.69%
22,001 - 26,000 1.94% 2.59% 3.23% 3.88% 4.52% 5.17% 6.46% 7.11% 7.75%
26,001 - 40,000 1.95% 2.60% 3.25% 3.90% 4.56% 5.21% 6.51% 7.16% 7.81%
40,001 - 43,050 1.97% 2.63% 3.29% 3.95% 4.60% 5.26% 6.58% 7.23% 7.89%
43,051 - 45,000 2.33% 3.11% 3.88% 4.66% 5.44% 6.21% 7.76% 8.54% 9.32%
45,001 - 90,000 2.33% 3.11% 3.88% 4.66% 5.44% 6.22% 7.77% 8.55% 9.32%
90,001 - 104,050 2.33% 3.11% 3.89% 4.66% 5.44% 6.22% 7.77% 8.55% 9.33%
104,051 - 158,550 2.43% 3.25% 4.06% 4.87% 5.68% 6.49% 8.11% 8.92% 9.74%
158,551 - 283,150 2.62% 3.50% 4.37% 5.25% 6.12% 7.00% 8.75% 9.62% 10.50%
over 283,150 2.78% 3.71% 4.63% 5.56% 6.49% 7.41% 9.27% 10.19% 11.12%
- ------------------------------------------------------------------------------------------------
</TABLE>
* This amount represents taxable income as defined in the Internal
Revenue Code. It is assumed that taxable income as defined in the
Internal Revenue Code is the same as under the New York State or City
Personal Income Tax law; however, New York state or city taxable income
may differ due to differences in exemptions, itemized deductions, and
other items.
** For federal tax purposes, these combined rates reflect the applicable
marginal rates for 1998, including indexing for inflation. These rates
include the effect of deducting state and city taxes on your Federal
return. For New York purposes, these combined rates reflect the
expected New York State and New York City tax and surcharge rates for
1998.
*** The New York city rate is comprised of the tax base rate, city
surcharge, and the additional city surcharge for 1998.
**** These represent New York State, City, and Federal Equivalent Yields.
-81-
<PAGE>
TAX-EQUIVALENCY TABLES - CONNECTICUT MUNICIPAL BOND, MASSACHUSETTS MUNICIPAL
BOND, AND RHODE ISLAND MUNICIPAL BOND FUNDS
The Connecticut Municipal Bond, Massachusetts Municipal Bond and Rhode
Island Municipal Bond Funds may use tax-equivalency tables in advertising and
sales literature. The interest earned by the Municipal Securities in the Funds'
respective portfolios generally remains free from federal regular income tax,
and from the regular personal income tax imposed by Connecticut, Massachusetts
and Rhode Island, respectively. Some portion of the Funds' income may, however,
be subject to the federal alternative minimum tax and state and local regular or
alternative minimum taxes. As the tables below indicate, "tax-free" investments
may be attractive choices for investors, particularly in times of narrow spreads
between "tax-free" and taxable yields.
The charts below are for illustrative purposes only and use tax brackets
that were in effect beginning January 1, 1999. These are not indicators of past
or future performance of the Connecticut Municipal Bond, Massachusetts Municipal
Bond and Rhode Island Municipal Bond Funds.
Note: The maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent for each chart. Furthermore, additional
state and local taxes paid on comparable taxable investments were not used to
increase federal deductions. Moreover, the charts do not reflect the possible
effect of all items relating to the effective marginal tax rate, such as
alternative minimum tax, personal exemptions, tax credits, the phase-out of
exemptions or credits, itemized deductions (including the federal deduction for
state taxes paid) or the possible partial disallowance of deductions.
Connecticut Note: The charts below do not address taxable equivalent
yields applicable to married taxpayers filing separate returns or heads of
households.
Investors are urged to consult their own tax advisors as to these
matters.
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1999
STATE OF CONNECTICUT
<S> <C> <C> <C> <C> <C>
Federal Tax Bracket: 15.00% 28.00% 31.00% 36.00% 39.60%
Combined Federal and State: 19.50% 32.50% 35.50% 40.50% 44.10%
Joint Return: $1-43,050 $43,051-104,050 $104,051-158,550 $158,551-283,150 Over $283,151
Single Return: $1-25,750 $25,751-62,450 $62,451-130,250 $130,251-283,150 Over $283,151
Tax-Exempt Yield:
</TABLE>
-82-
<PAGE>
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT
<S> <C> <C> <C> <C> <C>
1.50% 1.86% 2.22% 2.33% 2.52% 2.68%
2.00% 2.48% 2.96% 3.10% 3.36% 3.58%
2.50% 3.11% 3.70% 3.88% 4.20% 4.47%
3.00% 3.73% 4.44% 4.65% 5.04% 5.37%
3.50% 4.35% 5.19% 5.43% 5.88% 6.26%
4.00% 4.97% 5.93% 6.20% 6.72% 7.16%
4.50% 5.59% 6.67% 6.98% 7.56% 8.05%
5.00% 6.21% 7.41% 7.75% 8.40% 8.94%
5.50% 6.83% 8.15% 8.53% 9.24% 9.84%
6.00% 7.45% 8.89% 9.30% 10.08% 10.73%
</TABLE>
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1999
COMMONWEALTH OF MASSACHUSETTS
<S> <C> <C> <C> <C> <C>
Federal Tax Bracket: 15.00% 28.00% 31.00% 36.00% 39.60%
Combined Federal and State: 20.95% 33.95% 36.95% 41.95% 45.55%
Joint Return: $1-43,050 $43,051-104,050 $104,051-158,550 $158,551-283,150 Over $283,151
Single Return: $1-25,750 $25,751-62,450 $62,451-130,250 $130,251-283,150 Over $283,151
Tax-Exempt Yield:
</TABLE>
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT
<S> <C> <C> <C> <C> <C>
1.50% 1.90% 2.27% 2.38% 2.58% 2.75%
2.00% 2.53% 3.03% 3.17% 3.45% 3.67%
2.50% 3.16% 3.79% 3.97% 4.31% 4.59%
3.00% 3.80% 4.54% 4.76% 5.17% 5.51%
3.50% 4.43% 5.30% 5.55% 6.03% 6.43%
4.00% 5.06% 6.06% 6.34% 6.89% 7.35%
4.50% 5.69% 6.81% 7.14% 7.75% 8.26%
5.00% 6.33% 7.57% 7.93% 8.61% 9.18%
5.50% 6.96% 8.33% 8.72% 9.47% 10.10%
6.00% 7.59% 9.08% 9.52% 10.34% 11.02%
</TABLE>
-83-
<PAGE>
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1999
STATE OF RHODE ISLAND
<S> <C> <C> <C> <C> <C>
Federal Tax Bracket: 15.00% 28.00% 31.00% 36.00% 39.60%
Combined Federal and State: 18.98% 35.42% 39.22% 45.54% 50.09%
Joint Return: $0-43,050 $43,051-104,050 $104,051-158,550 $158,551-283,150 Over $283,151
Single Return: $0-25,750 $25,751-62,450 $62,451-130,250 $130,251-283,150 Over $283,151
Tax-Exempt Yield:
</TABLE>
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT
<S> <C> <C> <C> <C> <C>
1.50% 1.85% 2.32% 2.47% 2.75% 3.01%
2.00% 2.47% 3.10% 3.29% 3.67% 4.01%
2.50% 3.09% 3.87% 4.11% 4.59% 5.01%
3.00% 3.70% 4.65% 4.94% 5.51% 6.01%
3.50% 4.32% 5.42% 5.76% 6.43% 7.01%
4.00% 4.94% 6.19% 6.58% 7.34% 8.01%
4.50% 5.55% 6.97% 7.40% 8.26% 9.02%
5.00% 6.17% 7.74% 8.23% 9.18% 10.02%
5.50% 6.79% 8.52% 9.05% 10.10% 11.02%
6.00% 7.41% 9.29% 9.87% 11.02% 12.02%
</TABLE>
-84-
<PAGE>
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to shareholders, the
performance of the Funds may be quoted and compared to that of other mutual
funds with similar investment objectives and to stock or other relevant bond
indices or to rankings prepared by independent services or other financial or
industry publications that monitor the performance of mutual funds. For example,
the performance of the Funds may be compared to data prepared by Lipper
Analytical Services, Inc., a widely recognized independent service which
monitors the performance of mutual funds.
Performance data as reported in national financial publications
including, but not limited to, MONEY MAGAZINE, FORBES, BARRON'S, THE WALL STREET
JOURNAL, and THE NEW YORK TIMES, or publications of a local or regional nature,
may also be used in comparing the performance of the Funds. Performance data
will be calculated separately for Trust Shares, Retail A Shares, Retail B
Shares, Prime A Shares and Prime B Shares of the Funds.
The standard yield is computed as described above. Each Fund may also
advertise its "effective yield" which is calculated similarly but, when
annualized, the income earned by an investment in a Fund is assumed to be
reinvested. Each Fund may also quote its "tax equivalent yield" which
demonstrates the level of taxable yield necessary to produce an after-tax
equivalent yield to the Fund's tax-free yield. It is calculated as described
above. A Fund's tax-equivalent yield will always be higher than its yield.
The Funds may also advertise their performance using "average annual
total return" figures over various periods of time. Such total return figures
reflect the average percentage change in the value of an investment in a Fund
from the beginning date of the measuring period to the end of the measuring
period and are calculated as described above. Average total return figures will
be given for the most recent one-, five- and ten-year periods (if applicable),
and may be given for other periods as well, such as from the commencement of a
Fund's operations, or on a year-by-year basis. Each Fund may also use "aggregate
total return" figures for various periods, representing the cumulative change in
the value of an investment in a Fund for the specified period. Both methods of
calculating total return reflect the maximum front-end sales load charged by the
Funds for Retail A Shares and the applicable contingent deferred sales charge
for Retail B Shares of the Tax-Exempt Bond Fund and assume that dividends and
capital gains distributions made by a Fund during the period are reinvested in
Fund shares.
The Funds may also advertise total return data without reflecting the
sales charges imposed on the purchase of Retail A Shares or the redemption of
Retail B Shares in accordance with the rules of the SEC. Quotations that do not
reflect the sales charges will be higher than quotations that do reflect the
sales charges.
The performance of the Funds will fluctuate and any quotation of
performance should not be considered as representative of the future performance
of the Funds. Since yields fluctuate, yield data cannot necessarily be used to
compare an investment in a Fund's shares with bank deposits, savings accounts
and similar investment alternatives which often provide an agreed or
-85-
<PAGE>
guaranteed fixed yield for a stated period of time. Shareholders should remember
that performance data are generally functions of the kind and quality of the
instruments held in a portfolio, portfolio maturity, operating expenses, and
market conditions. Any additional fees charged by institutions with respect to
accounts of customers that have invested in shares of a Fund will not be
included in performance calculations.
The portfolio managers of the Funds and other investment professionals
may from time to time discuss in advertising, sales literature or other
material, including periodic publications, various topics of interest to
shareholders and prospective investors. The topics may include but are not
limited to the advantages and disadvantages of investing in tax-deferred and
taxable investments; Fund performance and how such performance may compare to
various market indices; shareholder profiles and hypothetical investor
scenarios; the economy; the financial and capital markets; investment strategies
and techniques; investment products; and tax, retirement and investment
planning.
MISCELLANEOUS
As used in this Statement of Additional Informational, "assets belonging
to" a particular Fund or series of a Fund means the consideration received by
Galaxy upon the issuance of shares in that particular Fund or series of the
Fund, together with all income, earnings, profits, and proceeds derived from the
investment thereof, including any proceeds from the sale of such investments,
any funds or payments derived from any reinvestment of such proceeds and a
portion of any general assets of Galaxy not belonging to a particular series or
Fund. In determining the net asset value of a particular series of a Fund,
assets belonging to the particular series of the Fund are charged with the
direct liabilities in respect of that series and with a share of the general
liabilities of Galaxy, which are allocated in proportion to the relative asset
values of the respective series and Funds at the time of allocation. Subject to
the provisions of Galaxy's Declaration of Trust, determinations by the Board of
Trustees as to the direct and allocable liabilities, and the allocable portion
of any general assets with respect to a particular series or Fund, are
conclusive.
Shareholders will receive unaudited semi-annual reports describing the
Funds' investment operations and annual financial statements audited by
independent certified public accountants.
A "vote of the holders of a majority of the outstanding shares" of a
particular Fund or a particular series of shares in a Fund means, with respect
to the approval of an investment advisory agreement, a distribution plan or a
change in an investment objective or fundamental investment policy, the
affirmative vote of the holders of the lesser of (a) more than 50% of the
outstanding shares of such Fund or such series of shares, or (b) 67% or more of
the shares of such Fund or such series of shares present at a meeting if more
than 50% of the outstanding shares of such Fund or such series of shares are
represented at the meeting in person or by proxy.
As of November 30, 1999, the name, address and share ownership of the
entities or persons that held of record more than 5% of the outstanding Trust
Shares of each of Galaxy's investment portfolios (including shares of the
Institutional Government Money Market Fund) were as follows: Money Market Fund
- -- Fleet New York, Fleet Investment Services, 159 East Main Street, NY/RO/TO3C,
Rochester, NY 14638, Account 00000150286 (99.87%); Tax-Exempt Money Market Fund
- -- Fleet New York, Fleet Investment Services, 159 East Main Street, NY/RO/TO3C,
Rochester, NY 14638, Account 00000007717 (100.00%); Government Money Market Fund
- --Fleet New York, Fleet Investment Services, 159 East Main Street, NY/RO/TO3C,
Rochester, NY 14638, Account 00000012621 (98.58%); Equity Value Fund -- Gales &
Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000000064 (76.43%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000003204 (14.55%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000011551 (7.23%); Equity Growth Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000082 (70.31%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000010017 (15.31%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000030718 (14.04%); Equity Income Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000015771 (48.75%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000003748 (36.92%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000000037 (13.37%); International Equity Fund --Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000073 (42.99%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000000876 (39.29%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000004088 (14.13%); Growth and Income Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 05000503793 (76.73%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 05000503873 (19.78%); Asset Allocation Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000073 (93.27%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000002598 (5.98%); Small Company Equity -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000046 (66.04%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000001492 (24.41%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000006102 (7.33%); Institutional Treasury Money Market Fund -- Fleet
New York, Fleet Investment Services, 159 East Main Street, NY/RO/TO3C,
Rochester, NY 14638, Account 00000000019 (91.11%); Luitpold Pharmaceuticals
Inc., Kirk Sobecki, CFO, Attn: Harold Noviello, One Luitpold Drive, Shirley,
-86-
<PAGE>
NY 11967, Account 05100281441 (7.02%); Small Cap Value Fund -- Gales & Co.,
Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 05000503999 (48.74%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 05000503917 (31.01%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 05000503953 (19.77%); Strategic Equity Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 5100115522 (97.48%); Intermediate Government Income
Fund -- Gales & Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A,
159 East Main Street, Rochester, NY 14638, Account 00000038408 (38.48%); Gales &
Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000007183 (34.80%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000037 (26.20%); High Quality Bond Fund --
Gales & Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East
Main Street, Rochester, NY 14638, Account 00000000037 (62.76%); Gales & Co.,
Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000001465 (24.53%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000006095 (12.37%); Short-Term Bond Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000008627 (31.48%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000000064 (46.43%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000001090 (21.82%); Tax-Exempt Bond Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000005899 (34.38%) Gales & Co, Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000000028 (38.95%); Gales and Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000000670 (26.42%); Connecticut Municipal Bond Fund -- Gales & Co.,
Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000019 (74.69%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000000037 (24.84%); Massachusetts Municipal Bond Fund -- Gales
& Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000000019 (48.96%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000073 (49.06%); Corporate Bond Fund -- Gales
& Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000000046 (44.33%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000006102 (36.50%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000001492 (12.65%); New Jersey Municipal Bond Fund -- Gales &
Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/T04A, 159 East Main
Street, Rochester, NY 14638, Account 5100115489 (51.69%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 5100115504 (35.56%); BOB & Co., c/o Bank
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of Boston, Attn: Mutual Fund Dept. 45-02-06, P.O. Box 1809, Boston, MA 02105,
Account 5102076990 (12.74%); and New York Municipal Bond Fund -- Gales & Co.,
Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000019 (9.36%); Gales & Co., Fleet Investment
Services, Mutual Fund Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000001107 (70.04%); Gales & Co., Fleet Investment Services,
Mutual Fund Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000005292 (14.85%); BOB & Co., c/o Bank of Boston, Attn: Mutual Fund
Dept. 45-02-06, P.O. Box 1809, Boston, MA 02105, Account 5102076990 (5.68%).
As of November 30, 1999, the name, address and share ownership of the
entities or persons that held of record more than 5% of the outstanding Retail A
Shares of each of Galaxy's investment portfolios (including shares of the
Connecticut Municipal Money Market and Massachusetts Municipal Money Market
Funds) were as follows: Tax-Exempt Money Market Fund -- Ellsworth Kelly, P.O.
Box 151, 45 South Street, Spencertown, NY 12165, Account 0000063825 (6.99%);
U.S. Treasury Money Market Fund -- US Clearing, a Division of Fleet Securities
Inc., 26 Broadway, New York, NY 10004, Account 05100115684 (10.40%);
Massachusetts Municipal Money Market Fund -- Fleet New York, Fleet Investment
Services, 159 East Main St., NY/RO/TO3C, Rochester, NY 14638, Account
05100058503 (61.34%); Connecticut Municipal Money Market Fund -- Fleet New York,
Fleet Investment Services, 159 East Main St., NY/RO/TO3C, Rochester, NY 14638,
Account 05100058521 (48.64%); William L. Bucknall & Norma Lee Bucknall, 5 Oak
Ridge Drive, Bethany, CT 06524, Account 0000002259 (5.16%); Rhode Island
Municipal Bond Fund --Gales & Co., Fleet Investment Services, Mutual Funds Unit
- - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638, Account 00000001492
(40.88%); James R. McCulloch, c/o Microfibre, PO Box 1208, Pawtucket, RI 02860,
Account 05000414933 (9.11%); New York Municipal Bond Fund -- Marilyn J.
Brantley, 5954 Van Allen Road, Belfast, NY 14711, Account 05100977627 (11.78%);
New Jersey Municipal Bond Fund -- Jeffery W. Golden, 7 Hampton Ridge CT, Old
Tappan, NJ 07675, Account 05100780704 (16.09%); John W. Maki & Kimberly McGrath
Maki JT, 1 Connet Lane, Mendham, NJ, 07945, Account 05100011377 (33.47%); US
Clearing Corp., FBO 979-06374-12, 26 Broadway, New York, NY 10004-1798, Account
07000100574 (27.89%); Serene W. Peng, 70 Chelsea, Watchung, NJ 07060, Account
5101583480 (17.19%); Tax-Exempt Bond Fund -- Danny Schulman, 9 Corn Mill Ct.,
Upper Saddle River, NJ 07458, Account 510116598 (6.11%); and Massachusetts
Municipal Bond Fund -- New England Realty Assoc., Robert Blank, Ronald Brown,
Harold Brown and Carl Veleri, 39 Brighton Ave., Boston MA 02134, Account
5100587013 (6.59%).
As of November 30, 1999, the name, address and share ownership of the
entities or persons that held of record more than 5% of the outstanding Retail B
Shares of each of Galaxy's investment portfolios were as follows: Money Market
Fund -- Worldmark Master Fund, LLC, D. Dean Rhodes auth. officer or Richard J.
Gates (investment adviser), 11466 Old Harber Road, N. Palm Beach, FL 33408,
Account 5102031823 (18.24%); Worldmark Master Fund, LLC, D. Dean Rhodes auth.
officer or Richard J. Gates (investment adviser) 11465 Old Harbor Road, N. Palm
Beach, FL 33408, Account 5102074064 (20.78%); Intermediate Government Income
Fund; Adriana Vita, 345 Park Avenue, New York, NY 10154, Account 05101563377
(8.84%); Short-Term Bond Fund -- Elizabeth Mugar, 10 Chestnut St., Apt. 1808,
Springfield, MA 01103,
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Account 5100760012 (7.15%); Chelsea Police Relief Assoc., John R. Phillips,
Treasurer, and Michael McCona, Clerk, 180 Crescent Avenue, Chelsea, MA 02150,
Account 0970036155 (13.23%); Josve Colon, Cust., Hazel Colon UGMA CT, 400
LaSalle Street, New Britain, CT 06051, Account 5101157039 (7.37%); U.S. Clearing
Corp., FBO 978-02086-18, Eugene J. Margaret Dunscomb, 505 Apple Tree Lane,
Brewster, NY 10509-6004, Account 70000100609 (7.09%); Tax-Exempt Bond Fund --
David Fendler & Sylvia Fendler JT WROS, 72 Brinkerhoff Ave., Stamford, CT 06905,
Account 05100255354 (7.48%); Frances E. Stady, P.O. Box 433, 3176 Main Street,
Yorkshire, NY 14173, Account 05102027437 (5.84%); and Strategic Equity Fund --
Betsey Tan, 7 Donovan's Lane, Natick, MA 01760, Account 05101043778 (7.41%).
As of November 30, 1999, the name, address and share ownership of the
entities or persons that held beneficially more than 5% of the outstanding Trust
Shares of each of Galaxy's investment portfolios were as follows: Money Market
Fund--Stable Asset Fund, c/o Norstar Trust Co., Gales & Co., 159 East Main
Street, Rochester, NY 14638, (12.05%); Hope-Sayles Trust, c/o Norstar Trust Co.,
Gales & Co., 159 East Main Street, Rochester, NY 14638, (10.65%); Government
Money Fund -- AMS Trust Account, c/o Norstar Trust Co., Gales & Co., 159 East
Main Street, Rochester, NY 14638, (9.76%); Beacon Mutual Insurance Co., c/o
Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638 (6.33%); U.S.
Treasury Money Fund -- Loring Walcott Client Sweep Acct., c/o Norstar Trust Co.,
Gales & Co., 159 East Main, Rochester, NY 14638, (23.17%); Equity Value
Fund--Fleet Savings Plus-Equity Value, c/o Norstar Trust Co., Gales & Co., 159
East Main, Rochester, NY 14638, (24.21%); Equity Growth Fund--Fleet Savings
Plus-Equity Growth, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638, (23.54%); Nusco Retiree Health VEBA Trust, c/o Norstar
Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638, (6.82%);
International Equity Fund--FFG International Equity Fund, c/o Norstar Trust Co.,
Gales & Co., 159 East Main, Rochester, NY 14638, (12.68%); Fleet Savings
Plus-Intl. Equity, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester,
NY 14638, (9.82%); Intermediate Government Income Fund -- Nusco Retiree Health
VEBA Trust, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY
14638 (6.44%); Strategic Equity Fund--FFG Retirement & Pension VDG, c/o Fleet
Financial Group, 159 East Main, Rochester, NY 14638, (93.39%); High Quality Bond
Fund--Fleet Savings Plus Plan-HQ Bond, c/o Norstar Trust Co., Gales & Co., 159
East Main, Rochester, NY 14638 (19.60%); Asset Allocation Fund--Fleet Savings
Plus-Asset Allocation, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638, (26.52%); Small Company Equity Fund--Fleet Savings
Plus-Small Company, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638, (33.58%); Tax Exempt Bond Fund -- Nusco Retiree Health VEBA
Trust, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638,
(37.64%); Corporate Bond Fund--Cole Hersee Pension Plan, c/o Norstar Trust Co.,
Gales & Co., 159 East Main, Rochester, NY 14638, (8.40%); Growth Income
Fund--Fleet Savings Plus-Growth Income, c/o Norstar Trust Co., Gales & Co., 159
East Main, Rochester, NY 14638, (43.81%); Crumpton & Knowles IARP, c/o Norstar
Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638 (10.11%); Small Cap
Value Fund--FFG Emp. Ret. Misc. Assets SNC, c/o Norstar Trust Co., Gales & Co.,
159 East Main, Rochester, NY 14638, (25.16%); Institutional Government Fund --
IBEW Local #99 Annuity, c/o Norstar Trust Co., Gales & Co., 159 East Main
Street, Rochester, NY 14638 (5.26%); New Jersey Municipal Bond Fund--Perillo
Tours, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638,
(22.47%); Royal Chambord IMA, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY, 14638, (11.24%); McKee Wendell A. Marital Trust, c/o Norstar
Trust Co., Gales & Co., 159 East Main, Rochester,
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NY 14638, (11.16%); Varco Inc. IMA, c/o Norstar Trust Co., Gales & Co., 159 East
Main, Rochester, NY 14638, (5.62%); and Tiernan Diana V IA, c/o Norstar Trust
Co., Gales & Co., 159 East Main, Rochester, NY 14638, (5.10%).
As of November 30, 1999, the name, address and share ownership of the
entities or persons that held of record or beneficially more than 5% of the
outstanding A Prime Shares of Galaxy's Asset Allocation, Equity Income, Growth
and Income, Strategic Equity, Equity Value, Equity Growth, International Equity,
Small Cap Value, Small Company Equity, Short-Term Bond, Intermediate Government
Income, High Quality Bond and Tax-Exempt Bond Funds were as follows: Asset
Allocation Fund--U.S. Clearing, A Division of Fleet Securities, Inc., FBO
#147-97697-11, Ray Wayne Prince, 11010 Stephens Road, Berlin Heights, OH
44814-9673 (18.52%); U.S. Clearing, A Division of Fleet Securities, Inc., FBO
#135-29801-11, Joseph P. Quinn & Genevieve H. Quinn Trust, 725 N. Riverside
Drive, Apt. 405, Pompano Beach, FL 33062-4536 (12.47%); U.S. Clearing, A
Division of Fleet Securities, Inc., FBO #175-97327-10, Margaret Ann Gillenwater,
2525 E. Prince Road #23, Tucson, AZ 85716-1146 (11.92%); U.S. Clearing, A
Division of Fleet Securities, Inc., FBO #114-97238-17, Sara Mallow, 936
Broadway, New York, NY 10010-6013 (25.26%); U.S. Clearing, A Division of Fleet
Securities, Inc., FBO #166-88586-13, Pamela Ann Radamaker, 1001 Tramway Blvd.
NE, Albuquerque, NM 87112-6280 (10.72%); U.S. Clearing, A Division of Fleet
Securities, Inc., FBO #114-23817-12, John R. Johnson, P.O. Box 4338, Deerfield
Beach, FL 33442-4338 (8.31%); Growth and Income Fund--U.S. Clearing, A Division
of Fleet Securities Inc., FBO #160-27022-17, Linda Shaw, Trustee for the Linda
J. Shaw Trust, 920 Meadows Road, Geneva, IL 60134-3052 (34.66%); U.S. Clearing,
A Division of Fleet Securities Inc., FBO #113-27816-16, Pamela M. Fein, 68 Oak
Ridge Drive, Bethany, CT 06524-3118 (29.85%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO #175-97327-10, Margaret Ann Gillenwater, 2525 E. Prince
Road #23, Tucson, AZ 85716-1146 (23.43%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO #103-80080-19, Saint Clare School Endowment Fund, Attn: Fr.
O'Shea/Andrew J. Houvouras and/or Bruce Blatman, 821 Prosperity Farms Road, No.
Palm Beach, FL 33408-4299 (6.09%); Equity Growth Fund--U.S. Clearing, A Division
of Fleet Securities Inc., FBO #104-32732-16, Hilda Brandt, 3900 North Charles
Street, Baltimore, MD 21218-1724 (50.91%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO #114-97236-17, Sara Mallow, 936 Broadway, New York, NY
10010-6013 (26.57%); U.S. Clearing, A Division of Fleet Securities Inc., FBO
#120-97689-18, Yook Y. Doo, 4634 Robinson St., Flushing, NY 11355-3445 (8.84%);
U.S. Clearing, A Division of Fleet Securities Inc., FBO #021-90471-15, Mabel L.
Bowman, 35634 Meyers Ct., Fremont, CA 84536-2540 (7.00%); U.S. Clearing, A
Division of Fleet Securities Inc., FBO #143-27206-11, Mary V. Mastroianni &
Pasqual Mastroianni JT Ten, 1811 Randolph Road, Schenectady, NY 12308-2021
(5.44%); International Equity Fund--U.S. Clearing, A Division of Fleet
Securities Inc., FBO #125-98055-11, Albert F. Twanmo, 6508 81st St., Cabin John,
MD 20818-1203 (94.66%); Small Cap Value Fund U.S. Clearing, A Division of Fleet
Securities Inc., FBO # 104-32732-16, Hilda Brandt, 3900 North Charles Street,
Baltimore, MD 21218-1724 (26.87%); U.S. Clearing, A Division of Fleet Securities
Inc., FBO # 150-98301-11, N. Clifford Nelson Jr., 58 Middlebury Road, Orchard
Park, NY 14127-3581 (16.93%); U.S. Clearing, A Division of Fleet Securities
Inc., FBO # 102-60254-19, Frederick W. Geissinger, 601 NW 2nd Street,
Evansville, IN 47708-1013 (16.81%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO # 103-97564-14, Thomas X. McKenna, 170 Turtle Creek Drive,
Tequesta, FL 33469-1547 (12.55%); U.S. Clearing, A Division of Fleet Securities
Inc., FBO # 103-31296-18, Edward U.
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Roddy III, 109 Angler Avenue, Palm Beach, FL 33480-3101 (8.27%); U.S. Clearing,
A Division of Fleet Securities Inc., FBO # 180-24606-24, Gary R. Plemons, P.O.
Box 190, Madisonville, TN 37354-0190 (5.56%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO # 165-26664-29, Special Risk Underwriters, P.O. Box 54699,
Phoenix, AZ 85078-4699 (5.31%); High Quality Bond Fund - U.S. Clearing, A
Division of Fleet Securities Inc., FBO # 103-30971-12, Doris G. Schack, FBO #
103-30971-12, Doris G. Schack Living Trust, 9161 East Evans, Scottsdale, AZ
85260-7575 (72.18%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #
013-02964-11, Jane L. Grayhurst, 770 Boylston St., Apt. 10G, Boston, MA
02199-7709 (15.46%); U.S. Clearing, A Division of Fleet Securities, Inc., FBO
#132-90090-11, Virginia Holmes, 303 Bella Vista Drive, Ithaca, NY 14850-5774
(12.10%).
As of November 30, 1999, the name, address and share ownership of the
entities or persons that held of record or beneficially more than 5% of the
outstanding B Prime Shares of Galaxy's Asset Allocation, Equity Income, Growth
and Income, Strategic Equity, Equity Value, Equity Growth, International Equity,
Small Cap Value, Small Company Equity, Short-Term Bond, Intermediate Government
Income, High Quality Bond and Tax-Exempt Bond Funds were as follows: Asset
Allocation Fund -- U.S. Clearing, A Division of Fleet Securities Inc., FBO #
138-97818-14, Carol Y. Foster, 524 Marie Ave., Blountstown, FL 32424-1218
(10.07%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #
102-92974-11, Ann E. Herzog, 74 Tacoma St., Staten Island, NY 10304-4222
(9.61%); U.S. Clearing, A Division of Fleet Securities Inc., FBO # 166-98559-16,
Ann P. Sargent, 422 Los Encinos Ave., San Jose, CA 95134-1336 (6.40%); U.S.
Clearing, A Division of Fleet Securities Inc., FBO # 166-97970-19, Alicia E.
Schober, 10139 Ridgeway Drive, Cupertino, CA 95014-2658 (6.22%); U.S. Clearing,
A Division of Fleet Securities Inc., FBO # 19414889-16, Paul R. Thornton & Karin
Z. Thornton, JT TEN, 1207 Oak Glen Lane, Sugar Land, TX 77479-6175 (5.70%); U.S.
Clearing, A Division of Fleet Securities, Inc., FBO #147-29049-19, Randall
Prince, Rt. 1, Box 865, Turtletown, TN 37391-9700 (6.06%); Growth and Income
Fund - U.S. Clearing, A Division of Fleet Securities Inc., FBO # 147-97497-13,
Martin Allen Sante, 15222 Birch Lakeshore Drive, Vandalia, MI 49095-9741
(27.18%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #103-31744-16,
Irwin Luftig & Elaine Luftig, 6119 Bear Creek Ct., Lake Worth, FL 33467-6812
(19.02%); Linda M. Berke & Michael E. Berke, JT WROS, 30941 Westwood Rd.,
Farmington Hills, MI 48331-1466 (15.25%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO # 147-29019-15, Walter W. Quan, 2617 Skyline Drive, Lorain,
OH 44053-2243 (14.87%); U.S. Clearing, A Division of Fleet Securities Inc., FBO
#014-90365-19, Peter Burr Bickford, 65 A Lazell St., Hingham, MA 02043-4403
(7.44%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #108-00116-10,
Michael Kennedy & Carleen Kennedy, JT WROS, 12 Walton Avenue, Locust Valley, NY
11560-1227 (5.48%); Equity Growth Fund - U.S. Clearing, A Division of Fleet
Securities Inc., FBO # 111-98315-17, Thomas J. Bernfeld, 185 West End Ave., Apt.
21D, New York, NY 10023-5548 (29.52%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO # 166-31108-13, Frank Catanho, Trustee of the Frank Catanho
1996 Trust dated 10/22/96, 24297 Mission Blvd., Hayward, CA 94544-1020 (19.07%);
U.S. Clearing, A Division of Fleet Securities Inc., FBO # 183-97247-11, W.P.
Fleming, 66500 E. 253rd, Grove, OK 74344-6163 (8.77%); U.S. Clearing, A Division
of Fleet Securities Inc., FBO # 131-96122-18, Elaine B. Odessa, 9 Newman Rd.,
Pawtucket, RI 02860-8183 (6.66%); International Equity Fund - U.S. Clearing, A
Division of Fleet Securities Inc., FBO # 102-5924-17, Church & Friary of St.
Francis of Assisi, c/o Fr.
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Ronald P. Stark OFM, 135 West 31st St., New York, NY 10001-3405 (82.40%); Small
Cap Value Fund - U.S. Clearing, A Division of Fleet Securities Inc., FBO #
147-97574-19, Ray William Mominey, 1340 San Cristobal Villa, Punta Gorda, FL
33983-6616 (15.90%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #
111-98315-17, Thomas J. Bernfeld, 185 West End Ave., Apt. 21D, New York, NY
10023-5548 (10.13%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #
107-30623-15, Andrejs Zvejnieks, 2337 Christopher Walk, Atlanta, GA 30327-1110
(6.86%); E-Trade: Cust. for the rollover IRA, FBO Rufus O. Eddins, Jr., A/C #
11042697, 360 Dominion Circle, Knoxville, TN 37922-2750 (5.34%); U.S. Clearing,
A Division of Fleet Securities Inc., FBO # 221-97250-13, Micheal A. Veschi, 106
Exmoor Court, Leesburg, VA 20176-2049 (5.13%); High Quality Bond Fund - U.S.
Clearing, A Division of Fleet Securities Inc., FBO # 200-70099-19, Neil C.
Feldman, 41 Windham Way, Englishtown, NJ 07726-8216 (25.37%); U.S. Clearing, A
Division of Fleet Securities Inc., FBO # 119-97697-10, Ira Sornborg, 4219
Nautilus Ave., Brooklyn, NY 11224-1019 (10.23%); U.S. Clearing, A Division of
Fleet Securities Inc., FBO # 216-12779-14, Les H. Galex & Nan Galex, JT TEN,
7540 Farragut St., Hollywood, FL 33024-2626 (8.11%); U.S. Clearing, A Division
of Fleet Securities Inc., FBO # 102-93287-11, Marjorie Dion, 301 Raimond St.,
Yaphank, NY 11980-9725 (7.31%); U.S. Clearing, A Division of Fleet Securities
Inc., FBO # 102-68909-11, Marjorie Dion, 301 Raimond St., Yaphank, NY 11980-9725
(8.61%); U.S. Clearing, A Division of Fleet Securities Inc., FBO # 147-24459-13,
Jay Robert Klein, 26800 Amhearst Circle, #209, Cleveland, OH 44122-7572 (8.40%);
U.S. Clearing, A Division of Fleet Securities Inc., FBO # 157-98031-13, Patricia
Fusco, 112 E. Chapel Ave., Cherry Hill, NJ 08034-1204 (6.53%); U.S. Clearing, A
Division of Fleet Securities, Inc., FBO # 216-13463-13, Jerry H. Dunmire, 5151
SW 89 Terrace, Cooper City, FL 33328-3631 (6.48%).
As of November 30, 1999, the name, address and share ownership of the
entities or persons that held of record or beneficially more than 5% of the
outstanding shares of Galaxy's Prime Reserves, Government Reserves and Tax
Exempt Reserves were as follows: Prime Reserves -- U.S. Clearing, 26 Broadway,
New York, NY 10004 (6.96%); Government Reserves -- U.S. Clearing, 26 Broadway,
New York, NY 10004 (100.00%); and Tax Exempt Reserves -- U.S. Clearing, 26
Broadway, New York, NY 10004 (100.00%).
As of November 30, 1999, no entity or person held of record or
beneficially more than 5% of the outstanding Retail A and Retail B Shares of
Galaxy's Equity Income, New York Municipal Bond, Connecticut Municipal Bond,
Massachusetts Municipal Bond, Rhode Island Municipal Bond, Massachusetts
Municipal Money Market, Connecticut Municipal Money Market and Short Term Bond
Funds.
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FINANCIAL STATEMENTS
Galaxy's Annual Report to Shareholders with respect to the Funds for the
fiscal year ended October 31, 1999 [has been filed] with the SEC. The financial
statements contained in such Annual Reports are [ ] into this
Statement of Additional Information. The financial statements and financial
highlights for the Funds for the fiscal year ended October 31, 1999 have been
audited by Galaxy's independent accountants, [ ], whose
reports thereon also appears in such Annual Report and [ ].
The financial statements in such Annual Report have been [ ] in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
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APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's ("S&P") commercial paper rating is a current
assessment of the likelihood of timely payment of debt having an original
maturity of no more than 365 days. The following summarizes the rating
categories used by Standard and Poor's for commercial paper:
"A-1" - Obligations are rated in the highest category indicating that
the obligor's capacity to meet its financial commitment on the obligation is
strong. Within this category, certain obligations are designated with a plus
sign (+). This indicates that the obligor's capacity to meet its financial
commitment on these obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher rating categories. However, the obligor's capacity to meet its financial
commitment on the obligation is satisfactory.
"A-3" - Obligations exhibit adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.
"B" - Obligations are regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
"C" - Obligations are currently vulnerable to nonpayment and are
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation.
"D" - Obligations are in payment default. The "D" rating category is
used when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The "D" rating will be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.
Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually senior debt obligations not having an original
maturity in excess of one year, unless explicitly noted. The following
summarizes the rating categories used by Moody's for commercial paper:
A-1
<PAGE>
"Prime-1" - Issuers (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
leading market positions in well-established industries; high rates of return on
funds employed; conservative capitalization structure with moderate reliance on
debt and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and well-established access
to a range of financial markets and assured sources of alternate liquidity.
"Prime-2" - Issuers (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
"Prime-3" - Issuers (or supporting institutions) have an acceptable
ability for repayment of senior short-term debt obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
"Not Prime" - Issuers do not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff & Phelps
employs three designations, "D-1+," "D-1" and "D-1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:
"D-1+" - Debt possesses the highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
"D-2" - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small.
"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 strongest capacity for timely payment of financial commitments and
may have an added "+" to denote any exceptionally strong credit feature.
"F2" - Securities possess good credit quality. This designation
indicates a satisfactory capacity for timely payment of financial commitments,
but the margin of safety is not as great as in the case of the higher ratings.
"F3" - Securities possess fair credit quality. This designation
indicates that the capacity for timely payment of financial commitments is
adequate; however, near-term adverse changes could result in a reduction to
non-investment grade.
"B" - Securities possess speculative credit quality. This designation
indicates minimal capacity for timely payment of financial commitments, plus
vulnerability to near-term adverse changes in financial and economic conditions.
"C" - Securities possess high default risk. This designation indicates
that default is a real possibility and that the capacity for meeting financial
commitments is solely reliant upon a sustained, favorable business and economic
environment.
"D" - Securities are in actual or imminent payment default.
Thomson BankWatch short-term ratings assess the likelihood of an
untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's highest
category and indicates a very high likelihood that principal and interest will
be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1."
A-3
<PAGE>
"TBW-3" - This designation represents Thomson BankWatch's lowest
investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's lowest
rating category and indicates that the obligation is regarded as non-investment
grade and therefore speculative.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
Obligations rated "BB," "B," "CCC," "CC" and "C" are regarded as
having significant speculative characteristics. "BB" indicates the least degree
of speculation and "C" the highest. While such obligations will likely have some
quality and protective 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 has been taken, but
payments on this obligation are being continued.
"D" - An obligation rated "D" is in payment default. The "D" rating
category is used when payments on an obligation are not made on the date due
even if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period. The "D" rating also will be
used upon the filing of a bankruptcy petition or the taking of a similar action
if payments on an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
"r" - This symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or volatility of
expected returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk - such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
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
A-5
<PAGE>
fluctuation of protective elements may be of greater amplitude or there may be
other elements present which make the long-term risk appear somewhat larger than
the "Aaa" securities.
"A" - Bonds possess many favorable investment attributes and are to be
considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds are considered as medium-grade obligations, (i.e., they
are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates speculative elements; "B" indicates a general lack of characteristics
of desirable investment; "Caa" are of poor standing; "Ca" represents obligations
which are speculative in a high degree; and "C" represents the lowest rated
class of bonds). "Caa," "Ca" and "C" bonds may be in default.
Con. (---) - Bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction, (b) earnings
of projects unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic
rating classification from "Aa" through "Caa." The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range 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.
A-6
<PAGE>
"BBB" - Debt possesses below-average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt rated
"B" possesses the risk that obligations will not be met when due. Debt rated
"CCC" is well below investment grade and has considerable uncertainty as to
timely payment of principal, interest or preferred dividends. Debt rated "DD" is
a defaulted debt obligation, and the rating "DP" represents preferred stock with
dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.
The following summarizes the ratings used by Fitch IBCA for corporate
and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest
credit quality. These ratings denote the lowest expectation of credit risk and
are assigned only in case of exceptionally strong capacity for timely payment of
financial commitments. This capacity is highly unlikely to be adversely affected
by foreseeable events.
"AA" - Bonds considered to be investment grade and of very high credit
quality. These ratings denote a very low expectation of credit risk and indicate
very strong capacity for timely payment of financial commitments. This capacity
is not significantly vulnerable to foreseeable events.
"A" - Bonds considered to be investment grade and of high credit
quality. These ratings denote a low expectation of credit risk and indicate
strong capacity for timely payment of financial commitments. This capacity may,
nevertheless, be more vulnerable to changes in circumstances or in economic
conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good credit
quality. These ratings denote that there is currently a low expectation of
credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity.
"BB" - Bonds considered to be speculative. These ratings indicate that
there is a possibility of credit risk developing, particularly as the result of
adverse economic changes over time; however, business or financial alternatives
may be available to allow financial commitments to be met. Securities rated in
this category are not investment grade.
A-7
<PAGE>
"B" - Bonds are considered highly speculative. These ratings indicate
that significant credit risk is present, but a limited margin of safety remains.
Financial commitments are currently being met; however, capacity for continued
payment is contingent upon a sustained, favorable business and economic
environment.
"CCC," "CC," "C" - Bonds have high default risk. Default is a real
possibility, and capacity for meeting financial commitments is solely reliant
upon sustained, favorable business or economic developments. "CC" ratings
indicate that default of some kind appears probable, and "C" ratings signal
imminent default.
"DDD," "DD" and "D" - Bonds are in default. Securities are not meeting
obligations and are extremely speculative. "DDD" designates the highest
potential for recovery of amounts outstanding on any securities involved and "D"
represents the lowest potential for recovery.
To provide more detailed indications of credit quality, the Fitch IBCA
ratings from and including "AA" to "B" may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major rating
categories.
Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long term debt and preferred
stock which are issued by United States commercial banks, thrifts and non-bank
banks; non-United States banks; and broker-dealers. The following summarizes the
rating categories used by Thomson BankWatch for long-term debt ratings:
"AAA" - This designation indicates that the ability to repay principal
and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to repay
principal and interest on a timely basis, with limited incremental risk compared
to issues rated in the highest category.
"A" - This designation indicates that the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BBB" - This designation represents the lowest investment-grade
category and indicates an acceptable capacity to repay principal and interest.
Issues rated "BBB" are more vulnerable to adverse developments (both internal
and external) than obligations with higher ratings.
"BB," "B," "CCC," and "CC" - These designations are assigned by
Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
A-8
<PAGE>
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
A Standard and Poor's rating reflects the liquidity concerns and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Ratings Group for municipal
notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest, with some vulnerability to adverse
financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:
"MIG-1"/"VMIG-1" - This designation denotes best quality. There is
present strong protection by established cash flows, superior liquidity support
or demonstrated broad-based access to the market for refinancing.
"MIG-2"/"VMIG-2" - This designation denotes high quality, with margins
of protection that are ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes favorable quality, with
all security elements accounted for but lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well established.
A-9
<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-10
<PAGE>
APPENDIX B
As stated above, the Funds may enter into futures transactions for
hedging purposes. The following is a description of such transactions.
I. INTEREST RATE FUTURES CONTRACTS
USE OF INTEREST RATE FUTURES CONTRACTS. Bond prices are established in
both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, only a contract is made to purchase or sell a bond in the future
for a set price on a certain date. Historically, the prices for bonds
established in the futures markets have tended to move generally in the
aggregate in concert with the cash market prices and have maintained fairly
predictable relationships. Accordingly, the Funds may use interest rate futures
contracts as a defense, or hedge, against anticipated interest rate changes and
not for speculation. As described below, this would include the use of futures
contract sales to protect against expected increases in interest rates and
futures contract purchases to offset the impact of interest rate declines.
The Funds presently could accomplish a similar result to that which they
hope to achieve through the use of futures contracts by selling bonds with long
maturities and investing in bonds with short maturities when interest rates are
expected to increase, or conversely, selling short-term bonds and investing in
long-term bonds when interest rates are expected to decline. However, because of
the liquidity that is often available in the futures market, the protection is
more likely to be achieved, perhaps at a lower cost and without changing the
rate of interest being earned by the Funds, through using futures contracts.
DESCRIPTION OF INTEREST RATE FUTURES CONTRACTS. An interest rate futures
contract sale would create an obligation by a Fund, as seller, to deliver the
specific type of financial instrument called for in the contract at a specific
future time for a specified price. A futures contract purchase would create an
obligation by the Fund, as purchaser, to take delivery of the specific type of
financial instrument at a specific future time at a specific price. The specific
securities delivered or taken, respectively, at settlement date, would not be
determined until at or near that date. The determination would be in accordance
with the rules of the exchange on which the futures contract sale or purchase
was made.
Although interest rate futures contracts by their terms call for actual
delivery or acceptance of securities, in most cases the contracts are closed out
before the settlement date without the making or taking of delivery of
securities. Closing out a futures contract sale is effected by a Fund's entering
into a futures contract purchase for the same aggregate amount of the specific
type of financial instrument and the same delivery date. If the price of the
sale exceeds the price of the offsetting purchase, the Fund immediately is paid
the difference and thus realizes a gain. If the offsetting purchase price
exceeds the sale price, the Fund pays the difference and realizes a loss.
Similarly, the closing out of a futures contract purchase is effected by a Fund
entering into a futures contract sale. If the offsetting sale price exceeds the
purchase
B-1
<PAGE>
price, the Fund realizes a gain, and if the purchase price exceeds the
offsetting sale price, the Fund realizes a loss.
Interest rate futures contracts are traded in an auction environment on
the floors of several exchanges -- principally, the Chicago Board of Trade, the
Chicago Mercantile Exchange and the New York Futures Exchange. The Funds would
deal only in standardized contracts on recognized exchanges. Each exchange
guarantees performance under contract provisions through a clearing corporation,
a nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering various
financial instruments including long-term United States Treasury Bonds and
Notes; Government National Mortgage Association (GNMA) modified pass-through
mortgage backed securities; three-month United States Treasury Bills; and
ninety-day commercial paper. The Funds may trade in any interest rate futures
contracts for which there exists a public market, including, without limitation,
the foregoing instruments.
EXAMPLE OF FUTURES CONTRACT SALE. The Funds would engage in an interest
rate futures contract sale to maintain the income advantage from continued
holding of a long-term bond while endeavoring to avoid part or all of the loss
in market value that would otherwise accompany a decline in long-term securities
prices. Assume that the market value of a certain security held by a particular
Fund tends to move in concert with the futures market prices of long-term United
States Treasury bonds ("Treasury bonds"). Fleet wishes to fix the current market
value of this portfolio security until some point in the future. Assume the
portfolio security has a market value of 100, and Fleet believes that, because
of an anticipated rise in interest rates, the value will decline to 95. The Fund
might enter into futures contract sales of Treasury bonds for an equivalent of
98. If the market value of the portfolio security does indeed decline from 100
to 95, the equivalent futures market price for the Treasury bonds might also
decline from 98 to 93.
In that case, the five point loss in the market value of the portfolio
security would be offset by the five point gain realized by closing out the
futures contract sale. Of course, the futures market price of Treasury bonds
might well decline to more than 93 or to less than 93 because of the imperfect
correlation between cash and futures prices mentioned below.
Fleet could be wrong in its forecast of interest rates, and the
equivalent futures market price could rise above 98. In this case, the market
value of the portfolio securities, including the portfolio security being
protected, would increase. The benefit of this increase would be reduced by the
loss realized on closing out the futures contract sale.
If interest rate levels did not change, the Fund in the above example
might incur a loss of 2 points (which might be reduced by an offsetting
transaction prior to the settlement date). In each transaction, transaction
expenses would also be incurred.
EXAMPLE OF FUTURES CONTRACT PURCHASE. A Fund would engage in an interest
rate futures contract purchase when it is not fully invested in long-term bonds
but wishes to defer for a time
B-2
<PAGE>
the purchase of long-term bonds in light of the availability of advantageous
interim investments, e.g., shorter term securities whose yields are greater than
those available on long-term bonds. A Fund's basic motivation would be to
maintain for a time the income advantage from investing in the short-term
securities; the Fund would be endeavoring at the same time to eliminate the
effect of all or part of an expected increase in market price of the long-term
bonds that the Fund may purchase.
For example, assume that the market price of a long-term bond that the
Fund may purchase, currently yielding 10%, tends to move in concert with futures
market prices of Treasury bonds. 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
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<PAGE>
municipal bond brokers daily. The 40 prices then are averaged and multiplied by
a coefficient. The coefficient is used to maintain the continuity of the Index
when its composition changes. The Chicago Board of Trade, on which futures
contracts based on this Index are traded, as well as other U.S. commodities
exchanges, are regulated by the Commodity Futures Trading Commission.
Transactions on such exchange are cleared through a clearing corporation, which
guarantees the performance of the parties to each contract.
The Tax-Exempt Bond Fund, New Jersey Municipal Bond, New York Municipal
Bond Fund, Connecticut Municipal Bond Fund, Massachusetts Municipal Bond Fund
and Rhode Island Municipal Bond Fund will sell index futures contracts in order
to offset a decrease in market value of their respective portfolio securities
that might otherwise result from a market decline. A Fund may do so either to
hedge the value of its portfolio as a whole, or to protect against declines
occurring prior to sales of securities, in the value of the securities to be
sold. Conversely, a Fund will purchase index futures contracts in anticipation
of purchases of securities. In a substantial majority of these transactions, a
Fund will purchase such securities upon termination of the long futures
position, but a long futures position may be terminated without a corresponding
purchase of securities.
Closing out a futures contract sale prior to the settlement date may be
effected by a Fund's entering into a futures contract purchase for the same
aggregate amount of the index involved and the same delivery date. If the price
in the sale exceeds the price in the offsetting purchase, the Fund is paid the
difference and thus realizes a gain. If the offsetting purchase price exceeds
the sale price, the Fund pays the difference and realizes a loss. Similarly, the
closing out of a futures contract purchase is effected by a Fund's entering into
a futures contract sale. If the offsetting sale price exceeds the purchase
price, the Fund realizes a gain, and if the purchase price exceeds the
offsetting sale price, the Fund realizes a loss.
EXAMPLE OF A MUNICIPAL BOND INDEX FUTURES CONTRACT
Consider a portfolio manager holding $1 million par value of each of the
following municipal bonds on February 2 in a particular year.
<TABLE>
<CAPTION>
Current Price
(points and
Maturity thirty-seconds
Issue Coupon Issue Date Date of a point)
- ------------------------------------------------------ --------------------------------
<S> <C> <C> <C> <C>
Ohio HFA 9 3/8 5/05/83 5/1/13 94-2
NYS Power 9 3/4 5/24/83 1/1/17 102-0
San Diego, CA IDR 10 6/07/83 6/1/18 100-14
Muscatine, IA Elec 10 5/8 8/24/83 1/1/08 103-16
Mass Health & Ed 10 9/23/83 7/1/16 100-12
</TABLE>
The current value of the portfolio is $5,003,750.
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<PAGE>
To hedge against a decline in the value of the portfolio, resulting from
a rise in interest rates, the portfolio manager can use the municipal bond index
futures contract. The current value of the Municipal Bond Index is 86-09.
Suppose the portfolio manager takes a position in the futures market opposite to
his or her cash market position by selling 50 municipal bond index futures
contracts (each contract represents $100,000 in principal value) at this price.
On March 23, the bonds in the portfolio have the following values:
<TABLE>
<S> <C>
Ohio HFA 81-28
NYS Power 98-26
San Diego, CA IDB 98-11
Muscatine, IA Elec 99-24
Mass Health & Ed 97-18
</TABLE>
The bond prices have fallen, and the portfolio has sustained a loss of
$130,312. This would have been the loss incurred without hedging. However, the
Municipal Bond Index also has fallen, and its value stands at 83-27. Suppose now
the portfolio manager closes out his or her futures position by buying back 50
municipal bond index futures contracts at this price.
The following table provides a summary of transactions and the results of
the hedge.
<TABLE>
<CAPTION>
Cash Market Futures Market
----------- --------------
<S> <C> <C>
February 2 $5,003,750 long posi- Sell 50 Municipal Bond
tion in municipal futures contracts at
bonds 86-09
March 23 $4,873,438 long posi- Buy 50 Municipal Bond
tion in municipal futures contracts at
bonds 83-27
--------------------- ---------------------
$130,312 Loss $121,875 Gain
</TABLE>
While the gain in the futures market did not entirely offset the loss in
the cash market, the $8,437 loss is significantly lower than the loss which
would have been incurred without hedging.
The numbers reflected in this appendix do not take into account the
effect of brokerage fees or taxes.
III. MARGIN PAYMENTS
Unlike purchases or sales of portfolio securities, no price is paid or
received by a Fund upon the purchase or sale of a futures contract. Initially,
the Fund will be required to deposit with the broker or in a segregated account
with Galaxy's custodian an amount of cash or cash equivalents, known as initial
margin, based on the value of the contract. The nature of initial margin in
futures transactions is different from that of margin in security transactions
in that
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<PAGE>
futures contract margin does not involve the borrowing of funds by the customer
to finance the transactions. Rather, the initial margin is in the nature of a
performance bond or good faith deposit on the contract which is returned to the
Fund upon termination of the futures contract assuming all contractual
obligations have been satisfied. Subsequent payments, called variation margin,
to and from the broker, will be made on a daily basis as the price of the
underlying instruments fluctuates making the long and short positions in the
futures contract more or less valuable, a process known as
marking-to-the-market. For example, when a particular Fund has purchased a
futures contract and the price of the contract has risen in response to a rise
in the underlying instruments, that position will have increased in value and
the Fund will be entitled to receive from the broker a variation margin payment
equal to that increase in value. Conversely, where the Fund has purchased a
futures contract and the price of the futures contract has declined in response
to a decrease in the underlying instruments, the position would be less valuable
and the Fund would be required to make a variation margin payment to the broker.
At any time prior to expiration of the futures contract, Fleet may elect to
close the position by taking an opposite position, subject to the availability
of a secondary market, which will operate to terminate the Fund's position in
the futures contract. A final determination of variation margin is then made,
additional cash is required to be paid by or released to the Fund, and the Fund
realizes a loss or gain.
IV. RISKS OF TRANSACTIONS IN FUTURES CONTRACTS
There are several risks in connection with the use of futures by the
Funds as hedging devices. One risk arises because of the imperfect correlation
between movements in the price of the futures and movements in the price of the
instruments that are the subject of the hedge. The price of the futures may move
more than or less than the price of the instruments being hedged. If the price
of the futures moves less than the price of the instruments which are the
subject of the hedge, the hedge will not be fully effective but, if the price of
the instruments being hedged has moved in an unfavorable direction, a Fund would
be in a better position than if it had not hedged at all. If the price of the
instruments being hedged has moved in a favorable direction, this advantage will
be partially offset by the loss on the futures. If the price of the futures
moves more than the price of the hedged instruments, the Funds involved will
experience either a loss or gain on the futures, which will not be completely
offset by movements in the price of the instruments which are the subject of the
hedge. To compensate for the imperfect correlation of movements in the price of
instruments being hedged and movements in the price of futures contracts, a Fund
may buy or sell futures contracts in a greater dollar amount than the dollar
amount of instruments being hedged if the volatility over a particular time
period of the prices of such instruments has been greater than the volatility
over such time period of the futures, or if otherwise deemed to be appropriate
by the investment adviser. Conversely, a Fund may buy or sell fewer futures
contracts if the volatility over a particular time period of the prices of the
instruments being hedged is less than the volatility over such time period of
the futures contract being used, or if otherwise deemed to be appropriate by
Fleet. It is also possible that, where a Fund had sold futures to hedge its
portfolio against a decline in the market, the market may advance and the value
of instruments held in the Fund may decline. If this occurred, the Fund would
lose money on the futures and also experience a decline in value in its
portfolio securities.
B-6
<PAGE>
Where futures are purchased to hedge against a possible increase in the
price of securities before a Fund is able to invest its cash (or cash
equivalents) in an orderly fashion, it is possible that the market may decline
instead; if the Fund then concludes not to invest its cash at that time because
of concern as to possible further market decline or for other reasons, the Fund
will realize a loss on the futures contract that is not offset by a reduction in
the price of the instruments that were to be purchased.
In instances involving the purchase of futures contracts by a Fund, an
amount of cash and cash equivalents, equal to the market value of the futures
contracts, will be deposited in a segregated account with Galaxy's custodian
and/or in a margin account with a broker to collateralize the position and
thereby insure that the use of such futures is unleveraged.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures and the
instruments being hedged, the price of futures may not correlate perfectly with
movement in the cash market due to certain market distortions. Rather than
meeting additional margin deposit requirements, investors may close futures
contracts through off-setting transactions that could distort the normal
relationship between the cash and futures markets. Second, with respect to
financial futures contracts, the liquidity of the futures market depends on
participants entering into off-setting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced thus producing distortions. Third, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities market. Therefore,
increased participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price distortion in the
futures market, and because of the imperfect correlation between the movements
in the cash market and movements in the price of futures, a correct forecast of
general market trends or interest rate movements by the adviser may still not
result in a successful hedging transaction over a short time frame.
Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Funds
intend to purchase or sell futures only on exchanges or boards of trade where
there appear to be active secondary markets, there is no assurance that a liquid
secondary market on any exchange or board of trade will exist for any particular
contract or at any particular time. In such event, it may not be possible to
close a futures investment position, and in the event of adverse price
movements, a Fund would continue to be required to make daily cash payments of
variation margin. However, in the event futures contracts have been used to
hedge portfolio securities, such securities will not be sold until the futures
contract can be terminated. In such circumstances, an increase in the price of
the securities, if any, may partially or completely offset losses on the futures
contract. However, as described above, there is no guarantee that the price of
the securities will in fact correlate with the price movements in the futures
contract and thus provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary market in a
futures contract may be adversely affected by "daily price fluctuation limits"
established by commodity exchanges which limit the amount of fluctuation in a
futures contract price during a single
B-7
<PAGE>
trading day. Once the daily limit has been reached in the contract, no trades
may be entered into at a price beyond the limit, thus preventing the liquidation
of open futures positions. The trading of futures contracts is also subject to
the risk of trading halts, suspensions, exchange or clearing house equipment
failures, government intervention, insolvency of a brokerage firm or clearing
house or other disruptions of normal activity, which could at times make it
difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.
Successful use of futures by the Funds is also subject to Fleet's ability
to predict correctly movements in the direction of the market. For example, if a
particular Fund has hedged against the possibility of a decline in the market
adversely affecting securities held by it and securities prices increase
instead, the Fund will lose part or all of the benefit to the increased value of
its securities which it has hedged because it will have offsetting losses in its
futures positions. In addition, in such situations, if the Fund has insufficient
cash, it may have to sell securities to meet daily variation margin
requirements. Such sales of securities may be, but will not necessarily be, at
increased prices which reflect the rising market. The Funds may have to sell
securities at a time when it may be disadvantageous to do so.
B-8
<PAGE>
EXHIBIT 17(b)(v)
[Front cover page]
Galaxy Money Market Funds
The Galaxy Fund
Prospectus
__________________, 2000
Galaxy Money Market Fund
Galaxy Government Fund
Galaxy U.S. Treasury Fund
Galaxy Tax-Exempt Fund
Galaxy Connecticut Municipal Money Market Fund
Galaxy Massachusetts Municipal Money Market Fund
Galaxy New York Municipal Money Market Fund
Retail A Shares and Retail B Shares
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved any shares of these Funds or determined if this
prospectus is accurate or complete. Anyone who tells you otherwise is committing
a crime.
<PAGE>
<TABLE>
<CAPTION>
Contents
<S> <C>
1 Risk/return summary
1 Introduction
3 Galaxy Money Market Fund
7 Galaxy Government Fund
10 Galaxy U.S. Treasury Fund
13 Galaxy Tax-Exempt Fund
17 Galaxy Connecticut Municipal Money Market Fund
20 Galaxy Massachusetts Municipal Money Market Fund
24 Galaxy New York Municipal Money Market Fund
27 Additional information about risk
28 Investor guidelines
29 Fund management
30 How to invest in the Funds
30 About sales charges
31 Buying, selling and exchanging shares
32 How to buy shares
34 How to sell shares
35 How to exchange shares
36 Other transaction policies
37 Dividends, distributions and taxes
39 Galaxy investor programs
39 Retirement plans
39 Other programs
41 How to reach Galaxy
43 Financial highlights
</TABLE>
<PAGE>
RISK/RETURN SUMMARY
INTRODUCTION
This prospectus describes the Galaxy Money Market Funds. The Funds invest
primarily in short-term debt obligations, commonly known as money market
instruments, that are determined by the Funds' investment adviser to carry very
little risk. Money market instruments purchased by the Funds must meet strict
requirements as to investment quality, maturity and diversification. The Funds
don't invest in securities with remaining maturities of more than 397 days
(subject to certain exceptions) and the average maturity of all securities held
by a particular Fund must be 90 days or less. Each Fund tries to maintain its
share price at $1.00 to protect your investment from loss.
On the following pages, you'll find important information about each Galaxy
Money Market Fund including:
- - the Fund's investment objective (sometimes called the Fund's goal) and the
main investment strategies used by the Fund's investment adviser in trying
to achieve that objective
- - the main risks associated with an investment in the Fund
- - the Fund's past performance measured on both a year-by-year and long-term
basis
- - the fees and expenses that you will pay as an investor in the Fund
[Sidenote:]
MATURITY
The maturity of a security is the date when the issuer must repay the security's
entire principal amount to an investor, such as a Fund.
WHICH FUND IS RIGHT FOR YOU?
Not all mutual funds are right for all investors. Your investment goals and
tolerance for risk will determine which fund is right for you. On page ,
you'll find a table which sets forth general guidelines to help you decide which
of the Galaxy Money Market Funds is best suited to you.
THE FUNDS' INVESTMENT ADVISER
Fleet Investment Advisors Inc. (the "Adviser") is the investment adviser for all
of these Funds. The Adviser, an indirect wholly-owned subsidiary of FleetBoston
Corporation, was established in 1984 and has its main office at 75 State Street,
Boston, Massachusetts 02109. The
-1-
<PAGE>
Adviser also provides investment management and advisory services to
individual and institutional clients and manages the other Galaxy investment
portfolios. As of December 31, 1999, the Adviser managed over $ billion in
assets.
AN INVESTMENT IN THE FUNDS ISN'T A FLEET BANK DEPOSIT AND IT ISN'T INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. ALTHOUGH THE FUNDS SEEK TO PRESERVE THE VALUE OF YOUR INVESTMENT AT
$1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUNDS.
[Sidenote:]
TAX-EQUIVALENT YIELD
One way to understand the tax advantages of a tax-exempt fund is to compare its
after-tax return to that of a taxable investment. For example, suppose a taxable
fund pays a return of 10%. If you're in the 36% federal income tax bracket, the
fund's return after taxes is 6.4%. When a tax-exempt fund pays a return of 10%,
you don't pay tax. So if you're in the 36% tax bracket that's the equivalent of
earning about 15.6% on a taxable fund. If you're in a low tax bracket, however,
it may not be helpful to invest in a tax-exempt fund if you can achieve a higher
after-tax return from a taxable investment.
-2-
<PAGE>
Galaxy Money Market Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks as high a level of current income as is consistent with liquidity
and stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests in a diversified portfolio of money market instruments,
including commercial paper, notes and bonds issued by U.S. corporations,
obligations issued by the U.S. Government and its agencies and
instrumentalities, and obligations issued by U.S. and foreign banks, such as
certificates of deposit. The Fund also invests in repurchase agreements backed
by U.S. Government obligations.
The Fund will only buy a security if it has the highest short-term rating from
at least two nationally recognized statistical rating organizations, or one such
rating if only one organization has rated the security. If the security is not
rated, it must be determined by the Adviser to be of comparable credit quality.
[Sidenote:]
REPURCHASE AGREEMENTS
Repurchase agreements are transactions in which a fund buys securities from a
seller (usually a bank or broker-dealer) who agrees to buy them back from the
fund on a certain date and at a certain price.
THE MAIN RISKS OF INVESTING IN THE FUND
While money market funds are considered to be among the safest of all
investments, they are not risk free. Here are the main risks associated with an
investment in the Fund:
- - INTEREST RATE RISK - The yield paid by the Fund will vary with changes in
short-term interest rates.
- - CREDIT RISK - Although credit risk is very low because the Fund only
invests in high quality obligations, if an issuer fails to pay interest or
repay principal, the value of your investment could decline.
- - REPURCHASE AGREEMENTS - Repurchase agreements carry the risk that the other
party may not fulfill its obligations under the agreement. This could cause
the value of your investment to decline.
-3-
<PAGE>
- - SHARE PRICE - There's no guarantee the Fund will be able to preserve the
value of your investment at $1.00 per share.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares of the Fund has
varied from year to year. The returns for Retail B Shares of the Fund were
different than the figures shown because each class of shares has different
expenses. The figures don't include any sales charges that investors may pay
when selling Retail B Shares of the Money Market Fund.
[Sidenote:]
BEST QUARTER: % for the quarter ending ,
WORST QUARTER: % for the quarter ending ,
[bar chart goes here]
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8.01% 6.13% 3.54% 2.73% 3.68% 5.29% 4.73% 4.99% 4.96% %
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999, after taking into account any sales charges.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
1 Year 5 Years 10 Years Since Inception
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares % % % % (11/17/86)
- -------------------------------------------------------------------------------------------------------------------------------
Retail B Shares % % % % (3/6/97)
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
To obtain the Fund's current 7-day yield, please call 1-877-BUY-GALAXY
(1-877-289-4252).
-4-
<PAGE>
FEES AND EXPENSES OF THE FUND
The Fund offers both Retail A Shares and Retail B Shares. There are no sales
charges (sometimes called front-end loads) when you buy Retail A Shares or
Retail B Shares of the Fund. However, if you buy Retail B Shares of the Fund,
you may have to pay a contingent deferred sales charge (sometimes called a
back-end load or CDSC) when you sell your shares.
The following tables show the fees and expenses you may pay when you buy and
hold shares of the Fund.
Shareholder fees (fees paid directly from your investment)
<TABLE>
<CAPTION>
Maximum sales charge (load) on Maximum deferred sales charge (load)
purchases shown as a % of the shown as a % of the offering price
offering price or share price, whichever is less
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares None None
- ----------------------------------------------------------------------------------------------------------------------
Retail B Shares None 5.00%(1)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
Distribution and Total Fund
Management fees service (12b-1) fees Other Expenses operating expenses
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.40%(2) None % %(2)
- ----------------------------------------------------------------------------------------------------------------------
Retail B Shares 0.40%(2) 0.75% % %(2)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) This amount applies if you sell your shares in the first year after
purchase and gradually declines to 1% in the sixth year after purchase.
After six years, your Retail B Shares will automatically convert to Retail
A Shares. See "How to invest in the Funds - About sales charges."
(2) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be %. Total Fund operating expenses after this waiver
are expected to be % for Retail A Shares and % for Retail B Shares.
This fee waiver may be revised or discontinued at any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
-5-
<PAGE>
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - your Retail B Shares convert to Retail A Shares after six years
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- ----------------------- --------------------- -------------------- --------------------- --------------------
1 year 3 years 5 years 10 years
- ----------------------- --------------------- -------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Retail A Shares $ $ $ $
- ----------------------- --------------------- -------------------- --------------------- --------------------
Retail B Shares $ $ $ $
- -------------------------------------------------------------------------------------------------------------
If you hold Retail B Shares, you would pay the following expenses if you didn't
sell your shares:
- ----------------------- --------------------- -------------------- --------------------- --------------------
Retail B Shares $ $ $ $
- ----------------------- --------------------- -------------------- --------------------- --------------------
</TABLE>
-6-
<PAGE>
Galaxy Government Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks as high a level of current income as is consistent with liquidity
and stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests primarily in U.S. Government obligations, including U.S.
Treasury obligations and obligations of U.S. Government agencies and
instrumentalities. The Fund also invests in repurchase agreements backed by
these obligations.
[Sidenote:]
U.S. GOVERNMENT OBLIGATIONS
U.S. Government obligations are debt obligations issued or guaranteed by the
U.S. Government or one of its agencies or instrumentalities. U.S. Government
obligations generally have less credit risk than other debt obligations.
THE MAIN RISKS OF INVESTING IN THE FUND
While money market funds are considered to be among the safest of all
investments, they are not risk free. Here are the main risks associated with an
investment in the Fund:
- - INTEREST RATE RISK - The yield paid by the Fund will vary with changes in
short-term interest rates.
- - CREDIT RISK - Although U.S. Government securities have historically
involved little credit risk, if an issuer fails to pay interest or repay
principal, the value of your investment could decline.
- - REPURCHASE AGREEMENTS - Repurchase agreements carry the risk that the other
party may not fulfill its obligations under the agreement. This could cause
the value of your investment to decline.
- - SHARE PRICE - There's no guarantee the Fund will be able to preserve the
value of your investment at $1.00 per share.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
-7-
<PAGE>
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares of the Fund has
varied from year to year.
[Sidenote:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
[bar chart goes here]
<TABLE>
<CAPTION>
- ------------- ----------- ---------- ----------- ----------- ----------- ---------- ----------- ----------- ----------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- ------------- ----------- ---------- ----------- ----------- ----------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
7.96% 6.23% 3.45% 2.88% 3.73% 5.25% 4.67% 4.89% 4.85% %
- ------------- ----------- ---------- ----------- ----------- ----------- ---------- ----------- ----------- ----------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999.
<TABLE>
<CAPTION>
- ----------------------- ---------------------- ----------------------- --------------------- -------------------------
1 year 5 years 10 years Since inception
- ----------------------- ---------------------- ----------------------- --------------------- -------------------------
<S> <C> <C> <C> <C>
Retail A Shares % % % % (11/17/86)
- ----------------------- ---------------------- ----------------------- --------------------- -------------------------
</TABLE>
To obtain the Fund's current 7-day yield, please call 1-877-BUY-GALAXY
(1-877-289-4252).
FEES AND EXPENSES OF THE FUND
There are no sales charges when you buy or sell Retail A Shares of the Fund. The
following table shows the fees and expenses you MAY pay when you buy and hold
shares of the Fund.
-8-
<PAGE>
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
- ------------------------- ---------------------- ---------------------- ----------------------- ----------------------
Distribution Total Fund operating
Management fees (12b-1) fees Other expenses expenses
- ------------------------- ---------------------- ---------------------- ----------------------- ----------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.40%(1) None % %(1)
- ------------------------- ---------------------- ---------------------- ----------------------- ----------------------
</TABLE>
(1) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be %. Total Fund operating expenses after this waiver
are expected to be %. This fee waiver may be revised or discontinued at
any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown o your investment
has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- ----------------------- --------------------- -------------------- --------------------- --------------------
1 year 3 years 5 years 10 years
- ----------------------- --------------------- -------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Retail A Shares $ $ $ $
- ----------------------- --------------------- -------------------- --------------------- --------------------
</TABLE>
-9-
<PAGE>
Galaxy U.S. Treasury Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks current income with liquidity and stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests primarily in securities issued or guaranteed by the U.S.
Treasury and certain U.S. Government agencies and instrumentalities that provide
income that is generally not subject to state income tax.
[Sidenote:]
U.S. TREASURY OBLIGATIONS
U.S. Treasury obligations are among the safest of all investments because they
are backed by the "full faith and credit" of the U.S. Government.
THE MAIN RISKS OF INVESTING IN THE FUND
While money market funds are considered to be among the safest of all
investments, they are not risk free. Here are the main risks associated with an
investment in the Fund:
- - INTEREST RATE RISK - The yield paid by the Fund will vary with changes in
short-term interest rates.
- - CREDIT RISK - Although U.S. Government securities, particularly U.S.
Treasury securities, have historically involved little credit risk, if an
issuer fails to pay interest or repay principal, the value of your
investment could decline.
- - SHARE PRICE - There's no guarantee the Fund will be able to preserve the
value of your investment at $1.00 per share.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
-10-
<PAGE>
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares of the Fund has
varied from year to year.
[Sidenote:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
[bar chart goes here]
<TABLE>
<CAPTION>
- ---------------- -------------- ------------- -------------- ------------- -------------- -------------- -------------
1992 1993 1994 1995 1996 1997 1998 1999
- ---------------- -------------- ------------- -------------- ------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
3.39% 2.74% 3.58% 5.05% 4.59% 4.70% 4.63% %
- ---------------- -------------- ------------- -------------- ------------- -------------- -------------- -------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999.
<TABLE>
<CAPTION>
- --------------------------- ------------------------ ------------------------ ------------------------
1 year 5 years Since inception
- --------------------------- ------------------------ ------------------------ ------------------------
<S> <C> <C> <C>
Retail A Shares % % % (1/22/91)
- --------------------------- ------------------------ ------------------------ ------------------------
</TABLE>
To obtain the Fund's current 7-day yield, please call 1-877-BUY-GALAXY
(1-877-289-4252).
FEES AND EXPENSES OF THE FUND
There are no sales charges when you buy or sell Retail A Shares of the Fund. The
following table shows the fees and expenses you may pay when you buy and hold
shares of the Fund.
-11-
<PAGE>
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
Distribution Total Fund operating
Management fees (12b-1) fees Other expenses expenses
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.39% None % %
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
</TABLE>
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- ----------------------- --------------------- -------------------- --------------------- --------------------
1 year 3 years 5 years 10 years
- ----------------------- --------------------- -------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Retail A Shares $ $ $ $
- ----------------------- --------------------- -------------------- --------------------- --------------------
</TABLE>
-12-
<PAGE>
Galaxy Tax-Exempt Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks as high a level of current interest income exempt from federal
income tax as is consistent with stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its total assets in municipal
securities, which are securities issued by state and local governments and other
political or public bodies or agencies and that pay interest which is exempt
from regular federal income tax. Under normal conditions, the Fund will invest
no more than 20% of its total assets in taxable obligations, such as U.S.
Government obligations, money market instruments and repurchase agreements.
Municipal securities purchased by the Fund may include general obligation
securities, revenue securities and private activity bonds. The interest on
private activity bonds may be subject to the federal alternative minimum tax.
Investments in private activity bonds will not be treated as investments in
municipal securities for purposes of the 80% requirement stated above.
The Fund will only buy a security if it has one of the two highest short-term
ratings from at least two nationally recognized statistical rating
organizations, or one such rating if only one organization has rated the
security. If the security is not rated, it must be determined by the Adviser to
be of comparable credit quality.
[Sidenote:]
MUNICIPAL SECURITIES
State and local governments issue municipal securities to raise money to finance
public works, to repay outstanding obligations, to raise funds for general
operating expenses and to make loans to other public institutions. Some
municipal securities, known as private activity bonds, are issued to finance
projects for private companies. Municipal securities, which can be issued as
bonds, notes or commercial paper, usually have fixed interest rates, although
some have interest rates that change from time to time.
-13-
<PAGE>
[Sidenote:]
TYPES OF MUNICIPAL SECURITIES
GENERAL OBLIGATION securities are secured by the issuer's full faith, credit and
taxing power. REVENUE OBLIGATION securities are usually payable only from
revenues derived from specific facilities or revenue sources. PRIVATE ACTIVITY
BONDS are usually revenue obligations since they are typically payable by the
private user of the facilities financed by the bonds.
THE MAIN RISKS OF INVESTING IN THE FUND
While money market funds are considered to be among the safest of all
investments, they are not risk free. Here are the main risks associated with an
investment in the Fund:
- - INTEREST RATE RISK - The yield paid by the Fund will vary with changes in
short-term interest rates.
- - CREDIT RISK - Although credit risk is very low because the Fund only
invests in high quality obligations, if an issuer fails to pay interest
or repay principal, the value of your investment could decline.
The ability of a state or local government issuer to make payments can be
affected by many factors, including economic conditions, the flow of tax
revenues and changes in the level of federal, state or local aid.
- - SHARE PRICE - There's no guarantee the Fund will be able to preserve the
value of your investment at $1.00 per share.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Retail A Shares of the Fund has
varied from year to year.
[Sidenote:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
-14-
<PAGE>
[bar chart goes here]
<TABLE>
<CAPTION>
- ------------- ----------- ---------- ----------- ----------- ----------- ---------- ----------- ----------- ----------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- ------------- ----------- ---------- ----------- ----------- ----------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
5.52% 4.18% 2.46% 2.01% 2.27% 3.19% 2.78% 2.99% 2.81% %
- ------------- ----------- ---------- ----------- ----------- ----------- ---------- ----------- ----------- ----------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999.
<TABLE>
<CAPTION>
- --------------------------- ------------------ ------------------ -------------------- -----------------------------
1 year 5 years 10 years Since inception
- --------------------------- ------------------ ------------------ -------------------- -----------------------------
<S> <C> <C> <C> <C>
Retail A Shares % % % % (6/23/88)
- --------------------------- ------------------ ------------------ -------------------- -----------------------------
</TABLE>
To obtain the Fund's current 7-day yield, please call 1-877-BUY-GALAXY
(1-877-289-4252).
FEES AND EXPENSES OF THE FUND
There are no sales charges when you buy or sell Retail A Shares of the Fund. The
following table shows the fees and expenses you may pay when you buy and hold
shares of the Fund.
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
- ----------------------- ----------------------- ----------------------- ---------------------- -----------------------
Distribution Total Fund operating
Management fees (12b-1) fees Other expenses expenses
- ----------------------- ----------------------- ----------------------- ---------------------- -----------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.40% None % %
- ----------------------- ----------------------- ----------------------- ---------------------- -----------------------
</TABLE>
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
-15-
<PAGE>
<TABLE>
<CAPTION>
- ----------------------- --------------------- -------------------- --------------------- --------------------
1 year 3 years 5 years 10 years
- ----------------------- --------------------- -------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Retail A Shares $ $ $ $
- ----------------------- --------------------- -------------------- --------------------- --------------------
</TABLE>
-16-
<PAGE>
Galaxy Connecticut Municipal Money Market Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks to provide current income exempt from federal regular income tax
and the Connecticut state income tax on individuals, trusts and estates,
consistent with relative stability of principal and liquidity.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its total assets in municipal
securities that pay interest which is exempt from federal regular income tax,
and at least 65% of its total assets in Connecticut municipal securities, which
are securities issued by or on behalf of the State of Connecticut and other
government issuers and that pay interest which is exempt from both federal
regular income tax and the Connecticut state income tax on individuals, trusts
and estates. Under normal conditions, the Fund will invest no more than 20% of
its total assets in taxable obligations, such as U.S. Government obligations,
money market instruments and repurchase agreements.
Municipal securities purchased by the Fund may include general obligation
securities, revenue securities and private activity bonds. The interest on
private activity bonds may be subject to the federal alternative minimum tax.
Investments in private activity bonds will not be treated as investments in
municipal securities for purposes of the 80% requirement stated above.
The Fund will only buy a security if it has one of the two highest short-term
ratings from at least two nationally recognized statistical rating
organizations, or one such rating if only one organization has rated the
security. If the security is not rated, it must be determined by the Adviser to
be of comparable credit quality.
THE MAIN RISKS OF INVESTING IN THE FUND
While money market funds are considered to be among the safest of all
investments, they are not risk free. Here are the main risks associated with an
investment in the Fund:
- - INTEREST RATE RISK - The yield paid by the Fund will vary with changes in
short-term interest rates.
- - CREDIT RISK - Although credit risk is very low because the Fund only
invests in high quality obligations, if an issuer fails to pay interest or
repay principal, the value of your investment could decline. The ability
of a state or local government issuer to make payments can be
-17-
<PAGE>
affected by many factors, including economic conditions, the flow of tax
revenues and changes in the level of federal, state or local aid.
- - LACK OF DIVERSIFICATION - The Fund is not diversified, which means that it
can invest a large percentage of its assets in a small number of issuers.
As a result, a change in the value of any one investment held by the Fund
may affect the overall value of the Fund more than it would affect a
diversified fund which holds more investments.
- - SINGLE STATE RISK - Since the Fund invests primarily in Connecticut
municipal securities, it is likely to be especially susceptible to
economic, political and regulatory events that affect Connecticut.
- - SHARE PRICE - There's no guarantee the Fund will be able to preserve the
value of your investment at $1.00 per share.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
The Fund began operations on October 4, 1993 as a separate portfolio (the
Predecessor Fund) of The Shawmut Funds. On December 4, 1995, the Predecessor
Fund was reorganized as a new portfolio of Galaxy. Prior to the reorganization,
the Predecessor Fund offered and sold two classes of shares, Investment Shares
and Trust Shares. In connection with the reorganization, shareholders of the
Predecessor Fund exchanged their Investment Shares and Trust Shares for Retail A
Shares of the Fund. The return for periods prior to December 4, 1995 are for
Investment Shares of the Predecessor Fund.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of the Fund has varied from year to
year.
[Sidenote:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
-18-
<PAGE>
[bar chart goes here]
<TABLE>
<CAPTION>
- --------------------- ------------------ ------------------- ------------------ ------------------- ------------------
1994 1995 1996 1997 1998 1999
- --------------------- ------------------ ------------------- ------------------ ------------------- ------------------
<S> <C> <C> <C> <C> <C>
1.99% 2.97% 2.78% 2.98% 2.77% %
- --------------------- ------------------ ------------------- ------------------ ------------------- ------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999, after taking into account any sales charges on Investment
Shares of the Predecessor Fund.
<TABLE>
<CAPTION>
- --------------------------- ------------------------ ------------------------ ------------------------
1 year 5 years Since inception
- --------------------------- ------------------------ ------------------------ ------------------------
<S> <C> <C> <C>
Retail A Shares % % % (10/4/93)
- --------------------------- ------------------------ ------------------------ ------------------------
</TABLE>
To obtain the Fund's current 7-day yield, please call 1-877-BUY-GALAXY
(1-877-289-4252).
FEES AND EXPENSES OF THE FUND
There are no sales charges when you buy or sell Retail A Shares of the Fund. The
following table shows the fees and expenses you pay when you buy and hold shares
of the Fund.
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
- ----------------------- ----------------------- ----------------------- ---------------------- -----------------------
Distribution Total Fund operating
Management fees (12b-1) fees Other expenses expenses
- ----------------------- ----------------------- ----------------------- ---------------------- -----------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.40%(1) None % %(1)
- ----------------------- ----------------------- ----------------------- ---------------------- -----------------------
</TABLE>
(1) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be %. Total Fund operating expenses after this waiver
are expected to be %. This fee waiver may be revised or discontinued at
any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
-19-
<PAGE>
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- ----------------------- --------------------- -------------------- --------------------- --------------------
1 year 3 years 5 years 10 years
- ----------------------- --------------------- -------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Retail A Shares $ $ $ $
- ----------------------- --------------------- -------------------- --------------------- --------------------
</TABLE>
Galaxy Massachusetts Municipal Money Market Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks to provide current income exempt from federal regular income tax
and the income taxes imposed by the Commonwealth of Massachusetts, consistent
with relative stability of principal and liquidity.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its total assets in municipal
securities that pay interest which is exempt from federal regular income tax,
and at least 65% of its total assets in Massachusetts municipal securities,
which are securities issued by or on behalf of the Commonwealth of Massachusetts
and other government issuers and that pay interest which is exempt from both
federal regular income tax and Massachusetts personal income tax. Under normal
conditions, the Fund will invest no more than 20% of its total assets in taxable
obligations, such as U.S. Government obligations, money market instruments and
commercial paper.
Municipal securities purchased by the Fund may include general obligation
securities, revenue securities and private activity bonds. The interest on
private activity bonds may be subject to the federal alternative minimum tax.
Investments in private activity bonds will not be treated as investments in
municipal securities for purposes of the 80% requirement stated above.
The Fund will only buy a security if it has one of the two highest short-term
ratings from at least two nationally recognized statistical rating
organizations, or one such rating if only one organization has rated the
security. If the security is not rated, it must be determined by the Adviser to
be of comparable credit quality.
THE MAIN RISKS OF INVESTING IN THE FUND
While money market funds are considered to be among the safest of all
investments, they are not risk free. Here are the main risks associated with an
investment in the Fund:
-20-
<PAGE>
- - INTEREST RATE RISK - The yield paid by the Fund will vary with changes in
short-term interest rates.
- - CREDIT RISK - Although credit risk is very low because the Fund only
invests in high quality obligations, if an issuer fails to pay interest or
repay principal, the value of your investment could decline. The ability of
a state or local government issuer to make payments can be affected by
many factors, including economic conditions, the flow of tax revenues and
changes in the level of federal, state or local aid.
- - LACK OF DIVERSIFICATION - The Fund is not diversified, which means that it
can invest a large percentage of its assets in a small number of issuers.
As a result, a change in the value of any one investment held by the Fund
may affect the overall value of the Fund more than it would affect a
diversified fund which holds more investments.
- - SINGLE STATE RISK - Since the Fund invests primarily in Massachusetts
municipal securities, it is likely to be especially susceptible to
economic, political and regulatory events that affect Massachusetts.
- - SHARE PRICE - There's no guarantee the Fund will be able to preserve the
value of your investment at $1.00 per share.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
The Fund began operations on October 5, 1993 as a separate portfolio (the
Predecessor Fund) of The Shawmut Funds. On December 4, 1995, the Predecessor
Fund was reorganized as a new portfolio of Galaxy. Prior to the reorganization,
the Predecessor Fund offered and sold a single class of shares. In connection
with the reorganization, shareholders of the Predecessor Fund exchanged their
shares for Retail A Shares of the Fund. The returns for periods prior to
December 4, 1995 are for shares of the Predecessor Fund.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of the Fund has varied from year to
year.
[Sidenote:]
Best quarter: % for the quarter ending ,
Worst quarter: % for the quarter ending ,
-21-
<PAGE>
[bar chart goes here]
<TABLE>
<CAPTION>
- ------------------ ------------------ --------------------- --------------------- ---------------------- ----------------------
1994 1995 1996 1997 1998 1999
- ------------------ ------------------ --------------------- --------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C> <C>
2.15% 3.23% 2.78% 2.96% 2.79% %
- ------------------ ------------------ --------------------- --------------------- ---------------------- ----------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999.
<TABLE>
<CAPTION>
- --------------------------- ------------------------ ------------------------ ------------------------
1 year 5 years Since inception
- --------------------------- ------------------------ ------------------------ ------------------------
<S> <C> <C> <C>
Retail A Shares % % % (10/05/93)
- --------------------------- ------------------------ ------------------------ ------------------------
</TABLE>
To obtain the Fund's current 7-day yield, please call 1-877-BUY-GALAXY
(1-877-289-4252).
FEES AND EXPENSES OF THE FUND
There are no sales charges when you buy or sell Retail A Shares of the Fund. The
following table shows the fees and expenses you pay when you buy and hold shares
of the Fund.
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
- ----------------------- ----------------------- ----------------------- ---------------------- -----------------------
Distribution (12b-1) Total Fund operating
Management fees fees Other expenses expenses
- ----------------------- ----------------------- ----------------------- ---------------------- -----------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.40%(1) None % %(1)
- ----------------------- ----------------------- ----------------------- ---------------------- -----------------------
</TABLE>
(1) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be %. Total Fund operating expenses after this waiver
are expected to be %. This fee waiver may be revised or discontinued at
any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
-22-
<PAGE>
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- ----------------------- --------------------- -------------------- --------------------- --------------------
1 year 3 years 5 years 10 years
- ----------------------- --------------------- -------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Retail A Shares $ $ $ $
- ----------------------- --------------------- -------------------- --------------------- --------------------
</TABLE>
-23-
<PAGE>
Galaxy New York Municipal Money Market Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks to provide current income exempt from federal regular income tax
and New York State and New York City personal income tax, consistent with
relative stability of principal and liquidity.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its total assets in municipal
securities that pay interest which is exempt from federal regular income tax,
and at least 65% of its total assets in New York municipal securities, which are
securities issued by or on behalf of the State of New York and other government
issuers and that pay interest which is exempt from federal regular income tax
and New York State and New York City personal income tax. Under normal
conditions, the Fund will invest no more than 20% of its total assets in taxable
obligations, such as U.S. Government obligations, money market instruments and
repurchase agreements.
Municipal securities purchased by the Fund may include general obligation
securities, revenue securities and private activity bonds. The interest on
private activity bonds may be subject to the federal alternative minimum tax.
Investments in private activity bonds will not be treated as investments in
municipal securities for purposes of the 80% requirement stated above.
The Fund will only buy a security if it has one of the two highest short-term
ratings from at least two nationally recognized statistical rating
organizations, or one such rating if only one organization has rated the
security. If the security is not rated, it must be determined by the Adviser to
be of comparable credit quality.
THE MAIN RISKS OF INVESTING IN THE FUND
While money market funds are considered to be among the safest of all
investments, they are not risk free. Here are the main risks associated with an
investment in the Fund:
- - INTEREST RATE RISK - The yield paid by the Fund will vary with changes in
short-term interest rates.
- - CREDIT RISK - Although credit risk is very low because the Fund only invests
in high quality obligations, if an issuer fails to pay interest or repay
principal, the value of your investment could decline. The ability of a
state or local government issuer to make payments can be affected by many
factors, including economic conditions, the flow of tax revenues and changes
in the level of federal, state or local aid.
-24-
<PAGE>
- - LACK OF DIVERSIFICATION - The Fund is not diversified, which means that it
can invest a large percentage of its assets in a small number of issuers.
As a result, a change in the value of any one investment held by the Fund
may affect the overall value of the Fund more than it would affect a
diversified fund which holds more investments.
- - SINGLE STATE RISK - Because the Fund invests primarily in New York
municipal securities, the Fund's ability to achieve its investment
objective is dependent upon the ability of the issuers of New York
municipal securities to meet their continuing obligations for the payment
of principal and interest. New York State and New York City face long-term
economic problems that could seriously affect their ability and that of
other issuers of New York municipal securities to meet their financial
obligations. Other considerations affecting the Fund's investments in New
York municipal securities are summarized in the Statement of Additional
Information.
- - SHARE PRICE - There's no guarantee the Fund will be able to preserve the
value of your investment at $1.00 per share.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these evaluations
will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The Fund had not commenced operations prior to the date of this prospectus. No
performance information is presented because the Fund has less than one full
calendar year of performance history.
FEES AND EXPENSES OF THE FUND
There are no sales charges when you buy or sell Retail A Shares of the Fund. The
following table shows the fees and expenses you may pay when you buy and hold
shares of the Fund.
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
- ----------------------- ----------------- ------------------- ------------- --------------
Total Fund
Distribution Other operating
Management fees (12b-1) fees expenses expenses
- ----------------------- ----------------- ------------------- ------------- --------------
<S> <C> <C> <C> <C>
Retail A Shares 0.40%(1) None %(2) %(1)
- ----------------------- ----------------- ------------------- ------------- --------------
</TABLE>
(1) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be . Total Fund operating expenses after this waiver
are expected to be . This fee waiver may be revised or discontinued at
any time.
-25-
<PAGE>
(2) Other expenses are based on estimated amounts for the current fiscal year.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- ----------------------- --------------------- --------------------
1 year 3 years
- ----------------------- --------------------- --------------------
<S> <C> <C>
Retail A Shares $ $
- ----------------------- --------------------- --------------------
</TABLE>
-26-
<PAGE>
ADDITIONAL INFORMATION ABOUT RISK
The main risks associated with an investment in each of the Galaxy Money Market
Funds have been described above. The following supplements that discussion.
TEMPORARY DEFENSIVE POSITIONS
Each Fund may temporarily hold up to 100% of its total assets in investments
that aren't part of its main investment strategy during unfavorable market
conditions. These investments may include cash (which will not earn any income)
and, in the case of the Tax-Exempt Fund, Connecticut Municipal Money Market
Fund, Massachusetts Municipal Money Market Fund, and New York Municipal Money
Market Fund, short-term taxable investments, such as money market instruments
and debt securities issued or guaranteed by the U.S. Government or its agencies,
in excess of 20% of each Fund's assets. This strategy could prevent a Fund from
achieving its investment objective.
OTHER TYPES OF INVESTMENTS
This prospectus describes each Fund's main investment strategies and the
particular types of securities in which each Fund mainly invests. Each Fund
may, from time to time, pursue other investment strategies and make other
types of investments in support of its overall investment goal. These
supplemental investment strategies, which are not considered to be main
investment strategies of the Fund - and the risks involved - are described in
detail in the Statement of Additional Information (SAI) which is referred to
on the back cover of this prospectus.
-27-
<PAGE>
INVESTOR GUIDELINES
The table below provides information as to which type of investor might want to
invest in each of the Galaxy Money Market Funds. It's meant as a general guide
only. TAX-EXEMPT FUNDS ARE GENERALLY NOT APPROPRIATE INVESTMENTS FOR
TAX-DEFERRED RETIREMENT ACCOUNTS, SUCH AS IRAS, BECAUSE THEIR RETURNS BEFORE
TAXES ARE GENERALLY LOWER THAN THOSE OF TAXABLE FUNDS. Consult your investment
professional for help in deciding which Fund is right for you.
<TABLE>
<CAPTION>
- ------------------------------------------------------- -----------------------------------------------------
Galaxy Fund May be best suited for...
- ------------------------------------------------------- -----------------------------------------------------
<S> <C>
Galaxy Money Market Fund investors who want a flexible and convenient way to
manage cash while earning money market returns
- ------------------------------------------------------- -----------------------------------------------------
Galaxy Government Fund investors who want a way to earn money market
returns with the extra margin of safety associated
with U.S. Government obligations
- ------------------------------------------------------- -----------------------------------------------------
Galaxy U.S. Treasury Fund investors who want a way to earn money market
returns from U.S. Treasury obligations that are
generally free from state and local taxes
- ------------------------------------------------------- -----------------------------------------------------
Galaxy Tax-Exempt Fund investors who want a way to earn money market
returns that are free from federal income tax
- ------------------------------------------------------- -----------------------------------------------------
Galaxy Connecticut Municipal Money Market Fund investors who want a way to earn money market
returns that are free from both regular federal
income tax and the Connecticut state income tax on
individuals, trusts and estates
- ------------------------------------------------------- -----------------------------------------------------
Galaxy Massachusetts Municipal Money Market Fund investors who want a way to earn money market returns
that are free from both regular federal income tax
and Massachusetts personal income tax
- ------------------------------------------------------- -----------------------------------------------------
Galaxy New York Municipal Money Market Fund investors who want a way to earn money market
returns that are free from both regular federal
income tax and New York State and New York City
personal income tax
- ------------------------------------------------------- -----------------------------------------------------
</TABLE>
-28-
<PAGE>
FUND MANAGEMENT
ADVISER
The Adviser, subject to the general supervision of Galaxy's Board of Trustees,
manages each Fund in accordance with its investment objective and policies,
makes decisions with respect to and places orders for, all purchases and sales
of portfolio securities, and maintains related records.
ALLOCATION OF ORDERS FOR PORTFOLIO SECURITIES
The Adviser may allocate orders for the purchase and sale of portfolio
securities to certain financial institutions, including those that are
affiliated with the Adviser or that have sold shares of the Funds, to the extent
permitted by law or by order of the Securities and Exchange Commission. The
Adviser will allocate orders to such institutions only if it believes that the
quality of the transaction and the commission are comparable to what they would
be with other qualified brokerage firms.
MANAGEMENT FEES
The management fees paid to the Adviser by the Funds during the last fiscal year
are set forth below. The New York Municipal Money Market Fund had not commenced
operations prior to the date of this prospectus, and the fee shown is that which
is currently in effect.
<TABLE>
<CAPTION>
- --------------------------------------------------------- ----------------------------------
Management fee as a
Fund % of average net assets
- --------------------------------------------------------- ----------------------------------
<S> <C>
Money Market %
- --------------------------------------------------------- ----------------------------------
Government %
- --------------------------------------------------------- ----------------------------------
U.S. Treasury %
- --------------------------------------------------------- ----------------------------------
Tax-Exempt %
- --------------------------------------------------------- ----------------------------------
Connecticut Municipal Money Market %
- --------------------------------------------------------- ----------------------------------
Massachusetts Municipal Money Market %
- --------------------------------------------------------- ----------------------------------
New York Municipal Money Market %
- --------------------------------------------------------- ----------------------------------
</TABLE>
-29-
<PAGE>
HOW TO INVEST IN THE FUNDS
All of the Funds offer Retail A Shares. The Money Market Fund also offers
Retail B Shares.
ABOUT SALES CHARGES
There are no sales charges (sometimes called front-end loads) when you buy
either Retail A Shares or Retail B Shares of a Fund. If you buy Retail B Shares
of the Money Market Fund, you may have to pay a contingent deferred sales charge
(sometimes called a back-end load or CDSC) if you sell your shares within six
years of buying them. The following table shows the schedule of CDSC charges:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------ -------------------
You'll pay a
If you sell your shares CDSC of
- ------------------------------------------------------------------------------------------------ -------------------
<S> <C>
during the first year 5.00%
- ------------------------------------------------------------------------------------------------ -------------------
during the second year 4.00%
- ------------------------------------------------------------------------------------------------ -------------------
during the third year 3.00%
- ------------------------------------------------------------------------------------------------ -------------------
during the fourth year 3.00%
- ------------------------------------------------------------------------------------------------ -------------------
during the fifth year 2.00%
- ------------------------------------------------------------------------------------------------ -------------------
during the sixth year 1.00%
- ------------------------------------------------------------------------------------------------ -------------------
after the sixth year None
- ------------------------------------------------------------------------------------------------ -------------------
</TABLE>
For purposes of calculating the CDSC, all purchases made during a calendar month
are considered to be made on the first day of that month. The CDSC is based on
the value of the Retail B Shares on the date that they are sold or the original
cost of the shares, whichever is lower. To keep your CDSC as low as possible
each time you sell shares, Galaxy will first sell any shares in your account
that are not subject to a CDSC. If there are not enough of these, Galaxy will
sell those shares that have the lowest CDSC. There is no CDSC on Retail B Shares
that you acquire by reinvesting your dividends and distributions.
There's no CDSC when Retail B Shares of the Money Market Fund are sold because
of the death or disability of a shareholder and in certain other circumstances
such as exchanges. Ask your investment professional or Galaxy's distributor, or
consult the SAI, for other instances in which the CDSC is waived. To contact
Galaxy's distributor, call 1-877-BUY-GALAXY (1-877-289-4252).
-30-
<PAGE>
DISTRIBUTION AND SHAREHOLDER SERVICE FEES
Retail A Shares of the Funds can pay shareholder service fees at an annual rate
of up to 0.50% of each Fund's Retail A Share assets. The Funds do not intend to
pay more than 0.10% in shareholder service fees with respect to Retail A Shares
during the current fiscal year.
Retail B Shares of the Money Market Fund can pay distribution and shareholder
service (12b-1) fees at an annual rate of up to 1.15% of the Fund's Retail B
Share assets. The Fund does not intend to pay more than 0.75% in distribution
and shareholder service (12b-1) fees during the current fiscal year. Galaxy has
adopted a plan under Rule 12b-1 that allows the Money Market Fund to pay fees
from its Retail B Share assets for selling and distributing Retail B Shares and
for providing services to shareholders. Because 12b-1 fees are paid on an
ongoing basis, over time they increase the cost of your investment and may cost
more than paying other sales charges.
CONVERTING RETAIL B SHARES TO RETAIL A SHARES
Six years after you buy Retail B Shares of the Money Market Fund, they will
automatically convert to Retail A Shares of the Fund. This allows you to benefit
from the lower annual expenses of Retail A Shares.
[Sidenote:]
Retail B Shares of the Money Market Fund have higher operating expenses than
Retail A Shares of the Fund and may not be appropriate for investors who do not
plan to exchange their Retail B Shares for Retail B Shares of another Galaxy
Fund.
[Sidenote:]
NET ASSET VALUE
The price you pay for your shares is based on the net asset value per share
(NAV). It's the value of a Fund's assets attributable to Retail A Shares or
Retail B Shares, minus the value of the Fund's liabilities attributable to
Retail A Shares or Retail B Shares, divided by the number of Retail A Shares or
Retail B Shares held by investors.
BUYING, SELLING AND EXCHANGING SHARES
If your order to buy shares is received and accepted by Galaxy's distributor by
11:00 a.m. (Eastern time) on a business day, the price you pay will be the net
asset value (NAV) per share next determined (and you'll receive that day's
dividend) if Galaxy's custodian receives the purchase price in immediately
available funds by 11:00 a.m. that day. If your order to purchase shares is
received and accepted by Galaxy's distributor after 11:00 a.m. (Eastern time)
but before
-31-
<PAGE>
4:00 p.m. (Eastern time) on a business day, the price you pay will be
the NAV next determined (and you'll begin receiving dividends the next day) if
Galaxy's custodian receives the purchase price in immediately available funds by
4:00 p.m. on the day of your order. The price at which you sell shares is the
NAV next determined after receipt your order in proper form as described below,
less any applicable CDSC in the case of Retail B Shares of the Money Market
Fund. NAV is determined on each day the New York Stock Exchange is open for
trading as of 11:00 a.m. (Eastern time) and at the close of regular trading
(usually 4:00 p.m. Eastern time). The New York Stock Exchange is generally open
for trading every Monday through Friday, except for national holidays.
The Funds' assets are valued at amortized cost, which is approximately equal to
market value.
HOW TO BUY SHARES
You can buy shares through your financial institution or directly from Galaxy's
distributor by calling 1-877-BUY-GALAXY (1-877-289-4252). A broker or agent who
places orders on your behalf may charge you a separate fee for their services.
BUYING BY MAIL
Complete an account application and mail it, together with a check payable to
each Fund in which you want to invest, to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
To make additional investments, send your check to the address above along with
one of the following:
- - The detachable slip that's included with your Galaxy statement or your
confirmation of a prior transaction
- - A letter stating the amount of your investment, the name of the Fund you
want to invest in, and your account number
If your check is returned because of insufficient funds, we'll cancel your
order.
[Sidenote:]
MINIMUM INVESTMENT AMOUNTS
The minimum initial investment to open a Fund account is:
- - $2,500 for regular accounts
- - $500 for retirement plan accounts such as IRA, SEP and Keogh Plan accounts
- - $100 for college savings accounts, including Education IRA accounts
-32-
<PAGE>
There is generally no minimum initial investment if you participate in the
Automatic Investment Program or in a salary reduction retirement plan such as a
SIMPLE IRA or 401(k). You generally can make additional investments for as
little as $100. See GALAXY INVESTOR PROGRAMS below for information on other
minimums for initial and additional investments.
Usually, you must keep at least $250 in your account other than retirement plan
accounts. If your account falls below $250 because you sell or exchange shares,
Galaxy may redeem your shares and close your account. Galaxy will give you 60
days' notice in writing before closing your account.
BUYING BY WIRE
To make an initial or additional investment by wire, send U.S. funds through the
Federal Reserve System to Fleet National Bank as agent for Galaxy's distributor.
You should wire money and registration instructions to:
Fleet National Bank
75 State Street
Boston, MA 02109
ABA #0110-0013-8
DDA #79673-5702
Ref: The Galaxy Fund
(Account number)
(Account registration)
Before making an initial investment by wire, you must complete an account
application and send it to The Galaxy Fund, P.O. Box 6520, Providence, RI
02940-6520. Your order will not be effected until the completed account
application is received by Galaxy. Call Galaxy's distributor at 1-877-BUY-GALAXY
(1-877-289-4252) for an account application.
Your financial institution may charge you a fee for sending funds by wire.
CUSTOMERS OF FINANCIAL INSTITUTIONS
If you are a customer of a financial institution such as a bank, savings and
loan association or broker-dealer, including a financial institution affiliated
with the Adviser, you should place your order through your financial
institution. Your financial institution is responsible for sending your order to
Galaxy's distributor and wiring the money to Galaxy's custodian. For details,
please contact your financial institution.
-33-
<PAGE>
HOW TO SELL SHARES
You can sell your shares in several ways: by mail, by telephone, by wire, or
through your financial institution.
SELLING BY MAIL Send your request in writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
You must include the following:
- - The name of the Fund
- - The number of shares or the dollar amount you want to sell
- - Your account number
- - Your Social Security number or tax identification number
- - The signatures of each registered owner of the account (the signatures must
match the names on the account registration)
Additional documents may be required for certain types of shareholders, such as
corporations, partnerships, executors, trustees, administrators or guardians.
[Sidenote:]
SIGNATURE GUARANTEES
When selling your shares by mail or by phone, you must have your signature
guaranteed if:
- - you're selling shares worth more than $50,000,
- - you want Galaxy to send your money to an address other than the address on
your account, unless your money is transferred to a successor custodian,
- - you want Galaxy to send your money to the address on your account that's
changed within the last 30 days, or
- - you want Galaxy to make the check payable to someone else.
Your signature must be guaranteed by a bank that's a member of the FDIC, a trust
company, a member firm of a national securities exchange or any other eligible
institution. A notarized signature is not sufficient.
SELLING BY PHONE
You can sell shares by calling Galaxy's distributor at 1-877-BUY-GALAXY
(1-877-289-4252) unless you tell Galaxy on the account application or in writing
that you don't want this privilege.
-34-
<PAGE>
If you have difficulty getting through to Galaxy because of unusual market
conditions, consider selling your shares by mail or wire.
SELLING BY WIRE
Notify Galaxy's distributor by phone or wire that you wish to sell shares and
have the sale proceeds wired to your account at any financial institution in the
U.S. To be eligible to use this privilege, you must complete the appropriate
section on the account application or notify Galaxy in writing (with a signature
guarantee). Your sale proceeds must be more than $1,000.
The sale proceeds must be paid to the same bank and account you named on your
application or in your written instructions.
CUSTOMERS OF FINANCIAL INSTITUTIONS
Please contact your financial institution for information on how to sell your
shares. The financial institution is responsible for sending your order to
Galaxy's distributor and for crediting your account with the proceeds. Galaxy
doesn't charge a fee for wiring sale proceeds to your financial institution, but
your financial institution may charge you a fee.
HOW TO EXCHANGE SHARES
You may exchange Retail A Shares of a Fund having a value of at least $100 for
Retail A Shares of any other Galaxy Fund or for shares of any other Fund that's
managed by the Adviser or any of its affiliates in which you have an existing
account. Unless you qualify for a waiver, you'll have to pay a sales charge when
you exchange Retail A Shares of a Fund for Retail A Shares of another Galaxy
Fund that imposes a sales charge on purchases.
You may exchange Retail B Shares of the Money Market Fund for Retail B Shares of
any other Galaxy Fund. You won't pay a contingent deferred sales charge when you
exchange your Retail B Shares. However, when you sell the Retail B Shares you
acquired in the exchange, you'll pay a contingent deferred sales charge based on
the date you bought the Retail B Shares which you exchanged.
TO EXCHANGE SHARES:
- - call Galaxy's distributor or use the InvestConnect voice response line at
1-877-BUY-GALAXY (1-877-289-4252)
-35-
<PAGE>
- - send your request in writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
- - ask your financial institution
Galaxy doesn't charge any fee for making exchanges but your financial
institution might do so. You are generally limited to three exchanges per year.
Galaxy may change or cancel the exchange privilege by giving 60 days' advance
written notice to shareholders.
OTHER TRANSACTION POLICIES
If Galaxy doesn't receive full payment for your order to buy shares within three
business days of the order date, Galaxy won't accept your order. Galaxy will
advise you if this happens and return any payment it may eventually receive. You
can only invest in shares of the Funds that are legally available in your state.
Galaxy may refuse any order to buy shares. Galaxy doesn't issue a certificate
when you buy shares but it does keep a record of shares issued to investors.
Galaxy may refuse your order to sell or exchange shares by wire or telephone if
it believes it is advisable to do so. Galaxy or its distributor may change or
cancel the procedures for selling or exchanging shares by wire or telephone at
any time without notice.
If you sell or exchange shares by telephone, you may be responsible for any
fraudulent telephone orders as long as Galaxy has taken reasonable precautions
to verify your identity, such as requesting information about the way in which
your account is registered or about recent transactions in your account.
Galaxy normally pays you cash when you sell your shares, but it has the right to
deliver securities owned by a Fund instead of cash. When you sell these
securities, you'll pay brokerage charges.
Sales proceeds are normally sent to you within three business days but Galaxy
reserves the right to send sales proceeds within seven days if sending proceeds
earlier could adversely affect a Fund.
If any shares that you're selling are part of an investment you've paid for with
a personal check, Galaxy will delay sending your sales proceeds until the check
clears, which can take up to 15 days from the purchase date.
Galaxy reserves the right to vary or waive any minimum investment requirement.
-36-
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Fund declares dividends from net investment income daily and pays them
within five business days after the end of each month. Although the Funds do not
expect to realize net long-term capital gains, any capital gains realized will
be distributed at least annually. Dividends and distributions are paid in cash
unless you indicate in the account application or in a letter to Galaxy that you
want to have dividends and distributions reinvested in additional shares.
MONEY MARKET, GOVERNMENT AND U.S. TREASURY FUNDS
Distributions by these Funds will generally be taxable to shareholders. Each of
these Funds expects that all, or substantially all, of its distributions will
consist of ordinary income. You will be subject to income tax on these
distributions regardless whether they are paid in cash or reinvested in
additional shares. The one major exception to these tax principles is that
distributions on shares held in an IRA (or other tax-qualified plan) will not be
currently taxable.
TAX-EXEMPT, CONNECTICUT MUNICIPAL MONEY MARKET, MASSACHUSETTS MUNICIPAL MONEY
MARKET AND NEW YORK MUNICIPAL MONEY MARKET FUNDS
Distributions by these Funds will generally consist of dividends derived from
interest earned on exempt securities, and these "exempt-interest dividends" will
be exempt income for shareholders for federal income tax purposes. It is
possible, depending upon a Fund's investments, that a portion of the Fund's
distributions could be taxable to shareholders as ordinary income or capital
gains, but none of these Funds expects that this will be the case.
Interest on indebtedness incurred by a shareholder to purchase or carry shares
of these Funds generally will not be deductible for federal income tax purposes.
You should note that a portion of the exempt-interest dividends paid by one or
more of these Funds may constitute an item of tax preference for purposes of
determining federal alternative minimum tax liability. Exempt-interest dividends
will also be considered along with other adjusted gross income in determining
whether any Social Security or railroad retirement payments received by you are
subject to federal income taxes.
CONNECTICUT MUNICIPAL MONEY MARKET FUND
This Fund intends to comply with certain state tax requirements so that its
dividends will generally be exempt from the Connecticut state income tax on
individuals, trusts and estates ("CSIT"). However, dividends, if any, derived
from interest on securities other than Connecticut municipal securities, or from
any capital gains, will be subject to the CSIT.
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<PAGE>
MASSACHUSETTS MUNICIPAL MONEY MARKET FUND
This Fund intends to comply with certain state tax requirements so that its
dividends will generally be exempt from the Massachusetts personal income tax.
However, dividends, if any, derived from interest on securities other than
Massachusetts municipal securities, or from any capital gains, will be subject
to Massachusetts personal income tax.
NEW YORK MUNICIPAL MONEY MARKET FUND
This Fund intends to comply with certain state tax requirements so that its
dividends will be generally exempt from the New York State and New York City
personal income tax. However, dividends, if any, derived from interest on
securities other than New York municipal securities, or from any capital gains,
will be subject to the New York State and New York City personal income tax.
ALL FUNDS
Taxable dividends paid in January may be taxable as if they had been paid the
previous December. Each year you'll receive in the mail federal tax information
on distributions paid by the Funds.
OTHER STATE AND LOCAL TAX MATTERS
Generally, shareholders may also be subject to state and local taxes on
distributions and redemptions. State income taxes may not apply however to the
portions of each Fund's distributions, if any, that are attributable to interest
on U.S. Government securities or on securities of the particular state or
localities within the state.
MISCELLANEOUS
The foregoing is only a summary of certain tax considerations under current law,
which may be subject to change in the future. You should consult your tax
adviser for further information regarding federal, state, local and/or foreign
tax consequences relevant to your specific situation.
-38-
<PAGE>
GALAXY INVESTOR PROGRAMS
RETIREMENT PLANS
Retail A Shares and Retail B Shares of the Funds are available for purchase in
connection with any of the following retirement plans:
- - Individual Retirement Arrangements (IRAs), including Traditional, Roth,
Rollover and Education IRAs
- - Simplified Employee Pension Plans (SEPs)
- - Keogh money purchase and profit sharing plans
- - Salary reduction retirement plans set up by employers for their employees,
which are qualified under Section 401(k) and 403(b) of the Internal Revenue
Code
- - SIMPLE IRA plans which are qualified under Section 408(p) of the Internal
Revenue Code
For information about eligibility requirements and other matters concerning
these plans and to obtain an application, call Galaxy's distributor at
1-877-BUY-GALAXY (1-877-289-4252).
OTHER PROGRAMS
It's also easy to buy or sell shares of the Funds by using one of the programs
described below. Just tell Galaxy the amount and how frequently you want to buy
or sell shares and Galaxy does the rest. For further information on any of these
programs, call Galaxy's distributor at 1-877-BUY-GALAXY (1-877-289-4252) or your
financial institution.
AUTOMATIC INVESTMENT PROGRAM
You can make automatic investments from your bank account every month or every
quarter. You can choose to make your investment on any day of the month or
quarter. The minimum investment is $50 a month or $150 a quarter except for
Education IRAs, in which case the minimum investment is $40 a month or $125 a
quarter.
PAYROLL DEDUCTION PROGRAM
You can make regular investments from your paycheck. The minimum investment is
$25 per pay period. Send a completed Galaxy Payroll Deduction Application to
your employer's payroll department. They'll arrange to have your investment
deducted from your paycheck.
COLLEGE INVESTMENT PROGRAM
The minimum for initial and additional investments through the College
Investment Program is $100 unless you participate in the Automatic Investment
Program, in which case the minimum for initial and additional investments is
$50. You can also save for college by opening an Education IRA account. The
minimum for initial and additional investments in an Education
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<PAGE>
IRA is $100 unless you participate in the Automatic Investment Program, in which
case the minimum for initial and additional investments is $40.
CHECKWRITING
You can sign up for Galaxy's checkwriting privilege by completing the signature
card that accompanies the account application or by writing or calling Galaxy's
distributor at 1-877-BUY-GALAXY (1-877-289-4252) to obtain a signature card.
There is no limit on the number of checks you can write each month, although
each check must be in an amount of at least $250. Galaxy may impose a fee for
use of the checkwriting privilege. Please note that you can't write a check to
close your account.
DIRECT DEPOSIT PROGRAM
This program lets you deposit your Social Security payments in your Fund account
automatically. There's no minimum deposit. You can cancel the program by
notifying the Social Security Administration in writing.
SYSTEMATIC WITHDRAWAL PLAN
You can make regular withdrawals from your investment account every month, every
quarter, every six months or once a year. You need a minimum account balance of
$10,000 to participate in the plan. No CDSC will be charged on withdrawals of
Retail B Shares of the Money Market Fund made through the plan that don't
annually exceed 12% of your account's value.
You may cancel your participation in any of these programs, other than the
Direct Deposit Program, by writing to Galaxy at:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
Please allow at least five days for the cancellation to be processed.
-40-
<PAGE>
HOW TO REACH GALAXY
THROUGH YOUR FINANCIAL INSTITUTION
Your financial institution can help you buy, sell or exchange shares and can
answer questions about your account.
GALAXY SHAREHOLDER SERVICES
Call Galaxy's distributor at 1-877-BUY-GALAXY (1-877-289-4252), Monday through
Friday, 8 a.m. to 6 p.m. (Eastern time) for help from a Galaxy representative.
INVESTCONNECT
InvestConnect is Galaxy's Shareholder Voice Response System. Call
1-877-BUY-GALAXY (1-877-289-4252) from any touch-tone phone for automated access
to account information and current Fund prices and performance, or to place
orders to sell or exchange shares. It's available 24 hours a day, seven days a
week.
If you live outside the United States, you can contact Galaxy by calling
1-508-871-4121.
THE INTERNET
Please visit Galaxy's website at:
www.galaxyfunds.com
[Sidenote:]
Galaxy also offers a TDD service for the hearing impaired. Just call
1-800-696-6515, 24 hours a day, seven days a week.
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<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables shown below will help you understand the
financial performance for the Funds' Retail A Shares and/or Retail B Shares for
the past five years (or the period since a particular Fund began operations or a
particular class of shares was first offered). Certain information reflects the
financial performance of a single Retail A Share or Retail B Share. The total
returns in the tables represent the rate that an investor would have earned (or
lost) on an investment in Retail A Shares and/or Retail B Shares of each Fund,
assuming all dividends and distributions were reinvested. The information for
the fiscal year ended October 31, 1999 has been audited by , independent
auditors, whose report, along with the Funds' financial statements, are included
in the Funds' Annual Report and are incorporated by reference into the SAI. The
Annual Report and SAI are available free of charge upon request. The information
for the fiscal years ended October 31, 1995, 1996, 1997 and 1998 was audited by
Galaxy's former auditors, . No financial highlights are presented for
the New York Municipal Money Market Fund because the Fund had not commenced
operations prior to the date of this prospectus.
As discussed above in "Risk/return summary - Connecticut Municipal Money Market
Fund," prior to December 4, 1995, the predecessor to the Connecticut Municipal
Money Market Fund (Predecessor Fund) offered and sold two classes of shares,
Investment Shares and Trust Shares. Investment Shares of the Predecessor Fund
were similar to the Retail A Shares which the Connecticut Municipal Money Market
Fund currently offers. Accordingly, Trust Shares of the Predecessor Fund have
not been included in the financial highlights table for the Connecticut
Municipal Money Market Fund set forth below.
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<PAGE>
Galaxy Money Market Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
--------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Retail A Retail B Retail A Retail B Retail A Retail B Retail A Retail A
Shares Shares Shares Shares Shares Shares(1) Shares Shares
------ ------ ------ ------ ------ --------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period......................... $1.00 $1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment operations:
Net investment income(2)......... 0.05 0.04 0.05 0.03 0.05 0.05
Net realized and unrealized gain
(loss) on investments....... -- -- -- -- -- --
Total from investment
operations................ 0.05 0.04 0.05 0.03 0.05 0.05
Less dividends:
Dividends from net investment
income (0.05) (0.04) (0.05) (0.03) (0.05) (0.05)
Dividends from net realized
capital gains............. -- -- -- -- -- --
Total dividends............. (0.05) (0.04) (0.05) (0.03) (0.05) (0.05)
Net increase (decrease) in net
asset value.................... -- -- -- -- -- --
Net asset value, end of period... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- ------
Total return(3)................ 5.04% 4.33% 4.93% 2.66%(4) 4.78% 5.23%
Ratios/supplemental data:
Net assets, end of period (000's) $2,139,213 $l,607 $1,877,889 $ 749 $1,159,312 $580,762
Ratios to average net assets:
Net investment income including
reimbursement/ waiver 4.94% 4.26% 4.85% 4.27%(5) 4.67% 5.12%
Operating expenses including
reimbursement/waiver........ 0.67% 1.35% 0.69% 1.38%(5) 0.77% 0.74%
Operating expenses excluding
reimbursement/waiver........ 0.71% 1.39% 0.73% 1.42%(5) 0.80% 0.76%
--------------------
</TABLE>
(1) The Fund began offering Retail B Shares on March 6, 1997.
(2) Net investment income per share for Retail A Shares before
reimbursement/waiver of fees by the Adviser and/or the Fund's administrator
for the years ended October 31, 1999, 1998, 1997, 1996 and 1995 was $ ,
$0.05, $0.05, $0.05 and $0.05, respectively. Net investment income per
share for Retail B Shares before reimbursement/waiver of fees by the
Adviser and/or the Fund's administrator for the year ended October 31, 1998
and the period ended October 31, 1997 was $0.04 and $0.03, respectively.
(3) Calculation does not include the effect of any sales charge for Retail B
Shares. Total return for the year ended October 31, 1994 includes the
effect of the voluntary capital contribution of $1.6 million from the
Adviser in order to partially offset losses realized on the sale of certain
securities held by the Fund. Without this capital contribution, the total
return would have been 3.35%.
(4) Not annualized.
(5) Annualized.
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<PAGE>
Galaxy Government Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
---------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Retail A Retail A Retail A Retail A Retail A
Shares Shares Shares Shares Shares
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period...................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment operations:
Net investment income(1)...... 0.05 0.05 0.05 0.05
Net realized and unrealized
gain (loss) on investments.. -- -- -- --
Total from investment
operations.................. 0.05 0.05 0.05 0.05
Less dividends:
Dividends from net investment
income...................... (0.05) (0.05) (0.05) (0.05)
Dividends from net realized
capital gains............... -- -- -- --
Total dividends............ (0.05) (0.05) (0.05) (0.05)
Net increase (decrease) in net
asset value................. -- -- -- --
Net asset value, end of
period...................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- --------- ---------
Total return(2)................ 4.94% 4.85% 4.72% 5.20%
Ratios/supplemental data:
Net assets, end of period (000's) $352,799 $350,513 $326,411 $320,795
Ratios to average net assets:
Net investment income including
reimbursement/ waiver....... 4.84% 4.74% 4.62% 5.11%
Operating expenses including
reimbursement/waiver........ 0.70% 0.71% 0.75% 0.73%
Operating expenses excluding
reimbursement/waiver........ 0.71% 0.72% 0.76% 0.74%
--------------------
</TABLE>
(1) Net investment income per share for Retail A Shares before
reimbursement/waiver of fees by the Adviser and/or the Fund's administrator
for the years ended October 31, 1999, 1998, 1997, 1996 and 1995 was $ ,
$0.05, $0.05, $0.05 and $0.05, respectively.
(2) Total return for the year ended October 31, 1994 includes the effect of the
voluntary capital contribution of $2.3 million from the Adviser in order to
partially offset losses realized on the sale of certain securities held by
the Fund. Without this capital contribution, the total return would have
been 3.49%.
-44-
<PAGE>
Galaxy U.S. Treasury Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
---------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Retail A Retail A Retail A Retail A Retail A
Shares Shares Shares Shares Shares
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment
operations:
Net investment income(1)....... 0.05 0.05 0.05 0.05
Net realized and unrealized
gain (loss) on investments.. -- -- -- --
Total from investment
operations................ 0.05 0.05 0.05 0.05
Less dividends:
Dividends from net investment
income...................... (0.05) (0.05) (0.05) (0.05)
Dividends from net realized
capital gains............... -- -- -- --
Total dividends............ (0.05) (0.05) (0.05) (0.05)
Net increase (decrease) in net
asset value.................... -- -- -- --
Net asset value, end of
period......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- --------
Total return(2)................ 4.73% 4.67% 4.63% 4.99%
Ratios/supplemental data:
Net assets, end of period (000's) $559,053 $585,969 $443,230 $318,621
Ratios to average net assets:
Net investment income including
reimbursement/ waiver....... 4.63% 4.58% 4.53% 4.90%
Operating expenses including
reimbursement/waiver........ 0.68% 0.69% 0.69% 0.73%
Operating expenses excluding
reimbursement/waiver....... 0.68% 0.70% 0.69% 0.73%
--------------------
</TABLE>
(1) Net investment income per share for Retail A Shares before
reimbursement/waiver of fees by the Adviser and/or the Fund's administrator
for the years ended October 31, 1999, 1998, 1997, 1996 and 1995 was $ _,
$0.05, $0.05, $0.05 and $0.05, respectively.
(2) Total return for the year ended October 31, 1994 includes the effect of the
voluntary capital contribution of $1 million from the Adviser in order to
partially offset losses realized on the sale of certain securities held by
the Fund. Without this capital contribution, the total return would have
been 3.30%.
-44-
<PAGE>
Galaxy Tax-Exempt Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
-------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Retail A Retail A Retail A Retail A Retail A
Shares Shares Shares Shares Shares
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment
operations:
Net investment income(1)...... 0.03 0.03 0.03 0.03
Net realized and unrealized
gain (loss) on investments.. -- -- -- --
Total from investment
operations................ 0.03 0.03 0.03 0.03
Less dividends:
Dividends from net investment
income...................... (0.03) (0.03) (0.03) (0.03)
Dividends from net realized
capital gains............... -- -- -- --
Total dividends............ (0.03) (0.03) (0.03) (0.03)
Net increase (decrease) in net -
asset value.................... -- -- -- --
Net asset value, end of
period......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- --------
Total return................... 2.89% 2.95% 2.82% 3.16%
Ratios/supplemental data:
Net assets, end of period (000's) $164,340 $151,907 $117,548 $127,056
Ratios to average net assets:
Net investment income including
reimbursement/ waiver....... 2.85% 2.92% 2.78% 3.12%
Operating expenses including
reimbursement/waiver........ 0.67% 0.68% 0.68% 0.68%
Operating expenses excluding
reimbursement/waiver........ 0.67% 0.69% 0.69% 0.71%
--------------------
</TABLE>
(1) Net investment income per share for Retail A Shares before
reimbursement/waiver of fees by the Adviser and/or the Fund's administrator
for the years ended October 31, 1999, 1998, 1997, 1996 and 1995 was $ ,
$0.03, $0.03, $0.03 and $0.03, respectively.
-46-
<PAGE>
Galaxy Connecticut Municipal Money Market Fund(1)
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
--------------------------------------------------------------------
1999 1998 1997 1996(1) 1995
---- ---- ---- ----- ----
Retail A Retail A Retail A Retail A Retail A
Shares(2) Shares(2) Shares(2) Shares(2) Shares(2)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment
operations:
Net investment income(3)...... 0.03 0.03 0.03 0.03
Net realized and unrealized
gain (loss) on investments.. -- -- -- --
Total from investment
operations................ 0.03 0.03 0.03 0.03
Less dividends:
Dividends from net investment
income...................... (0.03) (0.03) (0.03) (0.03)
Dividends from net realized
capital gains............... -- -- -- --
Total dividends............ (0.03) (0.03) (0.03) (0.03)
Net increase (decrease) in net
asset value.................... -- -- -- --
Net asset value, end of
period......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- --------
Total return(4)................ 2.87% 2.94% 2.83% 2.94%
Ratios/supplemental data:
Net assets, end of period (000's) $165,186 $137,095 $110,544 $71,472
Ratios to average net assets:
Net investment income including
reimbursement/ waiver....... 2.83% 2.91% 2.79% 2.88%
Operating expenses including
reimbursement/waiver........ 0.62% 0.60% 0.64% 0.82%
Operating expenses excluding
reimbursement/waiver........ 0.65% 0.65% 0.73% 1.29%
- ----------------------------
</TABLE>
(1) The Fund commenced operations on October 4, 1993 as a separate investment
portfolio (the "Predecessor Fund") of The Shawmut Funds. On December 4,
1995, the Predecessor Fund was reorganized as a new portfolio of Galaxy
with a single series of shares. Prior to the reorganization, the
Predecessor Fund offered and sold two series of shares, Investment Shares
and Trust Shares. In connection with the reorganization, the shareholders
of the Predecessor Fund exchanged shares of each series for Shares in the
Fund.
(2) Prior to May 27, 1999, Retail A Shares were designated as Shares.
(3) Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or other parties for the fiscal years ended October 31, 1999,
1998, 1997 and 1996 was $ , $0.03, $0.03 and $0.03, respectively. Net
investment income per share before reimbursement/waiver of fees by other
parties for the fiscal years ended October 31, 1995 was $0.03 (unaudited).
(4) Calculation does not include the effect of any sales charge for Investment
Shares of the Predecessor Fund.
-47-
<PAGE>
Galaxy Massachusetts Municipal Money Market Fund(1)
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
------------------------------------------------------------------
1999 1998 1997 1996(1) 1995
---- ---- ---- ------- ----
Retail A Retail A Retail A Retail A Retail A
Shares Shares Shares Shares Shares
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment
operations:
Net investment income(3)...... 0.03 0.03 0.03 0.03
Net realized and unrealized
gain (loss) on investments.. -- -- -- --
Total from investment
operations................ 0.03 0.03 0.03 0.03
Less dividends:
Dividends from net investment
income...................... (0.03) (0.03) (0.03) (0.03)
Dividends from net realized
capital gains............... -- -- -- --
Total dividends............ (0.03) (0.03) (0.03) (0.03)
Net increase (decrease) in net
asset value.................... -- -- -- --
Net asset value, end of
period......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ------- ------- -------
Total return................... 2.86% 2.92% 2.83% 3.21%
Ratios/supplemental data:
Net assets, end of period (000's) $127,922 $80,966 $47,066 $40,326
Ratios to average net assets:
Net investment income including
reimbursement/ waiver....... 2.81% 2.90% 2.78% 3.16%
Operating expenses including
reimbursement/waiver........ 0.62% 0.61% 0.62% 0.57%
Operating expenses excluding
reimbursement/waiver........ 0.68% 0.69% 0.83% 1.06%
- -----------------------------
</TABLE>
(1) The Fund commenced operations on October 5, 1993 as a separate investment
portfolio (the "Predecessor Fund") of The Shawmut Funds. On December 4,
1995, the Predecessor Fund was reorganized as a new portfolio of Galaxy.
Prior to the reorganization, the Predecessor Fund offered and sold one
series of shares. In connection with the reorganization, the shareholders
of the Predecessor Fund exchanged shares for Shares in the Fund.
(2) Prior to May 27, 1999, Retail A Shares were designated as Shares.
(3) Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or other parties for the fiscal years ended October 31, 1999,
1998, 1997 and 1996 was $ , $0.03, $0.03 and $0.03, respectively. Net
investment income per share before reimbursement/waiver of fees by other
parties for the fiscal years ended October 31, 1995 was $0.03 (unaudited).
-48-
<PAGE>
[Back Cover Page]
Where to find more information
You'll find more information about the Funds in the following documents:
ANNUAL AND SEMI-ANNUAL REPORTS
Galaxy's annual and semi-annual reports contain more information about each Fund
and a discussion about the market conditions and investment strategies that had
a significant effect on each Fund's performance during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains detailed information about the Funds and their policies. By
law, it's incorporated by reference into (considered to be part of) this
prospectus.
You can get a free copy of these documents, request other information about the
Funds and make shareholder inquiries by calling Galaxy at 1-877-BUY-GALAXY
(1-877-289-4252) or by writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
If you buy your shares through a financial institution, you may contact your
institution for more information.
You can write to the Securities and Exchange Commission (SEC) Public Reference
Section and ask them to mail you information about the Funds, including the SAI.
They'll charge you a fee for this service. You can also visit the SEC Public
Reference Room and copy the documents while you're there. For information about
the operation of the Public Reference Room, call the SEC.
Public Reference Section of the SEC Washington, DC 20549- 0102.
1-202-942-8090
Reports and other information about the Funds are also available on the EDGAR
Database on the SEC's website at http://www.sec.gov. Copies of this information
may also be obtained, after paying a duplicating fee, by electronic request, to
the SEC's e-mail address at [email protected].
Galaxy's Investment Company Act File No. is 811-4636.
[Fleet assigned code]
<PAGE>
[Front cover page]
Galaxy Money Market Funds
The Galaxy Fund
Prospectus
____________, 2000
Galaxy Money Market Fund
Galaxy Government Fund
Galaxy Institutional Government Money Market Fund
Galaxy U.S. Treasury Fund
Galaxy Tax-Exempt Fund
Trust Shares
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved any shares of these Funds or determined if this
prospectus is accurate or complete. Anyone who tells you otherwise is committing
a crime.
<PAGE>
Contents
1 Risk/return summary
1 Introduction
3 Galaxy Money Market Fund
6 Galaxy Government Fund
9 Galaxy Institutional Government Money Market Fund
12 Galaxy U.S. Treasury Fund
15 Galaxy Tax-Exempt Fund
19 Additional information about risk
20 Investor Guidelines
21 Fund management
22 How to invest in the Funds
22 Buying, selling and exchanging shares
23 How to buy shares
23 How to sell shares
23 Other transaction policies
24 How to exchange shares -
Institutional Government Money Market Fund only
25 Dividends, distributions and taxes
27 Financial highlights
<PAGE>
RISK/RETURN SUMMARY
INTRODUCTION
This prospectus describes the Galaxy Money Market Funds. The Funds invest
primarily in short-term debt obligations, commonly known as money market
instruments, that are determined by the Funds' investment adviser to carry very
little risk. Money market instruments purchased by the Funds must meet strict
requirements as to investment quality, maturity and diversification. The Funds
don't invest in securities with remaining maturities of more than 397 days
(subject to certain exceptions) and the average maturity of all securities held
by a particular Fund must be 90 days or less. Each Fund tries to maintain its
share price at $1.00 to protect your investment from loss.
On the following pages you'll find important information about each Galaxy Money
Market Fund, including:
- - the Fund's investment objective (sometimes called the Fund's goal) and the
main investment strategies used by the Fund's investment adviser in trying
to achieve that objective
- - the main risks associated with an investment in the Fund
- - the Fund's past performance measured on both a year-by-year and long-term
basis
- - the fees and expenses that you will pay as an investor in the Fund
[Sidenote:]
MATURITY
The maturity of a security is the date when the issuer must repay the security's
entire principal amount to an investor, such as a Fund.
WHICH FUND IS RIGHT FOR YOU?
Not all mutual funds are right for all investors. Your investment goals and
tolerance for risk will determine which fund is right for you. On page __ you'll
find a table which sets forth general guidelines to help you decide which of the
Galaxy Money Market Funds is best suited to you.
THE FUNDS' INVESTMENT ADVISER
Fleet Investment Advisors Inc. (the "Adviser") is the investment adviser for all
of these Funds. The Adviser, an indirect wholly-owned subsidiary of FleetBoston
Corporation, was established in 1984 and has its main office at 75 State Street,
Boston, Massachusetts 02109. The Adviser also provides investment management and
advisory services to individual and
-1-
<PAGE>
institutional clients and manages the other Galaxy investment portfolios. As of
December 31, 1999, the Adviser managed over $__ billion in assets.
AN INVESTMENT IN THE FUNDS ISN'T A FLEET BANK DEPOSIT AND IT ISN'T INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. ALTHOUGH THE FUNDS SEEK TO PRESERVE THE VALUE OF YOUR INVESTMENT AT
$1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUNDS.
-2-
<PAGE>
Galaxy Money Market Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks as high a level of current income as is consistent with liquidity
and stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests in a diversified portfolio of money market instruments,
including commercial paper, notes and bonds issued by U.S. corporations,
obligations issued by the U.S. Government and its agencies and
instrumentalities, and obligations issued by U.S. and foreign banks, such as
certificates of deposit. The Fund also invests in repurchase agreements backed
by U.S. Government obligations.
The Fund will only buy a security if it has the highest short-term rating from
at least two nationally recognized statistical rating organizations, or one such
rating if only one organization has rated the security. If the security is not
rated, it must be determined by the Adviser to be of comparable credit quality.
[Sidenote:]
REPURCHASE AGREEMENTS
Repurchase agreements are transactions in which a fund buys securities from a
seller (usually a bank or broker-dealer) who agrees to buy them back from the
fund on a certain date and at a certain price.
THE MAIN RISKS OF INVESTING IN THE FUND
While money market funds are considered to be among the safest of all
investments, they are not risk free. Here are the main risks associated with an
investment in the Fund:
- - INTEREST RATE RISK - The yield paid by the Fund will vary with changes in
short-term interest rates.
- - CREDIT RISK - Although credit risk is very low because the Fund only
invests in high quality obligations, if an issuer fails to pay interest or
repay principal, the value of your investment could decline.
- - REPURCHASE AGREEMENTS - Repurchase agreements carry the risk that the
other party may not fulfill its obligations under the agreement. This
could cause the value of your investment to decline.
-3-
<PAGE>
- - SHARE PRICE - There's no guarantee the Fund will be able to preserve the
value of your investment at $1.00 per share.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these
evaluations will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Trust Shares of the Fund has varied
from year to year.
[SIDENOTE:]
BEST QUARTER: ___% FOR THE QUARTER ENDING ______, ____
WORST QUARTER: ___% FOR THE QUARTER ENDING ______, ____
[bar chart goes here]
<TABLE>
<CAPTION>
- -------------------- ------------------- ------------------ --------------------- ----------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ---
- -------------------- ------------------- ------------------ --------------------- ----------------
- -------------------- ------------------- ------------------ --------------------- ----------------
<S> <C> <C> <C> <C>
5.50% 4.94% 5.19% 5.14% ____%
- -------------------- ------------------- ------------------ --------------------- ----------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999.
<TABLE>
<CAPTION>
- --------------------------- -------------------- --------------------- ---------------------------
1 year 5 YEARS Since inception
- --------------------------- -------------------- --------------------- ---------------------------
- --------------------------- -------------------- --------------------- ---------------------------
<S> <C> <C> <C>
Trust Shares _____% ______% _____% (11/1/94)
- --------------------------- -------------------- --------------------- ---------------------------
</TABLE>
To obtain the Fund's current 7-day yield, please call 1-877-BUY-GALAXY
(1-877-289-4252).
-4-
<PAGE>
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
- ------------------------- ---------------------- ---------------------- ----------------------- ----------------------
Distribution (12b-1) Total Fund operating
Management fees fees Other expenses expenses
- ------------------------- ---------------------- ---------------------- ----------------------- ----------------------
- ------------------------- ---------------------- ---------------------- ----------------------- ----------------------
<S> <C> <C> <C> <C>
Trust Shares 0.40%(1) None _____% _____%1
- ------------------------- ---------------------- ---------------------- ----------------------- ----------------------
</TABLE>
(1) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be _____%. Total Fund operating expenses after this waiver
are expected to be _____%. This fee waiver may be revised or discontinued
at any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- ----------------------- --------------------- -------------------- --------------------- --------------------
1 year 3 years 5 years 10 years
- ----------------------- --------------------- -------------------- --------------------- --------------------
- ----------------------- --------------------- -------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Trust Shares $____ $____ $____ $____
- ----------------------- --------------------- -------------------- --------------------- --------------------
</TABLE>
-5-
<PAGE>
Galaxy Government Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks as high a level of current income as is consistent with liquidity
and stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests primarily in U.S. Government obligations, including U.S.
Treasury obligations and obligations of U.S. Government agencies and
instrumentalities. The Fund also invests in repurchase agreements backed by
these obligations.
[Sidenote:]
U.S. GOVERNMENT OBLIGATIONS
U.S. Government obligations are debt obligations issued or guaranteed by the
U.S. Government or one of its agencies or instrumentalities. U.S. Government
obligations generally have less credit risk than other debt obligations.
THE MAIN RISKS OF INVESTING IN THE FUND
While money market funds are considered to be among the safest of all
investments, they are not risk free. Here are the main risks associated with an
investment in the Fund:
- - INTEREST RATE RISK - The yield paid by the Fund will vary with changes in
short-term interest rates.
- - CREDIT RISK - Although U.S. Government securities have historically
involved little credit risk, if an issuer fails to pay interest or repay
principal, the value of your investment could decline.
- - REPURCHASE AGREEMENTS - Repurchase agreements carry the risk that the
other party may not fulfill its obligations under the agreement. This
could cause the value of your investment to decline.
- - SHARE PRICE - There's no guarantee the Fund will be able to preserve the
value of your investment at $1.00 per share.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these
evaluations will prove to be inaccurate.
-6-
<PAGE>
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Trust Shares of the Fund has varied
from year to year.
[SIDENOTE:]
BEST QUARTER: ___% FOR THE QUARTER ENDING _______,__
WORST QUARTER: ___% FOR THE QUARTER ENDING _______,__
[bar chart goes here]
<TABLE>
<CAPTION>
- ----------------------- --------------------- ---------------- ------------------ ----------------
1995 1996 1997 1998 1999
- ----------------------- --------------------- ---------------- ------------------ ----------------
- ----------------------- --------------------- ---------------- ------------------ ----------------
<S> <C> <C> <C> <C>
5.47% 4.89% 5.10% 5.06% ___%
- ----------------------- --------------------- ---------------- ------------------ ----------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999.
<TABLE>
<CAPTION>
- --------------------------- ------------------- ------------------------- ------------------------
1 year 5 YEARS Since inception
- --------------------------- ------------------- ------------------------- ------------------------
- --------------------------- ------------------- ------------------------- ------------------------
<S> <C> <C> <C>
Trust Shares ____% ____% ____% (11/1/94)
- --------------------------- ------------------- ------------------------- ------------------------
</TABLE>
To obtain the Fund's current 7-day yield, please call 1-877-BUY-GALAXY
(1-877-289-4252).
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
-7-
<PAGE>
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
- ------------------------- ---------------------- ---------------------- ----------------------- ----------------------
Distribution (12b-1) Total Fund operating
Management fees fees Other expenses expenses
- ------------------------- ---------------------- ---------------------- ----------------------- ----------------------
- ------------------------- ---------------------- ---------------------- ----------------------- ----------------------
<S> <C> <C> <C> <C>
Trust Shares 0.40%(1) None _____% _____%(1)
- ------------------------- ---------------------- ---------------------- ----------------------- ----------------------
</TABLE>
(1) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be ____%. Total Fund operating expenses after this waiver
are expected to be ____%. This fee waiver may be revised or discontinued
at any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- ----------------------- --------------------- -------------------- --------------------- --------------------
1 year 3 years 5 years 10 years
- ----------------------- --------------------- -------------------- --------------------- --------------------
- ----------------------- --------------------- -------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Trust Shares $___ $___ $___ $___
- ----------------------- --------------------- -------------------- --------------------- --------------------
</TABLE>
-8-
<PAGE>
Galaxy Institutional Government Money Market Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks current income with liquidity and stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests primarily in U.S. Government obligations, including U.S.
Treasury obligations and obligations of U.S. Government agencies and
instrumentalities. The Fund also invests in repurchase agreements backed by
these obligations.
THE MAIN RISKS OF INVESTING IN THE FUND
While money market funds are considered to be among the safest of all
investments, they are not risk free. Here are the main risks associated with an
investment in the Fund:
- - INTEREST RATE RISK - The yield paid by the Fund will vary with changes in
short-term interest rates.
- - CREDIT RISK - Although U.S. Government securities have historically
involved little credit risk, if an issuer fails to pay interest or repay
principal, the value of your investment could decline.
- - REPURCHASE AGREEMENTS - Repurchase agreements carry the risk that the
other party may not fulfill its obligations under the agreement. This
could cause the value of your investment to decline.
- - SHARE PRICE - There's no guarantee the Fund will be able to preserve the
value of your investment at $1.00 per share.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these
evaluations will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future. The Fund offers only one class of shares which are referred to in
this prospectus as Trust Shares.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Trust Shares of the Fund has varied
from year to year.
-9-
<PAGE>
[SIDENOTE:]
BEST QUARTER: ___% FOR THE QUARTER ENDING _________, ____
WORST QUARTER: ___% FOR THE QUARTER ENDING _________, ____
[bar chart goes here]
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999
----
- -------------------- ----------------- --------------- ------------------- ------------------ --------------------
- -------------------- ----------------- --------------- ------------------- ------------------ --------------------
<S> <C> <C> <C> <C> <C>
3.92% 5.58% 5.06% 5.11% 5.30% ____%
-----
- -------------------- ----------------- --------------- ------------------- ------------------ --------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
DECEMBER 31, 1999.
<TABLE>
<CAPTION>
- --------------------------- ------------------- ---------------------- ----------------------
1 Year 5 Years Since inception
- --------------------------- ------------------- ---------------------- ----------------------
- --------------------------- ------------------- ---------------------- ----------------------
<S> <C> <C> <C>
Trust Shares ____% ____% ____% (4/15/93)
- --------------------------- ------------------- ---------------------- ----------------------
</TABLE>
To obtain the Fund's current 7-day yield, please call 1-877-BUY-GALAXY
(1-877-289-4252).
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
- -------------------- ------------------------ ---------------- -------------------- ----------------------------------
Distribution Total Fund
Management fees (12b-1) fees Other expenses operating expenses
- -------------------- ------------------------ ---------------- -------------------- ----------------------------------
- -------------------- ------------------------ ---------------- -------------------- ----------------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.20%(1) None ____%(1) ____%(1)
- -------------------- ------------------------ ---------------- -------------------- ----------------------------------
</TABLE>
(1) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be ___%. The Fund's administrator is waiving a portion of
the administration fees so that Other expenses are expected to be ___%.
Total Fund operating expenses after these waivers are expected to be ___%.
These fee waivers may be revised or discontinued at any time.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
-10-
<PAGE>
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- ----------------------- --------------------- -------------------- --------------------- --------------------
1 Year 3 Years 5 Years 10 Years
- ----------------------- --------------------- -------------------- --------------------- --------------------
- ----------------------- --------------------- -------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Trust Shares $___ $___ $___ $___
- ----------------------- --------------------- -------------------- --------------------- --------------------
</TABLE>
-11-
<PAGE>
Galaxy U.S. Treasury Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks current income with liquidity and stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests primarily in securities issued or guaranteed by the U.S.
Treasury and certain U.S. Government agencies and instrumentalities that provide
income that is generally not subject to state income tax.
[Sidenote:]
U.S. TREASURY OBLIGATIONS
U.S. Treasury obligations are among the safest of all investments because they
are backed by the "full faith and credit" of the U.S. Government.
THE MAIN RISKS OF INVESTING IN THE FUND
While money market funds are considered to be among the safest of all
investments, they are not risk free. Here are the main risks associated with an
investment in the Fund:
- - INTEREST RATE RISK - The yield paid by the Fund will vary with changes in
short-term interest rates.
- - CREDIT RISK - Although U.S. Government securities, particularly U.S.
Treasury securities, have historically involved little credit risk, if an
issuer fails to pay interest or repay principal, the value of your
investment could decline.
- - SHARE PRICE - There's no guarantee the Fund will be able to preserve the
value of your investment at $1.00 per share.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these
evaluations will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
-12-
<PAGE>
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Trust Shares of the Fund has varied
from year to year.
[SIDENOTE:]
BEST QUARTER: ____% FOR THE QUARTER ENDING __________, ____
WORST QUARTER: ____% FOR THE QUARTER ENDING __________, ____
[bar chart goes here]
<TABLE>
<CAPTION>
- ----------------------- --------------------- ------------------- ------------------------ -------------------
1995 1996 1997 1998 1999
- ----------------------- --------------------- ------------------- ------------------------ -------------------
- ----------------------- --------------------- ------------------- ------------------------ -------------------
<S> <C> <C> <C> <C>
5.23% 4.76% 4.88% 4.80% ____%
- ----------------------- --------------------- ------------------- ------------------------ -------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999.
<TABLE>
<CAPTION>
- --------------------------- ------------------------ ------------------------ ------------------------
1 year 5 YEARS Since inception
- --------------------------- ------------------------ ------------------------ ------------------------
- --------------------------- ------------------------ ------------------------ ------------------------
<S> <C> <C> <C>
Trust Shares ____% ____% ____% (11/1/94)
- --------------------------- ------------------------ ------------------------ ------------------------
</TABLE>
To obtain the Fund's current 7-day yield, please call 1-877-BUY-GALAXY
(1-877-289-4252).
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
- -------------------- ------------------------ ---------------- -------------------- ----------------------------------
Distribution Total Fund
Management fees (12b-1) fees Other expenses operating expenses
- -------------------- ------------------------ ---------------- -------------------- ----------------------------------
- -------------------- ------------------------ ---------------- -------------------- ----------------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.39% None ____% ____%
- -------------------- ------------------------ ---------------- -------------------- ----------------------------------
</TABLE>
-13-
<PAGE>
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- ----------------------- --------------------- -------------------- --------------------- --------------------
1 year 3 years 5 years 10 years
- ----------------------- --------------------- -------------------- --------------------- --------------------
- ----------------------- --------------------- -------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Trust Shares $____ $____ $____ $____
- ----------------------- --------------------- -------------------- --------------------- --------------------
</TABLE>
-14-
<PAGE>
Galaxy Tax-Exempt Fund
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks as high a level of current interest income exempt from federal
income tax as is consistent with stability of principal.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund normally invests at least 80% of its total assets in municipal
securities, which are securities issued by state and local governments and other
political or public bodies or agencies and that pay interest which is exempt
from regular federal income tax. Under normal conditions, the Fund will invest
no more than 20% of its total assets in taxable obligations, such as U.S.
Government obligations, money market instruments and repurchase agreements.
Municipal securities purchased by the Fund may include general obligation
securities, revenue securities and private activity bonds. The interest on
private activity bonds may be subject to the federal alternative minimum tax.
Investments in private activity bonds will not be treated as investments in
municipal securities for purposes of the 80% requirement stated above.
The Fund will only buy a security if it has one of the two highest short-term
ratings from at least two nationally recognized statistical rating
organizations, or one such rating if only one organization has rated the
security. If the security is not rated, it must be determined by the Adviser to
be of comparable credit quality.
[Sidenote:]
MUNICIPAL SECURITIES
State and local governments issue municipal securities to raise money to finance
public works, to repay outstanding obligations, to raise funds for general
operating expenses and to make loans to other public institutions. Some
municipal securities, known as private activity bonds, are issued to finance
projects for private companies. Municipal securities, which can be issued as
bonds, notes or commercial paper, usually have fixed interest rates, although
some have interest rates that change from time to time.
[Sidenote:]
TYPES OF MUNICIPAL SECURITIES
GENERAL OBLIGATION securities are secured by the issuer's full faith, credit and
taxing power. REVENUE OBLIGATION securities are usually payable only from
revenues derived from specific facilities or revenue sources. PRIVATE ACTIVITY
BONDS are usually revenue obligations since they are typically payable by the
private user of the facilities financed by the bonds.
-15-
<PAGE>
THE MAIN RISKS OF INVESTING IN THE FUND
While money market funds are considered to be among the safest of all
investments, they are not risk free. Here are the main risks associated with an
investment in the Fund:
- - INTEREST RATE RISK - The yield paid by the Fund will vary with changes in
short-term interest rates.
- - CREDIT RISK - Although credit risk is very low because the Fund only
invests in high quality obligations, if an issuer fails to pay interest or
repay principal, the value of your investment could decline. The ability
of a state or local government issuer to make payments can be affected by
many factors, including economic conditions, the flow of tax revenues and
changes in the level of federal, state or local aid.
- - SHARE PRICE - There's no guarantee the Fund will be able to preserve the
value of your investment at $1.00 per share.
- - SELECTION OF INVESTMENTS - The Adviser evaluates the risks and rewards
presented by all securities purchased by the Fund and how they advance the
Fund's investment objective. It's possible, however, that these
evaluations will prove to be inaccurate.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of Trust Shares of the Fund has varied
from year to year.
[SIDENOTE:]
BEST QUARTER: ____% FOR THE QUARTER ENDING __________, ____
WORST QUARTER: ____% FOR THE QUARTER ENDING __________, ____
[bar chart goes here]
<TABLE>
<CAPTION>
- ----------------------- --------------------- ------------------- ------------------------ --------------------
1995 1996 1997 1998 1999
- ----------------------- --------------------- ------------------- ------------------------ --------------------
- ----------------------- --------------------- ------------------- ------------------------ --------------------
<S> <C> <C> <C> <C>
3.34 2.92% 3.14% 2.95% ____%
-----
- ----------------------- --------------------- ------------------- ------------------------ --------------------
</TABLE>
-16-
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Fund's average annual total returns for the periods ended
December 31, 1999.
<TABLE>
<CAPTION>
- --------------------------- ------------------ ---------------------------- -----------------------------
1 year 5 YEARS Since inception
- --------------------------- ------------------ ---------------------------- -----------------------------
- --------------------------- ------------------ ---------------------------- -----------------------------
<S> <C> <C> <C>
Trust Shares ____% ____% ____% (11/1/94)
- --------------------------- ------------------ ---------------------------- -----------------------------
</TABLE>
To obtain the Fund's current 7-day yield, please call 1-877-BUY-GALAXY
(1-877-289-4252).
FEES AND EXPENSES OF THE FUND
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
- -------------------- ------------------------ ---------------- -------------------- ----------------------------------
Distribution Total Fund
Management fees (12b-1) fees Other expenses operating expenses
- -------------------- ------------------------ ---------------- -------------------- ----------------------------------
- -------------------- ------------------------ ---------------- -------------------- ----------------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.40% None ____% ____%
- -------------------- ------------------------ ---------------- -------------------- ----------------------------------
</TABLE>
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- - you invest $10,000 for the periods shown
- - you reinvest all dividends and distributions in the Fund
- - you sell all your shares at the end of the periods shown
- - your investment has a 5% return each year
- - the Fund's operating expenses remain the same
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
- ----------------------- --------------------- -------------------- --------------------- --------------------
1 year 3 years 5 years 10 years
- ----------------------- --------------------- -------------------- --------------------- --------------------
- ----------------------- --------------------- -------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Trust Shares $____ $____ $____ $____
- ----------------------- --------------------- -------------------- --------------------- --------------------
</TABLE>
[Sidenote:]
TAX-EQUIVALENT YIELD
One way to understand the tax advantages of a tax-exempt fund is to compare its
after-tax return to that of a taxable investment. For example, suppose a taxable
fund pays a return of 10%. If you're in the 36% federal income tax bracket, the
fund's return after taxes is 6.4%. When a tax-
-17-
<PAGE>
exempt fund pays a return of 10%, you don't pay tax. So if you're in the 36% tax
bracket that's the equivalent of earning about 15.6% on a taxable fund. If
you're in a low tax bracket, however, it may not be helpful to invest in a
tax-exempt fund if you can achieve a higher after-tax return from a taxable
investment.
-18-
<PAGE>
ADDITIONAL INFORMATION ABOUT RISK
The main risks associated with an investment in each of the Galaxy Money Market
Funds have been described above. The following supplements that discussion.
TEMPORARY DEFENSIVE POSITIONS
Each Fund may temporarily hold up to 100% of its total assets in investments
that aren't part of its main investment strategy during unfavorable market
conditions. These investments may include cash (which will not earn any income)
and, in the case of the Tax-Exempt Fund, short-term taxable investments, such as
money market instruments and debt securities issued or guaranteed by the U.S.
Government or its agencies, in excess of 20% of the Fund's assets. This strategy
could prevent a Fund from achieving its investment objective.
OTHER TYPES OF INVESTMENTS
This prospectus describes each Fund's main investment strategies and the
particular types of securities in which each Fund mainly invests. Each Fund
may, from time to time, pursue other investment strategies and make other
types of investments in support of its overall investment goal. These
supplemental investment strategies, which are not considered to be main
investment strategies of the Fund - and the risks involved - are described in
detail in the Statement of Additional Information (SAI) which is referred to
on the back cover of this prospectus.
-19-
<PAGE>
INVESTOR GUIDELINES
The table below provides information as to which type of investor might want to
invest in each of the Galaxy Money Market Funds. It's meant as a general guide
only. TAX-EXEMPT FUNDS ARE GENERALLY NOT APPROPRIATE INVESTMENTS FOR
TAX-DEFERRED RETIREMENT ACCOUNTS, SUCH AS IRAS, BECAUSE THEIR RETURNS BEFORE
TAXES ARE GENERALLY LOWER THAN THOSE OF TAXABLE FUNDS. Consult your financial
institution or plan administrator for help in deciding which Fund is right for
you.
<TABLE>
<CAPTION>
Galaxy Fund May be best suited for...
- ------------------------------------------------------- -----------------------------------------------------
<S> <C>
Galaxy Money Market Fund investors who want a
flexible and convenient
way to manage cash while
earning money market
returns
- ------------------------------------------------------- -----------------------------------------------------
Galaxy Government Fund investors who want a way to earn money market
returns with the extra margin of safety associated
with U.S. Government obligations
- ------------------------------------------------------- -----------------------------------------------------
Galaxy Institutional Government Money Market Fund institutional investors
who want a way to earn
money market returns
with the extra margin of
safety associated with
U.S. Government
obligations
- ------------------------------------------------------- -----------------------------------------------------
Galaxy U.S. Treasury Fund investors who want a way to earn money market
returns from U.S. Treasury obligations that are
generally free from state and local taxes
- ------------------------------------------------------- -----------------------------------------------------
Galaxy Tax-Exempt Fund investors who want a way
to earn money market
returns that are free
from federal income tax
- ------------------------------------------------------- -----------------------------------------------------
</TABLE>
-20-
<PAGE>
FUND MANAGEMENT
ADVISER
The Adviser, subject to the general supervision of Galaxy's Board of Trustees,
manages each Fund in accordance with its investment objective and policies,
makes decisions with respect to, and places orders for, all purchases and sales
of portfolio securities, and maintains related records.
ALLOCATION OF ORDERS FOR PORTFOLIO SECURITIES
The Adviser may allocate orders for the purchase and sale of portfolio
securities to certain financial institutions, including those that are
affiliated with the Adviser or that have sold shares of the Funds, to the extent
permitted by law or by order of the Securities and Exchange Commission. The
Adviser will allocate orders to such institutions only if it believes that the
quality of the transaction and the commission are comparable to what they would
be with other qualified brokerage firms.
MANAGEMENT FEES
The management fees paid to the Adviser by the Funds during the last fiscal year
are set forth below.
<TABLE>
<CAPTION>
Fund Management fee as a
% of average net assets
- ------------------------------------------------------- ------------------------------------
<S> <C>
Money Market ____%
- ------------------------------------------------------- ------------------------------------
Government ____%
- ------------------------------------------------------- ------------------------------------
Institutional Government Money Market ____%
- ------------------------------------------------------- ------------------------------------
U.S. Treasury ____%
- ------------------------------------------------------- ------------------------------------
Tax-Exempt ____%
- ------------------------------------------------------- ------------------------------------
</TABLE>
SUB-ACCOUNT SERVICES
Affiliates of the Adviser and certain other parties may receive fees from
Galaxy's transfer agent for providing certain sub-accounting and administrative
services to participant sub-accounts with respect to Trust Shares of the Funds
(other than the Tax-Exempt Fund) held by defined contribution plans. The
transfer agency fees payable by Trust Shares of the Funds have been increased by
an amount equal to these fees, so that the holders of Trust Shares indirectly
bear these fees.
-21-
<PAGE>
HOW TO INVEST IN THE FUNDS
BUYING, SELLING AND EXCHANGING SHARES
Trust Shares of the Funds (other than the Institutional Government Money Market
Fund) are available for purchase by the following types of investors:
- - Investors maintaining a qualified account at a bank or trust institution,
including subsidiaries of Fleetboston Corporation
- - Participants in employer-sponsored defined contribution plans
Qualified accounts include discretionary investment management accounts,
custodial accounts, agency accounts and different types of tax-advantaged
accounts. Your institution can provide more information about which types of
accounts are eligible.
Trust Shares of the Institutional Government Money Market Fund are available for
purchase by financial institutions, such as banks, savings and loan associations
and broker-dealers, including financial institutions affiliated with the
Adviser, that are purchasing shares of the Fund on behalf of their customers.
You can buy and sell Trust Shares of the Funds on any business day. A business
day is any day that Galaxy's distributor, Galaxy's custodian and your financial
institution or employer-sponsored plan are open for business.
If your order to buy shares is received and accepted by Galaxy's distributor by
11:00 a.m. (Eastern time) on a business day, the price you pay will be the net
asset value (NAV) per share next determined (and you'll receive that day's
dividend) if Galaxy's custodian receives the purchase price in immediately
available funds by 11:00 a.m. that day. If your order to purchase shares is
received and accepted by Galaxy's distributor after 11:00 a.m. (Eastern time)
but before 4:00 p.m. (Eastern time) on a business day, the price you pay will be
the NAV next determined (and you'll begin receiving dividends the next day) if
Galaxy's custodian receives the purchase price in immediately available funds by
4:00 p.m. on the day of your order. The price at which you sell shares is the
NAV per share next determined after receipt of your order. NAV is determined on
each day the New York Stock Exchange is open for trading as of 11:00 a.m.
(Eastern time) and at the close of regular trading that day (usually 4:00 p.m.
Eastern time). The New York Stock Exchange is generally open for trading every
Monday through Friday, except for national holidays.
The Funds' assets are valued at amortized cost, which is approximately equal to
market value.
[Sidenote:]
NET ASSET VALUE
The price you pay for your shares is based on the net asset value per share
(NAV). It's the value of a fund's assets attributable to Trust Shares, minus the
value of the fund's liabilities attributable to Trust Shares, divided by the
number of Trust Shares held by investors.
-22-
<PAGE>
HOW TO BUY SHARES
You can buy Trust Shares by following the procedures established by your
financial institution or your employer-sponsored plan. Your financial
institution or plan administrator is responsible for sending your order to
Galaxy's distributor and wiring payment to Galaxy's custodian. The FINANCIAL
institution or employer-sponsored plan holds the shares in your name and
receives all confirmations of purchases and sales.
[Sidenote:]
INVESTMENT MINIMUMS
Except for the Institutional Government Money Market Fund, Galaxy does not have
any minimum investment requirements for initial or additional investments in
Trust Shares but financial institutions and employer-sponsored plans may do so.
They may also require you to maintain a minimum account balance.
The minimum initial aggregate investment by a financial institution purchasing
shares of the Institutional Government Money Market Fund on behalf of its
customers is $2,000,000. There is no minimum investment requirement for
additional purchases.
HOW TO SELL SHARES
You can sell Trust Shares by following the procedures established by your
financial institution or your employer-sponsored plan. Your financial
institution or plan administrator is responsible for sending your order to
Galaxy's distributor and for crediting your account with the proceeds. Galaxy
doesn't charge for wiring the proceeds, but your financial institution or
employer-sponsored plan may do so. Contact your financial institution or plan
administrator for more information.
OTHER TRANSACTION POLICIES
Galaxy may refuse any order to buy shares. Galaxy doesn't issue a certificate
when you buy shares but it does keep a record of shares issued to investors.
Sales proceeds are normally wired to your FINANCIAL institution or plan
administrator on the next business day but Galaxy reserves the right to send
sales proceeds within seven days if sending proceeds earlier could adversely
affect a Fund.
Galaxy may ask for any information it might reasonably need to make sure that
you've authorized a sale of shares.
-23-
<PAGE>
With respect to the Institutional Government Money Market Fund, Galaxy requires
that a financial institution maintain an average account balance of $2,000,000.
If the balance in the account falls below $2,000,000, Galaxy may require the
financial institution to sell all shares in the account. With respect to the
other Funds, Galaxy may close any account after 60 days' written notice if the
value of the account drops below $250 as a result of selling shares.
HOW TO EXCHANGE SHARES - INSTITUTIONAL GOVERNMENT MONEY MARKET FUND ONLY
If you are a customer of a financial institution, you may exchange Trust Shares
of the Institutional Government Money Market Fund having a value of at least
$100 for Retail A Shares of any other Galaxy Fund or for shares of any other
Fund that's managed by the Adviser or any of its affiliates in which you have an
existing account. Unless you qualify for a waiver, you'll have to pay a sales
charge when you exchange your Trust Shares of the Institutional Government Money
Market Fund for Retail A Shares of another Galaxy Fund that imposes a sales
charge on purchases.
TO EXCHANGE SHARES:
- - call Galaxy's distributor or use the InvestConnect voice response line at
1-877-BUY-GALAXY (1-877-289-4252)
- - send your request in writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
- - ask your financial institution
Galaxy doesn't charge any fee for making exchanges but your financial
institution might do so. You are generally limited to three exchanges per year.
Galaxy may refuse any exchange request and may change or cancel the exchange
privilege by giving 60 days' advance written notice to shareholders.
-24-
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Fund declares dividends from net investment income daily and pays them
within five business days after the end of each month. Although the Funds do not
expect to realize net long-term capital gains, any capital gains realized will
be distributed at least annually. Dividends and distributions are paid in cash
unless you indicate in the account application or in a letter to Galaxy that you
want to have dividends and distributions reinvested in additional shares.
MONEY MARKET, GOVERNMENT, INSTITUTIONAL GOVERNMENT MONEY MARKET AND U.S.
TREASURY FUNDS
Distributions by these Funds will generally be taxable to shareholders. Each of
these Funds expects that all, or substantially all, of its distributions will
consist of ordinary income. You will be subject to income tax on these
distributions regardless of whether they are paid in cash or reinvested in
additional shares. The one major exception to these tax principles is that
distributions on shares held in an IRA (or other tax-qualified plan) will not be
currently taxable.
TAX-EXEMPT FUND
Distributions by this Fund will generally consist of dividends derived from
interest earned on exempt securities, and these "exempt-interest dividends" will
be exempt income for shareholders for federal income tax purposes. It is
possible, depending upon the Fund's investments, that a portion of the Fund's
distributions could be taxable to shareholders as ordinary income or capital
gains, but the Fund does not expect that this will be the case.
Interest on indebtedness incurred by a shareholder to purchase or carry shares
of this Fund generally will not be deductible for federal income tax purposes.
You should note that a portion of the exempt-interest dividends paid by this
Fund may constitute an item of tax preference for purposes of determining
federal alternative minimum tax liability. Exempt-interest dividends will also
be considered along with other adjusted gross income in determining whether any
Social Security or railroad retirement payments received by you are subject to
federal income taxes.
ALL FUNDS
Taxable dividends paid in January may be taxable as if they had been paid the
previous December. Each year you'll receive in the mail federal tax information
on distributions paid by the Funds.
-25-
<PAGE>
STATE AND LOCAL TAXES
Generally, shareholders may also be subject to state and local taxes on
distributions , redemptions and exchanges. State income taxes may not apply
however to the portions of each Fund's distributions, if any, that are
attributable to interest on U.S. Government securities or on securities of the
particular state, or localities within a state.
MISCELLANEOUS
The foregoing is only a summary of certain tax considerations under current law,
which may be subject to change in the future. You should consult your tax
adviser for further information regarding federal, state, local and/or foreign
tax consequences relevent to your specific situation.
-26-
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables shown below will help you understand the
financial performance for the Funds' Trust Shares for the past five years.
Certain information reflects the financial performance of a single Trust
Share. The total returns in the tables represent the rate that an investor
would have earned (or lost) on an investment in Trust Shares of each Fund,
assuming all dividends and distributions were reinvested. The information for
the fiscal year ended October 31,1999 has been audited by____________,
independent auditors, whose report, along with the Funds' financial
statements, are included in the Funds' Annual Report and are incorporated by
reference into the SAI. The Annual Report and SAI are available free of
charge upon request. The information for the fiscal years ended October 31,
1995, 1996, 1997 and 1998 was audited by Galaxy's former auditors,____________.
-27-
<PAGE>
Galaxy Money Market Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
--------------------------------------------------------------------------------
1999 1998 1997 1996 1995(1)
---- ---- ---- ---- ----
TRUST SHARES
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .... $1.00 $1.00 $1.00 $1.00
----- ----- ----- -----
Income from investment operations:
Net investment income(2) .............. 0.05 0.05 0.05 0.05
Net realized and unrealized gain (loss)
on investments ...................... -- -- -- --
----- ----- ----- -----
Total from investment operations ........ 0.05 0.05 0.05 0.05
----- ----- ----- -----
Less dividends:
Dividends from net investment income .. (0.05) (0.05) (0.05) (0.05)
Dividends from net realized capital
gains ................................ -- -- -- --
----- ----- ----- -----
Total dividends ......................... (0.05) (0.05) (0.05) (0.05)
----- ----- ----- -----
Net increase (decrease)
in net asset value .................... -- -- -- --
----- ----- ----- -----
Net asset value, end of period .......... $1.00 $1.00 $1.00 $1.00
----- ----- ----- -----
----- ----- ----- -----
Total return ............................ 5.23% 5.13% 5.00% 5.43%
Ratios/supplemental data:
Net assets, end of period (000's) ..... $1,262,900 $1,138,185 $924,222 $334,054
Ratios to average net assets:
Net investment income including
reimbursement/waiver ................. 5.12% 5.04% 4.89% 5.30%
Operating expenses including
reimbursement/waiver ................. 0.49% 0.50% 0.55% 0.55%
Operating expenses excluding
reimbursement/waiver ................. 0.53% 0.54 0.58% 0.56%
</TABLE>
- ----------------
1 Prior to November 1, 1994, the Fund offered a single class of shares. As of
such date, the existing class of shares was designated as Retail Shares
(now designated Retail A Shares) and the Fund began issuing a second class
of shares designated as Trust Shares.
2 Net investment income per share for Trust Shares before
reimbursement/waiver of fees by the Adviser and/or the Fund's administrator
for the years ended October 31, 1999, 1998, 1997, 1996 and 1995 was $___,
$0.05, $0.05, $0.05 and $0.05, respectively.
-28-
<PAGE>
Galaxy Government Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
-------------------------------------------------------------------------
1999 1998 1997 1996 1995(1)
---- ---- ---- ---- ----
Trust Shares
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .... $1.00 $1.00 $1.00 $1.00
Income from investment operations:
Net investment income(2) ............... 0.05 0.05 0.05 0.05
Net realized and unrealized gain (loss)
on investments ....................... -- -- -- --
Total from investment operations ....... 0.05 0.05 0.05 0.05
Less dividends:
Dividends from net investment income .. (0.05) (0.05) (0.05) (0.05)
Dividends from net realized capital
gains ................................. -- -- -- --
Total dividends ......................... (0.05) (0.05) (0.05) (0.05)
Net increase (decrease)
in net asset value ..................... -- -- -- --
Net asset value, end of period ......... $1.00 $1.00 $1.00 $1.00
Total return ............................. 5.15% 5.06% 4.95% 5.39%
Ratios/supplemental data:
Net assets, end of period (000's) ..... $722,476 $630,859 $733,759 $678,679
Ratios to average net assets:
Net investment income including
Reimbursement/waiver ................. 5.03% 4.94% 4.85% 5.27%
Operating expenses including
Reimbursement/waiver ................. 0.51% 0.51% 0.52% 0.53%
Operating expenses excluding
Reimbursement/waiver ................. 0.52% 0.52% 0.53% 0.54%
</TABLE>
- ----------------
1 Prior to November 1, 1994, the Fund offered a single class of shares. As of
such date, the existing class of shares was designated as Retail Shares
(now designated Retail A Shares) and the Fund began issuing a second class
of shares designated as Trust Shares.
2 Net investment income per share for Trust Shares before
reimbursement/waiver of fees by the Adviser and/or the Fund's administrator
for the years ended October 31, 1999, 1998, 1997, 1996 and 1995 was $____,
$0.05, $0.05, $0.05 and $0.05, respectively.
-29-
<PAGE>
Galaxy Institutional Government Money Market Fund(1)
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
----------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Trust Shares
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .... $1.00 $1.00 $1.00 $1.00
Income from investment operations:
Net investment income(2) ............... 0.05 0.05 0.05 0.05
Net realized and unrealized gain (loss)
on investments ....................... -- -- -- --
Total from investment operations ....... 0.05 0.05 0.05 0.05
Less dividends:
Dividends from net investment income .. (0.05) (0.05) (0.05) (0.05)
Dividends from net realized capital
gains ................................. -- -- -- --
Total dividends ......................... (0.05) (0.05) (0.05) (0.05)
Net increase (decrease)
in net asset value ..................... -- -- -- --
Net asset value, end of period ......... $1.00 $1.00 $1.00 $1.00
Total return ........................... 5.32% 5.09% 5.12% 5.53%
Ratios/supplemental data:
Net assets, end of period (000's) ..... $200,319 $175,141 $500,927 $506,692
Ratios to average net assets:
Net investment income including
reimbursement/waiver .................. 5.17% 4.94% 5.00% 5.38%
Operating expenses including
reimbursement/waiver .................. 0.20% 0.19% 0.19% 0.17%
Operating expenses excluding
reimbursement/waiver .................. 0.36% 0.33% 0.33% 0.33%
</TABLE>
- ----------------
1 The Fund was formerly known as the Institutional Treasury Money Market
Fund.
2 Net investment income per share before reimbursement/waiver of fees by the
Adviser and/or the Fund's administrator for the years ended October 31,
1999, 1998, 1997, 1996 AND 1995 was $___, $0.05, $0.05, $0.05, and $0.05,
respectively.
-30-
<PAGE>
Galaxy U.S. Treasury Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
--------------------------------------------------------------------------
1999 1998 1997 1996 1995(1)
---- ---- ---- ---- ----
Trust Shares
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .... $1.00 $1.00 $1.00 $1.00
Income from investment operations:
Net investment income(2) .............. 0.05 0.05 0.05 0.05
Net realized and unrealized gain (loss)
on investments ...................... -- -- -- --
Total from investment operations ....... 0.05 0.05 0.05 0.05
Less dividends:
Dividends from net investment income . (0.05) (0.05) (0.05) (0.05)
Dividends from net realized capital
gains ................................ -- -- -- --
Total dividends ........................ (0.05) (0.05) (0.05) (0.05)
Net increase (decrease)
in net asset value ................... -- -- -- --
Net asset value, end of period ......... $1.00 $1.00 $1.00 $1.00
Total return ............................ 4.90% 4.85% 4.80% 5.18
Ratios/supplemental data :
Net assets, end of period (000's) ..... $429,645 $393,175 $354,331 $271,036
Ratios to average net assets:
Net investment income including
reimbursement/waiver ................. 4.80% 4.75% 4.69% 5.06%
Operating expenses including
reimbursement/waiver ................. 0.51% 0.52% 0.53% 0.55%
Operating expenses excluding
reimbursement/waiver ................. 0.51% 0.53% 0.53% 0.55%
</TABLE>
- ----------------
1 Prior to November 1, 1994, the Fund offered a single class of shares. As of
such date, the existing class of shares was designated as Retail Shares
(now designated Retail A Shares) and the Fund began issuing a second class
of shares designated as Trust Shares.
2 Net investment income per share for Trust Shares before
reimbursement/waiver of fees by the Adviser and/or the Fund's administrator
for the years ended October 31, 1999, 1998, 1997, 1996 and 1995 was $____,
$0.05, $0.05, $0.05 and $0.05, respectively.
-31-
<PAGE>
Galaxy Tax-Exempt Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the year ending October 31,
---------------------------------------------------------------------------
1999 1998 1997 1996 1995(1)
---- ---- ---- ---- ----
Trust Shares
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .... $1.00 $1.00 $1.00 $1.00
Income from investment operations:
Net investment income(2) ............... 0.03 0.03 0.03 0.03
Net realized and unrealized gain (loss)
on investments ....................... -- -- -- --
Total from investment operations ....... 0.03 0.03 0.03 0.03
Less dividends:
Dividends from net investment income .. (0.03) (0.03) (0.03) (0.03)
Dividends from net realized capital
gains ................................. -- -- -- --
Total dividends ......................... (0.03) (0.03) (0.03) (0.03)
Net increase (decrease)
in net asset value ..................... -- -- -- --
Net asset value, end of period ......... $1.00 $1.00 $1.00 $1.00
Total return ............................. 3.03% 3.10% 2.97% 3.29%
Ratios/supplemental data:
Net assets, end of period (000's) ..... $227,176 $169,316 $184,307 $180,706
Ratios to average net assets:
Net investment income including
reimbursement/waiver .................. 2.99% 3.05% 2.92% 3.24%
Operating expenses including
reimbursement/waiver .................. 0.53% 0.53% 0.54% 0.55%
Operating expenses excluding
reimbursement/waiver .................. 0.53% 0.53% 0.54% 0.56%
</TABLE>
- ----------------
1 Prior to November 1, 1994, the Fund offered a single class of shares. As of
such date, the existing class of shares was designated as Retail Shares
(now designated Retail A Shares) and the Fund began issuing a second class
of shares designated as Trust Shares.
2 Net investment income per share for Trust Shares before
reimbursement/waiver of fees by the Adviser and/or the Fund's administrator
for the years ended October 31, 1999, 1998, 1997, 1996 and 1995 was $____,
$0.03, $0.03, $0.03 and $0.03, respectively.
-32-
<PAGE>
[Back Cover Page]
Where to find more information
You'll find more information about the Funds in the following documents:
ANNUAL AND SEMI-ANNUAL REPORTS
Galaxy's annual and semi-annual reports contain more information about each Fund
and a discussion about the market conditions and investment strategies that had
a significant effect on each Fund's performance during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains detailed information about the Funds and their policies. By
law, it's incorporated by reference into (considered to be part of) this
prospectus.
You can get a free copy of these documents, request other information about the
Funds and make shareholder inquiries by calling Galaxy at 1-877-BUY-GALAXY
(1-877-289-4252) or by writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
If you buy your shares through a financial institution, you may contact your
institution for more information.
You can write to the Securities and Exchange Commission (SEC) Public Reference
Section and ask them to mail you information about the Funds, including the SAI.
They'll charge you a fee for this service. You can also visit the SEC Public
Reference Room and copy the documents while you're there. For information about
the operation of the Public Reference Room, call the SEC.
Public Reference Section of the SEC
Washington, DC 20549-0102
1-202-942-8090.
Reports and other information about the Funds are also available on the EDGAR
database on the SEC's website at http://www.sec.gov. Copies of this information
may also be obtained, after paying a duplicating fee, by electronic request, to
the SEC's e-mail address at [email protected].
Galaxy's Investment Company Act File No. is 811-4636.
[FLEET ASSIGNED CODE]
<PAGE>
THE GALAXY FUND
STATEMENT OF ADDITIONAL INFORMATION
_____________, 2000
GALAXY MONEY MARKET FUND RETAIL A SHARES, RETAIL B
SHARES AND TRUST SHARES
GALAXY GOVERNMENT FUND RETAIL A SHARES AND TRUST
GALAXY U.S. TREASURY FUND SHARES
GALAXY TAX-EXEMPT FUND
GALAXY CONNECTICUT MUNICIPAL MONEY MARKET FUND RETAIL A SHARES AND PRIME
GALAXY MASSACHUSETTS MUNICIPAL MONEY MARKET FUND SHARES
GALAXY NEW YORK MUNICIPAL MONEY MARKET FUND
GALAXY INSTITUTIONAL GOVERNMENT MONEY MARKET FUND SHARES
This Statement of Additional Information is not a prospectus. The
prospectuses for the Funds as listed below, as they may be supplemented or
revised from time to time (the "Prospectuses"), as well as the Funds' Annual
Report to Shareholders dated October 31, 1999 (the "Annual Report") may be
obtained, without charge, by writing:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
or by calling 1-877-BUY-GALAXY (1-877-289-4252)
CURRENT PROSPECTUSES
- - Prospectus for Retail A Shares and Retail B Shares of the Money Market Fund
and Retail A Shares of the Government, U.S. Treasury, Tax-Exempt,
Connecticut Municipal Money Market, Massachusetts Municipal Money Market and
New York Municipal Money Market Funds dated ___________, 2000
- - Prospectus for Trust Shares of the Money Market, Government, U.S. Treasury
and Tax-Exempt Funds and Shares of the Institutional Government Money Market
Fund dated __________, 2000
- - Prospectus for Prime Shares of the Connecticut Municipal Money Market,
Massachusetts Municipal Money Market and New York Municipal Money Market
Funds dated _______________, 2000
The ________________________ and the report thereon of ___________________, The
Galaxy Funds' independent accountants, are incorporated by reference into this
Statement of Additional Information.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
GENERAL INFORMATION.........................................................................1
DESCRIPTION OF GALAXY AND ITS SHARES........................................................1
INVESTMENT STRATEGIES, POLICIES AND RISKS...................................................4
Money Market Fund...........................................................................4
Government Fund.............................................................................4
U.S. Treasury Fund..........................................................................4
Tax-Exempt Fund.............................................................................5
Institutional Government Money Market Fund..................................................5
Connecticut Municipal Money Market Fund.....................................................6
Massachusetts Municipal Money Market Fund...................................................6
New York Municipal Money Market Fund........................................................7
Other Investment Policies and Risk Considerations...........................................7
Quality Requirements........................................................................7
U.S. Government Obligations.................................................................8
Money Market Instruments....................................................................9
Municipal Securities.......................................................................10
Stand-By Commitments.......................................................................13
Tender Option Bonds........................................................................14
Variable and Floating Rate Instruments.....................................................14
Repurchase and Reverse Repurchase Agreements...............................................15
When-Issued and Delayed Settlement Transactions............................................16
Securities Lending -- Money Market.........................................................17
Guaranteed Investment Contracts -- Money Market Fund.......................................17
Asset-Backed Securities -- Money Market Fund...............................................17
Investment Company Securities -- Tax-Exempt Money Market Funds and Institutional
Government Money Market Fund.........................................................18
Non-Diversification - Connecticut Municipal Money Market, Massachusetts Municipal
Money Market and New York Municipal Money Market Funds...............................19
Connecticut Investment Risks...............................................................19
Massachusetts Investment Risks.............................................................22
New York Investment Risks..................................................................23
Portfolio Securities Generally.............................................................36
INVESTMENT LIMITATIONS.....................................................................36
NET ASSET VALUE............................................................................44
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION.............................................45
Purchases of Retail Shares and Prime Shares................................................45
Other Purchase Information.................................................................46
Applicable Sales Charges - Retail B Shares.................................................46
Purchases of Shares of the Institutional Government Money Market Fund......................48
Purchases of Trust Shares -- Money Market, Government, U.S. Treasury and Tax-
Exempt Funds.........................................................................48
INVESTOR PROGRAMS..........................................................................50
-i-
<PAGE>
Exchange Privilege - Retail Shares and Shares of the Institutional Government Money
Market Fund..........................................................................50
Retirement Plans -- Retail Shares..........................................................51
Automatic Investment Program and Systematic Withdrawal Plan -- Retail Shares...............51
College Investment Program -- Retail Shares................................................52
Checkwriting -- Retail Shares..............................................................52
Direct Deposit Program -- Retail Shares....................................................53
TAXES......................................................................................53
State and Local............................................................................54
Miscellaneous..............................................................................56
TRUSTEES AND OFFICERS......................................................................56
Shareholder and Trustee Liability..........................................................60
INVESTMENT ADVISER.........................................................................61
Authority to Act as Investment Adviser.....................................................63
ADMINISTRATOR..............................................................................64
CUSTODIAN AND TRANSFER AGENT...............................................................65
EXPENSES...................................................................................67
PORTFOLIO TRANSACTIONS.....................................................................67
SHAREHOLDER SERVICES PLAN -- RETAIL A SHARES...............................................68
DISTRIBUTION AND SERVICES PLANS............................................................70
Retail B Share Plan........................................................................70
Prime Share Plan...........................................................................71
Retail B Share Plan and Prime Share Plan...................................................72
DISTRIBUTOR................................................................................73
AUDITORS...................................................................................74
COUNSEL....................................................................................75
PERFORMANCE AND YIELD INFORMATION..........................................................75
Tax-Equivalency Tables - Connecticut Municipal Money Market, Massachusetts
Municipal Money Market and New York Municipal Money Market Funds.....................77
Performance Reporting......................................................................81
MISCELLANEOUS..............................................................................82
FINANCIAL STATEMENTS.......................................................................88
APPENDIX A................................................................................A-1
</TABLE>
-ii-
<PAGE>
GENERAL INFORMATION
This Statement of Additional Information should be read in conjunction
with a current Prospectus. This Statement of Additional Information relates to
the Prospectuses described on the cover page. No investment in shares of the
Funds should be made without reading a Prospectus.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, 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. ALTHOUGH THE FUNDS SEEK TO
PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO
LOSE MONEY BY INVESTING IN THE FUNDS.
DESCRIPTION OF GALAXY AND ITS SHARES
The Galaxy Fund ("Galaxy") is an open-end management investment company
currently offering shares of beneficial interest in twenty-nine investment
portfolios: Money Market Fund, Government Fund, U.S. Treasury Fund, Tax-Exempt
Fund, Connecticut Municipal Money Market Fund, Massachusetts Municipal Money
Market Fund, Institutional Government Money Market Fund, Prime Reserves,
Government Reserves, Tax-Exempt Reserves, Equity Value Fund, Equity Growth Fund,
Equity Income Fund, International Equity Fund, Small Company Equity Fund, Asset
Allocation Fund, Small Cap Value Fund, Growth and Income Fund, Strategic Equity
Fund, Short-Term Bond Fund, Intermediate Government Income Fund, High Quality
Bond Fund, Corporate Bond Fund, Tax-Exempt Bond Fund, New Jersey Municipal Bond
Fund, New York Municipal Bond Fund, Connecticut Municipal Bond Fund,
Massachusetts Municipal Bond Fund and Rhode Island Municipal Bond Fund. Galaxy
is also authorized to issue shares of beneficial interest in 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.
Prior to the date of this Statement of Additional Information, the
Connecticut Municipal Money Market, Massachusetts Municipal Money Market and New
York Municipal Money Market Funds had not offered Prime Shares.
Galaxy was organized as a Massachusetts business trust on March 31, 1986.
Galaxy's Declaration of Trust authorizes the Board of Trustees to classify or
reclassify any unissued shares into one or more classes or series of shares by
setting or changing in any one or more respects their respective preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption. Pursuant to
such authority, the Board of Trustees has authorized the issuance of an
unlimited number of shares in each of the series in the Funds as follows: Class
A Shares (Retail A Shares), Class A --
<PAGE>
Special Series 1 Shares (Trust Shares) and Class A -- Special Series 2 Shares
(Retail B Shares), each series representing interests in the Money Market Fund;
Class B Shares (Retail A Shares) and Class B -- Special Series 1 Shares (Trust
Shares), each series representing interests in the Government Fund; Class E
Shares (Retail A Shares) and Class E -- Special Series 1 Shares (Trust Shares),
each series representing interests in the Tax-Exempt Fund; Class F Shares
(Retail A Shares) and Class F -- Special Series 1 Shares (Trust Shares), each
series representing interests in the U.S. Treasury Fund; Class S Shares
representing interests in the Institutional Government Money Market Fund; Class
V Shares (Retail A Shares) and Class V -- Special Series 1 Shares (Prime
Shares), representing interests in the Connecticut Municipal Money Market Fund;
Class W Shares (Retail A Shares) and Class W -- Special Series 1 Shares (Prime
Shares), representing interests in the Massachusetts Municipal Money Market
Fund; Class EE -- Series 1 Shares (Retail A Shares) and Class EE -- Series 2
Shares (Prime Shares), each series representing interests in the New York
Municipal Money Market Fund. Each Fund (other than the Connecticut Municipal
Money Market, Massachusetts Municipal Money Market and New York Municipal Money
Market Funds) is classified as a diversified company under the Investment
Company Act of 1940, as amended (the "1940 Act"). The Connecticut Municipal
Money Market, Massachusetts Municipal Money Market and New York Municipal Money
Market Funds are classified as non-diversified investment companies under the
1940 Act.
Each share of Galaxy (irrespective of series designation) has a par value
of $.001 per share, represents an equal proportionate interest in the related
investment portfolio with other shares of the same class (irrespective of series
designation), and is entitled to such dividends and distributions out of the
income earned on the assets belonging to such investment portfolio as are
declared in the discretion of Galaxy's Board of Trustees.
Shares have no preemptive rights and only such conversion or exchange
rights as the Board of Trustees may grant in its discretion. When issued for
payment as described in the Prospectuses, shares will be fully paid and
non-assessable. Each series of shares in a Fund (i.e., Retail A Shares, Retail B
Shares, Trust Shares and Prime Shares) bear pro rata the same expenses and are
entitled equally to the 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 Prime Shares
will bear the expenses of the Distribution and Services Plan for Prime Shares.
In addition, each series may incur differing transfer agency fees and may have
differing sales charges. Standardized yield and total return quotations are
computed separately for each series of shares. The differences in expenses paid
by the respective series will affect their performance. See "Shareholder
Services Plan" and "Distribution and Services Plans" below.
Holders of all outstanding shares of a particular Fund will vote
together in the aggregate and not by series on all matters, except that only
shares of a particular series of a Fund will be entitled to vote on matters
submitted to a vote of shareholders pertaining to any distribution and/or
shareholder servicing plan for such series (e.g., only Retail A Shares and Trust
Shares of a
-2-
<PAGE>
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 Money Market Fund will be entitled to vote
on matters pertaining to Galaxy's Distribution and Services Plan for Retail B
Shares, and only Prime Shares of a Fund will be entitled to vote on matters
submitted to a vote of shareholders pertaining to Galaxy's Distribution and
Services Plan for Prime Shares). Further, shareholders of all of the Funds, as
well as those of any other investment portfolio now or hereafter offered by
Galaxy, will vote together in the aggregate and not separately on a Fund-by-Fund
basis, except as otherwise required by law or when permitted by the Board of
Trustees. Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as Galaxy shall not be deemed to have been effectively acted upon
unless approved by the holders of a majority of the outstanding shares of each
Fund affected by the matter. A particular Fund is deemed to be affected by a
matter unless it is clear that the interests of each Fund in the matter are
substantially identical or that the matter does not affect any interest of the
Fund. Under the Rule, the approval of an investment advisory agreement or any
change in an investment objective or a fundamental investment policy would be
effectively acted upon with respect to a Fund only if approved by a majority of
the outstanding shares of such Fund (irrespective of series designation).
However, the Rule also provides that the ratification of the appointment of
independent public accountants, the approval of principal underwriting
contracts, and the election of trustees may be effectively acted upon by
shareholders of Galaxy voting without regard to class or series.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held, and will vote in
the aggregate and not by class or series, except as otherwise expressly required
by law or when the Board of Trustees determines that the matter to be voted on
affects only the interests of shareholders of a particular class or series.
Voting rights are not cumulative and, accordingly, the holders of more than 50%
in the aggregate of Galaxy's outstanding shares may elect all of the trustees,
irrespective of the votes of other shareholders.
Galaxy is not required under Massachusetts law to hold annual shareholder
meetings and intends to do so only if required by the 1940 Act. Shareholders
have the right to remove Trustees. Galaxy's Declaration of Trust provides that a
meeting of shareholders shall be called by the Board of Trustees upon a written
request of shareholders owning at least 10% of the outstanding shares of Galaxy
entitled to vote.
Galaxy's Declaration of Trust authorizes the Board of Trustees, without
shareholder approval (unless otherwise required by applicable law), to (a) sell
and convey the assets of a Fund to another management investment company for
consideration which may include securities issued by the purchaser and, in
connection therewith, to cause all outstanding shares of the Fund involved to be
redeemed at a price which is equal to their net asset value and which may be
paid in cash or by distribution of the securities or other consideration
received from the sale and conveyance; (b) sell and convert a Fund's assets into
money and, in connection therewith, to cause all outstanding shares of the Fund
involved to be redeemed at their net asset value; or (c) combine the assets
belonging to a Fund with the assets belonging to another Fund of
-3-
<PAGE>
Galaxy and, in connection therewith, to cause all outstanding shares of any Fund
to be redeemed at their net asset value or converted into shares of another
class of Galaxy's shares at the net asset value. In the event that shares are
redeemed in cash at their net asset value, a shareholder may receive in payment
for such shares, due to changes in the market prices of the Fund's portfolio
securities, an amount that is more or less than the original investment. The
exercise of such authority by the Board of Trustees will be subject to the
provisions of the 1940 Act, and the Board of Trustees will not take any action
described in this paragraph unless the proposed action has been disclosed in
writing to the Fund's shareholders at least 30 days prior thereto.
INVESTMENT STRATEGIES, POLICIES AND RISKS
Fleet Investment Advisors Inc. ("Fleet"), the Fund's investment adviser,
will use its best efforts to achieve each Fund's investment objective, although
such achievement cannot be assured. The investment objective of a Fund, as
described in its Prospectus(es), may not be changed without the approval of the
holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Except as noted herein under "Tax-Exempt Fund," "Connecticut
Municipal Money Market Fund," "Massachusetts Municipal Money Market Fund," and
"New York Municipal Money Market Fund" and below under "Investment Limitations,"
a Fund's investment policies may be changed without shareholder approval. An
investor should not consider an investment in the Funds to be a complete
investment program. Each Fund will maintain a dollar-weighted average portfolio
maturity of 90 days or less in an effort to maintain a stable net asset value
per share of $1.00. The value of the Funds' portfolio securities will generally
vary inversely with changes in prevailing interest rates. The following
investment strategies, policies and risks supplement those set forth in the
Funds' Prospectuses.
MONEY MARKET FUND
Instruments in which the Money Market Fund invests have remaining
maturities of 397 days or less (except for certain variable and floating rate
notes and securities underlying certain repurchase agreements). For more
information, including applicable quality requirements, see "Other Investment
Policies and Risk Considerations" below.
GOVERNMENT FUND
Instruments in which the Government Fund invests have remaining
maturities of 397 days or less (except for certain variable and floating rate
notes and securities underlying certain repurchase agreements). See "Other
Investment Policies and Risk Considerations" below.
U.S. TREASURY FUND
Instruments in which the U.S. Treasury Fund invests may include, but are
not limited to, securities issued by the U.S. Treasury and by certain U.S.
Government agencies or instrumentalities such as the Federal Home Loan Banks and
Federal Farm Credit Banks. The Fund invests at least 65% of its total assets in
direct U.S. Government obligations. Shareholders
-4-
<PAGE>
residing in a particular state that has an income tax law should determine
through consultation with their own tax advisers whether such interest income,
when distributed by the Fund, will be considered by the state to have retained
exempt status and whether the Fund's capital gain and other income, if any, when
so distributed will be subject to the state's income tax. See "Taxes."
Portfolio securities held by the Fund have remaining maturities of 397
days or less (with certain exceptions). The Fund may also invest in certain
variable and floating rate instruments. For more information, including
applicable quality requirements, see "Other Investment Policies and Risk
Considerations" below.
TAX-EXEMPT FUND
Municipal Securities in which the Tax-Exempt Fund invests present minimal
credit risk and meet the rating criteria described under "Other Investment
Policies and Risk Considerations - Quality Requirements" below. Municipal
Securities, as that term is used in this Statement of Additional Information,
are debt obligations issued by or on behalf of states, territories and
possessions of the United States, the District of Columbia, and their
authorities, agencies, instrumentalities and political subdivisions, the
interest on which, in the opinion of bond counsel or counsel to the issuer, is
exempt from federal income tax.
As a matter of fundamental policy that cannot be changed without the
requisite consent of the Fund's shareholders, the Fund will invest, except
during temporary defensive periods, at least 80% of its assets in Municipal
Securities. The Fund's investments in private activity bonds will not be treated
as investments in Municipal Securities for purposes of the 80% requirement
mentioned above and, under normal market conditions, will not exceed 20% of the
Fund's net assets when added together with any taxable investments held by the
Fund.
Although the Fund does not presently intend to do so on a regular basis,
it may invest more than 25% of its assets in Municipal Securities the interest
on which is paid solely from revenues of similar projects. To the extent that
the Fund's assets are concentrated in Municipal Securities payable from revenues
on similar projects, the Fund will be subject to the peculiar risks presented by
such projects to a greater extent than it would be if its assets were not so
invested.
The Fund's portfolio securities will generally have remaining maturities
of 397 days or less (except for certain variable and floating rate notes and
securities underlying certain repurchase agreements). See "Other Investment
Policies and Risk Considerations" below.
INSTITUTIONAL GOVERNMENT MONEY MARKET FUND
Instruments in which the Institutional Government Money Market Fund
invests have remaining maturities of 397 days or less (except for certain
variable and floating rate notes and securities underlying certain repurchase
agreements). See "Other Investment Policies and Risk Considerations" below.
-5-
<PAGE>
The Fund's portfolio securities will generally have remaining maturities
of 397 days or less (except for certain variable and floating rate notes and
securities underlying certain repurchase agreements). See "Other Investment
Policies and Risk Considerations" below.
CONNECTICUT MUNICIPAL MONEY MARKET FUND
The Connecticut Municipal Money Market Fund attempts to achieve its
objective by investing in a portfolio of debt obligations issued by or on behalf
of the State of Connecticut, its political subdivisions, or public
instrumentalities, state or local authorities, districts or similar public
entities created under Connecticut law, and obligations of territories and
possessions of the United States and any political sub-division or financing
authority of any of these, the interest income from which is, in the opinion of
qualified legal counsel, exempt from both federal regular income tax and the
Connecticut state income tax on individuals, trusts and estates ("Connecticut
Municipal Securities") with remaining maturities of 397 days or less at the time
of purchase (with certain exceptions). Examples of Connecticut Municipal
Securities include, but are not limited to, municipal commercial paper and other
short-term notes; variable rate demand notes; municipal bonds (including bonds
having remaining maturities of less than 397 days without demand features); and
tender option bonds. See "Other Investment Policies and Risk Considerations"
below. As a matter of fundamental policy that cannot be changed without
shareholder approval, the Fund invests its assets so that at least 80% of its
annual interest income is exempt from federal regular income tax or at least 80%
of the total value of its assets is invested in obligations the interest income
from which is exempt from federal regular income tax.
MASSACHUSETTS MUNICIPAL MONEY MARKET FUND
The Massachusetts Municipal Money Market Fund attempts to achieve its
objective by investing in a portfolio of debt obligations issued by or on behalf
of the Commonwealth of Massachusetts and its political subdivisions and
financing authorities, and obligations of other states, territories and
possessions of the United States, including the District of Columbia, and any
political sub-division or financing authority of any of these, the interest
income from which
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is, in the opinion of qualified legal counsel, exempt from federal regular
income tax and the income taxes imposed by the Commonwealth of Massachusetts
upon non-corporate taxpayers ("Massachusetts Municipal Securities") with
remaining maturities of 397 days or less at the time of purchase (with certain
exceptions). Examples of Massachusetts Municipal Securities include, but are not
limited to, municipal commercial paper and other short-term notes; variable rate
demand notes; municipal bonds (including bonds having remaining maturities of
less than 397 days without demand features); and tender option bonds. See "Other
Investment Policies and Risk Considerations" below. As a matter of fundamental
policy that cannot be changed without shareholder approval, the Fund invests its
assets so that at least 80% of its annual interest income is exempt from federal
regular income tax or at least 80% of the total value of its assets are invested
in obligations the interest income from which is exempt from federal regular
income tax.
NEW YORK MUNICIPAL MONEY MARKET FUND
The New York Municipal Money Market Fund attempts to achieve its
objective by investing in a portfolio of debt obligations issued by or on behalf
of the State of New York, its political sub-divisions, or public
instrumentalities, state or local authorities, and obligations of other states,
territories and possessions of the United States, including the District of
Columbia, and any political sub-division or financial authority of any of these,
the interest income from which is, in the opinion of qualified legal counsel,
exempt from regular federal income tax, and New York State and New York City
personal income taxes ("New York Municipal Securities") with remaining
maturities of 397 days or less at the time of purchase (with certain
exceptions). Examples of New York Municipal Securities include, but are not
limited to, municipal commercial paper and other short-term notes; variable rate
demand notes; municipal bonds (including bonds having remaining maturities of
less than 397 days without demand features); and tender option bonds. See "Other
Investment Policies and Risk Considerations" below. As a matter of fundamental
policy that cannot be changed without shareholder approval, the Fund invests its
assets so that at least 80% of its annual interest income is exempt from federal
regular income tax or at least 80% of the total value of its assets is invested
in obligations the interest income from which is exempt from federal regular
income tax.
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.
QUALITY REQUIREMENTS
Each Fund will purchase only those instruments which meet the applicable
quality requirements described below. The Money Market Fund will not purchase a
security (other than a U.S. Government security) unless the security or the
issuer with respect to comparable
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securities (i) is rated by at least two nationally recognized statistical rating
organizations ("Rating Agencies") (such as Standard & Poor's Ratings Group
("S&P"), Moody's Investors Service, Inc. ("Moody's") or Fitch IBCA, Inc. ("Fitch
IBCA") in the highest category for short-term debt securities, (ii) is rated by
the only Rating Agency that has issued a rating with respect to such security or
issuer in such Rating Agency's highest category for short-term debt, or (iii) if
not rated, the security is determined to be of comparable quality. The
Tax-Exempt Fund, Connecticut Municipal Money Market Fund, Massachusetts
Municipal Money Market Fund and New York Municipal Money Market Fund
(collectively, the "Tax-Exempt Money Market Funds") will not purchase a security
(other than a U.S. Government security) unless the security (i) is rated by at
least two such Rating Agencies in one of the two highest categories for
short-term debt securities, (ii) is rated by the only Rating Agency that has
assigned a rating with respect to such security in one of such Rating Agency's
two highest categories for short-term debt securities, or (iii) if not rated,
the security is determined to be of comparable quality. These rating categories
are determined without regard to sub-categories and gradations. The Funds will
follow applicable regulations in determining whether a security rated by more
than one Rating Agency can be treated as being in the highest or, with respect
to the Tax-Exempt Money Market Funds one of the two highest, short-term rating
categories. See "Investment Limitations" below.
Determinations of comparable quality will be made in accordance with
procedures established by the Board of Trustees. Generally, if a security has
not been rated by a Rating Agency, Fleet will acquire the security if it
determines that the security is of comparable quality to securities that have
received the requisite ratings. For example, with respect to the Connecticut
Municipal Money Market, Massachusetts Municipal Money Market and New York
Municipal Money Market Funds, Fleet will generally treat Connecticut Municipal
Securities, Massachusetts Municipal Securities or New York Municipal Securities,
as the case may be, as eligible portfolio securities if the issuer has received
long-term bond ratings within the three highest rating categories assigned by a
Rating Agency with respect to other bond issues. Fleet also considers other
relevant information in its evaluation of unrated short-term securities.
U.S. GOVERNMENT OBLIGATIONS
Examples of the types of obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities (hereinafter, "U.S. Government
obligations") that may be held by the Funds include, without limitation, direct
obligations of the U.S. Treasury, and securities issued or guaranteed by the
Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, Federal
Housing Administration, Farmers Home Administration, Export-Import Bank of the
United States, Small Business Administration, Government National Mortgage
Association, Federal National Mortgage Association, General Services
Administration, Central Bank for Cooperatives, Federal Home Loan Mortgage
Corporation, Federal Intermediate Credit Banks, Resolution Trust Corporation and
Maritime Administration.
U.S. Treasury securities differ only in their interest rates, maturities
and time of issuance: Treasury Bills have initial maturities of one year or
less; Treasury Notes have initial maturities of one to ten years; and Treasury
Bonds generally have initial maturities of more than 10 years. Obligations of
certain agencies and instrumentalities of the U.S. Government, such as the
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Government National Mortgage Association, are supported by the full faith and
credit of the U.S. Treasury; others, such as those of the Federal Home Loan
Banks, are supported by the right of the issuer to borrow from the Treasury;
others, such as those of the Federal National Mortgage Association, are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; still others, such as those of the Federal Home Loan
Mortgage Corporation, are supported only by the credit of the instrumentality.
No assurance can be given that the U.S. Government would provide financial
support to U.S. Government-sponsored instrumentalities if it is not obligated to
do so by law. Some U.S. Government obligations may be issued as variable or
floating rate instruments.
Securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities have historically involved little risk of loss of principal.
However, due to fluctuations in interest rates, the market value of such
securities may vary during the period a shareholder owns shares of the Funds.
The U.S. Treasury Fund will invest in those securities issued or
guaranteed as to principal and interest by the U.S. Government or by agencies or
instrumentalities thereof, the interest income from which, under current law,
generally will not be subject to state income tax by reason of federal law.
MONEY MARKET INSTRUMENTS
"Money market" instruments include bank obligations and corporate
obligations, including commercial paper and corporate bonds with remaining
maturities of 397 days or less.
Bank obligations include bankers' acceptances, negotiable certificates of
deposit and non-negotiable time deposits issued for a definite period of time
and earning a specified return by a U.S. bank that is a member of the Federal
Reserve System or is insured by the Federal Deposit Insurance Corporation
("FDIC"), or by a savings and loan association or savings bank that is insured
by the FDIC. Bank obligations also include U.S. dollar-denominated obligations
of foreign branches of U.S. banks or of U.S. branches of foreign banks, all of
the same type as domestic bank obligations. Investments in bank obligations are
limited to the obligations of financial institutions having more than $1 billion
in total assets at the time of purchase. Investments in non-negotiable time
deposits are limited to no more than 5% of the Money Market Fund's total assets
at the time of purchase. For the purposes of the Money Market Fund's investment
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 regulations which may limit the amount and types of their loans and
the interest rates that may be charged. In addition, the profitability of the
banking industry is largely dependent upon the availability and cost of funds to
finance lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and of U.S.
branches of foreign banks may subject a Fund to additional investment risks,
including future political and
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economic developments, the possible imposition of withholding taxes on interest
income, possible seizure or nationalization of foreign deposits, the possible
establishment of exchange controls, or the adoption of other foreign
governmental restrictions which might adversely affect the payment of principal
and interest on such obligations. In addition, foreign branches of U.S. banks
and U.S. branches of foreign banks may be subject to less stringent reserve
requirements and to different accounting, auditing, reporting and recordkeeping
standards than those applicable to domestic branches of U.S. banks. Investments
in the obligations of U.S. branches of foreign banks or foreign branches of U.S.
banks will be made only when Fleet believes that the credit risk with respect to
the instrument is minimal.
Commercial paper may include securities issued by corporations without
registration under the Securities Act of 1933, as amended, (the "1933 Act") in
reliance on the so-called "private placement" exemption in Section 4(2)
("Section 4(2) Paper"). Section 4(2) Paper is restricted as to disposition under
the federal securities laws in that any resale must similarly be made in an
exempt transaction. Section 4(2) Paper is normally resold to other institutional
investors through or with the assistance of investment dealers who make a market
in Section 4(2) Paper, thus providing liquidity. For purposes of each Fund's 10%
limitation on purchases of illiquid instruments described below, Section 4(2)
Paper will not be considered illiquid if Fleet has determined, in accordance
with guidelines approved by the Board of Trustees, that an adequate trading
market exists for such securities. The Money Market Fund and each Tax-Exempt
Money Market Fund may also purchase Rule 144A securities. See "Investment
Limitations" below.
MUNICIPAL SECURITIES
Municipal Securities are generally issued to finance public works, such
as airports, bridges, highways, housing, health-related entities,
transportation-related projects, educational programs, water and pollution
control and sewer works. They are also issued to repay outstanding obligations,
to raise funds for general operating expenses and to make loans to other public
institutions and for other facilities. Municipal Securities include private
activity bonds issued by or on behalf of public authorities to provide financing
aid to acquire sites or construct and equip facilities for privately or publicly
owned corporations. The availability of this financing encourages these
corporations to locate within the sponsoring communities and thereby increases
local employment.
The two principal classifications of Municipal Securities that may be
held by the Tax-Exempt Money Market Funds are "general obligation" securities
and "revenue" securities. General obligation securities are secured by the
issuer's pledge of its full faith, credit and taxing power for the payment of
principal and interest. Revenue securities are payable only from the revenues
derived from a particular facility or class of facilities or, in some cases,
from the proceeds of a special excise tax or other specific revenue source such
as the user of the facility being financed. Private activity bonds are in most
cases revenue securities and are not payable from the unrestricted revenues of
the issuer. Consequently, the credit quality of private activity bonds is
usually directly related to the credit standing of the corporate user of the
facility involved.
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The Funds' portfolios may also include "moral obligation" securities,
which are normally issued by special-purpose public authorities. If the issuer
of moral obligation securities is unable to meet its debt service obligations
from current revenues, it may draw on a reserve fund, the restoration of which
is a moral commitment, but not a legal obligation, of the state or municipality
which created the issuer. There is no limitation on the amount of moral
obligation securities that may be held by the Funds.
Municipal Securities may include variable rate demand notes, which are
long-term Municipal Securities that have variable or floating interest rates and
provide a Fund with the right to tender the security for repurchase at its
stated principal amount plus accrued interest. Such securities typically bear
interest at a rate that is intended to cause the securities to trade at par. The
interest rate may float or be adjusted at regular intervals (ranging from daily
to annually), and is normally based on an applicable interest index or another
published interest rate or interest rate index. Most variable rate demand notes
allow a Fund to demand the repurchase of the security on not more than seven
days prior notice. Other notes only permit a Fund to tender the security at the
time of each interest rate adjustment or at other fixed intervals. The
Tax-Exempt Money Market Funds treat variable rate demand notes as maturing on
the later of the date of the next interest rate adjustment or the date on which
a Fund may next tender the security for repurchase. Variable interest rates
generally reduce changes in the market value of Municipal Securities from their
original purchase prices. Accordingly, as interest rates decrease or increase,
the potential for capital appreciation or depreciation is less for variable rate
Municipal Securities than for fixed income obligations. The terms of these
variable rate demand instruments require payment of principal and accrued
interest from the issuer of the Municipal Securities, the issuer of the
participation interest or a guarantor of either issuer.
Municipal Securities purchased by the Tax-Exempt Money Market Funds in
some cases may be insured as to the timely payment of principal and interest.
There is no guarantee, however, that the insurer will meet its obligations in
the event of a default in payment by the issuer. In other cases, Municipal
Securities may be backed by letters of credit or guarantees issued by domestic
or foreign banks or other financial institutions which are not subject to
federal deposit insurance. Adverse developments affecting the banking industry
generally or a particular bank or financial institution that has provided its
credit or guarantee with respect to a Municipal Security held by a Tax-Exempt
Money Market Fund, including a change in the credit quality of any such bank or
financial institution, could result in a loss to the Fund and adversely affect
the value of its shares. As described above under "Money Market Instruments,"
letters of credit and guarantees issued by foreign banks and financial
institutions involve certain risks in addition to those of similar instruments
issued by domestic banks and financial institutions.
There are, of course, variations in the quality of Municipal Securities,
both within a particular category and between categories, and the yields on
Municipal Securities depend upon a variety of factors, including general market
conditions, the financial condition of the issuer, general conditions of the
municipal bond market, the size of a particular offering, the maturity of the
obligation, and the rating of the issue. The ratings of a Rating Agency, such as
Moody's, S&P and Fitch IBCA described in Appendix A hereto, represent such
Rating Agency's opinion
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as to the quality of Municipal Securities. It should be emphasized that these
ratings are general and are not absolute standards of quality. Municipal
Securities with the same maturity, interest rate and rating may have different
yields. Municipal Securities of the same maturity and interest rate with
different ratings may have the same yield.
The payment of principal and interest on most securities purchased by the
Tax-Exempt Money Market Funds will depend upon the ability of the issuers to
meet their obligations. Each state, the District of Columbia, each of their
political subdivisions, agencies, instrumentalities and authorities and each
multistate agency of which a state is a member is a separate "issuer" as that
term is used in this Statement of Additional Information and the Tax-Exempt
Money Market Funds' Prospectuses. The non-governmental user of facilities
financed by private activity bonds is also considered to be an "issuer." An
issuer's obligations under its Municipal Securities are subject to the
provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors, such as the federal Bankruptcy Code and laws, if any,
which may be enacted by federal or state legislatures extending the time for
payment of principal or interest, or both, or imposing other constraints upon
enforcement of such obligations or upon the ability of municipalities to levy
taxes. The power or ability of an issuer to meet its obligations for the payment
of interest on and principal of its Municipal Securities may be materially
adversely affected by litigation or other conditions.
Among other instruments, the Tax-Exempt Money Market Funds may purchase
short-term general obligation notes, tax anticipation notes, bond anticipation
notes, revenue anticipation notes, tax-exempt commercial paper, construction
loan notes and other forms of short-term loans. Such instruments are issued with
a short-term maturity in anticipation of the receipt of tax funds, the proceeds
of bond placements or other revenues. In addition, the Tax-Exempt Money Market
Funds may invest in long-term tax-exempt instruments, such as municipal bonds
and private activity bonds to the extent consistent with the limitations set
forth in the Prospectuses for the Funds including applicable maturity
restrictions.
Private activity bonds are or have been issued to obtain funds to
provide, among other things, privately operated housing facilities, pollution
control facilities, convention or trade show facilities, mass transit, airport,
port or parking facilities and certain local facilities for water supply, gas,
electricity or sewage or solid waste disposal. Private activity bonds are also
issued to privately held or publicly owned corporations in the financing of
commercial or industrial facilities. State and local governments are authorized
in most states to issue private activity bonds for such purposes in order to
encourage corporations to locate within their communities. The principal and
interest on these obligations may be payable from the general revenues of the
users of such facilities.
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on Municipal Securities. For example, under the Tax Reform Act of 1986,
interest on certain private activity bonds must be included in an investor's
federal alternative minimum taxable income, and corporate investors must include
all tax-exempt interest in their federal alternative minimum taxable income.
Galaxy cannot, of course, predict what legislation may be proposed in the future
regarding the
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income tax status of interest on Municipal Securities, or which proposals, if
any, might be enacted. Such proposals, while pending or if enacted, might
materially and adversely affect the availability of Municipal Securities for
investment by the Tax-Exempt Money Market Funds and the liquidity and value of
their respective portfolios. In such an event, a Fund would re-evaluate its
investment objective and policies and consider possible changes in its structure
or possible dissolution.
Opinions relating to the validity of Municipal Securities and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the
Tax-Exempt Money Market Funds nor Fleet will review the proceedings relating to
the issuance of Municipal Securities or the bases for such opinions.
MUNIPREFERRED SECURITIES. The Connecticut Municipal Money Market,
Massachusetts Municipal Money Market and New York Municipal Money Market Funds
may purchase interests in Municipal Securities that are offered in the form of a
security representing a diversified portfolio of investment grade bonds. These
securities provide investors, such as the Funds, with liquidity and income
exempt from federal regular income tax and some state income taxes.
STAND-BY COMMITMENTS
Each Tax-Exempt Money Market Fund may acquire "stand-by commitments" with
respect to Municipal Securities held by it. Under a stand-by commitment, a
dealer agrees to purchase from a Fund, at the Fund's option, specified Municipal
Securities at a specified price. Each Fund will acquire stand-by commitments
solely to facilitate portfolio liquidity and does not intend to exercise its
rights thereunder for trading purposes. Stand-by commitments acquired by a Fund
would be valued at zero in determining the Fund's net asset value. The default
or bankruptcy of a securities dealer giving such a commitment would not affect
the quality of the Municipal Securities purchased by a Fund. However, without a
stand-by commitment, these securities could be more difficult to sell. A Fund
will enter into stand-by commitments only with those dealers whose credit Fleet
believes to be of high quality.
Stand-by commitments are exercisable by a Fund at any time before the
maturity of the underlying Municipal Security, and may be sold, transferred or
assigned by the Fund only with respect to the underlying instruments. Although
stand-by commitments are often available without the payment of any direct or
indirect consideration, if necessary or advisable, a Fund may pay for a stand-by
commitment either separately in cash or by paying a higher price for securities
acquired subject to the commitment. Where a Fund pays any consideration directly
or indirectly for a stand-by commitment, its cost will be reflected as
unrealized depreciation for the period during which the commitment is held by
the Fund.
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.
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TENDER OPTION BONDS
The Tax-Exempt Money Market Funds may purchase tender option bonds and
similar securities. A tender option bond generally has a long maturity and bears
interest at a fixed rate substantially higher than prevailing short-term
tax-exempt rates, and is coupled with an agreement by a third party, such as a
bank, broker-dealer or other financial institution, pursuant to which such
institution grants the security holders the option, usually upon not more than
seven days notice or at periodic intervals, to tender their securities to the
institution and receive the face value of the securities. In providing the
option, the financial institution receives a fee that reduces the fixed rate of
the underlying bond and results in a Fund effectively receiving a demand
obligation that bears interest at the prevailing short-term tax-exempt rate.
Fleet will monitor, on an ongoing basis, the creditworthiness of the issuer of
the tender option bond, the financial institution providing the option, and any
custodian holding the underlying long-term bond. The bankruptcy, receivership or
default of any of the parties to a tender option bond will adversely affect the
quality and marketability of the security.
VARIABLE AND FLOATING RATE INSTRUMENTS
Securities purchased by the Funds may include variable and floating rate
instruments. Variable rate instruments provide for periodic adjustments in the
interest rate. Floating rate instruments provide for automatic adjustment of the
interest rate whenever some other specified interest rate changes. Some variable
and floating rate obligations are direct lending arrangements between the
purchaser and the issuer and there may be no active secondary market. However,
in the case of variable and floating rate obligations with a demand feature, a
Fund may demand payment of principal and accrued interest at a time specified in
the instrument or may resell the instrument to a third party. In the event an
issuer of a variable or floating rate obligation defaulted on its payment
obligation, a Fund might be unable to dispose of the note because of the absence
of a secondary market and could, for this or other reasons, suffer a loss to the
extent of the default. Variable or floating rate instruments issued or
guaranteed by the U.S. Government or its agencies or instrumentalities are
similar in form but may have a more active secondary market. Substantial
holdings of variable and floating rate instruments could reduce portfolio
liquidity.
If a variable or floating rate instrument is not rated, Fleet must
determine that such instrument is comparable to rated instruments eligible
for purchase by the Funds and will consider the earning power, cash flows and
other liquidity ratios of the issuers and guarantors of such notes and will
continuously monitor their financial status in order to meet payment on
demand. In determining average weighted portfolio maturity of each of these
Funds, a variable or floating rate instrument issued or guaranteed by the
U.S. Government or an agency or instrumentality thereof will be deemed to
have a maturity equal to the period remaining until the obligations next
interest rate adjustment.
Long-term variable and floating rate obligations held by the Funds may
have maturities of more than 397 days, provided the Funds are entitled to
payment of principal upon not more
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than 30 days' notice or at specified intervals not exceeding one year (upon not
more than 30 days' notice).
Variable and floating rate obligations with a demand feature held by the
Funds will be deemed to have a maturity equal to the longer of the period
remaining to the next interest rate adjustment or the demand notice period.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
Each Fund, except the U.S. Treasury Fund, may purchase portfolio
securities subject to the seller's agreement to repurchase them at a mutually
specified date and price ("repurchase agreements"). Repurchase agreements will
only be entered into with financial institutions such as banks and
broker/dealers that are deemed to be creditworthy by Fleet. No Fund will enter
into repurchase agreements with Fleet or any of its affiliates. Unless a
repurchase agreement has a remaining maturity of seven days or less or may be
terminated on demand upon notice of seven days or less, the repurchase agreement
will be considered an illiquid security and will be subject to the 10% limit
described in Investment Limitations Nos. 11, 16 and 37 under "Investment
Limitations" below with respect to the Money Market, Government, U.S. Treasury,
Tax-Exempt and Institutional Government Money Market Funds, and to the 10% limit
described under "Investment Limitations" below with respect to the Connecticut
Municipal Money Market, Massachusetts Municipal Money Market and New York
Municipal Money Market Funds.
The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by a Fund at
not less than the agreed upon repurchase price. If the seller defaulted on its
repurchase obligation, the Fund holding such obligation would suffer a loss to
the extent that the proceeds from a sale of the underlying securities (including
accrued interest) were less than the repurchase price (including accrued
interest) under the agreement. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by a Fund
might be delayed pending court action. Income on repurchase agreements is
taxable. Investments by a Tax-Exempt Money Market Fund in repurchase agreements
will be, under normal market conditions, subject to a 20% overall limit on
taxable obligations.
The repurchase price under a repurchase agreement generally equals the
price paid by a Fund plus interest negotiated on the basis of current short-term
rates (which may be more or less than the rate on the securities underlying the
repurchase agreements). Securities subject to repurchase agreements will be held
by a Fund's custodian or sub-custodian in a segregated account or in the Federal
Reserve/Treasury book-entry system. Repurchase agreements are considered to be
loans by a Fund under the 1940 Act.
The Money Market and Government Funds may also borrow funds for temporary
purposes by selling portfolio securities to financial institutions such as banks
and broker/dealers and agreeing to repurchase them at a mutually specified date
and price ("reverse repurchase agreements"). A reverse repurchase agreement
involves the risk that the market value of the
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securities sold by a Fund may decline below the repurchase price. A Fund would
pay interest on amounts obtained pursuant to a reverse repurchase agreement.
Whenever a Fund enters into a reverse repurchase agreement, the Fund will
place in a segregated custodial account liquid assets such as cash or liquid
securities equal to the repurchase price (including accrued interest). The Fund
will monitor the account to ensure such equivalent values are maintained.
Reverse repurchase agreements are considered to be borrowings by a Fund under
the 1940 Act.
WHEN-ISSUED AND DELAYED SETTLEMENT TRANSACTIONS
Each Fund may purchase securities on a "when-issued" or "delayed
settlement" basis. When-issued transactions, which involve a commitment by a
Fund to purchase particular securities with payment and delivery taking place at
a future date (perhaps one or two months later) permit the Fund to lock in a
price or yield on a security it intends to purchase, regardless of future
changes in interest rates. Delayed settlement describes settlement of a
securities transaction in the secondary market sometime in the future.
When-issued and delayed settlement transactions involve the risk, however, that
the yield or price obtained in a transaction may be less favorable than the
yield or price available in the market when the securities delivery takes place.
It is expected that, absent unusual market conditions, commitments by a Fund to
purchase securities on a when-issued or delayed settlement basis will not exceed
25% of the value of its total assets. These transactions will not be entered
into for speculative purposes, but only in furtherance of a Fund's investment
objective.
When a Fund agrees to purchase securities on a "when-issued" or "delayed
settlement" basis, the Fund's custodian will set aside cash or liquid portfolio
securities equal to the amount of the commitment in a separate account. In the
event of a decline in the value of the securities that the custodian has set
aside, the Fund may be required to place additional assets in the separate
account in order to ensure that the value of the account remains equal to the
amount of the Fund's commitment. A Fund's net assets may fluctuate to a greater
degree if it sets aside portfolio securities to cover such purchase commitments
than if it sets aside cash. Because the Fund sets aside liquid assets to satisfy
its purchase commitments in the manner described, its liquidity and ability to
manage its portfolio might be affected in the event its commitments to purchase
securities on a when-issued or delayed settlement basis exceeded 25% of the
value of its assets.
When a Fund engages in when-issued or delayed settlement transactions, it
relies on the seller to consummate the trade. Failure of the seller to do so may
result in the Fund's incurring a loss or missing an opportunity to obtain a
price considered to be advantageous for a security. For purposes of determining
the average weighted maturity of a Fund's portfolio, the maturity of securities
purchased on a when-issued or delayed settlement basis is calculated from the
date of settlement of the purchase to the maturity date.
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SECURITIES LENDING -- MONEY MARKET
The Money Market and Government Funds may lend their portfolio securities
to financial institutions such as banks and broker/dealers in accordance with
their investment limitations. Such loans would involve risks of delay in
receiving additional collateral or in recovering the securities loaned or even
loss of rights in the collateral should the borrower of the securities fail
financially. Any portfolio securities purchased with cash collateral would also
be subject to possible depreciation. Loans will generally be short-term, and
will be made only to borrowers deemed by Fleet to be of good standing and only
when, in Fleet's judgment, the income to be earned from the loan justifies the
attendant risks. The Funds currently intend to limit the lending of their
portfolio securities so that, at any given time, securities loaned by a Fund
represent not more than one-third of the value of its total assets.
A Fund that loans portfolio securities would continue to accrue interest
on the securities loaned and would also earn income on the loans. Any cash
collateral received by the Government Fund in connection with such loans would
be invested in short-term obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities; cash collateral received by the
other Funds would be invested in high quality, short-term "money market"
instruments.
GUARANTEED INVESTMENT CONTRACTS -- MONEY MARKET FUND
The Money Market Fund may invest in guaranteed investment contracts
("GICs") issued by United States insurance companies. Pursuant to such
contracts, the Fund makes cash contributions to a deposit fund of the insurance
company's general account. The insurance company then credits to the Fund
payments at negotiated, floating or fixed interest rates. A GIC is a general
obligation of the issuing insurance company and not a separate account. The
purchase price paid for a GIC becomes part of the general assets of the
insurance company, and the contract is paid from the company's general assets.
The Fund will only purchase GICs that are issued or guaranteed by insurance
companies that at the time of purchase are rated in accordance with the
applicable quality requirements described above under "Quality Requirements."
GICs are considered illiquid securities and will be subject to the Fund's 10%
limitation on illiquid investments, unless there is an active and substantial
secondary market for the particular instrument and market quotations are readily
available.
ASSET-BACKED SECURITIES -- MONEY MARKET FUND
The Money Market Fund may purchase asset-backed securities which
represent a participation in, or are secured by and payable from, a stream of
payments generated by particular assets, most often a pool of assets similar to
one another, such as motor vehicle receivables and credit card receivables. The
Fund will only purchase asset-backed securities that meet the applicable quality
requirements described above under "Quality Requirements."
Asset-backed securities are generally issued as pass-through
certificates, which represent undivided fractional ownership interests in an
underlying pool of assets, or as debt instruments,
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which are also known as collateralized obligations, and are generally issued as
the debt of a special purpose entity organized solely for the purpose of owning
such assets and issuing such debt. Asset-backed securities are often backed by a
pool of assets representing the obligations of a number of different parties.
The yield characteristics of asset-backed securities differ from
traditional debt securities. A major difference is that the principal amount of
the obligations may be prepaid at any time because the underlying assets (i.e.,
loans) generally may be prepaid at any time. As a result, if an asset-backed
security is purchased at a premium, a prepayment rate that is faster than
expected will reduce yield to maturity, while a prepayment rate that is slower
than expected will have the opposite effect of increasing yield to maturity.
Conversely, if an asset-backed security is purchased at a discount, faster than
expected prepayments will increase, while slower than expected prepayments will
decrease, yield to maturity.
Prepayments on asset-backed securities generally increase with falling
interest rates and decrease with rising interest rates; furthermore, prepayment
rates are influenced by a variety of economic and social factors. In general,
the collateral supporting non-mortgage asset-backed securities is of shorter
maturity than mortgage loans and is less likely to experience substantial
prepayments. Like other fixed income securities, when interest rates rise, the
value of an asset-backed security generally will decline; however, when interest
rates decline, the value of an asset-backed security with prepayment features
may not increase as much as that of other fixed income securities.
Asset-backed securities are subject to greater risk of default during
periods of economic downturn. Also, the secondary market for certain
asset-backed securities may not be as liquid as the market for other types of
securities, which could result in the Fund's experiencing difficulty in valuing
or liquidating such securities. For these reasons, under certain circumstances,
asset-backed securities may be considered illiquid securities.
INVESTMENT COMPANY SECURITIES -- TAX-EXEMPT MONEY MARKET FUNDS AND INSTITUTIONAL
GOVERNMENT MONEY MARKET FUND
The Tax-Exempt Money Market Funds may invest in securities issued by
other investment companies limited, with respect to the Tax-Exempt Funds, to
open-end investment companies that invest in high quality, short-term Municipal
Securities that meet the applicable quality requirements described above under
"Quality Requirements" and that determine their net asset value per share based
on the amortized cost or penny-rounding method. Such securities may be acquired
by a Fund within the limits prescribed by the 1940 Act. Except as otherwise
permitted under the 1940 Act, each Fund currently intends to limit its
investments in other investment companies so that, as determined immediately
after a securities purchase is made: (a) not more than 5% of the value of its
total assets will be invested in the securities of any one investment company;
(b) not more than 10% of the value of its total assets will be invested in the
aggregate in securities of investment companies as a group; and (c) not more
than 3% of the outstanding voting stock of any one investment company will be
owned by the Fund. A Fund will invest in other investment companies primarily
for the purpose of investing its short-term
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cash which has not as yet been invested in other portfolio instruments. However,
from time to time, on a temporary basis, the Connecticut Municipal Money Market
Fund, Massachusetts Municipal Money Market Fund and New York Municipal Money
Market Fund may invest exclusively in one other investment company managed
similarly to the particular Fund.
The Institutional Government Money Market Fund may invest up to 5% of its
total assets in securities issued by other open-end investment companies that
invest in the types of obligations in which the Fund may invest and that
determine their net asset value per share based on the amortized cost or
penny-rounding method.
Investments in other investment companies will cause a Fund (and,
indirectly, the Fund's shareholders) to bear proportionately the costs incurred
in connection with the investment companies' operations.
NON-DIVERSIFICATION - CONNECTICUT MUNICIPAL MONEY MARKET, MASSACHUSETTS
MUNICIPAL MONEY MARKET AND NEW YORK MUNICIPAL MONEY MARKET FUNDS
The Connecticut Municipal Money Market, Massachusetts Municipal Money
Market and New York Municipal Money Market Funds are non-diversified investment
portfolios. As such, there is no limit on the percentage of assets which can be
invested in any single issuer. An investment in one of these Funds, therefore,
entails greater risk than would exist in a diversified investment portfolio
because the higher percentage of investments among fewer issuers may result in
greater fluctuation in the total market value of the Fund's portfolio. Any
economic, political, or regulatory developments affecting the value of the
securities in a Fund's portfolio will have a greater impact on the total value
of the portfolio than would be the case if the portfolio was diversified among
more issuers. The Connecticut Municipal Money Market, Massachusetts Municipal
Money Market and New York Municipal Money Market Funds intend to comply with
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). This
undertaking requires that at the end of each quarter of a Fund's taxable year,
with regard to at least 50% of its total assets, no more than 5% of its total
assets are invested in the securities of a single issuer; beyond that, no more
than 25% of its total assets are invested in the securities of a single issuer.
CONNECTICUT INVESTMENT RISKS
The following information is a brief summary of factors affecting the
economies and financial strengths of the State of Connecticut, its
municipalities and its political subdivisions and does not purport to be a
complete description of such factors. Other factors will affect issuers. The
summary is based primarily upon one or more publicly available offering
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
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Connecticut and to the fiscal stability of issuers of Connecticut Municipal
Securities. The latter may include such matters as the ability of issuers to
raise sufficient tax and other revenues to meet their needs, the availability
of aid from other governmental bodies, and the burdens that may be imposed on
issuers by law or necessity. To the extent that the Connecticut Municipal
Money Market Fund invests in obligations that are not general obligations of
their issuers, payments of principal and interest will depend on all factors
affecting the revenue sources from which payments thereon are to be derived.
The value of the obligations held by the Fund would be adversely affected not
only by any actual inability of their issuers to pay the principal and
interest thereon, but also by a public perception that such ability is in
doubt.
Manufacturing has historically been of prime economic importance to
Connecticut (sometimes referred to as the "State"). The State's manufacturing
industry is diversified, with transportation equipment (primarily aircraft
engines, helicopters and submarines) the dominant industry, followed by
fabricated metals, non-electrical machinery, and electrical equipment. As a
result of a rise in employment in service-related industries and a decline in
manufacturing employment, however, manufacturing accounted for only 17.09% of
total non-agricultural employment in Connecticut in 1997. Defense-related
business represents a relatively high proportion of the manufacturing sector.
On a per capita basis, defense awards to Connecticut have traditionally been
among the highest in the nation, and reductions in defense spending have had
a substantial adverse impact on Connecticut's economy.
The average annual unemployment rate in Connecticut increased from a low
of 3.0% in 1988 to a high of 7.6% in 1992 and, after a number of important
changes in the method of calculation, was reported to be 5.8% in 1996.
Average per capita personal income of Connecticut residents increased in
every year from 1989 to 1997, rising from $25,443 to $36,434. However,
pockets of significant unemployment and poverty exist in several Connecticut
cities and towns.
For the four fiscal years ended June 30, 1991, the General Fund
experienced operating deficits but, for the eight fiscal years ended June 30,
1999, the General Fund recorded operating surpluses, based on Connecticut's
budgetary method of accounting. General Fund budgets adopted for the biennium
ending June 30, 2001, authorize expenditures of $10,581,600,000 for the
1999-2000 fiscal year and $11,085,200,000 for the 2000-2001 fiscal year and
project surpluses of $64,400,000 and $4,800,000, respectively, for those
years. As of August 31, 1999, the Comptroller estimated expenditures of
$10,689,600,000 and a surplus of only $11,200,000 for the 1999-2000 fiscal
year. Connecticut's general obligation bonds are rated Aa3 by Moody's and AA
by Fitch. On October 8, 1998, S&P upgraded its ratings of Connecticut's
general obligations bonds from AA- to AA.
The State's primary method for financing capital projects is through the
sale of general obligation bonds. These bonds are backed by the full faith
and credit of the State. As of October 15, 1999, the State had authorized
direct general obligation bond indebtedness totaling
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$13,310,385,000, of which $11,144,149,000 had been approved for issuance by
the State Bond Commission and $9,625,537,000 had been issued. As of October
15, 1999, net State direct general obligation indebtedness outstanding was
$6,890,968,000.
In 1995, the State established the University of Connecticut as a
separate corporate entity to issue bonds and construct certain infrastructure
improvements. The University was authorized to issue bonds totaling
$962,000,000 by June 30, 2005, that are secured by a State debt service
commitment to finance the improvements, $359,475,000 of which were
outstanding on October 15, 1999.
In addition, the State has limited or contingent liability on a
significant amount of other bonds. Such bonds have been issued by the
following quasi-public agencies: the Connecticut Housing Finance Authority,
the Connecticut Development Authority, the Connecticut Higher Education
Supplemental Loan Authority, the Connecticut Resources Recovery Authority and
the Connecticut Health and Educational Facilities Authority. Such bonds have
also been issued by the cities of Bridgeport and West Haven and the
Southeastern Connecticut Water Authority. As of December 1, 1998, the amount
of bonds outstanding on which the State has limited or contingent liability
totaled $4,154,900,000.
In 1984, the State established a program to plan, construct and improve
the State's transportation system (other than Bradley International Airport).
The total cost of the program through June 30, 2002, is currently estimated
to be $12.6 billion, to be met from federal, state, and local funds. The
State expects to finance most of its $5.1 billion share of such cost by
issuing $4.6 billion of special tax obligation ("STO") bonds. The STO bonds
are payable solely from specified motor fuel taxes, motor vehicle receipts,
and license, permit and fee revenues pledged therefor and credited to the
Special Transportation Fund, which was established to budget and account for
such revenues.
The State, its officers and its employees are defendants in numerous
lawsuits. Although it is not possible to determine the outcome of these
lawsuits, the Attorney General has opined that an adverse decision in any of
the following cases might have a significant impact on the State's financial
position: (i) 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 injuctive 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; and (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.
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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 metropolian area, on July 9, 1996, the State Supreme Court
directed the legistature to develop appropriate measures to remedy the racial
and ethic 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 is reviewing the
State's Year 2000 exposure and developing plans for modification or
replacement of existing software that it believes will prevent significant
operations problems. There is a risk that the plan will not be completed on
time, that planned testing will not reveal all problems, or that systems of
others on whom the State relies will not be timely updated. If the necessary
remediations are not completed in a timely fashion, the Year 2000 problem may
have a material impact on the operations of the State.
General obligation bonds issued by municipalities are payable primarily
from ad valorem taxes on property located in the municipality. A
municipality's property tax base is subject to many factors outside the
control of the municipality, including the decline in Connecticut's
manufacturing industry. Certain Connecticut municipalities have experienced
severe fiscal difficulties and have reported operating and accumulated
deficits. The most notable of these is the City of Bridgeport, which filed a
bankruptcy petition on June 7, 1991. The State opposed the petition. The
United States Bankruptcy Court for the District of Connecticut held that
Bridgeport had authority to file such a petition but that its petition should
be dismissed on the grounds that Bridgeport was not insolvent when the
petition was filed. State legislation enacted in 1993 prohibits municipal
bankruptcy filings without the prior written consent of the Governor. Regional
economic difficulties, reductions in revenues, and increased expenses could
lead to further fiscal problems for the State and its political subdivisions,
authorities, and agencies. Difficulties in payment of debt service on
borrowings could result in declines, possibly severe, in the value of their
outstanding obligations, increases in their future borrowing costs, and
impairment of their ability to pay debt service on their obligations.
In addition to general obligation bonds backed by the full faith and
credit of the municipality, certain municipal authorities finance projects by
issuing bonds that are not considered to be debts of the municipality. Such
bonds may be repaid only from revenues of the financed project, the revenues
from which may be insufficient to service the related debt obligations.
MASSACHUSETTS INVESTMENT RISKS
The Massachusetts Municipal Money Market Fund's ability to achieve its
investment objective depends on the ability of issuers of Massachusetts
Municipal Securities to meet their continuing obligations to pay principal and
interest. Since the Fund invests primarily in Massachusetts Municipal
Securities, the value of the Fund's shares may be especially affected by factors
pertaining to the economy of Massachusetts and other factors specifically
affecting the ability of issuers of Massachusetts Municipal Securities to meet
their obligations. As a result, the
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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.
NEW YORK INVESTMENT RISKS
Certain substantial issuers of New York municipal securities
(including issuers whose obligations may be acquired by the Fund) have
experienced serious financial difficulties in recent years. These difficulties
have at times jeopardized the credit standing and impaired the borrowing
abilities of all New York issuers and have generally contributed to higher
interest costs for their borrowings and fewer markets for their outstanding
debt obligations. Although several different issues of municipal securities
of New York State and its agencies and instrumentalities and of New York City
have been downgraded by Standard & Poor's and Moody's in recent years,
Standard & Poor's and Moody's have recently placed the debt obligations of
New York State and New York City on CreditWatch with positive implications
and upgraded the debt obligations of New York City, respectively. Strong
demand for New York municipal securities has also at times had the effect of
permitting New York municipal securities to be issued with yields relatively
lower, and after issuance, to trade in the market at prices relatively higher,
than comparably rated municipal obligations issued by other jurisdictions. A
recurrence of the financial difficulties previously experienced by certain
issuers of New York municipal securities could result in defaults or declines
in the market values of those issuers' existing obligations and, possibly, in
the obligations of other issuers of New York municipal securities. Although
as of the date of this statement of additional information, no issuers of New
York municipal securities are in default with respect to the payment of their
municipal securities, the occurrence of any such default could affect adversely
the market values and marketability of all New York municipal securities and,
consequently, the net asset value of the Fund's portfolio.
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Some of the significant financial considerations relating to the New York
Tax Exempt Fund's investments in New York Municipal Securities are summarized
below. This summary information is not intended to be a complete description and
is principally derived from the Annual Information Statement of the State of New
York as supplemented and contained in official statements relating to issues of
New York Municipal Securities that were available prior to the date of this
Statement of Additional Information. The accuracy and completeness of the
information contained in those official statements have not been independently
verified.
STATE ECONOMY. New York is one of the most populous states in the nation
and has a relatively high level of personal wealth. The State's economy is
diverse with a comparatively large share of the nation's finance, insurance,
transportation, communications and services employment, and a very small share
of the nation's farming and mining activity. The State's location and its
excellent air transport facilities and natural harbors have made it an important
link in international commerce. Travel and tourism constitute an important part
of the economy. Like the rest of the nation, New York has a declining proportion
of its workforce engaged in manufacturing, and an increasing proportion engaged
in service industries.
State per capita personal income has historically been significantly higher
than the national average, although the ratio has varied substantially. Because
New York City (the "City") is a regional employment center for a multi-state
region, State personal income measured on a residence basis understates the
relative importance of the State to the national economy and the size of the
base to which State taxation applies.
There can be no assurance that the State economy will not experience
worse-than-predicted results, with corresponding material and adverse effects on
the State's projections of receipts and disbursements.
STATE BUDGET. The State Constitution requires the governor (the "Governor")
to submit to the State legislature (the "Legislature") a balanced executive
budget which contains a complete plan of expenditures for the ensuing fiscal
year and all moneys and revenues estimated to be available therefor, accompanied
by bills containing all proposed appropriations or reappropriations and any new
or modified revenue measures to be enacted in connection with the executive
budget. The entire plan constitutes the proposed State financial plan for that
fiscal year. The Governor is required to submit to the Legislature quarterly
budget updates which include a revised cash-basis state financial plan, and an
explanation of any changes from the previous state financial plan.
State law requires the Governor to propose a balanced budget each year. In
recent years, the State has closed projected budget gaps of $5.0 billion
(1995-96), $3.9 billion (1996-97), $2.3 billion (1997-98), and less than $1
billion (1998-99). The State's current fiscal year began on April 1, 1999 and
ends on March 31, 2000. On March 31, 1999, the State adopted the debt service
portion of the State budget for the 1999-2000 fiscal year; four months later, on
August 4, 1999, it enacted the remainder of the budget. The Governor approved
the budget as
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passed by the Legislature. Prior to passing the budget in its entirety for the
current fiscal year, the State enacted appropriations that permitted the State
to continue its operations.
In 1999-2000, General Fund disbursements, including transfer to support
capital projects, debt service and other funds, are estimated at $37.36 billion,
an increase of $868 million or 2.38 percent over 1998-99. Projected spending
under the 1999-2000 enacted budget is $215 million above the Governor's
Executive Budget recommendations, including 30-day amendments. This change is
the net result of spending actions that occurred during negotiations on the
Budget. The increase in General Fund spending is comprised of $1.1 billion in
legislative additions to the Executive Budget (primarily in education), offset
by various actions, including re-estimates of required spending based on
year-to-date results and the identification of certain other resources that
offset spending, such as $250 million from commencing the process of privatizing
the Medical Malpractice Insurance Association (MMIA), $250 million from the
retention of the Debt Reduction Reserve Fund within the General Fund and about
$100 million in excess fund balances. The MMIA was established in 1983 to
provide excess liability insurance to doctors and medical providers. Legislation
enacted with the 1999-2000 budget initiates the process of MMIA privatization
and transfers excess fund balances to the State.
The 1999-2000 enacted budget provides for $831 million in new funding for
public schools, the largest year-to-year increase in State history. The budget
also enacts several new tax cuts valued at $375 million when fully phased in by
2003-04. None of the $1.82 billion cash surplus from 1998-99 is assumed to
support spending in 1999-2000, but instead is reserved to help offset the costs
of previously enacted tax cuts that take effect after 1999-2000.
The 1999-2000 Financial Plan projects a closing balance of $2.85 billion in
the General Fund. The balance is comprised of the $1.82 billion surplus from
1998-99 that has been set aside to finance already-enacted tax cuts, $473
million in the Tax Stabilization Reserve Fund (TSRF), $250 million in the Debt
Reduction Reserve Fund (DRRF), $107 million in the Contingency Reserve Fund
(CRF), and $200 million in the Community Projects Fund (CPF), which finances
legislative initiatives. The State expects to close 1999-2000 with cash balances
in these funds at their highest level ever.
Preliminary analysis by Division of Budget ("DOB") indicates that the State
will have a 2000-01 budget gap of approximately $1.9 billion, or about $300
million above the 1999-2000 Executive Budget estimate (after adjusting for the
projected costs of collective bargaining). This estimate includes an assumption
for the projected costs of new collective bargaining agreements, $500 million in
assumed operating efficiencies, as well as the planned application of
approximately $615 million of the $1.82 billion tax reduction reserve. In recent
years, the State has closed projected budget gaps which DOB estimates at $5.0
billion (1995-96), $3.9 billion (1996-97), $2.3 billion (1997-98), and less than
$1 billion (1998-99). DOB will formally update its projections of receipts and
disbursements for future years as part of the Governor's 2000-01 Executive
Budget submission. The revised expectations for these years will reflect the
cumulative impact of tax reductions and spending commitments enacted over the
last several years as well as new 2000-01 Executive Budget recommendations.
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The General Fund is the principal operating fund of the State and is used
to account for all financial transactions except those required to be accounted
for in another fund. It is the State's largest fund and received almost all
State taxes and other resources not dedicated to particular purposes. In the
State's 1999-2000 fiscal year, the General Fund (exclusive of transfers) is
expected to account for approximately 47.1 percent of all Governmental Funds
disbursements and 69.3 percent of total State Funds disbursements. General Fund
moneys are also transferred to other funds, primarily to support certain capital
projects and debt service payments in other fund types.
Total receipts and transfers from other funds are projected to be $39.31
billion in 1999-2000, an increase of $2.57 billion over 1998-99. Total General
Fund disbursements and transfers to other funds are projected to be $37.36
billion, an increase of $868 million over 1998-99. Total General Fund receipts
and transfers in 1999-2000 are now projected to be $39.31 billion, an increase
of $2.57 billion from the $36.74 billion recorded in 1998-99. This total
includes $35.93 billion in tax receipts, $1.36 billion in miscellaneous
receipts, and $2.02 billion in transfers from other funds. The transfer of the
$1.82 billion surplus recorded in 1998-99 to the 1999-2000 fiscal period has the
effect of exaggerating the growth in State receipts from year to year by
depressing reported 1998-99 figures and inflating 1999-2000 projections.
Receipts from user taxes and fees are projected to total $7.35 billion, an
increase of $105 million from reported collections in the prior year. The sales
tax component of this category accounts for virtually all of the 1999-2000
growth. Growth in base sales tax yield, after adjusting for tax law and other
changes, is projected at 5.6 percent. Modest increases in motor fuel and auto
rental tax receipts over 1998-99 levels are also expected. However, receipts
from other user taxes and fees are estimated to decline by $177 million.
The yield of other excise taxes in this category, particularly the
cigarette and alcoholic beverage taxes, show long-term declining trends. General
Fund declines in 1999-2000 motor vehicle fee receipts, in contrast, reflect
statutory fee reductions and an increased amount of collections earmarked to the
Dedicated Highway and Bridge Trust Fund.
Significant statutory changes in this category during the 1999-2000
legislative session include: delaying until March 1, 2000 the implementation of
the exemption from State sales tax of clothing and footwear priced under $110;
providing week-long sales tax exemptions in September 1999 and January 2000 for
clothing and footwear priced under $500; enactment of a variety of small sales
tax exemptions including certain equipment used in providing telecommunications
service for sale, property and services used in theatrical productions, computer
hardware used to design Internet web sites, and building materials used in
farming; a reduction in the beer tax rate; and an expanded exemption from the
alcoholic beverage tax for small brewers.
Following the pattern of the last two fiscal years, education programs
receive the largest share of new funding contained in the 1999-2000 Financial
Plan. School aid is expected to grow by $831 million or 8.58 percent over
1998-99 levels (on a State fiscal year basis). Outside of education, the largest
growth in spending is for State Operations ($207 million, including $100 million
reserved for possible collective bargaining costs); Debt Service ($183
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million), and mental hygiene programs, including funding for a cost of living
increase for care providers ($114 million). These increases were offset, in
part, by spending reductions or actions in health and social welfare ($280
million), and in general State charges ($222 million).
Under the 1999-2000 enacted budget, General Fund spending on school aid is
projected at $10.52 billion on a State fiscal year basis, an increase of $831
million from the prior year. The budget provides additional funding for
operating aid, building aid, and several other targeted aid programs. It also
funds the balance of aid payable for the 1998-99 school year that is due
primarily in the first quarter of the 1999-2000 fiscal year. For all other
educational programs, disbursements are projected to grow by $78 million to
$2.99 billion.
Many complex political, social and economic forces influence the State's
economy and finances, which may in turn affect the State's Financial Plan. These
forces may affect the State unpredictably from fiscal year to fiscal year and
are influenced by governments, institutions, and organizations that are not
subject to the State's control. The State Financial Plan is also necessarily
based upon forecasts of national and State economic activity. Economic forecasts
have frequently failed to predict accurately the timing and magnitude of changes
in the national and the State economies. The DOB believes that its projections
of receipts and disbursements relating to the current State Financial Plan, and
the assumptions on which they are based, are reasonable. The projections assume
no changes in federal tax law, which could substantially alter the current
receipts forecast. In addition, these projections do not include funding for new
collective bargaining agreements after the current contracts expire. Actual
results, however, could differ materially and adversely from their projections,
and those projections may be changed materially and adversely from time to time.
DEBT LIMITS AND OUTSTANDING DEBT. There are a number of methods by which
the State of New York may incur debt. Under the State Constitution, the State
may not, with limited exceptions for emergencies, undertake long-term general
obligation borrowing (I.E., borrowing for more than one year) unless the
borrowing is authorized in a specific amount for a single work or purpose by the
Legislature and approved by the voters. There is no limitation on the amount of
long-term general obligation debt that may be so authorized and subsequently
incurred by the State.
The State may undertake short-term borrowings without voter approval (i) in
anticipation of the receipt of taxes and revenues, by issuing tax and revenue
anticipation notes, and (ii) in anticipation of the receipt of proceeds from the
sale of duly authorized but unissued general obligation bonds, by issuing bond
anticipation notes. The State may also, pursuant to specific constitutional
authorization, directly guarantee certain obligations of the State of New York's
authorities and public benefit corporations ("Authorities"). Payments of debt
service on New York State general obligation and New York State-guaranteed bonds
and notes are legally enforceable obligations of the State of New York.
The State employs additional long-term financing mechanisms, lease-purchase
and contractual-obligation financings, which involve obligations of public
authorities or municipalities that are State-supported but are not general
obligations of the State. Under these financing arrangements, certain public
authorities and municipalities have issued obligations to
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finance the construction and rehabilitation of facilities or the acquisition and
rehabilitation of equipment, and expect to meet their debt service requirements
through the receipt of rental or other contractual payments made by the State.
Although these financing arrangements involve a contractual agreement by the
State to make payments to a public authority, municipality or other entity, the
State's obligation to make such payments is generally expressly made subject to
appropriation by the Legislature and the actual availability of money to the
State for making the payments. The State has also entered into a
contractual-obligation financing arrangement with the LGAC to restructure the
way the State makes certain local aid payments.
Sustained growth in the State's economy could contribute to closing
projected budget gaps over the next several years, both in terms of
higher-than-projected tax receipts and in lower-than-expected entitlement
spending. The State assumes that the 2000-01 Financial Plan will achieve $500
million in savings from initiatives by State agencies to deliver services more
efficiently, workforce management efforts, maximization of federal and
non-General Fund spending offsets, and other actions necessary to help bring
projected disbursements and receipts into balance. The projections do not assume
any gap-closing benefit from the potential settlement of State claims against
the tobacco industry.
Spending from Debt Service Funds are estimated at $3.64 billion in
1999-2000, up $370 million or 11.31 percent from 1998-99. Transportation
purposes, including debt service on bonds issued for State and local highway and
bridge programs financed through the New York State Thruway Authority and
supported by the Dedicated Highway and Bridge Trust Fund, account for $124
million of the year-to-year growth. Debt service for educational purposes,
including State and City University programs financed through the Dormitory
Authority, will increase by $80 million. The remaining growth is for a variety
of programs in mental health and corrections, and for general obligation
financings.
On January 13, 1992, S&P reduced its ratings on the State's general
obligation bonds from A to A- and, in addition, reduced its ratings on the
State's moral obligation, lease purchase, guaranteed and contractual obligation
debt. On August 28, 1997, S&P revised its ratings on the State's general
obligation bonds from A- to A and revised its ratings on the State's moral
obligation, lease purchase, guaranteed and contractual obligation debt. On March
5, 1999, S&P affirmed its A rating on the State's outstanding bonds.
On January 6, 1992, Moody's reduced its ratings on outstanding
limited-liability State lease purchase and contractual obligations from A to
Baal. On February 28, 1994, Moody's reconfirmed its A rating on the State's
general obligation long-term indebtedness. On March 20, 1998, Moody's assigned
the highest commercial paper rating of P-1 to the short-term notes of the State.
On March 5, 1999, Moody's affirmed its A2 rating with a stable outlook to the
State's general obligations.
New York State has never defaulted on any of its general obligation
indebtedness or its obligations under lease-purchase or contractual-obligation
financing arrangements and has never been called upon to make any direct
payments pursuant to its guarantees.
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LITIGATION. Certain litigation pending against New York State or its
officers or employees could have a substantial or long-term adverse effect on
New York State finances. Among the more significant of these cases are those
that involve (1) the validity of agreements and treaties by which various Indian
tribes transferred title to New York State of certain land in central and
upstate New York; (2) certain aspects of New York State's Medicaid policies,
including its rates, regulations and procedures; (3) challenges to the
constitutionality of Public Health Law 2807-d, which imposes a gross receipts
tax from certain patient care services; (4) action seeking enforcement of
certain sales and excise taxes and tobacco products and motor fuel sold to
non-Indian consumers on Indian reservations; (5) a challenge to the Governor's
application of his constitutional line item veto authority; and (6) a challenge
to the enactment of the CLEAN WATER/CLEAN AIR BOND ACT OF 1996.
Several actions challenging the constitutionality of legislation enacted
during the 1990 legislative session which changed actuarial funding methods for
determining state and local contributions to state employee retirement systems
have been decided against the State. As a result, the Comptroller developed a
plan to restore the State's retirement systems to prior funding levels. Such
funding is expected to exceed prior levels by $116 million in fiscal 1996-97,
$193 million in fiscal 1997-98, peaking at $241 million in fiscal 1998-99.
Beginning in fiscal 2001-02, State contributions required under the
Comptroller's plan are projected to be less than that required under the prior
funding method. As a result of the United States Supreme Court decision in the
case of STATE OF DELAWARE V. STATE OF NEW YORK, on January 21, 1994, the State
entered into a settlement agreement with various parties. Pursuant to all
agreements executed in connection with the action, the State was required to
make aggregate payments of $351.4 million. Annual payments to the various
parties will continue through the State's 2002-03 fiscal year in amounts which
will not exceed $48.4 million in any fiscal year subsequent to the State's
1994-95 fiscal year. Litigation challenging the constitutionality of the
treatment of certain moneys held in a reserve fund was settled in June 1996 and
certain amounts in a Supplemental Reserve Fund previously credited by the State
against prior State and local pension contributions were paid in 1998.
The legal proceedings noted above involve State finances, State programs
and miscellaneous cure rights, tort, real property and contract claims in which
the State is a defendant and the monetary damages sought are substantial,
generally in excess of $100 million. These proceedings could affect adversely
the financial condition of the State in the current fiscal year or thereafter.
Adverse developments in these proceedings, other proceedings for which there are
unanticipated, unfavorable and material judgments, or the initiation of new
proceedings could affect the ability of the State to maintain a balanced
financial plan. An adverse decision in any of these proceedings could exceed the
amount of the reserve established in the State's financial plan for the payment
of judgments and, therefore, could affect the ability of the State to maintain a
balanced financial plan.
Although other litigation is pending against New York State, except as
described herein, no current litigation involves New York State's authority, as
a matter of law, to contract indebtedness, issue its obligations, or pay such
indebtedness when it matures, or affects New York State's power or ability, as a
matter of law, to impose or collect significant amounts of taxes and revenues.
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AUTHORITIES. The fiscal stability of New York State is related, in part, to
the fiscal stability of its Authorities, which generally have responsibility for
financing, constructing and operating revenue-producing public benefit
facilities. Authorities are not subject to the constitutional restrictions on
the incurrence of debt which apply to the State itself, and may issue bonds and
notes within the amounts of, and as otherwise restricted by, their legislative
authorization. The State's access to the public credit markets could be
impaired, and the market price of its outstanding debt may be materially and
adversely affected, if any of the Authorities were to default on their
respective obligations, particularly with respect to debt that is
State-supported or State-related.
Authorities are generally supported by revenues generated by the projects
financed or operated, such as fares, user fees on bridges, highway tolls and
rentals for dormitory rooms and housing. In recent years, however, New York
State has provided financial assistance through appropriations, in some cases of
a recurring nature, to certain of the Authorities for operating and other
expenses and, in fulfillment of its commitments on moral obligation indebtedness
or otherwise, for debt service. This operating assistance is expected to
continue to be required in future years. In addition, certain statutory
arrangements provide for State local assistance payments otherwise payable to
localities to be made under certain circumstances to certain Authorities. The
State has no obligation to provide additional assistance to localities whose
local assistance payments have been paid to Authorities under these
arrangements. However, in the event that such local assistance payments are so
diverted, the affected localities could seek additional State funds.
In February 1997, the Job Development Authority ("JDA") issued
approximately $85 million of State-guaranteed bonds to refinance certain of its
outstanding bonds and notes in order to restructure and improve JDA's capital
structure. Due to concerns regarding the economic viability of its programs,
JDA's loan and loan guarantee activities had been suspended since 1995. As a
result of the structural imbalances in JDA's capital structure, and defaults in
its loan portfolio and loan guarantee program incurred between 1991 and 1996,
JDA would have experienced a debt service cash flow shortfall had it not
completed its recent refinancing. JDA anticipates that it will transact
additional refinancings in 1999, 2000 and 2003 to complete its long-term plan of
finance and further alleviate cash flow imbalances which are likely to occur in
future years. JDA recently resumed its lending activities under a revised set of
lending programs and underwriting guidelines.
NEW YORK CITY AND OTHER LOCALITIES. The fiscal health of the State may also
be impacted by the fiscal health of its localities, particularly the City, which
has required and continues to require significant financial assistance from the
State. The City depends on State aid both to enable the City to balance its
budget and to meet its cash requirements. There can be no assurance that there
will not be reductions in State aid to the City from amounts currently projected
or that State budgets will be adopted by the April 1 statutory deadline or that
any such reductions or delays will not have adverse effects on the City's cash
flow or expenditures. In addition, the Federal budget negotiation process could
result in a reduction in or a delay in the receipt of Federal grants which could
have additional adverse effects on the City's cash flow or revenues.
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In 1975, New York City suffered a fiscal crisis that impaired the borrowing
ability of both the City and New York State. In that year the City lost access
to the public credit markets. The City was not able to sell short-term notes to
the public again until 1979. In 1975, S&P suspended its A rating of City bonds.
This suspension remained in effect until March 1981, at which time the City
received an investment grade rating of BBB from S&P.
On July 2, 1985, S&P revised its rating of City bonds upward to BBB+ and on
November 19, 1987, to A-. On February 3, 1998 and again on May 27, 1998, S&P
assigned a BBB+ rating to the City's general obligation debt and placed the
ratings on CreditWatch with positive implications. On March 9, 1999, S&P
assigned its A- rating to Series 1999H of New York City general obligation bonds
and affirmed the A- rating on various previously issued New York City bonds.
Moody's ratings of City bonds were revised in November 1981 from B (in
effect since 1977) to Bal, in November 1983 to Baa, in December 1985 to Baal, in
May 1988 to A and again in February 1991 to Baal. On February 25, 1998, Moody's
upgraded approximately $28 billion of the City's general obligations from Baal
to A3. On June 9, 1998, Moody's affirmed its A3 rating to the City's general
obligations and stated that its outlook was stable.
On March 8, 1999, Fitch IBCA upgraded New York City's $26 billion
outstanding general obligation bonds from A- to A.
New York City is heavily dependent on New York State and federal assistance
to cover insufficiencies in its revenues. There can be no assurance that in the
future federal and State assistance will enable the City to make up its budget
deficits. To help alleviate the City's financial difficulties, the Legislature
created the Municipal Assistance Corporation ("MAC") in 1975. Since its
creation, MAC has provided, among other things, financing assistance to the City
by refunding maturing City short-term debt and transferring to the City funds
received from sales of MAC bonds and notes. MAC is authorized to issue bonds and
notes payable from certain stock transfer tax revenues, from the City's portion
of the State sales tax derived in the City and, subject to certain prior claims,
from State per capita aid otherwise payable by the State to the City. Failure by
the State to continue the imposition of such taxes, the reduction of the rate of
such taxes to rates less than those in effect on July 2, 1975, failure by the
State to pay such aid revenues and the reduction of such aid revenues below a
specified level are included among the events of default in the resolutions
authorizing MAC's long-term debt. The occurrence of an event of default may
result in the acceleration of the maturity of all or a portion of MAC's debt.
MAC bonds and notes constitute general obligations of MAC and do not constitute
an enforceable obligation or debt of either the State or the City.
Since 1975, the City's financial condition has been subject to oversight
and review by the New York State Financial Control Board (the "Control Board")
and since 1978 the City's financial statements have been audited by independent
accounting firms. To be eligible for guarantees and assistance, the City is
required during a "control period" to submit annually for Control Board
approval, and when a control period is not in effect for Control Board review, a
financial plan for the next four fiscal years covering the City and certain
agencies showing
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balanced budgets determined in accordance with GAAP. New York State also
established the Office of the State Deputy Comptroller for New York City
("OSDC") to assist the Control Board in exercising its powers and
responsibilities. On June 30, 1986, the City satisfied the statutory
requirements for termination of the control period. This means that the Control
Board's powers of approval are suspended, but the Board continues to have
oversight responsibilities.
On June 10, 1997, the City submitted to the Control Board the Financial
Plan (the "1998-2001 Financial Plan") for the 1998 through 2001 fiscal years,
relating to the City, the Board of Education ("BOE") and City University of New
York ("CUNY") and reflected the City's expense and capital budgets for the 1998
fiscal year, which were adopted on June 6, 1997. The 1998-2001 Financial Plan
projected revenues and expenditures for the 1998 fiscal year balanced in
accordance with GAAP. The 1998-99 Financial Plan projected General Fund receipts
(including transfers from other funds) of $36.22 billion, an increase of $1.02
billion over the estimated 1997-1998 level. Recurring growth in the State
General Fund tax base is projected to be approximately six percent during
1998-99, after adjusting for tax law and administrative changes. This growth
rate is lower than the rates for 1996-97 or 1997-98, but roughly equivalent to
the rate for 1995-96.
Although the City has consistently maintained balanced budgets and is
projected to achieve balanced operating results for the current fiscal year,
there can be no assurance that the gap-closing actions proposed in the 1998-2001
Financial Plan can be successfully implemented or that the City will maintain a
balanced budget in future years without additional State aid, revenue increases
or expenditure reductions. Additional tax increases and reductions in essential
City services could adversely affect the City's economic base.
The projections set forth in the 1998-2001 Financial Plan were based on
various assumptions and contingencies which are uncertain and which may not
materialize. Changes in major assumptions could significantly affect the City's
ability to balance its budget as required by State law and to meet its annual
cash flow and financing requirements. Such assumptions and contingencies include
the condition of the regional and local economies, the impact on real estate tax
revenues of the real estate market, wage increases for City employees consistent
with those assumed in the 1998-2001 Financial Plan, employment growth, the
ability to implement proposed reductions in City personnel and other cost
reduction initiatives, the ability of the Health and Hospitals Corporation and
the BOE to take actions to offset reduced revenues, the ability to complete
revenue generating transactions, provision of State and Federal aid and mandate
relief and the impact on City revenues and expenditures of Federal and State
welfare reform and any future legislation affecting Medicare or other
entitlements.
Implementation of the 1998-2001 Financial Plan is also dependent upon the
City's ability to market its securities successfully. The City's financing
program for fiscal years 1998 through 2001 contemplates the issuance of $5.7
billion of general obligation bonds and $5.7 billion of bonds to be issued by
the proposed New York City Transitional Finance Authority (the "Finance
Authority") to finance City capital projects. The Finance Authority, was created
as part of the City's effort to assist in keeping the City's indebtedness within
the forecast level of the constitutional restrictions on the amount of debt the
City is authorized to incur. Despite this additional financing mechanism, the
City currently projects that, if no further action is taken, it
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will reach its debt limit in City fiscal year 1999-2000. Indebtedness subject to
the constitutional debt limit includes liability on capital contracts that are
expected to be funded with general obligation bonds, as well as general
obligation bonds. On June 2, 1997, an action was commenced seeking a declaratory
judgment declaring the legislation establishing the Transitional Finance
Authority to be unconstitutional. If such legislation which is currently on
appeal to the Court of Appeals were voided, projected contracts for the City
capital projects would exceed the City's debt limit. Future developments
concerning the City or entities issuing debt for the benefit of the City, and
public discussion of such developments, as well as prevailing market conditions
and securities credit ratings, may affect the ability or cost to sell securities
issued by the City or such entities and may also affect the market for their
outstanding securities.
The City Comptroller and other agencies and public officials have issued
reports and made public statements which, among other things, state that
projected revenues and expenditures may be different from those forecast in the
City's financial plans. It is reasonable to expect that such reports and
statements will continue to be issued and to engender public comment.
The City since 1981 has fully satisfied its seasonal financing needs in the
public credit markets, repaying all short-term obligations within their fiscal
year of issuance. Although the City's 1998 fiscal year financial plan projected
$2.4 billion of seasonal financing, the City expected to undertake only
approximately $1.4 billion of seasonal financing. The City issued $2.4 billion
of short-term obligations in fiscal year 1997. The delay in the adoption of the
State's budget in certain past fiscal years has required the City to issue
short-term notes in amounts exceeding those expected early in such fiscal years.
Certain localities, in addition to the City, have experienced financial
problems and have requested and received additional New York State assistance
during the last several State fiscal years. The potential impact on the State of
any future requests by localities for additional assistance is not included in
the State's projections of its receipts and disbursements for the fiscal year.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers") resulted
in the re-establishment of the Financial Control Board for the City of Yonkers
(the "Yonkers Board") by New York State in 1984. The Yonkers Board is charged
with oversight of the fiscal affairs of Yonkers. Future actions taken by the
State to assist Yonkers could result in increased State expenditures for
extraordinary local assistance.
On June 30, 1998, the City of Yonkers satisfied the statutory conditions
for ending the supervision of its finances by a State-ordered control board.
Pursuant to State law, the control board's powers over City finances lapsed six
months after the satisfaction of these conditions, on December 31, 1998.
Beginning in 1990, the City of Troy experienced a series of budgetary
deficits that resulted in the establishment of a Supervisory Board for the City
of Troy in 1994. The Supervisory Board's powers were increased in 1995, when
Troy MAC was created to help Troy avoid default on certain obligations. The
legislation creating Troy MAC prohibits the city of
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Troy from seeking federal bankruptcy protection while Troy MAC bonds are
outstanding. Troy MAC has issued bonds to effect a restructuring of the City of
Troy's obligations.
The 1998-99 budget included $29.4 million in unrestricted aid targeted to
57 municipalities across the State. Other assistance for municipalities with
special needs totals more than $25.6 million. Twelve upstate cities received
$24.2 million in one-time assistance from a cash flow acceleration of State aid.
Municipalities and school districts have engaged in substantial short-term
and long-term borrowings. State law requires the Comptroller to review and make
recommendations concerning the budgets of those local government units other
than New York City that are authorized by State law to issue debt to finance
deficits during the period that such deficit financing is outstanding.
From time to time, federal expenditure reductions could reduce, or in some
cases eliminate, federal funding of some local programs and accordingly might
impose substantial increased expenditure requirements on affected localities. If
the State, the City or any of the Authorities were to suffer serious financial
difficulties jeopardizing their respective access to the public credit markets,
the marketability of notes and bonds issued by localities within the State could
be adversely affected. Localities also face anticipated and potential problems
resulting from certain pending litigation, judicial decisions and long-range
economic trends. Long-range potential problems of declining urban population,
increasing expenditures and other economic trends could adversely affect
localities and require increasing the State assistance in the future.
YEAR 2000 COMPLIANCE. The State is currently addressing Year 2000 ("Y2K")
data processing compliance issues. Since its inception, the computer industry
has used a two-digit date convention to represent the year. In the year 2000,
the date field will contain "00" and, as a result, many computer systems and
equipment may not be able to process dates properly or may fail since they may
not be able to distinguish between the years 1900 and 2000. The Year 2000 issue
not only affects computer programs, but also the hardware, software and networks
on which they operate. In addition, any system or equipment that is dependent on
an embedded chip, such as telecommunication equipment and security systems, may
also be adversely affected.
In April 1999, the State Comptroller released an audit on the State's Year
2000 compliance. The audit, which reviewed the State's Y2K compliance activities
through October 1998, found that the State had made progress in achieving Y2K
compliance, but needed to improve its activities in several areas, including
data interchanges and contingency planning.
The Office for Technology (OFT) will continue to monitor compliance
progress for the States mission-critical and high-priority systems and is
reporting compliance progress to the Governor's Office on a quarterly basis. The
1999-2000 enacted budget allocates $19 million for priority embedded systems and
$20 million for unanticipated expenses related to bringing technology into Y2K
compliance. OFT reports that as of June 1999, the State had completed over 98
percent of the overall compliance effort for its mission-critical systems; 55 of
the 56 systems are now Year 2000 compliant. As of June 1999, the State had
completed 87 percent of
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the overall compliance effort on the high-priority systems; 236 systems are now
Year 2000 compliant. The State has also procured independent validation and
verification services from a qualified vendor to perform an automated review of
code that has been fixed and a testing review process for all mission-critical
systems which is scheduled to be completed by September 1999.
While New York State is taking what it believes to be appropriate action to
address Year 2000 compliance, there can be no guarantee that all of the State's
systems and equipment will be Year 2000 compliant and that there will not be an
adverse impact upon State operations or finances as a result. Since Year 2000
compliance by outside parties is beyond the State's control to remediate, the
failure of outside parties to achieve Year 2000 compliance could have an adverse
impact on State operations or finances as well.
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PORTFOLIO SECURITIES GENERALLY
Subsequent to its purchase by a Fund, an issue of securities may cease to
be rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Board of Trustees or Fleet, pursuant to guidelines
established by the Board, will promptly consider such an event in determining
whether the Fund involved should continue to hold the obligation. The Board of
Trustees or Fleet may determine that it is appropriate for the Fund to continue
to hold the obligation if retention is in accordance with the interests of the
Fund and applicable regulations of the Securities and Exchange Commission
("SEC").
INVESTMENT LIMITATIONS
In addition to each Fund's investment objective as stated in its
Prospectus(es), the following investment limitations are matters of fundamental
policy and may not be changed with respect to a Fund without the affirmative
vote of the holders of a majority of its outstanding shares (as defined under
"Miscellaneous").
Each of the Money Market, Government, U.S. Treasury, Tax-Exempt and
Institutional Government Money Market Funds may not:
1. Make loans, except that (i) each Fund may purchase or hold
debt instruments in accordance with its investment objective and
policies, (ii) each Fund, except the U.S. Treasury Fund, may enter
into repurchase agreements with respect to portfolio securities,
and (iii) the Money Market and Government Funds each may lend
portfolio securities against collateral consisting of cash or
securities that are consistent with the Fund's permitted
investments, where the value of the collateral is equal at all
times to at least 100% of the value of the securities loaned.
2. Purchase foreign securities, except that the Money Market
Fund may purchase certificates of deposit, bankers' acceptances,
or other similar obligations issued by U.S. branches of foreign
banks or foreign branches of U.S. banks.
3. Purchase securities on margin (except such short-term
credits as may be necessary for the clearance of purchases), make
short sales of securities, or maintain a short position.
4. Act as an underwriter within the meaning of the Securities
Act of 1933; except insofar as a Fund might be deemed to be an
underwriter upon disposition of restricted portfolio securities;
and except to the extent that the purchase of
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securities directly from the issuer thereof in accordance with the
Fund's investment objective, policies and limitations may be
deemed to be underwriting.
5. Purchase or sell real estate; except that each taxable Fund
may purchase securities that are secured by real estate, and the
Money Market Fund may purchase securities of issuers which deal in
real estate or interests therein; and except that the Tax-Exempt
Fund may invest in Municipal Securities secured by real estate or
interests therein; however the Funds will not purchase or sell
interests in real estate limited partnerships.
6. Purchase or sell commodities or commodity contracts or
invest in oil, gas or other mineral exploration or development
programs or mineral leases.
7. Invest in or sell put options, call options, straddles,
spreads, or any combination thereof.
8. Invest in companies for the purpose of exercising
management or control.
9. Purchase securities of other investment companies except in
connection with a merger, consolidation, reorganization or
acquisition of assets; provided, however, that the Tax-Exempt and
Institutional Government Money Market Funds may acquire such
securities in accordance with the 1940 Act; and provided, further,
that the Institutional Government Money Market Fund may only
invest up to 5% of its total assets in shares of other investment
companies which are registered under the 1940 Act and which invest
only in securities that the Fund could acquire directly.
Each of the Money Market, Government, U.S. Treasury and Institutional
Government Money Market Funds may not:
10. Borrow money or issue senior securities, except that each
Fund may borrow from domestic banks for temporary purposes and
then in amounts not in excess of 10% of the value of a Fund's
total assets at the time of such borrowing (provided that the
Money Market and Government Funds may borrow pursuant to reverse
repurchase agreements in accordance with their investment policies
and in amounts not in excess of 10% of the value of their
respective total assets at the time of such borrowing); or
mortgage, pledge, or hypothecate any assets except in connection
with any such borrowing and in amounts not in excess of the lesser
of the dollar amounts borrowed or 10% of the value of a Fund's
total assets at the time of such borrowing. A Fund will not
purchase securities while borrowings (including reverse repurchase
agreements with respect to the Money Market and Government Funds)
in excess of 5% of its total assets are outstanding.
11. Invest more than 10% of the value of its total assets in
illiquid securities, including, with respect to the Money Market,
Government and U.S. Treasury Funds, repurchase agreements with
remaining maturities in excess of seven days,
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time deposits with maturities in excess of seven days, restricted
securities, non-negotiable time deposits and other securities
which are not readily marketable.
With respect to Investment Limitation No. 10 above, each of the Money
Market and Government Funds intends to limit any borrowings, including reverse
repurchase agreements, to not more than 10% of the value of its total assets at
the time of such borrowing.
With respect to Investment Limitation No. 11 above, the Institutional
Government Money Market Fund intends to limit investments in illiquid securities
to not more than 10% of the value of its net assets.
Each of the Money Market, Government, U.S. Treasury and Tax-Exempt Funds
may not:
12. Purchase securities of any one issuer if immediately after
such purchase more than 5% of the value of its total assets would
be invested in the securities of such issuer (the "5%
limitation"), except that up to 25% of the value of its total
assets may be invested without regard to the 5% limitation;
notwithstanding the foregoing restriction, each Fund may invest
without regard to the 5% limitation in U.S. Government obligations
and as otherwise permitted in accordance with Rule 2a-7 under the
1940 Act or any successor rule.
With respect to Investment Limitation No. 12 above, (a) a security is
considered to be issued by the governmental entity or entities whose assets and
revenues back the security or, with respect to a private activity bond that is
backed only by the assets and revenues of a non-governmental user, such
non-governmental user; (b) in certain circumstances, the guarantor of a
guaranteed security may also be considered to be an issuer in connection with
such guarantee; and (c) securities issued or guaranteed by the U.S. Government,
its agencies or instrumentalities (including securities backed by the full faith
and credit of the United States) are deemed to be U.S. Government obligations.
The Money Market Fund may not:
13. Purchase any securities other than "money-market"
instruments, some of which may be subject to repurchase
agreements, but the Fund may make interest-bearing savings
deposits not in excess of 5% of the value of its total assets at
the time of deposit and may make time deposits.
The Government Fund may not:
14. Purchase securities other than obligations issued or
guaranteed by the U.S. Government, its agencies or
instrumentalities, some of which may be subject to repurchase
agreements.
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The Tax-Exempt Fund may not:
15. Borrow money or issue senior securities, except that the
Fund may borrow from banks for temporary purposes, and then in
amounts not in excess of 10% of the value of its total assets at
the time of such borrowing; or mortgage, pledge, or hypothecate
any assets except in connection with any such borrowing and in
amounts not in excess of the lesser of the dollar amounts borrowed
or 10% of the value of its total assets at the time of such
borrowing. The Fund will not purchase any portfolio securities
while borrowings in excess of 5% of its total assets are
outstanding.
16. Knowingly invest more than 10% of the value of its total
assets in illiquid securities, including repurchase agreements
with remaining maturities in excess of seven days and other
securities which are not readily marketable.
17. Purchase any securities that would cause 25% or more of the
value of its total assets at the time of purchase to be invested
in the securities of one or more issuers conducting their
principal business activities in the same industry; provided,
however, that there is no limitation with respect to securities
issued or guaranteed by the United States, any state, territory or
possession of the U.S. Government, the District of Columbia, or
any of their authorities, agencies, instrumentalities, or
political subdivisions.
18. Invest in industrial revenue bonds where the payment of
principal and interest are the responsibility of a company
(including its predecessors) with less than three years of
continuous operation.
The Institutional Government Money Market Fund may not:
19. Invest in obligations having remaining maturities in excess
of 397 days, except that certain variable and floating rate
instruments may bear longer maturities (provided certain
provisions are met).
The Connecticut Municipal Money Market, Massachusetts Municipal Money
Market and New York Municipal Money Market Funds may not:
20. Borrow money directly or pledge securities except, under
certain circumstances, each Fund may borrow up to one-third of the
value of its total assets and pledge up to 10% of the value of its
total assets to secure such borrowings.
21. Sell any securities short or purchase any securities on
margin, but each Fund may obtain such short-term credits as may be
necessary for clearance of transactions.
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22. Issue senior securities except that each Fund may borrow
money or engage in reverse repurchase agreements in amounts up to
one-third of the value of its total assets, including the amounts
borrowed. No Fund will borrow money or engage in reverse
repurchase agreements for investment leverage, but rather as a
temporary, extraordinary, or emergency measure to facilitate
management of the portfolio by enabling a Fund to meet redemption
requests when the liquidation of portfolio securities is deemed to
be inconvenient or disadvantageous. No Fund will purchase any
securities while borrowings in excess of 5% of its total assets
are outstanding.
23. Mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, a Fund may only
mortgage, pledge, or hypothecate assets having a market value not
exceeding 10% of the value of its total assets at the time of
purchase.
24. Purchase or sell real estate or real estate limited
partnerships, although each Fund may invest in securities of
issuers whose business involves the purchase or sale of real
estate or in securities which are secured by real estate or
interests in real estate.
25. Purchase or sell commodities, commodity contracts, or
commodity futures contracts.
26. Underwrite any issue of securities, except as a Fund may be
deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its
investment objective, policies and limitations.
27. Lend any of its assets except that a Fund may acquire
publicly or non-publicly issued Connecticut, Massachusetts or New
York Municipal Securities or temporary investments or enter into
repurchase agreements, in accordance with their respective
investment objectives, policies, limitations and Galaxy's
Declaration of Trust.
28. With respect to at least 50% of its total assets, invest
more than 5% of its total assets in the securities of a single
issuer and more than 25% of its total assets in the securities of
a single issuer at the close of each quarter of each fiscal year.
Under this limitation, each governmental subdivision, including
states, territories and possessions of the United States, or their
political subdivisions, agencies, authorities, instrumentalities,
or similar entities will be considered a separate issuer if its
assets and revenues are separate from those of the governmental
body creating it and the security is backed only by its own assets
and revenues. Industrial development bonds backed only by the
assets and revenue of a non-governmental user are considered to be
issued solely by that user. If, in the case of an industrial
development bond or government-issued security, a governmental or
other entity guarantees the security, such guarantee would be
considered a
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separate security issued by the guarantor, as well as the other
issuer, subject to limited exclusions allowed by the 1940 Act.
29. Purchase securities, if, as a result of such purchase, 25%
or more of the value of the Fund's total assets would be invested
in any one industry or in industrial development bonds or other
securities, the interest upon which is paid from revenues of
similar types of projects. However, a Fund may invest as temporary
investments more than 25% of the value of its assets in cash or
cash items, securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, or instruments
secured by these money market instruments and repurchase
agreements.
30. Invest more than 10% of its net assets in securities
subject to restrictions on resale under the Securities Act of
1933.
The following investment limitations with respect to the Connecticut
Municipal Money Market, Massachusetts Municipal Money Market and New York
Municipal Money Market Funds may be changed by Galaxy's Board of Trustees
without shareholder approval (shareholders will be notified before any material
change in this limitation becomes effective):
31. No Fund will invest more than 5% of its total assets in
industrial development bonds or other Municipal Securities when
the payment of principal and interest is the responsibility of
companies (or guarantors, where applicable) with less than three
years of continuous operations, including the operation of any
predecessor.
32. Each Fund will limit its investments in other investment companies
to not more than 3% of the total outstanding voting stock of any
investment company; will invest no more than 5% of its total
assets in any one investment company; and will invest no more than
10% of its total assets in investment companies in general.
However, these limitations are not applicable if the securities
are acquired in a merger, consolidation, reorganization or
acquisition of assets. The Funds will limit their respective
investments in the securities of other investment companies to
those of money market funds which are of comparable or better
portfolio quality and have investment objectives and policies
similar to their own. Rule 2a-7 under the 1940 Act requires that
the Funds limit their investments to instruments that, in the
opinion of the Board of Trustees, present minimal credit risk and
that, if rated, meet minimum rating standards set forth in Rule
2a-7 under the 1940 Act. If the instruments are not rated, the
Trustees must determine that they are of comparable quality.
Shares of investment companies purchased by the Funds will meet
these same criteria and will have investment policies consistent
with Rule 2a-7 of the 1940 Act.
33. No Fund may purchase or retain the securities of any issuer if the
officers and Trustees of Galaxy or Fleet, owning individually more
than 1/2 of 1% of the issuer's securities, together own more than
5% of the issuer's securities.
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34. No Fund may purchase or sell interests in oil, gas, or other
mineral exploration or development programs or leases.
35. No Fund may purchase or sell puts, calls, straddles, spreads, or
any combination thereof, except that each such Fund may purchase
Municipal Securities accompanied by agreements of sellers to
repurchase them at the Fund's option.
36. No Fund may invest more than 5% of the value of its total assets
in industrial development bonds where the payment of principal and
interest are the responsibility of companies (or guarantors, where
applicable) with less than three years of continuous operations,
including the operation of any predecessor.
37. No Fund may invest more than 10% of the value of its respective
net assets in illiquid securities, including repurchase agreements
providing for settlement in more than seven days after notice,
non-negotiable fixed time deposits with maturities over seven
days, and certain securities not determined by the Board of
Trustees to be liquid.
The Connecticut Municipal Money Market, Massachusetts Municipal Money
Market and New York Municipal Money Funds may purchase restricted securities,
which are any securities in which a Fund may otherwise invest pursuant to its
investment objective and policies but which are subject to restrictions on
resale under federal securities laws. Certain restricted securities may be
considered liquid pursuant to guidelines established by the Board of Trustees.
To the extent restricted securities are deemed illiquid, each such Fund will
limit its purchase, together with other securities considered to be illiquid, to
10% of its net assets.
In addition to the foregoing limitations, (a) the Money Market Government
and U.S. Treasury Funds may not purchase securities that would cause 25% or more
of the value of a Fund's total assets at the time of purchase to be invested in
the securities of one or more issuers conducting their principal business
activities in the same industry; provided, however, that (i) there is no
limitation with respect to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, or, with respect to the Money
Market Fund, by domestic banks or by U.S. branches of foreign banks that are
subject to the same regulation as domestic banks; (ii) with respect to the Money
Market Fund wholly-owned finance companies will be considered to be in the
industries of their parents if their activities are primarily related to
financing the activities of the parents; and (iii) with respect to the Money
Market Fund utilities will be classified according to their services (for
example, gas, gas transmission, electric and gas, electric and telephone each
will be considered a separate industry); (b) the Connecticut Municipal Money
Market, Massachusetts Municipal Money Market and New York Municipal Money Market
Funds may not purchase securities that would cause 25% or more of the value of a
Fund's total assets at the time of purchase to be invested in the securities of
one or more issuers conducting their principal business activities in the same
industry; provided, however, that there is no limitation with respect to
obligations issued or guaranteed by the U.S. Government, any state, territory or
possession of the U.S. Government, the District of Columbia, or any of their
authorities, agencies, instrumentalities or political subdivisions; and (c) the
Institutional Government Money Market Fund may not purchase securities that
would cause 25% or more of
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the value of its total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business activities
in the same industry; provided, however, that there is no limitation with
respect to obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities.
Except as stated otherwise, if a percentage limitation is satisfied at
the time of investment, a later increase in such percentage resulting from a
change in the value of a Fund's portfolio securities generally will not
constitute a violation of the limitation. If the value of a Fund's holdings of
illiquid securities at any time exceeds the percentage limitation applicable at
the time of acquisition due to subsequent fluctuations in value or other
reasons, the Board of Trustees will consider what actions, if any, are
appropriate to maintain adequate liquidity. With respect to borrowings, if a
Fund's asset coverage at any time falls below that required by the 1940 Act, the
Fund will reduce the amount of its borrowings in the manner required by the 1940
Act to the extent necessary to satisfy the asset coverage requirement.
Each Fund may follow non-fundamental operating policies that are more
restrictive than its fundamental investment limitations, as set forth in the
Prospectuses and this Statement of Additional Information, in order to comply
with applicable laws and regulations, including the provisions of and
regulations under the 1940 Act. In particular, each Fund will comply with the
various requirements of Rule 2a-7 under the 1940 Act which regulates money
market funds. In accordance with Rule 2a-7, the Money Market Fund is subject to
the 5% limitation contained in Investment Limitation No. 13 above as to all of
its assets; however in accordance with such Rule, the Money Market Fund will be
able to invest more than 5% (but no more than 25%) of its total assets in the
securities of a single issuer for a period of up to three business days after
the purchase thereof, provided that the Fund may not hold more than one such
investment at any one time. Adherence by a Fund to the diversification
requirements of Rule 2a-7 is deemed to constitute adherence to the
diversification requirements of Investment Limitation No. 13 above. Each Fund
will determine the effective maturity of its respective investments, as well as
its ability to consider a security as having received the requisite short-term
ratings by Rating Agencies, according to Rule 2a-7. A Fund may change these
operating policies to reflect changes in the laws and regulations without the
approval of its shareholders.
Rule 144A under the 1933 Act allows for a broader institutional trading
market for securities otherwise subject to restrictions on resale to the general
public. Rule 144A establishes a "safe harbor" from the registration requirements
of the 1933 Act for resales of certain securities to qualified institutional
buyers. Investment by the Money Market Fund or any Tax-Exempt Money Market Fund
in Rule 144A securities could have the effect of increasing the level of
illiquidity of the Fund during any period that qualified institutional buyers
were no longer interested in purchasing these securities. For purposes of each
Fund's 10% limitation on purchases of illiquid securities described above, Rule
144A securities will not be considered to be illiquid if Fleet has determined,
in accordance with guidelines established by the Board of Trustees, that an
adequate trading market exists for such securities.
The Connecticut Municipal Money Market, Massachusetts Municipal Money
Market and New York Municipal Money Market Funds do not intend to borrow money
in excess of 5%
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of the value of their respective assets or to invest more than 5% of their
respective total assets in securities of foreign issuers during the next twelve
months.
NET ASSET VALUE
Galaxy uses the amortized cost method of valuation to value shares of the
Funds. In order to use the amortized cost method, the Funds comply with the
various quality and maturity restrictions specified in Rule 2a-7 promulgated
under the 1940 Act. Pursuant to this method, a security is valued at its initial
acquisition cost, as adjusted for amortization of premium or accretion of
discount, regardless of the impact of fluctuating interest rates on the market
value of the security. Where it is not appropriate to value a security by the
amortized cost method, the security will be valued either by market quotations
or by fair value as determined by or under the direction of Galaxy's Board of
Trustees. This method may result in periods during which value, as determined by
amortized cost, is higher or lower than the price a Fund would receive if it
sold the security. The value of securities in each of these Funds can be
expected to vary inversely with changes in prevailing interest rates. Thus, if
interest rates have increased from the time a security was purchased, such
security, if sold, might be sold at a price less than its cost. Similarly, if
interest rates have declined from the time a security was purchased, such
security, if sold, might be sold at a price greater than its purchase cost. In
either instance, if the security is held to maturity, no gain or loss will be
realized.
The Funds invest only in instruments that meet the applicable quality
requirements of Rule 2a-7 and maintain a dollar-weighted average portfolio
maturity appropriate to their objective of maintaining a stable net asset value
per share, provided that none of the Funds will purchase any security deemed to
have a remaining maturity (as defined in the 1940 Act) of more than 397 days nor
maintain a dollar-weighted average portfolio maturity which exceeds 90 days.
Galaxy's Board of Trustees has established procedures reasonably designed,
taking into account current market conditions and each Fund's investment
objective, to stabilize the net asset value per share of each Fund for purposes
of sales and redemptions at $1.00. These procedures include review by the Board
of Trustees, at such intervals as it deems appropriate, to determine the extent,
if any, to which the net asset value per share of each Fund, calculated by using
available market quotations, deviates from $1.00 per share. In the event such
deviation exceeds one-half of one percent, the Board of Trustees will promptly
consider what action, if any, should be initiated. If the Board of Trustees
believes that the extent of any deviation from a Fund's $1.00 amortized cost
price per share may result in material dilution or other unfair results to new
or 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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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 Four Falls Corporate Center, 6th
Floor, West Conshohocken, Pennsylvania 19428.
PURCHASES OF RETAIL SHARES AND PRIME SHARES
Investments in Retail A Shares of the Money Market, Government, U.S.
Treasury, Tax-Exempt, Connecticut Municipal Money Market, Massachusetts
Municipal Money Market and New York Municipal Money Market Funds ("Retail A
Shares") (collectively, Retail A Shares and Retail B Shares of the Money Market
Fund may be referred to as "Retail Shares"), and Prime Shares of the Connecticut
Municipal Money Market, Massachusetts Municipal Money Market and New York
Municipal Money Market Funds ("Prime Shares") are not subject to any sales
charge. Investments in Retail B Shares of the Money Market Fund are subject to a
back-end sales charge. This back-end sales charge declines over time and is
known as a "contingent deferred sales charge." See "Applicable Sales Charge --
Retail B Shares" below. RETAIL B SHARES OF THE MONEY MARKET FUND HAVE HIGHER
OPERATING EXPENSES THAN RETAIL A SHARES OF THE FUND AND MAY NOT BE APPROPRIATE
FOR INVESTORS THAT DO NOT PLAN TO EXCHANGE INTO RETAIL B SHARES OF CERTAIN OF
GALAXY'S NON-MONEY MARKET PORTFOLIOS.
PDI has established procedures to enable different types of investors
to purchase Retail Shares and Prime Shares. Retail Shares may be purchased by
FIS Securities, Inc., Fleet Securities, Inc., Fleet Enterprises, Inc.,
FleetBoston Corporation, its affiliates, their correspondent banks and other
qualified banks, saving and loan associations and broker/dealers on behalf of
their customers. Retail Shares may also be purchased by individuals,
corporations or other entities, who submit a purchase application to Galaxy,
purchasing directly for their own accounts or for the accounts of others.
Purchases of Retail Shares may take place only on days on which PDI, Galaxy's
custodian and Galaxy's transfer agent are open for business ("Business
Days"). If an institution accepts a purchase order from a customer on a
non-Business Day, the order will not be executed until it is received and
accepted by PDI on a Business Day in accordance with PDI's procedures.
Retail Shares purchased by institutions on behalf of their customers will
normally be held of record by the institution and beneficial ownership of Retail
Shares will be recorded by the institution and reflected in the account
statements provided to its customers. Galaxy's transfer agent may establish an
account of record for each customer of an institution reflecting beneficial
ownership of Retail Shares. Depending on the terms of the arrangement between a
particular institution and Galaxy's transfer agent, confirmations of Retail
Share purchases and redemptions and pertinent account statements will either be
sent by Galaxy's transfer agent directly to a customer with a copy to the
institution, or will be furnished directly to the customer by the institution.
Other procedures for the purchase of Retail Shares established by institutions
in connection with the requirements of their customer accounts may apply.
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Customers wishing to purchase Retail Shares through their institution should
contact such entity directly for appropriate purchase instructions.
Purchase orders for Prime Shares are placed by investors through selected
broker/dealers. The broker/dealer is responsible for transmitting its customers'
purchase orders to PDI and for wiring required funds in payment to Galaxy's
custodian on a timely basis. PDI is responsible for transmitting such orders to
Galaxy's transfer agent for execution. Prime Shares purchased by a broker/dealer
on behalf of its customers will normally be held of record by the broker/dealer
and reflected in the account statements provided to its customers. Depending on
the terms of the arrangement between a particular broker/dealer and Galaxy's
transfer agent, confirmations of Prime Share purchases and redemptions and
pertinent account statements will either be sent by Galaxy's transfer agent
directly to a shareholder with a copy to the broker/dealer, or will be furnished
directly to the shareholder by the broker/dealer. Other procedures for the
purchase of Prime Shares established by broker/dealers may apply. Purchases of
Prime Shares will be effected only on days on which PDI and Galaxy's custodian
are open for business. On a 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.
OTHER PURCHASE INFORMATION
On a Business Day when the New York Stock Exchange (the "Exchange")
closes early due to a partial holiday or otherwise, Galaxy will advance the time
at which purchase orders must be received in order to be processed on that
Business Day.
APPLICABLE SALES CHARGES - RETAIL B SHARES
The public offering price for Retail B Shares of the Money Market Fund is
the net asset value of the Retail B Shares purchased. Although investors pay no
front-end sales charge on purchases of Retail B Shares, such Shares are subject
to a contingent deferred sales charge at the rates set forth below if they are
redeemed within six years of purchase. Securities dealers, brokers, financial
institutions and other industry professionals will receive commissions from 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 of Galaxy's non-money market portfolios. Certain affiliates
of Fleet may, at their own expense, provide additional compensation to Fleet
Enterprises, Inc., a broker-dealer affiliate of Fleet, whose customers purchase
significant amounts of Retail B Shares of the Fund. Such compensation will not
represent an additional expense to the Fund or its shareholders, since it will
be paid from the assets of Fleet's affiliates. The contingent deferred sales
charge on Retail B Shares is based on the lesser of the offering price or the
net asset value of the Shares on the redemption date. As a result, no sales
charge is imposed on any increase in the principal value of an investor's Retail
B Shares. In addition, a contingent deferred sales charge will not be assessed
on Retail B Shares purchased through reinvestment of dividends or capital gains
distributions.
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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
Money Market Fund's right to liquidate a shareholder's account if the aggregate
net asset value of Retail B Shares held in the account is less than the minimum
account size; (iv) redemptions in connection with the combination of the Money
Market Fund with any other investment company registered under the 1940 Act by
merger, acquisition of assets, or by any other transaction; (v) redemptions
resulting from a tax-free return of an excess contribution pursuant to Section
408(d)(4) or (5) of the Code; or (vi) any redemption of Retail B Shares held by
an investor, provided the investor was the beneficial owner of shares of the
Money Market Fund (or any of the other portfolios offered by Galaxy or otherwise
advised by Fleet or its affiliates) before December 1, 1995. In addition to the
foregoing exemptions, no contingent deferred sales charge will be imposed on
redemptions made pursuant to the Systematic Withdrawal Plan, subject to the
limitations set forth under "Investor Programs - Retail Shares - Automatic
Investment Program and Systematic Withdrawal Plan" below.
Six years after purchase, Retail B Shares of the Money Market Fund will
convert automatically to Retail A Shares of the Fund. The purpose of the
conversion is to relieve a holder of Retail B Shares of the higher ongoing
expenses charged to those Shares. The conversion from Retail B Shares to Retail
A Shares takes place at net asset value, as a result of which an investor
receives dollar-for-dollar the same value of Retail A Shares as he or she had of
Retail B Shares. The conversion occurs six years after the beginning of the
calendar month in which the Retail B Shares are purchased. Upon conversion, an
investor would hold Retail A Shares subject to the operating expenses for Retail
A Shares.
Retail B Shares of the Money Market Fund acquired through a reinvestment
of dividends or distributions are also converted at the earlier of two dates --
six years after the beginning of the calendar month in which the reinvestment
occurred or the date of conversion of the most recently purchased Retail B
Shares that were not acquired through reinvestment of dividends or
distributions. For example, if an investor makes a one-time purchase of Retail B
Shares of the Fund, and subsequently acquires additional Retail B Shares of the
Fund only through reinvestment of dividends and/or distributions, all of such
investor's Retail B Shares in the Fund,
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including those acquired through reinvestment, will convert to Retail A Shares
of the Fund on the same date.
PURCHASES OF SHARES OF THE INSTITUTIONAL GOVERNMENT MONEY MARKET FUND
Investments in Shares of the Institutional Government Money Market Fund
(referred to in the Prospectus for the Fund as Trust Shares) are not subject to
any sales charge. Shares of the Institutional Government Money Market Fund may
be purchased by FIS Securities, Inc., Fleet Securities, Inc., Fleet Enterprises,
Inc., FleetBoston 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 days on which
PDI, Galaxy's custodian and Galaxy's transfer agent are open for business
("Business Days"). If an institution accepts a purchase order from a customer on
a non-Business Day, the order will not be executed until it is received and
accepted by PDI on a Business Day in accordance with PDI's procedures.
Shares of the Institutional Government 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 - MONEY MARKET,
GOVERNMENT, U.S. TREASURY AND TAX-EXEMPT FUNDS
Trust Shares of the Money Market, Government, U.S. Treasury and
Tax-Exempt Funds are sold to investors maintaining qualified accounts at bank
and trust institutions, including subsidiaries of FleetBoston Corporation
and, with respect to each Fund other than the Tax-Exempt Fund, to participants
in employer-sponsored defined contribution plans (such institutions and plans
are referred to herein collectively as "Institutions"). Trust Shares sold to
such investors ("Customers") will be held of record by Institutions. Purchases
of Trust Shares will be effected only on days on which 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.
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On a Trust Business Day when the Exchange closes early due to a partial
holiday or otherwise, Galaxy will advance the time at which purchase orders must
be received in order to be processed on that Trust Business Day.
REDEMPTIONS
Redemption orders are effected at the net asset value per share next
determined after receipt of the order by PDI, except that proceeds from the
redemption of Retail B Shares of the Money Market Fund will be reduced by the
amount of any applicable contingent deferred sales charge. On a Business Day or
Trust Business Day when the Exchange closes early due to a partial holiday or
otherwise, Galaxy will advance the time at which redemption orders must be
received in order to be processed on that Business Day or Trust Business Day.
Galaxy may require any information reasonably necessary to ensure that a
redemption has been duly authorized. When redeeming Retail Shares in the Money
Market Fund, investors should indicate whether they are redeeming Retail A
Shares or Retail B Shares of the Fund. If an investor owns both Retail A Shares
and Retail B Shares of the Money Market Fund, the Retail A Shares will be
redeemed first unless the investor indicates otherwise. Galaxy reserves the
right to transmit redemption proceeds within seven days after receiving the
redemption order if, in its judgment, an earlier payment could adversely affect
a Fund.
If the Board of Trustees determines that conditions exist which make
payment of redemption proceeds wholly in cash unwise or undesirable, Galaxy may
make payment wholly or partly in securities or other property. Such redemptions
will only be made in "readily marketable" securities. In such an event, a
shareholder would incur transaction costs in selling the securities or other
property. However, Galaxy has filed an election with the SEC to pay in cash all
redemptions requested by any 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.
With respect to Institutional Shares, Galaxy requires that an institution
maintain an average balance of $2,000,000 in an account. If the balance in such
account falls below that minimum, the institution may be obliged by Galaxy to
redeem all of the shares in the account. In addition, Galaxy may redeem shares
involuntarily or make payment for redemption in securities if it appears
appropriate to do so in light of Galaxy's responsibilities under the 1940 Act.
See "Net Asset Value" above for examples of when such redemptions might be
appropriate.
Investors may redeem all or part of their Prime Shares in accordance with
procedures governing their accounts at their broker/dealers. It is the
responsibility of the broker/dealers to transmit redemption orders to FD
Distributors and credit their customers' accounts with redemption proceeds on a
timely basis. There is no sales charge imposed upon the redemption of Prime
Shares.
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
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making disposal of a Fund's investments or determination of its net asset value
not reasonably practicable; (b) the Exchange is closed (other than customary
weekend and holiday closings); or (c) the SEC by order has permitted such
suspension.
INVESTOR PROGRAMS
The following information supplements the description in the applicable
Prospectus as to various Investor Programs available to holders of Retail Shares
and Shares of the Institutional Government Money Market Fund.
EXCHANGE PRIVILEGE - RETAIL SHARES AND SHARES OF THE INSTITUTIONAL GOVERNMENT
MONEY MARKET FUND
The minimum initial investment to establish a new account in another
eligible fund by exchange, except for the Institutional Government Money Market
Fund, is $2,500, unless, with respect to Retail Shares, (i) the Retail Shares
being redeemed were purchased through a registered representative who is a Fleet
Bank employee, in which event there is no minimum investment requirement, or
(ii) at the time of the exchange the investor elects, with respect to the Fund
into which the exchange is being made, to participate in the Automatic
Investment Program described below, in which event there is no minimum initial
investment requirement, or in the College Investment Program described below, in
which event the minimum initial investment is generally $100. The minimum
initial investment to establish an account by exchange in the Institutional
Government Money Market Fund is $2 million.
An exchange involves a redemption of all or a portion of Retail Shares or
Shares and the investment of the redemption proceeds in shares of another Fund
or portfolio offered by Galaxy or, with respect to Retail A Shares, otherwise
advised by Fleet or its affiliates. The redemption will be made at the per share
net asset value next determined after the exchange request is received. The
shares of a Fund or portfolio to be acquired will be purchased at the net asset
value per share next determined after acceptance of the exchange request, plus
any applicable sales charge.
Investors may find the exchange privilege useful if their investment
objectives or market outlook should change after they invest in any of the
Funds. For further information regarding Galaxy's exchange privilege,
investors should call PFPC Inc. ("PFPC"), Galaxy's administrator, at
1-877-BUY-GALAXY (1-877-289-4252). Customers of institutions should call
their institution for such information. Investors exercising the exchange
privilege into other portfolios should request and review the prospectuses
for these portfolios prior to making an exchange. Telephone 1-877-BUY-GALAXY
(1-877-289-4252) for a prospectus or to make an exchange.
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
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shareholders has requested and the time period over which their exchange
requests have been made, together with the level of expense to Galaxy which will
result from effecting additional exchange requests. The exchange privilege may
be modified or terminated at any time. At least 60 days' notice of any material
modification or termination will be given to shareholders except where notice is
not required under the regulations of the SEC.
For federal income tax purposes, an exchange of shares is a taxable event
and, accordingly, a capital gain or loss may be realized by an investor. Before
making an exchange request, an investor should consult a tax or other financial
adviser to determine the tax consequences.
RETIREMENT PLANS - RETAIL SHARES
Retail Shares of the Funds, other than the Tax-Exempt Money Market Funds,
are available for purchase in connection with the following tax-deferred
prototype retirement plans:
INDIVIDUAL RETIREMENT ACCOUNTS ("IRAS") (including traditional, Roth and
Education IRAs and "rollovers" from existing retirement plans), a retirement
savings vehicle for qualifying individuals. The minimum initial investment for
an IRA account is $500 (including a spousal account).
SIMPLIFIED EMPLOYEE PENSION PLANS ("SEPS"), a form of retirement plan for
sole proprietors, partnerships and corporations. The minimum initial investment
for a SEP account is $500.
MULTI-EMPLOYEE RETIREMENT PLANS ("MERPS"), a retirement vehicle
established by employers for their employees which is qualified under Sections
401(k) and 403(b) of the Code. The minimum initial investment for a MERP is
$500.
KEOGH PLANS, a retirement vehicle for self-employed individuals. The
minimum initial investment for a Keogh Plan is $500.
Investors purchasing Retail Shares pursuant to a retirement plan are not
subject to the minimum investment provisions described in the applicable
Prospectus. Detailed information concerning eligibility, service fees and other
matters related to these plans, and the form of application, is available from
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 SHARES
The Automatic Investment Program permits an investor to purchase Retail
Shares of a Fund each month or each quarter. Provided an investor's financial
institution allows automatic withdrawals, Retail Shares are purchased by
transferring funds from the investor's checking, bank money market, NOW or
savings account designated by the investor. The account
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<PAGE>
designated will be debited in the specified amount and Retail Shares will be
purchased on a monthly or quarterly basis, on any Business Day designated by the
investor. If the designated day falls on a weekend or holiday, the purchase will
be made on the Business Day closest to the designated day. Only an account
maintained at a domestic financial institution which is an Automated Clearing
House ("ACH") member may be so designated.
The Systematic Withdrawal Plan permits an investor to automatically
redeem Retail Shares on a monthly, quarterly, semi-annual, or annual basis on
any Business Day designated by the investor. If the designated day falls on a
weekend or holiday, the redemption will be made on the Business Day closest to
the designated day. Proceeds of the redemption will be sent to the shareholder's
address of record or financial institution within three Business Days of the
redemption. If redemptions exceed purchases and dividends, the number of shares
in the account will be reduced. Investors may terminate the Systematic
Withdrawal Plan at any time upon written notice to Galaxy's transfer agent (but
not less than five days before a payment date). No contingent deferred sales
charge will be assessed on redemptions of Retail B Shares of the Money Market
Fund made through the Systematic Withdrawal Plan that do not exceed 12% of an
account's net asset value on an annualized basis. For example, monthly,
quarterly and semi-annual Systematic Withdrawal Plan redemptions of Retail B
Shares will not be subject to the contingent deferred sales charge if they do
not exceed 1%, 3% and 6%, respectively, of an account's net asset value on the
redemption date. Systematic Withdrawal Plan redemptions of Retail B Shares in
excess of this limit are still subject to the applicable contingent deferred
sales charge.
COLLEGE INVESTMENT PROGRAM - RETAIL SHARES
Galaxy reserves the right to redeem accounts participating in the College
Investment Program involuntarily, upon 60 days' written notice, if the account's
net asset value falls below the applicable minimum initial investment as a
result of redemptions. Investors participating in the College Investment Program
will receive consolidated monthly statements of their accounts. Detailed
information concerning College Investment Program accounts and applications may
be obtained from PDI (call 1-877-BUY-GALAXY (1-877-289-4252)).
CHECKWRITING - RETAIL SHARES
Checkwriting is available for investors in Retail Shares. A charge for
use of the checkwriting privilege may be imposed by Galaxy. There is no limit to
the number of checks an investor may write per month in an amount per check of
$250 or more. To obtain checks, an investor must complete the signature card
that accompanies the account application. To establish this checkwriting service
after opening an account in a Fund, investors must contact PDI by telephone
(1-877-BUY-GALAXY (1-877-289-4252)) or mail to obtain a signature card. A
signature guarantee may be required. An investor will receive the daily
dividends declared on the Retail Shares to be redeemed up to the day that a
check is presented to Galaxy's custodian for payment. Upon 30 days' written
notice to investors, the checkwriting privilege may be modified or terminated.
An account in a Fund may not be closed by writing a check.
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<PAGE>
DIRECT DEPOSIT PROGRAM - RETAIL SHARES
Death or legal incapacity will terminate an investor's participation in
the Direct Deposit Program. An investor may elect at any time to terminate his
or her participation by notifying in writing the Social Security Administration.
Further, Galaxy may terminate an investor's participation upon 30 days' notice
to the investor.
TAXES
Each Fund qualified during its last taxable year and intends to continue
to qualify as a regulated investment company under Subchapter M of the Code, and
to distribute out its income to shareholders each year, so that each Fund itself
generally will be relieved of federal income and excise taxes. If a Fund were to
fail to so qualify: (1) the Fund would be taxed at regular corporate rates
without any deduction for distributions to shareholders; and (2) shareholders
would be taxed as if they received ordinary dividends, although corporate
shareholders could be eligible for the dividends received deduction.
A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to distribute with respect to each calendar year at least
98% of their ordinary taxable income and capital gain net income (excess of
capital gains over capital losses) for the one year period ending October 31 of
such calendar year. Each Fund intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and any capital gain net income
prior to the end of each calendar year to avoid liability for this excise tax.
The Funds will be required in certain cases to withhold and remit to the
United States Treasury 31% of taxable dividends or gross sale proceeds paid to
any shareholder who (i) has failed to provide a correct tax identification
number, (ii) is subject to withholding by the Internal Revenue Service for
failure to properly include on his or her return payments of taxable interest or
dividends, or (iii) has failed to certify to the Funds that he or she is not
subject to back up withholding when required to do so or that he or she is an
"exempt recipient."
THE TAX-EXEMPT MONEY MARKET FUNDS. It is the policy of each Tax-Exempt
Money Market Fund to pay dividends with respect to each taxable year equal to at
least the sum of 90% 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.
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<PAGE>
An investment in a Tax-Exempt Money Market Fund is not intended to
constitute a balanced investment program. Shares of the Funds would not be
suitable for tax-exempt institutions and may not be suitable for retirement
plans qualified under Section 401 of the Code, H.R. 10 plans and individual
retirement accounts because such plans and accounts are generally tax-exempt
and, therefore, not only would the shareholder not gain any additional benefit
from the Funds' dividends being tax-exempt, but such dividends would be
ultimately taxable to the beneficiaries when distributed. In addition, the Funds
may not be an appropriate investment for entities which are "substantial users"
of facilities financed by "private activity bonds" or "related persons" thereof.
"Substantial user" is defined under U.S. Treasury Regulations to include a
non-exempt person who (i) regularly uses a part of such facilities in his or her
trade or business and whose gross revenues derived with respect to the
facilities financed by the issuance of bonds are more than 5% of the total
revenues derived by all users of such facilities, (ii) occupies more than 5% of
the usable area of such facilities or (iii) are persons for whom such facilities
or a part thereof were specifically constructed, reconstructed or acquired.
"Related persons" include certain related natural persons, affiliated
corporations, a partnership and its partners and an S corporation and its
shareholders.
In order for the Funds to pay exempt-interest dividends for any taxable
year, at the close of each taxable quarter, at least 50% of the aggregate value
of a Fund's portfolio must consist of exempt-interest obligations. Within 60
days after the close of its taxable year, each Fund will notify its shareholders
of the portion of the dividends paid by the Fund which constitutes
exempt-interest dividends with respect to such taxable year. However, the
aggregate amount of dividends so designated by a Fund cannot exceed the excess
of the amount of interest exempt from tax under Section 103 of the Code received
by the Fund over any amounts disallowed as deductions under Sections 265 and
171(a)(2) of the Code. The percentage of total dividends paid by a Fund with
respect to any taxable year that qualifies as federal exempt-interest dividends
will be the same for all shareholders receiving dividends from the Fund for such
year.
STATE AND LOCAL
Exempt-interest dividends and other distributions paid by the Tax-Exempt
Money Market Funds may be taxable to shareholders under state or local law as
dividend income, even though all or a portion of such distributions may be
derived from interest on tax-exempt obligations which, if realized directly,
would be exempt from such income taxes.
Dividends paid by the Connecticut Municipal Money Market Fund that
qualify as exempt-interest dividends for federal income tax purposes will not be
subject to the Connecticut personal income tax imposed on resident and
nonresident individuals, trusts and estates to the extent that they are derived
from Connecticut Municipal Securities (as defined above). Other Fund dividends
and distributions, whether received in cash or additional shares, are subject to
this tax, except that, in the case of shareholders who hold their shares as
capital assets, distributions treated as capital gain dividends for federal
income tax purposes are not subject to the tax to the extent that they are
derived from obligations issued by or on behalf of the State of
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<PAGE>
Connecticut, its political subdivisions, or public instrumentalities, state or
local authorities, districts or similar public entities created under
Connecticut law. Dividends and distributions paid by the Fund that constitute
items of tax preference for purposes of the federal alternative minimum tax,
other than any derived from Connecticut Municipal Securities, could cause
liability for the net Connecticut minimum tax applicable to investors subject to
the Connecticut personal income tax who are required to pay the federal
alternative minimum tax. Dividends paid by the Connecticut Municipal Money
Market Fund, including those that qualify as exempt-interest dividends for
federal income tax purposes, are taxable for purposes of the Connecticut
Corporation Business Tax; however, 70% (100% if the investor owns at least 20%
of the total voting power and value of the Fund's shares) of amounts that are
treated as dividends and not as exempt-interest dividends or capital gain
dividends for federal income tax purposes are deductible for purposes of this
tax, but no deduction is allowed for expenses related thereto. Shares of the
Fund are not subject to property taxation by Connecticut or its political
subdivisions.
Distributions by the Massachusetts Municipal Money Market Fund to its
shareholders are exempt from Massachusetts personal income taxation to the
extent they are derived from (and designated by the Fund as being derived from)
(i) interest on Massachusetts Municipal Securities, or (ii) capital gains
realized by the Fund from the sale of certain Massachusetts Municipal
Securities. Distributions from the Fund's other net investment income and
short-term capital gains will be taxable as ordinary income. Distributions from
the Fund's net long-term capital gains will be taxable as long-term capital
gains regardless of how long the shareholder has owned Fund shares. The tax
treatment of distributions is the same whether distributions are paid in cash or
in additional shares of the Fund. Distributions by the Fund to corporate
shareholders, including exempt-interest dividends, may be subject to
Massachusetts corporate excise tax.
With respect to the New York Municipal Money Market Fund, exempt-interest
dividends (as defined for federal income tax purposes), derived from interest on
New York Municipal Securities (as defined above) will be exempt from New York
State and New York City personal income taxes (but not corporate franchise
taxes), provided the interest on such obligations is and continues to be exempt
from applicable federal, New York State and New York City income taxes. To the
extent that investors are subject to state and local taxes outside of New York
State and New York City, dividends by the Fund may be taxable income for
purposes thereof. Dividends and distributions derived from income (including
capital gains on all New York Municipal Securities) other than interest on New
York Municipal Securities described above are not exempt from New York State and
New York City taxes. Interest or indebtedness incurred or continued by a
shareholder to purchase or carry shares of the Fund is not deductible for
federal, New York State or New York City personal income tax purposes.
The U.S. Treasury Fund is structured to provide shareholders, to the
extent permissible by federal and state law, with income that is exempt or
excluded from taxation at the state and local level. Many states, by statute,
judicial decision or administrative action, have taken the position that
dividends of a regulated investment company, such as the Fund, that are
attributable to interest on direct U.S. Treasury obligations or obligations of
certain U.S. Government
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<PAGE>
agencies, are the functional equivalent of interest from such obligations and
are, therefore, exempt from state and local income taxes. Shareholders should
consult their own tax advisers about the status of distributions from the Fund
in their own state.
Depending upon the extent of Galaxy's activities in states and localities
in which its offices are maintained, in which its agents or independent
contractors are located, or in which it is otherwise deemed to be conducting
business, each Fund may be subject to the tax laws of such states or localities.
In addition, in those states and localities that have income tax laws, the
treatment of a Fund and its shareholders under such laws may differ from their
treatment under federal income tax laws. Under state or local law, distributions
of net investment income may be taxable to shareholders as dividend income even
though a substantial portion of such distributions may be derived from interest
on U.S. Government obligations which, if realized directly, would be exempt from
such income taxes. Shareholders are advised to consult their tax advisers
concerning the application of state and local taxes.
MISCELLANEOUS
Shareholders will be advised at least annually as to the federal income
tax consequences of distributions made each year. Shareholders of the
Connecticut Municipal Money Market, Massachusetts Municipal Money Market and New
York Municipal Money Market Funds will also be advised as to the Connecticut
personal income tax, Massachusetts personal income tax and New York personal
income tax consequences, respectively, of distributions made each year.
TRUSTEES AND OFFICERS
The business and affairs of the Funds are managed under the direction of
Galaxy's Board of Trustees in accordance with the laws of the Commonwealth of
Massachusetts and the Trust's Declaration of Trust. The trustees and executive
officers of Galaxy, their addresses, principal occupations during the past five
years, and other affiliations are as follows:
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<PAGE>
<TABLE>
<CAPTION>
Positions Principal Occupation
with The During Past 5 Years
Name and Address Galaxy Fund and Other Affiliations
- ---------------- ----------- ----------------------
<S> <C> <C>
Dwight E. Vicks, Jr. Chairman & Trustee President & Director, Vicks Lithograph &
Vicks Lithograph & Printing Corporation (book manufacturing
Printing Corporation and commercial printing); Director, Utica
Commercial Drive Fire Insurance Company; Trustee, Savings
P.O. Box 270 Bank of Utica; Director, Monitor Life
Yorkville, NY 13495 Insurance Company; Director, Commercial
Age 66 Travelers Mutual Insurance Company;
Trustee, The Galaxy VIP Fund; Trustee,
Galaxy Fund II.
John T. O'Neill President, Executive Vice President and CFO, Hasbro,
Hasbro, Inc. Treasurer & Inc. (toy and game manufacturer); Trustee,
1011 Newport Avenue Trustee The Galaxy VIP Fund; Trustee, Galaxy Fund
Pawtucket, RI 02862 II.
Age 55
Louis DeThomasis Trustee President, Saint Mary's College of
Saint Mary's College Minnesota; Director, Bright Day Travel,
of Minnesota Inc.; Trustee, Religious Communities Trust;
Winona, MN 55987 Trustee, The Galaxy VIP Fund; Trustee,
Age 59 Galaxy Fund II.
Donald B. Miller Trustee Chairman, Horizon Media, Inc. (broadcast
10725 Quail Covey Road services); Director/Trustee, Lexington
Boynton Beach, FL 33436 Funds; Chairman, Executive Committee,
Age 74 Compton International, Inc. (advertising
agency); Trustee, Keuka College; Trustee,
The Galaxy VIP Fund; Trustee, Galaxy Fund
II.
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<PAGE>
<CAPTION>
Positions Principal Occupation
with The During Past 5 Years
Name and Address Galaxy Fund and Other Affiliations
- ---------------- ----------- ----------------------
<S> <C> <C>
James M. Seed Trustee Chairman and President, The Astra Projects,
The Astra Ventures, Inc. Incorporated (land development); President,
One Citizens Plaza The Astra Ventures, Incorporated
Providence, RI 02903 (previously, Buffinton Box Company -
Age 58 manufacturer of cardboard boxes);
Commissioner, Rhode Island Investment
Commission; Trustee, The Galaxy VIP Fund;
Trustee, Galaxy Fund II.
Bradford S. Wellman(1) Trustee Private Investor; Vice President and
2468 Ohio Street Director, Acadia Management Company
Bangor, ME 04401 (investment services); Director, Essex
Age 68 County Gas Company, until January 1994;
Director, Maine Mutual Fire Insurance Co.;
Member, Maine Finance Authority; Trustee,
The Galaxy VIP Fund; Trustee, Galaxy Fund
II.
W. Bruce McConnel, III Secretary Partner of the law firm Drinker Biddle &
One Logan Square Reath LLP, Philadelphia, Pennsylvania.
18th and Cherry Streets
Philadelphia, PA 19103
Age 57
Jylanne Dunne Vice President Vice President, PFPC Inc., 1990 to present.
PFPC Inc. and Assistant
4400 Computer Drive Treasurer
Westborough, MA 01581-5108
Age 40
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Positions Principal Occupation
with The During Past 5 Years
Name and Address Galaxy Fund and Other Affiliations
- ---------------- ----------- ----------------------
<S> <C> <C>
William Greilich Vice President Vice President, PFPC, Inc., 1991-96;
PFPC Inc. Vice President and Division
4400 Computer Drive Manager, PFPC Inc., 1996-present.
Westborough, MA 01581-5108
Age 46
</TABLE>
- -------------------------
1. May be deemed to be an "interested person" within the definition set
forth in Section 2(a)(19) of the 1940 Act.
Effective May 28, 1999, each trustee receives an annual aggregate fee of
$45,000 for his services as a trustee of Galaxy, The Galaxy VIP Fund ("Galaxy
VIP") and Galaxy Fund II ("Galaxy II") (collectively, the "Trusts"), plus an
additional $3,500 for each in-person Galaxy Board meeting attended and $1,500
for each in-person Galaxy VIP or Galaxy II Board meeting attended not held
concurrently with an in-person Galaxy meeting, and is reimbursed for expenses
incurred in attending all meetings. Each trustee also receives $750 for each
telephone Board meeting in which the trustee participates, $1,000 for each
in-person Board committee meeting attended and $500 for each telephone Board
committee meeting in which the trustee participates. The Chairman of the Boards
of the Trusts is entitled to an additional annual aggregate fee in the amount of
$4,000, and the President and Treasurer of the Trusts is entitled to an
additional annual aggregate fee of $2,500 for their services in these respective
capacities. The foregoing trustees' and officers' fees are allocated among the
portfolios of the Trusts based on their relative net assets. Prior to May 28,
1999, each Trustee was entitled to receive an annual aggregate fee of $40,000
for his services as a Trustee of the Trusts plus an additional $2,500 for each
in-person Galaxy Board meeting attended, with all other fees being the same as
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.
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<PAGE>
No employee of PFPC receives any compensation from Galaxy for acting
as an officer. No person who is an officer, director or employee of Fleet, or
any of its affiliates, serves as a trustee, officer or employee of Galaxy.
The trustees and officers of Galaxy own less than 1% of its outstanding
shares.
The following chart provides certain information about the fees received
by Galaxy's trustees in the most recently completed fiscal year.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Pension or
Retirement Total Compensation
Benefits Accrued from Galaxy and Fund
Aggregate Compensation as Part of Fund Complex Paid to
Name of Person/Position from Galaxy Expenses Trustees
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bradford S. Wellman $_______ None $_______
Trustee
- ------------------------------------------------------------------------------------------------------------
Dwight E. Vicks, Jr. $_______ None $_______
Chairman and Trustee
- ------------------------------------------------------------------------------------------------------------
Donald B. Miller** $_______ None $_______
Trustee
- ------------------------------------------------------------------------------------------------------------
Rev. Louis DeThomasis $_______ None $_______
Trustee
- ------------------------------------------------------------------------------------------------------------
John T. O'Neill $_______ None $_______
President, Treasurer
and Trustee
- ------------------------------------------------------------------------------------------------------------
James M. Seed** $_______ None $_______
Trustee
- ------------------------------------------------------------------------------------------------------------
</TABLE>
- -------------
* The "Fund Complex" consists of Galaxy, The Galaxy VIP Fund and Galaxy
Fund II, which comprised a total of 43 separate portfolios at the end of
the fiscal year.
** Deferred compensation (including interest) in the amounts of $______ and
$______ 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
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liability for the acts or obligations of Galaxy, and that every note, bond,
contract, order or other undertaking made by Galaxy shall contain a provision to
the effect that the shareholders are not personally liable thereunder. The
Declaration of Trust provides for indemnification out of the trust property of
any shareholder held personally liable solely by reason of his or her being or
having been a shareholder and not because of his or her acts or omissions
outside such capacity or some other reason. The Declaration of Trust also
provides that Galaxy shall, upon request, assume the defense of any claim made
against any shareholder for any act or obligation of Galaxy, and shall satisfy
any judgment thereon. Thus, the risk of shareholder liability is limited to
circumstances in which Galaxy itself would be unable to meet its obligations.
The Declaration of Trust states further that no trustee, officer or agent
of Galaxy shall be personally liable for or on account of any contract, debt,
claim, damage, judgment or decree arising out of or connected with the
administration or preservation of the trust estate or the conduct of any
business of Galaxy; nor shall any trustee be personally liable to any person for
any action or failure to act except by reason of his own bad faith, willful
misfeasance, gross negligence or reckless disregard of his duties as trustee.
The Declaration of Trust also provides that all persons having any claim against
the trustees or Galaxy shall look solely to the trust property for payment.
With the exceptions stated, the Declaration of Trust provides that a
trustee is entitled to be indemnified against all liabilities and expenses
reasonably incurred by him in connection with the defense or disposition of any
proceeding in which he may be involved or with which he may be threatened by
reason of his being or having been a trustee, and that the Board of Trustees
shall indemnify representatives and employees of Galaxy to the same extent to
which they themselves are entitled to indemnification.
INVESTMENT ADVISER
Fleet serves as investment adviser to the Funds. In its advisory
agreement, Fleet has agreed to provide investment advisory services to the Funds
as described in the Prospectuses. Fleet has also agreed to pay all expenses
incurred by it in connection with its activities under the advisory agreement
other than the cost of securities (including brokerage commissions) purchased
for the Funds. See "Expenses" below.
For the services provided and expenses assumed, Fleet is entitled to
receive advisory fees, computed daily and paid monthly, at the following annual
rates:
- - with respect to the Money Market, Government and Tax-Exempt Funds, .40% of
the average daily net assets of each Fund;
- - with respect to the U.S. Treasury, Connecticut Municipal Money Market,
Massachusetts Municipal Money Market and New York Municipal Money Market
Funds, .40% of the first $750,000,000 of average daily net assets of each
Fund plus .35% of the average daily net assets of each Fund in excess of
$750,000,000; and
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- - with respect to the Institutional Government Money Market Fund, .20% of the
average daily net assets of the Fund.
Fleet has advised Galaxy that, with respect to the Money Market,
Government and Tax-Exempt Funds, it intends to waive advisory fees payable to it
by each Fund in an amount equal to 0.05% of the average daily net assets of each
Fund to the extent that a Fund's net assets exceed $750,000,000.
During the last three fiscal years, Galaxy paid advisory fees (net of fee
waivers and/or expense reimbursements) to Fleet as set forth below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999(1) 1998 1997
- ---- ------- ---- ----
<S> <C> <C> <C>
Money Market........................................... $11,668,106 $9,458,596
Government............................................. $4,200,651 $4,214,959
U. S. Treasury......................................... $3,727,152 $3,439,391
Tax-Exempt............................................. $1,514,545 41,275,727
Institutional Government Money Market.................. $128,172 $350,902
Connecticut Municipal Money Market..................... $567,175 $497,713
Massachusetts Municipal Money Market................... $361,928 $251,050
</TABLE>
- ---------------
(1) As of the end of the fiscal year ended October 31, 1999, the New York
Municipal Money Market Fund had not yet commenced operations.
During the last three fiscal years, Fleet waived advisory fees as set
forth below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Money Market........................................... $1,238,301 $922,657
Government............................................. $171,522 $173,566
U. S. Treasury......................................... $ 0 $ 0
Tax-Exempt............................................. $ 0 $ 0
Institutional Government Money Market.................. $151,744 $350,901
Connecticut Municipal Money Market..................... $ 0 $ 0
Massachusetts Municipal Money Market................... $ 0 $ 0
</TABLE>
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<PAGE>
During the last three fiscal years, Fleet reimbursed expenses as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Money Market........................................... $ 0 $17
Government............................................. $ 0 $542
U. S. Treasury......................................... $ 0 $25,108
Tax-Exempt............................................. $ 0 $15,751
Institutional Government Money Market.................. $23,572 $18,206
Connecticut Municipal Money Market..................... $54,320 $62.664
Massachusetts Municipal Money Market................... $58,991 $54,862
</TABLE>
The advisory agreement provides that Fleet shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Funds in
connection with the performance of its duties under the advisory agreement,
except a loss resulting from a breach of fiduciary duty with respect to the
receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of Fleet in the
performance of its duties or from reckless disregard by it of its duties and
obligations thereunder. Unless sooner terminated, the advisory agreement will
continue in effect with respect to a particular Fund from year to year as long
as such continuance is approved at least annually (i) by the vote of a majority
of trustees who are not parties to such advisory agreement or interested persons
(as defined in the 1940 Act) of any such party, cast in person at a meeting
called for the purpose of voting on such approval; and (ii) by Galaxy's Board of
Trustees, or by a vote of a majority of the outstanding shares of such Fund. The
term "majority of the outstanding shares of such Fund" means, with respect to
approval of an advisory agreement, the vote of the lesser of (i) 67% or more of
the shares of the Fund present at a meeting, if the holders of more than 50% of
the outstanding shares of the Fund are present or represented by proxy, or (ii)
more than 50% of the outstanding shares of the Fund. The advisory agreement may
be terminated by Galaxy or by Fleet on sixty days' written notice, and will
terminate immediately in the event of its assignment.
Fleet is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, to the extent permitted
by law or order of the SEC, financial institutions that are affiliated with
Fleet or that have sold shares of the Funds, if Fleet believes that the quality
of the transaction and the commission are comparable to what they would be with
other qualified brokerage firms.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling or distributing securities such as shares of
the Funds, but such banking laws and regulations do not prohibit such a bank
holding company or its affiliates or banks generally from acting as investment
adviser, transfer agent, or custodian to such an investment company or from
purchasing shares of such a company as agent for and upon
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<PAGE>
the order of customers. Fleet, the custodian and institutions which agree to
provide shareholder support services that are banks or bank affiliates are
subject to such banking laws and regulations. Should legislative, judicial or
administrative action prohibit or restrict the activities of such companies in
connection with their services to the Funds, Galaxy might be required to alter
materially or discontinue its arrangements with such companies and change its
method of operation. It is anticipated, however, that any resulting change in
the Funds' method of operation would not affect a Fund's net asset value per
share or result in financial loss to any shareholder.
ADMINISTRATOR
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 Bank
Corp.
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 with an October 31 fiscal
year end, computed daily and paid monthly, at the following annual rates
effective September 10, 1998:
<TABLE>
<CAPTION>
COMBINED AVERAGE DAILY NET ASSETS ANNUAL RATE
--------------------------------- -----------
<S> <C>
Up to $2.5 billion.......................... 0.090%
From $2.5 to $5 billion..................... 0.085%
From $5 to $12 billion...................... 0.075%
From $12 to $15 billion..................... 0.065%
From $15 to $18 billion..................... 0.060%
Over $18 billion............................ 0.0575%
</TABLE>
Prior to September 10, 1998, Galaxy paid PFPC administration fees
based on the combined average daily net assets of the Funds and all other
portfolios offered by Galaxy at the following annual rates:
<TABLE>
<CAPTION>
COMBINED AVERAGE DAILY NET ASSETS ANNUAL RATE
--------------------------------- -----------
<S> <C>
Up to $2.5 billion.......................... 0.090%
From $2.5 to $5 billion..................... 0.085%
Over $5 billion............................. 0.075%
</TABLE>
In addition, 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 fee payable to it by the Funds. For the fiscal year ended
October 31, 1999 the Money Market, Government, Tax-Exempt, U.S. Treasury,
Connecticut Municipal Money Market and Massachusetts Municipal Money Market
Funds paid PFPC administration fees at the effective annual rate of _____% of
each Fund's average daily net assets, and the Institutional Government Money
Market Fund paid PFPC administration fees
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<PAGE>
(after fee waivers) at the effective annual rate of % of the Fund's
average daily net assets. During this same period, the New York Municipal
Money Market Fund had not yet commenced operations.
During the last three fiscal years, PFPC received administration fees
(net of fee waivers) as set forth below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999(2) 1998 1997
- ---- ------- ---- ----
<S> <C> <C> <C>
Money Market................................................. $2,596,354 $2,118,433
Government................................................... $879,555 $895,995
U. S. Treasury............................................... $770,823 $720,691
Tax-Exempt................................................... $304,716 $263,643
Institutional Government Money Market(1)..................... $74,925 $173,799
Connecticut Municipal Money Market........................... $124,998 $101,578
Massachusetts Municipal Money Market......................... $84,643 $51,212
</TABLE>
(1) For the fiscal years ended October 31, 1999, October 31, 1998 and October
31, 1997, PFPC waived administration fees of $________, $61,161 and
$142,012 respectively, with respect to the Institutional Government Money
Market Fund.
(2) As of the fiscal year ended October 31, 1999, the New York Municipal
Money Market Fund had not commenced operations.
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.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase Manhattan"), located at One Chase
Manhattan Plaza, New York, New York 10081, a wholly-owned subsidiary of The
Chase Manhattan Corporation, serves as the custodian of the Funds' assets
pursuant to a Global Custody Agreement.
Under the Global Custody Agreement, Chase Manhattan has agreed to: (i)
maintain a separate account or accounts in the name of each Fund; (ii) hold and
disburse portfolio securities on account of each Fund; (iii) collect and make
disbursements of money on behalf of each Fund; (iv) collect and receive all
income and other payments and distributions on account of each Fund's portfolio
securities; (v) respond to correspondence from security brokers and others
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<PAGE>
relating to its duties; and (vi) make periodic reports to the Board of Trustees
concerning the Funds' operations. Chase Manhattan is authorized to select one or
more banks or trust companies to serve as sub-custodian for the Funds, provided
that Chase Manhattan shall remain responsible for the performance of all of its
duties under the custodian agreement and shall be liable to the Funds for any
loss which shall occur as a result of the failure of a sub-custodian to exercise
reasonable care with respect to the safekeeping of the Funds' assets. The assets
of the Funds are held under bank custodianship in compliance with the 1940 Act.
PFPC, serves as the Funds' transfer and dividend disbursing agent,
pursuant to a Transfer Agency and Services Agreement (the "Transfer Agency
Agreement"). Communications to PFPC should be directed to PFPC at P.O. Box
5108, 4400 Computer Drive, Westborough, Massachusetts 01581. Under the
Transfer Agency Agreement, PFPC has agreed to: (i) issue and redeem shares of
each Fund; (ii) transmit all communications by each Fund to its shareholders
of record, including reports to shareholders, dividend and distribution
notices and proxy materials for meetings of shareholders; (iii) respond to
correspondence by security brokers and others relating to its duties; (iv)
maintain shareholder accounts; and (v) make periodic reports to the Board of
Trustees concerning Galaxy's operations.
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 Money Market, Government
and U.S. Treasury Funds held by defined contribution plans, including
maintaining records reflecting separately with respect to each plan
participant's sub-account all purchases and redemptions of Trust Shares and
the dollar value of Trust Shares in each sub-account; crediting to each
participant's sub-account all dividends and distributions with respect to
that sub-account; and transmitting to each participant a periodic statement
regarding the sub-account as well as any proxy materials, reports and other
material Fund communications. Such entities are compensated by PFPC for the
Sub-Account Services and in connection therewith the transfer agency fees
payable by Trust Shares of the Money Market, Government and U.S. Treasury
Funds to PFPC have been increased by an amount equal to these fees. In
substance, therefore, the holders of Trust Shares of these Funds indirectly
bear these fees.
Fleet Bank, an affiliate of Fleet, is paid a fee for Sub-Account
Services performed with respect to Trust Shares of the Money Market,
Government and U.S. Treasury Funds held by defined contribution plans.
Pursuant to an agreement between Fleet Bank and PFPC, Fleet Bank is paid
$21.00 per year for each defined contribution plan participant account. For
the fiscal year ended October 31, 1999, Fleet Bank received $___________ for
Sub-Account Services. PFPC bears this expense directly, and shareholders of
Trust Shares of the Funds, except the Tax-Exempt Fund, bear this expense
indirectly through fees paid to PFPC for transfer agency services.
-66-
<PAGE>
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
Debt securities purchased or sold by the Funds are generally traded in
the over-the-counter market on a net basis (i.e., without commission) through
dealers, or otherwise involve transactions directly with the issuer of an
instrument. The cost of securities purchased from underwriters includes an
underwriting commission or concession, and the prices at which securities are
purchased from and sold to dealers include a dealer's mark-up or mark-down.
Transactions in the over-the-counter market are generally principal
transactions with dealers and the costs of such transactions involve dealer
spreads rather than brokerage commissions. With respect to over-the-counter
transactions, Fleet will normally deal directly with the dealers who make a
market in the securities involved except in those circumstances where better
prices and execution are available elsewhere or as described below.
The Funds do not intend to seek profits from short-term trading. Their
annual portfolio turnover will be relatively high, but since brokerage
commissions are normally not paid on money market instruments, it should not
have a material effect on the net income of any of these Funds.
In purchasing or selling securities for the Funds, Fleet will seek to
obtain the best net price and the most favorable execution of orders. To the
extent that the execution and price offered by more than one broker/dealer are
comparable, Fleet may effect transactions in portfolio securities with
broker/dealers who provide research, advice or other services such as market
investment literature.
Except as permitted by the SEC or applicable law, the Funds will not
acquire portfolio securities from, make savings deposits in, enter into
repurchase or reverse repurchase agreements 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.
-67-
<PAGE>
Galaxy is required to identify any securities of its "regular brokers or
dealers" that the Funds have acquired during Galaxy's most recent fiscal year.
During the fiscal year ended October 31, 1999, [TO BE PROVIDED BY FIRST DATA]
Investment decisions for each Fund are made independently from those for
the other Funds and portfolios of Galaxy and for any other investment companies
and accounts advised or managed by Fleet. When a purchase or sale of the same
security is made at substantially the same time on behalf of a Fund, another
portfolio of Galaxy, and/or another investment company or account, the
transaction will be averaged as to price, and available investments allocated as
to amount, in a manner which Fleet believes to be equitable to the Fund and such
other portfolio, investment company or account. In some instances, this
investment procedure may adversely affect the price paid or received by a Fund
or the size of the position obtained or sold by such Fund. To the extent
permitted by law, Fleet may aggregate the securities to be sold or purchased for
a Fund with those to be sold or purchased for Galaxy's other Funds and
portfolios, or other investment companies or accounts in order to obtain best
execution.
SHAREHOLDER SERVICES PLAN -- RETAIL A SHARES
Galaxy has adopted a Shareholder Services Plan with respect to Retail
A Shares of each Fund that offers Retail A Shares pursuant to which Galaxy
intends to enter into servicing agreements with institutions (including Fleet
Bank and its affiliates). Pursuant to these servicing agreements,
institutions render certain administrative and support services to customers
who are the beneficial owners of Retail A Shares in consideration for payment
of up to .25% (on an annualized basis) of the average daily net asset value
of Retail A Shares of a Fund beneficially owned by such customers. Services
under the Shareholder Services Plan may include: aggregating and processing
purchase and redemption requests and placing net purchase and redemption
orders with PDI; processing dividend payments from a Fund; providing
customers with information as to their positions in Retail A Shares;
providing sub-accounting with respect to Retail A Shares or the information
necessary for sub-accounting; and providing periodic mailings to customers.
Such services are intended to supplement the services provided by PFPC as
administrator and transfer agent.
Although the Shareholder Services Plan has been approved with respect to
Retail A Shares of the Funds and Trust Shares of the Money Market, Government,
U.S. Treasury and Tax-Exempt Funds, as of the date of this Statement of
Additional Information, Galaxy intends to enter into servicing agreements under
the Shareholder Services Plan only with respect to Retail A Shares of each Fund,
and to limit the payment under these servicing agreements for each Fund to no
more than .10% (on an annualized basis) of the average daily net asset value of
the Retail A Shares of the Fund beneficially owned by customers of institutions.
Galaxy understands that institutions may charge fees to their customers who are
the beneficial owners of Retail A Shares in connection with their accounts with
such institutions. Any such fees would be in addition to any amounts which may
be received by an institution under the Shareholder Services Plan. Under the
terms of each servicing agreement entered into with Galaxy, institutions are
required to provide to their customers a schedule of any fees that they may
charge
-68-
<PAGE>
in connection with customer investments in Retail A Shares. As of October 31,
1999, Galaxy had entered into Servicing Agreements only with Fleet Bank and
affiliates.
Each Servicing Agreement between Galaxy and an institution relating to
the Shareholder Services Plan requires that, with respect to those Funds which
declare dividends on a daily basis, the institution agree to waive a portion of
the servicing fee payable to it under the Shareholder Services Plan to the
extent necessary to ensure that the fees required to be accrued with respect to
the Retail A Shares of such Funds on any day do not exceed the income to be
accrued to such Retail A Shares on that day.
During the last three fiscal years, Galaxy made payments to institutions
with respect to Retail A Shares of the Money Market, Government, U.S. Treasury,
Tax-Exempt, Connecticut Municipal Money Market and Massachusetts Municipal Money
Market Funds as shown in the table below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31:
FUND 1999(1) 1998 1997
- ---- ------- ---- ----
<S> <C> <C> <C>
Money Market................................................. $2,057,474 $1,430,359
Government................................................... $364,278 $346,517
U. S. Treasury............................................... $569,986 $507,400
Tax-Exempt................................................... $163,842 $133,048
Connecticut Municipal Money Market........................... $155,374 $111,361
Massachusetts Municipal Money Market......................... $105,230 $58,905
</TABLE>
- -------------------------
(1) As of the fiscal year ended October 31, 1999, the New York Municipal
Money Market Fund had not yet commenced operations.
Galaxy's Servicing Agreements are governed by the Shareholder Services
Plan that has been adopted by Galaxy's Board of Trustees in connection with the
offering of Retail A Shares of each Fund. Pursuant to the Shareholder Services
Plan, the Board of Trustees reviews, at least quarterly, a written report of the
amounts paid under the Servicing Agreements and the purposes for which the
expenditures were made. In addition, the arrangements with institutions must be
approved annually by a majority of Galaxy's trustees, including a majority of
the trustees who are not "interested persons" of Galaxy as defined in the 1940
Act and who have no direct or indirect financial interest in such arrangements
(the "Disinterested Trustees").
The Board of Trustees has approved Galaxy's arrangements with
institutions 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
institutions 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 institutions are in effect,
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<PAGE>
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 PLANS
RETAIL B SHARE PLAN
Galaxy has adopted a Distribution and Services Plan pursuant to Rule
12b-1 under the 1940 Act ( the "Rule") with respect to Retail B Shares of the
Money Market Fund (the "Retail B Share Plan"). Under the Retail B Share Plan,
Galaxy may pay (a) PDI or another person for expenses and activities intended to
result in the sale of Retail B Shares, including the payment of commissions to
broker-dealers and other industry professionals who sell Retail B Shares and the
direct or indirect cost of financing such payments, (b) institutions for
shareholder liaison services, which means personal services for holders of
Retail B Shares and/or the maintenance of shareholder accounts, such as
responding to customer inquiries and providing information on accounts, and (c)
institutions for administrative support services, which include but are not
limited to (i) transfer agent and sub-transfer agent services for beneficial
owners of Retail B Shares; (ii) aggregating and processing purchase and
redemption orders; (iii) providing beneficial owners with statements showing
their positions in Retail B Shares; (iv) processing dividend payments; (v)
providing sub-accounting services for Retail B Shares held beneficially; (vi)
forwarding shareholder communications, such as proxies, shareholder reports,
dividend and tax notices, and updating prospectuses to beneficial owners; and
(vii) receiving, translating and transmitting proxies executed by beneficial
owners.
Under the Retail B Share Plan, payments by Galaxy (i) for distribution
expenses may not exceed the annualized rate of .65% of the average daily net
assets attributable to the Money Market Fund's outstanding Retail B Shares, and
(ii) to an institution for shareholder liaison services and/or administrative
support services may not exceed the annual rates of .25% and .25%, respectively,
of the average daily net assets attributable to the Money Market Fund's
outstanding Retail B Shares which are owned of record or beneficially by that
institution's customers for whom the institution is the dealer of record or
shareholder of record or with whom it has a servicing relationship. As of the
date of this Statement of Additional Information, Galaxy intends to limit the
Money Market Fund's payments for shareholder liaison and administrative support
services under the Retail B Share Plan to an aggregate fee of not more than .10%
(on an annualized basis) of the average daily net asset value of Retail B Shares
owned of record or beneficially by customers of institutions.
During the last three fiscal years, Retail B Shares of the Money Market
Fund bore distribution fees and shareholder servicing fees under the Retail B
Share Plan as set forth in the table below:
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<PAGE>
<TABLE>
<CAPTION>
SHAREHOLDER
FOR THE FISCAL YEAR ENDED OCTOBER 31: DISTRIBUTION FEES SERVICES FEES
- ------------------------------------- ----------------- -------------
<S> <C> <C>
1999.............................................. $ $
1998.............................................. $4,377 $674
1997(1)........................................... $ $
</TABLE>
- ----------------------
(1) For the period March 6, 1997 (date of initial public offering of Retail B
Shares of the Galaxy Market Fund) through October 31, 1997.
During this period, all amounts paid under the Retail B Share Plan were
attributable to payments to broker-dealers.
PRIME SHARE PLAN
Galaxy has also adopted a Distribution and Services Plan pursuant to the
Rule with respect to Prime Shares of the Connecticut Municipal Money Market,
Massachusetts Municipal Money Market and New York Municipal Money Market Funds
(the "Prime Share Plan"). Under the Prime Share Plan, Galaxy may pay (i) PDI or
another person for distribution services provided and expenses assumed, and (ii)
broker-dealers, financial institutions, or other organizations for shareholder
administrative support services provided to holders of Prime Shares of the
Funds. Payments to PDI are to compensate it for distribution assistance and
expenses assumed and activities primarily intended to result in the sale of
shares, including compensating dealers and other sales personnel, direct
advertising and marketing expenses and expenses incurred in connection with
preparing printing, mailing and distributing or publishing advertisements and
sales literature, for printing and mailing Prospectuses and Statements of
Additional Information (except those used for regulatory purposes or for
distribution to existing shareholders), and costs associated with implementing
and operating the Prime Share Plan.
The servicing agreements adopted under the Prime Share Plan require the
organizations receiving such compensation to perform certain services, including
providing administrative services with respect to the beneficial owners of Prime
Shares of the Funds, such as establishing and maintaining accounts and records
for their customers who invest in such shares, assisting customers in processing
purchase, exchange and redemption requests and/or in changing dividend options
and account descriptions, developing, maintaining and supporting systems
necessary to support cash management services, such as sweep arrangements, and
responding to customer inquiries concerning their investments.
Under the Prime Share Plan, payments by Galaxy (i) for distribution
expenses may not exceed .75% (annualized) of the average daily net assets
attributable to each Fund's Prime Shares, and (ii) to a broker-dealer, financial
institution, or other organizations for shareholder administrative support
services may not exceed .25% (annualized) of the average daily net assets
attributable to each Fund's outstanding Prime Shares which are owned of record
or beneficially by that organization's customers for whom the organization 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
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<PAGE>
Additional Information, Galaxy intends to limit the payments under the Prime
Share Plan to an aggregate fee of not more than ____% (on an annualized basis)
of the average daily net assets of each Fund's Prime Shares. In addition, Fleet
may make payments for distribution assistance and for shareholder administrative
support services from its own resources, which may include the advisory fee paid
by each Fund.
RETAIL B SHARE PLAN AND PRIME SHARE PLAN
Payments for distribution expenses under the Retail B Share Plan and
Prime Share Plan (together the "12b-1 Plans") 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 Plans provide that reports of the amounts expended under the
12b-1 Plans, and the purposes for which such expenditures were incurred, will be
made to the Board of Trustees for its review at least quarterly. Each 12b-1 Plan
provides that it may not be amended to increase materially the costs which
Retail B Shares of the Money Market Fund and Prime Shares of the Connecticut
Municipal Money Market, Massachusetts Municipal Money Market and New York
Municipal Money Market Funds may bear for distribution pursuant to the 12b-1
Plans 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 Plans 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 Plans will benefit the Money Market, Connecticut
Municipal Money Market, Massachusetts Municipal Money Market and New York
Municipal Money Market Funds and holders of Retail B Shares and Prime Shares.
The 12b-1 Plans are subject to annual reapproval by a majority of the 12b-1
Trustees and are terminable at any time with respect to the Funds by a vote of a
majority of the 12b-1 Trustees or by vote of the holders of a majority of Retail
B Shares with respect to the Retail B Share Plan, or by vote of the holders of a
majority of Prime Shares with respect to the Prime Share Plan. Agreements
entered into pursuant to the 12b-1 Plans with a broker-dealer, financial
institution, or other organization are terminable with respect to the Funds
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 with respect to the
Retail B Share Plan, or by vote of the holders of a majority of Prime Shares
with respect to the Prime Share Plan, by PDI, or by the broker-dealer, financial
institution, or other organization. An agreement will also terminate
automatically in the event of its assignment.
As long as the 12b-1 Plans are 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.
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<PAGE>
DISTRIBUTOR
PDI serves as Galaxy's distributor. PDI is a registered broker-dealer
with principal offices located at Four Falls Corporate Center, 6th floor, West
Conshohocken, Pennsylvania 19428-2961. Jane Haegele is the sole shareholder of
PDI.
Unless otherwise terminated, the Distribution Agreement between Galaxy
and PDI remains in effect until November 30, 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.
PDI is entitled to the payment of contingent deferred sales charges
upon the redemption of Retail B Shares of the Money Market Fund. Prior to
December 1, 1999, First Data Distributors, Inc. ("FD Distributors"), a
wholly-owned subsidiary of PFPC, served as Galaxy's distributor and was
entitled to the payment of the contingent deferred sales charges upon the
redemption of Retail B Shares of the Money Market Fund. For the fiscal years
ended October 31, 1999 and October 31, 1998, and for the period March 6, 1997
(date of initial public offering) through October 31, 1997, FD Distributors
received contingent deferred sales charges of $____________, $12,243 and
$655, respectively, in connection with Retail B Share redemptions in the
Money Market Fund.
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<PAGE>
The following table shows all sales charges, commissions and other
compensation received by FD Distributors directly or indirectly from the Funds
during the fiscal year ended October 31, 1999*:
<TABLE>
<CAPTION>
Net Underwriting Compensation on Brokerage Commissions
Discounts and Redemption and in Connection with Other
Fund Commissions(1) Repurchase(2) Fund Transactions Compensation(3)
---- -------------- ------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Money Market $ $ $0 $
Government N/A N/A $0 $
Tax-Exempt N/A N/A $0 $
U.S. Treasury N/A N/A $0 $
Institutional N/A N/A $0 N/A
Government
Money Market
Connecticut N/A N/A $0 $
Municipal Money
Market
Massachusetts N/A N/A $0 $
Municipal Money
Market
</TABLE>
- ----------------
* The New York Municipal Money Market Fund was not in operation and the
Connecticut Municipal Money Market and Massachusetts Municipal Money
Market Funds did not offer Prime Shares during the fiscal year ended
October 31, 1999.
(1) Represents amounts received from commissions received in connection with
sales of Retail B Shares.
(2) Represents amounts received from contingent deferred sales charges on
Retail B Shares. The basis on which such sales charges are paid is
described in the Prospectus relating to Retail B Shares.
(3) Represents payments made under the Shareholder Services Plan and
Distribution and Services Plan for Retail B Shares during the fiscal year
ended October 31, 1999, which includes fees accrued in the fiscal year
ended October 31, 1998, which were paid in 1999 (see "Shareholder
Services Plan - Retail A Shares" and "Distribution and Services Plans -
Retail B Shares" above).
AUDITORS
[ ], independent auditors, with offices at
[ ], serve as auditors for Galaxy. The financial highlights
for the respective Funds included in their Prospectuses and the financial
statements for the Funds contained in Galaxy's Annual Reports to Shareholders
with respect to the Funds (the "Annual Reports") and [ ] into
this Statement of Additional Information for the fiscal year ended October
31, 1999 have been audited by [ ]. For the respective fiscal
years and periods prior to October 31, 1999, the financial highlights for the
Funds included
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<PAGE>
in the Prospectuses and the financial statements for such years and periods
contained in the Annual Reports were audited by [ ], Galaxy's
former auditors.
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 19103-6996, 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 Municipal Money Market Fund
concerning Connecticut taxes and the description of special considerations
relating to Connecticut Municipal Securities. The law firm of Ropes & Gray, One
International Place, Boston, Massachusetts 02110-2624, serves as special
Massachusetts counsel to Galaxy and has reviewed the portion of this Statement
of Additional Information and the Prospectuses with respect to the Massachusetts
Municipal Money Market Fund concerning Massachusetts taxes and the description
of special considerations relating to Massachusetts Municipal Securities. The
law firm of Willkie Farr and Gallagher, One Citicorp Center, 153 East 53rd
Street, New York, New York 10022, serves as special New York counsel to Galaxy
and has reviewed the portion of this Statement of Additional Information and the
Prospectuses with respect to the New York Municipal Money Market Fund concerning
New York taxes and the description of special considerations relating to New
York Municipal Securities.
PERFORMANCE AND YIELD INFORMATION
The standardized annualized seven-day yields for the Funds are computed
by: (1) determining the net change, exclusive of capital changes and income
other than investment income, in the value of a hypothetical pre-existing
account in a Fund having a balance of one share at the beginning of a seven-day
period, for which the yield is to be quoted, (2) dividing the net change in
account value by the value of the account at the beginning of the base period to
obtain the base period return, and (3) annualizing the results (i.e.,
multiplying the base period return by (365/7)). The net change in the value of
the account in each Fund includes the value of additional shares purchased with
dividends from the original share and dividends declared on both the original
share and any such additional shares, and all fees that are charged by a Fund to
all shareholder accounts in proportion to the length of the base period, other
than non-recurring account and sales charges. For any account fees that vary
with the size of the account, the amount of fees charged is computed with
respect to the Fund's mean (or median) account size. The capital changes to be
excluded from the calculation of the net change in account value are realized
gains and losses from the sale of securities and unrealized appreciation and
depreciation. The effective compound yield quotation for each Fund is computed
by adding 1 to the unannualized base period return (calculated as described
above), raising the sum to a power equal to 365 divided by 7, and subtracting 1
from the result.
In addition, the Tax-Exempt, Connecticut Municipal Money Market,
Massachusetts Municipal Money Market and New York Municipal Money Market Funds
may calculate a "tax
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<PAGE>
equivalent yield." The tax equivalent yield is computed by dividing that
portion of a Fund's yield which is tax-exempt by one minus a stated income
tax rate and adding the product to that portion, if any, of the Fund's
computed yield that is not tax-exempt. Tax equivalent yields assume the
payment of federal income taxes at a rate of 31%. Tax equivalent yields of
the Connecticut Municipal Money Market, Massachusetts Municipal Money Market
and New York Municipal Money Market Funds assume ___, ___% and ___% combined
federal and state tax rates, respectively, and indicate what each Fund would
have had to earn to equal its actual yield, assuming that income earned by a
Fund is 100% tax-exempt.
The current yields for the Funds may be obtained by calling PDI at
1-877-BUY-GALAXY (1-877-289-4252).
For the seven-day period ended October 31, 1999, the annualized yields
and effective yields for Retail A Shares of the Money Market, Government, U.S.
Treasury, Tax-Exempt, Connecticut Municipal Money Market, Massachusetts
Municipal Money Market and Institutional Government Money Market Funds, and the
tax-equivalent yield for Retail A Shares of the Tax-Exempt Fund, Connecticut
Municipal Money Market and Massachusetts Municipal Money Market Funds were as
set forth below:
<TABLE>
<CAPTION>
TAX-
ANNUALIZED EFFECTIVE EQUIVALENT
FUND YIELD YIELD YIELD
- ---- ----- ----- -----
<S> <C> <C> <C>
Money Market.................................................... % % *
Government...................................................... % % *
U. S. Treasury.................................................. % % *
Tax-Exempt...................................................... % % %
Institutional Government Money Market........................... % % *
Connecticut Municipal Money Market.............................. % % %
Massachusetts Municipal Money Market............................ % % %
New York Municipal Money Market................................. % % %
</TABLE>
- ----------------------
* Not applicable
As of October 31, 1999, the New York Municipal Money Market Fund had not
yet commenced operations.
-76-
<PAGE>
For the seven-day period ended October 31, 1999, the annualized yields
and effective yields for Trust Shares of the Money Market, Government, U.S.
Treasury and Tax-Exempt Funds, and the tax-equivalent yield for Trust Shares of
the Tax-Exempt Fund were as set forth below:
<TABLE>
<CAPTION>
TAX-
ANNUALIZED EFFECTIVE EQUIVALENT
FUND YIELD YIELD YIELD
- ---- ----- ----- -----
<S> <C> <C> <C>
Money Market % % *
Government % % *
U. S. Treasury % % *
Tax-Exempt % % %
</TABLE>
- ----------------------
* Not applicable
For the seven-day period ended October 31, 1999, the annualized yield and
effective yield for Retail B Shares of the Money Market Fund were ____% and
____%, respectively.
For the seven day period ended October 31, 1999, the annualized yield and
effective yield for Shares of the Institutional Government Money Market Fund
were ____% and _____%, respectively.
The U.S. Treasury Fund may calculate a "state flow through yield," which
shows the level of taxable yield needed to produce an after-tax yield equivalent
to a particular state's tax-exempt yield achieved by the Fund. The state flow
through yield refers to that portion of income that is derived from interest
income on direct obligations of the U.S. Government, its agencies or
instrumentalities and which qualifies for exemption from state taxes. The yield
calculation assumes that 100% of the interest income is exempt from state
personal income tax. A state flow through yield is computed by dividing that
portion of the Fund's yield which is tax-exempt by one minus a stated income tax
rate. Based on the foregoing calculation and assuming, for purposes of
illustration, state income tax rates of 3%, 7% and 11%, the state flow through
yields for the seven-day period ended October 31, 1999 for Retail A Shares and
Trust Shares of the U.S. Treasury Fund were as set forth below:
<TABLE>
<CAPTION>
SERIES 3% 7% 11%
- ------ -- -- ---
<S> <C> <C> <C>
Retail A Shares % % %
Trust Shares % % %
</TABLE>
Prime Shares of the Connecticut Municipal Money Market, Massachusetts
Municipal Money Market and New York Municipal Money Market Funds were not
offered prior to the date of this Statement of Additional Information.
TAX-EQUIVALENCY TABLES - CONNECTICUT MUNICIPAL MONEY MARKET, MASSACHUSETTS
MUNICIPAL MONEY MARKET AND NEW YORK MUNICIPAL MONEY MARKET FUNDS
The Connecticut Municipal Money Market, Massachusetts Municipal Money
Market and New York Municipal Money Market Funds may use tax-equivalency tables
in advertising and sales literature. The interest earned by the Municipal
Securities in the Funds' respective
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<PAGE>
portfolios generally remains free from federal regular income tax, and from the
regular personal income tax imposed by Connecticut, Massachusetts and New York.
Some portion of either Fund's income may, however, be subject to the federal
alternative minimum tax and state and local regular or alternative minimum
taxes. As the tables below indicate, "tax-free" investments may be attractive
choices for investors, particularly in times of narrow spreads between
"tax-free" and taxable yields.
The charts below are for illustrative purposes only and use tax
brackets that were in effect beginning January 1, 1999. These are not indicators
of past or future performance of the Connecticut Municipal Money Market,
Massachusetts Municipal Money Market and New York Municipal Money Market Funds.
Note: The maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent for each chart. Furthermore, additional
state and local taxes paid on comparable taxable investments were not used to
increase federal deductions. Moreover, the charts do not reflect the possible
effect of all items relating to the effective marginal tax rate, such as
alternative minimum tax, personal exemptions, tax credits, the phase-out of
exemptions or credits, itemized deductions (including the federal deduction for
state taxes paid) or the possible partial disallowance of deductions.
Connecticut Note: The charts below do not address taxable equivalent
yields applicable to married taxpayers filing separate returns or heads of
households.
Investors are urged to consult their own tax advisors as to these
matters.
TAXABLE YIELD EQUIVALENT FOR 1999
STATE OF CONNECTICUT
<TABLE>
<S> <C> <C> <C> <C> <C>
Federal Tax Bracket: 15.00% 28.00% 31.00% 36.00% 39.60%
Combined Federal and State: 19.50% 32.50% 35.50% 40.50% 44.10%
Joint Return: $1-43,050 $43,051-104,050 $104,051-158,550 $158,551-283,150 Over $283,150
Single Return: $1-25,750 $25,751-62,450 $62,451-130,250 $130,251-283,150 Over $283,150
Tax-Exempt Yield:
</TABLE>
Taxable Yield Equivalent
<TABLE>
<S> <C> <C> <C> <C> <C>
1.50% 1.86% 2.22% 2.33% 2.52% 2.68%
2.00% 2.48% 2.96% 3.10% 3.36% 3.58%
2.50% 3.11% 3.70% 3.88% 4.20% 4.47%
3.00% 3.73% 4.44% 4.65% 5.04% 5.37%
3.50% 4.35% 5.19% 5.43% 5.88% 6.26%
4.00% 4.97% 5.93% 6.20% 6.72% 7.16%
4.50% 5.59% 6.67% 6.98% 7.56% 8.05%
5.00% 6.21% 7.41% 7.75% 8.40% 8.94%
5.50% 6.83% 8.15% 8.53% 9.24% 9.84%
6.00% 7.45% 8.89% 9.30% 10.08% 10.73%
</TABLE>
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<PAGE>
TAXABLE YIELD EQUIVALENT FOR 1999
STATE OF MASSACHUSETTS
<TABLE>
<S> <C> <C> <C> <C> <C>
Federal Tax Bracket: 15.00% 28.00% 31.00% 36.00% 39.60%
Combined Federal and State: 20.95% 33.95% 36.95% 41.95% 45.55%
Joint Return: $1-43,050 $43,051-104,050 $104,051-158,550 $158,551-283,150 Over $283,151
Single Return: $1-25,750 $25,751-62,450 $62,451-130,250 $130,251-283,150 Over $283,151
Tax-Exempt Yield:
</TABLE>
Taxable Yield Equivalent
<TABLE>
<S> <C> <C> <C> <C> <C>
1.50% 1.90% 2.27% 2.38% 2.58% 2.75%
2.00% 2.53% 3.03% 3.17% 3.45% 3.67%
2.50% 3.16% 3.79% 3.97% 4.31% 4.59%
3.00% 3.80% 4.54% 4.76% 5.17% 5.51%
3.50% 4.43% 5.30% 5.55% 6.03% 6.43%
4.00% 5.06% 6.06% 6.34% 6.89% 7.35%
4.50% 5.69% 6.81% 7.14% 7.75% 8.26%
5.00% 6.33% 7.57% 7.93% 8.61% 9.18%
5.50% 6.96% 8.33% 8.72% 9.47% 10.10%
6.00% 7.59% 9.08% 9.52% 10.34% 11.02%
</TABLE>
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<PAGE>
NEW YORK STATE AND CITY: 1999
Equivalent yields: Tax-exempt
<TABLE>
<CAPTION>
State New York State New York State
Taxable Income* State City Federal and Federal City and Federal
Single City rate*** Rate Combined rate Effective Date Effective Rate**
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
0 - 8,000 3.05% 4% 7.04950% 15% 18.40% 20.99%
8,001 - 11,000 3.05% 4.5% 7.54950% 15% 18.83% 21.42%
11,001 - 12,000 3.05% 5.25% 8.29950% 15% 19.46% 22.05%
12,001 - 13,000 3.71% 5.25% 8.96355% 15% 19.46% 22.62%
13,001 - 20,000 3.71% 5.9% 9.61355% 15% 20.02% 23.17%
20,001 - 25,000 3.71% 6.85% 10.56355% 15% 20.82% 23.98%
25,001 - 25,750 3.77% 6.85% 10.62055% 15% 20.82% 24.03%
25,751 - 50,000 3.77% 6.85% 10.62055% 28% 32.93% 35.65%
50,001 - 61,450 3.83% 6.85% 10.62055% 28% 32.93% 35.69%
61,451 - 130,250 3.83% 6.85% 10.67755% 31% 35.73% 38.37%
130,251 - 283,150 3.83% 6.85% 10.67755% 36% 40.38% 42.83%
OVER 283,150 3.83% 6.85% 10.67755% 39.6% 43.74% 46.05%
---------------------------------------------------------------------------------------------------------
<CAPTION>
New York Tax Equivalent Yields:****
--------------------------------------------------------------------------------------
1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 5.0% 5.5% 6.0%
--------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
1.90% 2.53% 3.16% 3.80% 4.43% 5.06% 6.33% 6.96% 7.59%
1.91% 2.55% 3.18% 3.82% 4.45% 5.09% 6.36% 7.00% 7.64%
1.92% 2.57% 3.21% 3.85% 4.49% 5.13% 6.41% 7.06% 7.70%
1.94% 2.58% 3.23% 3.88% 4.52% 5.17% 6.46% 7.11% 7.75%
1.95% 2.60% 3.25% 3.90% 4.56% 5.21% 6.51% 7.16% 7.81%
1.97% 2.63% 3.29% 3.95% 4.60% 5.26% 6.58% 7.23% 7.89%
1.97% 2.63% 3.29% 3.95% 4.61% 5.27% 6.58% 7.24% 7.90%
2.33% 3.11% 3.88% 4.66% 5.44% 6.22% 7.77% 8.55% 9.32%
2.33% 3.11% 3.89% 4.66% 5.44% 6.22% 7.77% 8.55% 9.33%
2.43% 3.25% 4.06% 4.87% 5.68% 6.49% 8.11% 8.92% 9.74%
2.62% 3.50% 4.37% 5.25% 6.12% 7.00% 8.75% 9.62% 10.50%
2.78% 3.71% 4.63% 5.55% 6.49% 7.41% 9.27% 10.19% 11.12%
-------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
State New York State New York State
Taxable Income* State City Federal and Federal City and Federal
Single City rate*** Rate Combined rate Effective Date Effective Rate**
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
0 - 16,000 3.05% 4% 7.04950% 15% 18.40% 20.99%
16,001 - 21,600 3.05% 4.5% 7.54950% 15% 18.83% 21.42%
21,601 - 22,000 3.71% 4.5% 8.21355% 15% 18.83% 21.88%
22,001 - 26,000 3.71% 5.25% 8.96355% 15% 19.46% 22.62%
26,001 - 40,000 3.71% 5.9% 9.61355% 15% 20.02% 23.17%
40,001 - 43,050 3.71% 6.85% 10.56355% 15% 20.82% 23.98%
43,051 - 45,000 3.71% 6.85% 10.56355% 28% 32.93% 35.61%
45,001 - 90,000 3.77% 6.85% 10.62055% 28% 32.93% 35.65%
90,001 - 104,050 3.83% 6.85% 10.67755% 28% 32.93% 35.69%
104,051 - 158,550 3.83% 6.85% 10.67755% 31% 35.73% 38.37%
158,551 - 283,150 3.83% 6.85% 10.67755% 36% 40.38% 42.83%
OVER 283,150 3.83% 6.85% 10.67755% 39.6% 43.74% 46.05%
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
New York Tax Equivalent Yields:****
--------------------------------------------------------------------------------------
1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 5.0% 5.5% 6.0%
--------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
1.90% 2.53% 3.16% 3.80% 4.43% 5.06% 6.33% 6.96% 7.59%
1.91% 2.55% 3.18% 3.82% 4.45% 5.09% 6.36% 7.00% 7.64%
1.92% 2.56% 3.20% 3.85% 4.49% 5.13% 6.41% 7.05% 7.69%
1.94% 2.59% 3.23% 3.88% 4.52% 5.17% 6.46% 7.11% 7.75%
1.95% 2.60% 3.25% 3.90% 4.56% 5.21% 6.51% 7.16% 7.81%
1.97% 2.63% 3.29% 3.95% 4.60% 5.26% 6.58% 7.23% 7.89%
2.33% 3.11% 3.88% 4.66% 5.44% 6.21% 7.76% 8.54% 9.32%
2.33% 3.11% 3.88% 4.66% 5.44% 6.22% 7.77% 8.55% 9.32%
2.33% 3.11% 3.89% 4.66% 5.44% 6.22% 7.77% 8.55% 9.33%
2.43% 3.25% 4.06% 4.87% 5.68% 6.49% 8.11% 8.92% 9.74%
2.62% 3.50% 4.37% 5.25% 6.12% 7.00% 8.75% 9.62% 10.50%
2.78% 3.71% 4.63% 5.56% 6.49% 7.41% 9.27% 10.19% 11.12%
-------------------------------------------------------------------------------------
</TABLE>
* This amount represents taxable income as defined in the Internal
Revenue Code. It is assumed that taxable income as defined in the
Internal Revenue Code is the same as under the New York State or City
Personal Income Tax law; however, New York state or city taxable income
may differ due to differences in exemptions, itemized deductions, and
other items.
** For federal tax purposes, these combined rates reflect the applicable
marginal rates for 1998, including indexing for inflation. These rates
include the effect of deducting state and city taxes on your Federal
return. For New York purposes, these combined rates reflect the
expected New York State and New York City tax and surcharge rates for
1998.
*** The New York city rate is comprised of the tax base rate, city
surcharge, and the additional city surcharge for 1998.
**** These represent New York State, City, and Federal Equivalent Yields.
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<PAGE>
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to shareholders,
the yields of the Funds, as a measure of their performance, may be quoted and
compared to those of other mutual funds with similar investment objectives
and to other relevant indexes or to rankings prepared by independent services
or other financial or industry publications that monitor the performance of
mutual funds. For example, such data is reported in national financial
publications such as DONOGHUE'S MONEY FUND REPORT-Registered Trademark-, a
widely recognized independent publication that monitors the performance of
mutual funds. Also, the Funds' yield data may be reported in national
financial publications including, but not limited to, MONEY MAGAZINE, FORBES,
BARRON'S, THE WALL STREET JOURNAL, and THE NEW YORK TIMES, or in publications
of a local or regional nature. The performance of the Money Market,
Government, U.S. Treasury and Institutional Government Money Market Funds may
also be compared to the average yields reported by the BANK RATE MONITOR for
money market deposit accounts offered by the 50 leading banks and thrift
institutions in the top five standard metropolitan statistical areas. Yield
data will be calculated separately for Trust Shares, Retail A Shares and/or
Retail B Shares of the Money Market, Government, U.S. Treasury and Tax-Exempt
Funds and for Retail A Shares and Prime Shares of the Connecticut Municipal
Money Market, Massachusetts Municipal Money Market and New York Municipal
Money Market Funds.
The yield of a Fund refers to the income generated over a seven-day
period identified in the advertisement and is calculated as described above.
Each Fund may also advertise its "effective yield" which is calculated as
described above. The "effective yield" will be slightly higher because of the
compounding effect of the assumed reinvestment. Also, each Tax-Exempt Money
Market Fund may from time to time advertise a "tax-equivalent yield" to
demonstrate the level of taxable yield necessary to produce an after-tax yield
equivalent to that achieved by the Fund. The "tax-equivalent yield" is computed
as described above. The U.S. Treasury Fund may also advertise a "state flow
through yield," as discussed above.
The Funds' yields will fluctuate and any quotation of yield should not
be considered as representative of the future performance of the Funds. Since
yields fluctuate, yield data cannot necessarily be used to compare an investment
in a Fund's shares with bank deposits, savings accounts and similar investment
alternatives which often provide an agreed or guaranteed fixed yield for a
stated period of time. Shareholders should remember that performance is
generally a function of the kind and quality of the instruments held in a
portfolio, portfolio maturity, operating expenses, and market conditions. Any
fees charged directly by institutions to accounts of customers that have
invested in shares of a Fund will not be included in calculations of yield.
The portfolio managers of the Funds and other investment professionals
may from time to time discuss in advertising, sales literature or other
material, including periodic publications, various topics of interest to
shareholders and prospective investors. The topics may include but are not
limited to the advantages and disadvantages of investing in tax-deferred and
taxable investments; Fund performance and how such performance may compare to
various market indices; shareholder profiles and hypothetical investor
scenarios; the economy; the financial and capital markets; investment strategies
and techniques; investment products; and tax, retirement and investment
planning.
-81-
<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 November 30, 1999, the name, address and share ownership of the
entities or persons that held of record more than 5% of the outstanding Trust
Shares of each of Galaxy's investment portfolios (including shares of the
Institutional Government Money Market Fund) were as follows: Money Market Fund
- -- Fleet New York, Fleet Investment Services, 159 East Main Street, NY/RO/TO3C,
Rochester, NY 14638, Account 00000150286 (99.87%); Tax-Exempt Money Market Fund
- -- Fleet New York, Fleet Investment Services, 159 East Main Street, NY/RO/TO3C,
Rochester, NY 14638, Account 00000007717 (100.00%); Government Money Market Fund
- --Fleet New York, Fleet Investment Services, 159 East Main Street, NY/RO/TO3C,
Rochester, NY 14638, Account 00000012621 (98.58%); Equity Value Fund -- Gales &
Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000000064 (76.43%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000003204 (14.55%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000011551 (7.23%); Equity Growth Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000082 (70.31%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000010017 (15.31%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000030718 (14.04%); Equity Income Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000015771 (48.75%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000003748 (36.92%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000000037 (13.37%); International Equity Fund --Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000073 (42.99%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000000876 (39.29%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000004088 (14.13%); Growth and Income Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 05000503793 (76.73%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 05000503873 (19.78%); Asset Allocation Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000073 (93.27%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000002598 (5.98%); Small Company Equity -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000046 (66.04%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000001492 (24.41%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000006102 (7.33%); Institutional Treasury Money Market Fund -- Fleet
New York, Fleet Investment Services, 159 East Main Street, NY/RO/TO3C,
Rochester, NY 14638, Account 00000000019 (91.11%); Luitpold Pharmaceuticals
Inc., Kirk Sobecki, CFO, Attn: Harold Noviello, One Luitpold Drive, Shirley,
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NY 11967, Account 05100281441 (7.02%); Small Cap Value Fund -- Gales & Co.,
Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 05000503999 (48.74%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 05000503917 (31.01%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 05000503953 (19.77%); Strategic Equity Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 5100115522 (97.48%); Intermediate Government Income
Fund -- Gales & Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A,
159 East Main Street, Rochester, NY 14638, Account 00000038408 (38.48%); Gales &
Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000007183 (34.80%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000037 (26.20%); High Quality Bond Fund --
Gales & Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East
Main Street, Rochester, NY 14638, Account 00000000037 (62.76%); Gales & Co.,
Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000001465 (24.53%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000006095 (12.37%); Short-Term Bond Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000008627 (31.48%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000000064 (46.43%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000001090 (21.82%); Tax-Exempt Bond Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000005899 (34.38%) Gales & Co, Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000000028 (38.95%); Gales and Co., Fleet Investment Services,
Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000000670 (26.42%); Connecticut Municipal Bond Fund -- Gales & Co.,
Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000019 (74.69%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000000037 (24.84%); Massachusetts Municipal Bond Fund -- Gales
& Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000000019 (48.96%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000073 (49.06%); Corporate Bond Fund -- Gales
& Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main
Street, Rochester, NY 14638, Account 00000000046 (44.33%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000006102 (36.50%); Gales & Co., Fleet Investment
Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000001492 (12.65%); New Jersey Municipal Bond Fund -- Gales &
Co., Fleet Investment Services, Mutual Funds Unit - NY/RO/T04A, 159 East Main
Street, Rochester, NY 14638, Account 5100115489 (51.69%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 5100115504 (35.56%); BOB & Co., c/o Bank
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of Boston, Attn: Mutual Fund Dept. 45-02-06, P.O. Box 1809, Boston, MA 02105,
Account 5102076990 (12.74%); and New York Municipal Bond Fund -- Gales & Co.,
Fleet Investment Services, Mutual Funds Unit - NY/RO/TO4A, 159 East Main Street,
Rochester, NY 14638, Account 00000000019 (9.36%); Gales & Co., Fleet Investment
Services, Mutual Fund Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY
14638, Account 00000001107 (70.04%); Gales & Co., Fleet Investment Services,
Mutual Fund Unit - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638,
Account 00000005292 (14.85%); BOB & Co., c/o Bank of Boston, Attn: Mutual Fund
Dept. 45-02-06, P.O. Box 1809, Boston, MA 02105, Account 5102076990 (5.68%).
As of November 30, 1999, the name, address and share ownership of the
entities or persons that held of record more than 5% of the outstanding Retail A
Shares of each of Galaxy's investment portfolios (including shares of the
Connecticut Municipal Money Market and Massachusetts Municipal Money Market
Funds) were as follows: Tax-Exempt Money Market Fund -- Ellsworth Kelly, P.O.
Box 151, 45 South Street, Spencertown, NY 12165, Account 0000063825 (6.99%);
U.S. Treasury Money Market Fund -- US Clearing, a Division of Fleet Securities
Inc., 26 Broadway, New York, NY 10004, Account 05100115684 (10.40%);
Massachusetts Municipal Money Market Fund -- Fleet New York, Fleet Investment
Services, 159 East Main St., NY/RO/TO3C, Rochester, NY 14638, Account
05100058503 (61.34%); Connecticut Municipal Money Market Fund -- Fleet New York,
Fleet Investment Services, 159 East Main St., NY/RO/TO3C, Rochester, NY 14638,
Account 05100058521 (48.64%); William L. Bucknall & Norma Lee Bucknall, 5 Oak
Ridge Drive, Bethany, CT 06524, Account 0000002259 (5.16%); Rhode Island
Municipal Bond Fund --Gales & Co., Fleet Investment Services, Mutual Funds Unit
- - NY/RO/TO4A, 159 East Main Street, Rochester, NY 14638, Account 00000001492
(40.88%); James R. McCulloch, c/o Microfibre, PO Box 1208, Pawtucket, RI 02860,
Account 05000414933 (9.11%); New York Municipal Bond Fund -- Marilyn J.
Brantley, 5954 Van Allen Road, Belfast, NY 14711, Account 05100977627 (11.78%);
New Jersey Municipal Bond Fund -- Jeffery W. Golden, 7 Hampton Ridge CT, Old
Tappan, NJ 07675, Account 05100780704 (16.09%); John W. Maki & Kimberly McGrath
Maki JT, 1 Connet Lane, Mendham, NJ, 07945, Account 05100011377 (33.47%); US
Clearing Corp., FBO 979-06374-12, 26 Broadway, New York, NY 10004-1798, Account
07000100574 (27.89%); Serene W. Peng, 70 Chelsea, Watchung, NJ 07060, Account
5101583480 (17.19%); Tax-Exempt Bond Fund -- Danny Schulman, 9 Corn Mill Ct.,
Upper Saddle River, NJ 07458, Account 510116598 (6.11%); and Massachusetts
Municipal Bond Fund -- New England Realty Assoc., Robert Blank, Ronald Brown,
Harold Brown and Carl Veleri, 39 Brighton Ave., Boston MA 02134, Account
5100587013 (6.59%).
As of November 30, 1999, the name, address and share ownership of the
entities or persons that held of record more than 5% of the outstanding Retail B
Shares of each of Galaxy's investment portfolios were as follows: Money Market
Fund -- Worldmark Master Fund, LLC, D. Dean Rhodes auth. officer or Richard J.
Gates (investment adviser), 11466 Old Harber Road, N. Palm Beach, FL 33408,
Account 5102031823 (18.24%); Worldmark Master Fund, LLC, D. Dean Rhodes auth.
officer or Richard J. Gates (investment adviser) 11465 Old Harbor Road, N. Palm
Beach, FL 33408, Account 5102074064 (20.78%); Intermediate Government Income
Fund; Adriana Vita, 345 Park Avenue, New York, NY 10154, Account 05101563377
(8.84%); Short-Term Bond Fund -- Elizabeth Mugar, 10 Chestnut St., Apt. 1808,
Springfield, MA 01103,
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Account 5100760012 (7.15%); Chelsea Police Relief Assoc., John R. Phillips,
Treasurer, and Michael McCona, Clerk, 180 Crescent Avenue, Chelsea, MA 02150,
Account 0970036155 (13.23%); Josve Colon, Cust., Hazel Colon UGMA CT, 400
LaSalle Street, New Britain, CT 06051, Account 5101157039 (7.37%); U.S. Clearing
Corp., FBO 978-02086-18, Eugene J. Margaret Dunscomb, 505 Apple Tree Lane,
Brewster, NY 10509-6004, Account 70000100609 (7.09%); Tax-Exempt Bond Fund --
David Fendler & Sylvia Fendler JT WROS, 72 Brinkerhoff Ave., Stamford, CT 06905,
Account 05100255354 (7.48%); Frances E. Stady, P.O. Box 433, 3176 Main Street,
Yorkshire, NY 14173, Account 05102027437 (5.84%); and Strategic Equity Fund --
Betsey Tan, 7 Donovan's Lane, Natick, MA 01760, Account 05101043778 (7.41%).
As of November 30, 1999, the name, address and share ownership of the
entities or persons that held beneficially more than 5% of the outstanding
Trust Shares of each of Galaxy's investment portfolios were as follows: Money
Market Fund--Stable Asset Fund, c/o Norstar Trust Co., Gales & Co., 159 East
Main Street, Rochester, NY 14638, (12.05%); Hope-Sayles Trust, c/o Norstar
Trust Co., Gales & Co., 159 East Main Street, Rochester, NY 14638, (10.65%);
Government Money Fund -- AMS Trust Account, c/o Norstar Trust Co., Gales &
Co., 159 East Main Street, Rochester, NY 14638, (9.76%); Beacon Mutual
Insurance Co., c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester,
NY 14638 (6.33%); U.S. Treasury Money Fund -- Loring Walcott Client Sweep
Acct., c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY
14638, (23.17%); Equity Value Fund--Fleet Savings Plus-Equity Value, c/o
Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638, (24.21%);
Equity Growth Fund--Fleet Savings Plus-Equity Growth, c/o Norstar Trust Co.,
Gales & Co., 159 East Main, Rochester, NY 14638, (23.54%); Nusco Retiree
Health VEBA Trust, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638, (6.82%); International Equity Fund--FFG International
Equity Fund, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY
14638, (12.68%); Fleet Savings Plus-Intl. Equity, c/o Norstar Trust Co.,
Gales & Co., 159 East Main, Rochester, NY 14638, (9.82%); Intermediate
Government Income Fund -- Nusco Retiree Health VEBA Trust, c/o Norstar Trust
Co., Gales & Co., 159 East Main, Rochester, NY 14638 (6.44%); Strategic
Equity Fund--FFG Retirement & Pension VDG, c/o Fleet Financial Group, 159
East Main, Rochester, NY 14638, (93.39%); High Quality Bond Fund--Fleet
Savings Plus Plan-HQ Bond, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638 (19.60%); Asset Allocation Fund--Fleet Savings Plus-Asset
Allocation, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY
14638, (26.52%); Small Company Equity Fund--Fleet Savings Plus-Small Company,
c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638,
(33.58%); Tax Exempt Bond Fund -- Nusco Retiree Health VEBA Trust, c/o
Norstar Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638, (37.64%);
Corporate Bond Fund--Cole Hersee Pension Plan, c/o Norstar Trust Co., Gales &
Co., 159 East Main, Rochester, NY 14638, (8.40%); Growth Income Fund--Fleet
Savings Plus-Growth Income, c/o Norstar Trust Co., Gales & Co., 159 East
Main, Rochester, NY 14638, (43.81%); Crumpton & Knowles IARP, c/o Norstar
Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638 (10.11%); Small
Cap Value Fund--FFG Emp. Ret. Misc. Assets SNC, c/o Norstar Trust Co., Gales
& Co., 159 East Main, Rochester, NY 14638, (25.16%); Institutional Government
Fund --IBEW Local #99 Annuity, c/o Norstar Trust Co., Gales & Co., 159 East
Main Street, Rochester, NY 14638 (5.26%); New Jersey Municipal Bond
Fund--Perillo Tours, c/o Norstar Trust Co., Gales & Co., 159 East Main,
Rochester, NY 14638, (22.47%); Royal Chambord IMA, c/o Norstar Trust Co.,
Gales & Co., 159 East Main, Rochester, NY, 14638, (11.24%); McKee Wendell A.
Marital Trust, c/o Norstar Trust Co., Gales & Co., 159 East Main, Rochester,
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NY 14638, (11.16%); Varco Inc. IMA, c/o Norstar Trust Co., Gales & Co., 159
East Main, Rochester, NY 14638, (5.62%); and Tiernan Diana V IA, c/o Norstar
Trust Co., Gales & Co., 159 East Main, Rochester, NY 14638, (5.10%).
As of November 30, 1999, the name, address and share ownership of the
entities or persons that held of record or beneficially more than 5% of the
outstanding A Prime Shares of Galaxy's Asset Allocation, Equity Income, Growth
and Income, Strategic Equity, Equity Value, Equity Growth, International Equity,
Small Cap Value, Small Company Equity, Short-Term Bond, Intermediate Government
Income, High Quality Bond and Tax-Exempt Bond Funds were as follows: Asset
Allocation Fund--U.S. Clearing, A Division of Fleet Securities, Inc., FBO
#147-97697-11, Ray Wayne Prince, 11010 Stephens Road, Berlin Heights, OH
44814-9673 (18.52%); U.S. Clearing, A Division of Fleet Securities, Inc., FBO
#135-29801-11, Joseph P. Quinn & Genevieve H. Quinn Trust, 725 N. Riverside
Drive, Apt. 405, Pompano Beach, FL 33062-4536 (12.47%); U.S. Clearing, A
Division of Fleet Securities, Inc., FBO #175-97327-10, Margaret Ann Gillenwater,
2525 E. Prince Road #23, Tucson, AZ 85716-1146 (11.92%); U.S. Clearing, A
Division of Fleet Securities, Inc., FBO #114-97238-17, Sara Mallow, 936
Broadway, New York, NY 10010-6013 (25.26%); U.S. Clearing, A Division of Fleet
Securities, Inc., FBO #166-88586-13, Pamela Ann Radamaker, 1001 Tramway Blvd.
NE, Albuquerque, NM 87112-6280 (10.72%); U.S. Clearing, A Division of Fleet
Securities, Inc., FBO #114-23817-12, John R. Johnson, P.O. Box 4338, Deerfield
Beach, FL 33442-4338 (8.31%); Growth and Income Fund--U.S. Clearing, A Division
of Fleet Securities Inc., FBO #160-27022-17, Linda Shaw, Trustee for the Linda
J. Shaw Trust, 920 Meadows Road, Geneva, IL 60134-3052 (34.66%); U.S. Clearing,
A Division of Fleet Securities Inc., FBO #113-27816-16, Pamela M. Fein, 68 Oak
Ridge Drive, Bethany, CT 06524-3118 (29.85%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO #175-97327-10, Margaret Ann Gillenwater, 2525 E. Prince
Road #23, Tucson, AZ 85716-1146 (23.43%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO #103-80080-19, Saint Clare School Endowment Fund, Attn: Fr.
O'Shea/Andrew J. Houvouras and/or Bruce Blatman, 821 Prosperity Farms Road, No.
Palm Beach, FL 33408-4299 (6.09%); Equity Growth Fund--U.S. Clearing, A Division
of Fleet Securities Inc., FBO #104-32732-16, Hilda Brandt, 3900 North Charles
Street, Baltimore, MD 21218-1724 (50.91%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO #114-97236-17, Sara Mallow, 936 Broadway, New York, NY
10010-6013 (26.57%); U.S. Clearing, A Division of Fleet Securities Inc., FBO
#120-97689-18, Yook Y. Doo, 4634 Robinson St., Flushing, NY 11355-3445 (8.84%);
U.S. Clearing, A Division of Fleet Securities Inc., FBO #021-90471-15, Mabel L.
Bowman, 35634 Meyers Ct., Fremont, CA 84536-2540 (7.00%); U.S. Clearing, A
Division of Fleet Securities Inc., FBO #143-27206-11, Mary V. Mastroianni &
Pasqual Mastroianni JT Ten, 1811 Randolph Road, Schenectady, NY 12308-2021
(5.44%); International Equity Fund--U.S. Clearing, A Division of Fleet
Securities Inc., FBO #125-98055-11, Albert F. Twanmo, 6508 81st St., Cabin John,
MD 20818-1203 (94.66%); Small Cap Value Fund U.S. Clearing, A Division of Fleet
Securities Inc., FBO # 104-32732-16, Hilda Brandt, 3900 North Charles Street,
Baltimore, MD 21218-1724 (26.87%); U.S. Clearing, A Division of Fleet Securities
Inc., FBO # 150-98301-11, N. Clifford Nelson Jr., 58 Middlebury Road, Orchard
Park, NY 14127-3581 (16.93%); U.S. Clearing, A Division of Fleet Securities
Inc., FBO # 102-60254-19, Frederick W. Geissinger, 601 NW 2nd Street,
Evansville, IN 47708-1013 (16.81%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO # 103-97564-14, Thomas X. McKenna, 170 Turtle Creek Drive,
Tequesta, FL 33469-1547 (12.55%); U.S. Clearing, A Division of Fleet Securities
Inc., FBO # 103-31296-18, Edward U.
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Roddy III, 109 Angler Avenue, Palm Beach, FL 33480-3101 (8.27%); U.S. Clearing,
A Division of Fleet Securities Inc., FBO # 180-24606-24, Gary R. Plemons, P.O.
Box 190, Madisonville, TN 37354-0190 (5.56%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO # 165-26664-29, Special Risk Underwriters, P.O. Box 54699,
Phoenix, AZ 85078-4699 (5.31%); High Quality Bond Fund - U.S. Clearing, A
Division of Fleet Securities Inc., FBO # 103-30971-12, Doris G. Schack, FBO #
103-30971-12, Doris G. Schack Living Trust, 9161 East Evans, Scottsdale, AZ
85260-7575 (72.18%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #
013-02964-11, Jane L. Grayhurst, 770 Boylston St., Apt. 10G, Boston, MA
02199-7709 (15.46%); U.S. Clearing, A Division of Fleet Securities, Inc., FBO
#132-90090-11, Virginia Holmes, 303 Bella Vista Drive, Ithaca, NY 14850-5774
(12.10%).
As of November 30, 1999, the name, address and share ownership of the
entities or persons that held of record or beneficially more than 5% of the
outstanding B Prime Shares of Galaxy's Asset Allocation, Equity Income, Growth
and Income, Strategic Equity, Equity Value, Equity Growth, International Equity,
Small Cap Value, Small Company Equity, Short-Term Bond, Intermediate Government
Income, High Quality Bond and Tax-Exempt Bond Funds were as follows: Asset
Allocation Fund -- U.S. Clearing, A Division of Fleet Securities Inc., FBO #
138-97818-14, Carol Y. Foster, 524 Marie Ave., Blountstown, FL 32424-1218
(10.07%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #
102-92974-11, Ann E. Herzog, 74 Tacoma St., Staten Island, NY 10304-4222
(9.61%); U.S. Clearing, A Division of Fleet Securities Inc., FBO # 166-98559-16,
Ann P. Sargent, 422 Los Encinos Ave., San Jose, CA 95134-1336 (6.40%); U.S.
Clearing, A Division of Fleet Securities Inc., FBO # 166-97970-19, Alicia E.
Schober, 10139 Ridgeway Drive, Cupertino, CA 95014-2658 (6.22%); U.S. Clearing,
A Division of Fleet Securities Inc., FBO # 19414889-16, Paul R. Thornton & Karin
Z. Thornton, JT TEN, 1207 Oak Glen Lane, Sugar Land, TX 77479-6175 (5.70%); U.S.
Clearing, A Division of Fleet Securities, Inc., FBO #147-29049-19, Randall
Prince, Rt. 1, Box 865, Turtletown, TN 37391-9700 (6.06%); Growth and Income
Fund - U.S. Clearing, A Division of Fleet Securities Inc., FBO # 147-97497-13,
Martin Allen Sante, 15222 Birch Lakeshore Drive, Vandalia, MI 49095-9741
(27.18%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #103-31744-16,
Irwin Luftig & Elaine Luftig, 6119 Bear Creek Ct., Lake Worth, FL 33467-6812
(19.02%); Linda M. Berke & Michael E. Berke, JT WROS, 30941 Westwood Rd.,
Farmington Hills, MI 48331-1466 (15.25%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO # 147-29019-15, Walter W. Quan, 2617 Skyline Drive, Lorain,
OH 44053-2243 (14.87%); U.S. Clearing, A Division of Fleet Securities Inc., FBO
#014-90365-19, Peter Burr Bickford, 65 A Lazell St., Hingham, MA 02043-4403
(7.44%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #108-00116-10,
Michael Kennedy & Carleen Kennedy, JT WROS, 12 Walton Avenue, Locust Valley, NY
11560-1227 (5.48%); Equity Growth Fund - U.S. Clearing, A Division of Fleet
Securities Inc., FBO # 111-98315-17, Thomas J. Bernfeld, 185 West End Ave., Apt.
21D, New York, NY 10023-5548 (29.52%); U.S. Clearing, A Division of Fleet
Securities Inc., FBO # 166-31108-13, Frank Catanho, Trustee of the Frank Catanho
1996 Trust dated 10/22/96, 24297 Mission Blvd., Hayward, CA 94544-1020 (19.07%);
U.S. Clearing, A Division of Fleet Securities Inc., FBO # 183-97247-11, W.P.
Fleming, 66500 E. 253rd, Grove, OK 74344-6163 (8.77%); U.S. Clearing, A Division
of Fleet Securities Inc., FBO # 131-96122-18, Elaine B. Odessa, 9 Newman Rd.,
Pawtucket, RI 02860-8183 (6.66%); International Equity Fund - U.S. Clearing, A
Division of Fleet Securities Inc., FBO # 102-5924-17, Church & Friary of St.
Francis of Assisi, c/o Fr.
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Ronald P. Stark OFM, 135 West 31st St., New York, NY 10001-3405 (82.40%); Small
Cap Value Fund - U.S. Clearing, A Division of Fleet Securities Inc., FBO #
147-97574-19, Ray William Mominey, 1340 San Cristobal Villa, Punta Gorda, FL
33983-6616 (15.90%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #
111-98315-17, Thomas J. Bernfeld, 185 West End Ave., Apt. 21D, New York, NY
10023-5548 (10.13%); U.S. Clearing, A Division of Fleet Securities Inc., FBO #
107-30623-15, Andrejs Zvejnieks, 2337 Christopher Walk, Atlanta, GA 30327-1110
(6.86%); E-Trade: Cust. for the rollover IRA, FBO Rufus O. Eddins, Jr., A/C #
11042697, 360 Dominion Circle, Knoxville, TN 37922-2750 (5.34%); U.S. Clearing,
A Division of Fleet Securities Inc., FBO # 221-97250-13, Micheal A. Veschi, 106
Exmoor Court, Leesburg, VA 20176-2049 (5.13%); High Quality Bond Fund - U.S.
Clearing, A Division of Fleet Securities Inc., FBO # 200-70099-19, Neil C.
Feldman, 41 Windham Way, Englishtown, NJ 07726-8216 (25.37%); U.S. Clearing, A
Division of Fleet Securities Inc., FBO # 119-97697-10, Ira Sornborg, 4219
Nautilus Ave., Brooklyn, NY 11224-1019 (10.23%); U.S. Clearing, A Division of
Fleet Securities Inc., FBO # 216-12779-14, Les H. Galex & Nan Galex, JT TEN,
7540 Farragut St., Hollywood, FL 33024-2626 (8.11%); U.S. Clearing, A Division
of Fleet Securities Inc., FBO # 102-93287-11, Marjorie Dion, 301 Raimond St.,
Yaphank, NY 11980-9725 (7.31%); U.S. Clearing, A Division of Fleet Securities
Inc., FBO # 102-68909-11, Marjorie Dion, 301 Raimond St., Yaphank, NY 11980-9725
(8.61%); U.S. Clearing, A Division of Fleet Securities Inc., FBO # 147-24459-13,
Jay Robert Klein, 26800 Amhearst Circle, #209, Cleveland, OH 44122-7572 (8.40%);
U.S. Clearing, A Division of Fleet Securities Inc., FBO # 157-98031-13, Patricia
Fusco, 112 E. Chapel Ave., Cherry Hill, NJ 08034-1204 (6.53%); U.S. Clearing, A
Division of Fleet Securities, Inc., FBO # 216-13463-13, Jerry H. Dunmire, 5151
SW 89 Terrace, Cooper City, FL 33328-3631 (6.48%).
As of November 30, 1999, the name, address and share ownership of the
entities or persons that held of record or beneficially more than 5% of the
outstanding shares of Galaxy's Prime Reserves, Government Reserves and Tax
Exempt Reserves were as follows: Prime Reserves -- U.S. Clearing, 26 Broadway,
New York, NY 10004 (6.96%); Government Reserves -- U.S. Clearing, 26 Broadway,
New York, NY 10004 (100.00%); and Tax Exempt Reserves -- U.S. Clearing, 26
Broadway, New York, NY 10004 (100.00%).
As of November 30, 1999, no entity or person held of record or
beneficially more than 5% of the outstanding Retail A and Retail B Shares of
Galaxy's Equity Income, New York Municipal Bond, Connecticut Municipal Bond,
Massachusetts Municipal Bond, Rhode Island Municipal Bond, Massachusetts
Municipal Money Market, Connecticut Municipal Money Market and Short Term Bond
Funds.
FINANCIAL STATEMENTS
Galaxy's Annual Reports to Shareholders with respect to the Funds for
the fiscal year ended October 31, 1999 [has been filed] with the SEC. The
financial statements contained in such Annual Reports are [ ] into this
Statement of Additional Information. The financial statements and financial
highlights for the Funds for the fiscal year ended October 31, 1999 have been
audited by Galaxy's independent accountants, [ ], whose reports thereon also
appears in such Annual Reports and [ ]. The financial statements in such Annual
Reports have been [ ] in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
-88-
<PAGE>
APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current opinion
of credit worthiness 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:
"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
A-1
<PAGE>
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 strongest capacity for timely payment of financial
commitments and may have an added "+" to denote any exceptionally strong credit
feature.
"F2" - Securities possess good credit quality. This designation
indicates a satisfactory capacity for timely payment of financial commitments,
but the margin of safety is not as great as in the case of the higher ratings.
"F3" - Securities possess fair credit quality. This designation
indicates that the capacity for timely payment of financial commitments is
adequate; however, near-term adverse changes could result in a reduction to
non-investment grade.
"B" - Securities possess speculative credit quality. This
designation indicates minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in financial and
economic conditions.
"C" - Securities possess high default risk. This designation
indicates that default is a real possibility and that the capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
"D" - Securities are in actual or imminent payment default.
Thomson BankWatch short-term ratings assess the likelihood of an
untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson 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 BankWatch's lowest
investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's lowest
rating category and indicates that the obligation is regarded as non-investment
grade and therefore speculative.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating assigned
by Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
Obligations rated "BB," "B," "CCC," "CC" and "C" are regarded as
having significant speculative characteristics. "BB" indicates the least degree
of speculation and "C" the highest. While such obligations will likely have some
quality and protective 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.
A-4
<PAGE>
"B" - An obligation rated "B" is more vulnerable to nonpayment
than obligations rated "BB," but the obligor currently has the capacity to meet
its financial commitment on the obligation. Adverse business, financial or
economic conditions will likely impair the obligor's capacity or willingness to
meet its financial commitment on the obligation.
"CCC" - An obligation rated "CCC" is currently vulnerable to
nonpayment, and is dependent upon favorable business, financial and economic
conditions for the obligor to meet its financial commitment on the obligation.
In the event of adverse business, financial, or economic conditions, the obligor
is not likely to have the capacity to meet its financial commitment on the
obligation.
"CC" - An obligation rated "CC" is currently highly vulnerable to
nonpayment.
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.
"D" - An obligation rated "D" is in payment default. The "D"
rating category is used when payments on an obligation are not made on the date
due even if the applicable grace period has not expired, unless 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.
"r" - This symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or volatility of
expected returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk - such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
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
A-5
<PAGE>
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.
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.
A-6
<PAGE>
"BBB" - Debt possesses below-average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of
these ratings is considered to be below investment grade. Although below
investment grade, debt rated "BB" is deemed likely to meet obligations when due.
Debt rated "B" possesses the risk that obligations will not be met when due.
Debt rated "CCC" is well below investment grade and has considerable uncertainty
as to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the "AA,"
"A," "BBB," "BB" and "B" ratings may be modified by the addition of a plus (+)
or minus (-) sign to show relative standing within these major categories.
The following summarizes the ratings used by Fitch IBCA for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. These ratings denote the lowest expectation of credit
risk and are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
"AA" - Bonds considered to be investment grade and of very high
credit quality. These ratings denote a very low expectation of credit risk and
indicate very strong capacity for timely payment of financial commitments. This
capacity is not significantly vulnerable to foreseeable events.
"A" - Bonds considered to be investment grade and of high credit
quality. These ratings denote a low expectation of credit risk and indicate
strong capacity for timely payment of financial commitments. This capacity may,
nevertheless, be more vulnerable to changes in circumstances or in economic
conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good
credit quality. These ratings denote that there is currently a low expectation
of credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity.
"BB" - Bonds considered to be speculative. These ratings indicate
that there is a possibility of credit risk developing, particularly as the
result of adverse economic changes over time; however, business or financial
alternatives may be available to allow financial commitments to be met.
Securities rated in this category are not investment grade.
A-7
<PAGE>
"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 show relative standing within these major rating
categories.
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.
A-8
<PAGE>
"BBB" - This designation represents the lowest investment-grade
category and indicates an acceptable capacity to repay principal and interest.
Issues rated "BBB" are more vulnerable to adverse developments (both internal
and external) than obligations with higher ratings.
"BB," "B," "CCC," and "CC" - These designations are assigned by
Thomson Financial BankWatch to non-investment grade long-term debt. Such issues
are regarded as having speculative characteristics regarding the likelihood of
timely repayment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
A Standard and Poor's note rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess 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:
A-9
<PAGE>
"MIG-1"/"VMIG-1" - This designation denotes best quality. There
is present strong protection by established cash flows, superior liquidity
support or demonstrated broad-based access to the market for refinancing.
"MIG-2"/"VMIG-2" - This designation denotes high quality. Margins
of protection are ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes favorable quality,
with all security elements accounted for but lacking the undeniable strength of
the preceding grades. Liquidity and cash flow protection may be narrow and
market access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
"SG" - This designation denotes speculative quality. Debt
instruments in this category lack of margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.
A-10
<PAGE>
EXHIBIT 17(b)(vi)
Rule 497(c)
File Nos. 33-58004
811-7474
Fund Information
And Prospectus
[Logo omitted]
- --------------------------------------------------------------------------------
BOSTON
1784
FUNDS
OCTOBER 1, 1999
[PHOTO OF SKYLINE OMITTED]
NOT PART OF THE PROSPECTUS
<PAGE>
BOSTON 1784 FUNDS[SERVICE MARK]
THE TWO CENTURIES OF TRADITION BEHIND OUR NAME
- --------------------------------------------------------------------------------
BOSTON 1784 FUNDS ARE MANAGED BY BANKBOSTON. FOUNDED IN 1784, THE BANK HAS
EARNED A REPUTATION FOR PRUDENT MONEY MANAGEMENT AND COUNSEL TO INDIVIDUALS AND
BUSINESSES THROUGHOUT NEW ENGLAND. ITS HERITAGE, ACHIEVEMENTS AND SCOPE PLACE
THE BANK AT THE HEART OF BOSTON'S MONEY MANAGEMENT INDUSTRY--A BUSINESS IT
HELPED CREATE. BOSTON 1784 FUNDS EMBODY THIS TRADITION IN A MUTUAL FUND FAMILY
WITH A WIDE RANGE OF INVESTMENT CHOICES.
MONEY MARKET FUNDS
Boston 1784 Tax-Free Money Market Fund
Boston 1784 U.S. Treasury Money Market Fund
Boston 1784 Institutional U.S. Treasury Money Market Fund
Boston 1784 Prime Money Market Fund
Boston 1784 Institutional Prime Money Market Fund
BOND FUNDS
Boston 1784 Short-Term Income Fund
Boston 1784 Income Fund
Boston 1784 U.S. Government Medium-Term Income Fund
TAX-EXEMPT INCOME FUNDS
Boston 1784 Tax-Exempt Medium-Term Income Fund
Boston 1784 Connecticut Tax-Exempt Income Fund
Boston 1784 Florida Tax-Exempt Income Fund
Boston 1784 Massachusetts Tax-Exempt Income Fund
Boston 1784 Rhode Island Tax-Exempt Income Fund
STOCK FUNDS
Boston 1784 Asset Allocation Fund
Boston 1784 Growth and Income Fund
Boston 1784 Growth Fund
Boston 1784 International Equity Fund
IMPORTANT INFORMATION ABOUT BOSTON 1784 FUNDS
BOSTON 1784 FUNDS ARE NOT FDIC INSURED, ARE NOT DEPOSITS OR OTHER OBLIGATIONS
OF, OR GUARANTEED BY, ANY BANK, AND INVOLVE INVESTMENT RISKS, INCLUDING
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
BANKBOSTON, N.A. SERVES AS INVESTMENT ADVISER AND SHAREHOLDER SERVICING AGENT
FOR BOSTON 1784 FUNDS. BOSTON 1784 FUNDS ARE DISTRIBUTED BY SEI INVESTMENTS
DISTRIBUTION CO. THE DISTRIBUTOR IS NOT AFFILIATED WITH BANKBOSTON, N.A. OR ANY
OF ITS AFFILIATES. FINANCIAL SERVICES COUNSELORS ARE REGISTERED REPRESENTATIVES
OF BANKBOSTON INVESTOR SERVICES, INC. (MEMBER NASD/SIPC), A WHOLLY-OWNED
SUBSIDIARY OF BANKBOSTON, N.A. AN INVESTMENT IN A MONEY MARKET FUND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY. ALTHOUGH MONEY MARKET FUNDS SEEK TO PRESERVE THE VALUE OF
YOUR INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN
A MONEY MARKET FUND.
NOT PART OF THE PROSPECTUS
1
<PAGE>
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INVESTMENT MANAGEMENT STRENGTH--
BOSTON 1784 FUNDS ARE MANAGED BY THE SAME INVESTMENT PROFESSIONALS WHO OVERSEE
MORE THAN $30 BILLION FOR CLIENTS OF BANKBOSTON. WITH A 100-YEAR TRACK RECORD,
THE BANK'S INVESTMENT MANAGERS HAVE EARNED NATIONAL RECOGNITION AND RESPECT, AS
WELL AS THE CONFIDENCE OF PRIVATE BANKING AND TRUST CLIENTS ACROSS THE COUNTRY.
A FAMILY OF MUTUAL FUNDS--
BOSTON 1784 FUNDS FAMILY INCLUDES STOCK, BOND, TAX-EXEMPT AND MONEY MARKET FUNDS
TO MEET A WIDE RANGE OF INVESTMENT GOALS. YOU MAY SELECT INDIVIDUAL FUNDS TO
TARGET VERY SPECIFIC INVESTMENT OBJECTIVES OR COMBINE BOSTON 1784 FUNDS TO
CREATE AN ENTIRE PORTFOLIO STRUCTURED IN THE MOST EFFECTIVE WAY TO MEET YOUR
LONG-TERM GOALS.
EXPERT PLANNING AND GUIDANCE--
WHEN YOU HAVE QUESTIONS OR WANT ADVICE, YOU CAN TALK TO A FINANCIAL SERVICES
COUNSELOR (FSC) WHO WILL PROVIDE EXPERT, STRAIGHTFORWARD HELP BASED ON YOUR
GOALS.
[PHOTO OF BUILDINGS OMITTED]
NOT PART OF THE PROSPECTUS
2
<PAGE>
INVESTMENT MANAGEMENT STRENGTH
- --------------------------------------------------------------------------------
BankBoston professionals have extensive experience helping individual clients
achieve their financial goals through disciplined, personalized investment
strategies. These same professionals also manage Boston 1784 Funds.
The experience of this team is a major factor behind investment results that
have earned national recognition. The performance of Boston 1784 Funds has been
cited in The Wall Street Journal, Fortune and Money magazine. Several of the
Funds have appeared repeatedly on The Wall Street Journal's monthly Mutual Fund
Scorecard.
You may have seen portfolio managers from Boston 1784 Funds on television, where
they have appeared on CNBC and Wall Street Week. Edward G. ("Ned") Riley, Jr.,
Chief Investment Officer of Boston 1784 Funds, also writes a monthly column on
equity investing and is frequently quoted in the financial press as a recognized
expert.
NOT PART OF THE PROSPECTUS
[PHOTO OF MANAGERS OMITTED]
<PAGE>
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INTRODUCING THE BOSTON 1784 FUNDS TEAM, AND THE FUNDS THEY MANAGE AND CO-MANAGE.
(PICTURED LEFT TO RIGHT)
MICHAEL PELOSI, CFA
BOSTON 1784 ASSET ALLOCATION FUND
LISA W. LEBOEUF
BOSTON 1784 U.S. TREASURY MONEY MARKET FUND
BOSTON 1784 INSTITUTIONAL U.S. TREASURY MONEY MARKET FUND
BOSTON 1784 PRIME MONEY MARKET FUND
BOSTON 1784 INSTITUTIONAL PRIME MONEY MARKET FUND
EMMETT M. WRIGHT, CFA
BOSTON 1784 U.S. TREASURY MONEY MARKET FUND
BOSTON 1784 INSTITUTIONAL U.S. TREASURY MONEY MARKET FUND
BOSTON 1784 U.S. GOVERNMENT MEDIUM-TERM INCOME FUND
BOSTON 1784 INCOME FUND
BOSTON 1784 ASSET ALLOCATION FUND
SUSAN A. SANDERSON, CFA
BOSTON 1784 FLORIDA TAX-EXEMPT INCOME FUND
BOSTON 1784 MASSACHUSETTS TAX-EXEMPT INCOME FUND
THEODORE E. OBER
BOSTON 1784 GROWTH AND INCOME FUND
BOSTON 1784 GROWTH FUND
MARY K. WERLER, CFA
BOSTON 1784 SHORT-TERM INCOME FUND
BOSTON 1784 PRIME MONEY MARKET FUND
BOSTON 1784 INSTITUTIONAL PRIME MONEY MARKET FUND
EUGENE D. TAKACH
BOSTON 1784 GROWTH AND INCOME FUND
BOSTON 1784 GROWTH FUND
KENTON J. IDE, CFA
BOSTON 1784 INTERNATIONAL EQUITY FUND
DAVID H. THOMPSON, CFA
BOSTON 1784 TAX-FREE MONEY MARKET FUND
BOSTON 1784 TAX-EXEMPT MEDIUM-TERM INCOME FUND
BOSTON 1784 CONNECTICUT TAX-EXEMPT INCOME FUND
BOSTON 1784 FLORIDA TAX-EXEMPT INCOME FUND
BOSTON 1784 RHODE ISLAND TAX-EXEMPT INCOME FUND
CARL W. PAPPO
BOSTON 1784 U.S. GOVERNMENT MEDIUM-TERM INCOME FUND
BOSTON 1784 INCOME FUND
GUY C. HOLBROOK, CFA
BOSTON 1784 TAX-FREE MONEY MARKET FUND
BOSTON 1784 TAX-EXEMPT MEDIUM-TERM INCOME FUND
BOSTON 1784 CONNECTICUT TAX-EXEMPT INCOME FUND
BOSTON 1784 RHODE ISLAND TAX-EXEMPT INCOME FUND
WILLIAM S. STACK (NOT PICTURED) of Kleinwort Benson
Investment Management Americas Inc.
co-manages Boston 1784 International
Equity Fund
[Photo of Edward G. ("Ned") Riley, Jr. omitted]
"AFTER FOUR MAJOR DOWN MARKETS, FIVE MAJOR UP MARKETS, FIVE RECESSIONS AND EIGHT
U.S. PRESIDENTS, WE'VE DEVELOPED A DISCIPLINED PHILOSOPHY BASED ON EXPERIENCE.
SIMPLY PUT, WE FOCUS ON LONG-TERM TRENDS THAT WILL PROPEL COMPANIES AND THE
ECONOMY AS THEY GROW. WE DON'T LIKE FADS AND, EVEN IN OUR MORE AGGRESSIVE FUNDS,
WE TAKE A PRUDENT APPROACH TO MONEY MANAGEMENT. WE DEMAND SOUND REASONS FOR
EVERY DECISION WE MAKE."
Edward G. ("Ned") Riley, Jr.
CHIEF INVESTMENT OFFICER
BOSTON 1784 FUNDS
[PHOTO OF MANAGERS OMITTED]
<PAGE>
A FAMILY OF MUTUAL FUNDS
- --------------------------------------------------------------------------------
MANY INVESTORS PREFER TO COMBINE SEVERAL TYPES OF MUTUAL FUNDS BECAUSE EACH CAN
PLAY A DIFFERENT ROLE IN A PORTFOLIO. HERE'S A BRIEF OVERVIEW OF THE
CHARACTERISTICS OF STOCK, BOND AND MONEY MARKET MUTUAL FUNDS.
STOCK FUNDS
If you're seeking long-term growth or want to help protect the value of your
assets from inflation, stock funds can be a good choice. Stock funds are
generally classified by the types of companies in which they invest, such as
small or large companies, high-growth companies or foreign companies. Stock
funds offer the greatest potential for long-term gains but also the highest
short-term risk.
BOND FUNDS
If you're seeking current income or want to add some stability to a stock fund
portfolio, you should consider bond funds. Bond funds are classified by the
types of debt instruments in which they invest, such as government or corporate
bonds. Bond funds rise in value when interest rates fall--and vice versa.
TAX-EXEMPT BOND FUNDS
If you're in a high tax bracket, these funds can provide income that's free from
income taxes.* They invest primarily in investment grade municipal bonds and
similar securities. You may want to choose a fund that is exempt from both state
and federal income taxes.
MONEY MARKET FUNDS
All money market funds seek to maintain a stable $1.00 share price so that they
provide a good place to invest your short-term assets safely.
U.S. TREASURY MONEY MARKET FUNDS
These funds invest in the safest of all investments: U.S. government securities.
Since they have very limited investment risk, they generate a modest level of
income.
GENERAL MONEY MARKET FUNDS
These funds invest in "commercial paper" and other short-term financial
instruments which are obligations of corporations or the U.S. Government.
TAX-EXEMPT MONEY MARKET FUNDS
These funds invest in short-term loans to municipalities, so there are little to
no federal taxes on the income produced.*
* INCOME MAY BE SUBJECT TO THE ALTERNATIVE MINIMUM TAX AND/OR LOCAL TAXES.
THE RISK/REWARD PYRAMID
THE INVESTMENT PYRAMID SUGGESTS A WAY TO THINK ABOUT INVESTING. AT ITS BASE ARE
MONEY MARKET FUNDS--A SOLID FOUNDATION FOR A PORTFOLIO BECAUSE THEY ARE LOW RISK
AND OFFER HIGH LIQUIDITY. INCOME-GENERATING BOND FUNDS HAVE HIGHER RETURN
POTENTIAL BUT ALSO RISE AND FALL IN VALUE AS INTEREST RATES CHANGE. AT THE TOP
OF THE PYRAMID ARE STOCK FUNDS. THEY OFFER THE HIGHEST POTENTIAL LONG-TERM
RETURNS, BUT ALSO THE HIGHEST LEVELS OF SHORT-TERM RISK.
NOT PART OF THE PROSPECTUS
5
<PAGE>
- --------------------------------------------------------------------------------
BOSTON 1784 SHORT-TERM INCOME
BOSTON 1784 INCOME
BOSTON 1784 U.S. GOVERNMENT MEDIUM-TERM INCOME
- ----------------------------------------------
BOSTON 1784 ASSET ALLOCATION
BOSTON 1784 GROWTH AND INCOME
BOSTON 1784 GROWTH
BOSTON 1784 INTERNATIONAL EQUITY
- --------------------------------
[GRAPHIC OF RISK/REWARD PYRAMID OMITTED]
RISK/REWARD
[Graphic of angled upward pointing arrow omitted]
STOCK
FUNDS
- --------------------------------------------------
BOND TAX EXEMPT
FUNDS FUNDS
- --------------------------------------------------
MONEY MARKET FUNDS
- --------------------------------------------------
- ---------------------------------------
BOSTON 1784 TAX-FREE MONEY MARKET
BOSTON 1784 U.S. TREASURY MONEY MARKET
BOSTON 1784 INSTITUTIONAL U.S. TREASURY
MONEY MARKET
BOSTON 1784 PRIME MONEY MARKET
BOSTON 1784 INSTITUTIONAL PRIME
MONEY MARKET
- -------------------------------------------
BOSTON 1784 TAX-EXEMPT MEDIUM-TERM INCOME
BOSTON 1784 CONNECTICUT TAX-EXEMPT INCOME
BOSTON 1784 FLORIDA TAX-EXEMPT INCOME
BOSTON 1784 MASSACHUSETTS TAX-EXEMPT INCOME
BOSTON 1784 RHODE ISLAND TAX-EXEMPT INCOME
A SMART WAY TO INVEST TAX DEFERRED
ANY TAXABLE STOCK, BOND OR MONEY MARKET FUND CAN BECOME A TAX-DEFERRED
INVESTMENT IN AN IRA. AS A RESULT, YOUR MONEY MAY GROW FASTER BECAUSE ALL YOUR
INTEREST, DIVIDENDS AND GAINS KEEP WORKING FOR YOU. YOUR FINANCIAL SERVICES
COUNSELOR CAN EXPLAIN ALL THE ADVANTAGES OF USING BOSTON 1784 FUNDS IN YOUR IRA.
NOT PART OF THE PROSPECTUS
6
<PAGE>
EXPERT PLANNING AND GUIDANCE
- --------------------------------------------------------------------------------
WHEN YOU INVEST IN BOSTON 1784 FUNDS, YOU GAIN ACCESS TO PROFESSIONAL INVESTMENT
GUIDANCE AND PLANNING. YOUR FINANCIAL SERVICES COUNSELOR (FSC) IS ALWAYS READY
TO ANSWER YOUR QUESTIONS ABOUT BOSTON 1784 FUNDS OR YOUR INVESTMENT APPROACH.
YOUR FSC BEGINS BY GETTING TO KNOW YOU AND:
[SQUARE BULLET OMITTED] Your specific investing goals.
[SQUARE BULLET OMITTED] The composition of your current investment portfolio.
[SQUARE BULLET OMITTED] Your time horizon and comfort level with risk.
[SQUARE BULLET OMITTED] The level of income you may require from your
investments.
It's a process that will help organize your approach to investing, so you can
make more confident investment decisions--and one that should be repeated as
your family situation, income or other factors change to keep your investment
approach on track. Over time, as your relationship with your FSC develops,
you'll discover what a valuable resource professional investment advice can be.
[PHOTO OMITTED]
NOT PART OF THE PROSPECTUS
7
<PAGE>
- --------------------------------------------------------------------------------
INVESTING MORE EFFECTIVELY.
Whether you are investing for a more secure retirement, to pay education
expenses, or to increase your current income, your Financial Services Counselor
can provide a personal plan prepared and tailored for your particular situation.
It's based on the concept of "asset allocation"-- diversifying your portfolio
across several different types of investments. Studies have shown that how you
divide your investment among stocks, bonds and money market securities is the
single most important factor affecting your total return over time.
Using color charts and graphs, your plan will clearly depict your current
investing position and, if appropriate, a new asset allocation to help you reach
your goals. Your FSC will use these plans to help you assess your retirement,
education and general asset allocation objectives.
For information on any of these planning tools, or to speak with a Financial
Services Counselor, call 1-800-BKB-1784.
[Area Graph omitted--Plot points as follows:]
INITIAL INVESTMENT ANNUAL CONTRIBUTION $5,000 26-YEAR RESULT
$50,000 [ARROW GRAPHIC OMITTED] $1,747,003
- -----------------------------------------------------------------------------
STOCKS BONDS CASH EQUIVALENTS
- -----------------------------------------------------------------------------
1/73 $ 25,000.00 $ 15,000.00 $ 10,000.00
1/79 49,240.78 29,544.47 19,696.31
1/86 159,717.04 95,830.22 63,886.81
1/93 383,318.51 229,991.11 153,327.41
1/99 873,501.63 524,100.98 349,400.65
- -----------------------------------------------------------------------------
THIS GRAPH SHOWS HISTORICAL GROWTH OF INVESTMENTS AND CONTRIBUTIONS OVER A
26-YEAR TIME HORIZON. IT ASSUMES AN INITIAL INVESTMENT OF $50,000 AND A $5,000
ANNUAL SAVINGS CONTRIBUTION DIVIDED AS FOLLOWS: 50% STOCKS, 30% BONDS AND 20%
CASH EQUIVALENTS. THIS IS NOT AN ESTIMATE OF FUTURE RESULTS AND DOES NOT
REPRESENT SPECIFIC INVESTMENTS. THE GRAPH DOES NOT REFLECT TAXES, INVESTMENT
MANAGEMENT FEES OR OTHER EXPENSES. PAST PERFORMANCE CANNOT GUARANTEE FUTURE
RESULTS.
* STOCKS ARE REPRESENTED BY THE STANDARD & POOR'S 500 COMPOSITE INDEX, AN
UNMANAGED INDEX THAT'S GENERALLY CONSIDERED REPRESENTATIVE OF THE U.S. STOCK
MARKET. BONDS ARE REPRESENTED BY LONG-TERM GOVERNMENT BOND TOTAL RETURNS.
MONEY MARKET SECURITIES ARE REPRESENTED BY 3-MONTH TREASURY BILL RETURNS.
SOURCE: IBBOTSON ASSOCIATES 1999 YEARBOOK.
ASSET ALLOCATION EXAMPLE
[PIE GRAPH OMITTED--PLOT POINTS AS FOLLOWS:]
CASH 20%
BONDS 30%
STOCKS 50%
THIS ASSET ALLOCATION EXAMPLE REFLECTS WHAT PERCENTAGE OF A PORTFOLIO IS
INVESTED IN STOCKS, BONDS AND CASH EQUIVALENTS (CDS, MONEY MARKET FUNDS AND
SAVINGS ACCOUNTS).* APPLYING THIS ALLOCATION TO THE HISTORICAL PERFORMANCE OF
THESE ASSET CLASSES (SEE ABOVE) CAN HELP YOU PLAN FOR YOUR RETIREMENT SAVINGS.
NOT PART OF THE PROSPECTUS
8
<PAGE>
BOSTON 1784 FUNDS
WHEN YOU'RE LOOKING FOR...
- --------------------------------------------------------------------------------
[SQUARE BULLET] A TRADITION OF INVESTMENT EXPERTISE.
BankBoston has been helping clients invest for a century and
helped create Boston's money management industry.
[SQUARE BULLET] EXPERIENCED, RESPECTED INVESTMENT MANAGEMENT.
Boston 1784 Funds are managed by professionals who oversee more
than $30 billion--and who have earned national recognition.
[SQUARE BULLET] CHOICES FOR INVESTMENT DIVERSIFICATION.
Choose individual Boston 1784 Funds that match your goals and
risk tolerance, or combine them to achieve the right asset
allocation for you.
[SQUARE BULLET] PLANNING TO HELP YOU REACH YOUR OBJECTIVES.
Special planning tools are available to help you map out an
investment strategy to reach your retirement, education or
other goals.
[SQUARE BULLET] PROFESSIONAL INVESTMENT COUNSELING.
Work with a Financial Services Counselor who gets to know you
and your investment goals and preferences.
IF YOU HAVE QUESTIONS ABOUT INVESTING IN ANY BOSTON 1784 FUNDS, OR FOR
INFORMATION ABOUT USING BOSTON 1784 FUNDS IN YOUR IRA, CONTACT YOUR FINANCIAL
SERVICES COUNSELOR OR CALL 1-800-BKB-1784.
[PHOTO OMITTED]
NOT PART OF THE PROSPECTUS
9
<PAGE>
BOSTON 1784 FUNDS
MAKING INVESTING ECONOMICAL AND CONVENIENT
- --------------------------------------------------------------------------------
WHEN YOU INVEST IN BOSTON 1784 FUNDS, YOU CAN COUNT ON THESE BENEFITS FROM THE
FIRST DAY YOU INVEST:
NO SALES, EXCHANGE OR REDEMPTION FEES --
Boston 1784 Funds are all "no-load," which means you can buy shares, move your
money among funds, and sell shares without paying a sales charge.
PROMPT ANSWERS TO YOUR QUESTIONS --
Simply contact your FSC or call 1-800-BKB-1784 with any questions you may have
about Boston 1784 Funds.
LOW MINIMUM INVESTMENT --
You can invest in any Boston 1784 Fund with as little as $1,000, and make
additional investments in amounts as low as $250. You can open an IRA with as
little as $250.*
AUTOMATIC INVESTMENTS OF AS LITTLE AS $50 --
You can arrange to have funds automatically invested from your bank account.
(Ask your FSC about the power of "dollar cost averaging.")**
AUTOMATIC REINVESTMENT OF DIVIDENDS --
You can choose to have all dividends reinvested automatically or to receive
payment by check.
24-HOUR ACCESS --
Get automated account information on your fund balances and current yields by
calling 1-800-BKB-1784, 24 hours a day.
WRITTEN CONFIRMATIONS OF TRANSACTIONS --
Each time you buy or sell shares in a Boston 1784 Fund, you will receive a
confirmation listing all the details of your transaction.
MONTHLY, COMBINED INVESTMENT STATEMENT --
You can combine all your Boston 1784 Funds investments on a single, monthly
statement. It will show all the detailed transaction activity for the month,
provide a summary for the year-to-date, and give you the market value of your
investments on the statement date.
BOSTON 1784 FUNDS CHECKWRITING --
Take advantage of easy access to your investment with unlimited, free
checkwriting if you invest in Boston 1784 Tax-Free Money Market Fund, Boston
1784 U.S. Treasury Money Market Fund, Boston 1784 Prime Money Market Fund, or
Boston 1784 Short-Term Income Fund. Minimum amount per check is $250.
IF YOU HAVE QUESTIONS ABOUT INVESTING IN ANY BOSTON 1784 FUNDS, OR FOR
INFORMATION ABOUT USING BOSTON 1784 FUNDS IN YOUR IRA, CONTACT YOUR FINANCIAL
SERVICES COUNSELOR OR CALL 1-800-BKB-1784.
* NOTE: THE INSTITUTIONAL U.S. TREASURY MONEY MARKET FUND AND INSTITUTIONAL
PRIME MONEY MARKET FUND HAVE HIGHER MINIMUMS FOR INITIAL INVESTMENT AND
AUTOMATIC INVESTMENT.
** PERIODIC INVESTMENT PLANS DO NOT ASSURE A PROFIT OR PROTECT AGAINST LOSS IN
DECLINING MARKETS. THIS TYPE OF PLAN INVOLVES CONTINUOUS INVESTMENTS IN
SECURITIES REGARDLESS OF FLUCTUATING PRICE LEVELS. INVESTORS SHOULD CONSIDER
THEIR FINANCIAL ABILITY TO CONTINUE PURCHASES THROUGH PERIODS OF LOW PRICE
LEVELS.
[PHOTO OMITTED]
NOT PART OF THE PROSPECTUS
<PAGE>
TERMS YOU NEED TO KNOW
- --------------------------------------------------------------------------------
ASSETS: The investment holdings and cash owned by a mutual fund.
AVERAGE WEIGHTED MATURITY: An average of the maturity dates of the securities in
a mutual fund based on the dollar value of those securities. It is calculated by
multiplying the market value of each security by the time remaining to its
maturity, adding these calculations and then dividing the total by the
portfolio's market value.
BALANCE SHEET: Statement of a company's assets (what it owns) and liabilities
(what it owes). It shows the financial condition of a company at a particular
time.
COMMERCIAL PAPER: A short-term IOU (usually 30-270 days) of a corporation, not
backed by assets, that allows it to borrow from banks, mutual funds and other
institutional investors.
CONVERTIBLE DEBT SECURITIES: Bonds or preferred stock that may be converted into
the common stock of a corporation at a prestated price.
DEBENTURES: Bonds that are backed only by the good faith and credit of a
company rather than its assets. The credit rating of these bonds, based on the
ability of the issuer to repay the debt, depends entirely on the financial
strength of the company.
DIVERSIFICATION: The practice of investing broadly across a number of securities
to reduce risk--a hallmark of mutual fund investing.
EQUITY SECURITIES: Securities, such as common stock, which represent a share of
ownership in a company.
EXPENSE RATIO: A fund's cost of doing business--disclosed in the
prospectus--expressed as a percentage of its assets.
FIXED INCOME SECURITIES: Securities that pay a set amount of interest on a
regular basis until they mature, such as bonds.
INCOME: Dividends, interest and/or short-term capital gains paid to
shareholders. Income is earned on a fund's portfolio once operating expenses are
deducted.
LIQUIDITY: The ability to redeem (sell back) mutual fund shares on any business
day and receive the current value (which may be more or less that the original
cost).
NET ASSET VALUE PER SHARE (NAV): The market value of one share of a mutual fund,
calculated by subtracting a fund's liabilities from its assets and dividing by
the number of shares outstanding.
PORTFOLIO TURNOVER RATE: A measure of a fund's trading activity that indicates
how often securities are bought and sold by the fund.
REPURCHASE AGREEMENT: An agreement between a seller and buyer in which the
seller agrees to repurchase securities at an agreed-upon price and time. These
arrangements are usually short-term (18 month or less), often overnight.
TAX-EQUIVALENT YIELD: The yield an investor must receive on a taxable security
to equal the yield on a non-taxable security. Municipal bonds, for example,
often have a lower yield than taxable bonds. But the return on these securities
may be comparable after taxes are deducted. Non-taxable securities are most
suitable for investors in higher income tax brackets.
TOTAL RETURN: The change in value of an investment from the beginning to the end
of a period, assuming the reinvestment of all distributions. This is based on a
formula set by the Securities and Exchange Commission.
WARRANTS: Securities that entitle an investor to buy shares of common stock in a
company at a specified price for a specified period of time.
YIELD: A measure of a fund's income (dividends and interest) less the fund's
expenses during a specified period. This is based on a formula set by the
Securities and Exchange Commission.
ZERO COUPON SECURITIES: Bonds that do not pay interest, but are sold at deep
discounts from the actual or face value. An investor receives the face value
when the bond matures.
<PAGE>
MONEY MARKET FUNDS
[SQUARE BULLET] BOSTON 1784 TAX-FREE MONEY MARKET FUND
[SQUARE BULLET] BOSTON 1784 U.S. TREASURY MONEY MARKET FUND
[SQUARE BULLET] BOSTON 1784 INSTITUTIONAL U.S. TREASURY
MONEY MARKET FUND
[SQUARE BULLET] BOSTON 1784 PRIME MONEY MARKET FUND
[SQUARE BULLET] BOSTON 1784 INSTITUTIONAL PRIME MONEY MARKET FUND
BOND FUNDS
[SQUARE BULLET] BOSTON 1784 SHORT-TERM INCOME FUND
[SQUARE BULLET] BOSTON 1784 INCOME FUND
[SQUARE BULLET] BOSTON 1784 U.S. GOVERNMENT MEDIUM-TERM INCOME FUND
- --------------------------------------------------------------------------------
TAX-EXEMPT INCOME FUNDS
[SQUARE BULLET] BOSTON 1784 TAX-EXEMPT MEDIUM-TERM INCOME FUND
[SQUARE BULLET] BOSTON 1784 CONNECTICUT TAX-EXEMPT INCOME FUND
[SQUARE BULLET] BOSTON 1784 FLORIDA TAX-EXEMPT INCOME FUND
[SQUARE BULLET] BOSTON 1784 MASSACHUSETTS TAX-EXEMPT INCOME FUND
[SQUARE BULLET] BOSTON 1784 RHODE ISLAND TAX-EXEMPT INCOME FUND
STOCK FUNDS
[SQUARE BULLET] BOSTON 1784 ASSET ALLOCATION FUND
[SQUARE BULLET] BOSTON 1784 GROWTH AND INCOME FUND
[SQUARE BULLET] BOSTON 1784 GROWTH FUND
[SQUARE BULLET] BOSTON 1784 INTERNATIONAL EQUITY FUND
BOSTON 1784 FUNDS
P.O. BOX 8524
BOSTON, MA 02266-8524
1-800-BKB-1784
WWW. BOSTON1784FUNDS.COM
[LOGO OMITTED]
BOSTON
1784
FUNDS
NOT PART OF THE PROSPECTUS MF-0134 (10/99)
BOSTON 1784 FUNDSSM
MONEY MARKET FUNDS
[bullet] BOSTON 1784 TAX-FREE MONEY MARKET FUND
[bullet] BOSTON 1784 U.S. TREASURY MONEY MARKET FUND
[bullet] BOSTON 1784 INSTITUTIONAL U.S. TREASURY
MONEY MARKET FUND
[bullet] BOSTON 1784 PRIME MONEY MARKET FUND
[bullet] BOSTON 1784 INSTITUTIONAL PRIME MONEY
MARKET FUND
BOND FUNDS
[bullet] BOSTON 1784 SHORT-TERM INCOME FUND
[bullet] BOSTON 1784 INCOME FUND
[bullet] BOSTON 1784 U.S. GOVERNMENT MEDIUM-
TERM INCOME FUND
TAX-EXEMPT INCOME FUNDS
[bullet] BOSTON 1784 TAX-EXEMPT MEDIUM-TERM
INCOME FUND
[bullet] BOSTON 1784 CONNECTICUT TAX-EXEMPT
INCOME FUND
[bullet] BOSTON 1784 FLORIDA TAX-EXEMPT INCOME FUND
[bullet] BOSTON 1784 MASSACHUSETTS TAX-EXEMPT INCOME FUND
[bullet] BOSTON 1784 RHODE ISLAND TAX-EXEMPT
INCOME FUND
STOCK FUNDS
[bullet] BOSTON 1784 ASSET ALLOCATION FUND
[bullet] BOSTON 1784 GROWTH AND INCOME FUND
[bullet] BOSTON 1784 GROWTH FUND
[bullet] BOSTON 1784 INTERNATIONAL EQUITY FUND
Prospectus
[Logo Omitted]
NEITHER THE SECURITIES AND EXCHANGE COMMISSION
NOR ANY STATE SECURITIES COMMISSION HAS APPROVED
OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON
THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
October 1, 1999
<PAGE>
TABLE OF CONTENTS
BOSTON 1784 MONEY MARKET FUNDS................................1
BOSTON 1784 BOND FUNDS........................................8
BOSTON 1784 TAX-EXEMPT INCOME FUNDS..........................15
BOSTON 1784 STOCK FUNDS......................................24
SHAREHOLDER SERVICES.........................................31
HOW TO REACH THE FUNDS.........................31
TYPES OF ACCOUNTS..............................31
HOW TO OPEN AN ACCOUNT.........................31
HOW TO PURCHASE SHARES.........................31
HOW TO SELL SHARES.............................32
SHAREHOLDER SERVICES AND POLICIES..............34
PRICING OF FUND SHARES.......................................35
DISTRIBUTIONS................................................35
FEDERAL TAX CONSIDERATIONS...................................36
MORE ABOUT BOSTON 1784 FUNDS.................................37
MONEY MARKET FUNDS.............................37
BOND FUNDS.....................................38
TAX-EXEMPT FUNDS...............................40
STOCK FUNDS....................................42
MANAGEMENT...................................................45
DISTRIBUTION ARRANGEMENTS....................................47
FINANCIAL HIGHLIGHTS.........................................48
PROSPECTUS
<PAGE>
BOSTON 1784 MONEY MARKET FUNDS
TAX-FREE MONEY MARKET FUND
U.S. TREASURY MONEY MARKET FUND
INSTITUTIONAL U.S. TREASURY MONEY MARKET FUND
PRIME MONEY MARKET FUND
INSTITUTIONAL PRIME MONEY MARKET FUND
THIS SUMMARY BRIEFLY DESCRIBES EACH BOSTON 1784 MONEY MARKET FUND AND THE
PRINCIPAL RISKS OF INVESTING IN THE FUNDS. FOR FURTHER INFORMATION ON THESE
FUNDS, PLEASE READ THE SECTION ENTITLED MORE ABOUT BOSTON 1784 FUNDS.
[COMPASS GRAPHIC OMITTED]
WHAT ARE THE FUNDS' GOALS?
TAX-FREE MONEY MARKET FUND
The Tax-Free Money Market Fund's goals are to preserve the principal value of a
shareholder's investment and maintain a high degree of liquidity while providing
current income that is exempt from federal income tax.
U.S. TREASURY MONEY MARKET FUND
The U.S. Treasury Money Market Fund's goals are to preserve the principal value
of a shareholder's investment and maintain a high degree of liquidity while
providing current income.
INSTITUTIONAL U.S. TREASURY
MONEY MARKET FUND
The Institutional U.S. Treasury Money Market Fund's goals are to preserve the
principal value of a shareholder's investment and maintain a high degree of
liquidity while providing current income.
PRIME MONEY MARKET FUND
The Prime Money Market Fund's goals are to preserve the principal value of a
shareholder's investment and maintain a high degree of liquidity while providing
current income.
INSTITUTIONAL PRIME
MONEY MARKET FUND
The Institutional Prime Money Market Fund's goals are to preserve the principal
value of a shareholder's investment and to maintain a high degree of liquidity
while providing current income.
WHAT IS A MONEY MARKET FUND?
A MONEY MARKET FUND is a type of mutual fund that tries to maintain a share
price of $1.00 while paying income to its shareholders. A stable share price
protects your investment from loss ("PRESERVATION OF PRINCIPAL"). If you need
to sell your shares at any time, you should receive your initial investment
plus any income that you have earned (thereby providing "LIQUIDITY").
However, a money market fund does not guarantee that you will receive your
money back.
A money market fund must follow strict rules as to the investment quality,
maturity, diversification and other features of the securities it purchases.
The average remaining maturity of the securities cannot be greater than 90
days. The remaining maturity of a security is the period of time until the
principal amount must be repaid.
[Chess piece graphic omitted]
WHAT ARE THE FUNDS' MAIN INVESTMENT STRATEGIES?
TAX-FREE MONEY MARKET FUND
The Tax-Free Money Market Fund invests primarily in short-term municipal
securities, which are debt securities issued by states, cities and towns and
other political or public entities or agencies. The interest paid on these debt
securities is free from federal income tax.
The Fund may also enter into repurchase agreements and invest in limited amounts
in securities paying interest that is not free from federal taxes.
PROSPECTUS
1
<PAGE>
BOSTON 1784 MONEY MARKET FUNDS (CONTINUED)
U.S. TREASURY MONEY MARKET FUND
The U.S. Treasury Money Market Fund invests primarily in short-term U.S.
government obligations including Treasury securities, U.S. government agency
securities and repurchase agreements secured by U.S.government obligations.
WHAT ARE U.S. GOVERNMENT OBLIGATIONS?
U.S. GOVERNMENT OBLIGATIONS or securities are bonds or other debt
obligations issued by, or whose principal and interest are
guaranteed by, the U.S. government or one of its agencies or
instrumentalities. U.S. Treasury securities and some obligations
of U.S. government agencies and instrumentalities are supported by
the "full faith and credit" of the United States. Some U.S.
government obligations are backed by the right of the issuer to
borrow from the U.S. Treasury, and others only by the credit of
the issuing agency or instrumentality. U.S. government obligations
generally have less credit risk than other debt obligations.
INSTITUTIONAL U.S. TREASURY
MONEY MARKET FUND
The Institutional U.S. Treasury Money Market Fund invests primarily in
short-term U.S. government obligations, including Treasury
securities, U.S. government agency securities and repurchase agreements
secured by U.S. government obligations.
PRIME MONEY MARKET FUND
The Prime Money Market Fund invests primarily in high quality short-term debt
obligations, including commercial paper, asset-backed commercial paper,
corporate bonds, U.S. government agency obligations, taxable municipal
securities and repurchase agreements.
INSTITUTIONAL PRIME
MONEY MARKET FUND
The Institutional Prime Money Market Fund invests primarily in high quality
short-term debt obligations, including commercial paper, asset-backed commercial
paper, corporate bonds, U.S. government agency obligations, taxable municipal
securities and repurchase agreements.
[Road Sign Graphic Omitted]
WHAT ARE THE MAIN RISKS OF INVESTING IN BOSTON 1784 MONEY MARKET FUNDS?
The principal risks of investing in the Money Market Funds and the circumstances
reasonably likely, in the opinion of the Adviser, to affect your investment
adversely are described below. Please note that there are many other factors
that could affect your investment adversely and that could prevent a Fund from
achieving its objectives, which are not described here. The principal risks are:
[bullet] The rate of income will vary from day to day depending on short-term
interest rates.
[bullet] It is possible that a major change in interest rates or a default on
a security or a repurchase agreement held by a Fund could cause the value of
your investment or the performance of the Fund to decline.
[bullet] Each Money Market Fund may invest up to 5% of its total assets in
zero coupon securities called STRIPS, which are the separately traded
interest and principal component parts of U.S. Treasury securities. The
interest-only component is extremely sensitive to the rate of principal
payments on the underlying obligation. The market value of the principal-
only component generally is unusually volatile in response to changes in
interest rates.
[bullet] An investment in a Fund is not a deposit of BankBoston and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any
other governmental agency.
[bullet] Although the Funds seek to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in the Funds.
PROSPECTUS
2
<PAGE>
WHO MAY WANT TO INVEST?
TAX-FREE MONEY MARKET FUND
THIS MONEY MARKET FUND MAY BE APPROPRIATE FOR INVESTORS WHO:
[bullet] are investing for a short period of time or as part of a savings plan;
[bullet] are uncomfortable with an investment that will go up and down in value;
[bullet] want to earn income exempt from federal taxes.
It is not an appropriate investment for tax-sheltered accounts such as IRAs.
U.S. TREASURY MONEY MARKET FUND
THIS MONEY MARKET FUND MAY BE APPROPRIATE FOR INVESTORS WHO:
[bullet] are investing for a short period of time or as part of a savings plan;
[bullet] are uncomfortable with an investment that will go up and down in value;
[bullet] want the added safety of U.S. government securities.
INSTITUTIONAL U.S. TREASURY MONEY MARKET FUND
THIS MONEY MARKET FUND MAY BE APPROPRIATE FOR INSTITUTIONAL INVESTORS WHO:
[bullet] are investing for a short period of time;
[bullet] want the added safety of U.S. government securities.
PRIME MONEY MARKET FUND
THIS MONEY MARKET FUND MAY BE APPROPRIATE FOR INVESTORS WHO:
[bullet] are investing for a short period of time or as part of a savings plan;
[bullet] are uncomfortable with an investment that will go up and down in value;
[bullet] are looking for higher returns than are usually available from
Treasury money market funds.
INSTITUTIONAL PRIME MONEY MARKET FUND
THIS MONEY MARKET FUND MAY BE APPROPRIATE FOR INSTITUTIONAL INVESTORS WHO:
[bullet] are investing for a short period of time;
[bullet] are looking for higher returns than are usually available from
Treasury money market funds.
None of the Money Market Funds alone provides a balanced investment plan.
PROSPECTUS
3
<PAGE>
BOSTON 1784 MONEY MARKET FUNDS (CONTINUED)
[FLAG GRAPHIC OMITTED]
HOW HAVE THE FUNDS PERFORMED?
The charts and tables below give an indication of the Funds' risks
and performance. The charts show changes in the Funds' performance
from year to year. The tables show how the Funds' average annual
returns for the periods indicated compare to those of a broad
measure of money market performance.
WHEN YOU CONSIDER THIS INFORMATION, PLEASE REMEMBER THAT A FUND'S
PERFORMANCE IN PAST YEARS IS NOT NECESSARILY AN INDICATION OF HOW A
FUND WILL DO IN THE FUTURE.
- ------------------------------------------------------------------------------
TAX-FREE MONEY MARKET FUND
- ------------------------------------------------------------------------------
TOTAL RETURN
(per calendar year)
[Bar Graphic Omitted]
Plot points are as follow:
1994 2.71%
1995 3.75%
1996 3.25%
1997 3.33%
1998 3.15%
The total return for the six months ended June 30, 1999 was 1.44%.
- ------------------------------------------------------------------------------
HIGHEST AND LOWEST RETURN
(Quarterly 1994-1998)
- ------------------------------------------------------------------------------
QUARTER ENDING
Highest 0.96% June 30, 1995
Lowest 0.58% March 31, 1994
- ------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- ------------------------------------------------------------------------------
1 YEAR 5 YEARS LIFE OF FUND
(SINCE 6/14/93)
Tax-Free Money Market Fund 3.15% 3.24% 3.16%
IBC/Financial Data 2.92% 2.92% 2.82%*
Stockbroker & General
Purpose Tax-Free Average
- ------------------------------------------------------------------------------
*(since 5/31/93)
- ------------------------------------------------------------------------------
U.S. TREASURY MONEY MARKET FUND
- ------------------------------------------------------------------------------
TOTAL RETURN
(per calendar year)
[Bar Graphic Omitted]
Plot points are as follow:
1994 3.72%
1995 5.43%
1996 4.82%
1997 4.96%
1998 4.86%
The total return for the six months ended June 30, 1999 was 2.09%.
- ------------------------------------------------------------------------------
HIGHEST AND LOWEST RETURN
(Quarterly 1994-1998)
- ------------------------------------------------------------------------------
QUARTER ENDING
Highest 1.38% June 30, 1995
Lowest 0.64% March 31, 1994
- ------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- ------------------------------------------------------------------------------
1 YEAR 5 YEARS LIFE OF FUND
(SINCE 6/7/93)
U.S. Treasury Money Market Fund 4.86% 4.76% 4.54%
IBC/Financial Data U.S. 4.90% 4.70% 4.48%*
Government & Agencies Average
- ------------------------------------------------------------------------------
*(since 5/31/93)
FOR UP-TO-DATE YIELD INFORMATION, PLEASE CALL 1-800-BKB-1784.
PROSPECTUS
4
<PAGE>
- ------------------------------------------------------------------------------
INSTITUTIONAL U.S. TREASURY MONEY MARKET FUND
- ------------------------------------------------------------------------------
TOTAL RETURN
(per calendar year)
[Bar Graphic Omitted]
Plot points are as follow:
1994 4.04%
1995 5.69%
1996 5.14%
1997 5.30%
1998 5.20%
The total return for the six months ended June 30, 1999 was 2.26%.
- ------------------------------------------------------------------------------
HIGHEST AND LOWEST RETURN
(Quarterly 1994-1998)
- ------------------------------------------------------------------------------
QUARTER ENDING
Highest 1.43% June 30, 1995
Lowest 0.76% March 31, 1994
- ------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- ------------------------------------------------------------------------------
1 YEAR 5 YEARS LIFE OF FUND
(SINCE 6/14/93)
Institutional U.S. Treasury 5.20% 5.07% 4.87%
Money Market Fund
IBC/Financial Data Government- 5.10% 4.98% 4.76%*
Only Institutional-Only Average
- ------------------------------------------------------------------------------
*(since 5/31/93)
- ------------------------------------------------------------------------------
PRIME MONEY MARKET FUND
- ------------------------------------------------------------------------------
TOTAL RETURN
(per calendar year)
[Bar Graphic Omitted]
Plot points are as follows
1992 3.48%
1993 2.72%
1994 3.75%
1995 5.49%
1996 5.02%
1997 5.14%
1998 5.06%
The total return for the six months ended June 30, 1999 was 2.19%.
- ------------------------------------------------------------------------------
HIGHEST AND LOWEST RETURN
(Quarterly 1992-1998)
- ------------------------------------------------------------------------------
QUARTER ENDING
Highest 1.39% June 30, 1995
Lowest 0.66% March 31, 1994
- ------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- ------------------------------------------------------------------------------
1 YEAR 5 YEARS LIFE OF FUND
(SINCE 6/6/91)
Prime Money 5.06% 4.89% 4.45%
Market Fund
IBC/Financial Data 4.96% 4.79% 4.34%*
First Tier Money
Market Average
- --------------------------------------------------------------------------------
*(since 5/31/91)
FOR UP-TO-DATE YIELD INFORMATION, PLEASE CALL 1-800-BKB-1784.
PROSPECTUS
5
<PAGE>
BOSTON 1784 MONEY MARKET FUNDS (CONTINUED)
- --------------------------------------------------------------------------------
INSTITUTIONAL PRIME MONEY MARKET FUND
- --------------------------------------------------------------------------------
TOTAL RETURN
(per calendar year)
[Bar Graphic Omitted]
Plot points are as follow:
1998 5.40%
The total return for the six months ended June 30, 1999 was 2.35%.
- --------------------------------------------------------------------------------
HIGHEST AND LOWEST RETURN
(Quarterly 1998)
- --------------------------------------------------------------------------------
QUARTER ENDING
Highest 1.35% September 30, 1998
Lowest 1.27% December 31, 1998
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- --------------------------------------------------------------------------------
1 YEAR LIFE OF FUND
(SINCE 11/5/97)
Institutional Prime 5.40% 5.43%
Money Market Fund
IBC/Financial Data First Tier 5.33% 5.35%*
Institutional Only Average
- --------------------------------------------------------------------------------
*(since 10/31/97)
FOR UP-TO-DATE YIELD INFORMATION, PLEASE CALL 1-800-BKB-1784.
PROSPECTUS
6
<PAGE>
[CALCULATOR GRAPHIC OMITTED]
WHAT ARE THE FEES AND EXPENSES OF THE FUNDS?
THE TABLES BELOW DESCRIBE THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND
HOLD SHARES OF BOSTON 1784 MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
SHAREHOLDER FEES
(fees paid directly from your investment)
- --------------------------------------------------------------------------------
<TABLE>
TAX-FREE U.S. TREASURY INSTITUTIONAL U.S. PRIME INSTITUTIONAL
MONEY MONEY TREASURY MONEY MONEY PRIME MONEY
MARKET FUND MARKET FUND MARKET FUND MARKET FUND MARKET FUND
<S> <C> <C> <C>
Maximum Sales Charge (Load) None None None None None
Imposed on Purchases
Maximum Deferred Sales Charge (Load) None None None None None
Maximum Sales Charge (Load) None None None None None
Imposed on Reinvested Dividends
Redemption Fee None None None None None
Exchange Fee None None None None None
- ----------------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets) as a % of average net assets
- ----------------------------------------------------------------------------------------------------------------------------------
Management Fees .40% .40% .20% .40% .20%
Distribution (12b-1) Fees None None None None None
Other Expenses .11% .32% .11% .33% .15%
Total Annual Fund Operating Expenses .51% .72%* .31% .73%* .35%*
- ----------------------------------------------------------------------------------------------------------------------------------
*Each of these Funds' actual total annual fund operating expenses for the most
recent fiscal year were less than the amount shown above because of a fee waiver
by the Funds' Adviser. The Adviser waives a portion of its management fees in
order to keep each Fund's total operating expenses at a specified level. The
Adviser may eliminate all or a part of the fee waiver at any time. With the fee
waiver, the Funds' actual total annual fund operating expenses were as follows:
U.S. TREASURY MONEY MARKET FUND .65%
PRIME MONEY MARKET FUND .65%
INSTITUTIONAL PRIME MONEY MARKET FUND .30%
- ----------------------------------------------------------------------------------------------------------------------------------
EXAMPLE
- ----------------------------------------------------------------------------------------------------------------------------------
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN BOSTON
1784 MONEY MARKET FUNDS TO THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE
EXAMPLE ASSUMES THAT YOU INVEST $10,000 IN A FUND FOR THE TIME PERIODS INDICATED
AND THEN SELL ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE EXAMPLE ALSO
ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE FUND'S
OPERATING EXPENSES REMAIN THE SAME AS SHOWN IN THE TABLE ABOVE. ALTHOUGH YOUR
ACTUAL COSTS AND THE RETURN ON YOUR INVESTMENT MAY BE HIGHER OR LOWER, BASED ON
THESE ASSUMPTIONS YOUR COSTS WOULD BE:
- -----------------------------------------------------------------------------------------------------------------------------------
TAX-FREE U.S. TREASURY INSTITUTIONAL U.S. TREASURY PRIME MONEY INSTITUTIONAL PRIME
MONEY MARKET FUND MONEY MARKET FUND MONEY MARKET FUND MARKET FUND MONEY MARKET FUND
- -----------------------------------------------------------------------------------------------------------------------------------
1 year $ 52 $ 74 $ 32 $ 75 $ 36
3 years 164 230 100 233 113
5 years 285 401 174 406 197
10 years 640 894 393 906 443
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
PROSPECTUS
7
<PAGE>
BOSTON 1784 BOND FUNDS
SHORT-TERM INCOME FUND
INCOME FUND
U.S. GOVERNMENT MEDIUM-TERM INCOME FUND
THIS SUMMARY BRIEFLY DESCRIBES EACH BOSTON 1784 BOND FUND AND THE PRINCIPAL
RISKS OF INVESTING IN THE FUNDS. FOR FURTHER INFORMATION ON THESE FUNDS, PLEASE
READ THE SECTION ENTITLED MORE ABOUT BOSTON 1784 FUNDS.
[COMPASS GRAPHIC OMITTED]
WHAT ARE THE FUNDS' GOALS?
SHORT-TERM INCOME FUND
The Short-Term Income Fund's goal is to provide investors with maximum current
income, and, as a secondary goal, to preserve investors' capital.
INCOME FUND
The Income Fund's goal is to provide investors with maximum current income, and,
as a secondary goal, to preserve investors' capital.
U.S. GOVERNMENT MEDIUM-TERM
INCOME FUND
The U.S. Government Medium-Term Income Fund's goal is to provide investors with
current income consistent with preservation of capital.
WHAT IS A BOND?
A BOND, which is also called a DEBT SECURITY or DEBT OBLIGATION, is like a
loan. The issuer of the bond, which could be the U.S. government, a
corporation, or a city or state, borrows money from investors and agrees to
pay back the loan amount (the PRINCIPAL) on a certain date (the MATURITY
DATE). Usually, the issuer also agrees to pay interest on certain dates
during the period of the loan. Some bonds, such as ZERO COUPON BONDS, do not
pay interest, but instead pay back more at maturity than the original loan.
Most bonds pay a fixed rate of interest (or income), but some bonds' interest
rates may change based on market or other factors.
WHAT DOES IT MEAN TO "PRESERVE CAPITAL"?
CAPITAL, also called PRINCIPAL, refers to the amount of money that you invest in
a fund. If you choose to have your dividends and other distributions reinvested
in additional shares of a fund, the amount of the distributions will be added to
your initial investment to increase the amount of your capital. If the price of
the fund's shares or net asset value (NAV) increases because of increases in the
value of the securities in the fund, your capital will also increase. If,
however, the value of the fund's investments go down and the price of the fund's
shares decreases, you will lose some of your capital. A fund that seeks to
preserve capital or principal tries to maintain a stable share price so that you
do not lose money.
[CHESS GRAPHIC OMITTED]
WHAT ARE THE FUNDS' MAIN INVESTMENT STRATEGIES?
SHORT-TERM INCOME FUND
The Short-Term Income Fund invests primarily in investment grade debt
securities, such as corporate bonds, notes, mortgage-backed and asset-backed
securities, taxable municipal securities and U.S. Treasury and government agency
obligations.
The Fund may invest in Yankee bonds, which are dollar-denominated bonds issued
in the U.S. by foreign borrowers. Yankee bonds may offer higher income than
bonds issued by U.S. borrowers. The Fund may also invest in bonds issued by
foreign issuers and payable in foreign currencies.
Under normal conditions, at least 65% of the securities will be rated A or
better by a rating agency or be of comparable quality as determined by the
Adviser.
PROSPECTUS
8
<PAGE>
The Fund is permitted to invest in bonds with any maturity. However, in order to
limit fluctuations in share price, the Fund tries to maintain an average
weighted maturity of less than three years under normal circumstances.
INCOME FUND
The Income Fund invests primarily in investment grade debt securities, including
U.S. government obligations, corporate bonds and mortgage-backed and
asset-backed securities.
The Fund may invest in Yankee bonds, which are dollar-denominated bonds issued
in the U.S. by foreign borrowers. Yankee bonds may offer higher income than
bonds issued by U.S. borrowers. The Fund may also invest in bonds issued by
foreign issuers and payable in foreign currencies.
Under normal conditions, at least 65% of the securities will be rated A or
better by a rating agency or be of comparable quality as determined by the
Adviser.
The Fund is permitted to invest in bonds with any maturity. However, the Fund's
average weighted maturity is normally expected to be between 7 and 30 years.
U.S. GOVERNMENT MEDIUM-TERM
INCOME FUND
The U.S. Government Medium-Term Income Fund invests primarily in short- to
intermediate-term U.S. Treasury and government agency securities and both
government agency and non-government agency mortgage-backed securities.
U.S. government obligations generally have less credit risk than other debt
obligations.
The Fund is permitted to invest in bonds with any maturity. However, the Fund's
average weighted maturity is normally expected to be from 3 to 10 years.
[Road Sign graphic omitted]
WHAT ARE THE MAIN RISKS OF INVESTING IN BOSTON 1784 BOND FUNDS?
The principal risks of investing in the Bond Funds and the circumstances
reasonably likely, in the opinion of the Adviser, to affect your investment
adversely are described below. As with any non-money market mutual fund, the
share price of each Fund and each Fund's yield will change daily because of
changes in interest rates and other market conditions and factors. You may lose
money if you invest in these Funds. Please note that there are many other
circumstances that could affect your investment adversely and that could prevent
a Fund from achieving its objectives, which are not described here. The
principal risks of investing in the Bond Funds are:
[bullet] INTEREST RATE RISK: In general, bond prices rise when interest rates
fall and fall when interest rates rise. Longer term bonds and zero coupon bonds
are usually more sensitive to interest rate changes than shorter term bonds.
Generally, the longer the average maturity of the bonds in a Fund, the more
the Fund's share price will fluctuate in response to interest rate changes.
Changes in interest rates will also affect the amount of income a Fund
receives. A decline in interest rates may lead to a decline in the Fund's
income.
[bullet] CREDIT RISK: It is possible that some of the issuers will not make
payments (default) on debt securities held by a Fund, or there could be
defaults on repurchase agreements held by a Fund. A default will hurt a Fund's
performance. Or, an issuer may suffer adverse changes in financial condition
that could lower the credit quality of a security, leading to greater
volatility in the price of the security and in shares of a Fund. A change in
the quality rating of a bond can make it more difficult for the Fund to sell
the bond.
[bullet] PREPAYMENT AND EXTENSION RISK: The issuers of securities held by a Fund
may be able to call a bond or prepay principal, particularly during periods of
declining interest rates. In that case, a Fund may not be able to reinvest
the proceeds at attractive rates. The Fund would also lose the benefit of
falling interest rates on the price of the repaid bond. Securities subject to
prepayment risk generally offer less potential for gains when interest rates
decline, and may offer a greater potential for loss when interest rates rise.
In addition, rising interest rates may cause prepayments to occur at a slower
than expected rate, thereby effectively lengthening the maturity of the
security and making the security more sensitive to interest rate changes.
[bullet] SPECIAL RISKS ASSOCIATED WITH MORTGAGE-BACKED SECURITIES: The Fund will
receive payments on its mortgage-backed securities that are part interest and
part return of principal. These payments may vary based on the rate at which
homeowners pay off their loans. When a homeowner makes a prepayment, the Fund
receives a larger portion of its principal investment back, which means that
there will be a decrease in monthly interest payments. Some mortgage-backed
securities may have structures that make their reaction to interest rates and
other factors difficult to predict, making their prices very volatile.
PROSPECTUS
9
<PAGE>
BOSTON 1784 BOND FUNDS (CONTINUED)
Mortgage-backed securities are particularly exposed to prepayment and
extension risk and it may be very difficult for a Fund to predict accurately
the maturity of the securities it holds.
[bullet] PORTFOLIO SELECTION: The portfolio managers may not pick securities for
a Fund that perform well because they are unable to predict accurately the
direction of interest rates or the maturity of certain debt obligations, or
to assess accurately credit quality or other factors. In that case, you may
lose money or your investment in the Fund may not do as well as other similar
investments.
[bullet] ZERO COUPON SECURITIES: The Funds may invest in zero coupon securities
or STRIPS, which are the separately traded interest and principal component
parts of government debt obligations. The interest-only component is
extremely sensitive to the rate of principal payments on the underlying
obligation. The market value of the principal-only component generally is
unusually volatile in response to changes in interest rates.
[bullet] FOREIGN SECURITIES: Investments in foreign securities may involve
risks in addition to those of U.S. investments, including increased political
and economic risk and exposure to currency fluctuations.
[bullet] An investment in a Fund is not a deposit of BankBoston and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
governmental agency.
PROSPECTUS
10
<PAGE>
WHO MAY WANT TO INVEST?
SHORT-TERM INCOME FUND
THIS BOND FUND MAY BE APPROPRIATE FOR INVESTORS WHO ARE:
[bullet] seeking current income;
[bullet] seeking a higher yield than a money market fund or a bank savings
account;
[bullet] seeking more price stability than a longer-term bond fund but are able
to tolerate some fluctuations in the value of their investment.
INCOME FUND
THIS BOND FUND MAY BE APPROPRIATE FOR INVESTORS WHO ARE:
[bullet] seeking a higher level of current income than is available from
shorter-term securities;
[bullet] able to tolerate the greater price fluctuations associated with longer-
term securities and higher levels of income.
U.S. GOVERNMENT MEDIUM-TERM INCOME FUND
THIS BOND FUND MAY BE APPROPRIATE FOR INVESTORS WHO ARE:
[bullet] seeking higher levels of current income than is available from
shorter-term securities or money market funds;
[bullet] seeking the added measure of protection against credit risk provided
by U.S. government securities;
[bullet] able to tolerate the fluctuations in price associated with medium-term
securities.
Do not invest in these Funds if you are not prepared to accept volatility of a
Fund's share price and possible losses.
None of the Bond Funds alone provides a balanced investment plan.
PROSPECTUS
11
<PAGE>
BOSTON 1784 BOND FUNDS (CONTINUED)
[FLAG GRAPHIC OMITTED]
HOW HAVE THE FUNDS PERFORMED
The charts and tables below give an indication of the Funds' risks and
performance. The charts show changes in the Funds' performance from year to
year. The tables show how the Funds' average annual returns for the periods
indicated compare to those of a broad measure of market performance
WHEN YOU CONSIDER THIS INFORMATION, PLEASE REMEMBER THAT A FUND'S PERFORMANCE IN
PAST YEARS IS NOT NECESSARILY AN INDICATION OF HOW A FUND WILL DO IN THE FUTURE.
- -------------------------------------------------------------------------------
SHORT-TERM INCOME FUND
- -------------------------------------------------------------------------------
TOTAL RETURN
(per calendar year)
[Bar Graphic Omitted]
Plot points are as follow:
1995 11.36%
1996 4.25%
1997 6.30%
1998 6.31%
The total return for the six months ended June 30, 1999 was 1.12%.
- -------------------------------------------------------------------------------
HIGHEST AND LOWEST RETURN
(Quarterly 1995-1998)
- -------------------------------------------------------------------------------
QUARTER ENDING
Highest 3.31% June 30, 1995
Lowest -0.27% March 31, 1996
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- -------------------------------------------------------------------------------
1 YEAR LIFE OF FUND
(SINCE 7/1/94)
Short-Term Income Fund 6.31% 6.39%
Lehman Mutual Fund 7.64% 7.28%*
1-5 Year Government/Corporate
Bond Index
- -------------------------------------------------------------------------------
*(since 6/30/94)
- -------------------------------------------------------------------------------
INCOME FUND
- -------------------------------------------------------------------------------
TOTAL RETURN
(per calendar year)
[Bar Graphic Omitted]
Plot points are as follow:
1995 17.98%
1996 2.60%
1997 7.85%
1998 7.69%
The total return for the six months ended June 30, 1999 was -2.57%.
- -------------------------------------------------------------------------------
HIGHEST AND LOWEST RETURN
(Quarterly 1995-1998)
- -------------------------------------------------------------------------------
QUARTER ENDING
Highest 6.34% June 30, 1995
Lowest -2.42% March 31, 1996
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- -------------------------------------------------------------------------------
1 YEAR LIFE OF FUND
(SINCE 7/1/94)
Income Fund 7.69% 7.88%
Lehman Aggregate 8.67% 9.05%*
Bond Index
- -------------------------------------------------------------------------------
*(since 6/30/94)
FOR UP-TO-DATE YIELD INFORMATION, PLEASE CALL 1-800-BKB-1784.
PROSPECTUS
12
<PAGE>
- -------------------------------------------------------------------------------
U.S. GOVERNMENT MEDIUM-TERM INCOME FUND
- -------------------------------------------------------------------------------
TOTAL RETURN
(per calendar year)
[Bar Graphic Omitted]
Plot points are as follow:
1994 -3.78%
1995 15.89%
1996 1.98%
1997 8.08%
1998 7.95%
The total return for the six months ended June 30, 1999 was -1.95%.
- -------------------------------------------------------------------------------
HIGHEST AND LOWEST RETURN
(Quarterly 1994-1998)
- -------------------------------------------------------------------------------
QUARTER ENDING
Highest 5.51% June 30, 1995
Lowest -2.93% March 31, 1994
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- -------------------------------------------------------------------------------
1 YEAR 5 YEARS LIFE OF FUND
(SINCE 6/7/93)
U.S. Government Medium- 7.95% 5.82% 5.88%
Term Income Fund
Lehman Intermediate 8.47% 6.45% 6.45%*
Government Bond Index
- -------------------------------------------------------------------------------
*(since 5/31/93)
FOR UP-TO-DATE YIELD INFORMATION, PLEASE CALL 1-800-BKB-1784.
PROSPECTUS
13
<PAGE>
BOSTON 1784 BOND FUNDS (CONTINUED)
[CALCULATOR GRAPHIC OMITTED]
WHAT ARE THE FEES AND EXPENSES OF THE FUNDS?
THE TABLES BELOW DESCRIBE THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND
HOLD SHARES OF BOSTON 1784 BOND FUNDS
- -------------------------------------------------------------------------------
SHAREHOLDER FEES
(fees paid directly from your investment)
- -------------------------------------------------------------------------------
U.S. GOVERNMENT
SHORT-TERM INCOME MEDIUM-TERM
INCOME FUND FUND INCOME FUND
Maximum Sales Charge (Load) None None None
Imposed on Purchases
Maximum Deferred Sales Charge
(Load) None None None
Maximum Sales Charge (Load) None None None
Imposed on Reinvested Dividends
Redemption Fee None None None
Exchange Fee None None None
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets) as a % of average net assets
- --------------------------------------------------------------------------------
Management Fees .50% .74% .74%
Distribution (12b-1) Fees .25% .25% .25%
Other Expenses .14% .12% .13%
Total Annual Fund Operating
Expenses .89%* 1.11%* 1.12%*
- --------------------------------------------------------------------------------
*Each of these Funds' actual total annual fund operating expenses for the most
recent fiscal year were less than the amount shown above because of fee waivers
by the Funds' Adviser and Distributor. The Adviser waives a portion of its
management fees in order to keep each Fund's total operating expenses at a
specified level and the Distributor waives its entire Distribution Fee. The
Adviser and the Distributor may eliminate all or a part of the fee waivers at
any time. With these fee waivers, the Funds' actual total annual operating
expenses were as follows:
SHORT-TERM INCOME FUND .64%
INCOME FUND .80%
U.S. GOVERNMENT MEDIUM-TERM INCOME FUND .80%
- --------------------------------------------------------------------------------
EXAMPLE
- --------------------------------------------------------------------------------
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN BOSTON
1784 BOND FUNDS TO THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE EXAMPLE
ASSUMES THAT YOU INVEST $10,000 IN A FUND FOR THE TIME PERIODS INDICATED AND
THEN SELL ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE EXAMPLE ALSO
ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE FUND'S
OPERATING EXPENSES REMAIN THE SAME AS SHOWN IN THE TABLE ABOVE. ALTHOUGH YOUR
ACTUAL COSTS AND THE RETURN ON YOUR INVESTMENT MAY BE HIGHER OR LOWER, BASED ON
THESE ASSUMPTIONS YOUR COSTS WOULD BE:
- -------------------------------------------------------------------------------
SHORT-TERM INCOME FUND U.S. GOVERNMENT
INCOME FUND MEDIUM-TERM INCOME FUND
- -------------------------------------------------------------------------------
1 year $ 91 $ 113 $ 114
3 years 284 353 356
5 years 493 612 617
10 years 1,096 1,352 1,363
- ------------------------------------------------------------------------------
PROSPECTUS
14
<PAGE>
BOSTON 1784 TAX-EXEMPT INCOME FUNDS
TAX-EXEMPT MEDIUM-TERM INCOME FUND
CONNECTICUT TAX-EXEMPT INCOME FUND
FLORIDA TAX-EXEMPT INCOME FUND
MASSACHUSETTS TAX-EXEMPT INCOME FUND
RHODE ISLAND TAX-EXEMPT INCOME FUND
THIS SUMMARY BRIEFLY DESCRIBES EACH BOSTON 1784 TAX-EXEMPT INCOME FUND AND THE
PRINCIPAL RISKS OF INVESTING IN THE FUNDS. FOR FURTHER INFORMATION ON THESE
FUNDS, PLEASE READ THE SECTION ENTITLED MORE ABOUT BOSTON 1784 FUNDS.
[COMPASS GRAPHIC OMITTED]
WHAT ARE THE FUNDS' GOALS?
TAX-EXEMPT MEDIUM-TERM INCOME FUND
The Tax-Exempt Medium-Term Income Fund's goal is to provide investors with
current income, exempt from federal income tax, consistent with preservation of
capital.
CONNECTICUT TAX-EXEMPT INCOME FUND
The Connecticut Tax-Exempt Income Fund's goal is to provide investors with
current income exempt from both federal and Connecticut personal income tax,
with a secondary goal of preserving capital.
FLORIDA TAX-EXEMPT INCOME FUND
The Florida Tax-Exempt Income Fund's goal is to provide investors with current
income exempt from federal income tax through Fund shares which are exempt from
Florida intangible personal property tax, with a secondary goal of preserving
capital.
MASSACHUSETTS TAX-EXEMPT
INCOME FUND
The Massachusetts Tax-Exempt Income Fund's goal is to provide investors with
current income, exempt from both federal and Massachusetts personal income tax,
consistent with preservation of capital.
RHODE ISLAND TAX-EXEMPT INCOME FUND
The Rhode Island Tax-Exempt Income Fund's goal is to provide investors with
current income exempt from federal income tax and Rhode Island personal income
and business corporation taxes, with a secondary goal of preserving capital.
WHAT ARE MUNICIPAL SECURITIES?
MUNICIPAL SECURITIES are debt obligations of states, cities, towns, and other
political subdivisions, agencies or public authorities that pay interest that
is exempt from federal income tax. Municipal securities also include debt
obligations of other qualifying issuers such as Puerto Rico, Guam, the Virgin
Islands and Native American Tribes. Municipal securities are often issued to
raise money for public services and projects such as schools, hospitals and
public transportation systems. Some municipal securities (for example,
INDUSTRIAL DEVELOPMENT BONDS) may be backed by private companies and used to
provide financing for corporate facilities or other private projects. In most
states, municipal securities issued by entities within the state are also
exempt from that state's taxes. Municipal securities may be in the form of
BONDS, NOTES and COMMERCIAL paper, may have a fixed or floating rate of
interest, or be issued as ZERO COUPON BONDS.
[chess piece graphic omitted]
WHAT ARE THE FUNDS' MAIN INVESTMENT STRATEGIES?
TAX-EXEMPT MEDIUM-TERM INCOME FUND
The Tax-Exempt Medium-Term Income Fund invests primarily in a diversified
portfolio of municipal securities.
The Fund may also invest in limited amounts in debt securities that pay interest
that is not exempt from federal tax, such as U.S. government obligations,
corporate bonds, money market instruments and repurchase agreements.
PROSPECTUS
15
<PAGE>
BOSTON 1784 TAX-EXEMPT INCOME FUNDS (CONTINUED)
The Fund may, from time to time, invest as a hedging strategy
in a limited amount of futures contracts or options on futures contracts. The
Fund may only use futures contracts and options on futures contracts in an
effort to offset unfavorable changes in the value of securities held by the Fund
for investment purposes.
In an effort to preserve capital and lessen credit risk, the Fund invests
primarily in investment grade securities, and generally invests in securities
rated A or better. Certain securities held by the Fund may be covered by
municipal bond insurance. The Fund is permitted to invest in bonds with any
maturity. However, the Fund's average weighted maturity is normally expected to
be from 5 to 10 years.
WHAT ARE INVESTMENT GRADE SECURITIES?
INVESTMENT GRADE SECURITIES are securities that have been determined by a
rating agency to have a medium to high probability of being paid, although
there is always a risk of default. Investment grade securities are rated BBB,
A, AA or AAA by Standard & Poor's Corporation or Baa, A, Aa or Aaa by Moody's
Investors Service.
CONNECTICUT TAX-EXEMPT INCOME FUND
The Connecticut Tax-Exempt Income Fund invests primarily in municipal securities
that pay interest that is exempt from federal income tax and Connecticut
personal income tax. Issuers of these securities are generally located in
Connecticut.
The Fund may also invest in limited amounts in municipal securities that are
exempt from federal income tax, but not exempt from Connecticut taxes, as well
as taxable debt securities such as U.S. government obligations, corporate bonds,
money market instruments and repurchase agreements.
The Fund may, from time to time, invest as a hedging strategy in a limited
amount of futures contracts or options on futures contracts. The Fund may only
use futures contracts and options on futures contracts in an effort to offset
unfavorable changes in the value of securities held by the Fund for investment
purposes.
The Fund invests primarily in investment grade securities, and generally invests
in securities rated A or better. Certain securities held by the Fund may be
covered by municipal bond insurance. The Fund is permitted to invest in bonds
with any maturity. However, the Fund's average weighted maturity is normally
expected to be from 5 to 10 years.
FLORIDA TAX-EXEMPT INCOME FUND
The Florida Tax-Exempt Income Fund invests primarily in municipal securities
that pay interest that is exempt from federal income tax and that are exempt
from Florida intangible personal property tax. Issuers of these securities are
generally located in Florida.
The Fund may also invest in limited amounts in municipal securities that are
exempt from federal income tax, but not exempt from Florida taxes, as well as
taxable debt securities such as U.S. government obligations, corporate bonds,
money market instruments and repurchase agreements.
The Fund may, from time to time, invest as a hedging strategy in a limited
amount of futures contracts or options on futures contracts. The Fund may only
use futures contracts and options on futures contracts in an effort to offset
unfavorable changes in the value of securities held by the Fund for investment
purposes.
The Fund invests primarily in investment grade securities, and generally invests
in securities rated A or better. Certain securities held by the Fund may be
covered by municipal bond insurance. The Fund is permitted to invest in bonds
with any maturity. However, the Fund's average weighted maturity is normally
expected to be from 5 to 10 years.
MASSACHUSETTS TAX-EXEMPT INCOME FUND
The Massachusetts Tax-Exempt Income Fund invests primarily in municipal
securities that pay interest that is exempt from federal income tax and
Massachusetts personal income tax. Issuers of these securities are generally
located in Massachusetts.
The Fund may also invest in limited amounts in municipal securities that are
exempt from federal income tax, but not exempt from Massachusetts taxes, as well
as taxable debt securities such as U.S. government obligations, corporate bonds,
money market instruments and repurchase agreements.
The Fund may, from time to time, invest as a hedging strategy in a limited
amount of futures contracts or options on futures contracts. The Fund may only
use futures contracts and options on futures contracts in an effort to offset
unfavorable changes in the value of securities held by the Fund for investment
purposes.
The Fund invests primarily in investment grade securities, and generally invests
in securities rated A or better. Certain securities held by the Fund may be
covered by municipal bond insurance. The Fund is permitted to invest in bonds
with any maturity. However, the Fund's average weighted maturity is normally
expected to be from 5 to 10 years.
PROSPECTUS
16
<PAGE>
RHODE ISLAND TAX-EXEMPT INCOME FUND
The Rhode Island Tax-Exempt Income Fund invests primarily in municipal
securities that pay interest that is exempt from federal income tax and Rhode
Island personal income and business corporation taxes. Issuers of these
securities are generally located in Rhode Island.
The Fund may also invest in limited amounts in municipal securities that are
exempt from federal income tax, but not exempt from Rhode Island taxes, as well
as taxable debt securities such as U.S. government obligations, corporate bonds,
money market instruments and repurchase agreements.
The Fund may, from time to time, invest as a hedging strategy in a limited
amount of futures contracts or options on futures contracts. The Fund may only
use futures contracts and options on futures contracts in an effort to offset
unfavorable changes in the value of securities held by the Fund for investment
purposes.
The Fund invests primarily in investment grade securities, and generally invests
in securities rated A or better. Certain securities held by the Fund may be
covered by municipal bond insurance. The Fund is permitted to invest in bonds
with any maturity. However, the Fund's average weighted maturity is normally
expected to be from 5 to 10 years.
[Road Sign Graphic Omitted]
WHAT ARE THE MAIN RISKS
OF INVESTING IN BOSTON 1784 TAX-EXEMPT INCOME FUNDS?
The principal risks of investing in the Tax-Exempt Income Funds and the
circumstances reasonably likely, in the opinion of the Adviser, to affect your
investment adversely are described below. As with any non-money market mutual
fund, the share price of each Fund and each Fund's yield will change daily based
on changes in interest rates and other market conditions and factors. You may
lose money if you invest in these Funds. Please note that there are many other
circumstances that could affect your investment adversely and that could prevent
a Fund from achieving its objectives, which are not described here. The
principal risks of investing in the Tax-Exempt Income Funds are:
[bullet] INTEREST RATE RISK: In general, the prices of municipal securities and
other debt securities rise when interest rates fall and fall when interest rates
rise. Longer term obligations and zero coupon bonds are usually more sensitive
to interest rate changes than shorter term obligations. Generally, the longer
the average maturity of the bonds in a Fund, the more the Fund's share price
will fluctuate in response to interest rate changes. Changes in interest rates
will also affect the amount of income a Fund receives. A decline in interest
rates may lead to a decline in the Fund's income.
[bullet] CREDIT RISK: Although the Funds invest primarily in investment grade
securities, these securities have some credit risk. It is possible that some of
the issuers will not make payments (default) on the municipal or other debt
securities held by the Fund or there could be defaults on repurchase agreements
held by a Fund. A default will hurt a Fund's performance. Or, an issuer may
suffer adverse changes in its financial condition that could lower the credit
quality of a security, leading to greater volatility in the price of the
security and in shares of the Fund. An adverse change in the quality rating of a
bond can make it more difficult for the Fund to sell the bond.
[bullet] MUNICIPAL MARKET RISK: There are special factors which may affect the
value of municipal securities and, as a result, a Fund's share price. These
factors include the possibility that interest on municipal securities held by a
Fund could be declared taxable, political or legislative changes, and
uncertainties related to the rights of investors in the securities. In addition,
municipalities may be more susceptible to Year 2000 computer problems than other
issuers.
[bullet] PREPAYMENT AND EXTENSION RISK: The issuers of securities held by a Fund
may be able to call a bond or prepay principal, particularly during periods of
declining interest rates. In that case, a Fund may not be able to reinvest the
proceeds at attractive rates. The Fund would also lose the benefit of falling
interest rates on the price of the repaid bond. Securities subject to prepayment
risk generally offer less potential for gains when interest rates decline, and
may offer a greater potential for loss when interest rates rise. In addition,
rising interest rates may cause prepayments to occur at a slower than expected
rate, thereby effectively lengthening the maturity of the security and making
the security more sensitive to interest rate changes.
[bullet] LACK OF DIVERSIFICATION: The Connecticut, Florida, Massachusetts and
Rhode Island Funds are not diversified, which means that they may invest a
relatively high percentage of their assets in the obligations of a limited
number of issuers. As a result, these Funds may be more susceptible to any
single economic, political or regulatory occurrence. These Funds are also
particularly susceptible to events affecting issuers in their particular states.
You should consider the greater risk of investing in these single state Funds
compared to more diversified mutual funds.
PROSPECTUS
17
<PAGE>
BOSTON 1784 TAX-EXEMPT INCOME FUNDS (CONTINUED)
[bullet] PORTFOLIO SELECTION: The portfolio managers may not pick securities
that perform well because they are unable to predict accurately the direction of
interest rates or the maturity of certain debt obligations, or to assess
accurately credit quality or other factors. In that case, you may lose money or
your investment in the Fund may not do as well as other similar investments.
[bullet]FUTURES AND OPTIONS ON FUTURES: Although the Tax-Exempt Income Funds may
use futures and options on futures for hedging purposes only, the hedging
strategy may not be successful if the portfolio manager is unable to predict
accurately movements in the prices of individual securities held by a Fund or if
the strategy does not correlate well with the Fund's investments. The use of
futures and options on futures, which are commonly referred to as derivatives,
may produce a loss for the Fund, even when used only for hedging purposes.
[bullet]WHEN-ISSUED SECURITIES: Each of the Funds may enter into agreements to
purchase debt securities before the securities have been issued. The Fund takes
a risk that the market value of these securities will decline before the
securities are delivered to the Fund.
An investment in a Fund is not a deposit of BankBoston and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
governmental agency.
PROSPECTUS
18
<PAGE>
WHO MAY WANT TO INVEST?
TAX-EXEMPT MEDIUM-TERM INCOME FUND
THIS TAX-EXEMPT INCOME FUND MAY BE APPROPRIATE FOR INVESTORS WHO ARE:
[bullet]seeking current income that is exempt from federal income tax;
[bullet]seeking a higher yield than is available from shorter-term tax-exempt
securities or money market funds.
CONNECTICUT TAX-EXEMPT INCOME FUND
THIS TAX-EXEMPT INCOME FUND MAY BE APPROPRIATE FOR CONNECTICUT INVESTORS
WHO ARE:
[bullet]seeking current income that is exempt from federal
income tax and Connecticut personal income tax;
[bullet] seeking a higher yield than is available from shorter-term
tax-exempt securities or money market funds.
FLORIDA TAX-EXEMPT INCOME FUND
THIS TAX-EXEMPT INCOME FUND MAY BE APPROPRIATE FOR FLORIDA INVESTORS WHO ARE:
[bullet] seeking current income that is exempt
from federal income tax through an investment that is exempt from Florida
intangible personal property tax;
[bullet] seeking a higher yield than is available
from shorter-term tax-exempt securities or money market funds.
MASSACHUSETTS TAX-EXEMPT INCOME FUND
THIS TAX-EXEMPT INCOME FUND MAY BE APPROPRIATE FOR MASSACHUSETTS INVESTORS
WHO ARE:
[bullet]seeking current income that is exempt from federal income tax and
Massachusetts personal income tax;
[bullet]seeking a higher yield than is available from shorter-term tax-exempt
securities or money market funds.
RHODE ISLAND TAX-EXEMPT INCOME FUND
THIS TAX-EXEMPT INCOME FUND MAY BE APPROPRIATE FOR
RHODE ISLAND INVESTORS WHO ARE:
[bullet]seeking current income that is exempt from federal
income tax and Rhode Island personal income and business corporation taxes;
[bullet]seeking a higher yield than is available from
shorter-term tax-exempt securities or money market funds.
Do not invest in these Funds if you are not prepared to
accept volatility of a Fund's share price and possible
losses.
The Tax-Exempt Funds are not an appropriate investment
for tax-sheltered accounts such as IRAs.
None of these Funds alone provides a balanced investment plan.
PROSPECTUS
19
<PAGE>
BOSTON 1784 TAX-EXEMPT INCOME FUNDS (CONTINUED)
[FLAG GRAPHIC OMITTED]
HOW HAVE THE FUNDS PERFORMED?
The charts and tables below give an indication of the Funds' risks
and performance. The charts show changes in the Funds' performance
from year to year. The tables show how the Funds' average annual
returns for the periods indicated compare to those of a broad
measure of market performance.
WHEN YOU CONSIDER THIS INFORMATION, PLEASE REMEMBER THAT A FUND'S
PERFORMANCE IN PAST YEARS IS NOT NECESSARILY AN INDICATION OF HOW A
FUND WILL DO IN THE FUTURE.
- -------------------------------------------------------------------------------
TAX-EXEMPT MEDIUM-TERM INCOME FUND
- -------------------------------------------------------------------------------
TOTAL RETURN
(per calendar year)
[Bar Graphic Omitted]
Plot points are as follow:
1994 -3.02%
1995 14.31%
1996 4.20%
1997 9.10%
1998 6.41%
The total return for the six months ended June 30, 1999 was -1.77%.
- -------------------------------------------------------------------------------
HIGHEST AND LOWEST RETURN
(Quarterly 1994-1998)
- -------------------------------------------------------------------------------
QUARTER ENDING
Highest 5.39% March 31, 1995
Lowest -4.20% March 31, 1994
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- -------------------------------------------------------------------------------
1 YEAR 5 YEARS LIFE OF FUND
(SINCE 6/14/93)
Tax-Exempt Medium-Term 6.41% 6.05% 6.63%
Income Fund
Lehman 7-Year 6.23% 5.80% 6.28%*
Municipal Bond Index
- -------------------------------------------------------------------------------
*(since 5/31/93)
- -------------------------------------------------------------------------------
CONNECTICUT TAX-EXEMPT INCOME FUND
- -------------------------------------------------------------------------------
TOTAL RETURN
(per calendar year)
[Bar Graphic Omitted]
Plot points are as follow:
1995 14.66%
1996 3.63%
1997 8.53%
1998 6.67%
The total return for the six months ended June 30, 1999 was -1.78%.
- -------------------------------------------------------------------------------
HIGHEST AND LOWEST RETURN
(Quarterly 1995-1998)
- -------------------------------------------------------------------------------
QUARTER ENDING
Highest 5.91% March 31, 1995
Lowest -1.25% March 31, 1996
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- -------------------------------------------------------------------------------
1 YEAR LIFE OF FUND
(SINCE 8/1/94)
Connecticut Tax-Exempt 6.67% 7.25%
Income Fund
Lehman 7-Year 6.23% 6.92%*
Municipal Bond Index
- -------------------------------------------------------------------------------
*(since 7/31/94)
FOR UP-TO-DATE YIELD INFORMATION, PLEASE CALL 1-800-BKB-1784.
PROSPECTUS
20
<PAGE>
- -------------------------------------------------------------------------------
FLORIDA TAX-EXEMPT INCOME FUND
- -------------------------------------------------------------------------------
TOTAL RETURN
(per calendar year)
[Bar Graphic Omitted]
Plot points are as follow:
1998 6.37%
The total return for the six months ended June 30, 1999 was -1.85%.
- -------------------------------------------------------------------------------
HIGHEST AND LOWEST RETURN
(Quarterly 1998)
- -------------------------------------------------------------------------------
QUARTER ENDING
Highest 3.06% September 30, 1998
Lowest 0.75% December 31, 1998
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- -------------------------------------------------------------------------------
1 YEAR LIFE OF FUND
(SINCE 6/30/97)
Florida Tax-Exempt Income 6.37% 7.82%
Fund
Lehman 7-Year 6.23% 7.49%
Municipal Bond Index
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
MASSACHUSETTS TAX-EXEMPT INCOME FUND
- -------------------------------------------------------------------------------
TOTAL RETURN
(per calendar year)
[Bar Graphic Omitted]
Plot points are as follow:
1994 -5.45%
1995 13.73%
1996 3.32%
1997 8.89%
1998 5.91%
The total return for the six months ended June 30, 1999 was -1.25%.
- -------------------------------------------------------------------------------
HIGHEST AND LOWEST RETURN
(Quarterly 1994-1998)
- -------------------------------------------------------------------------------
QUARTER ENDING
Highest 5.45% March 31, 1995
Lowest -5.15% March 31, 1994
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- -------------------------------------------------------------------------------
1 YEAR 5 YEARS LIFE OF FUND
(SINCE 6/14/93)
Massachusetts Tax-Exempt 5.91% 5.08% 5.84%
Income Fund
Lehman 7-Year 6.23% 5.80% 6.28%*
Municipal Bond Index
- -------------------------------------------------------------------------------
*(since 5/31/93)
FOR UP-TO-DATE YIELD INFORMATION, PLEASE CALL 1-800-BKB-1784.
PROSPECTUS
21
<PAGE>
BOSTON 1784 TAX-EXEMPT INCOME FUNDS (CONTINUED)
- -------------------------------------------------------------------------------
RHODE ISLAND TAX-EXEMPT INCOME FUND
- -------------------------------------------------------------------------------
TOTAL RETURN
(per calendar year)
[Bar Graphic Omitted]
Plot points are as follow:
1995 14.13%
1996 4.65%
1997 8.28%
1998 5.68%
The total return for the six months ended June 30, 1999 was -1.16%.
- -------------------------------------------------------------------------------
HIGHEST AND LOWEST RETURN
(Quarterly 1995-1998)
- -------------------------------------------------------------------------------
QUARTER ENDING
Highest 5.66% March 31, 1995
Lowest -0.98% March 31, 1996
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- -------------------------------------------------------------------------------
1 YEAR LIFE OF FUND
(SINCE 8/1/94)
Rhode Island Tax-Exempt 5.68% 6.83%
Income Fund
Lehman 7-Year 6.23% 6.92%*
Municipal Bond Index
- -------------------------------------------------------------------------------
*(since 7/31/94)
PROSPECTUS
22
<PAGE>
[CALCULATOR GRAPHIC OMITTED]
WHAT ARE THE FEES AND EXPENSES OF THE FUNDS?
THE TABLES BELOW DESCRIBE THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND
HOLD SHARES OF BOSTON 1784 TAX-EXEMPT INCOME FUNDS
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER FEES
(fees paid directly from your investment)
- -----------------------------------------------------------------------------------------------------------------------------------
TAX-EXEMPT CONNECTICUT FLORIDA MASSACHUSETTS RHODE ISLAND
MEDIUM-TERM TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
<S> <C> <C> <C>
Maximum Sales Charge (Load) None None None None None
Imposed on Purchases
Maximum Deferred Sales Charge (Load) None None None None None
Maximum Sales Charge (Load) None None None None None
Imposed on Reinvested Dividends
Redemption Fee None None None None None
Exchange Fee None None None None None
- ----------------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets) as a % of average net assets
- ----------------------------------------------------------------------------------------------------------------------------------
Management Fees .74% .74% .74% .74% .74%
Distribution (12b-1) Fees .25% .25% .25% .25% .25%
Other Expenses .12% .13% .15% .13% .14%
Total Annual Fund Operating Expenses 1.11%* 1.12%* 1.14%* 1.12%* 1.13%*
- -----------------------------------------------------------------------------------------------------------------------------------
*Each of these Funds' actual total annual fund operating expenses for the most
recent fiscal year were less than the amount shown above because of fee waivers
by the Funds' Adviser and Distributor. The Adviser waives a portion of its
management fees in order to keep each Fund's total operating expenses at a
specified level and the Distributor waives its entire Distribution Fee. The
Adviser and the Distributor may eliminate all or a part of the fee waivers at
any time. With the fee waivers, the Funds' actual total annual operating
expenses were as follows:
TAX-EXEMPT MEDIUM-TERM INCOME FUND .80% MASSACHUSETTS TAX-EXEMPT INCOME FUND .80%
CONNECTICUT TAX-EXEMPT INCOME FUND .80% RHODE ISLAND TAX-EXEMPT INCOME FUND .80%
FLORIDA TAX-EXEMPT INCOME FUND .80%
- ----------------------------------------------------------------------------------------------------------------------------------
EXAMPLE
- ----------------------------------------------------------------------------------------------------------------------------------
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN BOSTON
1784 TAX-EXEMPT INCOME FUNDS TO THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE
EXAMPLE ASSUMES THAT YOU INVEST $10,000 IN A FUND FOR THE TIME PERIODS INDICATED
AND THEN SELL ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE EXAMPLE ALSO
ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE FUND'S
OPERATING EXPENSES REMAIN THE SAME AS SHOWN IN THE TABLE ABOVE. ALTHOUGH YOUR
ACTUAL COSTS AND THE RETURN ON YOUR INVESTMENT MAY BE HIGHER OR LOWER, BASED ON
THESE ASSUMPTIONS YOUR COSTS WOULD BE:
- -----------------------------------------------------------------------------------------------------------------------------------
TAX-EXEMPT MEDIUM- CONNECTICUT TAX- FLORIDA TAX- MASSACHUSETTS TAX- RHODE ISLAND TAX-
TERM INCOME FUND EXEMPT INCOME FUND EXEMPT INCOME FUND EXEMPT INCOME FUND EXEMPT INCOME FUND
- -----------------------------------------------------------------------------------------------------------------------------------
1 year $ 113 $ 114 $ 116 $ 114 $ 115
3 years 353 356 362 356 359
5 years 612 617 628 617 622
10 years 1,352 1,363 1,386 1,363 1,375
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
PROSPECTUS
23
<PAGE>
BOSTON 1784 STOCK FUNDS
ASSET ALLOCATION FUND
GROWTH AND INCOME FUND
GROWTH FUND
INTERNATIONAL EQUITY FUND
THIS SUMMARY BRIEFLY DESCRIBES EACH BOSTON 1784 STOCK FUND AND THE PRINCIPAL
RISKS OF INVESTING IN THE FUNDS. FOR FURTHER INFORMATION ON THESE FUNDS, PLEASE
READ THE SECTION ENTITLED MORE ABOUT BOSTON 1784 FUNDS.
[COMPASS GRAPHIC OMITTED]
WHAT ARE THE FUNDS' GOALS?
ASSET ALLOCATION FUND
The Asset Allocation Fund's goal is to provide investors with a favorable total
rate of return through current income and capital appreciation consistent with
preservation of capital, derived from investing in fixed income and equity
securities.
GROWTH AND INCOME FUND
The Growth and Income Fund's primary goal is to provide investors with long-term
growth of capital with a secondary goal of income.
GROWTH FUND
The Growth Fund's primary goal is to provide investors with capital
appreciation. Dividend income, if any, is incidental to this goal.
INTERNATIONAL EQUITY FUND
The International Equity Fund's goal is to provide investors
with long-term growth of capital. Dividend income, if any, is incidental to
this goal.
WHAT IS CAPITAL APPRECIATION?
A fund that seeks CAPITAL APPRECIATION or GROWTH OF CAPITAL tries to increase
the value of your investment. CAPITAL, also called PRINCIPAL, refers to the
amount of money that you invest in a fund. If the price of the fund's shares
or net asset value (NAV) goes up due to an increase in the value of the
securities in the fund, your capital will also grow or appreciate. If,
however, the price of the fund's shares decreases due to a decline in the
value of securities in the fund, you will lose some of your capital. If you
choose to have your dividends and other distributions reinvested in
additional shares of a fund, the amount of the distributions will be added to
your initial investment and increase the amount of your capital.
[CHESS PIECE GRAPHIC OMITTED]
WHAT ARE THE FUNDS' MAIN INVESTMENT STRATEGIES?
ASSET ALLOCATION FUND
The Asset Allocation Fund invests in a carefully balanced mix of equity and debt
securities and money market instruments.
The Fund's equity securities include the stock of large U.S. companies and, from
time to time, mid-sized domestic companies and large, multi-national companies
based outside of the United States.
The Fund's debt securities include investment grade debt obligations such as
U.S. government securities, corporate bonds and mortgage-backed and asset-backed
securities.
The Fund's portfolio managers decide what percentage of the Fund's assets will
be invested in debt, equity and money market securities based on the managers'
judgment of various economic factors. The Fund expects that normally:
[bullet] 30% to 70% of its assets will be invested in equity securities;
[bullet] 30% to 60% of its assets will be invested in intermediate- and
long-term debt obligations;
[bullet] up to 40% of its assets may be invested in short-term debt and
money market instruments.
GROWTH AND INCOME FUND
The Growth and Income Fund invests primarily in the common stock of established
U.S. and foreign companies where the portfolio managers believe there is
opportunity for growth.
When investing in U.S. companies, the Fund principally invests in companies with
a market capitalization of at least $1 billion, although the Fund also invests
in companies with smaller capitalizations. While the established companies in
which the Fund primarily invests are more likely than less established companies
to provide the Fund with dividend income, the principal focus in the selection
of securities for the Fund is growth potential, consistent with the Fund's
primary objective. Also, as
PROSPECTUS
24
<PAGE>
stock markets have risen in recent years, dividend yields have fallen, making it
more difficult for the Fund to produce any significant income while principally
seeking growth of capital.
When investing in foreign companies, the Fund may invest in smaller companies
and companies located in developing countries.
In addition to common stocks, the Fund may invest in other securities, including
convertible debt securities and preferred stock. The Fund may engage in foreign
currency hedging transactions in an attempt to minimize the effects of currency
fluctuations on the Fund.
WHAT IS CAPITALIZATION?
CAPITALIZATION or MARKET CAPITALIZATION is the total value of a company's
stock in the marketplace or on a stock exchange. For example, a company that
has issued one million shares that are currently selling for $50 per share
would have a capitalization of $50,000,000.
GROWTH FUND
The Growth Fund invests primarily in the common stock of U.S. and foreign
companies which the portfolio managers believe have above-average growth
potential.
When investing in U.S. companies, the Fund principally invests in companies with
a market capitalization of at least $250 million, although the Fund also invests
in companies with smaller capitalizations. Companies with capitalizations of
less than $1 billion are generally considered to have small capitalizations.
When investing in foreign companies, the Fund may also invest in smaller
companies and in companies located in developing countries.
In addition to common stocks, the Fund may invest in other securities, including
convertible debt securities and preferred stock. The Fund may engage in foreign
currency hedging transactions in an attempt to minimize the effects of currency
fluctuations on the Fund.
INTERNATIONAL EQUITY FUND
The International Equity Fund invests primarily in stocks and other equity
interests issued by foreign companies. The Fund seeks to invest in a number of
countries with different economic characteristics and may invest in developing
countries.
The Fund may also invest in other securities, including non-convertible debt
securities and money market instruments. The Fund may engage in foreign currency
hedging transactions in an attempt to minimize the effects of currency
fluctuations on the Fund.
[Road Sign Omitted]
WHAT ARE THE MAIN RISKS OF INVESTING IN BOSTON 1784 STOCK FUNDS?
The principal risks of investing in the Stock Funds and the circumstances
reasonably likely, in the opinion of the Adviser, to affect your investment
adversely are described below. As with any non-money market mutual fund, the
share price of each Fund will change daily based on market conditions and other
factors. You may lose money if you invest in these Funds. Please note that there
are many other circumstances that could affect your investment adversely and
that could prevent a Fund from achieving its objectives, which are not described
here. The principal risks of investing in the Stock Funds are:
[bullet] MARKET RISK: This is the risk that the price of a security will rise or
fall due to changing economic, political or market conditions, or due to a
company's individual situation.
[bullet] PORTFOLIO SELECTION: The portfolio managers may not pick stocks that
outperform the market or that do as well as the market. In that case, you may
lose money or your investment may not do as well as other similar
investments.
[bullet] SMALLER COMPANIES: The securities of smaller companies may have more
risks than those of larger companies--they may be more susceptible to market
downturns and their prices may be more volatile.
[bullet] FOREIGN SECURITIES: Investments in foreign securities involve risks
relating to political, social and economic developments abroad, as well as
risks resulting from the differences between the regulations to which U.S.
and foreign issuers and markets are subject.
[bullet] These risks may include expropriation, confiscatory taxation,
withholding taxes on dividends and interest, limitations on the use or
transfer of assets by a Fund or the issuers of securities, and political
or social instability.
PROSPECTUS
25
<PAGE>
BOSTON 1784 STOCK FUNDS (CONTINUED)
[bullet] Enforcing legal rights may be difficult, costly and slow in foreign
countries, and there may be special problems enforcing claims against foreign
governments. In addition, foreign companies may not be subject to accounting
standards or governmental supervision comparable to U.S. companies, and there
may be less public information about their operations.
[bullet] Foreign markets may be less liquid and more volatile than U.S. markets,
and may offer less protection to investors such as the Funds. Rapid increases in
money supply may result in speculative investing, contributing to volatility.
Equity securities traded in certain foreign countries may trade at high
price-earnings multiples that are unsustainable.
[bullet] Since foreign securities often trade in currencies other than the U.S.
dollar, changes in currency exchange rates will affect a Fund's net asset value,
the value of dividends and interest earned, and gains and losses realized on the
sale of securities. An increase in the U.S. dollar relative to these other
currencies will affect adversely the value of the Fund. In addition, some
foreign currency values may be volatile, and there is the possibility of
governmental controls on currency exchanges or intervention in currency markets.
[bullet] Foreign markets and securities may be particularly vulnerable to Year
2000 computer problems.
[bullet] Each of the Stock Funds may invest in issuers located in developing
countries.
[bullet] Developing countries are generally defined as countries in the initial
stages of their industrialization cycles with low per capita income.
[bullet] All of the risks of investing in foreign securities are heightened by
investing in developing countries.
[bullet] The markets of developing countries have been more volatile than the
markets of developed countries with more mature economies. These markets often
have provided higher rates of return, and greater risks, to investors.
[bullet] INTEREST RATE RISK: In general, the prices of debt securities rise when
interest rates fall and fall when interest rates rise. Longer term obligations
are usually more sensitive to interest rate changes. Changes in interest rates
will also affect the amount of income a Fund receives. A decline in interest
rates may lead to a decline in the Fund's income.
[bullet] CREDIT RISK: It is possible that some issuers will not make payments
(default) on debt obligations held by a Fund. A default will hurt a Fund's
performance. Or, an issuer may suffer adverse changes in financial condition
that could lower the credit quality of a security, leading to greater volatility
in the price of the security and in shares of the Fund. A change in the quality
rating of a bond can make it more difficult for the Fund to sell the bond.
[bullet] PREPAYMENT AND EXTENSION RISK: The issuers of securities held by a Fund
may be able to call a bond or prepay principal, particularly during periods of
declining interest rates. In that case, a Fund may not be able to reinvest the
proceeds at attractive rates. The Fund would also lose the benefit of falling
interest rates on the price of the repaid bond. Securities subject to prepayment
risk generally offer less potential for gains when interest rates decline, and
may offer a greater potential for loss when interest rates rise. In addition,
rising interest rates may cause prepayments to occur at a slower than expected
rate, thereby effectively lengthening the maturity of the security and making
the security more sensitive to interest rate changes. Mortgage-backed securities
are particularly exposed to prepayment and extension risk.
[bullet] SPECIAL CHARACTERISTICS OF CONVERTIBLE SECURITIES: Convertible
securities are subject to the market risk of stocks, while also subject to
interest rate risk and the credit risk of the issuers. Call provisions may allow
the issuer to repay the debt before it matures.
[bullet] An investment in a Fund is not a deposit of BankBoston and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
governmental agency.
PROSPECTUS
26
<PAGE>
WHO MAY WANT TO INVEST?
ASSET ALLOCATION FUND
THE ASSET ALLOCATION FUND MAY BE APPROPRIATE FOR LONG-TERM INVESTORS WHO ARE:
[bullet] seeking a balanced investment program;
[bullet] seeking protection against inflation.
GROWTH AND INCOME FUND
THIS STOCK FUND MAY BE APPROPRIATE FOR LONG-TERM INVESTORS WHO ARE:
[bullet] seeking long-term growth.
GROWTH FUND
THIS STOCK FUND MAY BE APPROPRIATE FOR LONG-TERM INVESTORS WHO ARE:
[bullet] seeking long-term growth;
[bullet] able to tolerate the additional risks of investing in smaller
companies;
[bullet] not seeking income.
INTERNATIONAL EQUITY FUND
THIS STOCK FUND MAY BE APPROPRIATE FOR LONG-TERM INVESTORS WHO ARE:
[bullet] seeking long-term growth;
[bullet] looking for exposure in the international markets and able to tolerate
the additional risks associated with these markets;
[bullet] not seeking income.
Do not invest in these Funds if you are not prepared to accept volatility of a
Fund's share price and substantial losses.
None of the Stock Funds alone (except the Asset Allocation Fund) provides a
balanced investment plan.
PROSPECTUS
27
<PAGE>
BOSTON 1784 STOCK FUNDS (CONTINUED)
[FLAG GRAPHIC OMITTED]
HOW HAVE THE FUNDS PERFORMED?
The charts and tables below give an indication of the Funds' risks
and performance. The charts show changes in the Funds' performance
from year to year. The tables show how the Funds' average annual
returns for the periods indicated compare to those of a broad
measure of market performance.
WHEN YOU CONSIDER THIS INFORMATION, PLEASE REMEMBER THAT A FUND'S
PERFORMANCE IN PAST YEARS IS NOT NECESSARILY AN INDICATION OF HOW A
FUND WILL DO IN THE FUTURE.
- -------------------------------------------------------------------------------
ASSET ALLOCATION FUND
- -------------------------------------------------------------------------------
TOTAL RETURN
(per calendar year)
[Bar Graphic Omitted]
Plot points are as follows
1994 -0.65%
1995 29.55%
1996 10.48%
1997 20.74%
1998 12.28%
The total return for the six months ended June 30, 1999 was 4.68%.
- -------------------------------------------------------------------------------
HIGHEST AND LOWEST RETURN
(Quarterly 1994-1998)
- -------------------------------------------------------------------------------
QUARTER ENDING
Highest 10.79% June 30, 1997
Lowest -5.12% September 30, 1998
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- -------------------------------------------------------------------------------
1 YEAR 5 YEARS LIFE OF FUND
(SINCE 6/14/93)
Asset Allocation Fund 12.28% 14.03% 12.92%
S&P 500 Composite Index 28.60% 24.05% 22.38%*
Lehman Aggregate Bond 8.67% 7.27% 7.33%*
Index
- -------------------------------------------------------------------------------
*(since 5/31/93)
The table above compares the average annual return of the Fund, which holds a
mix of stocks, bonds and other debt securities, to an unmanaged stock index and
an unmanaged bond index for the periods indicated.
- -------------------------------------------------------------------------------
GROWTH AND INCOME FUND
- -------------------------------------------------------------------------------
TOTAL RETURN
(per calendar year)
[Bar Graphic Omitted]
Plot points are as follow:
1994 -0.18%
1995 30.56%
1996 23.63%
1997 19.66%
1998 22.70%
The total return for the six months ended June 30, 1999 was 1.76%.
- -------------------------------------------------------------------------------
HIGHEST AND LOWEST RETURN
(Quarterly 1994-1998)
- -------------------------------------------------------------------------------
QUARTER ENDING
Highest 17.32% December 31, 1998
Lowest -12.79% September 30, 1998
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- -------------------------------------------------------------------------------
1 YEAR 5 YEARS LIFE OF FUND
(SINCE 6/7/93)
Growth and Income Fund 22.70% 18.79% 18.27%
S&P 500 Composite Index 28.60% 24.05% 22.38%*
- -------------------------------------------------------------------------------
*(since 5/31/93)
PROSPECTUS
28
<PAGE>
- -------------------------------------------------------------------------------
GROWTH FUND
- -------------------------------------------------------------------------------
TOTAL RETURN
(per calendar year)
[Bar Graphic Omitted]
Plot points are as follow:
1997 13.92%
1998 1.36%
The total return for the six months ended June 30, 1999 was 6.92%.
- ------------------------------------------------------------------------------
HIGHEST AND LOWEST RETURN
(Quarterly 1997-1998)
- ------------------------------------------------------------------------------
QUARTER ENDING
Highest 25.00% December 31, 1998
Lowest -22.74% September 30, 1998
- ------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- ------------------------------------------------------------------------------
1 YEAR LIFE OF FUND
(SINCE 3/28/96)
Growth Fund 1.36% 11.67%
Russell 2000 Index -2.55% 10.68%*
- ------------------------------------------------------------------------------
*(since 3/31/96)
- ------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND
- ------------------------------------------------------------------------------
TOTAL RETURN
(per calendar year)
[Bar Graphic Omitted]
Plot points are as follow:
1995 13.34%
1996 13.68%
1997 -0.92%
1998 12.45%
The total return for the six months ended June 30, 1999 was 4.72%.
- ------------------------------------------------------------------------------
HIGHEST AND LOWEST RETURN
(Quarterly 1995-1998)
- ------------------------------------------------------------------------------
QUARTER ENDING
Highest 16.75% December 31, 1998
Lowest -16.34% September 30, 1998
- ------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- ------------------------------------------------------------------------------
1 YEAR LIFE OF FUND
(SINCE 1/3/95)
International Equity Fund 12.45% 9.45%
Morgan Stanley MSCI EAFE Index 20.00% 9.55%*
- ------------------------------------------------------------------------------
*(since 12/31/94)
PROSPECTUS
29
<PAGE>
BOSTON 1784 STOCK FUNDS (CONTINUED)
[CALCULATOR GRAPHIC OMITTED]
WHAT ARE THE FEES AND EXPENSES OF THE FUNDS?
THE TABLES BELOW DESCRIBE THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND
HOLD SHARES OF BOSTON 1784 STOCK FUNDS
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER FEES
(fees paid directly from your investment)
- ------------------------------------------------------------------------------------------------------------------------------------
ASSET GROWTH AND GROWTH INTERNATIONAL
ALLOCATION FUND INCOME FUND FUND EQUITY FUND
<S> <C> <C> <C>
Maximum Sales Charge (Load) None None None None
Imposed on Purchases
Maximum Deferred Sales Charge
(Load) None None None None
Maximum Sales Charge (Load) None None None None
Imposed on Reinvested Dividends
Redemption Fee None None None None
Exchange Fee None None None None
- -----------------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets) as a % of average net assets
- -----------------------------------------------------------------------------------------------------------------------------------
Management Fees .74% .74% .74% 1.00%
Distribution (12b-1) Fees .25% .25% .25% .25%
Other Expenses .22% .15% .19% .20%
Total Annual Fund Operating Expenses 1.21%* 1.14%* 1.18%* 1.45%*
- -----------------------------------------------------------------------------------------------------------------------------------
*Each of these Funds' actual total annual fund operating expenses for the most
recent fiscal year were less than the amount shown above because the Funds'
Distributor waives its entire Distribution Fee. The Distributor may eliminate
all or a part of the fee waiver at any time. With the fee waiver, the Funds'
actual total annual operating expenses were as follows:
ASSET ALLOCATION FUND .96%
GROWTH AND INCOME FUND .89%
GROWTH FUND .93%
INTERNATIONAL EQUITY FUND 1.20%
- -----------------------------------------------------------------------------------------------------------------------------------
EXAMPLE
- -----------------------------------------------------------------------------------------------------------------------------------
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN BOSTON
1784 STOCK FUNDS TO THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE EXAMPLE
ASSUMES THAT YOU INVEST $10,000 IN A FUND FOR THE TIME PERIODS INDICATED AND
THEN SELL ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE EXAMPLE ALSO
ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE FUND'S
OPERATING EXPENSES REMAIN THE SAME AS SHOWN IN THE TABLE ABOVE. ALTHOUGH YOUR
ACTUAL COSTS AND THE RETURN ON YOUR INVESTMENT MAY BE HIGHER OR LOWER, BASED ON
THESE ASSUMPTIONS YOUR COSTS WOULD BE:
- ----------------------------------------------------------------------------------------------------------------------------------
ASSET GROWTH AND GROWTH INTERNATIONAL
ALLOCATION FUND INCOME FUND FUND EQUITY FUND
- ----------------------------------------------------------------------------------------------------------------------------------
1 year $ 123 $ 116 $ 120 $ 148
3 years 384 362 375 459
5 years 665 628 649 792
10 years 1,466 1,386 1,432 1,735
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
PROSPECTUS
30
<PAGE>
SHAREHOLDER SERVICES
This section describes how to do business with the Funds and the services that
are available to shareholders.
HOW TO REACH THE FUNDS
BY TELEPHONE 1-800-BKB-1784
Call for account or Fund information
Monday through Friday 8 a.m. to 6 p.m.
(Eastern time).
BY REGULAR MAIL Boston 1784 Funds
P.O. Box 8524
Boston, MA 02266-8524
BY EXPRESS OR Boston 1784 Funds
OVERNIGHT SERVICE c/o Boston Financial Data Services
2 Heritage Drive
North Quincy, MA 02171
TYPES OF ACCOUNTS
If you are investing in the Funds for the first time, you will need to establish
an account. You may establish the following types of accounts by completing an
account application. To obtain an application, call 1-800-BKB-1784.
[bullet] INDIVIDUAL OR JOINT OWNERSHIP. Individual accounts are owned by one
person. Joint accounts have two or more owners. The Funds will treat any
individual owner of a joint account as authorized to give instructions on
purchases, sales and exchanges of shares of a Fund without notice to the other
owners. Please note, however, that any transaction that requires a signature
guarantee will require the guaranteed signature of each account owner.
[bullet] GIFT OR TRANSFER TO MINOR (UGMA OR UTMA). A UGMA (Uniform Gifts to
Minors Act) or UTMA (Uniform Transfers to Minors Act) account is maintained by a
custodian for the benefit of a minor. To open a UGMA or UTMA account, you must
include the minor's social security number on the application.
[bullet] TRUST. A trust can open an account. The name of each trustee, the name
of the trust and the date of the trust agreement must be included on the
application.
[bullet] CORPORATIONS, PARTNERSHIPS AND OTHER LEGAL ENTITIES. Corporations,
partnerships and other legal entities may also open an account. The application
and resolution form must be signed by a general partner of the partnership or an
authorized officer of the corporation or other legal entity.
[bullet] RETIREMENT. If you are eligible, you may set up your account under a
tax-sheltered retirement plan, such as an Indinvidual Retirement Account.
BankBoston offers a number of retirement plans through which Fund shares may
be purchased. Call 1-800-BKB-1784 for more information.
HOW TO OPEN AN ACCOUNT
Complete and sign the appropriate account application. Please be sure to provide
your social security or taxpayer identification number on the application. Make
your check payable to Boston 1784 Funds. Send all items to one of the following
addresses:
BY REGULAR MAIL Boston 1784 Funds
P.O. Box 8524
Boston, MA 02266-8524
BY EXPRESS OR Boston 1784 Funds
OVERNIGHT SERVICE c/o Boston Financial Data Services
2 Heritage Drive
North Quincy, MA 02171
You may also purchase shares through certain financial institutions, including
BankBoston. These institutions may have their own procedures for buying and
selling shares, and may charge fees. Contact your financial institution for more
information.
HOW TO PURCHASE SHARES
Shares of the Funds are sold continuously and may be purchased from the
Distributor or a broker-dealer or financial institution that has an agreement
with the Distributor. Purchases may be made Monday through Friday, except on
certain holidays.
Each Fund's share price, called net asset value per share or NAV, is calculated
every business day. The Funds' shares are sold without a sales charge. Shares
are purchased at net asset value the next time it is calculated after your
investment is received and accepted by the Distributor. For information on how
shares are priced, please see "Pricing of Fund Shares" below.
For the U.S. Treasury Money Market Fund, Institutional U.S. Treasury Money
Market Fund and Institutional Prime Money Market Fund, the Distributor must
receive payment by wire transfer or other immediately available Funds by the
close of business on the day your order is received and accepted. For the other
Money Market Funds, your investment is considered received when your check is
converted into immediately available funds. This normally happens within two
business days. On days when the financial markets close early, such as the day
after Thanksgiving and Christmas Eve, purchase orders for the U.S. Treasury
Money Market Fund, Institutional U.S. Treasury Money Market Fund and
Institutional Prime Money Market Fund must be received by 12 noon.
NEW PURCHASES
If you are new to the Funds, complete and sign an account application and mail
it along with your check. To establish the telephone purchase option on your new
account, complete the
PROSPECTUS
31
<PAGE>
SHAREHOLDER SERVICES (CONTINUED)
"Telephone Privilege Authorization" section on the application and attach a
check or savings withdrawal slip from your bank account which you have "voided"
by writing the word "VOID" across the front.
If you wish to open an account by debiting your checking or savings account,
please attach a "voided" check or savings withdrawal slip, and complete the
"Electronic Transfer and Bank Wire" section of the application.
If you are investing through a tax-sheltered retirement plan for the first time,
you will need a special application. Retirement investing also involves its own
investment procedures. Call 1-800-BKB-1784 for more information.
ADDITIONAL PURCHASES
If you already have money invested in a Fund, you can invest additional money in
that Fund in the following ways:
BY MAIL. Complete the remittance slip attached to the bottom of your
confirmation statement. If your investment is in a retirement account, please
indicate whether the purchase is a rollover or a current or prior year
contribution. Send your check and remittance slip or written instructions to
one of the addresses listed above under "How To Open An Account."
BY TELEPHONE. This service allows you to purchase additional shares quickly
and conveniently through an electronic transfer of money. When you make an
additional purchase by telephone, the Funds will automatically deduct money
from your designated bank account for the desired amount. If you have not
established the telephone purchase option, call 1-800-BKB-1784 to request the
appropriate form. See "Telephone Transactions" below for more information on
this option.
BY WIRE. Purchases may also be made by wiring money from your bank account to
your Boston 1784 Fund account. Each time you wish to send a wire, you must
call 1-800-BKB-1784 to receive wiring instructions before you send money.
Once the money has been wired, please call 1-800-BKB-1784 to purchase your
shares.
AUTOMATIC INVESTMENT PROGRAM
Automatic investing is an easy way to add to your account on a regular basis.
Boston 1784 Funds offer an automatic investment plan to help you achieve your
financial goals as simply and conveniently as possible. Please note that minimum
purchase amounts apply. Call 1-800-BKB-1784 for information.
PAYING FOR SHARES
Please note the following:
[bullet] Purchases may be made by check, wire transfer and electronic transfer.
[bullet] All purchases must be made in U.S. dollars.
[bullet] Checks must be drawn on U.S. banks and must be payable to Boston 1784
Funds. Checks that are not made payable directly to Boston 1784 Funds ("third
party checks") are not accepted.
[bullet] Cash and credit card checks are not accepted.
[bullet] If a check does not clear your bank, the Funds reserve the right to
cancel the purchase.
[bullet] If the Funds are unable to debit your designated bank account on the
day you purchase shares, they may make additional attempts or cancel the
purchase.
If your purchase is canceled, you will be responsible for any losses or fees
imposed by your bank and losses that may be incurred as a result of any decline
in the value of the canceled purchase. The Funds have the authority to redeem
shares in your account(s) to cover any losses due to changes in share price.
The Funds reserve the right to reject any specific purchase request, and a Fund
will do so when it believes that a purchase is part of a market-timing strategy.
MINIMUM INVESTMENTS
The following minimums apply unless they are waived by the Distributor.
To open an account $1,000.00*
For tax-sheltered retirement plans 250.00
To add to an account 250.00**
Through automatic investment plans 50.00
Minimum account balance 1,000.00*
For tax-sheltered retirement plans 250.00
* $100,000 for the Institutional U.S. Treasury Money Market Fund and the
Institutional Prime Money Market Fund
** $5,000 for the Institutional U.S. Treasury Money Market Fund and the
Institutional Prime Money Market Fund
HOW TO SELL SHARES
Selling your shares in a Fund is called a "redemption" because the Fund buys
back its shares. On any business day, you may sell (redeem) all or a portion of
your shares at the next NAV calculated after your order is received in good
order. Please note, however, that your redemption proceeds may be delayed for up
to ten business days after a purchase. This is to assure that money from the
purchase of shares being redeemed has been received and collected. If your
redemption request is over $100,000, you will need a signature guarantee (see
page 33).
PROSPECTUS
32
<PAGE>
You may gain or lose money when you redeem your shares. Please note that a
redemption is treated as a sale for tax purposes, and could result in taxable
gain or loss in a non-tax-sheltered account.
SELLING BY MAIL
To redeem all or part of your shares by mail, please send your request in
writing to one of the addresses listed under "How To Open An Account" and
include the following information:
[bullet] the name of the Fund(s),
[bullet] the account number(s),
[bullet] the amount of money or number of shares being redeemed,
[bullet] the name(s) on the account,
[bullet] the signature of a registered account owner, and
[bullet] your daytime telephone number.
Signature requirements vary based on the type of your account:
[bullet] INDIVIDUAL, JOINT TENANTS, TENANTS IN COMMON: Written instructions must
be signed by an individual shareholder or, in the case of joint accounts, one of
the shareholders exactly as the name(s) appears on the account. Please note that
when a signature guarantee is required, the guaranteed signature of each account
owner must be provided.
[bullet] UGMA OR UTMA: Written instructions must be signed by the custodian as
it appears on the account.
[bullet] SOLE PROPRIETOR, GENERAL PARTNER: Written instructions must be signed
by an authorized individual as it appears on the account.
[bullet] CORPORATION, ASSOCIATION: Written instructions must be signed by the
person(s) authorized to act on the account. A resolution form, authorizing the
signer to act, must accompany the request if one is not on file with the Funds.
[bullet] TRUST: Written instructions must be signed by the trustee(s). If the
name of the current trustee(s) does not appear on the account, a certified
certificate of incumbency dated within 60 days must also be submitted.
[bullet] RETIREMENT: Written instructions must be signed by the account owner.
Call 1-800-BKB-1784 for more information.
SELLING BY TELEPHONE
If you have selected this option, you may make redemptions by calling
1-800-BKB-1784. The Funds require that requests for redemptions over $100,000 be
in writing with signatures guaranteed (see below). You may not close your
account by telephone. If you would like to establish this option on an
existing account, please call 1-800-BKB-1784. See "Telephone Transactions"
below for more information on this option.
SYSTEMATIC WITHDRAWAL PLAN
Under this plan, you may redeem a specific dollar amount from your account on a
regular basis. For more information or to sign up for this service, please call
1-800-BKB-1784.
PAYMENT OF REDEMPTION PROCEEDS
BY CHECK Redemption proceeds will be sent to the shareholder(s) on our
records at the address on our records within seven days after a
valid redemption request is received.
BY WIRE If you have selected this option, your redemption proceeds will
be wired directly into your designated bank account, normally on
the next business day after your redemption request is received
(the same business day for the Money Market Funds). There is no
limitation on redemptions by wire. However, there is a $12 fee
for each wire and your bank may charge an additional fee to
receive the wire. If you would like to establish this option on
an existing account, please call 1-800-BKB-1784 to sign up for
this service. Wire redemptions are not available for retirement
accounts.
BY ELECTRONIC If you have selected this option, your redemption proceeds will
TRANSFER be transferred electronically to your designated bank account.
To establish this option on an existing account, please call
1-800-BKB- 1784 to request the appropriate form.
SIGNATURE GUARANTEES
In addition to the signature requirements described above, a signature guarantee
is required if:
[bullet] You would like the check made payable to anyone other than the
shareholder(s) on our records.
[bullet] You would like the check mailed to an address other than the address on
our records.
[bullet] You would like the check mailed to an address on our records that has
changed in the past 30 days.
[bullet] Your redemption request is over $100,000.
The Funds may also require signature guarantees for other redemptions. A
signature guarantee assures that a signature is
PROSPECTUS
33
<PAGE>
SHAREHOLDER SERVICES (CONTINUED)
genuine and protects shareholders from unauthorized account transfers. Banks,
savings and loan associations, trust companies, credit unions, broker-dealers
and member firms of a national securities exchange may guarantee signatures.
Call your financial institution to determine if it has this capability.
SHAREHOLDER SERVICES AND POLICIES
EXCHANGES
On any business day, you may exchange all or a portion of your shares into any
other Fund in the Boston 1784 Funds family. To make exchanges, please follow the
procedures under "How To Sell Shares." Exchanges are processed at the net asset
value next calculated after an exchange request in good order is received and
approved. Please read the prospectus for the Fund into which you are exchanging.
The Funds reserve the right to reject any exchange request or to change or
terminate the exchange privilege at any time. An exchange is the sale of shares
of one Fund and purchase of shares of another, and could result in taxable gain
or loss in a non-tax-sheltered account.
REDEMPTION PROCEEDS
The Funds' policy is to pay redemption proceeds in cash, but the Funds reserve
the right to change this policy and to pay in kind in certain cases by
delivering to you investment securities equal to the redemption price. In these
cases, you might have to pay brokerage costs when converting the securities to
cash. The right of any shareholder to receive redemption proceeds may be
suspended, or payment may be postponed, in certain circumstances. These
circumstances include any period the New York Stock Exchange is closed (other
than weekends or holidays) or trading on the Exchange is restricted, any period
when an emergency exists and any time the Securities and Exchange Commission
allows mutual funds to delay payments for the protection of investors.
TAXPAYER IDENTIFICATION NUMBER
On your account application or other appropriate form, you will be asked to
certify that your social security or taxpayer identification number is correct
and that you are not subject to backup withholding for failing to report income
to the IRS. If you are subject to backup withholding or you did not certify your
taxpayer identification number, the IRS requires the Funds to withhold 31% of
any dividends and redemption or exchange proceeds. The Funds reserve the right
to reject any application that does not include a certified social security or
taxpayer identification number.
SHARE OWNERSHIP
The Funds keep a record of the ownership of their shares and share certificates
are not issued.
INVOLUNTARY REDEMPTIONS
If your account balance falls below the minimum required investment as a result
of selling or exchanging shares, you will be given 60 days to re-establish the
minimum balance. If you do not, your account may be closed and the proceeds sent
to you.
TELEPHONE TRANSACTIONS
You may buy, sell or exchange shares by telephone if you selected this option on
your account application or have completed the appropriate form. The Funds and
their agents will not be responsible for any losses that may result from acting
on wire or telephone instructions that it reasonably believes to be genuine. The
Funds and their agents will each follow reasonable procedures to confirm that
instructions received by telephone are genuine, which may include taping
telephone conversations, and the Funds may refuse any telephone transaction for
any reason. It may be difficult to reach the Funds by telephone during periods
of unusual market activity and, in that case, you should consider sending in
your request by regular or express mail service.
ADDRESS CHANGES
A change in address on your account must be made in writing and be signed by all
account owners. Include the name of your Fund(s), the account number(s), the
name(s) on the account and both the old and new addresses. Call 1-800-BKB-1784
if you need more information.
NAME/ACCOUNT OWNERSHIP CHANGES
To change the name on an account, the shares are generally transferred to a new
account. A signature guarantee must be provided and, in some cases, certain
legal documents may be required. For more information, call 1-800-BKB-1784. If
your shares are held by a financial institution, contact that financial
institution for ownership changes.
STATEMENTS AND REPORTS
The Funds will send you a confirmation statement after every transaction that
affects your account balance or registration. If you are enrolled in an
automatic investment program and invest on a monthly basis, you will receive
quarterly confirmations. Information about the tax status of income dividends
and capital gains distributions will be mailed to shareholders early each year.
Financial reports for the Funds, which include a list of the Funds' portfolio
holdings, will be mailed twice each year to all shareholders.
CHECKWRITING
Checkwriting privileges are available on the following Funds: Boston 1784
Tax-Free Money Market Fund, Boston 1784 U.S. Treasury Money Market Fund, Boston
1784 Prime Money Market Fund and Boston 1784 Short-Term Income Fund. Checks may
be written for a minimum of $250 each check. Call 1-800-BKB-1784 for more
information.
Please note that you may not use a check to close your account.
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PRICING OF FUND SHARES
Each Fund's net asset value per share or NAV is calculated on each day the New
York Stock Exchange is open, except for Columbus Day and Veteran's Day. The NAV
is the value of a single share of a Fund.
BOND FUNDS, TAX-EXEMPT INCOME FUNDS AND STOCK FUNDS
Each Fund's NAV is calculated at the close of business of the New York Stock
Exchange, normally 4:00 p.m. Eastern time. The NAV is generally based on the
market value of the securities held in the Fund. If market values are not
available, the fair value of securities is determined using procedures that the
Board of Trustees has approved.
Foreign securities are valued based on quotations from the primary market in
which they are traded, and are converted from the local currency into U.S.
dollars using current exchange rates. Foreign securities may trade in their
primary markets on weekends or other days when a Fund does not price its shares.
Therefore, the NAV of a Fund holding foreign securities may change on days when
shareholders will not be able to buy or sell their Fund shares.
MONEY MARKET FUNDS
The U.S. Treasury Money Market Fund, Institutional U.S. Treasury Money Market
Fund and Institutional Prime Money Market Fund calculate NAV at 3:00 p.m.
Eastern time (12 noon on days when the financial markets close early). The
Tax-Free Money Market Fund and Prime Money Market Fund calculate NAV at 12 noon.
In determining each Money Market Fund's NAV, securities are valued at amortized
cost, which is approximately equal to market value.
DISTRIBUTIONS
As a Fund shareholder, you are entitled to your share of a Fund's net income and
gains on its investments. Each Fund passes substantially all of its earnings
along to its investors as distributions. When a Fund earns dividends from stocks
and interest from bonds and other debt securities and distributes these earnings
to shareholders, it is called a DIVIDEND DISTRIBUTION. A Fund realizes capital
gains when it sells securities for a higher price than it paid. When these gains
are distributed to shareholders, it is called a CAPITAL GAIN DISTRIBUTION.
Dividend distributions may be made several times a year, while capital gain
distributions are generally made annually.
MONEY MARKET FUNDS
Your dividend distributions are declared each day, starting on the day you
purchase your shares. They are paid to your account on the first business day of
each month that you are a shareholder. You will not receive a dividend for the
day on which you sell shares.
BOND FUNDS AND TAX-EXEMPT
INCOME FUNDS
Your dividend distributions are declared each day, starting the day after you
purchase your shares, although they are paid to your account on the first
business day of each month that you are a shareholder.
STOCK FUNDS
If you are a shareholder in the Asset Allocation Fund or Growth and Income Fund,
your dividend distributions, if any, will be paid quarterly, generally on the
last day of March, June, September and December.
If you are a shareholder in the Growth Fund, your dividend distributions, if
any, will be paid semi-annually, generally on the last day of June and December.
If you are a shareholder in the International Equity Fund, your dividend
distributions, if any, will be paid annually, generally on the last day of
December.
ALL FUNDS
You will receive distributions from a Fund in additional shares of that Fund
unless you choose to receive your distributions in cash. If you wish to change
the way in which you receive distributions, you should call 1-800-BKB-1784 for
instructions.
If you have elected to receive distributions in cash, and the postal or other
delivery service returns your check to the Funds as undeliverable, you will not
receive interest on amounts represented by the uncashed checks.
PROSPECTUS
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FEDERAL TAX CONSIDERATIONS
Your investment in a Fund will have tax consequences that you should consider.
Some of the more common federal tax consequences are described here, but you
should consult your tax adviser about state and local taxes and your own
particular situation.
TAXES ON DISTRIBUTIONS
You will generally have to pay federal income tax on all Fund distributions
except certain dividend distributions from the Tax-Exempt Funds and the Tax-Free
Money Market Fund. Your distributions will be taxed in the same manner whether
you receive the distributions in cash or additional shares of a Fund.
Distributions that are derived from net long-term capital gains generally will
be taxed as long-term capital gains. The rate of tax generally will depend on
how long the Fund held the securities on which it realized the gains. All other
distributions, including distributions from short-term capital gains, generally
will be taxed as ordinary income.
The Money Market Funds (other than the Tax-Free Money Market Fund) and the Bond
Funds expect that their distributions will consist primarily of ordinary income.
The Growth Fund, Growth and Income Fund and International Equity Fund expect
that their distributions will consist primarily of net long-term capital gains.
The Tax-Exempt Funds and the Tax-Free Money Market Fund may make distributions
called "exempt-interest dividends" that are exempt from federal income tax.
Exempt-interest dividends will not necessarily be exempt from state and local
income taxes. These Funds may also make taxable distributions (including all
capital gains distributions). Generally, you are required to report all Fund
distributions, including exempt-interest dividends, on your federal income tax
return.
TAXES ON SALES OR EXCHANGES
If you sell your shares of a Fund (including a Tax-Exempt Fund), or exchange
them for shares of another Fund, generally you will be subject to tax on any
taxable gain. Your taxable gain is computed by subtracting your tax basis in the
shares from the redemption proceeds (in the case of a sale) or the value of the
shares received (in the case of an exchange). Because your tax basis depends on
the original purchase price and on the price at which any dividends may have
been reinvested, you should be sure to keep your account statements so that you
or your tax preparer will be able to determine whether a sale or exchange will
result in a taxable gain.
"BUYING A DIVIDEND"
If you buy shares in a Stock Fund just before the Fund makes any distribution,
or if you buy shares in any Bond Fund or Tax-Exempt Fund just prior to a capital
gain distribution, you will receive some of the purchase price back in the form
of a taxable distribution.
LOAN INTEREST
If you borrow money to purchase or hold shares of a Tax-Exempt Fund or the
Tax-Free Money Market Fund, interest on your loan will not be deductible.
TAX WITHHOLDING
If you are not a U.S. citizen or resident, or if you are subject to "backup
withholding," the Funds may be required to withhold a portion of your
distributions and, in some cases, redemption proceeds as a payment of federal
income tax.
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MORE ABOUT BOSTON 1784 FUNDS
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MONEY MARKET FUNDS
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Boston 1784 Funds currently offer five Money Market Funds:
[bullet] BOSTON 1784 TAX-FREE MONEY MARKET FUND
[bullet] BOSTON 1784 U.S. TREASURY MONEY MARKET FUND
[bullet] BOSTON 1784 INSTITUTIONAL U.S. TREASURY MONEY MARKET FUND
[bullet] BOSTON 1784 PRIME MONEY MARKET FUND
[bullet] BOSTON 1784 INSTITUTIONAL PRIME MONEY MARKET FUND
PRINCIPAL INVESTMENT STRATEGIES
The principal investment strategies of the Money Market Funds are described
below. These are the strategies that, in the opinion of the Adviser, are most
likely to be important in trying to achieve each Fund's investment objective. Of
course, there can be no assurance that any Fund will achieve its investment
objective. Please note that each Fund may also use strategies and invest in
securities that are not described below, but which are described in the
Statement of Additional Information. A Fund is not required to use all of the
strategies and techniques or invest in all of the types of securities described
in this Prospectus or in the Statement of Additional Information.
WHAT ARE MONEY MARKET INSTRUMENTS?
A MONEY MARKET INSTRUMENT is a short-term IOU issued by banks or other U.S.
corporations, or the U.S. government or state or local governments. Money
market instruments have maturity dates of 13 months or less. Money market
instruments may include certificates of deposit, bankers' acceptances,
variable rate demand notes, fixed-term obligations, commercial paper,
asset-backed commercial paper and repurchase agreements.
Each Money Market Fund has specific investment policies and procedures designed
to maintain a constant net asset value of $1.00 per share. Each Fund complies
with industry regulations that apply to money market funds. These regulations
require that each Fund's investments mature or be deemed to mature within 397
days from the date purchased and that the average maturity of each Fund's
investments (on a dollar-weighted basis) be 90 days or less. In addition, all of
the Funds' investments must be in U.S. dollar-denominated high quality
securities which have been determined by the Adviser to present minimal credit
risks. Investments in high quality, short-term securities such as money market
instruments may, in many circumstances, result in a lower yield than would be
available from investments in securities with a lower quality or a longer term.
Each Money Market Fund may invest more than 25% of its assets in money market
instruments issued by banks, including foreign branches of U.S. banks and U.S.
branches of foreign banks, and in U.S. government obligations. The Tax-Free
Money Market Fund may also invest more than 25% of its assets in tax-exempt
securities issued by governments or political subdivisions of governments.
TAX-FREE MONEY MARKET FUND
The TAX-FREE MONEY MARKET FUND invests primarily in short-term municipal money
market instruments that are issued by states, territories and possessions of the
United States (including the District of Columbia) and their political
subdivisions, agencies and instrumentalities. These securities pay interest that
is exempt from federal income tax, including the alternative minimum tax.
The Fund attempts to generate a relatively high tax-exempt yield by investing in
municipal money market instruments that are issued in states that have little or
no income tax. The Fund invests in both "general obligation" securities, which
are backed by the full faith, credit and taxing power of the issuers and in
"revenue" securities, which are payable only from revenues from a specific
project or another specific revenue source. Normally, at least 80% of the Fund's
net assets are invested in these municipal money market instruments.
The Fund may also invest in taxable money market instruments and repurchase
agreements, particularly if the after-tax return on those securities is greater
than the return on municipal money market instruments. Under normal
circumstances, not more than 20% of the Fund's assets are invested in taxable
instruments.
U.S. TREASURY MONEY MARKET FUND
AND INSTITUTIONAL U.S. TREASURY
MONEY MARKET FUND
The U.S. TREASURY MONEY MARKET FUND and INSTITUTIONAL U.S. TREASURY MONEY MARKET
FUND invest primarily in money market instruments issued by the U.S. Treasury,
including bills, notes and bonds, and repurchase agreements secured by U.S.
Treasury securities. Under normal circumstances, at least 65% of the Funds'
assets are invested in these securities. The Funds invest the rest of their
assets in U.S. government obligations issued by agencies or instrumentalities,
including mortgage-backed securities.
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When selecting securities for these Funds, the portfolio managers use a
"top-down" approach, looking first at general economic factors and market
conditions, then at individual securities. The portfolio managers look for value
while adhering to the credit and other restrictions on money market funds.
ALTHOUGH THE FUNDS INVEST IN U.S. GOVERNMENT OBLIGATIONS, AN INVESTMENT IN THE
FUNDS IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT.
PRIME MONEY MARKET FUND AND INSTITUTIONAL PRIME MONEY MARKET FUND
The PRIME MONEY MARKET FUND and INSTITUTIONAL PRIME MONEY MARKET FUND invest
primarily in a variety of high quality money market instruments.
The portfolio managers employ a "top-down" approach when selecting securities
for these Funds, looking for value while adhering to the quality and other
restrictions on money market funds.
WHAT IS A "TOP-DOWN" APPROACH?
Managers of mutual funds use different styles when selecting securities to
purchase. When using a "TOP-DOWN" APPROACH, the portfolio manager looks first
at broad market factors and, on the basis of those market factors, chooses
certain sectors or industries within the overall market. The manager then
looks at individual companies within those sectors or industries.
PORTFOLIO MANAGERS OF BOSTON 1784 MONEY MARKET FUNDS
DAVID H. THOMPSON, Director of Fund Management, and GUY C. HOLBROOK, Fund
Manager, have been co-managers of the Tax-Free Money Market Fund since 1998. Mr.
Thompson, who has more than 28 years of experience in investment management,
research analysis and securities trading, has been Director of Fund Management
at BankBoston since 1985. Mr. Holbrook, who has ten years of investment
management experience, was a Research Analyst and Bond Trader at Scudder Kemper
Investments from 1992 to 1998. He joined BankBoston as a Fund Manager in 1998.
EMMETT M. WRIGHT, Senior Fund Manager, has been the manager of the U.S. Treasury
Money Market Fund and the Institutional U.S. Treasury Money Market Fund since
they began operations. Mr. Wright, who has more than seven years of investment
management and research analysis experience, was an Associate Fund Manager at
BankBoston from 1993 to 1994 and has been a Fund Manager at BankBoston since
1994.
LISA W. LEBOEUF, Fund Manager, has been a co-manager of the U.S. Treasury Money
Market Fund and the Institutional U.S. Treasury Money Market Fund since January
1997. Ms. LeBoeuf, who has eight years experience in investment management, has
been with BankBoston since 1978.
MARY K. WERLER, Senior Fund Manager, and LISA W. LEBOEUF, Fund Manager, have
been co-managers of the Prime Money Market Fund since December 1996 and
co-managers of the Institutional Prime Money Market Fund since it began
operations in November 1997. Ms. Werler, who has more than 12 years of
investment management experience, has been a Fund Manager at BankBoston since
1993. From 1987 to 1993, Ms. Werler was an Associate Portfolio Manager with
Keystone Investment Co. Ms. LeBoeuf's investment experience is described above.
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BOND FUNDS
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Boston 1784 Funds currently offer three Bond Funds:
[bullet] BOSTON 1784 SHORT-TERM INCOME FUND
[bullet] BOSTON 1784 INCOME FUND
[bullet] BOSTON 1784 U.S. GOVERNMENT MEDIUM-TERM INCOME FUND
PRINCIPAL INVESTMENT STRATEGIES
The principal investment strategies of the Bond Funds are described below. These
are the strategies that, in the opinion of the Adviser, are most likely to be
important in trying to achieve each Fund's investment objective. Of course,
there can be no assurance that any Fund will achieve its investment objective.
Please note that each Fund may also use strategies and invest in securities that
are not described below, but which are described in the Statement of Additional
Information. A Fund is not required to use all of the strategies and techniques
or invest in all of the types of securities described in this Prospectus or in
the Statement of Additional Information.
Investors should note that during periods of unusual economic
or market conditions or for temporary defensive purposes or liquidity, each Fund
may invest without limit in cash and U.S. dollar-denominated high quality money
market instruments and other short-term securities. These investments may result
in a lower yield than would be available from investments with a lower quality
or longer term and may prevent a Fund from achieving its investment objective.
Each Fund is actively managed and the portfolio managers may trade securities
frequently, resulting, from time to time, in an annual portfolio turnover rate
of over 100%. Trading securities may produce capital gains, which are taxable to
shareholders
PROSPECTUS
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when distributed. Active trading may also increase the amount of mark-ups and
fees that the Fund pays to broker-dealers when it buys and sells securities. The
"Financial Highlights" section of this Prospectus shows each Fund's historical
portfolio turnover rate.
WHAT ARE MORTGAGE-BACKED SECURITIES?
Home mortgage loans are typically grouped together into "POOLS" by banks and
other lending institutions, and interests in these pools are then sold to
investors, allowing the bank or other lending institution to have more money
available to loan to home buyers. When homeowners make interest and principal
payments, these payments are passed on to the investors in the pool. Most of
these pools are guaranteed by U.S. government agencies or by government
sponsored private corporations--familiarly called "GINNIE MAE," "FANNIE MAE"
and "FREDDIE MAC."
SHORT-TERM INCOME FUND
AND INCOME FUND
The SHORT-TERM INCOME FUND and INCOME FUND invest primarily in debt securities,
such as U.S. government obligations, corporate bonds, notes, mortgage- and
asset-backed securities, and taxable municipal securities. Under normal
circumstances, at least 80% of each Fund's assets are invested in these
securities. Both Funds may invest up to 30% of their assets in securities of
foreign issuers, including Yankee bonds, which are dollar-denominated bonds
issued in the U.S. by foreign borrowers, and issuers in developing countries.
The SHORT-TERM INCOME FUND and INCOME FUND generally invest in investment grade
securities. Under normal circumstances, the Funds expect to invest at least 65%
of their assets in securities rated A or better by Standard & Poor's or Moody's
or of comparable quality as determined by the Adviser. The Funds' portfolios may
also include lower rated investment grade securities, securities that were
investment grade when purchased by a Fund but have since been down-graded, and
securities that are not investment grade at the time of purchase but that the
portfolio managers believe will be up-graded to investment grade. The ratings
are described in the Statement of Additional Information. Higher quality
securities tend to have lower yields than lower quality securities.
When managing the SHORT-TERM INCOME FUND, the portfolio manager's emphasis is on
keeping fluctuations in the price of Fund shares at a minimum. For this reason,
the Fund's average weighted maturity is normally expected to be not more than
three years and the Fund generally maintains an average maturity of between 1.8
years and 2.3 years. Short-term debt securities tend to fluctuate less in price,
but also tend to have lower yields, than longer-term securities of comparable
quality. However, the Fund is not a money market fund and the price of its
shares will fluctuate.
The portfolio managers of the SHORT-TERM INCOME FUND and INCOME FUND use a
"top-down" approach to select securities. They review economic outlook,
inflation expectation and interest rates to help identify sector weightings and
define maturity and duration selection before choosing individual securities.
The portfolio managers look at the diversification of the portfolios, and the
marketability and liquidity of the individual securities they select. Although
the Funds are actively managed, the portfolio managers attempt to manage the
Funds so as to minimize capital gains distributions.
The INCOME FUND'S average weighted maturity is expected to be from seven to
thirty years under normal circumstances. While longer-term securities tend to
have higher yields than short-term securities, their prices tend to fluctuate
more as a result of interest rate changes and other factors.
U.S. GOVERNMENT MEDIUM-TERM INCOME FUND
The U.S. GOVERNMENT MEDIUM-TERM INCOME FUND invests primarily in U.S.
government obligations and repurchase agreements secured by U.S. government
obligations. Under normal circumstances, at least 65% of the Fund's assets are
invested in these securities.
The Fund invests in both U.S. Treasury obligations and obligations such as
mortgage-backed securities issued or guaranteed by the U.S. government or its
agencies. The Fund also invests in non-government agency mortgage- and asset-
backed securities. ALTHOUGH THE FUND INVESTS PRIMARILY IN U.S. GOVERNMENT
OBLIGATIONS, AN INVESTMENT IN THE FUND IS NOT INSURED OR GUARANTEED BY THE
U.S. GOVERNMENT.
When selecting securities for the Fund, the portfolio managers use a "top-down"
economic analysis to determine economic outlook, and the direction in which
inflation and interest rates are expected to move, before selecting individual
securities for the Fund. The portfolio managers also analyze the yield curve
under multiple market conditions to help define maturity and duration selection.
The Fund's average weighted maturity is normally expected to be from three to
ten years.
PROSPECTUS
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MORE ABOUT BOSTON 1784 FUNDS (CONTINUED)
PORTFOLIO MANAGERS OF BOSTON 1784 BOND FUNDS
MARY K. WERLER, Senior Fund Manager, has been the manager of the Short-Term
Income Fund since the Fund began operations in July 1994. Ms. Werler, who has
more than 12 years of investment management experience, has been a Fund Manager
at BankBoston since 1993. From 1987 to 1993, Ms. Werler was an Associate
Portfolio Manager with Keystone Investment Co.
EMMETT M. WRIGHT, Senior Fund Manager, and CARL W. PAPPO, Fund Manager, have
been co-managers of the U.S. Government Medium-Term Income Fund and the Income
Fund since April 1999. Mr. Wright, who has more than seven years of investment
management and research analysis experience, was an Associate Fund Manager at
BankBoston from 1993 to 1994 and has been a Fund Manager at BankBoston since
1994. He has been the manager of the U.S. Government Medium-Term Income Fund and
a manager of the Income Fund since September 1995. Mr. Pappo, who has six years
investment management experience, traded fixed income securities at BayBank
Investment Management prior to joining the BankBoston investment management
team.
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TAX-EXEMPT INCOME FUNDS
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Boston 1784 Funds currently offer five Tax-Exempt Income Funds:
[bullet] BOSTON 1784 TAX-EXEMPT MEDIUM-TERM INCOME FUND
[bullet] BOSTON 1784 CONNECTICUT TAX-EXEMPT INCOME FUND
[bullet] BOSTON 1784 FLORIDA TAX-EXEMPT INCOME FUND
[bullet] BOSTON 1784 MASSACHUSETTS TAX-EXEMPT INCOME FUND
[bullet] BOSTON 1784 RHODE ISLAND TAX-EXEMPT INCOME FUND
PRINCIPAL INVESTMENT STRATEGIES
The principal investment strategies of the Tax-Exempt Income Funds are described
below. These are the strategies that, in the opinion of the Adviser, are most
likely to be important in trying to achieve each Fund's investment objective. Of
course, there can be no assurance that any Fund will achieve its investment
objective. Please note that each Fund may also use strategies and invest in
securities that are not described below, but which are described in the
Statement of Additional Information. A Fund is not required to use all of the
strategies and techniques or invest in all of the types of securities described
in this Prospectus or in the Statement of Additional Information.
Each Tax-Exempt Income Fund invests primarily in municipal securities. The Funds
may invest in "general obligation" bonds, which are backed by the full faith,
credit and taxing power of the issuer, and in "revenue" bonds, which are payable
only from the revenues generated by a specific project or another specific
revenue source. The Funds may also invest in limited amounts in other mutual
funds or investment companies that invest primarily in municipal securities.
Each of the Tax-Exempt Income Funds also may invest in debt securities that pay
interest that is not exempt from federal or state taxes or is subject to the
alternative minimum tax, such as U.S. government obligations, corporate bonds,
bank obligations, money market instruments, commercial paper and repurchase
agreements. Under normal circumstances, not more than 20% of each Fund's assets
are invested in these securities.
Each of the Tax-Exempt Income Funds invests in investment grade securities,
which means that they are considered to have a medium to high probability of
being paid. However, all of these securities, and especially those in the lowest
categories of investment grade in which the Funds may invest, have credit risk.
In adverse economic or other circumstances, issuers of these lower graded
securities are more likely to have difficulty making principal and interest
payments than issuers of higher grade securities. For this reason, the
Tax-Exempt Income Funds generally look for securities rated A or better. In
addition, some of the bonds held in the Funds may be covered by municipal bond
insurance, in which case an insurer may make principal and interest payments on
the securities if the issuer fails to do so.
Each of the Tax-Exempt Income Funds may, from time to time, invest as a hedging
strategy in a limited amount of futures contracts or options on futures
contracts. The Funds may only use futures contracts and options on futures
contracts, commonly referred to as derivatives, in an effort to offset
unfavorable changes in the value of securities held by the Funds for investment
purposes.
Investors should note that during periods of unusual economic or market
conditions, or for temporary defensive purposes or liquidity, each Fund may
invest without limit in cash and U.S. dollar-denominated high quality money
market and short-term instruments. These investments may result in a lower yield
than would be available from investments with a lower quality or longer term,
and more taxable income, and may prevent a Fund from achieving its investment
objective.
Each of the Tax-Exempt Income Funds is actively managed, although the portfolio
managers attempt to minimize portfolio
PROSPECTUS
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turnover. However, it is possible that a Fund's annual portfolio turnover rate
could exceed 100%. Trading securities may produce capital gains, which are
taxable to shareholders when distributed. Active trading may also increase the
amount of mark-ups and fees that the Fund pays to broker-dealers when it buys
and sells securities. The "Financial Highlights" section of this Prospectus
shows each Fund's historical portfolio turnover rate.
TAX-EXEMPT MEDIUM-TERM INCOME FUND
The TAX-EXEMPT MEDIUM-TERM INCOME FUND invests primarily in municipal
securities. Unlike the other Boston 1784 Tax-Exempt Income Funds, this Fund does
not invest primarily in the securities of a particular state, but instead
invests in a broadly diversified portfolio. Under normal circumstances, at least
80% of the Fund's net assets are invested in municipal securities or in mutual
funds or other investment companies that invest in municipal securities. The
Fund's average weighted maturity is normally expected to be from five to ten
years.
When selecting securities for the Tax-Exempt Medium-Term Income Fund, the
portfolio managers seek to maximize current income while achieving a competitive
total rate of return. The portfolio managers evaluate the suitability of
available bonds according to such factors as creditworthiness, maturity,
liquidity, interest rate, taxability and portfolio diversification. The
portfolio managers conduct research on potential and current securities holdings
in the Funds to determine whether a Fund should purchase or retain the asset.
This is a continuing process, the focus of which changes according to market
conditions, the availability of various permitted investments, and cash flows
both into and out of the Fund. The portfolio managers seek to diversify the
assets held in the Fund among various issuers, industry sectors and bond
structures.
CONNECTICUT TAX-EXEMPT INCOME FUND, FLORIDA TAX-EXEMPT INCOME FUND,
MASSACHUSETTS TAX-EXEMPT INCOME FUND AND RHODE ISLAND TAX-EXEMPT INCOME FUND
The CONNECTICUT TAX-EXEMPT INCOME FUND, FLORIDA TAX-EXEMPT INCOME FUND,
MASSACHUSETTS TAX-EXEMPT INCOME FUND and RHODE ISLAND TAX-EXEMPT INCOME FUND
invest primarily in state municipal securities. State municipal securities pay
interest that is exempt from that state's personal income tax or, in Florida,
the securities are exempt from Florida's intangible personal property tax. Each
of these Funds also may invest in municipal securities that pay interest that is
not exempt from state income tax. Under normal circumstances, at least 80% of
each Fund's net assets are invested in municipal securities, or in mutual funds
or other investment companies that invest in municipal securities, and at least
65% of each Fund's assets are invested in state municipal securities. Each
Fund's average weighted maturity is expected to be from five to ten years under
normal circumstances.
The Connecticut Tax-Exempt Income Fund, Florida Tax-Exempt Income Fund,
Massachusetts Tax-Exempt Income Fund and Rhode Island Tax-Exempt Income Fund are
non-diversified, which means that they may invest a relatively high percentage
of their assets in the obligations of a limited number of issuers. As a result,
each Fund may be more susceptible to any single economic, political or
regulatory occurrence. Each Fund is particularly susceptible to events affecting
issuers in its particular state.
When selecting securities for these Funds, the portfolio managers evaluate the
suitability of available bonds according to such factors as creditworthiness,
maturity, liquidity, interest rate, taxability and portfolio diversification.
The portfolio managers conduct research on potential and current securities
holdings in the Funds to determine whether a Fund should purchase or retain the
asset. This is a continuing process, the focus of which changes according to
market conditions, the availability of various permitted investments, and cash
flows both into and out of the Funds. The portfolio managers seek to diversify
the assets held in the Funds among various issuers, industry sectors and bond
structures.
PORTFOLIO MANAGERS OF BOSTON 1784 TAX-EXEMPT INCOME FUNDS
DAVID H. THOMPSON, Director of Fund Management, has been
the manager of the Tax-Exempt Medium-Term Income Fund since the Fund began
operations in June 1993 and the manager of the Connecticut Tax-Exempt Income
Fund and the Rhode Island Tax-Exempt Income Fund since September 1995. Mr.
Thompson, who has more than 28 years of experience in investment management,
research analysis and securities trading, has been the Director of Fund
Management at BankBoston since 1985.
GUY C. HOLBROOK, Fund Manager, has been a co-manager of the Tax-Exempt
Medium-Term Income Fund, Connecticut Tax-Exempt Income Fund
and Rhode Island Tax-Exempt Income Fund since April 1999. Mr. Holbrook, who
has ten years of
PROSPECTUS
41
<PAGE>
MORE ABOUT BOSTON 1784 FUNDS (CONTINUED)
investment management experience, was a Research Analyst and Bond Trader at
Scudder Kemper Investments from 1992 to 1998. He joined BankBoston as a Fund
Manager in 1998.
DAVID H. THOMPSON, Director of Fund Management, and SUSAN A. SANDERSON, Senior
Fund Manager, have been the co-managers of the Florida Tax-Exempt Income Fund
since the Fund began operations in June 1997. Mr. Thompson's investment
experience is described above. Ms. Sanderson, who has more than 16 years of
experience in investment management and securities trading, has been a Fund
Manager at BankBoston since 1991.
SUSAN A. SANDERSON, Senior Fund Manager, has been the manager of the
Massachusetts Tax-Exempt Income Fund since the Fund began
operations in June 1993. Ms. Sanderson's investment experience is
described above.
- -------------------------------------------------------------------------------
STOCK FUNDS
- -------------------------------------------------------------------------------
Boston 1784 Funds currently offer four Stock Funds:
[bullet] BOSTON 1784 ASSET ALLOCATION FUND
[bullet] BOSTON 1784 GROWTH AND INCOME FUND
[bullet] BOSTON 1784 GROWTH FUND
[bullet] BOSTON 1784 INTERNATIONAL EQUITY FUND
PRINCIPAL INVESTMENT STRATEGIES
The principal investment strategies used by the Stock Funds are described below.
These are the strategies that, in the opinion of the Adviser, are most likely to
be important in trying to achieve each Fund's investment objective. Of course,
there can be no assurance that any Fund will achieve its investment objective.
Please note that each Fund may also use strategies and invest in securities that
are not described below, but which are described in the Statement of Additional
Information. A Fund is not required to use all of the strategies and techniques
or invest in all of the types of securities described in this Prospectus or in
the Statement of Additional Information.
Investors should note that during periods of unusual economic or market
conditions, or for temporary defensive purposes or liquidity, each Fund may
invest without limit in cash and U.S. dollar-denominated high quality money
market and short-term instruments. Because these investments may result in a
lower yield than would be available from investments with a lower quality or
longer term and do not have the potential for capital appreciation that equity
securities have, they may prevent a Fund from achieving its investment
objective.
Each of the Stock Funds is actively managed, although the portfolio managers
attempt to minimize portfolio turnover. However, from time to time, a Fund's
annual portfolio turnover rate may exceed 100%. The sale of securities may
produce capital gains, which, when distributed, are taxable to shareholders.
Active trading may also increase the amount of commissions or mark-ups the Fund
pays to broker-dealers when the Fund buys and sells securities. The "Financial
Highlights" section of this Prospectus shows each Fund's historical portfolio
turnover rate.
ASSET ALLOCATION FUND
The ASSET ALLOCATION FUND allocates its assets between equity securities, debt
securities and short-term or money market instruments. Normally, 30% to 70% of
the Fund's assets are invested in equity securities, 30% to 60% are invested in
intermediate- and long-term debt securities, and 0% to 40% are invested in
short-term debt securities or money market instruments. The portfolio managers
determine the mix of investments between equity and debt securities based on
current economic and market conditions and the underlying value of the
securities.
The equity portion of the Fund is primarily invested in the stocks of large U.S.
companies that the portfolio managers believe offer the prospect for
above-average earnings growth and are available at reasonable prices. From time
to time, the Fund may also invest in mid-sized U.S. companies and in large,
multi-national companies based outside of the U.S. In addition to common stock,
the Fund's equity securities may include warrants to purchase common stock, debt
securities convertible into common stock, convertible and non-convertible
preferred stock and depositary receipts.
When selecting equity securities for the Fund, the portfolio managers place
particular emphasis on industry selection, seeking stocks in industries that are
outperforming the market, and may overweight the portfolio relative to the S&P
500 in these industries. The Fund may similarly be underweighted relative to the
S&P 500 in certain industries.
When selecting debt securities for the Fund, the portfolio managers use a
"top-down" approach, first performing a broad economic analysis, then
identifying sectors believed likely to outperform the market over a particular
holding period, and then selecting individual securities. The Fund's debt
securities include investment grade corporate debt securities and debt
obligations issued or guaranteed as to the payment of principal and interest by
the U.S. government or by foreign governments. The Fund may also invest in
mortgage-backed and asset-backed securities rated A or better by Standard &
Poor's or Moody's or of comparable quality as determined by the Adviser.
PROSPECTUS
42
<PAGE>
The Fund will use short-term debt and money market instruments, including
short-term U.S. government and corporate obligations, commercial paper, bank
obligations and repurchase agreements, in varying degrees as a risk management
tool.
GROWTH AND INCOME FUND
AND GROWTH FUND
The GROWTH AND INCOME FUND and the GROWTH FUND invest primarily in common stock
(including depositary receipts) of U.S. and foreign issuers. Typically, it is
expected that 80-90% or more of the Funds' assets will be invested in these
securities, although the Funds may invest up to 35% of their assets in other
securities such as convertible and non-convertible debt securities, preferred
stock, warrants, and money market instruments.
The GROWTH AND INCOME FUND emphasizes the stock of U.S. companies with market
capitalizations of at least $1 billion. The portfolio managers may also select
stocks in smaller U.S. companies, and may invest up to 25% of the Fund's assets
in securities of foreign companies, including smaller companies and companies in
developing markets. The portfolio managers look for high quality growth
companies with strong potential for revenue and earnings increases.
The GROWTH FUND emphasizes securities of U.S. companies with a market
capitalization of at least $250 million that the portfolio managers believe have
above-average growth potential. The Fund also may invest in securities of
smaller, lesser-known companies and may invest up to 25% of its assets in
securities of foreign companies, including companies in developing countries.
While some of the Fund's investments may pay dividends, current income is not a
consideration when selecting investments.
The portfolio managers of the GROWTH AND INCOME FUND and GROWTH FUND use a
"bottom-up" approach when selecting securities for the Funds. They look for
companies that they believe are in dynamic high growth sectors of the world
economy, and that are thought to have dominant or strong competitive positions
within their sectors. They also look for companies thought to have quality
management and that are expected to have strong earnings growth potential. When
looking for companies with a higher growth rate than the general market, the
Funds may invest in securities with a higher price-earnings ratio than the
general market. However, if the anticipated growth does not occur, the prices of
securities of these companies can fall significantly.
WHAT IS A "BOTTOM-UP" APPROACH?
When portfolio managers use a "BOTTOM-UP" APPROACH, they look primarily at
individual companies against the context of broader market factors.
Both the GROWTH AND INCOME FUND and GROWTH FUND may engage in foreign currency
hedging transactions in an attempt to minimize the effects of currency
fluctuations on the Fund. If a Fund does use hedging transactions, it may not be
successful or the hedging transactions may cause the Fund to be unable to take
advantage of a favorable change in the value of foreign currencies.
INTERNATIONAL EQUITY FUND
The INTERNATIONAL EQUITY FUND invests primarily in equity securities of foreign
issuers, including securities of issuers in developing countries.
The Fund's portfolio is diversified as to both country and industry exposure in
an attempt to limit the impact of an economic downturn in any particular country
or industry sector. However, the Fund is not restricted in the percentage of its
assets that it may invest in one particular country or region, and from time to
time it may invest a substantial portion of its assets in one or more countries
or regions. The Fund emphasizes equity securities of issuers with market
capitalizations of at least $100 million that the portfolio managers believe are
financially sound, have a track record of growth in earnings and have
above-average growth potential.
The portfolio managers screen a large universe of securities as potential
investments and then identify companies with suitable market capitalization,
liquidity and balance sheet structure whose earnings growth rates have exceeded
national averages. The portfolio is then structured to reflect the relative
attractiveness of the economies of various countries, and to provide industry
diversification. While some of the Fund's investments may pay dividends, current
income is not a consideration when selecting investments.
The Fund may engage in foreign currency hedging transactions in an attempt to
minimize the effects of currency fluctuations on the Fund. If the Fund does use
hedging transactions, it may not be successful or the hedging transactions may
cause the Fund to be unable to take advantage of a favorable change in the value
of foreign currencies. The Fund may also invest in convertible and
non-convertible bonds and other debt securities and money market instruments.
PROSPECTUS
43
<PAGE>
MORE ABOUT BOSTON 1784 FUNDS (CONTINUED)
The costs of foreign investing, such as the costs of maintaining custody of
securities in foreign countries, frequently are higher than those involved in
U.S. investing. As a result, the operating expense ratios of the Fund may be
higher than those of investment companies investing only in U.S. securities.
PORTFOLIO MANAGERS OF THE
BOSTON 1784 STOCK FUNDS
EMMETT M. WRIGHT, Senior Fund Manager, and MICHAEL PELOSI, Senior Fund Manager,
have been co-managers of the Asset Allocation Fund since October 1997. Mr.
Wright, who has more than seven years of investment management and research
analysis experience, was an Associate Fund Manager at BankBoston from 1993 to
1994 and has been a Fund Manager at BankBoston since 1994. Mr. Pelosi, who has
more than 16 years experience in investment management, research analysis and
securities trading at BankBoston, has been a Portfolio Manager since 1988.
EUGENE D. TAKACH, Senior Fund Manager, and THEODORE E. OBER, Senior Fund
Manager, have been the co-managers of the Growth and Income Fund and the Growth
Fund since the Funds began operations. Mr. Takach, who has more than 30 years
experience in investment management, research analysis and securities trading,
has been a Portfolio Manager at BankBoston since 1971. Mr. Ober, who has more
than eleven years experience in investment management and research analysis, has
been a Research Analyst, Fund Manager and Senior Fund Manager at BankBoston
since 1987.
KENTON J. IDE, Director of Investments for BankBoston's Private Bank, and
WILLIAM S. STACK, a Director at Kleinwort Benson Investment Management Americas
Inc., currently co-manage the International Equity Fund. Mr. Ide, who has more
than 20 years experience in investment management and research analysis, has
been with BankBoston since early 1993. He has been a co-manager of the
International Equity Fund since 1995. From 1983 to 1993, Mr. Ide was a Senior
Vice President with the Private Client Group of Boston Safe Deposit and Trust
Company. Mr. Stack, who has more than 25 years of experience managing domestic
and international equities, has been with Kleinwort since 1996. He is also a
Senior Managing Director of Dresdner RCM Global Investors LLC (an affiliate of
Kleinwort), with which he has been associated since 1994 and is a member of its
Board of Directors.
PROSPECTUS
44
<PAGE>
MANAGEMENT
INVESTMENT ADVISER
BankBoston is the investment adviser of each Fund and, subject to policies set
by the Trustees, makes investment decisions. BankBoston is the successor to a
bank chartered in 1784 and offers a wide range of banking and investment
services to customers throughout the world. BankBoston has been providing asset
management services since 1890. The Private Bank Division of BankBoston is the
investment management group within BankBoston that advises the Funds. As of July
31, 1999, BankBoston's Private Bank was responsible for the investment
management of approximately $30 billion of individual, institutional, endowment
and corporate assets, including nearly $9.8 billion in assets of the Funds, in
money market, equity, and fixed income securities. BankBoston's Private Bank has
earned national recognition and respect as an investment manager. BankBoston's
legal name is BankBoston, National Association and its address is 100 Federal
Street, Boston, Massachusetts 02110.
On March 14, 1999, BankBoston Corporation, the parent company of BankBoston, and
Fleet Financial Group, Inc. entered into an Agreement and Plan of Merger under
which BankBoston Corporation will be merged with Fleet Financial Group, subject
to certain conditions. After the merger, which is expected to be effective by
the last quarter of 1999, BankBoston will be a subsidiary of the merged company.
Kleinwort Benson Investment Management Americas Inc. ("Kleinwort") serves as
co-investment adviser to the International Equity Fund with BankBoston.
Investment decisions are joint. Kleinwort, 4 Embarcadero Center, San Francisco,
California 94111, is a U.S.-based investment adviser which is indirectly owned
by Dresdner Bank AG. Since it began operations in 1980, Kleinwort has managed
investment accounts, primarily for institutions in North America, comprised of
equity, fixed income and balanced portfolios. Kleinwort and its affiliates
manage approximately $68 billion of assets.
MANAGEMENT FEES
The following chart shows the investment management fees paid by each Fund
during the last fiscal year.
- -------------------------------------------------------------------------------
MANAGEMENT FEES PAID
(expressed as a percentage of average net assets)
- -------------------------------------------------------------------------------
Tax-Free Money Market Fund .40%
U.S. Treasury Money Market Fund .33
Institutional U.S. Treasury Money Market Fund .20
Prime Money Market Fund .32
Institutional Prime Money Market Fund .15
Short-Term Income Fund .50
Income Fund .68
U.S. Government Medium-Term Income Fund .67
Tax-Exempt Medium-Term Income Fund .68
Connecticut Tax-Exempt Income Fund .67
Florida Tax-Exempt Income Fund .65
Massachusetts Tax-Exempt Income Fund .67
Rhode Island Tax-Exempt Income Fund .66
Asset Allocation Fund .74
Growth and Income Fund .74
Growth Fund .74
International Equity Fund 1.00
BankBoston waives its investment management fees, if necessary, to limit the
total operating expenses of a Fund to a specified level. BankBoston also may
contribute to the Funds from time to time to help them maintain competitive
expense ratios. These arrangements are voluntary and may be terminated at any
time. The fees without waivers are shown in the fee tables.
PROSPECTUS
45
<PAGE>
MANAGEMENT (CONTINUED)
YEAR 2000
Boston 1784 Funds have been working to prepare for the Year 2000 transition and
have taken steps to provide seamless processing for all systems and applications
utilized by the Funds' service providers. We have sought and received assurances
from each service provider that their computer systems have been remediated for
Year 2000. We are continuing to monitor the progress of these service providers
with respect to the testing of modified systems, and have sought and received
assurances that such testing confirms Year 2000 readiness.
While we have received such assurances, the Funds and their shareholders may
experience losses if these assurances prove to be incorrect. Losses could also
arise as a result of Year 2000 computer difficulties experienced by third
parties, such as banks and broker-dealers or securities exchanges with which the
Funds do business.
An additional Year 2000 consideration is the readiness of the companies in which
Boston 1784 Funds have invested. The Year 2000, like any other market influence,
could quite possibly impact Fund performance adversely. Boston 1784 Funds'
portfolio managers consider the Year 2000 transition, like any other factor, in
making investment decisions.
It is important to understand that Boston 1784 Funds cannot warrant or guarantee
the Year 2000 readiness of any third party.
PROSPECTUS
46
<PAGE>
DISTRIBUTION ARRANGEMENTS
Boston 1784 Funds do not charge any sales loads, deferred sales loads or other
fees when you purchase shares.
Each Fund, other than the Money Market Funds, has adopted a plan under rule
12b-1. The plan allows a Fund to use part of the Fund's assets (up to .25% of
its average daily net assets) for the sale and distribution of its shares,
including advertising, marketing and other promotional activities. Because these
fees are paid out of Fund assets, over time these fees will increase the cost of
your investment and may cost you more than paying other types of sales charges.
The Funds' Distributor currently waives these fees on a voluntary basis. This
fee waiver may be terminated in whole or in part at any time.
PROSPECTUS
47
<PAGE>
FINANCIAL HIGHLIGHTS
THE FINANCIAL HIGHLIGHTS TABLE IS INTENDED TO HELP YOU UNDERSTAND A FUND'S
FINANCIAL PERFORMANCE FOR THE PAST 5 YEARS (OR, IF SHORTER, THE PERIOD OF THE
FUND'S OPERATIONS). CERTAIN INFORMATION REFLECTS FINANCIAL RESULTS FOR A SINGLE
FUND SHARE. THE TOTAL RETURNS IN THE TABLE REPRESENT THE RATE THAT AN INVESTOR
WOULD HAVE EARNED (OR LOST) ON AN INVESTMENT IN EACH FUND (ASSUMING REINVESTMENT
OF ALL DISTRIBUTIONS). THIS INFORMATION HAS BEEN AUDITED BY
PRICEWATERHOUSECOOPERS LLP, INDEPENDENT ACCOUNTANTS, WHOSE REPORT, ALONG WITH
THE FUNDS' FINANCIAL STATEMENTS, ARE INCLUDED IN THE FUNDS' ANNUAL REPORTS,
WHICH ARE AVAILABLE UPON REQUEST.
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------
MONEY MARKET FUNDS
- -----------------------------------------------------------------------------------------------------------------------------------
NET NET NET RATIO RATIO OF RATIO OF NET
ASSET DISTRIBUTIONS ASSET ASSETS RATIO OF NET EXPENSES TO INCOME TO
VALUE NET FROM NET VALUE END OF EXPENSES INCOME AVERAGE NET AVERAGE NET
BEGIN- INVEST- INVEST- END OF TO TO ASSETS ASSETS
NING MENT MENT OF TOTAL PERIOD AVERAGE AVERAGE (EXCLUDING) (EXCLUDING
OF PERIOD INCOME INCOME PERIOD RETURN (000) NET ASSETS NET ASSETS WAIVERS) WAIVERS)
- -----------------------------------------------------------------------------------------------------------------------------------
BOSTON 1784 TAX-FREE MONEY MARKET FUND
For the year ended
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
May 31, 1999 $1.00 0.03 (0.03) $1.00 3.01% $ 969,380 0.51% 2.97% 0.51% 2.97%
For the year ended
May 31, 1998 $1.00 0.03 (0.03) $1.00 3.33% $1,007,724 0.53% 3.28% 0.53% 3.28%
For the year ended
May 31, 1997 $1.00 0.03 (0.03) $1.00 3.22% $ 845,612 0.54% 3.17% 0.56% 3.15%
For the year ended
May 31, 1996 $1.00 0.03 (0.03) $1.00 3.55% $ 549,628 0.54% 3.49% 0.60% 3.43%
For the year ended
May 31, 1995 $1.00 0.03 (0.03) $1.00 3.29% $ 539,412 0.50% 3.28% 0.61% 3.17%
- -----------------------------------------------------------------------------------------------------------------------------------
BOSTON 1784 U.S. TREASURY MONEY MARKET FUND
For the year ended
May 31, 1999 $1.00 0.04 (0.04) $1.00 4.55% $ 390,775 0.65% 4.45% 0.72% 4.38%
For the year ended
May 31, 1998 $1.00 0.05 (0.05) $1.00 5.02% $ 372,657 0.65% 4.91% 0.70% 4.86%
For the year ended
May 31, 1997 $1.00 0.05 (0.05) $1.00 4.86% $ 390,294 0.64% 4.76% 0.72% 4.68%
For the year ended
May 31, 1996 $1.00 0.05 (0.05) $1.00 5.16% $ 78,999 0.64% 5.02% 0.75% 4.91%
For the year ended
May 31, 1995 $1.00 0.05 (0.05) $1.00 4.81% $ 55,068 0.60% 5.13% 0.92% 4.81%
- -----------------------------------------------------------------------------------------------------------------------------------
BOSTON 1784 INSTITUTIONAL U.S. TREASURY MONEY MARKET FUND
For the year ended
May 31,1999 $1.00 0.05 (0.05) $1.00 4.90% $4,346,037 0.31% 4.79% 0.31% 4.79%
For the year ended
May 31,1998 $1.00 0.05 (0.05) $1.00 5.36% $4,285,801 0.33% 5.24% 0.33% 5.24%
For the year ended
May 31,1997 $1.00 0.05 (0.05) $1.00 5.16% $2,591,487 0.33% 5.05% 0.34% 5.04%
For the year ended
May 31,1996 $1.00 0.05 (0.05) $1.00 5.45% $ 644,733 0.32% 5.29% 0.39% 5.22%
For the year ended
May 31,1995 $1.00 0.05 (0.05) $1.00 5.05% $ 395,585 0.30% 5.12% 0.41% 5.01%
- -----------------------------------------------------------------------------------------------------------------------------------
BOSTON 1784 PRIME MONEY MARKET FUND
For the year ended
May 31, 1999 $1.00 0.05 (0.05) $1.00 4.78% $ 165,178 0.65% 4.66% 0.73% 4.58%
For the year ended
May 31, 1998 $1.00 0.05 (0.05) $1.00 5.16% $ 127,588 0.65% 5.05% 0.70% 5.00%
For the period ended
May 31, 1997 (1) $1.00 0.02 (0.02) $1.00 2.07%* $ 123,099 0.65% 4.98% 0.75% 4.88%
For the year ended
December 31, 1996 (2) $1.00 0.05 (0.05) $1.00 5.02% $ 93,229 0.66% 4.85% 0.66% 4.85%
For the year ended
December 31, 1995 $1.00 0.05 (0.05) $1.00 5.49% $ 156,532 0.62% 5.40% 0.62% 5.40%
For the year ended
December 31, 1994 $1.00 0.04 (0.04) $1.00 3.75% $ 136,923 0.65% 3.64% 0.69% 3.60%
- -----------------------------------------------------------------------------------------------------------------------------------
BOSTON 1784 INSTITUTIONAL PRIME MONEY MARKET FUND
For the year ended
May 31, 1999 $1.00 0.05 (0.05) $1.00 5.10% $ 516,901 0.30% 4.93% 0.35% 4.88%
For the period ended
May 31, 1998 (3) $1.00 0.03 (0.03) $1.00 5.55% $ 302,338 0.27% 5.36% 0.42% 5.21%
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
* Return is for the period indicated and has not been annualized.
(1) The Prime Money Market Fund changed its fiscal year from December 31 to May 31.
Reflects operations for the period from January 1, 1997 to May 31, 1997.
All ratios for the period have been annualized.
(2) Until December 9, 1996, the Prime Money Market Fund was known as the BayFunds
Money Market Portfolio and was a portfolio of BayFunds, an open-end investment
company registered under the Investment Company Act of 1940, as amended.
Shares of the BayFunds Money Market Portfolio were divided into two classes,
known as Investment Shares and Trust Shares. The Prime Money Market Fund has
only a single class of outstanding shares. For periods prior to December 9, 1996,
Ernst & Young LLP were the auditors of the BayFunds Money Market Portfolio.
(3) The Institutional Prime Money Market Fund commenced operations on November 5, 1997.
All ratios for the period, including total return, have been annualized.
</FN>
</TABLE>
PROSPECTUS
48
<PAGE>
<TABLE>
<CAPTION>
NET REALIZED AND NET NET
ASSET UNREALIZED DISTRIBUTIONS DISTRIBUTIONS ASSET ASSETS
VALUE NET GAINS OR FROM NET FROM VALUE END OF
BEGINNING INVESTMENT (LOSSES) ON INVESTMENT CAPITAL END OF TOTAL PERIOD
OF PERIOD INCOME INVESTMENTS INCOME GAINS PERIOD RETURN (000)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BOSTON 1784 SHORT-TERM INCOME FUND
For the year ended May 31, 1999 $10.09 0.54 (0.07) (0.54) -- $10.02 4.70% $176,032
For the year ended May 31, 1998 $ 9.98 0.57 0.11 (0.57) -- $10.09 6.98% $197,256
For the year ended May 31, 1997 $ 9.93 0.58 0.05 (0.58) -- $ 9.98 6.47% $194,033
For the year ended May 31, 1996 $10.09 0.60 (0.12) (0.60) (0.04) $ 9.93 4.87% $ 86,383
For the period ended May 31, 1995 (1) $10.00 0.56 0.09 (0.56) -- $10.09 6.74%* $ 52,581
- ------------------------------------------------------------------------------------------------------------------------------------
BOSTON 1784 INCOME FUND
For the year ended May 31, 1999 $10.25 0.55 (0.26) (0.55) (0.06) $ 9.93 2.83% $343,196
For the year ended May 31, 1998 $ 9.99 0.61 0.26 (0.61) -- $10.25 8.88% $392,556
For the year ended May 31, 1997 $ 9.90 0.63 0.17 (0.63) (0.08) $ 9.99 8.32% $334,778
For the year ended May 31, 1996 $10.39 0.65 (0.37) (0.65) (0.12) $ 9.90 2.64% $235,022
For the period ended May 31, 1995 (1) $10.00 0.62 0.39 (0.62) -- $10.39 10.69%* $196,515
- ------------------------------------------------------------------------------------------------------------------------------------
BOSTON 1784 U.S. GOVERNMENT MEDIUM-TERM INCOME FUND
For the year ended May 31, 1999 $ 9.60 0.51 (0.15) (0.51) -- $ 9.45 3.73% $276,781
For the year ended May 31, 1998 $ 9.37 0.55 0.23 (0.55) -- $ 9.60 8.56% $252,719
For the year ended May 31, 1997 $ 9.31 0.59 0.06 (0.59) -- $ 9.37 7.16% $209,141
For the year ended May 31, 1996 $ 9.57 0.61 (0.26) (0.61) -- $ 9.31 3.65% $167,494
For the year ended May 31, 1995 $ 9.36 0.58 0.21 (0.58) -- $ 9.57 8.79% $130,081
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATIO RATIO OF
RATIO OF OF EXPENSES NET INCOME
RATIO OF NET TO AVERAGE TO AVERAGE
EXPENSES INCOME NET ASSETS NET ASSETS PORTFOLIO
TO AVERAGE TO AVERAGE (EXCLUDING (EXCLUDING TURNOVER
NET ASSETS NET ASSETS WAIVERS) WAIVERS) RATE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BOSTON 1784 SHORT-TERM INCOME FUND
For the year ended May 31, 1999 0.64% 5.30% 0.89% 5.05% 36.57%
For the year ended May 31, 1998 0.64% 5.67% 0.89% 5.42% 83.84%
For the year ended May 31, 1997 0.65% 5.78% 0.93% 5.50% 128.11%
For the year ended May 31, 1996 0.63% 5.87% 1.06% 5.44% 95.06%
For the period ended May 31, 1995 (1) 0.48% 6.31% 1.27% 5.52% 84.54%
- ----------------------------------------------------------------------------------------------------------
BOSTON 1784 INCOME FUND
For the year ended May 31, 1999 0.80% 5.37% 1.11% 5.06% 64.34%
For the year ended May 31, 1998 0.80% 5.91% 1.11% 5.60% 79.09%
For the year ended May 31, 1997 0.80% 6.31% 1.15% 5.96% 78.63%
For the year ended May 31, 1996 0.80% 6.17% 1.20% 5.77% 100.51%
For the period ended May 31, 1995 (1) 0.55% 7.01% 1.23% 6.33% 80.53%
- ----------------------------------------------------------------------------------------------------------
BOSTON 1784 U.S. GOVERNMENT MEDIUM-TERM INCOME FUND
For the year ended May 31, 1999 0.80% 5.25% 1.12% 4.93% 47.85%
For the year ended May 31, 1998 0.80% 5.80% 1.12% 5.48% 73.65%
For the year ended May 31, 1997 0.79% 6.30% 1.16% 5.93% 98.22%
For the year ended May 31, 1996 0.80% 6.23% 1.24% 5.79% 158.66%
For the year ended May 31, 1995 0.80% 6.24% 1.27% 5.77% 142.14%
- ----------------------------------------------------------------------------------------------------------
<FN>
* Returns are for the period indicated and have not been annualized.
(1) The Short-Term Income and Income Funds commenced operations on July 1, 1994. All ratios for the period have been annualized.
</FN>
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
TAX-EXEMPT FUNDS
- ------------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND NET NET
ASSET UNREALIZED DISTRIBUTIONS DISTRIBUTIONS ASSET ASSETS
VALUE NET GAINS OR FROM NET FROM VALUE END OF
BEGINNING INVESTMENT (LOSSES) ON INVESTMENT CAPITAL END OF TOTAL PERIOD
OF PERIOD INCOME INVESTMENTS INCOME GAINS PERIOD RETURN (000)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BOSTON 1784 TAX-EXEMPT MEDIUM-TERM INCOME FUND
For the year ended May 31, 1999 $10.52 0.45 (0.01) (0.45) (0.18) $10.33 4.24% $356,995
For the year ended May 31, 1998 $10.18 0.48 0.44 (0.48) (0.10) $10.52 9.24% $303,578
For the year ended May 31, 1997 $ 9.99 0.50 0.19 (0.50) -- $10.18 7.74% $250,526
For the year ended May 31, 1996 $10.14 0.51 (0.09) (0.51) (0.06) $ 9.99 4.31% $196,787
For the year ended May 31, 1995 $ 9.90 0.48 0.24 (0.48) -- $10.14 7.58% $176,345
- ------------------------------------------------------------------------------------------------------------------------------------
BOSTON 1784 CONNECTICUT TAX-EXEMPT INCOME FUND
For the year ended May 31, 1999 $10.81 0.48 (0.08) (0.48) (0.06) $10.67 3.72% $187,725
For the year ended May 31, 1998 $10.38 0.50 0.45 (0.50) (0.02) $10.81 9.29% $142,107
For the year ended May 31, 1997 $10.17 0.51 0.21 (0.51) -- $10.38 7.26% $103,104
For the year ended May 31, 1996 $10.27 0.53 (0.10) (0.53) -- $10.17 4.20% $ 81,441
For the period ended May 31, 1995 (1) $10.00 0.45 0.27 (0.45) -- $10.27 7.45%* $ 61,369
- ------------------------------------------------------------------------------------------------------------------------------------
BOSTON 1784 FLORIDA TAX-EXEMPT INCOME FUND
For the year ended May 31, 1999 $10.30 0.44 (0.04) (0.44) (0.14) $10.12 3.88% $ 68,796
For the period ended May 31, 1998 (2) $10.00 0.43 0.32 (0.43) (0.02) $10.30 7.63%* $ 51,793
- ------------------------------------------------------------------------------------------------------------------------------------
BOSTON 1784 MASSACHUSETTS TAX-EXEMPT INCOME FUND
For the year ended May 31, 1999 $10.42 0.45 (0.03) (0.45) -- $10.39 4.10% $267,871
For the year ended May 31, 1998 $10.01 0.47 0.41 (0.47) -- $10.42 8.91 $206,137
For the year ended May 31, 1997 $ 9.78 0.47 0.23 (0.47) -- $10.01 7.30% $147,459
For the year ended May 31, 1996 $ 9.90 0.48 (0.12) (0.48) -- $ 9.78 3.64% $106,619
For the year ended May 31, 1995 $ 9.81 0.47 0.09 (0.47) -- $ 9.90 6.00% $ 82,058
</TABLE>
<TABLE>
<CAPTION>
RATIO RATIO OF
RATIO OF OF EXPENSES NET INCOME
RATIO OF NET TO AVERAGE TO AVERAGE
EXPENSES INCOME NET ASSETS NET ASSETS PORTFOLIO
TO AVERAGE TO AVERAGE (EXCLUDING (EXCLUDING TURNOVER
NET ASSETS NET ASSETS WAIVERS) WAIVERS) RATE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BOSTON 1784 TAX-EXEMPT MEDIUM-TERM INCOME FUND
For the year ended May 31, 1999 0.80% 4.31% 1.11% 4.00% 68.58%
For the year ended May 31, 1998 0.80% 4.62% 1.12% 4.30% 34.06%
For the year ended May 31, 1997 0.80% 4.92% 1.17% 4.55% 33.24%
For the year ended May 31, 1996 0.79% 4.90% 1.21% 4.48% 37.35%
For the year ended May 31, 1995 0.80% 5.02% 1.26% 4.56% 74.74%
- ----------------------------------------------------------------------------------------------------------
BOSTON 1784 CONNECTICUT TAX-EXEMPT INCOME FUND
For the year ended May 31, 1999 0.80% 4.37% 1.12% 4.05% 19.10%
For the year ended May 31, 1998 0.80% 4.66% 1.14% 4.32% 16.81%
For the year ended May 31, 1997 0.76% 4.94% 1.17% 4.53% 4.28%
For the year ended May 31, 1996 0.75% 5.02% 1.29% 4.48% 20.41%
For the period ended May 31, 1995 (1) 0.52% 5.44% 1.40% 4.56% 35.56%
- ----------------------------------------------------------------------------------------------------------
BOSTON 1784 FLORIDA TAX-EXEMPT INCOME FUND
For the year ended May 31, 1999 0.80% 4.25% 1.14% 3.91% 10.88%
For the period ended May 31, 1998 (2) 0.80% 4.59% 1.19% 4.20% 21.35%
- ----------------------------------------------------------------------------------------------------------
BOSTON 1784 MASSACHUSETTS TAX-EXEMPT INCOME FUND
For the year ended May 31, 1999 0.80% 4.32% 1.12% 4.00% 9.32%
For the year ended May 31, 1998 0.80% 4.54% 1.14% 4.20% 6.45%
For the year ended May 31, 1997 0.79% 4.74% 1.18% 4.35% 9.47%
For the year ended May 31, 1996 0.80% 4.73% 1.28% 4.25% 47.00%
For the year ended May 31, 1995 0.80% 4.93% 1.35% 4.38% 34.59%
</TABLE>
PROSPECTUS
49
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
TAX-EXEMPT FUNDS (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND NET NET
ASSET UNREALIZED DISTRIBUTIONS DISTRIBUTIONS ASSET ASSETS
VALUE NET GAINS OR FROM NET FROM VALUE END OF
BEGINNING INVESTMENT (LOSSES) ON INVESTMENT CAPITAL END OF TOTAL PERIOD
OF PERIOD INCOME INVESTMENTS INCOME GAINS PERIOD RETURN (000)
- ------------------------------------------------------------------------------------------------------------------------------------
BOSTON 1784 RHODE ISLAND TAX-EXEMPT INCOME FUND
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For the year ended May 31, 1999 $10.62 0.47 (0.04) (0.47) (0.08) $10.50 4.11% $102,073
For the year ended May 31, 1998 $10.31 0.49 0.35 (0.49) (0.04) $10.62 8.28% $ 76,797
For the year ended May 31, 1997 $10.06 0.50 0.25 (0.50) -- $10.31 7.61% $ 53,752
For the year ended May 31, 1996 $10.13 0.53 (0.07) (0.53) -- $10.06 4.65% $ 37,904
For the period ended May 31, 1995 (3) $10.00 0.45 0.13 (0.45) -- $10.13 6.09%* $ 32,495
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATIO RATIO OF
RATIO OF OF EXPENSES NET INCOME
RATIO OF NET TO AVERAGE TO AVERAGE
EXPENSES INCOME NET ASSETS NET ASSETS PORTFOLIO
TO AVERAGE TO AVERAGE (EXCLUDING (EXCLUDING TURNOVER
NET ASSETS NET ASSETS WAIVERS) WAIVERS) RATE
- ----------------------------------------------------------------------------------------------------------
BOSTON 1784 RHODE ISLAND TAX-EXEMPT INCOME FUND
<S> <C> <C> <C> <C> <C>
For the year ended May 31, 1999 $0.80% 4.42% 1.13% 4.09% 12.44%
For the year ended May 31, 1998 $0.80% 4.64% 1.16% 4.28% 13.79%
For the year ended May 31, 1997 $0.79% 4.88% 1.21% 4.46% 8.18%
For the year ended May 31, 1996 $0.77% 5.16% 1.35% 4.58% 19.68%
For the period ended May 31, 1995 (3) $0.54% 5.56% 1.60% 4.50% 57.51%
- ----------------------------------------------------------------------------------------------------------
<FN>
* Returns are for the period indicated and have not been annualized.
(1) The Connecticut Tax-Exempt Income Fund commenced operations on August 1, 1994.
All ratios for the period have been annualized.
(2) The Florida Tax-Exempt Income Fund commenced operations on June 30, 1997.
All ratios for the period have been annualized.
(3) The Rhode Island Tax-Exempt Income Fund commenced operations on August 1, 1994.
All ratios for the period have been annualized.
</FN>
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
STOCK FUNDS
- ------------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND NET NET
ASSET NET UNREALIZED DISTRIBUTIONS DISTRIBUTIONS ASSET ASSETS
VALUE INVESTMENT GAINS OR FROM NET FROM VALUE END OF
BEGINNING INCOME (LOSSES) ON INVESTMENT CAPITAL END OF TOTAL PERIOD
OF PERIOD LOSS INVESTMENTS INCOME GAINS PERIOD RETURN (000)
- ------------------------------------------------------------------------------------------------------------------------------------
BOSTON 1784 ASSET ALLOCATION FUND
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For the year ended May 31, 1999 $15.16 0.38 0.48 (0.39) (0.66) $14.97 5.92% $ 53,371
For the year ended May 31, 1998 $13.40 0.37 2.30 (0.38) (0.53) $15.16 20.51% $ 50,283
For the year ended May 31, 1997 $12.31 0.34 1.44 (0.33) (0.36) $13.40 14.89% $ 35,522
For the year ended May 31, 1996 $10.99 0.31 1.61 (0.31) (0.29) $12.31 17.83% $ 16,831
For the year ended May 31, 1995 $ 9.84 0.28 1.15 (0.27) (0.01) $10.99 14.84% $ 8,622
- ------------------------------------------------------------------------------------------------------------------------------------
BOSTON 1784 GROWTH AND INCOME FUND
For the year ended May 31, 1999 $21.72 0.02 0.97 (0.04) (0.50) $22.17 4.65% $549,416
For the year ended May 31, 1998 $17.54 0.07 4.55 (0.09) (0.35) $21.72 26.71% $553,997
For the year ended May 31, 1997 $15.23 0.12 2.63 (0.11) (0.33) $17.54 18.33% $457,952
For the year ended May 31, 1996 $12.16 0.10 3.08 (0.11) (0.00) $15.23 26.32% $303,463
For the year ended May 31, 1995 $10.57 0.11 1.67 (0.10) (0.09) $12.16 17.09% $229,200
- ------------------------------------------------------------------------------------------------------------------------------------
BOSTON 1784 GROWTH FUND
For the year ended May 31, 1999 $12.93 (0.08) (0.41) -- (0.38) $12.06 (3.54)% $185,476
For the year ended May 31, 1998 $12.20 (0.05) 1.59 -- (0.81) $12.93 12.64% $257,550
For the year ended May 31, 1997 $11.27 0.02 0.96 (0.05) (0.00) $12.20 8.77% $261,487
For the period ended May 31, 1996 (1) $10.00 0.02 1.25 (0.00) (0.00) $11.27 12.70%* $ 46,026
- ------------------------------------------------------------------------------------------------------------------------------------
BOSTON 1784 INTERNATIONAL EQUITY FUND
For the year ended May 31, 1999 $13.69 -- (0.66) (0.03) (0.08) $12.92 (4.85)% $389,753
For the year ended May 31, 1998 $13.20 (0.02) 0.80 (0.15) (0.14) $13.69 6.19% $469,819
For the year ended May 31, 1997 $12.05 0.07 1.23 (0.09) (0.06) $13.20 10.93% $503,048
For the year ended May 31, 1996 $10.41 0.11 1.85 (0.27) (0.05) $12.05 19.08% $362,460
For the period ended May 31, 1995 (2) $10.00 0.06 0.35 (0.00) (0.00) $10.41 4.73%* $148,439
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATIO RATIO OF
RATIO OF OF EXPENSES NET INCOME
RATIO OF NET TO AVERAGE TO AVERAGE
EXPENSES INCOME NET ASSETS NET ASSETS PORTFOLIO
TO AVERAGE TO AVERAGE (EXCLUDING (EXCLUDING TURNOVER
NET ASSETS NET ASSETS WAIVERS) WAIVERS) RATE
- ----------------------------------------------------------------------------------------------------------
BOSTON 1784 ASSET ALLOCATION FUND
<S> <C> <C> <C> <C> <C>
For the year ended May 31, 1999 0.96% 2.57% 1.21% 2.32% 49.78%
For the year ended May 31, 1998 0.98% 2.66% 1.23% 2.41% 47.83%
For the year ended May 31, 1997 1.07% 2.87% 1.37% 2.57% 23.60%
For the year ended May 31, 1996 1.25% 2.86% 1.90% 2.21% 39.56%
For the year ended May 31, 1995 1.25% 2.88% 2.51% 1.62% 67.23%
- ----------------------------------------------------------------------------------------------------------
BOSTON 1784 GROWTH AND INCOME FUND
For the year ended May 31, 1999 0.89% 0.12% 1.14% (0.13)% 50.15%
For the year ended May 31, 1998 0.90% 0.36% 1.15% 0.11% 39.03%
For the year ended May 31, 1997 0.92% 0.77% 1.19% 0.50% 15.35%
For the year ended May 31, 1996 0.94% 0.78% 1.24% 0.48% 39.50%
For the year ended May 31, 1995 0.94% 1.05% 1.23% 0.76% 38.94%
- ----------------------------------------------------------------------------------------------------------
BOSTON 1784 GROWTH FUND
For the year ended May 31, 1999 0.93% (0.39)% 1.18% (0.64)% 61.02%
For the year ended May 31, 1998 0.91% (0.35%) 1.16% (0.60%) 48.60%
For the year ended May 31, 1997 0.77% 0.17% 1.15% (0.21%) 57.46%
For the period ended May 31, 1996 (1) 0.20% 1.75% 1.73% 0.22% 0.00%
- ----------------------------------------------------------------------------------------------------------
BOSTON 1784 INTERNATIONAL EQUITY FUND
For the year ended May 31, 1999 1.20% 0.06% 1.45% (0.19)% 115.83%
For the year ended May 31, 1998 1.24% 0.04% 1.49% (0.21%) 103.47%
For the year ended May 31, 1997 1.27% 0.41% 1.52% 0.16% 22.88%
For the year ended May 31, 1996 1.13% 0.76% 1.61% 0.28% 15.55%
For the period ended May 31, 1995 (2) 0.89% 2.06% 1.70% 1.25% 11.03%
- ----------------------------------------------------------------------------------------------------------
<FN>
* Returns are for the period indicated and have not been annualized.
(1) The Growth Fund commenced operations on March 28, 1996. All ratios for the period have
been annualized.
(2) The International Equity Fund commenced operations on January 3, 1995. All ratios for the
period have been annualized.
</FN>
</TABLE>
PROSPECTUS
50
<PAGE>
NOTES
PROSPECTUS
51
<PAGE>
NOTES
PROSPECTUS
52
<PAGE>
NOTES
PROSPECTUS
53
<PAGE>
Rule 497(c)
File Nos. 33-58004
811-7474
THE STATEMENT OF ADDITIONAL INFORMATION INCLUDES ADDITIONAL INFORMATION ABOUT
THE FUNDS.
ADDITIONAL INFORMATION ABOUT THE FUNDS' INVESTMENTS IS AVAILABLE IN
THE FUNDS' ANNUAL AND SEMI-ANNUAL REPORTS TO SHAREHOLDERS. IN THE FUNDS' ANNUAL
REPORTS, YOU WILL FIND A DISCUSSION OF THE MARKET CONDITIONS AND INVESTMENT
STRATEGIES THAT SIGNIFICANTLY AFFECTED THE FUNDS' PERFORMANCE DURING THE LAST
FISCAL YEAR.
YOU CAN OBTAIN A FREE COPY OF THE FUNDS' STATEMENT OF ADDITIONAL
INFORMATION AND/OR FREE COPIES OF THE FUNDS' MOST RECENT ANNUAL OR SEMI-ANNUAL
REPORTS BY CALLING 1-800-BKB-1784. THE MATERIAL YOU REQUEST WILL BE SENT BY
FIRST-CLASS MAIL, OR OTHER MEANS DESIGNED TO ENSURE EQUALLY PROMPT DELIVERY,
WITHIN THREE BUSINESS DAYS OF RECEIPT OF THE REQUEST.
YOU MAY ALSO CALL 1-800-BKB-1784 TO REQUEST OTHER INFORMATION ABOUT THE FUNDS OR
TO MAKE SHAREHOLDER INQUIRIES.
THE STATEMENT OF ADDITIONAL INFORMATION HAS BEEN
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND IS INCORPORATED INTO THIS
PROSPECTUS BY REFERENCE.
INFORMATION ABOUT THE FUNDS (INCLUDING THE STATEMENT OF
ADDITIONAL INFORMATION) CAN BE REVIEWED AND COPIED AT THE SECURITIES AND
EXCHANGE COMMISSION'S PUBLIC REFERENCE ROOM IN WASHINGTON, D.C. INFORMATION ON
THE OPERATION OF THE PUBLIC REFERENCE ROOM MAY BE OBTAINED BY CALLING THE
COMMISSION AT 1-800-SEC-0330. COPIES OF THIS INFORMATION MAY BE OBTAINED, UPON
PAYMENT OF A DUPLICATING FEE, BY WRITING THE PUBLIC REFERENCE SECTION OF THE
COMMISSION, WASHINGTON, D.C. 20549-6009.
REPORTS AND OTHER INFORMATION ABOUT THE FUNDS ARE ALSO AVAILABLE ON THE
COMMISSION'S INTERNET SITE AT HTTP://WWW.SEC.GOV.
================================================================================
[LOGO OMITTED]
BOSTON 1784 FUNDS
P.O. BOX 8524
BOSTON, MA 02266-8524
1-800-BKB-1784
www.boston1784funds.com
FILE NO. 811-7474 MF-0135
BOSTON 1784 FUNDSSM
FUNDS AVAILABLE THROUGH YOUR RETIREMENT PLAN
MONEY MARKET FUNDS
[BULLET] BOSTON 1784 INSTITUTIONAL U.S. TREASURY
MONEY MARKET FUND
BOND FUNDS
[BULLET] BOSTON 1784 SHORT-TERM INCOME FUND
[BULLET] BOSTON 1784 INCOME FUND
[BULLET] BOSTON 1784 U.S. GOVERNMENT MEDIUM-
TERM INCOME FUND
STOCK FUNDS
[BULLET] BOSTON 1784 ASSET ALLOCATION FUND
[BULLET] BOSTON 1784 GROWTH AND INCOME FUND
[BULLET] BOSTON 1784 GROWTH FUND
[BULLET] BOSTON 1784 INTERNATIONAL EQUITY FUND
PROSPECTUS
[Logo Omitted]
Neither the Securities and Exchange Commission
nor any state securities commission has approved
or disapproved of these securities or passed upon
the adequacy or accuracy of this prospectus.
Any representation to the contrary is a criminal offense.
October 1, 1999
<PAGE>
Statement of
Additional Information
October 1, 1999
BOSTON 1784 FUNDS SM
MONEY MARKET FUNDS:
Boston 1784 Tax-Free Money Market Fund
Boston 1784 U.S. Treasury Money Market Fund
Boston 1784 Institutional U.S. Treasury Money Market Fund
Boston 1784 Prime Money Market Fund
Boston 1784 Institutional Prime Money Market Fund
BOND FUNDS:
Boston 1784 Short-Term Income Fund
Boston 1784 Income Fund
Boston 1784 U.S. Government Medium-Term Income Fund
TAX-EXEMPT FUNDS:
Boston 1784 Tax-Exempt Medium-Term Income Fund
Boston 1784 Connecticut Tax-Exempt Income Fund
Boston 1784 Florida Tax-Exempt Income Fund
Boston 1784 Massachusetts Tax-Exempt Income Fund
Boston 1784 Rhode Island Tax-Exempt Income Fund
STOCK FUNDS:
Boston 1784 Asset Allocation Fund
Boston 1784 Growth and Income Fund
Boston 1784 Growth Fund
Boston 1784 International Equity Fund
This Statement of Additional Information provides information regarding
the activities and operations of the no-load mutual funds listed above, and
should be read in conjunction with the Funds' Prospectuses dated October 1,
1999. You may obtain a Prospectus without charge by calling 1-800-BKB-1784.
Certain financial information which is included in the Annual Reports
to Shareholders of Boston 1784 Funds is incorporated by reference into this
Statement of Additional Information. Copies of the Funds' Annual Reports may be
obtained without charge by calling 1-800-BKB-1784.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY A CURRENT PROSPECTUS.
<PAGE>
TABLE OF CONTENTS
Page
1. Trust History 2
2. Description of the Trust and its Investments and Risks 2
Classification 2
Investment Strategies and Risks 3
Fund Policies 22
Temporary Defensive Position 26
Portfolio Turnover 26
3. Management 27
Trustees 27
Management Information 27
Compensation 30
4. Control Persons and Principal Holders of Securities 31
Principal Holders 31
5. Investment Advisory and Other Services 32
Investment Advisers 32
ServiceMarks 34
Distributor 34
Administrator 35
Dividend Disbursing Agent and Transfer Agent 36
Custodian 36
Counsel and Independent Accountant 37
6. Brokerage Allocation and Other Practices 37
Brokerage Transactions 37
Brokerage Selection 38
7. Description of Shares; Voting Rights and Liabilities 40
8. Purchase, Redemption and Pricing of Shares 41
Determination of Net Asset Value 41
Purchase and Redemption of Shares 42
Systematic Withdrawal Plan 43
Redemption in Kind 44
9. Taxes 44
Tax Status of the Funds 44
Taxation of Fund Distributions 44
Disposition of Shares 46
Additional Information for Shareholders of the Tax-Exempt Funds 46
Additional Information Relating to Fund Investments 46
Additional Information Relating to Foreign Investments 47
Foreign Shareholders 48
Backup Withholding 48
10. Performance Information 48
Calculation of Yield 48
Calculation of Total Return 50
11. Financial Statements 56
Appendix A: Certain Information concerning Connecticut, Florida,
Massachusetts and Rhode Island
Appendix B: Description of Securities Ratings
Appendix C: Taxable Equivalent Yields
<PAGE>
-2-
1. TRUST HISTORY
BOSTON 1784 FUNDSSM (the "Trust") is an open-end management investment
company established under Massachusetts law as a Massachusetts business trust on
February 5, 1993. Prior to May 27, 1997, Boston 1784 Funds was known as 1784
Funds. On that date the Trust and each Fund added "Boston" to their names.
2. DESCRIPTION OF THE TRUST AND ITS INVESTMENTS AND RISKS
CLASSIFICATION
The Declaration of Trust permits the Trust to offer separate
portfolios, or funds, of shares of beneficial interest and different classes of
shares of each fund. Boston 1784 Funds currently has seventeen active series.
Each Fund (other than the state Tax-Exempt Funds) is a diversified mutual fund.
This Statement of Additional Information relates to the following funds of
the Trust (the "Funds"):
MONEY MARKET FUNDS:
Boston 1784 Tax-Free Money Market Fund
Boston 1784 U.S. Treasury Money Market Fund
Boston 1784 Institutional U.S. Treasury Money Market Fund
Boston 1784 Prime Money Market Fund
Boston 1784 Institutional Prime Money Market Fund
BOND FUNDS:
Boston 1784 Short-Term Income Fund
Boston 1784 Income Fund
Boston 1784 U.S. Government Medium-Term Income Fund
TAX-EXEMPT FUNDS:
Boston 1784 Tax-Exempt Medium-Term Income Fund
Boston 1784 Connecticut Tax-Exempt Income Fund
Boston 1784 Florida Tax-Exempt Income Fund
Boston 1784 Massachusetts Tax-Exempt Income Fund
Boston 1784 Rhode Island Tax-Exempt Income Fund
STOCK FUNDS:
Boston 1784 Asset Allocation Fund
Boston 1784 Growth and Income Fund
Boston 1784 Growth Fund
Boston 1784 International Equity Fund
BankBoston, N.A. ("BankBoston") is the investment adviser of each Fund.
Kleinwort Benson Investment Management Americas, Inc. is the investment adviser
of the International Equity Fund with BankBoston (BankBoston and Kleinwort are
each referred to as an "Adviser"). SEI Investments Distribution Co. is the
distributor of shares of each Fund.
<PAGE>
-3-
As required by law, each of the Trust, BankBoston and the Trust's
administrator and distributor have adopted codes of ethics concerning certain
activities of officers, trustees or directors and employees. Copies of these
codes of ethics have been filed with the Securities and Exchange Commission.
INVESTMENT STRATEGIES AND RISKS
The principal investment policies and strategies of each of the Funds
are described in the Prospectus by which shares of that Fund are offered. Of
course, a Fund's portfolio managers may decide, as a matter of investment
strategy, not to use the investments and investment techniques described below
at any particular time. The permitted investments and investment techniques
described below, in alphabetical order, supplements the information contained in
the Prospectus.
Each Tax-Exempt Fund has a fundamental policy of investing at least 80
percent of its net assets under normal market conditions in obligations issued
by or on behalf of the states, territories and possessions of the United States
and the District of Columbia and their respective political subdivisions,
agencies and instrumentalities, the interest on which, in the opinion of counsel
for the issuer, is exempt from federal income tax and not included as a
preference item under the alternative minimum tax (collectively, "municipal
securities"). A Tax-Exempt Fund may comply with this policy (or with any other
policy of such Fund as to investing in securities the interest on which is
exempt from taxation in a particular state or which are not subject to
intangible personal property taxes of any state) by investing in a partnership,
trust, regulated investment company or other entity which invests in such
municipal securities, in which case the applicable Fund's investment in such
entity shall be deemed 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.
Appendix A contains information concerning Connecticut, Florida,
Massachusetts and Rhode Island. Each of the Connecticut, Florida, Massachusetts
and Rhode Island Tax-Exempt Income Funds is particularly susceptible to events
affecting issuers in its state.
Appendix B describes the ratings assigned to securities by certain
securities rating organizations.
Appendix C describes the yield investors need to achieve from a taxable
investment to equal the yield from a tax-exempt investment. The taxable
equivalent yields tables do not predict the yield of any Fund.
AMERICAN, EUROPEAN AND CONTINENTAL DEPOSITARY RECEIPTS
Each of the Funds may invest in depositary receipts. American
Depositary Receipts ("ADRs") are securities, typically issued by a U.S.
financial institution, that evidence ownership interests in a security or a pool
of securities issued by a foreign issuer. European Depositary Receipts ("EDRs"),
which are sometimes referred to as Continental Depositary Receipts ("CDRs"), are
securities, typically issued by a non-U.S. financial institution, that evidence
ownership interests in a security or a pool of securities issued by either a
U.S. or foreign issuer. ADRs, EDRs and CDRs may be available for investment
through "sponsored" or "unsponsored" facilities. A sponsored facility is
established jointly by the issuer of the security underlying the receipt and a
<PAGE>
-4-
depositary, whereas an unsponsored facility may be established by a depositary
without participation by the issuer of the receipt's underlying security.
Holdings of an unsponsored depositary receipt generally bear all the costs of
the unsponsored facility and the depositary of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited security or to pass voting rights
through to the holders of the receipts in respect to the deposited securities.
ASSET-BACKED SECURITIES
Each of the Funds (other than Boston 1784 Institutional U.S. Treasury
Money Market Fund and Boston 1784 U.S. Treasury Money Market Fund) may invest in
asset-backed securities including company receivables, truck and auto loans,
leases, and credit card receivables. These issues may be traded over-the-counter
and typically have a short to intermediate maturity structure depending on the
paydown characteristics of the underlying financial assets which are passed
through to the security holder.
Asset-backed securities present certain risks. For instance, in the
case of credit card receivables, these securities may not have the benefit of
any security interest in the related collateral. Credit card receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards, thereby reducing the
balance due. Most issuers of automobile receivables permit the servicers to
retain possession of the underlying obligations. If the servicer were to sell
these obligations to another party, there is a risk that the purchaser would
acquire an interest superior to that of the holders of the related automobile
receivables. In addition, because of the large number of vehicles involved in a
typical issuance and technical requirements under state laws, the trustee for
the holders of the automobile receivables may not have a proper security
interest in all of the obligations backing such receivables. Therefore, there is
the possibility that recoveries on repossessed collateral may not, in some
cases, be available to support payments on these securities. The underlying
assets (e.g., loans) are also subject to prepayments which shorten the
securities' weighted average life and may lower their return.
Asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties. To lessen the
effect of failures by obligors on underlying assets to make payments, the
securities may contain elements of credit support which fall into two
categories: (i) liquidity protection and (ii) protection against losses
resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the receipt of payments
on the underlying pool occurs in a timely fashion. Protection against losses
resulting from ultimate default ensures payment through insurance policies or
letters of credit obtained by the issuer or sponsor from third parties. A Fund
will not pay any additional or separate fees for credit support. The degree of
credit support provided for each issue is generally based on historical
information respecting the level of credit risk associated with the underlying
assets. Delinquency or loss in excess of that anticipated or failure of the
credit support could adversely affect the return on an investment in such a
security.
BANK OBLIGATIONS
Bank obligations include certificates of deposit, time deposits
(including Eurodollar time deposits), and bankers' acceptances and other
short-term debt
<PAGE>
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obligations issued by domestic banks, foreign subsidiaries or foreign branches
of domestic banks, domestic and foreign branches of foreign banks, domestic
savings and loan associations, and other banking institutions. The Funds have
established certain minimum credit quality standards for bank obligations in
which they invest.
Bank obligations are susceptible to adverse events affecting the
banking industry. Banks are sensitive to changes in money market and general
economic conditions, as well as decisions by regulators that can affect their
profitability.
The Funds (other than Boston 1784 Institutional U.S. Treasury Money
Market Fund and Boston 1784 U.S. Treasury Money Market Fund) are not prohibited
from investing in obligations of banks which are clients of SEI Investments
Company ("SEI"). However, the purchase of shares of the Funds by such banks or
by their customers will not be a consideration in determining which bank
obligations the Funds will purchase.
BANKERS' ACCEPTANCES
Each of the Funds may invest in bankers' acceptances. A banker's
acceptance is a bill of exchange or time draft drawn on and accepted by a
commercial bank. It is used by corporations to finance the shipment and storage
of goods and to furnish dollar exchange. Maturities are generally six months or
less.
CERTIFICATES OF DEPOSIT
Each of the Funds may invest in certificates of deposit. A certificate
of deposit is a negotiable interest-bearing instrument with a specific maturity.
Certificates of deposit are issued by banks and savings and loan institutions in
exchange for the deposit of funds and normally can be traded in the secondary
market prior to maturity.
COMMERCIAL PAPER
Each of the Funds may invest in commercial paper. Commercial paper is
the term used to designate unsecured short-term promissory notes issued by
corporations and other entities. Maturities on these issues vary from one to 270
days.
COMMON AND PREFERRED STOCK
Each of the Funds 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.
CONVERTIBLE SECURITIES
Each of the Funds may invest in convertible securities. Convertible
securities have characteristics similar to both fixed income and equity
securities. Because of the conversion feature, the market value of convertible
securities tends to move together with the market value of the underlying stock.
The value of convertible securities is also affected by prevailing interest
rates, the credit quality of the issuer, and any call provisions. Convertible
securities include both debt obligations and preferred stock.
<PAGE>
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CURRENCY SWAPS
Each of the Funds 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 the
Adviser or Advisers to a Fund are incorrect in their forecasts of market values
and currency exchange rates, the investment performance of the Fund would be
less favorable than it would have been if this investment technique were not
used.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Each of the Funds may engage in foreign currency exchange transactions.
Since investments in foreign companies usually involve currencies of foreign
countries, the value of the assets of a Fund with investments in foreign
companies as measured in U.S. dollars may be affected favorably or unfavorably
by changes in foreign currency exchange rates and exchange control regulations.
Although such Fund's assets are valued daily in terms of U.S. dollars, the Fund
does not intend to convert its holdings of foreign currencies into U.S. dollars
on a daily basis. A Fund may conduct its foreign currency exchange transactions
on a spot basis or for settlement on a future date (i.e., a "forward foreign
currency" contract or "forward" contract). A Fund may convert currency on a spot
basis from time to time, and investors should be aware of the costs of currency
conversion. Although foreign exchange dealers do not charge a fee for
conversion, they do realize a profit based on the difference (the "spread")
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the Fund at one rate,
while offering a lesser rate of exchange should the Fund desire to resell that
currency to the dealer. The Funds do not currently intend to speculate in
foreign currency exchange rates or forward contracts.
A forward contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract, agreed upon by the parties at a price set at the time
of the contract. These contracts are traded in the interbank market conducted
directly between currency traders (usually large commercial banks) and their
customers. A forward contract generally has no deposit requirement, and no fees
or commissions are charged at any stage for trades.
When a Fund enters into a contract for the purchase or sale of a
security denominated in a foreign currency, it may desire to "lock in" the U.S.
dollar price of the security. By entering into a forward contract for the
purchase or sale, for a fixed amount of U.S. dollars, of the amount of foreign
currency involved in the underlying security transaction, a Fund will be able to
protect itself against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the subject foreign currency during the
period between the date the security is purchased or sold and the date on which
payment is made or received.
When the Adviser or an Adviser to a Fund believes that the currency of
a particular foreign country may suffer a substantial decline against the U.S.
dollar, the Fund may enter into a forward contract to sell, for a fixed amount
of U.S. dollars, the amount of foreign currency approximating the value of some
or all of the Fund's securities denominated in such foreign currency. The
precise matching of the forward
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contract amounts and the value of the securities involved is not generally
possible since the future value of such securities in foreign currencies changes
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 a short-term hedging strategy is highly uncertain. Under normal
circumstances, consideration of the prospect for currency parities is
incorporated in the longer term investment decisions made with regard to overall
diversification strategies. However, each Adviser to such Funds believes that it
is important to have the flexibility to enter into such forward contracts when
it determines that the best interests of such Funds will be served.
A Fund generally does not enter into a forward contract with a term
greater than one year. At the maturity of a forward contract, the Fund either
sells the security and makes delivery of the foreign currency, or it retains the
security and terminates its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract with the same currency trader
obligating it to purchase, on the same maturity date, the same amount of the
foreign currency.
If a Fund retains the security and engages in an offsetting
transaction, the Fund incurs a gain or loss (as described below) to the extent
that there has been movement in forward contract prices. If the Fund engages in
an offsetting transaction, it may subsequently enter into a new forward contract
to sell the foreign currency. Should forward prices decline during the period
between the date the Fund enters into a forward contract for the sale of the
foreign currency and the date it enters into an offsetting contract for the
purchase of foreign currency, the Fund will realize a gain to the extent the
price of the currency it has agreed to sell exceeds the price of the currency it
has agreed to purchase. Should forward prices increase, the Fund will suffer a
loss to the extent that the price of the currency it has agreed to purchase
exceeds the price of the currency it has agreed to sell.
It is impossible to forecast with precision the market value of Fund
securities at the expiration of the contract. Accordingly, it may be necessary
for the Fund to purchase additional foreign currency for the Fund on the spot
market (and cause the Fund to bear the expense of such purchase) if the market
value of the security is less than the amount of foreign currency the Fund is
obligated to deliver and if a decision is made to sell the security and make
delivery of the foreign currency. Conversely, it may be necessary to sell on the
spot market some of the foreign currency received upon the sale of the security
if its market value exceeds the amount of foreign currency the Fund is obligated
to deliver.
The Funds' dealings in foreign currency contracts are limited to the
transactions described above. Of course, no Fund is required to enter into such
transactions with regard to the Fund's foreign currency-denominated securities
and will not do so unless deemed appropriate by the Adviser or an Adviser to
such Fund. It should also be realized that this method of protecting the value
of a Fund's securities against a decline in the value of a currency does not
eliminate fluctuations in the underlying prices of the securities. Additionally,
although such contracts tend to minimize the risk of loss due to a decline in
the value of the hedged currency, they also tend to limit any potential gain
which might result should the value of such currency increase.
FOREIGN SECURITIES
Each of the Funds (other than Boston 1784 Institutional U.S. Treasury
Money Market Fund and Boston 1784 U.S. Treasury Money Market Fund) may invest in
certain
<PAGE>
-8-
obligations or securities of foreign issuers. Boston 1784 International Equity
Fund intends to invest a substantial portion of its assets in securities and
obligations of foreign issuers. Permissible investments include obligations of
foreign branches of U.S. banks and of foreign banks, including certificates of
deposit and time deposits (including Eurodollar time deposits).
Investing in securities issued by companies whose principal business
activities are outside the United States may involve significant risks not
present in domestic investments. For example, the value of securities
denominated in foreign currencies and of dividends and interest paid with
respect to such securities, will fluctuate based on the relative strength of the
U.S. dollar. In addition, there is generally less publicly available information
about foreign companies, particularly those not subject to the disclosure and
reporting requirements of the U.S. securities laws. Foreign issuers are
generally not bound by uniform accounting, auditing and financial reporting
requirements comparable to those applicable to domestic issuers. Investments in
foreign securities also involve the risk of possible adverse changes in
investment or exchange control regulations, expropriation or confiscatory
taxation, limitation on the removal of funds or other assets of a Fund,
political or financial instability or diplomatic and other developments which
would affect such investments. Further, economies of particular countries or
areas of the world may differ favorably or unfavorably from the economy of the
U.S.
It is anticipated that in most cases the best available market for
foreign securities would be on exchanges or in over-the-counter markets located
outside the U.S. Foreign stock markets, while growing in volume and
sophistication, are generally not as developed as those in the U.S., and
securities of some foreign issuers (particularly those located in developing
countries) may be less liquid and more volatile than securities of comparable
U.S. companies. Foreign security trading practices, including those involving
securities settlement where a Fund's assets may be released prior to receipt of
payment, may expose a Fund to increased risk in the event of a failed trade or
the insolvency of a foreign broker-dealer. In addition, foreign brokerage
commissions are generally higher than commissions on securities traded in the
U.S. and may be non-negotiable. In general, there is less overall governmental
supervision and regulation of foreign securities exchanges, brokers and listed
companies than in the U.S.
The current policy of Boston 1784 International Equity Fund is not
to invest more than 10 percent of its assets in investment companies and
investment trusts which primarily hold foreign securities except that the
Fund may invest all of its investable assets 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 the Fund (a "Qualifying Portfolio"). Investments in such
entities may entail the risk that the market value of such investments may be
substantially less than their net asset value and that there would be
duplication of investment management and other fees and expenses.
A Fund may invest in foreign securities that impose restrictions on
transfer within the United States or to United States persons. Although
securities subject to such transfer restrictions may be marketable abroad, they
may be less liquid than foreign securities of the same class that are not
subject to such restrictions.
Foreign issuers of securities or obligations are often subject to
accounting treatment and engage in business practices different from those
respecting domestic issuers of similar securities or obligations. Foreign
branches of U.S. banks and foreign
<PAGE>
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banks may be subject to less stringent reserve requirements than those
applicable to domestic branches of U.S. banks.
The Stock Funds, Boston 1784 Income Fund and Boston 1784 Short-Term
Income Fund may invest in securities issued by entities based in developing
countries throughout the world. All of the risks of investing in securities of
foreign issuers are heightened for securities of issuers in developing
countries. Such investments may also entail higher custodial fees and sales
commissions than domestic investments.
FORWARD COMMITMENTS OR PURCHASES ON A WHEN-ISSUED BASIS
Each Fund may invest up to 25 percent of its assets in forward
commitments or commitments to purchase securities on a when-issued basis.
Forward commitments or purchases of securities on a when-issued basis are
transactions where the price of the securities is fixed at the time of the
commitment and delivery and payment normally take place beyond conventional
settlement time after the date of commitment to purchase. The Funds will make
commitments to purchase obligations on a when-issued basis only with the
intention of actually acquiring the securities, but may sell them before the
settlement date. The when-issued securities are subject to market fluctuation,
and no interest accrues on the security to the purchaser during this period. The
payment obligation and the interest rate that will be received on the securities
are each fixed at the time the purchaser enters into the commitment. Purchasing
obligations on a when-issued basis is a form of leveraging and can involve a
risk that the yields available in the market when the delivery takes place may
actually be higher than those obtained in the transaction itself. In that case,
there could be an unrealized loss at the time of delivery.
While awaiting delivery of securities purchased on a when-issued basis,
a Fund will establish a segregated account consisting of cash and liquid
securities equal to the amount of the commitments to purchase securities on such
basis. If the value of these assets declines, the Fund will place additional
assets of the type described in the preceding sentence in the account on a daily
basis so that the value of the assets in the account is equal to the amount of
such commitments.
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, the Trust must
allocate assets of that Fund as an initial deposit on the contract. The initial
deposit may be as low as approximately 5 percent 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
<PAGE>
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receive additional "variation margin", based on 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, its Adviser's or Advisers', as
applicable, 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.
GUARANTEED INVESTMENT CONTRACTS (GIC)
A GIC is a contract between an insurance company and, generally, an
institutional investor that guarantees the investor a specified interest rate
for a specific period and the return of the investor's principal. Each of the
Funds may invest in GICs, but no Fund will invest more than 20% of its total
assets in GICs.
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.
MONEY MARKET FUNDS
A money market fund is an investment company that limits its
investments to high quality money market instruments with a weighted average
maturity of 90 days or less. Each of the Funds (other than Boston 1784 U.S.
Treasury Money Market Fund, Boston 1784 Institutional U.S. Treasury Money Market
Fund and Boston 1784 Institutional Prime Money Market Fund) may invest in money
market funds, but not more than 5 percent of its assets in any one money market
fund or more than 10 percent of its assets in other investment companies,
including money market funds. When a Fund invests in a money market fund, a
shareholder bears not only his or her
<PAGE>
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proportionate share of the Fund's expenses, but also indirectly his or her share
of the expenses of the money market fund, including management fees.
MORTGAGE "DOLLAR ROLL" TRANSACTIONS
Boston 1784 Short-Term Income Fund and Boston 1784 Income Fund may
enter into mortgage "dollar roll" transactions pursuant to which a Fund sells
mortgage-backed securities for delivery in the future and simultaneously
contracts to repurchase substantially similar securities on a specified future
date. During the roll period, the Fund forgoes principal and interest paid on
the mortgage-backed securities. The Fund is compensated for the lost interest by
the difference between the current sales price and the lower price for the
future purchase (often referred to as the "drop") as well as by the interest
earned on the cash proceeds of the initial sale. The Fund may also be
compensated by receipt of a commitment fee.
In a mortgage dollar roll, the Fund takes the risk that the market
price of the mortgage-backed security will drop below the future purchase price.
To the extent the Fund invests the proceeds from the sale of the mortgage-backed
security in other portfolio securities, the Fund is engaging in a form of
leverage which could have the effect of magnifying the Fund's gains or losses.
MORTGAGE-BACKED SECURITIES
Each of the Funds may invest in mortgage-backed securities, which are
securities representing interests in pools of mortgage loans. Interests in pools
of mortgage-related securities differ from other forms of debt securities which
normally provide for periodic payment of interest in fixed amounts with
principal payments at maturity or specified call dates. Instead, these
securities provide a monthly payment which consists of both interest and
principal payments. In effect, these payments are a "pass-through" of the
monthly payments made by the individual borrowers on their mortgage loans, net
of any fees paid to the issuer or guarantor of such securities. Additional
payments are caused by prepayments of principal resulting from the sale,
refinancing or foreclosure of the underlying property, net of fees or costs
which may be incurred. The market value and interest yield of these instruments
can vary due to market interest rate fluctuations and early prepayments of
underlying mortgages.
The principal governmental issuers or guarantors of mortgage-backed
securities are the Government National Mortgage Association ("GNMA"), Federal
National Mortgage Association ("FNMA"), and Federal Home Loan Mortgage
Corporation ("FHLMC"). Obligations of GNMA are backed by the full faith and
credit of the United States Government while obligations of FNMA and FHLMC
are supported by the respective agency only.
Each of the Funds (other than the Money Market Funds) may also invest
in mortgage-backed securities not issued by government issuers which are rated
in one of the three top categories by Standard and Poor's Rating Services
("S&P"), Moody's Investors Service, Inc. ("Moody's") or Fitch IBCA, Inc. ("Fitch
IBCA"), or, if not rated by S&P, Moody's or Fitch IBCA, of comparable quality as
determined by the Adviser or Advisers to the Fund.
Two principal types of mortgage-backed securities are collateralized
mortgage obligations ("CMOs") and real estate mortgage investment conduits
("REMICs"). REMICs, which were authorized under the Tax Reform Act of 1986, are
private entities
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formed for the purpose of holding a fixed pool of mortgages secured by an
interest in real property. REMICs are similar to CMOs in that they issue
multiple classes of securities.
CMOs are securities collateralized by mortgages, mortgage pass-through
certificates, mortgage pay-through bonds (bonds representing an interest in a
pool of mortgages where the cash flow generated from the mortgage collateral
pool is dedicated to bond repayment), and mortgage-backed bonds (general
obligations of the issuers payable out of the issuers' general funds and
additionally secured by a first lien on a pool of single family detached
properties). Many CMOs are issued with a number of classes or series which have
different maturities and are retired in sequence.
Investors purchasing such CMOs in the shortest maturities receive or
are credited with their pro rata portion of the scheduled payments of interest
and principal on the underlying mortgages plus all unscheduled prepayments of
principal up to a predetermined portion of the total CMO obligation. Until that
portion of such CMO obligations is repaid, investors in the longer maturities
receive interest only. Accordingly, the CMOs in the longer maturity series are
less likely than other mortgage pass-through certificates to be prepaid prior to
their stated maturity. Although some of the mortgages underlying CMOs may be
supported by various types of insurance, and some CMOs may be backed by GNMA
certificates or other mortgage pass-through certificates issued or guaranteed by
U.S. Government agencies or instrumentalities, the CMOs themselves are not
generally guaranteed.
Even if the U.S. government or one of its agencies guarantees principal
and interest payments of a mortgage-backed security, the market price of a
mortgage-backed security is not insured and may be subject to market volatility.
When interest rates decline, mortgage-backed securities experience higher rates
of prepayment because the underlying mortgages are refinanced to take advantage
of the lower rates. The prices of mortgage-backed securities may not increase as
much as prices of other debt obligations when interest rates decline, and
mortgage-backed securities may not be an effective means of locking in a
particular interest rate. In addition, any premium paid for a mortgage-backed
security may be lost when it is prepaid. When interest rates go up,
mortgage-backed securities experience lower rates of prepayment. This has the
effect of lengthening the expected maturity of a mortgage-backed security. As a
result, prices of mortgage-backed securities may decrease more than prices of
other debt obligations when interest rates go up.
OPTIONS
Each of the Stock Funds, Tax-Exempt Funds and Bond Funds may write
covered call options from time to time on its assets as determined by the
Adviser or Advisers to such Fund to be appropriate in seeking to achieve such
Fund's investment objective, provided that the aggregate value of such options
may not exceed 10 percent of such Fund's net assets as of the time such Fund
enters into such options. The Stock Funds, Boston 1784 Short-Term Income Fund
and Boston 1784 Income Fund may write covered call options, for hedging purposes
and in order to generate additional income. The Tax-Exempt Funds and Boston 1784
U.S. Government Medium-Term Income Fund 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
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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 gains may be offset by depreciation
in the market value of the underlying security during the option period. If a
call option is exercised, the Fund will realize a gain or loss from the sale of
the underlying security equal to the difference between (a)the Fund's tax basis
in the underlying security and (b)the proceeds of the sale of the security,
plus the amount of the premium on the option, less the commission paid.
The market value of a call option generally reflects the market price
of the underlying security. Other principal factors affecting market value
include supply and demand, interest rates, the price volatility of the
underlying security and the time remaining until the expiration date.
Each of the Stock Funds, Tax-Exempt Funds and Bond 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.
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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 contract at expiration of the option
is below the option exercise price, the Fund will retain the full amount of this
option premium, which provides a partial hedge against any decline that may have
occurred in the Fund's portfolio holdings. Similarly, the writing of a put
option on a futures contract constitutes a partial hedge against increasing
prices of the securities deliverable upon exercise of the futures contract. If a
Fund writes an option on a futures contract and that option is exercised, the
Fund may incur a loss, which loss will be reduced by the amount of the option
premium received, less related transaction costs. A Fund's ability to hedge
effectively through transactions in options on futures contracts depends on,
among other factors, the degree of correlation between changes in the value of
securities held by the Fund and changes in the value of its futures positions.
This correlation cannot be expected to be exact, and the Fund bears a risk that
the value of the futures contract being hedged will not move in the same amount,
or even in the same direction, as the hedging instrument. Thus it may be
possible for a Fund to incur a loss on both the hedging instrument and the
futures contract being hedged.
The ability of a Fund to engage in options and futures strategies
depends also upon the availability of a liquid market for such instruments;
there can be no assurance that such a liquid market will exist for such
instruments.
OPTIONS ON STOCK INDICES
The Stock Funds 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 Funds 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
<PAGE>
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aggregate premium paid on all options on stock indices will not exceed 5 percent
of a 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 a 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, a 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 or the New York Stock Exchange
Composite Index, or a narrower market index such as the Standard & Poor's 100.
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, New York Stock Exchange and American Stock Exchange.
A Fund's ability to hedge effectively all or a portion of its
securities through transactions in options on stock indices depends on the
degree to which price movements in the underlying index correlate with price
movements in the securities held by the Fund. Since the Fund will not
duplicate all of the components of an index, the correlation will not be
exact. Consequently, the Fund bears the risk that the prices of the
securities being hedged will not move in the same amount as the hedging
instrument. It is also possible that there may be a negative correlation
between the index or other securities underlying the hedging instrument and
the hedged securities which would result in a loss on both such securities
and the hedging instrument.
Positions in stock index options may be closed out only on an
exchange which provides a secondary market. There can be no assurance that a
liquid secondary market will exist for any particular stock index option. Thus,
it may not be possible to close such an option. The inability to close options
positions could have an adverse impact on a Fund's ability to effectively hedge
its securities. The Fund will enter into an option position only if there
appears to the Adviser or an Adviser of such Fund, at the time of investment, to
be a liquid secondary market for such options.
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OTHER INVESTMENT COMPANIES
Subject to applicable statutory and regulatory limitations, assets of
each Fund may be invested in shares of other investment companies and foreign
investment trusts. Each Fund may invest up to 5% of its assets in closed-end
investment companies that primarily hold securities of non-U.S. issuers. A
Fund's purchase of investment company securities may result in the duplication
of fees and expenses.
RECEIPTS
Each of the Funds may invest in receipts. Receipts are interests in
separately traded interest and principal component parts of U.S. Treasury
obligations that are issued by banks and brokerage firms and are created by
depositing U.S. Treasury obligations into a special account at a custodian bank.
The custodian holds the interest and principal payments for the benefit of the
registered owners of the certificates or receipts. Receipts include Treasury
Receipts ("TRs"), Treasury Investment Growth Receipts ("TIGRs") and Certificates
of Accrual on Treasury Securities ("CATS"). TRs, TIGRs and CATS are sold as zero
coupon securities.
REPURCHASE AGREEMENTS
Each of the Funds may invest in repurchase agreements collateralized by
securities in which that Fund may otherwise invest. Repurchase agreements are
agreements by which a Fund obtains a security and simultaneously commits to
return the security to the seller (a primary securities dealer recognized by the
Federal Reserve Bank of New York or a national member bank as defined in Section
3(d)(1) of the Federal Deposit Insurance Act, as amended) at an agreed upon
price (including principal and interest) on an agreed upon date within a number
of days (usually not more than seven) from the date of purchase. The resale
price reflects the purchase price plus an agreed upon market rate of interest
which is unrelated to the coupon rate or maturity of the underlying security. A
repurchase agreement involves the obligation of the seller to pay the agreed
upon price, which obligation is in effect secured by the value of the underlying
security. Pursuant to an exemptive order from the Securities and Exchange
Commission, the Funds' may enter into repurchase agreements on a pooled basis.
Repurchase agreements are considered to be loans by a Fund for purposes
of its investment limitations. The repurchase agreements entered into by the
Funds will provide that the underlying security at all times shall have a value
at least equal to 100 percent of the resale price stated in the agreement; the
Adviser or an Adviser to each Fund will monitor compliance with this
requirement. Under all repurchase agreements entered into by any Fund, the
underlying collateral must be held by the Fund's Custodian or sub-custodian.
However, if the seller under a repurchase agreement defaults, the Fund investing
in that repurchase agreement could realize a loss on the sale of the underlying
security to the extent that the proceeds of the sale (including accrued
interest) are less than the resale price provided in the repurchase agreement
(including interest). In addition, even though the Bankruptcy Code provides
protection for most repurchase agreements, if the seller should be involved in
bankruptcy or insolvency proceedings, a Fund may face delays and incur costs in
selling the underlying security or may suffer a loss of principal and interest.
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RESTRICTED SECURITIES
Restricted securities are securities that may not be sold to the public
without registration under the Securities Act of 1933 (the "1933 Act") absent an
exemption from registration. Boston 1784 Prime Money Market Fund, Boston 1784
Institutional Prime Money Market Fund, each Stock Fund and each Bond Fund may
invest up to 20 percent of its total assets in restricted securities provided it
is determined by the Adviser or an Adviser to that Fund that at the time of
investment such securities are not illiquid (generally, an illiquid security is
one that cannot be disposed of within seven days in the ordinary course of
business at its full value), based on guidelines which are the responsibility of
and are periodically reviewed by the Board of Trustees. Under these guidelines,
the Adviser or an Adviser will consider the frequency of trades and quotes for
the security, the number of dealers in, and potential purchasers for, the
securities, dealer undertakings to make a market in the security, and the nature
of the security and of the marketplace trades. In purchasing such restricted
securities, the intention of the Adviser or an Adviser is to rely upon the
exemption from registration provided by Rule 144A promulgated under the 1933
Act. Restricted securities not determined to be liquid may be purchased subject
to each Fund's limitation on all illiquid securities (15 percent of net assets
for each Stock, Bond and Tax-Exempt Fund and 10 percent for each Money Market
Fund).
A Fund may purchase restricted securities that are not registered for
sale to the general public if it is determined that there is a dealer or
institutional market in the securities. In that case, the securities will not be
treated as illiquid for purposes of the Fund's investment limitation described
above. The Trustees will review these determinations. These securities are known
as "Rule 144A securities" because they are traded under SEC Rule 144A among
qualified institutional buyers.
REVERSE REPURCHASE AGREEMENTS
Each of the Funds may enter into reverse repurchase agreements. Reverse
repurchase agreements involve the sale of securities held by a Fund and the
agreement by the Fund to repurchase the securities at an agreed-upon price, date
and interest payment. When a Fund enters into reverse repurchase transactions,
securities of a dollar amount equal in value to the securities subject to the
agreement will be maintained in a segregated account with the Fund's custodian.
The segregation of assets could impair the Fund's ability to meet its current
obligations or impede investment management if a large portion of the Fund's
assets are involved. Reverse repurchase agreements are considered to be a form
of borrowing. In the event of the bankruptcy of the other party to a reverse
repurchase agreement, a Fund could experience delays in recovering the
securities sold. To the extent that, in the meantime, the value of the
securities sold has increased, the Fund could experience a loss.
SECURITIES LENDING
Each Fund may lend securities pursuant to agreements requiring that the
loans be continuously secured by cash, securities of the U.S. government or its
agencies, or any combination of cash and such securities, as collateral equal to
100% of the market value at all times of the securities lent. Such loans will
not be made if, as a result, the aggregate amount of all outstanding securities
loans for the Fund exceed one-third of a Fund's total assets. A Fund will
continue to receive interest or dividends on the securities lent while
simultaneously earning interest on the investment of the cash collateral in U.S.
government securities. However, a Fund will normally pay a rebate to
<PAGE>
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the borrowers and related expenses from the interest earned on invested
collateral. If a Fund receives securities as collateral for the loan, the Fund
will receive a fee from the borrower. There may be risks of delay in receiving
additional collateral or risks of delay in recovery of the securities or even
loss of rights in the collateral should the borrower of the securities fail
financially. However, loans are made only to borrowers deemed by the Adviser or
an Adviser to a Fund to be of good standing and when, in the judgment of the
Adviser, the consideration which can be earned currently from such securities
loans justifies the attendant risk. Any loan may be terminated by either party
upon reasonable notice to the other party. When a loan is terminated, the Fund
must return the collateral received, and the liquidation of any investments made
with cash collateral may result in a loss to the Fund. A Fund may use the
Distributor or a broker/dealer affiliate of an Adviser as a borrower or lending
agent in these transactions.
SECURITIES RATED BAA OR BBB
Each of the Funds may purchase securities rated Baa by Moody's or BBB
by Standard & Poor's which may have poor protection of payment of principal and
interest. These securities are often considered to be speculative and involve
greater risk of default or price changes than securities assigned a higher
quality rating due to changes in the issuer's creditworthiness. The market
prices of these securities may fluctuate more than higher-rated securities and
may decline significantly in periods of general economic difficulty that may
follow periods of rising interest rates.
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. The Adviser or
an Adviser to a Fund will purchase only those STRIPS that it determines or they
determine are liquid or, if illiquid, do not violate such Fund's investment
policy concerning investments in illiquid securities. Consistent with Rule 2a-7,
BankBoston, as the Adviser to the Money Market Funds, will purchase for Money
Market Funds only those STRIPS that have a remaining maturity of 397 days or
less. No Money Market Fund may invest more than 5 percent of its total assets in
STRIPS. While there is no limitation on the percentage of any other Fund's
assets that may be comprised of STRIPS, the Adviser or Advisers to each Fund
will monitor the level of such holdings to avoid the risk of impairing
shareholders' redemption rights. The interest-only component is extremely
sensitive to the rate of principal payments on the underlying obligation. The
market value of the principal-only component generally is unusually volatile in
response to changes in interest rates.
TAX-EXEMPT SECURITIES
MUNICIPAL NOTES AND BONDS
Boston 1784 Tax-Free Money Market Fund, Boston 1784 Prime Money Market
Fund, Boston 1784 Institutional Prime Money Market Fund, Boston 1784 Short-Term
Income Fund, Boston 1784 Income Fund and each of the Tax-Exempt Funds may invest
in municipal notes, which include but are not limited to general obligation
notes, tax anticipation notes (notes sold to finance working capital needs of
the issuer in anticipation of receiving taxes on a future date), revenue
anticipation notes (notes sold to provide needed cash prior to receipt of
expected non-tax revenues from a specific source), bond anticipation notes,
certificates of indebtedness, demand notes and construction loan notes. A Fund's
investment in any of the notes described above will be
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limited to those obligations which are rated (i) MIG-2 or VMIG-2 or better at
the time of investment by Moody's, (ii) SP-2 or better at the time of investment
by S&P, or (iii) F-2 or better at the time of investment by Fitch IBCA, or
which, if not rated by Moody's, S&P or Fitch IBCA, are of at least comparable
quality, as determined by the Adviser to the Fund. Municipal bonds, in which
these same Funds may invest, must be rated AA or better by S&P or Fitch IBCA
(BBB or better for the Tax-Exempt Funds, Short Term Income Fund and Income Fund)
or Aa or better by Moody's (Baa or better for the Tax-Exempt Funds, Short Term
Income Fund and Income Fund) at the time of investment or, if not rated by
Moody's, S&P or Fitch IBCA, must be determined by the Adviser to the Funds to
have essentially the same characteristics and quality as bonds having the above
ratings. Bonds rated BBB by S&P or Fitch IBCA or Baa by Moody's may have
speculative characteristics. The Adviser to these Funds may purchase industrial
development and pollution control bonds for these Funds if the interest paid
thereon is exempt from federal income tax. These bonds are issued by or on
behalf of public authorities to raise money to finance various
privately-operated facilities for business and manufacturing, housing, sports,
and pollution control. These bonds may also be used to finance public facilities
such as airports, mass transit systems, ports, and parking. The payment of the
principal and interest on such bonds is dependent solely on the ability of the
facility's user to meet its financial obligations and the pledge, if any, of
real and personal property so financed as security for such payment.
Municipal securities also include participations in municipal leases.
These are undivided interests in a portion of an obligation in the form of a
lease or installment purchase issued by a state or local government to acquire
equipment or facilities. Municipal leases frequently have special risks not
normally associated with general obligation bonds or revenue bonds. Leases and
installment purchase or conditional sale contracts (which normally provide for
title to the leased asset to pass eventually to the governmental issuer) have
evolved as a means for governmental issuers to acquire property and equipment
without meeting the constitutional and statutory requirements for the issuance
of debt. The debt-issuance limitations are deemed to be inapplicable because of
the inclusion in many leases or contracts of "non-appropriation" clauses that
provide that the governmental issuer has no obligation to make future payments
under the lease or contract unless money is appropriated for such purpose by the
appropriate legislative body on a yearly or other periodic basis. Although the
obligations will be secured by the leased equipment or facilities, the
disposition of the property in the event of non-appropriation or foreclosure
might, in some cases, prove difficult. In light of these concerns, the Trust has
adopted and follows procedures for determining whether municipal lease
securities purchased by a Fund are liquid and for monitoring the liquidity of
municipal lease securities held in the Fund's portfolio. The procedures require
that a number of factors be used in evaluating the liquidity of a municipal
lease security, including the frequency of trades and quotes for the security,
the number of dealers willing to purchase or sell the security and the number of
other potential purchasers, the willingness of dealers to undertake to make a
market in the security, the nature of the marketplace in which the security
trades, the credit quality of the security, and other factors which the Adviser
to the Fund may deem relevant.
TAX-EXEMPT COMMERCIAL PAPER in which a Tax-Exempt Fund, Boston 1784
Tax-Free Money Market, Boston 1784 Prime Money Market Fund and Boston 1784
Institutional Prime Money Market Fund may invest will be limited to investments
in obligations which are rated at least A-2 by S&P, Prime-2 by Moody's, or F-2
by Fitch IBCA, at the time of investment or which are of comparable quality as
determined by the Adviser to the Fund.
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Each of the Tax-Exempt Funds, Boston 1784 Tax-Free Money Market Fund,
Boston 1784 Prime Money Market Fund and Boston 1784 Institutional Prime Money
Market Fund may invest in FLOATING RATE NOTES. Investments in such floating rate
instruments will normally involve industrial development or revenue (now known
as "private activity") bonds which provide that the rate of interest is set as a
specific percentage of a designated base rate (such as the prime rate) at a
major commercial bank, and that a Fund can demand payment of the obligation at
all times or at stipulated dates on short notice (not to exceed 30 days) at par
plus accrued interest. For purposes of determining the maturity of these
obligations, the Fund may use the longer of (a) the period required before the
Fund is entitled to prepayment under such obligations or (b) the period
remaining until the next interest rate adjustment date. Such obligations are
frequently secured by letters of credit or other credit support arrangements
provided by banks. The quality of the underlying credit or of the bank, as the
case may be, must in the Fund Adviser's opinion be equivalent to the long-term
bond or commercial paper ratings on securities in which the Fund may invest. The
Adviser to the Fund will monitor the earning power, cash flow and liquidity
ratios of the issuers of floating rate instruments and the ability of an issuer
of a demand instrument to pay principal and interest on demand. The Adviser to
the Fund may also purchase other types of tax-exempt instruments for these Funds
as long as they are of a quality equivalent to the bonds or commercial paper in
which these Funds may invest.
STANDBY COMMITMENTS
Funds investing in municipal securities may acquire such securities
subject to a "standby commitment." The Adviser to these Funds has the authority
to purchase for these Funds securities at a price which would result in a yield
to maturity lower than that generally offered by the seller at the time of
purchase when they can simultaneously acquire the right to sell the securities
back to the seller, the issuer, or a third party (the "writer") at an
agreed-upon price at any time during a stated period or on a certain date. Such
a right is generally denoted as a "standby commitment" or a "put". The purpose
of engaging in transactions involving puts is to maintain flexibility and
liquidity to permit the Fund to meet redemptions and remain as fully invested as
possible in municipal securities. The Funds reserve their right to engage in put
transactions. The right to put the securities depends on the writer's ability to
pay for the securities at the time the put is exercised. Each Fund would limit
its put transactions to institutions which the Adviser to such Fund believes
present minimum credit risks. Each Adviser would use its best efforts initially
to determine and to continue to monitor the financial strength of the sellers of
the options by evaluating their financial statements and such other information
as is available in the marketplace. It may, however, be difficult to monitor the
financial strength of the writers because adequate current financial information
may not be available. In the event that any writer is unable to honor a put for
financial reasons, the Fund would be a general creditor (i.e., on a parity with
all other unsecured creditors) of the writer. Furthermore, particular provisions
of the contract between the Fund and the writer may excuse the writer from
repurchasing the securities; for example, a change in the published rating of
the underlying municipal securities or any similar event that has an adverse
effect on the issuer's credit or a provision in the contract that the put will
not be exercised except in certain special cases, for example, to maintain fund
liquidity. The Fund could, however, at any time sell the underlying security in
the open market or wait until the security matures, at which time it should
realize the full par value of the security.
Municipal securities purchased subject to a put may be sold to third
persons at any time, even though the put is outstanding, but the put itself,
unless it is an integral
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part of the security as originally issued, may not be marketable or otherwise
assignable. Therefore, the put would have value only to the Fund. Sale of the
securities to third parties or lapse of time with the put unexercised may
terminate the right to put the securities. Prior to the expiration of any put
option, the Fund could seek to negotiate terms for the extension of such an
option. If such a renewal cannot be negotiated on terms satisfactory to the
Fund, the Fund could, of course, sell the security. The maturity of the
underlying security will generally be different from that of the put. There will
be no limit to the percentage of Fund securities that a Fund may purchase
subject to puts but the amount paid directly or indirectly for puts which are
not integral parts of a security as originally issued held in a Fund will not
exceed 1/2 of 1 percent of the value of the total assets of such Fund calculated
immediately after any such put is acquired.
For the purpose of determining the "maturity" of securities purchased
subject to an option to put, and for the purpose of determining the
dollar-weighted average maturity of a Fund including such securities, "maturity"
will be considered to be the first date on which the Fund has the right to
demand payment from the writer of the put although the final maturity of the
security is later than such date.
TIME DEPOSITS
Each of the Funds may invest in time deposits. A time deposit is a
non-negotiable receipt issued by a bank in exchange for the deposit of funds.
Like a certificate of deposit, it earns a specified rate of interest over a
definite period of time; however, it cannot be traded in the secondary market.
Time deposits with a withdrawal penalty are considered to be illiquid
securities.
VARIABLE AMOUNT MASTER DEMAND NOTES
Each Fund (other than Boston 1784 Institutional U.S. Treasury Money
Market Fund and Boston 1784 U.S. Treasury Money Market Fund) may invest in
variable amount master demand notes which may or may not be backed by bank
letters of credit. These notes permit the investment of fluctuating amounts at
varying market rates of interest pursuant to direct arrangements between the
Trust, as lender, on behalf of a Fund and the borrower. Such notes provide that
the interest rate on the amount outstanding varies on a daily, weekly or monthly
basis depending upon a stated short-term interest rate index. Both the lender
and the borrower have the right to reduce the amount of outstanding indebtedness
at any time. There is no secondary market for the notes. It is not generally
contemplated that such instruments will be traded.
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. Each of the Stock Funds may
invest up to 5% of its net assets in warrants. Included in this limitation, but
not to exceed 2% of the Fund's net assets, may be warrants not listed on the New
York Stock Exchange or American Stock Exchange. The Short-Term Income Fund and
Income Fund may each invest in warrants in an amount not exceeding 2% of its net
assets, except that 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.
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ZERO COUPON SECURITIES
Each of the Funds 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.
FUND POLICIES
FUNDAMENTAL POLICIES
The following are fundamental policies of each of the Funds and may not
be changed with respect to any Fund without approval by holders of a majority of
the outstanding voting securities of that Fund, which as used in this Statement
of Additional Information means the vote of the lesser of (i) 67 percent or more
of the outstanding voting securities of the Fund present at a meeting at which
the holders of more than 50 percent of the outstanding voting securities of the
Fund are present or represented by proxy, or (ii) more than 50 percent of the
outstanding voting securities of the Fund. The term "voting securities" as used
in this paragraph has the same meaning as in the Investment Company Act of 1940,
as amended (the "1940 Act").
1. A Fund may not purchase any securities which would cause more than 25
percent 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 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, and in
the case of Boston 1784 Tax-Free Money Market Fund, tax-exempt securities
issued by governments or political subdivisions of governments. Each of the
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 Boston 1784 Prime Money Market
Fund, Boston 1784 Institutional Prime Money Market Fund, Boston 1784
Florida Tax-Exempt Income Fund, Boston 1784 Growth Fund and Boston 1784
International Equity Fund 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 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) supranational entities will be considered to be a
separate industry; and (iv) loan
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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 percent 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 percent 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 Boston 1784 Massachusetts Tax-Exempt Income
Fund, Boston 1784 Connecticut Tax-Exempt Income Fund, Boston 1784 Rhode
Island Tax-Exempt Income Fund or Boston 1784 Florida Tax-Exempt Income
Fund; (b) the foregoing limitation shall not apply to 25 percent of the
total assets of each of the Stock Funds, Bond Funds, Boston 1784 Tax-Exempt
Medium-Term Income Fund, Boston 1784 Tax-Free Money Market Fund, Boston
1784 Prime Money Market Fund or Boston 1784 Institutional Prime Money
Market Fund; and (c) the foregoing limitation does not apply to an
investment of all of the investable assets of Boston 1784 Prime Money
Market Fund, Boston 1784 Institutional Prime Money Market Fund, Boston 1784
Florida Tax-Exempt Income Fund, Boston 1784 Growth Fund, or Boston 1784
International Equity Fund 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 percent 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
percent of its total assets (taken at market value), and any interest paid
on such borrowings will reduce income.
6. In the case of Boston 1784 Asset Allocation Fund, Boston 1784 Growth and
Income Fund, Money Market Funds (other than Boston 1784 Prime Money Market
Fund and Boston 1784 Institutional Prime Money Market Fund), Boston 1784
U.S. Government Medium-Term Income Fund, Boston 1784 Tax-Exempt Medium-Term
Income Fund and Boston 1784 Massachusetts Tax-Exempt Income Fund, such a
Fund may not pledge, mortgage or hypothecate assets except to secure
temporary borrowings permitted by (5) above in aggregate amounts not to
exceed 10 percent 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
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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 Trust may obtain short-term
credits as necessary for the clearance of security transactions.
9. A Fund may not act as an 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 percent of the total voting stock of the company; (b) securities issued
by any one investment company represent more than 5 percent of the total
assets of such Fund; or (c) securities (other than treasury stock) issued
by all investment companies represent more than 10 percent of the total
assets of such Fund, provided, that with respect to the Boston 1784 Prime
Money Market Fund, Boston 1784 Institutional Prime Money Market Fund,
Boston 1784 Florida Tax-Exempt Income Fund, Boston 1784 Growth Fund and
Boston 1784 International Equity Fund, 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.
The Funds have obtained an exemptive order from the Securities and Exchange
Commission which permits the Funds (other than the Money Market Funds) to
purchase shares of one or more affiliated investment companies that are
money market funds, subject to certain conditions contained in the
application for such exemptive order.
It is the position of the Securities and Exchange Commission'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 Securities and
Exchange Commission exempting such instruments from the definition of
investment company.
11. A Fund may not issue senior securities (as defined in the 1940 Act) except
in connection with permitted borrowings as described above or as permitted
by rule, regulation or order of the Securities and Exchange Commission.
<PAGE>
-25-
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 (i) each of the Stock Funds
may invest in warrants in an amount not exceeding 5 percent of the Fund's net
assets as valued at the lower of cost or market value; included in these
amounts, but not to exceed 2 percent of the Fund's net assets, may be warrants
not listed on the New York Stock Exchange or American Stock Exchange; and (ii)
Boston 1784 Short-Term Income Fund and Boston 1784 Income Fund may each invest
in warrants in an amount not exceeding 2 percent of its net assets; 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 percent of that Fund's net assets (10 percent for Money Market
Funds), provided that this limitation does not apply to an investment of all of
the investable assets of the Boston 1784 Prime Money Market Fund, Boston 1784
Institutional Prime Money Market Fund, Boston 1784 Florida Tax-Exempt Income
Fund, Boston 1784 Growth Fund, or Boston 1784 International Equity Fund in a
Qualifying Portfolio. The foregoing limitation does not apply to restricted
securities, including those issued pursuant to Rule 144A under the 1933 Act, if
it is determined by or under procedures established by the Board of Trustees of
the Trust 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 the Trust, an officer, trustee, partner or director of the Trust or
any investment adviser of the Trust owns beneficially more than 1/2 of 1 percent
of the shares or securities of such issuer and all such officers, trustees,
partners and directors owning more than 1/2 of 1 percent of such shares or
securities together own more than 5 percent 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 percent of total assets (taken at fair market value) of the Fund
would be invested in such securities, except that the foregoing limitation shall
not apply to (a) obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities; (b) municipal securities which are rated by at
least one nationally-recognized bond rating service; or (c) an investment of all
of the investable assets of the Boston 1784 Prime Money Market Fund, Boston 1784
Institutional Prime Money Market Fund, Boston 1784 Florida Tax-Exempt Income
Fund, Boston 1784 Growth Fund, or Boston 1784 International Equity Fund in a
Qualifying Portfolio.
<PAGE>
-26-
The foregoing percentages will apply at the time of the purchase of a
security and shall not be considered violated unless an excess occurs or exists
immediately after and as a result of a purchase of such security.
TEMPORARY DEFENSIVE POSITION
During periods of unusual economic or market conditions or for
temporary defensive purposes or liquidity, each Fund may invest without limit in
cash and in U.S. dollar-denominated high quality money market and short-term
instruments. These investments may result in a lower yield than would be
available from investments with a lower quality or longer term.
PORTFOLIO TURNOVER
Set forth below are the portfolio turnover rates for each of the Funds
(with the exception of the money market funds) for the fiscal years indicated. A
rate of 100% indicates that the equivalent of all of the Fund's assets have been
sold and reinvested in a year. The amount of brokerage commissions will tend to
increase as the level of portfolio activity increases. High portfolio turnover
may result in the realization of substantial net capital gains or losses which
will be required to be distributed to shareholders. To the extent net short term
capital gains are realized, any distributions resulting from such gains will be
treated as ordinary dividend income for federal income tax purposes.
- --------------------------------------------------------------------------------
Portfolio Turnover Portfolio Turnover
Fund Rates 1998 Rates 1999
- --------------------------------------------------------------------------------
Boston 1784 Short-Term Income Fund
83.84% 36.57%
Boston 1784 Income Fund 79.09% 64.34%
Boston 1784 U.S. Government
Medium-Term Income Fund 73.65% 47.85%
Boston 1784 Tax-Exempt Medium
Term Income Fund 34.06% 68.58%
Boston 1784 Connecticut Tax-
Exempt Income Fund 16.81% 19.10%
Boston 1784 Florida Tax-Exempt
Income Fund 21.35% 10.88%
Boston 1784 Massachusetts Tax-
Exempt Fund 6.45% 9.32%
Boston 1784 Rhode Island Tax-
Exempt Income Fund 13.79% 12.44%
- --------------------------------------------------------------------------------
Boston 1784 Asset Allocation Fund 47.83% 49.78%
<PAGE>
-27-
Boston 1784 Growth and Income
Fund 39.03% 50.15%
Boston 1784 Growth Fund 48.60% 61.02%
Boston 1784 International Equity
Fund 103.47% 115.83%
- --------------------------------------------------------------------------------
3. MANAGEMENT
TRUSTEES
The management and affairs of the Trust are supervised by the Trustees
under the laws of the Commonwealth of Massachusetts. Subject to the provisions
of the Declaration of Trust, the business of the Trust shall be managed by the
Trustees, and they shall have all powers necessary or convenient to carry out
that responsibility.
MANAGEMENT INFORMATION
The Trustees and executive officers of the Trust and their principal
occupations during the past five years are set forth below. Their titles may
have varied during that period. An asterisk indicates a Trustee who may be
deemed to be an "interested person" (as defined in the 1940 Act) of the Trust.
<TABLE>
<CAPTION>
- --------------------------------------------- ----------------- --------------------------------------------
<S> <C> <C>
Position(s)
Held with Trust Principal Occupation(s) During Past 5 Years
Name, Address, and Age
- --------------------------------------------- ----------------- --------------------------------------------
DAVID H. CARTER Trustee Main Board Director, Touche Remnant & Co.
(date of birth March 21, 1933) (investment advisor), 1982-1988; Managing
Tockenham Farm Director, Bearbull (UK) Ltd., London
Wootton Bassett (investment advisor), 1988-January 1993.
Wiltshire, SN47PB
England
- --------------------------------------------- ----------------- --------------------------------------------
TARRANT CUTLER Trustee Trustee and Secretary, Northeast Hospital
(date of birth June 12, 1926) Corp. (since 1965); Senior Executive Vice
5 Masconomo Street President, Massachusetts Financial
Manchester, Massachusetts 01944 Services Company, retired in 1991.
<PAGE>
-28-
- --------------------------------------------- ----------------- --------------------------------------------
KENNETH A. FROOT Trustee Andre R. Jakurski Professor of Business
(date of birth July 5, 1957) Administration, since 1999, Director of
Harvard University Graduate School of Research, since 1996, and The Industrial
Business Bank of Japan Professor of Finance and
Boston, Massachusetts 02163 Director of Research, Harvard University
Graduate School of Business, 1993-1999;
Thomas Henry Carroll-Ford Visiting
Professor of Business Administration,
Harvard University Graduate School
of Business, 1991-1993; Associate
Professor of Management with Tenure, Sloan
School of Management, Massachusetts
Institute of Technology, 1991-1992; Ford
International Development Chair, Sloan
School, 1987-1990; Research Associate,
National Bureau of Economic Research,
1990-present.
- --------------------------------------------- ----------------- --------------------------------------------
SARA L. JOHNSON Trustee North American Research Director (since
(date of birth November 16, 1951) 1998), Chief Regional Economist (since
30 Eaton Court 1995), Principal (1992-1998) and Director
Wellesley Hills, Massachusetts 02181 of Regional Forecasting (1992-1995),
Standard & Poor's DRI (formerly
DRI/McGraw-Hill); formerly, Trustee
of BayFunds.
- --------------------------------------------- ----------------- --------------------------------------------
KATHRYN FLACKE MUNCIL Trustee Chief Financial Officer, since 1993,
(date of birth November 30, 1958) Treasurer and Secretary, since 1994, Fort
c/o Fort William Henry Corporation William Henry Corporation; Treasurer and
48 Canada Street Secretary, Adirondack Lakeview
Lake George, New York 12845 Corporation, since 1994; Treasurer,
Spaulding Investment Company (real
estate development, investment and
property management), 1985-1993.
- --------------------------------------------- ----------------- --------------------------------------------
*ROBERT A. NESHER President, Mr. Nesher currently performs various
(date of birth August 17, 1946) Chief Executive services on behalf of SEI for which he is
1 Freedom Valley Drive, Oaks, Pennsylvania Officer & compensated. Director and Executive Vice
19456 Trustee President of SEI 1986 to July 1994.
Director and Executive Vice President of
the Administrator and Distributor 1981 to
July 1994.
<PAGE>
-29-
- --------------------------------------------- ----------------- --------------------------------------------
ALVIN J. SILK Trustee Co-Chairman, Marketing Area and Lincoln
(date of birth December 31, 1935) Filene Professor of Business
Graduate School of Business Administration Administration, Graduate School of
Harvard University Business Administration, Harvard
Soldiers Field Road University (1988-present); formerly,
Boston, Massachusetts 02163 Trustee of BayFunds; formerly, Erwin H.
Schell Professor of Management, Sloan School
of Management, Massachusetts Institute of
Technology; formerly, Director, BayBank
Systems, Inc.; Trustee, Marketing Science
Institute; Director, Reed and Barton, Inc.
- --------------------------------------------- ----------------- --------------------------------------------
TODD CIPPERMAN Vice President Vice President and Assistant Secretary of
(date of birth February 14, 1966) & Assistant SEI, the Administrator and the Distributor
1 Freedom Valley Drive Secretary since 1995. Associate, Dewey Ballantine
Oaks, Pennsylvania 19456 (law firm)(1994-1995). Associate, Winston
& Strawn (law firm) (1991-1994).
- --------------------------------------------- ----------------- --------------------------------------------
ROGER P. JOSEPH Secretary Partner, Bingham Dana LLP, counsel to the
(date of birth October 3, 1951) Trust, since 1983.
150 Federal Street, Boston, Massachusetts
02110
- --------------------------------------------- ----------------- --------------------------------------------
CHRISTOPHER F. SALFI Controller Director, Funds Accounting, SEI Mutual
(date of birth November 28, 1963) Fund Services, since 1998; Fund Accounting
1 Freedom Valley Drive Manager, SEI, 1994-1997; Investment
Oaks, Pennsylvania 19456 Accounting Manager, PFPC, 1993-1994; FPS
Services, Inc., 1986-1993.
- --------------------------------------------- ----------------- --------------------------------------------
KEVIN P. ROBINS Vice President General Counsel to and Senior Vice
(date of birth April 15, 1961) & Assistant President of SEI, the Administrator and
1 Freedom Valley Drive Secretary the Distributor, since 1994. Vice
Oaks, Pennsylvania 19456 President of SEI, the Administrator and
the Distributor, from 1991 to 1994. Vice
President of SEI, the Administrator and the
Distributor, from 1992 to 1994. Associate,
Morgan, Lewis & Bockius (law firm) prior
to 1992.
- --------------------------------------------- ----------------- --------------------------------------------
JAMES R. FOGGO Vice President Vice President and Assistant Secretary of
(date of birth June 30, 1964) & Assistant the Administrator and the Distributor
1 Freedom Valley Drive Secretary since 1998. Associate, Paul Weiss,
Oaks, Pennsylvania 19456 Rifkind, Wharton & Garrison (law firm),
1998. Associate, Baker & McKenzie
(law firm), 1995-1998. Associate, Battle
& Fowler, LLP (law firm), 1992-1995.
Operations Manager, The Shareholder
Services Group, Inc., 1986-1990.
<PAGE>
-30-
- --------------------------------------------- ----------------- --------------------------------------------
KATHY HELIG Vice President Treasurer of SEI since 1997; Vice
(date of birth December 21, 1958) & Assistant President of SEI since 1991; Director of
1 Freedom Valley Drive Secretary Taxes of SEI, 1987-1991. Tax Manager,
Oaks, Pennsylvania 19456 Arthur Anderson L.L.P. prior to 1987.
- --------------------------------------------- ----------------- --------------------------------------------
LYNDA J. STRIGEL Vice President Vice President and Assistant Secretary of
(date of birth October 30, 1948) & Assistant the Administrator and the Distributor
1 Freedom Valley Drive Secretary since 1998. Senior Asset Management
Oaks, Pennsylvania 19456 Counsel, Barnett Banks, Inc., 1997-1998.
Partner, Groom and Nordberg, Chartered,
1996-1997. Associate General Counsel,
Riggs Bank, N.A., 1991-1995.
- --------------------------------------------- ----------------- --------------------------------------------
LYDIA A. GARVALIS Vice President Vice President and Assistant Secretary of
(date of birth June 5, 1964) & Assistant the Administrator and the Distributor
1 Freedom Valley Drive Secretary since 1998. Assistant General Counsel and
Oaks, Pennsylvania 19456 Director of Arbitration, Philadelphia
Stock Exchange, 1989-1998.
- --------------------------------------------- ----------------- --------------------------------------------
</TABLE>
COMPENSATION
The following table sets forth certain information regarding the
compensation of the Trust's Trustees for the fiscal year ended May 31, 1999.
<TABLE>
<CAPTION>
- --------------------------- -------------------- ---------------------- --------------------- ---------------------
Pension or Total Compensation
Retirement Benefits Estimated Annual from the Trust and
Aggregate Accrued as Part of Benefits Upon the Funds Paid to
Compensation from Fund Expenses Retirement Trustee
Name of Trustee the Trust
- --------------------------- -------------------- ---------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
David H. Carter $29,000 $0 $0 $29,000
Tarrant Cutler $29,000 0 0 $29,000
Kenneth A. Froot $29,000 0 0 $29,000
Sara L. Johnson $29,000 0 0 $29,000
Kathryn F. Muncil $29,000 0 0 $29,000
Robert A. Nesher $0 0 0 $0
Alvin J. Silk $29,000 0 0 $29,000
</TABLE>
The Officers of the Trust receive no compensation from the Trust for
serving in such capacity. Compensation of officers and Trustees of the Trust who
are employed by the Administrator is paid by the Administrator.
The Declaration of Trust provides that the Trust will indemnify its
Trustees and officers as described below under "Trustee and Shareholder
Liability--Limitation of Trustees' Liability."
<PAGE>
-31-
4. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
PRINCIPAL HOLDERS
As of September 1, 1999, all Trustees and officers of the Trust as a
group owned less than 1% percent of each Fund's outstanding shares. The Trust
pays the fees for unaffiliated Trustees.
As of September 1, 1999, Bidders Edge, Inc., 131 Middlesex Turnpike,
Burlington, MA 01803-4431, owned of record 5.16% of the outstanding shares of
Boston 1784 Institutional Prime Money Market Fund.
As of September 1, 1999, Charles Schwab & Co., Inc., 101 Montgomery
Street, San Francisco, CA 94104-4122, owned of record 5.27% of the outstanding
shares of Boston 1784 Connecticut Tax-Exempt Income Fund.
As of September 1, 1999, CP Clare Operation, 78 Cherry Hill Drive,
Beverly, MA 01702, owned of record 5.25% of the outstanding shares of Boston
1784 Institutional Prime Money Market Fund.
As of September 1, 1999, Engage Technologies Inc., 100 Brickstone
Square, Andover, MA 01830-1428, owned of record 14.97% of the outstanding shares
of Boston 1784 Institutional Prime Money Market Fund.
As of September 1, 1999, Fleet National Bank, as Trustee for Alliances
Trust, P.O. Box 92800, Rochester, NY 14692-8900, owned of record 7.40% of the
outstanding shares of Boston 1784 Short-Term Income Fund.
As of September 1, 1999, State Street Bank & Trust, as Trustee for
BankBoston Thrift Incentive (401k) Plan, 105 Rosemont Road, Westwood, MA
02090-2318, owned of record the following percentages of the outstanding shares
of the following Funds:
Boston 1784 Asset Allocation Fund - 30.40%
Boston 1784 Growth and Income Fund - 13.39%
Boston 1784 Growth Fund - 12.82%
Boston 1784 Short-Term Income Fund - 38.80%
As of September 1, 1999, National Financial Services Corp., P.O. Box
3908 Church Street Station, New York, NY 10008-3908, owned of record the
following percentages of the outstanding shares of the following Funds:
Boston 1784 Tax-Free Money Market Fund - 5.11%
Boston 1784 U.S. Treasury Money Market Fund - 19.67%
Boston 1784 Prime Money Market Fund - 16.35%
Boston 1784 Short-Term Income Fund - 5.96%
Boston 1784 Massachusetts Tax-Exempt Income Fund - 15.07%
Boston 1784 Rhode Island Tax-Exempt Income Fund - 7.70%
Boston 1784 Connecticut Tax-Exempt Income Fund - 7.93%
Boston 1784 Asset Allocation Fund - 25.44%
Boston 1784 Growth and Income Fund - 10.73%
Boston 1784 Growth Fund - 12.82%
<PAGE>
-32-
As of September 1, 1999, BankBoston, N.A., 100 Federal Street, Boston,
Massachusetts 02110, and its affiliates, owned of record the following
percentages of the outstanding shares of the following Funds:
Boston 1784 Tax-Free Money Market Fund - 81.58%
Boston 1784 Institutional U.S. Treasury Money Market Fund - 62.18%
Boston 1784 Institutional Prime Money Market Fund - 14.82%
Boston 1784 Tax-Exempt Medium-Term Income Fund - 88.27%
Boston 1784 Massachusetts Tax-Exempt Income Fund - 68.49%
Boston 1784 Rhode Island Tax-Exempt Income Fund - 82.48%
Boston 1784 Connecticut Tax-Exempt Income Fund - 77.76%
Boston 1784 Florida Tax-Exempt Income Fund - 97.88%
Boston 1784 U.S. Government Medium-Term Income Fund - 90.31%
Boston 1784 Short-Term Income Fund - 31.93%
Boston 1784 Income Fund - 86.25%
Boston 1784 Asset Allocation Fund - 32.44%
Boston 1784 Growth and Income Fund - 55.08%
Boston 1784 Growth Fund - 63.54%
Boston 1784 International Equity Fund - 89.00%
5. INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISERS
The Trust has entered into separate advisory agreements (each, an
"Advisory Agreement") with BankBoston, a wholly-owned subsidiary of BankBoston
Corporation, and, for Boston 1784 International Equity Fund, with Kleinwort
Benson Investment Management Americas Inc. ("Kleinwort"), the U.S.-registered
investment management subsidiary of the London-based Kleinwort Group plc, a
merchant banking group, which in turn is a subsidiary of Dresdner Bank A.G.
The Advisory Agreement with BankBoston for the Funds other than Boston
1784 International Equity Fund is dated as of June 1, 1993 and the Advisory
Agreement with BankBoston for Boston 1784 International Equity Fund is dated as
of November 28, 1994. The Advisory Agreement with Kleinwort for Boston 1784
International Equity Fund is dated as of October 27, 1995. BankBoston and
Kleinwort are referred to in this Statement of Additional Information,
collectively, as the "Advisers" and each, individually, as an "Adviser."
BankBoston is entitled to receive investment advisory fees, which are
accrued daily and payable monthly, of .40% of each Money Market Fund's average
daily net assets (.20% for the Institutional U.S. Treasury Money Market Fund and
the Institutional Prime Money Market Fund), .74% of each Bond and each
Tax-Exempt Fund's average daily net assets (.50% for the Short-Term Income Fund)
and .74% of each Stock Fund's average daily net assets (other than the
International Equity Fund).
For the International Equity Fund, BankBoston and Kleinwort each are
entitled to receive an investment advisory fee of .50% of the Fund's average net
assets, for a total of 1.00% of the Fund's average daily net assets. This fee is
higher than the fee paid by most investment companies in general.
<PAGE>
-33-
BankBoston has agreed to waive its investment advisory fees to the
extent necessary to limit the total operating expenses of each Fund to a
specified level. BankBoston also may contribute to the Funds from time to time
to help them maintain competitive expense ratios. These arrangements are
voluntary and may be terminated at any time.
For the fiscal years ended May 31, 1997, 1998 and 1999, the Trust paid
the following fees (after fee waivers) on behalf of the Funds:
<TABLE>
<CAPTION>
- ----------------------------------------------- --------------------- --------------------- ---------------------
BankBoston BankBoston BankBoston
Investment Investment Investment
Fund Advisory Fees Advisory Fees Advisory Fees
1997 1998 1999
(thousands) (thousands) (thousands)
- ----------------------------------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C>
Boston 1784 Tax-Free Money Market Fund $2,663 $3,896 $4,228
Boston 1784 U.S. Treasury Money Market
Fund 879 1,286 1,297
Boston 1784 Institutional U.S. Treasury
Money Market Fund 3,052 6,468 8,329
Boston 1784 Institutional Prime Money
Market Fund N/A (1) 46 760
Boston 1784 Prime Money Market Fund 142(2) 430 509
Boston 1784 Short-Term Income Fund 708 960 929
Boston 1784 Income Fund 1,829 2,483 2,536
Boston 1784 U.S. Government Medium
Term Income Fund 1,199 1,571 1,829
Boston 1784 Tax-Exempt Medium-Term
Income Fund 1,387 1,877 2,241
Boston 1784 Connecticut Tax-Exempt
Income Fund 573 764 1,139
Boston 1784 Florida Tax-Exempt Income
Fund N/A(1) 267 380
Boston 1784 Massachusetts Tax-Exempt
Fund 768 1,162 1,574
Boston 1784 Rhode Island Tax-Exempt
Income Fund 280 407 583
Boston 1784 Asset Allocation Fund 177 318 382
Boston 1784 Growth and Income Fund 2,650 3,785 4,117
Boston 1784 Growth Fund 1,050 2,110 1,455
Boston 1784 International Equity Fund 2,111 2,404 2,179
- ----------------------------------------------- --------------------- --------------------- ---------------------
Total $19,468 29,274 34,467
- ----------------------------------------------- --------------------- --------------------- ---------------------
<FN>
(1) The Boston 1784 Institutional Prime Money Market Fund and Boston 1784 Florida Tax-Exempt Income Fund had no operations
during the periods indicated.
(2) The Prime Money Market Fund changed its fiscal year from December 31 to May 31. The investment advisory fee of $142,000
reflects payments made by the Fund for the period from January 1, 1997 to May 31, 1997.
</FN>
</TABLE>
The foregoing table does not reflect contributions to the Funds made by
BankBoston in order to assist the Funds in maintaining competitive expense
ratios.
For the fiscal year ended May 31, 1996, the Trust paid $1,222,419 to
Kleinwort under the Advisory Agreement to which Kleinwort is a party, with
respect to Boston 1784 International Equity Fund. For the fiscal years ended May
31, 1997, 1998 and 1999, respectively, the Trust paid $2,111,000, $2,404,000 and
$2,179,000 to Kleinwort under the same Advisory Agreement.
<PAGE>
-34-
The continuance of each Advisory Agreement, after the first two years,
must be specifically approved at least annually (i) by the vote of the Trustees,
and (ii) by the vote of a majority of the Trustees who are neither parties to
the Advisory Agreement nor "interested persons" of any party thereto, cast in
person at a meeting called for the purpose of voting on such approval. Each
Advisory Agreement will terminate automatically in the event of its assignment,
and is terminable at any time without penalty by the Trustees of the Trust or
with respect to any Fund, by a majority of the outstanding shares of that Fund,
on not less than 30 nor more than 60 days' written notice to the applicable
Adviser, or by the applicable Adviser on 90 days' written notice to the Trust.
Each Advisory Agreement provides that neither the Adviser nor its
personnel shall be liable (1) for any error of judgment or mistake of law; (2)
for any loss arising out of any investment; or (3) for any act or omission in
the execution of security transactions for the Trust or any Fund, except that
the Adviser and its personnel shall not be protected against any liability to
the Trust, any Fund or its Shareholders by reason of willful misfeasance, bad
faith or gross negligence on its or their part in the performance of its or
their duties or from reckless disregard of its or their obligations or duties
thereunder.
SERVICEMARKS
The servicemark BOSTON 1784 FUNDSSM is a registered servicemark of, and
this servicemark and the "eagle" logo are used by permission of, BankBoston. In
the event that the Advisory Agreements with BankBoston are terminated, the Trust
has agreed to discontinue use of the servicemark and logo.
DISTRIBUTOR
SEI Investments Distribution Co. (formerly known as SEI Financial
Services Company) (the "Distributor"), a wholly-owned subsidiary of SEI, and the
Trust are parties to a distribution agreement ("Distribution Agreement"), dated
as of June 1, 1993 and amended and restated as of October 27, 1995. The
Distributor has its principal business offices at 1 Freedom Valley Drive, Oaks,
Pennsylvania 19456.
The Trust has adopted a distribution plan dated as of June 1, 1993,
with respect to each of the Stock Funds, the Bond Funds and the Tax-Exempt Funds
and separate distribution plans dated as of September 14, 1995 with respect to
Class C and Class D shares of Boston 1784 U.S. Treasury Money Market Fund. Each
of these plans ("Plans") has been adopted pursuant to Rule 12b-1 under the 1940
Act. The Distributor receives no compensation for distribution of shares of
Boston 1784 Tax-Free Money Market Fund, Boston 1784 Prime Money Market Fund,
Boston 1784 Institutional Prime Money Market Fund or Boston 1784 Institutional
U.S. Treasury Money Market Fund, or for the distribution of Class A Shares of
Boston 1784 U.S. Treasury Money Market Fund.
The Distribution Agreement and the Plans provide that the Trust will
pay the Distributor a fee, calculated daily and paid monthly, at an annual rate
of (i) 0.25% of the average daily net assets of each of the Stock Funds, the
Bond Funds and the Tax-Exempt Funds; (ii) 0.25% of the average daily net assets
of the Class C shares of Boston 1784 U.S. Treasury Money Market Fund; and (iii)
0.75% of the average daily net assets of the Class D shares of Boston 1784 U.S.
Treasury Money Market Fund. The Distributor can use these fees to compensate
broker/dealers and service providers
<PAGE>
-35-
(including each Adviser and its affiliates) which provide administrative and/or
distribution services to holders of these shares or their customers who
beneficially own these shares. No fees have been paid to the Distributor under
the Plans or the Distribution Agreement since the Funds' inception.
The Distribution Agreement is renewable annually and may be terminated
by the Distributor, by the Trustees of the Trust who are not interested persons
and have no financial interest in the Plans or any related agreement ("Qualified
Trustees"), or, with respect to any particular Fund or class of shares, by a
majority vote of the outstanding shares of such Fund or such class of shares, as
applicable, for which the Distribution Agreement is in effect upon not more than
60 days' written notice by either party.
The Trust has adopted each of the Plans in accordance with the
provisions of Rule 12b-1 under the 1940 Act, which regulates circumstances under
which an investment company may, directly or indirectly, bear expenses relating
to the distribution of its shares. Continuance of each of the Plans must be
approved annually by a majority of the Trustees of the Trust and by a majority
of the Qualified Trustees. Continuance of the Plan with respect to each of the
Stock Funds, the Bond Funds, and the Tax-Exempt Funds was approved by the
Trustees in March, 1999. Each of the Plans requires that quarterly written
reports of money spent under such Plan and of the purposes of such expenditures
be furnished to and reviewed by the Trustees. Expenditures may include (1) the
cost of prospectuses, reports to Shareholders, sales literature and other
materials for potential investors; (2) advertising; (3) expenses incurred in
connection with the promotion and sale of the Trust's shares, including the
Distributor's expenses for travel, communication, and compensation and benefits
for sales personnel; and (4) any other expenses reasonably incurred in
connection with the distribution and marketing of the shares subject to approval
of a majority of the Qualified Trustees. No Plan may be amended to materially
increase the amount which may be spent under the Plan without approval by a
majority of the outstanding shares of the Funds or the class of shares which are
subject to such Plan. All material amendments of the Plans require approval by a
majority of the Trustees of the Trust and of the Qualified Trustees.
From time to time, the Distributor may provide incentive compensation
to its own employees and employees of banks (including BankBoston),
broker-dealers and investment counselors in connection with the sale of shares
of the funds. Promotional incentives may be cash or other compensation,
including merchandise, airline vouchers, trips and vacation packages, will be
offered uniformly to all program participants and will be predicated upon the
amount of shares of the Funds sold by the participant.
ADMINISTRATOR
The Trust and SEI Investments Mutual Funds Services (formerly known as
SEI Fund Resources) (the "Administrator") are parties to an administration
agreement (the "Administration Agreement"). The Administration Agreement
provides that the Administrator shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the Trust in connection with the
matters to which the Administration Agreement relates, except a loss that
results from willful misfeasance, bad faith or gross negligence on the part of
the Administrator in the performance of its duties or from reckless disregard by
it of its duties and obligations under the Administration Agreement. The
Administration Agreement's term expired on November 22, 1998, but, by its terms,
it continues indefinitely thereafter unless terminated.
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Under the Agreement, the Administrator provides administrative and fund
accounting services to the Funds, including regulatory reporting, office
facilities, and equipment and personnel. The Administrator receives a fee for
these services, which is calculated daily and paid monthly, at an annual rate of
.085% of the first $5 billion of the Funds' combined average daily net assets
and .045% of combined average daily net assets in excess of $5 billion. SEI has
agreed to waive portions of its fee from time to time. The Administrator may
retain sub-administrators, including BankBoston, whose fees would be paid by the
Administrator.
For the fiscal year ended May 31, 1996, the Trust paid $2,440,000 to
the Administrator under the Administration Agreement. For the fiscal years ended
May 31, 1997, 1998 and 1999, respectively, the Trust paid $3,912,000, $5,426,000
and $6,142,000 to the Administrator under the existing Administration Agreement.
SEI Investments Mutual Funds Services (formerly known as SEI Fund
Resources) is a Delaware business trust whose sole beneficiary is SEI
Investments Management Corporation (formerly known as SEI Financial Management
Corporation). SEI Investments Management Corporation, a wholly-owned subsidiary
of SEI Investments Company ("SEI"), was organized as a Delaware corporation in
1969 and has its principal business offices at 1 Freedom Valley Drive, Oaks,
Pennsylvania 19456. Alfred P. West, Jr., Carmen V. Romeo, and Henry H. Greer
constitute the Board of Directors of the Administrator. Mr. West is the Chairman
of the Board and Chief Executive Officer of the Administrator. Mr. West serves
as the Chairman of the Board of Directors, and Chief Executive Officer of SEI.
SEI and its subsidiaries are leading providers of funds evaluation services,
trust accounting systems, and brokerage and information services to financial
institutions, institutional investors and money managers. The Administrator and
its affiliates also serve as administrator to the following other mutual funds:
SEI Daily Income Trust, SEI Liquid Asset Trust, SEI Tax Exempt Trust, SEI Index
Funds, SEI Institutional International Trust, SEI Institutional Managed Trust,
The Advisors' Inner Circle Fund, The Pillar Funds, CUFund, STI Classic Funds,
First American Funds, Inc., First American Investment Funds, Inc., The Arbor
Fund, The PBHG Funds, Inc., PBHG Insurance Series Fund, Inc., The Achievement
Funds Trust, Bishop Street Funds, STI Classic Variable Trust, Huntington Funds,
TIP Funds, TIP Institutional Funds, ARK Funds, SEI Asset Allocation Trust, SEI
Institutional Investments Trust, First American Strategy Funds, Inc., HighMark
Funds, Expedition Funds, Oak Associates Funds, the Armada Funds, the Nevis Fund,
Inc., UAM Funds Inc. II, Alpha Select Funds, and CNI Charter Funds.
DIVIDEND DISBURSING AGENT AND TRANSFER AGENT
Boston Financial Data Services, 2 Heritage Drive, North Quincy,
Massachusetts 02171 is the Funds' dividend disbursing agent. State Street Bank
and Trust Company, 225 Franklin Street, Boston, Massachusetts 02110, is the
transfer agent.
CUSTODIAN
Prior to September 30, 1998, BankBoston, N.A., acted as custodian of
the Funds' assets pursuant to a Custodian Agreement dated as of June 1, 1993
between BankBoston, N.A. and the Trust. On September 30, 1998, BankBoston
assigned its rights and obligations under the Custodian Agreement to Investors
Bank & Trust Company. Investors Bank & Trust Company (the "Custodian"), Hancock
Towers, 200 Clarendon Street, 16th Floor, Boston, Massachusetts 02116, acts as
custodian of the Funds' assets. The Custodian's responsibilities include holding
and administering the
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Funds' cash and securities, handling the receipt and delivery of securities,
furnishing a statement of all transactions and entries for the account of each
Fund, and furnishing the Funds with such other reports covering securities held
by it or under its control as may be agreed upon from time to time. The
Custodian and its agents (including foreign sub-custodians) may make
arrangements with Depository Trust Company and other foreign or domestic
depositories or clearing agencies, including the Federal Reserve Bank and any
foreign depository or clearing agency, whereby certain securities may be
deposited for the purpose of allowing transactions to be made by bookkeeping
entry without physical delivery of such securities, subject to such restrictions
as may be agreed upon by the Custodian and the Funds. Fund securities may be
held by a sub-custodian bank approved by the Trustees. The Custodian does not
determine the investment policies of the Funds or decide which securities the
Funds will buy or sell. For its services, the Custodian will receive such
compensation as may from time to time be agreed upon by it and the Trust.
COUNSEL AND INDEPENDENT ACCOUNTANTS
Bingham Dana LLP, 150 Federal Street, Boston Massachusetts 02110, is
counsel for each Fund. PricewaterhouseCoopers LLP, 2400 Eleven Penn Center,
Philadelphia, Pennsylvania 19103, serves as independent auditor for each Fund
providing audit and accounting services including: (i) examination of the annual
financial statements, (ii) assistance and consultation with respect to the
preparation of filings with the Securities and Exchange Commission, and (iii)
preparation of annual income tax returns.
6. BROKERAGE ALLOCATION AND OTHER PRACTICES
BROKERAGE TRANSACTIONS
Specific decisions to purchase or sell securities for a Fund are made
by a portfolio manager who is an employee of BankBoston, and who is appointed
and supervised by the senior officers of BankBoston, or in the case of Boston
1784 International Equity Fund, by portfolio managers who are employees of
BankBoston or of Kleinwort, and who are appointed and supervised by the senior
officers of BankBoston or by senior officers of Kleinwort. A portfolio manager
may serve other clients of either of the Advisers or of an affiliate of either
of the Advisers in a similar capacity.
Subject to policies established by the Trustees, the Adviser to the
Funds (Kleinwort, in the case of the International Equity Fund) is responsible
for placing the orders to execute transactions for such Fund. In placing orders,
it is the policy of the Trust for each Adviser to seek to obtain the best net
results taking into account such factors as price (including the applicable
dealer spread), the size, type and difficulty of the transaction involved, the
firm's general execution and operational facilities, and the firm's risk in
positioning the securities involved. While each Adviser seeks reasonably
competitive spreads or commissions, the Trust will not necessarily be paying the
lowest spread or commission available.
The money market securities in which the Funds invest are traded
primarily in the over-the-counter market. Bonds and debentures are usually
traded over-the-counter, but may be traded on an exchange. Where possible, each
Adviser will deal directly with the dealers who make a market in the securities
involved except in those circumstances where better prices and execution are
available elsewhere. Such dealers usually are acting as principal for their own
account. On occasion, securities may be purchased directly from the issuer.
Money market securities are generally traded on a
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net basis and do not normally involve either brokerage commissions or transfer
taxes. The cost of executing transactions for the Funds will primarily consist
of dealer spreads and underwriting commissions.
For the fiscal years ended May 31, 1997, 1998 and 1999, the Trust paid
the following aggregate amount of brokerage commissions on behalf of the Funds:
<TABLE>
<CAPTION>
- ----------------------------------------------- ------------------- -------------------- -------------------
Brokerage Brokerage Brokerage
Fund Commissions 1997 Commissions 1998 Commissions 1999
- ----------------------------------------------- ------------------- -------------------- -------------------
- ----------------------------------------------- ------------------- -------------------- -------------------
<S> <C> <C> <C>
Boston 1784 Asset Allocation Fund $ 17,370.50 $ 17,061.84 $ 20,763.79
- ----------------------------------------------- ------------------- -------------------- -------------------
Boston 1784 Growth and Income Fund 152,899.49 344,969.84 520,659.52
- ----------------------------------------------- ------------------- -------------------- -------------------
Boston 1784 Growth Fund 163,410.76 227,975.43 199,395.50
- ----------------------------------------------- ------------------- -------------------- -------------------
Boston 1784 International Equity Fund 823,922.21 1,969,530.48 2,316,848.43
- ----------------------------------------------- ------------------- -------------------- -------------------
Total $1,157,602.96 $2,559,537.59 $3,057,667.24
- ----------------------------------------------- ------------------- -------------------- -------------------
</TABLE>
BROKERAGE SELECTION
Each Adviser selects brokers or dealers to execute transactions for the
purchase or sale of securities for the Funds on the basis of the Adviser's
judgment of their professional capability to provide the service. The primary
consideration is to have brokers or dealers execute transactions at the best
price and execution. Best price and execution refers to many factors, including
the price paid or received for a security, the commission charged, the
promptness and reliability of execution, the confidentiality and placement
accorded the order and other factors affecting the overall benefit obtained by
the account on the transaction. Each Adviser's determination of what are
reasonably competitive rates is based upon the professional knowledge of the
Adviser's portfolio managers as to rates paid and charged for similar
transactions throughout the securities industry. In some instances, a Fund pays
a minimal share transaction cost when the transaction presents no difficulty.
Some trades are made on a net basis where a Fund either buys securities directly
from the dealer or sells them to the dealer. In these instances, there is no
direct commission charged but there is a spread (the difference between the buy
and sell price) which is the equivalent of a commission.
Each Adviser may allocate, out of all commission business generated by
the funds and accounts under its management, brokerage business to brokers or
dealers who provide brokerage and research services. These research services
include advice, either directly or through publications or writings, as to the
value of securities, the advisability of investing in, purchasing or selling
securities, and the availability of securities or purchasers or sellers of
securities; furnishing analyses and reports concerning issuers, securities or
industries; providing information on economic factors and trends; assisting in
determining portfolio strategy; providing computer software used in security
analyses; and providing fund performance evaluation and technical market
analyses. Such services are used by that Adviser in connection with its
investment decision-making process with respect to one or more portfolios under
its management and may not be used exclusively with respect to the fund or
account generating the brokerage.
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Not all brokerage and research services are useful or of value in advising any
particular Fund.
As provided in the Securities Exchange Act of 1934 (the "1934 Act"),
higher commissions may be paid to broker/dealers who provide brokerage and
research services than to broker/dealers who do not provide such services if
such higher commissions are deemed reasonable in relation to the value of the
brokerage and research services provided. Although transactions are directed to
broker/dealers who provide such brokerage and research services, the commissions
paid to such broker/dealers are not, in general, expected to be higher than
commissions that would be paid to broker/dealers not providing such services.
Further, in general, any such commissions are reasonable in relation to the
value of the brokerage and research services provided.
BankBoston may place a combined order for two or more Funds (or for a
Fund and another account under BankBoston's management) engaged in the purchase
or sale of the same security if, in BankBoston's judgment, joint execution is in
the best interest of each participant and will result in best price and
execution. Transactions involving commingled orders are allocated in a manner
deemed equitable to each Fund or account. It is believed that the ability of the
Funds to participate in volume transactions is generally beneficial. Although it
is recognized that the joint execution of orders could adversely affect the
price or volume of the security that a particular Fund may obtain, it is the
opinion of BankBoston and the Board of Trustees of the Trust that the advantages
of combined orders outweigh the possible disadvantages of separate transactions.
Consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc., and subject to seeking best price and execution, an
Adviser may place orders for a Fund with broker/dealers who have agreed to
defray certain Trust expenses such as custodian fees, and may, at the request of
the Distributor, give consideration to sales of shares of the Trust as a factor
in the selection of brokers and dealers to execute Fund transactions.
It is expected that an Adviser may execute brokerage or other agency
transactions through the Distributor, any Adviser or an affiliate of any
Adviser, for a commission in conformity with the 1940 Act, the 1934 Act, rules
promulgated by the Securities and Exchange Commission and such policies as the
Board of Trustees of the Trust may determine. Under these provisions, the
Distributor or such Adviser or an affiliate of such Adviser is permitted to
receive and retain compensation for effecting transactions for a Fund on an
exchange if a written contract is in effect with the Trust expressly permitting
the Distributor or such Adviser or an affiliate of such Adviser to receive and
retain such compensation. These rules further require that commissions paid to
the Distributor, any Adviser, or any such affiliate of any Adviser by the Trust
for such exchange transactions not exceed "usual and customary" brokerage
commissions. The rules define "usual and customary" commissions to include
amounts which are "reasonable and fair compared to the commission, fee or other
remuneration received or to be received by other brokers in connection with
comparable transactions involving similar securities being purchased or sold on
a securities exchange during a comparable period of time." In addition, an
Adviser may direct commission business to one or more designated broker/dealers
in connection with such broker/dealer's provision of services to the Trust or
the Funds or payment of certain Trust expenses, such as custody, pricing and
professional fees. The Trustees, including those who are not "interested
persons" of the Trust, have adopted procedures for evaluating the reasonableness
of commissions paid to the Distributor, the Adviser and affiliates of any
Adviser and will review these procedures periodically.
<PAGE>
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7. DESCRIPTION OF SHARES; VOTING RIGHTS AND LIABILITIES
The Trust's Declaration of Trust permits the Trust to offer separate
portfolios, or funds, of shares of beneficial interest (with no par value). The
Declaration of Trust authorizes the issuance of an unlimited number of shares of
each series and authorizes the division of shares of each series into classes.
Each share of each series represents an equal proportionate interest in that
series, with each other share of the same class. Shareholders of each series are
entitled, upon liquidation or dissolution, to a pro rata share in the net assets
of that series that are available for distribution to shareholders, except to
the extent of different expenses borne by different classes. Shareholders have
no preemptive right or other right to receive, purchase or subscribe for any
additional shares or other securities issued by the Trust. Currently, the Trust
has seventeen active series of shares, each of which is a Fund. Boston 1784 U.S.
Treasury Money Market Fund has three classes of shares authorized: Class A,
Class C and Class D. Class A shares are described in the prospectus for the
Boston 1784 U.S. Treasury Money Market Fund. Class C and D shares have been
authorized but are not currently being offered. All consideration received by
the Trust for shares of any series and all assets in which such consideration is
invested belong to that series and are subject to the liabilities related
thereto. Share certificates will not be issued.
Shares of each series of the Trust are entitled to vote separately to
approve advisory agreements or changes in investment policies, but shares of all
series of the Trust vote together in the election or selection of Trustees and
accountants.
The Declaration of Trust may be amended as authorized by vote of
shareholders of the Trust. Matters not affecting all series or classes of shares
shall be voted on only by the shares of the series or classes affected. Shares
of the Trust may be voted in person or by proxy, and any action taken by
shareholders may be taken without a meeting by written consent of a majority of
shareholders entitled to vote on the matter.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust". Under Massachusetts law, shareholders of such a trust may,
under certain circumstances, be held personally liable as partners for its
obligations and liabilities. However, the Declaration of Trust contains an
express disclaimer of shareholder liability for acts or obligations of the Trust
and provides for indemnification and reimbursement of expenses out of Trust
property for any shareholder held personally liable for the obligations of the
Trust. The Declaration of Trust also provides that the Trust may maintain
appropriate insurance (e.g., fidelity bonding and errors and omissions
insurance) for the protection of the Trust, its shareholders, Trustees,
officers, employees and agents covering possible tort and other liabilities.
Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which both inadequate
insurance existed and the Trust itself was unable to meet its obligations.
The Declaration of Trust provides that the Trustees shall not be
responsible or liable in any event for any neglect or wrongdoing of any officer,
agent, employee, investment adviser or administrator, principal underwriter or
custodian, nor shall any Trustee be responsible for the act or omission of any
other Trustee, and no Trustee shall be liable to the Trust or any Shareholder.
The Declaration of Trust also provides that the Trust will indemnify its
Trustees and officers against liabilities and expenses incurred in connection
with actual or threatened litigation in which they may be
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involved because of their offices with the Trust unless it is determined, in the
manner provided in the Declaration of Trust, that they have not acted in good
faith in the reasonable belief that their actions were in the best interests of
the Trust. However, nothing in the Declaration of Trust shall protect or
indemnify a Trustee against any liability for his or her willful misfeasance,
bad faith, gross negligence or reckless disregard of his or her duties.
8. PURCHASE, REDEMPTION AND PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of each Fund (including shares of
each class of Boston 1784 U.S. Treasury Money Market Fund) is determined on each
day on which both the New York Stock Exchange is open, except for Columbus Day
and Veterans' Day ("Business Days"). This determination is made once during each
such day, as of 12:00 noon Eastern Time ("ET") with respect to shares of Boston
1784 Prime Money Market Fund and Boston 1784 Tax-Free Money Market Fund, as of
3:00 p.m. ET with respect to the Boston 1784 U.S. Treasury Money Market Fund,
Boston 1784 Institutional U.S. Treasury Money Market Fund and Boston 1784
Institutional Prime Money Market Fund (noon when the New York Stock Exchange
closes early), and as of 4:00 p.m. ET with respect to each other Fund. The New
York Stock Exchange is normally closed on the following national holidays: New
Year's Day, Martin Luther King Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving, and Christmas. Net asset value per
share of each Fund is calculated by adding the value of securities and other
assets of that Fund, subtracting liabilities and dividing by the number of its
outstanding shares. Net asset value per share of each class of Boston 1784 U.S.
Treasury Money Market Fund is calculated by adding the value of securities and
other assets attributable to that class, subtracting liabilities attributable to
that class and dividing by the number of outstanding shares of that class.
Securities of the Money Market Funds will be valued by the amortized
cost method, which involves valuing a security at its cost on the date of
purchase and thereafter (absent unusual circumstances) assuming a constant
amortization to maturity of any discount or premium, regardless of the impact of
fluctuations in general market rates of interest on the value of the instrument.
While this method provides certainty in valuation, it may result in periods
during which a security's value, as determined by this method, is higher or
lower than the price a Fund would receive if it sold the instrument. During
periods of declining interest rates, the daily yield of these Funds may tend to
be higher than a like computation made by a company with identical investments
utilizing a method of valuation based upon market prices and estimates of market
prices for all of its fund securities. Thus, if the use of amortized cost by a
Fund resulted in a lower aggregate fund value on a particular day, a prospective
investor in that Fund would be able to obtain a somewhat higher yield than would
result from investment in a company utilizing solely market values, and existing
investors in the Fund would experience a lower yield. The converse would apply
in a period of rising interest rates.
The use by the Money Market Funds of amortized cost and the maintenance
by these Funds of a net asset value at $1.00 are permitted by Rule 2a-7 under
the 1940 Act, provided that certain conditions are met. The regulations also
require the Trustees to establish procedures which are reasonably designed to
stabilize the net asset value per share at $1.00 for these Funds. Such
procedures include the
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determination of the extent of deviation, if any, of these Funds' current net
asset value per share calculated using available market quotations from these
Funds' amortized cost prices per share at such intervals as the Trustees deem
appropriate and reasonable in light of market conditions and periodic reviews of
the amount of the deviation and the methods used to calculate such deviation. In
the event that such deviation exceeds 1/2 of 1%, the Trustees are required to
consider promptly what action, if any, should be initiated, and, if the Trustees
believe that the extent of any deviation may result in material dilution or
other unfair results to shareholders of these Funds, the Trustees are required
to take such corrective action as they deem appropriate to eliminate or reduce
such dilution or unfair results to the extent reasonably practicable. Such
actions may include the sale of Fund instruments prior to maturity to realize
capital gains or losses or to shorten average fund maturity; withholding
dividends; redeeming shares in kind; or establishing a net asset value per share
by using available market quotations. In addition, if any of these Funds incurs
a significant loss or liability, the Trustees have the authority to reduce pro
rata the number of shares of that Fund in the account of each shareholder of
such Fund and to offset each such shareholder's pro rata portion of such loss or
liability from that shareholder's accrued but unpaid dividends or from future
dividends of the affected Fund.
In valuing each of the Stock, Bond and Tax-Exempt Funds' assets, bonds
and other fixed income securities are valued on the basis of valuations
furnished by a pricing service, use of which has been approved by the Board of
Trustees of the Trust. In making such valuations, the pricing services may
employ methodologies that utilize actual market transactions, broker-dealer
supplied valuations or other electronic data processing techniques. Equity
securities listed on a domestic securities exchange for which quotations are
readily available, including securities traded over the counter, are valued, by
a pricing service, at the last quoted sale price on the principal exchange on
which they are traded on the valuation date, or, if there is no such reported
sale on the valuation date, at the most recent quoted bid price. Equity
securities which are primarily traded on a foreign exchange are generally
valued, by a pricing service, at the preceding closing value on the exchange.
Securities for which market quotations are not readily available are valued at
their fair value as determined in good faith by the Board of Trustees of the
Trust, or pursuant to procedures adopted by the Board subject to review by the
Board of the resulting valuations.
PURCHASE AND REDEMPTION OF SHARES
Shares of the Fund are sold on a continuous basis and may be purchased
from the Distributor or a broker-dealer or financial institution that has an
agreement with the Distributor. Purchases may be made Monday through Friday,
except on certain holidays. Shares are purchased at net asset value the next
time it is calculated after your investment is received and accepted by the
Distributor. The Trust reserves the right to suspend sales of shares of any Fund
for any period during which the New York Stock Exchange, an Adviser, the
Administrator or the Custodian is not open for business.
On any business day, you may redeem all or a portion of your shares.
Your transaction will be processed at net asset value the next time it is
calculated after your redemption request in good order is received. Your
redemption proceeds may be delayed for up to 10 business days after purchase to
assure that money from the purchase of shares being redeemed has been received
and collected. A redemption is treated as a
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sale for tax purposes, and could result in taxable gain or loss in a
non-tax-sheltered account.
The Trust reserves the right to suspend the right of redemption and/or
to postpone the date of payment upon redemption for any period on which trading
on the New York Stock Exchange is restricted, or during the existence of an
emergency (as determined by the Securities and Exchange Commission by rule or
regulation) as a result of which disposal or valuation of a Fund's securities is
not reasonably practicable, or for such other periods as the Securities and
Exchange Commission has permitted by order.
Purchase and redemption of shares of Boston 1784 U.S. Treasury Money
Market Fund by Connecticut municipalities and other Connecticut municipal
corporations and authorities, pursuant to the provisions of Section 7-400 of the
Connecticut General Statutes, as from time-to-time amended ("Conn. Gen. Stat.
ss. 7-400"), may be made only through the use of (i) a bank, savings bank or
savings and loan association incorporated under the laws of the State of
Connecticut, (ii) a federally chartered bank, savings bank or savings and loan
association having its principal place of business in the State of Connecticut,
or (iii) such other agent as may be permitted by Conn. Gen. Stat. ss. 7-400.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder (other than a shareholder of Boston 1784 Institutional
U.S. Treasury Money Market Fund or Boston 1784 Institutional Prime Money Market
Fund and holders of Class C or Class D shares of Boston 1784 U.S. Treasury Money
Market Fund) may direct the shareholder servicing agent to send him or her
regular monthly, quarterly, semi-annual or annual payments, as designated on the
Account Application and based upon the value of his or her account. Each payment
under a Systematic Withdrawal Plan ("SWP") must be at least $100, except in
certain limited circumstances. Such payments are drawn from the proceeds of the
redemption of shares held in the shareholder's account (which would be a return
of principal and, if reflecting a gain, would be taxable). To the extent that
redemptions for such periodic withdrawals exceed dividend income reinvested in
the account, such redemptions will reduce, and may eventually exhaust, the
number of shares in the shareholder's account. All dividend and capital gain
distributions for an account with a SWP will be reinvested in additional full
and fractional shares of the applicable Fund at the net asset value in effect at
the close of business on the record date for such distributions.
To initiate a SWP, shares having an aggregate value of at least $10,000
must be held on deposit by the shareholder servicing agent. The shareholder, by
written instruction to the shareholder servicing agent, may deposit into the
account additional shares of the applicable Fund, change the payee, or change
the dollar amount of each payment. The shareholder servicing agent may charge
the account for services rendered and expenses incurred beyond those normally
assumed by the applicable Fund with respect to the liquidation of shares.
No charge is currently assessed against the account, but one could be
instituted by the shareholder servicing agent on 60 days' notice in writing to
the shareholder in the event that the applicable Fund ceases to assume the cost
of these services. Any Fund may terminate any SWP for an account if the value of
the account falls below $5,000 as a result of share redemptions (other than as a
result of a SWP) or an exchange of shares of the Fund for shares of another
Fund. Any such plan may be terminated at any time by either the shareholder or
the applicable Fund.
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REDEMPTION IN KIND
It is currently the Trust's policy to pay for the redemptions of shares
of the Funds in cash. The Trust retains the right, however, subject to the Rule
18f-1 notice described below, to alter this policy to provide for redemptions in
whole or in part by a distribution in kind of securities held by the Funds, in
lieu of cash. Shareholders may incur brokerage charges and tax liabilities on
the sale of any such securities so received in payment of redemptions.
The Trust filed a Notification of Election pursuant to Rule 18f-1 under
the Investment Company Act of 1940 with the Securities and Exchange Commission
which commits the Boston 1784 Massachusetts Tax-Exempt Income Fund, Boston 1784
Connecticut Tax-Exempt Income Fund, Boston 1784 Rhode Island Tax-Exempt Income
Fund and Boston 1784 Tax-Exempt Medium-Term Income Fund to pay in cash all
requests for redemptions by any shareholder of record, limited in amount with
respect to each shareholder during any 90-day period to the lesser of: (i)
$250,000, or (ii) one percent of the net asset value of the Fund at the
beginning of such period.
9. TAXES
TAX STATUS OF THE FUNDS
Each of the Funds is organized as a series of a Massachusetts business
trust and is treated as a separate entity for federal income tax purposes under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). Each
Fund has elected to be treated, and intends to qualify each year, as a
"regulated investment company" under Subchapter M by meeting all applicable
requirements of Subchapter M, including requirements as to the nature of the
Fund's gross income, the amount of Fund distributions (as a percentage of both
the Fund's overall income and, in the case of each of the Tax-Exempt Funds and
the Tax-Free Money Market Fund, its tax-exempt income), and the composition of
the Fund's portfolio assets. Because each Fund intends to distribute all of its
net investment income and net realized capital gains to shareholders in
accordance with the timing requirements imposed by the Code, it is not expected
that the Funds will be required to pay any federal income or excise taxes,
although a Fund's foreign-source income may be subject to foreign taxes. If a
Fund should fail to qualify as a "regulated investment company" in any year, the
Fund would incur a regular corporate federal income tax upon its taxable income
and the Fund's distributions would generally be taxable as ordinary dividend
income to its shareholders.
No Fund will be subject to any Massachusetts income or excise taxes as
long as it qualifies as a separate regulated investment company under the Code.
TAXATION OF FUND DISTRIBUTIONS
Distributions -- General. Shareholders of Funds other than the
Tax-Exempt Funds and the Tax-Free Money Market Fund will have to pay federal
income taxes and may be subject to state or local income taxes on the dividends
and capital gain distributions they receive from those Funds. Dividends from
ordinary income and any distributions from net short-term capital gains are
taxable to shareholders as ordinary income for federal income tax purposes,
whether paid in cash or in additional shares. Distributions of net capital gains
(the excess of net long-term capital gains over net short-term capital losses),
whether paid in cash or in additional shares, are taxable to
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shareholders as long-term capital gains for federal income tax purposes without
regard to the length of time the shareholders have held their shares. Such
capital gains will generally be taxable to shareholders as if the shareholders
had directly realized gains from the same sources from which they were realized
by the Fund. The Money Market Funds are not expected to make any capital gain
distributions.
Because the Funds other than the Stock Funds do not expect to earn any
dividend income, it is expected that none of their distributions will qualify
for the dividends received deduction for corporations. A portion of each Stock
Fund's ordinary income dividends (but none of its capital gain distributions) is
normally eligible for the dividends received deduction for corporations if the
recipient otherwise qualifies for that deduction with respect to its holding of
Fund shares. Availability of the deduction for particular corporate shareholders
is subject to certain limitations, and deducted amounts may be subject to the
alternative minimum tax or result in certain basis adjustments.
Any Fund dividend that is declared in October, November, or December of
a calendar year, that is payable to shareholders of record in such a month, and
that is paid the following January will be treated as if received by the
shareholders on December 31 of the year in which the dividend is declared. Each
Fund will notify shareholders regarding the federal tax status of distributions
after the end of each calendar year.
Distributions of net capital gains and net short-term capital gains
from any Bond Fund or Tax-Exempt Fund, and any distributions from a Stock Fund,
will reduce the distributing Fund's net asset value per share. Shareholders who
buy shares just before the record date for any such distribution may pay the
full price for the shares and then effectively receive a portion of the purchase
price back as a taxable distribution.
Distributions of a Fund that are derived from interest on obligations
of the U.S. Government and certain of its agencies and instrumentalities (but
generally not from capital gains realized upon the disposition of such
obligations) may be exempt from state and local taxes. Each Fund intends to
advise shareholders of the extent, if any, to which their respective
distributions consist of such interest. Shareholders are urged to consult their
tax advisers regarding the possible exclusion of such portion of their dividends
for state and local income tax purposes.
Distributions by the Tax-Exempt Funds and the Tax-Free Money Market
Fund. The portion of each Tax-Exempt Fund's and the Tax-Free Money Market Fund's
distributions of net investment income that is attributable to interest from
tax-exempt securities will be designated by that Fund as an "exempt-interest
dividend" under the Code and will generally be exempt from federal income tax in
the hands of shareholders so long as at least 50% of the total value of the
Fund's assets consists of tax-exempt securities at the close of each quarter of
the Fund's taxable year. However, distributions of tax-exempt interest earned
from certain securities may be treated as an item of tax preference for
shareholders under the federal alternative minimum tax, and all exempt-interest
dividends may increase a corporate shareholder's alternative minimum tax. The
percentage of income designated as tax-exempt will be applied uniformly to all
distributions by the Fund of net investment income made during each fiscal year
of the Fund and may differ from the percentage of distributions consisting of
tax-exempt interest in any particular month. Shareholders are required to report
exempt-interest dividends received from the Fund on their federal income tax
returns. The exemption of
<PAGE>
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exempt-interest dividends for federal income tax purposes does not necessarily
result in exemption under the tax laws of any state or local taxing authority.
Shareholders of the Tax-Exempt Funds and the Tax-Free Money Market Fund
will have to pay federal income taxes and may be subject to state or local
income taxes on the non exempt-interest dividends (including dividends from
earnings from taxable securities and repurchase transactions) and capital gain
distributions they receive from the Funds under rules corresponding to those set
forth in the preceding section.
DISPOSITION OF SHARES
In general, any gain or loss realized upon a taxable disposition of
shares of a Fund by a shareholder that holds such shares as a capital asset will
be treated as long-term capital gain or loss if the shares have been held for
more than twelve months and otherwise as short-term capital gain or loss. In the
case of the Tax-Exempt Funds and the Tax-Free Money Market Fund, any loss
realized upon a disposition of shares in a Fund held for six months or less will
be disallowed to the extent of any exempt-interest dividends received with
respect to those shares. In the case of all the Funds, any loss realized upon
the disposition of shares in the Fund held for six months or less will (if not
disallowed as described in the preceding sentence) be treated as a long-term
capital loss to the extent of any distributions of net capital gain made with
respect to those shares. Any loss realized upon a disposition of shares may also
be disallowed under rules relating to wash sales.
ADDITIONAL INFORMATION FOR SHAREHOLDERS OF THE TAX-EXEMPT FUNDS
Interest on indebtedness incurred by shareholders to purchase or carry
shares of a Tax-Exempt Fund (or of the Tax-Free Money Market Fund) will not be
deductible for federal income tax purposes and may not be deductible for state
income tax purposes. Exempt-interest dividends are taken into account in
calculating the amount of social security and railroad retirement benefits that
may be subject to federal income tax. Entities or persons who are "substantial
users" (or persons related to "substantial users") of facilities financed by
private activity bonds should consult their tax advisers before purchasing
shares of a Tax-Exempt Fund or the Tax-Free Money Market Fund.
ADDITIONAL INFORMATION RELATING TO FUND INVESTMENTS
Except in the case of the Money Market Funds, the Funds' current
dividend and accounting policies will affect the amount, timing, and character
of distributions to shareholders, and may make an economic return of capital
taxable to shareholders. Any investment by a Fund in zero-coupon bonds, certain
stripped securities including STRIPS, and certain securities purchased at a
market discount will cause the Fund to recognize income prior to the receipt of
cash payments with respect to those securities. In order to distribute this
income and avoid a tax on the Fund, a Fund may be required to liquidate
portfolio securities that it might otherwise have continued to hold, potentially
resulting in additional taxable gain or loss to the Fund.
An investment by a Fund in residual interests of a CMO that has elected
to be treated as a REMIC can create complex tax problems, especially if the Fund
has state or local governments or other tax-exempt organizations as
shareholders.
Fund transactions in options, futures contracts, forward contracts,
short sales "against the box," swaps and related transactions will be subject to
special tax rules that
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may affect the amount, timing, and character of Fund income and distributions to
shareholders. For example, certain positions held by a Fund on the last business
day of each taxable year will be marked to market (treated as if closed out) on
that day, and any gain or loss associated with the positions will be treated as
60% long-term and 40% short-term capital gain or loss. Certain positions held by
a Fund that substantially diminish its risk of loss with respect to other
positions in its portfolio may constitute "straddles," and may be subject to
special tax rules that would cause deferral of Fund losses, adjustments in the
holding periods of Fund securities, and conversion of short-term into long-term
capital losses. Certain tax elections exist for straddles that may alter the
effects of these rules. The Funds will limit their activities in options,
futures contracts, forward contracts, swaps and related transactions to the
extent necessary to meet the requirements of Subchapter M of the Code.
ADDITIONAL INFORMATION RELATING TO FOREIGN INVESTMENTS
Special tax considerations apply with respect to a Fund's foreign
investments. Investment income received by a Fund from sources within foreign
countries may be subject to foreign taxes. The Funds (other than the
International Equity Fund) do not expect to be able to pass through to
shareholders foreign tax credits or deductions with respect to such foreign
taxes. The United States has entered into tax treaties with many foreign
countries that may entitle the Funds to a reduced rate of tax or an exemption
from tax on such income. The Funds intend to qualify for treaty reduced rates
where available. It is not possible, however, to determine a Fund's effective
rate of foreign tax in advance since the amount of the Fund's assets to be
invested within various countries is not known.
If the International Equity Fund holds more than 50% of its assets in
foreign stock and securities at the close of its taxable year, it may elect to
pass through to its shareholders foreign income taxes paid. If it so elects,
shareholders will be required to treat their pro rata portion of the foreign
income taxes paid by the Fund as part of the amounts distributed to them by the
Fund and thus their portion must be included in their gross income for federal
income tax purposes. Shareholders who itemize deductions would be allowed to
claim a deduction or credit (but not both) on their federal income tax returns
for such amounts, subject to certain limitations. Shareholders who do not
itemize deductions would (subject to such limitations) be able to claim a credit
but not a deduction. No deduction will be permitted to individuals in computing
their alternative minimum tax liability. If the Fund does not qualify or elect
to pass through to the Fund's shareholders foreign income taxes paid by it, its
shareholders will not be able to claim any deduction or credit for any part of
the foreign taxes paid by the Fund.
Foreign exchange gains and losses realized by a Fund will generally be
treated as ordinary income and losses. Use of foreign currencies for non-hedging
purposes may be limited in order to avoid a tax on the applicable Fund.
Occasionally, a Fund may invest in stock of foreign issuers deemed to be
"passive foreign investment companies" for U.S. tax purposes. Any Fund making
such an investment may be liable for U.S. income taxes on certain distributions
and realized capital gains from stock of such issuers. Any Fund making such an
investment also may elect to mark to market its investments in "passive foreign
investment companies" on the last day of each taxable year, which may cause the
Fund to recognize ordinary income prior to the receipt of cash payments with
respect to those investments. In order to distribute that income and avoid a tax
on the Fund, such a Fund may be required to liquidate portfolio securities that
it might otherwise have continued to hold.
<PAGE>
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FOREIGN SHAREHOLDERS
Taxable dividends and certain other payments to persons who are not
citizens or residents of the United States or U.S. entities ("Non-U.S. Persons")
are generally subject to U.S. tax withholding at a rate of 30%, although the 30%
rate may be reduced to the extent provided by an applicable tax treaty. The
Funds intend to withhold tax payments at the rate of 30% (or the lower treaty
rate) on taxable dividends and other payments to Non-U.S. Persons that are
subject to such withholding. Any amounts overwithheld may be recovered by such
persons by filing a claim for refund with the U.S. Internal Revenue Service
within the time period appropriate to such claims. Distributions received from
the Funds by Non-U.S. Persons also may be subject to tax under the laws of their
own jurisdictions.
BACKUP WITHHOLDING
Each of the Funds is required in certain circumstances to apply backup
withholding at the rate of 31% on taxable dividends and (except in the case of
the Money Market Funds) redemption proceeds paid to any shareholder (including a
Non-U.S. Person) who does not furnish to the Fund certain information and
certifications or who is otherwise subject to backup withholding. Backup
withholding will not, however, be applied to payments that have been subject to
30% withholding.
The foregoing is only a brief summary of some of the important tax
considerations generally affecting the taxation of shareholders that are subject
to personal income tax. Potential investors, including in particular, investors
who may be subject to other taxes, such as corporate franchise tax, corporate
income tax and taxes of other jurisdictions, should consult their own tax
advisers.
10. PERFORMANCE INFORMATION
CALCULATION OF YIELD
From time to time, the Trust advertises the "current yield" and
"effective yield" (also referred to as "effective compound yield") of the Money
Market Funds. Both yield figures are based on historical earnings and are not
intended to indicate future performance. The "current yield" of a Fund refers to
the income generated by an investment in that Fund over a seven-day period
(which period will be stated in the advertisement). This income is then
"annualized." That is, the amount of income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment. The "effective yield" is calculated
similarly but, when annualized, the income earned by an investment in the Fund
is assumed to be reinvested. The "effective yield" will be slightly higher than
the "current yield" because of the compounding effect of this assumed
reinvestment.
The current yield of these Funds will be calculated daily based upon the
seven days ending on the date of calculation ("base period"). The yield is
computed by determining the net change (exclusive of capital changes) in the
value of a hypothetical pre-existing shareholder account having a balance of one
share at the beginning of the period, subtracting a hypothetical charge
reflecting deductions from shareholder accounts, and dividing such net change by
the value of the account at the beginning of the same period to obtain the base
period return and multiplying the result by (365/7).
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Realized and unrealized gains and losses are not included in the calculation of
the yield.
The effective compound yield of these Funds is determined by computing
the net change, exclusive of capital changes, in the value of a hypothetical
pre-existing account having a balance of one share at the beginning of the
period, subtracting a hypothetical charge reflecting deductions from shareholder
accounts, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return, and then
compounding the base period return by adding 1, raising the sum to a power equal
to 365 divided by 7, and subtracting 1 from the result, according to the
following formula:
Effective Yield = (Base Period Return + 1) (365/7) - 1.
The current and the effective yields reflect the reinvestment of net
income earned daily on fund assets.
The yield of the Money Market Funds fluctuates, and the annualization of
a week's dividend is not a representation by the Trust as to what an investment
in a Fund will actually yield in the future. Actual yields will depend on such
variables as asset quality, average asset maturity, the type of instruments the
Fund invests in, changes in interest rates on money market instruments, changes
in the expenses of the Fund and other factors.
Yields are one basis upon which investors may compare these Funds with
other money market funds. However, yields of other money market funds and other
investment vehicles may not be comparable because of the factors set forth above
and differences in the methods used in valuing fund instruments.
From time to time the Trust may advertise a 30-day yield for each of
the Stock, Tax-Exempt and Bond Funds. These figures will be based on historical
earnings and are not intended to indicate future performance. The yield of these
Funds refers to the annualized net investment income per share generated by an
investment in the Funds over a specified 30-day period. The yield is calculated
by assuming that the income generated by the investment during that 30-day
period is generated over one year and is shown as a percentage of the
investment. In particular, yield will be calculated according to the following
formula:
Yield = 2 [((a-b)/cd + 1)6 - 1]
Where:
a = dividends and interest earned during the period;
b = expenses accrued for the period (net of reimbursement);
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends;
d = the maximum offering price per share on the last day of the period.
The Trust may also advertise a tax-equivalent yield for the Tax-Free
Money Market Fund and each of the Tax-Exempt Funds. The tax-equivalent yield is
determined by calculating the rate of return that would have to be achieved on a
fully-taxable investment to produce the after-tax equivalent of a Fund's yield,
assuming certain tax brackets for a shareholder. The tax-equivalent yield
quotation of a Fund will
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be calculated by dividing that portion of the Fund's yield that is tax-exempt by
1 minus a stated income tax rate and adding the quotient to that portion, if
any, of the Fund's yield that is not tax-exempt. The tax-equivalent effective
yield is determined by dividing that portion of the Fund's effective yield that
is tax-exempt by 1 minus a stated income tax rate and adding the quotient to
that portion, if any, of the Fund's effective yield that is not tax-exempt.
CALCULATION OF TOTAL RETURN
From time to time the Trust may advertise total return for a Fund. The
total return of a Fund refers to the average compounded rate of return on a
hypothetical investment for designated time periods (including, but not limited
to, the period from which the Fund commenced operations through the specified
date), and assumes that the entire investment is redeemed at the end of each
period. In particular, total return will be calculated according to the
following formula:
P (1 + T)n = ERV
Where:
P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = ending redeemable value (as of the end of the
designated time period) of a hypothetical $1,000 payment
made at the beginning of the designated time period.
Total returns calculated for the Florida Tax-Exempt Income Fund for any
period which includes periods prior to the commencement of the Fund's operations
reflect the performance of a common trust fund managed by BankBoston that
contributed all of its assets to the Fund at the Fund's commencement of
operations. The performance of the common trust fund was calculated in
accordance with recommended standards of the Association for Investment
Management and Research. The common trust fund had investment objectives,
policies and practices materially equivalent to those of the Florida Tax-Exempt
Income Fund. All total return percentages for periods prior to the commencement
of operations of the Florida Tax-Exempt Income Fund reflect historical rates of
return of the common trust fund for those periods adjusted to assume that all
current Fund charges, expenses and fees were then deducted. The common trust
fund was neither registered under the 1940 Act (and therefore was not subject to
certain investment restrictions imposed by the 1940 Act) nor subject to the
requirements under Subchapter M of the Internal Revenue Code of 1986, as
amended, as to the nature of of portfolio assets. If the common trust fund had
been registered under the 1940 Act, its investment performance might have been
adversely affected. The prior performance of the common trust fund represents
historical performance for similarly managed accounts and is not indicative of
the corresponding Fund's future performance.
Set forth below is total rate of return information, assuming that
dividends and capital gains distributions, if any, were reinvested, for the
Tax-Exempt, Bond and Stock Funds for the periods indicated.
<PAGE>
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REDEEMABLE VALUE OF A
HYPOTHETICAL $1,000
ANNUALIZED TOTAL INVESTMENT AT THE
FUND AND PERIOD RATE OF RETURN END OF THE PERIOD
BOSTON 1784 TAX-EXEMPT
MEDIUM-TERM INCOME FUND
June 14, 1993 (commencement of
operations) to May 31, 1999 6.18% $1,429.57
Five years ended May 31, 1999 6.59% $1,375.75
Three years ended May 31, 1999 7.06% $1,226.98
One year ended May 31, 1999 4.25% $1,042.48
BOSTON 1784 CONNECTICUT
TAX-EXEMPT INCOMEFUND
August 1, 1994 (commencement of
operations) to May 31, 1999 6.58% $1,360.09
One year ended May 31, 1999 3.72% $1,037.21
BOSTON 1784 FLORIDA TAX-
EXEMPT INCOME FUND (1)
January 1, 1991 (date of
initial public investment
in the common trust fund)
to May 31, 1999 6.56% $1,707.05
Five years ended May 31, 1999 5.93% $1,334.02
Three years ended May 31, 1999 6.36% $1,203.19
One year ended May 31, 1999 3.89% $1,038.90
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BOSTON 1784 MASSACHUSETTS
TAX-EXEMPT INCOME FUND
June 14, 1993 (commencement of
operations) to May 31, 1999 5.50% $1,375.84
Five years ended May 31, 1999 5.96% $1,335.46
Three years ended May 31, 1999 6.75% $1,216.59
One year ended May 31, 1999 4.10% $1,041.05
BOSTON 1784 RHODE ISLAND
TAX-EXEMPT INCOME FUND
August 1, 1994 (commencement of
operations) to May 31, 1999 6.34% $1,354.47
One year ended May 31, 1999 4.11% $1,041.09
BOSTON 1784 U.S. GOVERNMENT
MEDIUM-TERM INCOME FUND
June 7, 1993 (commencement of
operations) to May 31, 1999 5.15% $1,349.94
Five years ended May 31, 1999 6.33% $1,359.28
Three years ended May 31, 1999 6.46% $1,206.74
One year ended May 31, 1999 3.73% $1,037.33
BOSTON 1784 SHORT-TERM INCOME FUND
July 1, 1994 (commencement of
operations) to May 31, 1999 6.03% $1,333.39
One year ended May 31, 1999 4.70% $1,046.99
BOSTON 1784 INCOME FUND
July 1, 1994 (commencement of
operations) to May 31, 1999 6.71% $1,375.86
One year ended May 31, 1999 2.83% $1,028.32
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BOSTON 1784 ASSET ALLOCATION FUND
June 14, 1993 (commencement of
operations) to May 31, 1999 12.15% $1,981.40
Five years ended May 31, 1999 14.69% $1,984.34
Three years ended May 31, 1999 13.61% $1,466.46
One year ended May 31, 1999 5.92% $1,059.19
BOSTON 1784 GROWTH AND INCOME FUND
June 7, 1993 (commencement of
operations) to May 31, 1999 16.38% $2,478.59
Five years ended May 31, 1999 18.34% $2,320.72
Three years ended May 31, 1999 16.20% $1,569.01
One year ended May 31, 1999 4.65% $1,046.49
BOSTON 1784 GROWTH FUND
March 28, 1996 (commencement of
operations) to May 31, 1999 9.45% $1,331.97
One year ended May 31, 1999 (3.54)% $ 964.64
BOSTON 1784 INTERNATIONAL EQUITY FUND
January 3, 1995 (commencement of
operations) to May 31, 1999 7.74% $1,397.79
One year ended May 31, 1999 (4.85)% $ 951.50
(1) Without giving effect to fee waivers and reimbursements currently in effect
the annualized total rate of return for Boston 1784 Florida Tax-Exempt Income
Fund for the one, three and five year periods ended May 31, 1999 and for the
period from January 1, 1991 (date of initial public investment in common trust
fund) to May 31, 1999, would have been 3.89%, 6.36%, 5.93% and 6.56%,
respectively.
The annualized yield of each of the Tax-Exempt, Bond and Stock Funds
for the 30-day period ended on May 31, 1999 was as follows: Boston 1784
Short-Term Income Fund 5.21%; Boston 1784 Income Fund 5.66%; Boston 1784 U.S.
Government Medium-
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Term Income Fund 5.17%; Boston 1784 Tax-Exempt Medium-Term Income Fund 4.15%;
Boston 1784 Connecticut Tax-Exempt Income Fund 4.09%; Boston 1784 Massachusetts
Tax-Exempt Income Fund 4.03%; Boston 1784 Rhode Island Tax-Exempt Income Fund
4.21%; Boston 1784 Florida Tax-Exempt Income Fund 4.05%; Boston 1784 Asset
Allocation Fund 2.44%; Boston 1784 Growth and Income Fund 0.43%; and Boston 1784
Growth Fund 0.15%.
The annualized tax-equivalent yield of each of the Tax-Exempt Funds for
the 30-day period ended on May 31, 1999 was as follows: Boston 1784 Tax-Exempt
Medium-Term Income Fund 6.87%; Boston 1784 Connecticut Tax-Exempt Income Fund
7.32%, Boston 1784 Massachusetts Tax-Exempt Income Fund 8.33%; and Boston 1784
Rhode Island Tax-Exempt Income Fund 8.04%; Boston 1784 Florida Tax-Exempt Income
Fund 6.71%.
Set forth below is total rate of return information, assuming that
dividends and capital gains distributions, if any, were reinvested, for the
Money Market Funds for the periods indicated.
REDEEMABLE VALUE OF A
HYPOTHETICAL $1,000
ANNUALIZED TOTAL INVESTMENT AT THE
FUND AND PERIOD RATE OF RETURN END OF THE PERIOD
BOSTON 1784 TAX-FREE MONEY
MARKET FUND
June 14, 1993 (commencement of
operations) to May 31, 1999 3.14% $1,202.27
Five years ended May 31, 1999 3.28% $1,175.19
Three years ended May 31, 1999 3.19% $1,098.72
One year ended May 31, 1999 3.01% $1,030.12
BOSTON 1784 U.S. TREASURY
MONEY MARKET FUND
June 7, 1993 (commencement of
operations) to May 31, 1999 4.52% $1,302.30
Five years ended May 31, 1999 4.88% $1,268.92
Three years ended May 31, 1999 4.81% $1,151.34
One year ended May 31, 1999 4.55% $1,045.46
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BOSTON 1784 INSTITUTIONAL
U.S. TREASURY MONEY MARKET FUND
June 30, 1993 (commencement of
operations) to May 31, 1999 4.85% $1,324.35
Five years ended May 31, 1999 5.19% $1,287.61
Three years ended May 31, 1999 5.14% $1,162.35
One year ended May 31, 1999 4.90% $1,049.02
BOSTON 1784 PRIME MONEY MARKET FUND (1)
August 1, 1991 (date of initial public
investment) to May 31, 1999 4.45% $1,404.14
Five years ended May 31, 1999 5.02% $1,277.44
Three years ended May 31, 1999 4.59% $1,157.26
One year ended May 31, 1999 4.78% $1,047.77
BOSTON 1784 INSTITUTIONAL
PRIME MONEY MARKET FUND
November 5, 1997 (date of initial
public investment) to May 31, 1999 5.26% $1,083.51
One year ended May 31, 1999 5.10% $1,051.00
(1) The Prime Money Market Fund is the successor through a reorganization with
the BayFunds Money Market Portfolio. The BayFunds Money Market Portfolio was a
portfolio of BayFunds, an open-end investment company registered under the 1940
Act and reorganized with the Prime Money Market Fund on December 9, 1996.
The annualized yield and tax-equivalent yield of Boston 1784 Tax-Free
Money Market Fund for the seven-day period ended May 31, 1999 were 3.02% and
5.00%, respectively, and the effective compound annualized yield and
tax-equivalent effective yield of Boston 1784 Tax-Free Money Market Fund for
such period were 3.07% and 5.08%, respectively.
The annualized yield of Boston 1784 U.S. Treasury Money Market Fund for
the seven-day period ended May 31, 1999 was 4.18% and the effective compound
annualized yield of Boston 1784 U.S. Treasury Money Market Fund for such period
was 4.27%.
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The annualized yield of Boston 1784 Institutional U.S. Treasury Money
Market Fund for the seven-day period ended May 31, 1999 was 4.50% and the
effective compound annualized yield of Boston 1784 Institutional U.S.
Treasury Money Market Fund for such period was 4.60%.
The annualized yield of Boston 1784 Prime Money Market Fund for the
seven-day period ended May 31, 1999 was 4.23% and the effective compound
annualized yield of Boston 1784 Prime Money Market Fund for such period was
4.31%.
The annualized yield of Boston 1784 Institutional Prime Money Market
Fund for the seven-day period ended May 31, 1999 was 4.65% and the effective
compound annualized yield of Boston 1784 Institutional Prime Money Market Fund
for such period was 4.76%.
A Fund's performance may from time to time be compared to that of other
mutual funds tracked by mutual fund rating services, broad groups of comparable
mutual funds or unmanaged indices, which may assume investment of dividends but
generally do not reflect deductions for administrative and management costs. In
reports and other communications to shareholders or in advertising and sales
literature, the Funds may also present statistics on current and historical
rates of Money Market Deposits Accounts and Statement Savings prepared by
outside services such as Bank Rate Monitor, Inc. The Funds may also show the
historical performance of other investment vehicles or groups of other mutual
funds, and compare this performance to the historical performance of the Funds,
and may compare tax equivalent yields to taxable yields. Any given "performance"
or performance comparison should not be considered as representative of any
performance in the future. In addition, there may be differences between the
Funds and the various indexes and reporting services which may be quoted by the
Funds.
11. FINANCIAL STATEMENTS
FOR THE PRIME MONEY MARKET FUND
The Statement of Net Assets at May 31, 1999, the Statements of
Operations for the period ended May 31, 1999, the Statements of Changes in Net
Assets for the periods ended May 31, 1998 and May 31, 1999, the Financial
Highlights for the periods ended December 31, 1997, May 31, 1998 and May 31,
1999, the Notes to the Financial Statements and the Report of Independent
Accountants, each of which is included in the Annual Reports to Shareholders of
the Trust (Accession Numbers 0000935069-98-000115 and 0000935069-98-000114), are
incorporated by reference into this Statement of Additional Information and have
been so incorporated in reliance upon the report of PricewaterhouseCoopers LLP,
independent accountants, as experts in accounting and auditing. The Financial
Highlights for the periods ended December 31, 1994, December 31, 1995 and
December 31, 1996 are included in the Annual Reports to Shareholders of the
Trust and are incorporated by reference into this Statement of Additional
Information and have been so incorporated in reliance upon the report of other
independent auditors, given upon the authority of such auditors as experts in
accounting and auditing. A copy of the Annual Report accompanies this Statement
of Additional Information.
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FOR THE REMAINDER OF THE FUNDS
The Statement of Net Assets at May 31, 1999, the Statements of
Operations for the period ended May 31, 1999, the Statements of Changes in Net
Assets for the periods ended May 31, 1998 and May 31, 1999, the Financial
Highlights for the periods ended May 31, 1995, May 31, 1996, May 31, 1997, May
31, 1998 and May 31, 1999, the Notes to the Financial Statements and the Report
of Independent Accountants, each of which is included in the Annual Reports to
Shareholders of the Trust (Accession Numbers 0000935069-98-000115 and
0000935069-98-000114), are incorporated by reference into this Statement of
Additional Information. The Annual Report has been so incorporated in reliance
upon the report of PricewaterhouseCoopers LLP, independent accountants, as
experts in accounting and auditing. A copy of the Annual Report accompanies this
Statement of Additional Information.
<PAGE>
APPENDIX A
CERTAIN INFORMATION CONCERNING
CONNECTICUT, FLORIDA, MASSACHUSETTS AND RHODE ISLAND
1. CONNECTICUT
SPECIAL CONSIDERATIONS REGARDING INVESTMENTS IN
CONNECTICUT MUNICIPAL SECURITIES
The following is a summary of certain information contained in the
Preliminary Official Statement of Connecticut dated June 15, 1999. The summary
does not purport to be a complete description and is current as of the date of
the corresponding information statement. The Funds are not responsible for the
accuracy or timeliness of this information.
Connecticut municipal securities may fluctuate in value in response to
a variety of factors, including the economic strength of State and local
governments and the availability of federal funding.
ECONOMIC OVERVIEW
Connecticut's economy is diverse. Manufacturing employment has been on
a downward trend since the mid-1980s, while non-manufacturing employment has
recovered most of its losses from its peak in the late 1980s. Manufacturing is
diversified, with transportation equipment (primarily aircraft engines,
helicopters, and submarines) the dominant industry. Connecticut is a leading
producer of aircraft engines and parts, submarines, and helicopters. The largest
employers in these industries are United Technologies Corporation, including its
Pratt and Whitney Aircraft Division, with headquarters in East Hartford, and
Sikorsky Aircraft Division in Stratford, as well as General Dynamics
Corporation's Electric Boat Division in Groton.
During the past ten years, Connecticut's manufacturing employment was
at its highest in 1988 at over 372,230 workers. Since that year, employment in
manufacturing has been on a downward trend, declining 25.8 percent or a loss of
96,030 jobs by 1997 from 1988 levels. A number of factors, such as the
overvalued dollar of the mid 1980s, heightened foreign competition, a sharp
decrease in defense spending, and improved productivity played a significant
role in affecting the overall level of manufacturing employment. However, in
1997, total manufacturing jobs in Connecticut registered a gain of 1,400 jobs or
0.5% over 1996.
Over the past several decades the non-manufacturing sector of the
State's economy has risen in economic importance, from just over 50 percent of
total State employment in 1950 to approximately 83 percent by 1997. This trend
has decreased the State's dependence on manufacturing. The State's
non-manufacturing sector expanded by 2.4 percent in 1997 as compared to 2.0
percent in 1996 and 1.9 percent in 1995. This trend, which began in 1993,
reversed three years of decline starting in 1990. During the 1990's,
Connecticut's growth in non-manufacturing employment has lagged that of the New
England region and the nation as a whole.
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The non-manufacturing sector is comprised of industries that typically
provide a service. The four major industries in terms of employment are:
services, retail and wholesale trade, state and local government, as well as
finance, insurance and real estate ("FIRE"), which collectively comprise about
90 percent of employment in the non-manufacturing sector.
After enjoying an extraordinary boom during the mid-1980s, Connecticut,
as well as the rest of the Northeast, experienced an economic slowdown before
the onset of the national recession which occurred at the beginning of the
1990s. Reflecting the downturn, the unemployment rate in the State rose from a
low of 3 percent in 1988 to just above the national average of 7.5 percent
during 1992.
FISCAL CONDITION IN RECENT YEARS
The State finances most of its operation through its General Fund. The
major components of General Fund revenues are State taxes, including the
personal income tax, the sales and use tax, and the corporation business tax.
Miscellaneous fees, receipts, transfers, and unrestricted Federal grants account
for most of the other General Fund revenue. A cumulative budgetary-basis deficit
in the General Fund as of June 30, 1991 in the amount of $965,711,525 was funded
by the issuance of General Obligation Economic Recovery Notes. In fiscal year
1996-97 an appropriation was made to pay when due the remaining debt service due
on the Economic Recovery Notes. The final payment is due in fiscal year 1998-99.
GENERAL FUND BUDGETS 1997-98, AND 1998-99
1997-1998 OPERATING RESULTS
Per Section 3-115 of the Connecticut General Statutes and Article IV,
Section 24 of the State Constitution, the State's official budgetary basis
fiscal position for the fiscal year ended June 30, 1998 is reported by the
Comptroller. This report indicates 1997-98 fiscal year General Fund expenditures
of $9,829.3 million, General Fund revenues of $10,142.2 million and a surplus of
$312.9 million, (excluding Restricted Federal and Other Grants).
Per Section 4-30a of the Connecticut General Statutes, any
unappropriated surplus, up to five percent of General Fund expenditures, shall
be deposited into the Budget Reserve Fund. After the transfer of $161.7 million
which is required to meet the five percent of General Fund expenditures, the
balance of $151.2 million will be used pursuant to Article XXVIII of the
Amendments to the Constitution of Connecticut to reduce bonded indebtedness.
1998-1999 OPERATIONS
Per Section 3-115 of the Connecticut General Statutes, the State's
fiscal position is reported monthly by the Comptroller. This report compares
revenues already received and the expenditures already made to estimated
expenditures to be made during the balance of the fiscal year. This report
estimates 1998-99 fiscal year General Fund expenditures of $9,993.5 million,
General Fund revenues of $10,164.2 million and an estimated operating surplus of
$170.7 million, as a result of an increase in estimated revenues that more than
offset the increase in estimated expenditures. Estimated revenues have been
revised upward by $172.2 million from the enacted budget plan.
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Per Section 4-30a of the Connecticut General Statutes, any
unappropriated surplus, up to five percent of General Fund expenditures, shall
be deposited into the Budget Reserve Fund. After transferring the amount which
is required to meet the five percent of General Fund expenditures, the balance
will be used pursuant to Article XXVIII of the Amendments to the Constitution of
Connecticut to reduce bonded indebtedness.
COMPONENTS OF REVENUE
PERSONAL INCOME TAX
Beginning with the income year commencing on or after January 1, 1991,
the State imposed a personal income tax on the income of residents of the State
(including resident trusts and estates), part-year residents and certain
non-residents who have taxable income derived from or connected with sources
within Connecticut. For tax years commencing on or after January 1, 1992, the
tax imposed is at the rate of 4.5 percent on Connecticut taxable income.
Depending on federal income tax filing status and Connecticut adjusted gross
income, personal exemptions ranging from $12,000 to $24,000 are available to
taxpayers. In addition, tax credits ranging from 1 percent to 75 percent of a
taxpayer's Connecticut tax liability are also available depending upon federal
income tax filing status and Connecticut adjusted gross income. Such exemptions
and tax credits are phased out at certain higher income levels. Neither the
personal exemption nor the tax credit described above is available to a trust or
an estate. Legislation enacted in 1995 effected a graduated rate structure
beginning in tax year 1996. Under this revised structure, the top rate remains
at 4.5 percent with a rate of 3 percent on the first $4,500 of taxable income
for joint filers and the first $2,250 for single filers. For tax year 1997, the
3 percent rate is expanded to the first $9,000 of taxable income for joint
filers and the first $4,500 for single filers. Legislation enacted during the
1997 session expands the amount of taxable income subject to the lower 3 percent
rate. By tax year 1999, the first $20,000 of taxable income for a joint filer
and the first $10,000 of taxable income for a single filer will be taxed at the
3 percent rate. In addition, the maximum $100 income tax credit for property
taxes paid will be expanded to a maximum of $350 per filer. Taxpayers also are
subject to the Connecticut minimum tax based on their liability, if any, for
payment of the federal alternative minimum tax. Legislation enacted in 1998
provided for rebates from $50 to $150 to certain taxpayers filing income tax
returns for the taxable year commencing January 1, 1997, and who have paid
property tax which first came due and was paid in such income year.
SALES AND USE TAX
The Sales Tax is imposed, subject to certain limitations, on the
gross receipts from certain transactions within the State of persons engaged
in business in the State, including (a) sales at retail of tangible personal
property, (b) the rendering of certain services, (c) the leasing or rental of
tangible personal property, (d) the producing, fabricating, processing,
printing, or imprinting of tangible personal property to special order or
with materials furnished by the consumer, (e) the furnishing, preparing or
serving of food, meals, or drinks, and (f) the transfer of occupancy of hotel
or lodging house rooms for a period not exceeding thirty consecutive calendar
days. The Use Tax is imposed on the consideration paid for certain services
or purchases or rentals of tangible personal property used within the State
pursuant to a transaction not subject to the Sales Tax. A separate rate of 12
percent is charged on the occupancy of hotel rooms. Effective October 1,
1991, the tax rate for the Sales and Use Taxes was reduced from
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eight percent to six percent. Various exemptions from the Sales and Use Taxes
are provided, based on the nature, use or price of the property or services
involved or the identity of the purchaser. Tax returns and accompanying payments
with respect to revenues from these taxes are generally due monthly on or before
the last day of the month next succeeding the taxable month.
CORPORATION BUSINESS TAX
The Corporation Business Tax is imposed on any corporation, joint stock
company or association, any dissolved corporation that continues to conduct
business, any electric distribution company or fiduciary of any of the foregoing
which carries on or has the right to carry on business within the State or owns
or leases property or maintains an office within the State or is a general
partner in a partnership or a limited partner in a limited partnership, except
an investment partnership, that does business, owns or leases property or
maintains an office within the State. Section 12-214, as amended, provides for
certain financial services companies to be exempt from this tax. For income
years commencing on or after January 1, 1999, this exemption extends to domestic
insurance companies. The Corporation Business Tax provides for three methods of
computation. The taxpayer's liability is the greatest amount computed under any
of the three methods.
The first method of computation is a tax measured by the net income of
a taxpayer (the "Income-Base Tax"). Net income, except as applied to insurance
companies means federal gross income with limited variations less certain
deductions, most of which correspond to the deductions allowed under the
Internal Revenue Code of 1986, as amended from time to time. In the case of life
insurance companies subject to the Corporation Business Tax, net income means
life insurance company taxable income, as determined for federal income tax
purposes, with certain adjustments. The Income-Base Tax had been levied at the
rate of 10.5 percent until January 1, 1998 when it was decreased to 9.5 percent.
Legislation enacted in 1993 and subsequent years instituted a phase down in the
corporation tax rate so that by the income year commencing on or after January
1, 2000 the corporate rate will be 7.5 percent. The second method of computing
the Corporation Business Tax, from which the domestic insurance companies are
exempted, is an alternative tax on capital. This alternative tax is determined
either as a specific maximum dollar amount or at a flat rate on a defined base,
usually related in whole or in part to its capital stock and balance sheet
surplus, profit and deficit. The third method of computing the Corporation
Business Tax is the minimum tax which is a flat $250. Corporations must compute
their tax under all three methods and pay the tax under the highest computation.
OTHER TAXES
Other tax revenues are derived from the inheritance taxes, taxes on
gross receipts of hospitals and public service corporations, taxes on net direct
premiums of insurance companies, taxes on oil companies, cigarette and alcoholic
beverage excise taxes, real estate conveyance taxes, taxes on admissions, dues
and cabarets and other miscellaneous tax sources.
FEDERAL GRANTS
Federal grants in aid are normally conditioned to some degree,
depending upon the particular program being funded, on resources provided by the
State. More than 99 percent of unrestricted federal grant revenue is expenditure
driven. The largest federal
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grants in fiscal 1998 were made for the purposes of
providing medical assistance payments to the indigent and Aid to Families with
Dependent Children. The State also receives certain restricted federal grants
which are not reflected in annual appropriations but which nonetheless are
accounted for in the General Fund. In addition, the State receives certain
federal grants which are not accounted for in the General Fund but are allocated
to the Transportation Fund, various Capital Project Funds and other funds.
OTHER NON-TAX REVENUES
Other non-tax revenues are derived from special revenue transfers;
Indian gaming payments; licenses, permits and fees; sales of commodities and
services; rents, fines and escheats; investment income; and other miscellaneous
revenue sources.
YEAR 2000 READINESS
CONNECTICUT'S CURRENT STATE OF READINESS
The State has coordinated a review of its Year 2000 exposures through
its Department of Information Technology ("DOIT"). To date, DOIT has assessed
approximately 1360 computer systems (of the State's approximately 15000 systems)
of which 770 have been categorized as mission critical. As of October 31, 1998,
63% of the programs in mission critical systems requiring remediation had been
converted, and 27% of the testing cycles required to validate compliance in
mission critical systems had been completed. A target date of March 31, 1999 has
been established for completion of remediation and testing activities for
mission critical systems, however, some agency project plans anticipate
completion dates in the second and third quarters.
The State Legislature approved $15.0 million in bonding in 1997-98 for
equipment and related costs of the Year 2000 issue. An additional $80 million
was appropriated to DOIT as part of the 1998-1999 Midterm Budget Adjustments.
The State presently believes that, with modifications to existing
software and converting to new software, the Year 2000 problem will not pose
significant operations problems for the State's computer systems as so modified
or converted. While the State expects its Year 2000 plan to be completed on a
timely basis, there is a risk that the plan will not be completed on time and
that there may not be enough time to adequately test all computer systems for
Year 2000 problems. There is a related risk that testing does not satisfactorily
reveal all Year 2000 software or hardware problems. Also, there can be no
assurance that the systems of other companies on which the State's systems or
service commitments may rely will be completed in a timely fashion. If the
necessary remediations are not completed in a timely fashion, the Year 2000
problem may have a material impact on the operations of the State.
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LITIGATION
The State of Connecticut, its officers and employees, are defendants in
numerous lawsuits. The ultimate disposition of and final consequences of these
lawsuits are not presently determinable. The Attorney General's Office has
reviewed the status of pending lawsuits and reports that it is the opinion of
the Attorney General that such pending litigation will not be determined so as
to result, individually or in the aggregate, in a final judgment against the
State which would materially adversely affect its financial position, except
that in the cases described below the fiscal impact of an adverse decision might
be significant but is not determinable at this time.
The cases described in this section generally do not include any
individual case where the fiscal impact of an adverse judgment is expected to be
less than $15 million, but adverse judgments in a number of such cases could, in
the aggregate and in certain circumstances, have a significant impact.
CONNECTICUT CRIMINAL DEFENSE LAWYERS ASSOCIATION V. FORST is an action
brought in 1989 in Federal District Court alleging a pervasive campaign by the
State and various State Police officials of illegal electronic surveillance,
wiretapping and bugging for a number of years at Connecticut State Police
facilities. The plaintiffs seek compensatory damages, punitive damages, as well
as other damages and costs and attorneys' fees, as well as temporary and
permanent injunctive relief. In November 1991, the court issued an order which
will allow the plaintiffs to represent a class of all persons who participated
in wire or oral communications to, from, or within State Police facilities
between January 1, 1974 and November 9, 1989 and whose communications were
intercepted, recorded and/or used by the defendants in violation of the law.
This class includes a sub-class of the Connecticut State Police Union, current
and former Connecticut State Police officers who are not defendants in this or
any consolidated case, and other persons acting on behalf of the State Police
who participated in oral or wire communications to, from or within State Police
facilities between such dates.
SHEFF V. O'NEILL is a Superior Court action brought in 1989 on behalf
of black and Hispanic school children in the Hartford school district. The
plaintiffs sought a declaratory judgment that the public schools in the greater
Hartford metropolitan area are segregated de facto by race and ethnicity and are
inherently unequal to their detriment. They also sought injunctive relief
against state officials to provide them with an "integrated education". On April
12, 1995, the Superior Court entered judgment for the State. On July 9, 1996,
the State Supreme Court reversed the Superior Court judgment and remanded the
case with direction to render a declaratory judgment in favor of the plaintiffs.
The Court directed the legislature to develop appropriate measures to remedy the
racial and ethnic segregation in the Hartford public schools. The Supreme Court
also directed the Superior Court to retain jurisdiction of this matter. The 1997
General Assembly enacted P.A. 97-290, An Act Enhancing Educational Choices and
Opportunities in response to the Supreme Court decision. In response to a motion
filed by the plaintiffs, the Superior Court recently ordered the State to show
cause as to whether there has been compliance with the Supreme Court's ruling.
THE CONNECTICUT TRAUMATIC BRAIN INJURY ASSOCIATION, INC. V. HOGAN is a
Federal District Court civil rights action brought in 1990 on behalf of all
persons with retardation or traumatic brain injury who have been, or may be,
placed in Norwich, Fairfield Hills or Connecticut Valley Hospitals. The
plaintiffs claim that the treatment and training they need is unavailable in
state hospitals for the mentally ill and that placement in those hospitals
violates their constitutional rights. The plaintiffs seek
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relief which would require that the plaintiff classmembers be transferred to
community residential settings with appropriate support services. This case has
been settled as to all persons with mental retardation by their eventual
discharge from Norwich and Fairfield Hills Hospital. The case is still
proceeding as to those persons with traumatic brain injury and the class of
plaintiffs has been expanded to include persons with acquired brain injury who
are in the custody of the Department of Mental Health and Addiction Services.
The Court in 1998 expanded the class of plaintiffs to include persons who are or
have been in the custody of the Department of Mental Health and Addiction
Services at any time during the pendency of the case without reference to a
particular facility.
JOHNSON V. ROWLAND is a Superior Court action brought in 1998 in the
name of several public school students and the Connecticut municipalities in
which the students reside, seeking declaratory judgment that the State's current
system of financing public education through local property taxes and State
payments to municipalities determined under a Statutory Education Cost Sharing
("ECS") formula violates the Connecticut Constitution. Additionally, the suit
seeks various injunctive orders requiring the State to, among other things,
cease implementation of the present system, modify the ECS formula and fund the
ECS formula at the level contemplated in the original 1988 public act which
established the ECS.
Several suits have been filed since 1977 in the Federal District Court
and the Connecticut Superior Court on behalf of alleged INDIAN TRIBES in various
parts of the State, claiming monetary recovery as well as ownership to land in
issue. Some of these suits have been settled or dismissed. The plaintiff group
in the remaining suits is the alleged Golden Hill Paugussett Tribe and the lands
involved are generally located in Bridgeport, Trumbull, Orange, Shelton and
Seymour. There may be additional suits filed by other alleged Indian Tribes
claiming ownership of land located in the State of Connecticut but to which the
State is not a party. One such claim involves the alleged Schaghticoke Indian
Tribe claiming privately and town held lands in the Town of Kent.
2. FLORIDA
SPECIAL CONSIDERATIONS REGARDING INVESTMENTS IN
FLORIDA MUNICIPAL SECURITIES
The following is a summary of certain information contained in the
Official Statement Relating to $306,910,000 State of Florida State Board of
Education, Public Education Capital Outlay Refunding Bonds, 1999 Series A, dated
August 20, 1999. The summary does not purport to be a complete description and
is current as of the date of the statement. The Funds are not responsible for
the accuracy or timeliness of this information.
NATIONAL AND STATE ECONOMIC OUTLOOK
The national economic forecast indicates slower growth during the next
two fiscal years. Real GDP is expected to increase 3.3 percent in 1998-99 and
2.2 percent in 1999-00. Real private fixed non-residential business investment
is anticipated to expand 7.9 percent in 1988-99 and 4.5 percent next year, while
real consumption should increase 4.4 percent this year and 2.6 percent next
year. Underlying the official national economic forecast are key assumptions
regarding fiscal policy, monetary policy, and prices. On the monetary side, the
Federal Reserve is expected to undertake a series of interest rate
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cuts to avoid financial turmoil and recession in the U.S. Inflation, as measured
by the Consumer Price Index, is expected to remain under control, averaging 1.9
percent in 1998-99 and 2.3 percent in 1999-00. The federal budget surplus (NAPA
basis) is forecasted to be $87.4 billion in 1998-99 and $77.5 billion the next
year.
In other areas of the U.S. economy, construction activity will begin to
soften in 1998-99 and continue to decrease slightly in 1998-99. Housing starts
should reach 1.6 million units this year and 1.5 million next year. The stock
market, as measured by the S&P Index, is expected to increase 16.4 percent in
1998-99 and 9.2 percent in 1999-00. Total employment will expand 1.1 percent in
1998-99 and 1.4% percent the next year. The unemployment rate is expected to
average 4.5 percent this year and 4.6 percent next year.
While the Florida economy will also slow, it is expected to continue
outperforming the U.S. The Florida economy is also forecasted to grow more
slowly in 1999-00 than in 1998-99. Real personal income in Florida is forecasted
to increase 4.9% in 1998-99 and 3.5% in 1999-00. During this time, real personal
income per capita will grow 3.1% and 1.8%.
Total nonfarm jobs are expected to increase 3.4% in 1998-99, and 2.9%
in 1999-00, reaching almost 7.0 million. Trade and services account for more
than half of all nonfarm jobs. Service jobs are forecasted to grow 5.5% in
1998-99, and 4.4% in 1999-00. Trade jobs will grow 2.8% the first year and 2.8%
the next year. Florida's unemployment rate is expected to be 4.5% in 1998-99 and
4.7% in 1999-00.
An important element of Florida's economic outlook is the construction
sector. Florida's single and multi-family private housing starts are projected
to reach a combined total of 144,000 units in 1998-99 and 143,000 units the
following year. Multi-family starts have been slow to recover from the early
90's recession, but they are showing strength with an expected 46,500 starts in
1998-99, and 46,300 starts in 1999-00. Single family starts are forecasted to be
97,600 in 1998-99, and 96,700 starts in 1999-00. Total construction expenditures
will increase 8.6 percent and 2.5 percent during the two years.
Tourist arrivals are forecasted to increase 2.0 percent in 1998-99 and
1.7 percent the following year. Air tourists will increase 3.2 percent and 3.9
percent, while auto tourists will increase 0.6 percent and -1.0 percent, during
this time. By the end of 1998-99, 49.7 million domestic and international
tourists are expected to visit the State. In 1999-00 tourist visits should reach
50.6 million.
FLORIDA FINANCIAL OUTLOOK
For fiscal year 1998-99, the estimated General Revenue plus Working
Capital and Budget Stabilization funds available total $19,463.7 million, a 5.1
percent increase over 1997-98. The $17,692.4 million in Estimated Revenues
represent a 4.4 percent increase over the analogous figure in 1997-98. With
combined General Revenue, Working Capital Fund, and Budget Stabilization Fund
appropriations at $18,185.0 million, including a $100.9 million transfer to the
Budget Stabilization Fund, unencumbered reserves at the end of 1998-99 are
estimated at $1,379.6 million.
For fiscal year 1999-00, the estimated General Revenues plus Working
Capital and Budget Stabilization funds available total $19,923.7 million, a 2.4
percent increase
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over 1998-99. The $18,386.1 million in Estimated Revenues represent a 3.9
percent increase over the analogous figure in 1998-99.
REVENUES AND EXPENDITURES
Financial operations of the State of Florida covering all receipts and
expenditures are maintained through the use of four fund types: the General
Revenue Fund, Trust Funds, the Working Capital Fund, and the Budget
Stabilization Fund.
In fiscal year 1996-97, an estimated 67 percent of total direct
revenues to these funds were derived from State taxes and fees. Federal funds
and other special revenues accounted for the remaining revenues. Major sources
of tax revenues to the General Revenue Fund are the sales and use tax, corporate
income tax, intangible personal property tax, beverage tax, and estate tax which
amounted to 68 percent, 8 percent, 4 percent, 3 percent and 3 percent,
respectively, of total General Revenue funds available.
State expenditures are categorized for budget and appropriation
purposes by the type of fund and spending unit, which are further subdivided by
line item. In fiscal year 1996-97, appropriations from the General Revenue Fund
for education, health and welfare, and public safety amounted to approximately
53 percent, 26 percent, and 14 percent, respectively, of total General Revenue
funds available.
SALES AND USE TAX
The largest single source of tax receipts in Florida is the sales and
use tax. The sales tax is 6 percent of the sales price of tangible personal
property sold at retail in the State. The use tax is also 6 percent of the cost
price of tangible personal property when the same is not sold but is used, or
stored for use in the State. The use tax also applies to the use in the State of
tangible personal property purchased outside Florida which would have been
subject to the sales tax if purchased from a Florida dealer.
All receipts of the sales and use tax, with the exception of the tax on
gasoline and special fuels, are credited to either the General Revenue Fund, the
Solid Waste Management Trust Fund, or counties and cities. For the State fiscal
year which ended June 30, 1997, total receipts from this source were $12,089
million, an increase of 5.5 percent from the prior fiscal year.
MOTOR FUEL TAX
The second largest source of State tax receipts, including those
distributed to local governments, is the tax on motor fuels. Preliminary data
show collections from this source in State fiscal year ending June 30, 1997 were
$2,012 million. However, these revenues are almost entirely dedicated trust
funds for specific purposes and are not included in the State General Revenue
Fund.
ALCOHOLIC BEVERAGE TAX
Florida's alcoholic beverage tax is an excise tax on beer, wine, and
liquor. The tax is one of the State's major tax sources, with revenues
totaling $447.2 million in State fiscal year ending June 30, 1997. Two
percent of collections are deposited into the Alcoholic Beverage and Tobacco
Trust Fund, while the remainder of revenues are deposited into the General
Revenue Fund.
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The 1990 Legislature established a surcharge on alcoholic beverages.
This charge is levied on alcoholic beverages sold for consumption on premises.
The surcharge is ten cents per ounce of liquor, ten cents per four ounces of
wine, and four cents per twelve ounces of beer. In fiscal year 1996-97, a total
of $106.6 million was collected. Of these collections, the Children and
Adolescent Substance Abuse Trust Fund receives 9.8 percent, while the remainder
is deposited to the credit of the General Revenue Fund.
CORPORATE INCOME TAX
Pursuant to an amendment to Article VII, Section 5, of the State
Constitution, the Legislature of the State of Florida adopted, effective January
1, 1972, the "Florida Income Tax Code" imposing a tax upon the net income of
corporations, organizations, associations, and other artificial entities for the
privilege of conducting business, deriving income, or existing within the State.
This tax does not apply to natural persons who engage in a trade or business or
profession under their own or any fictitious name, whether individually as
proprietorships or in partnerships with others, estates of decedents or
incompetents, or testamentary trusts.
All receipts of the corporate income tax are credited to the General
Revenue Fund. For the fiscal year which ended June 30, 1997, receipts from this
source were $1,362.3 million, an increase of 17.2 percent from fiscal year
1995-96.
DOCUMENTARY STAMP TAX
Deeds and other documents relating to realty are taxed at 70 cents per
$100 of consideration, while Corporate shares, bonds, certificates of
indebtedness, promissory notes, wage assignments, and retail charge accounts are
taxed at 35 cents per $100 of face value, or actual value if issued without face
value. Documentary stamp tax collections totaled $844.2 million during fiscal
year 1996-97, posting a 8.9 percent increase from the previous fiscal year.
GROSS RECEIPTS TAX
The tax rate is 2.5 percent of the gross receipts of providers of
electric, natural gas, and telecommunications services.
All gross receipts utilities tax collections are credited to the Public
Education Capital Outlay and Debt Service Trust Fund. In fiscal year 1996-97,
gross receipts utilities tax collections totaled $575.7 million, an increase of
6.0 percent over the previous fiscal year.
INTANGIBLE PERSONAL PROPERTY TAX
This tax is levied on two distinct bases. First, stocks, bonds,
including bonds secured by liens on Florida realty, notes, governmental lease
holds, interests in limited partnerships registered with the Securities and
Exchange Commission, and other miscellaneous intangible personal property not
secured by liens on Florida realty are taxed annually at a rate of 2 mills.
Second, there is a non-recurring 2 mill tax on mortgages and other obligations
secured by liens on Florida realty.
The Department of Revenue uses part of the proceeds for administrative
costs. Of the remaining tax proceeds, 33.5 percent is distributed to the County
Revenue Sharing Trust Fund and 66.5 percent is distributed to the General
Revenue Fund.
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In fiscal year 1996-97 total intangible personal property tax
collections were $952.4 million, a 6.3 percent increase from the prior year.
ESTATE TAX
An estate tax is imposed on the estate for the privilege of
transferring property at death. The tax on estates of resident decedents is
equal to the amount allowable as a credit against federal estate tax for state
death taxes paid, less any amount paid to other states. Thus, the Florida estate
tax on resident decedents will not increase the total tax liability of the
estate. The tax on estates of nonresident decedents is equal to the amount
allowable as a credit against federal estate tax for state death taxes paid
multiplied by the ratio of the value of the property taxable in Florida over the
value of the entire gross estate.
All receipts of the estate tax are credited to the General Revenue
Fund. For the fiscal year which ended June 30, 1997, receipts from this source
were $546.9 million, an increase of 30 percent from fiscal year 1995-96.
LOTTERY
In November 1986 the voters of the State of Florida approved a
constitutional amendment that allows State operated lotteries. Section 15,
Article X of the Florida Constitution provides for State lotteries, with the
proceeds being dedicated exclusively to education. The 1987 Legislature passed
Chapter 24, Florida Statutes, creating the Department of the Lottery to operate
the State Lottery and setting forth the allocation of the revenues. Of the
revenues generated by the Lottery, 50 percent is to be returned to the public as
prizes; at least 38 percent is to be deposited in the Educational Enhancement
Trust Fund (for public education); and no more than 12 percent can be spent on
the administrative cost of operating the lottery.
Fiscal year 1996-97 produced gross revenues of $2.09 billion of which
education received approximately $792.3 million.
YEAR 2000
The Governor's Office of Planning and Budgeting, the Senate and the
House of Representatives created a Year 2000 Task Force in 1997 to provide
direction to State agencies for addressing potential year 2000 date change
problems. The Year 2000 Task Force, which meets monthly, is comprised of
representatives of the Governor's Office of Planning and Budgeting, the
Department of Management Services and the Department of Banking and Finance. The
Task Force also includes ex-officio representatives from the Senate and the
House of Representatives.
The Year 2000 Task Force has established a monthly progress reporting
system to monitor remediation in all State agencies, with a special emphasis on
top priority systems and agencies where the impact of potential difficulties is
the highest, based on the number of citizens affected, projected failure date,
if any, and cost to renovate. The top priority systems include systems relating
to sales taxes, central accounting, intangibles taxes and payroll. At the end of
June 1999, agency progress reports showed that Florida had completed 99.8% of
the total agency work estimated to be required to remediate Year 2000 date
calculations in State-developed or contracted systems and that the top priority
systems had 98.8% of the required work completed. Remediation
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of the State's computer systems is expected to cost from $75 to $90 million. The
State has allocated $81 million in State funds and has received an additional
$12 million in federal grants for this purpose. Approximately $11 million
remains on hand as of this date. Most State agencies expect to complete the
remediation of all their computer systems by June, 1999; however, six agencies
(the Departments of Community Affairs, Highway Safety and Motor Vehicles, Law
Enforcement, Education, Elder Affairs, and the Executive Office of the Governor)
expect to complete remediation between July and October, 1999.
The State has adopted a two-part contingency process for its agencies,
based upon critical milestones and dates. The object is for an agency to design
a contingency plan outline, but not to expend resources on a detailed plan until
failure is imminent. A statewide reserve fund has been established to address
unanticipated remediation or testing issues.
The State Legislature has enacted legislation (Chapter 98-331, Laws of
Florida) applying the State's sovereign immunity provision to State and local
government entities in the event of Year 2000 computer system failures, and
granting the Governor the power to transfer State resources if necessary to
address Year 2000 problems in State agencies.
LITIGATION
Due to its size and broad range of activities, the State is involved in
numerous routine legal actions. The departments involved believe that the
results of such litigation pending or anticipated will not materially affect the
State of Florida's financial position.
COASTAL PETROLEUM V. STATE OF FLORIDA, CASE NO. 90-3195, 2ND JUDICIAL
CIRCUIT. This is an inverse condemnation case claiming that the action of the
Trustees and Legislature constitute a taking of Coastal's leases for which
compensation is due. The Circuit judge granted the State's motion for summary
judgment, finding that as a matter of law, the State had not deprived Coastal of
any royalty rights. Coastal appealed to the First District Court of Appeals, but
the case was remanded to Circuit Court for trial. On August 6, 1996, final
judgment was made in favor of the State. Although Coastal filed for review by
the Supreme Court, the Supreme Court denied review and the petition for
certiorari.
FLORIDA DEPARTMENT OF TRANSPORTATION V. 745 PROPERTY INVESTMENTS, CSX
TRANSPORTATION, INC. AND CONTINENTAL EQUITIES, CASE NO. 94-17739 CA 27, DADE
COUNTY CIRCUIT COURT. This case involves the Florida Department of
Transportation (FDOT) and CSX Transportation, Inc. FDOT filed an action against
the adjoining property owners seeking a declaratory judgment from the Dade
County Circuit Court that the Department is not the owner of the property that
is subject to a claim by the U.S. Environmental Protection Agency (EPA).
Although the Court dismissed the case, the EPA could file a claim against the
FDOT for clean-up costs. These costs could exceed $25 million.
JENKINS V. FLORIDA DEPARTMENT OF HEALTH AND REHABILITATIVE SERVICES,
CASE NO. 79-102-CIV-J-16, UNITED STATES DISTRICT COURT. This is a class action
suit on behalf of clients of residential placement for the developmentally
disabled seeking refunds for services where children were entitled to free
education under the Education for Handicapped Act. The Department had been
collecting maintenance fees from parents
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of the placed children and various third parties such as SSI and Social
Security. The district court ruled in favor of the plaintiffs and ordered
repayment of the maintenance fees. The Department repaid the $217,694 in
maintenance fees paid by the parents; however, amounts estimated at $21.6 due to
various third parties have not been paid since the affected parties have not
been identified.
NATHAN M. HAMEROFF, M.D. ET AL. V. AGENCY FOR HEALTH CARE
ADMINISTRATION, ET AL., CASE NO. 95-5936, LEON COUNTY CIRCUIT COURT. The
plaintiffs challenge the constitutionality of the Public Medical Assistance
Trust Fund (PMATF) annual assessment on net operating revenue of free-standing
out-patient facilities offering sophisticated radiology services. A trial has
not been scheduled. If the State is unsuccessful in its actions, the potential
refund liability could amount to approximately $70 million.
BARNETT BANK V. DEPARTMENT OF REVENUE, CASE NO. 97-02375, 4TH JUDICIAL
CIRCUIT, involves the issue of whether Florida's refund statute for dealer
repossessions authorizes the Department to grant a refund to a financial
institution as the assignee of numerous security agreements governing the sale
of automobiles and other property sold by dealers. The question turns on whether
the Legislature intended the statute only to provide a refund or credit to the
dealer who actually sold the tangible personal property and collected and
remitted the tax or intended that right to be assignable. Several banks have
applied for refunds; the potential refund to financial institutions exceeds
$30,000,000 annually.
TOWER ENVIRONMENTAL V. FLORIDA DEPARTMENT OF ENVIRONMENTAL PROTECTION,
CASE NO. 98-01312, HILLSBOROUGH COUNTY CIRCUIT COURT. Tower Environmental has
sued the State of Florida and the Department of Environmental Protection (DEP)
for $60 million alleging that both the State and DEP "breached" contracts with
them by first "freezing" the processing of reimbursement applications and then
the termination of the petroleum reimbursement process. Alternatively, Tower
claims that these actions constitute torts or impairment of contractual
obligations. Tower also alleges that the termination of reimbursement claims
pursuant to Section 376.3071, F.S., is a breach of contract. In addition to
damages, Tower seeks recovery of attorneys fees and costs. If attorneys fees and
costs are awarded, the potential liability could be as high as $60 million.
PETER AND ROY GERACI V. FLORIDA DEPARTMENT OF TRANSPORTATION, CASE NO.
98-3904, HILLSBOROUGH COUNTY, 13TH JUDICIAL CIRCUIT. The Plaintiffs claim that
the Florida Department of Transportation has been responsible for construction
of roads and attendant drainage facilities in Hillsborough County and, as a
result of its construction, has caused the Plaintiffs' property to become
subjected to flooding, thereby amounting to an uncompensated taking. On December
15, 1998, the Court granted the State's Motion for More Definite Statement as to
certain portions of the Plaintiffs' complaint. If the State is unsuccessful in
its actions, potential losses could exceed $40 million.
BARNETT BANKS, INC. V. FLORIDA DEPARTMENT OF REVENUE, CASE NO. 98-4104,
1ST DISTRICT COURT OF APPEALS. In this case, the taxpayer has challenged the
imposition of interest on additional amounts of corporate income tax due as a
result of Federal audit adjustments reported to Florida. The Department's
historical position is that interest is due from the due date of the return
until payment of the additional amount of tax is made. The taxpayer contends
that interest should be accrued from the date the Federal audit adjustments were
due to be reported to Florida. A Final Order was issued adopting the position
asserted by the Department; however, the taxpayer has filed an
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appeal of the Final Order. Based on the best available information, the
potential exposure for refunds or lost revenue is in the range of $12 to $20
million per year.
3. MASSACHUSETTS
SPECIAL CONSIDERATIONS REGARDING INVESTMENTS
IN MASSACHUSETTS MUNICIPAL SECURITIES
The following is a summary of certain information contained in the
Information Statement of the Commonwealth of Massachusetts dated February 16,
1999, as supplemented August 21, 1998. The summary does not purport to be a
complete description and is current as of the date of the corresponding
information statement. The Funds are not responsible for the accuracy or
timeliness of this information.
The ability of the Commonwealth to meet its obligations will be
affected by future social, environmental and economic conditions, among other
things, as well as by questions of legislative policy and the financial
conditions of the Commonwealth. Many of these conditions are not within the
control of the Commonwealth.
1999 FISCAL YEAR
Acting Governor Cellucci approved the fiscal 1999 budget on July 30,
1998. The Governor vetoed or reduced appropriations totaling approximately
$100.9 million. On July 31, 1998, the Legislature overrode several of those
vetoes, restoring approximately $63.1 million in spending. After accounting for
the value of vetoes and subsequent overrides, the budget provided for total
appropriations of approximately $19.5 billion. Governor Cellucci has approved
four fiscal 1999 supplemental appropriation bills totaling approximately $51
million, $41.1 million of which have funded collective bargaining costs. On
January 27, 1999, Governor Cellucci filed a supplemental budget totaling
approximately $190.1 million. The supplemental recommendation includes
approximately $22.8 million for ongoing operations and programs and
approximately $167.3 million for one-time expenditures, including $50 million
for local road and bridge work and $15 million for Year 2000 compliance. The
Executive Office for Administration and Finance projects total fiscal 1999
spending of $21.151 billion, a 6.0% increase over total fiscal 1998 spending.
The fiscal 1999 appropriation for pension funding is approximately
$965.3 million. This amount is consistent with the amount requested by the
Acting Governor, but is approximately $93.9 million less than the amount
required by the initial 20-year pension funding schedule developed at the time
the fiscal 1998 budget was enacted.
The fiscal 1999 budget is based on a consensus tax revenue forecast of
$14.4 billion, as agreed by both houses of the Legislature and the Secretary of
Administration and Finance in May, 1998. The tax cuts incorporated into the
budget, valued by the Department of Revenue at $990 million in fiscal 1999, had
the effect of reducing the consensus forecast to $13.41 billion. Tax collections
in January, 1999 totaled $1.565 billion, an increase of $144.1 million, or
10.1%, over January, 1998. Year-to-date tax collections through January, 1999
totaled $8.251 billion, an increase of $685.9 million, or 9.1%, over the same
period in fiscal 1998. On August 19, 1998 the Executive Office for
Administration and Finance raised the fiscal 1999 tax estimate by $200 million
to $13.61 billion. The year-to-date benchmark range through January, based on
the $13.61 annual
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estimate, was $7.969 billion to $8.146 billion. The fiscal 1999 tax estimate was
raised again, to $14.0 billion, in the Governor's budget submission filed on
January 27, 1999.
The Commonwealth assesses a fringe reimbursement charge against most
payroll spending not financed by the General Fund. This fringe assessment
reimburses the General Fund for the costs of employee health and retirement
benefits. The Commonwealth had a federally approved fringe rate of 30% in fiscal
1999. Charging the 30% rate in fiscal 1999 would result in a credit to the
federal government that would need to be reconciled in future years with sizable
fringe reductions. To avoid this future credit with the federal government the
Commonwealth is lowering the fringe rate to approximately 17% for federal
accounts (and 24% for all other accounts) in fiscal 1999. This change is
estimated to reduce fiscal 1999 Interfund Transfers from Non-Budgeted Funds and
Other Sources revenue by approximately $58.2 million.
CASH FLOW. The most recent cash flow projections for fiscal 1999 were
released by the State Treasurer and the Secretary of Administration and Finance
on October 29, 1998. The forecast for fiscal 1999 is based on the fiscal 1999
budget signed by Acting Governor Cellucci on July 30, 1998, and includes the
values of legislative veto overrides. Projections are based on revenue and
spending estimates prepared by the Executive Office for Administration and
Finance and incorporate actual results through July, 1998 and monthly
projections through June, 1999.
Fiscal 1998 ended with a cash balance of approximately $1.579 billion,
without regard to any fiscal 1998 activity that occurred after June 30, 1998 and
excluding the balance in the StabilizationFund. The ending balance does reflect
that $234.0 million was transferred to the Stabilization Fund in June, 1998 on
account of fiscal 1997.
Fiscal 1999 is projected to end with a cash balance of $975.9 million,
without regard to any fiscal 1999 activity that occurs after June 30, 1999 and
excluding the balance in the StabilizationFund. The statement projects that $150
million will be transferred to the Stabilization Fund in June, 1999 on account
of fiscal 1998, based on the Comptroller's certifications at the time the
statement was being prepared. The Comptroller has since certified that an
additional $167.4 million will be required to be transferred. The cash flow
statement projects the issuance during fiscal 1999 of $1.250 billion of general
obligation bonds (of which $250 million are for fiscal 1998 expenditures) and
$315 million of grant anticipation notes. The statement projects the receipt of
$597 million from the Massachusetts Turnpike Authority and the Massachusetts
Port Authority in fiscal 1999 on account of the Central Artery/Ted Williams
Tunnel project, and the issuance during fiscal 1999 of $306 million of
Commonwealth notes in anticipation of future payments from such authorities for
the project.
Neither the issuance of transit notes nor the issuance of commercial
paper for operating purposes is forecast for fiscal 1999.
The ending cash balance projected for fiscal 1999 is likely to differ
from the ending balances for the Commonwealth's budgeted operating funds for
such year because of timing differences and the effect of non-budget items.
The next cash flow statement for the Commonwealth is due to be
released on February 25, 1999.
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2000 FISCAL YEAR
On January 27, 1999, Governor Cellucci filed his fiscal 2000 budget
recommendations with the House of Representatives. The proposal calls for
budgeted expenditures of approximately $20.391 billion and total fiscal 2000
spending of $20.556 billion after adjusting for shifts to and from off-budget
accounts. The proposed fiscal 2000 spending level represents a $405.2 million,
or 2.0%, increase over projected total fiscal 1999 expenditures of $20.151
billion. Budgeted revenues for fiscal 2000 are projected to be $20.241 billion,
or $20.332 billion after adjusting to shifts to and from off budget accounts.
This represents a $632.8 million, or 3.2%, increase over the $19.699 billion
forecast for fiscal 1999. The Governor's proposal projects a fiscal 2000 ending
balance in the budgeted funds of approximately $1.625 billion, including a
StabilizationFund balance of approximately $1.390 billion.
The Governor's budget recommendation is based on a tax revenue
estimate of $14.459 billion, an increase of $459 million, or 3.3%, over fiscal
1999 projected tax revenues of $14.0 billion. The projection incorporates $226
million in income tax cuts proposed by the Governor which would reduce the tax
rate on personal income from 5.95% to 5% over three years.
The proposed budget assumes non-tax revenues of $5.782 billion, or
$5.873 billion when adjusted for the shifts to and from off-budget accounts,
which represents an 'increase of $173.9 million from fiscal 1999. Of the three
classes of non-tax revenue, federal reimbursements, including those for
Medicaid, and block grants for Temporary Assistance to Needy Families and Child
Care programs most affect the Commonwealth's budgetary considerations. These
payments are projected to total $3.489 billion in fiscal 2000, or $3.560 billion
after the impact of shifts to and from off-budget accounts is removed. This
level of federal payments represents an increase of $132.7 million, or 3.9%,
from fiscal 1999, the result primarily of changes in federal reimbursement for
Medicaid programs. Fiscal 2000 departmental revenues of $1.270 billion, or
$1.271 billion after adjusting for shifts to and from off-budget accounts,
represent a decrease of approximately $14.2 million from fiscal 1999
projections, due primarily to the implementation of free, lifetime driver
licensing and vehicle registration and a decrease of $10 million due to a
cyclical drop in licensing fees at the Division of Insurance. Consolidated
transfers, the third category of non-tax revenue, consist primarily of state
lottery profits which are distributed to cities and towns. Consolidated
transfers are projected to increase by $55.4 million from fiscal 1999 levels.
Lottery profits are expected to remain constant in fiscal 2000.
The Governor's budget proposal generally provides for maintaining
current levels of service for most state programs but recommends increased
spending for certain priority areas, including a $251.4 million increase in
funding for the Department of Education, $238.2 million in additional local aid
to cities and towns, $132 million for Medicaid program medical inflation funded
through the proposed Health Care and Community Services Trust Fund, $132 million
for the expansion of the MassHealth program and $34 million in additional local
aid funded by the State Lottery. The Governor has recommended appropriations of
approximately $910 million for pension funding, predicated on the assumption
that a revised pension funding schedule will call for smaller payments than are
called for by the current schedule.
Under the Governor's proposed fiscal 2000 budget, the Commonwealth is
expected to spend approximately $1.015 billion on public assistance programs.
Under the federal welfare reform law, Massachusetts will receive $460.6 million
from the
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Temporary Assistance for Needy Families (TANF) federal block grant,
$459.4 million from the annual fiscal year grant and $1.2 million from prior
year unspent grant funds. Of this total, the Commonwealth is expected to spend
$247.2 million at the Department of Transitional Assistance, $75.5 million at
the Office of Child Care Services and transfer $91.9 million to the federal
Child Care Development Fund and $45.9 million to the Social Services Block
Grant. In addition, the Commonwealth expects to receive $81.7 million from the
Child Care Development Fund block grant and $42.7 million from the Social
Services block grant.
Beginning in fiscal 2000, the Governor proposes the establishment of a
new trust, the Health Care and Community Services Trust Fund, to which would be
credited all payments received by the Commonwealth pursuant to the national
litigation settlement with the tobacco industry, as well as federal
reimbursements and other fees or revenues related to expenditures from the fund,
investment earnings, grants and allocated appropriations. The tobacco settlement
was approved by the Massachusetts Superior Court on December 3, 1998. Amounts
credited to the Fund would be made available for expenditure without further
appropriation for the purpose of health care and community services programs and
the enhancement of related information technology services, administrative
services and program evaluation. The Fund would be administered by the Secretary
of Administration and Finance, in consultation with the Secretary of Health and
Human Services, the Secretary of Elder Affairs and the State Treasurer, and he
could make expenditures on his own authority. The Commonwealth expects annual
payments from the tobacco settlement to begin in fiscal 1999, resulting in a
Trust Fund balance of over $360 million by the end of fiscal 2000. Under the
Governor's fiscal 2000 budget recommendations, approximately $201 million would
be expended from the fund in fiscal 2000, resulting in approximately $80 million
in federal reimbursements allocated to the fund. The proposed fiscal 2000
expenditures include approximately $132.2 million to support traditional
Medicaid inflation costs and a $70 million transfer to the Children's and
Seniors' Health Care Assistance Fund to support the existing Health Care Reform
Program. Governor Cellucci's fiscal 2000 budget recommends budgeted Medicaid
spending of $4.034 billion by the Department of Medical Assistance. This level
of spending represents an increase of $141.4 million, or $3.6%, from fiscal
1999, due in part to the Governor's proposal to shift the costs associated with
traditional Medicaid inflation to the Health Care and Community Services Trust
Fund.
The Governor's fiscal 2000 budget recommendations are now being
evaluated by the House Committee on Ways and Means, the first legislative step
in the process of approving a budget for fiscal 2000.
LOCAL GOVERNMENT
Below the level of state government are 9 county governments
responsible for various functions, principally the operation of houses of
correction and registries of deeds. There are 14 counties in Massachusetts, but
county government has been abolished in five of them and is scheduled to
terminate in two others. In his fiscal 2000 budget, Governor Cellucci
recommended the elimination of two additional county governments during the next
two fiscal years. Under legislation enacted in 1996, Franklin County government
terminated on July 1, 1997 in favor of a regional council of governments.
Legislation approved by Governor Weld on July 11, 1997 abolished Middlesex
County government on that date and provided for the abolition of county
government in Hampden and Worcester Counties on July 1, 1998. On August 13,
1998, Acting Governor Cellucci approved legislation abolishing county government
in Hampshire, Essex and Berkshire Counties as of January 1, 1999, July 1, 1999
and July
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1, 2000, respectively. Under the 1997 legislation, virtually all functions,
duties and responsibilities of the affected counties are transferred to the
Commonwealth. As of the date of abolition of an affected county's government,
all valid liabilities and debts of such county which are in force immediately
before such date become obligations of the Commonwealth, and all assets and
revenues of such county become assets and revenues of the Commonwealth. The
Secretary of Administration and Finance is directed to establish an amortization
schedule to recover the Commonwealth's costs from the cities and towns within
each such country over a period not to exceed 25 years. The Secretary of
Administration and Finance is charged with compiling an inventory and providing
for the valuation of all property of all counties in the Commonwealth for the
purposes of considering the abolition of county government and the transfer of
its functions, assets and liabilities to the Commonwealth, and is required to
file a report by February 1, 1999, which report has been delayed. The
legislation approved August 13, 1998 directs the Secretary of Administration and
Finance to analyze, in consultation with the Public Employee Retirement
Administration Commission, the potential cost to the Commonwealth of
transferring current and retired county employees to the state retirement
system. This report was provided to the Legislature in January, 1999.
COMMONWEALTH REVENUES
In order to fund its programs and services, the Commonwealth collects a
variety of taxes and receives revenues from other non-tax sources, including the
federal government and various fees, fines, court revenues, assessments,
reimbursements, interest earnings and transfers from its non-budgeted funds. In
fiscal 1998, approximately 70.8 percent of the Commonwealth's annual budgeted
revenues were derived from state taxes. In addition, the federal government
provided approximately 16.6 percent of such revenues, with the remaining 12.6
percent provided from departmental revenues and transfers from non-budgeted
funds.
The major components of State taxes are the income tax, which accounted
for approximately 55.8 percent of total tax revenues in fiscal 1997, the sales
and use tax, which accounted for approximately 22.4 percent, and the business
corporations tax, which accounted for approximately 7.5 percent. Other tax and
excise sources accounted for the remaining 14.3 percent of total fiscal 1997 tax
revenues.
INCOME TAX. The Commonwealth assesses personal income taxes at flat
rates, according to classes of income, after specified deductions and
exemptions. A rate of 5.95 percent is applied to income from employment,
professions, trades, businesses, rents, royalties, taxable pensions and
annuities and interest from Massachusetts banks; a rate of 12% is applied to
other interest (although interest on obligations of the United States and of the
Commonwealth and its political subdivisions is exempt) and dividends; and, as of
January 1, 1996, a rate ranging from 12 percent on capital gains from the sale
of assets held for one year and less to 0 percent on capital gains from the sale
of certain assets held more than six years. Effective January 1, 1999, the rate
applied to interest income, other than interest income from Massachusetts banks,
and dividends will be reduced from its current rate of 12% to 5.9%.
On July 21, 1998, Acting Governor Cellucci approved legislation
reducing the rate of tax on "Part A" income (interest and dividends) from 12% to
5.95%, effective January 1, 1999. The fiscal 1999 cost is estimated to be $117
million; the fully annualized cost is estimated to be $239 million. The
legislation also phased in a doubling of the personal exemptions applicable to
the "Part B" ("earned") income tax, effective January 1, 1998, with an estimated
fiscal 1999 cost of $600 million (which
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includes costs for January 1, 1998 to June 30, 1998) and an estimated fully
annualized cost of $492 million. In addition, the legislation conformed state
tax law to federal law with respect to Roth and educational IRS's, deferred
compensation, capital gains on the sale of a personal residence, travel and
entertainment deductions and the definition of short-term capital gains. The
estimated aggregate fiscal 1999 cost of these additional changes is less than $5
million, and the estimated aggregate annualized cost, excluding the Roth IRA, is
also less than $5 million. The full impact of the Roth IRA change will only be
felt as those now contributing to Roth IRA's withdraw their investments, over a
period starting more than 20 years from now. The amount of tax cut due to the
Roth IRA change depends on many factors, including the amounts invested, rates
of return earned on those investments and the period over which the earnings are
withdrawn. No definite estimate is currently available for events so far into
the future.
In December 1994, the Governor approved legislation modifying the
capital gains tax by phasing out the tax for assets held longer than six years
and increasing the no-tax status threshold for personal income tax purposes. The
capital gains tax charge did not become effective until January 1, 1996.
Accordingly, it is estimated by the Executive Office for Administration and
Finance to have decreased fiscal 1996 revenues by $21 million, 1997 revenues by
$60 million, and fiscal 1998 revenues by approximately $98 million. It is
expected to decrease fiscal 1999 tax revenues by $135 million. The no-tax status
change is estimated to have reduced fiscal 1995 tax revenues by approximately
$5.5 million and subsequent years tax revenues by $13.3 million.
As part of the fiscal 1997 budget the Legislature established a tax
deduction for the amount by which tuition payments to two- or four-year
colleges, net of financial aid, exceed 25 percent of the taxpayer's adjusted
gross income. The Department of Revenue estimates that this deduction resulted
in no revenue reduction in fiscal 1997 and will result in an approximately $14
million reduction on an annualized basis thereafter.
The fiscal 1998 budget contained three tax cuts with an aggregate
fiscal 1998 cost estimated by the Department of Revenue to be $60.9 million--an
increase in the child dependent deduction from $600 to $1,200 for children up to
age 12 ($15.3 million), a tax credit of up to $6,000 over four years for septic
tank improvements ($17 million) and an earned income tax credit amounting to 10
percent of the federal credit ($28.6 million). The fiscal 1999 impact of these
tax cuts is expected to be $15.3 million, $18 million and $30 million,
respectively.
On November 6, 1997, Acting Governor Cellucci approved legislation
exempting military pensions from the state income tax, effective January 1,
1998. The Department of Revenue estimates that this exemption will result in a
fiscal 1998 revenue reduction of $25.0 million and an approximately $18 million
reduction on an annualized basis thereafter.
On August 10, 1998, Acting Governor Cellucci also approved legislation
providing for the transfer of $200 million to the Tax Reduction Fund as of June
30, 1998. The legislation directs the Commissioner of Revenue to increase 1998
tax year personal exemptions so as to reduce aggregate taxes by the balance in
the Tax Reduction Fund as of December 31, 1998, including any interest earned on
the fund's balances. The Executive Office for Administration and Finance
estimates that by December 31, 1998 the Tax Reduction Fund will have a balance
of approximately $210 million. The personal exemption increases authorized under
this legislation are for the 1998 tax year only. In subsequent years, personal
exemptions will revert to their statutorily authorized levels.
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On January 11, 1999, Governor Cellucci filed legislation that would
reduce personal income tax rates (for both Part A and Part B income) from 5.95%
to 5% over three calendar years beginning on January 1, 2000. The rate would be
5.6% for the 2000 taxable year, 5.3% for the 2001 taxable year and 5% for the
2002 taxable year and thereafter. The Executive Office for Administration and
Finance estimates that the static revenue impact of these changes would be a
reduction of personal income tax collections of approximately $226 million in
fiscal. 2000, approximately $667 million in fiscal 2001, approximately $1.120
billion in fiscal 2002 and approximately $1.390 billion in fiscal 2003, at which
time the rate reduction would be fully implemented.
SALES AND USE TAX. The Commonwealth imposes a 5 percent sales tax on
retail sales of certain tangible properties (including retail sales of meals)
transacted in the Commonwealth and a corresponding 5 percent use tax on the
storage, use or other consumption of like tangible properties brought into the
Commonwealth. However, food, clothing, prescribed medicine, materials and
produce used in food production, machinery, materials, tools and fuel used in
certain industries, and property subject to other excises (except for
cigarettes) are exempt from sales taxation. The sales and use tax is also
applied to sales of electricity, gas and steam for certain nonresidential use
and to nonresidential and most residential use of telecommunications services.
On October 20, 1997, Acting Governor Cellucci announced that the
Department of Revenue will issue regulations changing the payment for
approximately 15,000 sales, meals and room occupancy taxpayers that pay over
$25,000 in tax per year. Under the new simplified rules, beginning January 1,
1998, these taxpayers are required to file a tax return and make a tax payment
on the 20th of each month for taxable sales made during the preceding month.
Under the old rules, affected taxpayers were required to forward tax payments on
the 27th of each month for taxable sales made from the 23rd of the preceding
month to the 22nd of the current month, as well as file a quarterly tax return.
While these new regulations will not affect the amount of tax owed, the
Department of Revenue estimates that the Commonwealth realized a reduction in
fiscal 1998 revenues of $120 million to $160 million, which has been
incorporated into the January 16, 1998 revenue estimates. This reduction will be
a one-time event.
BUSINESS CORPORATIONS TAX. Business corporations doing business in the
Commonwealth, other than banks, trust companies, insurance companies, railroads,
public utilities and safe deposit companies, are subject to an excise that has a
property measure and an income measure. The value of Massachusetts tangible
property (not taxed locally) or net worth allocated to the Commonwealth is taxed
at $2.60 per $1,000 of value. The net income allocated to Massachusetts, which
is based on net income for federal taxes, is taxed at 9.5 percent. The minimum
tax is $456. Both rates and the minimum tax include a 14 percent surtax. The
reduction in fiscal 1996 tax revenues from business corporations compared to
fiscal 1995 was due primarily to an estimated $49 million reduction resulting
from the application of the "single sales factor" apportionment formula,
described below. The fiscal 1997 tax revenue collections reflected an additional
$44 million reduction for the full-year impact of the "single sales"
apportionment formula and a $10 million reduction due to the impact of
legislation enacted in August 1996, which, effective January 1, 1997, changed
the computation of the sales factor for certain mutual fund companies.
On November 28, 1995 the Governor approved legislation establishing a
"single sales factor" apportionment formula for the business corporations tax.
The new formula, when fully implemented, will calculate a firm's taxable income
as its net income times the percentage of its total sales that are in
Massachusetts, as opposed to the prior
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formula that took other factors, such as payroll and property into account. The
new formula was made effective as of January 1, 1996 to certain federal defense
contractors and phased in over five years for manufacturing firms generally. The
Department of Revenue estimated that the revision reduced revenues by $44
million in fiscal 1996, by $90 million in fiscal 1997 and by $110 million in
fiscal 1998. If the new formula were fully effective for all covered businesses,
the Department estimates that the annual revenue reduction would be $100 million
to $150 million.
On August 8, 1996, the Governor approved legislation making two changes
in the apportionment formula for the business corporations tax payable by
certain mutual fund service corporations. Effective January 1, 1997, the
legislation changed the computation of the sales factor; instead of sourcing
sales from the state where the seller bears the cost of performing the services
relating to the sale, the corporations will source sales to the state of
domicile of the ultimate consumer of the service. Effective July 1, 1997, the
legislation changed the prior three-factor formula to a single sales factor
formula, just as the November 1995 legislation had done for certain federal
defense contractors and, over time, for manufacturing firms. Under the new law,
affected corporations are required to increase their numbers of employees by 5
percent per year for five years, subject to exceptions for adverse economic
conditions affecting the stock market or the amount of assets under their
management. The Department of Revenue estimates that the changes resulted in a
revenue reduction of approximately $10 million in fiscal 1997 and will result in
revenue reductions of $39 million to $53 million on an annualized basis
thereafter, starting in fiscal 1998. These estimates do not take into account
any increased economic activity stimulated by the tax cuts.
On August 9, 1996, the Governor signed legislation providing a tax
credit to shippers that pay federal harbor maintenance taxes on cargo passing
through Massachusetts ports. The Department of Revenue estimates that there was
no impact on revenues in fiscal 1997 as a result of this tax credit and the
annualized revenue loss will be approximately $3 million to $4 million,
beginning in fiscal 1998.
BANK TAX. Commercial and savings banks are subject to an excise tax of
12.54 percent. On July 27, 1995, the Governor approved legislation that will
reduce the rate over several years to 10.5 percent, the same effective rate
charged to other corporations. The Department of Revenue estimates that the tax
cut, when fully implemented in fiscal 2000, will result in an annual $39 million
revenue loss, including the effect of provisions in the proposed legislation
that would apply the tax to out-of-state banks and other financial institutions
that are not currently taxed and that would lead to an estimated $18 million
annual gain.
INSURANCE TAXES. Life insurance companies are subject to a 2% tax on
gross premiums; domestic companies also pay a 14% tax on net investment income.
Property and casualty insurance companies are subject to a 2% tax on gross
premiums, plus a 14% surcharge for an effective tax rate of 2.28%; domestic
companies also pay a 1% tax rate on gross investment income. On April 30, 1998,
the House of Representatives approved legislation that would over five years
eliminate the 14% surcharge for property and casualty insurers and the tax on
investment income for both types of domestic insurers. On August 10, 1998,
Acting Governor Cellucci approved legislation that will reduce insurance company
taxes over five years in essentially the manner provided in the legislation
approved by the House of Representatives on April 30, 1998, though the enacted
legislation, unlike the House bill, does not eliminate the 14% surcharge on the
gross premium income of property and casualty insurers. The estimated fiscal
1999 cost
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of these changes is $5 million, and the estimated fully phased-in aggregate
annual value of these tax reductions is $48 million.
OTHER TAXES. Other tax revenues are derived by the Commonwealth from
motor fuels excise taxes, cigarette and alcoholic beverage excise taxes, estate
and deed excises and other tax sources.
On July 24, 1996, the Legislature overrode the Governor's veto of
legislation imposing a 25(cent)-per-pack tax increase on cigarettes, as well as
a 25 percent increase in the tax on smokeless tobacco and a 15 percent tax on
cigars and smoking tobacco, all effective October 1, 1996. The Department of
Revenue estimates that these changes resulted in approximately $74 million in
additional tax revenue for fiscal 1997 and will result in $80 million to $90
million in additional revenue in fiscal 1998. The Department estimates that by
fiscal 2000, when demand for cigarettes will have fully adjusted to the higher
tobacco product prices expected to result from the increased tax, additional
revenues will range from $73 million to $83 million.
In 1992, legislation was enacted by the voters which increased the
tobacco excise tax by 1.25(cent) per cigarette (25(cent) per pack of 20
cigarettes) and 25 percent of the wholesale price of smokeless tobacco,
effective January 1, 1993. Under the legislation, the revenues raised by this
excise tax were to be credited to the Health Protection Fund and expended,
subject to appropriation by the Legislature, to pay for health programs and
education relating to tobacco use. Total revenues deposited in the Health
Protection Fund in fiscal 1993 and fiscal 1994 were $59.5 million and $116.4
million and have been $114 million on an annualized basis since fiscal 1995.
The Commonwealth is authorized to issue special obligation highway
bonds secured by a pledge of all or a portion of the Highway Fund, including
revenues derived from all or a portion of the motor fuels excise tax. The
portion of the motor fuel tax currently pledged to special obligation bonds is
estimated to be approximately $187 million in fiscal 1999. An additional portion
of the motor fuel excise tax, estimated to be approximately $273 million in
fiscal 1999, is subject to a contingent pledge relating to grant anticipation
notes issued in connection with the Central Artery/Ted Williams Tunnel project,
and will be available only if federal highway spending and debt service coverage
levels for the notes fall below specified levels. Additional special obligation
bonds may be issued in the future secured by all or additional portions of the
motor fuels excise tax.
On November 17, 1997, the legislature overrode Acting Governor
Cellucci's veto to enact legislation the Commonwealth to issue special
obligation convention center bonds secured by a pledge of certain taxes related
to tourism and conventions, including a 2.75 percent convention center financing
fee imposed by the legislation on hotel room occupancy in four Massachusetts
cities.
ESTATE TAX REVISIONS. The fiscal 1993 budget included legislation which
gradually phased down the current Massachusetts estate tax until it became a
"sponge tax" in 1997. The "sponge tax" is based on the maximum amount of the
credit for the State taxes allowed for federal estate tax purposes. The estate
was phased out by means of annual increases in the basic exemption from the
original $200,000 level. The exemption was increased to $300,000 for 1993,
$400,000 for 1994, $500,000 for 1995 and $600,000 for 1996. In addition, the
legislation included a full marital deduction starting July 1, 1994. The marital
deduction was limited to 50 percent of the Massachusetts adjusted gross estate
until June 30, 1995. The statistic fiscal impact of the phase-out of
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the estate tax is estimated to have been approximately $25 million in fiscal
1994, approximately $73 million in fiscal 1995, approximately $112 million in
fiscal 1996 and approximately $139 million in fiscal 1997 and is projected to be
approximately $253 million in fiscal 1998.
FEDERAL AND OTHER NON-TAX REVENUES
Federal revenue is collected through reimbursements for the federal
share of entitlement programs such as Medicaid and, beginning in federal fiscal
year 1997, through block grants for programs such as Transitional Assistance to
Needy Families ("TANF"), formerly Aid to Families with Dependent Children
("AFDC"). The amount of federal revenue to be received is determined by state
expenditures for these programs. The Commonwealth receives reimbursement for
approximately 50 percent of its spending for Medicaid programs. Block grant
funding for TANF is received quarterly and its contingent upon a maintenance of
effort spending level determined annually by the federal government.
Departmental and other non-tax revenues are derived from licenses,
registrations and reimbursements and assessments for services. In fiscal 1996, a
revenue maximization pilot project undertaken by the Comptroller and the
Executive office for Administration and Finance yielded almost $39.9 million in
additional federal reimbursement revenues, net of agency and vendor incentive
payments, at the Department of Mental Health, Department of Mental Retardation,
Department of Social Services and Division of Medical Assistance. In fiscal
1997, $41.3 million in additional non-tax revenues resulted in net revenues of
$39.1 million deposited into the General Fund. In fiscal 1998, $37.4 million in
additional non-tax revenues resulted in $30.9 million of net revenues for the
General Fund. In fiscal 1999, an estimated $22.3 million in additional non-tax
revenue will result in an estimated $17.1 million of net revenue for the General
Fund.
The Commonwealth began in fiscal 1997 to phase in a one-time (rather
than annual) passenger vehicle registration fee of $30 and a reduction in the
passenger vehicle operating license renewal fee from the rate of $33.75 to $2,
effective May 1, 2001. The Executive Office for Administration and Finance
estimates that these changes had no effect on fiscal 1997 revenues and reduced
fiscal 1998 revenues by $13.8 million. When all drivers become eligible for free
registration renewals in fiscal 1999, revenues are projected to decline by
approximately $55 million. Revenue reductions due to lifetime licenses will not
begin until fiscal 2001, when they will total approximately $11.3 million. In
fiscal 2001, when all drivers become eligible for free license renewals, the
revenue reduction is estimated to be approximately $45 million. (The
Commonwealth is still maintaining the requirement that all parking tickets,
moving violation citations, excise taxes and insurance premiums be paid before
license and registration renewals are processed, in order to ensure that cities
and towns do not lose revenue from the change to lifetime licenses and
registration.) In May 1997, the Legislature enacted legislation that would
restore registration, license and permit fees credited to the Highway Fund to
the rates in effect on January 1, 1996 if federal aid to the Central Artery/Ted
Williams Tunnel project falls below $550 million in any fiscal year during the
next six years. Governor Weld vetoed this provision. Under the state
constitution, his veto can be overridden by a two-thirds vote of each house of
the Legislature; neither house has acted on the veto.
For the budgeted operating funds, interfund transfers include transfers
of profits from the State Lottery and Arts Lottery Funds and reimbursements for
the budgeted
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costs of the State Lottery Commission, which accounted for $667.3 million,
$709.5 million, $727.5 million, $770.2 million and $848.4 million in fiscal 1994
through 1998, respectively and which are expected to account for
$809.3 million in fiscal 1999.
In 1994, the voters in the statewide general election approved an
initiative petition, effective December 8, 1994, that would slightly increase
the portion of gasoline tax revenue credited to the Highway Fund, one of the
Commonwealth's three major budgeted finds, prohibit the transfer of money from
the Highway Fund to other funds for non-highway purposes and exclude the Highway
Fund balance from the computation of the "consolidated net surplus" for purposes
of state finance laws. The initiative petition also provided that no more than
15 percent of gasoline tax revenues could be used for mass transportation
purposes, such as expenditures related to the Massachusetts Bay Transportation
Authority. This law is not a constitutional amendment and is subject to
amendment or repeal by the Legislature, which may also, notwithstanding the
terms of the initiative petition, appropriate moneys from the Highway Fund in
such amounts and for such purposes as it determines, subject only to a
constitutional restriction that such moneys be used for motor vehicle, highway,
or mass transportation purposes. The Legislature has twice postponed the
effective date of the provision that would exclude the Highway Fund balance from
the computation of the "consolidated net surplus". The most recent postponement
changed the effective date of the provision to July 1, 2000.
On August 9, 1996, the Governor approved legislation, authorizing the
State Lottery Commission to participate with other states in a
multi-jurisdictional lottery. Beginning September, 1996, the Commission joined
with the states of Illinois, Georgia, Maryland, Michigan and Virginia in a
multi-state game that is estimated to generate an additional $30 million per
year in net lottery revenues.
LIMITATIONS ON TAX REVENUES
Chapter 62F, which was enacted by the voters in November, 1986,
establishes a State tax revenue growth limit for each fiscal year equal to the
average positive rate of growth in total wages and salaries in the Commonwealth,
as reported by the federal government, during the three calendar years
immediately preceding the end of such fiscal year. Chapter 62F also requires
that allowable state tax revenues be reduced by the aggregate amount received by
local governmental units from any newly authorized or increased local option
taxes or excises. Any excess in State tax revenue collections for a given fiscal
year over the prescribed limit, as determined by the State Auditor, is to be
applied as a credit against the then current personal income tax liability of
all taxpayers in the Commonwealth in proportion to the personal income tax
liability of all taxpayers in the Commonwealth for the immediately preceding tax
year. The law does not exclude principal and interest payments on Commonwealth
debt obligations from the scope of its tax limit. However, the preamble
contained in Chapter 62F provides that "although not specifically required by
anything contained in this chapter, it is assumed that from allowable State tax
revenues as defined herein the Commonwealth will give priority attention to the
funding of state financial assistance to local governmental units, obligations
under the state governmental pensions systems, and payment of principal and
interest on debt and other obligations of the Commonwealth."
Tax revenues in fiscal 1994 through fiscal 1998 were lower than the
limit set by Chapter 62F and the Executive Office for Administration and Finance
currently estimates that State tax revenues in fiscal 1998 will not reach such
limit.
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YEAR 2000
In June 1997, the Executive Office for Administration and Finance
established a Year 2000 Program Management Office within its Information
Technology Division. The purpose of the office is to ensure accurate monitoring
of the Commonwealth's progress in achieving "year 2000 compliance", i.e.,
remediating or replacing and redeploying affected systems, as well as to
identify risk areas and risk mitigation activities and serve as a resource for
all state agencies and departments. The program management office has asked
agencies to identify "mission critical" and "essential" systems. Mission
critical systems are those which directly affect the health, safety or
livelihood of citizens, which directly affect state revenues or whose loss would
severely jeopardize agency delivery of services. Essential systems are those
whose loss would cause a disruption of some agency services but would not
prevent the agency from delivering primary services. The most recent report
issued by the program management office on February 3, 1999 for the
October-December 1998 quarter indicates that the office is currently monitoring
year 2000 compliance efforts for 170 state agencies, including independent
agencies and constitutional offices. The office assigns a quarterly status code
- - green (low risk), yellow (medium risk) or red (significantly high risk) - to
agencies based on information collected from telephone and personal interviews.
The criteria for the status codes becomes increasingly more stringent each
quarter; the status codes for the most recent quarter are based on the
likelihood for achieving year 2000 compliance with respect to mission critical
systems by January 31, 1999 and with respect to essential systems by May 31,
1999. Of the 170 state agencies rated for the October-December 1998 quarter, 107
were rated green, 21 were rated yellow and 42 were rated red. Those agencies
have identified 298 mission critical systems and 219 essential systems; between
57% and 69% of the Mission Critical Systems and between 85% and 90% of the
Essential Systems were likely to meet the May 31, 1999 target date. The report
notes that while agency projects are becoming more stable, more management
attention was needed for schedule slippage from quarter to quarter to address
problems as the remaining time diminishes. The report also notes that the number
of mission critical systems in the red category has risen from 67 to 92, and is
too high. The report also notes that year 2000 exposure for "embedded systems,"
particularly devices used for control systems remains an area of concern, but
the percentage of affected assets is not as high as was originally estimated.
Agencies with significant exposure in this area made good progress in the
October-December, 1998 quarter. This exposure affects only a few agencies, but
the impact of failures would be significant, e.g., switches and signals for the
MBTA, a variety of systems at Logan Airport for the Port Authority, toll
collection and ticket systems for the Turnpike Authority, water and sewer
management and treatment systems for the Massachusetts Water Resources Authority
and traffic signals for the Massachusetts Highway Department.
Legislation approved by the Acting Governor on August 10, 1998
appropriated $20.4 million for expenditure by the Information Technology
Division to achieve Year 2000 compliance for the six Executive Offices and other
departments which report directly to the Governor. This amount has been fully
designated, and no longer includes a reserve for unanticipated projects. On
January 27, 1999, the Governor filed a supplemental budget which included an
additional $15 million for Year 2000 compliance. The Secretary of Administration
and Finance is to report quarterly to the Legislature on the progress being made
to address the year 2000 compliance efforts, and to assess the sufficiency of
funding levels.
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LITIGATION
There are pending in state and federal courts within the Commonwealth
and in the Supreme Court of the United States various suits in which the
Commonwealth is a party. In the opinion of the Attorney General, no litigation
is pending or, to his knowledge, threatened which is likely to result, either
individually or in the aggregate, in final judgments against the Commonwealth
that would affect materially its financial condition.
COMMONWEALTH PROGRAMS AND SERVICES. From time to time actions are
brought against the Commonwealth by the recipients of governmental services,
particularly recipients of human services benefits, seeking expanded levels of
services and benefits and by the providers of such services challenging the
Commonwealth's reimbursement rates and methodologies. To the extent that such
actions result in judgments requiring the Commonwealth to provide expanded
services or benefits or pay increased rates, additional operating and capital
expenditures might be needed to implement such judgments. In June 1993, in an
action challenging the Commonwealth's funding of public primary and secondary
education systems on both federal and state constitutional grounds, WEBBY V.
DUKAKIS (now known as MCDUFFY V. ROBERTSON, Supreme Judicial Court for Suffolk
County No. 90-128), the Supreme Judicial Court ruled that the Massachusetts
Constitution imposes an enforceable duty on the Commonwealth to provide adequate
public education for all children in the Commonwealth and that the Commonwealth
was not at that time fulfilling this constitutional duty. However, the court
also ruled that the Legislature and the Governor were to determine the necessary
response to satisfy the Commonwealth's constitutional duty, although a single
justice of the court could retain jurisdiction to determine whether, within a
reasonable time, appropriate legislative action had been taken. Comprehensive
education reform legislation was approved by the Legislature and the Governor
later in June 1993. On May 10, 1995, the plaintiffs filed a motion for further
relief, arguing that the 1993 legislation did not provide sufficiently for
public education and that its timetable was too slow. It cannot be determined at
this time what further action, if any, the plaintiffs in McDuffy may take or
whether the court will order any further relief.
LOPEZ V. BOARD OF EDUCATION ET AL. (Supreme Judicial Court for Suffolk
County No. 98-584). Plaintiff students in certain school districts on Cape Cod
invoked the decision of the Supreme Judicial Court in MCDUFFY, supra, and
challenged the constitutionality of the school financing formula contained in
the education reform act. The plaintiffs seek declaratory relief, additional
appropriations and damages. The court dismissed the Senate, the House of
Representatives and the State Treasurer as defendants in the case, but permitted
plaintiffs to amend their complaint, upon motion, to add the Commonwealth as a
defendant.
Challenges by residents of five state schools for the retarded in RICCI
V. MURPHY (U.S. District Court C.A. No. 72-469-T) resulted in a consent decree
in the 1970's which required the Commonwealth to upgrade and rehabilitate the
facilities in question and to provide services and community placements in
western Massachusetts. The District Court issued orders in October 1986 leading
to termination of active judicial supervision. On May 25, 1993, the District
Court entered a final order vacating and replacing all consent decrees and court
orders. In their place, the final order requires lifelong provisions for
individualized services to class members and contains requirements regarding
staffing, maintenance of effort (including funding) and other matters.
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ROLLAND V. CELLUCCI (U.S. District Court C.A. No. 98-32208 KPN) is a
class action by mentally retarded nursing home patients seeking community
placements and services. The Commonwealth's motion to dismiss and plaintiff's
motion for class certification are currently pending.
In BEAULIEU V. BELMONT (U.S. District Court No. 95-12382GAO), the
plaintiffs are former residents of the Fernald School, a facility of the
Department of Mental Retardation. They allege that in the 1950's they were fed
radioactive isotopes without their informed consent. They claim violations of
their civil rights, battery, invasion of privacy, loss of consortium and
misrepresentation. The amount of potential liability is estimated to be $25
million.
Both COMMONWEALTH OF MASSACHUSETTS V. RUGGLES CENTER JOINT VENTURE
(Suffolk Superior Court No. 47-1764-A) and RUGGLES CENTER, LLC V. BEACON
CONSTRUCTION CORPORATION (Suffolk Superior Court No. 96-0637-E) involve an
indoor air quality dispute regarding the former headquarters of the Registry of
Motor Vehicles at Ruggles Center in Boston. In 1997, the Commonwealth commenced
suit against the former building owners, Ruggles Center Joint Venture (RCJV), as
well as the general contractor, the architect, the mechanical engineer and the
manufacturer of the fireproofing, to recover losses associated with the indoor
air quality (IAQ) problems, including the costs of relocating the agency and
workers' compensation payments paid to employees. RCJV has filed a counterclaim
against the Commonwealth alleging breach of lease, breach of covenant of good
faith and fair dealing and negligence. RCJV claims that it fulfilled all of its
obligations under the lease and its amendment and that the Commonwealth
wrongfully terminated these agreements, and that the Commonwealth's negligence,
or that of its contractors, cause the IAQ problems. RCJV seeks to recover the
costs associated with its efforts to remedy the IAQ problems, additional rent
payments under the lease, and the value of RCJV's equity in the project had the
lease not been terminated. In the second and related case, the building owner
has sued the general contractor to recover on the performance bond. Many second,
third and fourth parties have been impleaded. The Registry of Motor Vehicles and
the Division of Capital Planning and Operations have been named as fourth-party
defendants by the manufacturer of the fireproofing, United States Mineral
Products Co., Inc., which has asserted a claim for indemnification. These cases
have been consolidated for discovery. Total potential liability to the
Commonwealth in each case is approximately $25 million.
DIBIASE V. COMMISSIONER OF INSURANCE (Suffolk Superior Court No.
96-4241-A) is a putative class action suit in which the plaintiffs seek to
invalidate most of Chapter 178A of the Massachusetts General Laws, which is the
savings bank life insurance statute. The suit alleges that the statute's
conversion of the former savings bank life insurance system established by
former Chapter 178 of the Massachusetts General Laws deprived policyholders
under the old system of more than $60 million in "surplus" and $11 million in
the former General Insurance Guaranty Fund, the proceeds of both of which
assertedly belonged to them. The defendants have moved to dismiss on statute of
limitations grounds, and the plaintiffs have cross-moved for partial summary
judgment on a claim of alleged procedural due process violations. On October 16,
1997, the Court dismissed the case on statute-of-limitations grounds. The
plaintiff appealed. On February 1, 1999, the Supreme Judicial Court affirmed the
judgment of the Superior Court.
In RAMOS V. MCINTIRE (Suffolk Superior Court No. 98-2154), plaintiffs
allege that the Department of Transitional Assistance violated stated and
federal law, including the American with Disabilities Act, by failing to
accommodate welfare recipients with
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learning disabilities in its Employment Services Program. The court has denied,
without prejudice, plaintiffs' motions for class certification and injunctive
relief. If the case remains limited to the two existing plaintiffs, potential
liability will likely be under $50,000. However, if the Court at some point
allows a motion for class certification, potential liability could increase to
$33.5 million.
PERRY V. BULLEN and RUDOW V. BULLEN (Supreme Judicial Court No. 7760)
challenge decisions of the Division of Medical Assistance, which denied
deductions for court-ordered attorney and guardian fees in the calculation of
Medicaid benefits for two nursing home residents. DMA argues that federal law
does not permit such deductions. The Superior Court held that the costs of
guardianship are deductible because they are "necessary medical expenses." DMA
has appealed. The Supreme Judicial Court has granted direct appellate review.
While the appeal involves only two nursing home residents, the reasoning of the
Superior Court, if extended to other Medicaid recipients, may require the
additional expenditure of up to $56 million per year.
ENVIRONMENTAL MATTERS. The Commonwealth is engaged in various lawsuits
concerning environmental and related laws, including an action brought by the
U.S. Environmental Protection Agency alleging violations of the Clean Water Act
and seeking to enforce the clean-up of Boston Harbor. UNITED STATES V.
METROPOLITAN DISTRICT COMMISSION (U.S. District Court C.A. No. 85-0489-MA). See
also CONSERVATION LAW FOUNDATION V. METROPOLITAN DISTRICT COMMISSION (U.S.
District Court C.A. No. 83-1614-MA). The Massachusetts Water Resources Authority
(MWRA), successor in liability to the Metropolitan District Commission (MDC),
has assumed primary responsibility for developing and implementing a
court-approved plan and timetable for the construction of the treatment
facilities necessary to achieve compliance with the federal requirements. The
MWRA currently projects that the total cost of construction of the waste water
facilities required under the court's order, not including combined sewer
outflow (CSO) costs, will be approximately $3.142 billion in current dollars,
with approximately $601 million to be spent after June 30, 1997. With CSO costs,
the MWRA anticipates spending approximately $901 million after that date. Under
the Clean Water Act, the Commonwealth may be liable for any cost of complying
with any judgment in these or any other Clean Water Act cases to the extent the
MWRA or a municipality is prevented by state law from raising revenues necessary
to comply with such a judgment.
On February 12, 1998, the U.S. Department of Justice filed a complaint
in federal district court seeking to compel the MWRA to build a water filtration
plant for the metropolitan Boston water supply and, together with the MDC, to
take certain watershed protection measures. UNITED STATES V. MWRA (U.S. District
Court C.A. No. 98-10267). The MWRA Board of Directors has voted to apply to the
state Department of Environmental Protection for a ruling that it not be
required to filter water; a decision by DEP is expected by the end of 1998. The
federal district court has issued a scheduling order under which it will decide
in March, 1999 whether the Safe Water Drinking Act compels the MWRA to build a
filtration system or whether the MWRA can demonstrate that its data entitles it
to avoid building such a system. It is too early to predict what remedy the
court will order if it decides adversely to the MWRA.
TAXES AND OTHER REVENUES. In THE FIRST NATIONAL BANK OF BOSTON V.
COMMISSIONER OF REVENUE (Appellate Tax Board No. F232249), The First National
Bank of Boston challenges the constitutionality of the former version of the
Commonwealth's bank excise tax. In 1992, several pre-1992 petitions filed by the
bank, which raised the same issues, were settled prior to a board decision. The
bank has now filed claims with
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respect to 1993 and 1994. The bank claims that the tax violated the Commerce
Clause of the United States Constitution by including its worldwide income
without appointment. The Department of Revenue estimates that the amount of
abatement, including interest, sought by the First National Bank of Boston,
could total $135 million.
In addition, there are several tax cases pending that could result in
significant refunds if taxpayers prevail. It is the policy of the Attorney
General and the Commissioner of Revenue to defend such actions vigorously on
behalf of the Commonwealth, and the descriptions that follow are not intended to
imply that the Commissioner has conceded any liability whatsoever.
On March 22, 1995, the Supreme Judicial Court issued its opinion in
PERINI CORPORATION V. COMMISSIONER OF REVENUE (Supreme Judicial Court No. 6657).
The court held that certain deductions from the net worth measure of the
Massachusetts corporate excise tax violate the Commerce Clause of the United
States Constitution. The court remanded the case for entry of a declaration and
further proceedings, if necessary, to determine other appropriate remedies. On
October 2, 1995, the United State Supreme Court denied the Commonwealth's
petition for a writ of certiorari. The Supreme Judicial Court, on April 30,
1996, entered a partial final judgment implementing its decision for tax years
ending prior to January 1, 1995. The Department of Revenue estimates that tax
revenues in the amount of $40 million to $55 million may be abated as a result
of the partial final judgment. On May 13, 1996, the Court entered an order for
judgment and memorandum concerning relief for tax years ending on or after
January 1, 1996. A final judgment was entered on June 6, 1996. The Department of
Revenue has paid approximately $17 million to date in abatements in accordance
with the judgment. To date, the total amount for abatements requested, including
those that have been paid, and that are in the process of being evaluated, is
$35 million.
Approximately $80 million in taxes and interest in the aggregate are at
issue in several other cases pending before the Appellate Tax Board or on appeal
to the Appeals Court of the Supreme Judicial Court.
EMINENT DOMAIN. In SPAULDING REHABILITATION HOSPITAL CORPORATION V.
MASSACHUSETTS HIGHWAY DEPARTMENT (Suffolk Superior Court. No. 95-4360C), the
Spaulding Rehabilitation Hospital filed an action to enforce an agreement to
acquire its property by eminent domain, in connection with the Ted Williams
Tunnel/Central Artery project. On March 13, 1998, the Superior Court entered
judgment for the Commonwealth dismissing the complaint. The plaintiff has
appealed the Superior Court's judgment.
THOMAS RICH V. COMMONWEALTH OF MASSACHUSETTS (Norfolk Superior Court
No. 94-2319) and SHEA V. COMMONWEALTH (Norfolk Superior Court No. 97-1070-B) are
eminent domain cases concerning property in the city of Quincy. The Commonwealth
faces a potential liability of $30 million. The cost of remediation of
contaminated soil will also be an issue.
Pursuant to a verdict on the Trilling Way parcel in P&P REALTY CO.,
INC. V. DEPARTMENT OF PUBLIC WORKS (Suffolk Superior Court No. 92-2081), the
Commonwealth will pay $6 million. On November 30, 1998, the case settled for
approximately $15.8 million.
P.A. LANDERS V. MASSACHUSETTS HIGHWAY DEPARTMENT and MAYFLOWER V.
MASSACHUSETTS HIGHWAY DEPARTMENT (Plymouth Superior Court Nos. 45-922-A and 46-
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923-B). These are eminent domain claims involving the Route 44 project in
Plymouth. Potential liability is $30 million. The pro tanto was $3.5 million.
MASSACHUSETTS PORT AUTHORITY, BIRD ISLAND LTD. PARTNERSHIP AND HILTON
HOTELS V. COMMONWEALTH OF MASSACHUSETTS (Suffolk Superior Court Nos. 96-4803-C,
94-6966, 94-2830-E, 94-2831-F, 94-5745-B, 94-5744-A and 96-6789-E) are eminent
domain cases concerning a land acquisition in East Boston for the Central
Artery/Ted Williams Tunnel project6. On January 15, 1998, the case was settled
for $24.8 million.
4. RHODE ISLAND
SPECIAL CONSIDERATIONS REGARDING INVESTMENTS IN
RHODE ISLAND MUNICIPAL SECURITIES
The following is a summary of certain information contained in the
Information Statement of the State of Rhode Island and Providence Plantations
dated October 1, 1998. The summary does not purport to be a complete description
and is current as of the date of the information statement. The Funds are not
responsible for the accuracy or timeliness of this information.
Rhode Island municipal securities may fluctuate in value in response to
a variety of factors, including the economic strength of State and local
governments and the availability of federal funding.
ECONOMIC FORECAST
The Revenue Estimating Conference incorporates a range of economic
forecasts and economic information in making revenue estimates. During its May
1998 meeting, forecasts were presented by Data Resources, Inc. (DRI), Regional
Financial Associates (RFA), and The New England Economic Project (NEEP). Current
employment and labor force trends were also presented by the Department of Labor
and Training.
RFA, DRI, and NEEP all forecast that economic growth will continue
throughout fiscal year 1999, albeit at a more moderate pace.
EMPLOYMENT
There was some disparity among the economists with respect to the
employment forecast. In fiscal year 1998, growth was anticipated in the range of
1.6 percent to 1.9 percent, and in fiscal year 1999, growth is expected to fall
in the range of 1.0 percent to 1.4 percent. The disparity may be partially
explained by problems in data sampling.
Benchmark revisions for fiscal year 1997 resulted in annual employment
growth of 1.7 percent, versus the preliminary figure 1.0 percent. RFA revised
its 1998 nonfarm employment growth from 0.6 percent in November, to 1.9 percent
in May.
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PERSONAL INCOME
Personal income growth rates vary from 4.8 percent to 5.1 percent in
fiscal year 1998, and 4.1 percent to 5.5 percent in fiscal year 1999. Personal
income tax receipts have increased dramatically due to continued strength in
financial markets.
WAGE AND SALARY INCOME
A fairly wide range of forecasts was present in wage and salary growth
estimates, from 5.2 percent to 6.1 percent in fiscal year 1998, and 4.7 percent
to 6.4 percent in fiscal year 1999. This disparity also contributes to the
differential in estimated personal income growth. The more optimistic outlook
may reflect the theory that high wage earners are realizing greater salary
gains, as well as larger and more frequent bonuses. The dramatic rise in wage
and salary income since 1996 further indicates that Rhode Island is increasingly
creating higher paying jobs. This is further evidenced by the shift away from
low-paying manufacturing employment toward higher paying services employment.
GENERAL FUND REVENUES AND EXPENDITURES
The State draws nearly all of its revenue from a series of non-property
related taxes and excises, principally the personal income tax and general
retail sales and use tax, from federal assistance payments and grants-in-aid and
from earnings and receipts from certain State-operated programs and facilities.
The State additionally derives revenue from a variety of special purpose fees
and charges that must be used for specific purposes as required by State law.
MAJOR SOURCES OF STATE REVENUE
TAX REVENUES. Approximately 67.6 percent of all taxes and departmental
receipts in fiscal year 1997 were derived from the Rhode Island personal income
tax and the sales and use tax. They constituted 60.8 percent of all general
revenues.
PERSONAL INCOME TAX. State law provides for a personal income tax on
residents and non-residents (including estates and trusts) equal to a percentage
of the federal income tax liability attributable to the taxpayer's Rhode Island
income. Effective with the passage of Chapter 6 of the 1991 Rhode Island Public
Laws, the State rate became 27.5 percent of the taxpayer's federal income tax
liability for the period January 1, 1991 and thereafter. However, Article 30 of
the 1993 Appropriations Act provided for a second tier rate of 32.0 percent on
the amount of a taxpayer's federal tax liability which is in excess of fifteen
thousand dollars. This provision remained in effect through tax year 1993,
although the Tax Administrator, using his authority to adjust rates (as
described below), modified the second tier rates in October 1993. This was done
to offset the effects of changes in federal tax law contained in the Omnibus
Budget Reconciliation Act of 1993 (H.R. 2264).
A resident's Rhode Island taxable income is equal to his or her federal
income, subject to specified modifications. A non-resident's Rhode Island income
is equal to such non-resident's income less deductions (including such
taxpayer's share of the income and deductions of any partnership, trust, estate,
electing small business corporations, or domestic international sales
corporation), subject to specified modifications which are included in computing
his or her federal adjusted gross income and are derived from or
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connected with any property located or deemed to be located in the State and any
income producing activity or occupation carried on in the State. Although the
law provides for certain adjustments to be made to federal taxable income to
arrive at the Rhode Island income of residents and non-residents, the Rhode
Island personal income tax essentially "piggy-backs" federal income tax law and
thus is affected by any modifications to the federal tax base. The fiscal year
1997 Appropriations Act, however, provided that new federal credits enacted
after January 1, 1996 shall not be allowed as a deduction when computing the
state tax. Current law allows the Tax Administrator to modify income tax rates
as necessary when the Assembly is not in session to adjust for federal tax law
changes to ensure maintenance of the revenue base upon which appropriations are
made. The fiscal year 1998 Appropriations Act reduced the personal income tax
rate from 27.5 percent of federal liability to 27.0 percent, effective January
1, 1998, and from 27.0 percent to 26.5 percent effective January 1, 1999. It
also increased the Investment Tax Credit from 4.0 percent to 10.0 percent, and
increased the Research and Development Tax Credit from 5.0 percent to 22.5
percent effective January 1, 1998. The Rhode Island personal income tax
accounted for approximately 34.3 percent of the State's fiscal year 1997 general
revenues.
SALES AND USE TAX. The State assesses a tax on all retail sales,
subject to certain exceptions, and on hotel and other public accommodation
rentals, as well as upon the storage, use or other consumption of tangible
personal property in the State. The sales and use tax is imposed upon the
retailer at the rate of 7.0 percent of the gross receipts from taxable sales.
Included as major exemptions from the tax are: (a) food (excluding food sold by
restaurants, drive-ins or other eating places) for human consumption off the
premises of the retailer; (b) clothing; (c) medicines sold on prescription; (d)
fuel used in the heating of homes and residential premises; (e) domestic water
usage; (f) gasoline and other motor fuels otherwise specifically taxed; (g)
sales of tangible property and public utility services when the property or
service becomes a component part of a manufactured product for resale, or when
the property or service is consumed directly in the process of manufacturing or
processing products for resale and such consumption occurs within one year from
the date such property is first used in such production; (h) tools, dies and
molds and machinery and equipment (including replacement parts thereof) used
directly and exclusively in an industrial plant in the actual manufacture,
conversion or processing of tangible personal property to be sold; (i) sales of
air and water pollution control equipment for installation pursuant to an order
by the State Director of Environmental Management; and (j) sales of boats or
vessels.
The fiscal year 1991 Reissuance of Appropriations Act, Article 4,
provided that the sales tax rate would remain at 7.0 percent for the period
commencing July 1, 1990. In addition, subject to annual appropriation by the
General Assembly, the Rhode Island Depositors Economic Protection Corporation
Act dedicated one-half cent of the total levy per dollar to "...be utilized to
pay the debt service of the corporation and otherwise effectuate the purposes of
the corporation" effective July 1, 1991. Legislation enacted by the 1992
Assembly increased the dedication under the Rhode Island Depositors Economic
Protection Corporation Act from one-half to six-tenths of one cent, exclusive of
any receipts resulting from any expansion of the coverage in sale and use taxes
through legislation enacted subsequent to February 1, 1992.
The sales and use tax accounted for approximately 26.5 percent of the
State's fiscal year 1997 general revenues.
BUSINESS CORPORATION TAX. The business corporation tax is imposed on
corporations deriving income from sources within the State or engaging in
activities for
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the purpose of profit or gain. Article 20 of the 1990 Budget as
amended set a rate of 9.0 percent effective July 1, 1989. In addition, Chapter
27 of the Rhode Island Public Laws of 1990 requires that two installments of the
Business Corporation Tax shall be paid in advance, based upon the estimated tax
declared for taxable years ending December 31, 1990 or thereafter. Passage of
the fiscal year 1991 Reissuance of Appropriations Act provided for a surtax of
11.0 percent on the amount otherwise due for corporations whose taxable year
ends on or after March 31, 1991 and before January 1, 1993.
The Corporation tax was amended in 1993 to change the carry-back,
carry-forward provisions from 3 years back, 15 years forward to 5 years forward.
In addition, the minimum business or franchise tax was raised from $100 to $250.
Two reductions to the business corporation tax were enacted as part of the
fiscal year 1994 Budget; the first repealed the 11.0 percent surtax for
corporations whose taxable years begin on or after January 1, 1994 (an extension
to January 1, 1997 was enacted in 1993), and the second doubled the Investment
Tax Credit from two to four percent for investments made beginning January 1,
1994. The fiscal year 1998 Appropriation Act modified taxes due under the
Business Corporations Tax by providing for enhanced credits. Specifically, the
budget provided for an increase in the Investment Tax Credit from 4.0 percent to
10.0 percent for machinery and equipment expenditures and increased the Research
and Development Tax Credit for qualified research expenses from 5.0 percent to
22.5 percent, both effective January 1, 1998.
Corporations dealing in securities on their own behalf, whose gross
receipts from such activities amount to at least 90.0 percent of their total
gross receipts, have been exempt from the net worth computation but are required
to pay the 9.0 percent income tax. Regulated investment companies and real
estate investment trusts and personal holding companies pay a tax at the rate of
10(cent) per $100 of gross income or $100, whichever is greater. Such corporate
security dealers, investment companies, investment trusts and personal holding
companies are allowed to deduct from net income 50.0 percent of the excess of
capital gains over capital losses realized during the taxable year when
computing the tax.
HEALTH CARE PROVIDER ASSESSMENT. The 1992 Legislature enacted a health
care provider assessment on residential facilities for the mentally retarded in
the fiscal year 1992 Supplemental Budget Bill. This was a medicaid provider
specific tax levy of 25.0 percent on gross revenues on community residences for
the mentally retarded. That assessment fell within the guidelines of the federal
legislation enacted in November of 1991 concerning medicaid provider specific
taxes. In mid-September 1994, the levy dropped to 6.0 percent because of new
federal limitations on reimbursements for this tax.
The Legislature also enacted a 2.75 percent tax on gross revenues for
nursing homes and a 1.50 percent tax on gross revenues from free-standing
medicaid facilities not associated with hospitals as part of the fiscal year
1993 budget. This tax was scheduled to end September 30, 1995; however, the
fiscal year 1996 Appropriations Act extended the tax on nursing facilities to
September 30, 1997 and raised the rate to 3.75 percent effective October 1,
1995. The fiscal year 1998 Budget provided for elimination of the previously
enacted sunset date and made the tax permanent.
TAXES ON PUBLIC SERVICE CORPORATIONS. A tax ranging from 1.25 percent
to 8.0 percent of gross earnings is assessed annually against any corporation
enumerated in Title 44, Chapter 13 of the General Laws, incorporated under the
laws of the State or doing business in Rhode Island. In the case of corporations
whose principal business is
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manufacturing, selling or distributing currents of electricity, the rate of tax
imposed is 4.0 percent. For those corporations manufacturing, selling or
distributing illuminating or heating gas, the rate of tax imposed is 3.0 percent
of gross earnings. Corporations providing telecommunications services were
assessed at the rate of 6.0 percent, until July 1, 1997, at which time the rate
was reduced to 5.0 percent. However, 100.0 percent of the amounts paid by a
corporation to another corporation for connecting fees, switching charges and
carrier access charges are excluded from the gross earnings of the paying
company. The minimum tax payable is $100. The tangible personal property within
the State of telegraph, cable, and telephone corporations used exclusively for
the corporate business, is exempt from taxation, subject to certain exceptions.
Article 14 of the fiscal year 1995 Appropriations Act prescribed a
phase out of the portion of the public service corporations tax imposed on
energy used in manufacturing effective July 1, 1994. The tax on electricity was
lowered one percent for four years, and was fully eliminated on July 1, 1997.
The tax on natural gas was lowered one percent per year for the next three
years, and was fully eliminated on July 1, 1996. The article contained
provisions to ensure that the tax savings would be passed on directly to
manufacturers.
TAX ON INSURANCE COMPANIES. Each insurance company transacting business
in Rhode Island must file a return each year on or before March 1 and pay a tax
of 2.0 percent of its gross premiums. These are premiums on insurance contracts
written during the preceding calendar year on Rhode Island businesses. The same
tax applies to an out-of-state insurance company, but the tax cannot be less
than that which would be levied by the State or foreign country on a similar
Rhode Island insurance company or its agent doing business to the same extent
there. Effective December 31, 1989, premiums from marine insurance issued in
Rhode Island became exempt from the tax on gross premiums. The fiscal year 1998
Appropriations Act provided for an increase in the investment tax credit for
insurance companies from 4.0 percent to 10.0 percent for machinery and equipment
expenditures effective January 1, 1998.
Insurance and surety companies are exempt from the business corporation
tax and annual franchise tax, but they are subject to provisions concerning any
estimated taxes which may be due. Through the provisions of Article 33 of the
fiscal year 1990 Appropriations Act, surplus line brokers were included under
the statutes relative to estimated taxes.
TAX ON BANKING INSTITUTIONS-EXCISE TAX. For the privilege of existing
as a banking institution during any part of the year, each State bank, trust
company, or loan and investment company in the State must annually pay an excise
tax measured by (1) 9.0 percent of its net income of the preceding year, or (2)
$2.50 per $10,000 or a fraction thereof of its authorized capital stock as of
the last day of the preceding calendar year. The tax payable is the higher of
the two. A national bank within the State must only pay the excise tax measured
by option (1) above. The minimum tax payable is $100. Mutual savings banks and
building and loan associations are subject to tax, effective January 1, 1998.
The fiscal year 1998 Appropriations Act provided for an increase in the
investment tax credit for banking institutions from 4.0 percent to 10.0 percent
for machinery and equipment expenditures effective January 1, 1998.
TAX ON BANKING INSTITUTIONS-INTEREST BEARING DEPOSITS. Chapter 410 of
the Public Laws of 1986 established current tax rates on banking institutions.
For institutions with over $150 million in deposits, the rate was
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.0695(cent) on each one hundred dollars ($100) of deposits. For institutions
with $150 million or less in deposits, the rate was .0625(cent) on each one
hundred dollars ($100). Under Article 29 of the fiscal year 1993 Appropriations
Act, the tax rates applied to credit unions were set equal to those levied on
other banking institutions and the tax is applied to average daily deposits held
for the full calendar year for all types of banking institutions. Article 34 of
the fiscal year 1996 Appropriations Act reduces the rates on banking
institutions with over $150 million in deposits to .0348 cents on each one
hundred dollars of deposits and .0313 cents on each one hundred dollars of
deposits for those institutions with less than $150 million in deposits for the
1997 calendar year. The rate was set to zero beginning January 1, 1998 and
thereafter. The deposits base includes all but that percentage equivalent to
total assets as are invested in obligations of the United States and excludes
those deposits of a branch or office located outside the State of Rhode Island
or those of an international banking facility of any banking institution. The
fiscal year 1996 Appropriations Act eliminated certain exclusions relative to
the tax on credit unions effective January 1, 1996, but did not make changes
relative to the rate of tax.
Chapter 15 of the 1992 Rhode Island Public Laws changed the timing of
the estimated payments. The legislation placed the bank deposit tax on the same
calendar basis as the other business taxes.
ESTATE TAX. For decedents who died before January 1, 1986, a tax was
assessed on each decedent's estate at rates ranging from 2.0 percent to 9.0
percent of the net estate depending on its value. The exemption for all estates
is $25,000, and the marital deduction is $175,000. An orphan's deduction is
allowed similar to the deduction allowed under federal law.
Current law, established under the provisions of the 1991
Appropriations Act, provides for the phasing out of the estate tax, with the
minimum tax set equal to the maximum credit allowable under federal estate tax
law. Rates are equal to 40 percent of the tax otherwise payable for estates of
decedents whose deaths occurred on or after June 1, 1990 and prior to January 1,
1992. For decedents whose deaths occurred on or after January 1, 1992, the
estate tax equaled the maximum credit allowable under federal estate tax law,
providing for the full implementation of the phase out. The time period for
filing a return was reduced from ten to nine months under this legislation.
CIGARETTE TAX. Article 17 of the 1990 Appropriations Act established
rates equal to 18.5 mills per cigarette (37 cents per package of 20) effective
on June 29, 1989. The fiscal year 1994 Budget increased the rate from 18.5 mills
per cigarette to 22.0 mills per cigarette (from 37 cents to 44 cents per package
of 20 cigarettes) and to 56 cents per pack, effective July 1, 1994. The fiscal
year 1996 Appropriations Act increased the tax by five cents to 61 cents per
pack effective July 1, 1995. Article 12 of the fiscal year 1998 Appropriations
Act raised the tax by 10 cents to 71 cents per pack effective July 1, 1997.
GASOLINE TAX. The tax is due and is not refundable on the sale of all
fuels used or suitable for operating internal combustion engines other than fuel
used: (a) for commercial fishing and other marine purposes other than operating
pleasure craft; (b) in engines, tractors, or motor vehicles not registered for
use or used on public highways by lumbermen, water well drillers and farmers;
(c) for the operation of airplanes; (d) by manufacturers who use diesel engine
fuel for the manufacture of power and who use fuels other than gasoline and
diesel engine fuel as industrial raw material; and (e) for municipalities and
sewer commissions using fuel in the operation of vehicles not registered for use
on public highways.
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Chapter 6 of the 1991 Rhode Island Public Laws modified the gasoline
tax floor from 18 cents per gallon to 23 cents per gallon, effective upon
passage. In addition, the minimum tax under the gasoline excise component was
changed from two to three cents per gallon for a total gasoline tax floor of 26
cents per gallon upon passage of the Act.
The fiscal year 1993 Budget increased the dedicated portion of gas tax
receipts to the Highway Reconstruction and Repair account from five cents to
seven cents and from zero to three cents to the Rhode Island Public Transit
Authority (RIPTA). The 1994 Appropriations Act raised the gasoline tax of 28
cents per gallon, an increase of 2 cents. One cent continues to be deposited as
general revenue through June 30, 1998, and the remaining 27 cents were deposited
in the Intermodal Surface Transportation Fund (ISTF). ISTF funds were
distributed to RIPTA (3 cents), Elderly and Handicapped Transportation (1 cent),
and the General Revenue Fund (10 cents), with the remainder used to finance the
Department of Transportation (13 cents). The fiscal year 1996 Appropriations Act
decreased the portion of the tax deposited in General Revenue by one cent (to 9
cents), and reallocated that portion to the Department of Transportation. The
fiscal year 1998 Appropriations Act again modified the distribution of ISTF
receipts. The share of the gasoline tax transferred to the general fund
decreased by 2 cents (to 7 cents), thereby increasing the Department of
Transportation share by 2 cents (to 16 cents). The fiscal year 1999
Appropriations Act requires that the full 28 cents of the gas tax be deposited
in the ISTF, and again modified the distribution. Beginning in fiscal year 1999,
the tax is allocated as follows: Department of Elderly Affairs (1 cent), RIPTA
(5 cents), Department of Transportation (17.5 cents), and Transfer to General
Fund (4.5 cents). In fiscal year 2000 and each year thereafter, the portion
allocated for transfer to the general fund will decrease by one cent and will be
dedicated to the Department of Transportation until the entire gas tax is
dedicated to transportation purposes.
OTHER TAXES. In addition to the above described taxes, the State
imposes various fees, taxes and excises for the registration of domestic and
foreign corporations, the sale of liquor and other alcoholic beverages, the
registration of motor vehicles and the operation of pari-mutual betting.
DEPARTMENTAL REVENUES. The largest category of departmental earnings is
the group defined as licenses and fees, due largely to the assessment of the
hospital licensing fee, which was intended to be a one year fee that yielded
$77.3 million in fiscal year 1995. The fiscal year 1996 Appropriations Act
extended the fee one year but at a lower rate generating $37.5 million. The
fiscal year 1997 Appropriations Act extended the fee for an additional year at
the same rate of 2.2 percent, yielding $37.5 million. The fiscal year 1998
Appropriations Act also extended the fee for an additional year and imposed a
rate of 2.0 percent, which yielded $37.4 million. The fiscal year 1999
Appropriations Act again extends the fee for one year, at the current rate of
2.0 percent of gross patient receipts.
The second largest category of revenue is sales and services, which
includes disproportionate share revenues. Other departmental revenues include
various miscellaneous receipts such as investment earnings on General Fund
balances.
RESTRICTED RECEIPTS. In fiscal year 1997, the State received a total of
$90.1 million in restricted receipts excluding transfers into the General Fund.
These reflect various specialized fees and charges, interest on certain funds
and accounts maintained by the State and private contributions and grants to
certain State programs. Such receipts are restricted under State law to offset
State expenditures for the program under which such receipts are derived. Of the
total restricted receipts received in fiscal year 1997,
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the most significant revenues reflected the dedication of sales tax revenues to
the Depositors Economic Protection Corporation (DEPCO) totaling $45.9 million in
cash receipts. The fiscal year 1998 Appropriations Act provided for the transfer
of $15.0 million of DEPCO restricted receipts to general revenue. In fiscal year
1999, and thereafter, all monies dedicated to DEPCO will be utilized to
accelerate the defeasance of DEPCO debt.
OTHER SOURCES. The largest component of Other Sources is the transfer
from the State Lottery. The State Lottery Fund was created in 1974 for the
receipt and disbursement of revenues of the State Lottery Commission from sales
of lottery tickets and license fees. The monies in the fund are allocated for:
(1) establishing a prize fund from which payments of the prize are disbursed to
holders of winning lottery tickets, the total of which prize payments equals, as
nearly as practicable, 45 percent of the total revenue accruing from the sale of
lottery tickets; (2) payment of expenses incurred by the Commission in the
operation of State lotteries; and (3) payment to the State's General Fund of all
revenues remaining in the State Lottery Fund, provided that the amount to be
transferred into the General Fund must equal not less than 30 percent of the
total revenue received and accrued from the sale of lottery tickets plus any
other income earned from the lottery. The fiscal year 1996 Appropriations Act
increased the percentage of video lottery terminal receipts which are
transferred to the General Fund and increased the payout to keno game players,
which has increased lottery income. Lottery transfers to the general fund
totaled $100.0 million in fiscal year 1997.
The second largest single component of Other Sources is the gas tax
transfer from the Intermodal Surface Transportation Fund. Gasoline tax
recipients not dedicated for use by transportation agencies become available to
the general fund. This amounted to $37.7 million in fiscal year 1997.
The Unclaimed Property Transfer reflects funds which have escheated to
the State. They include unclaimed items such as bank deposits, funds held by
life insurance companies, deposits and refunds held by utilities, dividends and
property held by courts and public agencies. The escheated funds are deposited
by the General Treasurer in the general fund, with deductions made for
administrative costs. Unclaimed property transfers totaled $5.0 million in
fiscal year 1997.
Other Miscellaneous Sources in fiscal year 1997 totaled $40.8 million.
This includes $15.8 million from DEPCO, $5.5 million from the Underground
Storage Tank Fund, $4.5 million of interest earnings, and $5.0 million of health
insurance settlements. In fiscal year 1998 and fiscal year 1999, $34.8 million
and $20.7 million are estimated.
FEDERAL RECEIPTS. In fiscal year 1997, the State collected receipts of
$922.4 million from the federal government, representing grants-in-aid and
reimbursements to the State for expenditures for various health, welfare and
educational programs and distribution of various restricted or categorical
grants-in-aid.
Federal grants-in-aid reimbursements are normally conditioned to some
degree, depending on the particular program being funded, on matching resources
by the State ranging from a 50 percent matching expenditure to in-kind
contributions. The largest categories of federal grants and reimbursements are
made for medical assistance payments for the indigent (Title XIX) and Temporary
Assistance to Needy Families (TANF). The federal participatory rates for Title
XIX are recalculated annually, and the major determinant in the rate calculation
is the relative wealth of the State. The federal match rate is 53.4 percent as
of October 1, 1997. Effective in fiscal year 1997,
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TANF funds are block grants; state eligibility is conditional on maintenance of
effort expenditure floors.
REVENUE ESTIMATES
Revenue estimates are predicated upon the May Revenue Estimating
conference, as well as changes to general revenues reflected in the fiscal year
1998 budget plan adopted by the Legislature on April 2, 1998 and the fiscal year
1999 Appropriations Act, and other legislation which changes the distribution of
the hotel tax receipts. The Consensus Revenue Estimating Conference is required
by legislation to convene at least twice annually to forecast generally revenues
for the current year and the budget year, based upon current law and collection
trends, as well as the economic forecast.
FISCAL YEAR 1998 REVENUE ESTIMATE
The fiscal year 1998 estimate was revised upward by $64.3 million over
the estimate adopted by the November Revenue Estimating Conference. This is a
revision of 3.4 percent to the November estimate. The estimate includes
adjustments adopted by the Revenue Estimating Conference and changes included in
the fiscal year 1998 budget plan adopted by the Legislature for 1998.
The largest revision was $43.9 million in personal income taxes over
the enacted estimate. The revisions to the enacted estimate were: $22.2 million
increase in estimated payments, $16.9 million increase in final payments, $6.8
million increase in refunds, and a $11.4 million increase in withholding
payments. The Conference adopted estimated payments of $163.7 million, growth of
24.9 percent over fiscal year 1997, reflecting market activity. The 28.5 percent
increase in final payments appears to also reflect that activity. Refunds are
estimated to be 5.8 percent greater than fiscal year 1997. Withholding growth is
estimated at 6.9 percent.
Total general business taxed estimates were $5.4 million less than the
November estimate. Gains in corporate income tax ($1.1 million), Franchise Taxes
($0.4 million), Taxes on insurance companies ($8.6 million), and bank deposits
taxes ($0.2 million), partially offset reductions in Public Utilities Gross
Earnings Taxes ($2.6 million), Taxes on Financial Institutions ($12.6 million),
and the Health Care Provider Tax ($0.5 million).
Estimated sales tax revenues of $527.0 million reflects 7.7 percent
growth over fiscal year 1997 receipts. The estimate is $11.0 million over the
November estimate. Other major changes in the Sales and Use Tax category include
increases in Motor Vehicle Taxes ($1.8 million) and Cigarettes ($0.8 million).
Other adjustments include: an increase of $0.8 million in inheritance
taxes; an upward revision of $6.8 million for departmental earnings; and a $4.0
million decrease to lottery revenues. The lottery estimate change includes a
$2.8 million decrease to the video lottery terminal estimate, a decrease of $1.8
million to the enacted estimate for games, and a $0.6 million increase to the
KENO estimate.
The Legislature's revised budget plan resulted in an adjustment of
negative $0.9 million to fiscal year 1998 departmental revenues.
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FISCAL YEAR 1999 REVENUE ESTIMATE
The largest source of fiscal year 1999 general revenue is the personal
income tax, with estimated receipts of $731.1 million composing 37.1 percent of
the total. While collections in this component have been reduced significantly
by 1997 tax law changes, growth of 1.5 percent is still anticipated. Adjusted
for these changes, fiscal year 1999 growth equals 4.3 percent.
Sales Tax collections are expected to total $548.0 million in fiscal
year 1999. The fiscal year 1999 estimate anticipates 4.0 percent annual growth,
and composes 27.8 percent of total general revenues.
Other sources of "Sales and Use" taxes are expected to vary slightly in
the budget year. Since the Appropriations Act dedicates the full gas tax to
ISTF, the motor fuel tax will realize a loss of $4.5 million, but the gas tax
transfer in "Other Sources" will increase by the same amount subject to other
changes in ISTF allocation. Cigarette Tax collections are expected to realize a
loss of $1.1 million, or negative 1.7 percent, for an annual total of $65.0
million. Motor Vehicle and Alcohol Tax collections are expected to remain at
fiscal year 1998 levels.
The General Business Taxes, which represent 10.5 percent of total
collections, are expected to increase slightly in fiscal year 1999. The Business
Corporations Tax is expected to decline by approximately 2.0 percent as a result
of tax cuts and other adjustments, for a total of $65.6 million in revenues. The
Franchise and Bank Deposits Taxes are expected to remain flat in fiscal year
1999, while the Public Utilities Gross Earnings Tax revenues are expected to
decrease by 1.6 percent, with total collections of $60.0 million. The Financial
Institutions account should rebound in fiscal year 1999, with total revenues
reaching $7.0 million. The Health Care Provider Assessment is expected to
increase by 3.4 percent to $24.0 million, keeping in line with forecast
inflation.
Inheritance and Gift Taxes are expected to decline by $3.0 million
(negative 16.7 percent) in fiscal year 1999. The anticipated loss is
attributable to the Taxpayer Relief Act provisions which will alter the taxable
estate criteria beginning January 1, 1998, and which will likely have the
greatest incremental effect in fiscal year 1999, due to tax return filing
requirements.
The Hospital Licensing Fee enacted by the 1997 General Assembly expires
on June 30, 1998. The fiscal year 1999 Appropriations Act extends the fee, and
includes $37.4 million in fiscal year 1999 General Revenues.
A reduction in "Other Sources" is explained by a smaller portion of the
Gas Tax being transferred to General Revenue, as well as significant reductions
in "Other Miscellaneous Revenues". The fiscal year 1999 Appropriations Act
allocated the full gas tax to the ISTF with 5 cents dedicated to RIPTA, 1 cent
to Elderly Affairs, 17.5 cents to transportation, and the remaining 4.5 cents to
the General Fund.
The fiscal year 1999 Appropriations Act also transfers $4.0 million
from the Resource Recovery Fund to General Revenue.
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INDEBTEDNESS
Under the State Constitution, the General Assembly has no power to
incur State debts in excess of $50,000 without the consent of the people, except
in the case of war, insurrection or invasion, or to pledge the faith of the
State to the payment of obligations of others without such consent. By judicial
interpretation, the limitation stated above has been judged to include all debts
of the State for which its full faith and credit are pledged, including general
obligation bonds and notes; bonds and notes guaranteed by the State; and debts
or loans insured by agencies of the State, such as the Industrial-Recreational
Building Authority. However, non-binding agreements of the State to appropriate
monies in aid of obligations of a State agency, such as the provisions of law
governing the capital reserve funds of the Port Authority and Economic
Development Corporation, now known as the Rhode Island Economic Development
Corporation, Housing and Mortgage Finance Corporation, or to appropriate monies
to pay rental obligations under State long-term leases, such as the State's
lease agreements with the Convention Center Authority and the Resource Recovery
Corporation, are not subject to this limitation.
DIRECT DEBT. Direct debt is authorized by the voters as general
obligation bonds and notes. As of June 30, 1998, the State had $767.6 million of
bonds outstanding and $276,347,926 of authorized but unissued direct debt. In
July 1998, the State issued an additional $65,720,000 of bonds, resulting in a
balance of authorized but unissued debt of $209,910,479.
GUARANTEED DEBT. Guaranteed debt of the State includes bonds and notes
issued by, or on behalf of certain agencies, commissions, and authorities
created by the General Assembly and charged with enterprise undertakings, for
the payment of which debt the full faith and credit of the State are pledged in
the event that the revenues of such entities may at any time be insufficient.
These include the Blackstone Valley District Commission and the Narragansett Bay
Water Quality Management District Commission. As of June 30, 1997, these
entities had bonds outstanding of $22,657,000 and $1,514,000 of authorized but
unissued debt.
YEAR 2000
The State has taken steps to ensure that internal and mechanical Year
2000 issues, which may arise from State operations, will not materially affect
the State's credit-worthiness and ability to make timely payments of debt
service. The approach of the State has been to raise the awareness of technical
and managerial staff and to provide the assistance necessary to mitigate the
risk to the performance of the State's business.
The State has coordinated the efforts to remediate and mitigate the
impact of the Year 2000 computer issue through the office of the Chief
Information Officer. The "Year 2000 Program Office", which was created in
December 1996, performs this coordination.
The Fiscal Year 1998 budget contained $500,000 for Year 2000
compliance. Approximately half of the funding was extended to departments to
repair and replace critical non-compliant software systems inventoried and
assessed by departments as overseen by the Program Office.
The General Assembly enacted the Governor's requested budget for fiscal
year 1999 of $2.5 million for "Year 2000" technology problems. This budget will
be used to address infrastructure issues and external compliance. Contingency
plans will be
<PAGE>
-41-
necessary for critical operations where compliance cannot be assured. The year
2000 Program Office will accept requests for emergency financial assistance in
any of these areas, provided that the need, agency commitment and feasibility of
the project have been demonstrated. Requests for additional appropriations may
be required as a result of these requests.
The State cannot guarantee that systems of other companies on which
State government systems rely, or that a failure to convert by another company,
or a conversion that is incompatible with the State's systems, would not have a
material adverse effect on the State. Furthermore, the failure of certain
entities beyond the control of the State, such as the federal government or
other sources of revenue, to address the Year 2000 issue could have a material
adverse impact on the operations or finances of the State.
LITIGATION
The State, its officers and employees are defendants in numerous
lawsuits. With respect to any such litigation, State officials are of the
opinion that the lawsuits are not likely to result either individually or in the
aggregate in final judgments against the State which would materially affect its
financial position. However, the following case should be noted. In Case No.
97-329-Appeal CAPITAL PROPERTIES, INC. ("CPI") V. STATE OF RHODE ISLAND, the
Rhode Island Supreme Court issued an order on April 17, 1998 affirming a
judgment in favor of CPI against the State for $6,100,949 plus interest and
costs. With interest, the judgment totals in excess of $11,700,000 with interest
accruing in an amount in excess of $3,500 per day.
The judgment arises out of a condemnation of land of CPI by the State
in 1987. The State contends there are contractual obligations among the State,
CPI and the City of Providence, Rhode Island which relieve the State of the
obligation to pay the judgment in the case. The State's position is that the
City of Providence and the State agreed to bear equally any judgment entered in
favor of CPI, and that CPI moreover agreed it would forego enforcement of any
judgment against the State in exchange for the State's conveyance to CPI of land
designated as "Parcel 9." Parcel 9 has been previously conveyed by the State to
CPI. Accordingly, it is the position of the State that the applicable
contractual provisions preclude enforcement of the judgment against the State.
The appeal was remanded by the Rhode Island Supreme Court to the Superior Court
without prejudice to any party seeking to enforce any contractual obligations
that may be implicated by enforcement of the judgment against the State. CPI
subsequently obtained a Writ of Mandamus from the Superior Court against the
State requiring immediate payment of the judgment. The State has appealed the
issuance of that Writ to the Rhode Island Supreme Court. The State also brought
a suit against CPI and the City of Providence seeking a court order
acknowledging that the State has already paid one-half the judgment to CPI and
that the other half is the responsibility of the City. If the State is forced to
pay one half the judgement, it is the State's position that the City of
Providence is obligated to reimburse the State that amount.
The State intends to oppose vigorously any enforcement of the judgment.
There are, however, no assurances the State will prevail. If the State fails
to prevail, resources of the State will have to be identified to satisfy this
judgment. No monies are currently budgeted to pay the judgment.
<PAGE>
-42-
APPENDIX B
DESCRIPTION OF SECURITIES RATINGS 1
The ratings of Moody's Investors Service, Inc. ("Moody's"), Standard &
Poor's Rating Services ("S&P"), and Fitch IBCA, Inc. ("Fitch IBCA") represent
their opinions as to the quality of various debt securities, and are not
absolute standards of quality. Debt securities with the same maturity, coupon
and rating may have different yields, while debt securities of the same maturity
and coupon with different ratings may have the same yield. The ratings below are
as described by the rating agencies. Ratings are generally given to securities
at the time of issuance. While the rating agencies may, from time to time,
revise such ratings, they undertake no obligation to do so.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S
FOUR HIGHEST BOND RATINGS
AAA Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and generally are referred to
as "gilt edge." 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 which are rated Aa 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 then 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 risks appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investments 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 which are rated Baa are considered as medium grade
obligations, since 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 greater length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as well.
____________________
1/As described by the rating agencies. Ratings are generally given to
securities at the time of issuance. While the rating agencies may, from time to
time, revise such ratings, they undertake no obligations to do so.
<PAGE>
-2-
Note: Those bonds in the Aa, A and Baa categories which Moody's
believes possess the strongest credit attributes are designated by the symbols
Aa1, A1 and Baa1.
DESCRIPTION OF STANDARD & POOR'S RATING SERVICES
FOUR HIGHEST BOND RATINGS
AAA An obligation rated AAA has the highest rating assigned by S&P. 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 issues only in small
degree. The obligor's capacity to meet its financial commitment on the
obligation is still strong.
A An obligation rated A is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt 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.
Plus (+) or minus (-): The ratings from AA to BBB may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
DESCRIPTION OF FITCH IBCA, INC.'S
FOUR HIGHEST INTERNATIONAL LONG-TERM CREDIT RATINGS
When assigning ratings, Fitch IBCA considers the historical and
prospective financial condition, quality of management, and the operating
performance of the issuer and of any guarantor, any special features of a
specific issue or guarantee, the issue's relationship to other obligations of
the issuer, as well as developments in the economic and political environment
that might affect the issuer's financial strength and credit quality.
Variable rate demand obligations and other securities which contain a
demand feature will have a dual rating, such as 'AAA/F1+'. The first rating
denotes long-term ability to make principal and interest payments. The second
rating denotes ability to meet a demand feature in full and on time.
AAA Highest credit quality. 'AAA' ratings denote the lowest expectation of
credit risk. They are assigned only in the case of exceptionally strong capacity
for timely payment of financial commitments. This capacity is highly unlikely to
be adversely affected by foreseeable events.
AA Very high credit quality. 'AA' ratings denote a very low expectation of
credit risk. They indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to foreseeable
events.
A High credit quality. 'A' ratings denote a low expectation of credit risk. The
capacity for timely payment of financial commitments is considered strong. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
<PAGE>
-3-
BBB Good credit quality. 'BBB' ratings indicate 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.
"+" or "-" may be appended to a rating to denote relative status within
major rating categories. Such suffixes are not added to the 'AAA' long-term
category.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S
TWO HIGHEST RATINGS OF STATE AND MUNICIPAL NOTES
Moody's ratings for state and municipal short-term obligations are
designated Moody's Investment Grade ("MIG"). Such ratings recognize the
differences between short-term credit risk and long-term risk. Factors affecting
the liquidity of the borrower and short-term cyclical elements are critical in
short-term ratings, while other factors of major importance in bond risk, such
as long-term secular trends, may be less important over the short run.
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.
DESCRIPTION OF STANDARD & POOR'S RATING SERVICES
TWO HIGHEST RATINGS OF STATE AND MUNICIPAL NOTES
A S&P note rating reflects the liquidity factors and market access
risks unique to notes. Notes maturing in three years or less will likely receive
a note rating. Notes maturing beyond three years most likely receive a long-term
debt rating. The following criteria will be used in making that assessment:
Amortization schedule -- the larger the final maturity
relative to other maturities, the more likely it will be
treated as a note.
Source of payment -- the more dependent the issue is on the
market for its refinancing, the more likely it will be treated
as a note.
Note rating symbols are as follows:
SP-1 Strong capacity to pay principal and interest. Issues determined to possess
very strong characteristics are given a plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest with some vulnerability
to adverse financial and economic changes over the term of the notes.
DESCRIPTION OF STANDARD & POOR'S RATING SERVICES
RATINGS OF TAX-EXEMPT DEMAND BONDS
S&P assigns "dual" ratings to all debt issues that have a put or demand
feature as part of their structure.
<PAGE>
-4-
The first rating addresses the likelihood of repayment of principal and
interest as due, and the second rating addresses only the demand feature. The
long-term debt rating symbols are used for bonds to denote the long-term
maturity and the commercial paper rating symbols for the put option (for
example, "AAA/A-1+"). With short-term demand debt, note rating symbols are used
with the commercial paper rating symbols (for example, "SP-1+/A-1+").
DESCRIPTION OF FITCH IBCA, INC.'S
TWO HIGHEST INTERNATIONAL SHORT-TERM CREDIT RATINGS
A short-term rating has a time horizon of less than 12 months for most
obligations, or up to three years for U.S. public finance securities, and thus
places greater emphasis on the liquidity necessary to meet financial commitments
in a timely manner.
F1 Highest credit quality. Indicates the strongest capacity for timely payment
of financial commitments; may have an added "+" to denote any exceptionally
strong credit feature.
F2 Good credit quality. 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.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S
TWO HIGHEST SHORT-TERM DEBT RATINGS
Moody's short-term debt ratings are opinions of the ability of issuers
to repay punctually short-term senior debt obligations having an original
maturity not in excess of one year.
PRIME-1 Issuers rated Prime-1 (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: (1)
leading market positions in well-established industries; (2) high rates of
return on funds employed; (3) conservative capitalization structure with
moderate reliance on debt and ample asset protection; (4) broad margins in
earnings coverage of fixed financial charges and high internal cash generation;
and (5) well-established access to a range of financial markets and assured
sources of alternate liquidity.
PRIME-2 Issuers rated Prime-2 (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.
DESCRIPTION OF STANDARD & POOR'S RATING SERVICES
TWO HIGHEST COMMERCIAL PAPER RATINGS
A S&P commercial paper rating is a current assessment of the likelihood
of timely payment of debt having an original maturity of no more than 365 days.
<PAGE>
-5-
A-1 A short-term obligation rated A-1 is rated in the highest category by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligations is still 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 A short-term obligation rated A-2 is 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.
<PAGE>
APPENDIX C
TAXABLE EQUIVALENT YIELDS
- --------------------------------------------------------------------------------
These tables show the yield investors need to achieve from a taxable investment
to equal the yield from a tax-exempt investment. These tables do not predict the
yield of any Fund. They are accurate as of September 1, 1999.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
FEDERAL
Equivalent yields: Tax-exempt versus taxable securities
1999
Federal
Taxable Income Marginal
- --------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Single Joint Rate 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0% 7.5% 8.0%
- -------------- ----------- -------- ------- -------- -------- -------- -------- ------- -------- -------- --------
$0-25,750 $0-43,050 15.00% 4.71% 5.29% 5.88% 6.47% 7.06%` 7.65% 8.24% 8.82% 9.41%
25,751-62,450 43,051-
104,050 28.00% 5.56% 6.25% 6.94% 7.64% 8.33% 9.03% 9.72% 10.42% 11.11%
62,451- 104,051-
130,250 158,550 31.00% 5.80% 6.52% 7.25% 7.97% 8.70% 9.42% 10.14% 10.87% 11.59%
130,251- 158,551-
283,150 283,150 36.00% 6.25% 7.03% 7.81% 8.59% 9.38% 10.16% 10.94% 11.72% 12.50%
over 283,150 over 283,150 39.60% 6.62% 7.45% 8.28% 9.11% 9.93% 10.76% 11.59% 12.42% 13.25%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
CONNECTICUT
Equivalent yields: Tax-exempt versus taxable securities
<TABLE>
<CAPTION>
1999
Combined A Connecticut Tax-Exempt Income
Taxable Income* Connecticut Fund Yield of:
- ------------------------- State Federal and Federal ------ ----- ------ ------- --------
Single Joint Rate** Rate TaxBracket*** 4.0% 5.0% 6.0% 7.0% 8.0%
- -------------- ---------- ------ ------- ----------- ------ ----- ------ ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0-10,000 $0-20,000 3.00%**** 15.00% 17.55% 4.85% 6.06% 7.28% 8.49% 9.70%
10,001-25,750 20,001-
43,050 4.50% 15.00% 18.83% 4.93% 6.16% 7.39% 8.62% 9.86%
25,751-61,450 43,051-
104,050 4.50% 28.00% 31.24% 5.82% 7.27% 8.73% 10.18% 11.63%
62,451- 104,051-
130,250 158,550 4.50% 31.00% 34.11% 6.07% 7.59% 9.11% 10.62% 12.14%
130,251- 158,551-
283,150 283,150 4.50% 36.00% 38.88% 6.54% 8.18% 9.82% 11.45% 13.09%
over 283,150 over 4.50% 39.60% 42.32% 6.93% 8.67% 10.40% 12.14% 13.87%
283,150
</TABLE>
* This amount represents taxable income as defined in the Internal Revenue
Code. It is assumed that taxable income as defined in the Internal
Revenue Code is the same as under the Connecticut Personal Income Tax
law, however, Connecticut taxable income may differ due to differences in
exemptions, itemized deductions and other items.
** The Connecticut credits have not been included in the calculation of the
state rates. A credit between 1% and 75% is automatically allowed for
single taxpayers with a CT adjusted gross income ranging from $12,000 to
$52,500. A credit between 1% and 75% is automatically allowed for married
filing joint taxpayers with CT adjusted gross income ranging from $24,000
to $100,500.
*** For federal tax purposes, these combined rates reflect the applicable
marginal rates for 1999, including indexing for inflation. These rates
include the effect of deducting state taxes on your Federal return.
**** Per changes of 1997 Regular Session and the trailing Special Sessions of
the Connecticut General Assembly.
- -------------------------------------------------------------------------------
<PAGE>
-2-
- -------------------------------------------------------------------------------
FLORIDA
Equivalent yields: Tax-exempt versus taxable securities
<TABLE>
<CAPTION>
1999
Combined
Taxable Income* Florida A Tax-Exempt Income Fund Yield of:
- -------------------------- and Federal -------- -------- -------- ------- -------- -------- -------
Single Joint Tax Bracket** 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0%
- -------------- ----------- ----------- -------- -------- -------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0-25,750 $0-43,050 15.00% 4.71% 5.29% 5.88% 6.47% 7.06%` 7.65% 8.24%
25,751-62,450 43,051-
104,050 28.00% 5.56% 6.25% 6.94% 7.64% 8.33% 9.03% 9.72%
62,451- 104,051-
130,250 158,550 31.00% 5.80% 6.52% 7.25% 7.97% 8.70% 9.42% 10.14%
130,251- 158,551-
283,150 283,150 36.00% 6.25% 7.03% 7.81% 8.59% 9.38% 10.16% 10.94%
over 283,150 over 283,150 39.60% 6.62% 7.45% 8.28% 9.11% 9.93% 10.76% 11.59%
</TABLE>
* This amount represents taxable income as defined in the Internal Revenue
Code. It is assumed that taxable income as defined in the Internal Revenue
Code is the same as under the Florida Personal Income Tax law; however,
Florida taxable income may differ due to differences in exemptions,
itemized deductions and other items.
** For federal tax purposes these combined rates reflect the applicable
marginal rates for 1999, including indexing for inflation. These rates
include the effect of deducting state taxes on your federal return.
- --------------------------------------------------------------------------------
MASSACHUSETTS
Equivalent yields: Tax-exempt versus taxable securities
<TABLE>
<CAPTION>
1999
Combined A Massachusetts Tax-Exempt Income
Taxable Income* Massachusetts Fund Yield of:
- ------------------------- State Federal and Federal ------ ----- ------ ------- --------
Single Joint Rate** Rate TaxBracket*** 4.0% 5.0% 6.0% 7.0% 8.0%
- -------------- ---------- ------ ------- ----------- ------ ----- ------ ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0-25,750 $0-43,050 5.95% 15.00% 20.06% 5.00% 6.25% 7.51% 8.76% 10.01%
25,751-62,450 43,051-
104,050 5.95% 28.00% 32.28% 5.91% 7.38% 8.86% 10.34% 11.81%
62,451- 104,051-
130,250 158,550 5.95% 31.00% 35.11% 6.16% 7.70% 9.25% 10.79% 12.33%
130,251- 158,551-
283,150 283,150 5.95% 36.00% 39.81% 6.65% 8.31% 9.97% 11.63% 13.29%
over 283,150 over 283,150 5.95% 39.60% 43.19% 7.04% 8.80% 10.56% 12.32% 14.08%
</TABLE>
* This amount represents taxable income as defined in the Internal Revenue
Code. It is assumed that taxable income as defined in the Internal Revenue
Code is the same as under the Massachusetts Personal Income Tax law,
however, Massachusetts taxable income may vary due to differences in
exemptions, itemized deductions, and other items.
** For federal tax purposes, these combined rates reflect the applicable
marginal rates for 1999, including indexing for inflation. These rates
include the effect of deducting state taxes on your Federal return.
*** For tax years beginning on or after 1/1/99 the rate for Part A income
consisting of interest and dividends is reduced from 12% to 5.95%.
- --------------------------------------------------------------------------------
<PAGE>
-3-
- --------------------------------------------------------------------------------
RHODE ISLAND
Equivalent yields: Tax-exempt versus taxable securities
<TABLE>
<CAPTION>
1999
Combined A Rhode Island Tax-Exempt Income
Taxable Income* Rhode Island Fund Yield of:
- ------------------------- State Federal and Federal ------ ----- ------ ------- --------
Single Joint Rate** Rate TaxBracket*** 4.0% 5.0% 6.0% 7.0% 8.0%
- -------------- ---------- ------ ------- ----------- ------ ----- ------ ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0-25,750 $0-43,050 26.50% 15.00% 18.98% 4.94% 6.17% 7.41% 8.64% 9.87%
25,751-62,450 43,051-
104,050 26.50% 28.00% 35.42% 6.19% 7.74% 9.29% 10.84% 12.39%
62,451-
130,250 104,051-
158,550 26.50% 31.00% 39.22% 6.58% 8.23% 9.87% 11.52% 13.16%
130,251-
283,150 158,551-
283,150 26.50% 36.00% 45.54% 7.34% 9.18% 11.02% 12.85% 14.69%
over 283,150 over 283,150 26.50% 39.60% 50.09% 8.02% 10.02% 12.02% 14.03% 16.03%
</TABLE>
* This amount represents taxable income as defined in the Internal Revenue
Code. It is assumed that taxable income defined in the Internal Revenue
Code is the same as under the Rhode Island Personal Income Tax law,
however, Rhode Island taxable income may differ due to differences in
exemptions, itemized deductions, and other items.
** For federal tax purposes, these combined rates reflect the applicable
marginal rates for 1998, including indexing for inflation. These rates
include the effect of deducting state taxes on your Federal return.
<PAGE>
BOSTON 1784 FUNDS SM
BOSTON 1784 TAX-FREE MONEY MARKET FUND
BOSTON 1784 U.S. TREASURY MONEY MARKET FUND
BOSTON 1784 INSTITUTIONAL U.S. TREASURY MONEY MARKET FUND
BOSTON 1784 PRIME MONEY MARKET FUND
BOSTON 1784 INSTITUTIONAL PRIME MONEY MARKET FUND
BOSTON 1784 SHORT-TERM INCOME FUND
BOSTON 1784 INCOME FUND
BOSTON 1784 U.S. GOVERNMENT MEDIUM-TERM INCOME FUND
BOSTON 1784 TAX-EXEMPT MEDIUM-TERM INCOME FUND
BOSTON 1784 CONNECTICUT TAX-EXEMPT INCOME FUND
BOSTON 1784 FLORIDA TAX-EXEMPT INCOME FUND
BOSTON 1784 MASSACHUSETTS TAX-EXEMPT INCOME FUND
BOSTON 1784 RHODE ISLAND TAX-EXEMPT INCOME FUND
BOSTON 1784 ASSET ALLOCATION FUND
BOSTON 1784 GROWTH AND INCOME FUND
BOSTON 1784 GROWTH FUND
BOSTON 1784 INTERNATIONAL EQUITY FUND
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 1, 1999
- ----------------------------------------------------
Boston 1784 FundsSM:
[bullet] are not insured by the FDIC or any other governmental agency;
[bullet] are not guaranteed by BankBoston, N.A. or any of its affiliates;
[bullet] are not deposits or obligations of BankBoston, N.A. or any of
its affiliates; and
[bullet] involve investment risks, including possible loss of principal.
BankBoston, N.A. serves as investment adviser and shareholder servicing agent
for Boston 1784 Funds. Investors Bank and Trust Company serves as
custodian for Boston 1784 Funds. Boston 1784 Funds are distributed
by SEI Investments Distribution Co., a party independent
of BankBoston, N.A. and any of its affiliates. Financial
Services Counselors are registered representatives of
BankBoston Investor Services, Inc. (member NASD/SIPC), a wholly-owned
subsidiary of BankBoston, N.A.
<PAGE>
EXHIBIT 17(b)(vii)
Galaxy Funds
Galaxy Equity Funds
Annual Report
October 31, 1999
Galaxy Asset Allocation Fund
Galaxy Equity Income Fund
Galaxy Growth and Income Fund
Galaxy Strategic Equity Fund
Galaxy Equity Value Fund
Galaxy Equity Growth Fund
Galaxy International Equity Fund
Galaxy Small Cap Value Fund
Galaxy Small Company Equity Fund
[LOGO] Galaxy
Funds
<PAGE>
- --------------------------------------------------------------------------------
Chairman's Message
Dear Shareholder:
Enclosed is the annual report for the Galaxy Equity Funds that covers the
fiscal year ended October 31, 1999. The report includes a Market Overview that
explains the different economic and market factors influencing stock investments
during this time. Following the Market Overview are individual reviews that
describe how Fleet Investment Advisors Inc. managed each of the Funds'
portfolios in this climate. Financial statements and a list of portfolio
holdings for each of the Funds as of October 31, 1999 appear at the end of the
report.
Unexpected economic strength, prompted in part by recoveries abroad,
pushed major stock indices sharply higher during the fiscal year. Stocks gained
despite concerns about inflation that caused the Federal Reserve to raise
interest rates and pushed bond yields higher. As uncertainty increased about the
direction of interest rates and growth in the second half of the reporting
period, stock prices became more volatile. After a broadening in market
leadership during the second quarter of 1999, investors moved back into stocks
with the strongest credit quality and liquidity. Although returns for most
sectors were better than their historic averages, some sectors outperformed
others by wide margins.
Given the many market changes of the past year, this may be a good time to
meet with a financial advisor who can help you determine whether your current
strategies suit your long-term goals. Investment professionals at Fleet Bank
branches can provide you with a no-obligation analysis that will help you make
this comparison and get the most from your portfolio.
If you are saving for a child's education, or are helping a family member
prepare for college, ask our representatives about the Galaxy College Investment
Program. Galaxy offers an Education IRA which allows for tax-free earnings to
accumulate on your investment if used to pay for qualified college expenses.
Remember that anyone, not just a child's parents, can make a contribution.
You might also consider a custodial account such as a Uniform
Gift/Transfer to Minor Account (UGMA/UTMA). The UGMA/UTMA account offers another
opportunity to transfer assets to minors with favorable tax consequences in
preparation for college expenses. Ask your investment professional or tax
advisor about this important gifting opportunity.
If you have any questions about college investing opportunities or the
information in this report, please contact the Galaxy Information Center
toll-free at 1-877-BUY-GALAXY (1-877-289-4252). You can also visit one of our
investment professionals located at Fleet Bank branches.
Sincerely,
/s/ Dwight E.Vicks, Jr.
Dwight E.Vicks, Jr.
Chairman of the Board of Trustees
Mutual Funds:
- - are not bank deposits
- - are not FDIC insured
- - are not obligations of Fleet Bank
- - are not guaranteed by Fleet Bank
- - are subject to investment risk including possible loss of principal amount
invested
<PAGE>
- --------------------------------------------------------------------------------
Market Overview
EQUITY MARKET OVERVIEW
By Fleet Investment Advisors Inc.
Stock prices rose sharply over the 12-month period ending October 31, 1999
as economic recovery abroad helped growth at home. Most gains occurred in the
first half of the reporting period. Investors eventually worried that higher
inflation and interest rates would force growth to slow. Although current
inflation remained moderate, the Federal Reserve (the "Fed") boosted short-term
interest rates by a total of 50 basis points (0.50%) during the reporting period
to prevent higher inflation down the road. With rising bond yields and
uncertainty over how high interest rates might go, stocks traded in a relatively
narrow range during the second half of the period.
By historical standards, stock returns were quite strong, particularly
shares of growth-oriented firms. During the 12 months ended October 31, 1999,
the Standard & Poor's 500 Index (the "S&P 500 Index"), which represents
large-cap growth stocks, earned a total return of 25.67%. With robust rallies in
the fourth quarter of 1998 and the second quarter of 1999, small-cap stocks,
represented by the Russell 2000 Index (the "Russell 2000") had a total return of
14.87%. Continued improvements in economies abroad during that time helped give
the Morgan Stanley Europe, Australia and Far East Index ("EAFE Index") a total
return of 23.37%.
Economic Outlook Brightens at Home and Abroad
Following a growth rate of 3.7% in the third quarter of 1998, the Gross
Domestic Product ("GDP"), which measures the output of U.S. goods and services,
increased by 6% in the fourth quarter of 1998. The annualized rate of inflation
was about 1.6% at this time. While U.S. growth was strong, economies remained in
turmoil overseas. As many investors looked to U.S. Treasury bonds for safety,
demand for other securities fell. To prevent an international "credit crunch,"
the Fed cut rates by 25 basis points in November of 1998.
As bond yields edged lower and confidence about future growth improved,
many investors shifted from Treasury bonds into stocks. While corporate earnings
reports were disappointing, the change in market sentiment helped stock prices
rebound sharply.
A strong advance by large-company shares helped the Dow Jones Industrial
Average top 10,000 for the first time during the early part of 1999. Despite
reports of continued weakness in corporate earnings for the fourth quarter of
1998, investors were cheered by signs of further economic strength and low
inflation. (The Commerce Department later reported GDP growth of 4.3% in the
first quarter of 1999.) Stock prices were also rallying overseas at this time,
as improving economic prospects encouraged new investment.
Although the Commerce Department would eventually report that GDP
growth slowed to 1.8% in 1999's second quarter and inflation remained modest,
there were enough signals of faster growth ahead for the Fed to impose a rate
hike of 25 basis points as the second quarter closed. While bond yields moved
higher in anticipation of that hike, stocks gained further ground. With added
optimism that the long-lived economic expansion would continue, investors
expanded their tastes beyond the large-company shares that had led the market
for some time. Issues of many small- and mid-sized companies outperformed in
this environment, along with "value-oriented" stocks and shares of companies
in "cyclical" sectors with heightened sensitivity to economic change. Foreign
stock prices continued to gain during this time.
This broadening in U.S. market sentiment did not continue into the third
quarter of 1999, as the likelihood of further rate increases by the Fed drove
investors back to large-cap shares. Although inflation had risen to an
annualized rate of just 2.8% by September largely due to rising oil prices, the
rate of GDP growth would eventually be estimated at 5.5%. With signs that growth
was accelerating, and concern that a weaker dollar might boost inflation, the
Fed raised rates another 25 basis points in August. Investors speculated about
further rate hikes through the end of the reporting period.
A Focus on Risk/Reward Discipline
In a changing economic environment, investors preferred stocks whose
earnings could continue to improve even if growth slowed. This climate favored
large-cap companies with accelerating earnings and small-cap firms in growth
sectors like technology. While value-oriented shares attracted many investors in
the second quarter of 1999, the group significantly underperformed for the
reporting period as a whole.
"Although the Commerce Department would eventually report that GDP growth slowed
to 1.8% in 1999's second quarter and inflation remained modest, there were
enough signals of faster growth ahead for the Fed to impose a rate hike of 25
basis points as the second quarter closed."
2
<PAGE>
- --------------------------------------------------------------------------------
"We expect GDP to grow at about 2.5% in 2000, versus 3.9% and 3.8% in 1998 and
1999, respectively."
In a market where high valuations for many stocks made them particularly
vulnerable to earnings disappointments, we routinely took profits in holdings of
the Galaxy Equity Funds that had achieved our price targets and invested the
proceeds in positions with better performance potential. Amid signs of excessive
optimism regarding the technology sector, we are maintaining our long-term
risk/reward discipline in structuring the Funds' portfolios.
Slower Growth, Correction Possible
Stock prices will probably remain volatile in coming months and may even
experience a temporary correction. Investors must digest significant uncertainty
in the final months of 1999 with year-end profit taking and market volatility
that Y2K concerns might bring.
Concern about the effect of higher interest rates on the economy should
add to stock fluctuations. With a third rate hike of 25 basis points on November
16, 1999, the Fed effectively erased the 75 basis points of rate cuts it made in
the fall of 1998. While we do not expect further rate increases during 1999, the
Fed may raise rates early in 2000 if continued tightness in the labor supply
puts upward pressure on inflation through higher wages.
There are many indications, however, that recent rate hikes may be
creating an environment for slower growth next year. We expect GDP to grow at
about 2.5% in 2000, versus 3.9% and 3.8% in 1998 and 1999, respectively. If
growth does slow, inflation should remain under control and interest rates and
bond yields could trend lower. With positive prospects for growth in years to
come, any stock price correction that results from slower growth in the near
term could lay the foundation for future gains from the many stocks that have
lagged the market averages over the last 18 months.
PERFORMANCE AT-A-GLANCE
AVERAGE ANNUAL TOTAL RETURNS -- TRUST SHARES
10 Years/
As of October 31, 1999 1 Year 3 Years 5 Years Life of Fund
- --------------------------------------------------------------------------------
Asset Allocation Fund
(Inception date 12/30/91) 9.63% 14.61% 16.89% 12.25%
- --------------------------------------------------------------------------------
Equity Income Fund
(Inception date 12/14/90) 10.60 16.56 18.40 14.78
- --------------------------------------------------------------------------------
Growth and Income Fund
(Inception date 12/14/92) 14.85 18.15 18.80 16.25
- --------------------------------------------------------------------------------
Strategic Equity Fund
(Inception date 3/4/98) 3.64 N/A N/A 0.11
- --------------------------------------------------------------------------------
Equity Value Fund
(Inception date 9/1/88) 15.04 18.10 19.52 14.51
- --------------------------------------------------------------------------------
Equity Growth Fund
(Inception date 12/14/90) 28.07 24.92 24.17 18.30
- --------------------------------------------------------------------------------
International Equity Fund
(Inception date 12/30/91) 29.71 20.02 14.02 12.76
- --------------------------------------------------------------------------------
Small Cap Value Fund
(Inception date 12/14/92) 6.02 10.31 15.35 13.10
- --------------------------------------------------------------------------------
Small Company Equity Fund
(Inception date 12/30/91) 15.54 0.74 11.43 10.14
- --------------------------------------------------------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE AT-A-GLANCE (continued)
AVERAGE ANNUAL TOTAL RETURNS -- RETAIL A SHARES*
10 Years/
As of October 31, 1999 1 Year 3 Years 5 Years Life of Fund
- --------------------------------------------------------------------------------
Asset Allocation Fund
(Inception date 12/30/91) 5.42% 12.99% 15.79% 11.57%
- --------------------------------------------------------------------------------
Equity Income Fund**
(Inception date 12/14/90) 5.99 14.62 16.97 13.99
- --------------------------------------------------------------------------------
Growth and Income Fund
(Inception date 2/12/93) 10.26 16.39 17.59 15.71
- --------------------------------------------------------------------------------
Strategic Equity Fund
(Inception date 3/4/98) -0.58 N/A N/A -2.65
- --------------------------------------------------------------------------------
Equity Value Fund**
(Inception date 9/1/88) 10.35 16.22 18.16 13.85
- --------------------------------------------------------------------------------
Equity Growth Fund**
(Inception date 12/14/90) 22.79 22.85 22.71 17.51
- --------------------------------------------------------------------------------
International Equity Fund
(Inception date 12/30/91) 24.22 17.83 12.50 11.79
- --------------------------------------------------------------------------------
Small Cap Value Fund
(Inception date 2/12/93) 1.70 8.52 14.09 12.48
- --------------------------------------------------------------------------------
Small Company Equity Fund
(Inception date 12/30/91) 10.59 -0.98 10.04 9.25
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS -- A PRIME SHARES***
10 Years/
As of October 31, 1999 1 Year 3 Years 5 Years Life of Fund
- --------------------------------------------------------------------------------
Asset Allocation Fund
(Inception date 11/1/98) 3.66% N/A N/A 3.66%
- --------------------------------------------------------------------------------
Growth and Income Fund
(Inception date 11/1/98) 8.47 N/A N/A 8.47
- --------------------------------------------------------------------------------
Equity Growth Fund
(Inception date 11/1/98) 20.28 N/A N/A 20.28
- --------------------------------------------------------------------------------
International Equity Fund
(Inception date 11/1/98) 22.60 N/A N/A 22.60
- --------------------------------------------------------------------------------
Small Cap Value Fund
(Inception date 11/1/98) -0.02 N/A N/A -0.02
- --------------------------------------------------------------------------------
* Return figures have been restated to include the effect of the maximum
3.75% front-end sales charge which became effective on December 1, 1995.
** Retail A Shares of the Equity Value Fund and Equity Growth Fund were first
issued during the fiscal year ended October 31, 1991 and Retail A Shares
of the Equity Income Fund were first issued during the fiscal year ended
October 31, 1992. The returns for prior periods represent the returns for
Trust Shares of the Funds. Prior to November 1, 1993, the returns for
Retail A Shares and Trust Shares of the Funds were the same because each
series of shares had the same expenses.
*** Return figures include the effect of the maximum 5.50% front-end sales
charge.
4
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE AT-A-GLANCE (continued)
AVERAGE ANNUAL TOTAL RETURNS -- RETAIL B SHARES**
<TABLE>
<CAPTION>
1 Year 1 Year 3 Year 3 Year Life of Fund Life of Fund
Return Before Return After Return Before Return After Return Before Return After
Contingent Contingent Contingent Contingent Contingent Contingent
Deferred Sales Deferred Sales Deferred Sales Deferred Sales Deferred Sales Deferred Sales
As of October 31, 1999 Charge Deducted Charge Deducted* Charge Deducted Charge Deducted* Charge Deducted Charge Deducted*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Asset Allocation Fund
(Inception date 3/4/96) 8.76% 3.76% 13.66% 12.88% 13.35% 12.95%
- ------------------------------------------------------------------------------------------------------------------------------------
Equity Income Fund
(Inception date 11/1/98) 9.38 4.44 N/A N/A 9.38 4.44
- ------------------------------------------------------------------------------------------------------------------------------------
Growth and Income Fund
(Inception date 3/4/96) 13.72 8.72 17.00 16.27 15.81 15.44
- ------------------------------------------------------------------------------------------------------------------------------------
Strategic Equity Fund
(Inception date 3/4/98) 2.50 -2.50 N/A N/A -1.52 -4.06
- ------------------------------------------------------------------------------------------------------------------------------------
Equity Value Fund
(Inception date 3/4/96) 13.81 8.81 16.87 16.14 16.28 15.91
- ------------------------------------------------------------------------------------------------------------------------------------
Equity Growth Fund
(Inception date 3/4/96) 26.63 21.63 23.58 22.92 21.46 21.14
- ------------------------------------------------------------------------------------------------------------------------------------
International Equity Fund
(Inception date 11/1/98) 28.41 23.41 N/A N/A 28.41 23.41
- ------------------------------------------------------------------------------------------------------------------------------------
Small Cap Value Fund
(Inception date 11/1/98) 4.80 0.04 N/A N/A 4.80 0.04
- ------------------------------------------------------------------------------------------------------------------------------------
Small Company Equity Fund
(Inception date 3/4/96) 14.34 9.34 -0.31 -1.09 3.71 3.27
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS -- B PRIME SHARES**
<TABLE>
<CAPTION>
1 Year 1 Year Life of Fund Life of Fund
Return Before Return After Return Before Return After
Contingent Contingent Contingent Contingent
As of October 31, 1999 Charge Deducted Charge Deducted* Charge Deducted Charge Deducted*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Asset Allocation Fund
(Inception date 11/1/98) 8.91% 3.91% 8.91% 3.91%
- ------------------------------------------------------------------------------------------------------------------------------------
Growth and Income Fund
(Inception date 11/1/98) 13.98 8.98 13.98 8.98
- ------------------------------------------------------------------------------------------------------------------------------------
Equity Growth Fund
(Inception date 11/1/98) 26.79 21.79 26.79 21.79
- ------------------------------------------------------------------------------------------------------------------------------------
International Equity Fund
(Inception date 11/1/98) 28.74 23.74 28.74 23.74
- ------------------------------------------------------------------------------------------------------------------------------------
Small Cap Value Fund
(Inception date 11/1/98) 4.96 0.18 4.96 0.18
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* As if shares were redeemed at end of period.
** Retail B Shares and B Prime Shares are subject to a 5.00% contingent
deferred sales charge if shares are redeemed within the first year. The
charge decreases to 4.00%, 3.00%, 3.00%, 2.00% and 1.00% for redemptions
made during the second through sixth years, respectively. Retail B Shares
automatically convert to Retail A Shares after six years and B Prime
Shares automatically convert to A Prime Shares after eight years.
Past performance is no guarantee of future results. Investment returns and
principal values will vary with market conditions so that an investor's shares,
when redeemed, may be worth more or less than their original cost. The
Investment Advisor is presently waiving fees and/or reimbursing expenses and may
revise or discontinue such practice at any time. Without such waivers and/or
reimbursements, performance would be lower. Total return figures in this report
include changes in share price, reinvestment of dividends and capital gains
distributions and include the deduction of any sales charges, where applicable,
unless otherwise indicated.
5
<PAGE>
- --------------------------------------------------------------------------------
Portfolio Reviews
GALAXY ASSET ALLOCATION FUND
By Don Jones
Portfolio Manager
[PHOTO]
Don Jones became manager of the Galaxy Asset Allocation Fund in April 1995. He
has managed investment portfolios for Fleet Investment Advisors Inc., and its
predecessors, since 1977.
As the economic outlook changed over the past year, individual sectors of
the stock and bond markets responded differently. We tried to make the best of
this environment by routinely taking profits in investments that outperformed,
and adding securities that represented better value.
For the 12 months ended October 31, 1999, Trust Shares of the Galaxy Asset
Allocation Fund earned a total return of 9.63%. For the same period, the Fund's
Retail A Shares returned 9.53%, before deducting the maximum 3.75% front-end
sales charge, and its Retail B Shares returned 8.76%, before deducting the
maximum 5.00% contingent deferred sales charge. A Prime Shares of the Fund
returned 9.72% before deducting the maximum 5.50% front-end sales charge, and B
Prime Shares returned 8.91% before deducting the maximum 5.00% contingent
deferred sales charge. (Please see the charts on page 4 for total returns after
deducting the applicable front-end sales charge and the charts on page 5 for
total returns after deducting the applicable contingent deferred sales charge.)
These total returns compare with a total return of 13.59% for the average
flexible fund tracked by Lipper Analytical Services, Inc. ("Lipper"). During the
same time, the S&P 500 Index, which tracks the performance of stocks only,
returned a total of 25.67%.
Allocation Strategies
Early in the period, we found many new investment opportunities in stocks
resulting from the market's sharp correction in the fall of 1998. Using proceeds
from the sale of manufacturing shares, we bought stocks of financial and
technology companies. With investors nervous about the future of financial
markets here and abroad, we reduced the Fund's allocation to corporate bonds in
the fixed-income portfolio from 60% to 50%.
As a strong economy helped stocks rise briskly early in 1999, we continued
to benefit from our emphasis on individual stocks and market sectors that
investors favored, such as shares of consumer staples and technology firms. An
underweighting in economically sensitive issues, which were out of favor at the
time, further enhanced Fund returns. Using profits from medical and energy
stocks that had performed well, we increased shares of capital goods, oil
service, retail, transportation, and Internet firms.
During the second quarter of 1999, a shift away from large-cap growth
stocks into shares of smaller companies and economically sensitive issues
reduced Fund returns. Performance was particularly disappointing for drug and
technology stocks, which represent large portions of the portfolio. The Fund
benefited, however, from additions of capital goods shares that performed well.
We also bought shares of money-center banks and Internet firms at this time.
6
<PAGE>
- --------------------------------------------------------------------------------
Portfolio Reviews
As the period progressed, strong performance by individual stocks and
selected non-Treasury fixed-income issues helped offset the generally
disappointing returns from the Fund's stock and bond portfolios. We took
advantage of price fluctuations to add stocks that offered attractive investment
opportunities. These included stocks of money-center banks as well as shares of
technology, consumer cyclical, and capital goods firms. To finance these
purchases, we sold issues that had performed well or had otherwise reduced their
potential for gains.
Throughout the period, we maintained a 40% weighting in bonds, split
almost evenly between U.S. government and corporate issues.
A Positive Long-Term Outlook
We believe the long-term prospects for stocks are quite favorable, given
the positive outlook for inflation and earnings. In coming months, we may see a
short-term correction that could present attractive buying opportunities among
companies with good prospects for long-term growth. To take advantage of these
opportunities, we will likely reduce the Fund's cash reserves. If stock prices
become especially attractive, we may also trim the Fund's 40% weighting in
bonds.
Recent purchases in the technology area have focused on blue-chip Internet
stocks. Once current economic uncertainties ease, we may look for lesser
Internet names that could offer shareholders greater appreciation potential over
time. For now, we plan to keep the fixed-income portfolio split between
corporate bonds and U.S. Government securities. The higher yields from
corporates should help boost returns as bond prices continue to fluctuate.
Galaxy Asset Allocation Fund
Distribution of Total Net Assets as of October 31, 1999
[The following information was in a pie chart in the printed material.]
U.S. Government and Agency Obligations &
Net Other Assets and Liabilities 23%
Commercial Paper 8%
Corporate Notes and Bonds 14%
Asset-Backed and Mortgage-Backed Securities 2%
Common & Convertible Preferred Stocks 53%
Galaxy Asset Allocation Fund
Growth of $10,000 investment*
[The following information was in a mountain graph in the printed material.]
12/30/91 10/31/99
-------- --------
S&P 500 Index $10,000 $38,978
Galaxy Asset Allocation Fund - Retail A Shares $ 9,625 $23,581
Galaxy Asset Allocation Fund - Retail B Shares $10,000 $15,618
Galaxy Asset Allocation Fund - Trust Shares $10,000 $24,736
Galaxy Asset Allocation Fund - A Prime Shares $ 9,450 $10,366
Galaxy Asset Allocation Fund - B Prime Shares $10,000 $10,391
* Since inception on 12/30/91 for Trust and Retail A Shares. Since inception
on 3/4/96 for Retail B Shares. Since inception on 11/1/98 for A Prime
Shares and B Prime Shares. Performance figures for Retail A Shares include
the effect of the maximum 3.75% front-end sales charge. Performance
figures for A Prime Shares include the effect of the maximum 5.50%
front-end sales charge. Performance figures for Retail B and B Prime
Shares reflect the deduction of the 3.00% contingent deferred sales charge
(applicable to shares redeemed during the fourth year after purchase) and
the maximum 5.00% contingent deferred sales charge, respectively, as if
shares were redeemed on October 31, 1999. The S&P 500 Index is an
unmanaged index in which investors cannot invest. Results for the index do
not reflect the investment management fees and other expenses incurred by
the Fund.
7
<PAGE>
- --------------------------------------------------------------------------------
Portfolio Reviews
[PHOTO]
Ed Klisiewicz has been portfolio manager of the Galaxy Equity Income Fund since
its inception in December of 1990. He has managed portfolios for Fleet
Investment Advisors Inc., and its predecessors, since 1970.
GALAXY EQUITY INCOME FUND
By Ed Klisiewicz
Portfolio Manager
With many economic and market changes in the past 12 months, the Galaxy
Equity Income Fund benefited from holding quality companies representing a broad
range of sectors. We further enhanced returns by emphasizing stocks with healthy
yields, at a time when yields for many stocks declined.
For the 12 months ending October 31, 1999, the Fund's Trust Shares had a
total return of 10.60%. Over the same time, Retail A Shares of the Fund had a
total return of 10.14%, before deducting the maximum 3.75% front-end sales
charge and Retail B Shares of the Fund earned a total return of 9.38% before
deducting the maximum 5.00% contingent deferred sales charge. (Please see the
chart on page 4 for total returns after deducting the front-end sales charge and
the chart on page 5 for total returns after deducting the contingent deferred
sales charge.) Those returns compare to a total return of 9.56% for the average
equity income fund tracked by Lipper. Over the same time the S&P 500 Index had a
total return of 25.67%.
Broad Diversification Helps Performance
We entered the reporting period looking for opportunities resulting from
an earlier market correction. We put cash to work in many existing positions,
especially shares of banks. In subsequent months, strong returns from these and
other holdings offset a disappointing performance by energy and utility shares.
With profits we took in banking stocks, we bought office-equipment shares with
better price potential.
Gains from consumer, telephone, utility, and rebounding energy stocks in
the first months of 1999 helped offset the negative effect of rising bond yields
on shares of financial firms and non-telephone utilities. In 1999's second
quarter, gains from energy, financial, utility, and basic materials shares
offset a disappointing performance by stocks of large drug companies.
In the final months of the period, the Fund's exposure to financials and
consumer staples hindered total returns, as both groups came under pressure.
However, energy stocks performed well with further gains in oil prices. In
October, the financial and drug sectors rebounded, reducing the poorer total
returns from utilities, REITs, and other higher-yielding shares. Although a
pullback in oil prices hurt energy stocks, the strong yields from these stocks
enhanced the Fund's total returns. We added selectively to insurance and bank
stocks at this time, which we felt represented good value.
Staying the Course
If slower growth eases fears of higher interest rates, as we expect,
higher-dividend stocks could enjoy an especially strong rebound as the market
recovers. With a well-diversified portfolio, and a slight overweighting in
utility and finance stocks because of their attractive dividends, we believe the
Fund could perform well in such an environment.
Galaxy Equity Income Fund
Distribution of Total Net Assets as of October 31, 1999
[The following information was in a pie chart in the printed material.]
U.S. Government Obligations, Repurchase
Agreement & Net Other Assets and Liabilities 12%
Basic Materials 3%
Consumer Staples 22%
Consumer Cyclical 8%
Utilities 10%
Capital Goods and Construction 6%
Technology 10%
Energy 11%
Finance 18%
Galaxy Equity Income Fund
Growth of $10,000 investment*
[The following information was in a mountain graph in the printed material.]
12/14/90 10/31/99
-------- --------
S&P 500 Index $10,000 $52,243
Galaxy Equity Income Fund - Retail A Shares $ 9,625 $31,988
Galaxy Equity Income Fund - Retail B Shares $10,000 $10,444
Galaxy Equity Income Fund - Trust Shares $10,000 $34,010
* Since inception on 12/14/90 for Retail A and Trust Shares. Since inception
on 11/1/98 for Retail B Shares. Performance figures for Retail A Shares
include the effect of the maximum 3.75% front-end sales charge.
Performance figures for Retail B Shares reflect the deduction of the
maximum 5.00% contingent deferred sales charge as if shares were redeemed
on October 31 1999. The S&P 500 Index is an unmanaged index in which
investors cannot invest. Results for the index do not reflect investment
management fees and other expenses incurred by the Fund.
8
<PAGE>
- --------------------------------------------------------------------------------
Portfolio Reviews
[PHOTO]
Greg Miller has managed the Galaxy Growth and Income Fund since July of 1998. He
has managed equity portfolios since 1988.
GALAXY GROWTH AND INCOME FUND
By Greg Miller
Portfolio Manager
During a time when growth stocks outperformed value-oriented issues, we
tried to make the most of the many attractive investment opportunities that were
available. As positions in the Galaxy Growth and Income Fund performed well, we
sold shares of those issues and invested the proceeds in stocks that we felt had
better potential. This strategy helped the Fund outperform other funds with
similar investment objectives.
For the 12 months ended October 31, 1999, the Fund's Trust Shares earned a
total return of 14.85%. Over the same time, the Fund's Retail A Shares earned
14.56% before deducting the maximum 3.75% front-end sales charge and Retail B
Shares earned 13.72% before deducting the maximum 5.00% contingent deferred
sales charge. A Prime Shares of the Fund earned 14.81% before deducting the
maximum 5.50% front-end sales charge and B Prime Shares earned a total return of
13.98% before deducting the maximum 5.00% contingent deferred sales charge.
(Please see the charts on page 4 for total returns after deducting the
applicable front-end sales charge and the charts on page 5 for total returns
after deducting the applicable contingent deferred sales charge.)
These results compare to a total return of 11.72% for the average
multi-cap value fund tracked by Lipper. For the same period, the S&P 500 Index,
which represents a more growth-oriented universe of stocks, had a total return
of 25.67%.
Sector Strategies Enhance Results
When the period began in the fourth quarter of 1998, we used the pullback
in stocks from the third quarter to increase positions in banking, retail, and
energy firms. The Fund benefited during this time from its specific selection of
technology and retail stocks. The strong gains by these shares helped to offset
disappointing results from an overweighted position in energy stocks hurt by
falling oil prices. As additional market fluctuations occurred, we traded
certain technology, health care, and telecommunications shares that had
performed well for stocks with better potential.
The Fund's overweighted position in energy stocks boosted performance in
the first months of 1999, when rising oil prices helped the sector rebound
strongly. During this time, the Fund also enjoyed strong returns from
overweighted positions in the capital goods and basic materials groups and from
its specific selection of capital goods, basic materials, and transportation
stocks. An underweighting in the lesser-performing consumer staples enhanced
returns, as
9
<PAGE>
- --------------------------------------------------------------------------------
Portfolio Reviews
well. With investors favoring issues with greater economic sensitivity, we
continued to take profits in health care issues. Because interest in technology
stocks was ebbing, we focused on shares in the sector with more reasonable
valuations.
As the rally broadened in the second quarter of 1999, the Fund benefited
further from its cyclical positions and from an underweighting in consumer
staples shares. Eventually we traded capital goods and consumer cyclical shares
that had performed well for stocks in the consumer staples area with better
value.
Although investors abandoned economically sensitive and value-oriented
issues in the final months of the period, the Fund's overweighted position in
energy shares and a strong performance from its technology holdings contributed
positively to total returns. During this time, we traded shares of technology,
drug, and banking stocks that had performed well for shares of energy, health
care and other firms with better potential.
Valuations Are Attractive
Many stocks in the Fund's portfolio are more attractive now than they have
been for some time. While it is difficult to know when value investing will be
in favor again, a strong outlook for corporate earnings should lay the
foundation for further gains. Once we get past the uncertainty surrounding
potential Y2K computer problems, we may see value stocks assume market
leadership in the first months of next year. Given our current emphasis on these
securities, the Fund would be well positioned to benefit from such a turnaround.
Galaxy Growth and Income Fund
Distribution of Total Net Assets as of October 31, 1999
[The following information was in a pie chart in the printed material.]
Other Preferred & Common Stocks 17%
Repurchase Agreement & Net Other Assets and Liabilities 7%
Consumer Staples 18%
Technology 16%
Consumer Cyclical 10%
Utilities 9%
Energy 10%
Finance 13%
Galaxy Growth and Income Fund
Growth of $10,000 investment*
[The following information was in a mountain graph in the printed material.]
12/14/92 10/31/99
-------- --------
S&P 500 Index $10,000 $36,669
Galaxy Growth and Income Fund - Retail A Shares $ 9,625 $26,641
Galaxy Growth and Income Fund - Retail B Shares $10,000 $16,912
Galaxy Growth and Income Fund - Trust Shares $10,000 $28,180
Galaxy Growth and Income Fund - A Prime Shares $ 9,450 $10,847
Galaxy Growth and Income Fund - B Prime Shares $10,000 $10,898
* Since inception on 12/14/92 for Trust Shares and 2/12/93 for Retail A
Shares. Since inception on 3/4/96 for Retail B Shares. Since inception on
11/1/98 for A Prime Shares and B Prime Shares. Performance figures for
Retail A Shares include the effect of the maximum 3.75% front-end sales
charge. Performance figures for A Prime Shares include the effect of the
maximum 5.50% front-end sales charge. Performance figures for Retail B and
B Prime Shares reflect the deduction of the 3.00% contingent deferred
sales charge (applicable to shares redeemed during the fourth year after
purchase) and the maximum 5.00% contingent deferred sales charge,
respectively, as if shares were redeemed on October 31, 1999. The S&P 500
is an unmanaged index in which investors cannot invest. Results for the
index do not reflect the investment management fees and other expenses
incurred by the Fund.
10
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Portfolio Reviews
[PHOTO]
Peter Hathaway has managed the Galaxy Strategic Equity Fund since its inception
in March of 1998. He has worked for Fleet Investment Advisors Inc., or its
predecessors, since 1965 and has managed investments since 1974.
GALAXY STRATEGIC EQUITY FUND
By Peter Hathaway
Portfolio Manager
For the 12 months ended October 31, 1999, Trust Shares of the Galaxy
Strategic Equity Fund earned a total return of 3.64%. For the same period,
Retail A Shares of the Fund returned 3.25%, before deducting the maximum 3.75%
front-end sales charge, and its Retail B Shares returned 2.50%, before deducting
the maximum 5.00% contingent deferred sales charge. (Please see the chart on
page 4 for total returns after deducting the front-end sales charge and the
chart on page 5 for total returns after deducting the contingent deferred sales
charge.)
Over the same time, the average multi-cap value fund tracked by Lipper
earned a return of 11.72% and the S&P 500 Index returned 25.67%. Lipper has
classified the Fund as "multi-cap core" pending a review requested by the
Advisor to include the Fund in the multi-cap value category, which would reflect
the Fund's value-biased investment process. Lipper's average multi-cap core fund
returned 23.12% for the 12 months ended October 31, 1999.
Growth at a Reasonable Price
Fiscal 1999 proved to be a very difficult environment for value investors
seeking growth at a reasonable price. Since the end of 1997, the majority of the
market's returns have been highly concentrated in a few large stocks. While
earnings for the largest 50 stocks in the S&P 500 Index increased approximately
17% in 1999, market values jumped over 35%. Price to earnings ratios reached
levels lacking historical precedence, with large stocks valued at 28 times 1999
earnings as compared to 17 times 1999 earnings for the remaining 450 S&P 500
Index stocks. Technology was a dominant force with the 7 largest technology
stocks (excluding America On-Line) increasing more in market value than the
entire S&P 500 Index. Technology sector market values rose over 70% to nearly
one-quarter of the S&P 500 Index, up from 17% a year ago. Its price earnings
ratio now stands at 33 times estimated 1999 earnings, nearly twice that of the
Index average.
In this environment the Fund's value driven growth discipline was
maintained. Profits have been taken over time in the Fund's large cap stocks as
they approached relative and absolute price levels lacking historical valuation
precedence. The Fund's technology sector was pared back from its overweighted
position by mid-year. Sector returns were good but fell short of the highly
valued large-cap technology stocks that continue to dominate the S&P 500 Index.
The creation of the two tiered market since 1997 has provided attractive
investment opportunities in the "other 450" stocks of the S&P 500 Index. They
are valued at 30% to 40% discounts to the larger stocks yet offer competitive
long-term earnings growth potential. Median returns have been essentially zero
compared to 70% for the largest 50 stocks over the past two years, indicative of
the developing two tier market. As Fund investments in the larger companies and
technology sector have been reduced, the proceeds have been used to purchase
growth at a reasonable price in the "other 450" market sector.
The Fund closed the year with below market weightings in consumer staples,
technology and utilities and above market weightings in healthcare, capital
goods and energy. The energy sector was increased significantly in the second
fiscal quarter as weak oil prices severely depressed stocks of oil service and
exploration companies. Industry consolidation and favorable long-term
supply/demand fundamentals point toward an extended capital spending cycle
resulting in several years of exceptional earnings growth for these companies.
Portfolio returns were competitive through the third fiscal quarter
benefiting from the recovery in oil prices and a broadening of the market in the
spring. The final quarter brought a brief market correction, a tightening of
monetary policy by the Fed and rising interest rates. Investors again sought
refuge in technology stocks and large cap stocks having earnings visibility with
little regard for valuations. The Fund finished the fiscal year with a positive
return but shy of its peer benchmarks. Its discipline to growth at a reasonable
price was maintained, exposure to excessive market risk was minimized and there
was no style creep.
The Fund continues to have balance with approximately 50% of its assets
invested in growth companies, 25% in cyclically sensitive stocks and 25% in
value stocks. Seventy-five percent of the the Fund's portfolio is invested in
companies other than the largest 50 stocks compared to a 40% weighting for the
S&P 500 Index. Valuation para-
11
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Portfolio Reviews
meters continue to compare favorably with those of the market. Long-term
earnings growth forecasts for the Fund's stocks are higher than those for the
S&P 500 Index stocks and the price to earnings ratio is 18 times 1999 earnings
compared to 27 times. Measures of price to book and price to sales are less than
half that of the Index.
A More Optimistic Outlook for the "Other" 450 Stocks
At year-end, 15 of the largest stocks in the S&P 500 Index (comprising 30%
of the Index and including household names such as Microsoft, GE, Intel, IBM,
Wal-Mart, Exxon and Merck) have benefited from nearly a decade of rising price
to earnings ratios. Their average annual price to earnings ratios rose gradually
from 15 times in 1990 to 24 times in 1997, then jumped to 30 times in 1998 and
now stand at 35 times. During the past 18 months when this premium for large
blue chip stocks was rising rapidly (from 24 times to 35 times), value biased
investment processes lagged the market. The valuation of these select few stocks
are at an all time high and more than twice that of the "other 450". If the
premium valuation of the few largest stocks stabilizes or declines, then the
other 450 stocks should provide competitive or superior relative returns.
A second plus in the outlook is the continued growth of the global
economy. Companies with even modest cyclical sensitivity have lacked pricing
power due to sluggish demand and low inflation. The recovery in global
economies, tight labor markets and a weak dollar have the potential to translate
into better earnings comparisons for cyclically sensitive companies. These
companies fall into the other 450 stock category, sell at depressed valuations
and have been given increased emphasis in the portfolio.
Barring economic recession, the Fund's portfolio is well positioned for a
market sensitive to reasonable valuations based on fundamental earnings
prospects. Forecasted 12 to 18 month returns relative to the market are at the
high end of their historical range and the majority of the Fund's holdings offer
good absolute value as well as relative value.
Galaxy Strategic Equity Fund
Distribution of Total Net Assets as of October 31, 1999
[The following information was in a pie chart in the printed material.]
Repurchase Agreement & Net Other Assets and Liabilities 9%
Capital Goods and Construction 8%
Consumer Cyclical 13%
Other Common Stocks 4%
Consumer Staples 19%
Technology 15%
Basic Materials 4%
Finance 13%
Energy 15%
Galaxy Strategic Equity Fund
Growth of $10,000 investment*
[The following information was in a mountain graph in the printed material.]
3/4/98 10/31/99
------- --------
S&P 500 Index $10,000 $13,291
Galaxy Strategic Equity Fund - Retail A Shares $ 9,625 $ 9,564
Galaxy Strategic Equity Fund - Retail B Shares $10,000 $ 9,373
Galaxy Strategic Equity Fund - Trust Shares $10,000 $10,019
* Since inception on 3/4/98 for Trust, Retail A Shares and Retail B Shares.
Performance figures for Retail A Shares include the effect of the maximum
3.75% front-end sales charge. Performance figures for Retail B Shares
reflect the deduction of the 4.00% contingent deferred sales charge
(applicable to shares redeemed during the second year after purchase) as
if shares were redeemed on October 31, 1999. The S&P 500 Index is an
unmanaged index in which investors cannot invest. Results for the index do
not reflect the investment management fees and other expenses incurred by
the Fund.
12
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Portfolio Reviews
[PHOTO]
G. Jay Evans has managed the Galaxy Equity Value Fund since April of 1993. He
has managed value-oriented portfolios for Fleet Investment Advisors Inc., and
its predecessors, since 1978.
GALAXY EQUITY VALUE FUND
By G. Jay Evans
Portfolio Manager
During the twelve months ended October 31, 1999, the Galaxy Equity Value
Fund performed well against the average multi-cap value fund tracked by Lipper.
Trust Shares of the Fund earned a return of 15.04%, Retail A Shares returned
14.63% before deducting the maximum 3.75% front-end sales charge and Retail B
Shares returned 13.81% before deducting the maximum 5.00% contingent deferred
sales charge as compared to 11.72% for the Lipper category. During the same time
the S&P 500 Index, which is more representative of growth-oriented firms,
returned 25.67%. (Please see the chart on page 4 for total returns after
deducting the front-end sales charge and the chart on page 5 for total returns
after deducting the contingent deferred sales charge.).
A Seesaw Market
Value portfolios performed well through the spring of 1999, as earnings
growth estimates increased and the long-lived economic expansion appeared more
sustainable. The Fund benefited during this time from strong performance by its
consumer cyclical and technology holdings, which represented overweighted
positions versus the Fund's benchmarks. Excellent selectivity in its energy and
health care positions further enhanced total returns. These factors helped
offset weaker total returns from financial holdings hurt by rising interest
rates and from underweighted positions in the soaring stocks of Internet,
personal communications and large-cap growth companies due to our ongoing
orientation toward value.
In June, the economy's strength triggered inflation concerns and higher
interest rates. Investors became less confident in their assessment of consumer
spending and found little sympathy for companies warning of even minor earnings
shortfalls. The Fund's financial stocks continued to suffer in this climate,
along with consumer cyclical issues. As we entered the fall, investors narrowed
their focus to technology and communications stocks with large market
capitalizations.
The Promise of Value
Productivity is defined as the ability to produce more goods and services
with the same or less amount of labor. Today, productivity gains are all that
stand between us and a traditional economic cycle that ends in rising inflation
and higher interest rates. If the Fed has to raise interest rates further to
control inflation, the recovery in value investing will be delayed. However, if
the global economic and e-commerce revolutions continue to raise productivity,
substantially offsetting the cyclical pressures of tight labor and materials
markets, the outlook for earnings and value investing will brighten.
Large-capitalization growth has led the market for several years. Many of
these issues now sell at unsupportable price/earnings premiums. Conversely, many
value stocks are priced as bargains. The valuation disparity between growth and
value and between large-cap and mid-cap issues has rarely been as wide. Value
stocks have
13
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Portfolio Reviews
taken the lead in past periods of rising earnings expectations, which have often
been characterized by pricing flexibility and competition.
This time around, more efficient markets aided by the Internet and
e-commerce could challenge companies that have been the traditional leaders in
market share. The Internet has opened markets to increased competition, a change
that should benefit value investors. Value investments have also outperformed
growth positions during periods of economic strength, when long-term interest
rates rise. Such conditions may develop next year as national elections
encourage an increase in government spending at home and demand strengthens in
the recovering economies of Asia and Europe.
As the outlook for value improves, the Fund will be supported by a strong
research effort focused on finding overlooked, undervalued companies that are
experiencing improvements in their levels of profitability. This effort will be
helped by a highly sophisticated valuation system designed to identify stocks
for our review.
Galaxy Equity Value Fund
Distribution of Total Net Assets as of October 31, 1999
[The following information was in a pie chart in the printed material.]
Other Common Stocks 5%
Energy 9%
Repurchase Agreement & Net Other Assets and Liabilities 3%
Technology 21%
Utilities 7%
Finance 18%
Consumer Staples 9%
Consumer Cyclical 23%
Capital Goods and Construction 5%
Galaxy Equity Value Fund
Growth of $10,000 investment*
[The following information was in a mountain graph in the printed material.]
9/1/88 10/31/99
------- --------
S&P 500 Index $10,000 $69,669
Galaxy Equity Value Fund - Retail A Shares $ 9,625 $43,486
Galaxy Equity Value Fund - Retail B Shares $10,000 $17,169
Galaxy Equity Value Fund - Trust Shares $10,000 $46,074
* Since inception on 9/1/88 for Trust and Retail A Shares. Since inception
on 3/4/96 for Retail B Shares. Performance figures for Retail A Shares
include the effect of the maximum 3.75% front-end sales charge.
Performance figures for Retail B Shares reflect the deduction of the 3.00%
contingent deferred sales charge (applicable to shares redeemed during the
fourth year after purchase) as if shares were redeemed on October 31,
1999. The S&P 500 Index is an unmanaged index in which investors cannot
invest. Results for the index do not reflect the investment management
fees and other expenses incurred by the Fund.
14
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Portfolio Reviews
[PHOTO]
Bob Armknecht has been managing the Galaxy Equity Growth Fund since its
inception in December of 1990. He has managed equity portfolios for Fleet
Investment Advisors Inc. since 1988.
GALAXY EQUITY GROWTH FUND
By Bob Armknecht
Portfolio Manager
In a climate that generally favored growth, we invested heavily in
industries where the growth outlook was particularly strong: technology, health
care, finance, and media/communications. This approach resulted in solid gains
for much of the period and helped the Galaxy Equity Growth Fund perform well
versus its market benchmarks.
For the 12 months ended October 31, 1999, the Fund's Trust Shares earned a
total return of 28.07%. Over the same time, Retail A Shares of the Fund earned
27.55%, before deducting the 3.75% maximum front-end sales charge, and Retail B
Shares earned 26.63%, before deducting the 5.00% maximum contingent deferred
sales charge. The Fund's A Prime Shares earned 27.30% before deducting the
maximum 5.50% front-end sales charge and B Prime Shares earned a total return of
26.79% before deducting the 5.00% maximum contingent deferred sales charge.
(Please see the charts on page 4 for total returns after deducting the
applicable front-end sales charge and the charts on page 5 for total returns
after deducting the applicable contingent deferred sales charge.)
Over the same period, the total return for large-cap core funds tracked by
Lipper was 26.12% and the S&P 500 Index earned a total return of 25.67%.
Focus on Growth Boosts Returns
The fiscal year began with investors concerned about both global and
domestic economic conditions. In this environment, we took advantage of
investment opportunities in the broadcasting, finance, and entertainment
sectors. We also traded securities within the technology sector to enhance the
earnings potential of Fund holdings in that group. This boosted returns in the
months that followed as technology stocks rallied.
When oil prices rebounded early in 1999, the Fund benefited from its
overweighted position in energy stocks, as well as from overweightings in the
strongly performing semiconductor and health care sectors. These gains helped
offset the disappointing returns from shares of broadcasting, retail, and
communications firms which occured at that time. With the proceeds from certain
technology and communications stocks that had performed well, we added shares of
broadcasting and other communications firms that were particularly attractive,
as well as shares of manufacturing, industrial, and financial firms. Many of
these additions made positive contributions to the Fund's performance later in
the reporting period.
While a shift of market attention away from growth stocks in the second
quarter of 1999 weakened the Fund's performance, holdings in energy and capital
goods shares made positive contributions. Superior stock selection in these
areas, as well as in the consumer cyclical, consumer staples, and financial
sectors, further improved returns. We reduced positions in technology, airlines,
and food stocks during this time and we added shares of cap-
15
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Portfolio Reviews
ital goods, consumer electronics, manufacturing, cable television and financial
firms.
Rising rates weighed on financial stocks in the third quarter, but the
Fund weathered the downturn relatively well, as outperformance by holdings in
the communications and energy sectors offset poor returns from financial shares.
At this point we used some cash reserves to take advantage of investment
opportunities in the drug, consumer electronics, and communications hardware
groups. In the final weeks of the period, we trimmed our exposure to the
disappointing financial and capital goods sectors and restructured the Fund's
financial holdings. We used price weakness in the technology and health care
sectors to increase positions there.
Long-Term Prospects Are Bright
Year-end profit-taking, unexpected earnings disappointments, Y2K concerns
and uncertainty about the direction of interest rates may keep stock prices
volatile in coming months. Slower growth, lower interest rates, and attractive
valuations could set the stage for a sustained market rebound in 2000. In the
meantime, the Fund should benefit from its emphasis on stocks with strong growth
potential and attractive prices.
We expect market leadership to remain dominated by stocks of companies in
fast-growing sectors. Where possible, we plan to take advantage of any new
investment opportunities in these issues that further price declines may bring.
As always, we plan to maintain a diversified portfolio of large-company growth
stocks whose underlying issuers have reliable earnings and solid growth
prospects.
Galaxy Equity Growth Fund
Distribution of Total Net Assets as of October 31, 1999
[The following information was in a pie chart in the printed material.]
Repurchase Agreement & Net Other Assets and Liabilities 5%
Capital Goods and Construction 8%
Finance 12%
Consumer Cyclical 7%
Energy 8%
Consumer Staples 18%
Technology 29%
Convertible Preferred & Other Common Stocks 13%
Galaxy Equity Growth Fund
Growth of $10,000 investment*
[The following information was in a mountain graph in the printed material.]
12/14/90 10/31/99
-------- --------
S&P 500 Index $10,000 $52,243
Galaxy Equity Growth Fund - Retail A Shares $ 9,625 $41,897
Galaxy Equity Growth Fund - Retail B Shares $10,000 $20,175
Galaxy Equity Growth Fund - Trust Shares $10,000 $44,474
Galaxy Equity Growth Fund - A Prime Shares $ 9,450 $12,028
Galaxy Equity Growth Fund - B Prime Shares $10,000 $12,179
* Since inception on 12/14/90 for Trust and Retail A Shares. Since inception
on 3/4/96 for Retail B Shares. Since inception on 11/1/98 for A Prime
Shares and B Prime Shares. Performance figures for Retail A Shares include
the effect of the maximum 3.75% front-end sales charge. Performance
figures for A Prime Shares include the effect of the maximum 5.50%
front-end sales charge. Performance figures for Retail B and B Prime
Shares reflect the deduction of the 3.00% contingent deferred sales charge
(applicable to shares redeemed during the fourth year after purchase) and
the maximum 5.00% contingent deferred sales charge, respectively, as if
shares were redeemed on October 31, 1999. The S&P 500 is an unmanaged
index in which investors cannot invest. Results for the index do not
reflect the investment management fees and other expenses incurred by the
Fund.
16
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Portfolio Reviews
[PHOTO]
Thomas M. O'Neill is Chief Investment Officer of Fleet Investment Advisors Inc.
and Oechsle International Advisors, LLC, sub-advisor for the Fund. Oechsle is a
firm dedicated to international investing and has approximately $15 billion in
assets under management.
GALAXY INTERNATIONAL EQUITY FUND
By Thomas O'Neill, Chief Investment Officer, Fleet Investment Advisors Inc., and
Oechsle International Advisors, LLC, Sub-Advisor
As foreign economies recovered in the past year, the rebound for stocks in
Japan and other parts of Asia was generally stronger than stock reversals in
European markets. Because the outlook for Asian equities had been so uncertain,
the Galaxy International Equity Fund was underweighted in those securities
versus its market benchmark in the first part of the reporting period. With
exceptional performance by individual issues in Japan and elsewhere and a higher
weighting in Japan later in the period, the Fund performed well against its
benchmarks for the fiscal year.
During the 12 months ended October 31, 1999, the Fund's Trust Shares
earned a total return of 29.71%. Over the same time, Retail A Shares of the Fund
earned 29.04%, before deducting the maximum 3.75% front-end sales charge, and
Retail B Shares earned 28.41% before deducting the maximum 5.00% contingent
deferred sales charge. The Fund's A Prime Shares earned a total return of 29.73%
before deducting the maximum 5.50% front-end sales charge, and B Prime Shares
earned a total return of 28.74% before deducting the maximum 5.00% contingent
deferred sales charge. (Please see the charts on page 4 for total returns after
deducting the applicable front-end sales charge and the charts on page 5 for
total returns after deducting the applicable contingent deferred sales charge.)
Those total returns compare with 25.53% for the average international fund
tracked by Lipper, and 23.37% for the EAFE Index.
Japanese Stocks Help Lift Returns
In the final months of 1998 and the first months of 1999, the Fund enjoyed
strong performance by shares of Japanese telecommunications and financial
companies. Many European stocks also performed well, especially shares of
telecommunications firms and companies involved in mergers.
During this time, we added selectively to investments in Japan, seeking to
improve the earnings quality of shares that we owned. We gave particular
attention to consumer-finance companies and firms that can benefit from
corporate restructuring. In Europe, we reduced shares in French companies that
were particularly sensitive to a weak global economy.
The Fund's increased weighting in Japan, along with modest additions in
the emerging markets of Asia, enhanced performance in the second quarter of
1999. The shift in assets to Asia, reduced investments in Europe somewhat.
Strong stock selection in Asia and Europe further enhanced the Fund's total
returns during this time.
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Portfolio Reviews
By the final months of 1999, the Fund was slightly overweighted in
Japanese stocks, which rallied strongly. Outstanding performance by many
individual Japanese issues made further positive contributions to performance.
As in previous months, we focused on opportunities in stocks that could benefit
most over time from the expansion of economies abroad.
Favorable Growth Prospects
The recent improvement in economies overseas seem to have taken many
corporate purchasing managers by surprise, leading to an inadvertent depletion
in business inventories. Efforts by managers to rebuild those inventories, which
may be boosted by Y2K concerns, could spur further growth in months to come.
Growth may then slow, however, with a return to more normal inventory levels,
higher interest rates and actual Y2K disruptions.
Near term, the Fund should benefit from careful stock selection. Given our
favorable outlook for long-term growth, we plan to continue seeking
opportunities in stocks from economically sensitive sectors. We are particularly
optimistic about opportunities in Europe, where positive economic fundamentals
are not yet reflected in stock valuations. Japanese stocks could also continue
to perform well, if recent economic trends and corporate restructuring continue.
Galaxy International Equity Fund
Distribution of Total Net Assets as of October 31, 1999
[The following information was in a pie chart in the printed material.]
Repurchase Agreement & Net Other Assets and Liabilities 4%
Australia & New Zealand 3%
United Kingdom 16%
Europe 41%
Far East 32%
Canada 4%
Galaxy International Equity Fund
Growth of $10,000 investment*
[The following information was in a mountain graph in the printed material.]
12/30/91 10/31/99
-------- --------
EAFE Index $10,000 $20,349
Galaxy International Equity Fund - Retail A Shares $ 9,625 $23,949
Galaxy International Equity Fund - Retail B Shares $10,000 $12,341
Galaxy International Equity Fund - Trust Shares $10,000 $25,623
Galaxy International Equity Fund - A Prime Shares $ 9,450 $12,260
Galaxy International Equity Fund - B Prime Shares $10,000 $12,374
* Since inception on 12/30/91 for Trust and Retail A Shares. Since inception
on 11/1/98 for Retail B, A Prime Shares and B Prime Shares. Performance
figures for Retail A Shares include the effect of the maximum 3.75%
front-end sales charge. Performance figures for A Prime Shares include the
effect of the maximum 5.50% front-end sales charge. Performance figures
for Retail B and B Prime Shares reflect the deduction of the maximum 5.00%
contingent deferred sales charge as if shares were redeemed on October 31,
1999. The EAFE Index is an unmanaged index in which investors cannot
invest. Results for the index do not reflect the investment management
fees and other expenses incurred by the Fund.
18
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Portfolio Reviews
[PHOTO]
Peter Larson has managed the Galaxy Small Cap Value Fund, and its predecessor,
since 1993. He has managed small company portfolios since 1981.
GALAXY SMALL CAP VALUE FUND
By Peter Larson
Portfolio Manager
In a year of changing economic expectations, stocks of smaller firms
sometimes outperformed stocks of larger companies. For the most part, however,
economic uncertainty caused small-cap stocks to lag. This was particularly true
of value-oriented issues, where the Galaxy Small Cap Value Fund concentrates its
investments. By making the most of individual investment opportunities that
arose from short-term market fluctuations, we helped the Fund make the most of
this tumultuous period and earn total returns that were competitive with its
peers.
During the 12 months ended October 31, 1999, the Fund's Trust Shares
earned a total return of 6.02%. Over the same time, Retail A Shares of the Fund
earned 5.68%, before deducting the maximum 3.75% front-end sales charge, and
Retail B Shares earned 4.80% before deducting the maximum 5.00% contingent
deferred sales charge. The Fund's A Prime Shares earned a total return of 5.80%
before deducting the maximum 5.50% front-end sales charge, and B Prime Shares
earned a total return of 4.96% before deducting the maximum 5.00% contingent
deferred sales charge. (Please see the charts on page 4 for total returns after
deducting the applicable front-end sales charge and the charts on page 5 for
total returns after deducting the applicable contingent deferred sales charge.)
These total returns compare to 6.08% earned for the period by the average
small-company value fund tracked by Lipper. The Russell 2000, which represents
more growth-oriented shares, earned a total return of 14.87% during this time.
Small Cap Stocks Take Roller-Coaster Ride
As the period began, small-cap stocks were rebounding from their market
correction in the third quarter of 1998. The Fund enjoyed strong returns from
its technology, basic materials, and capital goods stocks that, along with gains
from positions involved in mergers, helped offset a disappointing performance by
energy stocks. As oil prices rose in the first months of 1999, energy stocks
rallied strongly. Gains from companies involved with mergers continued to add to
performance. As prices for small-cap stocks retreated at this time, we increased
shares of many existing positions. We placed special emphasis on additions to
the technology sector, which we felt had been greatly oversold.
As the small-cap sector rebounded again in the second quarter of 1999, the
Fund benefited from our continued focus on companies with sound fundamentals. Of
further help were increased holdings in the energy sector and strong performance
by other cyclical issues. Besides increasing investments in natural gas firms
and information technology companies during this time, we introduced stocks of
temporary-help agencies available at particularly attractive prices.
Although prices for small-cap issues as a whole retreated in the final
months of the reporting
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Portfolio Reviews
period, small-cap growth stocks significantly outperformed their value-oriented
counterparts. This was due largely to the continued dominance of the sector by
growth-oriented technology stocks. The Fund benefited during this time from
strong performance by its technology holdings and, in July and August, from its
energy positions. As profit-taking caused energy stocks to retreat in September
and October, we increased the Fund's position in the sector, believing that
positive changes in the balance of energy supply and demand give the sector a
strong potential for long-term growth. As market fluctuations made their prices
more attractive, we also added shares of information technology firms.
Many Good Values Available
Our long-term outlook for small-cap stocks remains positive, given their
attractive valuations relative to the market. The near-term outlook,
particularly for value-oriented shares is less certain. As the reporting period
came to a close, investors were focused on momentum plays in the technology
group, especially Internet stocks. Once those stocks come under pressure, a
fallout that could be quite severe given the extraordinarily high valuations of
those issues, investors' attention may turn to more traditional ways of
evaluating stocks. In this scenario, small-cap value stocks would very well be
poised for a sustainable rebound in price.
Galaxy Small Cap Value Fund
Distribution of Total Net Assets as of October 31, 1999
[The following information was in a pie chart in the printed material.]
Corporate Bond, Repurchase Agreement &
Net Other Assets and Liabilities 9%
Other Common Stocks 13%
Consumer Cyclical 12%
Finance 13%
Consumer Staples 18%
Technology 16%
Capital Goods and Construction 11%
Energy 8%
Galaxy Small Cap Value Fund
Growth of $10,000 investment*
[The following information was in a mountain graph in the printed material.]
12/14/92 10/31/99
-------- --------
Russell 2000 $10,000 $22,152
Galaxy Small Cap Value Fund - Retail A Shares $ 9,625 $22,026
Galaxy Small Cap Value Fund - Retail B Shares $10,000 $10,004
Galaxy Small Cap Value Fund - Trust Shares $10,000 $23,325
Galaxy Small Cap Value Fund - A Prime Shares $ 9,450 $ 9,998
Galaxy Small Cap Value Fund - B Prime Shares $10,000 $10,018
* Since inception on 12/14/92 for Trust Shares. Since inception on 2/12/93
for Retail A Shares. Since inception on 11/1/98 for Retail B, A Prime and
B Prime Shares. Performance figures for Retail A Shares include the effect
of the maximum 3.75% front-end sales charge. Performance figures for A
Prime Shares include the effect of the maximum 5.50% front-end sales
charge. Performance figures for Retail B and B Prime Shares reflect the
deduction of the maximum 5.00% contingent deferred sales charge as if
shares were redeemed on October 31, 1999. The Russell 2000 Index is an
unmanaged index in which investors cannot invest. Results for the index do
not reflect the investment management fees and other expenses incurred by
the Fund.
20
<PAGE>
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Portfolio Reviews
[PHOTO]
Steve Barbaro has managed the Galaxy Small Company Equity Fund since its
inception in December of 1991. He has managed small company portfolios for Fleet
Investment Advisors Inc., and its predecessors, since 1976.
GALAXY SMALL COMPANY EQUITY FUND
By Steven Barbaro
Portfolio Manager
For the 12 months ended October 31, 1999, Trust Shares of the Galaxy Small
Company Equity Fund had a total return of 15.54%. For the same period, Retail A
Shares of the Fund earned 14.89%, before deducting the maximum 3.75% sales
charge, and Retail B Shares earned 14.34%, before deducting the maximum 5.00%
contingent deferred sales charge. (Please see the chart on page 4 for total
returns after deducting the front-end sales charge and the chart on page 5 for
total returns after deducting the contingent deferred sales charge.) For the
same period, the Russell 2000 returned 14.87%.
These represent strong returns by historical standards and reflect greater
interest in the small-cap sector as economic conditions improved. However some
groups of small-cap stocks found greater favor with investors than others. In
the first half of the reporting period, small-cap stocks with greater
capitalizations fared particularly well, along with Internet stocks and other
shares with exceptionally high rates of earnings growth. While we gave added
weight to these issues during that time, the Fund was underweighted in the group
versus funds with similar investment objectives and so underperformed its peers.
Good stock selection and heavy weightings in the better-performing
technology and energy sectors helped the Fund's performance in the second half
of the period. Because its total returns had lagged significantly early on,
however, the Fund underperformed its peer group for the reporting period as a
whole. During that time small-cap growth funds tracked by Lipper earned a total
return of 45.86%.
A Focus on Fundamentals
We began to increase the size of companies in the Fund during the third
quarter of 1998, when a market correction had made small-cap growth shares more
attractive. These purchases, along with strong performance by the semiconductor
stocks that represented a large portion of the Fund's assets, increased the
weighting in technology shares over this time.
Gains by the Fund's technology holdings helped to boost performance in the
first months of 1999, along with good returns from several positions involved in
mergers. At this point we traded computer hardware, service, and software firms
that had performed well for networking and semiconductor shares that we felt had
better price potential.
In the second quarter of 1999, as the small-cap sector gained more
attention from investors, the Fund outperformed its market benchmarks. Of
particular benefit was our emphasis on companies with sound fundamentals and an
increased weighting in energy stocks helped by a rebound in the price of oil.
The Fund was further assisted by its overweighting in other sectors that
performed well,
21
<PAGE>
Portfolio Reviews
such as the capital goods and communications groups. An underweighting in the
then-disappointing Internet area also proved beneficial. During this period, we
took profits in selected semiconductor positions and added stocks of firms that
could benefit from an improving economy.
In the final months of the period, small-cap growth stocks significantly
outperformed their value-oriented counterparts. This was due largely to the
continued market dominance by technology shares. Of added benefit was a lack of
financial shares, which underperformed as interest rates rose. We continued to
increase technology investments during this time, while reducing consumer shares
that would be sensitive both to economic uncertainty and rising interest rates.
Growth Stocks Still Attractive
With valuations that remain appealing versus those for large-cap shares,
small-company stocks could rebound strongly if slower growth reduces interest
rates. In the meantime, small-cap growth stocks should continue to outperform
small-cap value stocks, as investors remain partial to technology issues and are
uncertain about where the economy will head. With its emphasis on technology and
energy positions, both of which can perform well if growth slows, we believe the
Fund is well positioned for this environment. As before, we plan to focus on
companies with visible earnings potential and take advantage of new investment
opportunities that market fluctuations may bring.
Galaxy Small Company Equity Fund
Distribution of Total Net Assets as of October 31, 1999
[The following information was in a pie chart in the printed material.]
Capital Goods and Construction 6%
Other Common Stocks & Net Other Assets and Liabilities 10%
Consumer Staples 10%
Energy 6%
Consumer Cyclical 14%
Technology 54%
Galaxy Small Company Equity Fund
Growth of $10,000 investment*
[The following information was in a mountain graph in the printed material.]
12/30/91 10/31/99
-------- --------
Russell 2000 $10,000 $52,243
Galaxy Small Company Equity Fund - Retail A Shares $ 9,625 $31,988
Galaxy Small Company Equity Fund - Retail B Shares $10,000 $10,332
Galaxy Small Company Equity Fund - Trust Shares $10,000 $34,010
* Since inception on 12/30/91 for Trust and Retail A Shares. Since inception
on 3/4/96 for Retail B Shares. Performance figures for Retail A Shares
include the effect of the maximum 3.75% front-end sales charge.
Performance figures for Retail B Shares reflect the deduction of the 3.00%
contingent deferred sales charge (applicable to shares redeemed during the
fourth year after purchase) as if shares were redeemed on October 31,
1999. The Russell 2000 is an unmanaged index in which investors cannot
invest. Results for the index do not reflect the investment management
fees and other expenses incurred by the Fund.
22
<PAGE>
- --------------------------------------------------------------------------------
Shareholder Services
"A well-balanced asset allocation plan may help to control your risk while
pursuing your goals."
AUTOMATIC INVESTMENT PROGRAM
The Golden Rule of investing is "pay yourself first." That is easy to do with
Galaxy's Automatic Investment Program. For as little as $50 per month deducted
directly from your checking, savings or bank money market account, you can
consistently and conveniently add to your Galaxy investment. When you establish
an Automatic Investment Program, the $2,500 initial investment requirement for
Galaxy is waived. Of course, such a program does not assure a profit and does
not protect against loss in a declining market.
DIVERSIFICATION
A fundamental investment practice is "diversification." A well-balanced asset
allocation plan may help to control your risk while pursuing your goals. Many
mutual funds offer a low-cost way to diversify your investments while you
benefit from professional management. Galaxy's comprehensive array of invest
ment choices can be used in combination to match the needs of nearly everyone.
EXCHANGE PRIVILEGES
As your investment needs change, you can conveniently exchange your shares in
one fund for shares in another fund at no cost (as long as you exchange within
the same share class).
CONSOLIDATED STATEMENTS
Timely, comprehensive mutual fund account statements offer detailed information
on your individual account. If you have a FleetOne Gold or a Fleet Private
Banking Account, your Galaxy Fund information can be added to these statements.
24-HOUR ACCESS TO REGISTERED REPRESENTATIVES
24 hours a day, seven days a week, 365 days a year, we are ready and available
to help. Our toll-free telephone lines offer round-the-clock access to Fund
information and service. Call toll-free 1-877-BUY-GALAXY (1-877-289-4252) for
information on initial purchases and current performance.
- --------------------------------------------------------------------------------
Certain shareholder services may not be available to Trust, A Prime and B Prime
Share investors. Please consult your Fund Prospectus.
Shares of the Funds are distributed through Provident Distributors, Inc., member
NASD and SIPC.
23
<PAGE>
- --------------------------------------------------------------------------------
Shareholder Information
TRUSTEES
AND OFFICERS
Dwight E. Vicks, Jr.
Chairman and Trustee
John T. O'Neill
President, Treasurer
and Trustee
Louis DeThomasis,
F.S.C., Ph.D.
Trustee
Donald B. Miller
Trustee
James M. Seed
Trustee
Bradford S. Wellman
Trustee
W. Bruce
McConnel, III, Esq.
Secretary
Jylanne Dunne
Vice President and
Assistant Treasurer
William Greilich
Vice President
INVESTMENT ADVISOR
Fleet Investment
Advisors Inc.
75 State Street
Boston, MA
02109
DISTRIBUTOR
Provident
Distributors, Inc.
Four Falls Corporate Center
6th Floor
West Conshohocken, PA
19428-2961
ADMINISTRATOR
PFPC Inc.
4400 Computer Drive
Westborough,
Massachusetts 01581-5108
AUDITOR
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116
LEGAL COUNSEL
Drinker Biddle & Reath LLP
One Logan Square
18th and Cherry Streets
Philadelphia, PA 19103
This report is submitted for the general information of shareholders of The
Galaxy Fund. It is not authorized for distribution to prospective investors
unless accompanied or preceded by an effective prospectus for each Fund of The
Galaxy Fund, which contains more information concerning the investment policies
and expenses of the Funds as well as other pertinent information. For complete
information, and before making an investment decision on any of the Funds of The
Galaxy Fund, you should request a prospectus from the Funds' distributor by
calling toll-free 1-877-BUY-GALAXY (1-877-289-4252). Read the prospectus
carefully before you invest.
Shares of the Funds are not bank deposits or obligations of, or guaranteed or
endorsed by, FleetBoston Corporation or any of its affiliates, Fleet Investment
Advisors Inc., or any Fleet Bank. Shares of the Funds are not federally insured
by, guaranteed by, obligations of or otherwise supported by the U.S. Government,
the Federal Deposit Insurance Corporation, the Federal Reserve Board or any
other governmental agency. Investment return and principal value will vary as a
result of market conditions or other factors so that shares of the Funds, when
redeemed, may be worth more or less than their original cost. An investment in
the Funds involves investment risks, including the possible loss of principal
amount invested.
[RECYCLE LOGO]
This report was printed on recycled paper.
24
<PAGE>
- --------------------------------------------------------------------------------
Asset Allocation Fund
Portfolio of Investments
October 31, 1999
Shares Value
---------- ---------
COMMON STOCKS - 52.56%
Technology - 12.12%
100,000 America On Line, Inc.*...................... $ 12,968,750
180,000 Automatic Data Processing, Inc.............. 8,673,750
240,000 Cisco Systems, Inc.*........................ 17,760,000
150,000 Dell Computer Corp*......................... 6,018,750
180,000 EMC Corp.*.................................. 13,140,000
90,000 Hewlett-Packard Co.......................... 6,665,625
140,000 Intel Corp.................................. 10,841,250
160,000 Lucent Technologies, Inc.................... 10,280,000
50,000 Microsoft Corp.*............................ 4,628,125
----------------
90,976,250
----------------
Consumer Staples - 11.17%
190,000 Becton Dickinson & Co....................... 4,821,250
130,000 Bestfoods................................... 7,637,500
230,000 Boston Scientific Corp.*.................... 4,628,750
250,000 Coca-Cola Enterprises, Inc.................. 6,390,625
250,000 Elan Corp. Plc, ADR*........................ 6,437,500
120,000 Forest Laboratories, Inc.*.................. 5,505,000
80,000 Genzyme Corp.*.............................. 3,060,000
110,000 Gillette Co................................. 3,980,625
100,000 Lilly (Eli) & Co............................ 6,887,500
120,000 Merck & Co., Inc............................ 9,547,500
180,000 PepsiCo, Inc................................ 6,243,750
180,000 Pfizer, Inc................................. 7,110,000
50,000 Procter & Gamble Co......................... 5,243,750
80,000 Warner-Lambert Co........................... 6,385,000
----------------
83,878,750
----------------
Finance - 8.88%
151,250 American International Group, Inc........... 15,569,297
89,998 Associates First Capital Corp............... 3,284,927
42,000 Bank One Corp............................... 1,577,625
85,000 Chase Manhattan Corp........................ 7,426,875
260,000 Citigroup, Inc.............................. 14,072,500
130,000 Fannie Mae.................................. 9,197,500
120,000 Hartford Financial
Services Group, Inc......................... 6,217,500
100,000 Washington Mutual, Inc...................... 3,593,750
120,000 Wells Fargo & Co............................ 5,745,000
----------------
66,684,974
----------------
Consumer Cyclical - 6.93%
100,000 Black & Decker (The), Corp.................. 4,300,000
130,000 Comcast Corp.*.............................. 5,476,250
165,000 CVS Corp.................................... 7,167,188
80,000 Dayton Hudson Corp.......................... 5,170,000
220,000 Home Depot, Inc............................. 16,610,000
200,000 McDonald's Corp............................. 8,250,000
200,000 Walgreen Co................................. 5,037,500
----------------
52,010,938
----------------
Energy - 4.38%
160,000 Anadarko Petrolum Co........................ 4,930,000
40,000 Chevron Corp................................ 3,652,500
200,000 Halliburton Co.............................. 7,537,500
80,000 Mobil Corp.................................. 7,720,000
150,000 Schlumberger, Ltd........................... 9,084,375
----------------
32,924,375
----------------
Capital Goods and Construction - 4.11%
50,000 AlliedSignal, Inc........................... 2,846,875
170,000 Boeing Co................................... 7,830,625
90,000 General Electric Co......................... 12,200,625
200,000 Tyco International, Ltd..................... 7,987,500
----------------
30,865,625
----------------
Utilities - 2.91%
180,000 MCI WorldCom, Inc.*......................... 15,446,250
125,000 SBC Communications, Inc..................... 6,367,187
----------------
21,813,437
----------------
Transportation - 1.74%
100,000 AMR Corp.*.................................. 6,350,000
400,000 Southwest Airlines Co....................... 6,725,000
----------------
13,075,000
----------------
Basic Materials - 0.32%
100,000 Sonoco Products Co.......................... 2,400,000
----------------
Total Common Stocks......................... 394,629,349
----------------
(Cost $267,344,896)
Par Value
-------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 22.19%
U.S. Treasury Bonds - 8.47%
$ 1,500,000 7.63%, 02/15/07............................. 1,547,310
4,200,000 12.00%, 08/15/13............................ 5,757,948
6,450,000 7.50%, 11/15/16............................. 7,115,382
6,220,000 8.88%, 08/15/17............................. 7,755,531
2,500,000 8.88%, 02/15/19............................. 3,143,800
1,000,000 8.13%, 08/15/19............................. 1,178,090
750,000 8.50%, 02/15/20............................. 916,635
6,000,000 8.75%, 05/15/20............................. 7,510,320
6,200,000 7.88%, 02/15/21............................. 7,166,642
5,900,000 8.13%, 08/15/21............................. 7,000,232
3,250,000 7.63%, 11/15/22............................. 3,691,968
2,850,000 7.13%, 02/15/23............................. 3,072,613
3,500,000 6.13%, 11/15/27............................. 3,379,600
2,775,000 5.25%, 11/15/28............................. 2,385,501
2,245,000 5.25%, 02/15/29............................. 1,944,799
----------------
63,566,371
----------------
See Notes to Financial Statements.
25
<PAGE>
- --------------------------------------------------------------------------------
Asset Allocation Fund
Portfolio of Investments (continued)
October 31, 1999
Par Value Value
------------- ---------
U.S. Treasury Notes - 5.21%
$ 2,000,000 4.50%, 01/31/01............................. $ 1,971,800
3,000,000 5.63%, 02/28/01............................. 2,997,630
5,000,000 5.63%, 05/15/01............................. 4,991,500
1,500,000 6.25%, 10/31/01............................. 1,512,555
1,000,000 6.25%, 08/31/02............................. 1,009,410
2,555,000 5.88%, 09/30/02............................. 2,555,179
4,445,000 5.75%, 08/15/03............................. 4,411,796
1,800,000 4.25%, 11/15/03............................. 1,690,920
7,160,000 6.00%, 08/15/04............................. 7,179,833
1,500,000 7.00%, 07/15/06............................. 1,566,480
5,175,000 6.50%, 10/15/06............................. 5,267,219
1,085,000 6.13%, 08/15/07............................. 1,080,562
2,870,000 6.00%, 08/15/09............................. 2,867,561
----------------
39,102,445
----------------
Government National
Mortgage Association - 2.94%
229,436 6.50%, 05/15/13, Pool # 473566.............. 225,347
193,212 6.50%, 06/15/13, Pool # 476470.............. 189,769
311,661 6.50%, 08/15/13, Pool # 486453.............. 306,108
83,245 6.50%, 11/15/13, Pool # 454228.............. 81,736
473,495 6.50%, 11/15/13, Pool # 454234.............. 464,910
196,542 6.50%, 11/15/13, Pool # 477529.............. 193,040
1,002,783 6.50%, 11/15/13, Pool # 483663.............. 984,914
249,086 6.50%. 11/15/13, Pool # 493623.............. 244,570
2,873,046 7.00%, 11/15/13, Pool # 780921.............. 2,882,901
389,041 9.00%, 12/15/17, Pool # 780201.............. 410,435
541,201 7.50%, 01/15/26, Pool # 417191.............. 542,890
2,486,853 6.50%, 12/15/28, Pool # 495775.............. 2,376,487
194,123 6.50%, 01/15/29, Pool # 482909.............. 185,508
2,425,432 6.00%, 03/15/29, Pool # 476986.............. 2,251,092
942,292 6.50%, 03/15/29, Pool # 464613.............. 900,473
1,056,881 6.50%, 04/15/29, Pool # 473682.............. 1,011,127
926,137 6.50%, 04/15/29, Pool # 483349.............. 886,042
1,789,867 6.50%, 04/15/29, Pool # 488234.............. 1,710,433
996,483 7.00%, 04/15/29, Pool # 498082.............. 977,480
997,445 7.00%, 05/15/29, Pool # 507929.............. 978,423
1,548,822 7.50%, 09/15/29, Pool # 466164.............. 1,552,694
999,133 7.50%, 09/15/29, Pool # 478707.............. 1,001,631
101,489 7.50%, 09/15/29, Pool # 510409.............. 101,743
632,814 7.50%, 09/15/29, Pool # 510424.............. 634,396
999,257 7.50%, 09/15/29, Pool # 511482.............. 1,001,755
----------------
22,095,904
----------------
Federal National
Mortgage Association - 2.19%
1,000,000 6.74%, 09/19/01, MTN........................ 1,009,690
1,000,000 6.50%, 08/15/04............................. 1,002,480
1,000,000 6.49%, 01/19/06, MTN........................ 979,410
625,394 6.00%, 01/01/09, Pool # 269929.............. 608,383
2,055,000 6.38%, 06/15/09............................. 2,006,564
730,000 7.00%, 03/25/13............................. 728,403
162,697 6.00%, 06/01/14, Pool # 484967.............. 156,493
1,799,658 6.00%, 06/01/14, Pool # 499193.............. 1,731,037
789,001 6.00%, 06/01/14, Pool # 500131.............. 758,916
963,453 7.00%, 08/01/14, Pool # 492806.............. 961,941
225,359 6.50%, 01/01/26, Pool # 303676.............. 217,330
6,170,000 8.00%, 09/01/29............................. 6,285,688
----------------
16,446,335
----------------
Federal Home Loan
Mortgage Corporation - 1.99%
730,000 5.00%, 11/16/99 (B)......................... 728,424
2,000,000 5.00%, 01/15/04............................. 1,895,860
4,800,000 6.25%, 07/15/04............................. 4,764,000
1,000,000 7.05%, 06/08/05............................. 989,460
5,920,000 6.63%, 09/15/09............................. 5,890,400
708,072 7.00%, 04/01/29, Gold,
Pool # C00756............................... 695,680
----------------
14,963,824
----------------
Federal Home Loan Bank - 0.79%
5,975,000 5.88%, 08/15/01............................. 5,947,873
----------------
Federal Farm Credit Bank - 0.60%
4,500,000 5.88%, 07/02/01............................. 4,483,125
----------------
Total U.S. Government
and Agency Obligations...................... 166,605,877
----------------
(Cost $169,760,949)
CORPORATE NOTES AND BONDS - 13.97%
200,000 American Telephone & Telegraph Corp.
7.00%, 05/15/05............................. 199,000
3,250,000 Associates Corp. of North America
Senior Note
6.63%, 05/15/01............................. 3,254,062
1,000,000 Bank One Milwakee, MTN
6.35%, 03/19/01............................. 1,000,000
1,200,000 Becton Dickinson & Co.
7.15%, 10/01/09............................. 1,192,986
675,000 Becton Dickinson & Co., Debenture
7.00%, 08/01/27............................. 631,125
1,900,000 Becton Dickinson & Co., Senior Debenture
6.70%, 08/01/28............................. 1,712,375
200,000 Burlington Northern Santa Fe
6.88%, 02/15/16............................. 185,750
1,000,000 Caterpillar Financial Services Corp.
Series F, MTN
5.47%, 09/12/01............................. 980,000
1,700,000 Caterpillar Financial
Services Corp., MTN
6.00%, 05/23/02............................. 1,672,375
1,200,000 Citicorp, Senior MTN
8.63%, 11/01/04............................. 1,200,000
2,000,000 Coca-Cola Enterprises, Inc.
6.38%, 08/01/01............................. 1,992,500
1,000,000 Coca-Cola Enterprises, Inc.
7.13%, 08/01/17............................. 965,000
See Notes to Financial Statements.
26
<PAGE>
- --------------------------------------------------------------------------------
Asset Allocation Fund
Portfolio of Investments (continued)
October 31, 1999
Par Value Value
------------- ---------
CORPORATE NOTES AND BONDS (continued)
$ 2,300,000 Colgate-Palmolive Co.
Series C, MTN
5.27%, 12/01/03............................. $ 2,180,262
1,400,000 Commercial Credit Co.
6.50%, 08/01/04............................. 1,370,250
3,500,000 Diageo Capital, Plc
6.00%, 03/27/03............................. 3,399,550
3,000,000 Diageo Capital, Plc
6.13%, 08/15/05............................. 2,880,000
1,000,000 Emerson Electric Co.
5.85%, 03/15/09............................. 926,250
250,000 Ford Motor Credit Co.
6.25%, 11/08/00............................. 249,777
1,000,000 Ford Motor Credit Co.
Senior Note
6.50%, 02/28/02............................. 996,250
1,615,000 Ford Motor Credit Co.
6.55%, 09/10/02............................. 1,602,887
3,195,000 Ford Motor Credit Co.
Senior Note
5.75%, 02/23/04............................. 3,055,219
405,000 Ford Motor Credit Co.
6.70%, 07/16/04............................. 400,950
800,000 G.E. Capital Corp., Series A, MTN
6.33%, 09/17/01............................. 799,000
385,000 G.E. Capital Corp., Series A, MTN
6.81%, 11/03/03............................. 386,463
4,000,000 General Motors Acceptance Corp.
6.88%, 07/15/01............................. 4,020,000
1,000,000 General Motors Acceptance Corp.
7.00%, 09/15/02............................. 1,006,250
250,000 GTE Corp.
6.46%, 04/15/08............................. 239,687
1,000,000 GTE North, Inc., Series H
5.65%, 11/15/08............................. 902,500
1,200,000 Goldman Sachs Group, Inc.
6.65%, 05/15/09............................. 1,143,000
3,000,000 Heinz (H.J.) Co., Euro Bond
5.75%, 02/03/03............................. 2,908,800
750,000 Heinz (H.J.) Co.
6.88%, 01/15/03............................. 756,562
500,000 Hershey Foods Corp.
6.70%, 10/01/05............................. 501,250
2,300,000 Hershey Foods Corp.
7.20%, 08/15/27............................. 2,254,000
1,000,000 Hertz Corp., Senior Note
7.00%, 04/15/01............................. 1,005,000
750,000 Illinois Tool Works
5.75%, 03/01/09............................. 688,125
1,000,000 International Business
Machines Corp.
7.50%, 06/15/13............................. 1,045,000
2,000,000 International Business
Machines Corp.
6.22%, 08/01/27............................. 1,962,500
2,000,000 International Business
Machines Credit Corp., MTN
6.64%, 10/29/01............................. 2,007,500
500,000 International Paper Co.
7.00%, 06/01/01............................. 500,625
1,500,000 Lockheed Martin Corp.
6.85%, 05/15/01............................. 1,492,500
500,000 May Department Stores Co.
6.88%, 11/01/05............................. 495,625
2,025,000 McDonald's Corp., Senior MTN
5.95%, 01/15/08............................. 1,916,156
500,000 McDonald's Corp.
8.88%, 04/01/11............................. 573,125
3,550,000 MCI WorldCom, Inc.
6.13%, 04/15/02............................. 3,492,312
500,000 Mead Corp.
6.84%, 03/01/37............................. 500,000
290,000 Merck & Co.
6.40%, 03/01/28............................. 264,262
2,500,000 Minnesota Mining & Manufacturing
6.38%, 02/15/28............................. 2,215,625
1,000,000 National City Bank of Kentucky
6.30%, 02/15/11............................. 911,250
1,000,000 National Rural Utilities
Cooperative Finance Corp.
6.38%, 10/15/04............................. 978,750
2,500,000 National Rural Utilities
Cooperative Finance Corp.
6.13%, 05/15/05............................. 2,387,500
1,025,000 National Rural Utilities
Cooperative Finance Corp.
5.75%, 11/01/08............................. 936,594
1,400,000 National Rural Utilities
Cooperative Finance Corp.
Collateral Trust
5.50%, 01/15/05............................. 1,303,750
1,000,000 NationsBank Corp.
7.00%, 09/15/01............................. 1,007,500
500,000 Northern Telecom, Ltd.
6.00%, 09/01/03............................. 486,250
1,620,000 PepsiCo, Inc., MTN
5.75%, 01/15/08............................. 1,500,525
1,590,000 Pitney Bowes Credit Corp.
6.63%, 06/01/02............................. 1,599,938
380,000 Pitney Bowes, Inc.
5.95%, 02/01/05............................. 366,225
1,800,000 Potomac Electric Power Co.
6.50%, 09/15/05............................. 1,743,750
2,000,000 Potomac Electric Power Co.
6.25%, 10/15/07............................. 1,932,500
325,000 Rite Aid Corp.
6.70%, 12/15/01............................. 264,875
1,000,000 Service Corp. International
7.38%, 04/15/04............................. 861,250
3,500,000 Sherwin-Williams Co.
6.50%, 02/01/02............................. 3,495,625
1,900,000 Sherwin-Williams Co.
6.85%, 02/01/07............................. 1,866,750
1,000,000 Southwest Airlines Co.
8.75%, 10/15/03............................. 1,066,250
1,500,000 Sprint Capital Corp.
5.88%, 05/01/04............................. 1,441,875
See Notes to Financial Statements.
27
<PAGE>
- --------------------------------------------------------------------------------
Asset Allocation Fund
Portfolio of Investments (continued)
October 31, 1999
Par Value Value
------------- ---------
CORPORATE NOTES AND BONDS (continued)
$ 1,000,000 Suntrust Bank of Atlanta, MTN
7.25%, 09/15/06............................. $ 1,002,500
300,000 Suntrust Bank of Central Florida, MTN
6.90%, 07/01/07............................. 296,625
1,000,000 Sysco Corp.
7.25%, 04/15/07............................. 1,017,500
1,250,000 Sysco Corp.
6.50%, 08/01/28............................. 1,118,750
3,250,000 Tele-Communication, Inc., Senior Note
7.25%, 08/01/05............................. 3,270,313
1,000,000 Texaco Capital, Inc.
8.50%, 02/15/03............................. 1,055,000
500,000 Texas Utilities Electric Co.
7.38%, 11/01/99............................. 500,000
2,000,000 United Telecommunications, Inc.
9.50%, 04/01/03............................. 2,147,500
2,000,000 Wachovia Bank, N.A.
6.30%, 03/15/01............................. 1,995,000
2,000,000 Wal-Mart Stores, Inc.
6.75%, 05/15/02............................. 2,012,500
575,000 Wal-Mart Stores, Inc.
6.88%, 08/10/09............................. 577,875
600,000 Xerox Corp.
8.13%, 04/15/02............................. 618,000
----------------
Total Corporate Notes and Bonds............. 104,885,155
----------------
(Cost $108,489,620)
ASSET-BACKED SECURITIES - 2.38%
2,950,000 Chemical Master Credit Card
Trust 1, Class A
5.55%, 09/15/03............................. 2,919,556
1,000,000 Citibank Credit Card Master Trust 1
Series 1999-1, Class A
5.50%, 02/15/06............................. 952,810
4,500,000 Discover Card Master Trust 1
Series 1999-1, Class A
5.30%, 08/15/04............................. 4,367,790
2,500,000 Ford Credit Auto Owner Trust
Series 1999-D, Class A-4
6.40%, 10/15/02............................. 2,498,425
25,000 Green Tree Financial Corp.
Series 1999-5, Class A-2
6.77%, 04/01/31............................. 24,984
1,975,000 MBNA Master Credit Card Trust
Series 1998-J, Class A
5.25%, 02/15/06............................. 1,877,474
2,500,000 MBNA Master Credit Card Trust
Series 1999-I, Class A
6.40%, 01/18/05............................. 2,490,625
440,000 Premier Auto Trust
Series 1999-2, Class A-4
5.59%, 02/09/04............................. 429,959
1,400,000 Premier Auto Trust
Series 1999-3, Class A-4
6.43%, 03/08/04............................. 1,401,470
365,625 Prudential Home Mortgage Securities
Class 1996-7, Series A-1, CMO
6.75%, 06/25/11............................. 364,711
553,898 Rural Housing Trust
Series 1987-1, Class 1-D, CMO
6.33%, 04/01/26............................. 542,906
----------------
Total Asset-Backed Securities............... 17,870,710
----------------
(Cost $18,049,220)
FOREIGN BONDS - 0.51%
2,500,000 Quebec Province
5.75%, 02/15/09 (C)......................... 2,276,525
1,570,000 Quebec Province
7.50%, 09/15/29 (C)......................... 1,575,888
----------------
Total Foreign Bonds......................... 3,852,413
----------------
(Cost $3,912,040)
Shares
----------
CONVERTIBLE PREFERRED STOCK (A) - 0.19%
30,000 Loral Space and
Communications, Ltd.,
Series C, 6.00%............................. 1,438,125
----------------
Total Convertible Preferred Stock........... 1,438,125
----------------
(Cost $1,627,725)
Par Value
-------------
COMMERCIAL PAPER (B) - 7.96%
$ 29,764,000 BP Amoco Capital
5.35%, 11/01/99............................. 29,764,000
30,000,000 Koch Industries, Inc.
5.35%, 11/01/99............................. 30,000,000
----------------
Total Commercial Paper...................... 59,764,000
----------------
(Cost $59,764,000)
Total Investments - 99.76%.................................. 749,045,629
----------------
(Cost $628,948,450)
Net Other Assets and Liabilities - 0.24%.................... 1,838,765
----------------
Net Assets - 100.00%........................................ $ 750,884,394
================
- ----------
* Non-income producing security.
(A) Security exempt from registration pursuant to Rule 144A under the
Securities Act of 1933, as amended. This security may only be resold, in
transactions exempt from registration, to qualified institutional buyers.
At October 31, 1999, this security amounted to $1,438,125, or 0.19% of net
assets.
(B) Discount yield at time of purchase.
(C) U.S. Dollar Denominated
ADR American Depositary Receipt
CMO Collateralized Mortgage Obligation
MTN Medium Term Note
See Notes to Financial Statements.
28
<PAGE>
- --------------------------------------------------------------------------------
Equity Income Fund
Portfolio of Investments
October 31, 1999
Shares Value
---------- ---------
COMMON STOCKS - 87.95%
Consumer Staples - 21.88%
310,000 Becton Dickinson & Co....................... $ 7,866,250
175,000 Bestfoods................................... 10,281,250
135,000 Gillette Co................................. 4,885,312
95,000 Lilly (Eli) & Co............................ 6,543,125
200,000 McDonald's Corp............................. 8,250,000
90,000 Merck & Co., Inc............................ 7,160,625
255,000 PepsiCo, Inc................................ 8,845,313
170,000 Pfizer, Inc................................. 6,715,000
60,000 Procter & Gamble Co......................... 6,292,500
85,000 Warner-Lambert Co........................... 6,784,063
----------------
73,623,438
----------------
Finance - 18.47%
195,000 Associates First Capital Corp., Class A..... 7,117,500
162,000 Bank One Corp............................... 6,085,125
110,000 Fannie Mae.................................. 7,782,500
150,000 First Union Corp............................ 6,403,125
295,000 Hartford Financial Services Group, Inc...... 15,284,687
120,000 Highwoods Properties, Inc., REIT............ 2,902,500
80,000 Spieker Properties, Inc., REIT.............. 2,795,000
195,000 Washington Mutual, Inc...................... 7,007,813
141,000 Wells Fargo & Co............................ 6,750,375
----------------
62,128,625
----------------
Energy - 10.92%
108,000 Consolidated Natural Gas Co................. 6,912,000
84,000 Exxon Corp.................................. 6,221,250
136,000 Halliburton Co.............................. 5,125,500
65,000 Mobil Corp.................................. 6,272,500
93,000 Schlumberger Ltd............................ 5,632,313
107,000 Texaco, Inc................................. 6,567,125
----------------
36,730,688
----------------
Utilities - 10.22%
215,000 American Telephone &
Telegraph Corp.............................. 10,051,250
190,000 SBC Communications, Inc..................... 9,678,125
185,000 Texas Utilities Co.......................... 7,168,750
275,000 Washington Gas Light Co..................... 7,476,563
----------------
34,374,688
----------------
Technology - 10.14%
215,000 Automatic Data Processing, Inc.............. 10,360,312
40,000 Cisco Systems, Inc. *....................... 2,960,000
85,000 Hewlett-Packard Co.......................... 6,295,312
115,000 Intel Corp.................................. 8,905,312
200,000 Xerox Corp.................................. 5,600,000
----------------
34,120,936
----------------
Consumer Cyclical - 7.80%
130,000 Dayton Hudson Corp.......................... $ 8,401,250
160,000 Ford Motor Co............................... 8,780,000
360,000 Walgreen Co................................. 9,067,500
----------------
26,248,750
----------------
Capital Goods and Construction - 5.95%
140,000 Boeing Co................................... 6,448,750
100,000 General Electric Co......................... 13,556,250
----------------
20,005,000
----------------
Basic Materials - 2.57%
145,000 Weyerhauser Co.............................. 8,654,688
----------------
Total Common Stocks......................... 295,886,813
----------------
(Cost $243,220,120)
Par Value
-------------
U.S. GOVERNMENT OBLIGATIONS - 1.15%
U.S. Treasury Note - 0.59%
$ 2,000,000 5.50%, 04/15/00............................. 2,000,940
----------------
U.S. Treasury Bond - 0.56%
1,700,000 7.50%, 11/15/16............................. 1,875,372
----------------
Total U.S. Government
Obligations................................. 3,876,312
----------------
(Cost $3,662,781)
REPURCHASE AGREEMENT - 10.89%
36,620,000 Repurchase Agreement with:
Chase Manhattan Bank
5.20%, 11/01/99, dated 10/29/99
Repurchase Price $36,635,869
(Collateralized by U.S. Treasury Bond
11.25%, Due 02/15/15;
Total Par $25,370,000
Market Value $37,357,325)
Total Repurchase Agreement.................. 36,620,000
----------------
(Cost $36,620,000)
Total Investments - 99.99%.................................. 336,383,125
----------------
(Cost $283,502,901)
Net Other Assets and Liabilities - 0.01%.................... 49,330
----------------
Net Assets - 100.00%........................................ $ 336,432,455
================
- ----------
REIT Real Estate Investment Trust.
See Notes to Financial Statements.
29
<PAGE>
- --------------------------------------------------------------------------------
Growth and Income Fund
Portfolio of Investments
October 31, 1999
Shares Value
---------- ---------
COMMON STOCKS - 91.65%
Consumer Staples - 17.77%
150,000 American Home Products Corp................. $ 7,837,500
118,000 Anheuser-Busch Cos., Inc.................... 8,473,875
140,000 Bestfoods................................... 8,225,000
430,600 Elan Corp. Plc, ADR*........................ 11,087,950
170,000 Forest Laboratories, Inc.*.................. 7,798,750
225,000 Genzyme Corp.*.............................. 8,606,250
1,200,000 HEALTHSOUTH Corp.*.......................... 6,900,000
162,000 International Flavors &
Fragances, Inc.............................. 6,196,500
84,000 Johnson & Johnson........................... 8,799,000
180,000 McDonald's Corp............................. 7,425,000
126,000 Merck & Co., Inc............................ 10,024,875
190,000 PepsiCo, Inc................................ 6,590,625
130,000 Pharmacia & Upjohn, Inc..................... 7,011,875
265,000 Rite Aid Corp............................... 2,318,750
----------------
107,295,950
----------------
Technology - 16.19%
146,300 Avnet, Inc.................................. 7,945,919
173,000 Cisco Systems, Inc.*........................ 12,802,000
269,000 Compaq Computer Corp........................ 5,111,000
92,000 Computer Sciences Corp.*.................... 6,319,250
226,000 Electronic Data Systems Corp................ 13,221,000
270,000 Harris Corp................................. 6,058,125
150,000 Hewlett-Packard Co.......................... 11,109,375
105,000 International Business
Machines Corp............................... 10,329,375
122,000 Motorola, Inc............................... 11,887,375
145,000 Texas Instruments, Inc...................... 13,013,750
----------------
97,797,169
----------------
Finance - 13.05%
172,000 Bank of America Corp........................ 11,072,500
200,000 Bank One Corp............................... 7,512,500
96,000 Chase Manhattan Corp........................ 8,388,000
96,000 Chubb Corp.................................. 5,268,000
198,000 Citigroup, Inc.............................. 10,716,750
170,000 Countrywide Credit Industries, Inc.......... 5,769,375
110,000 Hartford Financial
Services Group, Inc......................... 5,699,375
136,000 Lincoln National Corp....................... 6,273,000
54,000 Morgan (J.P.) & Co., Inc.................... 7,067,250
230,000 Wells Fargo & Co............................ 11,011,250
----------------
78,778,000
----------------
Consumer Cyclical - 9.85%
215,000 Circuit City Stores......................... 9,177,812
392,000 Cooper Tire & Rubber Co..................... 6,590,500
90,000 Eastman Kodak Co............................ 6,204,375
98,000 Ford Motor Co............................... 5,377,750
220,000 Lowe's Cos., Inc............................ 12,100,000
635,000 Office Depot, Inc.*......................... 7,897,813
140,000 Penney (J.C.) Co., Inc...................... 3,552,500
385,000 Sherwin-Williams Co......................... 8,614,375
----------------
59,515,125
----------------
Energy - 9.79%
90,000 Atlantic Richfield Co....................... 8,386,875
200,000 Baker Hughes, Inc........................... 5,587,500
172,032 BP Amoco, Plc, ADR.......................... 9,934,848
225,000 Halliburton Co.............................. 8,479,687
160,000 Kerr-McGee Corp............................. 8,600,000
97,000 Mobil Corp.................................. 9,360,500
144,400 Schlumberger, Ltd........................... 8,745,225
----------------
59,094,635
----------------
Utilities - 8.96%
159,000 American Telephone &
Telegraph Corp.............................. 7,433,250
205,500 Century Telephone Enterprises, Inc.......... 8,309,906
199,000 Entergy Corp................................ 5,957,563
122,000 GTE Corp.................................... 9,150,000
170,000 MCI WorldCom, Inc.*......................... 14,588,125
170,000 SBC Communications, Inc..................... 8,659,375
----------------
54,098,219
----------------
Capital Goods and Construction - 7.67%
176,500 Boeing Co................................... 8,130,031
64,000 General Electric Co......................... 8,676,000
66,500 Honeywell, Inc.............................. 7,011,594
172,000 Hubbell, Inc., Class A...................... 4,794,500
272,632 Tyco International, Ltd..................... 10,888,240
370,000 Waste Management, Inc....................... 6,798,750
----------------
46,299,115
----------------
Basic Materials - 5.82%
38,100 Crown Cork & Seal, Inc...................... 912,019
190,000 Goodrich (B.F.) Co.......................... 4,500,625
90,000 Minnesota Mining &
Manufacturing Co............................ 8,555,625
300,000 Pall Corp................................... 6,581,250
190,000 Praxair, Inc................................ 8,882,500
200,000 Sigma Aldrich Corp.......................... 5,700,000
----------------
35,132,019
----------------
Transportation - 2.55%
101,500 British Airways Plc, ADR.................... 5,265,313
318,000 Burlington Northern Santa Fe Corp........... 10,136,250
----------------
15,401,563
----------------
Total Common Stocks......................... 553,411,795
----------------
(Cost $448,471,497)
See Notes to Financial Statements.
30
<PAGE>
- --------------------------------------------------------------------------------
Growth and Income Fund
Portfolio of Investments (continued)
October 31, 1999
Shares Value
---------- ---------
CONVERTIBLE PREFERRED STOCKS - 1.42%
135,000 Crown Cork & Seal Co., Inc., 4.50%.......... $ 2,978,437
37,000 Loral Space and
Communications, Ltd.,
Series C, 6.00%............................. 1,773,688
80,000 Loral Space and
Communications, Ltd., 6.00% (A)............. 3,835,000
----------------
Total Convertible Preferred Stocks.......... 8,587,125
----------------
(Cost $12,414,478)
Par Value
-------------
REPURCHASE AGREEMENT - 7.14%
$ 43,135,000 Repurchase Agreement with:
Chase Manhattan Bank
5.20%, 11/01/99, dated 10/29/99
Repurchase Price $43,153,692
(Collateralized by U.S. Treasury Bond
10.63%, Due 08/15/15;
Total Par $31,095,000
Market Value $43,999,425)................... 43,135,000
----------------
Total Repurchase Agreement.................. 43,135,000
----------------
(Cost $43,135,000)
Total Investments - 100.21%................................. 605,133,920
----------------
(Cost $504,020,975)
Net Other Assets and Liabilities - (0.21)%.................. (1,271,845)
----------------
Net Assets - 100.00%........................................ $ 603,862,075
================
- ----------
* Non-income producing security.
(A) Security exempt from registration pursuant to Rule 144A under the
Securities Act of 1933, as amended. This security may only be resold, in
transactions exempt from registration, to qualified institutional buyers.
At October 31, 1999, this security amounted to $3,835,000 or 0.64% of net
assets.
ADR American Depositary Receipt
See Notes to Financial Statements.
31
<PAGE>
- --------------------------------------------------------------------------------
Strategic Equity Fund
Portfolio of Investments
October 31, 1999
Shares Value
---------- ---------
COMMON STOCKS - 91.27%
Consumer Staples - 18.93%
22,300 Albertsons, Inc............................. $ 809,769
40,000 Becton Dickinson & Co....................... 1,015,000
78,000 Boston Scientific Corp.*.................... 1,569,750
50,000 ConAgra, Inc................................ 1,303,125
108,000 Elan Corp. Plc, ADR*........................ 2,781,000
21,000 Genzyme Corp.*.............................. 803,250
200,000 HEALTHSOUTH Corp.*.......................... 1,150,000
25,000 Kimberly Clark Corp......................... 1,578,125
50,000 Manpower, Inc............................... 1,756,250
12,000 Merck & Co., Inc............................ 954,750
25,000 Stryker Corp................................ 1,543,750
----------------
15,264,769
----------------
Energy - 15.40%
40,000 Anadarko Petroleum Corp..................... 1,232,500
52,000 Baker Hughes, Inc........................... 1,452,750
35,000 BJ Services Co.*............................ 1,200,938
30,000 Burlington Resources, Inc................... 1,046,250
35,000 Coastal Corp................................ 1,474,375
40,000 Cooper Cameron Corp.*....................... 1,547,500
24,000 Halliburton Co.............................. 904,500
50,000 Noble Affiliates, Inc....................... 1,265,625
22,000 Schlumberger, Ltd........................... 1,332,375
40,000 Sunoco, Inc................................. 965,000
----------------
12,421,813
----------------
Technology - 14.86%
91,000 Cambridge Technology Partners, Inc.*........ 1,006,688
77,000 Diebold, Inc................................ 2,021,250
14,000 Hewlett-Packard Co.......................... 1,036,875
11,000 International Business Machines Corp........ 1,082,125
65,000 Loral Space and
Communications, Ltd.*....................... 979,062
100,000 Molex, Inc., Class A........................ 3,300,000
40,000 3Com Corp.*................................. 1,160,000
50,000 Xerox Corp.................................. 1,400,000
----------------
11,986,000
----------------
Finance - 13.27%
41,000 Associates First Capital Corp., Class A..... 1,496,500
40,000 Bank One Corp............................... 1,502,500
34,000 Equity Office Properties REIT............... 752,250
13,000 Equity Residential Properties REIT.......... 543,562
25,000 Hartford Financial
Services Group, Inc......................... 1,295,313
25,500 MBIA, Inc................................... 1,455,094
15,000 Spieker Properties, Inc., REIT.............. 524,062
35,000 UnumProvident Corp.......................... 1,152,813
55,000 Washington Mutual, Inc...................... 1,976,562
----------------
10,698,656
----------------
Consumer Cyclical - 13.05%
60,000 ACNielsen Corp.*............................ 1,320,000
80,000 Cooper Tire & Rubber Co..................... 1,345,000
26,000 Dana Corp................................... 768,625
66,000 McKesson HBOC, Inc.......................... 1,324,125
35,000 Meredith Corp............................... 1,249,063
35,000 Newell Rubbermaid, Inc...................... 1,211,875
160,000 Office Depot, Inc.*......................... 1,990,000
150,000 Rite Aid Corp............................... 1,312,500
----------------
10,521,188
----------------
Capital Goods and Construction - 7.63%
30,000 AES Corp.*.................................. 1,693,125
20,000 Emerson Electric Co......................... 1,201,250
40,000 Hubbell, Inc., Class B...................... 1,107,500
116,900 Waste Management, Inc....................... 2,148,037
----------------
6,149,912
----------------
Basic Materials - 4.08%
50,000 Crown Cork & Seal Co., Inc.................. 1,196,875
28,000 Eastman Chemical Co......................... 1,079,750
23,000 Potash Corp. of Saskatchewan, Inc........... 1,016,312
----------------
3,292,937
----------------
Transportation - 2.60%
35,000 Burlington Northern Santa Fe Corp........... 1,115,625
40,000 Norfolk Southern Corp....................... 977,500
----------------
2,093,125
----------------
Utilities - 1.45%
25,000 American Telephone & Telegraph Corp......... 1,168,750
----------------
Total Common Stocks......................... 73,597,150
----------------
(Cost $77,202,228)
See Notes to Financial Statements.
32
<PAGE>
- --------------------------------------------------------------------------------
Strategic Equity Fund
Portfolio of Investments (continued)
October 31, 1999
Par Value Value
------------- ---------
REPURCHASE AGREEMENT - 9.19%
$ 7,414,000 Repurchase Agreement with:
Chase Manhattan Bank
5.20%, 11/01/99, dated 10/29/99
Repurchase Price $7,417,213
(Collateralized by U.S. Treasury Note
6.50%, Due 10/15/06;
Total Par $7,425,000
Market Value $7,564,219).................... $ 7,414,000
----------------
Total Repurchase Agreement.................. 7,414,000
----------------
(Cost $7,414,000)
Total Investments - 100.46%................................. 81,011,150
----------------
(Cost $84,616,228)
Net Other Assets and Liabilities - (0.46)%.................. (371,864)
----------------
Net Assets - 100.00%........................................ $ 80,639,286
================
- ----------
* Non-income producing security.
ADR American Depositary Receipt
REIT Real Estate Investment Trust
See Notes to Financial Statements.
33
<PAGE>
Equity Value Fund
Portfolio of Investments
October 31, 1999
Shares Value
---------- ---------
COMMON STOCKS - 96.23%
Consumer Cyclical - 22.96%
250,000 Abercrombie & Fitch Co.*.................... $ 6,812,500
225,100 Brunswick Corp.............................. 5,092,887
363,100 Carnival Corp., Class A..................... 16,157,950
220,625 Gap, Inc.................................... 8,190,703
41,600 General Motors Corp......................... 2,922,400
600,000 Hasbro, Inc................................. 12,375,000
452,000 Jones Apparel Group, Inc.*.................. 14,294,500
451,100 Kaufman & Broad Home Corp................... 9,050,194
326,800 Lowe's Cos., Inc............................ 17,974,000
505,650 Office Depot, Inc.*......................... 6,289,022
693,200 Shaw Industries, Inc........................ 10,701,275
522,900 TJX Cos., Inc............................... 14,183,663
245,600 Tommy Hilfiger Corp.*....................... 6,938,200
----------------
130,982,294
----------------
Technology - 20.71%
141,200 Altera Corp.*............................... 6,865,850
65,100 Applied Materials, Inc.*.................... 5,846,794
338,000 Cadence Design Systems, Inc.*............... 5,133,375
40,450 Cisco Systems, Inc.*........................ 2,993,300
134,100 Citrix Systems, Inc.*....................... 8,599,162
489,121 Compaq Computer Corp........................ 9,293,299
233,300 Computer Associates
International, Inc.......................... 13,181,450
126,000 EMC Corp.*.................................. 9,198,000
102,200 Intel Corp.................................. 7,914,113
38,100 International Business Machines Corp........ 3,748,087
135,100 Microsoft Corp.*............................ 12,505,194
166,800 Oracle Corp.*............................... 7,933,425
271,100 Parametric Technology Corp.*................ 5,167,844
403,500 PeopleSoft, Inc.*........................... 6,052,500
216,700 Tellabs, Inc.*.............................. 13,706,275
----------------
118,138,668
----------------
Finance - 17.56%
73,900 Bank of America Corp........................ 4,757,313
122,660 Bank One Corp............................... 4,607,416
128,900 Bear Stearns Cos., Inc...................... 5,494,362
128,900 Chase Manhattan Corp........................ 11,262,638
134,875 Citigroup, Inc.............................. 7,300,109
91,500 Fannie Mae.................................. 6,473,625
131,500 Household International, Inc................ 5,868,187
203,500 Marsh & McLennan Cos., Inc.................. 16,089,219
158,600 MBIA, Inc................................... 9,050,113
339,500 MBNA Corp................................... 9,378,687
113,100 Merrill Lynch & Co., Inc.................... 8,878,350
224,950 SLM Holding Corp............................ 11,008,491
----------------
100,168,510
----------------
Consumer Staples - 9.43%
198,900 Albertson's, Inc............................ $ 7,222,556
422,000 Boston Scientific Corp.*.................... 8,492,750
352,800 Brinker International, Inc.*................ 8,224,650
72,300 Bristol-Myers Squibb Co..................... 5,553,544
281,400 CVS Corp.................................... 12,223,312
70,000 Gannett Co., Inc............................ 5,398,750
40,000 Manor Care, Inc............................. 630,000
104,500 Wellpoint Health Networks, Inc.*............ 6,061,000
----------------
53,806,562
----------------
Energy - 8.67%
308,100 Baker Hughes, Inc........................... 8,607,544
282,400 Coastal Corp................................ 11,896,100
266,100 Diamond Offshore Drilling, Inc.............. 8,448,675
40,000 Enron Corp.................................. 1,597,500
114,900 Kerr-McGee Corp............................. 6,175,875
54,000 Phillips Petroleum Co....................... 2,511,000
350,000 USX-Marathon Group.......................... 10,193,750
----------------
49,430,444
----------------
Utilities - 7.47%
142,800 Bell Atlantic Corp.......................... 9,273,075
210,700 FPL Group, Inc.............................. 10,600,844
43,200 GTE Corp.................................... 3,240,000
94,000 Public Service Enterprise Group, Inc........ 3,718,875
151,100 SBC Communications, Inc..................... 7,696,656
131,900 US WEST Communications Group................ 8,054,144
----------------
42,583,594
----------------
Capital Goods and Construction - 4.75%
105,100 Ingersoll-Rand Co........................... 5,491,475
74,000 Owens-Corning............................... 1,517,000
194,200 PACCAR, Inc................................. 9,151,675
163,100 TRW, Inc.................................... 6,992,913
65,300 United Technologies Corp.................... 3,950,650
----------------
27,103,713
----------------
Basic Materials - 3.77%
405,800 Georgia-Pacific Group....................... 16,105,187
102,300 International Paper Co...................... 5,383,537
----------------
21,488,724
----------------
Transportation - 0.91%
25,200 AMR Corp.*.................................. 1,600,200
178,200 Hunt (J.B.) Transport Services, Inc......... 2,294,325
50,000 Northwest Airlines Corp.*................... 1,265,625
----------------
5,160,150
----------------
Total Common Stocks......................... 548,862,659
----------------
(Cost $462,740,700)
See Notes to Financial Statements.
34
<PAGE>
- --------------------------------------------------------------------------------
Equity Value Fund
Portfolio of Investments (continued)
October 31, 1999
Par Value Value
------------- ---------
REPURCHASE AGREEMENT - 2.71%
$ 15,451,000 Repurchase Agreement with:
Chase Manhattan Bank
5.20%, 11/01/99, dated 10/29/99
Repurchase Price $15,457,695
(Collateralized by U.S. Treasury Bond
11.25%, Due 02/15/15;
Total Par $10,705,000
Market Value $15,763,113)................... $ 15,451,000
----------------
Total Repurchase Agreement.................. 15,451,000
----------------
(Cost $15,451,000)
Total Investments - 98.94%.................................. 564,313,659
----------------
(Cost $478,191,700)
Net Other Assets and Liabilities - 1.06%.................... 6,070,373
----------------
Net Assets - 100.00%........................................ $ 570,384,032
================
- ----------
* Non-income producing security.
See Notes to Financial Statements.
35
<PAGE>
- --------------------------------------------------------------------------------
Equity Growth Fund
Portfolio of Investments
October 31, 1999
Shares Value
---------- ---------
COMMON STOCKS - 93.94%
Technology - 29.41%
25,500 America On Line, Inc.*...................... $ 3,307,031
550,000 American Tower Corp., Class A*.............. 10,484,375
200,000 Applied Materials, Inc.*.................... 17,962,500
625,000 Automatic Data Processing, Inc.............. 30,117,187
450,000 Cisco Systems, Inc.*........................ 33,300,000
300,000 EchoStar Communications Corp.
Class A*.................................... 18,562,500
485,000 EMC Corp.*.................................. 35,405,000
137,700 Fairchild Semiconductor Corp.*.............. 3,476,925
200,000 Hewlett-Packard Co.......................... 14,812,500
250,000 Intel Corp.................................. 19,359,375
225,000 International Business
Machines Corp............................... 22,134,375
250,000 Lucent Technologies, Inc.................... 16,062,500
361,500 Maxim Integrated Products, Inc.*............ 28,535,906
320,000 Microsoft Corp.*............................ 29,620,000
190,400 Nokia Corp., Class A, ADR................... 22,003,100
325,000 Nortel Networks Corp........................ 20,129,688
500,000 PeopleSoft, Inc.*........................... 7,500,000
425,000 Tandy....................................... 26,748,438
325,000 Tellabs, Inc.*.............................. 20,556,250
600,000 Teradyne, Inc.*............................. 23,100,000
285,000 Texas Instruments, Inc...................... 25,578,750
400,000 Unisys Corp.*............................... 9,700,000
500,000 Xerox Corp.................................. 14,000,000
30,000 Yahoo!, Inc.*............................... 5,371,875
----------------
457,828,275
----------------
Consumer Staples - 18.21%
300,000 American Home Products Corp................. 15,675,000
250,000 Baxter International, Inc................... 16,218,750
312,500 Bristol-Myers Squibb Co..................... 24,003,906
690,000 CVS Corp.................................... 29,971,875
750,000 Elan Corp. Plc, ADR*........................ 19,312,500
325,000 Forest Laboratories, Inc.*.................. 14,909,375
300,000 Guidant Corp................................ 14,812,500
175,000 Johnson & Johnson........................... 18,331,250
300,000 Lilly (Eli) & Co............................ 20,662,500
400,000 McDonald's Corp............................. 16,500,000
350,000 Merck & Co., Inc............................ 27,846,875
350,000 PepsiCo, Inc................................ 12,140,625
325,000 Pfizer, Inc................................. 12,837,500
175,000 Procter & Gamble Co......................... 18,353,125
275,000 Warner-Lambert Co........................... 21,948,437
----------------
283,524,218
----------------
Finance - 11.51%
325,000 American International Group, Inc........... $ 33,454,688
660,000 Associates First Capital Corp.
Class A..................................... 24,090,000
350,000 Chase Manhattan Corp........................ 30,581,250
650,000 Citigroup, Inc.............................. 35,181,250
500,000 Cornerstone Properties, Inc., REIT.......... 7,281,250
350,000 Fannie Mae.................................. 24,762,500
500,000 Wells Fargo & Co............................ 23,937,500
----------------
179,288,438
----------------
Energy - 8.34%
600,000 Anadarko Petroleum Corp..................... 18,487,500
175,000 Atlantic Richfield Co....................... 16,307,812
350,000 Cooper Cameron Corp.*....................... 13,540,625
400,000 Halliburton Co.............................. 15,075,000
390,000 Mobil Corp.................................. 37,635,000
250,000 Schlumberger, Ltd........................... 15,140,625
500,000 Transocean Offshore, Inc.................... 13,593,750
----------------
129,780,312
----------------
Capital Goods and Construction - 8.29%
138,000 AlliedSignal, Inc........................... 7,857,375
400,000 General Electric Co......................... 54,225,000
150,000 Honeywell, Inc.............................. 15,815,625
750,000 Tyco International, Ltd..................... 29,953,125
350,000 United Technologies Corp.................... 21,175,000
----------------
129,026,125
----------------
Consumer Cyclical - 6.51%
400,000 Circuit City Stores......................... 17,075,000
250,000 Dayton Hudson Corp.......................... 16,156,250
265,000 Ford Motor Co............................... 14,541,875
125,000 Harley-Davidson, Inc........................ 7,414,063
360,000 Home Depot, Inc............................. 27,180,000
700,000 TJX Cos., Inc............................... 18,987,500
----------------
101,354,688
----------------
Broadcasting - 5.64%
321,678 AMFM, Inc.*................................. 22,517,460
250,000 AT&T Corp., Liberty Media Group*............ 9,921,875
400,000 Comcast Corp., Class A...................... 16,850,000
500,000 Infinity Broadcasting Corp.. Class A*....... 17,281,250
300,000 MediaOne Group, Inc.*....................... 21,318,750
----------------
87,889,335
----------------
See Notes to Financial Statements.
36
<PAGE>
- --------------------------------------------------------------------------------
Equity Growth Fund
Portfolio of Investments (continued)
October 31, 1999
Shares Value
---------- ---------
Utilities - 4.18%
60,000 AES Corp.................................... $ 3,386,250
350,000 MCI WorldCom, Inc.*......................... 30,034,375
300,000 SBC Communications, Inc..................... 15,281,250
270,000 U S West, Inc............................... 16,486,875
----------------
65,188,750
----------------
Basic Materials - 1.85%
200,000 duPont (E.I.) deNemours & Co................ 12,887,500
400,000 Georgia-Pacific Group....................... 15,875,000
----------------
28,762,500
----------------
Total Common Stocks......................... 1,462,642,641
----------------
(Cost $882,159,089)
CONVERTIBLE PREFERRED STOCKS - 1.56%
140,000 AES Trust I, Series A....................... 11,060,000
275,000 Loral Space and
Communications, Ltd.,
Series C, 6.00% (A)......................... 13,182,813
----------------
Total Convertible Preferred Stocks.......... 24,242,813
----------------
(Cost $20,750,000)
Par Value Value
------------- ---------
REPURCHASE AGREEMENT - 5.66%
$ 88,038,000 Repurchase Agreement with:
Chase Manhattan Bank
5.20%, 11/01/99, dated 10/29/99
Repurchase Price $88,076,150
(Collateralized by U.S. Treasury Bond
11.25%, Due 02/15/15;
Total Par $60,985,000
Market Value $89,800,413)................... $ 88,038,000
----------------
Total Repurchase Agreement.................. 88,038,000
----------------
(Cost $88,038,000)
Total Investments - 101.16%................................. 1,574,923,454
----------------
(Cost $990,947,089)
Net Other Assets and Liabilities - (1.16)%.................. (18,027,922)
----------------
Net Assets - 100.00%........................................ $ 1,556,895,532
================
- ----------
* Non-income producing security.
(A) Security exempt from registration pursuant to Rule 144A under the
Securities Act of 1933, as amended. This security may only be resold, in
transactions exempt from registration, to qualified institutional buyers.
At October 31, 1999, this security amounted to $13,182,813, or 0.85% of
net assets.
ADR American Depositary Receipt
REIT Real Estate Investment Trust
See Notes to Financial Statements.
37
<PAGE>
- --------------------------------------------------------------------------------
International Equity Fund
Portfolio of Investments
October 31, 1999
Shares Value
---------- ---------
COMMON STOCKS - 95.76%
Australia - 1.43%
760,884 Australia & New Zealand..................... $ 5,022,284
1,124,169 Coca-Cola Amatil, Ltd....................... 3,470,255
----------------
8,492,539
----------------
Canada - 3.91%
222,800 BCE, Inc.................................... 13,414,937
158,200 Manulife Financial Corp.*................... 1,902,915
159,100 Seagram Co., Ltd............................ 7,887,424
----------------
23,205,276
----------------
France - 8.00%
50,430 Carrefour SA................................ 9,334,999
43,223 Equant*..................................... 4,205,032
249,913 Rhodia SA................................... 4,823,226
79,490 Suez Lyonnaise.............................. 12,833,158
80,041 Valeo SA.................................... 5,749,709
139,029 Vivendi..................................... 10,535,424
----------------
47,481,548
----------------
Germany - 10.75%
253,604 Bayerische Motoren Werke (BMW) AG........... 8,081,861
20,760 Celanese AG*................................ 327,515
207,600 Hoechst AG.................................. 9,137,670
116,853 Mannesmann AG............................... 18,404,302
263,592 Metallgesellschaft AG....................... 5,489,213
19,895 SAP AG...................................... 8,767,396
93,070 Siemens AG.................................. 8,354,604
97,781 Veba AG..................................... 5,286,038
----------------
63,848,599
----------------
Greece - 0.46%
128,360 Hellenic Telecommunications
Organization SA (OTE)....................... 2,719,232
----------------
Hong Kong - 1.31%
1,496,000 China Telecom, Ltd.*........................ 5,122,298
262,000 Hutchison Whampoa, Ltd...................... 2,630,556
----------------
7,752,854
----------------
Hungary - 0.36%
46,270 Gedeon Richter, GDR......................... 2,111,263
----------------
Italy - 5.89%
3,022,460 Banca Nazionale del Lavoro*................. 10,235,972
141,700 Banca Popolare di Bergamo................... 3,047,725
1,287,569 Unicredito Italiano SPA..................... 6,026,195
1,026,881 Mediaset SPA................................ 10,249,413
630,504 Telecom Italia SPA*......................... 5,444,320
----------------
35,003,625
----------------
Japan - 29.74%
1,283,000 Fuji Bank, Ltd.............................. 17,595,569
265,000 Fujitsu, Ltd................................ 7,980,244
80,000 Ito-Yokado Co., Ltd......................... 6,398,772
226,000 KAO Corp.................................... 6,892,491
107,000 Murata Manufacturing Co., Ltd............... 13,750,839
649,000 Nikko Securities............................ 6,099,741
592 Nippon Telegraph &
Telephone Corp.............................. 9,084,109
252,000 Nomura Securities Co., Ltd.................. 4,159,317
1,356 NTT Mobile Communications................... 36,023,017
64,000 Rohm Co., Ltd............................... 14,362,712
1,566,000 Sakura Bank, Ltd............................ 13,456,757
403,000 The Sanwa Bank, Ltd......................... 5,994,562
9,338 Shoskoh Fund & Co., Ltd..................... 5,713,670
168,000 Takeda Chemical Industries.................. 9,651,098
44,100 Takefuji Corp............................... 5,709,696
82,000 TDK Corp.................................... 8,029,347
125,000 Yamanouchi Pharmaceutical Co., Ltd.......... 5,670,375
----------------
176,572,316
----------------
Netherlands - 9.23%
123,870 Gucci Group................................. 10,002,503
402,418 Koninklijke Ptt............................. 20,650,039
71,105 Laurus NV................................... 1,581,697
119,332 Royal Dutch Petroleum....................... 7,132,590
196,098 Vendex International*....................... 5,723,330
287,346 VNU NV...................................... 9,716,252
----------------
54,806,411
----------------
New Zealand - 0.97%
1,438,887 Telecom Corp. of New Zealand................ 5,791,211
----------------
Philippines - 0.30%
234,590 Metropolitan Bank & Trust Co................ 1,755,040
----------------
South Korea - 0.63%
106,700 Korea Telecom Corp., ADR*................... 3,761,175
----------------
See Notes to Financial Statements.
38
<PAGE>
- --------------------------------------------------------------------------------
International Equity Fund
Portfolio of Investments (continued)
October 31, 1999
Shares Value
---------- ---------
Spain - 2.05%
69,265 Banco Popular Espnol SA..................... $ 4,662,367
457,884 Telefonica de Espana SA*.................... 7,531,906
----------------
12,194,273
----------------
Sweden - 1.78%
398,926 Hennes & Mauritz AB, Class B................ 10,597,609
----------------
Switzerland - 2.80%
18,092 Clariant AG................................. 7,918,737
5,831 Novartis AG, Registered..................... 8,724,116
----------------
16,642,853
----------------
United Kingdom - 16.15%
184,433 AstraZeneca Group, Plc...................... 8,340,722
616,723 B.A.T. Industries, Plc...................... 4,084,245
2,058,624 British Aerospace, Plc...................... 12,026,333
593,326 British Sky Broadcasting, Plc............... 6,371,703
926,084 Diageo, Plc................................. 9,359,272
398,541 Glaxo Wellcome, Plc......................... 11,762,399
465,400 Imperial Chemical Industries, Plc........... 4,626,988
460,085 Railtrack Group, Plc........................ 9,314,625
1,266,999 Reed International, Plc..................... 7,391,306
1,322,829 Somerfield, Plc............................. 2,771,599
4,262,925 Vodafone Group, Plc......................... 19,824,886
----------------
95,874,078
----------------
Total Common Stocks......................... 568,609,902
----------------
(Cost $420,431,536)
- --------------------------------------------------------------------------------
INDUSTRY CONCENTRATION OF COMMON STOCKS
AS PERCENTAGE OF NET ASSETS:
Communication Services 24.59%
Consumer Staples 23.31
Finance 14.87
Basic Materials 10.88
Technology 7.30
Capital Goods 5.83
Consumer Cyclicals 3.29
Aerospace 2.03
Transportation 1.57
Energy 1.20
Utilities 0.89
-----
95.76%
=====
Par Value Value
------------- ---------
REPURCHASE AGREEMENT - 4.84%
$ 28,704,000 Repurchase Agreement with:
Chase Manhattan Bank
5.20%, 11/01/99, dated 10/29/99
Repurchase Price $28,716,438
(Collateralized by U.S. Treasury Note
6.50%, Due 10/15/06;
Total Par $28,740,000
Market Value $29,278,875)................... $ 28,704,000
----------------
Total Repurchase Agreement.................. 28,704,000
----------------
(Cost $28,704,000)
Total Investments - 100.60%................................. 597,313,902
----------------
(Cost $449,135,536)
Net Other Assets and Liabilities - (0.60)%.................. (3,551,803)
----------------
Net Assets - 100.00%........................................ $ 593,762,099
================
- ----------
* Non-income producing security.
ADR American Depositary Receipt
GDR Global Depositary Receipt
FORWARD FOREIGN CURRENCY CONTRACTS PURCHASED:
Unrealized
Currency Contract To Settlement Contract Appreciation
Value Receive Dates At Value (Depreciation)
-------- ----------- ---------- -------- --------------
40,523 EMU 11/02/99 $ 42,626 $ (69)
282,487 GBP 11/02/99 464,212 (2,946)
116,170 GBP 11/03/99 190,902 (708)
190,389 GBP 11/04/99 312,868 817
238,354 GBP 11/05/99 391,689 (1,168)
27,763,200 HKD 11/02/99 3,573,578 221
281,353,541 JPY 11/01/99 2,698,746 (7,747)
------------ ------------
$ 7,674,621 $ (11,600)
============ ============
- ----------
EMU Euro Monetary Unit
GBP Great British Pounds
HKD Hong Kong Dollars
JPY Japanese Yen
See Notes to Financial Statements.
39
<PAGE>
- --------------------------------------------------------------------------------
Small Cap Value Fund
Portfolio of Investments
October 31, 1999
Shares Value
---------- ---------
COMMON STOCKS - 91.07%
Consumer Staples - 18.21%
65,400 American Healthcorp, Inc.*.................. $ 367,875
102,250 Apple Orthodontix, Inc.*.................... 76,687
128,100 Applebee's International, Inc............... 3,690,881
47,500 Barrett Business Services, Inc.*............ 326,563
222,666 Bindley Western Industries, Inc............. 2,797,242
24,900 Bioanalytical Systems, Inc.*................ 59,138
74,400 Burns International Services Corp.*......... 748,650
57,100 Capital Senior Living Corp.*................ 292,637
45,000 CBRL Group, Inc............................. 601,875
70,600 CEC Entertainment, Inc.*.................... 2,263,613
63,100 Cooker Restaurant Corp...................... 201,131
18,240 Cordiant Communications
Group, ADR.................................. 264,480
87,400 CTB International Corp.*.................... 546,250
130,200 Datascope Corp.*............................ 4,687,200
169,300 Friendly Ice Cream Corp.*................... 825,338
162,000 Health Management Systems, Inc.*............ 698,625
225,826 ICN Pharmaceuticals, Inc.................... 5,193,998
65,000 Ingles Markets, Inc., Class A............... 840,937
134,000 Invacare Corp............................... 2,797,250
77,000 Korn/Ferry International*................... 1,713,250
94,300 Lifecore Biomedical, Inc.*.................. 1,178,750
100,200 Marketing Specialists Corp.*................ 275,550
65,700 Michael Foods, Inc.......................... 1,675,350
139,875 Minntech Corp............................... 1,451,203
194,133 Morrison Management
Specialists, Inc............................ 4,149,593
403,100 Nextera Enterprises, Inc. Class A*.......... 2,141,469
98,000 Northland Cranberries, Inc., Class A........ 545,125
68,000 Noven Pharmaceuticals, Inc.*................ 667,250
142,505 O'Charley's, Inc.*.......................... 2,182,108
143,700 Paracelsus Healthcare Corp.*................ 53,888
108,500 Performance Food Group Co.*................. 2,943,062
110,200 PSS World Medical, Inc.*.................... 854,050
204,225 Res-Care, Inc.*............................. 2,974,027
130,921 Respironics, Inc.*.......................... 1,104,646
186,400 Romac Inernational, Inc.*................... 1,258,200
49,100 Ruby Tuesday, Inc........................... 935,969
158,500 Ryan's Family Steak Houses, Inc.*........... 1,659,297
241,000 SOS Staffing Services, Inc.*................ 1,220,063
3,201 SUPERVALU, INC.............................. 67,221
386,800 Unilab Corp.*............................... 2,199,925
169,100 Vlasic Foods International, Inc.*........... 1,299,956
111,100 Westaff, Inc.*.............................. 944,350
34,000 Worthington Foods, Inc...................... 805,375
----------------
61,580,047
----------------
Technology - 15.63%
77,600 Acxiom Corp.*............................... 1,280,400
133,000 Analogic Corp............................... 3,491,250
107,200 Analysts International Corp................. 1,252,900
50,000 Bell & Howell Co.*.......................... 1,406,250
196,000 Benchmark Electronics, Inc.*................ 3,136,000
120,700 Chyron Corp.*............................... 98,069
165,000 Clare (C.P.) Corp.*......................... 876,563
169,500 Coherent, Inc.*............................. 3,485,344
323,200 Computer Task Group, Inc.................... 4,080,400
174,300 Condor Technology Solutions, Inc.*.......... 305,025
15,000 Hadco Corp.................................. 551,250
193,400 Hypercom Corp.*............................. 1,547,200
263,000 Hyperion Solutions Corp.*................... 6,410,625
228,200 Infinium Software, Inc.*.................... 948,456
73,800 Keithley Instruments, Inc................... 1,171,575
56,400 K-Tron International, Inc................... 838,950
108,200 Landmark Systems Corp.*..................... 946,750
126,100 MapInfo Corp.*.............................. 2,340,731
119,500 Mentor Graphics Corp.*...................... 963,469
103,600 Metamor Worldwide, Inc.*.................... 1,955,450
70,700 Methode Electronics, Inc., Class A.......... 1,131,200
132,800 Metro Information Services, Inc.*........... 1,809,400
149,200 MSC.Software Corp.*......................... 969,800
57,500 Nashua Corp.*............................... 481,562
117,900 PairGain Technology, Inc.*.................. 1,444,275
18,900 Pericom Semiconductor Corp.*................ 304,763
103,600 S3, Inc.*................................... 1,036,000
173,600 Sybase, Inc.*............................... 2,343,600
35,800 Tegal Corp.*................................ 91,738
67,900 Tekelec*.................................... 861,481
148,600 Teltrend, Inc.*............................. 2,693,375
138,100 Vantive Corp.*.............................. 1,605,412
50,100 Viasoft, Inc.*.............................. 236,409
84,900 Wood's (T.B.), Inc.......................... 758,794
----------------
52,854,466
----------------
Finance - 13.45%
70,000 American Annuity Group, Inc................. 1,255,625
103,600 Americredit Corp.*.......................... 1,800,050
113,120 Amerus Life Holdings, Inc., Class A......... 2,729,020
50,400 Annuity & Life Re (Holdings), Ltd........... 1,184,400
61,800 Brandywine Realty Trust, REIT............... 1,039,013
55,150 Brown & Brown, Inc., Class A................ 1,861,313
16,000 Colorado Business Bankshares................ 206,000
111,800 Corporate Office
Properties Trust, Inc., REIT................ 810,550
43,900 Equity One, Inc., REIT...................... 452,719
17,400 GBC Bancorp................................. 355,613
37,560 Hanmi Bank*................................. 554,010
318,500 HealthCare Financial
Partners, Inc., REIT (A)*................... 6,370,000
127,400 Healthcare Financial
Partners, Inc., WTS, (A)*
Expires 04/29/2001.......................... 0
65,650 Healthcare Realty Trust, Inc., REIT......... 1,263,763
167,383 Heller Financial, Inc....................... 3,975,346
77,500 Innkeepers USA Trust, REIT.................. 668,437
50,000 IRT Property Co., REIT...................... 421,875
24,400 Kansas City Life Insurance Co............... 948,550
45,000 LaSalle Re Holdings, Ltd.................... 582,188
79,900 Life Financial Corp.*....................... 359,550
114,600 Matrix Bancorp, Inc.*....................... 1,389,525
12,500 Medford Bancorp, Inc........................ 221,875
60,000 Ohio Casualty Corp.......................... 1,001,250
See Notes to Financial Statements.
40
<PAGE>
- --------------------------------------------------------------------------------
Small Cap Value Fund
Portfolio of Investments (continued)
October 31, 1999
Shares Value
---------- ---------
Finance (continued)
42,000 Pacific Bank................................ $ 1,134,000
18,300 PICO Holdings, Inc.*........................ 300,806
28,200 Prime Group Realty Trust, REIT.............. 405,375
40,900 Reliance Bancorp, Inc....................... 1,650,059
310,673 Republic Bancorp, Inc....................... 4,077,588
90,000 Scottish Annuity & Life Holdings, Ltd....... 905,625
97,500 Seacoast Financial Services Corp............ 1,072,500
110,000 Selective Insurance Group, Inc.............. 2,055,625
40,800 SL Green Realty Corp., REIT................. 742,050
126,900 Superior Financial Corp.*................... 1,403,831
39,700 Texas Regional Bancshares, Inc.
Class A..................................... 1,109,119
22,677 UMB Financial Corp.......................... 921,253
50,600 Willis Lease Finance Corp.*................. 249,838
----------------
45,478,341
----------------
Consumer Cyclical - 12.49%
145,450 ADVO, Inc.*................................. 2,572,647
194,100 American Homestar Corp.*.................... 770,334
57,900 ASI Solutions, Inc.*........................ 166,462
71,650 Bassett Furniture Industries, Inc........... 1,289,700
61,300 Beazer Homes USA, Inc.*..................... 1,172,363
159,800 Children's Comprehensive Services*.......... 1,118,600
1 Cintas Corp................................. 60
78,100 CLARCOR, Inc................................ 1,332,581
86,700 Culp, Inc................................... 601,481
33,000 Engle Homes, Inc............................ 334,125
42,314 Fresh Foods, Inc.*.......................... 401,983
138,100 Goody's Family Clothing, Inc.*.............. 1,398,262
57,100 Happy Kids, Inc.*........................... 606,687
39,700 Houghton Mifflin Co......................... 1,682,288
104,900 infoUSA, Inc.*.............................. 580,228
161,400 InterTAN, Inc.*............................. 3,631,500
178,600 Iterim Services, Inc.*...................... 2,935,737
190,200 ITI Technologies, Inc.*..................... 5,159,175
48,600 ITT Educational Services, Inc.*............. 959,850
176,300 Jostens, Inc................................ 3,724,338
92,800 K2, Inc..................................... 742,400
103,500 Kroll-O'Gara (The) Co.*..................... 1,643,062
46,500 Newmark Homes Corp.*........................ 261,563
95,400 Protection One, Inc......................... 196,763
164,900 R & B, Inc.*................................ 762,663
83,600 Rocky Shoes & Boots, Inc.*.................. 585,200
20,000 Toll Brothers, Inc.*........................ 350,000
84,100 Toro Co..................................... 3,017,088
264,600 Unifirst Corp............................... 3,241,350
29,700 Wackenhut Corp., Class A.................... 558,731
114,300 York Group, Inc............................. 428,625
----------------
42,225,846
----------------
Capital Goods and Construction - 10.81%
149,000 ABC-NACO, Inc.*............................. 1,601,750
80,050 Advanced Technical Products, Inc.*.......... 1,100,687
22,000 Atchison Casting Corp....................... 229,625
133,900 Brown & Sharpe
Manufacturing Co., Class A*................. 393,331
139,300 Capital Environmental Resource, Inc.*....... 713,912
127,550 Chicago Bridge & Iron Co. N.V............... 1,554,516
102,500 Comptek Research, Inc.*..................... 1,050,625
34,000 Cuno, Inc.*................................. 680,000
142,900 Dayton Superior Corp.*...................... 2,286,400
107,800 Denison International Plc, ADR*............. 990,412
51,400 Evans & Sutherland
Computer Corp.*............................. 613,587
154,075 Farr Co.*................................... 1,155,562
73,700 Giga-Tronics, Inc.*......................... 202,675
55,500 Global Industrial Technologies, Inc.*....... 679,875
100,100 Kaman Corp.................................. 1,101,100
70,600 Key Technology, Inc.*....................... 555,975
75,100 Ladish Co., Inc.*........................... 525,700
104,000 Layne Christensen, Inc.*.................... 851,500
38,800 Lindberg Co................................. 349,200
197,300 LSI Industries, Inc......................... 4,747,531
171,700 NCI Building Systems, Inc.*................. 2,715,006
90,900 Reliance Steel & Aluminum Co................ 1,908,900
52,600 Service Experts, Inc.*...................... 315,600
129,750 Shaw Group, Inc.*........................... 2,951,812
53,600 SunSource, Inc.............................. 257,950
156,544 Terex Corp.*................................ 4,138,632
87,400 TransTechnology Corp........................ 841,225
117,600 Valmont Industries, Inc..................... 2,043,300
----------------
36,556,388
----------------
Energy - 8.09%
108,700 Bellwether Exploration Co................... 655,597
44,200 Berry Petroleum Co., Class A................ 552,500
125,100 Callon Petroleum Co.*....................... 1,602,844
121,000 Cross Timbers Oil Co........................ 1,346,125
68,900 Devon Energy Corp........................... 2,678,488
81,300 Evergreen Resources, Inc.*.................. 1,758,112
137,400 Houston Exploration Co.*.................... 2,687,888
134,700 Key Production Co., Inc.*................... 1,195,463
145,100 Louis Dreyfus Natural Gas Corp.*............ 2,902,000
85,300 Marine Drilling Cos., Inc.*................. 1,380,794
30,000 MarkWest Hydrocarbon, Inc.*................. 228,750
171,020 Meridian Resource Corp.*.................... 758,901
112,200 Midcoast Energy Resources, Inc.............. 2,047,650
40,000 Nuevo Energy Co.*........................... 567,500
58,500 Oceaneering International, Inc.*............ 793,406
133,200 Pennaco Energy, Inc.*....................... 1,473,525
44,800 Pogo Producing Co........................... 898,800
53,700 Pride International, Inc.*.................. 738,375
125,618 Range Resources............................. 471,067
90,000 Triton Energy Ltd.*......................... 1,490,625
102,000 Vintage Petroleum, Inc...................... 1,109,250
----------------
27,337,660
----------------
Utilities - 4.11%
100,550 Atmos Energy Corp........................... 2,281,228
99,650 Cascade Natural Gas Corp.................... 1,806,156
78,800 CT Communications, Inc...................... 3,792,250
20,000 Middlesex Water Co., Inc.................... 620,000
See Notes to Financial Statements.
41
<PAGE>
- --------------------------------------------------------------------------------
Small Cap Value Fund
Portfolio of Investments (continued)
October 31, 1999
Shares Value
---------- ---------
Utilities (continued)
44,500 New Jersey Resources Corp................... $ 1,810,594
39,500 NUI Corp.................................... 980,094
34,500 South Jersey Industries, Inc................ 897,000
73,000 Southwest Gas Corp.......................... 1,697,250
----------------
13,884,572
----------------
Basic Materials - 3.88%
30,000 Centex Construction Products................ 1,066,875
73,700 Dexter Corp................................. 2,584,106
123,500 Grief Brothers Corp., Class A............... 3,519,750
47,400 JPS Packaging Co.*.......................... 183,675
116,300 Longview Fibre Co........................... 1,322,912
119,600 MPW Industrial
Services Group, Inc.*....................... 956,800
177,900 Northwest Pipe Co.*......................... 2,401,650
86,650 Peak International, Ltd.*................... 812,344
400 Rogers Corp.*............................... 14,500
10,900 Sybron Chemicals, Inc.*..................... 151,237
50,100 Transmation, Inc............................ 112,725
----------------
13,126,574
----------------
Transportation - 2.37%
170,700 AirNet Systems, Inc.*....................... 960,187
116,700 Budget Group, Inc., Class A*................ 816,900
38,875 Cannon Express, Inc.*....................... 102,047
96,400 Gulfmark Offshore, Inc.*.................... 1,494,200
74,000 Midwest Express Holdings, Inc.*............. 2,169,125
154,800 RailTex, Inc.*.............................. 2,476,800
----------------
8,019,259
----------------
Communication Services - 2.03%
75,700 Jones Intercable, Inc., Class A*............ 4,135,113
59,000 Young Broadcasting, Inc. Class A*........... 2,736,125
----------------
6,871,238
----------------
Total Common Stocks......................... 307,934,391
----------------
(Cost $334,461,787)
Par Value Value
------------- ---------
CORPORATE BOND - 0.09%
$ 369,900 MSC.Software Corp.
Convertible Subordinated Debenture
7.88%, 08/18/04............................. $ 321,813
----------------
Total Corporate Bond........................ 321,813
----------------
(Cost $369,900)
REPURCHASE AGREEMENT - 8.61%
29,099,000 Repurchase Agreement with:
Chase Manhattan Bank
5.20%, 11/01/99, dated 10/29/99
Repurchase Price $29,111,610
(Collateralized by U.S. Treasury Bond
9.25%, Due 02/15/16;
Total Par $23,145,000
Market Value $29,683,463)................... 29,099,000
----------------
Total Repurchase Agreement.................. 29,099,000
----------------
(Cost $29,099,000)
Total Investments - 99.77%.................................. 337,355,204
----------------
(Cost $363,930,687)
Net Other Assets and Liabilities - 0.23%.................... 783,875
----------------
Net Assets - 100.00%........................................ $ 338,139,079
================
- ----------
* Non-income producing security.
(A) Securities exempt from registration persuant to Rule 144A under the
Securities Act of 1933, as amended. These securities may only be resold,
in a transaction exempt from registration, to qualified institutional
buyers. At October 31, 1999, these securities amounted to $6,370,000 or
1.88% of net assets.
ADR American Depositary Receipt
REIT Real Estate Investment Trust
WTS Warrants
See Notes to Financial Statements.
42
<PAGE>
- --------------------------------------------------------------------------------
Small Company Equity Fund
Portfolio of Investments
October 31, 1999
Shares Value
---------- ---------
COMMON STOCKS - 99.67%
Technology - 53.80%
117,100 Able Telecom Holding Corp.*................. $ 1,031,944
123,600 Advanced Fibre Communication*............... 2,703,750
115,200 Advanced Radio Telecom Corp.*............... 1,260,000
5,300 Aether Systems, Inc.*....................... 368,681
175,100 Amkor Technology, Inc.*..................... 3,534,831
71,100 Ancor Communications, Inc.*................. 2,252,981
17,400 AnswerThink Consulting Group, Inc.*......... 287,100
19,000 Applied Mirco Circuits Corp.*............... 1,478,437
62,600 Ardent Software, Inc.*...................... 1,381,112
11,600 Art Technology Group, Inc.*................. 626,400
85,200 Artesyn Technologies, Inc.*................. 1,682,700
87,500 Asyst Technologies, Inc.*................... 3,390,625
97,800 BEA Systems, Inc.*.......................... 4,462,125
70,900 Best Software, Inc.*........................ 1,422,431
62,800 BindView Development Corp.*................. 1,884,000
33,600 BISYS Group, Inc.*.......................... 1,713,600
84,600 Brio Technology, Inc.*...................... 2,051,550
58,000 Cambridge Technology Partners, Inc.*........ 641,625
75,100 Clarify, Inc.*.............................. 5,801,475
58,700 Cognex Corp.*............................... 1,757,331
58,700 Complete Business Solutions, Inc.*.......... 851,150
57,200 Computer Network Technology Corp.*.......... 918,775
34,350 Concord Communications, Inc.*............... 1,784,053
232,400 Condor Technology Solutions*................ 406,700
35,932 Cree Research, Inc.*........................ 1,533,847
11,300 Crossroads Systems, Inc.*................... 803,712
51,900 Cybex Computer Products Corp.*.............. 2,027,344
138,000 Deltek Systems, Inc.*....................... 1,604,250
56,800 Documentum, Inc.*........................... 1,611,700
7,100 Efficient Networks, Inc.*................... 301,750
62,100 Emulex Corp.*............................... 9,683,719
87,000 Etec Systems, Inc.*......................... 3,322,312
56,900 Exchange Applications, Inc.*................ 1,550,525
94,700 Forrester Research, Inc.*................... 4,510,087
86,900 Galileo Technology, Ltd.*................... 1,987,838
83,500 Genesys Telecommunications
Laboratories, Inc.*......................... 4,101,937
89,700 Gentex Corp.*............................... 1,541,719
40,900 Great Plains Software, Inc.*................ 2,269,950
87,300 Helix Technology Corp.*..................... 3,519,281
170,200 HTE, Inc.*.................................. 351,037
121,700 Hyperion Solutions Corp.*................... 2,966,438
32,100 Ibis Technology Corp.*...................... 1,464,563
86,200 ICG Communications, Inc.*................... 1,411,525
139,225 IMRglobal Corp.*............................ 1,427,056
56,800 Inso Corp.*................................. 766,800
62,900 Interactive Pictures Corp................... 1,482,081
168,850 International Telecommunications
Data Systems, Inc.*......................... 1,677,947
28,400 InterVU, Inc.*.............................. 1,558,450
173,800 IntraNet Solutions, Inc.*................... 2,987,188
11,300 JNI Corp.*.................................. 603,844
70,600 Kopin Corp.*................................ 2,965,200
24,200 Legato Systems, Inc.*....................... 1,300,750
86,000 LTX Corp.*.................................. 1,359,875
33,500 Mercury Interactive Corp.*.................. 2,717,688
178,550 META Group, Inc.*........................... 2,566,656
96,000 Metro Information Services, Inc.*........... 1,308,000
63,100 MMC Networks, Inc.*......................... 2,011,313
85,300 National Instruments Corp.*................. 2,564,331
87,000 Netegrity, Inc.*............................ 2,349,000
16,200 Optical Coating Laboratory, Inc............. 1,731,375
57,300 PairGain Technologies, Inc.*................ 701,925
294,900 Per-Se Technologies, Inc.*.................. 893,916
155,300 Pervasive Software, Inc.*................... 1,514,175
85,100 PRI Automation, Inc.*....................... 3,414,638
41,650 Probusiness Services, Inc.*................. 1,046,456
205,600 ProSoft I-Net Solutions, Inc.*.............. 616,800
14,300 Quest Software, Inc.*....................... 1,054,625
72,600 QLogic Corp.*............................... 7,559,475
114,900 RSA Security, Inc.*......................... 4,078,950
56,800 Santa Cruz Operation (The), Inc.*........... 749,050
45,000 ScanSource, Inc.*........................... 1,524,375
21,500 SeaChange International, Inc.*.............. 408,500
71,245 SPSS, Inc.*................................. 1,264,599
86,000 Sterling Software, Inc.*.................... 1,886,625
115,600 Tekelec*.................................... 1,466,675
127,400 Teletech Holdings*.......................... 1,807,488
34,200 Terayon Communication
Systems, Inc.*.............................. 1,496,250
180,700 Tier Technologies, Inc.*.................... 1,174,550
97,300 Tollgrade Communications, Inc.*............. 2,201,413
22,500 Transwitch Corp.*........................... 1,058,906
312,500 TSI International Software, Ltd.*........... 7,500,000
91,400 Veeco Instruments, Inc.*.................... 3,101,888
17,300 Vignette Corp.*............................. 2,733,400
42,900 Visual Networks, Inc.*...................... 1,785,713
87,300 Whittman-Hart, Inc.*........................ 3,355,594
204,000 Zygo Corp.*................................. 3,378,750
----------------
179,409,200
----------------
Consumer Cyclical - 14.03%
145,500 American Classic Voyages Co.*............... 3,637,500
117,500 ASI Solutions, Inc.*........................ 337,812
186,100 Bally's Total Fitness Corp.*................ 4,478,031
282,300 Brass Eagle, Inc.*.......................... 3,352,312
117,100 Cash America International, Inc............. 1,105,131
113,800 Charles River Associates, Inc.*............. 2,873,450
60,300 Cheap Tickets, Inc.*........................ 964,800
33,800 Consolidated Graphics, Inc.*................ 676,000
44,925 Cost Plus, Inc.*............................ 1,639,762
222,200 Funco, Inc.*................................ 4,055,150
104,900 Hollywood Park, Inc.*....................... 1,816,081
57,200 InterTAN, Inc.*............................. 1,287,000
69,200 Kroll-O'Gara Co.*........................... 1,098,550
109,700 Men's Warehouse (The), Inc.*................ 2,406,544
126,600 Metamor Worldwide, Inc.*.................... 2,389,575
See Notes to Financial Statements.
43
<PAGE>
- --------------------------------------------------------------------------------
Small Company Equity Fund
Portfolio of Investments (continued)
October 31, 1999
Shares Value
---------- ---------
Consumer Cyclical (continued)
99,100 Pacific Sunwear of California, Inc.*........ $ 2,991,581
76,800 Pegasus Systems, Inc.*...................... 3,283,200
78,300 Players International, Inc.*................ 577,463
84,070 Pre-Paid Legal Services, Inc.*.............. 2,038,698
47,900 Silverleaf Resorts, Inc.*................... 299,375
159,900 Source Information Management Co.*.......... 1,918,800
74,700 Steiner Leisure, Ltd.*...................... 1,414,631
66,800 Student Advantage, Inc.*.................... 964,425
114,600 Travis Boats & Motors, Inc.*................ 1,174,650
----------------
46,780,521
----------------
Consumer Staples - 10.08%
116,200 ATS Medical, Inc.*.......................... 1,074,850
87,500 CEC Entertainment, Inc.*.................... 2,805,469
76,800 Education Management Corp.*................. 729,600
114,600 FirstService Corp.*......................... 1,296,412
118,400 Isis Pharmaceuticals, Inc.*................. 1,369,000
49,525 King Pharmaceuticals, Inc.*................. 1,498,131
126,750 Labor Ready, Inc.*.......................... 1,291,266
71,100 Modis Professional Services, Inc.*.......... 795,431
112,700 Natrol, Inc.*............................... 1,007,256
65,000 Ocular Sciences, Inc.*...................... 1,194,375
76,412 On Assignment, Inc.*........................ 2,196,845
161,800 Orthodontic Center of America, Inc.*........ 2,224,750
72,100 Osteotech, Inc.*............................ 941,806
38,000 Patterson Dental Co.*....................... 1,712,375
58,100 Province Healthcare Co.*.................... 936,863
126,350 Renal Care Group, Inc.*..................... 2,353,269
89,300 Rexall Sundown, Inc.*....................... 943,231
225,864 Romac International, Inc.*.................. 1,524,582
89,400 Sonic Corp.*................................ 2,503,200
100,600 Thoratec Laboratories Corp.*................ 716,775
43,500 USWeb Corp.*................................ 1,685,625
57,200 Varian Medical Systems, Inc................. 1,204,775
47,500 Whole Foods Market, Inc.*................... 1,615,000
----------------
33,620,886
----------------
Energy - 6.59%
141,700 Cabot Oil & Gas Corp........................ 2,284,912
55,700 Devon Energy Corp.*......................... 2,165,337
60,500 Evergreen Resources, Inc.*.................. 1,308,312
87,400 Global Industries, Ltd.*.................... 699,200
149,167 Magin Energy, Inc.*......................... 293,975
157,300 Marine Drilling Cos., Inc.*................. 2,546,294
92,000 Newfield Exploration Co.*................... 2,708,250
100,800 Noble Affiliates, Inc....................... 2,551,500
164,300 Pennaco Energy, Inc.*....................... 1,817,569
3,900 Prima Energy Corp.*......................... 85,313
229,400 Santa Fe Energy Resources, Inc.*............ 1,978,575
35,700 Stone Energy Corp.*......................... 1,735,913
172,400 Swift Energy Co.*........................... 1,788,650
----------------
21,963,800
----------------
Capital Goods and Construction - 5.82%
94,100 AAR Corp.................................... 1,570,294
87,300 Aeroflex, Inc.*............................. 485,606
20,800 Astec Industries, Inc.*..................... 487,500
62,200 Aviation Sales Co.*......................... 1,080,725
69,000 Casella Waste Systems, Inc.*................ 927,187
105,275 Cuno, Inc.*................................. 2,105,500
43,200 HEICO Corp.................................. 753,300
44,100 HEICO Corp., Class A........................ 669,769
115,500 Hexcel Corp.*............................... 620,813
116,500 Maverick Tube Corp.*........................ 2,155,250
145,500 Motivepower Industries, Inc.*............... 1,736,906
248,800 Newpark Resources, Inc.*.................... 1,601,650
284,110 PCD, Inc.*.................................. 1,669,146
58,600 Presstek, Inc.*............................. 472,463
119,100 Tower Automotive*........................... 1,942,819
71,600 Wabash National Corp........................ 1,136,650
----------------
19,415,578
----------------
Transportation - 3.20%
103,900 Atlas Air, Inc.*............................ 2,805,300
175,425 Dynamex, Inc.*.............................. 175,425
70,800 Eagle USA Airfreight, Inc.*................. 2,088,600
54,900 Expeditors International of
Washington, Inc............................. 2,051,887
71,500 Tidewater, Inc.............................. 2,145,000
203,500 Trico Marine Services, Inc.*................ 1,411,781
----------------
10,677,993
----------------
Basic Materials - 1.91%
123,600 Millipore Corp.............................. 3,939,750
95,200 NS Group, Inc.*............................. 963,900
58,300 RTI International Metals, Inc.*............. 422,675
173,700 Titanium Metal Corp.*....................... 1,042,200
----------------
6,368,525
----------------
Utilities - 1.86%
120,500 Davel Communication Corp.................... 534,719
57,300 Intermedia Communications, Inc.*............ 1,489,800
25,700 Powertel, Inc.*............................. 1,513,088
68,500 WinStar Communications, Inc.*............... 2,658,656
----------------
6,196,263
----------------
Communication Services - 1.71%
31,100 Hispanic Broadcasting Corp.*................ 2,519,100
42,900 IXnet, Inc.*................................ 608,644
11,300 Radio Unica Corp.*.......................... 323,463
62,400 SportsLine USA, Inc.*....................... 2,242,500
----------------
5,693,707
----------------
See Notes to Financial Statements.
44
<PAGE>
- --------------------------------------------------------------------------------
Small Company Equity Fund
Portfolio of Investments (continued)
October 31, 1999
Shares Value
---------- ---------
Finance - 0.67%
86,200 MFC Bancorp, Ltd.*.......................... $ 700,375
85,800 Riggs National Corp......................... 1,297,725
88,840 Towne Services, Inc.*....................... 244,310
----------------
2,242,410
----------------
Total Common Stocks......................... 332,368,883
----------------
(Cost $284,727,645)
Total Investments - 99.67%.................................. 332,368,883
----------------
(Cost $284,727,645)
Net Other Assets and Liabilities - 0.33%.................... 1,089,442
----------------
Net Assets - 100.00%........................................ $ 333,458,325
================
- ----------
* Non-income producing security.
See Notes to Financial Statements.
45
<PAGE>
- --------------------------------------------------------------------------------
Galaxy Equity Funds
Statements of Assets and Liabilities
October 31, 1999
<TABLE>
<CAPTION>
Asset Allocation Equity Income Growth and Income
Fund Fund Fund
---------------- ------------- -----------------
<S> <C> <C> <C>
ASSETS:
Investments (Note 2):
Investments at cost ........................................ $628,948,450 $246,882,901 $460,885,975
Repurchase agreement ....................................... -- 36,620,000 43,135,000
Net unrealized appreciation (depreciation) on investments .. 120,097,179 52,880,224 101,112,945
------------ ------------ ------------
Total investments at value ................................. 749,045,629 336,383,125 605,133,920
Cash ........................................................... 3,145 447 345
Receivable for investments sold ................................ 12,820,671 -- 2,886,699
Receivable for shares sold ..................................... 678,348 191,175 250,664
Interest and dividends receivable .............................. 4,764,568 601,588 480,135
Tax reclaim receivable ......................................... -- -- --
Deferred organizational expense (Note 2) ....................... -- -- --
------------ ------------ ------------
Total Assets ............................................... 767,312,361 337,176,335 608,751,763
------------ ------------ ------------
LIABILITIES:
Payable for open forward foreign currency contracts ............ -- -- --
Payable for investments purchased .............................. 13,926,364 -- 3,065,371
Payable to custodian ........................................... -- -- --
Payable for shares repurchased ................................. 1,585,754 356,844 1,263,762
Advisory fee payable (Note 3) .................................. 467,232 206,542 336,545
Payable to Fleet affiliates (Note 3) ........................... 198,664 55,898 83,093
Payable to Administrator (Note 3) .............................. 121,085 61,008 71,345
Trustees' fees and expenses payable (Note 3) ................... 17,145 9,670 15,235
Accrued expenses and other payables ............................ 111,723 53,918 54,337
------------ ------------ ------------
Total Liabilities .......................................... 16,427,967 743,880 4,889,688
------------ ------------ ------------
NET ASSETS .......................................................... $750,884,394 $336,432,455 $603,862,075
============ ============ ============
</TABLE>
See Notes to Financial Statements.
46
<PAGE>
<TABLE>
<CAPTION>
Strategic Equity Equity Value Equity Growth
Fund Fund Fund
---------------- ------------ --------------
<S> <C> <C> <C>
ASSETS:
Investments (Note 2):
Investments at cost ........................................ $ 77,202,228 $462,740,700 $ 902,909,089
Repurchase agreement ....................................... 7,414,000 15,451,000 88,038,000
Net unrealized appreciation (depreciation) on investments .. (3,605,078) 86,121,959 583,976,365
------------ ------------ --------------
Total investments at value ................................. 81,011,150 564,313,659 1,574,923,454
Cash ........................................................... 314 -- 15
Receivable for investments sold ................................ 599,280 8,948,057 4,350,479
Receivable for shares sold ..................................... 32,514 345,976 1,532,974
Interest and dividends receivable .............................. 31,428 508,954 1,124,194
Tax reclaim receivable ......................................... -- -- --
Deferred organizational expense (Note 2) ....................... 11,349 -- --
------------ ------------ --------------
Total Assets ............................................... 81,686,035 574,116,646 1,581,931,116
------------ ------------ --------------
LIABILITIES:
Payable for open forward foreign currency contracts ............ -- -- --
Payable for investments purchased .............................. 982,072 2,147,865 21,414,981
Payable to custodian ........................................... -- 26 --
Payable for shares repurchased ................................. 200 900,787 2,061,209
Advisory fee payable (Note 3) .................................. 36,160 354,237 949,851
Payable to Fleet affiliates (Note 3) ........................... 398 104,538 198,071
Payable to Administrator (Note 3) .............................. 9,262 107,301 189,885
Trustees' fees and expenses payable (Note 3) ................... 1,095 16,570 38,617
Accrued expenses and other payables ............................ 17,562 101,290 182,970
------------ ------------ --------------
Total Liabilities .......................................... 1,046,749 3,732,614 25,035,584
------------ ------------ --------------
NET ASSETS .......................................................... $ 80,639,286 $570,384,032 $1,556,895,532
============ ============ ==============
<CAPTION>
International Small Cap Small Company
Equity Fund Value Fund Equity Fund
------------- ------------- -------------
<S> <C> <C> <C>
ASSETS:
Investments (Note 2):
Investments at cost ........................................ $420,431,536 $ 334,831,687 $284,727,645
Repurchase agreement ....................................... 28,704,000 29,099,000 --
Net unrealized appreciation (depreciation) on investments .. 148,178,366 (26,575,483) 47,641,238
------------ ------------- ------------
Total investments at value ................................. 597,313,902 337,355,204 332,368,883
Cash ........................................................... 315 675 --
Receivable for investments sold ................................ -- 3,030,691 4,125,318
Receivable for shares sold ..................................... 4,036,525 613,397 705,757
Interest and dividends receivable .............................. 513,995 86,335 24,228
Tax reclaim receivable ......................................... 231,577 -- --
Deferred organizational expense (Note 2) ....................... -- -- --
------------ ------------- ------------
Total Assets ............................................... 602,096,314 341,086,302 337,224,186
------------ ------------- ------------
LIABILITIES:
Payable for open forward foreign currency contracts ............ 11,600 -- --
Payable for investments purchased .............................. 7,674,328 2,413,888 809,225
Payable to custodian ........................................... -- -- 1,829,203
Payable for shares repurchased ................................. 106,611 267,018 778,860
Advisory fee payable (Note 3) .................................. 306,628 167,045 205,883
Payable to Fleet affiliates (Note 3) ........................... 44,754 12,768 68,770
Payable to Administrator (Note 3) .............................. 71,473 35,195 66,300
Trustees' fees and expenses payable (Note 3) ................... 12,406 8,058 7,620
Accrued expenses and other payables ............................ 106,415 43,251 --
------------ ------------- ------------
Total Liabilities .......................................... 8,334,215 2,947,223 3,765,861
------------ ------------- ------------
NET ASSETS .......................................................... $593,762,099 $ 338,139,079 $333,458,325
============ ============= ============
</TABLE>
47
<PAGE>
- --------------------------------------------------------------------------------
Galaxy Equity Funds
Statements of Assets and Liabilities (continued)
October 31, 1999
<TABLE>
<CAPTION>
Asset Allocation Equity Income Growth and Income
Fund Fund Fund
---------------- ------------- -----------------
<S> <C> <C> <C>
NET ASSETS consists of:
Par value (Note 5) ........................................... $ 42,354 $ 17,248 $ 37,754
Paid in capital in excess of par value ....................... 615,825,668 233,046,173 469,193,571
Undistributed net investment income .......................... 2,165,168 399,503 148,148
Accumulated net realized gain (loss) on investments sold ..... 12,754,025 50,089,307 33,369,657
Net unrealized appreciation (depreciation) of investments .... 120,097,179 52,880,224 101,112,945
------------ ------------ ------------
TOTAL NET ASSETS ................................................ $750,884,394 $336,432,455 $603,862,075
============ ============ ============
Retail A Shares:
Net Assets ................................................... $389,077,216 $213,040,891 $232,110,404
Shares of beneficial interest outstanding .................... 21,935,139 10,925,405 14,524,500
NET ASSET VALUE and redemption price per share ............... $ 17.74 $ 19.50 $ 15.98
Sales charge - 3.75% of offering price ....................... 0.69 0.76 0.62
------------ ------------ ------------
Maximum offering price per share ............................. $ 18.43 $ 20.26 $ 16.60
============ ============ ============
Retail B Shares:
Net Assets ................................................... $ 91,199,117 $ 3,212,779 $ 62,365,649
Shares of beneficial interest outstanding .................... 5,153,727 166,894 3,921,763
------------ ------------ ------------
NET ASSET VALUE and offering price per share* ................ $ 17.70 $ 19.25 $ 15.90
============ ============ ============
Trust Shares:
Net Assets ................................................... $269,850,784 $120,178,785 $309,106,303
Shares of beneficial interest outstanding .................... 15,222,769 6,156,145 19,290,157
------------ ------------ ------------
NET ASSET VALUE, offering and redemption price per share ..... $ 17.73 $ 19.52 $ 16.02
============ ============ ============
A Prime Shares:
Net Assets ................................................... $ 237,778 N/A $ 150,276
Shares of beneficial interest outstanding .................... 13,412 N/A 9,392
NET ASSET VALUE and redemption price per share ............... $ 17.73 N/A $ 16.00
Sales charge - 5.50% of offering price ....................... 1.03 N/A 0.93
------------ ------------ ------------
Maximum offering price per share ............................. $ 18.76 N/A $ 16.93
============ ============ ============
B Prime Shares:
Net Assets ................................................... $ 519,499 N/A $ 129,443
Shares of beneficial interest outstanding .................... 29,328 N/A 8,107
------------ ------------ ------------
NET ASSET VALUE and offering price per share* ................ $ 17.71 N/A $ 15.97
============ ============ ============
</TABLE>
- ----------
* Redemption price per share is equal to the Net Asset Value per share less
any applicable contingent deferred sales charge.
See Notes to Financial Statements.
48
<PAGE>
<TABLE>
<CAPTION>
Strategic Equity Equity Value Equity Growth
Fund Fund Fund
---------------- ------------ --------------
<S> <C> <C> <C>
NET ASSETS consists of:
Par value (Note 5) ........................................... $ 8,150 $ 31,164 $ 53,578
Paid in capital in excess of par value ....................... 74,574,589 413,021,309 880,633,166
Undistributed net investment income .......................... 80,428 -- 256,052
Accumulated net realized gain (loss) on investments sold ..... 9,581,197 71,209,600 91,976,371
Net unrealized appreciation (depreciation) of investments .... (3,605,078) 86,121,959 583,976,365
----------- ------------ --------------
TOTAL NET ASSETS ................................................ $80,639,286 $570,384,032 $1,556,895,532
=========== ============ ==============
Retail A Shares:
Net Assets ................................................... $ 8,228,538 $258,331,914 $ 443,639,472
Shares of beneficial interest outstanding .................... 832,168 14,133,678 15,304,980
NET ASSET VALUE and redemption price per share ............... $ 9.89 $ 18.28 $ 28.99
Sales charge - 3.75% of offering price ....................... 0.39 0.71 1.13
----------- ------------ --------------
Maximum offering price per share ............................. $ 10.28 $ 18.99 $ 30.12
=========== ============ ==============
Retail B Shares:
Net Assets ................................................... $ 1,348,198 $ 30,987,678 $ 71,525,307
Shares of beneficial interest outstanding .................... 137,020 1,713,506 2,530,147
----------- ------------ --------------
NET ASSET VALUE and offering price per share* ................ $ 9.84 $ 18.08 $ 28.27
=========== ============ ==============
Trust Shares:
Net Assets ................................................... $71,062,550 $281,064,440 $1,041,378,110
Shares of beneficial interest outstanding .................... 7,180,725 15,316,866 35,730,935
----------- ------------ --------------
NET ASSET VALUE, offering and redemption price per share ..... $ 9.90 $ 18.35 $ 29.15
=========== ============ ==============
A Prime Shares:
Net Assets ................................................... N/A N/A $ 106,593
Shares of beneficial interest outstanding .................... N/A N/A 3,682
NET ASSET VALUE and redemption price per share ............... N/A N/A $ 28.95
Sales charge - 5.50% of offering price ....................... N/A N/A 1.68
----------- ------------ --------------
Maximum offering price per share ............................. N/A N/A $ 30.63
=========== ============ ==============
B Prime Shares:
Net Assets ................................................... N/A N/A $ 246,050
Shares of beneficial interest outstanding .................... N/A N/A 8,533
----------- ------------ --------------
NET ASSET VALUE and offering price per share* ................ N/A N/A $ 28.84
=========== ============ ==============
<CAPTION>
International Small Cap Small Company
Equity Fund Value Fund Equity Fund
------------- ------------ -------------
<S> <C> <C> <C>
NET ASSETS consists of:
Par value (Note 5) ........................................... $ 28,097 $ 25,907 $ 20,878
Paid in capital in excess of par value ....................... 407,249,303 329,774,964 322,557,583
Undistributed net investment income .......................... 3,972,887 130,953 --
Accumulated net realized gain (loss) on investments sold ..... 34,334,139 34,782,738 (36,761,374)
Net unrealized appreciation (depreciation) of investments .... 148,177,673 (26,575,483) 47,641,238
------------ ------------ ------------
TOTAL NET ASSETS ................................................ $593,762,099 $338,139,079 $333,458,325
============ ============ ============
Retail A Shares:
Net Assets ................................................... $ 89,326,639 $ 80,869,956 $ 87,920,586
Shares of beneficial interest outstanding .................... 4,282,082 6,228,694 5,613,672
NET ASSET VALUE and redemption price per share ............... $ 20.86 $ 12.98 $ 15.66
Sales charge - 3.75% of offering price ....................... 0.81 0.51 0.61
------------ ------------ ------------
Maximum offering price per share ............................. $ 21.67 $ 13.49 $ 16.27
============ ============ ============
Retail B Shares:
Net Assets ................................................... $ 2,188,744 $ 1,636,970 $ 12,212,021
Shares of beneficial interest outstanding .................... 105,225 126,261 797,863
------------ ------------ ------------
NET ASSET VALUE and offering price per share* ................ $ 20.80 $ 12.96 $ 15.31
============ ============ ============
Trust Shares:
Net Assets ................................................... $501,776,006 $255,268,097 $233,325,718
Shares of beneficial interest outstanding .................... 23,687,146 19,523,759 14,466,793
------------ ------------ ------------
NET ASSET VALUE, offering and redemption price per share ..... $ 21.18 $ 13.07 $ 16.13
============ ============ ============
A Prime Shares:
Net Assets ................................................... $ 12,255 $ 174,521 N/A
Shares of beneficial interest outstanding .................... 584 13,387 N/A
NET ASSET VALUE and redemption price per share ............... $ 20.98 $ 13.04 N/A
Sales charge - 5.50% of offering price ....................... 1.22 0.76 N/A
------------ ------------ ------------
Maximum offering price per share ............................. $ 22.20 $ 13.80 N/A
============ ============ ============
B Prime Shares:
Net Assets ................................................... $ 458,455 $ 189,535 N/A
Shares of beneficial interest outstanding .................... 21,986 14,598 N/A
------------ ------------ ------------
NET ASSET VALUE and offering price per share* ................ $ 20.85 $ 12.98 N/A
------------ ------------ ------------
</TABLE>
49
<PAGE>
- --------------------------------------------------------------------------------
Galaxy Equity Funds
Statements of Operations
For the year ended October 31, 1999
<TABLE>
<CAPTION>
Asset Allocation Equity Income Growth and Income
Fund Fund Fund
---------------- ------------- -----------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest (Note 2) ..................................................... $ 21,285,878 $ 2,322,495 $ 2,381,072
Dividends (Note 2) .................................................... 3,132,775 5,680,126 8,692,757
Less: foreign taxes withheld (Note 2) ................................. -- -- --
------------ ------------ ------------
Total investment income ............................................ 24,418,653 8,002,621 11,073,829
------------ ------------ ------------
EXPENSES:
Investment advisory fee (Note 3) ...................................... 5,338,301 2,608,376 4,577,393
Administration fee (Note 3) ........................................... 533,921 259,413 456,860
Custodian fee ......................................................... 80,573 20,484 34,257
Fund accounting fee (Note 3) .......................................... 135,247 61,930 97,808
Professional fees (Note 3) ............................................ 47,338 31,318 42,945
Transfer agent fee (Note 3) ........................................... 1,185,238 334,274 1,087,365
Shareholder servicing and 12b-1 fees (Note 3) ......................... 1,761,758 637,473 1,246,576
Trustees' fees and expenses (Note 3) .................................. 20,029 8,461 15,416
Amortization of organization cost (Note 2) ............................ -- -- --
Amortization of prepaid expenses ...................................... -- -- --
Reports to shareholders ............................................... 151,125 85,983 155,349
Miscellaneous ......................................................... 139,893 54,506 106,323
------------ ------------ ------------
Total expenses before reimbursement/waiver ......................... 9,393,423 4,102,218 7,820,292
------------ ------------ ------------
Less:reimbursement/waiver (Note 4) ................................. (764) (3,774) (255,890)
------------ ------------ ------------
Total expenses net of reimbursement/waiver ......................... 9,392,659 4,098,444 7,564,402
------------ ------------ ------------
NET INVESTMENT INCOME (LOSS) ............................................. 15,025,994 3,904,177 3,509,427
------------ ------------ ------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 &6):
Net realized gain (loss)on investments sold ........................... 12,946,175 50,110,091 33,835,048
Net realized loss on forward foreign currency
contracts and foreign currency ..................................... -- -- --
Net change in unrealized appreciation (depreciation) on investments,
foreign currency and forward foreign currency contracts ............ 30,773,026 (20,073,324) 38,430,506
------------ ------------ ------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS .......................... 43,719,201 30,036,767 72,265,554
------------ ------------ ------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .................... $ 58,745,195 $ 33,940,944 $ 75,774,981
============ ============ ============
</TABLE>
See Notes to Financial Statements.
50
<PAGE>
<TABLE>
<CAPTION>
Strategic Equity Equity Value Equity Growth
Fund Fund Fund
---------------- ------------ --------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest (Note 2) ..................................................... $ 352,746 $ 685,602 $ 3,146,515
Dividends (Note 2) .................................................... 975,759 6,531,664 12,156,570
Less: foreign taxes withheld (Note 2) ................................. -- -- --
----------- ------------ -------------
Total investment income ............................................ 1,328,505 7,217,266 15,303,085
----------- ------------ -------------
EXPENSES:
Investment advisory fee (Note 3) ...................................... 621,730 4,468,558 10,553,344
Administration fee (Note 3) ........................................... 62,309 446,506 1,055,020
Custodian fee ......................................................... 18,495 41,520 38,442
Fund accounting fee (Note 3) .......................................... 47,548 112,875 163,952
Professional fees (Note 3) ............................................ 10,922 66,162 86,418
Transfer agent fee (Note 3) ........................................... 25,645 937,479 1,483,560
Shareholder servicing and 12b-1 fees (Note 3) ......................... 27,267 1,033,179 1,589,187
Trustees' fees and expenses (Note 3) .................................. 2,079 15,893 38,372
Amortization of organization cost (Note 2) ............................ 3,398 -- --
Amortization of prepaid expenses ...................................... 24,466 -- --
Reports to shareholders ............................................... 3,730 152,694 236,652
Miscellaneous ......................................................... 38,703 70,823 156,137
----------- ------------ -------------
Total expenses before reimbursement/waiver ......................... 886,292 7,345,689 15,401,084
----------- ------------ -------------
Less:reimbursement/waiver (Note 4) ................................. (184,218) (4,444) (17,470)
----------- ------------ -------------
Total expenses net of reimbursement/waiver ......................... 702,074 7,341,245 15,383,614
----------- ------------ -------------
NET INVESTMENT INCOME (LOSS) ............................................. 626,431 (123,979) (80,529)
----------- ------------ -------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 &6):
Net realized gain (loss)on investments sold ........................... 9,902,448 72,106,510 93,657,340
Net realized loss on forward foreign currency
contracts and foreign currency ..................................... -- -- --
Net change in unrealized appreciation (depreciation) on investments,
foreign currency and forward foreign currency contracts ............ (8,471,056) 2,099,234 229,314,651
----------- ------------ -------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS .......................... 1,431,392 74,205,744 322,971,991
----------- ------------ -------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .................... $ 2,057,823 $ 74,081,765 $ 322,891,462
=========== ============ =============
<CAPTION>
International Small Cap Small Company
Equity Fund Value Fund Equity Fund
------------- ------------ -------------
<S>
INVESTMENT INCOME:
Interest (Note 2) ..................................................... $ 713,887 $ 1,976,470 $ 68,838
Dividends (Note 2) .................................................... 7,503,713 2,813,447 327,862
Less: foreign taxes withheld (Note 2) ................................. (875,473) -- --
------------- ------------ ------------
Total investment income ............................................ 7,342,127 4,789,917 396,700
------------- ------------ ------------
EXPENSES:
Investment advisory fee (Note 3) ...................................... 4,336,206 2,487,806 2,481,560
Administration fee (Note 3) ........................................... 365,677 248,680 248,980
Custodian fee ......................................................... 498,586 36,131 41,744
Fund accounting fee (Note 3) .......................................... 111,998 71,316 69,210
Professional fees (Note 3) ............................................ 44,453 30,809 28,419
Transfer agent fee (Note 3) ........................................... 526,428 479,787 860,570
Shareholder servicing and 12b-1 fees (Note 3) ......................... 214,168 250,452 339,946
Trustees' fees and expenses (Note 3) .................................. 14,105 6,796 7,641
Amortization of organization cost (Note 2) ............................ -- -- --
Amortization of prepaid expenses ...................................... -- -- --
Reports to shareholders ............................................... 94,558 83,069 97,373
Miscellaneous ......................................................... 114,870 101,451 49,648
------------- ------------ ------------
Total expenses before reimbursement/waiver ......................... 6,321,049 3,796,297 4,225,091
------------- ------------ ------------
Less:reimbursement/waiver (Note 4) ................................. (1,221,508) (248,783) (33,020)
------------- ------------ ------------
Total expenses net of reimbursement/waiver ......................... 5,099,541 3,547,514 4,192,071
------------- ------------ ------------
NET INVESTMENT INCOME (LOSS) ............................................. 2,242,586 1,242,403 (3,795,371)
------------- ------------ ------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Notes 2 &6):
Net realized gain (loss)on investments sold ........................... 34,349,686 34,790,874 (3,418,136)
Net realized loss on forward foreign currency
contracts and foreign currency ..................................... (4,120,655) -- --
Net change in unrealized appreciation (depreciation) on investments,
foreign currency and forward foreign currency contracts ............ 94,656,598 (19,900,548) 56,108,824
------------- ------------ ------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS .......................... 124,885,629 14,890,326 52,690,688
------------- ------------ ------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .................... $ 127,128,215 $ 16,132,729 $ 48,895,317
============= ============ ============
</TABLE>
51
<PAGE>
- --------------------------------------------------------------------------------
Galaxy Equity Funds
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Asset Allocation Fund
------------------------------
Years ended October 31,
1999 1998
------------- -------------
<S> <C> <C>
NET ASSETS at beginning of the period ..................................... $ 600,040,305 $ 379,667,751
------------- -------------
Increase in Net Assets resulting from operations:
Net investment income .................................................. 15,025,994 12,249,136
Net realized gain on investments sold .................................. 12,946,175 15,626,374
Net change in unrealized appreciation (depreciation) on investments .... 30,773,026 32,906,427
------------- -------------
Net increase in net assets resulting from operations ................. 58,745,195 60,781,937
------------- -------------
Dividends to shareholders from:
Retail A Shares:
Net investment income .................................................. (7,777,489) (6,075,376)
Net realized gain on investments ....................................... (8,515,996) (13,560,204)
------------- -------------
Total Dividends ...................................................... (16,293,485) (19,635,580)
------------- -------------
Retail B Shares:
Net investment income .................................................. (1,070,246) (791,253)
Net realized gain on investments ....................................... (1,510,323) (2,342,924)
------------- -------------
Total Dividends ...................................................... (2,580,569) (3,134,177)
------------- -------------
Trust Shares:
Net investment income .................................................. (5,707,139) (5,157,025)
Net realized gain on investments ....................................... (5,671,923) (13,004,072)
------------- -------------
Total Dividends ...................................................... (11,379,062) (18,161,097)
------------- -------------
A Prime Shares:
Net investment income .................................................. (3,417) N/A
Net realized gain on investments ....................................... (880) N/A
------------- -------------
Total Dividends ...................................................... (4,297) N/A
------------- -------------
B Prime Shares:
Net investment income .................................................. (4,760) N/A
Net realized gain on investments ....................................... (3,982) N/A
------------- -------------
Total Dividends ...................................................... (8,742) N/A
------------- -------------
Total Dividends to shareholders ...................................... (30,266,155) (40,930,854)
------------- -------------
Net increase from share transactions(1) ................................... 122,365,049 200,521,471
------------- -------------
Net increase in net assets ............................................. 150,844,089 220,372,554
------------- -------------
Net assets at end of the period (including line A) ........................ $ 750,884,394 $ 600,040,305
============= =============
(A) Undistributed net investment income ................................... $ 2,165,168 $ 1,673,336
============= =============
</TABLE>
- ----------
(1) For detail on share transactions by series, see Statements of Changes in
Net Assets - Capital Stock Activity on pages 58-59.
See Notes to Financial Statements.
52
<PAGE>
<TABLE>
<CAPTION>
Equity Income Fund Growth and Income Fund
---------------------------- ----------------------------
Years ended October 31, Years ended October 31,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NET ASSETS at beginning of the period .................................. $ 335,217,600 $ 288,780,499 $ 521,385,834 $ 423,715,404
------------- ------------- ------------- -------------
Increase in Net Assets resulting from operations:
Net investment income ............................................... 3,904,177 4,804,077 3,509,427 4,180,366
Net realized gain on investments sold ............................... 50,110,091 31,256,958 33,835,048 31,756,496
Net change in unrealized appreciation (depreciation) on investments.. (20,073,324) 8,105,519 38,430,506 4,195,055
------------- ------------- ------------- -------------
Net increase in net assets resulting from operations .............. 33,940,944 44,166,554 75,774,981 40,131,917
------------- ------------- ------------- -------------
Dividends to shareholders from:
Retail A Shares:
Net investment income ............................................... (2,242,878) (2,568,825) (1,218,495) (1,497,114)
Net realized gain on investments .................................... (19,453,842) (14,397,057) (13,044,487) (24,191,677)
------------- ------------- ------------- -------------
Total Dividends ................................................... (21,696,720) (16,965,882) (14,262,982) (25,688,791)
------------- ------------- ------------- -------------
Retail B Shares:
Net investment income ............................................... (5,615) N/A -- (88,866)
Net realized gain on investments .................................... (10,594) N/A (3,253,512) (5,994,237)
------------- ------------- ------------- -------------
Total Dividends ................................................... (16,209) N/A (3,253,512) (6,083,103)
------------- ------------- ------------- -------------
Trust Shares:
Net investment income ............................................... (1,851,694) (2,137,883) (2,242,502) (2,841,771)
Net realized gain on investments .................................... (11,818,814) (9,987,624) (15,292,610) (41,422,903)
------------- ------------- ------------- -------------
Total Dividends ................................................... (13,670,508) (12,125,507) (17,535,112) (44,264,674)
------------- ------------- ------------- -------------
A Prime Shares:
Net investment income ............................................... N/A N/A (598) N/A
Net realized gain on investments .................................... N/A N/A (1,743) N/A
------------- ------------- ------------- -------------
Total Dividends ................................................... N/A N/A (2,341) N/A
------------- ------------- ------------- -------------
B Prime Shares:
Net investment income ............................................... N/A N/A (8) N/A
Net realized gain on investments .................................... N/A N/A (300) N/A
------------- ------------- ------------- -------------
Total Dividends ................................................... N/A N/A (308) N/A
------------- ------------- ------------- -------------
Total Dividends to shareholders ................................... (35,383,437) (29,091,389) (35,054,255) (76,036,568)
------------- ------------- ------------- -------------
Net increase from share transactions(1) ................................ 2,657,348 31,361,936 41,755,515 133,575,081
------------- ------------- ------------- -------------
Net increase in net assets .......................................... 1,214,855 46,437,101 82,476,241 97,670,430
------------- ------------- ------------- -------------
Net assets at end of the period (including line A) ..................... $ 336,432,455 $ 335,217,600 $ 603,862,075 $ 521,385,834
============= ============= ============= =============
(A) Undistributed net investment income ................................ $ 399,503 $ 601,021 $ 148,148 $ 78,104
============= ============= ============= =============
</TABLE>
53
<PAGE>
- --------------------------------------------------------------------------------
Galaxy Equity Funds
Statements of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
Strategic Equity Fund
-------------------------------------------------
Year ended October 31, Period ended October 31,
1999 1998*
------------ ------------
<S> <C> <C>
NET ASSETS at beginning of the period ..................................... $ 67,694,596 $ 30(a)
------------ ------------
Increase in Net Assets resulting from operations:
Net investment income (loss) ........................................... 626,431 21,691
Net realized gain (loss) on investments sold ........................... 9,902,448 (240,711)
Net change in unrealized appreciation (depreciation) on investments .... (8,471,056) 4,865,978
------------ ------------
Net increase in net assets resulting from operations ................. 2,057,823 4,646,958
------------ ------------
Dividends to shareholders from:
Retail A Shares:
Net investment income .................................................. (21,093) (1,095)
Dividends in excess of net investment income ........................... -- --
Net realized gain on investments ....................................... (4,996) --
------------ ------------
Total Dividends ...................................................... (26,089) (1,095)
------------ ------------
Retail B Shares:
Net investment income .................................................. -- --
Net realized gain on investments ....................................... (642) --
------------ ------------
Total Dividends ...................................................... (642) --
------------ ------------
Trust Shares:
Net investment income .................................................. (537,251) (13,906)
Dividends in excess of net investment income ........................... -- --
Net realized gain on investments ....................................... (74,902) --
------------ ------------
Total Dividends ...................................................... (612,153) (13,906)
------------ ------------
A Prime Shares:
Net investment income .................................................. N/A N/A
Net realized gain on investments ....................................... N/A N/A
------------ ------------
Total Dividends ...................................................... N/A N/A
------------ ------------
B Prime Shares:
Net investment income .................................................. N/A N/A
Net realized gain on investments ....................................... N/A N/A
------------ ------------
Total Dividends ...................................................... N/A N/A
------------ ------------
Total Dividends to shareholders ...................................... (638,884) (15,001)
------------ ------------
Net increase from share transactions(1) ................................... 11,525,751 63,062,609
------------ ------------
Net increase in net assets ............................................. 12,944,690 67,694,566
------------ ------------
Net assets at end of the period (including line A) ....................... $ 80,639,286 $ 67,694,596
============ ============
(A) Undistributed net investment income ................................... $ 80,428 $ 8,943
============ ============
</TABLE>
- ----------
(1) For detail on share transactions by series, see Statements of Changes in
Net Assets - Capital Stock Activity on pages 60-61.
(a) Represents initial seed money.
* The Strategic Equity Fund commenced operations on March 4, 1998.
See Notes to Financial Statements.
54
<PAGE>
<TABLE>
<CAPTION>
Equity Value Fund Equity Growth Fund
-------------------------- ------------------------------
Years ended October 31, Years ended October 31,
1999 1998 1999 1998
------------ ------------ -------------- --------------
<S> <C> <C> <C> <C>
NET ASSETS at beginning of the period .................................. $512,264,110 $439,131,322 $1,163,399,747 $ 992,229,709
------------ ------------ -------------- --------------
Increase in Net Assets resulting from operations:
Net investment income (loss) ........................................ (123,979) 1,507,455 (80,529) 3,055,413
Net realized gain (loss) on investments sold ........................ 72,106,510 18,125,207 93,657,340 89,513,054
Net change in unrealized appreciation (depreciation) on investments.. 2,099,234 21,688,342 229,314,651 55,319,656
------------ ------------ -------------- --------------
Net increase in net assets resulting from operations .............. 74,081,765 41,321,004 322,891,462 147,888,123
------------ ------------ -------------- --------------
Dividends to shareholders from:
Retail A Shares:
Net investment income ............................................... -- (476,968) -- (289,751)
Dividends in excess of net investment income ........................ -- -- -- (15,743)
Net realized gain on investments .................................... (8,586,482) (32,768,243) (24,495,721) (35,424,489)
------------ ------------ -------------- --------------
Total Dividends ................................................... (8,586,482) (33,245,211) (24,495,721) (35,729,983)
------------ ------------ -------------- --------------
Retail B Shares: -- -- -- --
Net investment income ...............................................
Net realized gain on investments .................................... (858,586) (2,708,059) (2,777,725) (3,245,295)
------------ ------------ -------------- --------------
Total Dividends ................................................... (858,586) (2,708,059) (2,777,725) (3,245,295)
------------ ------------ -------------- --------------
Trust Shares:
Net investment income ............................................... -- (1,186,963) -- (3,238,930)
Dividends in excess of net investment income ........................ -- -- -- (176,015)
Net realized gain on investments .................................... (9,364,080) (42,454,539) (63,315,181) (113,959,378)
------------ ------------ -------------- --------------
Total Dividends ................................................... (9,364,080) (43,641,502) (63,315,181) (117,374,323)
------------ ------------ -------------- --------------
A Prime Shares:
Net investment income ............................................... N/A N/A -- N/A
Net realized gain on investments .................................... N/A N/A (1,724) N/A
------------ ------------ -------------- --------------
Total Dividends ................................................... N/A N/A (1,724) N/A
------------ ------------ -------------- --------------
B Prime Shares:
Net investment income ............................................... N/A N/A -- N/A
Net realized gain on investments .................................... N/A N/A (551) N/A
------------ ------------ -------------- --------------
Total Dividends ................................................... N/A N/A (551) N/A
------------ ------------ -------------- --------------
Total Dividends to shareholders ................................... (18,809,148) (79,594,772) (90,590,902) (156,349,601)
------------ ------------ -------------- --------------
Net increase from share transactions(1) ................................ 2,847,305 111,406,556 161,195,225 179,631,516
------------ ------------ -------------- --------------
Net increase in net assets .......................................... 58,119,922 73,132,788 393,495,785 171,170,038
------------ ------------ -------------- --------------
Net assets at end of the period (including line A) .................... $570,384,032 $512,264,110 $1,556,895,532 $1,163,399,747
============ ============ ============== ==============
(A) Undistributed net investment income ................................ $ -- $ -- $ 256,052 $ --
============ ============ ============== ==============
</TABLE>
55
<PAGE>
- --------------------------------------------------------------------------------
Galaxy Equity Funds
Statements of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
International Equity Fund
------------------------------
Years ended October 31,
1999 1998
------------- -------------
<S> <C> <C>
NET ASSETS at beginning of the period ..................................... $ 412,233,003 $ 321,715,516
------------- -------------
Increase (Decrease) in Net Assets resulting from operations:
Net investment income (loss) ........................................... 2,242,586 3,112,383
Net realized gain (loss) on investments sold ........................... 34,349,686 13,739,754
Net realized gain (loss) on forward foreign currency
contracts and foreign currency ....................................... (4,120,655) 5,322,536
Net change in unrealized appreciation (depreciation) on investments,
foreign currency and forward foreign currency contracts .............. 94,656,598 21,492,799
------------- -------------
Net increase (decrease) in net assets resulting from operations ...... 127,128,215 43,667,472
------------- -------------
Dividends to shareholders from:
Retail A Shares:
Net investment income .................................................. (216,041) (239,530)
Net realized gain on investments, forward foreign
currency contracts and foreign currency .............................. (2,270,202) (1,235,651)
In excess of net realized gains on investments ......................... -- --
------------- -------------
Total Dividends ...................................................... (2,486,243) (1,475,181)
------------- -------------
Retail B Shares:
Net investment income .................................................. (1,893) N/A
Net realized gain on investments, forward foreign
currency contracts and foreign currency .............................. (8,529) N/A
In excess of net realized gains on investments ......................... -- N/A
------------- -------------
Total Dividends ...................................................... (10,422) N/A
------------- -------------
Trust Shares:
Net investment income .................................................. (2,952,897) (1,544,939)
Net realized gain on investments, forward foreign
currency contracts and foreign currency .............................. (11,473,155) (6,265,777)
In excess of net realized gains on investments ......................... -- --
------------- -------------
Total Dividends ...................................................... (14,426,052) (7,810,716)
------------- -------------
A Prime Shares:
Net investment income .................................................. (40) N/A
Net realized gain on investments, forward foreign
currency contracts and foreign currency .............................. (145) N/A
------------- -------------
Total Dividends ...................................................... (185) N/A
------------- -------------
B Prime Shares:
Net investment income .................................................. (226) N/A
Net realized gain on investments, forward foreign
currency contracts and foreign currency .............................. (990) N/A
------------- -------------
Total Dividends ...................................................... (1,216) N/A
------------- -------------
Total Dividends to shareholders ...................................... (16,924,118) (9,285,897)
------------- -------------
Net increase (decrease) from share transactions(1) ........................ 71,324,999 56,135,912
------------- -------------
Net increase (decrease) in net assets .................................. 181,529,096 90,517,487
------------- -------------
NET ASSETS at end of the period (including line A) ........................ $ 593,762,099 $ 412,233,003
============= =============
(A) Undistributed net investment income ................................... $ 3,972,887 $ 9,022,053
============= =============
</TABLE>
- ----------
(1) For detail on share transactions by series, see Statements of Changes in
Net Assets - Capital Stock Activity on pages 62-63.
See Notes to Financial Statements.
56
<PAGE>
<TABLE>
<CAPTION>
Small Cap Value Fund Small Company Equity Fund
-------------------------- ---------------------------
Years ended October 31, Years ended October 31,
1999 1998 1999 1998
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
NET ASSETS at beginning of the period .................................... $290,165,115 $252,915,472 $331,071,417 $ 461,077,407
------------ ------------ ------------ -------------
Increase (Decrease) in Net Assets resulting from operations:
Net investment income (loss) .......................................... 1,242,403 1,806,802 (3,795,371) (3,835,593)
Net realized gain (loss) on investments sold .......................... 34,790,874 27,382,595 (3,418,136) (33,381,616)
Net realized gain (loss) on forward foreign currency
contracts and foreign currency ...................................... -- -- -- --
Net change in unrealized appreciation (depreciation) on investments,
foreign currency and forward foreign currency contracts ............. (19,900,548) (70,528,722) 56,108,824 (78,673,832)
------------ ------------ ------------ -------------
Net increase (decrease) in net assets resulting from operations ..... 16,132,729 (41,339,325) 48,895,317 (115,891,041)
------------ ------------ ------------ -------------
Dividends to shareholders from:
Retail A Shares:
Net investment income ................................................. (181,459) (335,684) -- --
Net realized gain on investments, forward foreign
currency contracts and foreign currency ............................. (8,121,983) (9,778,432) -- (13,856,463)
In excess of net realized gains on investments ........................ -- -- -- (2,617)
------------ ------------ ------------ -------------
Total Dividends ..................................................... (8,303,442) (10,114,116) -- (13,859,080)
------------ ------------ ------------ -------------
Retail B Shares:
Net investment income ................................................. -- N/A -- --
Net realized gain on investments, forward foreign
currency contracts and foreign currency ............................. (6,269) N/A -- (1,647,828)
In excess of net realized gains on investments ........................ -- N/A -- (312)
------------ ------------ ------------ -------------
Total Dividends ..................................................... (6,269) N/A -- (1,648,140)
------------ ------------ ------------ -------------
Trust Shares:
Net investment income ................................................. (1,192,133) (1,582,494) -- --
Net realized gain on investments, forward foreign
currency contracts and foreign currency ............................. (19,251,259) (28,007,227) -- (33,024,373)
In excess of net realized gains on investments ........................ -- -- -- (6,237)
------------ ------------ ------------ -------------
Total Dividends ..................................................... (20,443,392) (29,589,721) -- (33,030,610)
------------ ------------ ------------ -------------
A Prime Shares:
Net investment income ................................................. (549) N/A -- N/A
Net realized gain on investments, forward foreign
currency contracts and foreign currency ............................. (3,618) N/A -- N/A
------------ ------------ ------------ -------------
Total Dividends ..................................................... (4,167) N/A -- N/A
------------ ------------ ------------ -------------
B Prime Shares:
Net investment income ................................................. -- N/A -- N/A
Net realized gain on investments, forward foreign
currency contracts and foreign currency ............................. (7,602) N/A -- N/A
------------ ------------ ------------ -------------
Total Dividends ..................................................... (7,602) N/A -- N/A
------------ ------------ ------------ -------------
Total Dividends to shareholders ..................................... (28,764,872) (39,703,837) -- (48,537,830)
------------ ------------ ------------ -------------
Net increase (decrease) from share transactions(1) ....................... 60,606,107 118,292,805 (46,508,409) 34,422,881
------------ ------------ ------------ -------------
Net increase (decrease) in net assets ................................. 47,973,964 37,249,643 2,386,908 (130,005,990)
------------ ------------ ------------ -------------
NET ASSETS at end of the period (including line A) ....................... $338,139,079 $290,165,115 $333,458,325 $ 331,071,417
============ ============ ============ =============
(A) Undistributed net investment income .................................. $ 130,953 $ 240,012 $ -- $ --
============ ============ ============ =============
</TABLE>
57
<PAGE>
- --------------------------------------------------------------------------------
Galaxy Equity Funds
Statements of Changes in Net Assets --
Capital Stock Activity
<TABLE>
<CAPTION>
Asset Allocation Fund
----------------------------
Years ended October 31,
1999 1998
------------- -------------
<S> <C> <C>
DOLLAR AMOUNTS
Retail A Shares:
Sold ................................................. $ 118,271,361 $ 165,898,714
Issued to shareholders in reinvestment of dividends .. 16,019,107 19,205,127
Repurchased .......................................... (84,133,228) (49,327,967)
------------- -------------
Net increase in shares outstanding ................... $ 50,157,240 $ 135,775,874
============= =============
Retail B Shares:
Sold ................................................. $ 39,055,990 $ 28,201,780
Issued to shareholders in reinvestment of dividends .. 2,523,396 3,057,363
Repurchased .......................................... (11,038,602) (5,925,878)
------------- -------------
Net increase in shares outstanding ................... $ 30,540,784 $ 25,333,265
============= =============
Trust Shares:
Sold ................................................. $ 102,114,779 $ 72,415,149
Issued to shareholders in reinvestment of dividends .. 10,601,826 16,323,828
Repurchased .......................................... (71,793,820) (49,326,645)
------------- -------------
Net increase (decrease) in shares outstanding ........ $ 40,922,785 $ 39,412,332
============= =============
A Prime Shares:
Sold ................................................. $ 303,889 N/A
Issued to shareholders in reinvestment of dividends .. 3,112 N/A
Repurchased .......................................... (74,220) N/A
------------- -------------
Net increase in shares outstanding ................... $ 232,781 N/A
============= =============
B Prime Shares:
Sold ................................................. $ 550,948 N/A
Issued to shareholders in reinvestment of dividends .. 8,523 N/A
Repurchased .......................................... (48,012) N/A
------------- -------------
Net increase in shares outstanding ................... $ 511,459 N/A
============= =============
SHARE ACTIVITY
Retail A Shares:
Sold ................................................. 6,738,970 10,096,211
Issued to shareholders in reinvestment of dividends .. 928,441 1,234,122
Repurchased .......................................... (4,817,875) (3,012,818)
------------- -------------
Net increase in shares outstanding ................... 2,849,536 8,317,515
============= =============
Retail B Shares:
Sold ................................................. 2,215,628 1,720,422
Issued to shareholders in reinvestment of dividends .. 146,021 197,145
Repurchased .......................................... (629,222) (363,558)
------------- -------------
Net increase in shares outstanding ................... 1,732,427 1,554,009
============= =============
Trust Shares:
Sold ................................................. 5,748,985 4,431,090
Issued to shareholders in reinvestment of dividends .. 613,319 1,053,874
Repurchased .......................................... (4,035,968) (3,019,092)
------------- -------------
Net increase (decrease) in shares outstanding ........ 2,326,336 2,465,872
============= =============
A Prime Shares:
Sold ................................................. 17,410 N/A
Issued to shareholders in reinvestment of dividends .. 179 N/A
Repurchased .......................................... (4,177) N/A
------------- -------------
Net increase in shares outstanding ................... 13,412 N/A
============= =============
B Prime Shares:
Sold ................................................. 31,529 N/A
Issued to shareholders in reinvestment of dividends .. 494 N/A
Repurchased .......................................... (2,695) N/A
------------- -------------
Net increase in shares outstanding ................... 29,328 N/A
============= =============
</TABLE>
See Notes to Financial Statements.
58
<PAGE>
<TABLE>
<CAPTION>
Equity Income Fund Growth and Income Fund
-------------------------- ---------------------------
Years ended October 31, Years ended October 31,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
DOLLAR AMOUNTS
Retail A Shares:
Sold ................................................. $ 26,175,419 $ 47,393,968 $ 39,277,116 $ 99,093,005
Issued to shareholders in reinvestment of dividends .. 21,026,250 16,360,921 14,154,903 25,378,015
Repurchased .......................................... (41,266,164) (33,988,418) (52,667,374) (38,410,144)
------------ ------------ ------------ ------------
Net increase in shares outstanding ................... $ 5,935,505 $ 29,766,471 $ 764,645 $ 86,060,876
============ ============ ============ ============
Retail B Shares:
Sold ................................................. $ 3,330,934 N/A $ 10,392,695 $ 21,007,328
Issued to shareholders in reinvestment of dividends .. 18,467 N/A 3,188,793 5,973,835
Repurchased .......................................... (138,311) N/A (8,355,288) (5,571,374)
------------ ------------ ------------ ------------
Net increase in shares outstanding ................... $ 3,211,090 N/A $ 5,226,200 $ 21,409,789
============ ============ ============ ============
Trust Shares:
Sold ................................................. $ 11,824,496 $ 14,958,563 $ 82,183,977 $ 56,352,388
Issued to shareholders in reinvestment of dividends .. 7,623,489 6,743,274 16,323,263 41,712,836
Repurchased .......................................... (25,937,232) (20,106,372) (63,026,313) (71,960,808)
------------ ------------ ------------ ------------
Net increase (decrease) in shares outstanding ........ $ (6,489,247) $ 1,595,465 $ 35,480,927 $ 26,104,416
============ ============ ============ ============
A Prime Shares:
Sold ................................................. N/A N/A $ 155,747 N/A
Issued to shareholders in reinvestment of dividends .. N/A N/A 5,154 N/A
Repurchased .......................................... N/A N/A (7,970) N/A
------------ ------------ ------------ ------------
Net increase in shares outstanding ................... N/A N/A $ 152,931 N/A
============ ============ ============ ============
B Prime Shares:
Sold ................................................. N/A N/A $ 138,816 N/A
Issued to shareholders in reinvestment of dividends .. N/A N/A 307 N/A
Repurchased .......................................... N/A N/A (8,311) N/A
------------ ------------ ------------ ------------
Net increase in shares outstanding ................... N/A N/A $ 130,812 N/A
============ ============ ============ ============
SHARE ACTIVITY
Retail A Shares:
Sold ................................................. 1,338,664 2,432,108 2,434,191 6,417,123
Issued to shareholders in reinvestment of dividends .. 1,117,084 908,536 943,079 1,806,453
Repurchased .......................................... (2,099,686) (1,764,920) (3,254,588) (2,556,615)
------------ ------------ ------------ ------------
Net increase in shares outstanding ................... 356,062 1,575,724 122,682 5,666,961
============ ============ ============ ============
Retail B Shares:
Sold ................................................. 173,216 N/A 640,709 1,368,708
Issued to shareholders in reinvestment of dividends .. 1,006 N/A 213,284 425,584
Repurchased .......................................... (7,328) N/A (519,908) (374,402)
------------ ------------ ------------ ------------
Net increase in shares outstanding ................... 166,894 N/A 334,085 1,419,890
============ ============ ============ ============
Trust Shares:
Sold ................................................. 605,220 780,277 5,028,472 3,666,013
Issued to shareholders in reinvestment of dividends .. 416,735 376,283 1,023,222 2,916,670
Repurchased .......................................... (1,334,883) (1,031,181) (3,807,714) (4,690,328)
------------ ------------ ------------ ------------
Net increase (decrease) in shares outstanding ........ (312,928) 125,379 2,243,980 1,892,355
============ ============ ============ ============
A Prime Shares:
Sold ................................................. N/A N/A 9,535 N/A
Issued to shareholders in reinvestment of dividends .. N/A N/A 341 N/A
Repurchased .......................................... N/A N/A (484) N/A
------------ ------------ ------------ ------------
Net increase in shares outstanding ................... N/A N/A 9,392 N/A
============ ============ ============ ============
B Prime Shares:
Sold ................................................. N/A N/A 8,603 N/A
Issued to shareholders in reinvestment of dividends .. N/A N/A 20 N/A
Repurchased .......................................... N/A N/A (516) N/A
------------ ------------ ------------ ------------
Net increase in shares outstanding ................... N/A N/A 8,107 N/A
============ ============ ============ ============
</TABLE>
59
<PAGE>
- --------------------------------------------------------------------------------
Galaxy Equity Funds
Statements of Changes in Net Assets --
Capital Stock Activity (continued)
<TABLE>
<CAPTION>
Strategic Equity Fund
---------------------------
Year ended Period ended
October 31, October 31,
1999 1998(1)
------------ ------------
<S> <C> <C>
DOLLAR AMOUNTS
Retail A Shares:
Sold .................................................. $ 5,532,236 $ 4,292,625
Issued to shareholders in reinvestment of dividends ... 26,010 1,069
Repurchased ........................................... (1,186,925) (220,560)
------------ ------------
Net increase (decrease) in shares outstanding ......... $ 4,371,321 $ 4,073,134
============ ============
Retail B Shares:
Sold .................................................. $ 1,083,391 $ 597,208
Issued to shareholders in reinvestment of dividends ... 641 --
Repurchased ........................................... (240,922) (17,158)
------------ ------------
Net increase in shares outstanding .................... $ 843,110 $ 580,050
============ ============
Trust Shares:
Sold .................................................. $ 6,208,177 $ 58,395,708
Issued to shareholders in reinvestment of dividends ... 602,374 13,717
Repurchased ........................................... (499,231) --
------------ ------------
Net increase (decrease) in shares outstanding ......... $ 6,311,320 $ 58,409,425
============ ============
A Prime Shares:
Sold .................................................. N/A N/A
Issued to shareholders in reinvestment of dividends ... N/A N/A
Repurchased ........................................... N/A N/A
------------ ------------
Net increase in shares outstanding .................... N/A N/A
============ ============
B Prime Shares:
Sold .................................................. N/A N/A
Issued to shareholders in reinvestment of dividends ... N/A N/A
Repurchased ........................................... N/A N/A
------------ ------------
Net increase in shares outstanding .................... N/A N/A
============ ============
SHARE ACTIVITY
Retail A Shares:
Sold .................................................. 521,862 445,623
Issued to shareholders in reinvestment of dividends ... 2,248 112
Repurchased ........................................... (112,927) (24,750)
------------ ------------
Net increase (decrease) in shares outstanding ......... 411,183 420,985
============ ============
Retail B Shares:
Sold .................................................. 100,197 62,555
Issued to shareholders in reinvestment of dividends ... 66 --
Repurchased ........................................... (23,924) (1,874)
------------ ------------
Net increase in shares outstanding .................... 76,339 60,681
============ ============
Trust Shares:
Sold .................................................. 621,301 6,546,472
Issued to shareholders in reinvestment of dividends ... 56,785 1,438
Repurchased ........................................... (45,271) --
------------ ------------
Net increase (decrease) in shares outstanding ......... 632,815 6,547,910
============ ============
A Prime Shares:
Sold .................................................. N/A N/A
Issued to shareholders in reinvestment of dividends ... N/A N/A
Repurchased ........................................... N/A N/A
------------ ------------
Net increase in shares outstanding .................... N/A N/A
============ ============
B Prime Shares:
Sold .................................................. N/A N/A
Issued to shareholders in reinvestment of dividends ... N/A N/A
Repurchased ........................................... N/A N/A
------------ ------------
Net increase in shares outstanding .................... N/A N/A
============ ============
</TABLE>
- ----------
(1) The Strategic Equity Fund commenced operations on March 4, 1998.
See Notes to Financial Statements.
60
<PAGE>
<TABLE>
<CAPTION>
Equity Value Fund Equity Growth Fund
----------------------------- --------------------------------
Years ended October 31, Years ended October 31,
1999 1998 1999 1998
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
DOLLAR AMOUNTS
Retail A Shares:
Sold .................................................. $ 45,762,951 $ 71,563,855 $ 114,977,854 $ 98,981,024
Issued to shareholders in reinvestment of dividends ... 8,453,667 32,705,099 24,158,813 35,167,848
Repurchased ........................................... (56,515,286) (35,674,663) (72,719,333) (45,458,821)
------------- ------------- -------------- --------------
Net increase (decrease) in shares outstanding ......... $ (2,298,668) $ 68,594,291 $ 66,417,334 $ 88,690,051
============= ============= ============== ==============
Retail B Shares:
Sold .................................................. $ 8,314,738 $ 9,284,286 $ 34,935,971 $ 14,385,751
Issued to shareholders in reinvestment of dividends ... 854,307 2,694,779 2,738,197 3,227,617
Repurchased ........................................... (3,409,825) (2,282,148) (8,517,659) (3,051,869)
------------- ------------- -------------- --------------
Net increase in shares outstanding .................... $ 5,759,220 $ 9,696,917 $ 29,156,509 $ 14,561,499
============= ============= ============== ==============
Trust Shares:
Sold .................................................. $ 69,099,037 $ 56,562,120 $ 174,347,614 $ 119,883,832
Issued to shareholders in reinvestment of dividends ... 7,684,111 34,594,314 53,167,673 93,593,644
Repurchased ........................................... (77,396,395) (58,041,086) (162,227,177) (137,097,510)
------------- ------------- -------------- --------------
Net increase (decrease) in shares outstanding ......... $ (613,247) $ 33,115,348 $ 65,288,110 $ 76,379,966
============= ============= ============== ==============
A Prime Shares:
Sold .................................................. N/A N/A $ 99,300 N/A
Issued to shareholders in reinvestment of dividends ... N/A N/A 1,711 N/A
Repurchased ........................................... N/A N/A (1,323) N/A
------------- ------------- -------------- --------------
Net increase in shares outstanding .................... N/A N/A $ 99,688 N/A
============= ============= ============== ==============
B Prime Shares:
Sold .................................................. N/A N/A $ 233,056 N/A
Issued to shareholders in reinvestment of dividends ... N/A N/A 528 N/A
Repurchased ........................................... N/A N/A -- N/A
------------- ------------- -------------- --------------
Net increase in shares outstanding .................... N/A N/A $ 233,584 N/A
============= ============= ============== ==============
SHARE ACTIVITY
Retail A Shares:
Sold .................................................. 2,433,370 4,201,249 4,204,098 4,078,424
Issued to shareholders in reinvestment of dividends ... 484,075 2,147,298 976,169 1,625,130
Repurchased ........................................... (3,013,975) (2,145,298) (2,662,892) (1,917,325)
------------- ------------- -------------- --------------
Net increase (decrease) in shares outstanding ......... (96,530) 4,203,249 2,517,375 3,786,229
============= ============= ============== ==============
Retail B Shares:
Sold .................................................. 441,934 547,518 1,291,210 603,613
Issued to shareholders in reinvestment of dividends ... 49,076 176,860 112,861 150,964
Repurchased ........................................... (182,489) (139,566) (315,473) (130,378)
------------- ------------- -------------- --------------
Net increase in shares outstanding .................... 308,521 584,812 1,088,598 624,199
============= ============= ============== ==============
Trust Shares:
Sold .................................................. 3,627,023 3,384,178 6,246,300 5,054,546
Issued to shareholders in reinvestment of dividends ... 431,433 2,265,774 2,140,810 4,313,303
Repurchased ........................................... (4,154,201) (3,499,469) (5,924,861) (5,715,179)
------------- ------------- -------------- --------------
Net increase (decrease) in shares outstanding ......... (95,745) 2,150,483 2,462,249 3,652,670
============= ============= ============== ==============
A Prime Shares:
Sold .................................................. N/A N/A 3,655 N/A
Issued to shareholders in reinvestment of dividends ... N/A N/A 73 N/A
Repurchased ........................................... N/A N/A (46) N/A
------------- ------------- -------------- --------------
Net increase in shares outstanding .................... N/A N/A 3,682 N/A
============= ============= ============== ==============
B Prime Shares:
Sold .................................................. N/A N/A 8,512 N/A
Issued to shareholders in reinvestment of dividends ... N/A N/A 21 N/A
Repurchased ........................................... N/A N/A -- N/A
------------- ------------- -------------- --------------
Net increase in shares outstanding .................... N/A N/A 8,533 N/A
============= ============= ============== ==============
</TABLE>
61
<PAGE>
- --------------------------------------------------------------------------------
Galaxy Equity Funds
Statements of Changes in Net Assets --
Capital Stock Activity (continued)
<TABLE>
<CAPTION>
International Equity Fund
--------------------------------
Years ended October 31,
1999 1998
-------------- --------------
<S> <C> <C>
DOLLAR AMOUNTS
Retail A Shares:
Sold ................................................. $ 63,996,029 $ 238,332,225
Issued to shareholders in reinvestment of dividends .. 2,371,667 1,448,658
Repurchased .......................................... (60,811,773) (236,467,330)
-------------- --------------
Net increase (decrease) in shares outstanding ........ $ 5,555,923 $ 3,313,553
============== ==============
Retail B Shares:
Sold ................................................. $ 52,822,549 N/A
Issued to shareholders in reinvestment of dividends .. 1,254 N/A
Repurchased .......................................... (51,002,543) N/A
-------------- --------------
Net increase (decrease) in shares outstanding ........ $ 1,821,260 N/A
============== ==============
Trust Shares:
Sold ................................................. $ 339,364,891 $ 248,673,207
Issued to shareholders in reinvestment of dividends .. 8,378,059 4,418,249
Repurchased .......................................... (284,220,019) (200,269,097)
-------------- --------------
Net increase (decrease) in shares outstanding ........ $ 63,522,931 $ 52,822,359
============== ==============
A Prime Shares:
Sold ................................................. $ 14,519 N/A
Issued to shareholders in reinvestment of dividends .. 566 N/A
Repurchased .......................................... (4,960) N/A
-------------- --------------
Net increase in shares outstanding ................... $ 10,125 N/A
============== ==============
B Prime Shares:
Sold ................................................. $ 418,549 N/A
Issued to shareholders in reinvestment of dividends .. 1,217 N/A
Repurchased .......................................... (5,006) N/A
-------------- --------------
Net increase in shares outstanding ................... $ 414,760 N/A
============== ==============
SHARE ACTIVITY
Retail A Shares:
Sold ................................................. 3,393,407 13,783,137
Issued to shareholders in reinvestment of dividends .. 142,822 99,496
Repurchased .......................................... (3,226,391) (13,638,723)
-------------- --------------
Net increase (decrease) in shares outstanding ........ 309,838 243,910
============== ==============
Retail B Shares:
Sold ................................................. 2,792,826 N/A
Issued to shareholders in reinvestment of dividends .. 73 N/A
Repurchased .......................................... (2,687,674) N/A
-------------- --------------
Net increase (decrease) in shares outstanding ........ 105,225 N/A
============== ==============
Trust Shares:
Sold ................................................. 17,587,176 14,546,109
Issued to shareholders in reinvestment of dividends .. 484,004 300,561
Repurchased .......................................... (14,718,280) (11,806,941)
-------------- --------------
Net increase (decrease) in shares outstanding ........ 3,352,900 3,039,729
============== ==============
A Prime Shares:
Sold ................................................. 815 N/A
Issued to shareholders in reinvestment of dividends .. 33 N/A
Repurchased .......................................... (264) N/A
-------------- --------------
Net increase in shares outstanding ................... 584 N/A
============== ==============
B Prime Shares:
Sold ................................................. 22,188 N/A
Issued to shareholders in reinvestment of dividends .. 71 N/A
Repurchased .......................................... (273) N/A
-------------- --------------
Net increase in shares outstanding ................... 21,986 N/A
============== ==============
</TABLE>
See Notes to Financial Statements.
62
<PAGE>
<TABLE>
<CAPTION>
Small Cap Value Fund Small Company Equity Fund
------------------------------- ------------------------------
Years ended October 31, Years ended October 31,
1999 1998 1999 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
DOLLAR AMOUNTS
Retail A Shares:
Sold ................................................. $ 19,008,974 $ 106,572,187 $ 325,325,171 $ 512,095,154
Issued to shareholders in reinvestment of dividends .. 8,277,731 10,065,718 -- 13,430,846
Repurchased .......................................... (30,861,975) (69,195,926) (347,667,128) (522,137,062)
-------------- -------------- -------------- --------------
Net increase (decrease) in shares outstanding ........ $ (3,575,270) $ 47,441,979 $ (22,341,957) $ 3,388,938
============== ============== ============== ==============
Retail B Shares:
Sold ................................................. $ 1,771,843 N/A $ 34,581,558 $ 7,810,194
Issued to shareholders in reinvestment of dividends .. 6,178 N/A -- 1,613,677
Repurchased .......................................... (87,689) N/A (36,619,640) (5,481,887)
-------------- -------------- -------------- --------------
Net increase (decrease) in shares outstanding ........ $ 1,690,332 N/A $ (2,038,082) $ 3,941,984
============== ============== ============== ==============
Trust Shares:
Sold ................................................. $ 109,425,380 $ 74,813,946 $ 197,458,863 $ 277,438,222
Issued to shareholders in reinvestment of dividends .. 15,839,896 25,163,148 -- 24,548,356
Repurchased .......................................... (63,150,650) (29,126,268) (219,587,233) (274,894,619)
-------------- -------------- -------------- --------------
Net increase (decrease) in shares outstanding ........ $ 62,114,626 $ 70,850,826 $ (22,128,370) $ 27,091,959
============== ============== ============== ==============
A Prime Shares:
Sold ................................................. $ 208,140 N/A N/A N/A
Issued to shareholders in reinvestment of dividends .. 1,965 N/A N/A N/A
Repurchased .......................................... (31,567) N/A N/A N/A
-------------- -------------- -------------- --------------
Net increase in shares outstanding ................... $ 178,538 N/A N/A N/A
============== ============== ============== ==============
B Prime Shares:
Sold ................................................. $ 207,595 N/A N/A N/A
Issued to shareholders in reinvestment of dividends .. 7,596 N/A N/A N/A
Repurchased .......................................... (17,310) N/A N/A N/A
-------------- -------------- -------------- --------------
Net increase in shares outstanding ................... $ 197,881 N/A N/A N/A
============== ============== ============== ==============
SHARE ACTIVITY
Retail A Shares:
Sold ................................................. 1,438,795 6,791,402 22,169,167 29,780,474
Issued to shareholders in reinvestment of dividends .. 648,595 666,385 -- 787,731
Repurchased .......................................... (2,345,235) (4,451,699) (23,587,237) (30,011,680)
-------------- -------------- -------------- --------------
Net increase (decrease) in shares outstanding ........ (257,845) 3,006,088 (1,418,070) 556,525
============== ============== ============== ==============
Retail B Shares:
Sold ................................................. 132,583 N/A 2,388,029 458,341
Issued to shareholders in reinvestment of dividends .. 487 N/A -- 95,825
Repurchased .......................................... (6,809) N/A (2,528,697) (326,209)
-------------- -------------- -------------- --------------
Net increase (decrease) in shares outstanding ........ 126,261 N/A (140,668) 227,957
============== ============== ============== ==============
Trust Shares:
Sold ................................................. 8,188,452 4,874,052 13,075,068 15,624,925
Issued to shareholders in reinvestment of dividends .. 1,235,136 1,629,237 -- 1,410,015
Repurchased .......................................... (4,764,801) (1,941,937) (14,555,648) (15,661,716)
-------------- -------------- -------------- --------------
Net increase (decrease) in shares outstanding ........ 4,658,787 4,561,352 (1,480,580) 1,373,224
============== ============== ============== ==============
A Prime Shares:
Sold ................................................. 15,569 N/A N/A N/A
Issued to shareholders in reinvestment of dividends .. 153 N/A N/A N/A
Repurchased .......................................... (2,335) N/A N/A N/A
-------------- -------------- -------------- --------------
Net increase in shares outstanding ................... 13,387 N/A N/A N/A
============== ============== ============== ==============
B Prime Shares:
Sold ................................................. 15,302 N/A N/A N/A
Issued to shareholders in reinvestment of dividends .. 594 N/A N/A N/A
Repurchased .......................................... (1,298) N/A N/A N/A
-------------- -------------- -------------- --------------
Net increase in shares outstanding ................... 14,598 N/A N/A N/A
============== ============== ============== ==============
</TABLE>
63
<PAGE>
- --------------------------------------------------------------------------------
Asset Allocation Fund
Financial Highlights
For a Share outstanding throughout each period.
<TABLE>
<CAPTION>
Income from Investment Operations Less Distributions
------------------------------------- -----------------------------------------
Net
Net Realized and Dividends Distributions Net
Asset Value, Net Unrealized Total from from Net from Increase
Beginning Investment Gain on Investment Investment Net Realized Total in Net
of Period Income(B) Investments Operations Income Capital Gains Distributions Asset Value
------------ ----------- ------------ ---------- ---------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Retail A
10/31/99 $16.95 $ 0.37 $ 1.21 $ 1.58 $(0.36) $(0.43) $(0.79) $ 0.79
10/31/98 16.46 0.38 1.72 2.10 (0.40) (1.21) (1.61) 0.49
10/31/97 14.52 0.40 2.43 2.83 (0.38) (0.51) (0.89) 1.94
10/31/96 12.82 0.30 1.83 2.13 (0.30) (0.13) (0.43) 1.70
10/31/95 10.67 0.30 2.16 2.46 (0.31) -- (0.31) 2.15
Retail B
10/31/99 16.92 0.25 1.21 1.46 (0.25) (0.43) (0.68) 0.78
10/31/98 16.43 0.29 1.71 2.00 (0.30) (1.21) (1.51) 0.49
10/31/97 14.51 0.29 2.42 2.71 (0.28) (0.51) (0.79) 1.92
10/31/96(1) 13.59 0.13 0.91 1.04 (0.12) -- (0.12) 0.92
Trust
10/31/99 16.96 0.40 1.20 1.60 (0.40) (0.43) (0.83) 0.77
10/31/98 16.47 0.42 1.71 2.13 (0.43) (1.21) (1.64) 0.49
10/31/97 14.53 0.43 2.42 2.85 (0.40) (0.51) (0.91) 1.94
10/31/96 12.83 0.33 1.83 2.16 (0.33) (0.13) (0.46) 1.70
10/31/95 10.68 0.32 2.16 2.48 (0.33) -- (0.33) 2.15
A Prime
10/31/99(2) 16.95 0.44 1.17 1.61 (0.40) (0.43) (0.83) 0.78
B Prime
10/31/99(2) 16.95 0.29 1.19 1.48 (0.29) (0.43) (0.72) 0.76
</TABLE>
- ----------
* Annualized.
** Not Annualized.
(1) The Fund began issuing Retail B Shares on March 4, 1996.
(2) The Fund began issuing A Prime and B Prime Shares on November 1, 1998.
(A) Calculation does not include the effect of any sales charge for Retail A
Shares, Retail B Shares, A Prime Shares and B Prime Shares.
(B) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or Administrator for Retail A Shares for the years
ended October 31, 1999, 1998, 1997, 1996 and 1995 were $0.37, $0.38,
$0.40, $0.30 and $0.30, respectively. Net investment income per share
before reimbursement/waiver of fees by the Investment Advisor and/or
Administrator for Retail B Shares for the years ended October 31, 1999,
1998 and 1997 and the period ended October 31, 1996 were $0.25, $0.29,
$0.28 and $0.12, respectively. Net investment income per share before
reimbursement/waiver of fees by the Investment Advisor and/or
Administrator for Trust Shares for the years ended October 31, 1999, 1998,
1997, 1996 and 1995 were $0.40, $0.42, $0.43, $0.33 and $0.32,
respectively. Net investment income per share before reimbursement/waiver
of fees by the Investment Advisor and/or Administrator for A Prime Shares
for the year ended October 31, 1999 was $0.41. Net investment income per
share before reimbursement/waiver of fees by the Investment Advisor and/or
Administrator for B Prime Shares for the year ended October 31, 1999 was
$0.26.
See Notes to Financial Statements.
64
<PAGE>
<TABLE>
<CAPTION>
Ratios to Average Net Assets/Supplemental Data
----------------------------------------------
Ratio of Net Ratio of Ratio of
Investment Operating Operating
Income Expenses Expenses
Net Assets, Including Including Excluding
Net Asset Value, End of Period Reimbursement/ Reimbursement/ Reimbursement/ Portfolio
End of Period Total Return(A) (in 000's) Waiver Waiver Waiver Turnover Rate
---------------- --------------- ------------- --------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Retail A
10/31/99 $17.74 9.53% $389,077 2.11% 1.32% 1.32% 135%
10/31/98 16.95 13.85% 323,498 2.43% 1.33% 1.33% 108%
10/31/97 16.46 20.23% 177,239 2.66% 1.37% 1.37% 58%
10/31/96 14.52 16.92% 116,852 2.29% 1.42% 1.42% 48%
10/31/95 12.82 23.42% 76,368 2.52% 1.48% 1.50% 41%
Retail B
10/31/99 17.70 8.76% 91,199 1.43% 2.00% 2.00% 135%
10/31/98 16.92 13.14% 57,876 1.77% 1.99% 1.99% 108%
10/31/97 16.43 19.34% 30,688 1.95% 2.10% 2.19% 58%
10/31/96(1) 14.51 7.71%** 3,557 1.73%* 1.95%* 2.15%* 48%
Trust
10/31/99 17.73 9.63% 269,851 2.31% 1.12% 1.12% 135%
10/31/98 16.96 14.05% 218,666 2.63% 1.13% 1.13% 108%
10/31/97 16.47 20.42% 171,741 2.82% 1.21% 1.22% 58%
10/31/96 14.53 17.19% 123,603 2.52% 1.19% 1.21% 48%
10/31/95 12.83 23.68% 76,771 2.74% 1.26% 1.30% 41%
A Prime
10/31/99(2) 17.73 9.72% 238 2.27% 1.16% 1.29% 135%
B Prime
10/31/99(2) 17.71 8.91% 519 1.53% 1.90% 2.08% 135%
</TABLE>
65
<PAGE>
- --------------------------------------------------------------------------------
Equity Income Fund
Financial Highlights
For a Share outstanding throughout each period.
<TABLE>
<CAPTION>
Income from Investment Operations Less Distributions
-------------------------------------- ------------------------------------------
Net
Net Realized and Dividends Distributions Net
Asset Value, Net Unrealized Total from from Net from Increase (Decrease)
Beginning Investment Gain on Investment Investment Net Realized Total in Net
of Period Income(B) Investments Operations Income Capital Gains Distributions Asset Value
------------ ---------- ------------ ---------- ---------- ------------- ------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Retail A
10/31/99 $19.67 $ 0.19 $ 1.69 $ 1.88 $(0.20) $(1.85) $(2.05) $(0.17)
10/31/98 18.82 0.25 2.43 2.68 (0.25) (1.58) (1.83) 0.85
10/31/97 16.91 0.30 3.35 3.65 (0.30) (1.44) (1.74) 1.91
10/31/96 14.98 0.30 2.47 2.77 (0.30) (0.54) (0.84) 1.93
10/31/95 12.74 0.28 2.47 2.75 (0.30) (0.21) (0.51) 2.24
Retail B
10/31/99(1) 19.48 0.11 1.62 1.73 (0.11) (1.85) (1.96) (0.23)
Trust
10/31/99 19.69 0.28 1.69 1.97 (0.29) (1.85) (2.14) (0.17)
10/31/98 18.84 0.34 2.42 2.76 (0.33) (1.58) (1.91) 0.85
10/31/97 16.93 0.38 3.35 3.73 (0.38) (1.44) (1.82) 1.91
10/31/96 14.99 0.37 2.48 2.85 (0.37) (0.54) (0.91) 1.94
10/31/95 12.75 0.36 2.45 2.81 (0.36) (0.21) (0.57) 2.24
</TABLE>
- ----------
(1) The Fund began issuing Retail B Shares on November 1, 1998.
(A) Calculation does not include the effect of any sales charge for Retail A
Shares and Retail B Shares.
(B) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or Administrator for Retail A Shares for the years
ended October 31, 1999, 1998, 1997, 1996 and 1995 were $0.19, $0.25,
$0.30, $0.30 and $0.28, respectively. Net investment income per share
before reimbursement/waiver of fees by the Investment Advisor and/or
Administrator for Retail B Shares for the year ended October 31, 1999 was
$0.08. Net investment income per share before reimbursement/waiver of fees
by the Investment Advisor and/or Administrator for Trust Shares for the
years ended October 31, 1999, 1998, 1997, 1996 and 1995 were $0.28, $0.34,
$0.38, $0.37 and $0.36, respectively.
See Notes to Financial Statements.
66
<PAGE>
<TABLE>
<CAPTION>
Ratios to Average Net Assets/Supplemental Data
-----------------------------------------------------
Ratio of Net Ratio of Ratio of
Investment Operating Operating
Income Expenses Expenses
Net Assets, Including Including Excluding
Net Asset Value, End of Period Reimbursement/ Reimbursement/ Reimbursement/ Portfolio
End of Period Total Return(A) (in 000's) Waiver Waiver Waiver Turnover Rate
---------------- --------------- ------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$19.50 10.14% $213,041 0.97% 1.33% 1.33% 38%
19.67 15.23% 207,850 1.30% 1.34% 1.34% 46%
18.82 23.28% 169,276 1.70% 1.39% 1.41% 37%
16.91 19.01% 126,952 1.86% 1.40% 1.40% 45%
14.98 22.23% 81,802 2.08% 1.49% 1.51% 21%
19.25 9.38% 3,213 0.33% 1.97% 2.23% 38%
19.52 10.60% 120,179 1.39% 0.91% 0.91% 38%
19.69 15.67% 127,367 1.72% 0.92% 0.92% 46%
18.84 23.80% 119,505 2.14% 0.95% 0.97% 37%
16.93 19.65% 106,094 2.32% 0.94% 0.94% 45%
14.99 22.81% 87,819 2.60% 0.98% 1.00% 21%
</TABLE>
67
<PAGE>
- --------------------------------------------------------------------------------
Growth and Income Fund
Financial Highlights
For a Share outstanding throughout each period.
<TABLE>
<CAPTION>
Income from Investment Operations Less Distributions
---------------------------------------- ----------------------------------------
Net
Net Net Realized and Dividends Distributions Net
Asset Value, Investment Unrealized Total from from Net from Increase (Decrease)
Beginning Income Gain on Investment Investment Net Realized Total in Net
of Period (Loss)(B) Investments Operations Income Capital Gains Distributions Asset Value
------------ ---------- ------------ ---------- --------- ------------- ------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Retail A
10/31/99 $14.87 $ 0.08(5) $ 2.02 $ 2.10 $(0.08) $(0.91) $(0.99) $ 1.11
10/31/98 16.24 0.12 1.32 1.44 (0.13) (2.68) (2.81) (1.37)
10/31/97 13.78 0.18 3.67 3.85 (0.20) (1.19) (1.39) 2.46
10/31/96(1) 12.35 0.21 2.16 2.37 (0.21) (0.73) (0.94) 1.43
10/31/95 11.15 0.24 1.70 1.94 (0.25) (0.49) (0.74) 1.20
Retail B
10/31/99 14.83 (0.04)(5) 2.02 1.98 -- (0.91) (0.91) 1.07
10/31/98 16.23 --(4) 1.31 1.31 (0.03) (2.68) (2.71) (1.40)
10/31/97 13.77 0.10 3.65 3.75 (0.10) (1.19) (1.29) 2.46
10/31/96(2) 12.97 0.07 0.81 0.88 (0.08) -- (0.08) 0.80
Trust
10/31/99 14.90 0.13(5) 2.02 2.15 (0.12) (0.91) (1.03) 1.12
10/31/98 16.28 0.15 1.31 1.46 (0.16) (2.68) (2.84) (1.38)
10/31/97 13.80 0.22 3.68 3.90 (0.23) (1.19) (1.42) 2.48
10/31/96(1) 12.35 0.27 2.16 2.43 (0.25) (0.73) (0.98) 1.45
10/31/95 11.15 0.28 1.69 1.97 (0.28) (0.49) (0.77) 1.20
A Prime
10/31/99(3) 14.88 0.11(5) 2.03 2.14 (0.11) (0.91) (1.02) 1.12
B Prime
10/31/99(3) 14.88 (0.01)(5) 2.03 2.02 (0.02) (0.91) (0.93) 1.09
</TABLE>
- ----------
* Annualized
** Not Annualized
(1) The Fund commenced operations on December 14, 1992 as a separate
investment portfolio (the "Predecessor Fund") of The Shawmut Funds. On
December 4, 1995, the Predecessor Fund was reorganized as a new portfolio
of the Trust. Prior to the reorganization, the Predecessor Fund offered
and sold two series of shares, Investment Shares and Trust Shares, that
were similar to the Fund's Retail A and Trust Shares, respectively. In
connection with the reorganization, shareholders of the Predecessor Fund
exchanged Investment Shares and Trust Shares for Retail A Shares and Trust
Shares, respectively, in the Galaxy Growth and Income Fund.
(2) The Fund began issuing Retail B Shares on March 4, 1996.
(3) The Fund began issuing A Prime and B Prime Shares on November 1, 1998.
(4) Net investment income per share is less than $0.005.
(5) The selected per share data was calculated using the weighted average
shares outstanding method for the period.
(A) Calculation does not include the effect of any sales charge for Retail A
Shares, Retail B Shares, A Prime Shares and B Prime Shares.
(B) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or Administrator for Retail A Shares for the years
ended October 31, 1999, 1998, 1997, 1996 and 1995 were $0.07, $0.10,
$0.18, $0.19 and $0.22, respectively. Net investment income (loss) per
share before reimbursement/waiver of fees by the Investment Advisor and/or
Administrator for Retail B Shares for the years ended October 31, 1999,
1998 and 1997 and the period ended October 31, 1996 were $(0.04), $0.00,
$0.08 and $0.05, respectively. Net investment income per share before
reimbursement/waiver of fees by the Investment Advisor and/or
Administrator for Trust Shares for the years ended October 31, 1999, 1998,
1997, 1996 and 1995 were $0.13, $0.15, $0.21, $0.27 and $0.25,
respectively. Net investment income per share before reimbursement/waiver
of fees by the Investment Advisor and/or Administrator for A Prime Shares
for the year ended October 31, 1999 was $0.09. Net investment (loss) per
share before reimbursement/waiver of fees by the Investment Advisor and/or
Administrator for B Prime Shares for the year ended October 31, 1999 was
$(0.05).
See Notes to Financial Statements.
68
<PAGE>
<TABLE>
<CAPTION>
Ratios to Average Net Assets/Supplemental Data
------------------------------------------------------
Ratio of Net Ratio of Ratio of
Investment Operating Operating
Income (Loss) Expenses Expenses
Net Assets, Including Including Excluding
Net Asset Value, End of Period Reimbursement/ Reimbursement/ Reimbursement/ Portfolio
End of Period Total Return(A) (in 000's) Waiver Waiver Waiver Turnover Rate
- ---------------- --------------- ------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$15.98 14.56% $232,110 0.53% 1.28% 1.38% 20%
14.87 9.93% 214,110 0.75% 1.28% 1.35% 38%
16.24 30.10% 141,884 1.18% 1.27% 1.45% 93%
13.78 20.25% 77,776 1.65% 1.34% 1.45% 59%
12.35 18.52% 51,078 2.10% 1.32% 1.77% 51%
15.90 13.72% 62,366 (0.22)% 2.03% 2.04% 20%
14.83 9.09% 53,216 0.01% 2.02% 2.02% 38%
16.23 29.11% 35,178 0.31% 2.05% 2.28% 93%
13.77 6.83%** 4,562 0.79%* 1.96%* 2.11%* 59%
16.02 14.85% 309,106 0.76% 1.05% 1.05% 20%
14.90 10.10% 254,060 1.00% 1.03% 1.03% 38%
16.28 30.43% 246,654 1.44% 1.03% 1.06% 93%
13.80 20.77% 186,708 2.01% 1.02% 1.03% 59%
12.35 18.80% 189,011 2.42% 1.07% 1.27% 51%
16.00 14.81% 150 0.66% 1.15% 1.30% 20%
15.97 13.98% 129 (0.09)% 1.90% 2.17% 20%
</TABLE>
69
<PAGE>
- --------------------------------------------------------------------------------
Strategic Equity Fund
Financial Highlights
For a Share outstanding throughout each period.
<TABLE>
<CAPTION>
Income from Investment Operations Less Distributions
---------------------------------------- ------------------------------------------
Net
Net Net Realized and Dividends Distributions Net
Asset Value, Investment Unrealized Total from from Net from Increase (Decrease)
Beginning Income Gain (Loss) on Investment Investment Net Realized Total in Net
of Period (Loss)(B) Investments Operations Income Capital Gains Distributions Asset Value
------------ ---------- -------------- ---------- ---------- ------------- ------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Retail A
10/31/99 $ 9.62 $ 0.04(3) $ 0.27 $ 0.31 $(0.03) $(0.01) $(0.04) $ 0.27
10/31/98(1) 10.00 --(2) (0.38) (0.38) -- -- -- (0.38)
Retail B
10/31/99 9.61 (0.02)(3) 0.26 0.24 -- (0.01) (0.01) 0.23
10/31/98(1) 10.00 (0.02) (0.37) (0.39) -- -- -- (0.39)
Trust
10/31/99 9.63 0.09(3) 0.27 0.36 (0.08) (0.01) (0.09) 0.27
10/31/98(1) 10.00 0.01 (0.37) (0.36) (0.01) -- (0.01) (0.37)
</TABLE>
- ----------
* Annualized
** Not Annualized
(1) The Fund commenced operations on March 4, 1998.
(2) Net investment income per share is less than $0.005.
(3) The selected per share data was calculated using the weighted average
shares outstanding method for the year.
(A) Calculation does not include the effect of any sales charge for Retail A
Shares and Retail B Shares.
(B) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or Administrator for Retail A Shares for the year
ended October 31, 1999 and the period ended October 31, 1998 were $0.00
and $0.00, respectively. Net investment (loss) per share before
reimbursement/waiver of fees by the Investment Advisor and/or
Administrator for Retail B Shares for year ended October 31, 1999, and the
period ended October 31, 1998 were $(0.08) and $(0.06), respectively. Net
investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or Administrator for Trust Shares for the year
ended October 31, 1999 and the period ended October 31, 1998 were $0.06
and $0.00, respectively.
See Notes to Financial Statements.
70
<PAGE>
<TABLE>
<CAPTION>
Ratios to Average Net Assets/Supplemental Data
-----------------------------------------------------
Ratio of Net Ratio of Ratio of
Investment Operating Operating
Income (Loss) Expenses Expenses
Net Assets, Including Including Excluding
Net Asset Value, End of Period Reimbursement/ Reimbursement/ Reimbursement/ Portfolio
End of Period Total Return(A) (in 000's) Waiver Waiver Waiver Turnover Rate
- ---------------- --------------- ------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$9.89 3.25% $ 8,229 0.41% 1.19% 1.63% 79%
9.62 (3.75)%** 4,051 0.06%* 1.40%* 2.41%* 30%**
9.84 2.50% 1,348 (0.24)% 1.84% 2.40% 79%
9.61 (4.76)%** 583 (0.55)%* 2.01%* 3.05%* 30%**
9.90 3.64% 71,063 0.80% 0.80% 1.00% 79%
9.63 (3.62)%** 63,061 0.19%* 1.27%* 1.47%* 30%**
</TABLE>
71
<PAGE>
- --------------------------------------------------------------------------------
Equity Value Fund
Financial Highlights
For a Share outstanding throughout each period.
<TABLE>
<CAPTION>
Income from Investment Operations Less Distributions
--------------------------------------- --------------------------------------
Net
Net Net Realized and Dividends Dividends Net
Asset Value, Investment Unrealized Total from from Net from Increase (Decrease)
Beginning Income Gain on Investment Investment Net Realized Total in Net
of Period (Loss)(B) Investments Operations Income Capital Gains Dividends Asset Value
------------ ---------- ---------- ---------- ---------- ------------- --------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Retail A
10/31/99 $16.50 $(0.03) $ 2.42 $ 2.39 $ -- $(0.61) $(0.61) $ 1.78
10/31/98 18.21 0.03 1.50 1.53 (0.04) (3.20) (3.24) (1.71)
10/31/97 15.96 0.11 4.16 4.27 (0.12) (1.90) (2.02) 2.25
10/31/96 14.33 0.14 2.74 2.88 (0.14) (1.11) (1.25) 1.63
10/31/95 13.31 0.22 2.24 2.46 (0.23) (1.21) (1.44) 1.02
Retail B
10/31/99 16.44 (0.15) 2.40 2.25 -- (0.61) (0.61) 1.64
10/31/98 18.24 (0.08) 1.48 1.40 -- (3.20) (3.20) (1.80)
10/31/97 15.99 -- 4.17 4.17 (0.02) (1.90) (1.92) 2.25
10/31/96(1) 14.74 0.04 1.25 1.29 (0.04) -- (0.04) 1.25
Trust
10/31/99 16.51 0.03 2.42 2.45 -- (0.61) (0.61) 1.84
10/31/98 18.21 0.08 1.49 1.57 (0.07) (3.20) (3.27) (1.70)
10/31/97 15.96 0.17 4.16 4.33 (0.18) (1.90) (2.08) 2.25
10/31/96 14.33 0.21 2.74 2.95 (0.21) (1.11) (1.32) 1.63
10/31/95 13.32 0.28 2.24 2.52 (0.30) (1.21) (1.51) 1.01
</TABLE>
- ----------
* Annualized
** Not Annualized
(1) The Fund began issuing Retail B Shares on March 4, 1996.
(A) Calculation does not include the effect of any sales charge for Retail A
Shares and Retail B shares.
(B) Net investment income (loss) per share before reimbursement/waiver of fees
by the Investment Advisor and/or Administrator for Retail A Shares for the
years ended October 31, 1999, 1998, 1997, 1996 and 1995 were $(0.03)
$0.03, $0.11, $0.14 and $0.22, respectively. Net investment income (loss)
per share before reimbursement/waiver of fees by the Investment Advisor
and/or Administrator for Retail B Shares for the years ended October 31,
1999, 1998 and 1997 and the period ended October 31, 1996 were $(0.15),
$(0.08), $(0.03) and $0.01, respectively. Net investment income per share
before reimbursement/waiver of fees by the Investment Advisor and/or
Administrator for Trust Shares for the years ended October 31, 1999, 1998,
1997, 1996 and 1995 were $0.03, $0.08, $0.17, $0.21 and $0.28,
respectively.
See Notes to Financial Statements.
72
<PAGE>
<TABLE>
<CAPTION>
Ratios to Average Net Assets/Supplemental Data
-----------------------------------------------------
Ratio of Net Ratio of Ratio of
Investment Operating Operating
Income (Loss) Expenses Expenses
Net Assets, Including Including Excluding
Net Asset Value, End of Period Reimbursement/ Reimbursement/ Reimbursement/ Portfolio
End of Period Total Return(A) (in 000's) Waiver Waiver Waiver Turnover Rate
- ---------------- --------------- ------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$18.28 14.63% $258,332 (0.16)% 1.37% 1.37% 75%
16.50 9.88% 234,730 0.15% 1.37% 1.37% 82%
18.21 29.48% 182,641 0.63% 1.38% 1.38% 111%
15.96 21.49% 131,998 1.00% 1.45% 1.45% 116%
14.33 20.81% 96,555 1.62% 1.49% 1.50% 76%
18.08 13.81% 30,988 (0.87)% 2.08% 2.08% 75%
16.44 9.07% 23,103 (0.54)% 2.06% 2.06% 82%
18.24 28.60% 14,958 (0.13)% 2.07% 2.38% 111%
15.99 8.80%** 1,916 0.43%* 1.94%* 2.24%* 116%
18.35 15.04% 281,064 0.19% 1.02% 1.03% 75%
16.51 10.27% 254,432 0.49% 1.03% 1.03% 82%
18.21 29.87% 241,532 0.98% 1.04% 1.04% 111%
15.96 22.05% 194,827 1.42% 1.03% 1.03% 116%
14.33 21.31% 165,330 2.10% 1.02% 1.02% 76%
</TABLE>
73
<PAGE>
- --------------------------------------------------------------------------------
Equity Growth Fund
Financial Highlights
For a Share outstanding throughout each period.
<TABLE>
<CAPTION>
Income from Investment Operations Less Distributions
--------------------------------------- ----------------------------------------
Net Dividends
Net Net Realized and Dividends in Excess Dividends
Asset Value, Investment Unrealized Total from from Net of Net from Net
Beginning Income Gain on Investment Investment Investment Realized Total
of Period (Loss)(B) Investments Operations Income Income Capital Gains Dividends
------------ ---------- ------------ ---------- ---------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Retail A
10/31/99 $24.47 $(0.06) $ 6.48 $ 6.42 $ -- $ -- $(1.90) $(1.90)
10/31/98 25.14 0.01 3.19 3.20 (0.03) --(3) (3.84) (3.87)
10/31/97 20.37 0.07 6.05 6.12 (0.07) -- (1.28) (1.35)
10/31/96 17.29 0.10 3.39 3.49 (0.11) -- (0.30) (0.41)
10/31/95 14.18 0.14 3.28 3.42 (0.14) -- (0.17) (0.31)
Retail B
10/31/99 24.07 (0.20) 6.30 6.10 -- -- (1.90) (1.90)
10/31/98 24.91 (0.16)(2) 3.16 3.00 -- --(3) (3.84) (3.84)
10/31/97 20.26 (0.09)(2) 6.02 5.93 -- -- (1.28) (1.28)
10/31/96(1) 18.77 (0.01) 1.50 1.49 -- -- -- --
Trust
10/31/99 24.52 0.03 6.50 6.53 -- -- (1.90) (1.90)
10/31/98 25.17 0.09 3.20 3.29 (0.09) (0.01) (3.84) (3.94)
10/31/97 20.39 0.16 6.06 6.22 (0.16) -- (1.28) (1.44)
10/31/96 17.30 0.17 3.40 3.57 (0.18) -- (0.30) (0.48)
10/31/95 14.19 0.20 3.28 3.48 (0.20) -- (0.17) (0.37)
A Prime
10/31/99(4) 24.49 (0.01) 6.37 6.36 -- -- (1.90) (1.90)
B Prime
10/31/99(4) 24.49 (0.10) 6.35 6.25 -- -- (1.90) (1.90)
</TABLE>
- ----------
* Annualized
** Not Annualized
(1) The Fund began issuing Retail B Shares on March 4, 1996.
(2) The selected per share data was calculated using the weighted average
shares outstanding method for the year.
(3) Dividends in excess of net investment income per share were less than
$0.005.
(4) The Fund began issuing A Prime and B Prime Shares on November 1, 1998.
(A) Calculation does not include the effect of any sales charge for Retail A
Shares, Retail B Shares, A Prime Shares and B Prime Shares.
(B) Net investment income (loss) per share before reimbursement/waiver of fees
by the Investment Advisor and/or Administrator for Retail A Shares for the
years ended October 31, 1999, 1998, 1997, 1996 and 1995 were $(0.06),
$0.01, $0.07, $0.10 and $0.13, respectively. Net investment (loss) per
share before reimbursement/waiver of fees by the Investment Advisor and/or
Administrator for Retail B Shares for the years ended October 31, 1999,
1998 and 1997 and the period ended October 31, 1996 were $(0.21),
$(0.16)(2), $(0.14)(2) and $(0.03), respectively. Net investment income
per share before reimbursement/waiver of fees by the Investment Advisor
and/or Administrator for Trust Shares for the years ended October 31,
1999, 1998, 1997, 1996 and 1995 were $0.03, $0.09, $0.16, $0.17 and $0.20,
respectively. Net investment income per share before reimbursement/waiver
of fees by the Investment Advisor and/or Administrator for A Prime Shares
for the year ended October 31, 1999 was $(0.04). Net investment (loss) per
share before reimbursement/waiver of fees by the Investment Advisor and/or
Administrator for B Prime Shares for the year ended October 31, 1999 was
$(0.14).
See Notes to Financial Statements.
74
<PAGE>
<TABLE>
<CAPTION>
Ratios to Average Net Assets/Supplemental Data
-----------------------------------------------
Ratio of Net Ratio of Ratio of
Investment Operating Operating
Income (Loss) Expenses Expenses
Net Increase Net Assets, Including Including Excluding
(Decrease) in Net Net Asset Value, End of Period Reimbursement/ Reimbursement/ Reimbursement/ Portfolio
Asset Value End of Period Total Return(A) (in 000's) Waiver Waiver Waiver Turnover Rate
- ----------------- ---------------- --------------- ------------- --------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 4.52 $28.99 27.55% $ 443,639 (0.25)% 1.34% 1.34% 53%
(0.67) 24.47 14.73% 312,951 0.02% 1.34% 1.34% 60%
4.77 25.14 31.61% 226,330 0.30% 1.37% 1.37% 66%
3.08 20.37 20.51% 160,800 0.50% 1.40% 1.40% 36%
3.11 17.29 24.54% 98,911 0.85% 1.45% 1.47% 14%
4.20 28.27 26.63% 71,525 (0.96)% 2.05% 2.08% 53%
(0.84) 24.07 13.98% 34,693 (0.68)% 2.04% 2.04% 60%
4.65 24.91 30.78% 20,363 (0.40)% 2.07% 2.30% 66%
1.49 20.26 7.95%** 3,995 (0.16)%* 1.92%* 2.29%* 36%
4.63 29.15 28.07% 1,041,378 0.15% 0.94% 0.94% 53%
(0.65) 24.52 15.17% 815,756 0.40% 0.96% 0.96% 60%
4.78 25.17 32.16% 745,537 0.72% 0.95% 0.95% 66%
3.09 20.39 21.03% 562,419 0.92% 0.98% 0.98% 36%
3.11 17.30 25.08% 420,016 1.31% 1.00% 1.00% 14%
4.46 28.95 27.30% 107 (0.05)% 1.14% 1.28% 53%
4.35 28.84 26.79% 246 (0.78)% 1.87% 2.19% 53%
</TABLE>
75
<PAGE>
- --------------------------------------------------------------------------------
International Equity Fund
Financial Highlights
For a Share outstanding throughout each period.
<TABLE>
<CAPTION>
Income from Investment Operations Less Distributions
------------------------------------------- --------------------------------------
Net
Net Net Realized and Dividends Dividends Net
Asset Value, Investment Unrealized Total from from Net from Increase(Decrease)
Beginning Income Gain (Loss) on Investment Investment Net Realized Total in Net
of Period (Loss)(B) Investments Operations Income Capital Gains Dividends Asset Value
------------ ---------- -------------- ---------- ---------- ------------- --------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Retail A
10/31/99 $16.75 $ 0.01(2) $ 4.72 $ 4.73 $(0.05) $(0.57) $(0.62) $ 4.11
10/31/98 15.18 0.07 1.93 2.00 (0.07) (0.36) (0.43) 1.57
10/31/97 13.94 0.01 2.09 2.10 (0.18) (0.68) (0.86) 1.24
10/31/96 12.92 0.11 1.27 1.38 (0.12) (0.24) (0.36) 1.02
10/31/95 13.20 0.11 (0.21) (0.10) (0.02) (0.16) (0.18) (0.28)
Retail B
10/31/99(1) 16.85 (0.09)(2) 4.74 4.65 (0.13) (0.57) (0.70) 3.95
Trust
10/31/99 17.00 0.10(2) 4.80 4.90 (0.15) (0.57) (0.72) 4.18
10/31/98 15.33 0.14 1.98 2.12 (0.09) (0.36) (0.45) 1.67
10/31/97 14.01 0.08 2.12 2.20 (0.20) (0.68) (0.88) 1.32
10/31/96 12.98 0.17 1.30 1.47 (0.20) (0.24) (0.44) 1.03
10/31/95 13.20 0.16 (0.18) (0.02) (0.04) (0.16) (0.20) (0.22)
A Prime
10/31/99(1) 16.85 0.06(2) 4.79 4.85 (0.15) (0.57) (0.72) 4.13
B Prime
10/31/99(1) 16.85 (0.08)(2) 4.78 4.70 (0.13) (0.57) (0.70) 4.00
</TABLE>
- ----------
(1) The Fund began issuing Retail B, A Prime and B Prime Shares on November 1,
1998.
(2) The selected per share data was calculated using the weighted average
shares outstanding method for the year.
(A) Calculation does not include the effect of any sales charge for Retail A
Shares, Retail B Shares, A Prime Shares and B Prime Shares.
(B) Net investment income (loss) per share before reimbursement/waiver of fees
by the Investment Advisor and/or Administrator for Retail A Shares for the
years ended October 31, 1999, 1998, 1997, 1996 and 1995 were $(0.04),
$0.03, $(0.01), $0.07 and $0.08, respectively. Net investment (loss) per
share before reimbursement/waiver of fees by the Investment Advisor and/or
Administrator for Retail B Shares for the period ended October 31, 1999
was $(0.25). Net investment income per share before reimbursement/waiver
of fees by the Investment Advisor and/or Administrator for Trust Shares
for the years ended October 31, 1999, 1998, 1997, 1996 and 1995 were
$0.06, $0.10, $0.04, $0.13 and $0.13, respectively. Net investment (loss)
per share before reimbursement/waiver of fees by the Investment Advisor
and/or Administrator for A Prime Shares for the year ended October 31,
1999 was $(0.09). Net investment (loss) per share before
reimbursement/waiver of fees by the Investment Advisor and/or
Administrator for B Prime Shares for the year ended October 31, 1999 was
$(0.16).
See Notes to Financial Statements.
76
<PAGE>
<TABLE>
<CAPTION>
Ratios to Average Net Assets/Supplemental Data
-----------------------------------------------------
Ratio of Net Ratio of Ratio of
Investment Operating Operating
Income (Loss) Expenses Expenses
Net Assets, Including Including Excluding
Net Asset Value, End of Period Reimbursement/ Reimbursement/ Reimbursement/ Portfolio
End of Period Total Return(A) (in 000's) Waiver Waiver Waiver Turnover Rate
- ---------------- --------------- -------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$20.86 29.04% $ 89,327 0.03% 1.48% 1.73% 45%
16.75 13.64% 66,541 0.39% 1.48% 1.73% 49%
15.18 15.88% 56,592 0.03% 1.60% 1.85% 45%
13.94 10.86% 35,144 0.78% 1.70% 1.98% 146%
12.92 (0.64)% 30,104 0.84% 1.76% 2.03% 48%
20.80 28.41% 2,189 (0.45)% 1.96% 2.70% 45%
21.18 29.71% 501,776 0.54% 0.97% 1.22% 45%
17.00 14.32% 345,692 0.91% 0.96% 1.21% 49%
15.33 16.60% 265,124 0.57% 1.06% 1.32% 45%
14.01 11.51% 172,561 1.40% 1.08% 1.36% 146%
12.98 (0.02)% 89,614 1.36% 1.22% 1.48% 48%
20.98 29.73% 12 0.34% 1.17% 2.03% 45%
20.85 28.74% 458 (0.38)% 1.89% 2.27% 45%
</TABLE>
77
<PAGE>
- --------------------------------------------------------------------------------
Small Cap Value Fund
Financial Highlights
For a Share outstanding throughout each period.
<TABLE>
<CAPTION>
Income from Investment Operations Less Distributions
---------------------------------------------- -----------------------------------------
Net Dividends
Net Net Realized and Dividends in Excess Dividends
Asset Value, Investment Unrealized Total from from Net of Net from Net
Beginning Income Gain (Loss) on Investment Investment Investment Realized Total
of Period (Loss)(B) Investments Operations Income Income Capital Gains Dividends
------------ ---------- -------------- ---------- ---------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Retail A
10/31/99 $13.53 $ 0.02 $ 0.73 $ 0.75 $(0.03) $ -- $(1.27) $(1.30)
10/31/98 18.29 0.08 (2.08) (2.00) (0.08) -- (2.68) (2.76)
10/31/97 14.75 (0.04)(2) 5.72 5.68 -- -- (2.14) (2.14)
10/31/96(1) 12.68 0.01 2.95 2.96 (0.02) -- (0.87) (0.89)
10/31/95 11.06 (0.02) 2.21 2.19 -- -- (0.57) (0.57)
Retail B
10/31/99(3) 13.59 (0.04) 0.68 0.64 -- -- (1.27) (1.27)
Trust
10/31/99 13.61 0.05 0.74 0.79 (0.06) -- (1.27) (1.33)
10/31/98 18.37 0.11 (2.06) (1.95) (0.13) -- (2.68) (2.81)
10/31/97 14.76 0.01(2) 5.74 5.75 -- -- (2.14) (2.14)
10/31/96(1) 12.71 0.05 2.97 3.02 (0.05) (0.01) (0.91) (0.97)
10/31/95 11.07 0.01 2.21 2.22 (0.01) -- (0.57) (0.58)
A Prime
10/31/99(3) 13.59 0.03 0.73 0.76 (0.04) -- (1.27) (1.31)
B Prime
10/31/99(3) 13.59 (0.05) 0.71 0.66 -- -- (1.27) (1.27)
</TABLE>
- ----------
(1) The Fund commenced operations on December 14, 1992 as a separate
investment portfolio (the "Predecessor Fund") of the Shawmut Funds. On
December 4, 1995, the Predecessor Fund was reorganized as a new portfolio
of the Trust. Prior to the reorganization, the Predecessor Fund offered
and sold two series of shares, Investment Shares and Trust Shares, that
were similar to the Fund's Retail A and Trust Shares, respectively. In
connection with the reorganization, shareholders of the Predecessor Fund
exchanged Investment Shares and Trust Shares for Retail A Shares and Trust
Shares, respectively, in the Galaxy Small Cap Value Fund.
(2) The selected per share data was calculated using the weighted average
shares outstanding method for the periods indicated.
(3) The Fund began issuing Retail B, A Prime and B Prime Shares on November 1,
1998.
(A) Calculation does not include the effect of any sales charge for Retail A
Shares, Retail B Shares, A Prime Shares and B Prime Shares.
(B) Net investment income (loss) per share before reimbursement/waiver of fees
by the Investment Advisor and/or Administrator for Retail A Shares for the
years ended October 31, 1999, 1998, 1997, 1996 and 1995 were $(0.02),
$0.05, $(0.02)(2), $0.01 and $(0.08), respectively. Net investment (loss)
per share before reimbursement/waiver of fees by the Investment Advisor
and/or Administrator for Retail B Shares for the year ended October 31,
1999 was $(0.09). Net investment income (loss) per share before
reimbursement/waiver of fees by the Investment Advisor and/or
Administrator for Trust Shares for the years ended October 31, 1999, 1998,
1997, 1996 and 1995 were $0.05, $0.11, $0.05(2), $0.05 and $(0.03),
respectively. Net investment income per share before reimbursement/waiver
of fees by the Investment Advisor and/or Administrator for A Prime Shares
for the year ended October 31, 1999 was $0.00. Net investment (loss) per
share before reimbursement/waiver of fees by the Investment Advisor and/or
Administrator for B Prime Shares for the year ended October 31, 1999 was
$(0.10).
See Notes to Financial Statements.
78
<PAGE>
<TABLE>
<CAPTION>
Ratios to Average Net Assets/Supplemental Data
----------------------------------------------
Ratio of Net Ratio of Ratio of
Investment Operating Operating
Income (Loss) Expenses Expenses
Net Increase Net Assets, Including Including Excluding
(Decrease) in Net Net Asset Value, End of Period Reimbursement/ Reimbursement/ Reimbursement/ Portfolio
Asset Value End of Period Total Return(A) (in 000's) Waiver Waiver Waiver Turnover Rate
- ----------------- ---------------- --------------- ------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(0.55) $12.98 5.68% $ 80,870 0.13% 1.31% 1.59% 42%
(4.76) 13.53 (12.52)% 87,781 0.38% 1.31% 1.45% 33%
3.54 18.29 43.58% 63,658 (0.25)% 1.30% 1.52% 52%
2.07 14.75 24.77% 34,402 0.08% 1.40% 1.55% 39%
1.62 12.68 21.27% 27,546 (0.19)% 1.35% 1.85% 32%
(0.63) 12.96 4.80% 1,637 (0.66)% 2.10% 2.88% 42%
(0.54) 13.07 6.02% 255,268 0.47% 0.97% 0.97% 42%
(4.76) 13.61 (12.07)% 202,385 0.73% 0.96% 0.96% 33%
3.61 18.37 44.08% 189,257 0.09% 0.96% 0.96% 52%
2.05 14.76 25.22% 137,341 0.45% 1.05% 1.06% 39%
1.64 12.71 21.52% 121,364 0.07% 1.10% 1.35% 32%
(0.55) 13.04 5.80% 175 0.26% 1.18% 1.40% 42%
(0.61) 12.98 4.96% 190 (0.49)% 1.93% 2.49% 42%
</TABLE>
79
<PAGE>
- --------------------------------------------------------------------------------
Small Company Equity Fund
Financial Highlights
For a Share outstanding throughout each period.
<TABLE>
<CAPTION>
Income from Investment Operations Less Distributions
----------------------------------------- --------------------------
Net
Net Realized and Dividends Net
Asset Value, Net Unrealized Total from from Increase(Decrease)
Beginning Investment Gain (Loss) on Investment Net Realized Total in Net
of Period (Loss)(B) Investments Operations Capital Gains Dividends Asset Value
------------ ---------- -------------- ---------- ------------- --------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Retail A
10/31/99 $13.63 $(0.23) $ 2.26 $ 2.03 $ -- $ -- $ 2.03
10/31/98 20.94 (0.19) (4.86) (5.05) (2.26) (2.26) (7.31)
10/31/97 19.96 (0.18) 3.54 3.36 (2.38) (2.38) 0.98
10/31/96 16.28 (0.14) 3.99 3.85 (0.17) (0.17) 3.68
10/31/95 12.35 (0.09) 4.21 4.12 (0.19) (0.19) 3.93
Retail B
10/31/99 13.39 (0.34) 2.26 1.92 -- -- 1.92
10/31/98 20.73 (0.30) (4.78) (5.08) (2.26) (2.26) (7.34)
10/31/97 19.91 (0.21) 3.41 3.20 (2.38) (2.38) 0.82
10/31/96(1) 17.27 (0.19)(2) 2.83 2.64 -- -- 2.64
Trust
10/31/99 13.96 (0.16) 2.33 2.17 -- -- 2.17
10/31/98 21.32 (0.14) (4.96) (5.10) (2.26) (2.26) (7.36)
10/31/97 20.20 (0.11) 3.61 3.50 (2.38) (2.38) 1.12
10/31/96 16.38 (0.09) 4.08 3.99 (0.17) (0.17) 3.82
10/31/95 12.36 (0.04) 4.25 4.21 (0.19) (0.19) 4.02
</TABLE>
- ----------
* Annualized
** Not Annualized
(1) The Fund began issuing Retail B Shares on March 4, 1996.
(2) The selected per share data was calculated using the weighted average
shares outstanding method for the period.
(A) Calculation does not include the effect of any sales charge for Retail A
Shares and Retail B shares.
(B) Net investment (loss) per share before reimbursement/waiver of fees by the
Investment Advisor and/or Administrator for Retail A Shares for the years
ended October 31, 1999, 1998, 1997, 1996 and 1995 were $(0.23), $(0.19),
$(0.18), $(0.14) and $(0.09), respectively. Net investment (loss) per
share before reimbursement/waiver of fees by the Investment Advisor and/or
Administrator for Retail B Shares for the years ended October 31, 1999,
1998 and 1997 and the period ended October 31, 1996 were $(0.37), $(0.30),
$(0.24) and $(0.24)(2), respectively. Net investment (loss) per share
before reimbursement/waiver of fees by the Investment Advisor and/or
Administrator for Trust Shares for the years ended October 31, 1999, 1998,
1997, 1996 and 1995 were $(0.16), $(0.14), $(0.11), $(0.09) and $(0.04),
respectively.
See Notes to Financial Statements.
80
<PAGE>
<TABLE>
<CAPTION>
Ratios to Average Net Assets/Supplemental Data
--------------------------------------------------
Ratio of Net Ratio of Ratio of
Investment Operating Operating
Income (Loss) Expenses Expenses
Net Assets, Including Including Excluding
Net Asset Value, End of Period Reimbursement/ Reimbursement/ Reimbursement/ Portfolio
End of Period Total Return(A) (in 000's) Waiver Waiver Waiver Turnover Rate
- ---------------- --------------- ------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$15.66 14.89% $ 87,921 (1.41)% 1.53% 1.54% 105%
13.63 (26.26)% 95,831 (1.13)% 1.46% 1.47% 78%
20.94 19.08% 135,593 (1.02)% 1.46% 1.48% 69%
19.96 23.97% 111,101 (1.03)% 1.57% 1.57% 82%
16.28 34.01% 45,668 (0.85)% 1.60% 1.64% 54%
15.31 14.34% 12,212 (2.04)% 2.16% 2.32% 105%
13.39 (26.72)% 12,565 (1.78)% 2.11% 2.16% 78%
20.73 18.23% 14,731 (1.76)% 2.20% 2.44% 69%
19.91 15.34%** 3,659 (1.50)%* 2.04%* 2.44%* 82%
16.13 15.54% 233,326 (1.00)% 1.12% 1.12% 105%
13.96 (26.00)% 222,675 (0.76)% 1.09% 1.09% 78%
21.32 19.59% 310,751 (0.65)% 1.09% 1.12% 69%
20.20 24.69% 174,990 (0.60)% 1.14% 1.14% 82%
16.38 34.73% 94,831 (0.37)% 1.12% 1.12% 54%
</TABLE>
81
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
1. Organization
The Galaxy Fund, a Massachusetts business trust (the "Trust"), is
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company. As of the date of this report, the Trust offered
twenty-nine managed investment portfolios. The accompanying financial statements
and financial highlights are those of the Asset Allocation, Equity Income,
Growth and Income, Strategic Equity, Equity Value, Equity Growth, International
Equity, Small Cap Value and Small Company Equity Funds (individually, a "Fund,"
collectively, the "Funds") only.
Each Fund is authorized to issue five series of shares (Trust Shares,
Retail A Shares, Retail B Shares, A Prime Shares and B Prime Shares). Currently,
the Asset Allocation, Growth and Income, Equity Growth, International Equity and
Small Cap Value Funds offer all five series of shares and the Equity Income,
Strategic Equity, Equity Value and Small Company Equity Funds offer Trust
Shares, Retail A Shares, and Retail B Shares. Trust Shares, Retail A Shares,
Retail B Shares, A Prime Shares and B Prime Shares are substantially the same
except that (i) Retail A Shares are subject to a maximum 3.75% front-end sales
charge, (ii) A Prime Shares are subject to a maximum 5.50% front-end sales
charge, (iii) Retail B Shares and B Prime Shares are subject to a maximum 5.00%
contingent deferred sales charge, and (iv) each series of shares bears the
following series specific expenses: distribution fees and/or shareholder
servicing fees and transfer agency charges. Six years after purchase, Retail B
Shares will convert automatically to Retail A Shares and eight years after
purchase, B Prime Shares will convert automatically to A Prime Shares. On
November 29, 1999, A Prime Shares and B Prime Shares were redesignated Prime A
Shares and Prime B Shares, respectively.
2. Significant Accounting Policies
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates. The following is a
summary of significant accounting policies in conformity with generally accepted
accounting principles consistently followed by the Funds in the preparation of
their financial statements.
Portfolio Valuation: Investments in securities 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 traded on over-the-counter
markets are valued at the last bid price. Short-term obligations that mature in
60 days or less are valued at amortized cost, which approximates fair value. All
other securities and other assets are appraised at their fair value as
determined in good faith under consistently applied procedures established by
and under the general supervision of the Board of Trustees.
Securities Transactions and Investment Income: Securities transactions are
accounted for on a trade date basis. Net realized gains or losses on sales of
securities are determined by the identified cost method. Interest income is
recorded on the accrual basis. Dividend income is recorded on the ex-dividend
date. Investment income and realized and unrealized gains and losses are
allocated to the separate series of a Fund based upon the relative net assets of
each series.
Forward Foreign Currency Exchange Contracts: The International Equity Fund
may enter into forward foreign currency exchange contracts whereby the Fund
agrees to buy or sell a specific currency at a specified price at a future date
in an attempt to hedge against fluctuations in the value of the underlying
currency of certain portfolio instruments. Forward foreign currency exchange
contracts are valued at the daily exchange rate of the underlying currency.
Purchases and sales of forward foreign currency exchange contracts having the
same settlement date and broker are offset and presented on a net basis in the
Statement of Assets and Liabilities. Gains or losses on the purchase or sale of
forward foreign currency exchange contracts having the same settlement date and
broker are recognized on the date of offset, otherwise gains or losses are
recognized on the settlement date.
Foreign Currency Translation: The books and records of the International
Equity Fund are maintained in U.S. dollars. Investment valuations and other
assets and liabilities initially expressed in foreign currencies are converted
each business day into U.S. dollars based upon current exchange rates. Purchases
and sales of foreign investments and income and expenses are converted into U.S.
dollars based upon exchange rates prevailing on the respective dates of such
transactions. That portion of unrealized gains or losses on investments due to
fluctuations in foreign currency exchange rates is not separately disclosed.
Dividends to Shareholders: Dividends from net investment income are
determined separately for each series of a Fund and are declared and paid
quarterly, with the exception of the International Equity Fund which declares
and pays dividends annually. Net realized capital gains, if any, are distributed
at least annually.
Income dividends and capital gain dividends are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles.
82
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Notes to Financial Statements
Federal Income Taxes: The Trust treats each Fund as a separate entity for
federal income tax purposes. Each Fund intends to continue to qualify each year
as a "regulated investment company" under Subchapter M of the Internal Revenue
Code. By so qualifying, each Fund will not be subject to federal income taxes to
the extent that it distributes substantially all of its taxable or tax-exempt
income, if any, for its tax year ending October 31. In addition, by distributing
in each calendar year substantially all of its net investment income, capital
gains and certain other amounts, if any, each Fund will not be subject to a
federal excise tax. Therefore, no federal income or excise tax provision is
recorded. With holding taxes on foreign dividends have been paid or provided for
in accordance with the applicable country's tax rules and rates.
Repurchase Agreements: Each Fund may engage in repurchase agreement
transactions with institutions that the Trust's investment advisor has
determined are creditworthy. Each repurchase agreement transaction is recorded
at cost plus accrued interest. Each Fund requires that the securities
collateralizing a repurchase agreement transaction be transferred to the Trust's
custodian in a manner that is intended to enable the Fund to obtain those
securities in the event of a counterparty default. The value of the collateral
securities is monitored daily to ensure that the value of the collateral,
including accrued interest, equals or exceeds the repurchase price. Repurchase
agreement transactions involve certain risks in the event of default or
insolvency of the counterparty, including possible delays or restrictions upon a
Fund's ability to dispose of the under lying securities, and a possible decline
in the value of the underlying securities during the period while the Fund seeks
to assert its rights.
Expenses: The Trust accounts separately for the assets, liabilities and
operations of each Fund. Expenses directly attributable to a Fund are charged to
the Fund, while expenses which are attributable to more than one fund of the
Trust are allocated among the respective funds.
In addition, expenses of a Fund not directly attributable to the
operations of a particular series of shares of the Fund are allocated to the
separate series based upon the relative net assets of each series. Operating
expenses directly attributable to a series of shares of a Fund are charged to
the operations of that series.
Organization Costs: Each Fund bears all costs in connection with its
organization, including the fees and expenses of registering and qualifying its
initial shares for distribution under federal and state securities laws. All
such costs are amortized using the straight-line method over a period of five
years beginning with the commencement of each Fund's operations.
3. Investment Advisory, Administration, Shareholder Services, Distribution
and Other Fees
The Trust and Fleet Investment Advisors Inc. (the "Investment Advisor" or
"Fleet"), an indirect wholly-owned subsidiary of FleetBoston Corporation, are
parties to an investment advisory agreement under which the Investment Advisor
provides services for a fee, computed daily and paid monthly, at the annual rate
of 0.75% of the average daily net assets of the Asset Allocation, Equity Income,
Growth and Income, Strategic Equity, Equity Value, Equity Growth, Small Cap
Value and Small Company Equity Funds (See Note 4).
The Trust pays the Investment Advisor a fee, computed daily and paid
monthly, with respect to the International Equity Fund at the annual rate of
1.15% of the first $50 million of the Fund's average daily net assets, plus
0.95% of the next $50 million of such net assets, plus 0.85% of net assets in
excess of $100 million.
The Investment Advisor has entered into a sub-advisory agreement with
Oechsle International Advisors, LLC ("Oechsle") with respect to the
International Equity Fund pursuant to which the Investment Advisor pays fees to
Oechsle, computed daily and paid quarterly, at the annual rate of 0.40% of the
first $50 million of the Fund's average daily net assets, plus 0.35% of net
assets in excess of $50 million. FleetBoston Corporation owns an interest in
Oechsle.
The Trust and First Data Investor Services Group, Inc. ("Investor Services
Group"), a wholly-owned subsidiary of First Data Corporation, are parties to an
administration agreement under which Investor Services Group (the
"Administrator") provides services for a fee, computed daily and paid monthly,
at the annual rate, effective September 10, 1998, of 0.09% of the first $2.5
billion of the combined average daily net assets of the Funds and the other
funds offered by the Trust (whose financial statements are provided in separate
reports), 0.085% of the next $2.5 billion of combined average daily net assets,
0.075% of the next $7 billion of combined average daily net assets, 0.065% of
the next $3 billion of combined average daily net assets, 0.06% of the next $3
billion of combined average daily net assets and 0.0575% of combined average
daily net assets in excess of $18 billion. Prior to September 10, 1998, Investor
Services Group received administration fees at the annual rate of 0.09% of the
first $2.5 billion of the combined average daily net assets of the Funds and the
other funds offered by the Trust, 0.085% of the next $2.5 billion of combined
average daily net assets and 0.075% of combined average daily net assets over $5
billion.
83
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Notes to Financial Statements
In addition, Investor Services Group also provides certain fund
accounting, custody administration and transfer agency services pursuant to
certain fee arrangements. Pursuant to such fee arrangements, Investor Services
Group compensates the Trust's custodian bank, The Chase Manhattan Bank for its
services.
First Data Distributors, Inc. (the "Distributor"), a wholly-owned
subsidiary of Investor Services Group and an indirect wholly-owned subsidiary of
First Data Corporation, serves as the distributor of the Trust's Shares.
The Trust has adopted a shareholder services plan (the "Services Plan")
with respect to Retail A and Trust Shares of the Funds. Currently, the Services
Plan has not been implemented with respect to the Funds' Trust Shares. The
Services Plan provides compensation to institutions (including and currently
limited to Fleet Bank and its affiliates) which provide shareholder liaison
and/or administrative support services to their customers who beneficially own
Retail A Shares, at an aggregate annual rate not to exceed 0.50% of the average
daily net asset value of the outstanding Retail A Shares of each Fund
beneficially owned by such customers. The Trust, under the direction of the
Board of Trustees, is currently limiting fees payable under the Services Plan
with respect to each Fund to an aggregate annual rate not to exceed 0.30% of the
average daily net asset value of the outstanding Retail A Shares beneficially
owned by such customers.
The Trust has adopted a distribution and services plan (the "12b-1 Plan")
with respect to Retail B Shares of the Funds. Under the 12b-1 Plan, the Trust
may pay (i) the Distributor or another person for expenses and activities
primarily intended to result in the sale of Retail B Shares, (ii) institutions
for shareholder liaison services and (iii) institutions for administrative
support services. Currently, payments under the 12b-1 Plan for distribution
services are being made solely to broker-dealer affiliates of Fleet Bank and
payments under the 12b-1 Plan for shareholder liaison and administrative support
services are being made solely to Fleet Bank and its affilitates. Payments for
distribution expenses may not exceed an annual rate of 0.65% of the average
daily net assets attributable to each Fund's outstanding Retail B Shares. The
fees paid for shareholder liaison services and/or administrative support
services may not exceed the annual rates of 0.25% and 0.25%, respectively, of
the average daily net assets attributable to each Fund's outstanding Retail B
Shares owned of record or beneficially by customers of institutions. The Trust,
under direction of the Board of Trustees, is currently limiting each Fund's
payments for shareholder liaison and administrative support services under the
12b-1 Plan to an aggregate fee of not more than 0.30% of the average daily net
asset value of Retail B Shares of the Fund owned of record or beneficially by
customers of institutions. For the year ended October 31, 1999, the Funds paid
fees under the Services Plan and 12b-1 Plan as follows:
12b-1 Plan
Services ----------
Plan Services Distribution
---- -------- ------------
Asset Allocation $1,052,992 $ 206,080 $ 499,231
Equity Income 623,725 4,260 9,488
Growth and Income 678,795 166,729 400,239
Strategic Equity 18,350 2,803 6,114
Equity Value 759,127 83,125 190,927
Equity Growth 1,093,512 147,791 346,626
International Equity 204,149 1,784 6,058
Small Cap Value 242,067 1,980 4,653
Small Company Equity 226,778 33,113 80,055
The Trust has adopted a distribution plan (the "A Prime Shares Plan") with
respect to A Prime Shares of the Funds. Under the A Prime Shares Plan, the Trust
may pay the Distributor or another person for expenses and activities primarily
intended to result in the sale of A Prime Shares. Payments by the Trust under
the A Prime Shares Plan may not exceed the annual rate of 0.30% of the average
daily net assets attributable to each Fund's outstanding A Prime Shares. The
Trust, under direction of the Board of Trustees, is currently limiting each
Fund's payments under the A Prime Shares Plan to an annual rate of not more than
0.25% (on an annualized basis) of the average daily net asset value of each
Fund's outstanding A Prime Shares.
The Trust has adopted a distribution and services plan (the "B Prime
Shares Plan") with respect to the B Prime Shares of the Funds. Under the B Prime
Shares Plan, the Trust may pay (i) the Distributor or another person for
expenses and activities primarily intended to result in the sale of B Prime
Shares, (ii) institutions for shareholder liaison services, and (iii)
institutions for administrative support services. Payments for distribution
expenses may not exceed the annual rate of 0.75% of the average daily net assets
attributable to each Fund's outstanding B Prime Shares. The fees paid to
institutions for shareholder liaison services and/or administrative support
services may not exceed the annual rates of 0.25% and 0.25%, respectively, of
the average daily net assets attributable to each Fund's outstanding B Prime
Shares owned of record or beneficially by customers of institutions. The Trust,
under the direction of the Board of Trustees, is currently limiting each Fund's
payments for shareholder liaison and administrative support services under the B
Prime Shares Plan to an aggregate fee of not more than 0.25% of the average
daily net asset value of B Prime Shares owned of record or beneficially by the
customers of institutions. For the
84
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- --------------------------------------------------------------------------------
Notes to Financial Statements
year ended October 31, 1999, the Funds paid fees under the A Prime Shares Plan
and B Prime Shares Plan as follows:
A Prime B Prime Shares Plan
----------- -------------------
Shares Plan Services Distribution
----------- -------- ------------
Asset Allocation $ 438 $ 754 $2,263
Growth andIncome 264 137 412
Equity Growth 184 268 806
International Equity N/A 537 1,640
Small Cap Value 357 349 1,046
Retail A Shares, Retail B Shares, Trust Shares, A Prime Shares and B Prime
Shares of the Funds each bear series specific transfer agent charges based upon
the number of shareholder accounts for each series. In addition, Trust Shares
also bear additional transfer agency fees in order to compensate Investor
Services Group for payments made to Fleet Bank, an affiliate of the Investment
Advisor, for performing certain sub-account and administrative functions on a
per account basis with respect to Trust Shares held by defined contribution
plans. These additional fees are based on the number of underlying participant
accounts. For the year ended October 31, 1999, transfer agent charges for each
series were as follows:
Retail A Retail B Trust
-------- -------- -----
Asset Allocation $515,481 $133,280 $535,703
Equity Income 314,763 5,728 13,783
Growth and Income 491,381 133,578 462,089
Strategic Equity 21,328 4,234 83
Equity Value 499,802 73,714 363,963
Equity Growth 732,709 151,640 598,748
International Equity 240,531 6,583 278,950
Small Cap Value 342,571 7,464 128,618
Small Company Equity 334,373 60,742 465,455
A Prime B Prime
------- -------
Asset Allocation $ 244 $ 530
Growth and Income 161 156
Equity Growth 115 348
International Equity 73 291
Small Cap Value 330 804
Certain officers of the Trust are officers of the Administrator. Such
officers receive no compensation from the Trust for serving in their respective
roles. No officer, director or employee of the Investment Advisor serves as an
officer, trustee or employee of the Trust. Effective May 28, 1999, each Trustee
is entitled to receive for services as a trustee of the Trust, The Galaxy VIP
Fund ("VIP") and Galaxy Fund II ("Galaxy II") an aggregate fee of $45,000 per
annum plus certain other fees for attending or participating in meetings as well
as reimbursement for expenses incurred in attending meetings. Prior to May 28,
1999, each Trustee was entitled to receive for services as a trustee of the
Trust, VIP and Galaxy II an aggregate fee of $40,000 per annum plus certain
other fees for attending or participating in meetings as well as reimbursement
for expenses incurred in attending meetings. The Chairman of the Boards of
Trustees and the President and Treasurer of the Trust, VIP and Galaxy II are
also entitled to additional fees for their services in these capacities. These
fees are allocated among the funds of the Trust, VIP and Galaxy II, based on
their relative net assets.
Each Trustee is eligible to participate in The Galaxy Fund/The Galaxy VIP
Fund/Galaxy Fund II Deferred Compensation Plan (the "Plan"), an unfunded,
non-qualified deferred compensation plan. The Plan allows each trustee to defer
receipt of all or a percentage of fees which otherwise would be payable for
services performed.
Expenses for the year ended October 31, 1999 include legal fees paid to
Drinker Biddle & Reath LLP. A partner of that firm is Secretary to the Trust.
Pursuant to procedures adopted by the Board of Trustees and in accordance
with the Investment Company Act of 1940, as amended, certain funds placed a
portion of their portfolio transactions with Quick & Reilly Institutional
Trading, a division of Fleet Securities, Inc., an affiliate of the Funds'
Investment Advisor. The commissions paid to Quick & Reilly Institutional Trading
for the year ended October 31, 1999 were as follows:
Asset Allocation $141,443
Equity Income 232,329
Growth and Income 129,843
Equity Value 860,618
Strategic Equity 11,375
Equity Growth 157,771
Small Company Equity 7,380
Small Cap Value 14,000
4. Waiver of Fees and Reimbursement of Expenses
Fleet and/or its affiliates and/or the Administrator voluntarily agreed to
waive a portion of their fees and/or reimburse the Funds for certain expenses so
that total expenses would not exceed certain expense limitations established for
each Fund. The respective parties, at their discretion, may revise or
discontinue the voluntary waivers and/or expense reimbursements at any time. For
the year ended October 31, 1999, Fleet and/or its affiliates and/or the
Administrator waived fees and/or reimbursed expenses with respect to the Funds
as follows:
Fund Fees Waived Expenses Reimbursed
- -------------------- ----------- -------------------
Asset Allocation $ 764 $ --
Equity Income 500 3,274
Growth and Income 306 255,584
Strategic Equity 166,409 17,809
Equity Value -- 4,444
Equity Growth 453 17,017
International Equity 1,219,744 1,764
Small Cap Value 4,738 244,045
Small Company Equity -- 33,020
85
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Notes to Financial Statements
5. Shares of Beneficial Interest
The Trust's Declaration of Trust authorizes the Trustees to issue an
unlimited number of shares of beneficial interest, each with a par value of
$0.001. Shares of the Trust are currently classified into thirty-one classes of
shares, each consisting of one or more series.
Each share represents an equal proportionate interest in the respective
Fund, bears the same fees and expenses (except that Retail A Shares of the Fund
bear the expense of payments under the Services Plan, Retail B Shares of the
Fund bear the expense of payments under the 12b-1 Plan, A Prime Shares of the
Fund bear the expense of payments under the A Prime Shares Plan, B Prime Shares
of the Fund bear the expense of payments under the B Prime Shares Plan and Trust
Shares, Retail A Shares, Retail B Shares, A Prime Shares and B Prime Shares of
the Fund each bear series specific transfer agent charges) and are entitled to
such dividends and distributions of income earned as are declared at the
discretion of the Trust's Board of Trustees.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held, and will vote in
the aggregate and not by class or series, except as otherwise expressly required
by law or when the Board of Trustees determines that the matter to be voted on
affects only the interests of shareholders of a particular class or series.
6. Purchases and Sales of Securities
The cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the year ended October 31, 1999 were as follows:
<TABLE>
<CAPTION>
Purchases Sales
-------------------------------- --------------------------------
Fund U.S. Government Other U.S. Government Other
- ---- --------------- ------------ --------------- ------------
<S> <C> <C> <C> <C>
Asset Allocation ... $567,168,752 $392,808,691 $505,089,232 $345,877,161
Equity Income ...... 2,059,623 113,689,419 3,078,547 129,416,746
Growth and Income .. -- 109,729,611 -- 109,505,584
Strategic Equity ... -- 66,634,452 -- 58,931,943
Equity Value ....... -- 432,874,193 -- 465,287,198
Equity Growth ...... -- 746,175,354 -- 703,573,594
International Equity -- 258,586,270 -- 213,722,322
Small Cap Value .... -- 170,380,640 -- 122,177,106
Small Company Equity -- 351,709,401 -- 403,408,733
</TABLE>
The aggregate gross unrealized appreciation and depreciation, net
unrealized appreciation (depreciation) and cost for all securities as computed
on a federal income tax basis, at October 31, 1999 for each Fund is as follows:
<TABLE>
<CAPTION>
Fund Appreciation (Depreciation) Net Cost
- ---- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Asset Allocation ... $ 142,634,899 $ (22,816,357) $ 119,818,542 $ 629,227,087
Equity Income ...... 67,779,746 (14,941,341) 52,838,405 283,544,720
Growth and Income .. 151,441,382 (50,738,562) 100,702,820 504,431,100
Strategic Equity ... 6,848,959 (10,811,686) (3,962,727) 84,973,877
Equity Value ....... 110,634,761 (28,104,463) 82,530,298 481,783,361
Equity Growth ...... 614,280,106 (30,600,728) 583,679,378 991,244,076
International Equity 175,895,738 (27,717,372) 148,178,366 449,135,536
Small Cap Value .... 41,497,514 (68,080,761) (26,583,247) 363,938,451
Small Company Equity 88,975,338 (41,942,154) 47,033,184 285,335,699
</TABLE>
At October 31, 1999, the Small Company Equity Fund had capital loss
carryforwards of $33,481,372 and $2,671,948, which expire in 2006 and 2007,
respectively.
86
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Notes to Financial Statements
7. Foreign Securities
Each Fund may purchase securities of foreign issuers. Investing in
securities of foreign issuers involves special risks not typically associated
with investing in securities of U.S. issuers. The risks include possible
revaluation of currencies, less complete financial information about companies
and possible future adverse political and economic developments. Moreover,
securities of many foreign issuers and their markets may be less liquid and
their prices more volatile than those of securities of comparable U.S. issuers.
8. Tax Information (unaudited)
During the fiscal year ended October 31, 1999, the following Funds made
distributions from long-term capital gains:
Long-Term Gains
Fund Paid
- --------------- ---------------
Asset Allocation Fund ................................ $15,703,104
Equity Income Fund ................................... 31,283,250
Growth and Income Fund ............................... 30,329,285
Equity Value Fund .................................... 18,809,148
Equity Growth Fund ................................... 90,080,504
Small Cap Value Fund ................................. 25,019,942
International Equity Fund ............................ 11,553,218
During the fiscal year ended October 31, 1999, the Funds earned income
from direct obligations of the U.S. Government as follows:
U.S. Government
Fund Income
- --------------- ---------------
Asset Allocation Fund .................................... 0.21%
Equity Income Fund ....................................... 0.22
Growth and Income Fund ................................... 0.16
Equity Value Fund ........................................ 0.07
Strategic Equity Fund .................................... 2.60
Equity Growth Fund ....................................... 0.13
Small Cap Value Fund ..................................... 0.39
Small Company Equity Fund ................................ 0.10
International Equity Fund ................................ 0.06
Appropriate tax information detailing U.S. Government income percentages
on a calendar year basis will accompany your year-end tax statement. As each
state's rules on the exemption of this income differ, please consult your tax
advisor regarding specific tax treatment.
9. Subsequent Event - Change in Control of Administrator and Change in
Distributor (unaudited)
On December 1, 1999, PFPC Trust Company, a wholly-owned subsidiary of PFPC
Worldwide, Inc. and an indirect wholly-owned subsidiary of PNC Bank Corp.,
acquired all of the outstanding stock of Investor Services Group ( the
"Transation"). On that same date and as part of the Transaction, PFPC Inc., an
indirect wholly-owned subsidiary of PNC Bank Corp., was merged into Investor
Services Group, which then changed its name to PFPC Inc.
In connection with the Transaction, on December 1, 1999, Provident
Distributors, Inc. became the distributor of the Trust's shares.
87
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Shareholders and Board of Trustees of
The Galaxy Fund:
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of the Asset Allocation Fund, Equity Income Fund,
Growth and Income Fund, Strategic Equity Fund, Equity Value Fund, Equity Growth
Fund, International Equity Fund, Small Cap Value Fund and Small Company Equity
Fund (nine of the portfolios constituting The Galaxy Fund) as of October 31,
1999, and the related statements of operations, the statements of changes in net
assets, and the financial highlights for the year then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit. The statements of
changes in net assets for the year ended October 31, 1998 and the financial
highlights for the four years then ended were audited by other auditors whose
report dated December 23, 1998 expressed an unqualified opinion on those
statements and financial highlights.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in financial statements and
financial highlights. Our procedures included confirmation of securities owned
as of October 31, 1999 by correspondence with the custodian and brokers or other
appropriate auditing procedures where replies from brokers were not received. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the of
the Asset Allocation Fund, Equity Income Fund, Growth and Income Fund, Strategic
Equity Fund, Equity Value Fund, Equity Growth Fund, International Equity Fund,
Small Cap Value Fund and Small Company Equity Fund portfolios of The Galaxy Fund
at October 31, 1999, the results of their operations, changes in their net
assets and their financial highlights for the year then ended, in conformity
with generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
December 13, 1999
<PAGE>
-----------------
[LOGO] Galaxy Funds BULK RATE
P.O. Box 6520 U.S. POSTAGE PAID
Providence, RI 02940-6520 PERMIT NO. 105
NORTH READING, MA
-----------------
ANEQU (January 1, 2000)
<PAGE>
Galaxy Funds
Galaxy Taxable Bond Funds
Annual Report
October 31, 1999
Galaxy Short-Term Bond Fund
Galaxy Intermediate Government Income Fund
Galaxy High Quality Bond Fund
Galaxy Corporate Bond Fund
[LOGO] Galaxy
Funds
<PAGE>
- --------------------------------------------------------------------------------
Chairman's Message
Dear Shareholder:
Enclosed is the annual report for the Galaxy Taxable Bond Funds that
covers the fiscal year ended October 31, 1999. The report includes a Market
Overview that explains the different economic and market factors influencing
bond investments during this time. Following the Market Overview are individual
reviews that describe how Fleet Investment Advisors Inc. managed each of the
Funds' portfolios in this climate. Financial statements and a list of portfolio
holdings for each of the Funds as of October 31, 1999 appear at the end of the
report.
Unexpected economic strength, inflation concerns and a tighter monetary
policy drove bond yields higher during the reporting period. After cutting
short-term interest rates by 25 basis points (0.25%) at the start of the period,
the Federal Reserve became concerned that the economy was advancing strongly
enough to prompt inflation that would curb future growth. This resulted in rate
increases later in the period totaling 50 basis points (0.50%). As bond yields
rose, the prices for bonds fell sharply. When investors were most uncertain
about where interest rates would head, many moved back into securities with the
strongest credit quality and liquidity. In this environment, the Galaxy
Tax-Exempt Bond Funds benefited from an emphasis on higher-quality issues with
good liquidity.
Although market changes like those of the past year can be unnerving, they
are typical of the ups and downs that occur with most investments. Even so, this
may be a good time to meet with a financial advisor who can help you determine
whether your current strategies suit your long-term goals. Investment
professionals at Fleet Bank branches can provide you with a no-obligation
analysis that will help you make this comparison and get the most from your
portfolio.
If you are saving for a child's education, or are helping a family member
prepare for college, ask our representatives about the Galaxy College Investment
Program.
Galaxy offers an Education IRA which allows for tax-free earnings to
accumulate on your investment if used to pay for qualified college expenses.
Remember that anyone, not just a child's parents, can make a contribution.
You might also consider a custodial account such as a Uniform
Gift/Transfer to Minor Account (UGMA/UTMA). The UGMA/UTMA account offers another
opportunity to transfer assets to minors with favorable tax consequences in
preparation for college expenses. Ask your investment professional or tax
advisor about this important gifting opportunity.
If you have any questions about college investing opportunities or
information in this report, please contact the Galaxy Information Center
toll-free at 1-877-BUY-GALAXY (1-877-289-4252). You can also visit one of our
investment professionals located at Fleet branches.
Sincerely,
/s/ Dwight E. Vicks, Jr.
Dwight E. Vicks, Jr.
Chairman of the Board of Trustees
Mutual Funds:
- - are not bank deposits
- - are not FDIC insured
- - are not obligations of Fleet Bank
- - are not guaranteed by Fleet Bank
- - are subject to investment risk including possible loss of principal amount
invested
<PAGE>
- --------------------------------------------------------------------------------
Market Overview
Bond Market Overview
By Fleet Investment Advisors Inc.
Prices for bonds fell sharply over the past 12 months as an improving
economic outlook raised concern about higher inflation and the direction of
interest rates. While current inflation remained modest, interest rates rose and
flattened across the yield curve with short-term Treasury yields rising 150
basis points (1.5%) and long-term Treasury yields higher by just under 100 basis
points (1%). After slicing short-term rates by 25 basis points (0.25%) in
November of 1998, for a total rate cut of 75 basis points (0.75%) since
September 1998, the Federal Reserve ("the Fed") raised rates by 25 basis points
each at meetings on June 30, 1999 and August 24, 1999. The Fed adopted a tighter
monetary policy, framing the actions as reductions of the accommodative monetary
policy deemed necessary during the global financial crisis in 1998.
By taking advantage of investment opportunities in individual market
sectors created by near-term market fluctuations during the year, we helped the
Galaxy Taxable Bond Funds make the most of this environment.
"The Gross Domestic Product ("GDP"), which measures the output of U.S. goods and
services, surged from a growth rate of 3.8% in the third quarter of 1998 to 5.9%
in the fourth quarter of 1998, for a year-over-year gain of 4.6% -- one of it's
strongest showings in years."
A Changeable Outlook
At the start of the reporting period on November 1, 1998, 30-year Treasury
bonds were yielding 5.20% after hitting a low yield of 4.75% in October.
Economies overseas were still in turmoil and investors flocked to U.S. Treasury
Bonds for safety. The flight to quality caused demand for other fixed-income
securities to plummet. The annual rate of inflation, as measured by the Consumer
Price Index ("CPI"), was about 1.6% held down by deflationary trends overseas
and plummeting commodity prices. To prevent a seizing up in the financial
markets and restore confidence in other sectors, the Fed cut interest rates in
the fall of 1998.
As a result, both domestic and global growth rebounded strongly. The Gross
Domestic Product ("GDP"), which measures the output of U.S. goods and services,
surged from a growth rate of 3.8% in the third quarter of 1998 to 5.9% in the
fourth quarter of 1998, for a year-over-year gain of 4.6% -- one of it's
strongest showings in years.
Despite low levels of current inflation, which kept the Fed from acting at
this time, the yield for 30-year Treasuries rose to 5.62% by the end of March.
With energy prices on the rise, consumer spending in an upswing, and the
deflationary tailwinds from Asia ebbing, investors became concerned that the Fed
would have to start raising rates preemptively to keep an overheated economy
from igniting inflation. Headline inflation began to tick up slightly due to
energy prices, but core inflation continued to fall reflecting the persistent
lack of pricing pressure generally. However, with no signs of moderation in
economic growth and the Y2K window closing fast, the Fed raised short-term rates
at the end of June, the first time since March of 1997. While generalized wage
pressures remained absent, tightening labor markets and the lowest unemployment
rate in a generation prompted the Fed to raise short-term rates again in August.
Worries over the possible extent of this tightening cycle caused 30-year
Treasury yields to rise as high as 6.28% during the month. Signs of softer
growth appeared again as the fiscal year closed in October, as both housing and
consumer spending slowed in response to higher rates. Yields on long Treasuries
ended the year at 6.15%.
Gauging Market Trends
As the economic outlook improved in the first half of the period, many
sectors that had lagged Treasuries began to outperform, especially the lower
quality, emerging market, and Yankee sectors. Having placed an extra emphasis on
U.S. Government securities last year, in 1999 we selectively increased
investments in corporate issues, primarily in non-cyclical sectors. Fund returns
also benefited from sizable investments in mortgage-backed securities and
asset-backed issues, which were highlighted increasingly throughout the year. In
the first half of the year, the corporate bond mar-
1
<PAGE>
- --------------------------------------------------------------------------------
ket suffered from supply fears, as investors worried that a flood of new issues
in response to Y2K funding needs would require wider spread levels to attract
buyers. As the supply bulge failed to appear, investor appetite picked up in the
third quarter and risk premiums narrowed. Top performing corporate sectors
through the fiscal year-end included triple-B rated and Yankee (non-domestic)
issuers.
"After an average growth rate of about 4% in both 1998 and 1999, we believe GDP
will grow more moderately next year. If that's the case, inflation should remain
moderate, interest rates could retreat, and bond prices could rally."
Slower Growth Should Prompt Bond Rally
A greater emphasis on quality and liquidity should benefit the Funds if
high interest rates cause economic growth to slow in the coming year, as we
expect. Real Fed Funds (adjusted for core CPI) is now at a more restrictive
level than at the end of the last Fed tightening cycle in 1994. Based on this
measure, further tightening by the Fed will be limited and will focus primarily
on trends in core inflation. After an average growth rate of about 4% in both
1998 and 1999, we believe GDP will grow more moderately next year. If that's the
case, inflation should remain moderate, interest rates could retreat, and bond
prices could rally.
In the meantime, bonds should remain attractive to investors. Currently,
Treasuries offer real (inflation-adjusted) returns of more than 4%, which is
high versus historic norms. In addition, risk premiums, which are the
incremental yields that investors demand for investing in bonds other than
Treasuries, also remain wide versus historical measures. At these valuations,
high quality bonds remain an attractive choice for fixed-income investors.
Outside of seasonal demand, which typically picks up in the first quarter of a
new year, a slowing economy is expected to curtail demand for lower quality
product. With private-sector debt levels at a historically high level and higher
default rates in the high yield market, we continue to focus on high quality
issuers which we feel represent good long term value.
PERFORMANCE AT-A-GLANCE
AVERAGE ANNUAL TOTAL RETURNS -- RETAIL A SHARES*
10 Years/
As of October 31, 1999 1 Year 3 Years 5 Years Life of Fund
- --------------------------------------------------------------------------------
Short-Term Bond Fund
(Inception date 12/30/91) -1.38% 3.48% 4.85% 4.54%
- --------------------------------------------------------------------------------
Intermediate Government
Income Fund (Inception date 9/1/88)** -4.83 3.73 5.45 5.76
- --------------------------------------------------------------------------------
High Quality Bond Fund
(Inception date 12/14/90) -6.34 3.81 6.68 6.68
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS -- A PRIME SHARES*
As of October 31, 1999 1 Year 3 Years 5 Years Life of Fund
- --------------------------------------------------------------------------------
High Quality Bond Fund
(Inception date 11/1/98) -7.31% N/A N/A -7.31%
- --------------------------------------------------------------------------------
* Return figures for Retail A Shares have been restated to include the
effect of the maximum 3.75% front-end sales charge which became effective
on December 1, 1995. Return figures for A Prime Shares include the effect
of the maximum 4.75% front-end sales charge.
** Retail A Shares of the Intermediate Government Income Fund were first
offered during the fiscal year ended October 31, 1992. The returns for
Retail A Shares for prior periods represent the returns for Trust Shares
of the Fund. Prior to November 1, 1993, the returns for Retail A Shares
and Trust Shares of the Fund were the same because each series of shares
had the same expenses.
2
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE AT-A-GLANCE
AVERAGE ANNUAL TOTAL RETURNS -- TRUST SHARES
10 Years/
As of October 31, 1999 1 Year 3 Years 5 Years Life of Fund
- --------------------------------------------------------------------------------
Short-Term Bond Fund
(Inception date 12/30/91) 2.67% 5.03% 5.89% 5.21%
- --------------------------------------------------------------------------------
Intermediate Government Income Fund
(Inception date 9/1/88) -0.86 5.33 6.56 6.27
- --------------------------------------------------------------------------------
Corporate Bond Fund
(Inception date 12/12/94) -0.82 5.15 N/A 6.96
- --------------------------------------------------------------------------------
High Quality Bond Fund
(Inception date 12/14/90) -2.52 5.29 7.66 7.24
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS -- RETAIL B SHARES**
<TABLE>
<CAPTION>
1 Year 1 Year 3 Year 3 Year Life of Fund Life of Fund
Returns Before Returns After Returns Before Returns After Returns Before Returns After
Contingent Contingent Contingent Contingent Contingent Contingent
As of Deferred Sales Deferred Sales Deferred Sales Deferred Sales Deferred Sales Deferred Sales
October 31, 1999 Charge Deducted Charge Deducted* Charge Deducted Charge Deducted* Charge Deducted Charge Deducted*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Short-Term Bond Fund
(Inception date 3/4/96) 1.71% -3.17% 4.13% 3.21% 3.97% 3.48%
- ------------------------------------------------------------------------------------------------------------------------------------
Intermediate Government
Income Fund
(Inception date 11/1/98) -1.78 -6.47 N/A N/A -1.78 -6.47
- ------------------------------------------------------------------------------------------------------------------------------------
High Quality Bond Fund
(Inception date 3/4/96) -3.25 -7.82 4.53 3.63 4.02 3.55
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS -- B PRIME SHARES**
<TABLE>
<CAPTION>
1 Year 1 Year Life of Fund Life of Fund
Returns Before Returns After Returns Before Returns After
Contingent Contingent Contingent Contingent
As of Deferred Sales Deferred Sales Deferred Sales Deferred Sales
October 31, 1999 Charge Deducted Charge Deducted* Charge Deducted Charge Deducted*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
High Quality Bond Fund
(Inception date 11/1/98) -3.46% -8.03% -3.46% -8.03%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* As if shares were redeemed at end of period.
** Retail B Shares and B Prime Shares are subject to a 5.00% contingent
deferred sales charge if shares are redeemed within the first year. The
charge decreases to 4.00%, 3.00%, 3.00%, 2.00% and 1.00% for redemptions
made during the second through sixth years, respectively. Retail B Shares
automatically convert to Retail A Shares after six years and B Prime
Shares automatically convert to A Prime Shares after eight years.
Past performance is no guarantee of future results. Investment returns and
principal values will vary with market conditions so that an investor's shares,
when redeemed, may be worth more or less than their original cost. The
Investment Advisor is presently waiving fees and/or reimbursing expenses and may
revise or discontinue such practice at any time. Without such waivers and/or
reimbursements, performance would be lower. Total return figures in this report
include changes in share price, reinvestment of dividends and capital gains
distributions and include the deduction of any sales charges, where applicable,
unless otherwise indicated.
3
<PAGE>
- --------------------------------------------------------------------------------
Portfolio Reviews
[PHOTO]
Glenn Migliozzi is the managing director of Fixed Income Investments for Fleet
Investment Advisors, Inc. He is also a member of Fleet's Taxable Fixed Income
Strategy Committee, which has managed the Galaxy Short-Term Bond Fund since
October of 1999.
GALAXY SHORT-TERM BOND FUND
By Glenn Migliozzi
Managing Director
Fixed Income Investments
As short-term interest rates edged higher over the past year, the Galaxy
Short-Term Bond Fund benefited from holding sizable investments in Treasury
securities and cash, and from keeping its maturity structure near or somewhat
shorter than that of its market benchmarks. We further enhanced returns by
taking advantage of near-term opportunities to increase yield that market
fluctuations created in individual bond sectors.
For the 12 months ended October 31, 1999, the Fund's Trust Shares earned a
total return of 2.67%, and its Retail A Shares had a total return of 2.43%
before deducting the 3.75% maximum front-end sales charge. During this time, the
Fund's Retail B Shares had a total return of 1.71% before deducting the maximum
5.00% contingent deferred sales charge. (Please see the chart on page 3 for
total returns after deducting the front-end sales charge and the chart on page 4
for total returns after deducting the contingent deferred sales charge.)
Over the same period, the average short-term bond fund tracked by Lipper
Analytical Services ("Lipper") earned a total return of 2.98%, and the Lehman
One-to-Three-Year Government Index had a total return of 2.97%.
On October 31, 1999, when the reporting period ended, the Galaxy
Short-Term Bond Fund had an average maturity near that of the Fund's benchmark,
and the Fund's Trust Shares had a 30-day Securities and Exchange Commission
("SEC") annualized yield of 5.31%. On the same date, Retail A Shares of the Fund
had a 30-day SEC annualized yield of 4.96%, and Retail B Shares had a 30-day SEC
annualized yield of 4.34%.
Enhancing Return as Yields Rose
In the final months of 1998 and the first months of 1999, the Fund
benefited from earlier additions of short-term issues, whose prices suffered
less than those with longer maturities as interest rates rose. Of further help
was the Fund's exposure to high-quality corporate bonds, which recorded
relatively good results as the economic outlook indicated continued strength.
Holdings in mortgage-backed securities also performed well, as rising interest
rates reduced the risk of home-loan prepayments. During this time we increased
investments in mortgage-backed securities and made opportunistic trades within
the corporate sector.
In the second quarter of 1999, with robust growth and the Fed's rate hike
of 25 basis points (0.25%), yields for shorter maturities rose 30 to 70 basis
points. While corporate bonds suffered from lighter demand and increased
supplies at this time, the added income from corporates more than compensated
for the slight lag in their price performance. During the second quarter, we
took advan-
4
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO REVIEWS
tage of selected opportunities in corporates, as well as in asset-backed and
mortgage-backed securities.
With a further rise in yields, the higher yields earned on non-Treasury
debt helped offset any extra price loss by those securities. Anticipating a
continued flight to quality, we added Treasury securities to the portfolio and
increased the Fund's cash position. We also continued to take advantage of
selected trading opportunities that arose from market fluctuations.
Defensive Posture to Continue
Given the many uncertainties that investors will face at the end of 1999,
we intend to focus new purchases on issues that mature next year when many of
these concerns should be resolved. In addition, we plan to maintain large
investments in Treasuries and cash. Besides giving the Fund added liquidity,
Treasuries could benefit from any year-end flight to quality. As always, we plan
to focus on high-quality securities in other sectors and make the most of new
investment opportunities that arise.
Galaxy Short-Term Bond Fund
Distribution of Total Net Assets as of October 31, 1999
[The following table was originally a pie chart in the printed materials.]
Repurchase Agreement and Net Other Assets & Liabilities 13%
Commercial Paper 2%
U.S.Government and Agency Obligations 31%
Asset-Backed and Mortgage-Backed Securities 21%
Corporate Notes and Bonds 33%
Galaxy Short-Term Bond Fund
Growth of $10,000 investment*
[The following table was originally a mountain graph in the printed materials.]
<TABLE>
<CAPTION>
12/30/91 10/31/99
<S> <C> <C>
Lehman Brothers One to Three Year Government Bond Index $10,000 $15,562
Galaxy Short-Term Bond Fund - Retail A Shares $ 9,625 $14,164
Galaxy Short-Term Bond Fund - Trust Shares $10,000 $14,888
Galaxy Short-Term Bond Fund - Retail B Shares $10,000 $11,335
</TABLE>
* Since inception on 12/30/91 for Trust and Retail A Shares. Since inception
on 3/4/96 for Retail B Shares. Performance figures for Retail A Shares
include the effect of the maximum 3.75% front-end sales charge.
Performance figures for Retail B Shares reflect the deduction of the 3.00%
contingent deferred sales charge as if shares were redeemed on October 31,
1999. The Lehman Brothers One to Three Year Government Bond Index is an
unmanaged index in which investors cannot invest. Results for the index do
not reflect investment management fees and other expenses incurred by the
Fund.
5
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO REVIEWS
[PHOTO]
Marie Schofield became manager of the Galaxy Intermediate Government Income Fund
in December of 1996. She has managed fixed-income investments since 1975.
GALAXY INTERMEDIATE GOVERNMENT INCOME FUND
By Marie Schofield
Portfolio Manager
In a climate where investors were concerned that rising interest rates
would curtail future growth and generally favored U.S. Government securities and
other issues with higher credit quality, the Galaxy Intermediate Government
Income Fund benefited from sizable holdings in government debt. We further
enhanced returns during this time by taking advantage of attractive yield
opportunities that arose in other sectors and by emphasizing investments with
longer maturities. While the increased yield from longer maturities was
sometimes offset by the lesser price performance of these issues, we feel the
Fund's longer maturity structure should serve it well once interest rates fall
and bond prices rally.
For the 12 months ended October 31, 1999, the Fund's Trust Shares had a
total return of -0.86% and its Retail A Shares had a total return of -1.11%
before deducting the maximum 3.75% front-end sales charge. During the same
period, the Fund's Retail B Shares had a total return of -1.78% before deducting
the maximum 5.00% contingent deferred sales charge. (Please see the chart on
page 3 for total returns after deducting the front-end charge and the chart on
page 4 for total returns after deducting the contingent deferred sales charge.)
Those returns compare with a total return of -0.83% for the average
intermediate government bond fund tracked by Lipper, a total return of 0.99% for
the Lehman Brothers Intermediate Government/Corporate Intermediate Bond Index
and a total return of 0.53% for the Lehman Brothers Aggregate Bond Index. As of
October 31, 1999, the Fund's Trust Shares had a 30-day SEC annualized yield of
5.76%. On the same date, Retail A Shares of the Fund had a 30-day SEC annualized
yield of 5.38% and Retail B Shares had a 30-day SEC annualized yield of 4.82%.
Adapting to Economic Changes
In the first half of the reporting period, the Fund increased investments
in corporate, asset-backed, and mortgage-backed securities as well as in issues
of U.S. Government agencies. Besides being attractive on an historical basis,
the yields of these "spread products" provided some protection as interest rates
rose and bond prices fell. To facilitate these purchases, we reduced our
allocation in Treasuries. Continually throughout the period, U.S. Government
issues represented more than 70% of the portfolio, which is well above the 65%
threshold required by the Fund's investment policies.
During this time we maintained a "barbelled" maturity structure, which
overweights both long and short maturities and underweights intermediate
maturities. This positioning is optimal when the yield curve flattens, and
serves to minimize the impact of falling prices as short-term interest rates
rise more than long-term interest rates. During this time, interest rates on
long-term Treasuries rose 100 basis points while interest rates on short-term
Treasuries rose nearly 170 basis points, which is typical in an environment of
monetary policy tightening. We reduced the Fund's duration early in the period
when long-term Treasury yields fell below 5.0%. Overall, this gave the Fund a
duration that was about 105% of the duration for the average of the Lehman
Brothers Intermediate Government/Corporate Bond Index and the Lehman Brothers
Aggregate Bond Index. When the 30-year Treasury yield moved above 5.40% in the
first quarter of 1999, we extended the Fund's duration to 109% of that of the
Index.
6
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO REVIEWS
As yield spreads increased in the second quarter of 1999, we added
selectively to bonds of domestic banks and intermediate-term industrials and
consumer non-cyclicals. Throughout the period, however, holdings of corporate
issues remained light versus the Fund's benchmark, a blend of the Lehman
Brothers Intermediate Government/Corporate Bond Index and the Lehman Brothers
Aggregate Bond Index. We did maintain a significant overweight in mortgages due
to their ongoing attractive valuation, and increased holdings as the year
progressed. At the end of the period, weightings in mortgage-backed securities
were about double those of the benchmark. We reduced positions in
intermediate-term corporates in favor of government issues, as spread levels
between these two sectors narrowed dramatically. As real (inflation-adjusted)
yields rose, the Fund's duration was increased periodically when interest rates
spiked to historically attractive levels. While relative value was deemed high,
these moves also made the Fund more sensitive to changes in interest rates. The
Fund's duration was extended a final time in June as long-term Treasury yields
rose above 6%. By the end of June, the duration was approximately 114% of that
for the benchmark.
Strategies for Slower Growth
If slower growth allows yields to fall and prices to rally, as we expect,
longer-maturity issues should enjoy strong gains. In the meantime, they provide
the Fund with added income. The Fund should also benefit from its investments in
agencies and mortgage-backed securities, whose strong credit quality is likely
to attract investors in a less robust economy.
Galaxy Intermediate Government Income Fund
Distribution of Total Net Assets as of October 31, 1999
[The following table was originally a pie chart in the printed materials.]
Asset-Backed Securities, Foreign Bonds, Repurchase Agreement
and Net Other Assets & Liabilities 6%
Mortgage-Backed Securities 30%
U.S. Government and Agency Obligations 49%
Corporate Notes and Bonds 15%
Galaxy Intermediate Government Income Fund
Growth of $10,000 investment*
[The following table was originally a mountain graph in the printed materials.]
<TABLE>
<CAPTION>
9/1/88 10/31/99
<S> <C> <C>
Lehman Brothers Aggregate Bond Index $10,000 $23,892
Lehman Brothers Intermediate Government/Corporate Bond Index $10,000 $23,781
Galaxy Intermediate Government Income Fund - Retail A Shares $ 9,625 $20,046
Galaxy Intermediate Government Income Fund - Trust Shares $10,000 $21,038
Galaxy Intermediate Government Income Fund - Retail B Shares $10,000 $ 9,353
</TABLE>
* Since inception on 9/1/88 for Trust and Retail A Shares. Since inception
on 11/1/98 for Retail B Shares. Performance figures for Retail A Shares
include the effect of the maximum 3.75% front-end sales charge.
Performance figures for Retail B Shares reflect the deduction of the
maximum 5.00% contingent deferred sales charge as if shares were redeemed
on October 31, 1999. The Lehman Brothers Aggregate Bond Index and the
Lehman Brothers Intermediate Government/Corporate Bond Index are unmanaged
indices in which investors cannot invest. Results for the indices do not
reflect investment management fees and other expenses incurred by the
Fund.
7
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO REVIEWS
[PHOTO]
David Lindsay has managed the Galaxy Corporate Bond Fund since its inception in
December of 1994. He has managed other fixed-income portfolios for Fleet
Investment Advisors Inc. since 1986.
GALAXY CORPORATE BOND FUND
By David Lindsay
Portfolio Manager
Trust Shares of the Galaxy Corporate Bond Fund earned a total return of
- -0.82% for the 12 months ended October 31, 1999. That compares to total returns
of -0.07% for the average intermediate investment-grade bond fund tracked by
Lipper and -0.66% for the Lehman Brothers Intermediate Government/Corporate Bond
Index. At the end of the period the Fund's Trust Shares had a 30-day SEC
annualized yield of 5.85%.
Seizing Investment Opportunities
With investors concerned about the outlook for the economy at the end of
calendar year 1998, we found selected opportunities to purchase attractively
priced corporate bonds. In addition, because overblown fears regarding the risk
of home-loan prepayments had made the prices of mortgage-backed securities more
attractive, we also increased our mortgage exposure and took advantage of
trading opportunities in that sector.
These strategies proved rewarding to Fund shareholders in the first months
of calendar year 1999. With an improving outlook for the economy and profits,
corporate bonds performed well. As rising interest rates reduced the risk of
home-loan prepayments, a strong performance by mortgage-backed securities
further enhanced returns. In response to the higher interest rates, we trimmed
investments in the debt of financial firms, which are especially sensitive to
climbing yields. We also took profits in bonds issued by drug and retail
companies that had recorded good relative price performance. We used the
proceeds from these sales to purchase the debt of telecommunications and
industrial firms that offered good value, and we increased the Fund's exposure
to bonds issued by U.S. Government agencies.
With the appearance of slower economic growth during the second quarter of
1999, securities possessing strong liquidity and high credit quality
outperformed. As a result, the Fund benefited from its sizable holdings in
Treasuries, agencies, and corporates with strong credit ratings. As increased
supplies of corporate bonds during this period made their prices more
attractive, we took advantage of opportunities to purchase the debt of utility
and industrial firms. We also continued to buy agencies and mortgage-backed
securities, as well as some dollar-denominated "Yankee" bonds issued in the U.S.
by foreign entities.
These investments helped to bolster yields in the final months of the
fiscal year. In recent months, we made further investments in Yankees,
asset-backed securities and agencies. To give the Fund added liquidity, we also
increased investments in Treasuries. We financed these purchases with sales of
utility and industrial bonds that had experienced good relative price
performance.
Throughout the fiscal year, we undertook a substantial number of
opportunistic trades, swapping out of Treasuries into new-issue corporate
securities, then back into Treasuries again, achieving a moderate gain on most
of these "round-
8
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO REVIEWS
trips." The cumulative effect of these opportunistic transactions was favorable
to the Fund's return.
Reduced Weighting in Corporate Bonds
The Fund's allocation to corporate bonds is now less than it was a year
ago. With the prospect of slower growth and more moderately expanding earnings,
we think that corporate bonds could underperform in months to come. The Fund
should also benefit from a larger weighting in Treasuries and agencies. We
believe these securities could outperform as supplies of new issues from these
sectors ebb due to the Federal budget surplus and less vigorous housing
activity, and as economic uncertainty drives investors to securities with strong
credit quality and liquidity. Once prices for corporate bonds become more
attractive, we plan to look for opportunities to rebuild the Fund's weighting in
that sector. In the meantime, we may make additional purchases of Yankees, which
should benefit from continued improvement in economies abroad.
Galaxy Corporate Bond Fund
Distribution of Total Net Assets as of October 31, 1999
[The following table was originally a pie chart in the printed materials.]
Asset-Backed and Mortgage-Backed Securities 7%
Repurchase Agreement and Net Other Assets & Liabilities 2%
Foreign Bonds 2%
Corporate Notes and Bonds 63%
U.S. Government and Agency Obligations 26%
Galaxy Corporate Bond Fund
Growth of $10,000 investment*
[The following table was originally a mountain graph in the printed materials.]
<TABLE>
<CAPTION>
12/12/94 10/31/99
<S> <C> <C>
Lehman Brothers Intermediate Government/Corporate Bond Index $10,000 $15,263
Galaxy Corporate Bond Fund - Trust Shares $10,000 $13,896
</TABLE>
* Since inception on 12/12/94. The Lehman Brothers Intermediate
Government/Corporate Bond Index is an unmanaged index in which investors
cannot invest. Results for the index do not reflect investment management
fees and other expenses incurred by the Fund.
9
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO REVIEWS
[PHOTO]
Marie Schofield has managed the Galaxy High Quality Bond Fund since March of
1996. She has managed fixed-income investments since 1975.
GALAXY HIGH QUALITY BOND FUND
By Marie Schofield
Portfolio Manager
In the first half of the reporting period, as the global economic outlook
improved and risk premiums contracted, corporate, asset-backed, and
mortgage-backed securities outperformed Treasuries. Additional commitments made
to these sectors benefited Fund returns. Later in the period, risk premiums in
selected sectors saw renewed widening while certain favored sectors, such as
U.S. Government agency and mortgage-backed issues, asset-backed issues, and
especially the Yankee sector, continued to perform well. Throughout the period
we continued to increase our allocations to mortgage-backed and asset-backed
securities and adjusted our weightings to the corporate sector in order to take
advantage of these changes. During this time, we also remained overweighted in
short and long maturities following a barbell strategy throughout much of the
year. This positioning is optimal when the yield curve flattens and serves to
minimize the impact of falling prices as short-term interest rates rise more
than long-term interest rates. During this time, interest rates on long-term
Treasuries rose 100 basis points while interest rates on short-term Treasuries
rose nearly 170 basis points -- typical in an environment of monetary policy
tightening.
As real yields rose, the Fund's duration was increased periodically when
interest rates spiked to historically attractive levels. While relative value
was deemed high, these moves also made the Fund more sensitive to changes in
interest rates. As rates continued to march upward and top out at levels above
6%, the Fund underperformed for the reporting period. Since the Fund is
generally not permitted to invest in foreign securities, its returns also
suffered from an absence of dollar-denominated "Yankee" bonds issued by foreign
corporations and institutions. Yankee bonds saw stellar performance during the
period in response to exceptional demand, as wide spread levels attracted
investors. Financial issues also performed well during the period.
For the 12 months ended October 31, 1999, the Fund's Trust Shares earned a
total return of -2.52%. Over the same time, Retail A Shares of the Fund had a
total return of -2.66% before deducting the maximum 3.75% front-end sales
charge, and its Retail B Shares had a total return of -3.46% before deducting
the maximum 5.00% contingent deferred sales charge. A Prime Shares of the Fund
had a total return of -2.68% before deducting the maximum 4.75% front-end sales
charge and its B Prime Shares had a total return of -3.46% before deducting the
maximum 5.00% contingent deferred sales charge. (Please see the charts on page 3
for total returns after deducting the applicable front-end sales charge and the
charts on page 4 for total returns after deducting the applicable contingent
deferred sales charge.)
Over the same 12-month period, the average A-rated corporate bond fund
tracked by Lipper had a total return of -0.92%, the Lehman Brothers
Government/Corporate Bond Index had a total return of -0.66% and the Lehman
Brothers Long-Term Government/ Corporate Bond Index had a total return of
- -4.31%. The Fund has changed its benchmark from the Lehman Brothers Long-Term
Government/ Corporate Bond Index to the Lehman Brothers Government/Corporate
Bond Index, which is comprised of securities with remiaining maturities that
more closely approximate the remaining maturities of those securities held by
the Fund.
On October 31, 1999, the Fund's Trust Shares had a 30-day SEC annualized
yield of 5.76%, its Retail A Shares had a 30-day SEC annualized yield of 5.41%
and its Retail B Shares had a 30-day SEC annualized yield of 5.00%. On such
date, the Fund's A Prime Shares had a 30-day SEC annualized yield of 5.66% and
its B Prime Shares had a 30-day SEC annualized yield of 4.89%.
Portfolio Adjustments
Early in the fiscal year, we reduced Treasuries in favor of additional
corporate, asset-backed, and mortgage-backed securities, as well as U.S.
Government agency issues. As the yield for 30-year
10
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO REVIEWS
Treasuries fell below 5% in December of 1998, we reduced the Fund's duration to
104% of benchmark duration. When the 30-year Treasury yield moved above 5.40% in
the first quarter of 1999, we extended the Fund's duration to 109% of that for
the Index.
As the global economic outlook brightened in the first and second quarters
of 1999, corporate securities performed well versus Treasuries and our higher
allocation to this sector helped Fund performance. Specifically, our overweights
included issues in industrials, consumer non-cyclicals, and telecommunications
due to their stable outlook and strong credit quality. We remained underweighted
in corporate bonds issued by financial firms. We also found opportunities in
high-quality debt of retailers, drug companies, and energy firms. While
corporate bonds underperformed in the second half-year period, due to
expectations of a glut of new supply ahead of Y2K, agency, mortgage-backed and
asset-backed securities continued to contribute positively to Fund returns. In
June, after the yield on the 30-year Treasury bonds reached 6.15%, we further
extended the Fund's duration to 114% of the duration for its benchmark.
As rates rose further in the final months of the period, the Fund
benefited from its focus on better-quality issues and from a barbelled maturity
structure. The higher yields on investments in mortgage-backed securities and
corporate bonds helped to offset the price declines in those sectors. When risk
premiums on U.S. Government agencies became more attractive, we added to
holdings in that sector. As we approached the final quarter of this calendar
year, we increased investments in Treasuries in an effort to highlight
liquidity.
Prepared for Slower Growth
With a duration that remains 114% of its benchmark, the Fund should enjoy
strong gains when growth finally slows and bond prices rally. Tentative evidence
of slowing is already apparent in the housing sector and consumer demand has
slowed somewhat. In addition, employment gains have begun to soften. The Fed is
resolved to slow economic growth to head off any inflationary pressures from
tight labor markets. How much additional tightening, if any, that is required to
achieve this goal remains a major question. With the eventual slowdown, the Fund
should benefit from its emphasis on high credit quality and its longer maturity
structure.
Galaxy High Quality Bond Fund
Distribution of Total Net Assets as of October 31, 1999
[The following table was originally a pie chart in the printed materials.]
Foreign Bond, Repurchase Agreement and
Net Other Assets & Liabilities 4%
Mortgage-Backed Securities 18%
U.S. Government and Agency Obligations 40%
Asset-Backed Securities 6%
Corporate Notes and Bonds 32%
Galaxy High Quality Bond Fund
Growth of $10,000 investment*
[The following table was originally a mountain graph in the printed materials.]
<TABLE>
<CAPTION>
12/14/90 10/31/99
<S> <C> <C>
Lehman Brothers Long-Term Government/Corporate Bond Index $10,000 $20,028
Lehman Brothers Government/Corporate Bond Index $10,000 $23,623
Galaxy High Quality Bond Fund - Retail A Shares $ 9,625 $17,762
Galaxy High Quality Bond Fund - Trust Shares $10,000 $18,602
Galaxy High Quality Bond Fund - Retail B Shares $10,000 $11,362
Galaxy High Quality Bond Fund - A Prime Shares $ 9,525 $ 9,269
Galaxy High Quality Bond Fund - B Prime Shares $10,000 $ 9,197
</TABLE>
* Since inception on 12/14/90 for Trust and Retail A Shares. Since inception
on 3/4/96 for Retail B Shares. Since inception on 11/1/98 for A Prime and
B Prime Shares. Performance figures for Retail A Shares include the effect
of the maximum 3.75% front-end sales charge. Performance figures for Prime
A Shares include the effect of the maximum 4.75% front-end sales charge.
Performance figures for Retail B and B Prime Shares reflect the deduction
of the 3.00% contingent deferred sales charge (applicable to shares
redeemed in the fourth year after purchase) and maximum 5.00% contingent
deferred sales charge, respectively, as if shares were redeemed on October
31, 1999. The Lehman Brothers Long-Term Government/Corporate Bond Index
and the Lehman Brothers Government/Corporate Bond Index are unmanaged
indices in which investors cannot invest. Results for the indices do not
reflect investment management fees and other expenses incurred by the
Fund.
11
<PAGE>
- --------------------------------------------------------------------------------
Shareholder Services
AUTOMATIC INVESTMENT PROGRAM
The Golden Rule of investing is "pay yourself first." That is easy to do with
Galaxy's Automatic Investment Program. For as little as $50 per month deducted
directly from your checking, savings or bank money market account, you can
consistently and conveniently add to your Galaxy investment. When you establish
an Automatic Investment Program, the $2,500 initial investment requirement for
Galaxy is waived. Of course, such a program does not assure a profit and does
not protect against loss in a declining market.
"A well-balanced asset allocation plan may help to control your risk while
pursuing your goals."
DIVERSIFICATION
A fundamental investment practice is "diversification." A well-balanced asset
allocation plan may help to control your risk while pursuing your goals. Many
mutual funds offer a low-cost way to diversify your investments while you
benefit from professional management. Galaxy's comprehensive array of investment
choices can be used in combination to match the needs of nearly everyone.
EXCHANGE PRIVILEGES
As your investment needs change, you can conveniently exchange your shares in
one fund for shares in another fund at no cost (as long as you exchange within
the same share class).
CONSOLIDATED STATEMENTS
Timely, comprehensive mutual fund account statements offer detailed information
on your individual account. If you have a Fleet One Gold or a Fleet Private
Banking Account, your Galaxy Fund information can be added to these statements.
24-HOUR ACCESS TO REGISTERED REPRESENTATIVES
24 hours a day, seven days a week, 365 days a year, we are ready and available
to help. Our toll-free telephone lines offer round-the-clock access to Fund
information and service. Call toll-free 1-877-BUY-GALAXY (1-877-289-4252) for
information on initial purchases and current performance.
- --------------------------------------------------------------------------------
Certain shareholder services may not be available to Trust, A Prime and B Prime
Share investors. Please consult your Fund Prospectus.
Shares of the Funds are distributed through Provident Distributors, Inc., member
NASD and SIPC.
12
<PAGE>
- --------------------------------------------------------------------------------
Short-Term Bond Fund
Portfolio of Investments
October 31, 1999
Par Value Value
--------- -----
CORPORATE NOTES AND BONDS - 32.55%
Automobile Finance - 11.75%
$ 1,000,000 Associates Corp. of North America
Senior Note
5.50%, 02/15/02 .......................... $ 975,000
1,250,000 Ford Motor Credit Co.
6.85%, 08/15/00 .......................... 1,256,051
250,000 Ford Motor Credit Co.
6.25%, 11/08/00 .......................... 249,778
1,200,000 Ford Motor Credit Co.
5.75%, 01/25/01 .......................... 1,191,000
500,000 Ford Motor Credit Co.
7.00%, 09/25/01 .......................... 503,750
500,000 General Motors Acceptance Corp.
5.63%, 02/15/01 .......................... 495,000
2,000,000 General Motors Acceptance Corp.
7.13%, 05/01/01 .......................... 2,017,500
------------
6,688,079
------------
Finance - 10.25%
2,000,000 Caterpillar Financial Services Corp., MTN
5.47%, 09/12/01 .......................... 1,960,000
1,600,000 General Electric Capital Corp.
Series A, MTN
6.33%, 09/17/01 .......................... 1,598,000
770,000 General Electric Capital Corp., MTN
6.81%, 11/03/03 .......................... 772,926
1,500,000 Wells Fargo Company, (C)
5.71%, 10/31/01 .......................... 1,500,015
------------
5,830,941
------------
Transportation - 3.21%
1,820,000 Norfolk Southern Corp.
6.70%, 05/01/00 .......................... 1,826,825
Technology - 3.49%
2,000,000 International Business
Machines Corp., MTN
5.80%, 05/15/01 .......................... 1,985,000
------------
Industrial - 2.16%
1,000,000 Pepsi Bottling Holdings, Inc.
5.38%, 02/17/04 (A) ...................... 942,500
300,000 Xerox Corp.
5.50%, 11/15/03 .......................... 285,750
------------
1,228,250
------------
Utilities - 1.69%
$ 1,000,000 Sprint Capital Corp.
5.88%, 05/01/04 .......................... 961,250
------------
Total Corporate Notes and Bonds.. 18,520,345
------------
(Cost $15,636,447)
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 31.51%
U.S. Treasury Notes - 8.46%
2,125,000 6.25%, 10/31/01 .......................... 2,142,786
1,000,000 5.88%, 09/30/02 .......................... 1,000,070
500,000 4.25%, 11/15/03 .......................... 469,700
1,200,000 6.00%, 08/15/04 .......................... 1,203,324
------------
4,815,880
------------
Government National
Mortgage Association - 6.27%
1,421,991 6.50%, 09/15/13, Pool 476201 ............ 1,396,652
893,628 7.00%, 11/15/13, Pool 780921 ............ 896,693
234,235 7.00%, 04/15/29, Pool 458548 ............ 229,768
982,495 7.00%, 04/15/29, Pool 458549 ............ 963,759
83,701 7.00%, 05/15/29, Pool 483358 ............ 82,102
------------
3,568,974
------------
Federal Home Loan Bank - 5.26%
1,000,000 5.63%, 03/19/01 .......................... 994,100
2,000,000 6.23%, 09/19/01 .......................... 1,999,680
------------
2,993,780
------------
Federal Home Loan
Mortgage Corporation - 5.08%
1,059,133 5.50%, 08/01/00, Pool M80285 ............ 1,053,933
1,000,000 6.25%, 07/15/04 .......................... 992,500
103,018 7.00%, 05/01/19, Pool D29158 ............ 103,572
745,138 6.50%, 11/15/23, Pool 002008 ............ 738,149
------------
2,888,154
------------
Federal Farm Credit Bank - 3.51%
2,000,000 6.10%, 09/24/01, MTN ..................... 1,995,320
------------
Federal National
Mortgage Association - 2.93%
797,869 6.50%, 03/01/12, Pool 313409 ............ 784,066
920,101 6.00%, 01/01/14, Pool 482523 ............ 885,597
------------
1,669,663
------------
Total U.S. Government
and Agency Obligations ................... 17,931,771
------------
(Cost $18,174,002)
See Notes to Financial Statements.
13
<PAGE>
- --------------------------------------------------------------------------------
Short-Term Bond Fund
Portfolio of Investments (continued)
October 31, 1999
Par Value Value
--------- -----
ASSET- BACKED AND MORTGAGED-BACKED SECURITIES - 21.06%
$ 4,000,000 Chemical Master Credit Card Trust I
Series 1995-2, Class A
6.23%, 06/15/03 .......................... $ 3,997,480
1,500,000 Discover Card Master Trust I
Series 1999-1, Class A
5.30%, 08/15/04 .......................... 1,455,930
975,000 Ford Credit Auto Owner Trust
Series 1999-D, Class A3
6.20%, 04/15/02 .......................... 973,781
1,000,000 MBNA Master Credit Card Trust II
Series1995-F, Class A
6.60%, 01/15/03 .......................... 1,002,500
1,433,003 Norwest Asset Securities Corp.
Series 1997-17, Class A1, CMO
6.75%, 11/25/27 .......................... 1,431,212
1,096,874 Prudential Home Mortgage Securities
Series 1996-7, Class A-1, CMO
6.75%, 06/25/11 .......................... 1,094,132
763,262 Prudential Home Mortgage Securities
Series 1993-38, Class A3, CMO
6.15%, 09/25/23 .......................... 750,615
1,031,250 Ryland Mortgage Securities Corp.
Series 1993-3, Class A, CMO
6.71%, 08/25/08 .......................... 1,028,672
250,000 Sears Credit Account Master Trust
Series 1996-2, Class A
6.50%, 10/15/03 .......................... 250,000
------------
Total Asset-Backed and
Mortgage-Backed Securities ............... 11,984,322
------------
(Cost $15,190,260)
COMMERCIAL PAPER (B) - 1.75%
1,000,000 BMW US Capital Corp.
5.29%, 11/26/99 .......................... 996,333
------------
Total Commercial Paper ................... 996,333
------------
(Cost $996,333)
REPURCHASE AGREEMENT - 11.96%
6,805,000 Repurchase Agreement with:
Chase Manhattan Bank
5.20%, 11/01/99, dated 10/29/99
Repurchase Price $6,807,949
(Collateralized by U.S. Treasury Bond
10.63%, Due 08/15/15;
Total Par $4,910,000
Market Value $6,947,650) ................. 6,805,000
------------
Total Repurchase Agreement ............... 6,805,000
------------
(Cost $6,805,000)
Total Investments - 98.83% ................................. 56,237,771
------------
(Cost $56,802,042)
Net Other Assets and Liabilities - 1.17% ................... 665,307
------------
Net Assets - 100.00% ....................................... $ 56,903,078
============
- ----------
(A) Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may only be resold, in transactions exempt from
registration, to qualified institutional buyers. At October 31, 1999,
these securities amounted to $942,500 or 1.66% of net assets.
(B) Discount yield at time of purchase.
(C) Floating rate note. Interest rate shown reflects rate in effect at October
31, 1999.
CMO Collateralized Mortgage Obligation
MTN Medium Term Note
See Notes to Financial Statements.
14
<PAGE>
- --------------------------------------------------------------------------------
Intermediate Government Income Fund
Portfolio of Investments
October 31, 1999
Par Value Value
--------- -----
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 48.88%
U.S. Treasury Bonds - 17.31%
$ 500,000 11.13%, 08/15/03 ......................... $ 583,745
1,200,000 11.88%, 11/15/03 ......................... 1,442,772
2,350,000 12.00%, 08/15/13 ......................... 3,221,709
1,050,000 7.50%, 11/15/16 .......................... 1,158,318
6,735,000 8.88%, 08/15/17 .......................... 8,397,669
3,000,000 8.50%, 02/15/20 .......................... 3,666,540
3,000,000 8.75%, 05/15/20 .......................... 3,755,160
1,500,000 8.75%, 08/15/20 .......................... 1,879,605
3,500,000 7.88%, 02/15/21 .......................... 4,045,685
6,750,000 8.13%, 08/15/21 .......................... 8,008,740
4,000,000 6.88%, 08/15/25 .......................... 4,222,160
1,500,000 6.38%, 08/15/27 .......................... 1,493,040
800,000 6.13%, 11/15/27 .......................... 772,480
2,000,000 5.50%, 08/15/28 .......................... 1,776,340
3,000,000 5.25%, 11/15/28 .......................... 2,578,920
1,000,000 5.25%, 02/15/29 .......................... 866,280
2,750,000 6.13%, 08/15/29 .......................... 2,740,348
------------
50,609,511
------------
U.S. Government-Backed Bonds - 11.17%
4,830,000 A.I.D. State of Israel
Series 2-D
5.63%, 09/15/03 .......................... 4,703,116
6,450,000 A.I.D. State of Israel
Series 8-B
6.05%, 08/15/00 .......................... 6,450,258
5,000,000 A.I.D. State of Israel
Series 8-B
6.38%, 08/15/01 .......................... 5,014,750
5,000,000 A.I.D. State of Israel
Series 8-C
6.63%, 08/15/03 .......................... 5,038,300
6,200,000 Private Export Funding Corp.
Series B
6.49%, 07/15/07 .......................... 6,099,250
5,432,567 Small Business Administration
Participation Certificates
Series SBIC-PS 1955-10B
7.25%, 05/10/05 .......................... 5,351,079
------------
32,656,753
------------
Federal Home Loan
Mortgage Corporation - 7.11%
5,500,000 5.20%, 11/15/99 (A) ...................... 5,488,878
5,000,000 6.25%, 07/15/04 .......................... 4,962,500
5,000,000 5.13%, 10/15/08 .......................... 4,478,950
360,000 6.63%, 09/15/09 .......................... 358,200
5,500,000 7.50%, 06/01/28 .......................... 5,520,625
------------
20,809,153
------------
U.S. Treasury Notes - 5.55%
2,500,000 6.38%, 03/31/01 .......................... 2,520,725
2,540,000 6.50%, 05/31/02 .......................... 2,578,227
7,720,000 7.00%, 07/15/06 .......................... 8,062,150
3,000,000 6.50%, 10/15/06 .......................... 3,053,460
------------
16,214,562
------------
Federal National
Mortgage Association - 4.79%
4,500,000 5.72%, 01/09/01, MTN ..................... 4,483,305
565,000 6.38%, 06/15/09 .......................... 551,683
2,050,000 6.16%, 08/07/28 .......................... 1,854,041
7,000,000 8.00%, 09/01/29 .......................... 7,131,250
------------
14,020,279
------------
Federal Farm Credit Bank (A) - 2.42%
7,100,000 5.13%, 11/15/99 .......................... 7,085,836
------------
U.S. Treasury Strips (A) - 0.53%
5,000,000 1.78%, 11/15/17 Interest only, (B) ....... 1,541,750
------------
Total U.S. Government
and Agency Obligations ................... 142,937,844
------------
(Cost $135,259,086)
MORTGAGE-BACKED SECURITIES - 30.04%
Government National
Mortgage Association - 15.35%
5,495,246 6.50%, 07/15/09, Pool 780357 ............ 5,423,094
21,304 6.50%, 06/15/13, Pool 462795 ............ 20,925
414,344 6.50%, 07/15/13, Pool 468077 ............ 406,960
959,475 6.50%, 09/15/13, Pool 464192 ............ 942,377
351,748 6.50%, 09/15/13, Pool 476619 ............ 345,480
457,093 6.50%, 09/15/13, Pool 487907 ............ 448,947
472,617 7.00%, 09/15/13, Pool 484233 ............ 474,238
94,473 6.50%, 10/15/13, Pool 464249 ............ 92,789
1,873,752 6.50%, 10/15/13, Pool 477500 ............ 1,840,362
482,995 6.50%, 10/15/13, Pool 481575 ............ 474,388
486,459 6.50%, 11/15/13, Pool 475712 ............ 477,639
475,436 6.50%, 11/15/13, Pool 492010 ............ 466,816
85,632 5.50%, 12/15/13, Pool 495780 ............ 80,869
408,100 5.50%, 01/15/14, Pool 464491 ............ 385,397
484,005 5.50%, 02/15/14, Pool 464568 ............ 457,079
483,020 5.50%, 03/15/14, Pool 487579 ............ 456,149
359,336 5.50%, 03/15/14, Pool 501523 ............ 339,346
66,431 5.50%, 04/15/14, Pool 496599 ............ 62,736
533,479 5.50%, 04/15/14, Pool 505596 ............ 503,801
467,912 5.50%, 04/15/14, Pool 506448 ............ 441,882
630,496 5.50%, 05/15/14, Pool 480524 ............ 595,421
492,037 5.50%, 05/15/14, Pool 505667 ............ 464,665
582,528 5.50%, 06/15/14, Pool 434398 ............ 550,122
450,431 5.50%, 06/15/14, Pool 507142 ............ 425,373
734,432 6.63%, 07/20/21, Pool 008809(D) ......... 740,858
2,604,637 6.38%, 04/20/22, Pool 008956(D) ......... 2,630,266
See Notes to Financial Statements.
15
<PAGE>
- --------------------------------------------------------------------------------
Intermediate Government Income Fund
Portfolio of Investments (continued)
October 31, 1999
Par Value Value
--------- -----
Government National
Mortgage Association (continued)
$ 1,468,557 6.50%, 12/15/28, Pool 495775 ............ $ 1,403,382
3,976,386 7.00%, 12/15/28, Pool 483886 ............ 3,900,557
321,134 7.00%, 01/15/29, Pool 499333 ............ 315,011
3,318,610 7.00%, 02/15/29, Pool 486937 ............ 3,255,324
3,373,092 6.00%, 03/15/29, Pool 464632 ............ 3,130,634
3,432,582 6.00%, 04/15/29, Pool 499445 ............ 3,185,848
994,653 6.50%, 04/15/29, Pool 506494 ............ 950,511
5,995,679 7.50%, 09/15/29, Pool 508805 ............ 6,010,668
3,197,398 7.50%, 09/15/29, Pool 508811 ............ 3,205,392
------------
44,905,306
------------
Federal Home Loan
Mortgage Corporation - 8.90%
5,000,000 6.70%, 07/15/06, Pool 1233-G ............ 4,998,400
6,770,733 5.00%, 12/01/13, Pool E73815 ............ 6,255,616
5,000,000 6.00%, 04/15/22, Pool 2118QC ............ 4,751,550
4,348,579 6.50%, 10/15/23, Pool 001990 ............ 4,309,137
5,508,000 8.50%, 10/01/29, Pool G01072 ............ 5,705,902
------------
26,020,605
------------
Federal National
Mortgage Association - 4.12%
2,156,109 5.00%, 05/01/09, Pool 326584 ............ 2,023,125
1,789 8.00%, 12/01/09, Pool 313180 ............ 1,828
1,459,918 6.00%, 04/01/11, Pool 398072 ............ 1,416,120
536,742 6.00%, 06/01/14, Pool 484967 ............ 516,276
3,315,163 6.00%, 06/01/14, Pool 495200 ............ 3,188,756
700,238 6.00%, 06/01/14, Pool 500131 ............ 673,538
2,183,829 6.75%, 04/25/21, Pool 0096-4 ............ 2,185,860
1,000,000 8.00%, 09/01/29, Pool 515880 ............ 1,018,750
1,000,100 8.00%, 09/01/29, Pool 518157 ............ 1,018,852
------------
12,043,105
------------
Structured Mortgage Product - 1.67%
1,828,124 Prudential Home Mortgage Securities
Series 1996-7, Class A-1, CMO
6.75%, 06/25/11 .......................... 1,823,554
3,110,809 Rural Housing Trust
Series 1987-1, Class 1-D, CMO
6.33%, 04/01/26 .......................... 3,049,079
------------
4,872,633
------------
Total Mortgage-Backed Securities ......... 87,841,649
------------
(Cost $89,100,999)
CORPORATE NOTES AND BONDS - 15.20%
Banking - 4.62%
7,500,000 Bank One Milwaukee
National Association, MTN
6.35%, 03/19/01 .......................... 7,500,000
6,000,000 Nations Bank Texas
National Association, MTN
6.35%, 03/15/01 .......................... 5,992,500
------------
13,492,500
------------
Utilities - 3.19%
5,125,000 Baltimore Gas & Electric
6.50%, 02/15/03 .......................... 5,080,156
1,975,000 Emerson Electric Co.
5.85%, 03/15/09 .......................... 1,829,344
2,500,000 Potomac Electric Power Co.
First Mortgage
6.25%, 10/15/07 .......................... 2,415,625
------------
9,325,125
------------
Consumer Cyclicals - 2.93%
5,000,000 Pepsi Bottling Holdings, Inc.
5.38%, 02/17/04 (C) ...................... 4,712,500
2,500,000 Stanford University
5.85%, 03/15/09 .......................... 2,285,050
1,575,000 Wal-Mart Stores, Inc.
6.88%, 08/10/09 .......................... 1,582,875
------------
8,580,425
------------
Finance - 2.59%
1,000,000 American Express
6.75%, 06/23/04 .......................... 991,250
1,650,000 National Rural Utilities
5.50%, 01/15/05 .......................... 1,536,563
5,000,000 Pitney Bowes Credit Corp.
Series C, MTN
6.78%, 07/16/01 .......................... 5,043,750
------------
7,571,563
------------
Automobile Finance - 1.87%
2,100,000 Ford Motor Credit Co.
6.25%, 11/08/00 .......................... 2,098,131
910,000 Ford Motor Credit Co.
6.55%, 09/10/02 .......................... 903,175
2,500,000 Ford Motor Credit Co.
6.70%, 07/16/04 .......................... 2,475,000
------------
5,476,306
------------
Total Corporate Notes and Bonds .......... 44,445,919
------------
(Cost $56,834,394)
See Notes to Financial Statements.
16
<PAGE>
- --------------------------------------------------------------------------------
Intermediate Government Income Fund
Portfolio of Investments (continued)
October 31, 1999
Par Value Value
--------- -----
ASSET-BACKED SECURITIES - 8.10%
$ 2,891,434 Chase Manhattan Auto Owner Trust
Series 1998-C, Class A3
5.80%, 01/15/02 .......................... $ 2,884,205
6,000,000 Chemical Master Credit Card Trust I
Series 1996-1, Class A
5.55%, 09/15/03 .......................... 5,938,080
6,000,000 Ford Credit Auto Owner Trust
Series 1999-D, Class A4
6.40%, 10/15/02 .......................... 5,996,220
850,000 Green Tree Financial Corp.
Series 1998-1, Class A4
6.04%, 11/01/29 .......................... 835,652
2,500,000 MBNA Master Credit Card Trust
Series 1998-J, Class A
5.25%, 02/15/06 .......................... 2,376,550
360,000 Premier Auto Trust
Series 1999-2, Class A4
5.59%, 02/09/04 .......................... 351,785
1,400,000 Premier Auto Trust
Series 1999-3, Class A4
6.43%, 03/08/04 .......................... 1,401,470
4,000,000 Standard Credit Card Master Trust
Series 1993-2, Class A
5.95%, 10/07/04 .......................... 3,888,720
------------
Total Asset-Backed Securities ............ 23,672,682
------------
(Cost $23,760,338)
FOREIGN BONDS - 1.24%
4,000,000 Province of Quebec (E)
5.75%, 02/15/09 .......................... 3,640,000
------------
Total Foreign Bonds ...................... 3,640,000
------------
(Cost $3,750,556)
REPURCHASE AGREEMENT - 0.13%
387,000 Repurchase Agreement with:
Chase Manhattan Bank
5.20%, 11/01/99, dated 10/29/99
Repurchase Price $387,168
(Collateralized by U.S. Treasury Bond
11.25%, Due 02/15/15;
Total Par $270,000
Market Value $393,575) ................... 387,000
------------
Total Repurchase Agreement ............... 387,000
------------
(Cost $387,000)
Total Investments - 103.59% ................................ 302,925,094
------------
(Cost $309,092,373)
Net Other Assets and Liabilities - (3.59)% ................. (10,507,415)
------------
Net Assets - 100.00% ....................................... $292,417,679
============
- ----------
(A) Discount yield at time of purchase.
(B) Stripped securities represent the splitting of cash flows into interest
and principal. Holders, as indicated, are entitled to that portion of the
payment representing interest only or principal only.
(C) Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may only be resold, in transactions exempt from
registration, to qualified institutional buyers. At October 31, 1999,
these securities amounted to $4,712,500 or 1.61% of net assets.
(D) Floating rate note. Interest rate shown reflects rate in effect at October
31, 1999.
(E) U.S. Dollar-Denominated.
CMO Collateralized Mortgage Obligation
MTN Medium Term Note
See Notes to Financial Statements.
17
<PAGE>
- --------------------------------------------------------------------------------
Corporate Bond Fund
Portfolio of Investments
October 31, 1999
Par Value Value
--------- -----
CORPORATE NOTES AND BONDS - 62.68%
Consumer Staples - 11.44%
$ 150,000 Becton Dickinson & Co., Debenture
8.80%, 03/01/01 .......................... $ 154,500
1,275,000 Becton Dickinson & Co., Debenture
6.70%, 08/01/28 .......................... 1,149,094
500,000 Crown Cork & Seal Co., Inc.
8.38%, 01/15/05 .......................... 515,625
1,000,000 Diageo Capital, Plc
6.00%, 03/27/03 .......................... 971,300
1,000,000 Diageo Capital, Plc
6.13%, 08/15/05 .......................... 960,000
1,100,000 Hershey Foods Corp., Debenture
7.20%, 08/15/27 .......................... 1,078,000
1,000,000 Mead Corp., Debenture
6.84%, 03/01/37 .......................... 1,000,000
1,000,000 Minnesota Mining & Manufacturing Co.
Debenture
6.38%, 02/15/28 .......................... 886,250
675,000 Sysco Corp., Debenture
6.50%, 08/01/28 .......................... 604,125
1,650,000 Time Warner Entertainment Co.
8.38%, 03/15/23 .......................... 1,761,375
------------
9,080,269
------------
Finance - 11.04%
250,000 CitiGroup, Inc.
6.63%, 09/15/05 .......................... 244,063
1,000,000 CitiGroup, Inc.
6.88%, 06/01/25 .......................... 993,750
1,000,000 Commercial Credit Co.
6.20%, 11/15/01 .......................... 992,500
720,000 Commercial Credit Co.
6.45%, 07/01/02 .......................... 715,500
500,000 Dean Witter Discover & Co.
6.75%, 08/15/00 .......................... 503,185
260,000 Goldman Sachs Group
6.65%, 05/15/09 .......................... 247,650
500,000 National Rural Utilities
Cooperative Finance Corp.
6.13%, 05/15/05 .......................... 477,500
1,000,000 Norwest Financial, Inc., Senior Note
6.88%, 06/15/00 .......................... 1,007,170
2,400,000 Paccar Financial Corp., Senior Note
Series H, MTN
5.86%, 03/15/01 .......................... 2,379,000
1,020,000 Pitney Bowes Credit Corp.
6.63%, 06/01/02 .......................... 1,026,375
180,000 USL Capital Corp., Senior Note
8.13%, 02/15/00 .......................... 181,084
------------
8,767,777
------------
Utilities - 9.88%
1,000,000 Baltimore Gas & Electric Co., Mortgage
8.38%, 08/15/01 .......................... 1,031,250
455,000 GTE California, Inc., Debenture
Series B
6.75%, 03/15/04 .......................... 453,294
350,000 GTE Corp., Debenture
9.38%, 12/01/00 .......................... 360,063
925,000 GTE Corp., Debenture
6.46%, 04/15/08 .......................... 886,844
1,000,000 GTE Southwest, Inc., Debenture
6.00%, 01/15/06 .......................... 946,250
2,000,000 MCI WorldCom, Inc.
6.13%, 04/15/02 .......................... 1,967,500
1,000,000 PacifiCorp, MTN
6.38%, 05/15/08 .......................... 950,000
1,000,000 Potomac Electric Power Co.
First Mortgage
6.25%, 10/15/07 .......................... 966,250
305,000 Sprint Capital Corp.
6.90%, 05/01/19 .......................... 285,556
------------
7,847,007
------------
Consumer Cyclical - 8.41%
1,000,000 Coca-Cola Enterprises, Inc.
7.88%, 02/01/02 .......................... 1,025,000
1,000,000 Coca-Cola Enterprises, Inc.
7.13%, 08/01/17 .......................... 965,000
1,000,000 McDonald's Corp., Senior MTN
5.95%, 01/15/08 .......................... 946,250
1,000,000 Pepsi Bottling Holdings, Inc.
5.38%, 02/17/04 (A) ...................... 942,500
1,000,000 PepsiCo, Inc., MTN
5.75%, 01/01/03 .......................... 973,750
300,000 Seagram Co., Ltd., Yankee Note
6.50%, 04/01/03 .......................... 292,875
1,000,000 Wal-Mart Stores, Inc.
8.63%, 04/01/01 .......................... 1,030,000
500,000 Wal-Mart Stores, Inc.
6.55%, 08/10/04 .......................... 500,625
------------
6,676,000
------------
Basic Materials - 5.72%
1,000,000 International Paper Co.
7.63%, 08/01/04 .......................... 1,013,750
500,000 Loral Corp., Senior Note
7.63%, 06/15/04 .......................... 507,500
1,000,000 Raytheon Co.
6.50%, 07/15/05 .......................... 953,750
1,000,000 Snap-On, Inc.
6.63%, 10/01/05 .......................... 1,002,500
1,000,000 Weyerhaeuser Co., Debenture
8.38%, 02/15/07 .......................... 1,063,750
------------
4,541,250
------------
See Notes to Financial Statements.
18
<PAGE>
- --------------------------------------------------------------------------------
Corporate Bond Fund
Portfolio of Investments (continued)
October 31, 1999
Par Value Value
--------- -----
Banking - 5.60%
$ 1,000,000 Bank One Milwaukee
National Association, MTN
6.35%, 03/19/01 .......................... $ 1,000,000
2,000,000 Branch Banking & Trust Co., Senior Note
5.70%, 02/01/01 .......................... 1,985,000
500,000 National City Bank of Kentucky
Subordinated Note
6.30%, 02/15/11 .......................... 455,625
500,000 SunTrust Bank, Atlanta
Subordinated Note
7.25%, 09/15/06 .......................... 501,250
500,000 Wells Fargo & Co.
6.50%, 09/03/02 .......................... 498,750
------------
4,440,625
------------
Automobile Finance - 3.33%
250,000 Ford Motor Credit Co.
Debenture
6.25%, 11/08/00 .......................... 249,778
1,000,000 Ford Motor Credit Co.
Senior Note
6.50%, 02/28/02 .......................... 996,250
180,000 Ford Motor Credit Co.
Senior Debenture
6.55%, 09/10/02 .......................... 178,650
1,000,000 General Motors Acceptance Corp.
6.88%, 07/15/01 .......................... 1,005,000
200,000 General Motors Acceptance Corp.
9.63%, 12/15/01 .......................... 211,500
------------
2,641,178
------------
Transportation - 1.56%
1,000,000 Burlington North Santa Fe
6.13%, 03/15/09 .......................... 926,250
300,000 Southwest Airlines Co.
8.00%, 03/01/05 .......................... 315,000
------------
1,241,250
------------
Publishing - 1.31%
1,000,000 New York Times Co., Note
7.63%, 03/15/05 .......................... 1,038,750
------------
Insurance - 1.24%
1,000,000 Hartford Financial Services Group
6.38%, 11/01/02 .......................... 987,500
------------
Technology - 1.24%
1,000,000 International Business Machines Corp.
Debenture
6.22%, 08/01/27 .......................... 981,250
------------
Capital Goods - 1.17%
1,000,000 Emerson Electric Co.
5.85%, 03/15/09 .......................... 926,250
------------
Energy - 0.74%
500,000 Atlantic Richfield Co., Debenture
10.88%, 07/15/05 ......................... 586,875
------------
Total Corporate Notes and Bonds .......... 49,755,981
------------
(Cost $51,556,667)
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 25.79%
U.S. Treasury Notes - 6.85%
500,000 6.25%, 08/31/02 .......................... 504,705
1,000,000 5.88%, 09/30/02 .......................... 1,000,070
1,200,000 5.75%, 08/15/03 .......................... 1,191,036
50,000 4.25%, 11/15/03 .......................... 46,970
2,135,000 6.00%, 08/15/04 .......................... 2,140,914
560,000 6.00%, 08/15/09 .......................... 559,524
------------
5,443,219
------------
Federal National
Mortgage Association - 6.32%
350,000 6.50%, 08/15/04 .......................... 350,868
57,899 7.50%, 11/01/07, Pool 188629 ............. 58,658
575,000 6.38%, 06/15/09 .......................... 561,447
145,000 6.63%, 09/15/09 .......................... 144,275
85,937 5.00%, 08/01/10, Pool 006893
Series A-1, CMO .......................... 79,948
981,743 7.50%, 06/01/13, Pool 457543 ............. 994,623
1,861,562 6.00%, 11/01/23, Pool 050940 ............. 1,753,945
636,071 6.50%, 03/01/28, Pool 412263 ............. 609,433
499,257 6.00%, 06/01/29, Pool 252496 ............. 465,397
------------
5,018,594
------------
U.S. Treasury Bonds - 4.74%
1,000,000 11.63%, 11/15/02 ......................... 1,156,160
1,000,000 12.00%, 08/15/13 ......................... 1,370,940
250,000 7.25%, 05/15/16 .......................... 269,348
600,000 8.88%, 08/15/17 .......................... 748,122
250,000 5.25%, 02/15/29 .......................... 216,570
------------
3,761,140
------------
Federal Home Loan
Mortgage Corporation - 4.64%
8,614 8.75%, 08/01/01, Pool 220011 ............. 8,716
1,000,000 5.75%, 07/15/03 .......................... 979,700
58,687 7.00%, 06/01/04, Pool 189683 ............. 58,586
1,215,000 6.25%, 07/15/04 .......................... 1,205,888
42,207 7.50%, 08/01/08, Pool 181313 ............. 42,149
750,000 6.63%, 09/15/09 .......................... 746,250
148,702 7.00%, 02/01/17, Pool 289284 ............. 146,623
141,775 7.00%, 10/01/22, Pool C00184 ............. 140,136
See Notes to Financial Statements.
19
<PAGE>
- --------------------------------------------------------------------------------
Corporate Bond Fund
Portfolio of Investments (continued)
October 31, 1999
Par Value Value
--------- -----
Federal Home Loan
Mortgage Corporation (continued)
$ 147,476 7.00%, 02/01/23, Pool C00213 ............. $ 145,678
217,752 6.00%, 09/01/23, Pool D41208 ............. 205,639
------------
3,679,365
------------
Government National
Mortgage Association - 2.61%
54,607 9.00%, 09/15/04, Pool 003669 ............. 56,560
42,542 9.00%, 12/15/08, Pool 027562 ............. 44,683
94,173 8.00%, 05/15/22, Pool 319062 ............. 96,409
482,868 6.00%, 03/15/29, Pool 487061 ............. 448,159
679,510 6.50%, 03/15/29, Pool 464613 ............. 649,354
774,460 7.50%, 09/15/29, Pool 466172 ............. 776,396
------------
2,071,561
------------
Federal Home Loan Bank - 0.63%
500,000 5.88%, 08/15/01 .......................... 497,730
------------
Total U.S. Government
and Agency Obligations ................... 20,471,609
------------
(Cost $20,921,912)
ASSET-BACKED SECURITIES - 6.78%
2,000,000 Chemical Master Credit Card Trust I
Series 1996-1, Class A
5.55%, 09/15/03 .......................... 1,979,360
1,000,000 Ford Credit Auto Owner Trust
Series 1999-D, Class A-4
6.40%, 10/15/02 .......................... 999,370
978,724 Guaranteed Export Trust Certificates
Series 1993-D, Class A-3
5.23%, 05/15/05 .......................... 940,362
500,000 MBNA Master Credit Card Trust
Series 1998-J, Class A
5.25%, 02/15/06 .......................... 475,310
600,000 Premier Auto Trust
Series 1999-2, Class A-4
5.59%, 02/09/04 .......................... 586,308
400,000 Premier Auto Trust
Series 1999-3, Class A-4
6.43%, 03/08/04 .......................... 400,420
------------
Total Asset-Backed Securities ............ 5,381,130
------------
(Cost $5,414,453)
FOREIGN BONDS - 2.48%
1,000,000 Heinz (H.J.) Co.
5.75%, 02/03/03 (B) ...................... 969,600
825,000 Province of Quebec
5.75%, 02/15/09 (C) ...................... 750,750
250,000 Province of Quebec
7.50%, 09/15/29 (C) ...................... 250,937
------------
Total Foreign Bonds ...................... 1,971,287
------------
(Cost $2,011,592)
REPURCHASE AGREEMENT - 0.95%
757,000 Repurchase Agreement with:
Chase Manhattan Bank
5.20%, 11/01/99, dated 10/29/99
Repurchase Price $757,328
(Collateralized by U.S. Treasury Bond
10.63%, Due 08/15/15;
Total Par $550,000
Market Value $778,250) ................... 757,000
------------
Total Repurchase Agreement ............... 757,000
------------
(Cost $757,000)
Total Investments - 98.68% ................................. 78,337,007
------------
(Cost $80,661,624)
Net Assets and Other Liabilities - 1.32% ................... 1,044,993
------------
Net Assets - 100.00% ....................................... $ 79,382,000
============
- ----------
(A) Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may only be resold, in transactions exempt from
registration, to qualified institutional buyers. At October 31 1999, these
securities amounted to $942,500 or 1.19% of net assets.
(B) Euro-Dollar Bond
(C) U.S. Dollar-Denominated
CMO Collateralized Mortgage Obligation
MTN Medium Term Note
See Notes to Financial Statements.
20
<PAGE>
- --------------------------------------------------------------------------------
High Quality Bond Fund
Portfolio of Investments
October 31, 1999
Par Value Value
--------- -----
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 39.76%
U.S. Treasury Bonds - 25.15%
$ 4,450,000 12.00%, 08/15/13 ......................... $ 6,100,683
4,000,000 13.25%, 05/15/14 ......................... 5,929,720
700,000 7.50%, 11/15/16 .......................... 772,212
6,760,000 8.88%, 08/15/17 .......................... 8,428,841
3,550,000 9.00%, 11/15/18 .......................... 4,506,619
5,500,000 8.75%, 05/15/20 .......................... 6,884,460
6,000,000 7.88%, 02/15/21 .......................... 6,935,460
200,000 8.13%, 05/15/21 .......................... 237,120
3,500,000 8.13%, 08/15/21 .......................... 4,152,680
5,975,000 6.38%, 08/15/27 .......................... 5,947,276
7,340,000 6.13%, 11/15/27 .......................... 7,087,504
4,250,000 5.50%, 08/15/28 .......................... 3,774,723
4,440,000 5.25%, 11/15/28 .......................... 3,816,802
6,895,000 5.25%, 02/15/29 .......................... 5,973,000
1,750,000 6.13%, 08/15/29 .......................... 1,743,857
------------
72,290,957
------------
Federal National
Mortgage Association - 2.78%
3,000,000 8.50%, 02/01/05 .......................... 3,017,430
3,199,000 6.38%, 06/15/09 .......................... 3,123,600
2,050,000 6.16%, 08/07/28 .......................... 1,854,041
------------
7,995,071
------------
U.S. Treasury Notes - 4.45%
5,000,000 6.63%, 06/30/01 .......................... 5,064,750
675,000 6.25%, 10/31/01 .......................... 680,650
2,000,000 7.50%, 11/15/01 .......................... 2,063,620
2,100,000 6.25%, 02/28/02 .......................... 2,118,732
1,530,000 6.00%, 08/15/04 .......................... 1,534,238
600,000 5.63%, 05/15/08 .......................... 578,910
755,000 6.00%, 08/15/09 .......................... 754,358
------------
12,795,258
------------
U.S. Government-Backed Bonds - 4.43%
2,000,000 Private Export Funding Corp., Series H
6.45%, 09/30/04 .......................... 1,987,500
4,000,000 Private Export Funding Corp., Series B
6.49%, 07/15/07 .......................... 3,935,000
1,800,000 A.I.D. State of Israel
Series 7-A
5.45%, 02/15/01 .......................... 1,784,484
5,000,000 A.I.D. Israel
Series 8-C
6.63%, 08/15/03 .......................... 5,038,300
------------
12,745,284
------------
Federal Home Loan
Mortgage Corporation - 1.13%
1,000,000 6.25%, 07/15/04 .......................... 992,500
2,280,000 6.63%, 09/15/09 .......................... 2,268,600
------------
3,261,100
------------
U.S. Treasury Strip (A) - 1.82%
9,000,000 4.86%, 05/15/08 Interest only, (B) 5,247,180
------------
Total U.S. Government
and Agency Obligations ................... 114,334,850
------------
(Cost $114,881,739)
CORPORATE NOTES AND BONDS - 31.90%
Utilities - 10.12%
500,000 Emerson Electric Co.
5.85%, 03/15/09 .......................... 463,125
1,950,000 GTE Corp., Debenture
6.46%, 04/15/08 .......................... 1,869,563
6,500,000 GTE Florida, Inc., Series A, Debenture
6.31%, 12/15/02 .......................... 6,418,750
3,000,000 MCI WorldCom, Inc.
6.13%, 04/15/02 .......................... 2,951,250
5,000,000 PacifiCorp, MTN
6.38%, 05/15/08 .......................... 4,750,000
2,750,000 Potomac Electric Power Co.
First Mortgage
6.25%, 10/15/07 .......................... 2,657,187
1,000,000 Sprint Capital Corp.
5.88%, 05/01/04 .......................... 961,250
2,250,000 Sprint Capital Corp.
6.90%, 05/01/19 .......................... 2,106,562
1,500,000 Tele-Communications, Inc.
7.25%, 08/01/05 .......................... 1,509,375
3,300,000 Telecom De Puerto Rico
6.15%, 05/15/02 (D) ...................... 3,238,926
2,250,000 Telecom De Puerto Rico
6.65%, 05/15/06 (D) ...................... 2,174,062
------------
29,100,050
------------
Consumer Cyclicals - 9.41%
1,650,000 Coca-Cola Enterprises, Inc.
7.13%, 08/01/17 .......................... 1,592,250
1,900,000 Colgate-Palmolive Co., Series C, MTN
5.27%, 12/01/03 .......................... 1,801,086
5,050,000 Hershey Foods Corp.
7.20%, 08/15/27 .......................... 4,949,000
1,650,000 McDonald's Corp., MTN
5.95%, 01/15/08 .......................... 1,561,313
2,000,000 Minnesota Mining & Manufacturing Co.
Debenture
6.38%, 02/15/28 .......................... 1,772,500
1,800,000 Pepsi Bottling Holdings, Inc.
5.38%, 02/17/04 (D) ...................... 1,696,500
See Notes to Financial Statements.
21
<PAGE>
- --------------------------------------------------------------------------------
High Quality Bond Fund
Portfolio of Investments (continued)
October 31, 1999
Par Value Value
--------- -----
Consumer Cyclicals (continued)
$ 250,000 Procter & Gamble Co.
8.50%, 08/10/09 .......................... $ 279,063
3,000,000 Sara Lee Corp., MTN
7.40%, 03/22/02 .......................... 3,048,750
3,000,000 Sysco Corp.
7.00%, 05/01/06 .......................... 3,007,500
3,675,000 Sysco Corp.
6.50%, 08/01/28 .......................... 3,289,125
1,450,000 Time Warner Entertainment Co.
8.38%, 03/15/23 .......................... 1,547,875
2,500,000 Wal-Mart Stores, Inc.
6.88%, 08/10/09 .......................... 2,512,500
------------
27,057,462
------------
Finance - 7.88%
2,000,000 Associates Corp. of North America
6.63%, 05/15/01 .......................... 2,002,500
2,000,000 Associates Corp. of North America, MTN
7.40%, 05/03/02 .......................... 2,027,500
4,000,000 Bank One Milwaukee
National Association, MTN
6.35%, 03/19/01 .......................... 4,000,000
1,500,000 Caterpillar Financial Services Corp.
Series F, MTN
5.47%, 09/12/01 .......................... 1,470,000
1,285,000 General Electric Capital Corp., MTN
6.33%, 09/17/01 .......................... 1,283,394
250,000 General Electric Capital Corp.
8.30%, 09/20/09 .......................... 271,875
1,165,000 Goldman Sachs Group
6.65%, 05/15/09 .......................... 1,109,663
2,000,000 Key Bank of North America
7.13%, 08/15/06 .......................... 1,972,500
3,500,000 National Rural Utilities
5.50%, 01/15/05 .......................... 3,259,375
1,025,000 National Rural Utilities Cooperative
Finance Corp.
6.20%, 02/01/08 .......................... 969,906
3,000,000 Suntrust Bank, Atlanta, MTN
7.25%, 09/15/06 .......................... 3,007,500
1,300,000 Suntrust Bank of Central Florida, MTN
6.90%, 07/01/07 .......................... 1,285,375
------------
22,659,588
------------
Health Care - 1.21%
800,000 Abbott Laboratories
6.40%, 12/01/06 .......................... 787,000
3,000,000 Becton Dickinson & Co., Debenture
6.70%, 08/01/28 .......................... 2,703,750
------------
3,490,750
------------
Automobile Finance - 1.21%
3,500,000 Ford Motor Credit Co.
6.70%, 07/16/04 ........................... 3,465,000
------------
Industrial - 1.18%
2,000,000 Illinois Tool Works
5.75%, 03/01/09 .......................... 1,835,000
1,650,000 Xerox Corp.
5.50%, 11/15/03 .......................... 1,571,625
------------
3,406,625
------------
Technology - 0.89%
2,500,000 International Business Machines Corp.
7.25%, 11/01/02 .......................... 2,546,875
------------
Total Corporate Notes and Bonds .......... 91,726,350
------------
(Cost $98,960,681)
MORTGAGE-BACKED SECURITIES - 18.11%
Government National
Mortgage Association - 10.58%
246,675 6.50%, 03/15/13, Pool 458165 ............ 242,358
75,943 6.50%, 03/15/13, Pool 463723 ............ 74,589
250,340 6.50%, 04/15/13, Pool 466013 ............ 245,879
279,576 6.50%, 04/15/13, Pool 473476 ............ 274,594
300,284 6.50%, 05/15/13, Pool 433742 ............ 294,933
136,908 6.50%, 05/15/13, Pool 476292 ............ 134,469
46,926 6.50%, 10/15/13, Pool 434026 ............ 46,090
341,920 6.50%, 10/15/13, Pool 434017 ............ 335,827
1,971,733 6.50%, 10/15/13, Pool 471586 ............ 1,936,597
382,752 6.50%, 10/15/13, Pool 464249 ............ 375,931
126,581 6.50%, 10/15/13, Pool 484576 ............ 124,325
1,108,232 6.50%, 11/15/13, Pool 454228 ............ 1,088,140
770,765 6.50%, 11/15/13, Pool 477529 ............ 757,030
824,926 6.50%, 11/15/13, Pool 490795 ............ 809,970
922,537 6.63%, 07/20/22, Pool 008022 (C) ........ 930,038
1,351,881 7.00%, 11/15/22, Pool 330551 ............ 1,335,199
969,745 6.50%, 01/15/29, Pool 482909 ............ 926,708
3,324,955 7.00%, 01/15/29, Pool 499333 ............ 3,261,548
742,694 7.00%, 02/15/29, Pool 470018 ............ 728,531
3,473,928 7.00%, 02/15/29, Pool 486937 ............ 3,407,680
4,699,758 7.00%, 02/15/29, Pool 492173 ............ 4,610,134
24,372 6.50%, 03/15/29, Pool 464613 ............ 23,291
3,530,962 6.00%, 03/15/29, Pool 464632 ............ 3,277,156
2,034,553 6.50%, 03/15/29, Pool 503051 ............ 1,944,260
1,926,550 6.50%, 04/15/29, Pool 483349 ............ 1,841,050
1,398,994 7.50%, 09/15/29, Pool 466158 ............ 1,402,491
------------
30,428,818
------------
Federal National
Mortgage Association - 3.39%
778,864 6.50%, 05/01/06, Pool 348137 ............. 773,801
2,183,829 6.75%, 04/25/21, Pool 0096-4 ............. 2,185,860
2,617,283 8.50%, 12/01/25, Pool 313420 ............. 2,711,322
4,000,000 8.00%, 10/01/29, Pool 252875 ............. 4,075,000
------------
9,745,983
------------
See Notes to Financial Statements.
22
<PAGE>
- --------------------------------------------------------------------------------
High Quality Bond Fund
Portfolio of Investments (continued)
October 31, 1999
Par Value Value
--------- -----
Federal Home Loan
Mortgage Corporation - 2.79%
$ 3,000,000 6.00%, 04/15/22, Pool 2118QC ............ $ 2,850,930
5,000,000 8.50%, 10/01/29, Pool G01072 ............ 5,179,650
------------
8,030,580
------------
Structured Mortgage Product - 1.35%
1,149,671 Prudential Home Mortgage Securities
Series 1993-38, Class A-3, CMO
6.15%, 09/25/23 .......................... 1,130,621
2,799,428 Rural Housing Trust
Series 1987-1, Class 1-D, CMO
6.33%, 04/01/26 .......................... 2,743,877
------------
3,874,498
------------
Total Mortgage-Backed Securities ......... 52,079,879
------------
(Cost $53,278,278)
ASSET-BACKED SECURITIES - 6.34%
2,216,766 Chase Manhattan Auto Owner Trust
Series 1998-C, Class A3
5.80%, 01/15/02 .......................... 2,211,224
6,000,000 Citibank Credit Card Master Trust I
Series 1998-6
5.85%, 04/10/03 .......................... 5,951,220
1,000,000 Citibank Credit Card Master Trust I
Series 1999-1, Class A
5.50%, 02/15/06 .......................... 952,810
3,500,000 Ford Credit Auto Owner Trust
Series 1999-D, Class A5
6.52%, 09/15/03 .......................... 3,498,880
850,000 Green Tree Financial Corp.
Series 1998-1, Class A4
6.04%, 11/01/29 .......................... 835,652
5,050,000 MBNA Master Credit Card Trust
Series 1998-J, Class A
5.25%, 02/15/06 .......................... 4,800,630
------------
Total Asset-Backed Securities ............ 18,250,416
------------
(Cost $18,377,977)
FOREIGN BOND - 1.77%
1,500,000 Heinz (H.J.) Co. (E)
5.75%, 02/03/03 .......................... 1,454,400
4,000,000 Province of Quebec (F)
5.75%, 02/15/09 .......................... 3,640,000
------------
Total Foreign Bond ....................... 5,094,400
------------
(Cost $5,233,631)
REPURCHASE AGREEMENT - 1.47%
4,220,000 Repurchase Agreement with:
Chase Manhattan Bank
5.20%, 11/01/99, dated 10/29/99
Repurchase Price $4,221,829
(Collateralized by U.S. Treasury Bond
10.63%, Due 08/15/15;
Total Par $3,045,000
Market Value $4,308,675) ................. 4,220,000
------------
Total Repurchase Agreement ............... 4,220,000
------------
(Cost $4,220,000)
Total Investments - 99.35% ................................. 285,705,895
------------
(Cost $294,952,306)
Net Other Assets and Liabilities - 0.65% ................... 1,860,432
------------
Net Assets - 100.00% ....................................... $287,566,327
============
- ----------
(A) Discount yield at time of purchase.
(B) Stripped securities represent the splitting of cash flows into interest
and principal. Holders, as indicated, are entitled to that portion of the
payment representing interest only or principal only.
(C) Floating rate note. Interest rate shown reflects rate in effect at October
31, 1999.
(D) Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may only be resold, in transactions exempt from
registration, to qualified institutional buyers. At October 31, 1999,
these securities amounted to $7,109,488 or 2.47% of net assets.
(E) Euro-Dollar Bond
(F) U.S. Dollar-Denominated
CMO Collateralized Mortgage Obligation
MTN Medium Term Note
See Notes to Financial Statements.
23
<PAGE>
- --------------------------------------------------------------------------------
Galaxy Taxable Bond Funds
Statements of Assets and Liabilities
October 31, 1999
<TABLE>
<CAPTION>
Intermediate
Short-Term Government Corporate High Quality
Bond Fund Income Fund Bond Fund Bond Fund
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
ASSETS:
Investments (Note 2):
Investments at cost ........................................ $ 49,997,042 $ 308,705,373 $ 79,904,624 $ 290,732,306
Repurchase Agreements ...................................... 6,805,000 387,000 757,000 4,220,000
Net unrealized appreciation (depreciation) on investments .. (564,271) (6,167,279) (2,324,617) (9,246,411)
------------- ------------- ------------- -------------
Total investments at value ............................... 56,237,771 302,925,094 78,337,007 285,705,895
Cash ......................................................... -- 67,201 7,342 15,546
Receivable for investments sold .............................. 1,100,890 11,427,453 1,093,072 1,961,287
Receivable for shares sold ................................... 190,590 804,171 315,098 1,095,375
Interest receivable .......................................... 582,081 3,114,903 1,154,264 4,505,548
Deferred organizational expense (Note 2) ..................... -- -- 448 --
Other Assets ................................................. -- -- 42,526 --
------------- ------------- ------------- -------------
Total Assets ............................................. 58,111,332 318,338,822 80,949,757 293,283,651
------------- ------------- ------------- -------------
LIABILITIES:
Dividends payable ............................................ 245,054 1,432,135 392,325 1,359,916
Payable for investments purchased ............................ 869,810 23,848,199 1,091,002 3,717,395
Payable for shares redeemed .................................. 16,730 392,997 1,666 437,303
Advisory fee payable (Note 3) ................................ 26,462 137,278 36,927 131,993
Payable to Fleet affiliates (Note 3) ......................... 8,388 12,733 6,727 345
Payable to Administrator (Note 3) ............................ 15,764 44,438 11,086 49,443
Trustees' fees and expenses payable (Note 3) ................. 2,943 9,749 3,159 7,331
Payable to Custodian ......................................... 5,597 -- -- --
Accrued expenses and other payables .......................... 17,506 43,614 24,865 13,598
------------- ------------- ------------- -------------
Total Liabilities ........................................ 1,208,254 25,921,143 1,567,757 5,717,324
------------- ------------- ------------- -------------
NET ASSETS ...................................................... $ 56,903,078 $ 292,417,679 $ 79,382,000 $ 287,566,327
============= ============= ============= =============
NET ASSETS consist of:
Par value (Note 5) ........................................... $ 5,770 $ 29,672 $ 7,770 $ 28,063
Paid-in capital in excess of par value ....................... 63,124,437 325,538,650 84,176,495 298,171,488
Undistributed net investment income .......................... 201,761 418,658 260,383 280,469
Accumulated net realized gain (loss) on investments sold ..... (5,864,619) (27,402,022) (2,738,031) (1,667,282)
Net unrealized appreciation (depreciation) of investments .... (564,271) (6,167,279) (2,324,617) (9,246,411)
------------- ------------- ------------- -------------
TOTAL NET ASSETS ................................................ $ 56,903,078 $ 292,417,679 $ 79,382,000 $ 287,566,327
============= ============= ============= =============
Retail A Shares:
Net Assets ................................................... $ 24,652,827 $ 56,453,630 N/A $ 42,905,576
Shares of beneficial interest outstanding .................... 2,499,555 5,728,355 N/A 4,187,138
NET ASSET VALUE and redemption price per share ............... $ 9.86 $ 9.86 N/A $ 10.25
Sales charge - 3.75% of offering price ....................... 0.38 0.38 N/A 0.40
------------- ------------- ------------- -------------
Maximum offering price per share ............................. $ 10.24 $ 10.24 N/A $ 10.65
============= ============= ============= =============
Retail B Shares:
Net Assets ................................................... $ 812,314 $ 1,084,478 N/A $ 6,550,339
Shares of beneficial interest outstanding .................... 82,355 110,102 N/A 639,249
------------- ------------- ------------- -------------
NET ASSET VALUE and offering price per share* ................ $ 9.86 $ 9.85 N/A $ 10.25
============= ============= ============= =============
Trust Shares:
Net Assets ................................................... $ 31,437,937 $ 234,879,571 $ 79,382,000 $ 237,771,762
Shares of beneficial interest outstanding .................... 3,187,772 23,833,798 7,769,810 23,203,752
------------- ------------- ------------- -------------
NET ASSET VALUE, offering and redemption price per share ..... $ 9.86 $ 9.85 $ 10.22 $ 10.25
============= ============= ============= =============
A Prime Shares:
Net Assets ................................................... N/A N/A N/A $ 16,084
Shares of beneficial interest outstanding .................... N/A N/A N/A 1,569
NET ASSET VALUE and redemption price per share ............... N/A N/A N/A $ 10.25
Sales charge - 4.75% of offering price ....................... N/A N/A N/A 0.51
------------- ------------- ------------- -------------
Maximum offering price per share ............................. N/A N/A N/A $ 10.76
============= ============= ============= =============
B Prime Shares:
Net Assets ................................................... N/A N/A N/A $ 322,566
Shares of beneficial interest outstanding .................... N/A N/A N/A 31,509
------------- ------------- ------------- -------------
NET ASSET VALUE and offering price per share* ................ N/A N/A N/A $ 10.24
============= ============= ============= =============
</TABLE>
- ----------
* Redemption price per share is equal to the Net Asset Value per share less
any applicable contingent deferred sales charge.
See Notes to Financial Statements.
24
<PAGE>
- --------------------------------------------------------------------------------
Galaxy Taxable Bond Funds
Statements of Operations
For the year ended October 31, 1999
<TABLE>
<CAPTION>
Intermediate
Short-Term Government Corporate High Quality
Bond Fund Income Fund Bond Fund Bond Fund
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest (Note 2) ............................. $ 3,628,243 $ 19,014,124 $ 5,338,814 $ 17,710,263
----------- ------------ ----------- ------------
Total investment income ..................... 3,628,243 19,014,124 5,338,814 17,710,263
----------- ------------ ----------- ------------
EXPENSES:
Investment advisory fee (Note 3) .............. 457,152 2,282,992 619,564 2,106,150
Administration fee (Note 3) ................... 45,886 229,022 61,835 211,269
Custodian fee ................................. 21,969 32,652 24,991 36,686
Fund accounting fee (Note 3) .................. 45,674 71,627 46,812 78,661
Professional fees (Note 3) .................... 16,519 25,060 16,339 32,362
Transfer agent fee (Note 3) ................... 37,680 136,859 59,408 382,524
Shareholder services and 12b-1 fees (Note 3) .. 44,526 92,214 -- 120,520
Trustees' fees and expenses (Note 3) .......... 1,832 7,562 1,846 6,754
Amortization of organization costs (Note 2) ... -- -- 3,938 --
Reports to shareholders ....................... 9,774 31,528 20,190 32,573
Miscellaneous ................................. 34,248 42,370 8,536 58,011
----------- ------------ ----------- ------------
Total expenses before reimbursement/waiver .. 715,260 2,951,886 863,459 3,065,510
----------- ------------ ----------- ------------
Less: reimbursement/waiver (Note 4) ......... (122,717) (610,559) (165,217) (574,625)
----------- ------------ ----------- ------------
Total expenses net of reimbursement/waiver .. 592,543 2,341,327 698,242 2,490,885
----------- ------------ ----------- ------------
NET INVESTMENT INCOME ............................ 3,035,700 16,672,797 4,640,572 15,219,378
----------- ------------ ----------- ------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Note 2):
Net realized gain (loss) on investments sold .. 51,351 (3,699,849) (559,771) (1,517,657)
Net change in unrealized (depreciation)
of investments .............................. (1,554,809) (15,849,529) (4,858,917) (21,199,859)
----------- ------------ ----------- ------------
NET REALIZED AND UNREALIZED (LOSS)
ON INVESTMENTS ................................ (1,503,458) (19,549,378) (5,418,688) (22,717,516)
----------- ------------ ----------- ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ..................... $ 1,532,242 $ (2,876,581) $ (778,116) $ (7,498,138)
=========== ============ =========== ============
</TABLE>
See Notes to Financial Statements.
25
<PAGE>
- --------------------------------------------------------------------------------
Galaxy Taxable Bond Funds
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Intermediate Government
Short-Term Bond Fund Income Fund
--------------------------- -----------------------------
Years ended October 31, Years ended October 31,
1999 1998 1999 1998
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
NET ASSETS at beginning of period ........................ $ 68,224,850 $ 78,702,807 $ 306,627,909 $ 274,840,329
------------ ------------ ------------- -------------
Increase in Net Assets resulting from operations:
Net investment income ................................. 3,035,700 3,710,475 16,672,797 16,426,815
Net realized gain (loss) on investments sold .......... 51,351 276,632 (3,699,849) 3,980,175
Net change in unrealized appreciation (depreciation)
of investments ...................................... (1,554,809) 473,071 (15,849,529) 5,732,449
------------ ------------ ------------- -------------
Net increase (decrease) in net assets resulting
from operations ................................... 1,532,242 4,460,178 (2,876,581) 26,139,439
------------ ------------ ------------- -------------
Dividends to shareholders from:
Retail A Shares:
Net investment income ............................... (1,268,353) (1,464,083) (3,300,117) (3,735,466)
------------ ------------ ------------- -------------
Retail B Shares:
Net investment income ............................... (35,835) (44,206) (27,129) N/A
------------ ------------ ------------- -------------
Trust Shares:
Net investment income ............................... (1,693,636) (2,384,791) (13,345,551) (13,367,624)
------------ ------------ ------------- -------------
Total Dividends to shareholders ....................... (2,997,824) (3,893,080) (16,672,797) (17,103,090)
------------ ------------ ------------- -------------
Net increase (decrease) from share transactions(1) ....... (9,856,190) (11,045,055) 5,339,148 22,751,231
------------ ------------ ------------- -------------
Net increase (decrease) in net assets ................. (11,321,772) (10,477,957) (14,210,230) 31,787,580
------------ ------------ ------------- -------------
NET ASSETS at end of period (including line A) ........... $ 56,903,078 $ 68,224,850 $ 292,417,679 $ 306,627,909
============ ============ ============= =============
(A) Undistributed net investment income .................. $ 201,761 $ 123,662 $ 418,658 $ 169,845
============ ============ ============= =============
</TABLE>
- ----------
(1) For detail on share transactions by series, see Statements of Changes in
Net Assets - Capital Stock Activity on pages 28 and 29.
See Notes to Financial Statements.
26
<PAGE>
- --------------------------------------------------------------------------------
Galaxy Taxable Bond Funds
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Corporate Bond Fund High Quality Bond Fund
-------------------------- ---------------------------
Years ended October 31, Years ended October 31,
1999 1998 1999 1998
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET ASSETS at beginning of period ....................................... $83,564,654 $ 91,728,383 $268,441,362 $212,346,575
----------- ------------ ------------ ------------
Increase in Net Assets resulting from operations:
Net investment income ................................................ 4,640,572 5,160,979 15,219,378 12,717,417
Net realized gain (loss) on investments sold ......................... (559,771) 1,076,268 (1,517,657) 5,166,591
Net change in unrealized appreciation (depreciation) of investments .. (4,858,917) 1,374,412 (21,199,859) 5,644,735
----------- ------------ ------------ ------------
Net increase (decrease)in net assets resulting from operations ..... (778,116) 7,611,659 (7,498,138) 23,528,743
----------- ------------ ------------ ------------
Dividends to shareholders from:
Retail A Shares:
Net investment income .............................................. -- -- (2,585,461) (1,841,859)
Net realized gain on investments ................................... -- -- (406,430) --
----------- ------------ ------------ ------------
Total Dividends .................................................. -- -- (2,991,891) (1,841,859)
----------- ------------ ------------ ------------
Retail B Shares:
Net investment income .............................................. N/A N/A (313,178) (157,568)
Net realized gain on investments ................................... N/A N/A (48,125) --
----------- ------------ ------------ ------------
Total Dividends .................................................. N/A N/A (361,303) (157,568)
----------- ------------ ------------ ------------
Trust Shares:
Net investment income .............................................. (4,640,572) (5,434,239) (12,365,223) (10,708,262)
Net realized gain on investments ................................... -- -- (1,827,182) --
----------- ------------ ------------ ------------
Total Dividends .................................................. (4,640,572) (5,434,239) (14,192,405) (10,708,262)
----------- ------------ ------------ ------------
A Prime Shares:
Net investment income .............................................. N/A N/A (1,308) N/A
Net realized gain on investments ................................... N/A N/A (411) N/A
----------- ------------ ------------ ------------
Total Dividends .................................................. N/A N/A (1,719) N/A
----------- ------------ ------------ ------------
B Prime Shares:
Net investment income .............................................. N/A N/A (10,096) N/A
Net realized gain on investments ................................... N/A N/A (494) N/A
----------- ------------ ------------ ------------
Total Dividends .................................................. N/A N/A (10,590) N/A
----------- ------------ ------------ ------------
Total Dividends to shareholders ...................................... (4,640,572) (5,434,239) (17,557,908) (12,707,689)
----------- ------------ ------------ ------------
Net increase (decrease) from share transactions(1) ...................... 1,236,034 (10,341,149) 44,181,011 45,273,733
----------- ------------ ------------ ------------
Net increase (decrease) in net assets ................................ (4,182,654) (8,163,729) 19,124,965 56,094,787
----------- ------------ ------------ ------------
NET ASSETS at end of period (including line A) .......................... $79,382,000 $ 83,564,654 $287,566,327 $268,441,362
=========== ============ ============ ============
(A) Undistributed net investment income ................................. $ 260,383 $ 131,668 $ 280,469 $ 203,154
=========== ============ ============ ============
</TABLE>
- ----------
(1) For detail on share transactions by series, see Statements of Changes in
Net Assets-- Capital Stock Activity on pages 28 and 29.
See Notes to Financial Statements.
27
<PAGE>
- --------------------------------------------------------------------------------
Galaxy Taxable Bond Funds
Statements of Changes in Net Assets --
Capital Stock Activity
<TABLE>
<CAPTION>
Intermediate Government
Short-Term Bond Fund Income Fund
--------------------------- ---------------------------
Years ended October 31, Years ended October 31,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
DOLLAR AMOUNTS
Retail A Shares:
Sold ................................................. $ 26,400,028 $ 15,574,273 $ 10,176,855 $ 14,217,594
Issued to shareholders in reinvestment of dividends .. 1,090,190 1,235,792 2,559,568 2,790,118
Repurchased .......................................... (31,264,721) (15,956,842) (19,108,917) (17,809,958)
------------ ------------ ------------ ------------
Net increase (decrease) in shares outstanding ..... $ (3,774,503) $ 853,223 $ (6,372,494) $ (802,246)
============ ============ ============ ============
Retail B Shares:
Sold ................................................. $ 314,056 $ 1,004,036 $ 1,457,973 N/A
Issued to shareholders in reinvestment of dividends .. 29,447 41,720 22,337 N/A
Repurchased .......................................... (596,974) (873,621) (362,484) N/A
------------ ------------ ------------ ------------
Net increase (decrease) in shares outstanding ..... $ (253,471) $ 172,135 $ 1,117,826 N/A
============ ============ ============ ============
Trust Shares:
Sold ................................................. $ 5,131,414 $ 19,853,367 $ 43,486,208 $ 56,054,947
Issued to shareholders in reinvestment of dividends .. 765,143 1,021,177 3,528,720 3,567,705
Repurchased .......................................... (11,724,773) (32,944,957) (36,421,112) (36,069,175)
------------ ------------ ------------ ------------
Net increase (decrease) in shares outstanding ..... $ (5,828,216) $(12,070,413) $ 10,593,816 $ 23,553,477
============ ============ ============ ============
SHARE ACTIVITY
Retail A Shares:
Sold ................................................. 2,649,070 1,555,052 991,566 1,383,512
Issued to shareholders in reinvestment of dividends .. 111,011 124,057 254,097 272,011
Repurchased .......................................... (3,137,758) (1,595,494) (1,884,668) (1,731,933)
------------ ------------ ------------ ------------
Net increase (decrease) in shares outstanding ..... (377,677) 83,615 (639,005) (76,410)
============ ============ ============ ============
Retail B Shares:
Sold ................................................. 31,480 101,000 143,750 N/A
Issued to shareholders in reinvestment of dividends .. 2,980 4,171 2,260 N/A
Repurchased .......................................... (59,672) (88,011) (35,908) N/A
------------ ------------ ------------ ------------
Net increase (decrease) in shares outstanding ..... (25,212) 17,160 110,102 N/A
============ ============ ============ ============
Trust Shares:
Sold ................................................. 513,395 1,986,106 4,284,192 5,459,216
Issued to shareholders in reinvestment of dividends .. 77,948 102,083 349,318 347,783
Repurchased .......................................... (1,172,148) (3,298,697) (3,631,847) (3,517,644)
------------ ------------ ------------ ------------
Net increase (decrease) in shares outstanding ..... (580,805) (1,210,508) 1,001,663 2,289,355
============ ============ ============ ============
</TABLE>
See Notes to Financial Statements.
28
<PAGE>
- --------------------------------------------------------------------------------
Galaxy Taxable Bond Funds
Statements of Changes in Net Assets --
Capital Stock Activity
<TABLE>
<CAPTION>
Corporate Bond Fund High Quality Bond Fund
------------------------------ -------------------------------
Years ended October 31, Years ended October 31,
1999 1998 1999 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
DOLLAR AMOUNTS
Retail A Shares:
Sold ................................................. $ -- $ -- $ 21,457,219 $ 26,890,214
Issued to shareholders in reinvestment of dividends .. -- -- 2,682,994 1,560,277
Repurchased .......................................... -- -- (22,644,891) (12,206,245)
-------------- -------------- -------------- --------------
Net increase in shares outstanding ................ $ -- $ -- $ 1,495,322 $ 16,244,246
============== ============== ============== ==============
Retail B Shares:
Sold ................................................. N/A N/A $ 3,562,927 $ 3,721,786
Issued to shareholders in reinvestment of dividends .. N/A N/A 282,560 133,597
Repurchased .......................................... N/A N/A (2,119,922) (596,983)
-------------- -------------- -------------- --------------
Net increase in shares outstanding ................ N/A N/A $ 1,725,565 $ 3,258,400
============== ============== ============== ==============
Trust Shares:
Sold ................................................. $ 16,506,253 $ 23,376,133 $ 80,582,877 $ 63,505,520
Issued to shareholders in reinvestment of dividends .. 2,407,438 2,954,566 9,324,509 6,911,279
Repurchased .......................................... (17,677,657) (36,671,848) (49,305,977) (44,645,712)
-------------- -------------- -------------- --------------
Net increase (decrease) in shares outstanding ..... $ 1,236,034 $ (10,341,149) $ 40,601,409 $ 25,771,087
============== ============== ============== ==============
A Prime Shares:
Sold ................................................. N/A N/A $ 52,116 N/A
Issued to shareholders in reinvestment of dividends .. N/A N/A 70 N/A
Repurchased .......................................... N/A N/A (33,508) N/A
-------------- -------------- -------------- --------------
Net increase in shares outstanding ................ N/A N/A $ 18,678 N/A
============== ============== ============== ==============
B Prime Shares:
Sold ................................................. N/A N/A $ 359,496 N/A
Issued to shareholders in reinvestment of dividends .. N/A N/A 9,403 N/A
Repurchased .......................................... N/A N/A (28,862) N/A
-------------- -------------- -------------- --------------
Net increase in shares outstanding ................ N/A N/A $ 340,037 N/A
============== ============== ============== ==============
SHARE ACTIVITY
Retail A Shares:
Sold ................................................. -- -- 1,977,732 2,460,852
Issued to shareholders in reinvestment of dividends .. -- -- 251,778 142,902
Repurchased .......................................... -- -- (2,138,328) (1,118,893)
-------------- -------------- -------------- --------------
Net increase in shares outstanding ................ -- -- 91,182 1,484,861
============== ============== ============== ==============
Retail B Shares:
Sold ................................................. N/A N/A 329,766 339,876
Issued to shareholders in reinvestment of dividends .. N/A N/A 26,426 12,227
Repurchased .......................................... N/A N/A (200,809) (54,909)
-------------- -------------- -------------- --------------
Net increase in shares outstanding ................ N/A N/A 155,383 297,194
============== ============== ============== ==============
Trust Shares:
Sold ................................................. 1,552,757 2,187,748 7,573,939 5,817,335
Issued to shareholders in reinvestment of dividends .. 225,160 276,364 881,636 633,673
Repurchased .......................................... (1,674,792) (3,424,617) (4,636,948) (4,104,688)
-------------- -------------- -------------- --------------
Net increase (decrease) in shares outstanding ..... 103,125 (960,505) 3,818,627 2,346,320
============== ============== ============== ==============
A Prime Shares:
Sold ................................................. N/A N/A 4,700 N/A
Issued to shareholders in reinvestment of dividends .. N/A N/A 6 N/A
Repurchased .......................................... N/A N/A (3,137) N/A
-------------- -------------- -------------- --------------
Net increase in shares outstanding ................ N/A N/A 1,569 N/A
============== ============== ============== ==============
B Prime Shares:
Sold ................................................. N/A N/A 33,422 N/A
Issued to shareholders in reinvestment of dividends .. N/A N/A 897 N/A
Repurchased .......................................... N/A N/A (2,810) N/A
-------------- -------------- -------------- --------------
Net increase in shares outstanding ................ N/A N/A 31,509 N/A
============== ============== ============== ==============
</TABLE>
See Notes to Financial Statements.
29
<PAGE>
- --------------------------------------------------------------------------------
Short-Term Bond Fund
Financial Highlights
For a Share outstanding throughout each period.
Retail A Shares
<TABLE>
<CAPTION>
Years ended October 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ....................... $ 10.10 $ 10.01 $ 9.99 $ 10.06 $ 9.73
---------- ---------- ---------- ---------- ----------
Income from Investment Operations:
Net investment income (A) ................................ 0.49 0.51 0.53 0.52 0.55
Net realized and unrealized gain (loss) on investments ... (0.25) 0.11 0.02 (0.07) 0.33
---------- ---------- ---------- ---------- ----------
Total from Investment Operations ....................... 0.24 0.62 0.55 0.45 0.88
---------- ---------- ---------- ---------- ----------
Less Dividends:
Dividends from net investment income ..................... (0.48) (0.53) (0.53) (0.52) (0.55)
---------- ---------- ---------- ---------- ----------
Total Dividends ........................................ (0.48) (0.53) (0.53) (0.52) (0.55)
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in net asset value ................. (0.24) 0.09 0.02 (0.07) 0.33
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period ............................. $ 9.86 $ 10.10 $ 10.01 $ 9.99 $ 10.06
========== ========== ========== ========== ==========
Total Return(2) ............................................ 2.43% 6.42% 5.64% 4.63% 9.28%
Ratios/Supplemental Data:
Net Assets, End of Period (000's) .......................... $ 24,653 $ 29,067 $ 27,961 $ 33,388 $ 31,542
Ratios to average net assets:
Net investment income including
reimbursement/waiver ................................. 4.86% 5.07% 5.29% 5.22% 5.54%
Operating expenses including reimbursement/waiver ...... 1.10% 1.11% 1.00% 1.11% 0.99%
Operating expenses excluding reimbursement/waiver ...... 1.30% 1.31% 1.21% 1.35% 1.32%
Portfolio Turnover Rate .................................... 151% 133% 173% 214% 289%
</TABLE>
- ----------
* Annualized
** Not Annualized
(1) The Fund began offering Retail B Shares on March 4, 1996.
(2) Calculation does not include the effect of any sales charge for Retail A
Shares and Retail B Shares.
(A) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or Administrator for Retail A Shares for the years
ended October 31, 1999, 1998, 1997, 1996 and 1995 were $0.47, $0.49,
$0.51, $0.50 and $0.52, respectively. Net investment income per share
before reimbursement/waiver of fees by the Investment Advisor and/or
Administrator for the Trust Shares for the years ended October 31, 1999,
1998, 1997, 1996, and 1995 were $0.49 $0.52, $0.52, $0.53, and $0.54,
respectively. Net investment income per share before reimbursement/waiver
of fees by the Investment Advisor and/or Administrator for Retail B Shares
for the years ended October 31, 1999, 1998, 1997 and 1996 were $0.39,
$0.42, $0.44 and $0.29, respectively.
See Notes to Financial Statements.
30
<PAGE>
Trust Shares
<TABLE>
<CAPTION>
Years ended October 31,
---------------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ....................... $ 10.10 $ 10.01 $ 9.99 $ 10.06 $ 9.73
---------- ---------- ---------- ---------- ----------
Income from Investment Operations:
Net investment income (A) ................................ 0.51 0.54 0.54 0.55 0.57
Net realized and unrealized gain (loss) on investments ... (0.25) 0.11 0.02 (0.07) 0.33
---------- ---------- ---------- ---------- ----------
Total from Investment Operations ....................... 0.26 0.65 0.56 0.48 0.90
---------- ---------- ---------- ---------- ----------
Less Dividends:
Dividends from net investment income ..................... (0.50) (0.56) (0.54) (0.55) (0.57)
---------- ---------- ---------- ---------- ----------
Total Dividends ........................................ (0.50) (0.56) (0.54) (0.55) (0.57)
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in net asset value ................. (0.24) 0.09 0.02 (0.07) 0.33
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period ............................. $ 9.86 $ 10.10 $ 10.01 $ 9.99 $ 10.06
========== ========== ========== ========== ==========
Total Return(2) ............................................ 2.67% 6.68% 5.77% 4.91% 9.55%
Ratios/Supplemental Data:
Net Assets, End of Period (000's) .......................... $ 31,438 $ 38,071 $ 49,837 $ 58,227 $ 35,088
Ratios to average net assets:
Net investment income including
reimbursement/waiver ................................. 5.10% 5.33% 5.43% 5.49% 5.79%
Operating expenses including reimbursement/waiver ...... 0.86% 0.85% 0.86% 0.84% 0.74%
Operating expenses excluding reimbursement/waiver ...... 1.06% 1.05% 1.07% 1.08% 1.02%
Portfolio Turnover Rate .................................... 151% 133% 173% 214% 289%
</TABLE>
Retail B Shares
<TABLE>
<CAPTION>
Years ended October 31,
-----------------------------------------------
1999 1998 1997 1996(1)
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ....................... $ 10.10 $ 10.01 $ 9.99 $ 10.09
-------- -------- -------- --------
Income from Investment Operations:
Net investment income(A) ................................. 0.42 0.45 0.46 0.31
Net realized and unrealized gain (loss) on investments ... (0.25) 0.11 0.03 (0.10)
-------- -------- -------- --------
Total from Investment Operations ....................... 0.17 0.56 0.49 0.21
-------- -------- -------- --------
Less Dividends:
Dividends from net investment income ..................... (0.41) (0.47) (0.47) (0.31)
-------- -------- -------- --------
Total Dividends ........................................ (0.41) (0.47) (0.47) (0.31)
-------- -------- -------- --------
Net increase (decrease) in net asset value ................. (0.24) 0.09 0.02 (0.10)
-------- -------- -------- --------
Net Asset Value, End of Period ............................. $ 9.86 $ 10.10 $ 10.01 $ 9.99
======== ======== ======== ========
Total Return(2) ............................................ 1.71% 5.73% 4.99% 2.12%**
Ratios/Supplemental Data:
Net Assets, End of Period (000's) .......................... $ 812 $ 1,087 $ 905 $ 260
Ratios to average net assets:
Net investment income including
reimbursement/waiver ................................. 4.17% 4.40% 4.56% 4.73%*
Operating expenses including reimbursement/waiver ...... 1.79% 1.78% 1.75% 1.77%*
Operating expenses excluding reimbursement/waiver ...... 2.08% 1.99% 2.01% 1.98%*
Portfolio Turnover Rate .................................... 151% 133% 173% 214%**
</TABLE>
31
<PAGE>
- --------------------------------------------------------------------------------
Intermediate Government Income Fund
Financial Highlights
For a Share outstanding throughout each period.
Retail A Shares
<TABLE>
<CAPTION>
Years ended October 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ........................ $ 10.50 10.18 $ 10.06 $ 10.28 $ 9.68
---------- ---------- ---------- ---------- ----------
Income from Investment Operations:
Net investment income(A) ................................. 0.54 0.57 0.59 0.57 0.61
Net realized and unrealized gain (loss) on investments ... (0.65) 0.34 0.12 (0.22) 0.60
---------- ---------- ---------- ---------- ----------
Total from Investment Operations ....................... (0.11) 0.91 0.71 0.35 1.21
---------- ---------- ---------- ---------- ----------
Less Dividends:
Dividends from net investment income ..................... (0.53) (0.59) (0.59) (0.57) (0.61)
---------- ---------- ---------- ---------- ----------
Total Dividends ........................................ (0.53) (0.59) (0.59) (0.57) (0.61)
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in net asset value .................. (0.64) 0.32 0.12 (0.22) 0.60
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period .............................. $ 9.86 10.50 $ 10.18 $ 10.06 $ 10.28
========== ========== ========== ========== ==========
Total Return(2) ............................................. (1.11)% 9.22% 7.33% 3.58% 12.85%
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ........................... $ 56,454 $ 66,865 $ 65,626 $ 79,741 $ 79,558
Ratios to average net assets:
Net investment income including reimbursement/waiver ..... 5.28% 5.49% 5.90% 5.69% 6.10%
Operating expenses including reimbursement/waiver ........ 0.97% 1.01% 1.02% 1.04% 1.02%
Operating expenses excluding reimbursement/waiver ........ 1.17% 1.21% 1.22% 1.24% 1.26%
Portfolio Turnover Rate ..................................... 184% 205% 128% 235% 145%
</TABLE>
- ----------
(1) The Fund began offering Retail B Shares on November 1, 1998.
(2) Calculation does not include the effect of any sales charge for Retail A
Shares and Retail B Shares.
(A) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or Administrator for Retail A Shares for the years
ended October 31, 1999, 1998, 1997, 1996 and 1995 were $0.52, $0.55,
$0.57, $0.55 and $0.58, respectively. Net investment income per share
before reimbursement/waiver of fees by the Investment Advisor and/or
Administrator for the Trust Shares for the years ended October 31, 1999,
1998, 1997, 1996 and 1995 were $0.54, $0.57, $0.60, $0.58 and $0.62,
respectively. Net investment income per share before reimbursement/waiver
of fees by the Investment Advisor and/or Administrator for Retail B Shares
for the period ended October 31, 1999 was $0.42.
See Notes to Financial Statements.
32
<PAGE>
Trust Shares
<TABLE>
<CAPTION>
Years ended October 31,
-------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ....................... $ 10.50 $ 10.18 $ 10.06 $ 10.28 $ 9.68
-------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income(A) ................................ 0.56 0.59 0.62 0.60 0.64
Net realized and unrealized gain (loss) on investments .. (0.65) 0.35 0.12 (0.22) 0.60
-------- -------- -------- -------- --------
Total from Investment Operations ...................... (0.09) 0.94 0.74 0.38 1.24
-------- -------- -------- -------- --------
Less Dividends:
Dividends from net investment income .................... (0.56) (0.62) (0.62) (0.60) (0.64)
-------- -------- -------- -------- --------
Total Dividends ....................................... (0.56) (0.62) (0.62) (0.60) (0.64)
-------- -------- -------- -------- --------
Net increase (decrease) in net asset value ................. (0.65) 0.32 0.12 (0.22) 0.60
-------- -------- -------- -------- --------
Net Asset Value, End of Period ............................. $ 9.85 10.50 $ 10.18 $ 10.06 $ 10.28
======== ======== ======== ======== ========
Total Return(2) ............................................ (0.86)% 9.52% 7.63% 3.88% 13.18%
Ratios/Supplemental Data:
Net Assets, End of Period (000's) .......................... $234,880 $239,763 $209,215 $213,750 $186,037
Ratios to average net assets:
Net investment income including reimbursement/waiver .... 5.53% 5.77% 6.19% 5.98% 6.39%
Operating expenses including reimbursement/waiver ....... 0.72% 0.73% 0.74% 0.75% 0.73%
Operating expenses excluding reimbursement/waiver ....... 0.92% 0.93% 0.94% 0.95% 0.94%
Portfolio Turnover Rate .................................... 184% 205% 128% 235% 145%
</TABLE>
Retail B Shares
<TABLE>
<CAPTION>
Period ended
October 31,
1999(1)
--------
<S> <C>
Net Asset Value, Beginning of Period ....................... $ 10.50
--------
Income from Investment Operations:
Net investment income(A) ................................ 0.47
Net realized and unrealized gain (loss) on investments .. (0.66)
--------
Total from Investment Operations ...................... (0.19)
--------
Less Dividends:
Dividends from net investment income .................... (0.46)
--------
Total Dividends ....................................... (0.46)
--------
Net increase (decrease) in net asset value ................. (0.65)
--------
Net Asset Value, End of Period ............................. $ 9.85
========
Total Return(2) ............................................ (1.78)%
Ratios/Supplemental Data:
Net Assets, End of Period (000's) .......................... $ 1,084
Ratios to average net assets:
Net investment income including reimbursement/waiver .... 4.61%
Operating expenses including reimbursement/waiver ....... 1.64%
Operating expenses excluding reimbursement/waiver ....... 2.14%
Portfolio Turnover Rate .................................... 184%
</TABLE>
33
<PAGE>
- --------------------------------------------------------------------------------
Corporate Bond Fund
Financial Highlights
For a Share outstanding throughout each period.
Trust Shares
<TABLE>
<CAPTION>
Years ended October 31, Period ended
-------------------------------------------- October 31,
1999 1998 1997 1996 1995(1)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ........................ $ 10.90 $ 10.63 $ 10.53 $ 10.74 $ 10.00
-------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income(A) ................................. 0.59 0.62 0.66 0.64 0.61
Net realized and unrealized gain (loss) on investments ... (0.68) 0.30 0.11 (0.13) 0.74
-------- -------- -------- -------- --------
Total from Investment Operations ....................... (0.09) 0.92 0.77 0.51 1.35
-------- -------- -------- -------- --------
Less Dividends:
Dividends from net investment income ..................... (0.59) (0.65) (0.66) (0.64) (0.61)
Dividends from net realized capital gains ................ -- -- (0.01) (0.08) --
-------- -------- -------- -------- --------
Total Dividends ........................................ (0.59) (0.65) (0.67) (0.72) (0.61)
-------- -------- -------- -------- --------
Net increase (decrease) in net asset value .................. (0.68) 0.27 0.10 (0.21) 0.74
-------- -------- -------- -------- --------
Net Asset Value, End of Period .............................. $ 10.22 $ 10.90 $ 10.63 $ 10.53 $ 10.74
======== ======== ======== ======== ========
Total Return ................................................ (0.82)% 8.96% 7.56% 5.00% 13.85%**
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ........................... $ 79,382 $ 83,565 $ 91,728 $107,728 $ 37,391
Ratios to average net assets:
Net investment income including reimbursement/waiver ..... 5.62% 5.80% 6.27% 6.13% 6.61%*
Operating expenses including reimbursement/waiver ........ 0.85% 0.82% 0.80% 0.85% 1.06%*
Operating expenses excluding reimbursement/waiver ........ 1.05% 1.02% 1.00% 1.05% 1.26%*
Portfolio Turnover Rate ..................................... 206% 155% 37% 84% 41%**
</TABLE>
- ----------
* Annualized
** Not Annualized
(1) The Fund commenced operations on December 12, 1994.
(A) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or Administrator for the years ended October 31,
1999, 1998, 1997 and 1996 and the period ended October 31, 1995 were $0.57,
$0.60, $0.64, $0.62 and $0.57, respectively.
See Notes to Financial Statements.
34
<PAGE>
- --------------------------------------------------------------------------------
High Quality Bond Fund
Financial Highlights
For a Share outstanding throughout each period.
Retail A Shares
<TABLE>
<CAPTION>
Years ended October 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ........................ $ 11.20 $ 10.70 $ 10.47 $ 10.63 $ 9.54
---------- ---------- ---------- ---------- ----------
Income from Investment Operations:
Net investment income(A) ................................. 0.57 0.58 0.60 0.59 0.62
Net realized and unrealized gain (loss) on investments ... (0.86) 0.50 0.23 (0.16) 1.09
---------- ---------- ---------- ---------- ----------
Total from Investment Operations ..................... (0.29) 1.08 0.83 0.43 1.71
---------- ---------- ---------- ---------- ----------
Less Dividends:
Dividends from net investment income ..................... (0.57) (0.58) (0.60) (0.59) (0.62)
Dividends from net realized capital gains ................ (0.09) -- -- -- --
---------- ---------- ---------- ---------- ----------
Total Dividends ...................................... (0.66) (0.58) (0.60) (0.59) (0.62)
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in net asset value .................. (0.95) 0.50 0.23 (0.16) 1.09
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period .............................. $ 10.25 $ 11.20 $ 10.70 $ 10.47 $ 10.63
========== ========== ========== ========== ==========
Total Return(1) ............................................. (2.66)% 10.35% 8.22% 4.24% 18.46
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ........................... $ 42,906 $ 45,879 $ 27,950 $ 30,984 $ 30,093
Ratios to average net assets:
Net investment income including reimbursement/waiver ..... 5.32% 5.30% 5.73% 5.66% 6.16%
Operating expenses including reimbursement/waiver ........ 0.99% 1.00% 1.01% 1.07% 1.02%
Operating expenses excluding reimbursement/waiver ........ 1.20% 1.20% 1.21% 1.28% 1.26%
Portfolio Turnover Rate ..................................... 226% 253% 182% 163% 110%
</TABLE>
- ----------
* Annualized
** Not Annualized
(1) Calculation does not include the effect of any sales charge for Retail A
Shares.
(A) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or Administrator for Retail A Shares for the years
ended October 31, 1999, 1998, 1997, 1996 and 1995 were $0.55, $0.56,
$0.58, $0.57 and $0.59, respectively.
See Notes to Financial Statements.
35
<PAGE>
- --------------------------------------------------------------------------------
High Quality Bond Fund
Financial Highlights (continued)
For a Share outstanding throughout each period.
Trust Shares
<TABLE>
<CAPTION>
Years ended October 31,
--------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ........................ $ 11.20 $ 10.70 $ 10.47 $ 10.63 $ 9.54
-------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income(A) ................................. 0.58 0.59 0.61 0.62 0.64
Net realized and unrealized gain (loss) on investments ... (0.86) 0.50 0.23 (0.16) 1.09
-------- -------- -------- -------- --------
Total from Investment Operations ..................... (0.28) 1.09 0.84 0.46 1.73
-------- -------- -------- -------- --------
Less Dividends:
Dividends from net investment income ..................... (0.58) (0.59) (0.61) (0.62) (0.64)
Dividends from net realized capital gains ................ (0.09) -- -- -- --
-------- -------- -------- -------- --------
Total Dividends ...................................... (0.67) (0.59) (0.61) (0.62) (0.64)
-------- -------- -------- -------- --------
Net increase (decrease) in net asset value .................. (0.95) 0.50 0.23 (0.16) 1.09
-------- -------- -------- -------- --------
Net Asset Value, End of Period .............................. $ 10.25 $ 11.20 $ 10.70 $ 10.47 $ 10.63
======== ======== ======== ======== ========
Total Return(2) ............................................. (2.52)% 10.50% 8.36% 4.46% 18.66%
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ........................... $237,772 $217,143 $182,398 $149,075 $134,631
Ratios to average net assets:
Net investment income including reimbursement/waiver ..... 5.46% 5.43% 5.88% 5.88% 6.33%
Operating expenses including reimbursement/waiver ........ 0.84% 0.87% 0.87% 0.85% 0.85%
Operating expenses excluding reimbursement/waiver ........ 1.04% 1.07% 1.09% 1.06% 1.07%
Portfolio Turnover Rate ..................................... 226% 253% 182% 163% 110%
</TABLE>
- ----------
* Annualized
** Not Annualized
(1) The Fund began offering Retail B Shares on March 4, 1996 and A Prime
Shares and B Prime Shares on November 1, 1998.
(2) Calculation does not include the effect of any sales charge for Retail B
Shares, A Prime Shares and B Prime Shares.
(A) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or Administrator for Trust Shares for the years
ended October 31, 1999, 1998, 1997, 1996 and 1995 were $0.56, $0.56,
$0.59, $0.60 and $0.62, respectively. Net investment income per share
before reimbursement/waiver of fees by the Investment Advisor and/or
Administrator for Retail B Shares for the years ended October 31, 1999,
1998, 1997 and 1996 were $0.47, $0.49, $0.51 and $0.34, respectively. Net
investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or Administrator for A Prime Shares for the year
ended October 31, 1999 was $0.54. Net investment income per share before
reimbursement/waiver of fees by the Investment Advisor and/or
Administrator for B Prime Shares for the year ended October 31, 1999 was
$0.45.
See Notes to Financial Statements.
36
<PAGE>
Retail B Shares
<TABLE>
<CAPTION>
Years ended October 31,
--------------------------------------------
1999 1998 1997 1996(1)
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ........................ $ 11.20 $ 10.70 $ 10.47 $ 10.72
-------- -------- -------- --------
Income from Investment Operations:
Net investment income(A) ................................. 0.50 0.51 0.53 0.36
Net realized and unrealized gain (loss) on investments ... (0.86) 0.51 0.24 (0.25)
-------- -------- -------- --------
Total from Investment Operations ..................... (0.36) 1.02 0.77 0.11
-------- -------- -------- --------
Less Dividends:
Dividends from net investment income ..................... (0.50) (0.52) (0.54) (0.36)
Dividends from net realized capital gains ................ (0.09) -- -- --
-------- -------- -------- --------
Total Dividends ...................................... (0.59) (0.52) (0.54) (0.36)
-------- -------- -------- --------
Net increase (decrease) in net asset value .................. (0.95) 0.50 0.23 (0.25)
-------- -------- -------- --------
Net Asset Value, End of Period .............................. $ 10.25 $ 11.20 $ 10.70 $ 10.47
======== ======== ======== ========
Total Return(2) ............................................. (3.25)% 9.73% 7.59% 1.14%**
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ........................... $ 6,550 $ 5,420 $ 1,998 $ 646
Ratios to average net assets:
Net investment income including reimbursement/waiver ..... 4.72% 4.69% 5.07% 5.34%*
Operating expenses including reimbursement/waiver ........ 1.59% 1.61% 1.69% 1.60%*
Operating expenses excluding reimbursement/waiver ........ 1.88% 1.81% 1.95% 1.81%*
Portfolio Turnover Rate ..................................... 226% 253% 182% 163%
</TABLE>
A Prime Shares
Period ended
October 31,
1999(1)
--------
Net Asset Value, Beginning of Period ........................ $ 11.20
--------
Income from Investment Operations:
Net investment income(A) ................................. 0.60
Net realized and unrealized gain (loss) on investments ... (0.89)
--------
Total from Investment Operations ..................... (0.29)
--------
Less Dividends:
Dividends from net investment income ..................... (0.57)
Dividends from net realized capital gains ................ (0.09)
--------
Total Dividends ...................................... (0.66)
--------
Net increase (decrease) in net asset value .................. (0.95)
--------
Net Asset Value, End of Period .............................. $ 10.25
========
Total Return(2) ............................................. (2.68)%
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ........................... $ 16
Ratios to average net assets:
Net investment income including reimbursement/waiver ..... 5.35%
Operating expenses including reimbursement/waiver ........ 0.96%
Operating expenses excluding reimbursement/waiver ........ 1.52%
Portfolio Turnover Rate ..................................... 226%
B Prime Shares
Period ended
October 31,
1999(1)
--------
Net Asset Value, Beginning of Period ........................ $ 11.20
--------
Income from Investment Operations:
Net investment income(A) ................................. 0.49
Net realized and unrealized gain (loss) on investments ... (0.87)
--------
Total from Investment Operations ..................... (0.38)
--------
Less Dividends:
Dividends from net investment income ..................... (0.49)
Dividends from net realized capital gains ................ (0.09)
--------
Total Dividends ...................................... (0.58)
--------
Net increase (decrease) in net asset value .................. (0.96)
--------
Net Asset Value, End of Period .............................. $ 10.24
========
Total Return(2) ............................................. (3.46)%
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ........................... $ 323
Ratios to average net assets:
Net investment income including reimbursement/waiver ..... 4.60%
Operating expenses including reimbursement/waiver ........ 1.71%
Operating expenses excluding reimbursement/waiver ........ 2.07%
Portfolio Turnover Rate ..................................... 226%
See Notes to Financial Statements.
37
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Notes to Financial Statements
1. Organization
The Galaxy Fund, a Massachusetts business trust (the "Trust"), is
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company. As of the date of this report, the Trust offered
twenty-nine managed investment portfolios. The accompanying financial statements
and financial highlights are those of the Short-Term Bond, Intermediate
Government Income, Corporate Bond and High Quality Bond Funds (individually, a
"Fund", collectively, the "Funds") only.
The Short-Term Bond, Intermediate Government Income and High Quality Bond
Funds are authorized to issue five series of shares (Trust Shares, Retail A
Shares, Retail B Shares, A Prime Shares and B Prime Shares). The Corporate Bond
Fund is authorized to issue two series of shares (Trust Shares and Retail A
Shares). Currently, the High Quality Bond Fund offers all five series of shares,
the Short-Term Bond and Intermediate Government Income Funds offer Trust Shares,
Retail A Shares and Retail B Shares and the Corporate Bond Fund offers Trust
Shares only. Trust Shares, Retail A Shares, Retail B Shares, A Prime Shares and
B Prime Shares are substantially the same except that (i) Retail A Shares are
subject to a maximum 3.75% front-end sales charge, (ii) A Prime Shares are
subject to a maximum 4.75% front-end sales charge, (iii) Retail B Shares and B
Prime Shares are subject to a maximum 5.00% contingent deferred sales charge,
and (iv) each series of shares bears the following series specific expenses:
distribution fees and/or shareholder servicing fees and transfer agency charges.
Six years after purchase, Retail B Shares will convert automatically to Retail A
Shares and eight years after purchase, B Prime Shares will automatically convert
to A Prime Shares. On November 29, 1999, A Prime Shares and B Prime Shares were
redesignated Prime A Shares and Prime B Shares, respectively.
2. Significant Accounting Policies
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates. The following is a
summary of significant accounting policies in conformity with generally accepted
accounting principles consistently followed by the Funds in the preparation of
their financial statements.
Portfolio Valuation: Investment securities are valued by an independent
pricing service approved by the Trust's Board of Trustees. When, in the judgment
of the service, quoted bid prices are readily available and are representative
of the bid side of the market, investments are valued at the mean between quoted
bid prices and asked prices. Other investments are carried at fair value as
determined by the service based on methods which include consideration of yields
or prices of bonds of comparable quality, coupon maturity and type; indications
as to values from dealers; and general market conditions. Short-term obligations
that mature in 60 days or less are valued at amortized cost, which approximates
fair value. All other securities and other assets are appraised at their fair
value as determined in good faith under consistently applied procedures
established by and under the general supervision of the Board of Trustees.
Securities Transactions and Investment Income: Securities transactions are
accounted for on a trade date basis. Net realized gains or losses on sales of
securities are determined by the identified cost method. Interest income is
recorded on the accrual basis. Investment income and realized and unrealized
gains and losses are allocated to the separate series of a Fund based upon the
relative net assets of each series.
Dividends to Shareholders: Dividends from net investment income are
determined separately for each series and are declared daily and paid monthly.
Net realized capital gains, if any, are distributed at least annually.
Income dividends and capital gain dividends are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles.
Federal Income Taxes: The Trust treats each Fund as a separate entity for
federal income tax purposes. Each Fund intends to continue to qualify each year
as a "regulated investment company" under Subchapter M of the Internal Revenue
Code. By so qualifying, each Fund will not be subject to federal income taxes to
the extent that it distributes substantially all of its taxable or tax-exempt
income, if any, for its tax year ending October 31. In addition, by distributing
in each calendar year substantially all of its net investment income, capital
gains and certain other amounts, if any, each Fund will not be subject to a
federal excise tax. Therefore, no federal income or excise tax provision is
recorded.
Repurchase Agreements: Each Fund may engage in repurchase agreement
transactions with institutions that the Trust's investment advisor has
determined are creditworthy. Each repurchase agreement transaction is recorded
at cost plus accrued interest. Each Fund requires that the securities
collateralizing a repurchase agreement transaction be transferred to the Trust's
custodian in a manner that is intended to enable the Fund to obtain those
securities in the event of a counterparty default. The value of the collateral
securities is monitored daily to ensure that the value of the collateral,
including accrued interest, equals or exceeds the repurchase price. Repurchase
agreement transactions involve certain risks in the event of default or
insolvency of the counterparty, including possible delays or restrictions upon a
Fund's ability to dispose of the underlying securities, and a possi-
38
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Notes to Financial Statements
ble decline in the value of the underlying securities during the period while
the Fund seeks to assert its rights.
Expenses: The Trust accounts separately for the assets, liabilities and
operations of each Fund. Expenses directly attributable to a Fund are charged to
the Fund, while expenses which are attributable to more than one fund of the
Trust are allocated among the respective funds.
In addition, expenses of a Fund not directly attributable to the
operations of a particular series of shares of the Fund are allocated to the
separate series based upon the relative net assets of each series. Operating
expenses directly attributable to a series of shares of a Fund are charged to
the operations of that series.
Organization Costs: Each Fund bears all costs in connection with its
organization, including the fees and expenses of registering and qualifying its
initial shares for distribution under federal and state securities laws. All
such costs are deferred and amortized using the straight-line method over a
period of five years beginning with the commencement of each Fund's operations.
In the event that any of the initial shares purchased by a Fund's sponsor are
redeemed during such period by any holder thereof, the Fund involved will be
reimbursed by such holder for any unamortized organization costs in the same
proportion as the number of initial shares being redeemed bears to the number of
initial shares outstanding at the time of redemption.
3. Investment Advisory, Administration, Distribution, Shareholder Services and
Other Fees
The Trust and Fleet Investment Advisors Inc. (the "Investment Advisor"),
an indirect wholly-owned subsidiary of FleetBoston Corporation, are parties to
an investment advisory agreement under which the Investment Advisor provides
services for a fee, computed daily and paid monthly, at the annual rate of 0.75%
of the average daily net assets of each Fund (See Note 4).
The Trust and First Data Investor Services Group, Inc. ("Investor Services
Group"), a wholly-owned subsidiary of First Data Corporation, are parties to an
administration agreement under which Investor Services Group (the
"Administrator")provides services for a fee, computed daily and paid monthly, at
the annual rate, effective September 10, 1998, of 0.09% of the first $2.5
billion of the combined average daily net assets of the Funds and the other
funds offered by the Trust (whose financial statements are provided in separate
reports), 0.085% of the next $2.5 billion of combined average daily net assets,
0.075% of the next $7 billion of combined average daily net assets, 0.065% of
the next $3 billion of combined average daily net assets, 0.06% of the next $3
billion of combined average daily net assets and 0.0575% of combined average
daily net assets in excess of $18 billion. Prior to September 10, 1998, Investor
Services Group received administration fees at the annual rate of 0.09% of the
first $2.5 billion of combined average daily net assets of the Funds and the
other funds offered by the Trust, 0.085% of the next $2.5 billion of combined
average daily net assets and 0.075% of combined average daily net assets over $5
billion.
In addition, Investor Services Group also provides certain fund
accounting, custody administration and transfer agency services in accordance
with certain fee arrangements. Pursuant to these fee arrangements, Investor
Services Group compensates the Trust's custodian bank, The Chase Manhattan Bank,
for its services.
First Data Distributors, Inc. (the "Distributor"), a wholly-owned
subsidiary of Investor Services Group and an indirect wholly-owned subsidiary of
First Data Corporation, serves as the distributor of the Trust's shares.
The Trust has adopted a shareholder services plan ("Services Plan") with
respect to Retail A Shares and Trust Shares of the Funds. Currently, the
Services Plan has not been implemented with respect to the Funds' Trust Shares.
The Services Plan provides compensation to institutions (including and currently
limited to Fleet Bank and its affiliates) which provide administrative and
support services to their customers who beneficially own Retail A Shares at an
aggregate annual rate not to exceed 0.30% of the average daily net asset value
of the outstanding Retail A Shares of each Fund beneficially owned by such
customers. The Trust, under the direction of the Board of Trustees, is currently
limiting fees payable under the Services Plan with respect to each Fund to an
aggregate annual rate not to exceed 0.15% of the average daily net asset value
of the outstanding Retail A Shares beneficially owned by such customers.
The Trust has adopted a distribution and services plan (the "12b-1 Plan")
with respect to Retail B Shares of the Short-Term Bond, Intermediate Government
Income and High Quality Bond Funds. Under the 12b-1 Plan, the Trust may pay (i)
the Distributor or another person for expenses and activities primarily intended
to result in the sale of Retail B Shares, (ii) institutions for shareholder
liaison services and (iii) institutions for administrative support services.
Currently, payments under the 12b-1 Plan for distribution services are being
made solely to broker-dealer affiliates of Fleet Bank and payments under the
12b-1 Plan for shareholder liaison and administrative support services are being
made solely to Fleet Bank and its affiliates. Payments for distribution expenses
may not exceed an annual rate of 0.65% of the average daily net assets
attributable to each of the Funds' outstanding Retail B Shares. The fees paid
for shareholder liaison services and administrative support services may not
exceed the annual rates of 0.15% and 0.15%, respectively, of the average daily
net assets attributable to each of the Funds' outstanding Retail B Shares owned
of record or beneficially by the customers of institutions. The Trust, under the
direction of the Board of Trustees, is currently limiting each Fund's payments
for shareholder liaison and administrative support services under the 12b-1 Plan
to an aggregate fee of not more than 0.15% of the average daily net asset value
of Retail B Shares owned of record or beneficially by the customers of
institutions. For the
39
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Notes to Financial Statements
year ended October 31, 1999, the Funds paid fees under the Services Plan and
12b-1 Plan as follows:
12b-1 Plan
Services ----------
Fund Plan Services Distribution
- ---- ---- -------- ------------
Short-Term Bond ............................ $37,626 $1,201 $ 5,699
Intermediate Government Income ............. 87,475 874 3,865
High Quality Bond .......................... 66,090 8,984 43,211
The Trust has adopted a Distribution Plan (the "A Prime Shares Plan") with
respect to A Prime Shares of the Short-Term Bond, Intermediate Government Income
and High Quality Bond Funds. Under the A Prime Shares Plan, the Trust may pay
the Distributor or another person for expenses and activities primarily intended
to result in the sale of A Prime Shares. Payments by the Trust under the A Prime
Shares Plan may not exceed the annual rate of 0.30% of the average daily net
assets attributable to each Fund's outstanding A Prime Shares. The Trust, under
the direction of the Board of Trustees, is currently limiting the Funds'
payments under the A Prime Shares Plan to an annual rate of not more than 0.25%
of the average daily net asset value of each Fund's outstanding A Prime Shares.
The Trust has adopted a Distribution and Services Plan (the "B Prime
Shares Plan") with respect to B Prime Shares of the Short-Term Bond,
Intermediate Government Income and High Quality Bond Funds. Under the B Prime
Shares Plan, the Trust may pay (i) the Distributor or another person for
expenses and activities primarily intended to result in the sale of B Prime
Shares, (ii) institutions for shareholder liaison services, and (iii)
institutions for administrative support services. Payments for distribution
expenses may not exceed an annual rate of 0.75% of the average daily net assets
attributable to each Fund's outstanding B Prime Shares. The fees paid to
institutions for shareholder liaison services and/or administrative support
services may not exceed the annual rates of 0.25% and 0.25%, respectively, of
the average daily net assets attributable to each Fund's outstanding B Prime
Shares owned of record or beneficially by customers of institutions. The Trust,
under the direction of the Board of Trustees, is currently limiting each Fund's
payments for shareholder liaison and administrative support services under the B
Prime Shares Plan to an aggregate fee of not more than 0.25% of the average
daily net asset value of B Prime Shares owned of record or beneficially by
customers of institutions. For the year ended October 31, 1999, the Funds paid
fees under the A Prime Shares Plan and B Prime Shares Plan as follows:
B Prime Shares Plan
A Prime -------------------
Fund Shares Plan Services Distribution
- ---- ----------- -------- ------------
High Quality Bond................ $ 63 $ 543 $ 1,629
Retail A Shares, Retail B Shares, Trust Shares, A Prime Shares and B Prime
Shares of the Funds each bear series specific transfer agent charges based upon
the number of shareholder accounts for each series. In addition, Trust Shares
also bear additional transfer agency fees in order to compensate Investor
Services Group for payments made to Fleet Bank, an affiliate of the Investment
Advisor, for performing certain sub-accounting and administrative functions on a
per account basis with respect to Trust Shares held by defined contribution
plans. These additional fees are based on the number of underlying participant
accounts. For the year ended October 31, 1999, transfer agent charges for each
series were as follows:
Fund Retail A Retail B Trust
- ---- -------- -------- -----
Short-Term Bond ...................... $ 29,872 $ 2,168 $ 5,640
Intermediate Government Income ....... 84,722 2,690 49,447
Corporate Bond ....................... N/A N/A 59,408
High Quality Bond .................... 72,862 11,912 297,298
Fund A Prime B Prime
- ---- ------- -------
High Quality Bond .................... $ 93 $ 359
Certain officers of the Trust may be officers of the Administrator. Such
officers receive no compensation from the Trust for serving in their respective
roles. No officer, director or employee of the Investment Advisor serves as an
officer, trustee or employee of the Trust. Effective May 28, 1999, each Trustee
is entitled to receive for services as a trustee of the Trust, The Galaxy VIP
Fund ("VIP") and Galaxy Fund II ("Galaxy II") an aggregate fee of $45,000 per
annum plus certain other fees for attending or participating in meetings as well
as reimbursement for expenses incurred in attending meetings. Prior to May 28,
1999, each Trustee was entitled to receive for services as a trustee of the
Trust, VIP and Galaxy II an aggregate fee of $40,000 per annum plus certain
other fees for attending or participating in meetings as well as reimbursement
for expenses incurred in attending meetings. The Chairman of the Boards of
Trustees and the President and Treasurer of the Trust, VIP and Galaxy II are
also entitled to additional fees for their services in these capacities. These
fees are allocated among the funds of the Trust, VIP and Galaxy II, based on
their relative net assets.
Each Trustee is eligible to participate in The Galaxy Fund/The Galaxy VIP
Fund/Galaxy Fund II Deferred Compensation Plan (the "Plan"), an unfunded,
non-qualified deferred compensation plan. The Plan allows each trustee to defer
receipt of all or a percentage of fees which otherwise would be payable for
services performed.
Expenses for the year ended October 31, 1999 include legal fees paid to
Drinker Biddle & Reath LLP. A partner of that firm is Secretary to the Trust.
4. Waiver of Fees and Reimbursement of Expenses
The Advisor and/or its affiliates and/or the Administrator voluntarily
agreed to waive a portion of their fees and/or reimburse the Funds for certain
expenses so that total expenses would not exceed certain expense limitations
established for each Fund. The respective parties, at their discretion, may
revise or discontinue the voluntary fee waivers and expense reimbursements at
any time. For the year ended October 31, 1999, the fees waived
40
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Notes to Financial Statements
and/or expenses reimbursed with respect to the Funds were as follows:
Expenses
Fund Fees Waived Reimbursed
- ---- ----------- ----------
Short-Term Bond ............................. $121,931 $ 786
Intermediate Government Income .............. 609,684 875
Corporate Bond .............................. 165,217 --
High Quality Bond ........................... 562,088 12,539
5. Shares of Beneficial Interest
The Trust's Declaration of Trust authorizes the Trustees to issue an
unlimited number of shares of beneficial interest, each with a par value of
$0.001. Shares of the Trust are currently classified into thirty-one classes of
shares each consisting of one or more series.
Each share represents an equal proportionate interest in the respective
Fund, bears the same fees and expenses (except that Retail A Shares of a Fund
bear the expense of payments under the Services Plan, Retail B Shares of a Fund
bear the expense of payments under the 12b-1 Plan, A Prime Shares of a Fund bear
the expense of payments under the A Prime Shares Plan, B Prime Shares of a Fund
bear the expense of payments under the B Prime Shares Plan and Trust Shares,
Retail A Shares, Retail B Shares, A Prime Shares and B Prime Shares of a Fund
each bear series specific transfer agent charges) and are entitled to such
dividends and distributions of income earned as are declared at the discretion
of the Trust's Board of Trustees.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held, and will vote in
the aggregate and not by class or series, except as otherwise expressly required
by law or when the Board of Trustees determines that the matter to be voted on
affects only the interests of shareholders of a particular class or series.
6. Purchases and Sales of Securities
The cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the year ended October 31, 1999 were as follows:
Fund Purchases Government Other
- -------------- ---------- -----
Short-Term Bond ........................ $ 43,611,398 $ 39,920,350
Intermediate Government Income ......... 412,841,184 148,082,791
Corporate Bond ......................... 95,946,852 70,996,082
High Quality Bond ...................... 448,366,755 212,085,841
Fund Sales
- ----------
Short-Term Bond ........................ $ 48,881,658 $ 49,846,491
Intermediate Government Income ......... 432,689,859 117,475,819
Corporate Bond ......................... 94,213,260 71,756,764
High Quality Bond ...................... 448,876,493 169,786,147
The aggregate gross unrealized appreciation and (depreciation), net
unrealized appreciation (depreciation), and cost for all securities as computed
on a federal income tax basis at October 31, 1999 for each Fund is as follows:
Fund Appreciation (Depreciation)
- ---- ------------ --------------
Short-Term Bond ................... $ 68,057 $ (636,373)
Intermediate Government Income .... 878,680 (7,209,462)
Corporate Bond .................... 222,822 (2,574,824)
High Quality Bond ................. 782,088 (10,404,230)
Fund Net Cost
- ---- --- ----
Short-Term Bond ................... $ (568,316) $ 56,806,087
Intermediate Government Income .... (6,330,782) 309,255,876
Corporate Bond .................... (2,352,002) 80,689,009
High Quality Bond ................. (9,622,142) 295,328,037
7. Subsequent Event - Change in Control of Administrator and Change in
Distributor (unaudited)
On December 1, 1999, PFPC Trust Company, a wholly-owned subsidiary of PFPC
Worldwide, Inc. and an indirect wholly-owned subsidiary of PNC Bank Corp.,
acquired all of the outstanding stock of Investor Services Group (the
"Transaction"). On that same date and as part of the Transaction, PFPC Inc., an
indirect wholly-owned subsidiary of PNC Bank Corp., was merged into Investor
Services Group, which then changed its name to PFPC Inc.
In connection with the Transaction, on December 1, 1999, Provident
Distributors, Inc. became the distributor of the Trust's shares.
8. Federal Tax Information
At October 31, 1999, the following Funds had capital loss carryforwards:
Fund Amount Expiration
- ---- ------ ----------
Short-Term Bond ............................... $ 1,789,957 2001
2,843,359 2002
1,206,932 2003
10,917 2004
9,409 2005
Intermediate Government Income ................ 17,636,357 2002
3,291,626 2003
2,479,060 2004
3,831,476 2007
Corporate Bond ................................ 288,371 2002
1,309,536 2003
450,363 2005
662,376 2007
High Quality Bond ............................. 1,291,551 2007
41
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Notes to Financial Statements
9. Tax Information (unaudited)
During the fiscal year ended October 31, 1999, the following Funds earned
income from direct obligations of the U.S. Government:
U.S. Government
Fund Income
---- ---------------
Short-Term Bond......................................... 13.47%
Intermediate Government Income.......................... 30.83%
Corporate Bond.......................................... 11.18%
High Quality Bond....................................... 31.38%
Appropriate tax information detailing U.S. government income percentages
on a calendar basis will accompany each shareholder's year-end tax statement. As
each state's rules on the exemption of this income differ, please consult your
tax advisor regarding specific tax treatment.
42
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Notes to Financial Statements
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Shareholders and Board of Trustees of
The Galaxy Fund:
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of the Short-Term Bond Fund, Intermediate
Government Income Fund, Corporate Bond Fund and High Quality Bond Fund (four of
the portfolios constituting The Galaxy Fund) as of October 31, 1999, and the
related statements of operations, the statements of changes in net assets, and
the financial highlights for the year then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit. The statements of changes in net assets
for the year ended October 31, 1998 and the financial highlights for the four
years then ended were audited by other auditors whose report dated December 23,
1998, expressed an unqualified opinion on those statements and financial
highlights.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in financial statements and
financial highlights. Our procedures included confirmation of securities owned
as of October 31, 1999 by correspondence with the custodian and brokers or other
appropriate auditing procedures where replies from brokers were not received. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Short-Term Bond Fund, Intermediate Government Income Fund, Corporate Bond Fund
and High Quality Bond Fund portfolios of The Galaxy Fund at October 31, 1999,
the results of their operations, changes in their net assets and their financial
highlights for the year then ended, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
December 13, 1999
43
<PAGE>
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Shareholder Information
TRUSTEES AND OFFICERS
Dwight E. Vicks, Jr.
Chairman and Trustee
John T. O'Neill
President, Treasurer and Trustee
Louis DeThomasis, F.S.C., Ph.D.
Trustee
Donald B. Miller
Trustee
James M. Seed
Trustee
Bradford S. Wellman
Trustee
W. Bruce McConnel, III, Esq.
Secretary
Jylanne Dunne
Vice President and Assistant Treasurer
William Greilich
Vice President
INVESTMENT ADVISOR
Fleet Investment
Advisors, Inc.
75 StateStreet
Boston, MA
02109
DISTRIBUTOR
Provident Distributors, Inc.
Four Falls Corporate Center
6th Floor
West Conshohocken, PA
19428-2961
ADMINISTRATOR
PFPC Inc.
4400 Computer Drive
Westborough,
Massachusetts 01581-5108
AUDITOR
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116
LEGAL COUNSEL
Drinker Biddle & Reath LLP
One Logan Square
18th and Cherry Streets
Philadelphia, PA 19103
This report is submitted for the general information of shareholders of The
Galaxy Fund. It is not authorized for distribution to prospective investors
unless accompanied or preceded by an effective prospectus for each Fund of The
Galaxy Fund, which contains more information concerning the investment policies
and expenses of the Funds as well as other pertinent information. For complete
information, and before making an investment decision on any of the Funds of The
Galaxy Fund, you should request a prospectus from the Funds' distributor by
calling toll-free 1-877-BUY-GALAXY (1-877-289-4252). Read the prospectus
carefully before you invest.
Shares of the Funds are not bank deposits or obligations of, or guaranteed or
endorsed by, FleetBoston Corporation or any of its affiliates, Fleet Investment
Advisors Inc., or any Fleet Bank. Shares of the Funds are not federally insured
by, guaranteed by, obligations of or otherwise supported by the U.S. Government,
the Federal Deposit Insurance Corporation, the Federal Reserve Board or any
other governmental agency. Investment return and principal value will vary as a
result of market conditions or other factors so that shares of the Funds, when
redeemed, may be worth more or less than their original cost. An investment in
the Funds involves investment risks, including the possible loss of principal
amount invested.
[RECYCLE LOGO]
This report was printed on recycled paper.
44
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------------------
[LOGO] Galaxy Funds P.O. Box 6520 BULK RATE
Providence, RI 02940-6520 U. S. POSTAGE PAID
PERMIT NO. 105
NORTH READING, MA
------------------
<PAGE>
[GRAPHIC]
Galaxy Tax-Exempt Bond Funds
Galaxy Funds
Annual Report
October 31, 1999
Galaxy Tax-Exempt Bond Fund
Galaxy New Jersey Municipal
Bond Fund
Galaxy New York Municipal
Bond Fund
Galaxy Connecticut Municipal
Bond Fund
Galaxy Massachusetts Municipal
Bond Fund
Galaxy Rhode Island Municipal
Bond Fund
[LOGO] Galaxy
Funds
<PAGE>
Chairman's Message
Dear Shareholder:
Enclosed is the annual report for the Galaxy Tax-Exempt Bond Funds that
covers the fiscal year ended October 31, 1999. The report includes a Market
Overview that explains the different economic and market factors influencing
bond investments during this time. Following the Market Overview are individual
reviews that describe how Fleet Investment Advisors Inc. managed each of the
Funds' portfolios in this climate. Financial statements and a list of portfolio
holdings for each of the Funds as of October 31, 1999 appears at the end of the
report.
Unexpected economic strength, inflation concerns, and a tighter monetary
policy drove bond yields higher during the reporting period. After cutting
short-term interest rates by 25 basis points (0.25%) at the start of the period,
the Federal Reserve became concerned that the economy was advancing strongly
enough to prompt inflation that would curb future growth. This resulted in rate
increases later in the period totaling 50 basis points. As bond yields rose, the
prices for bonds fell sharply. When investors were most uncertain about the
direction of interest rates, many moved back into securities with the strongest
credit quality and liquidity. While municipal bonds underperformed Treasury
issues at these times, the Galaxy Tax-Exempt Bond Funds benefited from an
emphasis on higher-quality issues with good liquidity.
Although market changes like those of the past year can be unnerving, they
are typical of the ups and downs that occur with most investments. Even so, this
may be a good time to meet with a financial advisor who can help you determine
whether your current strategies suit your long-term goals. Investment
professionals at Fleet Bank branches can provide you with a no-obligation
analysis that will help you make this comparison and get the most from your
portfolio.
If you have any questions about the Galaxy Tax-Exempt Bond Funds or the
information in this report, please contact the Galaxy Information Center
toll-free at 1-877-BUY-GALAXY (1-877-289-4252). You can also visit one of our
investment professionals located at Fleet Bank branches.
Sincerely,
/s/ Dwight E. Vicks, Jr.
Dwight E. Vicks, Jr.
Chairman of the Board of Trustees
- --------------------------------------------------------------------------------
Mutual Funds:
- - are not bank deposits
- - are not FDIC insured
- - are not obligations of Fleet Bank
- - are not guaranteed by Fleet Bank
- - are subject to investment risk including possible loss of principal amount
invested
- --------------------------------------------------------------------------------
<PAGE>
Market Overview
"By shortening the portfolio duration (a measure of interest rate sensitivity)
during the reporting period and maintaining our standards of high credit
quality, the Galaxy Tax-Exempt Bond Funds generally outperformed funds with
similar investment objectives."
Bond Market Overview
By Fleet Investment Advisors Inc.
Bond prices declined substantially in the past year, as improving economic
conditions abroad kept growth strong enough at home to raise concern about
higher inflation and interest rates. Yields in the municipal market were higher
by 80 to 100 basis points (0.80% to 1.00%) over the last year, compared with an
increase of 110 to 170 basis points for U.S Treasury yields. The supply of new
issues of municipal bonds was down approximately 20% from 1998, which was a
record year.
Although inflation remained relatively modest, interest rates rose for
most of the period. This was due largely to efforts by the Federal Reserve (the
"Fed") to keep inflation under control. After cutting the Fed Funds rate three
times for a total rate cut of 75 basis points since September 1998, the Fed
raised rates by 25 basis points each at meetings in June and August of 1999.
By shortening the portfolio duration (a measure of interest rate
sensitivity) during the reporting period and maintaining our standards of high
credit quality, the Galaxy Tax-Exempt Bond Funds generally outperformed funds
with similar investment objectives.
Strong Growth Boosts Yields
When the reporting period started, 30-year Treasury bonds were yielding
5.20%, the Lehman Brothers Municipal Bond Index was yielding 4.38%, and
inflation was about 1.6%. Following an annualized growth rate of 3.7% in the
third quarter of 1998, the gross domestic product ("GDP"), which measures the
output of U.S. goods and services, increased by 6% in the fourth quarter of
1998. With economies in Asia and other emerging markets still in crisis,
however, investors sought safety in Treasuries. To restore confidence in other
fixed-income markets, the Fed cut interest rates in November.
As foreign economies rebounded strongly in the first quarter of 1999, U.S.
growth, as measured by GDP, improved by 4.3%. This raised concern that the Fed
would start raising interest rates to keep inflation at bay. Although low levels
of current inflation discouraged Fed action at this time, the yield for 30-year
Treasuries rose to 5.62% by the end of March.
GDP growth slowed to a rate of 1.8% in the second quarter of 1999.
However, signs of faster growth raised enough concern about inflation for the
Fed to boost short-term rates for the first time since February 1995. While
inflation remained under control in the third quarter, GDP growth accelerated to
an estimated 5.5% rate. The stronger growth, plus inflation concerns prompted by
weakness in the U.S. dollar, caused the Fed to raise short-term rates again in
August. In anticipation of this rate hike, 30-year Treasury yields rose as high
as 6.28%.
Investors continued to worry into October that the Fed would raise rates
again and effectively erase the 75 basis point cut from 1998. With annualized
inflation at just 2.8%, however, another rate hike seemed less likely. As
sentiment shifted, the yield for long-term Treasuries edged lower, reaching
6.16% on October 31. At the end of the reporting period the Lehman Brothers
Municipal Bond Index had a yield of 5.32%.
Municipal Bonds Outperform
With investors seeking safety in U.S. Treasury issues during the fall of
1998, municipal bonds had significantly underperformed on a total return basis
versus Treasuries. Municipals were also hurt as low absolute yields discouraged
demand by retail investors, while new issue supply set a record at $280 billion.
By the beginning of 1999, yields for municipal bonds as a percentage of U.S.
Treasuries had reached unusually high levels.
Municipal bonds performed fairly well in the first quarter of 1999,
falling only slightly in price. The summer then brought the start of two very
dif-
2
<PAGE>
"After averaging growth rates of 3.9% and 3.8% in 1998 and 1999, respectively,
we believe that GDP may only improve by 2.5% next year."
ferent faces in the municipal market. As municipal bond mutual funds received
very little new cash and witnessed redemptions that caused them to sell
long-term bonds, insurance companies were underweighting municipals in favor of
taxable issues with attractive yield spreads.
At the same time, retail investors started buying municipal bonds with
short- to intermediate-term maturities. The retail sector remained the dominant
buyer of municipals for the remainder of the fiscal year, and mutual funds
continued to be net sellers. This caused the yield curve to steepen, which
increased the underperformance of longer-term bonds.
In addition to greater demand, shorter maturities benefited from the
reduced sensitivity of their prices to rising interest rates. By replacing the
longer maturities that had performed well when interest rates were falling in
1998 with intermediate-term issues, we helped the Galaxy Tax-Exempt Bond Funds
outperform other funds with similar investment objectives. The Funds also
benefited from sizable investments in issues with premium coupons, strong credit
quality, and good liquidity. Investors tended to favor municipals with these
attributes as bond prices weakened.
Volatility to Continue
We predict bond prices will remain volatile in coming months. If economic
growth is robust, further rate hikes could follow. There are now many signs,
however, that previous rate hikes are creating an environment for slower growth.
After averaging growth rates of 3.9% and 3.8% in 1998 and 1999, respectively, we
believe that GDP may only improve by 2.5% next year. Under that scenario,
inflation should remain under control, interest rates should retrace their
recent rise, and bond prices should strengthen.
At current yield levels municipal bonds should remain attractive to
investors. Longer intermediate-term municipals offer yields near 5.40%, which is
equivalent to a taxable yield of 8.44% for individuals in the 36% federal income
bracket.
3
<PAGE>
PERFORMANCE AT-A-GLANCE
AVERAGE ANNUAL TOTAL RETURNS -- TRUST SHARES
<TABLE>
<CAPTION>
As of October 31, 1999 1 Year 3 Years 5 Years Life of Fund
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tax-Exempt Bond Fund
(Inception date 12/30/91) -3.25% 3.98% 6.06% 5.71%
- ----------------------------------------------------------------------------------------------------------
New Jersey Municipal Bond Fund
(Inception date 4/3/98) -3.06 N/A N/A 0.81
- ----------------------------------------------------------------------------------------------------------
New York Municipal Bond Fund
(Inception date 12/31/91) -3.54 4.01 6.09 5.47
- ----------------------------------------------------------------------------------------------------------
Connecticut Municipal Bond Fund
(Inception date 12/14/90) -2.68 4.27 6.43 4.66
- ----------------------------------------------------------------------------------------------------------
Massachusetts Municipal Bond Fund
(Inception date 12/31/91) -3.17 3.97 6.10 4.34
- ----------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS -- RETAIL A SHARES+
<TABLE>
<CAPTION>
As of October 31, 1999 1 Year 3 Years 5 Years Life of Fund
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tax-Exempt Bond Fund
(Inception date 12/30/91) -7.07% 2.43% 5.01% 5.15%
- ----------------------------------------------------------------------------------------------------------
New Jersey Municipal Bond Fund
(Inception date 4/3/98) -6.87 N/A N/A -1.80
- ----------------------------------------------------------------------------------------------------------
New York Municipal Bond Fund
(Inception date 12/31/91) -7.36 2.49 5.06 4.82
- ----------------------------------------------------------------------------------------------------------
Connecticut Municipal Bond Fund
(Inception date 12/14/90) -6.50 2.73 5.39 3.89
- ----------------------------------------------------------------------------------------------------------
Massachusetts Municipal Bond Fund
(Inception date 12/31/91) -6.97 2.48 5.09 3.60
- ----------------------------------------------------------------------------------------------------------
Rhode Island Municipal Bond Fund
(Inception date 12/20/94) -6.42 2.71 N/A 5.01
- ----------------------------------------------------------------------------------------------------------
</TABLE>
+ Return figures have been restated to include the effect of the maximum
3.75% front-end sales charge which became effective on December 1, 1995
AVERAGE ANNUAL TOTAL RETURNS -- RETAIL B SHARES**
<TABLE>
<CAPTION>
1 Year 1 Year 3 Year 3 Year Life of Fund Life of Fund
Return Before Return After Return Before Return After Return Before Return After
Contingent Contingent Contingent Contingent Contingent Contingent
Deferred Sales Deferred Sales Deferred Sales Deferred Sales Deferred Sales Deferred Sales
As of October 31, 1999 Charge Deducted Charge Deducted* Charge Deducted Charge Deducted* Charge Deducted Charge Deducted*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tax-Exempt Bond Fund
(Inception date 3/4/96) -4.07% -8.64% 3.10% 2.19% 2.84% 2.35%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* As if shares were redeemed at end of period.
** Retail B Shares are subject to a 5.00% contingent deferred sales charge if
shares are redeemed within the first year. The charge decreases to 4.00%,
3.00%, 3,00%, 2.00% and 1.00% for redemptions made during the second
through sixth years, respectively. Retail B Shares automatically convert
to Retail A Shares after six years. Total returns are from the date of
inception.
Past performance is no guarantee of future results. Investment returns and
principal values will vary with market conditions so that an investor's shares,
when redeemed, may be worth more or less than their original cost. The
Investment Advisor is presently waiving fees and/or reimbursing expenses and may
revise or discontinue such practice at any time. Without such waivers and/or
reimbursements, performance would be lower. Total return figures in this report
include changes in share price, reinvestment of dividends and capital gains
distributions and include the deduction of any sales charges, where applicable,
unless otherwise indicated.
4
<PAGE>
Portfolio Reviews
[PHOTO]
Glenn Migliozzi is the managing director of Fixed Income Investments for Fleet
Investment Advisors Inc. He is also a member of Fleet's Tax-Exempt Investment
Policy Committee, which has managed the Galaxy Tax-Exempt Bond, New York
Municipal Bond, Connecticut Municipal Bond, Massachusetts Municipal Bond and
Rhode Island Municipal Bond Funds since 1996 and the Galaxy New Jersey Municipal
Bond Fund since it commenced operations in April of 1998.
GALAXY TAX-EXEMPT BOND FUND
By Glenn Migliozzi, CFA
Managing Director,
Fixed Income Investments
As municipal bond yields rose in the past year, and prices for bonds with
shorter maturities outperformed, the Galaxy Tax-Exempt Bond Fund benefited from
a neutral duration versus its peer group. We further enhanced returns by
emphasizing holdings with premium coupons, strong credit quality, and good
liquidity.
For the 12 months ended October 31, 1999, the Fund's Trust Shares had a
total return of -3.25%. Over the same time, the Fund's Retail A Shares had a
total return of -3.45% before deducting the maximum 3.75% front-end sales
charge, and its Retail B Shares had a total return of -4.07% before deducting
the maximum 5.00% contingent deferred sales charge. (Please see the charts on
page 4 for total returns after deducting the front-end sales charge and the
contingent deferred sales charge.)
During the reporting period, the average general municipal bond fund
followed by Lipper Analytical Services ("Lipper"), a mutual fund
performance-tracking service, had a total return of -4.18%. The Lehman Brothers
Municipal Bond Index, which has a shorter duration than the Fund or its Lipper
group, had a total return of -1.78%.
On October 31, 1999, the Fund's Trust Shares had a 30-day Securities and
Exchange Commission ("SEC") annualized yield of 4.67%. On the same date, Retail
A Shares had a 30-day SEC annualized yield of 4.35%, and Retail B Shares had a
30-day SEC annualized yield of 3.79%. For shareholders in the 36% federal income
tax bracket, these equaled taxable yields of 7.29%, 6.79%, and 5.92%,
respectively.
Increased Attention to Intermediate Maturities
After emphasizing longer-term municipals when prices were rising earlier
in 1998, we added intermediate-term issues at the start of the reporting period
in the fourth quarter when prices seemed to peak. We continued our focus on
premium coupon issues with strong credit quality and good call protection, which
also helped returns. In the first months of 1999, as a further defense against
falling prices, we raised the Fund's cash position. As interest rates rose we
used these reserves to increase the Fund's yield.
Although intermediate maturities underperformed in the second quarter of
1999, they outperformed in the third quarter. On balance, the Fund continued to
benefit from its neutral duration bias and attention to high credit quality.
Toward the end of the period we increased cash reserves again for added
liquidity.
Neutral Duration to Continue
Given the uncertainty about interest rates, we plan to maintain a duration
that is neutral to that of our peer group. We also expect to continue
emphasizing issuers with strong credit fundamentals, believing the risk/reward
ratio for owning lower-rated securities is not justified in the market at this
time.
Galaxy Tax-Exempt Bond Fund
Distribution of Total Net Assets as of October 31, 1999
[The following information was depicted as a pie chart in the printed material.]
Cash Equivalents & Net Other Assets and Liabilities .... 6%
North Central .......................................... 12%
Pacific ................................................ 8%
East ................................................... 36%
Other Territories ...................................... 3%
South .................................................. 31%
Mountain ............................................... 4%
Galaxy Tax-Exempt Bond Fund
Growth of $10,000 investment*
[The following information was depicted as a line chart in the printed
material.]
12/30/91 10/31/99
Lehman Brothers Municipal Bond Index $10,000 $16,409
Galaxy Tax-Exempt Bond Fund - Retail A Shares $ 9,625 $14,817
Galaxy Tax-Exempt Bond Fund - Trust Shares $10,000 $15,450
Galaxy Tax-Exempt Bond Fund - Retail B Shares $10,000 $10,889
* Since inception on 12/30/91 for Trust and Retail A Shares. Since inception
on 3/4/96 for Retail B Shares. Performance figures for Retail A Shares
include the effect of the maximum 3.75% front-end sales charge.
Performance figures for Retail B Shares reflect the deduction of the 3.00%
contingent deferred sales charge (applicable to shares redeemed during the
fourth year after purchase) as if shares were redeemed on October 31,
1999. The Lehman Brothers Municipal Bond Index is an unmanaged index in
which investors cannot invest. Results for the index do not reflect
investment management fees and other expenses incurred by the Fund.
5
<PAGE>
PORTFOLIO REVIEWS
GALAXY NEW JERSEY MUNICIPAL BOND FUND
By Glenn Migliozzi, CFA
Managing Director,
Fixed Income Investments
As supplies of newly issued municipal bonds declined in the past year,
supplies in New Jersey were occasionally tighter than elsewhere in the country.
The enhanced value that this gave to existing bonds in the state -- combined
with an emphasis on premium coupons, intermediate maturities, and strong credit
quality -- helped the Galaxy New Jersey Municipal Bond Fund outperform other
funds with similar investment objectives.
For the 12 months ended October 31, 1999, the Fund's Trust Shares had a
total return of -3.06%. Over the same time, the Fund's Retail A Shares had a
total return of -3.24% before deducting the maximum 3.75% front-end sales
charge. (Please see the chart on page 4 for total returns after deducting the
front-end sales charge.) By comparison, the average New Jersey municipal bond
fund tracked by Lipper had a total return of -4.13%. The Lehman Brothers
Municipal Bond Index, whose duration is shorter than that of the Fund and its
Lipper group, had a total return of -1.78% for the 12-month period.
On October 31, 1999, the Fund's Trust Shares had a 30-day SEC annualized
yield of 4.12%. On the same date, Retail A Shares had a 30-day SEC annualized
yield of 4.06%. This equaled taxable yields of 6.87% and 6.77%, respectively,
for taxpayers in the 36% federal income tax bracket who live in New Jersey.
Seizing Yield Opportunities
We have focused the Fund's holdings on municipal bonds with premium
coupons, intermediate maturities, and strong credit quality since its inception
in April of 1998. These attributes proved attractive to investors as bond prices
began to fall at the start of the reporting period.
In the first months of 1999, we raised the Fund's cash position as an
additional defense against price declines. After interest rates had moved
higher, we used these reserves to improve the yield of the Fund. We continued to
emphasize intermediate-term issues. While these lagged in 1999's second quarter,
they held up relatively well in the third quarter. As the reporting period
closed, we boosted cash reserves again to improve liquidity.
Positioned for Further Rate Uncertainty
Given the uncertainty about interest rates, we expect to keep the Fund's
duration neutral to that for its peer group and make the most of new yield
opportunities that arise. The Fund's focus on issuers with strong credit
fundamentals should also serve it well in this environment.
Galaxy New Jersey Municipal Bond Fund
Distribution of Total Net Assets as of October 31, 1999
[The following information was depicted as a pie chart in the printed material.]
Cash Equivalents & Net Other Assets and Liabilities ............ 6%
Puerto Rico .................................................... 7%
New Jersey ..................................................... 87%
Galaxy New Jersey Municipal Bond Fund
Growth of $10,000 investment*
[The following information was depicted as a line chart in the printed
material.]
4/3/98 10/31/99
Lehman Brothers Municipal Bond Index $10,000 $10,279
Galaxy New Jersey Municipal Bond Fund - Retail A Shares $ 9,625 $ 9,718
Galaxy New Jersey Municipal Bond Fund - Trust Shares $10,000 $10,128
* Since inception on 4/3/98. Performance figures for Retail A Shares include
the effect of the maximum 3.75% front-end sales charge. The Lehman
Brothers Municipal Bond Index is an unmanaged index in which investors
cannot invest. Results for the index do not reflect investment management
fees and other expenses incurred by the Fund. Results for the index are
calculated since 4/30/98 because the index returns are calculated at
month-end only.
6
<PAGE>
PORTFOLIO REVIEWS
GALAXY NEW YORK MUNICIPAL BOND FUND
By Glenn Migliozzi, CFA
Managing Director,
Fixed Income Investments
In a climate of falling bond prices, the Galaxy New York Municipal Bond
Fund benefited from a duration that was neutral to that of its peer group and an
emphasis on municipals with premium coupons, good liquidity, and strong credit
quality. The Fund also benefited as the supply of new issues in New York versus
other parts of the country was down significantly, which enhanced the value of
existing bonds in the state.
For the 12 months ended October 31, 1999, the Fund's Trust Shares had a
total return of -3.54%. During the same time, the Fund's Retail A Shares had a
total return of -3.72% before deducting the maximum 3.75% front-end sales
charge. (Please see the chart on page 4 for total returns after deducting the
front-end sales charge.)
Over this period the average New York municipal bond fund tracked by
Lipper returned -4.44%. With a duration that was shorter than the Fund and its
peer group, the Lehman Brothers Municipal Bond Index returned -1.78%.
On October 31, 1999, the Fund's Trust Shares had a 30-day SEC annualized
yield of 4.59%. On the same date, Retail A Shares had a 30-day SEC annualized
yield of 4.23%. These are the same as taxable yields of 7.17% and 7.09%,
respectively, for shareholders in the 36% federal income tax bracket who live in
New York.
Managing Price Risk
For a large part of 1998, we held significant investments in municipals
with longer maturities to make the most of falling interest rates and rising
bond prices. In the fourth quarter of 1998, when the reporting period began, it
appeared that interest rates might be bottoming. In this climate, we traded some
longer maturities for intermediate-term issues, which offered better value as
well as a defense against falling bond prices.
For the most part, this strategy continued to serve the Fund well through
the end of the reporting period. The Fund also benefited during the first and
third quarters from an increase in cash reserves. Besides helping to buffer Fund
returns from falling bond prices, the higher reserves gave us the liquidity to
take advantage of opportunities to improve the Fund's yield.
Looking Ahead
We expect to maintain an added level of liquidity in coming months, given
the ongoing uncertainty about interest rates. We also plan to remain neutral in
our duration and committed to municipals with strong credit ratings, while
taking advantage of opportunities to enhance the Fund's return.
Galaxy New York Municipal Bond Fund
Distribution of Total Net Assets as of October 31, 1999
[The following information was depicted as a pie chart in the printed material.]
Cash Equivalents & Net Other Assets and Liabilities .............. 2%
Other Territories ................................................ 2%
New York ......................................................... 96%
Galaxy New York Municipal Bond Fund
Growth of $10,000 investment*
[The following information was depicted as a line chart in the printed
material.]
12/30/91 10/31/99
Lehman Brothers Municipal Bond Index $10,000 $16,409
Galaxy New York Municipal Bond Fund - Retail A Shares $ 9,625 $14,462
Galaxy New York Municipal Bond Fund - Trust Shares $10,000 $15,175
* Since inception on 12/30/91. Performance figures for Retail A Shares
include the effect of the maximum 3.75% front-end sales charge. The Lehman
Brothers Municipal Bond Index is an unmanaged index in which investors
cannot invest. Results for the index do not reflect investment management
fees and other expenses incurred by the Fund.
7
<PAGE>
PORTFOLIO REVIEWS
GALAXY CONNECTICUT MUNICIPAL BOND FUND
By Glenn Migliozzi, CFA
Managing Director,
Fixed Income Investments
When supplies of newly issued municipal bonds declined over the last year,
supplies in Connecticut shrank somewhat more than in other parts of the country.
This enhanced the value of existing bonds in the state. Additions of
intermediate-term issues, which outperformed versus longer-term issues during
the reporting period, also improved returns for the Galaxy Connecticut Municipal
Bond Fund, along with a continued emphasis on municipals with strong credit
quality and liquidity.
For the 12 months ended October 31, 1999, the Fund's Trust Shares had a
total return of -2.68%. Over the same time, the Fund's Retail A Shares had a
total return of -2.87% before deducting the maximum 3.75% front-end sales
charge, (Please see the chart on page 4 for total returns after deducting the
front-end sales charge.) During the same period, the average Connecticut
municipal bond fund tracked by Lipper returned -3.17%. The Lehman Brothers
Municipal Bond Index, whose duration is shorter than that of the Fund and its
peer group, returned -1.78%.
On October 31, 1999, the Fund's Trust Shares had a 30-day SEC annualized
yield of 4.45%. On the same date, Retail A Shares had a 30-day SEC annualized
yield of 4.15%. These equal taxable yields of 7.28% and 6.79%, respectively, for
shareholders in the 36% federal income tax bracket who live in Connecticut.
A Shift to Intermediate Maturities
Before the reporting period began, we had emphasized longer-term
municipals to make the most of rising bond prices. By the start of the period in
the fourth quarter of 1998, however, it appeared that prices were peaking. We
added intermediate-term issues at this time to buffer the value of Fund shares
from a bond price decline.
As a further defense against falling prices, we increased the Fund's cash
reserves in the first quarter of 1999. Once rates had moved higher, we used this
cash to take advantage of attractive yield opportunities that became available.
Because the yield spreads between high- and low-quality credits remained narrow,
we continued to focus on municipals with strong credit fundamentals.
Although intermediate-term issues underperformed in the second quarter of
1999, they outperformed in the third quarter. With the possibility of continued
rate increases later in the period, we raised cash reserves again.
Keeping a Defensive Position
With the future direction of interest rates still unclear, we plan to
maintain higher cash reserves through year-end and a neutral duration in the
months to come. As before, we also expect to emphasize municipals with strong
credit ratings and good liquidity.
Galaxy Connecticut Municipal Bond Fund
Distribution of Total Net Assets as of October 31, 1999
[The following information was depicted as a pie chart in the printed material.]
Puerto Rico ..................................................... 7%
Cash Equivalents & Net Other Assets and Liabilities ............. 6%
Other Territories ............................................... 6%
Connecticut ..................................................... 81%
Galaxy Connecticut Municipal Bond Fund
Growth of $10,000 investment*
[The following information was depicted as a line chart in the printed
material.]
3/16/93 10/31/99
Lehman Brothers Municipal Bond Index $10,000 $15,678
Galaxy Connecticut Municipal Bond Fund - Retail A Shares $ 9,625 $12,880
Galaxy Connecticut Municipal Bond Fund - Trust Shares $10,000 $13,526
* Since inception on 3/16/93. Performance figures for Retail A Shares
include the effect of the maximum 3.75% front-end sales charge. The Lehman
Brothers Municipal Bond Index is an unmanaged index in which investors
cannot invest. Results for the index do not reflect investment management
fees and other expenses incurred by the Fund. Results for the index are
calculated since 3/31/93 because the index returns are calculated at
month-end only.
8
<PAGE>
PORTFOLIO REVIEWS
GALAXY MASSACHUSETTS MUNICIPAL BOND FUND
By Glenn Migliozzi, CFA
Managing Director,
Fixed Income Investments
During the second half of the reporting year for the Galaxy Massachusetts
Municipal Bond Fund, we increased investments in intermediate-term issues, being
somewhat defensive against falling bond prices, and remained focused on
better-quality municipals with premium coupons and good call protection.
These strategies helped the Fund's Trust Shares earn a total return of
- -3.17% for the 12 months ended October 31, 1999. Over the same time, the Fund's
Retail A Shares returned -3.35% before deducting the maximum 3.75% front-end
sales charge. (Please see the chart on page 4 for total returns after deducting
the front-end sales charge.)
During the reporting period the average Massachusetts municipal bond fund
tracked by Lipper had a total return of-4.01%. Benefiting from a duration that
is shorter than that for the Fund and its Lipper group, the Lehman Brothers
Municipal Bond Index had a total return of -1.78%.
On October 31, 1999, the Fund's Trust Shares had a 30-day SEC annualized
yield of 4.63% and Retail A Shares had a 30-day SEC annualized yield of 4.32%.
These equaled taxable yields of 7.69% and 7.17%, respectively, for shareholders
in the 36% federal income tax bracket who live in Massachusetts.
Defending Against a Price Decline
When the reporting period started in the fourth quarter of 1998, we added
intermediate-term issues to the portfolio. Besides offering good relative value,
these issues provided a better defense against falling bond prices than the
longer maturities we'd emphasized for most of 1998.
Early in 1999, with the chance for further declines in bond prices, we
increased the Fund's cash position. This allowed us to take advantage of
opportunities to enhance the Fund's yield as interest rates continued to rise.
Throughout this time, we remained focused on municipals with strong credit
quality and good call protection.
Although intermediate-term issues underperformed in the second quarter of
1999, they outperformed in the third.
Future Strategies
We expect to maintain a slightly higher cash position through year-end as
a buffer against potential withdrawals. The added liquidity would also allow us
to seize additional opportunities to increase the Fund's yield. As before, we
expect to emphasize municipals with strong credit ratings and keep a duration
bias that is neutral to the Fund's peer group.
Galaxy Massachusetts Municipal Bond Fund
Distribution of Total Net Assets as of October 31, 1999
[The following information was depicted as a pie chart in the printed material.]
Other Territories ........................................... 2%
Cash Equivalents & Net Other Assets and Liabilities ......... 2%
Puerto Rico ................................................. 6%
Massachusetts ............................................... 90%
Galaxy Massachusetts Municipal Bond Fund
Growth of $10,000 investment*
[The following information was depicted as a line chart in the printed
material.]
3/12/93 10/31/99
Lehman Brothers Municipal Bond Index $10,000 $15,678
Galaxy Massachusetts Municipal Bond Fund - Retail A Shares $ 9,625 $12,647
Galaxy Massachusetts Municipal Bond Fund - Trust Shares $10,000 $13,257
* Since inception on 3/12/93. Performance figures for Retail A Shares
include the effect of the maximum 3.75% front-end sales charge. The Lehman
Brothers Municipal Bond Index is an unmanaged index in which investors
cannot invest. Results for the index do not reflect investment management
fees and other expenses incurred by the Fund. Results for the index are
calculated since 3/31/93 because the index returns are calculated at
month-end only.
9
<PAGE>
PORTFOLIO REVIEWS
GALAXY RHODE ISLAND MUNICIPAL BOND FUND
By Glenn Migliozzi, CFA
Managing Director,
Fixed Income Investments
In the 12 months ended October 31, 1999, the Galaxy Rhode Island Municipal
Bond Fund benefited from additions of intermediate-term investments that tended
to outperform longer maturities as bond prices fell. Attention to attributes
that investors favor in a weakening market also helped returns. At the same
time, the values of existing municipal bonds in Rhode Island were bolstered by
the lack of supply of new issues.
For the 12-month reporting period the Fund's Retail A Shares had a total
return of -2.73% before deducting the maximum 3.75% front-end sales charge.
(Please see chart on page 4 for total returns after deducting the front-end
sales charge.) Over the same time the average Rhode Island municipal bond fund
tracked by Lipper had a total return of -3.34%. The Lehman Brothers Municipal
Bond Index, whose duration is shorter than that for the Fund and its Lipper
group, had a total return of -1.78%.
On October 31, 1999, the Fund's Retail A Shares had a 30-day SEC
annualized yield of 4.54%. This equaled a taxable yield of 7.59% for taxpayers
in the 36% federal income tax bracket that live in Rhode Island.
A Defensive Strategy
For most of 1998, we had maintained sizable holdings in longer-term
municipals to make the most of a bond price rally. As the reporting period
started in the fourth quarter, however, prices seemed to be peaking. Finding
better relative value in intermediate-term issues, which could also help to
buffer the Fund against a price reversal, we increased investments in that
sector.
In a further defense against falling prices, we increased the Fund's cash
position early in 1999. We then deployed these reserves in the months that
followed as we found investments with more attractive yields. As before, we
emphasized issues with premium coupons, strong credit quality, and good
liquidity -- attributes that investors tend to favor when yields are rising.
Although intermediate-term issues underperformed in the second quarter,
they significantly outperformed in the third quarter.
Remaining Prepared for Higher Rates
We expect to maintain these strategies in the months ahead. If interest
rates edge higher, intermediate-term issues could again outperform, and
investors should continue to favor issues with higher coupons, strong credit
quality, and good liquidity. By keeping larger cash reserves, we should be able
to make the most of any further opportunities to enhance the Fund's yield that
might arise.
Galaxy Rhode Island Municipal Bond Fund
Distribution of Total Net Assets as of October 31, 1999
[The following information was depicted as a pie chart in the printed material.]
Other Territories ............................................ 4%
Cash Equivalents & Net Other Assets and Liabilities .......... 5%
Puerto Rico .................................................. 12%
Rhode Island ................................................. 79%
Galaxy Rhode Island Municipal Bond Fund
Growth of $10,000 investment*
[The following information was depicted as a line chart in the printed
material.]
12/20/94 10/31/99
Lehman Brothers Municipal Bond Index $10,000 $13,271
Galaxy Rhode Island Municipal Bond Fund - Retail A Shares $10,000 $12,683
* Since inception on 12/20/94. Performance figures for Retail A Shares
include the effect of the maximum 3.75% front-end sales charge. The Lehman
Brothers Municipal Bond Index is an unmanaged index in which investors
cannot invest. Results for the index do not reflect investment management
fees and other expenses incurred by the Fund. Results for the index are
calculated since 12/31/94 because the index returns are calculated at
month-end only.
10
<PAGE>
Shareholder Services
"A well-balanced asset allocation plan may help to control your risk while
pursuing your goals."
AUTOMATIC INVESTMENT PROGRAM
The Golden Rule of investing is "pay yourself first." That is easy to do with
Galaxy's Automatic Investment Program. For as little as $50 per month deducted
directly from your checking, savings or bank money market account, you can
consistently and conveniently add to your Galaxy investment. When you establish
an Automatic Investment Program, the $2,500 initial investment requirement for
Galaxy is waived. Of course, such a program does not assure a profit and does
not protect against loss in a declining market.
DIVERSIFICATION
A fundamental investment practice is "diversification." A well-balanced asset
allocation plan may help to control your risk while pursuing your goals. Many
mutual funds offer a low-cost way to diversify your investments while you
benefit from professional management. Galaxy's comprehensive array of invest
ment choices can be used in combination to match the needs of nearly everyone.
EXCHANGE PRIVILEGES
As your investment needs change, you can conveniently exchange your shares in
one Fund for shares in another Fund at no cost (as long as you exchange within
the same share class).
CONSOLIDATED STATEMENTS
Timely, comprehensive mutual fund account statements offer detailed information
on your individual account. If you have a FleetOne Gold or a Fleet Private
Banking Account, your Galaxy Fund information can be added to these statements.
24-HOUR ACCESS TO REGISTERED REPRESENTATIVES
24 hours a day, seven days a week, 365 days a year, we are ready and available
to help. Our toll-free telephone lines offer round-the-clock access to Fund
information and service. Call toll-free 1-877-BUY-GALAXY (1-877-289-4252) for
information on initial purchases and current performance.
- --------------------------------------------------------------------------------
Certain shareholder services may not be available to Trust, A Prime and B Prime
Share investors. Please consult your Fund Prospectus.
Shares of the Funds are distributed through Provident Distributors, Inc., member
NASD and SIPC.
11
<PAGE>
Shareholder Information
- --------------------------------------------------------------------------------
TRUSTEES
AND OFFICERS
Dwight E. Vicks, Jr.
Chairman and Trustee
John T. O'Neill
President, Treasurer
and Trustee
Louis DeThomasis,
F.S.C., Ph.D.
Trustee
Donald B. Miller
Trustee
James M. Seed
Trustee
Bradford S. Wellman
Trustee
W. Bruce
McConnel, III, Esq.
Secretary
Jylanne Dunne
Vice President and
Assistant Treasurer
William Greilich
Vice President
INVESTMENT ADVISOR
Fleet Investment
Advisors Inc.
75 State Street
Boston, MA
02109
DISTRIBUTOR
Provident
Distributors, Inc.
Four Falls Corporate Center
6th Floor
West Conshohocken, PA
19428-2961
ADMINISTRATOR
PFPC Inc.
4400 Computer Drive
Westborough,
Massachusetts 01581-5108
AUDITOR
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116
LEGAL COUNSEL
Drinker Biddle & Reath LLP
One Logan Square
18th and Cherry Streets
Philadelphia, PA 19103
- --------------------------------------------------------------------------------
This report is submitted for the general information of shareholders of The
Galaxy Fund. It is not authorized for distribution to prospective investors
unless accompanied or preceded by an effective prospectus for each Fund of The
Galaxy Fund, which contains more information concerning the investment policies
and expenses of the Funds as well as other pertinent information. For complete
information, and before making an investment decision on any of the Funds of The
Galaxy Fund, you should request a prospectus from the Funds' distributor by
calling toll-free 1-877-BUY-GALAXY (1-877-289-4252). Read the prospectus
carefully before you invest.
Shares of the Funds are not bank deposits or obligations of, or guaranteed or
endorsed by, FleetBoston Corporation or any of its affiliates, Fleet Investment
Advisors Inc., or any Fleet Bank. Shares of the Funds are not federally insured
by, guaranteed by, obligations of or otherwise supported by the U.S. Government,
the Federal Deposit Insurance Corporation, the Federal Reserve Board or any
other governmental agency. Investment return and principal value will vary as a
result of market conditions or other factors so that shares of the Funds, when
redeemed, may be worth more or less than their original cost. An investment in
the Funds involves investment risks, including the possible loss of principal
amount invested.
[RECYCLED LOGO]
This report was printed on recycled paper.
12
<PAGE>
Tax-Exempt Bond Fund
Portfolio of Investments
October 31, 1999
Par Value Value
- --------- ---------
MUNICIPAL SECURITIES - 94.58%
Alaska - 0.76%
$ 1,275,000 Anchorage Hospital Revenue
Sisters of Providence Project
6.75%, 10/01/00........................... $ 1,299,799
---------------
California - 6.97%
2,500,000 California Educational
Facilities Authority
Stanford University, Series O
5.13%, 01/01/31........................... 2,187,500
1,915,000 California Rural Home Mortgage
Finance Authority, Single Family
Mortgage, Mortgage-Backed
Securities Program, Series A
6.35%, 12/01/29
Insured: GNMA/FNMA/FHLMC.................. 1,972,450
2,000,000 California State, GO
5.00%, 10/01/19
Insured: FSA.............................. 1,782,500
3,000,000 California State, GO
5.00%, 08/01/24
Insured: MBIA............................. 2,595,000
1,500,000 California State, GO
Veterans Bonds, Series BH
5.40%, 12/01/15
Insured: FSA.............................. 1,438,125
1,000,000 East Bay California
Municipal Utilities District
Water Systems Revenue
5.25%, 06/01/17........................... 942,500
1,000,000 San Diego
Water Utilities Funding
5.38%, 08/01/12
Insured: FGIC............................. 1,000,000
---------------
11,918,075
---------------
Colorado - 0.62%
1,000,000 Colorado Housing Finance Authority
Single Family Program, Series B-3
6.55%, 05/01/25........................... 1,053,750
---------------
Connecticut - 2.17%
1,000,000 Connecticut State
Clean Water Fund
5.13%, 09/01/15........................... 946,250
1,000,000 Connecticut State HEFA
Trinity College, Series F
5.50%, 07/01/21
Insured: MBIA............................. 956,250
645,000 Connecticut State HFA
Housing Mortgage Finance
Program, Series A
6.10%, 05/15/13........................... 658,706
615,000 Connecticut State HFA
Housing Mortgage Finance
Program, SubSeries B-1
6.25%, 05/15/11........................... 629,606
500,000 Connecticut State Special Tax
Obligation, Transportation
Infrastructure, Series B
6.10%, 09/01/07........................... 530,625
---------------
3,721,437
---------------
Florida - 6.31%
2,000,000 Florida State Board of Education
Capital Outlay, Series A
5.50%, 01/01/02........................... 2,047,500
2,500,000 Florida State Board of Education
Lottery Revenue, Series C
4.50%, 07/01/17
Insured: FGIC............................. 2,068,750
2,000,000 Hillsborough County
School Board, Series A
5.50%, 07/01/14
Insured: MBIA............................. 1,972,500
2,835,000 Miami, Dade County, SP OB
Series A
5.22%, 10/01/14 (A)
Insured: MBIA............................. 1,194,244
2,690,000 Tampa Bay Water
Utilities System, Series B
5.13%, 10/01/14
Insured: FGIC............................. 2,521,875
1,000,000 Tampa, Florida Revenue Health
System, Catholic Health East
Series A-1
5.50%, 11/15/14........................... 986,250
---------------
10,791,119
---------------
Georgia - 3.09%
2,000,000 De Kalb County
Water and Sewer Revenue
6.25%, 10/01/06........................... 2,150,000
1,000,000 Fulton County School District, GO
5.60%, 01/01/11........................... 1,047,500
2,000,000 Georgia State, GO
Series B
5.75%, 08/01/10........................... 2,095,000
---------------
5,292,500
---------------
See Notes to Financial Statements.
13
<PAGE>
Tax-Exempt Bond Fund
Portfolio of Investments (continued)
October 31, 1999
Par Value Value
- --------- ---------
Idaho - 0.96%
$ 500,000 Boise-Kuna Irrigation District
Lucky Peak Hydroelectric Project
6.60%, 07/01/05........................... $ 525,625
1,160,000 Idaho Housing & Finance Association
Single Family Mortgage
Series G-2, AMT
5.70%, 07/01/16........................... 1,117,950
---------------
1,643,575
---------------
Illinois - 3.54%
1,000,000 Cook County, GO
7.25%, 11/01/07
Insured: MBIA............................. 1,136,250
3,000,000 Illinois Educational Facilities
Authority, Wesleyan University
5.65%, 09/01/26
Insured: MBIA............................. 2,857,500
1,000,000 Illinois State, GO
5.80%, 09/01/18
Insured: FGIC............................. 986,250
1,000,000 Regional Transportation Authority
Series A
6.25%, 06/01/15........................... 1,080,000
---------------
6,060,000
---------------
Indiana - 1.18%
2,000,000 Indianapolis Local Public
Improvement Bond Bank
Series A
6.00%, 01/10/18........................... 2,012,500
---------------
Iowa - 0.98%
1,735,000 Iowa Finance Authority
Single Family Mortgage, Series F
5.55%, 01/01/16
Insured: GNMA/FNMA........................ 1,678,613
---------------
Kansas - 0.91%
1,575,000 Kansas State
Department of Highway Transportation
5.50%, 09/01/14........................... 1,563,188
---------------
Kentucky - 1.19%
1,000,000 Kentucky Housing Corp.
Series C-3
5.70%, 01/01/11........................... 1,008,750
1,000,000 Kentucky State Turnpike Authority
Economic Development & Refunding
Revenue, Revitalization Projects
Pre-refunded 05/15/00
7.13%, 05/15/01........................... 1,031,530
---------------
2,040,280
---------------
Maine - 1.63%
1,000,000 Maine Governmental Facilities
Authority, Lease Rent Revenue
5.63%, 10/01/19
Insured: FSA.............................. 951,250
250,000 Maine Municipal Bond Bank
Series B
6.75%, 11/01/12........................... 270,313
500,000 Maine Municipal Bond Bank
Sewer & Water
SRF Program, Series A
6.50%, 11/01/08........................... 532,500
1,000,000 Maine State Housing
Authority, Series C-1
6.50%, 11/15/11........................... 1,031,250
---------------
2,785,313
---------------
Maryland - 3.22%
2,875,000 Maryland State Community
Development Administration
Department of Housing & Community
Development, Series A, AMT
5.70%, 07/01/17........................... 2,788,750
1,500,000 Maryland State Health & Higher
Education Facilities Authority
Johns Hopkins University
6.00%, 07/01/10........................... 1,610,625
1,100,000 Montgomery County Housing
Opportunity Commission
Single Family Mortgage, Series A
5.75%, 07/01/13........................... 1,102,750
---------------
5,502,125
---------------
Massachusetts - 7.38%
3,000,000 Massachusetts State, GO
Consolidated Loan, Series B
5.00%, 05/01/19........................... 2,625,000
2,000,000 Massachusetts State HEFA
Partners Healthcare Systems
Series A
5.38%, 07/01/17
Insured: MBIA............................. 1,875,000
200,000 Massachusetts State HEFA
South Shore Hospital, Series D
6.50%, 07/01/10
Insured: MBIA............................. 211,500
1,000,000 Massachusetts State IFA
Nantucket Electric, Series A, AMT
5.88%, 07/01/17
Insured: AMBAC............................ 987,500
2,000,000 Massachusetts State IFA
Tufts University, Series H
5.50%, 02/15/12
Insured: MBIA............................. 2,012,500
See Notes to Financial Statements.
14
<PAGE>
Tax-Exempt Bond Fund
Portfolio of Investments (continued)
October 31, 1999
Par Value Value
- --------- ---------
Massachusetts (continued)
$ 2,000,000 Massachusetts State Port
Authority, Series A
5.38%, 07/01/18........................... $ 1,872,500
2,500,000 Massachusetts State Turnpike
Authority, Metropolitan Highway
System, Series A
5.00%, 01/01/39
Insured: AMBAC............................ 2,075,000
1,000,000 Massachusetts State Water
Resource Authority, Series B
5.50%, 08/01/15
Insured: FSA.............................. 970,000
---------------
12,629,000
---------------
Michigan - 0.60%
1,000,000 Central Michigan University
6.00%, 10/01/13
Insured: MBIA............................. 1,018,750
---------------
Minnesota - 0.54%
1,000,000 Rochester Health Care Facilities
Mayo Foundation, Series A
5.50%, 11/15/27
Insured: GO of Mayo Foundation............ 931,250
---------------
Missouri - 1.03%
1,000,000 Missouri State HEFA
St. Louis University
5.50%, 10/01/16........................... 976,250
750,000 Missouri State Housing
Development Commission
Single Family, Series B-2, AMT
6.40%, 03/01/29........................... 782,812
---------------
1,759,062
---------------
Nevada - 1.44%
1,000,000 Clark County, GO & Revenue
Series A
6.00%, 06/01/16
Pre-refunded 06/01/02
Insured: AMBAC............................ 1,037,500
1,500,000 Nevada State, GO
Capital Improvement &
Cultural Affairs, Series A
5.50%, 02/01/18........................... 1,428,750
---------------
2,466,250
---------------
New Jersey - 3.30%
1,000,000 Mercer County Improvement
Authority, Customer Receipts
Justice Complex
6.05%, 01/01/07........................... 1,001,600
1,500,000 New Jersey Health Care
Facilities Financing Authority
AHS Hospital Corp., Series A
6.00%, 07/01/12
Insured: AMBAC............................ 1,576,875
1,700,000 New Jersey Health Care
Facilities Financing Authority
Medical Center at Princeton
5.13%, 07/01/18
Insured: AMBAC............................ 1,527,875
500,000 New Jersey State
Transportation Trust Fund Authority
Transportation System, Series A
5.50%, 06/15/09
Dated 12/01/97............................ 510,625
1,000,000 New Jersey State
Transportation Trust Fund Authority
Transportation System, Series A
5.50%, 06/15/09
Dated 10/01/99............................ 1,021,250
---------------
5,638,225
---------------
New Mexico - 1.13%
750,000 Dona Ana County
Gross Receipt Tax Revenue
5.50%, 06/01/16
Insured: AMBAC............................ 731,250
1,285,000 New Mexico Mortgage Finance
Authority, Single Family
Mortgage, Series B-3
5.50%, 07/01/28
Insured: GNMA/FNMA/FHLMC.................. 1,198,263
---------------
1,929,513
---------------
New York - 10.71%
1,000,000 Battery Park City
Authority, Series A
5.50%, 11/01/10........................... 1,002,500
2,165,000 Metropolitan Transportation Authority
Dedicated Tax Fund, Series C-1
5.25%, 07/01/17
Insured: FGIC............................. 1,997,212
1,000,000 Municipal Assistance Corp. for
New York City, Series O
5.25%, 07/01/07........................... 1,018,750
1,000,000 New York City
Series I, GO
6.00%, 04/15/09........................... 1,047,500
See Notes to Financial Statements.
15
<PAGE>
Tax-Exempt Bond Fund
Portfolio of Investments (continued)
October 31, 1999
Par Value Value
- --------- ---------
New York (continued)
$ 1,000,000 New York City
Municipal Water Finance
Authority, Water and Sewer
System, Series A
5.50%, 06/15/11........................... $ 1,005,000
1,500,000 New York City
Transitional Finance Authority
Revenue, Series C
5.00%, 05/01/26........................... 1,273,125
250,000 New York State, GO
6.10%, 11/15/09........................... 264,063
1,000,000 New York State, GO
5.50%, 06/15/10........................... 1,007,500
2,000,000 New York State, GO
Series F
5.25%, 09/15/12........................... 1,935,000
4,000,000 New York State Dormitory Authority
Capital Appreciation, State
University of New York, Class B
5.18%, 05/15/10 (A)
Insured: MBIA............................. 2,290,000
2,110,000 New York State Dormitory Authority
Columbia University
5.00%, 07/01/18........................... 1,883,175
1,000,000 New York State Dormitory Authority
Municipal Health Facilities
Improvement Program, Series 1
5.00%, 01/15/09
Insured: FSA.............................. 985,000
30,000 New York State Dormitory Authority
University of Rochester
Unrefunded Balance
6.50%, 07/01/09........................... 30,402
1,000,000 Port Authority of New York and
New Jersey, JFK International Air
Terminal, Series 6, SP OB, AMT
6.00%, 12/01/07
Insured: MBIA............................. 1,065,000
1,500,000 Triborough Bridge & Tunnel
Authority, Series A
5.00%, 01/01/01........................... 1,511,250
---------------
18,315,477
---------------
North Carolina - 1.45%
1,500,000 Charlotte Certificates of Participation
Convention Facility Project
6.35%, 12/01/00
Insured: AMBAC............................ 1,537,080
925,000 North Carolina Housing Finance
Agency, Single Family Revenue,
Series Y
6.30%, 09/01/15........................... 945,813
---------------
2,482,893
---------------
Ohio - 3.69%
955,000 Cleveland Waterworks
6.25%, 01/01/15
Pre-refunded 01/01/02
Insured: AMBAC............................ 1,007,525
45,000 Cleveland Waterworks
6.25%, 01/01/15
Unrefunded Balance
Insured: AMBAC............................ 46,800
1,000,000 Cleveland Waterworks
Refunding & Improvement
First Mortgage
5.50%, 01/01/10
Insured: MBIA............................. 1,020,000
1,460,000 Forest Hills School District, GO
6.00%, 12/01/10
Insured: MBIA............................. 1,547,600
1,000,000 Ohio State Building Authority
Adult Correctional Facilities
Series A
6.00%, 04/01/06
Insured: AMBAC............................ 1,063,750
1,785,000 Ohio State Water
Development Authority, PCR
Water Control Loan Fund
Water Quality Series
5.00%, 12/01/15
Insured: MBIA............................. 1,631,044
---------------
6,316,719
---------------
Pennsylvania - 4.44%
2,000,000 Delaware Valley Regional
Finance Authority, Local
Government Revenue, Series B
5.60%, 07/01/17
Insured: AMBAC............................ 1,960,000
2,210,000 Elizabeth Forward School District
Capital Appreciation, Series B, GO
5.52%, 09/01/21 (A)
Insured: MBIA............................. 613,275
2,210,000 Elizabeth Forward School District
Capital Appreciation, Series B, GO
5.52%, 09/01/22 (A)
Insured: MBIA............................. 580,125
1,000,000 Luzerne County, Series B, GO
6.00%, 09/15/11
Insured: FGIC............................. 1,009,410
1,500,000 Pennsylvania Housing Finance
Agency, Single Family Mortgage
Series 59-A, AMT
5.75%, 10/01/23........................... 1,432,500
1,000,000 Pennsylvania State Higher
Education Facilities Authority
Temple University, First Series
5.25%, 04/01/14
Insured: MBIA............................. 946,250
See Notes to Financial Statements.
16
<PAGE>
Tax-Exempt Bond Fund
Portfolio of Investments (continued)
October 31, 1999
Par Value Value
- --------- ---------
Pennsylvania (continued)
$ 1,000,000 Pennsylvania State
Second Series A, GO
6.50%, 11/01/04
Pre-refunded 11/01/01
Insured: MBIA............................. $ 1,057,500
---------------
7,599,060
---------------
Puerto Rico - 1.86%
3,000,000 Puerto Rico Electric Power Authority
Series BB
6.00%, 07/01/12
Insured: MBIA............................. 3,183,750
---------------
Rhode Island - 3.25%
190,000 Rhode Island Clean Water
Protection Finance Agency
Series A, PCR
6.75%, 10/01/13
Pre-refunded 10/01/02
Insured: MBIA............................. 204,962
10,000 Rhode Island Clean Water
Protection Finance Agency
Series A, PCR
6.75%, 10/01/13
Unrefunded Balance
Insured: MBIA............................. 10,662
700,000 Rhode Island Housing & Mortgage
Finance Corp., Homeownership
Opportunity, Series 13
6.70%, 10/01/15........................... 720,125
1,000,000 Rhode Island Housing & Mortgage
Finance Corp., Homeownership
Opportunity, Series 19-A
5.70%, 04/01/15........................... 976,250
1,500,000 Rhode Island State HEBC
Higher Education Facilities
Johnson & Wales University
6.38%, 04/01/12
Insured: Connie Lee....................... 1,586,250
1,500,000 Rhode Island State HEBC
Higher Education Facilities
Johnson & Wales University
Series A
5.75%, 04/01/12
Insured: Connie Lee....................... 1,530,000
500,000 Rhode Island State HEBC
Miriam Hospital, Series B
Pre-refunded 04/01/03
6.50%, 04/01/13........................... 537,500
---------------
5,565,749
---------------
South Carolina - 2.83%
1,500,000 Greenville Waterworks, Revenue
5.50%, 02/01/22........................... 1,428,750
2,100,000 Oconee County, PCR
Duke Power Co. Project
5.80%, 04/01/14........................... 2,105,250
500,000 Piedmont Municipal
Power Agency
6.10%, 01/01/06
Insured: MBIA............................. 532,500
750,000 Richland County
Certificates of Participation
6.90%, 02/01/01
Insured: FGIC............................. 774,375
---------------
4,840,875
---------------
South Dakota - 0.61%
1,000,000 Rapid City Sales Tax
Series B
6.20%, 06/01/12
Insured: FGIC............................. 1,043,750
---------------
Tennessee - 2.08%
500,000 Memphis Water Revenue
Series A
6.00%, 01/01/07........................... 521,250
2,000,000 Metropolitan Government
Nashville & Davidson County, GO
5.88%, 05/15/26........................... 1,980,000
1,000,000 Metropolitan Government
Nashville & Davidson County
Health & Education Facilities Board
Vanderbilt University, Series B
6.30%, 10/01/14........................... 1,055,000
---------------
3,556,250
---------------
Texas - 10.90%
1,000,000 Amarillo Health Facilities Corp.
Baptist St. Anthony Hospital Corp.
5.50%, 01/01/14
Insured: FSA.............................. 985,000
5,000,000 Harris County Capital Appreciation
Series A, GO & Revenue
5.18%, 08/15/07 (A)
Insured: FGIC............................. 3,362,500
2,000,000 Harris County Health Facilities
Development Corp., Baylor College
Medical Project, Series A
5.00%, 11/15/28
Insured: AMBAC............................ 1,677,500
2,170,000 Harris County Health Facilities
Development Corp., Memorial Hospital
System Project, Series A
6.00%, 06/01/13
Insured: MBIA............................. 2,248,662
See Notes to Financial Statements.
17
<PAGE>
Tax-Exempt Bond Fund
Portfolio of Investments (continued)
October 31, 1999
Par Value Value
- --------- ---------
Texas (continued)
$ 4,000,000 Houston Water & Sewer System
Junior Lien, Series C
5.35%, 12/01/11 (A)
Insured: AMBAC............................ $ 2,055,000
1,775,000 Katy Independent School District
Capital Appreciation
3.56%, 08/15/11 (A)....................... 929,656
1,750,000 Lower Colorado River Authority
Capital Appreciation, Junior Lien
4th Supplement
5.45%, 01/01/13 (A)
Insured: FGIC............................. 822,500
2,000,000 Lower Neches Valley Authority IDC
Mobil Oil Refining Project
5.80%, 05/01/22........................... 1,945,000
2,000,000 New Braunfels Independent School
District, Capital Appreciation, GO
5.23%, 02/01/07 (A)....................... 1,382,500
1,000,000 North Central Health
Facilities Development Corp.
Presbyterian Healthcare
Pre-refunded 06/01/05
5.90%, 06/01/21........................... 1,052,500
2,000,000 San Antonio Airport System
7.13%, 07/01/05
Insured: AMBAC............................ 2,195,000
---------------
18,655,818
---------------
Virginia - 1.22%
1,000,000 Norfolk Industrial Development
Authority, Childrens Hospital
Kings Group
6.50%, 06/01/21
Insured: AMBAC............................ 1,036,250
1,025,000 Virginia State, GO
5.38%, 06/01/04........................... 1,059,594
---------------
2,095,844
---------------
Washington - 1.41%
1,370,000 Seattle, GO
Series A
5.50%, 03/01/11........................... 1,388,837
1,000,000 Washington State Public Power
Supply System, Nuclear Project
No. 2, Series C
7.30%, 07/01/00........................... 1,021,840
---------------
2,410,677
---------------
West Virginia - 1.18%
2,000,000 West Virginia School Building
Authority, Capital Improvement
5.50%, 07/01/11
Insured: AMBAC............................ 2,020,000
---------------
Total Municipal Securities................ 161,821,186
(Cost $166,734,581) ---------------
Shares
- ------
INVESTMENT COMPANY - 3.08%
5,263,392 Federated Tax-Free Obligations Fund....... 5,263,392
---------------
Total Investment Company.................. 5,263,392
(Cost $5,263,392) ---------------
Total Investments - 97.66%.................................. 167,084,578
(Cost $171,997,973) ---------------
Net Other Assets and Liabilities - 2.34%.................... 4,000,918
---------------
Net Assets - 100.00%........................................ $ 171,085,496
===============
- ------------------------------------------
(A) Zero Coupon Bond. Rate shown reflects effective yield to maturity
at time of purchase.
AMBAC American Municipal Bond Assurance Corp.
AMT Alternative Minimum Tax. Private activity obligations whose
interest is subject to the federal AMT for individuals.
Connie Lee College Construction Loan Association
FGIC Federal Guaranty Insurance Corp.
FHLMC Federal Home Loan Mortgage Corp.
FNMA Federal National Mortgage Association
FSA Financial Security Assurance Company
GNMA Government National Mortgage Association
GO General Obligation
HEBC Health and Educational Building Corp.
HEFA Health and Educational Facilities Authority
HFA Housing Finance Authority
IDC Industrial Development Corp.
IFA Industrial Finance Agency
MBIA Municipal Bond Insurance Association
PCR Pollution Control Revenue
SP OB Special Obligation
See Notes to Financial Statements.
18
<PAGE>
New Jersey Municipal Bond Fund
Portfolio of Investments
October 31, 1999
Par Value Value
- --------- ---------
MUNICIPAL SECURITIES - 93.83%
New Jersey - 86.69%
$ 235,000 Freehold Board of Education, GO
5.38%, 07/15/10
Insured: FSA.............................. $ 237,938
125,000 Hunterdon County, GO
Series A
4.20%, 12/15/02........................... 123,732
250,000 Lacey Municipal Utilities Authority
New Jersey Water Revenue
5.10%, 12/01/16
Insured: MBIA............................. 228,125
250,000 Lenape Regional High School
District, GO
5.00%, 04/01/08
Insured: FGIC............................. 249,687
50,000 Lenape Regional High School
District, GO
5.00%, 04/01/12
Insured: FGIC............................. 48,562
500,000 Lindenwold Borough
School District, GO
5.20%, 06/01/25
Insured: FSA.............................. 453,750
250,000 Mercer County Improvement
Authority Revenue Youth Center
Series B
5.00%, 02/15/14
Insured: FGIC............................. 233,125
250,000 Metuchen School District, GO
5.13%, 09/15/12
Insured: FGIC............................. 245,000
250,000 Middlesex County
Certificate of Participation
4.63%, 02/15/11
Insured: MBIA............................. 234,063
50,000 Monmouth County Improvement
Authority Revenue Governmental Loan
5.50%, 12/01/07
Insured: AMBAC............................ 51,750
100,000 Morristown, GO
5.15%, 02/01/09
Insured: FSA.............................. 100,250
250,000 New Brunswick, GO
4.80%, 09/15/13
Insured: MBIA............................. 233,750
250,000 New Jersey Economic
Development Authority, Educational
Testing Service, Series A
4.00%, 05/15/06
Insured: MBIA............................. 233,438
75,000 New Jersey
Environmental Infrastructure
Wastewater Treatment, Series F
5.00%, 04/01/14
Insured: MBIA............................. 69,938
500,000 New Jersey
Environmental Infrastructure
Wastewater Treatment, Series G
5.00%, 04/01/12
Insured: FGIC............................. 478,750
300,000 New Jersey Health Care Facilities
Financing Authority Revenue
Medical Center at Princeton
5.13%, 07/01/18
Insured: AMBAC............................ 269,625
50,000 New Jersey Health Care Facilities
Kennedy Healthcare Sytems, Series B
5.00%, 07/01/09
Insured: MBIA............................. 49,312
190,000 New Jersey Sports & Exposition
Authority Convention Center
Luxury Tax Revenue, Series A
6.00%, 07/01/13
Insured: MBIA............................. 200,925
50,000 New Jersey State, GO
7.00%, 04/01/07
Pre-refunded 04/01/01..................... 52,562
750,000 New Jersey State, GO
5.00%, 03/01/11........................... 729,375
75,000 New Jersey State, GO
Series D
5.40%, 02/15/03........................... 77,156
250,000 New Jersey State Building Authority
6.00%, 06/15/07........................... 265,938
250,000 New Jersey State
Educational Facilities Authority
Richard Stockton College, Series C
5.10%, 07/01/23
Insured: AMBAC............................ 219,687
250,000 New Jersey State Higher Education
Assistance Authority
Student Loan Revenue, Series A
5.30%, 06/01/17
Insured: AMBAC............................ 230,000
370,000 New Jersey State
Housing and Mortgage
Finance Authority
Home Buyer, Series G
4.63%, 04/01/15
Insured: MBIA............................. 364,450
400,000 New Jersey State
Transportation Trust Fund Authority
Transportation System, Series A
5.00%, 06/15/06........................... 401,500
250,000 New Jersey State
Transportation Trust Fund Authority
Transportation System, Series A
5.50%, 06/15/09........................... 255,313
400,000 New Jersey State
Transportation Trust Fund Authority
Transportation System, Series A
5.63%, 06/15/12........................... 405,500
See Notes to Financial Statements.
19
<PAGE>
New Jersey Municipal Bond Fund
Portfolio of Investments (continued)
October 31, 1999
Par Value Value
- --------- ---------
New Jersey (continued)
$ 50,000 Old Tappan Board of Education, GO
5.10%, 04/01/15
Insured: FGIC............................. $ 46,875
50,000 Plumstead Board of Education, GO
5.00%, 03/01/14
Insured: FGIC............................. 47,438
250,000 Somerset Raritan Valley
Sewer Revenue, Series A
5.25%, 07/01/12
Insured: MBIA............................. 246,562
250,000 Union City, GO
5.13%, 02/01/16........................... 233,125
250,000 Wall Township
School District, GO
4.35%, 07/15/05
Insured: FSA.............................. 245,938
---------------
7,563,139
---------------
Puerto Rico - 7.14%
60,000 Puerto Rico Commonwealth, GO
7.63%, 07/01/10
Pre-refunded 07/01/00..................... 62,711
250,000 Puerto Rico Commonwealth, GO
6.00%, 07/01/16
Insured: MBIA............................. 260,000
250,000 Puerto Rico Commonwealth
Infrastructure, Series A
Financing Authority Special Tax
5.13%, 07/01/09
Insured: AMBAC............................ 252,500
50,000 Puerto Rico
Electric Power Authority, Series AA
5.25%, 07/01/17
Insured: MBIA............................. 47,375
---------------
622,586
---------------
Total Municipal Securities................ 8,185,725
(Cost $8,592,223) ---------------
Shares Value
- ------ -----
INVESTMENT COMPANIES - 5.29%
27,667 Dreyfus Tax-Exempt Cash
Management Trust.......................... $ 27,667
434,124 Federated Tax-Free Obligations Fund....... 434,124
---------------
Total Investment Companies................ 461,791
(Cost $461,791) ---------------
Total Investments - 99.12%.................................. 8,647,516
(Cost $9,054,014) ---------------
Net Other Assets and Liabilities - 0.88%.................... 76,390
---------------
Net Assets - 100.00%........................................ $ 8,723,906
===============
- -----------------------------------------------------
AMBAC American Municipal Bond Assurance Corp.
FGIC Federal Guaranty Insurance Corp.
FSA Financial Security Assurance Company
GO General Obligation
MBIA Municipal Bond Insurance Association
See Notes to Financial Statements.
20
<PAGE>
New York Municipal Bond Fund
Portfolio of Investments
October 31, 1999
Par Value Value
- --------- ---------
MUNICIPAL SECURITIES - 98.56%
New York - 96.37%
$ 1,000,000 Albany County, GO
5.50%, 06/01/08
Insured: FGIC............................. $ 1,023,750
1,000,000 Albany County Airport Authority
5.38%, 12/15/17
Insured: FSA.............................. 928,750
100,000 Canandaigua City
School District, GO
6.50%, 06/01/10
Insured: AMBAC............................ 109,875
2,000,000 Long Island Power Authority
New York Electric System
Revenue, Series A
5.50%, 12/01/12
Insured: FSA.............................. 1,990,000
1,000,000 Metropolitan Transportation Authority
Dedicated Tax Fund, Series A
5.50%, 04/01/16
Insured: MBIA............................. 966,250
1,000,000 Metropolitan Transportation Authority
Dedicated Tax Fund, Series C-1
5.25%, 07/01/17
Insured: FGIC............................. 922,500
2,000,000 Metropolitan Transportation Authority
Transportation Facilities Revenue
Series A
6.00%, 07/01/19........................... 1,970,320
600,000 Monroe County
Public Improvement, GO
6.10%, 03/01/09
Pre-refunded 03/01/01
Insured: MBIA............................. 626,250
25,000 Monroe County
Public Improvement, GO
6.10%, 03/01/09
Unrefunded Balance
Insured: MBIA............................. 25,844
900,000 Monroe County
Public Improvement, GO
6.10%, 06/01/14
Pre-refunded 06/01/04
Insured: AMBAC............................ 968,625
1,000,000 Monroe County Water Authority
Series A
6.25%, 08/01/11........................... 1,043,750
1,000,000 Monroe Woodbury
Central School District, GO
5.63%, 05/15/18
Insured: MBIA............................. 970,000
1,500,000 Municipal Assistance Corporation
for New York City, Series L
6.00%, 07/01/08........................... 1,593,750
1,000,000 Municipal Assistance Corporation
for New York City, Series O
5.25%, 07/01/07........................... 1,018,750
500,000 New Castle Public Improvement, GO
5.88%, 09/15/09........................... 520,000
2,060,000 New York City
Series F, Capital Appreciation, GO
4.59%, 08/01/08 (A)
Insured: MBIA............................. 1,313,250
3,500,000 New York City
Series G, Capital Appreciation, GO
4.65%, 08/01/08 (A)
Insured: MBIA............................. 2,226,875
1,000,000 New York City
Series I, GO
6.00%, 04/15/09........................... 1,047,500
1,000,000 New York City Industrial
Development Agency, Civic Facility
Trinity Episcopal School Corp. Project
5.25%, 06/15/17
Insured: MBIA............................. 923,750
500,000 New York City MWFA
Water & Sewer System, Series A
6.10%, 06/15/06........................... 521,875
2,000,000 New York City MWFA
Water & Sewer System, Series A
5.13%, 06/15/15........................... 1,817,500
1,000,000 New York City MWFA
Water & Sewer System, Series A
6.00%, 06/15/17........................... 1,015,000
1,000,000 New York City MWFA
Water & Sewer System, Series A
5.75%, 06/15/18
Insured: AMBAC............................ 985,000
750,000 New York City MWFA
Water & Sewer System, Series B
5.75%, 06/15/13
Insured: MBIA............................. 757,088
1,000,000 New York City MWFA
Water & Sewer System, Series B
5.75%, 06/15/26
Insured: MBIA............................. 976,250
1,000,000 New York City MWFA
Water & Sewer System, Series B
5.25%, 06/15/29
Insured: FSA.............................. 880,000
2,750,000 New York City
Transitional Finance Authority
Revenue, Series C
5.00%, 05/01/26........................... 2,334,062
2,000,000 New York City Trust
Cultural Resources Revenue
American Museum of
Natural History, Series A
5.60%, 04/01/18
Insured: MBIA............................. 1,937,500
1,000,000 New York State, GO
6.13%, 11/15/10........................... 1,056,250
2,500,000 New York State, GO
5.25%, 09/15/13........................... 2,387,500
See Notes to Financial Statements.
21
<PAGE>
New York Municipal Bond Fund
Portfolio of Investments (continued)
October 31, 1999
Par Value Value
- --------- ---------
New York (continued)
$ 3,000,000 New York State, GO
5.25%, 03/01/15........................... $ 2,790,000
2,000,000 New York State Dormitory Authority
Columbia University
5.00%, 07/01/18........................... 1,785,000
1,675,000 New York State Dormitory Authority
Fordham University
5.00%, 07/01/28
Insured: MBIA............................. 1,430,031
1,000,000 New York State Dormitory Authority
Ithaca College
5.00%, 07/01/21........................... 877,500
1,000,000 New York State Dormitory Authority
Lease Revenue Municipal Health
Facilities Improvement, Series 1
5.13%, 01/15/14
Insured: FSA.............................. 930,000
1,175,000 New York State Dormitory Authority
Mt. Sinai School of Medicine, Series B
5.70%, 07/01/11
Insured: MBIA............................. 1,208,781
500,000 New York State Dormitory Authority
New York University
6.25%, 07/01/09
Insured: FGIC............................. 520,625
1,000,000 New York State Dormitory Authority
New York University, Series A
6.00%, 07/01/17
Insured: MBIA............................. 1,032,500
1,000,000 New York State Dormitory Authority
Revenues Service Contract
Community Enhancement
4.00%, 04/01/00........................... 999,250
2,225,000 New York State Dormitory Authority
Rochester Institute of Technology
5.30%, 07/01/17
Insured: MBIA............................. 2,074,813
1,500,000 New York State Dormitory Authority
Rockefeller University
5.00%, 07/01/28........................... 1,280,625
1,000,000 New York State Dormitory Authority
State University Educational Facilities
Series B
5.25%, 05/15/12........................... 956,250
15,000 New York State Dormitory Authority
University of Rochester
6.50%, 07/01/09........................... 15,201
1,125,000 New York State Dormitory Authority
University of Rochester, Series A
5.00%, 07/01/27
Insured: MBIA............................. 964,687
100,000 New York State EFC, PCR
State Water, Series A
6.40%, 09/15/06........................... 106,625
500,000 New York State EFC, PCR
State Water, Series B
6.50%, 09/15/08........................... 531,875
100,000 New York State EFC, PCR
State Water, Series E
6.88%, 06/15/10
Pre-refunded 06/15/01..................... 106,000
1,000,000 New York State EFC, PCR
State Water, Series E
5.00%, 06/15/13
Insured: MBIA............................. 931,250
1,000,000 New York State EFC, PCR
State Water, Series F
5.25%, 06/15/12........................... 977,500
500,000 New York State Housing Finance
Agency, Multifamily Mortgage
Housing, Series A
6.95%, 08/15/12........................... 527,500
300,000 New York State Local
Assistance Corp., Series A
6.88%, 04/01/06
Pre-refunded 04/01/02..................... 322,500
1,500,000 New York State Local
Assistance Corp., Series E
6.00%, 04/01/14
Insured: GO of New York State
Local Assistance Corp..................... 1,535,625
800,000 New York State Medical Care
Facilities Finance Agency
Second Mortgage Program
Health Care Projects, Series B
6.35%, 11/01/14........................... 827,000
500,000 New York State Mortgage Agency
Homeowner Mortgage, Series 27
6.90%, 04/01/15........................... 523,125
3,000,000 New York State Mortgage Agency
Homeowner Mortgage, Series 67
5.70%, 10/01/17........................... 2,895,000
145,000 New York State Mortgage Agency
Revenue, 8th Series
6.88%, 04/01/17........................... 144,094
1,000,000 New York State Power Authority
Revenue, General Purpose, Series AA
6.38%, 01/01/12........................... 1,058,750
500,000 New York State Power Authority
Revenue, General Purpose, Series Z
6.63%, 01/01/12........................... 531,250
1,250,000 New York State Thruway Authority
Revenue, Series A
5.88%, 01/01/07........................... 1,307,812
500,000 Onondaga County, GO
5.88%, 02/15/10........................... 523,750
100,000 Orleans County, GO
6.50%, 09/15/08........................... 109,875
200,000 Port Authority of New York
and New Jersey
Consolidated Loan, Series 71
6.90%, 07/15/09........................... 207,000
500,000 Port Authority of New York
and New Jersey
Consolidated Loan, Series 78
6.50%, 04/15/11........................... 520,000
See Notes to Financial Statements.
22
<PAGE>
New York Municipal Bond Fund
Portfolio of Investments (continued)
October 31, 1999
Par Value Value
- --------- ---------
New York (continued)
$ 1,000,000 Port Authority of New York
and New Jersey, JFK International
Air Terminal, Series 6, SP OB, AMT
6.00%, 12/01/07
Insured: MBIA............................. $ 1,065,000
545,000 Rensselaer County, GO
5.25%, 06/01/11
Insured: AMBAC............................ 538,188
1,315,000 Triborough Bridge and
Tunnel Authority, Revenue
General Purpose, Series A
5.13%, 01/02/22........................... 1,150,625
2,000,000 Triborough Bridge and
Tunnel Authority, Revenue
General Purpose, Series B
5.50%, 01/01/30........................... 1,842,500
500,000 Triborough Bridge and
Tunnel Authority, Revenue
General Purpose, Series X
6.00%, 01/01/06........................... 512,500
500,000 Triborough Bridge and
Tunnel Authority, Revenue
General Purpose, Series X
6.00%, 01/01/07........................... 511,875
750,000 Triborough Bridge and
Tunnel Authority, Revenue
General Purpose, Series X
6.00%, 01/01/08........................... 767,812
300,000 Triborough Bridge and
Tunnel Authority, Revenue
General Purpose, Series X
6.63%, 01/01/12........................... 329,250
750,000 Triborough Bridge and
Tunnel Authority, Revenue
General Purpose, Series Y
6.00%, 01/01/12........................... 782,813
80,000 Triborough Bridge and
Tunnel Authority, Revenue, SP OB
6.10%, 01/01/05
Pre-refunded 01/01/02
Insured: FGIC............................. 83,900
20,000 Triborough Bridge and
Tunnel Authority, Revenue, SP OB
6.10%, 01/01/05
Unrefunded Balance
Insured: FGIC............................. 20,925
50,000 Triborough Bridge and
Tunnel Authority, Revenue, SP OB
6.15%, 01/01/06
Insured: FGIC............................. 52,313
500,000 United Nations Development Corp.
Senior Lien, Series A
6.00%, 07/01/06
Pre-refunded 07/01/03..................... 533,750
1,000,000 United Nations Development Corp.
Senior Lien, Series A
6.00%, 07/01/12
Pre-refunded 07/01/03..................... 1,067,500
500,000 United Nations Development Corp.
Subordinated Lien, Series B
6.20%, 07/01/11
Pre-refunded 07/01/03..................... 536,875
---------------
75,205,434
---------------
Pennsylvania - 0.83%
2,210,000 Elizabeth Forward School District
Capital Appreciation, Series B, GO
5.68%, 09/01/20 (A)....................... 646,425
---------------
Puerto Rico - 1.36%
1,000,000 Puerto Rico Electric Power Authority
Series BB
6.00%, 07/01/12
Insured: MBIA............................. 1,061,250
---------------
Total Municipal Securities................ 76,913,109
(Cost $79,422,919) ---------------
Shares
- ------
INVESTMENT COMPANY - 1.37%
1,067,256 New York Federated
Municipal Cash Trust...................... 1,067,256
---------------
Total Investment Company.................. 1,067,256
(Cost $1,067,256) ---------------
Total Investments - 99.93%.................................. 77,980,365
(Cost $80,490,175) ---------------
Net Other Assets and Liabilities - 0.07%.................... 58,406
---------------
Net Assets - 100.00%........................................ $ 78,038,771
===============
- -----------------------------------------------------
(A) Zero Coupon Bond. Rate shown reflects effective yield to maturity at time
of purchase.
AMBAC American Municipal Bond Assurance Corp.
AMT Alternative Minimum Tax. Private activity obligations whose interest is
subject to Federal AMT for individuals.
EFC Environmental Facilities Corp.
FGIC Federal Guaranty Insurance Corp.
FSA Financial Security Assurance Company
GO General Obligation
LOC Letter of Credit
MBIA Municipal Bond Insurance Association
MWFA Municipal Water Finance Authority
PCR Pollution Control Revenue
SP OB Special Obligation
See Notes to Financial Statements.
23
<PAGE>
Connecticut Municipal Bond Fund
Portfolio of Investments
October 31, 1999
Par Value Value
- --------- ---------
MUNICIPAL SECURITIES - 94.32%
California - 4.03%
$ 2,000,000 California State, GO
5.00%, 08/01/18........................... $ 1,797,500
---------------
Connecticut - 81.22%
250,000 Cheshire, GO
5.10%, 08/15/07........................... 252,500
885,000 Colchester, GO, Lot A
5.40%, 08/15/10
Insured: AMBAC............................ 898,275
250,000 Connecticut State, GO, Series A
5.10%, 11/15/04........................... 256,250
1,000,000 Connecticut State, GO, Series A
5.13%, 03/01/10........................... 995,000
400,000 Connecticut State, GO, Series B
5.40%, 03/15/08........................... 411,000
1,000,000 Connecticut State, GO, Series B
5.38%, 10/01/11........................... 1,007,500
500,000 Connecticut State, GO, Series C
5.50%, 08/15/05........................... 520,625
500,000 Connecticut State, GO, Series E
6.00%, 03/15/12........................... 528,125
400,000 Connecticut State Airport Revenue
Bradley International Airport
7.40%, 10/01/04
Insured: FGIC............................. 440,000
500,000 Connecticut State Airport Revenue
Bradley International Airport
7.65%, 10/01/12
Insured: FGIC............................. 556,875
500,000 Connecticut State Clean Water Fund
7.00%, 01/01/11........................... 525,000
200,000 Connecticut State Clean Water Fund
6.00%, 10/01/12........................... 210,750
500,000 Connecticut State HEFA
Backus (William W.) Hospital Issue
Series D
5.63%, 07/01/17
Insured: AMBAC............................ 489,375
750,000 Connecticut State HEFA
Greenwich Hospital Issue, Series A
5.30%, 07/01/08
Insured: MBIA............................. 759,375
250,000 Connecticut State HEFA
Hospital for Special Care Issue
Series B
5.38%, 07/01/17........................... 219,375
1,060,000 Connecticut State HEFA
Middlesex Hospital, Series H
5.00%, 07/01/12
Insured: MBIA............................. 1,009,650
375,000 Connecticut State HEFA
Newington Childrens Hospital
Series A
5.65%, 07/01/05
Insured: MBIA............................. 390,000
500,000 Connecticut State HEFA
Trinity College, Series F
5.50%, 07/01/21
Insured: MBIA............................. 478,125
1,000,000 Connecticut State HEFA
Yale-New Haven Hospital
Series F
7.10%, 07/01/25
Insured: MBIA............................. 1,040,440
200,000 Connecticut State HFA
Housing Mortgage Finance Program
Series A
5.40%, 05/15/04........................... 204,250
105,000 Connecticut State HFA
Housing Mortgage Finance Program
Series A
5.60%, 05/15/05........................... 107,494
125,000 Connecticut State HFA
Housing Mortgage Finance Program
Series A-1
5.85%, 11/15/16........................... 125,625
400,000 Connecticut State HFA
Housing Mortgage Finance Program
Series B
6.25%, 11/15/05........................... 421,500
100,000 Connecticut State HFA
Housing Mortgage Finance Program
Series B
6.20%, 05/15/12........................... 103,000
1,500,000 Connecticut State HFA
Housing Mortgage Finance Program
Series D-2
5.45%, 11/15/24........................... 1,380,000
415,000 Connecticut State HFA
Housing Mortgage Finance Program
Series F-1
5.60%, 05/15/14........................... 411,887
350,000 Connecticut State HFA
Housing Mortgage Finance Program
Series F-2
4.50%, 05/15/00........................... 350,616
775,000 Connecticut State Higher Education
Supplemental Loan Authority
Family Education Loan Program
Series A
5.63%, 11/15/07........................... 777,906
1,000,000 Connecticut State Resource
Recovery Authority
Series A
5.75%, 11/15/07........................... 1,045,000
150,000 Connecticut State, SP OB
Transportation Infrastructure, Series A
5.10%, 09/01/04........................... 153,000
950,000 Connecticut State, SP OB
Transportation Infrastructure, Series A
5.13%, 09/01/05........................... 965,437
700,000 Connecticut State, SP OB
Transportation Infrastructure, Series A
5.40%, 04/01/07........................... 715,750
See Notes to Financial Statements.
24
<PAGE>
Connecticut Municipal Bond Fund
Portfolio of Investments (continued)
October 31, 1999
Par Value Value
- --------- ---------
Connecticut (continued)
$ 1,250,000 Connecticut State, SP OB
Transportation Infrastructure, Series A
5.25%, 09/01/07........................... $ 1,271,875
1,500,000 Connecticut State, SP OB
Transportation Infrastructure, Series A
5.38%, 09/01/08........................... 1,531,875
1,750,000 Connecticut State, SP OB
Transportation Infrastructure, Series A
5.50%, 10/01/12........................... 1,769,687
400,000 Connecticut State, SP OB
Transportation Infrastructure, Series B
6.13%, 09/01/12........................... 422,500
200,000 Danbury, GO
5.63%, 02/01/13........................... 203,250
250,000 East Hampton, GO
5.10%, 06/15/05
Insured: MBIA............................. 252,812
1,100,000 Fairfield, GO
5.00%, 01/01/18........................... 990,000
500,000 Hamden, GO
5.50%, 08/15/14
Insured: MBIA............................. 502,500
250,000 Hartford County
Metropolitan District, GO
6.70%, 10/01/09........................... 281,875
300,000 Meriden, GO
5.75%, 10/15/04
Insured: AMBAC............................ 315,375
580,000 Monroe, GO
5.63%, 04/15/14
Insured: FGIC............................. 586,525
370,000 Montville, GO
5.30%, 12/01/09........................... 374,625
500,000 New Canaan, GO
4.75%, 02/01/18........................... 433,125
1,500,000 New Haven, GO
5.38%, 02/15/11
Insured: FGIC............................. 1,503,750
1,000,000 New Milford, GO
5.00%, 05/15/15........................... 921,250
250,000 New Milford, GO
5.50%, 08/01/08........................... 257,812
100,000 New Milford, GO
5.80%, 10/01/01........................... 103,000
350,000 Norwalk, GO
5.00%, 01/15/05........................... 353,938
200,000 Norwalk, GO
5.00%, 01/15/06........................... 201,500
500,000 Norwich, GO
5.63%, 09/15/07........................... 519,375
330,000 Regional School District No. 5, GO
5.05%, 05/15/04........................... 333,300
135,000 Regional School District No. 5, GO
5.15%, 05/15/05........................... 136,181
225,000 South Central Regional
Water Authority
Water System, Series 11
5.75%, 08/01/12
Insured: FGIC............................. 230,344
175,000 South Central Regional
Water Authority
Water System, Series 12
5.13%, 08/01/07
Insured: FGIC............................. 176,313
1,300,000 Torrington, GO
5.13%, 09/15/12
Insured: FGIC............................. 1,278,875
100,000 Trumbull, GO
6.00%, 05/15/04........................... 105,750
500,000 University of Connecticut, GO
Series A
5.25%, 06/01/15
Insured: MBIA............................. 475,625
100,000 West Hartford, GO
6.00%, 05/01/07........................... 107,125
250,000 West Haven, GO, Series B
5.40%, 06/01/09........................... 253,438
1,890,000 Westport, GO
5.00%, 07/15/18........................... 1,703,363
855,000 Wilton, GO
4.85%, 07/15/08........................... 846,450
---------------
36,193,118
---------------
Nevada - 2.27%
1,000,000 Clark County, School District
Series A
5.00%, 06/15/04
Insured: FGIC............................. 1,011,250
---------------
Puerto Rico - 6.80%
1,000,000 Puerto Rico Commonwealth, GO
6.00%, 07/01/16
Insured: MBIA............................. 1,040,000
1,000,000 Puerto Rico Commonwealth, GO
Public Improvement
5.00%, 07/01/05........................... 1,010,000
1,000,000 Puerto Rico Municipal
Finance Agency, Series A
5.50%, 07/01/17
Insured: FSA.............................. 977,500
---------------
3,027,500
---------------
Total Municipal Securities................ 42,029,368
(Cost $42,839,957) ---------------
See Notes to Financial Statements.
25
<PAGE>
Connecticut Municipal Bond Fund
Portfolio of Investments (continued)
October 31, 1999
Shares Value
- ------ -----
INVESTMENT COMPANIES - 4.98%
973,043 Connecticut Federated
Municipal Cash Trust...................... $ 973,043
1,247,100 Dreyfus Tax-Exempt Cash
Management Fund........................... 1,247,100
---------------
Total Investment Companies................ 2,220,143
(Cost $2,220,143) ---------------
Total Investments - 99.30%.................................. 44,249,511
(Cost $45,060,100) ---------------
Net Other Assets and Liabilities - 0.70%.................... 312,964
---------------
Net Assets - 100.00%........................................ $ 44,562,475
===============
- -----------------------------------------
AMBAC American Municipal Bond Assurance Corp.
FGIC Federal Guaranty Insurance Corp.
FSA Financial Security Assurance Company
GO General Obligation
HEFA Health and Educational Facilities Authority
HFA Housing Finance Authority
MBIA Municipal Bond Insurance Association
SP OB Special Obligation
See Notes to Financial Statements.
26
<PAGE>
Massachusetts Municipal Bond Fund
Portfolio of Investments
October 31, 1999
Par Value Value
- --------- ---------
MUNICIPAL SECURITIES - 97.78%
Indiana - 1.36%
$ 1,000,000 Princeton, PCR
PSI Energy, Inc. Project
3.50%, 03/01/19 (A)
LOC: Canadian Imperial Bank............... $ 1,000,000
---------------
Massachusetts - 90.06%
700,000 Andover, GO
5.00%, 12/01/10........................... 688,625
300,000 Attleboro, GO
5.20%, 07/01/02
Insured: AMBAC............................ 305,625
250,000 Boston, GO
5.25%, 10/01/05
Insured: MBIA............................. 255,625
360,000 Boston, GO, Series A
5.45%, 02/01/07
Insured: AMBAC............................ 367,650
225,000 Boston, GO, Series A
5.55%, 02/01/08
Insured: AMBAC............................ 229,781
200,000 Boston Water and Sewer Commission
General Purpose, Senior Series A
5.50%, 11/01/01
Insured: FSA.............................. 204,750
230,000 Boston Water and Sewer Commission
General Purpose, Senior Series A
7.00%, 11/01/18
Pre-refunded 11/01/01
Insured: FGIC............................. 246,675
100,000 Brookline, GO
5.60%, 09/01/10........................... 102,625
250,000 Deerfield, GO
5.60%, 06/15/02........................... 256,875
250,000 Franklin, GO
5.50%, 11/15/02
Insured: MBIA............................. 257,500
100,000 Kingston, GO
5.70%, 08/01/07........................... 103,625
250,000 Lowell, GO
6.05%, 04/01/11
Insured: FSA.............................. 262,812
100,000 Lynn Water and Sewer Commission
5.30%, 12/01/06
Insured: FGIC............................. 102,000
2,000,000 Massachusetts Bay Transportation
Authority, Series A
5.40%, 03/01/08........................... 2,040,000
130,000 Massachusetts Bay Transportation
Authority, Series A
6.00%, 03/01/12........................... 136,988
200,000 Massachusetts Bay Transportation
Authority, Series A
5.75%, 03/01/22........................... 206,000
1,000,000 Massachusetts Bay Transportation
Authority, Series D
5.00%, 03/01/11........................... 1,011,250
750,000 Massachusetts Educational
Financing Authority
Issue G, Series A
5.15%, 12/01/15
Insured: MBIA............................. 690,938
370,000 Massachusetts State, GO
Federal Assisted Housing
6.00%, 02/01/08........................... 384,800
250,000 Massachusetts State, GO, Series A
6.25%, 07/01/02........................... 261,563
250,000 Massachusetts State, GO, Series A
6.25%, 07/01/04........................... 266,563
1,000,000 Massachusetts State, GO, Series A
5.50%, 11/01/06........................... 1,026,250
750,000 Massachusetts State, GO, Series A
5.25%, 02/01/08........................... 754,688
200,000 Massachusetts State, GO, Series B
5.30%, 11/01/05........................... 205,250
100,000 Massachusetts State, GO, Series B
5.50%, 11/01/07........................... 103,375
4,000,000 Massachusetts State Capital
Appreciation, Series A
Federal Highway Note
5.15%, 06/15/15 (B)....................... 1,590,000
250,000 Massachusetts State
Consolidated Loan, GO, Series A
5.75%, 02/01/15
Insured: MBIA............................. 263,750
250,000 Massachusetts State
Consolidated Loan, GO, Series B
5.10%, 07/01/03........................... 254,688
1,300,000 Massachusetts State
Consolidated Loan, GO, Series C
5.63%, 08/01/14
Insured: MBIA............................. 1,368,250
1,000,000 Massachusetts State
Consolidated Loan, GO, Series C
5.02%, 08/01/18 (B)....................... 323,750
100,000 Massachusetts State
Convention Center Authority
Boston Common Parking Garage
Series A
5.35%, 09/01/06........................... 102,250
100,000 Massachusetts State
Convention Center Authority
Boston Common Parking Garage
Series A
5.40%, 09/01/07........................... 102,000
800,000 Massachusetts State
Development Finance Agency
Regis College
5.00%, 10/01/08........................... 762,000
1,000,000 Massachusetts State Grant
Anticipation Notes, Series A
5.25%, 12/15/12........................... 975,000
See Notes to Financial Statements.
27
<PAGE>
Massachusetts Municipal Bond Fund
Portfolio of Investments (continued)
October 31, 1999
Par Value Value
- --------- ---------
Massachusetts (continued)
$ 1,000,000 Massachusetts State Grant
Anticipation Notes, Series A
5.50%, 06/15/14........................... $ 978,750
1,000,000 Massachusetts State HEFA
Amherst College, Series G
5.00%, 11/01/18........................... 878,750
2,000,000 Massachusetts State HEFA
Amherst College, Series G
5.38%, 11/01/20........................... 1,867,500
400,000 Massachusetts State HEFA
Beth Israel Hospital, Series G
5.70%, 07/01/05
Insured: AMBAC............................ 414,500
2,000,000 Massachusetts State HEFA
Boston College, Series L
5.00%, 06/01/26........................... 1,687,500
1,000,000 Massachusetts State HEFA
Caregroup, Series A
5.50%, 07/01/08........................... 1,023,750
1,000,000 Massachusetts State HEFA
Harvard University, Series P
5.63%, 11/01/26........................... 965,000
1,000,000 Massachusetts State HEFA
Harvard University, Series P
5.38%, 11/01/32........................... 912,500
100,000 Massachusetts State HEFA
McLean Hospital Issue, Series C
6.63%, 07/01/15
Insured: FGIC............................. 107,375
250,000 Massachusetts State HEFA
Medical Center of Central
Massachusetts, Series B
6.00%, 07/01/02
Insured: AMBAC............................ 259,375
1,435,000 Massachusetts State HEFA
Partners Healthcare System
Series A
5.38%, 07/01/17
Insured: MBIA............................. 1,345,312
100,000 Massachusetts State HEFA
South Shore Hospital, Series E
5.40%, 07/01/07
Insured: MBIA............................. 101,375
325,000 Massachusetts State HEFA
South Shore Hospital, Series E
5.50%, 07/01/13
Insured: MBIA............................. 321,750
500,000 Massachusetts State HEFA
Williams College, Series D
5.40%, 07/01/05........................... 520,625
1,750,000 Massachusetts State HEFA
Williams College, Series F
5.50%, 07/01/26........................... 1,638,437
150,000 Massachusetts State
Housing Finance Agency
Single Family, Series 41
5.25%, 06/01/01........................... 151,875
1,250,000 Massachusetts State IFA
Belmont Hill School
5.63%, 09/01/20........................... 1,171,875
400,000 Massachusetts State IFA
Brooks School
5.95%, 07/01/23........................... 425,500
1,000,000 Massachusetts State IFA
Combined Jewish Philanthropies
Series A
6.38%, 02/01/15
Insured: AMBAC............................ 1,042,500
1,000,000 Massachusetts State IFA
Concord Academy
5.50%, 09/01/27........................... 882,500
1,000,000 Massachusetts State IFA
Groton School, Series A
5.00%, 03/01/28........................... 847,500
250,000 Massachusetts State IFA
Lesley College Project, Series A
6.00%, 07/01/10
Insured: Connie Lee....................... 262,500
300,000 Massachusetts State IFA
Milton Academy, Series B
5.30%, 09/01/08
Insured: MBIA............................. 302,625
950,000 Massachusetts State IFA
Nantucket Electric Company
Series A, AMT
5.88%, 07/01/17
Insured: AMBAC............................ 938,125
500,000 Massachusetts State IFA
Park School
5.90%, 09/01/26........................... 482,500
2,000,000 Massachusetts State IFA
Phillips Academy Issue
5.38%, 09/01/23........................... 1,860,000
1,210,000 Massachusetts State IFA
Trustees Deerfield Academy
5.00%, 10/01/23........................... 1,051,187
1,830,000 Massachusetts State IFA
Tufts University, Series H
5.50%, 02/15/13
Insured: MBIA............................. 1,825,425
1,200,000 Massachusetts State IFA
Wentworth Institute of Technology
5.65%, 10/01/18........................... 1,104,000
1,300,000 Massachusetts State IFA
Worcester Polytechnic Institute
Series 2
5.25%, 09/01/14
Insured: MBIA............................. 1,238,250
610,000 Massachusetts State Port Authority
5.63%, 07/01/12........................... 616,100
1,000,000 Massachusetts State Port Authority
Series A
5.75%, 07/01/12........................... 1,017,500
See Notes to Financial Statements.
28
<PAGE>
Massachusetts Municipal Bond Fund
Portfolio of Investments (continued)
October 31, 1999
Par Value Value
- --------- ---------
Massachusetts (continued)
$ 250,000 Massachusetts State Port Authority
Series B
5.30%, 07/01/01........................... $ 253,750
1,000,000 Massachusetts State Port Authority
Series C
5.13%, 07/01/16........................... 915,000
350,000 Massachusetts State, SP OB
and Revenue, Series A
5.80%, 06/01/00
Insured: AMBAC............................ 353,850
300,000 Massachusetts State, SP OB
and Revenue, Series A
7.00%, 06/01/02........................... 318,375
1,000,000 Massachusetts State, SP OB
and Revenue, Series A
5.50%, 06/01/13........................... 1,001,250
200,000 Massachusetts State, SP OB
and Revenue, Series A
6.00%, 06/01/13
Insured: AMBAC............................ 207,500
250,000 Massachusetts State, SP OB
and Revenue, Series A
5.80%, 06/01/14
Pre-refunded 06/01/04..................... 263,438
250,000 Massachusetts State
Turnpike Authority, Series A
5.00%, 01/01/13........................... 240,625
2,500,000 Massachusetts State
Turnpike Authority, Series A
Metropolitan Highway Systems
4.50%, 01/01/04
Insured: AMBAC............................ 2,478,125
1,000,000 Massachusetts State
Turnpike Authority, Series A
Metropolitan Highway Systems
5.13%, 01/01/09
Insured: AMBAC............................ 995,000
1,500,000 Massachusetts State
Turnpike Authority, Series A
Metropolitan Highway Systems
5.00%, 01/01/39
Insured: AMBAC............................ 1,245,000
250,000 Massachusetts State
Water Pollution Abatement Trust
MWRA Loan Program, Series A
5.40%, 08/01/11........................... 250,312
250,000 Massachusetts State
Water Pollution Abatement Trust
Pooled Loan Program, Series 1
5.00%, 02/01/02........................... 254,063
2,000,000 Massachusetts State
Water Pollution Abatement Trust
Pooled Loan Program, Series 5
5.75%, 08/01/16........................... 2,002,500
300,000 Massachusetts State WRA
Series A
6.30%, 12/01/01........................... 312,000
100,000 Massachusetts State WRA
Series A
6.00%, 04/01/20........................... 100,862
190,000 Massachusetts State WRA
Series A
6.50%, 07/15/21
Pre-refunded 07/15/02..................... 203,537
300,000 Massachusetts State WRA
Series B
5.88%, 11/01/04........................... 314,625
1,165,000 Massachusetts State WRA
Series B
5.50%, 08/01/15
Insured: FSA.............................. 1,130,050
1,000,000 Massachusetts State WRA
Series C
5.25%, 12/01/06
Insured: FGIC............................. 1,020,000
1,000,000 Methuen, GO
5.63%, 11/15/14
Insured: FSA.............................. 1,005,000
220,000 Nantucket Island Land Bank
GO and Revenue, Series E
7.25%, 07/01/19........................... 234,575
450,000 New England Education
Loan Marketing Corp.
Massachusetts Student
Loan Revenue, Issue A
5.80%, 03/01/02........................... 461,813
200,000 Northampton, GO
5.30%, 09/01/10
Insured: AMBAC............................ 200,500
1,500,000 Plymouth County
Certificates of Participation
Correctional Facility Project
5.00%, 04/01/22
Insured: AMBAC............................ 1,293,750
150,000 Salem, GO
5.80%, 07/15/06
Insured: AMBAC............................ 155,812
100,000 Salem, GO
5.90%, 07/15/07
Insured: AMBAC............................ 104,000
200,000 Sandwich, GO
5.40%, 11/01/07
Insured: AMBAC............................ 203,750
1,000,000 Southeastern Massachusetts
University Building Authority
Project , Series A
5.75%, 05/01/16
Insured: AMBAC............................ 990,000
1,500,000 Springfield Municipal
Purpose Loan, GO
5.00%, 09/01/15........................... 1,380,000
400,000 Taunton, GO
8.00%, 02/01/01........................... 417,500
See Notes to Financial Statements.
29
<PAGE>
Massachusetts Municipal Bond Fund
Portfolio of Investments (continued)
October 31, 1999
Par Value Value
- --------- ---------
Massachusetts (continued)
$ 250,000 University of Lowell
Building Authority
Fifth Series A
6.75%, 11/01/03
Insured: AMBAC............................ $ 269,687
200,000 University of Massachusetts
Building Authority, Series A
5.50%, 05/01/03
Insured: MBIA............................. 206,000
100,000 Woods Hole, Martha's
Vineyard and Nantucket
Steamship Bonds, Series B
6.00%, 03/01/02........................... 103,625
1,000,000 Worcester, Series A
5.00%, 07/01/14
Insured: FSA.............................. 932,500
---------------
66,274,356
---------------
Puerto Rico - 5.53%
500,000 Puerto Rico Commonwealth
Aqueduct and Sewer Authority
6.00%, 07/01/09
Insured: Commonwealth Guaranteed.......... 528,750
500,000 Puerto Rico Commonwealth
Infrastructure Financing Authority
Special Tax Revenue, Series A
5.13%, 07/01/09........................... 505,000
1,000,000 Puerto Rico Commonwealth
Public Improvement, GO
5.50%, 07/01/13........................... 1,000,000
1,000,000 Puerto Rico Electric Power
Authority, Series BB
6.00%, 07/01/12
Insured: MBIA............................. 1,061,250
1,000,000 Puerto Rico Municipal
Finance Agency, Series A
5.50%, 07/01/17
Insured: FSA.............................. 977,500
---------------
4,072,500
---------------
Texas - 0.83%
1,000,000 Lubbock Independent School
District, GO, Capital Appreciation
6.01%, 02/15/09 (B)....................... 611,250
---------------
Total Municipal Securities................ 71,958,106
(Cost $75,072,832) ---------------
Shares Value
- ------ -----
INVESTMENT COMPANIES - 0.87%
46,024 Dreyfus Tax-Exempt Cash
Management Fund........................... 46,024
598,723 Massachusetts Federated
Municipal Cash Trust...................... 598,723
---------------
Total Investment Companies................ 644,747
(Cost $644,747) ---------------
Total Investments - 98.65%.................................. 72,602,853
(Cost $75,717,579) ---------------
Net Other Assets and Liabilities - 1.35%.................... 990,250
---------------
Net Assets - 100.00%........................................ $ 73,593,103
===============
- -----------------------------------------------
(A) Variable rate bond. Rate shown reflects rate in effect at October
31, 1999.
(B) Zero Coupon Bond. Rate shown reflects effective yield to maturity at
time of purchase.
AMBAC American Municipal Bond Assurance Corp.
AMT Alternative Minimum Tax. Private activity obligations whose interest
is subject to Federal AMT for individuals.
Connie Lee College Construction Loan Association
FGIC Federal Guaranty Insurance Corp.
FSA Financial Security Assurance Company
GO General Obligation
HEFA Health and Educational Facilities Authority
IFA Industrial Finance Agency
LOC Letter of Credit
MBIA Municipal Bond Insurance Association
PCR Pollution Control Revenue
SP OB Special Obligation
WRA Water Resource Authority
See Notes to Financial Statements.
30
<PAGE>
Rhode Island Municipal Bond Fund
Portfolio of Investments
October 31, 1999
Par Value Value
- --------- ---------
MUNICIPAL SECURITIES - 95.20%
Puerto Rico - 12.26%
$ 250,000 Puerto Rico Commonwealth, GO
6.00%, 07/01/16
Insured: MBIA............................. $ 260,000
500,000 Puerto Rico Commonwealth, GO
Public Improvement
5.50%, 07/01/12........................... 505,000
500,000 Puerto Rico Commonwealth
Special Tax Revenue, Series A
Infrastructure Finance Authority
5.00%, 07/01/16
Insured: AMBAC............................ 461,250
500,000 Puerto Rico Electric Power Authority
Revenue, Series EE
5.25%, 07/01/15
Insured: MBIA............................. 480,625
400,000 Puerto Rico Municipal
Finance Agency, Series A
6.00%, 07/01/14
Insured: FSA.............................. 416,000
315,000 Puerto Rico Municipal
Finance Agency, Series A
5.50%, 07/01/17
Insured: FSA.............................. 307,912
---------------
2,430,787
---------------
Rhode Island - 79.14%
500,000 Bristol County Water Authority
Revenue, General, Series A
5.00%, 07/01/16
Insured: MBIA............................. 447,500
200,000 Burrillville, GO
5.85%, 05/01/14
Insured: FGIC............................. 207,750
500,000 Convention Center Authority, Series A
6.38%, 05/15/23
Insured: MBIA............................. 525,000
500,000 Lincoln, GO
5.50%, 08/15/10
Insured: MBIA............................. 507,500
300,000 Pawtucket, GO
5.63%, 04/15/07
Insured: FGIC............................. 310,875
400,000 Pawtucket, GO
5.75%, 04/15/11
Insured: FGIC............................. 411,000
500,000 Providence, GO
5.70%, 01/15/06
Insured: MBIA............................. 517,500
500,000 Providence, GO
5.45%, 01/15/10
Insured: FSA.............................. 503,750
500,000 Rhode Island Clean Water
Protection Finance Agency
PCR, Series A
5.25%, 10/01/16
Insured: AMBAC............................ 463,125
150,000 Rhode Island Clean Water
Protection Finance Agency
Safe Drinking Water
Providence, Series A
6.20%, 01/01/06
Insured: AMBAC............................ 159,000
100,000 Rhode Island Clean Water
Protection Finance Agency
Safe Drinking Water
Providence, Series A
6.70%, 01/01/15
Insured: AMBAC............................ 106,875
250,000 Rhode Island Clean Water
Protection Finance Agency
Wastewater Treatment
System, Cranston
5.80%, 09/01/22
Insured: MBIA............................. 242,187
500,000 Rhode Island Depositors
Economic Protection Corp.
SP OB, Series A
5.75%, 08/01/21........................... 496,875
250,000 Rhode Island Depositors
Economic Protection Corp.
SP OB, Series B
5.25%, 08/01/21
Insured: MBIA............................. 247,187
200,000 Rhode Island State, GO, Series A
6.10%, 06/15/03
Insured: FGIC............................. 210,250
150,000 Rhode Island State, GO, Series A
6.25%, 06/15/07
Unrefunded
Insured: FGIC............................. 158,063
250,000 Rhode Island State EDC
Airport, Series B
5.25%, 07/01/11
Insured: FSA.............................. 245,625
500,000 Rhode Island State EDC
Airport, Series B
5.00%, 07/01/18
Insured: FSA.............................. 436,250
250,000 Rhode Island State EDC
Airport, Series B
5.00%, 07/01/23
Insured: FSA.............................. 214,063
750,000 Rhode Island State EDC
University of Rhode Island
Steam Generation Facility Project
5.00%, 11/01/19
Insured: FSA.............................. 653,438
See Notes to Financial Statements.
31
<PAGE>
Rhode Island Municipal Bond Fund
Portfolio of Investments (continued)
October 31, 1999
Par Value Value
- --------- ---------
Rhode Island (continued)
$ 500,000 Rhode Island State HEBC
Higher Education Facility
Brown University
6.00%, 09/01/20........................... $ 507,500
1,000,000 Rhode Island State HEBC
Higher Education Facility
Brown University
5.00%, 09/01/23........................... 858,750
275,000 Rhode Island State HEBC
Higher Education Facility
Bryant College, SP OB
6.50%, 06/01/05
Insured: MBIA............................. 290,813
475,000 Rhode Island State HEBC
Higher Education Facility
New England Institute
6.00%, 03/01/15
Insured: Connie Lee....................... 482,719
300,000 Rhode Island State HEBC
Higher Education Facility
Providence College
5.60%, 11/01/09
Insured: MBIA............................. 304,500
500,000 Rhode Island State HEBC
Higher Education Facility
Rhode Island School of Design
5.63%, 06/01/16
Insured: MBIA............................. 490,625
325,000 Rhode Island State HEBC
Higher Education Facility
Roger Williams
6.50%, 11/15/24
Insured: Connie Lee....................... 349,375
260,000 Rhode Island State HEBC
Higher Education Facility
Salve Regina
6.25%, 03/15/13
Insured: Connie Lee....................... 270,725
175,000 Rhode Island State HEBC
Higher Education Facility
Unrefunded
6.50%, 11/15/24
Insured: Connie Lee....................... 185,063
500,000 Rhode Island State HEBC
Miriam Hospital
Series B
6.60%, 04/01/19........................... 539,375
300,000 Rhode Island State HEBC
Saint Antoine
6.75%, 11/15/18
LOC: Allied Irish Banks NY................ 328,500
300,000 Rhode Island State HMFC
Homeownership Opportunity
Series 17-A
6.25%, 04/01/17........................... 303,375
500,000 Rhode Island State HMFC
Homeownership Opportunity
Series 19-A
5.70%, 04/01/15........................... 488,125
500,000 Rhode Island State HMFC
Homeownership Opportunity
Series 22-A
5.55%, 04/01/17........................... 476,875
500,000 Rhode Island State HMFC
Homeownership Opportunity
Series 29-A
5.05%, 10/01/15
Insured: FHA.............................. 452,500
500,000 Rhode Island State HMFC
Multifamily Housing
Series A
5.60%, 07/01/10
Insured: AMBAC............................ 505,000
500,000 Rhode Island State HMFC
Multifamily Housing
Series A
6.15%, 07/01/17
Insured: AMBAC............................ 509,375
250,000 Rhode Island State HMFC
Rental Housing Program
Series A
5.65%, 10/01/07........................... 251,562
500,000 Rhode Island State
Industrial Facilities Corp., Revenue
Marine Terminal, Mobil Oil Refining
6.00%, 11/01/14........................... 527,500
100,000 South Kingstown, GO, Series B
5.50%, 06/15/10
Insured: FSA.............................. 101,625
140,000 Westerly, GO
6.00%, 09/15/14
Insured: AMBAC............................ 146,650
300,000 Woonsocket, GO
4.75%, 12/15/16
Insured: FGIC............................. 262,125
---------------
15,696,470
---------------
Texas - 1.39%
450,000 Lubbock Independent
School District, GO
Capital Appreciation
6.10%, 02/15/09 (A)....................... 275,062
---------------
Washington - 2.41%
1,000,000 Seattle, GO, Series E
4.85%, 12/15/12 (A)....................... 478,750
---------------
Total Municipal Securities................ 18,881,069
(Cost $19,344,320) ---------------
See Notes to Financial Statements.
32
<PAGE>
Rhode Island Municipal Bond Fund
Portfolio of Investments (continued)
October 31, 1999
Shares Value
- ------ -----
INVESTMENT COMPANY - 1.36%
270,234 Federated Tax-Free Obligations Fund....... $ 270,234
---------------
Total Investment Company.................. 270,234
(Cost $270,234) ---------------
Total Investments - 96.56%.................................. 19,151,303
(Cost $19,614,554) ---------------
Net Other Assets and Liabilities - 3.44%.................... 681,961
---------------
Net Assets - 100.00%........................................ $ 19,833,264
===============
- ------------------------------------------
(A) Zero Coupon Bond. Rate shown reflects effective yield to maturity at
time of purchase.
AMBAC American Municipal Bond Assurance Corp.
Connie Lee College Construction Loan Association
EDC Economic Development Corp.
FGIC Federal Guaranty Insurance Corp.
FHA Federal Housing Authority
FSA Financial Security Assurance Company
GO General Obligation
HEBC Health and Educational Building Corp.
HMFC Housing and Mortgage Finance Corp.
LOC Letter of Credit
MBIA Municipal Bond Insurance Association
PCR Pollution Control Revenue
SP OB Special Obligation
See Notes to Financial Statements.
33
<PAGE>
Galaxy Tax-Exempt Bond Funds
Statements of Assets and Liabilities
October 31, 1999
<TABLE>
<CAPTION>
New Jersey New York
Tax-Exempt Municipal Municipal
Bond Fund Bond Fund Bond Fund
------------- ------------- -------------
<S> <C> <C> <C>
ASSETS:
Investments (Note 2):
Investments at cost ................................................. $ 171,997,973 $ 9,054,014 $ 80,490,175
Net unrealized (depreciation) ....................................... (4,913,395) (406,498) (2,509,810)
------------- ------------- -------------
Total investments at value .......................................... 167,084,578 8,647,516 77,980,365
Cash ................................................................. -- -- --
Receivable for investments sold ...................................... -- -- 1,023,830
Receivable for shares sold ........................................... 2,231,443 2,746 172,569
Interest and dividend receivables .................................... 2,641,911 116,249 1,194,980
Deferred organizational expense (Note 2) ............................. -- 11,628 --
------------- ------------- -------------
Total Assets ........................................................ 171,957,932 8,778,139 80,371,744
------------- ------------- -------------
LIABILITIES:
Dividends payable .................................................... 649,241 29,808 299,836
Payable for investments purchased .................................... -- -- 1,957,740
Payable to Custodian ................................................. -- 6,524 --
Payable for shares repurchased ....................................... 86,047 -- --
Advisory fee payable (Note 3) ........................................ 78,696 1,831 37,083
Payable to Fleet affiliates (Note 3) ................................. 4,945 113 7,870
Payable to Administrator (Note 3) .................................... 26,187 3,654 14,206
Trustees' fees and expenses payable (Note 3) ......................... 5,304 137 2,612
Accrued expenses and other payables .................................. 22,016 12,166 13,626
------------- ------------- -------------
Total Liabilities ................................................... 872,436 54,233 2,332,973
------------- ------------- -------------
NET ASSETS ............................................................. $ 171,085,496 $ 8,723,906 $ 78,038,771
============= ============= =============
NET ASSETS consist of:
Par value (Note 5) ................................................... $ 16,558 $ 912 $ 7,381
Paid-in capital in excess of par value ............................... 176,087,004 9,169,158 80,664,747
Undistributed (overdistributed) net investment income (loss) ......... (26,014) 5,370 162,527
Accumulated net realized (loss) on
investments sold .................................................... (78,657) (45,036) (286,074)
Net unrealized (depreciation) of investments ......................... (4,913,395) (406,498) (2,509,810)
------------- ------------- -------------
TOTAL NET ASSETS ....................................................... $ 171,085,496 $ 8,723,906 $ 78,038,771
============= ============= =============
Retail A Shares:
Net Assets ........................................................... $ 25,704,197 $ 1,301,526 $ 41,343,124
Shares of beneficial interest outstanding ............................ 2,487,639 136,115 3,910,140
NET ASSET VALUE and redemption price per share ...................... $ 10.33 $ 9.56 $ 10.57
Sales charge - 3.75% of offering price ............................... 0.40 0.37 0.41
------------- ------------- -------------
Maximum offering price per share ..................................... $ 10.73 $ 9.93 $ 10.98
============= ============= =============
Retail B Shares:
Net Assets ........................................................... $ 3,382,122 N/A N/A
Shares of beneficial interest outstanding ............................ 327,344 N/A N/A
------------- ------------- -------------
NET ASSET VALUE and offering price per share* ........................ $ 10.33 N/A N/A
============= ============= =============
Trust Shares:
Net Assets ........................................................... $ 141,999,177 $ 7,422,380 $ 36,695,647
Shares of beneficial interest outstanding ............................ 13,742,567 776,228 3,470,624
------------- ------------- -------------
NET ASSET VALUE, offering and
redemption price per share .......................................... $ 10.33 $ 9.56 $ 10.57
============= ============= =============
</TABLE>
- ---------------------------------------
* Redemption price per share is equal to the Net Asset Value per share less
any applicable contingent deferred sales charge.
(1) As of October 31, 1999, the Rhode Island Municipal Bond Fund had not
issued Trust shares.
See Notes to Financial Statements.
34
<PAGE>
Connecticut Massachusetts Rhode Island
Municipal Municipal Municipal
Bond Fund Bond Fund Bond Fund(1)
- ------------ ------------ ------------
$ 45,060,100 $ 75,717,579 $ 19,614,554
(810,589) (3,114,726) (463,251)
- ------------ ------------ ------------
44,249,511 72,602,853 19,151,303
-- 11,664 5,418
-- -- 446,626
102,479 415,535 34,486
627,038 1,151,543 297,353
-- -- --
- ------------ ------------ ------------
44,979,028 74,181,595 19,935,186
- ------------ ------------ ------------
164,069 274,533 76,995
-- -- --
50 -- --
204,683 246,849 --
13,107 22,243 6,258
3,383 4,935 --
13,764 21,973 4,649
1,695 2,811 976
15,802 15,148 13,044
- ------------ ------------ ------------
416,553 588,492 101,922
- ------------ ------------ ------------
$ 44,562,475 $ 73,593,103 $ 19,833,264
============ ============ ============
$ 4,416 $ 7,539 $ 1,914
46,205,352 77,159,655 20,381,868
(14,614) (21,727) (11,177)
(822,090) (437,638) (76,090)
(810,589) (3,114,726) (463,251)
- ------------ ------------ ------------
$ 44,562,475 $ 73,593,103 $ 19,833,264
============ ============ ============
$ 26,714,579 $ 39,696,320 $ 19,833,264
2,647,709 4,066,820 1,914,494
$ 10.09 $ 9.76 $ 10.36
0.39 0.38 0.40
- ------------ ------------ ------------
$ 10.48 $ 10.14 $ 10.76
============ ============ ============
N/A N/A N/A
N/A N/A N/A
- ------------ ------------ ------------
N/A N/A N/A
============ ============ ============
$ 17,847,896 $ 33,896,783 $ --
1,768,782 3,472,545 --
- ------------ ------------ ------------
$ 10.09 $ 9.76 $ --
============ ============ ============
35
<PAGE>
Galaxy Tax-Exempt Bond Funds
Statements of Operations
For the year ended October 31, 1999
<TABLE>
<CAPTION>
New Jersey New York
Tax-Exempt Municipal Municipal
Bond Fund Bond Fund Bond Fund
------------ ------------ ------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest (Note 2) ................................................ $ 8,676,046 $ 414,608 $ 4,406,123
Dividends (Note 2) ............................................... 60,743 10,070 23,574
------------ ------------ ------------
Total investment income ......................................... 8,736,789 424,678 4,429,697
------------ ------------ ------------
EXPENSES:
Investment advisory fee (Note 3) ................................. 1,268,793 68,147 631,274
Administration fee (Note 3) ...................................... 127,246 6,887 63,326
Custodian fee .................................................... 13,268 13,613 9,437
Fund accounting fee (Note 3) ..................................... 59,955 40,268 53,937
Professional fees (Note 3) ....................................... 20,495 12,053 16,866
Transfer agent fee (Note 3) ...................................... 22,366 5,286 23,442
Shareholder servicing and 12b-1 fees (Note 3) .................... 59,091 960 66,562
Trustees' fees and expenses (Note 3) ............................. 3,461 180 2,357
Amortization of organization costs (Note 2) ...................... -- 3,398 --
Reports to shareholders .......................................... 10,609 2,481 14,836
Miscellaneous .................................................... 27,713 1,216 20,287
------------ ------------ ------------
Total expenses before reimbursement/waiver ...................... 1,612,997 154,489 902,324
------------ ------------ ------------
Less: reimbursement/waiver (Note 4) ............................. (338,345) (68,720) (168,721)
------------ ------------ ------------
Total expenses net of reimbursement/waiver ...................... 1,274,652 85,769 733,603
------------ ------------ ------------
NET INVESTMENT INCOME .............................................. 7,462,137 338,909 3,696,094
------------ ------------ ------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (Note 2 & 6):
Net realized gain (loss) on investments sold ..................... (78,657) (44,349) 227,275
Net change in unrealized (depreciation) of investments ........... (13,091,406) (589,590) (6,932,960)
------------ ------------ ------------
NET REALIZED AND UNREALIZED
(LOSS)ON INVESTMENTS ............................................. (13,170,063) (633,939) (6,705,685)
------------ ------------ ------------
NET (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ........................................ $ (5,707,926) $ (295,030) $ (3,009,591)
============ ============ ============
</TABLE>
See Notes to Financial Statements.
36
<PAGE>
Connecticut Massachusetts Rhode Island
Municipal Municipal Municipal
Bond Fund Bond Fund Bond Fund
- ----------- ----------- ------------
$ 2,070,181 $ 3,581,570 $ 1,121,025
27,797 33,276 10,674
- ----------- ----------- -----------
2,097,978 3,614,846 1,131,699
- ----------- ----------- -----------
320,043 544,719 162,771
32,081 54,619 16,327
7,815 10,581 10,832
42,656 60,466 32,039
16,423 17,102 13,776
12,564 16,698 5,100
39,136 63,058 --
809 1,421 403
-- -- 3,439
9,621 13,939 2,977
19,035 32,450 12,600
- ----------- ----------- -----------
500,183 815,053 260,264
- ----------- ----------- -----------
(170,690) (290,517) (86,559)
- ----------- ----------- -----------
329,493 524,536 173,705
- ----------- ----------- -----------
1,768,485 3,090,310 957,994
- ----------- ----------- -----------
(23,141) (65,783) (76,090)
(2,972,756) (5,600,385) (1,483,777)
- ----------- ----------- -----------
(2,995,897) (5,666,168) (1,559,867)
- ----------- ----------- -----------
$(1,227,412) $(2,575,858) $ (601,873)
=========== =========== ===========
37
<PAGE>
Galaxy Tax-Exempt Bond Funds
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
New York
Tax-Exempt Bond Fund New Jersey Municipal Bond Fund
-------------------------- Municipal Bond Fund --------------------------
Years ended -------------------------- Years ended
October 31, Year ended Period ended October 31,
-------------------------- October 31, October 31, --------------------------
1999 1998 1999 1998* 1999 1998
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSETS at beginning of period .......... $163,142,500 $149,372,871 $ 8,516,218 $ 20(a) $ 83,019,676 $ 65,995,842
------------ ------------ ------------ ------------ ------------ ------------
Increase (decrease) in Net Assets
resulting from operations:
Net investment income .................... 7,462,137 7,177,099 338,909 152,168 3,696,094 3,217,725
Net realized gain (loss) on
investments sold ....................... (78,657) 1,998,815 (44,349) (687) 227,275 822,875
Net change in unrealized appreciation
(depreciation) of investments .......... (13,091,406) 2,771,283 (589,590) 183,092 (6,932,960) 1,441,749
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations .............. (5,707,926) 11,947,197 (295,030) 334,573 (3,009,591) 5,482,349
------------ ------------ ------------ ------------ ------------ ------------
Dividends to shareholders from:
Retail A Shares:
Net investment income .................. (1,025,504) (1,112,636) (46,232) (8,997) (1,903,474) (1,819,081)
Net realized gain on investments ....... (306,201) (209,493) -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Total Dividends ...................... (1,331,705) (1,322,129) (46,232) (8,997) (1,903,474) (1,819,081)
------------ ------------ ------------ ------------ ------------ ------------
Retail B Shares:
Net investment income .................. (118,934) (87,830) N/A N/A N/A N/A
Net realized gain on investments ....... (32,760) (14,276) N/A N/A N/A N/A
------------ ------------ ------------ ------------ ------------ ------------
Total Dividends ...................... (151,694) (102,106) N/A N/A N/A N/A
------------ ------------ ------------ ------------ ------------ ------------
Trust Shares:
Net investment income .................. (6,325,088) (6,048,821) (292,677) (143,173) (1,629,254) (1,398,277)
Net realized gain on investments ....... (1,646,317) (1,016,251) -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Total Dividends ...................... (7,971,405) (7,065,072) (292,677) (143,173) (1,629,254) (1,398,277)
------------ ------------ ------------ ------------ ------------ ------------
Total Dividends to shareholders ...... (9,454,804) (8,489,307) (338,909) (152,170) (3,532,728) (3,217,358)
------------ ------------ ------------ ------------ ------------ ------------
Net increase from share transactions(1) .... 23,105,726 10,311,739 841,627 8,333,795 1,561,414 14,758,843
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets .... 7,942,996 13,769,629 207,688 8,516,198 (4,980,905) 17,023,834
------------ ------------ ------------ ------------ ------------ ------------
NET ASSETS at end of period
(including line A) ..................... $171,085,496 $163,142,500 $ 8,723,906 $ 8,516,218 $ 78,038,771 $ 83,019,676
============ ============ ============ ============ ============ ============
(A) Undistributed (overdistributed) net
investment income ...................... $ (26,014) $ (18,625) $ 5,370 $ 1,972 $ 162,527 $ (839)
============ ============ ============ ============ ============ ============
</TABLE>
- ---------------------------------------
* The New Jersey Municipal Bond Fund commenced operations on April 3, 1998.
(1) For detail on share transactions by series, see Statements of Changes in
Net Assets - Capital Stock Activity on pages 40 and 41.
(a) Represents initial seed money.
See Notes to Financial Statements.
38
<PAGE>
<TABLE>
<CAPTION>
Connecticut Municipal Massachusetts Municipal Rhode Island Municipal
Bond Fund Bond Fund Bond Fund
- --------------------------- --------------------------- ---------------------------
Years ended Years ended Years ended
October 31, October 31, October 31,
- --------------------------- --------------------------- ---------------------------
1999 1998 1999 1998 1999 1998
- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
$ 38,768,085 $ 33,221,284 $ 67,559,730 $ 47,304,792 $ 20,209,657 $ 17,134,415
- ------------ ------------ ------------ ------------ ------------ ------------
1,768,485 1,522,760 3,090,310 2,503,603 957,994 851,987
(23,141) 229,881 (65,783) 342,455 (76,090) 87,401
(2,972,756) 949,373 (5,600,385) 1,189,694 (1,483,777) 376,671
- ------------ ------------ ------------ ------------ ------------ ------------
(1,227,412) 2,702,014 (2,575,858) 4,035,752 (601,873) 1,316,059
- ------------ ------------ ------------ ------------ ------------ ------------
(1,076,680) (996,397) (1,821,052) (1,670,216) (958,948) (837,786)
-- -- -- -- (86,518) (37,141)
- ------------ ------------ ------------ ------------ ------------ ------------
(1,076,680) (996,397) (1,821,052) (1,670,216) (1,045,466) (874,927)
- ------------ ------------ ------------ ------------ ------------ ------------
N/A N/A N/A N/A N/A N/A
N/A N/A N/A N/A N/A N/A
- ------------ ------------ ------------ ------------ ------------ ------------
N/A N/A N/A N/A N/A N/A
- ------------ ------------ ------------ ------------ ------------ ------------
(691,805) (526,684) (1,269,258) (814,636) -- --
-- -- -- -- -- --
- ------------ ------------ ------------ ------------ ------------ ------------
(691,805) (526,684) (1,269,258) (814,636) -- --
- ------------ ------------ ------------ ------------ ------------ ------------
(1,768,485) (1,523,081) (3,090,310) (2,484,852) (1,045,466) (874,927)
- ------------ ------------ ------------ ------------ ------------ ------------
8,790,287 4,367,868 11,699,541 18,704,038 1,270,946 2,634,110
- ------------ ------------ ------------ ------------ ------------ ------------
5,794,390 5,546,801 6,033,373 20,254,938 (376,393) 3,075,242
- ------------ ------------ ------------ ------------ ------------ ------------
$ 44,562,475 $ 38,768,085 $ 73,593,103 $ 67,559,730 $ 19,833,264 $ 20,209,657
============ ============ ============ ============ ============ ============
$ (14,614) $ (14,614) $ (21,727) $ (21,727) $ (11,177) $ (10,223)
============ ============ ============ ============ ============ ============
</TABLE>
39
<PAGE>
Galaxy Tax-Exempt Bond Funds
Statements of Changes in Net Assets --
Capital Stock Activity
<TABLE>
<CAPTION>
New York
Tax-Exempt Bond Fund New Jersey Municipal Bond Fund
-------------------------- Municipal Bond Fund -------------------------
Years ended ---------------------- Years ended
October 31, Year ended Period ended October 31,
-------------------------- October 31, October 31, -------------------------
1999 1998 1999 1998* 1999 1998
------------ ------------ ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
DOLLAR AMOUNTS
Retail A Shares:
Sold ........................................... $ 10,924,021 $ 4,120,071 $1,530,335 $ 795,210 $ 8,808,575 $16,948,796
Issued to shareholders in reinvestment
of dividends .................................. 1,054,920 993,669 27,090 4,695 1,440,313 1,196,021
Repurchased .................................... (8,919,372) (6,326,395) (969,625) -- (13,618,561) (9,680,079)
------------ ------------ ---------- ---------- ------------ -----------
Net increase (decrease) in shares outstanding .. $ 3,059,569 $ (1,212,655) $ 587,800 $ 799,905 $ (3,369,673) $ 8,464,738
============ ============ ========== ========== ============ ===========
Retail B Shares:
Sold ........................................... $ 1,359,050 $ 1,425,757 N/A N/A N/A N/A
Issued to shareholders in reinvestment
of dividends .................................. 100,123 58,048 N/A N/A N/A N/A
Repurchased .................................... (479,393) (509,491) N/A N/A N/A N/A
------------ ------------ ---------- ---------- ------------ -----------
Net increase in shares outstanding ............. $ 979,780 $ 974,314 N/A N/A N/A N/A
============ ============ ========== ========== ============ ===========
Trust Shares:
Sold ........................................... $ 27,090,728 $ 23,518,359 $ 757,940 $7,558,900 $ 10,126,919 $ 8,629,198
Issued to shareholders in reinvestment
of dividends .................................. 3,516,363 3,119,314 -- -- 172,798 192,826
Repurchased .................................... (11,540,714) (16,087,593) (504,113) (25,010) (5,368,630) (2,527,919)
------------ ------------ ---------- ---------- ------------ -----------
Net increase in shares outstanding ............. $ 19,066,377 $ 10,550,080 $ 253,827 $7,533,890 $ 4,931,087 $ 6,294,105
============ ============ ========== ========== ============ ===========
SHARE ACTIVITY
Retail A Shares:
Sold ........................................... 1,027,378 367,769 152,836 79,151 790,902 1,490,812
Issued to shareholders in reinvestment
of dividends .................................. 90,411 90,143 2,738 463 118,514 117,233
Repurchased .................................... (822,141) (568,242) (99,073) -- (1,215,806) (856,236)
------------ ------------ ---------- ---------- ------------ -----------
Net increase (decrease) in shares outstanding .. 295,648 (110,330) 56,501 79,614 (306,390) 751,809
============ ============ ========== ========== ============ ===========
Retail B Shares:
Sold ........................................... 121,001 127,743 N/A N/A N/A N/A
Issued to shareholders in reinvestment
of dividends .................................. 9,992 5,196 N/A N/A N/A N/A
Repurchased .................................... (43,965) (45,412) N/A N/A N/A N/A
------------ ------------ ---------- ---------- ------------ -----------
Net increase in shares outstanding ............. 87,028 87,527 N/A N/A N/A N/A
============ ============ ========== ========== ============ ===========
Trust Shares:
Sold ........................................... 2,480,419 2,106,905 74,984 754,850 895,936 771,140
Issued to shareholders in reinvestment
of dividends .................................. 320,864 279,668 -- -- 15,619 17,092
Repurchased .................................... (1,066,969) (1,428,414) (51,120) (2,486) (484,126) (229,638)
------------ ------------ ---------- ---------- ------------ -----------
Net increase in shares outstanding ............. 1,734,314 958,159 23,864 752,364 427,429 558,594
============ ============ ========== ========== ============ ===========
</TABLE>
- ---------------------------------------
* The New Jersey Municipal Bond Fund commenced operations on April 3, 1998.
(1) As of October 31, 1999, the Rhode Island Municipal Bond Fund had not
issued Trust Shares.
See Notes to Financial Statements.
40
<PAGE>
Connecticut Municipal Massachusetts Municipal Rhode Island Municipal
Bond Fund Bond Fund Bond Fund(1)
- -------------------------- -------------------------- ----------------------
Years ended Years ended Years ended
October 31, October 31, October 31,
- -------------------------- -------------------------- ----------------------
1999 1998 1999 1998 1999 1998
- ------------ ------------ ------------ ------------ ---------- ----------
$ 13,759,257 $ 7,407,851 $ 12,444,513 $ 19,663,945 $7,391,836 $8,016,637
674,313 732,578 1,440,807 1,310,122 490,026 417,557
(10,721,396) (7,427,287) (15,097,467) (11,175,520) (6,610,916) (5,800,084)
- ------------ ------------ ------------ ------------ ---------- ----------
$ 3,712,174 $ 713,142 $ (1,212,147) $ 9,798,547 $1,270,946 $2,634,110
============ ============ ============ ============ ========== ==========
N/A N/A N/A N/A N/A N/A
N/A N/A N/A N/A N/A N/A
N/A N/A N/A N/A N/A N/A
- ------------ ------------ ------------ ------------ ---------- ----------
N/A N/A N/A N/A N/A N/A
============ ============ ============ ============ ========== ==========
$ 8,822,079 $ 13,217,871 $ 15,868,262 $ 12,225,250 $ -- $ --
2,396 3,553 50,657 587 -- --
(3,746,362) (9,566,698) (3,007,231) (3,320,346) -- --
- ------------ ------------ ------------ ------------ ---------- ----------
$ 5,078,113 $ 3,654,726 $ 12,911,688 $ 8,905,491 $ -- $ --
============ ============ ============ ============ ========== ==========
1,302,912 697,310 1,195,565 1,892,528 670,082 725,416
81,055 64,175 138,671 126,721 21,822 37,745
(1,033,862) (694,286) (1,464,110) (1,072,707) (585,107) (526,601)
- ------------ ------------ ------------ ------------ ---------- ----------
350,105 67,199 (129,874) 946,542 106,797 236,560
============ ============ ============ ============ ========== ==========
N/A N/A N/A N/A N/A N/A
N/A N/A N/A N/A N/A N/A
N/A N/A N/A N/A N/A N/A
- ------------ ------------ ------------ ------------ ---------- ----------
N/A N/A N/A N/A N/A N/A
============ ============ ============ ============ ========== ==========
832,405 1,242,161 1,544,810 1,174,113 -- --
318 308 4,943 57 -- --
(349,964) (898,692) (296,766) (318,922) -- --
- ------------ ------------ ------------ ------------ ---------- ----------
482,759 343,777 1,252,987 855,248 -- --
============ ============ ============ ============ ========== ==========
41
<PAGE>
Tax-Exempt Bond Fund
Financial Highlights
For a Share outstanding throughout each period.
Retail A Shares
<TABLE>
<CAPTION>
Years ended October 31,
--------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ...................... $ 11.30 $ 11.06 $ 10.78 $ 10.78 $ 9.99
-------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income (A) ............................... 0.46 0.48 0.50 0.50 0.52
Net realized and unrealized gain (loss) on investments .. (0.83) 0.34 0.29 -- 0.79
-------- -------- -------- -------- --------
Total from Investment Operations: .................... (0.37) 0.82 0.79 0.50 1.31
-------- -------- -------- -------- --------
Less Dividends:
Dividends from net investment income .................... (0.46) (0.49) (0.50) (0.50) (0.52)
Dividends from net realized capital gains ............... (0.14) (0.09) (0.01) -- --
-------- -------- -------- -------- --------
Total Dividends: ....................................... (0.60) (0.58) (0.51) (0.50) (0.52)
-------- -------- -------- -------- --------
Net increase (decrease) in net asset value ................ (0.97) 0.24 0.28 -- 0.79
-------- -------- -------- -------- --------
Net Asset Value, End of Period ............................ $ 10.33 $ 11.30 $ 11.06 $ 10.78 $ 10.78
======== ======== ======== ======== ========
Total Return(2) ........................................... (3.45)% 7.60% 7.49% 4.77% 13.40%
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ......................... $ 25,704 $ 24,764 $ 25,465 $ 28,339 $ 31,609
Ratios to average net assets:
Net investment income including reimbursement/waiver .... 4.25% 4.32% 4.60% 4.68% 4.99%
Operating expenses including reimbursement/waiver ....... 0.92% 0.94% 0.95% 0.93% 0.91%
Operating expenses excluding reimbursement/waiver ....... 1.12% 1.15% 1.18% 1.18% 1.24%
Portfolio Turnover Rate ................................... 23% 59% 78% 15% 11%
</TABLE>
- ---------------------------------------
* Annualized
** Not Annualized
(1) The Fund began offering Retail B shares on March 4, 1996.
(2) Calculation does not include the effect of any sales charge for Retail A
Shares and Retail B Shares.
(A) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or Administrator for Retail A Shares for the years
ended October 31, 1999, 1998, 1997, 1996 and 1995 were $0.44, $0.46,
$0.47, $0.48 and 0.48, respectively. Net investment income per share
before reimbursement/waiver of fees by the Investment Advisor and/or
Administrator for Trust Shares for the years ended October 31, 1999, 1998,
1997, 1996 and 1995 were $0.47, $0.48, $0.51, $0.51 and $0.51,
respectively. Net investment income per share before reimbursement/waiver
of fees by the Investment Advisor and/or Administrator for Retail B Shares
for the years ended October 31, 1999, 1998 and 1997, and for the period
ended October 31, 1996 were $0.37, $0.40, $0.40 and $0.25, respectively.
See Notes to Financial Statements.
42
<PAGE>
<TABLE>
<CAPTION>
Trust Shares Retail B Shares
Years ended October 31, Years ended October 31, Period ended
- -------------------------------------------------------- -------------------------------- October 31,
1999 1998 1997 1996 1995 1999 1998 1997 1996(1)
- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 11.30 $ 11.06 $ 10.78 $ 10.78 $ 9.99 $ 11.30 $ 11.06 $ 10.78 $ 10.94
- -------- -------- -------- -------- -------- -------- -------- -------- --------
0.49 0.50 0.53 0.53 0.54 0.39 0.42 0.43 0.27
(0.83) 0.34 0.29 -- 0.79 (0.83) 0.33 0.29 (0.16)
- -------- -------- -------- -------- -------- -------- -------- -------- --------
(0.34) 0.84 0.82 0.53 1.33 (0.44) 0.75 0.72 0.11
- -------- -------- -------- -------- -------- -------- -------- -------- --------
(0.49) (0.51) (0.53) (0.53) (0.54) (0.39) (0.42) (0.43) (0.27)
(0.14) (0.09) (0.01) -- -- (0.14) (0.09) (0.01) --
- -------- -------- -------- -------- -------- -------- -------- -------- --------
(0.63) (0.60) (0.54) (0.53) (0.54) (0.53) (0.51) (0.44) (0.27)
- -------- -------- -------- -------- -------- -------- -------- -------- --------
(0.97) 0.24 0.28 -- 0.79 (0.97) 0.24 0.28 (0.16)
- -------- -------- -------- -------- -------- -------- -------- -------- --------
$ 10.33 $ 11.30 $ 11.06 $ 10.78 $ 10.78 $ 10.33 $ 11.30 $ 11.06 $ 10.78
======== ======== ======== ======== ======== ======== ======== ======== ========
(3.25)% 7.85% 7.75% 5.03% 13.62% (4.07)% 6.95% 6.83% 1.08%**
$141,999 $135,664 $122,218 $103,163 $ 91,740 $ 3,382 $ 2,715 $ 1,690 $ 787
4.46% 4.55% 4.85% 4.91% 5.18% 3.61% 3.71% 3.95% 4.08%*
0.71% 0.71% 0.70% 0.70% 0.72% 1.55% 1.55% 1.60% 1.57%*
0.91% 0.92% 0.96% 0.95% 0.97% 1.75% 1.76% 1.83% 1.77%*
23% 59% 78% 15% 11% 23% 59% 78% 15%
</TABLE>
43
<PAGE>
New Jersey Municipal Bond Fund
Financial Highlights
For a Share outstanding throughout each period.
Retail A Shares
<TABLE>
<CAPTION>
Year ended Period ended
October 31, October 31,
1999 1998(1)
---------- ----------
<S> <C> <C>
Net Asset Value, Beginning of Period ...................... $ 10.24 $ 10.00
---------- ----------
Income from Investment Operations:
Net investment income (A) ............................... 0.36 0.20
Net realized and unrealized gain (loss) on investments .. (0.68) 0.24
---------- ----------
Total from Investment Operations: .................... (0.32) 0.44
---------- ----------
Less Dividends:
Dividends from net investment income .................... (0.36) (0.20)
---------- ----------
Total Dividends: ....................................... (0.36) (0.20)
---------- ----------
Net increase (decrease) in net asset value ................ (0.68) 0.24
---------- ----------
Net Asset Value, End of Period ............................ $ 9.56 $ 10.24
========== ==========
Total Return(2) ........................................... (3.24)% 4.34%**
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ......................... $ 1,302 $ 815
Ratios to average net assets:
Net investment income including reimbursement/waiver .... 3.56% 3.62%*
Operating expenses including reimbursement/waiver ....... 1.11% 1.09%*
Operating expenses excluding reimbursement/waiver ....... 2.11% 3.65%*
Portfolio Turnover Rate ................................... 41% 53%**
</TABLE>
- ---------------------------------------
* Annualized.
** Not Annualized.
(1) The Fund commenced operations on April 3, 1998.
(2) Calculation does not include the effect of any sales charge for Retail A
Shares.
(A) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or Administrator for Retail A Shares for the year
ended October 31, 1999 and the period ended October 31, 1998 was $0.26 and
$0.06, respectively. Net investment income per share before
reimbursement/waiver of fees by the Investment Advisor and/or
Administrator for Trust Shares for the year ended October 31, 1999 and the
period ended October 31, 1998 was $0.30 and $0.15, respectively.
See Notes to Financial Statements.
44
<PAGE>
Trust Shares
Year ended Period ended
October 31, October 31,
1999 1998(1)
- ----------- -----------
$ 10.24 $ 10.00
- ----------- -----------
0.38 0.21
(0.68) 0.24
- ----------- -----------
(0.30) 0.45
- ----------- -----------
(0.38) (0.21)
- ----------- -----------
(0.38) (0.21)
- ----------- -----------
(0.68) 0.24
- ----------- -----------
$ 9.56 $ 10.24
=========== ===========
(3.06)% 4.48%**
$ 7,422 $ 7,701
3.76% 3.79%*
0.92% 0.92%*
1.63% 2.07%*
41% 53%**
45
<PAGE>
New York Municipal Bond Fund
Financial Highlights
For a Share outstanding throughout each period.
Retail A Shares
<TABLE>
<CAPTION>
Years ended October 31,
--------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ...................... $ 11.44 $ 11.09 $ 10.75 $ 10.78 $ 9.89
-------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income (A) ............................... 0.48 0.48 0.49 0.48 0.49
Net realized and unrealized gain (loss) on investments .. (0.89) 0.35 0.34 (0.03) 0.89
-------- -------- -------- -------- --------
Total from Investment Operations: .................... (0.41) 0.83 0.83 0.45 1.38
-------- -------- -------- -------- --------
Less Dividends:
Dividends from net investment income .................... (0.46) (0.48) (0.49) (0.48) (0.49)
-------- -------- -------- -------- --------
Total Dividends: ....................................... (0.46) (0.48) (0.49) (0.48) (0.49)
-------- -------- -------- -------- --------
Net increase (decrease) in net asset value ................ (0.87) 0.35 0.34 (0.03) 0.89
-------- -------- -------- -------- --------
Net Asset Value, End of Period ............................ $ 10.57 $ 11.44 $ 11.09 $ 10.75 $ 10.78
======== ======== ======== ======== ========
Total Return(1) ........................................... (3.72)% 7.65% 7.93% 4.31% 14.03%
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ......................... $ 41,343 $ 48,218 $ 38,434 $ 40,154 $ 42,870
Ratios to average net assets:
Net investment income including reimbursement/waiver .... 4.31% 4.27% 4.52% 4.50% 4.73%
Operating expenses including reimbursement/waiver ....... 0.96% 0.87% 0.94% 0.95% 0.92%
Operating expenses excluding reimbursement/waiver ....... 1.16% 1.20% 1.26% 1.35% 1.31%
Portfolio Turnover Rate ................................... 24% 27% 61% 12% 5%
</TABLE>
- ---------------------------------------
(1) Calculation does not include the effect of any sales charge for Retail A
Shares.
(A) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or Administrator for Retail A Shares for the years
ended October 31, 1999, 1998, 1997, 1996 and 1995 were $0.46, $0.45,
$0.45, $0.44, and $0.44, respectively. Net investment income per share
before reimbursement/waiver of fees by the Investment Advisor and/or
Administrator for Trust Shares for the years ended October 31, 1999, 1998,
1997, 1996 and 1995 were $0.48, $0.47, $0.49, $0.47 and $0.48,
respectively.
See Notes to Financial Statements.
46
<PAGE>
Trust Shares
Years ended October 31,
- --------------------------------------------------------
1999 1998 1997 1996 1995
- -------- -------- -------- -------- --------
$ 11.44 $ 11.09 $ 10.75 $ 10.78 $ 9.89
- -------- -------- -------- -------- --------
0.50 0.50 0.52 0.51 0.51
(0.89) 0.35 0.34 (0.03) 0.89
- -------- -------- -------- -------- --------
(0.39) 0.85 0.86 0.48 1.40
- -------- -------- -------- -------- --------
(0.48) (0.50) (0.52) (0.51) (0.51)
- -------- -------- -------- -------- --------
(0.48) (0.50) (0.52) (0.51) (0.51)
- -------- -------- -------- -------- --------
(0.87) 0.35 0.34 (0.03) 0.89
- -------- -------- -------- -------- --------
$ 10.57 $ 11.44 $ 11.09 $ 10.75 $ 10.78
======== ======== ======== ======== ========
(3.54)% 7.82% 8.17% 4.55% 14.23%
$ 36,696 $ 34,801 $ 27,562 $ 23,762 $ 23,077
4.50% 4.42% 4.75% 4.75% 4.91%
0.77% 0.72% 0.71% 0.70% 0.74%
0.97% 0.99% 1.02% 1.10% 1.07%
24% 27% 61% 12% 5%
47
<PAGE>
Connecticut Municipal Bond Fund
Financial Highlights
For a Share outstanding throughout each period.
Retail A Shares
<TABLE>
<CAPTION>
Years ended October 31,
--------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ...................... $ 10.82 $ 10.47 $ 10.14 $ 10.13 $ 9.22
-------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income (A) ............................... 0.43 0.43 0.45 0.42 0.44
Net realized and unrealized gain (loss) on investments .. (0.73) 0.35 0.33 0.01 0.91
-------- -------- -------- -------- --------
Total from Investment Operations: .................... (0.30) 0.78 0.78 0.43 1.35
-------- -------- -------- -------- --------
Less Dividends:
Dividends from net investment income .................... (0.43) (0.43) (0.45) (0.42) (0.44)
-------- -------- -------- -------- --------
Total Dividends: ....................................... (0.43) (0.43) (0.45) (0.42) (0.44)
-------- -------- -------- -------- --------
Net increase (decrease) in net asset value ................ (0.73) 0.35 0.33 0.01 0.91
-------- -------- -------- -------- --------
Net Asset Value, End of Period ............................ $ 10.09 $ 10.82 $ 10.47 $ 10.14 $ 10.13
======== ======== ======== ======== ========
Total Return (1) .......................................... (2.87)% 7.58% 7.86% 4.32% 14.94%
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ......................... $ 26,715 $ 24,856 $ 23,355 $ 23,244 $ 18,066
Ratios to average net assets:
Net investment income including reimbursement/waiver .... 4.07% 4.02% 4.30% 4.13% 4.53%
Operating expenses including reimbursement/waiver ....... 0.85% 0.88% 0.70% 0.70% 0.68%
Operating expenses excluding reimbursement/waiver ....... 1.25% 1.31% 1.31% 1.38% 1.48%
Portfolio Turnover Rate ................................... 53% 46% 42% 3% 7%
</TABLE>
- ---------------------------------------
(1) Calculation does not include the effect of any sales charge for Retail A
Shares.
(A) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or Administrator for Retail A Shares for the years
ended October 31, 1999, 1998, 1997, 1996 and 1995 were $0.39, $0.38,
$0.38, $0.35 and $0.37, respectively. Net investment income per share
before reimbursement/waiver of fees by the Investment Advisor and/or
Administrator for Trust Shares for the years ended October 31, 1999, 1998,
1997, 1996 and 1995 were $0.41, $0.40, $0.41, $0.37 and $0.38,
respectively.
See Notes to Financial Statements.
48
<PAGE>
Trust Shares
Years ended October 31,
- --------------------------------------------------------
1999 1998 1997 1996 1995
- -------- -------- -------- -------- --------
$ 10.82 $ 10.47 $ 10.14 $ 10.13 $ 9.22
- -------- -------- -------- -------- --------
0.45 0.45 0.47 0.44 0.46
(0.73) 0.35 0.33 0.01 0.91
- -------- -------- -------- -------- --------
(0.28) 0.80 0.80 0.45 1.37
- -------- -------- -------- -------- --------
(0.45) (0.45) (0.47) (0.44) (0.46)
- -------- -------- -------- -------- --------
(0.45) (0.45) (0.47) (0.44) (0.46)
- -------- -------- -------- -------- --------
(0.73) 0.35 0.33 0.01 0.91
- -------- -------- -------- -------- --------
$ 10.09 $ 10.82 $ 10.47 $ 10.14 $ 10.13
======== ======== ======== ======== ========
(2.68)% 7.81% 8.06% 4.54% 15.21%
$ 17,848 $ 13,913 $ 9,866 $ 6,348 $ 4,083
4.26% 4.24% 4.51% 4.34% 4.76%
0.65% 0.67% 0.49% 0.49% 0.45%
1.05% 1.10% 1.10% 1.17% 1.24%
53% 46% 42% 3% 7%
49
<PAGE>
Massachusetts Municipal Bond Fund
Financial Highlights
For a Share outstanding throughout each period.
Retail A Shares
<TABLE>
<CAPTION>
Years ended October 31,
--------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ...................... $ 10.53 $ 10.25 $ 9.94 $ 9.98 $ 9.12
-------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income (A) ............................... 0.43 0.46 0.45 0.43 0.44
Net realized and unrealized gain (loss) on investments .. (0.77) 0.27 0.32 (0.04) 0.86
-------- -------- -------- -------- --------
Total from Investment Operations: .................... (0.34) 0.73 0.77 0.39 1.30
-------- -------- -------- -------- --------
Less Dividends:
Dividends from net investment income .................... (0.43) (0.45) (0.46) (0.43) (0.44)
-------- -------- -------- -------- --------
Total Dividends: ....................................... (0.43) (0.45) (0.46) (0.43) (0.44)
-------- -------- -------- -------- --------
Net increase (decrease) in net asset value ................ (0.77) 0.28 0.31 (0.04) 0.86
-------- -------- -------- -------- --------
Net Asset Value, End of Period ............................ $ 9.76 $ 10.53 $ 10.25 $ 9.94 $ 9.98
======== ======== ======== ======== ========
Total Return (1) .......................................... (3.35)% 7.22% 7.92% 4.05% 14.52%
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ......................... $ 39,696 $ 44,189 $ 33,318 $ 26,275 $ 16,113
Ratios to average net assets:
Net investment income including reimbursement/waiver .... 4.18% 4.30% 4.38% 4.42% 4.56%
Operating expenses including reimbursement/waiver ....... 0.79% 0.78% 0.63% 0.66% 0.70%
Operating expenses excluding reimbursement/waiver ....... 1.19% 1.21% 1.20% 1.32% 1.58%
Portfolio Turnover Rate ................................... 34% 44% 48% 16% 19%
</TABLE>
- ---------------------------------------
(1) Calculation does not include the effect of any sales charge for Retail A
Shares.
(A) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or Administrator for Retail A Shares for the years
ended October 31, 1999, 1998, 1997, 1996 and 1995 were $0.39, $0.41,
$0.39, $0.37 and $0.36, respectively. Net investment income per share
before reimbursement/waiver of fees by the Investment Advisor and/or
Administrator for Trust Shares for the years ended October 31, 1999, 1998,
1997, 1996 and 1995 were $0.41, $0.42, $0.40, $0.40 and $0.38,
respectively.
See Notes to Financial Statements.
50
<PAGE>
Trust Shares
Years ended October 31,
- --------------------------------------------------------
1999 1998 1997 1996 1995
- -------- -------- -------- -------- --------
$ 10.53 $ 10.25 $ 9.94 $ 9.98 $ 9.12
- -------- -------- -------- -------- --------
0.45 0.47 0.46 0.46 0.45
(0.77) 0.27 0.32 (0.04) 0.86
- -------- -------- -------- -------- --------
(0.32) 0.74 0.78 0.42 1.31
- -------- -------- -------- -------- --------
(0.45) (0.46) (0.47) (0.46) (0.45)
- -------- -------- -------- -------- --------
(0.45) (0.46) (0.47) (0.46) (0.45)
- -------- -------- -------- -------- --------
(0.77) 0.28 0.31 (0.04) 0.86
- -------- -------- -------- -------- --------
$ 9.76 $ 10.53 $ 10.25 $ 9.94 $ 9.98
======== ======== ======== ======== ========
(3.17)% 7.42% 8.06% 4.27% 14.72%
$ 33,897 $ 23,371 $ 13,986 $ 11,047 $ 7,607
4.36% 4.49% 4.57% 4.60% 4.73%
0.61% 0.60% 0.44% 0.48% 0.52%
1.01% 1.03% 1.01% 1.14% 1.31%
34% 44% 48% 16% 19%
51
<PAGE>
Rhode Island Municipal Bond Fund
Financial Highlights
For a Share outstanding throughout each period.
Retail A Shares
<TABLE>
<CAPTION>
Years ended October 31, Period ended
-------------------------------------------- October 31,
1999 1998 1997 1996 1995(1)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ...................... $ 11.18 $ 10.91 $ 10.65 $ 10.67 $ 10.00
-------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income (A) ............................... 0.48 0.50 0.48 0.51 0.44
Net realized and unrealized gain (loss) on investments .. (0.77) 0.29 0.32 0.03 0.67
-------- -------- -------- -------- --------
Total from Investment Operations: ...................... (0.29) 0.79 0.80 0.54 1.11
-------- -------- -------- -------- --------
Less Dividends:
Dividends from net investment income .................... (0.48) (0.50) (0.50) (0.51) (0.44)
Dividends from net realized capital gains ............... (0.05) (0.02) (0.04) (0.05) --
-------- -------- -------- -------- --------
Total Dividends: ...................................... (0.53) (0.52) (0.54) (0.56) (0.44)
-------- -------- -------- -------- --------
Net increase (decrease) in net asset value ................ (0.82) 0.27 0.26 (0.02) 0.67
-------- -------- -------- -------- --------
Net Asset Value, End of Period ............................ $ 10.36 $ 11.18 $ 10.91 $ 10.65 $ 10.67
======== ======== ======== ======== ========
Total Return (2) .......................................... (2.73)% 7.35% 7.78% 5.22% 11.29%**
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ......................... $ 19,833 $ 20,210 $ 17,134 $ 14,900 $ 10,850
Ratios to average net assets:
Net investment income including reimbursement/waiver .... 4.41% 4.52% 4.50% 4.78% 5.13%*
Operating expenses including reimbursement/waiver ....... 0.80% 0.81% 0.83% 0.77% 0.40%*
Operating expenses excluding reimbursement/waiver ....... 1.20% 1.23% 1.34% 1.34% 2.25%*
Portfolio Turnover Rate ................................... 34% 41% 19% 13% 34%**
</TABLE>
- ---------------------------------------
* Annualized
** Not Annualized
(1) The Fund commenced operations on December 20, 1994.
(2) Calculation does not include the effect of any sales charge for Retail A
Shares.
(A) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or Administrator for the years ended October 31,
1999, 1998, 1997 and 1996, and for the period ended October 31, 1995 were
$0.44, $0.45, $0.43, $0.45 and $0.28, respectively.
See Notes to Financial Statements.
52
<PAGE>
Notes to Financial Statements
1. Organization
The Galaxy Fund, a Massachusetts business trust (the "Trust"), is
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company. As of the date of this report, the Trust offered
twenty-nine managed investment portfolios. The accompanying financial statements
and financial highlights are those of the Tax-Exempt Bond, New Jersey Municipal
Bond, New York Municipal Bond, Connecticut Municipal Bond, Massachusetts
Municipal Bond and Rhode Island Municipal Bond Funds (individually, a "Fund",
collectively, the "Funds") only.
Each Fund is authorized to issue two series of shares (Trust Shares and
Retail A Shares), except for the Tax-Exempt Bond Fund, which is authorized to
issue five series of shares (Trust Shares, Retail A Shares, Retail B Shares, A
Prime Shares and B Prime Shares). As of October 31, 1999, the Rhode Island
Municipal Bond Fund has offered only Retail A Shares and the Tax-Exempt Bond
Fund has offered only Trust Shares, Retail A Shares and Retail B Shares. Trust
Shares, Retail A Shares, Retail B Shares, A Prime Shares and B Prime Shares are
substantially the same except that (i) Retail A Shares are subject to a maximum
3.75% front-end sales charge, (ii) A Prime Shares are subject to a maximum 4.75%
front-end sales charge, (iii) Retail B Shares and B Prime Shares are subject to
a maximum 5.00% contingent deferred sales charge, and (iv) each series of shares
bears the following series specific expenses: distribution fees and/or
shareholder servicing and related fees and transfer agency charges. Six years
after purchase, Retail B Shares will convert automatically to Retail A Shares
and eight years after purchase, B Prime Shares will convert automatically to A
Prime Shares. On November 29, 1999, A Prime Shares and B Prime Shares were
redesignated Prime A Shares and Prime B Shares, respectively.
2. Significant Accounting Policies
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates. The following is a
summary of significant accounting policies in conformity with generally accepted
accounting principles consistently followed by the Funds in the preparation of
their financial statements.
Portfolio Valuation: Investment securities are valued by an independent
pricing service approved by the Trust's Board of Trustees. When, in the judgment
of the service, quoted bid prices are readily available and are representative
of the bid side of the market, investments are valued at the mean between quoted
bid prices and asked prices. Other investments are carried at fair value as
determined by the service based on methods which include consideration of yields
or prices of bonds of comparable quality, coupon maturity and type; indications
as to values from dealers; and general market conditions. Short-term obligations
that mature in 60 days or less are valued at amortized cost, which approximates
fair value. All other securities and other assets are appraised at their fair
value as determined in good faith under consistently applied procedures
established by and under the general supervision of the Board of Trustees.
Securities Transactions and Investment Income: Securities transactions are
accounted for on a trade date basis. Net realized gains or losses on sales of
securities are determined by the identified cost method. Interest and dividend
income is recorded on the accrual basis. Investment income and realized and
unrealized gains and losses are allocated to the separate series of a Fund based
upon the relative net assets of each series.
Dividends to Shareholders: Dividends from net investment income are
determined separately for each series and are declared daily and paid monthly.
Net realized capital gains, if any, are distributed at least annually.
Income dividends and capital gain dividends are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles.
Federal Income Taxes: The Trust treats each Fund as a separate entity for
federal income tax purposes. Each Fund intends to qualify or continue to qualify
each year as a "regulated investment company" under Subchapter M of the Internal
Revenue Code. By so qualifying, each Fund will not be subject to federal income
taxes to the extent that it distributes substantially all of its taxable or
tax-exempt income, if any, for its tax year ending October 31. In addition, by
distributing in each calendar year substantially all of its net investment
income, capital gains and certain other amounts, if any, each Fund will not be
subject to a federal excise tax. Therefore, no federal income or excise tax
provision is recorded.
Expenses: The Trust accounts separately for the assets, liabilities and
operations of each Fund. Expenses directly attributable to a Fund are charged to
the Fund, while expenses which are attributable to more than one fund of the
Trust are allocated among the respective funds.
In addition, expenses of a Fund not directly attributable to the
operations of a particular series of shares of the Fund are allocated to the
separate series based upon the relative net assets of each series. Operating
expenses directly attributable to a series of shares of a Fund are charged to
the operations of that series.
53
<PAGE>
Notes to Financial Statements
Organization Costs: Each Fund bears all costs in connection with its
organization, including the fees and expenses of registering and qualifying its
initial shares for distribution under federal and state securities laws. All
such costs are amortized using the straight-line method over a period of five
years beginning with the commencement of each Fund's operations. In the event
that any of the initial shares purchased by a Fund's sponsor are redeemed during
such period by any holder thereof, the Fund involved will be reimbursed by such
holder for any unamortized organization costs in the same proportion as the
number of initial shares being redeemed bears to the number of initial shares
outstanding at the time of redemption.
When-Issued Securities: Each Fund may purchase and sell securities, such
as municipal obligations, on a "when-issued" basis. Delivery of the security and
payment take place after the date of the commitment to purchase and such
securities are subject to market fluctuations during this period. The fair value
of these securities is determined in the same manner as other municipal
obligations. The Trust's custodian will set aside cash or liquid portfolio
securities equal to the amount of the when-issued commitment in a separate
account.
3. Investment Advisory, Administration, Distribution
Shareholder Services and Other Fees
The Trust and Fleet Investment Advisors Inc. (the "Investment Advisor" or
"Fleet"), an indirect wholly-owned subsidiary of FleetBoston Corporation are
parties to an investment advisory agreement under which the Investment Advisor
provides services for a fee, computed daily and paid monthly, at the annual rate
of 0.75% of the average daily net assets of each Fund (See Note 4).
The Trust and First Data Investor Services Group, Inc. ("Investor Services
Group"), a wholly-owned subsidiary of First Data Corporation, are parties to an
administration agreement under which Investor Services Group (the
"Administrator") provides services for a fee, computed daily and paid monthly,
at the annual rate, effective September 10, 1998, of 0.09% of the first $2.5
billion of the combined average daily net assets of the Funds and the other
funds offered by the Trust (whose financial statements are provided in separate
reports), 0.085% of the next $2.5 billion of combined average daily net assets,
0.075% of the next $7 billion of combined average daily net assets, 0.065% of
the next $3 billion of combined average daily net assets, 0.06% of the next $3
billion of combined average daily net assets and 0.0575% of combined average
daily net assets in excess of $18 billion. Prior to September 10, 1998, Investor
Services Group received administration fees at the annual rate of 0.09% of the
first $2.5 billion of combined average daily net assets of the Funds and the
other funds offered by the Trust, 0.085% of the next $2.5 billion of combined
average daily net assets and 0.075% of combined average daily net assets over $5
billion.
In addition, Investor Services Group also provides certain fund
accounting, custody administration and transfer agency services in accordance
with certain fee arrangements. Pursuant to such fee arrangements, Investor
Services Group compensates The Chase Manhattan Bank, the Trust's custodian bank,
for its services.
First Data Distributors, Inc. (the "Distributor"), a wholly-owned
subsidiary of Investor Services Group and an indirect wholly-owned subsidiary of
First Data Corporation, serves as the exclusive distributor of the Trust's
shares.
The Trust has adopted a shareholder services plan ("Services Plan") with
respect to Retail A Shares and Trust Shares of the Funds. Currently, the
Services Plan has not been implemented with respect to the Funds' Trust Shares.
The Services Plan provides compensation to institutions (including and currently
limited to Fleet Bank and its affiliates) which provide shareholder liaison
and/or administrative support services to their customers who beneficially own
Retail A Shares at an aggregate annual rate not to exceed 0.30% of the average
daily net asset value of the outstanding Retail A Shares of each Fund
beneficially owned by such customers. The Trust, under the direction of the
Board of Trustees, is currently limiting fees payable under the Services Plan
with respect to each Fund to an aggregate annual rate not to exceed 0.15% of the
average daily net asset value of the outstanding Retail A Shares beneficially
owned by such customers. No fees were charged under the Services Plan with
respect to the Rhode Island Municipal Bond Fund for the year ended October 31,
1999.
The Trust has adopted a distribution and shareholder services plan (the
"12b-1 Plan") with respect to Retail B Shares of the Tax-Exempt Bond Fund. Under
the 12b-1 Plan, the Trust may pay (i) the Distributor or another person for
expenses and activities primarily intended to result in the sale of Retail B
Shares, (ii) institutions for shareholder liaison services and (iii)
institutions for administrative support services. Currently, payments under the
12b-1 Plan for distribution services are being made solely to broker-dealer
affiliates of Fleet Bank and payments under the 12b-1 Plan for shareholder
liaison and shareholder administrative support services are being made solely to
Fleet Bank and its affilitates. Payments for distribution expenses may not
exceed an annual rate of 0.65% of the average daily net assets attributable to
each of the Fund's outstanding Retail B Shares. The fees for shareholder liaison
services and/or administrative support services may not exceed the annual rates
of 0.15% and 0.15%, respectively, of the average daily net assets attributable
to the Fund's outstanding Retail B Shares owned of record or beneficially by
customers of institutions. The Trust, under the direction of the Board of
Trustees, is currently limiting each Fund's payments for shareholder liaison and
administrative support ser-
54
<PAGE>
Notes to Financial Statements
vices under the 12b-1 Plan to an aggregate fee of not more than 0.15% of the
average daily net asset value of Retail B Shares owned of record or beneficially
by customers of institutions. For the year ended October 31, 1999, the Funds
paid fees under the Services Plan and 12b-1 Plan as follows:
12b-1 Plan
Services ----------
Fund Plan Services Distribution
- ---- ---- -------- ------------
Tax-Exempt Bond ............................ $ 33,072 $ 4,520 $ 21,499
New Jersey Municipal Bond .................. 960 N/A N/A
New York Municipal Bond .................... 66,562 N/A N/A
Connecticut Municipal Bond ................. 39,136 N/A N/A
Massachusetts Municipal Bond ............... 63,058 N/A N/A
Rhode Island Municipal Bond ................ -- N/A N/A
The Trust has adopted a Distribution Plan (the "A Prime Shares Plan") with
respect to A Prime Shares of the Tax-Exempt Bond Fund. Under the A Prime Shares
Plan, the Trust may pay the Distributor or another person for expenses and
activities primarily intended to result in the sale of A Prime Shares. Payments
by the Trust under the A Prime Shares Plan may not exceed the annual rate of
0.30% of the average daily net assets attributable to each Fund's outstanding A
Prime Shares. The Trust, under the direction of the Board of Trustees, intends
to limit the Fund's payments under the A Prime Shares Plan to an annual rate of
not more than 0.25% of the average daily net assets of the Fund's outstanding A
Prime Shares.
The Trust has adopted a Distribution and Services Plan (the "B Prime
Shares Plan") with respect to B Prime Shares of the Tax-Exempt Bond Fund. Under
the B Prime Shares Plan, the Trust may pay (i) the Distributor or another person
for expenses and activities primarily intended to result in the sale of B Prime
Shares, (ii) institutions for shareholder liaison services, and (iii)
institutions for administrative support services. Payments for distribution
expenses may not exceed an annual rate of 0.75% of the average daily net assets
attributable to the Fund's outstanding B Prime Shares. The fees for shareholder
liaison services and/or administrative support services may not exceed the
annual rates of 0.25% and 0.25%, respectively, of the average daily net assets
attributable to each Fund's outstanding B Prime Shares owned of record or
beneficially by customers of institutions. The Trust, under the direction of the
Board of Trustees, intends to limit the Fund's payments for shareholder liaison
and administrative support services under the B Prime Shares Plan to an
aggregate fee of not more than 0.25% of the average daily net assets of B Prime
Shares owned of record or beneficially by customers of institutions. As of
October 31, 1999, the Tax-Exempt Bond Fund had not commenced its offering of A
Prime Shares and B Prime Shares.
Retail A Shares, Retail B Shares, Trust Shares, A Prime Shares and B Prime
Shares of the Funds each bear series specific transfer agent charges based upon
the number of shareholder accounts for each series. For the year ended October
31, 1999, transfer agent charges for each series were as follows:
Fund Retail A Retail B Trust
- ---- -------- -------- -----
Tax-Exempt Bond ............................... $18,040 $ 2,095 $ 2,231
New Jersey Municipal Bond ..................... 5,233 N/A 53
New York Municipal Bond ....................... 22,653 N/A 789
Connecticut Municipal Bond .................... 12,517 N/A 47
Massachusetts Municipal Bond .................. 16,654 N/A 44
Rhode Island Municipal Bond ................... 5,100 N/A N/A
Certain officers of the Trust may be officers of the Administrator. Such
officers receive no compensation from the Trust for serving in their respective
roles. No officer, director or employee of the Investment Advisor serves as an
officer, trustee or employee of the Trust. Effective May 28, 1999, each Trustee
is entitled to receive for services as a trustee of the Trust, The Galaxy VIP
Fund ("VIP") and Galaxy Fund II ("Galaxy II") an aggregate fee of $45,000 per
annum plus certain other fees for attending or participating in meetings as well
as reimbursement for expenses incurred in attending meetings. Prior to May 28,
1999, each Trustee was entitled to receive for services as a trustee of the
Trust, VIP and Galaxy II an aggregate fee of $40,000 per annum plus certain
other fees for attending or participating in meetings as well as reimbursement
for expenses incurred in attending meetings. The Chairman of the Boards of
Trustees and the President and Treasurer of the Trust, VIP and Galaxy II are
also entitled to additional fees for their services in these capacities. These
fees are allocated among the funds of the Trust, VIP and Galaxy II based on
their relative net assets.
Each Trustee is eligible to participate in The Galaxy Fund/The Galaxy VIP
Fund/Galaxy Fund II Deferred Compensation Plan (the "Plan"), an unfunded,
non-qualified deferred compensation plan. The Plan allows each Trustee to defer
receipt of all or a percentage of fees which otherwise would be payable for
services performed.
Expenses for the year ended October 31, 1999 include legal fees paid to
Drinker Biddle & Reath LLP. A partner of that firm is Secretary to the Trust.
4. Waiver of Fees and Reimbursement of Expenses
The Advisor and the Administrator voluntarily agreed to waive a portion of
their fees and/or reimburse the Funds for certain expenses so that total
expenses would not exceed certain expense limitations established for each Fund.
The respective parties, at their discretion, may revise or discontinue the
voluntary fee waivers and/or expense reimbursements at any time. For the year
ended October 31, 1999, the Investment Advisor and
55
<PAGE>
Notes to Financial Statements
Administrator waived fees and/or reimbursed expenses with respect to the Funds
as follows:
Fund Fees Waived
- ---- -----------
Tax-Exempt Bond ............................................ $338,345
New Jersey Municipal Bond .................................. 68,655
New York Municipal Bond .................................... 168,340
Connecticut Municipal Bond ................................. 170,690
Massachusetts Municipal Bond ............................... 290,517
Rhode Island Municipal Bond ................................ 86,559
Expenses
Fund Reimbursed
- ---- ----------
New Jersey Municipal Bond .................................... $ 65
New York Municipal Bond ...................................... 381
5. Shares of Beneficial Interest
The Trust's Declaration of Trust authorizes the Trustees to issue an
unlimited number of shares of beneficial interest, each with a par value of
$0.001. Shares of the Trust are currently classified into thirty-one classes of
shares each consisting of one or more series.
Each share represents an equal proportionate interest in the respective
Fund, bears the same fees and expenses (except that Retail A Shares of a Fund
bear the expense of payments under the Services Plan, Retail B Shares of a Fund
bear the expense of payments under the 12b-1 Plan, A Prime Shares of a Fund bear
the expense of payments under the A Prime Shares Plan, B Prime Shares of a Fund
bear the expense of payments under the B Prime Shares Plan and Trust Shares,
Retail A Shares, Retail B Shares, A Prime Shares and B Prime Shares of a Fund
each bear series specific transfer agent charges) and is entitled to such
dividends and distributions of income earned as are declared at the discretion
of the Trust's Board of Trustees.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held, and will vote in
the aggregate and not by class or series, except as otherwise expressly required
by law or when the Board of Trustees determines that the matter to be voted on
affects only the interests of shareholders of a particular class or series.
6. Purchases and Sales of Securities
The cost of purchases and proceeds from sales of securities, other than
short-term investments, for the year ended October 31, 1999 were as follows:
Fund Purchases Sales
- ---- --------- -----
Tax-Exempt Bond ............................ $52,087,906 $37,780,469
New Jersey Municipal Bond .................. 3,888,239 3,566,376
New York Municipal Bond .................... 22,275,220 20,101,894
Connecticut Municipal Bond ................. 28,441,515 21,486,493
Massachusetts Municipal Bond ............... 35,668,407 23,893,395
Rhode Island Municipal Bond ................ 8,063,561 7,213,761
The aggregate gross unrealized appreciation and depreciation, net
unrealized appreciation (depreciation), and cost for all securities as computed
on a federal income tax basis at October 31, 1999 for each Fund is as follows:
Fund Appreciation (Depreciation)
- ---- ------------ --------------
Tax-Exempt Bond ........................... $ 1,507,637 $(6,421,032)
New Jersey Municipal Bond ................. -- (406,498)
New York Municipal Bond ................... 978,445 (3,494,238)
Connecticut Municipal Bond ................ 389,973 (1,200,562)
Massachusetts Municipal Bond .............. 271,842 (3,471,434)
Rhode Island Municipal Bond ............... 264,670 (727,921)
Fund Net Cost
- ---- --- ----
Tax-Exempt Bond ........................... $ (4,913,395) $171,997,973
New Jersey Municipal Bond ................. (406,498) 9,054,014
New York Municipal Bond ................... (2,515,793) 80,496,158
Connecticut Municipal Bond ................ (810,589) 45,060,100
Massachusetts Municipal Bond .............. (3,199,592) 75,802,445
Rhode Island Municipal Bond ............... (463,251) 19,614,554
At October 31, 1999, the following Funds had capital loss carryforwards:
Fund Amount Expiration
- ---- ------ ----------
Tax-Exempt Bond ................................ $ 78,657 2007
New Jersey Municipal Bond ...................... 687 2006
44,349 2007
New York Municipal Bond ........................ 263,502 2003
16,589 2004
Connecticut Municipal Bond ..................... 31,295 2002
685,391 2003
82,263 2005
23,141 2007
Massachusetts Municipal Bond ................... 286,989 2003
65,783 2007
Rhode Island Municipal Bond .................... 76,090 2007
56
<PAGE>
Notes to Financial Statements
7. Concentration of Credit
The New Jersey Municipal Bond, New York Municipal Bond, Connecticut
Municipal Bond, Massachusetts Municipal Bond and Rhode Island Municipal Bond
Funds invest primarily in debt obligations issued by the State of New Jersey,
the State of New York, the State of Connecticut, the Commonwealth of
Massachusetts and the State of Rhode Island, respectively, and their respective
political subdivisions, agencies and public authorities to obtain funds for
various public purposes. The Funds, as non-diversified investment portfolios,
are more susceptible to economic and political factors adversely affecting
issuers of each respective state's specific municipal securities than are
municipal bond funds that are not concentrated in these issuers to the same
extent.
8. Subsequent Event - Change in Control of Administrator and
Change in Distributor (unaudited)
On December 1, 1999, PFPC Trust Company, a wholly-owned subsidiary of PFPC
Worldwide, Inc. and an indirect wholly-owned subsidiary of PNC Bank Corp.,
acquired all of the outstanding stock of Investor Services Group (the
"Transation"). On that same date and as part of the Transaction, PFPC Inc., an
indirect wholly-owned subsidiary of PNC Bank Corp., was merged into Investor
Services Group, which then changed its name to PFPC Inc.
In connection with the Transaction, on December 1, 1999, Provident
Distributors, Inc. became the distributor of the Trust's shares.
9. Tax Information (unaudited)
During the fiscal year ended October 31, 1999, the Funds earned the
following percent of their income from municipal obligations which generally
qualify as exempt from federal and state taxation:
Fund Income
- ---- ------
Tax-Exempt Bond ............................................. 100.00%
New Jersey Municipal Bond ................................... 100.00%
New York Municipal Bond ..................................... 100.00%
Connecticut Municipal Bond .................................. 100.00%
Massachusetts Municipal Bond ................................ 100.00%
Rhode Island Municipal Bond ................................. 100.00%
During the fiscal year ended October 31, 1999, the following Funds made
distributions from long-term capital gains as follows:
Fund Amount
- ---- ------
Tax-Exempt Bond .......................................... $1,323,693
Rhode Island Municipal Bond .............................. 63,388
57
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Shareholders and Board of Trustees of
The Galaxy Fund:
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of the Tax-Exempt Bond Fund, New Jersey Municipal
Bond Fund, New York Municipal Bond Fund, Connecticut Municipal Bond Fund,
Massachusetts Municipal Bond Fund and Rhode Island Municipal Bond Fund (six of
the portfolios constituting The Galaxy Fund) as of October 31, 1999, and the
related statements of operations, the statements of changes in net assets, and
the financial highlights for the year then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit. The statements of changes in net assets
for the year ended October 31, 1998 and the financial highlights for the four
years then ended were audited by other auditors whose report dated December 23,
1998 expressed an unqualified opinion on those statements and financial
highlights.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in financial statements and
financial highlights. Our procedures included confirmation of securities owned
as of October 31, 1999 by correspondence with the custodian and brokers or other
appropriate auditing procedures where replies from brokers were not received. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Tax-Exempt Bond Fund, New Jersey Municipal Bond Fund, New York Municipal Bond
Fund, Connecticut Municipal Bond Fund, Massachusetts Municipal Bond Fund and
Rhode Island Municipal Bond Fund portfolios of The Galaxy Fund at October 31,
1999, the results of their operations, changes in their net assets and their
financial highlights for the year then ended, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
December 13, 1999
<PAGE>
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<PAGE>
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<PAGE>
------------------
BULK RATE
U. S. POSTAGE PAID
PERMIT NO. 105
NORTH READING, MA
------------------
[LOGO] Galaxy
Funds
P.O. Box 6520
Providence, RI 02940-6520
ANTXEBND (January 1, 2000)
<PAGE>
[GRAPHIC]
Galaxy Money Market Funds
Galaxy Funds
Annual Report
October 31, 1999
Galaxy Money Market Fund
Galaxy Government Fund
Galaxy U.S. Treasury Fund
Galaxy Tax-Exempt Fund
Galaxy Connecticut Municipal
Money Market Fund
Galaxy Massachusetts Municipal
Money Market Fund
[LOGO] Galaxy
Funds
<PAGE>
Chairman's Message
Dear Shareholder:
Enclosed is the Galaxy Money Market Funds' annual report for the fiscal
year ended October 31, 1999. The report includes a Market Overview that explains
the different economic and market factors influencing money market instruments
during this time. Following the Market Overview are reviews for both the Galaxy
Taxable Money Market Funds and the Galaxy Tax-Exempt Money Market Funds that
describe how Fleet Investment Advisors Inc. managed the Funds' portfolios in
this climate. Financial statements and list of portfolio holdings for each of
the Funds as of October 31, 1999 appear at the end of the report.
Unexpected economic strength, inflation concerns, and a tighter monetary
policy drove money market yields higher during the period. After cutting
short-term interest rates by 25 basis points (0.25%) at the start of the
reporting period, the Federal Reserve became concerned that the economy was
advancing strongly enough to produce inflation that would curb future growth.
This resulted in rate increases later in the period totaling 50 basis points
(0.50%). Along the way, uncertainty about where interest rates might head caused
significant fluctuations in short-term yields. Money market investments added
stability to many portfolios during this time, however, as uncertainty about
future inflation and growth curbed returns for bonds and many stocks.
While market fluctuations can be unnerving, they are typical of the ups
and downs that occur with most investments. Even so, this may be a good time to
meet with a financial advisor who can help you determine whether your current
strategies suit your long-term goals. Investment professionals at Fleet Bank
branches can provide you with a no-obligation analysis that will help you make
this comparison and get the most from your portfolio.
If you are saving for a child's education, or are helping a family member
prepare for college, ask our representatives about the Galaxy College Investment
Program. Galaxy offers an Education IRA which allows for tax-free earnings to
accumulate on your investment if used to pay for qualified college expenses.
Remember that anyone, not just a child's parents, can make a contribution.
You might also consider a custodial account such as a Uniform
Gift/Transfer to Minor Account (UGMA/UTMA). The UGMA/UTMA account offers another
opportunity to transfer assets to minors with favorable tax consequences in
preparation for college expenses. Ask your investment professional or tax
advisor about this important gifting opportunity.
If you have any questions about college investing opportunities or the
information in this report, please contact the Galaxy Information Center
toll-free at 1-877-BUY-GALAXY (1-877-289-4252). You can also visit one of our
investment professionals located at Fleet Bank branches.
Sincerely,
/s/ Dwight E. Vicks, Jr.
Dwight E. Vicks, Jr.
Chairman of the Board of Trustees
- --------------------------------------------------------------------------------
Mutual Funds:
- - are not bank deposits
- - are not FDIC insured
- - are not obligations of Fleet Bank
- - are not guaranteed by Fleet Bank
- - are subject to investment risk including possible loss of principal amount
invested
- --------------------------------------------------------------------------------
<PAGE>
Market Overview
"By adjusting the maturities and mix of investments in the Galaxy Money Market
Funds to make the most of fluctuating yields, we helped the Funds earn
competitive returns during the reporting period."
MONEY MARKET OVERVIEW
By Fleet Investment Advisors Inc.
Short-term yields rose by about 80 basis points (0.80%) over the 12 months
ended October 31, 1999. As improving economic conditions abroad created a
brighter outlook at home, investors worried about higher inflation. Uncertainty
over how the Federal Reserve (the "Fed") would respond to inflation threats
caused significant volatility in short-term yields during this time.
The Fed cut short-term rates by 25 basis points in November of 1998, which
made a total cut of 75 basis points since September of 1998. Although inflation
remained low, economic growth was strong enough for the Fed to make a
pre-emptive move by raising rates by 25 basis points on June 30, 1999 and on
August 24, 1999.
By adjusting the maturities and mix of investments in the Galaxy Money
Market Funds to make the most of fluctuating yields, we helped the Funds earn
competitive returns during the reporting period.
Strong Growth Prompts Inflation Fears
At the start of the period, three-month Treasury bills were yielding about
4.3% and the annual rate of inflation was about 1.6%. After growing at an
annualized rate of 3.7% in the third quarter of 1998, the Gross Domestic Product
("GDP"), which measures the output of U.S. goods and services, improved by 6% in
the fourth quarter of 1998. The economies in Asia and other emerging markets
remained in crisis, however, causing many investors to look for safety in U.S.
Treasury securities. By cutting interest rates in November of 1998, the Fed
helped to restore confidence and ease the demand for Treasuries.
U.S. economic growth remained surprisingly strong in the first quarter of
1999, as GDP rose by 4.3%. By this time, foreign economies were recovering at a
rapid pace, which helped to sustain growth at home. Investors worried that the
Fed might begin to raise interest rates to keep the strong economy from
increasing inflation. The yield for three-month Treasury bills reached 4.7% by
the beginning of March. With current inflation still under control, however, the
Fed took no action on interest rates.
In the second quarter of 1999, GDP growth slowed to 1.8%. With signs that
the economy was cooling, the Fed continued to leave interest rates alone for
much of the quarter. By the end of June, however, the Fed was concerned enough
about future growth and inflation to raise short-term rates for the first time
since February 1995. Inflation concerns persisted in the third quarter. While
current inflation remained modest, GDP growth accelerated to an estimated 5.5%
for the quarter. Continued weakening in the U.S. dollar against the Japanese yen
and other foreign currencies put additional upward pressure on inflation. As the
result of these factors, the Fed raised short-term rates again in August of
1999.
Investors worried in the weeks that followed that the Fed would raise
rates again before the end of the year, effectively erasing the 75-point rate
cut from 1998. Eventually, however, investors thought that inflation might be
contained and another rate hike might not be needed. This helped three-month
Treasury yields decline to 5.1% by the end of October.
1
<PAGE>
"After averaging growth rates of 3.9% and 3.8% in 1998 and 1999, respectively,
we believe that the GDP may only improve by 2.5% next year. If that happens,
inflation should remain under control and money market yields could move lower."
Performance At-A-Glance As of October 31, 1999
- --------------------------------------------------------------------------------
Retail A Retail B Trust
Shares Shares Shares
Galaxy Money Market Fund
7-day average yield .................... 4.80% 4.00% 4.96%
30-day average yield ................... 4.76% 4.01% 4.92%
Galaxy Government Fund
7-day average yield .................... 4.75% N/A 4.88%
30-day average yield ................... 4.60% N/A 4.74%
Galaxy Tax-Exempt Fund
7-day average yield .................... 2.76% N/A 2.90%
30-day average yield ................... 2.68% N/A 2.81%
Galaxy U.S. Treasury Fund
7-day average yield .................... 4.28% N/A 4.43%
30-day average yield ................... 4.27% N/A 4.42%
Galaxy Connecticut Municipal
Money Market Fund
7-day average yield .................... 2.71% N/A N/A
30-day average yield ................... 2.61% N/A N/A
Galaxy Massachusetts Municipal
Money Market Fund
7-day average yield .................... 2.73% N/A N/A
30-day average yield ................... 2.64% N/A N/A
Past performance is no guarantee of future results. Investments in the Galaxy
Money Market Funds are neither insured nor guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Although the Funds seek to
preserve the value of your investment at $1.00 per share, it is possible to lose
money by investing in the Funds. Yields are historical and will vary with market
performance.
Retail A Shares are currently charged a shareholder servicing fee of 0.10% of
average daily net assets. Retail B Shares are currently charged a distribution
fee of 0.65% of average daily net assets and a shareholder servicing fee of
0.10% of average daily net assets. (See Note 3 in the Notes to Financial
Statements.)
- --------------------------------------------------------------------------------
In this climate of uncertainty, the Galaxy Money Market Funds benefited
from holdings in high-quality investments and sizable positions in both
overnight securities and issues with floating interest rates. We emphasized
longer maturities when we thought yields were peaking to help the Funds'
returns.
Rate Hikes Should Slow Growth
We continue to believe that the U.S. economy cannot sustain its rapid rate
of expansion. In addition to its considerable longevity, this expansion should
be vulnerable to the recent hikes in interest rates. After averaging growth
rates of 3.9% and 3.8% in 1998 and 1999, respectively, we believe that the GDP
may only improve by 2.5% next year. If that happens, inflation should remain
under control and money market yields could move lower.
As before, we expect to continue making the most of special yield
opportunities that arise due to market fluctuations and to focus on high-quality
investments with strong liquidity.
2
<PAGE>
Portfolio Reviews
[PHOTO]
Karen Arneil has managed the Galaxy Taxable Money Market Funds and the Galaxy
Tax-Exempt Money Market Funds since September 1996. She has managed money market
investments since 1993.
Galaxy Money
Market Fund
Distribution of Total Net Assets as of October 31, 1999
[The following information was depicted as a pie chart in the printed material.]
Commercial Paper 52%
Corporate Notes and Bonds 30%
U.S. Government. and Agency Obligations 10%
Certificates of Deposit & Net Other Assets and Liabilities 8%
GALAXY TAXABLE MONEY MARKET FUNDS
By Karen Arneil
Portfolio Manager
Changing economic expectations caused money market yields to fluctuate
over the past year. In this environment, we focused on securities with strong
credit quality and good liquidity in the Galaxy Taxable Money Market Funds --
which include the Galaxy Money Market Fund, the Galaxy Government Fund and the
Galaxy U.S. Treasury Fund (collectively, the "Funds"). In addition, we took
advantage of opportunities in individual market sectors that enhanced the Funds'
yields. These strategies helped the Funds earn total returns for the 12 months
ended October 31, 1999 that were competitive with the returns for other taxable
money market funds.
During the period, Trust Shares of the Galaxy Money Market Fund had a
total return of 4.72%, and Retail A Shares of the Fund earned a total return of
4.54%. Retail B Shares of the Fund earned a total return of 3.85% before
deducting the 5.00% contingent deferred sales charge, and a total return of
- -1.15% after deducting the 5.00% contingent deferred sales charge.
Over the same time, Lipper Analytical Services ("Lipper"), a mutual fund
performance tracking service, reported average total returns of 4.95% for trust
shares and 4.40% for retail shares of other taxable money market funds that
reported their performance to Lipper.
For the 12 months ended October 31, 1999, Trust Shares of the Galaxy
Government Fund had a total return of 4.58%, and Retail A Shares of the Fund had
a total return of 4.39%. Trust shares of other money market funds investing in
U.S. government issues that reported their performance to Lipper earned an
average total return of 4.71% over the same period. Retail shares of similar
funds that reported their performance to Lipper earned an average total return
of 4.39% for the period.
During this time, Trust Shares of the Galaxy U.S. Treasury Fund had a
total return of 4.30% and Retail A Shares of the Fund earned a total return of
4.14%. These returns compared with an average total return of 4.29% for trust
shares of other money market funds investing in U.S. Treasury issues that
reported their results to Lipper. Retail shares of similar funds that reported
their performance to Lipper earned a total return of 4.16% for the period.
On October 31, 1999, the Galaxy Money Market Fund had an average maturity
of 40 days, the Galaxy Government Fund had an average maturity of 44 days, and
the Galaxy U.S. Treasury Fund had an average maturity of 42 days.
Adapting to Rising Yields
At the start of the reporting period in November 1998, significant
holdings in overnight issues gave the Galaxy Money Market Funds liquid-
Galaxy Money Market Fund
7-Day Average Yield (%)
[The following information was depicted as a line chart in the printed
material.]
<TABLE>
<CAPTION>
11/01/1998 10/31/1999
<S> <C> <C>
Trust 4.79% 4.96%
Retail A 4.61% 4.80%
Retail B 3.97% 4.00%
</TABLE>
November 1, 1998 October 31, 1999
Galaxy Government Fund
Distribution of Total Net Assets as of October 31, 1999
[The following information was depicted as a pie chart in the printed material.]
Federal National Mortgage Association 31%
Federal Home Loan Mortgage Corporation 30%
Federal Home Loan Bank 20%
Repurchase Agreement & Net Other Assets and Liabilities 16%
Federal Farm Credit Bank 3%
3
<PAGE>
Portfolio Reviews
ity in a very volatile market. As economic uncertainties sustained strong demand
for U.S. Treasury issues, we emphasized longer-term Treasuries in the U.S.
Treasury Fund to enhance yield.
Galaxy Government Fund
7-Day Average Yield (%)
[The following information was depicted as a line chart in the printed
material.]
<TABLE>
<CAPTION>
11/01/1998 10/31/1999
<S> <C> <C>
Trust 4.71% 4.88%
Retail A 4.82% 4.75%
</TABLE>
November 1, 1998 October 31, 1999
With corporate spreads wide later in the fourth quarter of 1998, we added
high-quality corporate securities with floating rates to the Money Market Fund.
When demand for Treasuries eased, and the yield curve flattened, we gave
increased attention to shorter-term issues in the U.S. Treasury Fund. As
standard year-end technical pressures boosted yields for issues that were to
mature in 1999, we selectively purchased longer-term instruments for all of the
Funds. We balanced these additions with overnight issues to maintain adequate
liquidity.
As money market yields moved higher in February of 1999, we purchased
one-year securities for the Funds to lock in the higher yields and continued to
buy high-quality corporate floating rate securities ("floaters") for the Money
Market Fund. When the U.S. Treasury issued multiple cash management bills as the
April 15 tax filing deadline approached, we bought those issues for the U.S.
Treasury Fund to take advantage of their attractive yields. With the yield curve
for Treasuries and issues of U.S. government agencies still relatively flat, we
focused on shorter-term investments in the U.S. Treasury Fund and the Government
Fund. As the agency paper we had purchased for the Money Market Fund at the end
of 1998 matured, we replaced it with corporate securities. When the market had
priced in a 25 basis point hike in short-term rates just before the June 30
meeting of the Fed, we added securities maturing in July and August to pick up
additional yield.
In August, when money market yields were high, we added one-year
securities to the Funds. We continued to add floating-rate issues to the Funds
during this time. To benefit from potential yield increases resulting from rate
hikes by the Fed, we bought securities that matured near the next Fed meeting.
We continued this strategy as yields trended downward in October, selectively
buying one-year issues on temporary upticks in yields.
Sufficient Liquidity for Year-End Concerns
Because many of the floaters the Funds hold will mature in December, there
should be sufficient liquidity for any market volatility that Y2K concerns might
bring. In the meantime, the floaters should help the Funds make the most of any
upticks in yield. Once the market outlook seems more certain, we may add issues
that mature in the first part of 2000 as the yields for these issues have become
quite attractive.
Galaxy U.S. Treasury Fund
Distribution of Total Net Assets as of October 31, 1999
[The following information was depicted as a pie chart in the printed material.]
U.S. Treasury Bills 43%
Federal Home Loan Bank 28%
U.S. Treasury Notes 25%
Federal Farm Credit Bank & Net Other Assets and Liabilities 4%
Galaxy U.S. Treasury Fund
7-Day Average Yield (%)
[The following information was depicted as a line chart in the printed
material.]
<TABLE>
<CAPTION>
11/01/1998 10/31/1999
<S> <C> <C>
Trust 4.40% 4.43%
Retail A 4.24% 4.28%
</TABLE>
November 1, 1998 October 31, 1999
4
<PAGE>
Portfolio Reviews
Galaxy Tax-Exempt Fund
Distribution of Total Net Assets as of October 31, 1999
[The following information was depicted as a pie chart in the printed material.]
South 54%
North Central 14%
Mountain 12%
East 11%
Pacific 6%
Other Territories, Cash Equivalents & Net Other Assets and Liabilities 3%
GALAXY TAX-EXEMPT MONEY MARKET FUNDS
By Karen Arneil
Portfolio Manager
As the yields for tax-exempt money market securities fluctuated over the
past year due to changes in economic expectations and the balance between supply
and demand, we made the most of resulting yield opportunities by adjusting
maturities of investments in the Galaxy Tax-Exempt Money Market Funds -- which
include the Galaxy Tax-Exempt Fund, the Galaxy Connecticut Municipal Money
Market Fund and the Galaxy Massachusetts Municipal Money Market Fund
(collectively, the "Funds"). These adjustments helped the Funds earn total
returns that compared favorably with those for other tax-exempt money market
funds.
For the 12-month reporting period ended October 31, 1999, Trust and Retail
A Shares of the Galaxy Tax-Exempt Fund had total returns of 2.67% and 2.53%,
respectively. Over the same time, retail and trust shares of other tax-exempt
money market funds that reported their performance to Lipper earned average
total returns of 2.60% and 3.09%, respectively.
Retail A Shares of the Galaxy Connecticut Municipal Money Market Fund had
a total return of 2.47%, versus 2.39% for the retail shares of other Connecticut
tax-exempt money market funds that reported their performance to Lipper. Retail
A Shares of the Galaxy Massachusetts Municipal Money Market Fund had a total
return of 2.50%, versus 2.49% for the retail shares of other Massachusetts
tax-exempt money market funds that reported their performance to Lipper.
As of October 31, 1999, the average maturity of the Tax-Exempt Fund was 46
days, and the average maturities of the Connecticut and Massachusetts Municipal
Money Market Funds were 45 days and 61 days, respectively.
Addressing Changes in Supply and Demand
When the reporting period began at the end of 1998, supplies of
longer-term tax-exempt debt were rising versus supplies of tax-exempt money
market securities, as low interest rates made longer-term securities more
attractive to issuers. Demand for tax-exempt money market securities remained
strong, however, resulting in downward pressure on their yields. In this
environment we focused on new purchases for the Galaxy Tax-Exempt Money Market
Funds on tax-exempt notes, which increased the Funds' average maturities
slightly. Given the economic turmoil overseas, we emphasized general obligation
issues of state and local governments and tax-exempt paper backed by domestic
banks.
With a seasonal increase in demand during January and February of 1999,
there was further downward pressure on the yields of tax-exempt money market
securities and we continued to take advantage of attractive yield opportunities
in tax-
Galaxy Tax-Exempt Fund
7-Day Average Yield (%)
[The following information was depicted as a line chart in the printed
material.]
<TABLE>
<CAPTION>
11/01/1998 10/31/1999
<S> <C> <C>
Trust 2.77% 2.90%
Retail A 2.64% 2.76%
</TABLE>
November 1, 1998 October 31, 1999
Galaxy Connecticut Municipal Money Market Fund
7-Day Average Yield (%)
[The following information was depicted as a line chart in the printed
material.]
<TABLE>
<CAPTION>
11/01/1998 10/31/1999
<S> <C> <C>
Retail A 2.58% 2.71%
</TABLE>
November 1, 1998 October 31, 1999
5
<PAGE>
Portfolio Reviews
Galaxy Connecticut Municipal Money Market Fund
Distribution of Total Net Assets as of October 31, 1999
[The following information was depicted as a pie chart in the printed material.]
Connecticut 62%
South 15%
Puerto Rico 7%
East, Other Territories, Cash Equivalents & Net Other Assets and Liabilities 6%
North Central 4%
Pacific 3%
Mountain 3%
exempt notes. To meet expected redemptions as the April tax season
approached, we added investments that would increase the Funds' liquidity. When
demand dropped sharply just after April 15, causing yields to spike higher, the
Funds benefited from their sizable investments in variable-rate issues.
We made further purchases in tax-exempt notes in May and June, as the
start of issuers' new fiscal years boosted the supplies and yields of those
securities. As ample supplies created further opportunities in tax-exempt notes
during the third quarter, we made additional purchases of those issues. The
Funds' investments in variable-rate issues further enhanced returns during this
time. Toward the end of the second quarter, Fund returns benefited as reduced
demand for variable-rate issues put upward pressure on their yields. In the
third quarter, variable-rate issues helped keep Fund returns in line with a
changing yield environment.
Continued Focus on Liquidity
Our typical year-end strategy is to purchase longer-term instruments that
mature in February of the following year to avoid the lower yields that usually
result from increased demand in November and December. We plan to emphasize
shorter-term investments at the end of 1999 to provide sufficient liquidity for
any market volatility that Y2K concerns might bring. Although supplies of
variable-rate securities have recently begun to shrink as issuers favor
longer-term debt, we expect to continue emphasizing variable-rate instruments
where we can. This should help us remain responsive to further fluctuations in
yields.
Galaxy Massachusetts Municipal Money Market Fund
Distribution of Total Net Assets as of October 31, 1999
[The following information was depicted as a pie chart in the printed material.]
Massachusetts 80%
South 10%
Pacific 4%
East 3%
North Central 2%
Mountain, Other Territories, Cash Equivalents
& Net Other Assets and Liabilities 1%
Galaxy Massachusetts Municipal Money Market Fund
7-Day Average Yield (%)
[The following information was depicted as a line chart in the printed
material.]
<TABLE>
<CAPTION>
11/01/1998 10/31/1999
<S> <C> <C>
Retail A 2.61% 2.73%
</TABLE>
November 1, 1998 October 31, 1999
- --------------------------------------------------------------------------------
Past performance is no guarantee of future results. Investment returns and
principal values will vary with market conditions so that an investor's shares,
when redeemed, may be worth more or less than their original cost. The
Investment Advisor is presently waiving fees and/or reimbursing expenses and may
revise or discontinue such practice at any time. Without such waivers and/or
reimbursements, performance would be lower. Total return figures in this report
include changes in share price, reinvestment of dividends and capital gains
distributions and exclude the deduction of any contingent deferred sales charge
unless otherwise indicated. Retail B Shares of the Galaxy Money Market Fund are
subject to a 5.00% contingent deferred sales charge if shares are redeemed
within the first year after purchase. The charge decreases to 4.00%, 3.00%,
3.00%, 2.00% and 1.00% for redemptions made during the second through sixth
years, respectively. Retail B Shares automatically convert to Retail A Shares
after six years. There can be no assurance that the Funds will be able to
maintain a stable net asset value of $1.00 per share.
6
<PAGE>
Shareholder Services
"A well-balanced asset allocation plan may help to control your risk while
pursuing your goals."
AUTOMATIC INVESTMENT PROGRAM
The Golden Rule of investing is "pay yourself first." That is easy to do with
Galaxy's Automatic Investment Program. For as little as $50 per month deducted
directly from your checking, savings, or bank money market account, you can
consistently and conveniently add to your Galaxy investment. When you establish
an Automatic Investment Program, the $2,500 initial investment requirement for
Galaxy is waived. Of course, such a program does not assure a profit and does
not protect against loss in a declining market.
DIVERSIFICATION
A fundamental investment practice is "diversification." A well-balanced asset
allocation plan may help to control your risk while pursuing your goals. Many
mutual funds offer a low-cost way to diversify your investments while you
benefit from professional management. Galaxy's comprehensive array of invest
ment choices can be used in combination to match the needs of nearly everyone.
EXCHANGE PRIVILEGES
As your investment needs change, you can conveniently exchange your shares in
one Fund for shares in another Fund within the same share class.
CONSOLIDATED STATEMENTS
Timely, comprehensive mutual fund account statements offer detailed information
on your individual account. If you have a FleetOne Gold or a Fleet Private
Banking Account, your Galaxy Fund information can be added to these statements.
24-HOUR ACCESS TO REGISTERED REPRESENTATIVES
24 hours a day, seven days a week, 365 days a year, we are ready and available
to help. Our toll-free telephone lines offer round-the-clock access to Fund
information and services. Call toll-free 1-877-BUY-GALAXY (1-877-289-4252) for
information on initial purchases and current performance.
- --------------------------------------------------------------------------------
Certain shareholder services may not be available to Trust Share investors.
Please consult the Fund Prospectus. Shares of the Funds are distributed through
Provident Distributors, Inc., member NASD and SIPC.
7
<PAGE>
Shareholder Information
- --------------------------------------------------------------------------------
TRUSTEES
AND OFFICERS
Dwight E. Vicks, Jr.
Chairman and Trustee
John T. O'Neill
President, Treasurer
and Trustee
Louis DeThomasis,
F.S.C., Ph.D.
Trustee
Donald B. Miller
Trustee
James M. Seed
Trustee
Bradford S. Wellman
Trustee
W. Bruce
McConnel, III, Esq.
Secretary
Jylanne Dunne
Vice President and
Assistant Treasurer
William Greilich
Vice President
INVESTMENT ADVISOR
Fleet Investment
Advisors Inc.
75 State Street
Boston, MA
02109
DISTRIBUTOR
Provident
Distributors, Inc.
Four Falls Corporate Center
6th Floor
West Conshohocken, PA
19428-2961
ADMINISTRATOR
PFPC Inc.
4400 Computer Drive
Westborough,
Massachusetts 01581-5108
AUDITOR
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116
LEGAL COUNSEL
Drinker Biddle & Reath LLP
One Logan Square
18th and Cherry Streets
Philadelphia, PA 19103-6996
- --------------------------------------------------------------------------------
This report is submitted for the general information of shareholders of The
Galaxy Fund. It is not authorized for distribution to prospective investors
unless accompanied or preceded by an effective prospectus for each Fund of The
Galaxy Fund, which contains more information concerning the investment policies
and expenses of the Funds as well as other pertinent information. For complete
information, and before making an investment decision on any of the Funds of The
Galaxy Fund, you should request a prospectus from the Funds' distributor by
calling toll-free 1-877-BUY-GALAXY (1-877-289-4252). Read the prospectus
carefully before you invest.
Shares of the Funds are not bank deposits or obligations of, or guaranteed or
endorsed by, FleetBoston Corporation or any of its affiliates, Fleet Investment
Advisors Inc., or any Fleet Bank. Shares of the Funds are not federally insured
by, guaranteed by, obligations of or otherwise supported by the U.S. Government,
the Federal Deposit Insurance Corporation, the Federal Reserve Board or any
other governmental agency. Investment return and principal value will vary as a
result of market conditions or other factors so that shares of the Funds, when
redeemed, may be worth more or less than their original cost. An investment in
the Funds involves investment risks, including the possible loss of principal
amount invested. There is no assurance that the Funds will be able to maintain a
stable net asset value of $1.00 per share.
[RECYCLED LOGO]
This report was printed on recycled paper.
8
<PAGE>
Money Market Fund
Portfolio of Investments
October 31, 1999
Par Value Value
--------- ---------
COMMERCIAL PAPER (A) - 52.12%
Finance - 26.89%
$ 70,000,000 ABB Treasury Center USA
5.35%, 11/01/99 (C) ......................... $ 70,000,000
35,000,000 American Express Credit Corp.
5.29%, 11/02/99 ............................. 34,994,857
20,000,000 American Express Credit Corp.
5.29%, 11/08/99 ............................. 19,979,428
50,000,000 American Express Credit Corp.
5.27%, 12/02/99 ............................. 49,773,097
50,000,000 Associates Corp. of North America
5.29%, 11/01/99 ............................. 50,000,000
50,000,000 Associates Corp. of North America
5.30%, 11/17/99 ............................. 49,882,222
50,000,000 Associates Corp. of North America
5.30%, 11/29/99 ............................. 49,793,889
75,900,000 BellSouth Capital Funding Corp.
5.29%, 11/04/99 (C) ......................... 75,866,541
42,000,000 BellSouth Capital Funding Corp.
5.29%, 11/09/99 (C) ......................... 41,950,627
50,000,000 Ford Motor Credit Co.
5.30%, 11/16/99 ............................. 49,889,583
35,000,000 Ford Motor Credit Co.
5.30%, 11/30/99 ............................. 34,850,569
35,000,000 Ford Motor Credit Co.
5.31%, 12/03/99 ............................. 34,834,800
30,000,000 Ford Motor Credit Co.
5.32%, 12/08/99 ............................. 29,835,967
50,000,000 General Electric Capital Corp.
5.30%, 11/18/99 ............................. 49,874,861
25,000,000 General Electric Capital Corp.
5.34%, 12/09/99 ............................. 24,859,083
50,000,000 General Motors Acceptance Corp.
5.28%, 11/03/99 ............................. 49,985,333
50,000,000 General Motors Acceptance Corp.
5.32%, 11/30/99 ............................. 49,785,722
50,000,000 General Motors Acceptance Corp.
5.31%, 12/14/99 ............................. 49,682,875
40,000,000 International Lease Finance Corp.
5.30%, 11/24/99 ............................. 39,864,556
50,000,000 Morgan (J.P.) & Co.
5.35%, 11/15/99 ............................. 49,895,972
50,000,000 Morgan (J.P.) & Co.
5.30%, 11/17/99 ............................. 49,882,222
20,000,000 National Rural Utilities Cooperative
Finance Corp.
5.29%, 11/18/99 ............................. 19,950,039
105,000,000 Novartis Finance Corp.
5.35%, 11/01/99 (C) ......................... 105,000,000
10,000,000 USAA Capital Corp.
5.29%, 11/04/99 ............................. 9,995,592
16,500,000 USAA Capital Corp.
5.28%, 11/09/99 ............................. 16,480,640
--------------
1,106,908,475
--------------
Consumer Staples - 16.58%
62,802,000 Abbott Laboratories
5.30%, 11/16/99 ............................. 62,663,312
32,000,000 Campbell Soup Co.
5.26%, 11/12/99 ............................. 31,948,569
50,000,000 DaimlerChrysler
5.30%, 11/19/99 ............................. 49,867,500
37,000,000 Heinz, (H.J.) Co.
5.30%, 11/08/99 ............................. 36,961,870
50,000,000 Heinz, (H.J.) Co.
5.29%, 11/12/99 ............................. 49,919,181
150,000,000 Koch Industries, Inc.
5.35%, 11/01/99 (C) ......................... 150,000,000
100,000,000 Merck & Co., Inc.
5.27%, 11/02/99 ............................. 99,985,361
88,325,000 Sara Lee Corp.
5.29%, 11/08/99 ............................. 88,234,148
40,000,000 Unilever Capital Corp.
5.27%, 11/23/99 (C) ......................... 39,871,178
32,000,000 Wal-Mart Stores, Inc.
5.29%, 11/09/99 (C) ......................... 31,962,382
41,500,000 Wal-Mart Stores, Inc.
5.30%, 11/23/99 (C) ......................... 41,365,586
--------------
682,779,087
--------------
Technology - 3.63%
50,000,000 Hewlett-Packard Co.
5.28%, 11/09/99 ............................. 49,941,333
50,000,000 International Business Machines Corp.
5.30%, 12/06/99 ............................. 49,742,361
50,000,000 Motorola, Inc.
5.30%, 11/24/99 ............................. 49,830,694
--------------
149,514,388
--------------
Chemicals and Drugs - 3.34%
40,000,000 Pfizer, Inc.
5.28%, 11/04/99 (C) ......................... 39,982,400
50,000,000 Pfizer, Inc.
5.28%, 11/08/99 (C) ......................... 49,948,667
31,000,000 Pfizer, Inc.
5.28%, 11/15/99 (C) ......................... 30,936,347
16,675,000 Pfizer, Inc.
5.28%, 11/17/99 (C) ......................... 16,635,869
--------------
137,503,283
--------------
Utilities - 1.68%
54,000,000 Emerson Electric Co.
5.28%, 11/05/99 ............................. 53,968,320
15,192,000 Emerson Electric Co.
5.30%, 11/23/99 ............................. 15,142,795
--------------
69,111,115
--------------
Total Commercial Paper ...................... 2,145,816,348
(Cost $2,145,816,348) --------------
See Notes to Financial Statements.
9
<PAGE>
Money Market Fund
Portfolio of Investments (continued)
October 31, 1999
Par Value Value
--------- ---------
CORPORATE NOTES AND BONDS - 30.07%
Banking - 19.52%
$ 40,000,000 American Express Centurion Bank
Bank Note
5.37%, 02/14/00 (B) ......................... $ 40,000,000
50,000,000 Bank One, N.A., Bank Note
6.16%, 10/16/00 (B) ......................... 49,981,713
50,000,000 Comerica Bank, Bank Note
5.41%, 11/23/99 (B) ......................... 49,998,812
50,000,000 Comerica Bank, Bank Note
5.42%, 09/01/00 (B) ......................... 49,970,721
70,000,000 Fifth Third Bancorp, Bank Note
5.30%, 11/19/99 ............................. 70,000,000
50,000,000 Fifth Third Bancorp, Bank Note
5.39%, 12/13/99 ............................. 50,000,000
50,000,000 First Union National Bank, Bank Note
5.49%, 11/22/99 (B) ......................... 49,999,590
50,000,000 First Union National Bank, Bank Note
5.50%, 11/29/99 (B) ......................... 50,000,000
50,000,000 Huntington National Bank, Bank Note
5.50%, 12/01/99 (B) ......................... 49,998,794
50,000,000 Huntington National Bank, Bank Note
5.52%, 12/03/99 (B) ......................... 50,000,000
50,000,000 Key Bank N.A., Bank Note
5.48%, 02/29/00 (B) ......................... 49,997,815
37,500,000 Key Bank N.A., Bank Note
5.35%, 06/26/00 (B) ......................... 37,485,581
37,000,000 Key Bank N.A., Bank Note
5.56%, 11/02/00 (B) ......................... 37,066,958
44,000,000 M & I Bank Northeast
6.36%, 10/26/00 ............................. 44,000,000
50,000,000 Mellon Bank, Bank Note
5.33%, 03/10/00 (B) ......................... 49,993,038
50,000,000 NationsBank, N.A., Bank Note
5.37%, 12/15/99 (B) ......................... 49,997,628
25,000,000 Old Kent Bank, Bank Note
5.35%, 03/10/00 (B) ......................... 24,996,497
--------------
803,487,147
--------------
Finance - 5.73%
50,000,000 Deere (John) Capital Corp., MTN
5.50%, 12/10/99 (B) ......................... 49,997,648
50,000,000 IBM Credit Corp., MTN
5.49%, 12/07/99 (B) ......................... 50,000,000
36,000,000 IBM Credit Corp., MTN
5.90%, 08/07/00 ............................. 35,988,739
100,000,000 Texaco Capital, Inc., MTN
5.19%, 05/03/00 (B) ......................... 99,952,743
--------------
235,939,130
--------------
Utilities (B) - 4.21%
75,000,000 AT & T Corp.
6.14%, 07/13/00 (D) ......................... 74,979,041
60,000,000 National Rural Utilities
Cooperative, MTN
5.48%, 06/26/00 ............................. 59,996,433
38,500,000 National Rural Utilities
Cooperative, MTN
5.40%, 08/02/00 ............................. 38,493,946
--------------
173,469,420
--------------
Consumer Staples (B) - 0.61%
25,000,000 Anheuser-Busch Cos., Inc.
5.31%, 06/16/00 (D) ......................... 24,983,124
--------------
Total Corporate Notes and Bonds ............. 1,237,878,821
(Cost $1,237,878,821) --------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 10.02%
Federal Home Loan
Mortgage Corporation (A) - 6.90%
50,000,000 5.20%, 11/09/99 ............................. 49,942,222
40,000,000 5.21%, 11/12/99 ............................. 39,936,322
45,000,000 5.20%, 11/15/99 ............................. 44,909,000
50,000,000 5.21%, 11/16/99 ............................. 49,891,458
50,000,000 5.22%, 11/26/99 ............................. 49,818,750
50,000,000 5.26%, 12/17/99 ............................. 49,663,945
--------------
284,161,697
--------------
Federal National
Mortgage Association (A) - 2.80%
31,257,000 5.25%, 11/03/99 ............................. 31,247,883
84,062,000 5.22%, 11/12/99 ............................. 83,927,921
--------------
115,175,804
--------------
Federal Home Loan Bank - 0.32%
13,000,000 5.92%, 10/13/00 ............................. 12,988,661
--------------
Total U.S. Government and
Agency Obligations .......................... 412,326,162
(Cost $412,326,162) --------------
See Notes to Financial Statements.
10
<PAGE>
Money Market Fund
Portfolio of Investments (continued)
October 31, 1999
Par Value Value
--------- ---------
CERTIFICATES OF DEPOSIT - 7.73%
$ 50,000,000 Bank of Nova Scotia
5.31%, 04/20/00 (B) ......................... $ 50,012,073
50,000,000 Canadian Imperial Bank
5.25%, 05/10/00 ............................. 49,988,419
15,000,000 Key Bank N.A.
5.71%, 07/12/00 ............................. 14,995,501
74,500,000 Royal Bank of Canada, Yankee
5.27%, 03/02/00 ............................. 74,486,827
29,000,000 Toronto Dominion Holdings, Yankee
5.27%, 03/02/00 ............................. 28,995,338
100,000,000 UBS AG, Yankee
5.28%, 03/03/00 ............................. 99,987,035
--------------
Total Certificates of Deposit ............... 318,465,193
(Cost $318,465,193)
--------------
Total Investments - 99.94% .................................... 4,114,486,524
(Cost $4,114,486,524)* --------------
Net Other Assets and Liabilities - 0.06% ...................... 2,536,338
--------------
Net Assets - 100.00% .......................................... $4,117,022,862
==============
- ----------
* Aggregate cost for federal tax purposes.
(A) Discount yield at time of purchase.
(B) Interest is reset at various time intervals. The interest rate shown
reflects the rate in effect at October 31, 1999.
(C) Securities exempt from registration under section 4(2) of the Securities
Act of 1933, as amended. These securities may only be resold in an exempt
transaction to qualified institutional buyers. At October 31,1999, these
securities amounted to $693,519,597 or 16.85% of net assets.
(D) Securities exempt from registration pursuant to Rule 144A under the
Securities Act of 1933, as amended. These securities may only be resold in
an exempt transaction to qualified institutional buyers. At October
31,1999, these securities amounted to $99,962,165 or 2.43% of net assets.
MTN Medium Term Note
See Notes to Financial Statements.
11
<PAGE>
Government Fund
Portfolio of Investments
October 31, 1999
Par Value Value
--------- ---------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 84.14%
Federal National
Mortgage Association - 31.21%
$ 69,532,000 5.25%, 11/09/99 (A) ......................... $ 69,450,959
50,000,000 5.22%, 11/12/99 (A) ......................... 49,920,250
40,000,000 5.24%, 12/10/99 (A) ......................... 39,772,933
29,000,000 5.23%, 12/16/99 (A) ......................... 28,810,412
48,325,000 5.24%, 12/17/99 (A) ......................... 48,001,544
15,000,000 5.56%, 01/20/00 (A) ......................... 14,814,667
18,000,000 5.23%, 07/26/00 (B) ......................... 17,991,762
25,000,000 5.18%, 08/04/00 (B) ......................... 24,988,648
--------------
293,751,175
--------------
Federal Home Loan
Mortgage Corporation - 30.15%
22,508,000 5.20%, 11/03/99 (A) ......................... 22,501,498
50,000,000 5.26%, 11/04/99 (A) ......................... 49,978,083
40,000,000 5.20%, 11/09/99 (A) ......................... 39,953,778
25,000,000 5.21%, 11/10/99 (A) ......................... 24,967,438
70,000,000 5.22%, 11/16/99 (A) ......................... 69,847,833
45,000,000 5.22%, 11/26/99 (A) ......................... 44,836,875
21,762,000 5.17%, 12/01/99 (A) ......................... 21,668,242
10,000,000 5.21%, 05/18/00 (B) ......................... 9,994,609
--------------
283,748,356
--------------
Federal Home Loan Bank - 20.12%
40,000,000 5.17%, 11/10/99 (A) ......................... 39,948,300
10,000,000 5.11%, 11/17/99 (A) ......................... 9,977,289
30,000,000 5.16%, 03/08/00 ............................. 29,990,914
30,500,000 5.20%, 05/26/00 ............................. 30,493,617
15,000,000 5.23%, 07/28/00 (B) ......................... 14,993,361
30,000,000 5.71%, 08/09/00 ............................. 29,985,438
15,000,000 5.92%, 10/04/00 (B) ......................... 14,990,474
19,000,000 5.92%, 10/13/00 ............................. 18,983,427
--------------
189,362,820
--------------
Federal Farm Credit Bank (B) - 2.66%
25,000,000 5.24%, 09/01/00 ............................. 24,993,750
--------------
Total U.S. Government
and Agency Obligations ...................... 791,856,101
(Cost $791,856,101) --------------
REPURCHASE AGREEMENT - 16.52%
155,435,000 Repurchase Agreement with:
J.P. Morgan
5.22%, 11/01/99, dated 10/29/99
Repurchase Price $155,502,614
(Collateralized by U.S. Treasury
Notes and Bonds
4.63% to 8.88%, Due 11/30/00
to 08/15/17
Total Par $143,664,000
Market Value $158,544,568) .................. 155,435,000
--------------
Total Repurchase Agreement .................. 155,435,000
(Cost $155,435,000) --------------
Total Investments - 100.66% ................................... 947,291,101
(Cost $947,291,101)* --------------
Net Other Assets and Liabilities - (0.66)% .................... (6,227,383)
--------------
Net Assets - 100.00% .......................................... $ 941,063,718
==============
- ----------
* Aggregate cost for federal tax purposes.
(A) Discount yield at time of purchase.
(B) Interest is reset at various time intervals. The interest rate shown
reflects the rate in effect at October 31, 1999.
See Notes to Financial Statements.
12
<PAGE>
Tax-Exempt Fund
Portfolio of Investments
October 31, 1999
Par Value Value
--------- ---------
MUNICIPAL SECURITIES - 98.22%
Alabama - 3.24%
$ 6,000,000 Chatom IDB, PCR
National Rural Utilities CFC
3.45%, 11/17/99 ............................. $ 6,000,000
15,000,000 Montgomery County, IDB
3.55%, 11/02/99
Guaranteed: General Electric Co. ............ 15,000,000
1,200,000 North Alabama, PCR
Environmental Improvement Authority
Reynolds Metals
3.65%, 12/01/00 (A)
LOC: Bank of Nova Scotia .................... 1,200,000
1,000,000 Phoenix County IDB
Environmental Improvements
Georgia Kraft Project
3.60%, 12/01/15 (A)
LOC: Deutsche Bank AG ....................... 1,000,000
--------------
23,200,000
--------------
Alaska - 1.23%
3,400,000 Valdez Marine Terminal Revenue
Exxon Pipeline Co. Project, Series B
3.50%, 12/01/33 (A) ......................... 3,400,000
5,400,000 Valdez Marine Terminal Revenue
Exxon Pipeline Co. Project, Series C
3.50%, 12/01/33 (A) ......................... 5,400,000
--------------
8,800,000
--------------
Arizona - 1.96%
14,000,000 Maricopa County, PCR
Arizona Public Service Co.
Series A
3.50%, 05/01/29 (A)
LOC: Morgan Guaranty Trust Co. .............. 14,000,000
--------------
Arkansas - 1.13%
5,900,000 Crossett, PCR
Georgia Pacific Corp. Project
3.45%, 10/01/07 (A)
LOC: Wachovia Bank N.A. ..................... 5,900,000
2,200,000 Pulaski County, PCR
Minnesota Mining & Manufacturing
3.40%, 08/01/22 (A) ......................... 2,200,000
--------------
8,100,000
--------------
California - 0.84%
1,000,000 Los Angeles Regional
Airports Improvement Corp.
American Airlines, Inc., Series A
LA International Airport
3.65%, 12/01/24 (A)
LOC: Wachovia Bank, N.A. .................... 1,000,000
5,000,000 Los Angeles Regional
Airports Improvement Corp.
Lease Revenue
LAX Two Corp
3.65%, 12/01/25 (A)
LOC: Societe Generale ....................... 5,000,000
--------------
6,000,000
--------------
Colorado - 0.96%
3,815,000 Colorado State HFA
Boulder Community Hospital Project
Series B
3.45%, 10/01/14 (A)
Insured: MBIA
SPA: Rabobank Nederland NV .................. 3,815,000
3,070,000 Colorado State HFA
Boulder Community Hospital Project
Series C
3.45%, 10/01/14 (A)
Insured: MBIA
SPA: Rabobank Nederland NV .................. 3,070,000
--------------
6,885,000
--------------
Florida - 1.40%
10,000,000 Putnam County Development
Authority, PCR, Seminole Electric
Cooperative, Series D
3.13%, 12/15/09 (A)
Guaranteed: National Rural
Utilities CFC ............................... 10,000,000
--------------
Georgia - 5.30%
8,495,000 Burke County Development
Authority, PCR, Oglethorpe
Power Corp., Series A
3.50%, 01/01/16 (A)
Insured: FGIC
SPA: Canadian Imperial
Bank of Commerce ............................ 8,495,000
4,955,000 Georgia State, GO
Series A
5.80%, 03/01/00 ............................. 4,997,841
9,000,000 Municipal Electric Authority
Project One, Series B
3.40%, 01/01/16 (A)
LOC: ABN-AMRO Bank N.V. ..................... 9,000,000
See Notes to Financial Statements.
13
<PAGE>
Tax-Exempt Fund
Portfolio of Investments (continued)
October 31, 1999
Par Value Value
--------- ---------
Georgia (continued)
$13,600,000 Municipal Electric Authority
Project One, Series C
3.40%, 01/01/20 (A)
LOC: ABN-AMRO Bank N.V. ..................... $ 13,600,000
1,900,000 Municipal Electric Authority
Project One, Series D
3.40%, 01/01/22 (A)
LOC: ABN-AMRO Bank N.V. ..................... 1,900,000
--------------
37,992,841
--------------
Illinois - 3.76%
4,900,000 Chicago O'Hare International Airport
American Airlines, Series C
3.60%, 12/01/17(A)
LOC: Royal Bank of Canada ................... 4,900,000
5,000,000 Illinois Development Finance
Authority, PCR, Illinois Power Co.
Project, Series A
3.45%, 11/01/28 (A)
LOC: ABN-AMRO Bank N.V. ..................... 5,000,000
9,800,000 Illinois Educational Facility
Authority Revenue
3.60%, 11/17/99
LOC: Northern Trust Co. ..................... 9,800,000
5,100,000 Joliet Regional Port District
Marine Terminal Revenue
Exxon Project
3.50%, 10/01/24 (A) ......................... 5,100,000
2,100,000 Northbrook, IDR
Euromarket Designs, Inc.
3.50%, 07/01/02 (A)
LOC: Harris Trust & Savings Bank ............ 2,100,000
--------------
26,900,000
--------------
Indiana - 7.02%
5,205,000 Fort Wayne Hospital Authority
Parkview Memorial Hospital
Series B
3.45%, 01/01/16 (A)
LOC: Bank of America NT & SA ................ 5,205,000
3,840,000 Fort Wayne Hospital Authority
Parkview Memorial Hospital
Series C
3.45%, 01/01/16 (A)
LOC: Bank of America NT & SA ................ 3,840,000
5,000,000 Indiana State Development Finance
Authority, Environmental Revenue
USX Corp. Project
3.45%, 12/01/22 (A)
LOC: Bank of Nova Scotia .................... 5,000,000
16,000,000 Mount Vernon County
3.55%, 11/02/99
Guaranteed: General Electric Co. ............ 16,000,000
8,700,000 Princeton Industrial, PCR
PSI Energy, Inc. Project
3.50%, 03/01/19 (A)
LOC: Canadian Imperial
Bank of Commerce ............................ 8,700,000
11,500,000 Sullivan Industrial Pollution Control
3.55%, 11/04/99
Guaranteed: National Rural Utility CFC ...... 11,500,000
--------------
50,245,000
--------------
Kentucky - 3.33%
8,800,000 Ashland, PCR
Ashland Oil, Inc. Project
3.35%, 04/01/09 (A)
LOC: Suntrust Bank .......................... 8,800,000
15,000,000 Kentucky Asset Liability Commission
General Fund Revenue, TRAN
Series A
4.25%, 06/28/00 ............................. 15,083,207
--------------
23,883,207
--------------
Louisiana - 8.28%
9,800,000 Ascension Parish, PCR
Shell Oil Co.
3.35%, 05/01/26 (A) ......................... 9,800,000
1,800,000 Lake Charles Harbor &
Terminal District
Port Facilities Revenue
Citgo Petroleum Corp.
3.50%, 08/01/07 (A)
LOC: Westdeutsche Landesbank ................ 1,800,000
1,100,000 Lake Charles Harbor &
Terminal District
Revenue Updates
Reynolds Metals Co. Project
3.50%, 05/01/06 (A)
LOC: Canadian Imperial
Bank of Commerce ............................ 1,100,000
11,700,000 Louisiana State Offshore Terminal
Authority, Deepwater Port Revenue
Loop, Inc., 1st Stage
3.55%, 09/01/06
LOC: UBS AG ................................. 11,700,000
11,100,000 Louisiana State Offshore Terminal
Authority, Deepwater Port Revenue
Loop, Inc., 1st Stage A
3.50%, 09/01/08 (A)
LOC: UBS AG ................................. 11,100,000
1,000,000 Louisiana Public Facilities Authority
PCR, Ciba-Geigy Corp. Project
3.45%, 12/01/04 (A)
LOC: UBS AG ................................. 1,000,000
8,800,000 St. Charles Parish, PCR
Shell Oil Co. Project
3.35%, 06/01/05 (A) ......................... 8,800,000
See Notes to Financial Statements.
14
<PAGE>
Tax-Exempt Fund
Portfolio of Investments (continued)
October 31, 1999
Par Value Value
--------- ---------
Louisiana (continued)
$14,000,000 St. James Parish, PCR
3.50%, 01/19/00
Guaranteed: Texaco, Inc. .................... $ 14,000,000
--------------
59,300,000
--------------
Massachusetts - 1.79%
6,000,000 Brookline, BAN, GO
3.25%, 12/16/99 ............................. 6,002,515
3,000,000 Massachusetts State Housing Finance
Agency, Multi-Family, Series A
3.35%, 12/01/25 (A)
LOC: GNMA
SPA: Republic National
Bank of New York ............................ 3,000,000
3,850,000 Stoneham, BAN, GO
3.25%, 11/16/99 ............................. 3,850,538
--------------
12,853,053
--------------
Michigan - 1.33%
9,535,000 Michigan State University
Revenue, Series A-2
3.45%, 08/15/22 (A) ......................... 9,535,000
--------------
Mississippi - 2.88%
1,100,000 Harrison County PCR
duPont (E.I) deNemours & Co.
3.50%, 09/01/10 (A) ......................... 1,100,000
2,000,000 Jackson County
Water System
3.35%, 11/01/24 (A)
Guaranteed: Chevron Corp. ................... 2,000,000
1,600,000 Jackson County, PCR
Chevron USA, Inc. Project
3.50%, 12/01/16 (A) ......................... 1,600,000
2,240,000 Mississippi State, GO
Capital Improvements, Series B
4.50%, 11/01/99 ............................. 2,240,000
13,595,000 Mississippi State Highway Revenue
Four Lane Highway Project, Series 39
4.50%, 06/01/00 ............................. 13,679,552
--------------
20,619,552
--------------
Missouri - 0.85%
6,100,000 Missouri State Environmental
Improvement and Energy Resources
Authority, Union Electric Co.
Project, PCR
3.30%, 02/18/00
LOC: UBS AG ................................. 6,100,000
--------------
Nevada - 1.08%
7,700,000 Reno Hospital Revenue
St Mary's Regional Medical Center
Series B
3.65%, 05/15/23 (A)
Insured: MBIA
SPA: Rabobank Nederland NV .................. 7,700,000
--------------
New Mexico - 2.86%
3,900,000 Farmington, PCR
El Paso Electric Co.
Series A
3.55%, 11/01/13 (A)
LOC: Barclays Bank Plc ...................... 3,900,000
16,500,000 New Mexico State, TRAN
4.00%, 06/30/00 ............................. 16,581,282
--------------
20,481,282
--------------
New York - 1.58%
6,300,000 Long Island Power Authority
Electric Systems Revenue
Series 6
3.65%, 05/01/33 (A)
LOC: ABN-AMRO Bank NV/
Morgan Guaranty Trust ....................... 6,300,000
5,000,000 New York City Municipal Water
Finance Authority, Water & Sewer
System Revenue, Series G
3.50%, 06/15/24 (A)
LOC: FGIC
SPA: FGIC-SPI ............................... 5,000,000
--------------
11,300,000
--------------
North Carolina - 2.16%
9,500,000 North Carolina Educational
Facilities Finance Agency
Bowman Gray School Project
3.50%, 09/01/26 (A)
LOC: Wachovia Bank, N.A. .................... 9,500,000
6,000,000 Wake County Industrial Facilities &
Pollution Control Financing Authority
Carolina Power & Light
Co. Project, Series A
3.60%, 06/15/14 (A)
LOC: First National Bank of Chicago ......... 6,000,000
--------------
15,500,000
--------------
Ohio - 0.50%
1,700,000 Evendale, IDR
SHV Real Estate, Inc.
3.35%, 09/01/15 (A)
LOC: ABN-AMRO Bank NV ....................... 1,700,000
See Notes to Financial Statements.
15
<PAGE>
Tax-Exempt Fund
Portfolio of Investments (continued)
October 31, 1999
Par Value Value
--------- ---------
Ohio (continued)
$ 1,900,000 Ohio State Air Quality
Development Authority Revenue
Cincinnati Gas & Electric, Series A
3.50%, 09/01/30 (A)
LOC: ABN-AMRO Bank NV ....................... $ 1,900,000
--------------
3,600,000
--------------
Oregon - 0.92%
6,600,000 Port Portland, PCR
Reynolds Metals Co.
3.65%, 12/01/09 (A)
LOC: Bank of Nova Scotia .................... 6,600,000
--------------
Pennsylvania - 8.10%
2,000,000 Beaver County IDA, PCR
Duquesne-Beaver Valley, Series A
3.40%, 08/01/20 (A)
LOC: Barclays Bank Plc ...................... 2,000,000
6,900,000 Beaver County IDA, PCR
Duquesne-Mansfield, Series B
3.40%, 08/01/09 (A)
LOC: Barclays Bank Plc ...................... 6,900,000
3,500,000 Chester County IDA, IDR
General Motors Corp. Project
3.50%, 08/01/01 (A) ......................... 3,500,000
3,005,000 Delaware County IDA
Resource Recovery Facility, Series G
3.40%, 12/01/31 (A)
Guaranteed: General Electric
Capital Corp. ............................... 3,005,000
2,140,000 Delaware County IDA
Resource Recovery Facility
Series G
3.40%, 12/01/31 (A)
Guaranteed: General Electric
Capital Corp. ............................... 2,140,000
6,300,000 Delaware County Industrial, PCR
Philadelphia Electric
3.35%, 11/09/99
Insured: FGIC ............................... 6,300,000
6,000,000 Delaware Valley Regional
Finance Authority, Local
Government Revenue
3.50%, 08/01/16 (A)
LOC: Credit Suisse First Boston ............. 6,000,000
3,100,000 Delaware Valley Regional
Finance Authority, Local
Government Revenue, Series A
3.50%, 12/01/19 (A)
LOC: Credit Suisse First Boston ............. 3,100,000
5,000,000 Delaware Valley Regional
Finance Authority, Local
Government Revenue, Series B
3.50%, 12/01/20 (A)
LOC: Credit Suisse First Boston ............. 5,000,000
8,100,000 Delaware Valley Regional
Finance Authority, Local
Government Revenue, Series C
3.50%, 12/01/20 (A)
LOC: Credit Suisse First Boston ............. 8,100,000
12,000,000 Quakertown General Authority Revenue
Pooled Financing Program, Series A
3.60%, 06/01/28 (A)
LOC: PNC Bank, N.A. ......................... 12,000,000
--------------
58,045,000
--------------
South Carolina - 3.25%
13,260,000 South Carolina Jobs
Economic Development Authority
St. Francis Hospital
3.65%, 07/01/22 (A)
LOC: Chase Manhattan Bank ................... 13,260,000
10,000,000 Spartanburg County
Health Services District, Inc.
Hospital Revenue
3.45%, 04/15/23 (A)
LOC: MBIA
SPA: NationsBank N.A. ....................... 10,000,000
--------------
23,260,000
--------------
Tennessee - 2.15%
8,400,000 Metropolitan Nashville Airport
Authority Special Facilities Revenue
American Airlines Project, Series A
3.65%, 10/01/12 (A)
LOC: Credit Suisse First Boston ............. 8,400,000
1,200,000 Sullivan County IDB, PCR
Mead Corp. Project
3.60%, 10/01/16 (A)
LOC: UBS AG ................................. 1,200,000
2,300,000 Tennessee State, BAN, GO, Series C
3.50%, 07/02/01 (A)
SPA: Tennessee Conservative
Retirement System ........................... 2,300,000
3,450,000 Tennessee State, GO
Series A
5.00%, 05/01/00 ............................. 3,483,137
--------------
15,383,137
--------------
Texas - 18.97%
2,750,000 Dallas, GO
7.50%, 02/15/00 ............................. 2,785,941
2,300,000 Grapevine IDC
American Airlines, Series A2
3.65%, 12/01/24 (A)
LOC: Morgan Guaranty Trust .................. 2,300,000
See Notes to Financial Statements.
16
<PAGE>
Tax-Exempt Fund
Portfolio of Investments (continued)
October 31, 1999
Par Value Value
--------- ---------
Texas (continued)
$ 5,690,000 Guadalupe-Blanco River Authority
PCR, Central Power & Light Co. Project
3.50%, 11/01/15 (A)
LOC: ABN-AMRO Bank NV ....................... $ 5,690,000
11,700,000 Gulf Coast Waste Disposal Authority
PCR, Amoco Oil Co. Project
3.50%, 10/01/17 (A) ......................... 11,700,000
12,500,000 Gulf Coast Waste Disposal
Authority, PCR
Exxon Project
3.40%, 10/01/24 (A) ......................... 12,500,000
13,000,000 Harris County IDC
Baytank Houston, Inc. Project
3.40%, 02/01/20 (A)
LOC: Rabobank Nederland ..................... 13,000,000
10,000,000 Hockley County IDC, PCR
Amoco Project, Standard Oil Co.
3.60%, 03/01/14 (A) ......................... 10,001,042
10,000,000 Houston Higher Education Finance Corp.
Rice University, Series A
3.75%, 05/10/00 ............................. 10,000,000
15,000,000 Houston, TRAN
4.25%, 06/30/00 ............................. 15,086,424
3,700,000 Lone Star Airport
Improvement Authority
American Airlines, Inc., Series A-3
3.65%, 12/01/14 (A)
LOC: Royal Bank of Canada ................... 3,700,000
2,770,000 Lone Star Airport
Improvement Authority
American Airlines, Inc., Series A-4
3.65%, 12/01/14 (A)
LOC: Royal Bank of Canada ................... 2,770,000
1,300,000 Lone Star Airport
Improvement Authority
American Airlines, Inc., Series A-5
3.65%, 12/01/14 (A)
LOC: Royal Bank of Canada ................... 1,300,000
1,800,000 Lone Star Airport
American Airlines, Inc., Series B-3
3.65%, 12/01/14 (A)
LOC: Royal Bank of Canada ................... 1,800,000
13,250,000 Lower Neches Valley Authority
Chevron USA, Inc. Project
3.45%, 02/15/17 (A) ......................... 13,250,000
5,110,000 North Central HFDC
Presbyterian Medical Center
Series D
3.65%, 12/01/15 (A)
LOC: MBIA
SPA: NationsBank of Texas ................... 5,110,000
14,300,000 Sabine River Authority, PCR
Texas Utilities Project, Series A
3.50%, 03/01/26 (A)
Insured: AMBAC
SPA: Bank of New York ....................... 14,300,000
10,500,000 Texas, TRAN
Series A
4.50%, 08/31/00 ............................. 10,567,426
--------------
135,860,833
--------------
Utah - 2.72%
10,000,000 Utah State, GO
Series B
3.35%, 07/01/16 (A)
SPA: Toronto Dominion Bank .................. 10,000,000
9,500,000 Utah State, GO
Series C
3.40%, 07/01/16 (A)
SPA: Toronto Dominion Bank .................. 9,500,000
--------------
19,500,000
--------------
Virginia - 0.75%
5,400,000 Peninsula Ports Authority
Coal Term Revenue
Dominion Terminal Project
Series C
3.65%, 07/01/16 (A)
LOC: Barclays Bank Plc ...................... 5,400,000
--------------
Washington - 2.34%
6,750,000 Seattle Municipal Light and Power
Revenue
3.50%, 11/16/99
SPA: Morgan Guaranty Trust .................. 6,750,000
1,000,000 Snohomish County Public Utility
District No. 1, Electric Revenue
Generation System
3.45%, 01/01/25 (A)
Insured: MBIA
SPA: Bayerische Vereinsbank ................. 1,000,000
5,025,000 Washington State
Public Power Supply System
Nuclear Project No. 1 Revenue
Series 1A-1
3.400%, 07/01/17 (A)
LOC: Bank of America NT & SA ................ 5,025,000
3,950,000 Washington State
Public Power Supply System
Nuclear Project No. 1
Series 1A-3
3.35%, 07/01/17 (A)
LOC: Morgan Guaranty Trust .................. 3,950,000
--------------
16,725,000
--------------
See Notes to Financial Statements.
17
<PAGE>
Tax-Exempt Fund
Portfolio of Investments (continued)
October 31, 1999
Par Value Value
--------- ---------
Wisconsin - 1.03%
$ 7,355,000 Wisconsin State, GO
Series A
4.25%, 05/01/00 ............................. $ 7,403,826
--------------
Wyoming - 4.51%
10,000,000 Kemmerer, PCR
Exxon Project
3.50%, 11/01/14 (A) ......................... 10,000,000
1,000,000 Platte County, PCR
Tri-State G & T, Series A
3.75%, 07/01/14 (A)
LOC: National Rural Utility CFC ............. 1,000,000
12,100,000 Sweetwater County, PCR
Pacific Corp Project
3.65%, 02/11/00
LOC: UBS AG ................................. 12,100,000
2,400,000 Sweetwater County, PCR
Pacific Corp Project
3.75%, 02/11/00
LOC: UBS AG ................................. 2,400,000
5,800,000 Uinta County, PCR
Amoco, Inc.
3.50%, 07/01/26 (A) ......................... 5,800,000
1,000,000 Uinta County, PCR
Chevron USA, Inc.
3.50%, 04/01/10 (A) ......................... 1,000,000
--------------
32,300,000
--------------
Total Municipal Securities .................. 703,472,731
(Cost $703,472,731) --------------
INVESTMENT COMPANIES - 0.49%
Shares Value
--------- ---------
205,069 Dreyfus Tax Exempt Cash
Management Fund ............................. 205,069
3,289,768 Federated Investors Tax-Free
Obligations Fund ............................ 3,289,768
--------------
Total Investment Companies .................. 3,494,837
(Cost $3,494,837) --------------
Total Investments - 98.71% .................................... 706,967,568
(Cost $706,967,568)* --------------
Net Other Assets and Liabilities - 1.29% ...................... 9,227,149
--------------
Net Assets - 100.00% .......................................... $ 716,194,717
==============
- ----------
* Aggregate cost for federal tax purposes.
(A) Variable rate demand notes are payable upon not more than one, seven or
thirty business days notice. Put bonds and notes have demand features
which mature within one year. The interest rate shown reflects the rate
in effect at October 31, 1999.
AMBAC American Municipal Bond Assurance Corp.
BAN Bond Anticipation Notes
CFC Cooperative Finance Corp.
FGIC Federal Guaranty Insurance Corp.
GNMA Government National Mortgage Association
GO General Obligation
HFA Health Facilities Authority
HFDC Health Facilities Development Corp.
IDA Industrial Development Authority
IDB Industrial Development Board
IDC Industrial Development Corp.
IDR Industrial Development Revenue
LOC Letter of Credit
MBIA Municipal Bond Insurance Association
PCR Polution Control Revenue
SPA Stand-by Purchase Agreement
TRAN Tax and Revenue Anticipation Notes
See Notes to Financial Statements.
18
<PAGE>
U.S. Treasury Fund
Portfolio of Investments
October 31, 1999
Par Value Value
--------- ---------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 98.92%
U.S. Treasury Bills (A) - 42.93%
$ 30,000,000 4.72%, 11/04/99 ............................. $ 29,988,212
85,000,000 4.59%, 11/12/99 ............................. 84,880,741
60,000,000 4.63%, 11/18/99 ............................. 59,868,958
65,000,000 4.80%, 12/02/99 ............................. 64,731,226
110,000,000 4.57%, 12/09/99 ............................. 109,463,302
40,000,000 4.56%, 12/16/99 ............................. 39,772,000
45,000,000 4.68%, 12/23/99 ............................. 44,696,125
15,000,000 4.80%, 01/27/00 ............................. 14,820,200
--------------
448,220,764
--------------
Federal Home Loan Bank - 28.19%
135,477,000 5.16%, 11/01/99 (A) ......................... 135,477,000
20,000,000 5.17%, 11/10/99 (A) ......................... 19,974,150
45,000,000 5.16%, 03/08/00 ............................. 44,986,371
35,000,000 5.23%, 07/28/00 (B) ......................... 34,984,508
25,000,000 5.71%, 08/09/00 ............................. 24,987,865
25,000,000 5.92%, 10/04/00 (B) ......................... 24,984,123
9,000,000 5.92%, 10/13/00 ............................. 8,992,150
--------------
294,386,167
--------------
U.S. Treasury Notes - 24.93%
80,000,000 5.88%, 11/15/99 ............................. 80,030,650
100,000,000 5.63%, 11/30/99 ............................. 100,057,723
40,000,000 7.75%, 11/30/99 ............................. 40,089,872
20,000,000 5.63%, 12/31/99 ............................. 20,014,960
20,000,000 7.75%, 12/31/99 ............................. 20,087,963
--------------
260,281,168
--------------
Federal Farm Credit Bank (B) - 2.87%
30,000,000 5.24%, 09/01/00 ............................. 29,992,500
--------------
Total Investments - 98.92% .................................... 1,032,880,599
(Cost $1,032,880,599)* --------------
Net Other Assets and Liabilities - 1.08% ...................... 11,274,822
--------------
Net Assets - 100.00% .......................................... $1,044,155,421
==============
- ----------
* Aggregate cost for federal tax purposes.
(A) Discount yield at time of purchase.
(B) Interest is reset at various time intervals. The interest rate shown
reflects the rate in effect at October 31, 1999.
See Notes to Financial Statements.
19
<PAGE>
Connecticut Municipal Money Market Fund
Portfolio of Investments
October 31, 1999
Par Value Value
--------- ---------
MUNICIPAL SECURITIES - 99.81%
Alaska - 2.59%
$ 2,800,000 Valdez Marine Terminal Revenue
Exxon Pipeline Co. Project, Series B
3.50%, 12/01/33 (A) ......................... $ 2,800,000
3,500,000 Valdez Marine Terminal Revenue
Exxon Pipeline Co. Project, Series C
3.50%, 12/01/33 (A) ......................... 3,500,000
--------------
6,300,000
--------------
Arizona - 1.98%
3,100,000 Farmington, NM, PCR
Arizona Public Services Co.
Series A
3.55%, 05/01/24 (A)
LOC: Bank of America, NT & SA ............... 3,100,000
1,720,000 Farmington, NM, PCR
Arizona Public Services Co.
Series B
3.55%, 09/01/24 (A)
LOC: Barclays Bank Plc ...................... 1,720,000
--------------
4,820,000
--------------
California - 1.23%
1,000,000 Los Angeles Regional Airports
Improvement Corp.
Lease Revenue
LA International Airport, Series A
3.65%, 12/01/24 (A)
LOC: Wachovia Bank, N.A. .................... 1,000,000
2,000,000 Los Angeles Regional Airports
Improvement Corp.
Lease Revenue, Lax Two Corp.
3.65%, 12/01/25 (A)
LOC: Societe Generale ....................... 2,000,000
--------------
3,000,000
--------------
Connecticut - 62.09%
6,100,000 Connecticut State
Series B, GO
3.35%, 05/15/14 (A)
SPA: Bayerische Landesbank GZ ............... 6,100,000
2,600,000 Connecticut State
Development Authority, PCR
Central Vermont Public Service
3.30%, 12/01/15 (A)
LOC: Toronto Dominion Bank .................. 2,600,000
1,300,000 Connecticut State
Development Authority
Conco Project
3.25%, 11/01/05 (A)
LOC: Bayerische Vereinsbank AG .............. 1,300,000
11,140,000 Connecticut State
Development Authority
Health Care Corp.
for Independent Living
3.30%, 07/01/15 (A)
LOC: Chase Manhattan Bank, NA ............... 11,140,000
7,000,000 Connecticut State HEFA
Stamford Hospital Issue, Series H
3.20%, 07/01/24 (A)
Insured: MBIA
SPA: Chase Manhattan Bank, NA ............... 7,000,000
7,500,000 Connecticut State HEFA
Yale University
3.40%, 12/09/99 (A) ......................... 7,500,000
5,000,000 Connecticut State HEFA
Yale University, Series T-1
3.40%, 07/01/29 (A) ......................... 5,000,000
2,000,000 Connecticut State HEFA
Yale University, Series T-2
3.40%, 07/01/29 (A) ......................... 2,000,000
2,500,000 Connecticut State
Housing Finance Authority
Subject to AMT
3.45%, 12/08/99 (A)
SPA: Morgan Trust Guaranty .................. 2,500,000
4,700,000 Connecticut State
Housing Finance Authority
Housing Mortgage Finance Program
Series D-3
3.20%, 11/15/28 (A)
Insured: AMBAC
SPA: Landesbank Hessen-Thrgn ................ 4,700,000
8,100,000 Connecticut State
Housing Finance Authority
Housing Mortgage Finance Program
Series G
3.35%, 05/15/18 (A)
Insured: AMBAC
SPA: Morgan Guaranty Trust .................. 8,100,000
3,600,000 Connecticut State, IDA
Allen Group, Inc.
3.75%, 02/01/13 (A)
LOC: Bayerische Vereinsbank AG .............. 3,600,000
4,500,000 Connecticut State Special Assessment
Second Injury fund
Municipal Commercial Paper
3.20%, 11/09/99
LOC: Credit Communal de Belgique ............ 4,500,000
4,000,000 Connecticut State Special Assessment
Second Injury fund
Municipal Commercial Paper
3.50, 11/17/99
LOC: Credit Communal de Belgique ............ 4,000,000
3,500,000 Connecticut State Special Assessment
Second Injury fund
Municipal Commercial Paper
3.35%, 11/18/99
LOC: Credit Communal de Belgique ............ 3,500,000
See Notes to Financial Statements.
20
<PAGE>
Connecticut Municipal Money Market Fund
Portfolio of Investments (continued)
October 31, 1999
Par Value Value
--------- ---------
Connecticut (continued)
$ 7,000,000 Connecticut State Special Assessment
Unemployment Compensation
Advisory Fund, Series C
3.38%, 11/15/01 (A)
Insured: FGIC
SPA: FGIC - SPI ............................. $ 7,000,000
14,000,000 Connecticut State Special Tax
Obligation Revenue, Second Lien
Transportation Infrastructure
Series 1
3.40%, 12/01/10 (A)
LOC: Commerzbank AG ......................... 14,000,000
1,375,000 Danbury, GO
5.00%, 02/01/00 ............................. 1,381,218
1,525,000 Danbury, BAN, GO
3.75%, 02/08/00 ............................. 1,526,609
1,290,000 Darien, GO
4.00%, 08/01/00 ............................. 1,295,664
4,500,000 East Lyme, BAN, GO
3.10%, 01/20/00 ............................. 4,502,196
1,000,000 Hartford Redevelopment Agency
Multi-Family Mortgage Revenue
Underwood Tower Project
3.40%, 06/01/20 (A)
Insured: FSA
SPA: Societe Generale ....................... 1,000,000
6,755,000 Milford, BAN, GO
3.50%, 11/10/99 ............................. 6,755,244
2,600,000 Milford, BAN, GO
4.00%, 11/09/00 ............................. 2,608,736
7,000,000 Norwich, BAN, GO
3.00%, 11/04/99 ............................. 7,000,112
2,000,000 Regional School District No. 14
Woodbury & Bethlehem, BAN
3.75%, 05/25/00 ............................. 2,007,115
7,550,000 Ridgefield, BAN, GO
3.50%, 7/12/00 .............................. 7,560,140
8,000,000 Trumbull, BAN, GO
3.75%, 01/20/00 ............................. 8,010,271
3,792,000 Trumbull, BAN, GO
3.75%, 01/20/00 ............................. 3,793,463
2,130,000 Westport, BAN, GO
3.50%, 07/26/00 ............................. 2,133,018
6,795,000 Wilton, BAN, GO
3.50%, 07/19/00 ............................. 6,804,378
--------------
150,918,164
--------------
Illinois - 2.47%
1,600,000 Chicago O'Hare International Airport
American Airlines, Series C
3.60%, 12/01/17 (A)
LOC: Royal Bank of Canada ................... 1,600,000
4,400,000 Joliet Regional Port District
Marine Terminal Revenue
Exxon Project
3.50%, 10/01/24 (A) ......................... 4,400,000
--------------
6,000,000
--------------
Indiana - 0.45%
1,100,000 Princeton Industrial, PCR
PSI Energy, Inc. Project
3.50%, 03/01/19 (A)
LOC: Canadian Imperial
Bank of Commerce ............................ 1,100,000
--------------
Massachusetts - 0.41%
1,000,000 Massachusetts State HEFA
Capital Asset Program, Series E
3.50%, 01/01/35 (A)
LOC: First National Bank
of Chicago .................................. 1,000,000
--------------
Mississippi - 3.81%
9,250,000 Perry County, PCR
Leaf River Forest Project
3.55%, 03/01/02 (A)
LOC: Wachovia Bank N.A. ..................... 9,250,000
--------------
Nevada - 0.70%
1,700,000 Reno Hospital Revenue
St. Mary's Regional Medical Center
Series B
3.65%, 05/15/23 (A)
Insured: MBIA
SPA: Rabobank Nederland NV .................. 1,700,000
--------------
New York - 1.03%
2,500,000 Long Island Power Authority
Electric Systems Revenue
Series 6
3.65%, 05/01/33 (A)
LOC: ABN-AMRO Bank NV/
Morgan Guaranty Trust ....................... 2,500,000
--------------
North Carolina - 4.03%
9,800,000 Wake County Industrial Facilities &
Pollution Control Financing Authority
Revenue
Carolina Power & Light Co. Project
Series A
3.60%, 06/15/14 (A)
LOC: First National Bank of Chicago ......... 9,800,000
--------------
Ohio - 0.58%
1,400,000 Ohio State
Air Quality Development Authority Revenue
Cincinnati Gas & Electric, Series A
3.50%, 09/01/30 (A)
LOC: ABN-AMRO Bank NV ....................... 1,400,000
--------------
See Notes to Financial Statements.
21
<PAGE>
Connecticut Municipal Money Market Fund
Portfolio of Investments (continued)
October 31, 1999
Par Value Value
--------- ---------
Pennsylvania - 1.69%
$ 4,100,000 Delaware Valley, Regional Finance
Authority, Local Government Revenue
3.50%, 08/01/16 (A)
LOC: Credit Suisse First Boston ............. $ 4,100,000
--------------
Puerto Rico - 7.00%
11,000,000 Puerto Rico Commonwealth
Government Development Bank
3.25%, 12/01/15 (A)
Insured: MBIA
SPA: Credit Suisse First Boston ............. 11,000,000
6,000,000 Puerto Rico Commonwealth
Highway & Transportation Authority
Series A
3.10%, 07/01/28 (A)
Insured: AMBAC
SPA: Bank of Nova Scotia .................... 6,000,000
--------------
17,000,000
--------------
Tennessee - 1.32%
3,200,000 Metropolitan Nashville Airport Authority
Special Facilities Revenue
American Airlines Project, Series B
3.65%, 10/01/12 (A)
LOC: Bayerische Landesbank GZ ............... 3,200,000
--------------
Texas - 4.44%
1,300,000 Grapevine Industrial Development Corp.
American Airlines
Series A-4
3.65%, 12/01/24 (A)
LOC: Morgan Guaranty Trust .................. 1,300,000
8,500,000 Gulf Coast Waste Disposal Authority
PCR, Amoco Oil Co. Project
3.50%, 10/01/17 (A) ......................... 8,500,000
1,000,000 Lone Star Airport Improvement
Authority, American Airlines
Series B-4
3.65%, 12/01/14 (A)
LOC: Royal Bank of Canada ................... 1,000,000
--------------
10,800,000
--------------
Virginia - 1.32%
3,200,000 Peninsula Ports Authority, CTR
Dominion Term Project, Series C
3.65%, 07/01/16 (A)
LOC: Barclays Bank Plc ...................... 3,200,000
--------------
Wyoming - 2.67%
2,600,000 Kemmerer, PCR
Exxon Project
3.50%, 11/01/14 (A) ......................... 2,600,000
3,900,000 Uinta County, PCR
Amoco Project
3.50%, 07/01/26 (A) ......................... 3,900,000
--------------
6,500,000
--------------
Total Municipal Securities .................. 242,588,164
(Cost $242,588,164) --------------
Shares
----------
INVESTMENT COMPANY - 0.16%
398,977 Federated Municipal Trust
Connecticut Municipal Cash Trust ............ 398,977
--------------
Total Investment Company .................... 398,977
(Cost $398,977) --------------
Total Investments - 99.97% .................................... 242,987,141
(Cost $242,987,141)* --------------
Net Other Assets and Liabilities - 0.03% ...................... 63,873
--------------
Net Assets - 100.00% .......................................... $ 243,051,014
==============
* Aggregate cost for federal tax purposes.
(A) Variable rate demand notes are payable upon not more than one, seven or
thirty business days notice. Put bonds and notes have demand features
which mature within one year. The interest rate shown reflects the rate
in effect at October 31, 1999.
AMBAC American Municipal Bond Assurance Corp.
AMT Alternative Minimum Tax. Private activity obligations whose interest is
subject to the federal AMT for individuals.
BAN Bond Anticipation Notes
CTR Coal Term Revenue
FGIC Federal Guaranty Insurance Corp.
FSA Financial Security Assurance Co.
GO General Obligation
HEFA Health and Educational Facilities Authority
IDA Industrial Development Authority
LOC Letter of Credit
MBIA Municipal Bond Insurance Association
PCR Polution Control Revenue
SPA Stand-by Purchase Agreement
See Notes to Financial Statements.
22
<PAGE>
Massachusetts Municipal Money Market Fund
Portfolio of Investments
October 31, 1999
Par Value Value
--------- ---------
MUNICIPAL SECURITIES - 100.76%
Alaska - 1.04%
$ 2,500,000 Valdez Alaska Marine Terminal
Exxon Pipeline Co. Project, Series C
3.50%, 12/01/33 (A) ......................... $ 2,500,000
--------------
Arizona - 0.83%
2,000,000 Farmington, NM, PCR
Arizona Public Services Co.
Series B
3.55%, 09/01/24 (A)
LOC: Barclays Bank Plc ...................... 2,000,000
--------------
California - 1.57%
1,800,000 Los Angeles Regional Airports
Improvement Corp., Lease Revenue
American Airlines, Inc., Series D
LA International Airport
3.65%, 12/01/24 (A)
LOC: Wachovia Bank, N.A. .................... 1,800,000
2,000,000 Los Angeles Regional Airports
Improvement Corp., Lease Revenue
Lax Two Corp.
3.65%, 12/01/25 (A)
LOC: Societe Generale ....................... 2,000,000
--------------
3,800,000
--------------
Colorado - 0.41%
1,000,000 Moffat County, PCR
PacifiCorp, Inc. Project
3.50%, 05/01/13 (A)
Insured: AMBAC
SPA: Bank of New York ....................... 1,000,000
--------------
Massachusetts - 79.98%
1,350,000 Belmont, BAN, GO
3.75%, 09/06/00 ............................. 1,351,649
7,400,000 Boston Water and Sewer Commission
General Purpose, Senior Series A
3.20%, 11/01/24 (A)
LOC: State Street ........................... 7,400,000
5,000,000 Brookline, BAN, GO
3.25%, 12/16/99 ............................. 5,002,096
4,000,000 Brookline, BAN, GO
3.50%, 06/01/00 ............................. 4,007,886
5,167,000 Canton, BAN, GO
3.25%, 11/12/99 ............................. 5,167,522
7,442,916 Canton, BAN, GO, Lot A
3.25%, 12/17/99 ............................. 7,444,021
2,750,000 Easton, BAN, GO
3.75%, 08/11/00 ............................. 2,754,108
1,043,000 Framingham, GO
5.25%, 02/01/00 ............................. 1,048,781
6,000,000 Hingham, BAN, GO
3.75%,09/28/00 .............................. 6,002,572
2,500,000 Massachusetts Municipal
Wholesale Electric Co.
Power Supply System, Series C
3.38%, 07/01/19 (A)
Insured: MBIA
LOC: Credit Suisse First Boston ............. 2,500,000
2,000,000 Massachusetts State, GO
Series A
4.60%, 11/01/99 ............................. 2,000,000
10,000,000 Massachusetts State, GO
Series B
3.40%, 09/01/16 (A)
SPA: Toronto Dominion Bank .................. 10,000,000
8,120,000 Massachusetts State HEFA
Amherst College, Series F
3.15%, 11/01/26 (A) ......................... 8,120,000
4,000,000 Massachusetts State HEFA
Capital Asset Program, Series A
3.35%, 01/01/01 (A)
LOC: First National
Bank of Chicago ............................. 4,000,000
3,200,000 Massachusetts State HEFA
Capital Asset Program, Series E
3.50%, 01/01/35 (A)
LOC: First National
Bank of Chicago ............................. 3,200,000
4,100,000 Massachusetts State HEFA
Capital Asset Program, Series G-1
3.25%, 01/01/19 (A)
Insured: MBIA
SPA: Credit Suisse First Boston ............. 4,100,000
2,420,000 Massachusetts State HEFA
Harvard University
3.34%, 08/01/17 (A) ......................... 2,420,000
5,300,000 Massachusetts State HEFA
Harvard University, Series Q
3.34%, 02/01/16 (A) ......................... 5,300,000
1,000,000 Massachusetts State HEFA
Harvard University, Series Q
3.34%, 09/01/40 (A) ......................... 1,000,000
8,800,000 Massachusetts State HEFA
Newton Wellesley Hospital, Series F
3.15%, 07/01/25 (A)
Insured: MBIA
SPA: Credit Suisse First Boston ............. 8,800,000
2,000,000 Massachusetts State HEFA
Partners Healthcare System, Series P-2
3.40%, 07/01/27 (A)
Insured: FSA
SPA: Morgan Guaranty Trust/
Bayerische Landesbank GZ .................... 2,000,000
8,300,000 Massachusetts State HEFA
Wellesley College, Series G
3.50%, 07/01/39 (A) ......................... 8,300,000
See Notes to Financial Statements.
23
<PAGE>
Massachusetts Municipal Money Market Fund
Portfolio of Investments (continued)
October 31, 1999
Par Value Value
--------- ---------
Massachusetts (continued)
$ 9,700,000 Massachusetts State
Housing Finance Agency
Multi-Family, Series A
3.35%, 12/01/25 (A)
Insured: GNMA
SPA: Republic National
Bank of New York ............................ $ 9,700,000
1,000,000 Massachusetts State IFA
Health Care Facility Revenue
Beverly Enterprises-Dedham
3.55%, 04/01/09 (A)
LOC: PNC Bank, N.A. ......................... 1,000,000
1,800,000 Massachusetts State IFA
Buckingham Browne Nichols Issue
3.35%, 05/01/27 (A)
LOC: State Street ........................... 1,800,000
1,500,000 Massachusetts State IFA
Gordon College Issue
3.35%, 12/01/27 (A)
LOC: State Street ........................... 1,500,000
1,000,000 Massachusetts State IFA
Governor Dummer Academy
3.35%, 07/01/26 (A)
LOC: State Street ........................... 1,000,000
9,300,000 Massachusetts State IFA, PCR
Holyoke Water Power Co., Series A
3.30%, 05/01/22 (A)
LOC: Canadian Imperial
Bank of Commerce ............................ 9,300,000
5,000,000 Massachusetts State
Water Resource Authority
Municipal Commercial Paper
3.40%, 11/04/99
LOC: State Street ........................... 5,000,000
4,600,000 Massachusetts State
Water Resource Authority
Subordinated, General Purpose, Series A
3.30%, 04/01/28 (A)
Insured: AMBAC
SPA: Bank of Nova Scotia .................... 4,600,000
7,000,000 Natick, BAN, GO, Lot A
3.75%, 08/04/00 ............................. 7,015,395
1,297,000 Newton, GO
5.50%, 03/15/00 ............................. 1,308,692
4,275,000 Peabody, BAN, GO
3.12%, 04/06/00 ............................. 4,275,350
5,000,000 Peabody, BAN, GO
3.50%, 04/06/00 ............................. 4,997,450
3,000,000 Stoneham, BAN, GO
3.25%, 11/16/99 ............................. 3,000,419
4,970,000 Wellesley, BAN, GO
3.50%, 06/07/00 ............................. 4,980,073
8,757,577 Westfield, BAN, GO
4.25%, 04/20/00 ............................. 8,775,614
6,000,000 Westford, BAN
3.50%, 04/14/00 ............................. 6,009,168
5,000,000 Weston, BAN, GO
3.75%, 03/01/00 ............................. 5,001,150
7,482,000 Weston, BAN, GO
4.00%, 11/01/99 ............................. 7,482,000
4,560,000 Weston, BAN, GO
4.10%, 09/14/00 ............................. 4,576,090
--------------
193,240,036
--------------
Michigan - 0.85%
2,055,000 Cornell Township Economic
Development Corp.
Mead-Escanaba Paper Co.
3.60%, 11/01/16 (A)
LOC: Bank of America NT & SA ................ 2,055,000
--------------
Mississippi - 0.41%
1,000,000 Harrison County, PCR
EI duPont deNemours Project
3.50%, 09/01/10 (A) ......................... 1,000,000
--------------
North Carolina - 1.95%
4,700,000 Wake County Industrial Facilities &
Pollution Control Financing Authority
Revenue
Carolina Power & Light Co. Project, Series A
3.60%, 06/15/14 (A)
LOC: First National Bank of Chicago ......... 4,700,000
--------------
Ohio - 0.79%
1,900,000 Franklin County Health System Revenue
Franciscan Sister - St. Anthony's
3.60%, 07/01/15 (A)
LOC: Chase Manhattan Bank ................... 1,900,000
--------------
Oregon - 1.45%
3,500,000 Port Portland, PCR
Reynolds Metals Co.
3.65%, 12/01/09 (A)
LOC: Bank of Nova Scotia .................... 3,500,000
--------------
Pennsylvania - 3.10%
5,500,000 Delaware County, IDA
Airport Facilities Revenue
United Parcels Service Project
3.60%,12/01/15 (A) .......................... 5,500,000
2,000,000 Lehigh County General Purpose
Authority Revenues
Lehigh Valley Hospitals, Series A
3.65%, 07/01/28 (A)
Insured: AMBAC
SPA: Chase Manhattan Bank ................... 2,000,000
--------------
7,500,000
--------------
See Notes to Financial Statements.
24
<PAGE>
Massachusetts Municipal Money Market Fund
Portfolio of Investments (continued)
October 31, 1999
Par Value Value
--------- ---------
Tennessee - 1.06%
$ 1,570,000 Metropolitan Nashville Airport Authority
Special Facilities Revenue
American Airlines Project, Series A
3.65%, 10/01/12 (A)
LOC: Credit Suisse First Boston ............. $ 1,570,000
1,000,000 Sullivan County, Industrial
Development Board PCR
Mead Corp. Project
3.60%, 10/01/16 (A)
LOC: UBS AG ................................. 1,000,000
-------------
2,570,000
-------------
Texas - 6.26%
5,525,000 Gulf Coast Waste Disposal Authority
PCR, Amoco Oil Co. Project
3.50%, 10/01/17 (A) ......................... 5,525,000
2,500,000 Harris County Industrial Development
Corp., PCR, Exxon Corp.
3.60%, 03/01/24 (A) ......................... 2,500,000
1,000,000 Lone Star Airport Improvement
Authority, American Airlines, Inc.
Series A-1
3.65%, 12/01/14 (A)
LOC: Royal Bank of Canada ................... 1,000,000
2,800,000 Lone Star Airport Improvement
Authority, American Airlines, Inc.
Series B-2
3.65%, 12/01/14 (A)
LOC: Royal Bank of Canada ................... 2,800,000
1,000,000 Lone Star Airport Improvement
Authority, American Airlines, Inc.
Series B-3
3.65%, 12/01/14 (A)
LOC: Royal Bank of Canada ................... 1,000,000
2,300,000 Lone Star Airport Improvement
Authority, American Airlines, Inc.
Series B-4
3.65%, 12/01/14 (A)
LOC: Royal Bank of Canada ................... 2,300,000
-------------
15,125,000
-------------
Washington - 0.44%
1,055,000 Washington State Public Power
Supply System Nuclear Project
No. 1 Revenue, Series 1A-1
3.40%, 07/01/17 (A)
LOC: Bank of America NT & SA ................ 1,055,000
-------------
Wyoming - 0.62%
1,500,000 Uinta County, PCR
Amoco Project
3.50%, 07/01/26 (A) ......................... 1,500,000
-------------
Total Municipal Securities .................. 243,445,036
(Cost $243,445,036) -------------
Shares
----------
INVESTMENT COMPANIES - 0.83%
193,844 Dreyfus Massachusetts Tax
Exempt Money Market ......................... 193,844
1,044,819 Federated Municipal Trust
Massachusetts Municipal
Cash Trust .................................. 1,044,819
764,764 Federated Municipal Trust
Tax Exempt Money Market ..................... 764,764
-------------
Total Investment Companies .................. 2,003,427
(Cost $2,003,427) -------------
Total Investments - 101.59% ................................... 245,448,463
(Cost $245,448,463)* -------------
Net Other Assets and Liabilities - (1.59)% .................... (3,837,026)
-------------
Net Assets - 100.00% .......................................... $ 241,611,437
=============
- ----------
* Aggregate cost for federal tax purposes.
(A) Variable rate demand notes are payable upon not more than one, seven or
thirty business days notice. Put bonds and notes have demand features
which mature within one year. The interest rate shown reflects the rate
in effect at October 31, 1999.
AMBAC American Municipal Bond Assurance Corp.
BAN Bond Anticipation Note
FSA Financial Security Assurance Co.
GNMA Government National Mortgage Association
GO General Obligation
HEFA Health and Educational Facilities Authority
IDA Industrial Development Authority
IFA Industrial Finance Authority
LOC Letter of Credit
MBIA Municipal Bond Insurance Association
PCR Polution Control Revenue
SPA Stand-by Purchase Agreement
See Notes to Financial Statements.
25
<PAGE>
Galaxy Money Market Funds
Statements of Assets and Liabilities
October 31, 1999
<TABLE>
<CAPTION>
Money Market Government Tax-Exempt U.S. Treasury
Fund Fund Fund Fund
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
ASSETS:
Investments (Note 2):
Investments at amortized cost ............................... $4,114,486,524 $ 791,856,101 $ 706,967,568 $1,032,880,599
Repurchase agreement ........................................ -- 155,435,000 -- --
-------------- -------------- -------------- --------------
Total investments at value ................................ 4,114,486,524 947,291,101 706,967,568 1,032,880,599
Cash .......................................................... -- 10,742 4,912 2,457
Receivable for shares sold .................................... 21,288,495 2,889,756 8,157,742 11,004,159
Interest and dividends receivable ............................. 16,039,942 1,977,989 3,631,404 7,710,134
-------------- -------------- -------------- --------------
Total Assets ................................................ 4,151,814,961 952,169,588 718,761,626 1,051,597,349
-------------- -------------- -------------- --------------
LIABILITIES:
Dividends payable ............................................. 7,170,917 2,463,528 1,322,859 1,606,561
Payable for investments purchased ............................. -- -- -- --
Payable for shares repurchased ................................ 25,094,899 8,058,857 864,706 5,251,150
Investment advisory fee payable (Note 3) ...................... 1,263,490 320,538 245,591 343,565
Payable to Fleet affiliates (Note 3) .......................... 223,993 31,016 14,450 53,437
Payable to Administrator (Note 3) ............................. 490,609 123,162 49,577 104,476
Trustees' fees and expenses payable (Note 3) .................. 102,933 35,627 12,955 27,746
Payable to custodian .......................................... 119,421 -- -- --
Accrued expenses and other payables ........................... 325,837 73,142 56,771 54,993
-------------- -------------- -------------- --------------
Total Liabilities ........................................... 34,792,099 11,105,870 2,566,909 7,441,928
-------------- -------------- -------------- --------------
NET ASSETS ....................................................... $4,117,022,862 $ 941,063,718 $ 716,194,717 $1,044,155,421
============== ============== ============== ==============
NET ASSETS consist of:
Par value (Note 6) ............................................ $ 4,116,788 $ 940,968 $ 716,346 $ 1,043,839
Paid-in capital in excess of par value ........................ 4,112,663,527 940,027,253 715,629,395 1,042,795,045
Undistributed (overdistributed) net investment income (loss) .. 242,547 95,497 (19,453) 316,537
Accumulated net realized (loss) on investments sold ........... -- -- (131,571) --
-------------- -------------- -------------- --------------
TOTAL NET ASSETS ................................................. $4,117,022,862 $ 941,063,718 $ 716,194,717 $1,044,155,421
============== ============== ============== ==============
Retail A Shares:
Net assets .................................................... $2,434,662,436 $ 348,758,370 $ 160,057,310 $ 584,363,843
Shares of beneficial interest outstanding ..................... 2,434,519,607 348,721,953 160,114,754 584,187,785
NET ASSET VALUE, offering and redemption price per share ...... $ 1.00 $ 1.00 $ 1.00 $ 1.00
============== ============== ============== ==============
Retail B Shares:
Net assets .................................................... $ 2,484,979 N/A N/A N/A
Shares of beneficial interest outstanding ..................... 2,484,857 N/A N/A N/A
NET ASSET VALUE and offering price per share* ................. $ 1.00 N/A N/A N/A
============== ============== ============== ==============
Trust Shares:
Net assets .................................................... $1,679,875,447 $ 592,305,348 $ 556,137,407 $ 459,791,578
Shares of beneficial interest outstanding ..................... 1,679,783,724 592,246,266 556,230,987 459,651,099
NET ASSET VALUE, offering and redemption price per share ...... $ 1.00 $ 1.00 $ 1.00 $ 1.00
============== ============== ============== ==============
</TABLE>
- ----------
* Redemption price per share is equal to the Net Asset Value per share less any
applicable contingent deferred sales charge.
See Notes to Financial Statements.
26
<PAGE>
<TABLE>
<CAPTION>
Connecticut Municipal Massachusetts Municipal
Money Market Fund Money Market Fund
--------------------- -----------------------
<S> <C>
$ 242,987,141 $ 245,448,463
-- --
-------------- --------------
242,987,141 245,448,463
43,737 816
2,554,221 864,467
1,389,725 1,565,078
-------------- --------------
246,974,824 247,878,824
-------------- --------------
278,774 318,579
2,608,736 5,001,150
913,215 830,369
52,319 49,117
21,007 20,022
15,319 8,209
4,630 2,551
-- --
29,810 37,390
-------------- --------------
3,923,810 6,267,387
-------------- --------------
$ 243,051,014 $ 241,611,437
============== ==============
$ 243,057 $ 241,626
242,820,784 241,384,157
(5,391) (1,766)
(7,436) (12,580)
-------------- --------------
$ 243,051,014 $ 241,611,437
============== ==============
$ 243,051,014 $ 241,611,437
243,057,222 241,625,619
$ 1.00 $ 1.00
============== ==============
N/A N/A
N/A N/A
N/A N/A
============== ==============
N/A N/A
N/A N/A
N/A N/A
============== ==============
</TABLE>
27
<PAGE>
Galaxy Money Market Funds
Statements of Operations
For the year ended October 31, 1999
<TABLE>
<CAPTION>
Money Market Government Tax-Exempt U.S. Treasury
Fund Fund Fund Fund
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest (Note 2) ....................................... $ 196,670,570 $ 51,856,973 $ 18,296,350 $ 49,150,173
Dividends (Note 2) ...................................... -- -- 113,526 --
------------- ------------- ------------- -------------
Total Investment Income ............................... 196,670,570 51,856,973 18,409,876 49,150,173
------------- ------------- ------------- -------------
EXPENSES:
Investment advisory fee (Note 3) ........................ 15,391,369 4,142,899 2,322,782 4,011,663
Administration fee (Note 3) ............................. 2,885,072 778,896 435,865 779,542
Custodian fee (Note 3) .................................. 64,639 40,001 22,075 23,118
Fund accounting fee (Note 3) ............................ 145,559 147,747 90,473 122,360
Professional fees (Note 3) .............................. 229,260 60,598 42,306 62,770
Shareholder servicing and 12b-1 fees (Note 3) ........... 2,239,110 360,723 169,840 590,338
Transfer agent fee (Note 3) ............................. 2,182,221 384,641 66,080 406,563
Trustees' fees and expenses (Note 3) .................... 108,170 27,192 14,425 23,514
Reports to shareholders (Note 3) ........................ 622,989 89,758 13,365 125,657
Miscellaneous ........................................... 345,506 84,366 74,037 95,241
------------- ------------- ------------- -------------
Total expenses before reimbursement/waiver (Note 4) ... 24,213,895 6,116,821 3,251,248 6,240,766
------------- ------------- ------------- -------------
Less: reimbursement/waiver (Note 4) ................... (1,550,738) (142,862) (2,099) --
------------- ------------- ------------- -------------
Total expenses net of reimbursement/waiver .......... 22,663,157 5,973,959 3,249,149 6,240,766
------------- ------------- ------------- -------------
NET INVESTMENT INCOME ...................................... 174,007,413 45,883,014 15,160,727 42,909,407
------------- ------------- ------------- -------------
Net realized gain on investments SOLD (Note 2) ............. 19,413 37,116 -- 10,820
------------- ------------- ------------- -------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ........................................ $ 174,026,826 $ 45,920,130 $ 15,160,727 $ 42,920,227
============= ============= ============= =============
</TABLE>
See Notes to Financial Statements.
28
<PAGE>
<TABLE>
<CAPTION>
Connecticut Municipal Massachusetts Municipal
Money Market Fund Money Market Fund
--------------------- -----------------------
<S> <C>
$ 6,526,088 $ 6,234,408
40,912 56,089
------------- -------------
6,567,000 6,290,497
------------- -------------
856,115 810,887
160,459 151,558
16,154 15,734
57,738 51,452
36,452 23,614
214,029 202,530
24,764 17,482
4,572 3,867
5,854 3,823
27,626 44,650
------------- -------------
1,403,763 1,325,597
------------- -------------
(76,784) (69,574)
------------- -------------
1,326,979 1,256,023
------------- -------------
5,240,021 5,034,474
------------- -------------
-- --
------------- -------------
$ 5,240,021 $ 5,034,474
============= =============
</TABLE>
29
<PAGE>
Galaxy Money Market Funds
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Money Market Fund Government Fund
--------------------------------- ---------------------------------
Years ended October 31, Years ended October 31,
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
NET ASSETS at beginning of period .......................... $ 3,403,719,219 $ 3,016,823,396 $ 1,075,274,938 $ 981,371,917
--------------- --------------- --------------- ---------------
Increase in Net Assets resulting from operations:
Net investment income ................................... 174,007,413 161,375,090 45,883,014 54,289,776
Net realized gain on investments sold ................... 19,413 10,935 37,116 27,699
--------------- --------------- --------------- ---------------
Net increase in net assets resulting from operations .. 174,026,826 161,386,025 45,920,130 54,317,475
--------------- --------------- --------------- ---------------
Dividends to shareholders from:
Retail A Shares:
Net investment income ................................. (104,393,213) (101,530,947) (15,592,532) (17,622,243)
--------------- --------------- --------------- ---------------
Retail B Shares:
Net investment income ................................. (86,034) (28,669) N/A N/A
--------------- --------------- --------------- ---------------
Trust Shares:
Net investment income ................................. (69,528,195) (59,798,762) (30,149,607) (36,667,533)
--------------- --------------- --------------- ---------------
Total Dividends to shareholders ..................... (174,007,442) (161,358,378) (45,742,139) (54,289,776)
--------------- --------------- --------------- ---------------
Net increase (decrease) from share transactions(1) ......... 711,961,641 386,868,176 (135,195,652) 93,875,322
--------------- --------------- --------------- ---------------
Capital Contribution from Investment Advisor (Note 5) ...... 1,322,618 -- 806,441 --
--------------- --------------- --------------- ---------------
Net increase (decrease) in net assets ................... 713,303,643 386,895,823 (134,211,220) 93,903,021
--------------- --------------- --------------- ---------------
NET ASSETS at end of period (including line A) ............. $ 4,117,022,862 $ 3,403,719,219 $ 941,063,718 $ 1,075,274,938
=============== =============== =============== ===============
(A) Undistributed (overdistributed) net investment
income (loss) ........................................... $ 242,547 $ 242,576 $ 95,497 $ (45,378)
=============== =============== =============== ===============
</TABLE>
- ----------
(1) For detail on share transactions by series, see Statements of Changes in Net
Assets - Capital Stock Activity on pages 32 and 33.
See Notes to Financial Statements.
30
<PAGE>
<TABLE>
<CAPTION>
Connecticut Municipal Massachusetts Municipal
Tax-Exempt Fund U.S. Treasury Fund Money Market Fund Money Market Fund
- ---------------------------- ------------------------------ ---------------------------- ----------------------------
Years ended October 31, Years ended October 31, Years ended October 31, Years ended October 31,
1999 1998 1999 1998 1999 1998 1999 1998
- ------------ ------------ -------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
$391,515,416 $321,222,118 $ 988,698,222 $979,144,066 $165,185,627 $137,094,660 $127,921,915 $ 80,965,571
- ------------ ------------ -------------- ------------ ------------ ------------ ------------ ------------
15,160,727 11,105,164 42,909,407 44,998,730 5,240,021 4,395,139 5,034,474 2,961,693
-- -- 10,820 28,589 -- -- -- --
- ------------ ------------ -------------- ------------ ------------ ------------ ------------ ------------
15,160,727 11,105,164 42,920,227 45,027,319 5,240,021 4,395,139 5,034,474 2,961,693
- ------------ ------------ -------------- ------------ ------------ ------------ ------------ ------------
(4,259,280) (4,682,093) (24,098,884) (26,401,651) (5,240,300) (4,395,162) (5,036,187) (2,961,746)
- ------------ ------------ -------------- ------------ ------------ ------------ ------------ ------------
N/A N/A N/A N/A N/A N/A N/A N/A
- ------------ ------------ -------------- ------------ ------------ ------------ ------------ ------------
(10,901,372) (6,422,658) (18,810,523) (18,597,072) N/A N/A N/A N/A
- ------------ ------------ -------------- ------------ ------------ ------------ ------------ ------------
(15,160,652) (11,104,751) (42,909,407) (44,998,723) (5,240,300) (4,395,162) (5,036,187) (2,961,746)
- ------------ ------------ -------------- ------------ ------------ ------------ ------------ ------------
324,679,226 70,292,885 54,710,415 9,525,560 77,865,666 28,090,990 113,691,235 46,956,397
- ------------ ------------ -------------- ------------ ------------ ------------ ------------ ------------
-- -- 735,964 -- -- -- -- --
- ------------ ------------ -------------- ------------ ------------ ------------ ------------ ------------
324,679,301 70,293,298 55,457,199 9,554,156 77,865,387 28,090,967 113,689,522 46,956,344
- ------------ ------------ -------------- ------------ ------------ ------------ ------------ ------------
$716,194,717 $391,515,416 $1,044,155,421 $988,698,222 $243,051,014 $165,185,627 $241,611,437 $127,921,915
============ ============ ============== ============ ============ ============ ============ ============
$ (19,453) $ (19,528) $ 316,537 $ 316,537 $ (5,391) $ (5,112) $ (1,766) $ (53)
============ ============ ============== ============ ============ ============ ============ ============
</TABLE>
31
<PAGE>
Galaxy Money Market Funds
Statements of Changes in Net Assets --
Capital Stock Activity
<TABLE>
<CAPTION>
Money Market Fund Government Fund
---------------------------------- ----------------------------------
Years ended October 31, Years ended October 31,
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
DOLLAR AMOUNTS
Retail A Shares:
Sold ................................................. $ 6,810,510,960 $ 6,260,244,949 $ 752,972,310 $ 820,134,497
Issued to shareholders in reinvestment of dividends .. 103,931,212 100,806,250 15,539,078 17,568,387
Repurchased .......................................... (6,619,773,827) (6,099,746,389) (772,791,398) (835,396,007)
--------------- --------------- --------------- ---------------
Net increase (decrease) in shares outstanding ........ $ 294,668,345 $ 261,304,810 $ (4,280,010) $ 2,306,877
=============== =============== =============== ===============
Retail B Shares:
Sold ................................................. $ 55,831,317 $ 6,169,532 N/A N/A
Issued to shareholders in reinvestment of dividends .. 65,248 25,226 N/A N/A
Repurchased .......................................... (55,018,715) (5,336,739) N/A N/A
--------------- --------------- --------------- ---------------
Net increase in shares outstanding ................... $ 877,850 $ 858,019 N/A N/A
=============== =============== =============== ===============
Trust Shares:
Sold ................................................. $ 2,538,829,954 $ 2,082,969,065 $ 1,357,748,522 $ 1,513,726,831
Issued to shareholders in reinvestment of dividends .. 134,516 473,182 487,478 646,367
Repurchased .......................................... (2,122,549,024) (1,958,736,900) (1,489,151,642) (1,422,804,753)
--------------- --------------- --------------- ---------------
Net increase (decrease) in shares outstanding ........ $ 416,415,446 $ 124,705,347 $ (130,915,642) $ 91,568,445
=============== =============== =============== ===============
SHARE ACTIVITY
Retail A Shares:
Sold ................................................. 6,810,510,960 6,260,244,949 752,972,310 820,134,497
Issued to shareholders in reinvestment of dividends .. 103,931,212 100,806,250 15,539,078 17,568,387
Repurchased .......................................... (6,619,773,827) (6,099,746,389) (772,791,398) (835,396,007)
--------------- --------------- --------------- ---------------
Net increase (decrease) in shares outstanding ........ 294,668,345 261,304,810 (4,280,010) 2,306,877
=============== =============== =============== ===============
Retail B Shares:
Sold ................................................. 55,831,317 6,169,532 N/A N/A
Issued to shareholders in reinvestment of dividends .. 65,248 25,226 N/A N/A
Repurchased .......................................... (55,018,715) (5,336,739) N/A N/A
--------------- --------------- --------------- ---------------
Net increase in shares outstanding ................... 877,850 858,019 N/A N/A
=============== =============== =============== ===============
Trust Shares:
Sold ................................................. 2,538,829,954 2,082,969,065 1,357,748,522 1,513,726,831
Issued to shareholders in reinvestment of dividends .. 134,516 473,182 487,478 646,367
Repurchased .......................................... (2,122,549,024) (1,958,736,900) (1,489,151,642) (1,422,804,753)
--------------- --------------- --------------- ---------------
Net increase (decrease) in shares outstanding ........ 416,415,446 124,705,347 (130,915,642) 91,568,445
=============== =============== =============== ===============
</TABLE>
See Notes to Financial Statements.
32
<PAGE>
<TABLE>
<CAPTION>
Connecticut Municipal Massachusetts Municipal
Tax-Exempt Fund U.S. Treasury Fund Money Market Fund Money Market Fund
- ----------------------------- ---------------------------------- ----------------------------- -----------------------------
Years ended October 31, Years ended October 31, Years ended October 31, Years ended October 31,
1999 1998 1999 1998 1999 1998 1999 1998
- ------------- ------------- --------------- --------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 579,782,056 $ 472,089,252 $ 1,323,763,867 $ 1,201,282,799 $ 561,490,148 $ 439,511,535 $ 497,315,703 $ 287,313,215
4,254,656 4,666,644 24,034,012 26,324,657 2,878,303 3,071,043 2,079,087 1,572,995
(588,319,329) (464,321,475) (1,322,862,475) (1,254,541,716) (486,502,785) (414,491,588) (385,703,555) (241,929,813)
- ------------- ------------- --------------- --------------- ------------- ------------- ------------- -------------
$ (4,282,617) $ 12,434,421 $ 24,935,404 $ (26,934,260) $ 77,865,666 $ 28,090,990 $ 113,691,235 $ 46,956,397
============= ============= =============== =============== ============= ============= ============= =============
N/A N/A N/A N/A N/A N/A N/A N/A
N/A N/A N/A N/A N/A N/A N/A N/A
N/A N/A N/A N/A N/A N/A N/A N/A
- ------------- ------------- --------------- --------------- ------------- ------------- ------------- -------------
N/A N/A N/A N/A N/A N/A N/A N/A
============= ============= =============== =============== ============= ============= ============= =============
$ 618,365,910 $ 253,133,512 $ 701,245,755 $ 814,143,806 N/A N/A N/A N/A
-- 23,573 1,291,866 1,298,463 N/A N/A N/A N/A
(289,404,067) (195,298,621) (672,762,610) (778,982,449) N/A N/A N/A N/A
- ------------- ------------- --------------- --------------- ------------- ------------- ------------- -------------
$ 328,961,843 $ 57,858,464 $ 29,775,011 $ 36,459,820 N/A N/A N/A N/A
============= ============= =============== =============== ============= ============= ============= =============
579,782,056 472,089,252 1,323,763,867 1,201,282,799 561,490,148 439,511,535 497,315,703 287,313,215
4,254,657 4,666,644 24,034,012 26,324,657 2,878,303 3,071,043 2,079,087 1,572,995
(588,319,329) (464,321,475) (1,322,862,475) (1,254,541,716) (486,502,785) (414,491,588) (385,703,555) (241,929,813)
- ------------- ------------- --------------- --------------- ------------- ------------- ------------- -------------
(4,282,616) 12,434,421 24,935,404 (26,934,260) 77,865,666 28,090,990 113,691,235 46,956,397
============= ============= =============== =============== ============= ============= ============= =============
N/A N/A N/A N/A N/A N/A N/A N/A
N/A N/A N/A N/A N/A N/A N/A N/A
N/A N/A N/A N/A N/A N/A N/A N/A
- ------------- ------------- --------------- --------------- ------------- ------------- ------------- -------------
N/A N/A N/A N/A N/A N/A N/A N/A
============= ============= =============== =============== ============= ============= ============= =============
618,365,910 253,133,512 701,245,755 814,143,806 N/A N/A N/A N/A
-- 23,573 1,291,866 1,298,463 N/A N/A N/A N/A
(289,404,067) (195,298,621) (672,762,610) (778,982,449) N/A N/A N/A N/A
- ------------- ------------- --------------- --------------- ------------- ------------- ------------- -------------
328,961,843 57,858,464 29,775,011 36,459,820 N/A N/A N/A N/A
============= ============= =============== =============== ============= ============= ============= =============
</TABLE>
33
<PAGE>
Money Market Fund
Financial Highlights
For a Share outstanding throughout each period
Retail A Shares
<TABLE>
<CAPTION>
Years ended October 31,
----------------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- ----------
Income from Investment Operations:
Net investment income (A) ........................... 0.04 0.05 0.05 0.05 0.05
---------- ---------- ---------- ---------- ----------
Less Dividends:
Dividends from net investment income ................ (0.04) (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 (B) ...................................... 4.54% 5.04% 4.93% 4.78% 5.23%
Ratios/Supplemental data:
Net assets, End of Period (000's) ..................... $2,434,662 $2,139,213 $1,877,889 $1,159,312 $ 580,762
Ratios to average net assets:
Net investment income including
reimbursement/waiver .............................. 4.45% 4.94% 4.85% 4.67% 5.12%
Operating expenses including reimbursement/waiver ... 0.65% 0.67% 0.69% 0.77% 0.74%
Operating expenses excluding reimbursement/waiver ... 0.69% 0.71% 0.73% 0.80% 0.76%
</TABLE>
- ----------
* Annualized
** Not Annualized
(1) Prior to November 1, 1994, the Fund offered a single series of shares. As
of such date, the existing series of shares was designated as Retail A
Shares and the Fund began issuing a second series of shares designated as
Trust Shares.
(2) The Fund began offering Retail B Shares on March 6, 1997.
(A) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or Administrator for Retail A Shares for the years
ended October 31, 1999, 1998, 1997, 1996 and 1995 were $0.04, $0.05,
$0.05, $0.05 and $0.05, respectively. Net investment income per share
before reimbursement/waiver of fees by the Investment Advisor and/or
Administrator for Trust Shares for the years ended October 31, 1999, 1998,
1997, 1996 and 1995 were $0.05, $0.05, $0.05, $0.05 and $0.05,
respectively. Net investment income per share before reimbursement/waiver
of fees by the Investment Advisor and/or Administrator for Retail B Shares
for the years ended October 31, 1999 and 1998 and the period ended October
31, 1997 were $0.04, $0.04 and $0.03, respectively.
(B) Calculation does not include the effect of any sales charge for Retail B
Shares.
See Notes to Financial Statements.
34
<PAGE>
<TABLE>
<CAPTION>
Trust Shares Retail B Shares
Years ended October 31, Years ended October 31,
- ---------------------------------------------------------------------- ----------------------------------------
1999 1998 1997 1996 1995(1) 1999 1998 1997(2)
- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
0.05 0.05 0.05 0.05 0.05 0.04 0.04 0.03
- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(0.05) (0.05) (0.05) (0.05) (0.05) (0.04) (0.04) (0.03)
- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
-- -- -- -- -- -- -- --
- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ========== ========== ========== ==========
4.72% 5.23% 5.13% 5.00% 5.43% 3.85% 4.33% 2.66%**
$1,679,875 $1,262,900 $1,138,185 $ 924,222 $ 334,054 $ 2,485 $ 1,607 $ 749
4.62% 5.12% 5.04% 4.89% 5.30% 3.81% 4.26% 4.27%*
0.48% 0.49% 0.50% 0.55% 0.55% 1.29% 1.35% 1.38%*
0.52% 0.53% 0.54% 0.58% 0.56% 1.41% 1.39% 1.42%*
</TABLE>
35
<PAGE>
Government Fund
Financial Highlights
For a Share outstanding throughout each period
Retail A Shares
<TABLE>
<CAPTION>
Years ended October 31,
------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income (A) ........................... 0.04 0.05 0.05 0.05 0.05
-------- -------- -------- -------- --------
Less Dividends:
Dividends from net investment income ................ (0.04) (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 .......................................... 4.39% 4.94% 4.85% 4.72% 5.20%
Ratios/Supplemental data:
Net assets, End of Period (000's) ..................... $348,758 $352,799 $350,513 $326,411 $320,795
Ratios to average net assets:
Net investment income including
reimbursement/waiver .............................. 4.32% 4.84% 4.74% 4.62% 5.11%
Operating expenses including reimbursement/waiver ... 0.69% 0.70% 0.71% 0.75% 0.73%
Operating expenses excluding reimbursement/waiver ... 0.71% 0.71% 0.72% 0.76% 0.74%
</TABLE>
- ----------
(1) Prior to November 1, 1994, the Fund offered a single series of shares. As
of such date, the existing series of shares was designated as Retail A
Shares and the Fund began issuing a second series of shares designated as
Trust Shares.
(A) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or Administrator for Retail A Shares for the years
ended October 31, 1999, 1998, 1997, 1996 and 1995 were $0.04, $0.05,
$0.05, $0.05 and $0.05, respectively. Net investment income per share
before reimbursement/waiver of fees by the Investment Advisor and/or
Administrator for Trust Shares for the years ended October 31, 1999, 1998,
1997, 1996 and 1995 were $0.04, $0.05, $0.05, $0.05 and $0.05,
respectively.
See Notes to Financial Statements.
36
<PAGE>
Trust Shares
<TABLE>
<CAPTION>
Years ended October 31,
- --------------------------------------------------------------------
1999 1998 1997 1996 1995(1)
- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -------- -------- -------- -------- --------
0.04 0.05 0.05 0.05 0.05
- -------- -------- -------- -------- --------
(0.04) (0.05) (0.05) (0.05) (0.05)
- -------- -------- -------- -------- --------
-- -- -- -- --
- -------- -------- -------- -------- --------
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
4.58% 5.15% 5.06% 4.95% 5.39%
$592,305 $722,476 $630,859 $733,759 $678,679
4.50% 5.03% 4.94% 4.85% 5.27%
0.51% 0.51% 0.51% 0.52% 0.53%
0.53% 0.52% 0.52% 0.53% 0.54%
</TABLE>
37
<PAGE>
Tax-Exempt Fund
Financial Highlights
For a Share outstanding throughout each period
Retail A Shares
<TABLE>
<CAPTION>
Years ended October 31,
------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income (A) ........................... 0.02 0.03 0.03 0.03 0.03
-------- -------- -------- -------- --------
Less Dividends:
Dividends from net investment income ................ (0.02) (0.03) (0.03) (0.03) (0.03)
-------- -------- -------- -------- --------
Net increase (decrease) in net asset value ............. -- -- -- -- --
-------- -------- -------- -------- --------
Net Asset Value, End of Period ......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return ........................................... 2.53% 2.89% 2.95% 2.82% 3.16%
Ratios/Supplemental data:
Net assets, End of Period (000's) ...................... $160,057 $164,340 $151,907 $117,548 $127,056
Ratios to average net assets:
Net investment income including
reimbursement/waiver .............................. 2.51% 2.85% 2.92% 2.78% 3.12%
Operating expenses including reimbursement/waiver ... 0.66% 0.67% 0.68% 0.68% 0.68%
Operating expenses excluding reimbursement/waiver ... 0.66% 0.67% 0.69% 0.69% 0.71%
</TABLE>
- ----------
(1) Prior to November 1, 1994, the Fund offered a single series of shares. As
of such date, the existing series of shares was designated as Retail A
Shares and the Fund began issuing a second series of shares designated as
Trust Shares.
(A) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or Administrator for Retail A Shares for the years
ended October 31, 1999, 1998, 1997, 1996 and 1995 were $0.02, $0.03,
$0.03, $0.03 and $0.03, respectively. Net investment income per share
before reimbursement/waiver of fees by the Investment Advisor and/or
Administrator for Trust Shares for the years ended October 31, 1999, 1998,
1997, 1996 and 1995 were $0.03, $0.03, $0.03, $0.03 and $0.03,
respectively.
See Notes to Financial Statements.
38
<PAGE>
Trust Shares
<TABLE>
<CAPTION>
Years ended October 31,
- ------------------------------------------------------------------------
1999 1998 1997 1996 1995(1)
- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -------- -------- -------- -------- --------
0.03 0.03 0.03 0.03 0.03
- -------- -------- -------- -------- --------
(0.03) (0.03) (0.03) (0.03) (0.03)
- -------- -------- -------- -------- --------
-- -- -- -- --
- -------- -------- -------- -------- --------
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
2.67% 3.03% 3.10% 2.97% 3.29%
$556,137 $227,176 $169,316 $184,307 $180,706
2.65% 2.99% 3.05% 2.92% 3.24%
0.52% 0.53% 0.53% 0.54% 0.55%
0.52% 0.53% 0.53% 0.54% 0.56%
</TABLE>
39
<PAGE>
U.S. Treasury Fund
Financial Highlights
For a Share outstanding throughout each period
Retail A Shares
<TABLE>
<CAPTION>
Years ended October 31,
------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income (A) ........................... 0.04 0.05 0.05 0.05 0.05
-------- -------- -------- -------- --------
Less Dividends:
Dividends from net investment income ................ (0.04) (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 ........................................... 4.14% 4.73% 4.67% 4.63% 4.99%
Ratios/Supplemental data:
Net assets, End of Period (000's) ...................... $584,364 $559,053 $585,969 $443,230 $318,621
Ratios to average net assets:
Net investment income including
reimbursement/waiver .............................. 4.06% 4.63% 4.58% 4.53% 4.90%
Operating expenses including reimbursement/waiver ... 0.67% 0.68% 0.69% 0.69% 0.73%
Operating expenses excluding reimbursement/waiver ... 0.67% 0.68% 0.70% 0.69% 0.73%
</TABLE>
- ----------
(1) Prior to November 1, 1994, the Fund offered a single series of shares. As
of such date, the existing series of shares was designated as Retail A
Shares and the Fund began issuing a second series of shares designated as
Trust Shares.
(A) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or Administrator for Retail A Shares for the years
ended October 31, 1999, 1998, 1997, 1996 and 1995 were $0.04, $0.05,
$0.05, $0.05 and $0.05, respectively. Net investment income per share
before reimbursement/waiver of fees by the Investment Advisor and/or
Administrator for Trust Shares for the years ended October 31, 1999, 1998,
1997, 1996 and 1995 were $0.04, $0.05, $0.05, $0.05 and $0.05,
respectively.
See Notes to Financial Statements.
40
<PAGE>
Trust Shares
<TABLE>
<CAPTION>
Years ended October 31,
- ------------------------------------------------------------------------
1999 1998 1997 1996 1995(1)
- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -------- -------- -------- -------- --------
0.04 0.05 0.05 0.05 0.05
- -------- -------- -------- -------- --------
(0.04) (0.05) (0.05) (0.05) (0.05)
- -------- -------- -------- -------- --------
-- -- -- -- --
- -------- -------- -------- -------- --------
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
4.30% 4.90% 4.85% 4.80% 5.18%
$459,792 $429,645 $393,175 $354,331 $271,036
4.22% 4.80% 4.75% 4.69% 5.06%
0.51% 0.51% 0.52% 0.53% 0.55%
0.51% 0.51% 0.53% 0.53% 0.55%
</TABLE>
41
<PAGE>
Connecticut Municipal Money Market Fund
Financial Highlights
For a Share outstanding throughout each period
<TABLE>
<CAPTION>
Years ended October 31,
---------------------------------------------------------------------------
1999 1998 1997 1996
--------------- --------------- --------------- ---------------
Retail A Shares Retail A Shares Retail A Shares Retail A Shares(1)
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ........... $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------------- --------------- --------------- ---------------
Income from Investment Operations:
Net investment income (A) ................... 0.02 0.03 0.03 0.03
--------------- --------------- --------------- ---------------
Less Dividends:
Dividends from net investment income ........ (0.02) (0.03) (0.03) (0.03)
--------------- --------------- --------------- ---------------
Net increase (decrease) in net asset value ..... -- -- -- --
--------------- --------------- --------------- ---------------
Net Asset Value, End of Period ................. $ 1.00 $ 1.00 $ 1.00 $ 1.00
=============== =============== =============== ===============
Total Return (B) .............................. 2.47% 2.87% 2.94% 2.83%
Ratios/Supplemental Data:
Net Assets, End of Period (000's) .............. $ 243,051 $ 165,186 $ 137,095 $ 110,544
Ratios to average net assets:
Net investment income
including reimbursement/waiver ............ 2.44% 2.83% 2.91% 2.79%
Operating expenses
including reimbursement/waiver ............ 0.62% 0.62% 0.60% 0.64%
Operating expenses
excluding reimbursement/waiver ............ 0.65% 0.65% 0.65% 0.73%
</TABLE>
- ----------
(1) The Fund commenced operations on October 4, 1993 as a separate investment
portfolio (the "Predecessor Fund") of the Shawmut Funds. On December 4,
1995, the Predecessor Fund was reorganized as a new portfolio of the Trust
with a single series of shares. Prior to the reorganization, the
Predecessor Fund offered two series of shares, Investment Shares and Trust
Shares. In connection with the reorganization, the shareholders of the
Predecessor Fund exchanged shares of the two series for a single series of
shares in the Galaxy Connecticut Municipal Money Market Fund.
(A) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or Administrator for Retail A Shares for the years
ended October 31, 1999, 1998, 1997 and 1996 were $0.02, $0.03, $0.03 and
$0.03, respectively. Net investment income per share before
reimbursement/waiver of fees by the Investment Advisor and/or other
parties for Investment Shares for the year ended October 31, 1995 was
$0.03 (unaudited). Net investment income per share before
reimbursement/waiver of fees by the Investment Advisor and/or other
parties for Trust Shares for the year ended October 31, 1995 was $0.02
(unaudited).
(B) Calculation does not include the effect of any sales charge for the
Investment Shares of the Predecessor Fund.
See Notes to Financial Statements.
42
<PAGE>
<TABLE>
<CAPTION>
Years ended October 31,
- -------------------------
1995
- -------------------------
Investment Trust
Shares Shares
- ---------- ----------
<S> <C>
$ 1.00 $ 1.00
- ---------- ----------
0.03 0.03
- ---------- ----------
(0.03) (0.03)
- ---------- ----------
-- --
- ---------- ----------
$ 1.00 $ 1.00
========== ==========
2.94% 3.19%
$ 71,472 $ 31,164
2.88% 3.14%
0.82% 0.57%
1.29% 0.79%
</TABLE>
43
<PAGE>
Massachusetts Municipal Money Market Fund
Financial Highlights
For a Share outstanding throughout each period
Retail A Shares
<TABLE>
<CAPTION>
Years ended October 31,
------------------------------------------------------------
1999 1998 1997 1996(1) 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ..... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income (A) ............. 0.02 0.03 0.03 0.03 0.03
-------- -------- -------- -------- --------
Less Dividends:
Dividends from net investment income .. (0.02) (0.03) (0.03) (0.03) (0.03))
-------- -------- -------- -------- --------
Net increase (decrease) in net asset value -- -- -- -- --
-------- -------- -------- -------- --------
Net Asset Value, End of Period ........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return ............................. 2.50% 2.86% 2.92% 2.83% 3.21%
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ........ $241,611 $127,922 $ 80,966 $ 47,066 $ 40,326
Ratios to average net assets:
Net investment income including
reimbursement/waiver ................ 2.48% 2.81% 2.90% 2.78% 3.16%
Operating expenses including
reimbursement/waiver ................ 0.62% 0.62% 0.61% 0.62% 0.57%
Operating expenses excluding
reimbursement/waiver ................ 0.65% 0.68% 0.69% 0.83% 1.06%
</TABLE>
- ----------
(1) The Fund commenced operations on October 5, 1993 as a separate investment
portfolio (the "Predecessor Fund") of the Shawmut Funds. On December 4,
1995, the Predecessor Fund was reorganized as a new portfolio of the
Trust.
(A) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or other parties for the years ended October 31,
1999, 1998, 1997, 1996 and 1995 were $0.02, $0.03, $0.03, $0.03 and $0.03
(unaudited), respectively.
See Notes to Financial Statements.
44
<PAGE>
Notes to Financial Statements
1. Organization
The Galaxy Fund, a Massachusetts business trust (the "Trust"), is
registered under the Investment Company Act of 1940, as amended, (the "1940
Act") as an open-end management investment company. As of the date of this
report, the Trust offered twenty-nine managed investment portfolios. The
accompanying financial statements and financial highlights are those of the
Money Market, Government, Tax-Exempt, U.S. Treasury, Connecticut Municipal Money
Market and Massachusetts Municipal Money Market Funds (individually, a "Fund,"
collectively, the "Funds") only.
The Money Market Fund is authorized to issue three series of shares (Trust
Shares, Retail A Shares and Retail B Shares). The Government, Tax-Exempt and
U.S. Treasury Funds are authorized to issue two series of Shares (Trust Shares
and Retail A Shares). The Connecticut Municipal Money Market and Massachusetts
Municipal Money Market Funds are authorized to issue one series of shares
(Retail A Shares). Trust Shares, Retail A Shares and Retail B Shares are
substantially the same, except (i) Retail B Shares are subject to a maximum
5.00% contingent deferred sales charge and (ii) each series of shares bears the
following series specific expenses: distribution fees and/or shareholder
servicing fees and transfer agency charges. Six years after the date of
purchase, Retail B Shares of the Money Market Fund will automatically convert to
Retail A Shares of such Fund.
2. Significant Accounting Policies
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates. The following is a
summary of significant account ing policies in conformity with generally
accepted accounting principles consistently followed by the Funds in the
preparation of their financial statements.
Portfolio Valuation: Securities in the Funds are valued utilizing the
amortized cost valuation method permitted in accordance with Rule 2a-7 under the
1940 Act. This method involves valuing a portfolio security initially at its
cost and thereafter assuming a constant amortization to maturity of any discount
or premium.
Securities Transactions and Investment Income: Securities transactions are
accounted for on a trade date basis. Net realized gains or losses on sales of
securities are determined by the identified cost method. Interest income is
recorded on the accrual basis. Investment income and realized and unrealized
gains and losses are allocated to the separate series of a Fund based upon the
outstanding shares of each series.
Dividends to Shareholders: Dividends from net investment income are
determined separately for each series of a Fund and are declared daily and paid
monthly. Net realized capital gains, if any, are distributed at least annually.
Income dividends and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles.
Federal Income Taxes: The Trust treats each Fund as a separate entity for
Federal income tax purposes. Each Fund intends to qualify each year as a
"regulated investment company" under Subchapter M of the Internal Revenue Code.
By so qualifying, each Fund will not be subject to Federal income taxes to the
extent that it distributes substantially all of its taxable or tax-exempt
income, if any, for its tax year ending October 31. In addition, by distributing
in each calendar year substantially all of its net investment income, capital
gains, and certain other amounts, if any, each Fund will not be subject to a
Federal excise tax. Therefore, no Federal income or excise tax provision is
recorded.
Repurchase Agreements: Each Fund, except the U.S. Treasury Fund, may
engage in repurchase agreement transactions with institutions that the Trust's
investment advisor has determined are creditworthy. Each repurchase agreement
transaction is recorded at cost plus accrued interest. Each Fund requires that
the securities collateralizing a repurchase agreement transaction be transferred
to the Trust's custodian in a manner that is intended to enable the Fund to
obtain those securities in the event of a counterparty default. The value of the
collateral securities is monitored daily to ensure that the value of the
collateral, including accrued interest, equals or exceeds the repurchase price.
Repurchase agreement transactions involve certain risks in the event of default
or insolvency of the counterparty, including possible delays or restrictions
upon a Fund's ability to dispose of the under lying securities, and a possible
decline in the value of the underlying securities during the period while the
Fund seeks to assert its rights.
45
<PAGE>
Notes to Financial Statements
Expenses: The Trust accounts separately for the assets, liabilities and
operations of each Fund. Expenses directly attributable to a Fund are charged to
the Fund, while expenses which are attributable to more than one fund of the
Trust are allocated among the respective funds.
In addition, expenses of a Fund not directly attributable to the
operations of a particular series of shares of the Fund are allocated to the
separate series based upon the outstanding shares of each series. Operating
expenses directly attributable to a series of shares of a Fund are charged to
the operations of that series.
3. Investment Advisory, Administration, Distribution, Shareholder Services
and Other Fees
The Trust and Fleet Investment Advisors Inc. (the "Investment Advisor" or
"Fleet"), an indirect wholly-owned subsidiary of FleetBoston Corporation, are
parties to an investment advisory agreement under which the Investment Advisor
provides services for a fee, computed daily and paid monthly, at the following
annual rates: with respect to the Money Market, Government and Tax-Exempt Funds,
0.40% of the average daily net assets of each Fund, and with respect to the U.S.
Treasury, Connecticut Municipal Money Market and Massachusetts Municipal Money
Market Funds, 0.40% of the first $750,000,000 of net assets of each Fund plus
0.35% of net assets of each Fund in excess of $750,000,000. The Trust has been
advised by the Investment Advisor that, with respect to the Money Market,
Government and Tax-Exempt Funds, the Investment Advisor intends to waive
advisory fees payable to it by each Fund by 0.05% to the extent that a Fund's
net assets exceed $750,000,000.
The Trust and First Data Investor Services Group, Inc. ("Investor Services
Group"), a wholly-owned subsidiary of First Data Corporation, are parties to an
administration agreement under which Investor Services Group (the
"Administrator") provides services for a fee, computed daily and paid monthly,
at the annual rate, effective September 10, 1998, of 0.09% of the first $2.5
billion of the combined average daily net assets of the Funds and the other
funds offered by the Trust (whose financial statements are provided in separate
reports), 0.085% of the next $2.5 billion of combined average daily net assets,
0.075% of the next $7 billion of combined average daily net assets, 0.065% of
the next $3 billion of combined average daily net assets, 0.06% of the next $3
billion of combined average daily net assets and 0.0575% of combined average
daily net assets in excess of $18 billion. Prior to September 10, 1998, Investor
Services Group received administration fees at the annual rate of 0.09% of the
first $2.5 billion of combined average daily net assets of the Funds and the
other funds offered by the Trust, 0.085% of the next $2.5 billion of combined
average daily net assets and 0.075% of combined average daily net assets over $5
billion.
In addition, Investor Services Group also provides certain fund
accounting, custody administration and transfer agency services pursuant to
certain fee arrangements. In accordance with such fee arrangements, Investor
Services Group compensates the Trust's custodian bank, The Chase Manhattan Bank,
for its services.
First Data Distributors, Inc. (the "Distributor"), a wholly-owned
subsidiary of Investor Services Group and an indirect wholly-owned subsidiary of
First Data Corporation, serves as the distributor of the Trust's shares.
The Trust has adopted a shareholder services plan (the "Services Plan")
with respect to Retail A Shares and Trust Shares of the Funds. Currently, the
Services Plan has not been implemented with respect to the Funds' Trust Shares.
The Services Plan provides compensation to institutions (including and currently
limited to Fleet Bank and its affiliates) which provide administrative and
support services to their customers who beneficially own Retail A Shares, at an
aggregate annual rate not to exceed 0.25% of the average daily net asset value
of the outstanding Retail A Shares of each Fund beneficially owned by such
customers. The Trust, under the direction of the Board of the Trustees, is
currently limiting fees payable under the Services Plan with respect to each
Fund to an aggregate annual rate not to exceed 0.10% of the average daily net
asset value of the outstanding Retail A Shares beneficially owned by such
customers.
The Trust has adopted a distribution and services plan (the "12b-1 Plan")
with respect to Retail B Shares of the Money Market Fund. Under the 12b-1 Plan,
the Trust may pay (i) the Distributor or another person for expenses and
activities primarily intended to result in the sale of Retail B Shares, (ii)
institutions for shareholder liaison services and (iii) institutions for
administrative support services. Currently, payments under the 12b-1 Plan for
distribution services are being made solely to broker-dealer affiliates of Fleet
Bank and payments under the 12b-1 Plan for shareholder liaison and
administrative support services are being made solely to Fleet Bank and its
affiliates. Payments for distribution expenses may not exceed an annual rate of
0.65% of the average daily net assets attributable to the Money Market Fund's
outstanding Retail B Shares. The fees paid for shareholder liaison and
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 Money
Market Fund's outstanding Retail B Shares owned of record or beneficially by
customers of institutions. The Trust is currently limiting the Money Market
Fund's payments for shareholder liaison and administrative support services
under the 12b-1 Plan to an aggregate fee of not more than 0.10% of the average
daily net asset value of Retail B Shares owned of record or benefi-
46
<PAGE>
Notes to Financial Statements
cially by customers of institutions. For the year ended October 31, 1999, the
Funds paid fees under the Services Plan and 12b-1 Plan as follows:
Services 12b-1 Plan
Fund Plan Services Distribution
---- -------- ------------
Money Market Fund .............. $2,222,784 $ 1,820 $ 14,506
Government Fund ................ 360,723 -- --
Tax-Exempt Fund ................ 169,840 -- --
U.S. Treasury Fund ............. 590,338 -- --
Connecticut Municipal
Money Market Fund .............. 214,029 -- --
Massachusetts Municipal
Money Market Fund .............. 202,530 -- --
The Retail A Shares, Retail B Shares and Trust Shares of a Fund bear
series specific transfer agent charges based upon the number of shareholder
accounts for each series. Trust Shares of the Funds (except the Tax-Exempt Fund)
also bear additional transfer agency fees in order to compensate Investor
Services Group for payments made to Fleet Bank, an affiliate of the Investment
Advisor, for performing certain sub-account and administrative functions on a
per account basis with respect to Trust Shares held by defined contribution
plans. These additional fees are based on the number of underlying participant
accounts. For the year ended October 31, 1999, transfer agent charges for each
series were as follows:
Fund Retail A Retail B Trust
-------- -------- -----
Money Market Fund .............. $2,001,491 $ 3,858 $ 176,872
Government Fund ................ 312,794 -- 71,847
Tax-Exempt Fund ................ 66,023 -- 57
U.S. Treasury Fund ............. 382,324 -- 24,239
Connecticut Municipal
Money Market Fund .............. 24,764 -- --
Massachusetts Municipal
Money Market Fund .............. 17,482 -- --
Certain officers of the Trust may be officers of the Administrator. Such
officers receive no compensation from the Trust for serving in their respective
roles. No officer, director or employee of the Investment Advisor serves as an
officer, trustee or employee of the Trust. Effective May 28, 1999, each Trustee
is entitled to receive for services as a trustee of the Trust, The Galaxy VIP
Fund ("VIP") and Galaxy Fund II ("Galaxy II") an aggregate fee of $45,000 per
annum plus certain other fees for attending or participating in meetings as well
as reimbursement for expenses incurred in attending meetings. Prior to May 28,
1999, each Trustee was entitled to receive for services as a trustee of the
Trust, VIP and Galaxy II an aggregate fee of $40,000 per annum plus certain
other fees for attending or participating in meetings as well as reimbursement
for expenses incurred in attending meetings. The Chairman of the Boards of
Trustees and the President and Treasurer of the Trust, VIP and Galaxy II are
also entitled to additional fees for their services in these capacities. These
fees are allocated among the funds of the Trust, VIP and Galaxy II, based on
their relative net assets.
Each Trustee is eligible to participate in The Galaxy Fund/The Galaxy VIP
Fund/Galaxy Fund II Deferred Compensation Plan (the "Plan"), an unfunded,
non-qualified deferred compensation plan. The Plan allows each trustee to defer
receipt of all or a percentage of fees which otherwise would be payable for
services performed.
Expenses for the year ended October 31, 1999 include legal fees paid to
Drinker Biddle & Reath LLP. A partner of that firm is Secretary of the Trust.
4. Waiver of Fees and Reimbursement of Expenses
The Investment Advisor and/or its affiliates voluntarily agreed to waive a
portion of its fees and/or reimburse the Funds for certain expenses so that
total expenses would not exceed certain expense limitations established for each
Fund. The InvestmentAdvisor and/or its affiliates, at their discretion, may
revise or discontinue the voluntary fee waivers and/or expense reimbursements at
any time. For the year ended October 31, 1999, the Investment Advisor and/or its
affiliates waived fees and/or reimbursed expenses with respect to the Funds in
the following amounts:
Fees Waived by
Fund Investment Advisor
------------------
Money Market Fund.............. $ 1,548,921
Government Fund................ 142,862
Expenses Reimbursed by
Fund Investment Advisor and/or Its Affiliates
----------------------------------------
Money Market Fund.............. $ 1,817
Tax-Exempt Fund................ 2,099
Connecticut Municipal
Money Market Fund.............. 76,784
Massachusetts Municipal
Money Market Fund.............. 69,574
5. Capital Contribution
On October 28, 1999, the Investment Adviser voluntarily contributed
capital to the Money Market Fund, Government Fund and U.S. Treasury Fund in the
amounts of approximately $1.3 million, $806,000 and $736,000, respectively.
These amounts were contributed to offset losses realized on the sale of certain
securities which occured in 1994. The Investment Adviser received no shares of
beneficial interest or other consideration in exchange for these contributions
which increased the net asset value of each Fund.
6. Shares of Beneficial Interest
The Trust's Declaration of Trust authorizes the Trustees to issue an
unlimited number of shares of beneficial interest in the Funds, each with a par
value of $0.001. The Trust's shares are classified into thirty-one classes of
shares, each consisting of one or more series.
47
<PAGE>
Notes to Financial Statements
Each share represents an equal proportionate interest in the respective
Fund, bears the same fees and expenses (except that Retail A Shares of a Fund
bear the expense of payments under the Services Plan, Retail B Shares of a Fund
bear the expense of payments under the 12b-1 Plan and Retail A Shares, Retail B
Shares and Trust Shares of a Fund each bear series specific transfer agent
charges) and are entitled to such dividends and distributions of income earned
as are declared at the discretion of the Trust's Board of Trustees.
Shareholders are entitled to one vote for each full share held and 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.
7. Concentration of Credit
The Connecticut Municipal Money Market and Massachusetts Municipal Money
Market Funds invest primarily in debt obligations issued by the State of
Connecticut and the Commonwealth of Massachusetts, respectively, and their
respective political subdivisions, agencies and public authorities to obtain
funds for various public purposes. Such Funds are more susceptible to economic
and political factors adversely affecting issuers of each respective state's
specific municipal securities than are municipal funds that are not concentrated
in these issuers to the same extent.
8. Federal Tax Information
At October 31, 1999, the following Funds had capital loss carryforwards:
Fund Amount Expiration
- ----------------- ------------ ----------
Tax-Exempt Fund.......... $ 120,301 2002
3,772 2003
7,498 2004
Connecticut Municipal
Money Market Fund........ 6,619 2002
817 2004
Massachusetts Municipal
Money Market Fund........ 133 2001
31 2002
12,416 2004
9. Tax Information (unaudited)
During the fiscal year ended October 31, 1999, the following Funds earned
income from direct obligations of the U.S. Government:
U.S. Government
Fund Income
- ----------------- ---------------
Money Market Fund........ 2.97%
Government Fund.......... 16.70%
U.S. Treasury Fund....... 100.00%
Appropriate tax information detailing U.S. Government income percentages
on a calendar year basis will accompany each shareholder's year-end tax
statement. As each state's rules on the exemption of this income differ, please
consult your tax advisor regarding specific tax treatment. 100% of the income
earned by the Tax-Exempt Fund, the Connecticut Municipal Money Market Fund and
the Massachusetts Municipal Money Market Fund will generally qualify as exempt
from federal and state taxation.
10. Subsequent Event - Change in Control of Administrator and Change in
Distributor (unaudited)
On December 1, 1999, PFPC Trust Company, a wholly-owned subsidiary of PFPC
Worldwide, Inc. and an indirect wholly-owned subsidiary of PNC Bank Corp.,
acquired all of the outstanding stock of Investor Services Group (the
"Transaction"). On that same date and as part of the Transaction, PFPC Inc., an
indirect wholly-owned subsidiary of PNC Bank Corp., was merged into Investor
Services Group, which then changed its name to PFPC Inc.
In connection with the Transaction, on December 1, 1999, Provident
Distributors, Inc. became the distributor of the Trust's shares.
48
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Shareholders and Board of Trustees of
The Galaxy Fund:
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of the Money Market Fund, Government Fund,
Tax-Exempt Fund, U.S. Treasury Fund, Connecticut Municipal Money Market Fund,
and Massachusetts Municipal Money Market Fund (six of the portfolios
constituting The Galaxy Fund) as of October 31, 1999, and the related statements
of operations, the statements of changes in net assets, and the financial
highlights for the year then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audit. The statements of changes in net assets for the year ended
October 31, 1998 and the financial highlights for the four years then ended were
audited by other auditors whose report dated December 23, 1998 expressed an
unqualified opinion on those statements and financial highlights.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in financial statements and
financial highlights. Our procedures included confirmation of securities owned
as of October 31, 1999 by correspondence with the custodian and brokers or other
appropriate auditing procedures where replies from brokers were not received. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Money Market Fund, Government Fund, Tax-Exempt Fund, U.S. Treasury Fund,
Connecticut Municipal Money Market Fund, and Massachusetts Municipal Money
Market Fund portfolios of The Galaxy Fund at October 31, 1999, the results of
their operations, changes in their net assets and their financial highlights for
the year then ended, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
December 13, 1999
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NORTH READING, MA
------------------
[LOGO] Galaxy
Funds
P.O. Box 6520
Providence, RI 02940-6520
ANMM (January 1, 2000)
<PAGE>
[GRAPHIC]
Galaxy Institutional Government Money Market Funds
Galaxy Funds
Annual Report
October 31, 1999
[LOGO] Galaxy
Funds
<PAGE>
Institutional Government Money Market Fund
Portfolio of Investments
October 31, 1999
Par Value Value
--------- ---------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 85.64%
Federal Home Loan Mortgage Corporation - 32.58%
$ 7,000,000 5.20%, 11/03/99 (A) ........................... $ 6,997,978
8,000,000 5.26%, 11/04/99 (A) ........................... 7,996,493
8,000,000 5.24%, 11/10/99 (A) ........................... 7,989,520
16,000,000 5.22%, 11/16/99 (A) ........................... 15,965,233
10,000,000 5.21%, 11/19/99 (A) ........................... 9,973,950
10,000,000 5.24%, 12/01/99 (A) ........................... 9,956,333
10,000,000 5.26%, 12/17/99 (A) ........................... 9,932,789
3,640,000 6.54%, 05/19/00 ............................... 3,660,143
------------
72,472,439
------------
Federal Home Loan Bank - 26.45%
8,000,000 5.23%, 11/05/99 (A) ........................... 7,995,351
5,000,000 5.11%, 11/17/99 (A) ........................... 4,988,644
10,000,000 5.24%, 12/17/99 (A) ........................... 9,933,044
5,000,000 5.52%, 01/21/00 (A) ........................... 4,937,900
9,000,000 5.16%, 03/08/00 ............................... 8,997,274
2,000,000 5.20%, 05/26/00 ............................... 1,999,582
5,000,000 5.23%, 07/28/00 (B) ........................... 4,997,787
5,000,000 5.71%, 08/09/00 ............................... 4,997,573
5,000,000 5.92%, 10/04/00 (B) ........................... 4,996,825
5,000,000 5.92%, 10/13/00 ............................... 4,995,639
------------
58,839,619
------------
Federal National Mortgage Association - 24.36%
8,000,000 5.25%, 11/03/99 (A) ........................... 7,997,667
8,000,000 5.22%, 11/12/99 (A) ........................... 7,987,240
8,000,000 5.22%, 11/23/99 (A) ........................... 7,974,480
7,000,000 5.21%, 11/26/99 (A) ........................... 6,974,674
8,300,000 5.22%, 12/02/99 (A) ........................... 8,262,692
6,000,000 4.86%, 02/10/00, MTN .......................... 5,987,973
4,000,000 5.23%, 07/26/00 (B) ........................... 3,998,169
5,000,000 5.18%, 08/04/00 (B) ........................... 4,997,730
------------
54,180,625
------------
Federal Farm Credit Bank (B) - 2.25%
5,000,000 5.24%, 09/01/00 ............................... 4,998,750
------------
Total U.S. Government and Agency Obligations .. 190,491,433
(Cost $190,491,433) ------------
See Notes to Financial Statements.
1
<PAGE>
Institutional Government Money Market Fund
Portfolio of Investments (continued)
October 31, 1999
Par Value Value
--------- ---------
REPURCHASE AGREEMENT - 13.94%
$ 31,009,000 Repurchase Agreement with:
J.P. Morgan
5.22%, 11/01/99, dated 10/29/99
Repurchase Price $31,022,489
(Collateralized by U.S. Treasury Notes
7.50%, Due 11/15/16
Total Par $28,128,000
Market Value $31,630,058) ..................... $ 31,009,000
------------
Total Repurchase Agreement .................... 31,009,000
(Cost $31,009,000) ------------
Shares
- ----------
INVESTMENT COMPANY - 0.07%
162,563 Federated U.S. Treasury Cash Reserve .......... 162,563
------------
Total Investment Company ...................... 162,563
(Cost $162,563) ------------
Total Investments - 99.65% ....................................... 221,662,996
(Cost $221,662,996)* ------------
Net Other Assets and Liabilities - 0.35% ......................... 779,742
------------
Net Assets - 100.00% ............................................. $222,442,738
============
- ----------
* Aggregate cost for Federal tax purposes.
(A) Discount yields at time of purchase.
(B) Interest is reset at various time intervals. The interest rate shown
reflects the rate in effect at October 31, 1999.
MTN Medium Term Note
See Notes to Financial Statements.
2
<PAGE>
Institutional Government Money Market Fund
Statement of Assets and Liabilities
October 31, 1999
ASSETS:
Investments
Investments at amortized cost (Note 2) ................. $ 190,653,996
Repurchase agreement ................................... 31,009,000
-------------
Total Investments at value ........................... 221,662,996
Cash ..................................................... 68
Receivable for shares sold ............................... 1,201,420
Interest and dividends receivable ........................ 497,945
Receivable from Investment Advisor (Note 4) .............. 57,701
-------------
Total Assets ........................................... 223,420,130
-------------
LIABILITIES:
Dividends payable ........................................ 928,278
Payable to Administrator (Note 3) ........................ 14,538
Trustees' fees and expenses payable (Note 3) ............. 8,923
Accrued expenses and other payables ...................... 25,653
-------------
Total Liabilities ...................................... 977,392
-------------
NET ASSETS .................................................. $ 222,442,738
=============
NET ASSETS consist of:
Par value (Note 5) ....................................... $ 222,443
Paid-in capital in excess of par value ................... 222,220,297
Undistributed net investment income ...................... 5,152
Accumulated net realized (loss) on investments sold ...... (5,154)
-------------
TOTAL NET ASSETS ............................................ $ 222,442,738
=============
Shares of beneficial interest outstanding ................... 222,442,740
-------------
NET ASSET VALUE,
offering and redemption price per share
(Net Assets / Shares Outstanding) ........................ $ 1.00
=============
See Notes to Financial Statements.
3
<PAGE>
Institutional Government Money Market Fund
Statement of Operations
For the year ended October 31, 1999
INVESTMENT INCOME:
Interest (Note 2) .......................................... $ 11,273,594
Dividends (Note 2) ......................................... 7,098
------------
Total investment income .................................. 11,280,692
------------
EXPENSES:
Investment advisory fee (Note 3) ........................... 449,594
Administration fee (Note 3) ................................ 202,317
Custodian fee .............................................. 19,048
Fund accounting fee (Note 3) ............................... 53,413
Professional fees (Note 3) ................................. 20,274
Transfer agent fee (Note 3) ................................ 4,918
Trustees' fees and expenses (Note 3) ....................... 4,394
Reports to shareholders .................................... 10,114
Miscellaneous .............................................. 97,968
------------
Total expenses before reimbursement/waiver (Note 4) ...... 862,040
------------
Less: reimbursement/waiver (Note 4) ...................... (413,203)
------------
Total expenses net of reimbursement/waiver ............... 448,837
------------
NET INVESTMENT INCOME ........................................ 10,831,855
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ......... $ 10,831,855
============
See Notes to Financial Statements.
4
<PAGE>
Institutional Government Money Market Fund
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Years ended October 31,
------------------------------
1999 1998
------------- -------------
<S> <C> <C>
NET ASSETS at beginning of period ........................... $ 200,319,062 $ 175,140,909
------------- -------------
Increase in Net Assets resulting from operations:
Net investment income .................................... 10,831,855 7,840,721
Net realized gain on investments sold .................... -- 27,132
------------- -------------
Net increase in net assets resulting from operations ... 10,831,855 7,867,853
------------- -------------
Dividends to shareholders from:
Net investment income .................................... (10,831,855) (7,840,539)
------------- -------------
Share Transactions:
Net proceeds from sales of shares ........................ 545,832,680 560,841,497
Issued to shareholders in reinvestment of dividends ...... 1,271,007 367,790
Cost of shares repurchased ............................... (524,980,011) (536,058,448)
------------- -------------
Net increase from share transactions ................... 22,123,676 25,150,839
------------- -------------
Net increase in net assets ............................. 22,123,676 25,178,153
------------- -------------
NET ASSETS at end of period (including line A) .............. $ 222,442,738 $ 200,319,062
============= =============
(A) Undistributed net investment income ..................... $ 5,152 $ 5,152
============= =============
OTHER INFORMATION:
Share Transactions:
Sold ..................................................... 545,832,680 560,841,497
Issued to shareholders in reinvestment of dividends ...... 1,271,007 367,790
Repurchased .............................................. (524,980,011) (536,058,448)
------------- -------------
Net increase in shares outstanding ....................... 22,123,676 25,150,839
============= =============
</TABLE>
See Notes to Financial Statements.
5
<PAGE>
Institutional Government Money Market Fund
Financial Highlights
For a share outstanding throughout each period
<TABLE>
<CAPTION>
Years ended October 31,
------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income (A) ........................... 0.05 0.05 0.05 0.05 0.05
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 ........................................... 4.92% 5.32% 5.09% 5.12% 5.53%
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ...................... $222,443 $200,319 $175,141 $500,927 $506,692
Ratios to average net assets:
Net investment income including
reimbursement/waiver .............................. 4.82% 5.17% 4.94% 5.00% 5.38%
Operating expenses including reimbursement/waiver ... 0.20% 0.20% 0.19% 0.19% 0.17%
Operating expenses excluding reimbursement/waiver ... 0.38% 0.36% 0.33% 0.33% 0.33%
</TABLE>
- ----------
(A) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or Administrator for the the years ended October
31, 1999, 1998, 1997, 1996 and 1995 were $0.05, $0.05, $ 0.05, $0.05 and $
0.05, respectively.
See Notes to Financial Statements.
6
<PAGE>
Notes to Financial Statements
1. Organization
The Galaxy Fund, a Massachusetts business trust (the "Trust"), is
registered under the Investment Company Act of 1940, as amended, (the "1940
Act") as an open-end management investment company. As of the date of this
report, the Trust offered twenty-nine managed investment portfolios. The
accompanying financial statements and financial highlights are those of the
Institutional Government Money Market Fund (formerly known as the Institutional
Treasury Money Market Fund) (the "Fund") only.
2. Significant Accounting Policies
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates. The following is a
summary of significant ac counting policies in conformity with generally
accepted accounting principles consistently followed by the Fund in the
preparation of the financial statements.
Portfolio Valuation: Securities in the Fund are valued utilizing the
amortized cost valuation method permitted in accordance with Rule 2a-7 under the
1940 Act. This method involves valuing a portfolio security initially at its
cost and thereafter assuming a constant amortization to maturity of any discount
or premium.
Securities Transactions and Investment Income: Securities transactions are
accounted for on a trade date basis. Net realized gains or losses on sales of
securities are determined by the identified cost method. Interest income is
recorded on the accrual basis.
Dividends to Shareholders: Dividends from net investment income are
declared daily and paid monthly. Net realized capital gains, if any, are
distributed at least annually.
Income dividends and capital gain dividends are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles.
Federal Income Taxes: The Trust treats the Fund as a separate entity for
federal income tax purposes. The Fund intends to qualify each year as a
"regulated investment company" under Subchapter M of the Internal Revenue Code.
By so qualifying, the Fund will not be subject to federal income taxes to the
extent that it distributes substantially all of its taxable or tax-exempt
income, if any, for its tax year ending October 31. In addition, by distributing
in each calendar year substantially all of its net investment income, capital
gains, and certain other amounts, if any, the Fund will not be subject to a
federal excise tax. Therefore, no federal income or excise tax provision is
recorded.
Expenses: The Trust accounts separately for the assets, liabilities and
operations of the Fund. Expenses directly attributable to the Fund are charged
to the Fund, while expenses which are attributable to more than one fund of the
Trust are allocated among the respective funds.
Repurchase Agreements: The Fund may engage in repurchase agreement
transactions with institutions that the Trust's investment advisor has
determined are creditworthy. Each repurchase agreement transaction is recorded
at cost plus accrued interest. The Fund requires that the securities
collateralizing a repurchase agreement transaction be transferred to the Trust's
custodian in a manner that is intended to enable the Fund to obtain those
securities in the event of a counterparty default. The value of the collateral
securities is monitored daily to ensure that the value of the collateral,
including accrued interest, equals or exceeds the repurchase price. Repurchase
agreement transactions involve certain risks in the event of default or
insolvency of the counterparty, including possible delays or restrictions upon a
Fund's ability to dispose of the under lying securities, and a possible decline
in the value of the underlying securities during the period while the Fund seeks
to assert its rights.
3. Investment Advisory, Administration and Other Fees
The Trust and Fleet Investment Advisors Inc. (the "Investment Advisor"),
an indirect wholly-owned subsidiary of FleetBoston Corporation are parties to an
investment advisory agreement under which the Investment Advisor provides
advisory services for a fee, computed daily and paid monthly, at the annual rate
of 0.20% of the average daily net assets of the Fund (see Note 4).
The Trust and First Data Investor Services Group, Inc. ("Investor Services
Group"), a wholly-owned subsidiary of First Data Corporation, are parties to an
administration agreement under which Investor Services Group (the
"Administrator") provides services for a fee, computed daily and paid monthly,
at the annual rate, effective September 10, 1998, of 0.09% of the first $2.5
billion of the combined average daily net assets of the Fund and the other funds
offered by the Trust (whose financial state-
7
<PAGE>
Notes to Financial Statements
ments are provided in separate reports), 0.085% of the next $2.5 billion of
combined average daily net assets, 0.075% of the next $7 billion of combined
average daily net assets, 0.065% of the next $3 billion of combined average
daily net assets, 0.06% of the next $3 billion of combined average daily net
assets and 0.0575% of combined average daily net assets in excess of $18
billion. Prior to September 10, 1998, Investor Services Group received
administration fees at the annual rate of 0.09% of the first $2.5 billion of
combined average daily net assets of the Fund and the other funds offered by the
Trust, 0.085% of the next $2.5 billion of combined average daily net assets and
0.075% of combined average daily net assets over $5 billion.
In addition, Investor Services Group also provides certain fund
accounting, custody administration and transfer agency services pursuant to
certain fee arrangements. In accordance with such fee arrangements, Investor
Services Group compensates the Trust's custodian bank, The Chase Manhattan Bank,
for its services.
First Data Distributors, Inc. (the "Distributor"), a wholly-owned
subsidiary of Investor Services Group and an indirect wholly-owned subsidiary of
First Data Corporation, acts as the distributor of the Trust's shares.
Certain officers of the Trust may be officers of the Administrator. Such
officers receive no compensation from the Trust for serving in their respective
roles. No officer, director or employee of the Investment Advisor serves as an
officer, trustee or employee of the Trust. Effective May 28, 1999, each Trustee
is entitled to receive for services as a trustee of the Trust, The Galaxy VIP
Fund ("VIP") and Galaxy Fund II ("Galaxy II") an aggregate fee of $45,000 per
annum plus certain other fees for attending or participating in meetings as well
as reimbursement for expenses incurred in attending meetings. Prior to May 28,
1999, each trustee was entitled to receive for services as a Trustee of the
Trust, VIP and Galaxy II an aggregate fee of $40,000 per annum plus certain
other fees for attending or participating in meetings as well as reimbursement
for expenses incurred in attending meetings. The Chairman of the Boards of
Trustees and the President and Treasurer of the Trust, VIP and Galaxy II are
also entitled to additional fees for their services in these capacities. These
fees are allocated among the funds of the Trust, VIP and Galaxy II based on
their relative net assets.
In addition, each Trustee is eligible to participate in The Galaxy
Fund/The Galaxy VIP Fund/Galaxy Fund II Deferred Compensation Plan (the "Plan"),
an unfunded, non-qualified deferred compensation plan. The Plan allows each
trustee to defer receipt of all or a percentage of fees which otherwise would be
payable for services performed.
Expenses for the year ended October 31, 1999 include legal fees paid to
Drinker Biddle & Reath LLP. A partner of that firm is Secretary of the Trust.
4. Waiver of Fees and Reimbursement of Expenses
The Investment Advisor and Administrator voluntarily agreed to waive a
portion of their fees and/or to reimburse certain expenses so that total
expenses of the Fund would not exceed certain expense limitations. For the year
ended October 31, 1999, the Investment Advisor and Administrator waived fees
totaling $224,797 and $89,919, respectively, and the Investment Advisor
reimbursed expenses of $98,487 with respect to the Fund. The Investment Advisor
and Administrator, at their discretion, may revise or discontinue the voluntary
fee waivers and/or expense reimbursements at anytime.
5. Shares of Beneficial Interest
The Trust's Declaration of Trust authorizes the Trustees to issue an
unlimited number of shares of beneficial interest in the Fund, each with a par
value of $0.001. The Trust's shares are classified into thirty-one classes of
shares consisting of one or more series of shares.
6. Capital Loss Carryforward
As of October 31, 1999, the Fund had capital loss carryforwards of $5,154
expiring in 2004.
7. Subsequent Event - Change in Control of Administrator and Change in
Distributor (unaudited)
On December 1, 1999, PFPC Trust Company, a wholly-owned subsidiary of PFPC
Worldwide, Inc. and an indirect wholly-owned subsidiary of PNC Bank Corp.,
acquired all of the outstanding stock of Investor Services Group (the
"Transaction"). On that same date and as part of the Transaction, PFPC Inc., an
indirect wholly-owned subsidiary of PNC Bank Corp., was merged into Investor
Services Group, which then changed its name to PFPC Inc.
In connection with the Transaction, on December 1, 1999, Provident
Distributors, Inc. became the distributor of the Trust's shares.
8
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Shareholders and Board of Trustees of
The Galaxy Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of the Institutional Government Money Market Fund,
a portfolio of The Galaxy Fund, as of October 31, 1999, and the related
statement of operations, the statement of changes in net assets, and the
financial highlights for the year then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit. The statement of changes in net assets
for the year ended October 31, 1998 and the financial highlights for the four
years then ended were audited by other auditors whose report dated December 23,
1998 expressed an unqualified opinion on that statement of changes in net assets
and those financial highlights.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in financial statements and
financial highlights. Our procedures included confirmation of securities owned
as of October 31, 1999 by correspondence with the custodian. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Institutional Government Money Market Fund portfolio of The Galaxy Fund at
October 31, 1999, the results of its operations, changes in its net assets and
its financial highlights for the year then ended, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
December 13, 1999
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BULK RATE
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NORTH READING, MA
------------------
[LOGO] Galaxy
Funds
P.O. Box 6520
Providence, RI 02940-6520
ANINSTMM (January 1, 2000)
<PAGE>
EXHIBIT 17(b)(viii)
Boston 1784 Institutional
Money Market Funds
[LOGO]
Annual Report to Shareholders
May 31, 1999
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
LETTER TO SHAREHOLDERS 1
INVESTMENT ADVISER'S REPORT 2
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE 5
FINANCIAL STATEMENTS 7
REPORT OF INDEPENDENT ACCOUNTANTS 19
NOTICE TO SHAREHOLDERS 20
BOSTON 1784 FUNDS:
[ ] ARE NOT INSURED BY THE FDIC OR ANY OTHER GOVERNMENTAL AGENCY;
[ ] ARE NOT GUARANTEED BY BANKBOSTON N.A. OR ANY OF ITS AFFILIATES;
[ ] ARE NOT DEPOSITS OR OBLIGATIONS OF BANKBOSTON, N.A. OR ANY
OF ITS AFFILIATES;
[ ] INVOLVE INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL
AMOUNT INVESTED.
BANKBOSTON, N.A. SERVES AS INVESTMENT ADVISER AND SHAREHOLDER
SERVICING AGENT FOR BOSTON 1784 FUNDS. BOSTON 1784 FUNDS ARE
DISTRIBUTED BY SEI INVESTMENTS DISTRIBUTION CO., A PARTY INDEPENDENT
OF BANKBOSTON, N.A. AND ITS AFFILIATES. INVESTMENT COUNSELORS
ARE REGISTERED REPRESENTATIVES OF BANKBOSTON INVESTOR SERVICES, INC.
(MEMBER NASD/SIPC), A WHOLLY-OWNED SUBSIDIARY OF BANKBOSTON, N.A.
AN INVESTMENT IN A MONEY MARKET FUND IS NOT INSURED OR GUARANTEED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
ALTHOUGH MONEY MARKET FUNDS SEEK TO PRESERVE THE VALUE OF YOUR INVESTMENT
AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN A MONEY
MARKET FUND.
<PAGE>
BOSTON 1784 INSTITUTIONAL
MONEY MARKET FUNDS
LETTER TO SHAREHOLDERS
- --------------------------------------------------------------------------------
[PHOTO] [PHOTO]
Catherine N. Thornton Robert Nesher
Managing Director Presidnet
It is a pleasure to provide this Annual Report on the strategies and performance
of the Boston 1784 Money Market Funds specifically designed for institutional
investors:
[ ] BOSTON 1784 INSTITUTIONAL U.S. TREASURY MONEY MARKET FUND --
The Fund's total return for the year ended May 31, 1999 was
4.90%, which ranked in the top 20% (23 of 118) of funds in the
Lipper Institutional U.S. Treasury Money Market Average. Also
of significance, the Fund maintained its "AAAm" rating from
Standard and Poor's. The rating is based on the Fund's credit
quality, market price exposure and management. The Fund's
total net assets grew from $4.29 billion on May 31, 1998 to
$4.35 billion as of May 31, 1999.
[ ] BOSTON 1784 INSTITUTIONAL PRIME MONEY MARKET FUND -- For the year ended May
31, 1999, the Fund generated a total return of 5.10%. Net assets increased
70% from $302.3 million on May 31, 1998 to $516.9 million on May 31, 1999.
Please remember that a Fund's performance in the past is not necessarily an
indication of how a Fund will do in the future.
You'll find more complete information on both Boston 1784 Institutional U.S.
Treasury Money Market Fund and Boston 1784 Institutional Prime Money Market Fund
in this report.
We would also like to call your attention to several changes that may occur in
the coming months. On March 14, 1999, BankBoston Corporation and Fleet Financial
Group, Inc. entered into an Agreement and Plan of Merger, under which the two
institutions will merge to form a new entity - Fleet Boston. BankBoston
Corporation is the parent company of BankBoston, N.A., the investment adviser or
co-investment adviser of Boston 1784 Funds. The proposed merger is subject to
regulatory and shareholder approval and other conditions, and is expected to be
effective in the last quarter of 1999. If the merger occurs, BankBoston, N.A.
will become a subsidiary of the merged company.
If you have questions about your account, please contact your Investment
Counselor or call 1-800-BKB-1784, Monday through Friday from 8 a.m. to 6 p.m.
(Eastern time).
Thank you for selecting Boston 1784 Funds to manage your cash reserves.
Sincerely,
/s/ Robert Nesher /s/ Catherine N. Thornton
----------------------- -------------------------
Robert Nesher Catherine N. Thornton
President Managing Director,
Boston 1784 Funds Investment Services
BankBoston, N.A.
1
<PAGE>
INVESTMENT ADVISER'S REPORT
- --------------------------------------------------------------------------------
[PHOTO OMITTED]
Edward G. Riley, Jr.
Chief Investment Officer
When investment advisers and fund managers discuss volatility, they
typically focus on the financial/statistical variety--the kind that can be
measured by numbers like "beta" and "standard deviation." The past year
certainly had its share of that sort of volatility, but it exhibited other
varieties as well, as the pendulum swung rapidly from deflation fears to
inflation scares, crashing foreign markets to recovering Asian economies, growth
stocks leadership to emerging cyclical strength...the list goes on and on. In
short, it was one of the most volatile years of the by-now-elderly economic
expansion that has held sway for 8 years.
Certainly, the U.S. economy continued to expand, growing at remarkable 4%,
6% and 4.3% rates for the quarters ending September 1998, December 1998 and
March 1999, respectively. Economic momentum was sustained in the beginning of
1999 by a combination of factors: tax refunds and year-end bonuses fueled
spending; low unemployment and rising incomes, which grew faster than inflation,
supported high levels of consumer confidence. And the "Wealth Effect"--the
result of the unprecedented bull market and widespread 401(k) investing in the
stock market--was good for spending and confidence alike.
The "Wealth Effect" is perhaps the most significant variable in any
economic or investing forecast. Surging equity values have pushed stock market
wealth up $4 trillion in the past two years (from $7 trillion to $11 trillion).
Home equity (market price minus mortgage owed) has added another $1 trillion of
perceived wealth, rising from $5 trillion to $6 trillion in the past three
years. With more households now owning equities than ever before (50% today vs.
32% a decade ago), a market correction will affect many more investors. Will new
investors remain patient or will they sell en masse? Complicating matters
further, investor expectations seem to have been ratcheted up to unrealistic
levels by returns that have averaged about 30% over the last four years and
18.6% over the last 18 years--compared with about 10% for the past century.
Surveys show that investors expect annual equity returns in the 15% to 35%
range. What would a year of negative returns, no matter how slight, hold for the
economy?
So the fact that we remain immersed in the longest peacetime recovery on
record is both good news and bad news. At this point, after eight years without
a recession, reversion to the mean--whether in the economy or the markets--may
prove very mean indeed.
To be sure, cyclical pressures are building, which forced the Federal
Reserve Board to raise short-term interest rates by .25% in June 1999. But our
long-term view of interest rates remains intact. We see secular disinflation
dominating over the long term for several reasons:
2
<PAGE>
BOSTON 1784 INSTITUTIONAL
MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
[ ] Unit labor costs are declining--good news since 65% of the operating
costs for most companies is labor.
[ ] The continued focus on productivity, advances in technology and the
determination to enhance shareholder value align management efforts
with inflation containment.
[ ] Global overcapacity in industries ranging from autos to chemicals
should keep deflationary pressures dominant.
[ ] The Internet will force competitive pricing across virtually all goods
and services.
[ ] The Federal Reserve Board's vigilant monetary policy--and the readiness
of the "Bond Vigilantes" to bid up interest rates at the first whiff of
inflation--should mitigate any dangerous inflationary tendencies.
Despite the roller coaster ride in between, the 30-year U.S. Treasury rate
is about where it was twelve months ago: within a few basis points of 6.00%.
That's a far cry, however, from the 4.75% rate last fall. In the preceding weeks
and months, the Russian default, troubled Latin American markets, and the
near-failure of a major hedge fund operator thoroughly unsettled the market, and
a flight to quality dramatically increased demand and bond prices (which move in
the opposite direction from interest rates).
With the financial markets extremely skittish in the fall, the Federal
Reserve Board reduced short-term interest rates from 5.50% to 4.75% to provide
liquidity. That stimulus--along with nearly 150 other central bank easings
around the world during the past twelve months--had the desired affect of
sustaining and accelerating widespread economic growth.
Although we foresee little inflationary threat in the immediate future, the
Federal Reserve Board raised interest rates in June 1999 as concerns about
inflationary pressures and an overheated economy mounted. Despite the recent
intervention by the Federal Reserve Board, we expect rates to actually drift
lower in yield over the coming year, and the 30-year U.S. Treasury Bond to yield
between 5.00% and 5.75% by the end of 1999. Indeed, a number of other factors
also argue for lower rates over the next six to twelve months--despite the
current disquiet:
[ ] U.S. economic growth is likely to slow during the summer and fall.
[ ] Any inflationary spurt should prove short-lived, as secular
deflationary forces take hold (i.e. global overcapacity, declining
crude oil prices, labor insecurity sparked by merger-related layoffs,
and additional financial meltdowns in foreign countries).
[ ] As long-term rates rise, some of the $1.7 trillion currently resting in
money market funds will move into bonds, moderating rate increases.
3
<PAGE>
[ ] Cash flows into bond mutual funds remain strong--about $7 billion to $8
billion per month.
[ ] Asset allocation strategies are likely to focus more on bonds as stock
market volatility increases and small- and mid-cap investors move into
a (theoretically) more predictable asset class.
[ ] Healthy tax receipts will eliminate the need for government borrowing,
and $100 billion in debt retirement will reduce supply and increase
prices and therefore decrease rates.
With signs of inflation on the horizon, the Federal Reserve Board
intervened recently to raise interest rates and slow the economy. We believe
such higher rates will be a short-lived phenomenon and will likely be reduced by
subsequent Federal Reserve Board action late in 1999 or early the next year. As
a result, money market investors may experience flat or weaker returns.
/s/ Edward G. Riley, Jr.
- -----------------------------
Edward G.Riley, Jr.
Chief Investment Officer
BankBoston, N.A.
[GRAPHIC OMITTED]
In the printed version of the document, a line graph
appears which depicts the following plot points:
Federal Funds Rate
May 1996 - May 1999
May-96 Nov-96 May-97 Nov-97 May-98 Nov-98 May-99
5.24 5.31 5.50 5.50 5.50 4.75 4.75
4
<PAGE>
BOSTON 1784 INSTITUTIONAL
MONEY MARKET FUNDS
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
BOSTON 1784 INSTITUTIONAL U.S. TREASURY MONEY MARKET FUND
Objective: To preserve the principal value of a shareholder's investment and to
maintain a high degree of liquidity while providing current income.
Boston 1784 U.S. Treasury Money Market Fund invests primarily in U.S. government
agency securities, U.S. Treasury obligations and repurchase agreements fully
collateralized by U.S. Treasury obligations. The Fund's net assets grew from
$4.29 billion on May 31, 1998 to $4.35 billion on May 31, 1999.
For the year ended May 31, 1999, the Fund had a total return of 4.90%,
compared with returns of 4.79% for the IBC/Financial Data Government-Only
Institutional-Only Average and 4.68% for the Lipper Institutional U.S. Treasury
Money Market Average. The Fund ranked in the top 20% (23 of 118) of the Lipper
Institutional U.S. Treasury Money Market Average. The 7-day yield as of May 31,
1999 was 4.50%.
The Fund is rated AAAm by Standard and Poor's. The rating is based on an
analysis of the Fund's credit quality, market price exposure and management. The
rating signifies that, in the opinion of Standard and Poor's, the Fund offers
excellent safety of investment principal and superior capacity to maintain a
$1.00 per share net asset value at all times. The Fund attempts to maintain
these characteristics through conservative investment practices and strict
internal controls. The Fund is reviewed on a weekly basis by Standard and
Poor's.
During the year ended May 31, 1999, the Fund's investments were
concentrated in longer-maturity U.S. Treasury securities and shorter-maturity
U.S. government agency securities and repurchase agreements. The actions of the
Federal Reserve Board, which lowered the Federal Funds rate three times in the
second half of 1998 from 5.50% to 4.75%, did not favor money market investors
during the Fund's fiscal year. However, the Fund maintained an average maturity
of 35 to 45 days, which positively affected the Fund's performance during a
period of declining interest rates.
In response to concerns about inflation, the Federal Reserve Board raised
short-term interest rates by .25% in June 1999. This recent move will benefit
money market investors for a period of time.
BOSTON 1784 INSTITUTIONAL U.S. TREASURY
MONEY MARKET FUND
Comparison of Change in the Value of a $10,000 Investment
in Boston 1784 Institutional U.S. Treasury Money Market Fund, versus
the IBC/Financial Data Government-Only Institutional-Only Average
and the Lipper Institutional U.S. Treasury Money Market Average
[GRAPHIC OMITTED]
In the printed version of the document, a line graph
appears which depicts the following plot points:
One Year Return 4.90%
Annualized 3 Year Return 5.14%
Annualized 5 Year Return 5.19%
Annualized Inception to Date* 4.84%
BOSTON 1784 INSTITUTIONAL U.S. TREASURY MONEY MARKET FUND $13,243
IBC/FINANCIAL DATA GOVERNMENT-ONLY INSTITUTIONAL-ONLY AVERAGE $13,170
LIPPER INSTITUTIONAL U.S. TREASURY MONEY MARKET AVERAGE $13,113
Past performance of the Fund is not predictive of finance performance
* Inception date 6/14/93
5
<PAGE>
- --------------------------------------------------------------------------------
BOSTON 1784 INSTITUTIONAL PRIME MONEY MARKET FUND
Objective: To preserve the principal value of a shareholder's investment and to
maintain a high degree of liquidity while providing current income.
Boston 1784 Prime Money Market Fund invests primarily in high quality money
market instruments, including short-term U.S. government obligations, corporate
bonds, bank obligations (including certificates of deposit, bankers' acceptances
and fixed time obligations), commercial paper, variable rate demand notes,
taxable municipal securities and repurchase agreements. During the past year,
the Fund's net assets grew from $302.3 million on May 31, 1998 to $516.9 million
on May 31, 1999.
For the twelve months ended May 31, 1999, the Fund had a total return of
5.10%, compared with returns of 5.04% for the IBC/Financial Data First Tier
Institutional Only Average and 5.03% for the Lipper Institutional Money Market
Funds Average for the same period. The 7-day yield as of May 31, 1999 was 4.65%.
The Fund's return reflects a waiver of certain management fees and expenses (see
Financial Highlights).
During the year ended May 31, 1999, nearly 20% of the Fund's portfolio
consisted of asset-backed commercial paper, which offers higher yields than
other commercial paper and positively impacted the Fund's performance. In
addition, the Fund maintained an average maturity of 45-55 days during the same
period, which also favorably impacted the Fund's performance.
Concerns about inflationary pressures forced the Federal Reserve Board to
tighten monetary policy and raise short-term interest rates by .25% in June
1999. This recent Federal Reserve Board intervention will favor money market
investors for a period of time.
BOSTON 1784 INSTITUTIONAL
PRIME MONEY MARKET FUND
Comparison of Change in the Value of a $10,000 Investment
in Boston 1784 Institutional Prime Money Market Fund, versus
the IBC/Financial Data Government-Only Institutional-Only Average
and the Lipper Institutional U.S. Treasury Money Market Average
[GRAPHIC OMITTED]
In the printed version of the document, a line graph
appears which depicts the following plot points:
One Year Return 5.10%
Annualized Inception to Date* 5.25%
BOSTON 1784 INSTITUTIONAL PRIME MONEY MARKET FUND $10,795
IBC/FINANCIAL DATA GOVERNMENT-ONLY INSTITUTIONAL-ONLY AVERAGE $10,787
LIPPER INSTITUTIONAL U.S. TREASURY MONEY MARKET AVERAGE $10,782
Past performance of the Fund is not predictive of finance performance
* Inception date 11/5/97
6
<PAGE>
BOSTON 1784 INSTITUTIONAL
MONEY MARKET FUNDS
AS OF MAY 31, 1999
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
Boston 1784 Institutional U.S. Treasury Money Market Fund
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
U.S. Government Agency Obligations -- 34.0%
Fannie Mae MTN
6.450%, 07/01/99 $ 15,000 $ 15,016
Federal Agricultural Mortgage
Corporation (A)
4.760%, 06/21/99 40,000 39,895
Federal Farm Credit Bank
MTN (B)
5.121%, 06/01/99 45,000 44,984
Federal Home Loan Bank
5.630%, 06/15/99 22,000 22,007
5.070%, 10/08/99 7,110 7,110
5.030%, 10/29/99 25,000 25,000
5.000%, 12/29/99 30,425 30,424
4.910%, 02/09/00 25,000 25,000
5.100%, 03/09/00 23,920 23,917
5.115%, 03/17/00 3,000 3,000
5.040%, 03/29/00 23,990 23,980
5.020%, 05/12/00 28,190 28,169
Federal Home Loan Bank (B)
5.161%, 06/01/99 45,000 45,000
4.721%, 06/08/99 45,000 44,994
Federal Home Loan Mortgage
Corporation (A)
4.716%, 06/02/99 7,568 7,567
4.799%, 06/04/99 50,000 49,980
4.773%, 06/07/99 31,558 31,533
4.773%, 06/08/99 12,500 12,488
4.747%, 06/10/99 10,186 10,174
4.737%, 06/10/99 45,000 44,947
4.729%, 06/11/99 30,000 29,961
4.763%, 06/16/99 25,000 24,951
4.753%, 06/18/99 30,000 29,933
4.796%, 06/18/99 30,000 29,933
4.744%, 06/21/99 30,000 29,921
4.795%, 06/23/99 30,000 29,914
4.795%, 06/24/99 30,000 29,910
4.800%, 06/25/99 40,000 39,874
4.810%, 06/25/99 15,000 14,953
4.815%, 06/28/99 50,000 49,822
4.830%, 06/29/99 11,522 11,479
4.754%, 07/23/99 30,000 29,796
4.840%, 08/06/99 50,000 49,565
4.797%, 08/20/99 40,000 39,581
4.827%, 09/08/99 50,000 49,350
4.849%, 09/09/99 20,000 19,737
4.856%, 09/24/99 45,000 44,319
Federal National Mortgage
Association
5.050%, 05/12/00 20,000 19,983
Federal National Mortgage
Association (A)
4.721%, 06/11/99 20,000 19,974
4.811%, 06/14/99 32,360 32,304
4.756%, 06/15/99 22,650 22,608
4.830%, 06/17/99 50,000 49,894
4.742%, 06/18/99 20,000 19,955
4.797%, 06/23/99 30,000 29,912
4.755%, 07/22/99 47,373 47,057
4.846%, 09/22/99 70,000 68,961
Student Loan Marketing
Association (B)
5.101%, 06/01/99 77,470 77,439
----------
Total U.S. Government
Agency Obligations
(Cost $1,476,271) 1,476,271
----------
U.S. Treasury Obligations -- 17.4%
U.S. Treasury Bills (A)
4.774%, 06/15/99 135,000 134,750
4.390%, 07/22/99 45,000 44,720
4.481%, 08/05/99 45,000 44,644
4.544%, 08/19/99 45,000 44,557
4.566%, 10/28/99 45,000 44,168
4.681%, 11/04/99 50,000 49,008
U.S. Treasury Notes
6.000%, 06/30/99 45,000 45,054
5.875%, 07/31/99 45,000 45,065
5.875%, 08/31/99 45,000 45,140
6.875%, 08/31/99 30,000 30,155
5.750%, 09/30/99 50,000 50,182
7.125%, 09/30/99 45,000 45,368
5.625%, 11/30/99 47,500 47,696
5.375%, 01/31/00 22,500 22,593
5.500%, 03/31/00 61,000 61,346
----------
Total U.S. Treasury Obligations
(Cost $754,446) 754,446
----------
7
<PAGE>
AS OF MAY 31, 1999
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Repurchase Agreements -- 51.7%
Dean Witter
4.790%, dated 05/28/99,
matures 06/01/99,
repurchase price $355,188,939
(collateralized by U.S. Treasury
Instruments: total market
value $362,100,358) (C) 355,000 355,000
First Boston
4.750%, dated 05/28/99,
matures 06/01/99,
repurchase price $185,097,639
(collateralized by U.S. Treasury
Bonds: total market value
$188,699,705) (C) 185,000 185,000
Greenwich Capital
4.800%, dated 05/28/99,
matures 06/01/99, repurchase
price $410,218,667
(collateralized by U.S. Treasury
Instruments: total market value
$418,200,364) (C) 410,000 410,000
J.P. Morgan
4.810%, dated 05/28/99,
matures 06/01/99, repurchase
price $569,650,554
(collateralized by U.S. Treasury
Instruments: total market value
$580,733,827) (C) 569,346 569,346
Prudential Securities
4.800%, dated 5/28/99, matures
06/01/99, repurchase price
$730,389,333 (collateralized
by U.S. Treasury Instruments:
total market value
$744,569,899) (C) 730,000 730,000
----------
Total Repurchase Agreements
(Cost $2,249,346) 2,249,346
----------
Total Investments -- 103.1%
(Cost $4,480,063) 4,480,063
----------
Other Assets and Liabilities,
Net -- (3.1%) (134,026)
----------
Net Assets:
Capital Shares (unlimited
authorization -- no par value)
based on 4,345,797,418
outstanding shares of beneficial interest $4,345,797
Undistributed net investment income 192
Accumulated net realized gain
on investments 48
----------
Total Net Assets -- 100.0% $4,346,037
==========
Net Asset Value, Offering and
Redemption Price Per Share $1.00
==========
(A) The rate reported on the Statement of Net Assets is the effective yield as
of May 31, 1999.
(B) Variable Rate Security. The rate reported on the Statement of Net Assets is
the rate in effect on May 31, 1999. The date shown is the next scheduled
reset date.
(C) Tri-Party Repurchase Agreement
MTN -- Medium Term Note
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
BOSTON 1784 INSTITUTIONAL
MONEY MARKET FUNDS
AS OF MAY 31, 1999
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
Boston 1784 Institutional Prime Money Market Fund
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Commercial Paper -- 57.6%
Automotive -- 2.9%
Daimler Chrysler (A)
4.880%, 06/11/99 $10,000 $ 9,987
4.853%, 07/26/99 4,930 4,894
--------
14,881
--------
Banks -- 1.9%
Bank of America (A)
4.921%, 10/14/99 10,000 9,820
--------
Computers & Services -- 1.8%
IBM (A)
4.846%, 06/28/99 9,500 9,466
--------
Containers & Packaging -- 1.9%
Alcoa Aluminum (A)
4.799%, 06/24/99 10,000 9,970
--------
Financial Services -- 21.4%
Alpine Securitization (A)
4.847%, 06/08/99 8,000 7,992
4.936%, 08/10/99 8,563 8,482
Caterpillar (A)
4.829%, 06/30/99 10,000 9,961
4.843%, 08/04/99 4,375 4,338
CIT Group (A)
4.903%, 06/01/99 15,000 15,000
Fountain Square Funding (A)
4.888%, 07/27/99 2,546 2,527
4.949%, 10/25/99 2,051 2,011
General Electric Capital (A)
4.865%, 06/11/99 5,400 5,393
4.869%, 07/28/99 10,700 10,618
J.P. Morgan (A)
4.940%, 06/07/99 8,000 7,994
4.905%, 07/15/99 5,000 4,971
Old Line Funding (A)
4.856%, 06/04/99 10,000 9,996
4.846%, 06/17/99 6,312 6,298
Prudential Funding (A)
4.810%, 06/04/99 10,000 9,996
Sigma Financial (A)
4.893%, 08/19/99 5,000 4,947
--------
110,524
--------
Food, Beverage & Tobacco -- 2.0%
Anheuser Busch (A)
4.903%, 06/01/99 10,000 10,000
--------
Mortgage Related -- 13.0%
Barton Capital (A)
4.845%, 06/07/99 4,160 4,157
4.921%, 07/19/99 8,000 7,948
5.032%, 11/30/99 5,000 4,877
Concord Minuteman Capital (A)
4.849%, 06/10/99 10,000 9,988
4.927%, 06/18/99 5,224 5,212
4.939%, 07/19/99 5,000 4,968
Lexington Parker (A)
4.869%, 07/20/99 10,000 9,934
4.932%, 10/07/99 10,000 9,829
Wood Street Funding (A)
4.860%, 06/04/99 10,217 10,213
--------
67,126
--------
Petroleum Refining -- 3.9%
BP America (A)
4.923%, 06/01/99 20,000 20,000
--------
Taxable Municipals -- 4.3%
Dekalb County, Georgia,
Emory University
4.950%, 06/03/99 5,140 5,140
4.850%, 06/09/99 3,400 3,400
New York City, New York
4.900%, 06/03/99 2,500 2,500
4.950%, 06/03/99 2,800 2,800
4.850%, 06/09/99 3,335 3,335
4.900%, 07/22/99 3,150 3,150
New York City, New York, FGIC
4.800%, 06/10/99 2,100 2,100
--------
22,425
--------
Telephones & Telecommunications -- 1.9%
AT&T (A)
4.772%, 06/08/99 10,000 9,991
--------
9
<PAGE>
AS OF MAY 31, 1999
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Utilities -- 2.6%
Lower Colorado River Authority (A)
4.900%, 06/02/99 $ 9,900 $ 9,900
4.950%, 06/03/99 3,500 3,500
--------
13,400
--------
Total Commercial Paper
(Cost $297,603) 297,603
--------
Corporate Bonds -- 12.5%
Advocare (B)
4.920%, 06/02/99 4,250 4,250
American General
6.875%, 07/01/99 6,000 6,009
Associates Corporation, MTN
7.820%, 10/21/99 3,000 3,032
AVCO Financial Services
7.250%, 07/15/99 4,400 4,411
Bear Stearns
7.625%, 09/15/99 1,075 1,081
Bowie Assisted Living,
Series 1997, LOC (B) (C)
5.350%, 06/02/99 6,700 6,700
Chase Manhattan Bank
5.875%, 08/04/99 3,440 3,442
7.750%, 11/01/99 8,800 8,901
Chrysler Financial, MTN
6.160%, 07/28/99 4,385 4,392
CIT Group, MTN
6.800%, 04/17/00 4,670 4,728
General Electric Capital
5.040%, 01/18/00 2,000 2,001
General Motors Acceptance
8.400%, 10/15/99 1,200 1,214
General Motors Acceptance, MTN
6.700%, 04/17/00 4,000 4,052
Norwest Financial
7.625%, 10/15/99 1,000 1,009
6.000%, 03/15/00 3,000 3,018
Service Graphics (B)
4.950%, 06/02/99 2,000 2,000
Uno, LOC (B)
4.950%, 06/02/99 2,900 2,900
Wachovia
7.000%, 12/15/99 1,618 1,633
--------
Total Corporate Bonds
(Cost $64,773) 64,773
--------
Taxable Municipal Bonds -- 7.1%
Barton Healthcare (B)
4.950%, 06/02/99 600 600
Catholic Health Initiatives (B)
4.900%, 06/02/99 6,500 6,500
Collier County, Florida,
Community Health Care
Authority RB, LOC (B)
4.950%, 06/03/99 3,400 3,400
Dade County, Florida,
Expressway Authority
Toll System RB, Series 1996,
FGIC (B)
4.900%, 06/03/99 1,200 1,200
Health Midwest Venture (B)
4.950%, 06/02/99 2,000 2,000
Illinois State Student Assistance
RB, LOC (B)
4.950%, 06/02/99 5,000 5,000
Los Angeles, California,
Community Redevelopment
Agency RB, FSA (B)
4.950%, 06/02/99 5,500 5,500
Maryland State Health & Higher
Education Facilities RB,
Series B, LOC (B)
5.100%, 06/02/99 3,000 3,000
Olathe, Kansas, Industrial RB,
LOC (B)
4.900%, 06/03/99 2,300 2,300
Union County, Arkansas,
Industrial RB, LOC (B)
4.950%, 06/02/99 7,000 7,000
--------
Total Taxable Municipal Bonds
(Cost $36,500) 36,500
--------
10
<PAGE>
BOSTON 1784 INSTITUTIONAL
MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
Boston 1784 Institutional Prime Money Market Fund (concluded)
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
U.S. Government Agency Obligations -- 8.1%
Federal Home Loan Bank
5.100%, 03/09/00 $10,000 $ 10,000
5.100%, 05/17/00 7,000 6,990
Federal Home Loan Mortgage
4.980%, 04/28/00 10,000 9,995
Federal National Mortgage
Association
5.050%, 05/12/00 5,000 4,996
Federal National Mortgage
Association, MTN
5.490%, 08/03/99 10,000 10,009
--------
Total U.S. Government Agency Obligations
(Cost $41,990) $ 41,990
--------
Repurchase Agreements -- 13.7%
J.P. Morgan,
4.810%, dated 05/28/99,
matures 06/01/99, repurchase
price $21,045,073 (collateralized
by U.S. Treasury Instruments:
total market value
$21,454,532) (D) 21,034 21,034
Prudential Securities,
4.800%, dated 5/28/99,
matures 06/01/99, repurchase
price $50,026,667 (collateralized
by U.S. Treasury Instruments:
total market value
$50,997,938) (D) 50,000 50,000
--------
Total Repurchase Agreements
(Cost $71,034) 71,034
--------
Total Investments -- 99.0%
(Cost $511,900) 511,900
--------
Other Assets and Liabilities,
Net -- 1.0% 5,001
--------
Net Assets:
Capital Shares (unlimited
authorization -- no par value)
based on 516,904,423 outstanding
shares of beneficial interest $516,904
Accumulated net realized loss
on investments (3)
--------
Total Net Assets -- 100.0% $516,901
========
Net Asset Value, Offering and
Redemption Price Per Share $1.00
========
(A) The rate reported on the Statement of Net Assets is the effective yield as
of May 31,1999.
(B) Variable Rate Security. The rate reported on the Statement of Net Assets is
the rate in effect on May 31, 1999. The date shown is the next scheduled
reset date.
(C) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration normally to qualified institutional buyers.
(D) Tri-Party Repurchase Agreement
LOC -- Securities are held in connection with a letter of credit issued by a
major commercial bank or other financial institution.
MTN -- Medium Term Note
RB -- Revenue Bond
The following organizations have provided underlying credit support for the
securities as set forth in the Statement of Net Assets.
FGIC -- Financial Guaranty Insurance Corporation
FSA -- Financial Security Assurance
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
STATEMENTS OF OPERATIONS (000)
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED MAY 31, 1999
<TABLE>
<CAPTION>
BOSTON BOSTON
1784 INSTITUTIONAL 1784 INSTITUTIONAL
U.S. TREASURY PRIME MONEY
MONEY MARKET FUND MARKET FUND
------------------ ------------------
<S> <C> <C>
INTEREST INCOME: $212,403 $25,661
-------- -------
EXPENSES:
Investment Advisory Fees 8,329 982
Less: Waiver of Investment Advisory Fees -- (222)
Administrator Fees 2,779 327
Registration Fees 191 53
Transfer Agent Fees & Expenses 429 77
Professional Fees 380 45
Printing 311 40
Custodian Fees 230 48
Amortization of Deferred Organizational Costs -- 40
Trustee Fees 118 13
Other Expenses 160 70
-------- -------
Total Expenses, Net of Waivers 12,927 1,473
-------- -------
Net Investment Income 199,476 24,188
-------- -------
Net Realized Gain (Loss) on Investments 49 (3)
-------- -------
Net Increase in Net Assets Resulting from Operations $199,525 $24,185
======== =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
BOSTON 1784 INSTITUTIONAL
MONEY MARKET FUNDS
STATEMENTS OF CHANGES IN NET ASSETS (000)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BOSTON BOSTON
1784 INSTITUTIONAL 1784 INSTITUTIONAL
U.S. TREASURY PRIME MONEY
MONEY MARKET FUND MARKET FUND
--------------------------------- -------------------------------
6/1/98 6/1/97 6/1/98 11/5/97
to to to to
5/31/99 5/31/98 5/31/99 5/31/98(1)
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITIES:
Net Investment Income $ 199,476 $ 169,367 $ 24,188 $ 6,095
Net Realized Gain (Loss) on Investments 49 95 (3) --
------------ ------------ ----------- -----------
Net Increase in Net Assets Resulting from Operations 199,525 169,462 24,185 6,095
------------ ------------ ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net Investment Income (199,476) (169,365) (24,188) (6,095)
Realized Capital Gains -- -- -- --
------------ ------------ ----------- -----------
Total Distributions (199,476) (169,365) (24,188) (6,095)
------------ ------------ ----------- -----------
Share transactions:
Proceeds from Shares Issued 14,696,641 14,628,533 4,471,716 1,438,198
Reinvestment of Cash Distributions 74,848 67,225 18,834 5,560
Cost of Shares Redeemed (14,711,302) (13,001,541) (4,275,984) (1,141,420)
------------ ------------ ----------- -----------
Increase in Net Assets
from Share Transactions 60,187 1,694,217 214,566 302,338
------------ ------------ ----------- -----------
Total Increase in Net Assets 60,236 1,694,314 214,563 302,338
============ ============ =========== ===========
NET ASSETS:
Beginning of Period 4,285,801 2,591,487 302,338 --
------------ ------------ ----------- -----------
NET ASSETS:
End of Period $ 4,346,037 $ 4,285,801 $ 516,901 $ 302,338
============ ============ =========== ===========
CAPITAL SHARE TRANSACTIONS:
Shares Issued 14,696,641 14,628,533 4,471,716 1,438,198
Shares Issued in Lieu of Cash Distributions 74,848 67,225 18,834 5,560
Shares Redeemed (14,711,302) (13,001,541) (4,275,984) (1,141,420)
------------ ------------ ----------- -----------
Net Increase in Capital Share Transactions 60,187 1,694,217 214,566 302,338
============ ============ =========== ===========
</TABLE>
- ----------
(1) Boston 1784 Institutional Prime Money Market Fund commenced operations on
November 5, 1997.
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
BOSTON 1784 INSTITUTIONAL MONEY MARKET FUNDS
For a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Distri- Net
Net butions Asset
Asset Net from Net Value
Value Invest- Invest- End
Beginning ment ment of Total
of Period Income Income Period Return
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Boston 1784 Institutional
U.S. Treasury Money Market Fund
For the year ended
May 31, 1999 $1.00 0.05 (0.05) $1.00 4.90%
For the year ended
May 31, 1998 $1.00 0.05 (0.05) $1.00 5.36%
For the year ended
May 31, 1997 $1.00 0.05 (0.05) $1.00 5.16%
For the year ended
May 31, 1996 $1.00 0.05 (0.05) $1.00 5.45%
For the year ended
May 31, 1995 $1.00 0.05 (0.05) $1.00 5.05%
- --------------------------------------------------------------------------------
Boston 1784 Institutional
Prime Money Market Fund
For the year ended
May 31, 1999 $1.00 0.05 (0.05) $1.00 5.10%
For the period ended
May 31, 1998 (1) $1.00 0.03 (0.03) $1.00 5.55%
- --------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------
Ratio
Ratio of Net
Ratio of Investment
Ratio of Net Expenses Income
Net of Investment to to
Assets Expenses Income Average Average
End to to Net Net
of Average Average Assets Assets
Period Net Net (Excluding (Excluding
(000) Assets Assets Waivers) Waivers)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Boston 1784 Institutional
U.S. Treasury Money Market Fund
For the year ended
May 31, 1999 $4,346,037 0.31% 4.79% 0.31% 4.79%
For the year ended
May 31, 1998 $4,285,801 0.33% 5.24% 0.33% 5.24%
For the year ended
May 31, 1997 $2,591,487 0.33% 5.05% 0.34% 5.04%
For the year ended
May 31, 1996 $ 644,733 0.32% 5.29% 0.39% 5.22%
For the year ended
May 31, 1995 $ 395,585 0.30% 5.12% 0.41% 5.01%
- -----------------------------------------------------------------------------------------------
Boston 1784 Institutional
Prime Money Market Fund
For the year ended
May 31, 1999 $ 516,901 0.30% 4.93% 0.35% 4.88%
For the period ended
May 31, 1998 (1) $ 302,338 0.27% 5.36% 0.42% 5.21%
- -----------------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) Boston 1784 Institutional Prime Money Market Fund commenced operations on
November 5, 1997. All ratios for the period, including total return, have
been annualized.
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
MAY 31, 1999 BOSTON 1784 INSTITUTIONAL
MONEY MARKET FUNDS
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. Organization
Boston 1784 Institutional U.S. Treasury Money Market Fund and Boston 1784
Institutional Prime Money Market Fund are portfolios of Boston 1784 Funds (the
"Trust"), an open-end investment company registered under the Investment Company
Act of 1940, as amended. The Trust is offering shares in 17 separate portfolios
(the "Funds") as of May 31, 1999:
MONEY MARKET FUNDS:
Boston 1784 Tax-Free Money Market Fund
Boston 1784 U.S. Treasury Money Market Fund
Boston 1784 Institutional U.S. Treasury Money Market Fund
Boston 1784 Prime Money Market Fund
Boston 1784 Institutional Prime Money Market Fund
BOND FUNDS:
Boston 1784 Short-Term Income Fund
Boston 1784 Income Fund
Boston 1784 U.S. Government Medium-Term Income Fund
TAX-EXEMPT INCOME FUNDS:
Boston 1784 Tax-Exempt Medium-Term Income Fund
Boston 1784 Connecticut Tax-Exempt Income Fund
Boston 1784 Florida Tax-Exempt Income Fund
Boston 1784 Massachusetts Tax-Exempt Income Fund
Boston 1784 Rhode Island Tax-Exempt Income Fund
STOCK FUNDS:
Boston 1784 Asset Allocation Fund
Boston 1784 Growth and Income Fund
Boston 1784 Growth Fund
Boston 1784 International Equity Fund
The Funds' prospectuses provide a description of each Fund's investment
objectives, policies and strategies.
The financial statements of Boston 1784 Institutional U.S. Treasury Money Market
Fund and Boston 1784 Institutional Prime Money Market Fund are included herein.
The financial statements of the other Funds are presented separately. The assets
of each Fund are segregated, and a shareholder's interest is limited to the Fund
in which shares are held. The financial statements have been prepared in
accordance with generally accepted accounting principles which require the use
of management's estimates. Actual results could differ from these estimates.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by Boston
1784 Institutional U.S. Treasury Money Market Fund and Boston 1784 Institutional
Prime Money Market Fund (the "Institutional Funds").
Security Valuation --
Investment securities of the Institutional Funds are stated at amortized cost,
which approximates market value. Under this valuation method, purchase discounts
and premiums are accreted and amortized ratably to maturity and are included in
interest income.
15
<PAGE>
MAY 31, 1999
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
Security Transactions and Investment Income --
Security transactions are accounted for on the trade date of the security
purchase or sale. Costs used in determining net realized capital gains and
losses on the sale of securities are those of the specific securities sold,
adjusted for the accretion and amortization of the purchase discounts and
premiums during the respective holding period. Interest income is recorded on
the accrual basis.
Repurchase Agreements --
The Institutional Funds invest in tri-party repurchase agreements. Securities
pledged as collateral for tri-party repurchase agreements are maintained in a
segregated account by the broker's custodian bank until maturity of the
repurchase agreements. Provisions of the repurchase agreements and procedures
adopted by the Adviser are intended to ensure that the market value of the
collateral, including accrued interest thereon, is sufficient in the event of
default by the counterparty. If the counter-party defaults and the value of the
collateral declines or if the counterparty enters into insolvency proceedings,
realization on the collateral by the Institutional Funds may be delayed or
limited.
Expenses --
Expenses that are directly related to the Funds are charged directly to the
Funds. Other operating expenses of the Trust are prorated to the Funds on the
basis of relative net assets.
Distributions to Shareholders --
Distributions from net investment income are declared on a daily basis and are
payable on the first business day of the following month. Any net realized
capital gains on sales of securities for the Institutional Funds are distributed
to its shareholders at least annually.
Federal Income Taxes --
The Trust's policy is to comply with the require-ments of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
taxable income to its shareholders. Accordingly, no provision for federal income
taxes is required in the financial statements. At May 31, 1999, the total cost
of securities for federal income tax purposes was not materially different from
amounts reported for financial reporting purposes.
Organizational Costs --
These costs have been deferred in the account of the Institutional Funds and are
being amortized on a straight line basis over a period of sixty months
commencing with operations. If any or all of the shares representing initial
capital of the Institutional Funds are redeemed by any holder thereof prior to
the end of the amortization period, the proceeds will be reduced by the
unamortized organizational cost balance in the same proportion as the number of
shares redeemed bears to the initial shares outstanding immediately preceding
the redemption.
16
<PAGE>
BOSTON 1784 INSTITUTIONAL
MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
3. Investment Advisory and Custodial Services
Pursuant to an investment advisory agreement dated June 1, 1993, investment
advisory services are provided to the Trust by BankBoston, N.A. (the "Adviser").
The Adviser is entitled to receive an annual fee of 0.20% of the average daily
net assets for each of the Institutional Funds. Such fee is computed daily and
paid monthly. BankBoston, N.A. has voluntarily agreed to waive a portion of its
investment advisory fee in order to maintain competitive expense ratios.
The Institutional Funds and BankBoston, N.A. were parties to a custodial
agreement dated June 1, 1993 under which BankBoston, N.A. held cash, securities
and other assets of the Institutional Funds as required by the Investment
Company Act of 1940, as amended. For the period June 1, 1998 to September 30,
1998, BankBoston, N.A. served as the Funds' custodian and received an annual
fee, paid monthly, of 0.01% for the first $100 million in average daily net
assets, 0.0075% for the next $100 million and 0.005% of the average daily net
assets over $200 million of each of the Institutional Funds. On September 30,
1998, the Custodial Agreement was amended and assigned to Investors Bank & Trust
("IBT"). Effective October 1, 1998, IBT is entitled to receive an annual fee, to
be paid monthly, of 0.005% of the market value of each Institutional Fund's
assets. In the capacity as custodian to the Institutional Funds, BankBoston,
N.A. played and IBT plays no role in determining the investment policies of the
Institutional Funds or which securities are to be purchased or sold by the
Institutional Funds.
4. Administrative and Distribution Services
Pursuant to an administration agreement dated December 1, 1996, SEI Investments
Mutual Funds Services, a wholly-owned subsidiary of SEI Investments Company,
acts as the Trust's Administrator, and is entitled to receive an annual fee of
0.085% of the Trust's first $5 billion of average daily net assets and 0.045% of
the Trust's average daily net assets over $5 billion. Such fee is computed daily
and paid monthly.
SEI Investments Distribution Co. ("SEI Investments"), a wholly-owned
subsidiary of SEI Investments Company, acts as the Institutional Funds'
Distributor pursuant to a distribution agreement dated June 1, 1993, as amended
and restated October 27, 1995. SEI Investments is paid no fees by the
Institutional Funds.
Certain officers of the Trust are also officers of the Administrator. Such
officers are paid no fees by the Trust.
The Trust has paid legal fees to a law firm, of which the Secretary of the
Trust is a member.
17
<PAGE>
MAY 31, 1999
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
5. Line of Credit
The Trust has entered into a Line of Credit Agreement. Pursuant to this
agreement, the Trust has access to a $50 million uncommitted line of credit and
a $20 million committed line of credit. The Trust is charged a commitment fee of
.10% of the unused portion of the committed line of credit. Borrowings under the
line are charged interest at the current overnight Federal Funds rate plus 0.50%
by the Institutional Funds. Each Fund is individually, and not jointly, liable
for its particular advances under the line. There were no borrowings under the
line of credit by the during the period ended May 31, 1999.
6. Year 2000 Readiness Disclosure
Boston 1784 Funds have been working to prepare for the Year 2000 transition and
have taken steps to provide seamless processing for all systems and applications
utilized by the Funds' service providers. We have sought and received assurances
from each service provider that their computer systems have been remediated for
Year 2000. We are continuing to monitor the progress of these service providers
with respect to the testing of modified systems, and have sought and received
assurances that such testing confirms Year 2000 readiness.
While we have received such assurances, the Funds and their shareholders may
experience losses if these assurances prove to be incorrect. Losses could also
arise as a result of Year 2000 computer difficulties experienced by issuers of
portfolio securities or third parties, such as custodians, banks, and
broker-dealers, with which the Funds do business.
An additional Year 2000 consideration is the readiness of the companies in which
Boston 1784 Funds have invested. The Year 2000, like any other market influence,
could quite possibly impact Fund performance. The impact could as easily be
positive (a company that benefits due to its preparedness) as negative (a
company that suffers from lack of preparedness). Boston 1784 Funds' investment
advisers consider the Year 2000 transition, like any other factor, in making
investment decisions.
It is important to understand that Boston 1784 Funds cannot warrant or guarantee
the Year 2000 readiness of any third party.
18
<PAGE>
BOSTON 1784 INSTITUTIONAL
MONEY MARKET FUNDS
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and
Board of Trustees of Boston 1784 Institutional
Money Market Funds:
In our opinion, the accompanying statements of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position
of Boston 1784 Funds (comprising, respectively, Boston 1784 Institutional
U.S. Treasury Money Market Fund and Boston 1784 Institutional Prime Money
Market Fund referred to collectively herein as "the Funds"), at May 31,
1999, the results of their operations, changes in their net assets and the
financial highlights for each of the periods presented, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Funds' management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with
generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which
included confirmation of securities at May 31, 1999 by correspondence with
the custodian and brokers, provide a reasonable basis for the opinion
expressed above.
PRICEWATERHOUSECOOPERS LLP
2400 Eleven Penn Center
Philadelphia, Pennsylvania
July 9, 1999
19
<PAGE>
MAY 31, 1999
NOTICE TO SHAREHOLDERS (Unaudited)
- --------------------------------------------------------------------------------
For Taxpayers filing on a calendar year basis, this notice is for informational
purposes only.
Dear Boston 1784 Funds Shareholders:
For the fiscal year ended May 31, 1999, Boston 1784 Institutional Money
Market Funds are designating long-term capital gains, qualifying dividends and
exempt income with regard to distributions paid during the year as follows:
<TABLE>
<CAPTION>
(A)* (B)*
Long-Term Ordinary (D)**
Capital Gains Income Total (C)** Tax- (E)**
Distributions Distributions Distributions Qualifying Exempt Foreign
(Tax Basis) (Tax Basis) (Tax Basis) Dividends (1) Interest Tax Credit
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Institutional
U.S. Treasury
Money Market Fund 0% 100% 100% 0% 0% 0%
Institutional Prime
Money Market Fund 0% 100% 100% 0% 0% 0%
</TABLE>
- ----------
(1) Qualifying dividends represent dividends which qualify for the corporate
received deduction.
* Items (A) and (B) are based on a percentage of the Fund's total
distributions.
** Items (C), (D) and (E) are based on a percentage of ordinary income
distributions of the Fund.
20
<PAGE>
BOARD OF TRUSTEES
David H. Carter
Tarrant Cutler
Kenneth A. Froot
Sara L. Johnson
Kathryn Flacke Muncil
Robert A. Nesher
Alvin J. Silk
INVESTMENT ADVISER
BankBoston, N.A.
Boston, MA 02110
- --------------------------------------------------------------------------------
ADMINISTRATOR LEGAL COUNSEL
SEI Investments Mutual Funds Services Bingham Dana LLP
Oaks, PA 19456 Boston, MA 02110
DISTRIBUTOR INDEPENDENT ACCOUNTANTS
SEI Investments Distribution Co. PricewaterhouseCoopers LLP
Oaks, PA 19456 Philadelphia, PA 19103
CUSTODIAN
Investors Bank & Trust Company
Boston, MA 02116
[LOGO]
Boston 1784 Funds
P.O. Box 8524
Boston, MA 02266-8524
1-800-BKB-1784
This report and the financial statements contained herein are for the general
information of the shareholders of Boston 1784 Institutional U.S. Treasury
Money Market Fund and Boston 1784 Institutional Prime Money Market Fund.
This report is not authorized for distribution to prospective investors in a
fund unless preceded or accompanied by a currently effective prospectus.
MF-0150
<PAGE>
Annual
Report
[LOGO]
to Shareholders
May 31, 1999
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
LETTER TO SHAREHOLDERS 1
PERFORMANCE HIGHLIGHTS 2
TERMS YOU NEED TO KNOW 4
FUND OBJECTIVES 5
INVESTMENT ADVISER'S REPORT 6
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE 11
FINANCIAL STATEMENTS 26
REPORT OF INDEPENDENT ACCOUNTANTS 107
NOTICE TO SHAREHOLDERS 108
BOSTON 1784 FUNDS:
[ ] ARE NOT INSURED BY THE FDIC OR ANY OTHER GOVERNMENTAL AGENCY;
[ ] ARE NOT GUARANTEED BY BANKBOSTON, N.A. OR ANY OF ITS AFFILIATES;
[ ] ARE NOT DEPOSITS OR OBLIGATIONS OF BANKBOSTON, N.A. OR ANY
OF ITS AFFILIATES;
[ ] INVOLVE INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL
AMOUNT INVESTED.
BANKBOSTON, N.A. SERVES AS INVESTMENT ADVISER AND SHAREHOLDER
SERVICING AGENT FOR BOSTON 1784 FUNDS. BOSTON 1784 FUNDS ARE
DISTRIBUTED BY SEI INVESTMENTS DISTRIBUTION CO., A PARTY INDEPENDENT
OF BANKBOSTON, N.A. AND ITS AFFILIATES. INVESTMENT COUNSELORS
ARE REGISTERED REPRESENTATIVES OF BANKBOSTON INVESTOR SERVICES,INC.
(MEMBER NASD/SIPC), A WHOLLY-OWNED SUBSIDIARY OF BANKBOSTON, N.A.
<PAGE>
BOSTON 1784 FUNDS
LETTER TO SHAREHOLDERS
- --------------------------------------------------------------------------------
[PHOTO] [PHOTO]
Catherine N. Thornton Robert Nesher
Managing Director President
It is a pleasure to provide this Annual Report on the strategies and performance
of Boston 1784 Funds for the fiscal year ended May 31, 1999.
Over the past year, the assets of the Boston 1784 Funds family continued to
grow, reaching nearly $9.6 billion in total assets as of May 31, 1999. Moreover,
several of our Funds performed well in the past year. Based on total return for
the year ended May 31, 1999:
[_] BOSTON 1784 MASSACHUSETTS TAX-EXEMPT INCOME FUND ranked 1st of 10 funds in
the Lipper Massachusetts Intermediate Municipal Funds category. Based on
five year total return, the Fund ranked 1st of 7 funds in that category.
[_] BOSTON 1784 FLORIDA TAX-EXEMPT INCOME FUND ranked 3rd of 15 funds in the
Lipper Florida Intermediate Municipal Funds category.
[_] BOSTON 1784 RHODE ISLAND TAX-EXEMPT INCOME FUND ranked 4th of 80 funds in
the Lipper Other States Intermediate Municipal Debt Funds category.
[_] BOSTON 1784 TAX-FREE MONEY MARKET FUND ranked 11th of 127 funds in the
Lipper Tax-Exempt Money Market Funds category. Based on five year total
return, the Fund ranked 10th of 104 funds in that category.
[_] BOSTON 1784 TAX-EXEMPT MEDIUM-TERM INCOME FUND ranked 20th of 134 funds in
the Lipper Intermediate Municipal Debt Funds category. Based on five year
total return, the Fund ranked 9th of 88 funds in that category.
You'll find detailed information on the performance of these and other Boston
1784 Funds in this report. Please remember that a Fund's performance in the past
is not necessarily an indication of how a Fund will do in the future. The Funds'
total returns and resulting rankings reflect advisory fee and expense waivers.
We would also like to call your attention to several changes that may occur in
the coming months. On March 14, 1999, BankBoston Corporation and Fleet Financial
Group, Inc. entered into an Agreement and Plan of Merger, under which the two
institutions will merge to form a new entity - Fleet Boston. BankBoston
Corporation is the parent company of BankBoston, N.A., the investment adviser or
co-investment adviser of Boston 1784 Funds. The proposed merger is subject to
regulatory and shareholder approval and other conditions, and is expected to be
effective in the last quarter of 1999. If the merger occurs, BankBoston, N.A.
will become a subsidiary of the merged company.
If you have questions about any Boston 1784 Fund, or about your overall
investment strategy, please feel free to contact your Investment Counselor.
Please remember that you can work with a representative to get information on
your account or buy Boston 1784 Funds by calling 1-800-BKB-1784, Monday through
Friday from 8 a.m. to 6 p.m. (Eastern time). If you prefer, you can use our
automated system at any time, 24 hours a day.
Thank you for your continued investment in Boston 1784 Funds.
Sincerely,
/s/ Robert Nesher /s/ Catherine N. Thornton
----------------- --------------------------------------
Robert Nesher Managing Director, Investment Services
President BankBoston, N.A.
Boston 1784 Funds
1
<PAGE>
<TABLE>
<CAPTION>
PERFORMANCE HIGHLIGHTS OF THE FUNDS
- --------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD JUNE 1, 1998 THROUGH MAY 31, 1999
TOTAL INCOME
TOTAL NET ASSETS RETURN NAV SHARE PRICE YIELD DISTRIBUTIONS
---------------------------------------------------------------------------------------------
5-31-99 5-31-99 HIGH LOW 30-DAY 7-DAY PER
(IN MILLIONS) SHARE
- --------------------------------------------------------------------------------------------------------------------------
MONEY MARKET FUNDS
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Boston 1784 Tax-Free Money Market $969.4 3.01% $ 1.00 $ 1.00 $ 1.00 N/A 3.02% $0.03
Boston 1784 U.S. Treasury Money Market 390.8 4.55 1.00 1.00 1.00 N/A 4.18 0.04
Boston 1784 Prime Money Market 165.2 4.78 1.00 1.00 1.00 N/A 4.23 0.05
- --------------------------------------------------------------------------------------------------------------------------
BOND FUNDS
- --------------------------------------------------------------------------------------------------------------------------
Boston 1784 Short-Term Income $176.0 4.70% $10.02 $10.28 $10.02 5.21% N/A $0.54
Boston 1784 Income 343.2 2.83 9.93 10.74 9.93 5.66 N/A 0.55
Boston 1784 U.S. Government
Medium-Term Income 276.8 3.73 9.45 10.03 9.45 5.17 N/A 0.51
- --------------------------------------------------------------------------------------------------------------------------
TAX-EXEMPT INCOME FUNDS
- --------------------------------------------------------------------------------------------------------------------------
Boston 1784 Tax-Exempt
Medium-Term Income $357.0 4.24% $10.33 $10.84 $10.33 4.15% N/A $0.45
Boston 1784 Connecticut
Tax-Exempt Income 187.7 3.72 10.67 11.11 10.67 4.09 N/A 0.48
Boston 1784 Florida
Tax-Exempt Income 68.8 3.88 10.12 10.60 10.12 4.05 N/A 0.44
Boston 1784 Massachusetts
Tax-Exempt Income 267.9 4.10 10.39 10.70 10.38 4.03 N/A 0.45
Boston 1784 Rhode Island
Tax-Exempt Income 102.1 4.11 10.50 10.90 10.50 4.21 N/A 0.47
- --------------------------------------------------------------------------------------------------------------------------
STOCK FUNDS
- --------------------------------------------------------------------------------------------------------------------------
Boston 1784 Asset Allocation $ 53.4 5.92% $14.97 $15.76 $13.95 N/A N/A $0.39
Boston 1784 Growth and Income 549.4 4.65 22.17 24.14 17.93 N/A N/A 0.03
Boston 1784 Growth 185.5 (3.54) 12.06 13.39 8.51 N/A N/A --
Boston 1784 International Equity 389.8 (4.85) 12.92 14.73 10.23 N/A N/A 0.03
</TABLE>
Performance data represents past results and is no guarantee of future results.
Investment return and principal value will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost. Yield
fluctuates. Yield reflects the portfolio's earning power, net of fund expenses.
An investment in a money market fund is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency. Although money
market funds seek to preserve the value of your investment at $1.00 per share,
it is possible to lose money by investing in a money market fund.
2
<PAGE>
BOSTON 1784 FUNDS
TOTAL RETURN FOR THE FISCAL YEAR
ENDED MAY 31, 1999
- --------------------------------------------------------------------------------
BOSTON
1784 FUNDS TOTAL RETURN FOR THE FISCAL YEAR ENDED MAY 31, 1999
Tax-Free Money Market 3.01
U.S. Treasury Money Market 4.55
Prime Money Market 4.78
Short-Term Income 4.70
Income 2.83
U.S. Government Medium-Term Income 3.73
Tax-Exempt Medium-Term Income 4.24
Connecticut Tax-Exempt Income 3.72
Florida Tax-Exempt Income 3.88
Massachusetts Tax-Exempt Income 4.10
Rhode Island Tax-Exempt Income 4.11
Asset Allocation 5.92
Growth and Income 4.65
Growth (3.54)
International Equity (4.85)
Percent (%) -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6
3
<PAGE>
TERMS YOU NEED TO KNOW
- --------------------------------------------------------------------------------
Adviser is an organization employed by a mutual fund to give professional advice
on the fund's investments and asset management practices (also called the
investment adviser).
Assets are the investment holdings and cash owned by a mutual fund.
Average-Weighted-Maturity is an average of the maturity dates of the various
securities in a mutual fund based on the dollar value of those securities. It is
calculated by multiplying the market value of each portfolio security by the
time remaining to its maturity, adding these calculations and then dividing the
total by the market value of the portfolio.
Basis Point is one one-hundredth of a percentage point.
Capital Appreciation is the increase in the market value of a mutual fund's
securities, as reflected in the net asset value of the fund's shares. Capital
appreciation (or growth) is a specific long-term objective of many mutual funds.
Coupon Rate is the stated interest rate on a bond.
Diversification is the practice of investing broadly across a number of
securities to reduce risk; a hallmark of mutual fund investing.
Duration is a weighted average term-to-maturity of a mutual fund security's cash
flow.
Expense Ratio is a fund's cost of doing business -- disclosed in the prospectus
- -- as a percent of its assets.
Income is the dividends, interest, and/or short-term capital gains paid to a
mutual fund's shareholders. Income is earned on a fund's investment portfolio
after deducting operating expenses.
Investment Objective is the goal -- long-term capital growth or current income,
for example -- that an investor and mutual fund pursue together.
Liquidity is the ability to redeem (sell back) all or part of your mutual fund
shares on any business day and receive the current value (which may be more or
less than the original cost).
Management Fee is the amount paid by a mutual fund to the investment adviser for
its services.
Net Asset Value Per Share (NAV) is the market worth of one share of a mutual
fund. This figure is derived by taking a fund's total assets -- securities, cash
and any accrued earnings -- deducting liabilities, and dividing by the number of
shares outstanding.
Principal is the basic amount of money you invest, not to be confused with
reinvested dividends or capital gains.
Total Return is the change in value of an investment from the beginning to the
end of a period, assuming the reinvestment of all distributions. This is based
on a formula set by the Securities and Exchange Commission.
Yield is the percentage rate at which a fund's portfolio earns income for its
investors, based on a formula set by the Securities and Exchange Commission.
4
<PAGE>
BOSTON 1784 FUNDS
FUND OBJECTIVES
- --------------------------------------------------------------------------------
MONEY MARKET FUNDS
[_] Boston 1784 Tax-Free Money Market Fund
To preserve the principal value of a shareholder's investment and maintain
a high degree of liquidity while providing current income that is exempt
from federal income tax.
[_] Boston 1784 U.S. Treasury Money Market Fund
To preserve the principal value of a shareholder's investment and maintain
a high degree of liquidity while providing current income.
[_] Boston 1784 Prime Money Market Fund
To preserve the principal value of a shareholder's investment and maintain
a high degree of liquidity while providing current income.
BOND FUNDS
[_] Boston 1784 Short-Term Income Fund
To provide investors with maximum current income, and, as a secondary goal,
to preserve investors' capital.
[_] Boston 1784 Income Fund
To provide investors with maximum current income, and, as a secondary goal,
to preserve investors' capital.
[_] Boston 1784 U.S. Government Medium-Term Income Fund
To provide investors with current income consistent with preservation of
capital.
TAX-EXEMPT FUNDS
[_] Boston 1784 Tax-Exempt Medium-Term Income Fund
To provide investors with current income, exempt from federal income tax,
consistent with preservation of capital.
<PAGE>
[_] Boston 1784 Connecticut Tax-Exempt Income Fund
To provide investors with current income exempt from both federal and
Connecticut personal income tax, with a secondary goal of preserving
capital.
[_] Boston 1784 Florida Tax-Exempt Income Fund
To provide investors with current income exempt from federal income tax
through Fund shares which are exempt from Florida intangible personal
property tax, with a secondary goal of preserving capital.
[_] Boston 1784 Massachusetts Tax-Exempt Income Fund
To provide investors with current income exempt from both federal and
Massachusetts personal income tax, consistent with preservation of capital.
[_] Boston 1784 Rhode Island Tax-Exempt Income Fund
To provide investors with current income exempt from federal income tax and
Rhode Island personal income and business corporation taxes, with a
secondary goal of preserving capital.
STOCK FUNDS
[_] Boston 1784 Asset Allocation Fund
To provide investors with a favorable total rate of return through current
income and capital appreciation consistent with preservation of capital,
derived from investing in fixed income and equity securities.
[_] Boston 1784 Growth and Income Fund
To provide investors with long-term growth of capital with a secondary goal
of income.
[_] Boston 1784 Growth Fund
To provide investors with capital appreciation. Dividend income, if any, is
incidental to this goal.
[_] Boston 1784 International Equity Fund
To provide investors with long-term growth of capital. Dividend income, if
any, is incidental to this goal.
5
<PAGE>
INVESTMENT ADVISER'S REPORT
- --------------------------------------------------------------------------------
[PHOTO]
Edward G. Riley, Jr.
Chief Investment Officer
When investment advisers and fund managers discuss volatility, they typically
focus on the financial/statistical variety--the kind that can be measured by
numbers like "beta" and "standard deviation." The past year certainly had its
share of that sort of volatility, but it exhibited other varieties as well, as
the pendulum swung rapidly from deflation fears to inflation scares, crashing
foreign markets to recovering Asian economies, growth stocks leadership to
emerging cyclical strength...the list goes on and on. In short, it was one of
the most volatile years of the by-now-elderly economic expansion that has held
sway for 8 years.
Certainly, the U.S. economy continued to expand, growing at remarkable 4%,
6% and 4.3% rates for the calendar quarters ended September 1998, December 1998
and March 1999, respectively. Economic momentum was sustained in the beginning
of 1999 by a combination of factors: tax refunds and year-end bonuses fueled
spending; low unemployment and rising incomes, which grew faster than inflation,
supported high levels of consumer confidence. And the "Wealth Effect"--the
result of the unprecedented bull market and widespread 401(k) investing in the
stock market--was good for spending and confidence alike.
The "Wealth Effect" is perhaps the most significant variable in any
economic or investing forecast. Surging equity values have pushed stock market
wealth up $4 trillion in the past two years (from $7 trillion to $11 trillion).
Home equity (market price minus mortgage owed) has added another $1 trillion of
perceived wealth, rising from $5 trillion to $6 trillion in the past three
years. With more households now owning equities than ever before (50% today vs.
32% a decade ago), a market correction will affect many more investors. Will new
investors remain patient or will they sell en masse? Complicating matters
further, investor expectations seem to have been ratcheted up to unrealistic
levels by returns that have averaged about 30% over the last four years and
18.6% over the last 18 years--compared with about 10% for the past century.
Surveys show that investors expect annual equity returns in the 15% to 35%
range. What would a year of negative returns, no matter how slight, hold for the
economy?
So the fact that we remain immersed in longest peacetime recovery on record
is both good news and bad news. At this point, after eight years without a
recession, reversion to the mean--whether in the economy or the markets--may
prove very mean indeed.
To be sure, cyclical pressures are building, which forced the Federal
Reserve Board to raise short-term interest rates by .25% in June 1999. But our
long-term view of interest rates remains intact. We see secular disinflation
dominating over the long term for several reasons:
[_] Unit labor costs are declining--good news since 65% of the operating costs
for most companies is labor.
[_] The continued focus on productivity, advances in technology and the
determination to enhance shareholder value
6
<PAGE>
BOSTON 1784 FUNDS
- --------------------------------------------------------------------------------
align management efforts with inflation containment.
[_] Global overcapacity in industries ranging from autos to chemicals should
keep deflationary pressures dominant.
[_] The Internet will force competitive pricing across virtually all goods and
services.
[_] The Federal Reserve Board's vigilant monetary policy--and the readiness of
the "Bond Vigilantes" to bid up interest rates at the first whiff of
inflation--should mitigate any dangerous inflationary tendencies.
STOCK MARKET REVIEW
During the twelve months ended May 31, 1999, the Standard & Poor's 500
Composite Index (the "S&P 500") has gained a very respectable 19%. But the
numbers do not reflect the bumpy ride that got us here. The Dow Jones Industrial
Average (the "Dow") started the Funds' fiscal year at 8952 on June 1, 1998. The
stock market showed signs of health until mid-July, when the Dow began a steep
descent from 9337 in July 1998 to a bottom of 7615 in September 1998. Federal
Reserve Board stimulation in the form of three Federal Funds rate reductions
(from 5.50% to 4.75%) sparked a dramatic eight-month rally. The result: the Dow
bulled its way into recordbreaking 11,000 territory in May 1999, while the S&P
500 rose from 1090 to 1301 during the twelve months ended May 31, 1999. As this
pattern reveals, the stock market had a skittish year. The stock market
initially reacted positively to the just-right Goldilocks mixture of low
interest rates and inflation coupled with strong growth. However, it tumbled
into a fall with weak foreign markets by summer's end, then revived with Federal
Reserve Board help, but recently showed signs of retreating as inflation fears
were rekindled by unexpected economic strength.
[GRAPHIC OMITTED]
In the printed version of the document, a line graph
appears which depicts the following plot points:
Dow Jones Industrial Average
May 31, 1998-May 31, 1999
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
May-98 Jun-98 Jul-98 Aug-98 Sep-98 Oct-98 Nov-98 Dec-98 Jan-99 Feb-99 Mar-99 Apr-99 May-99
8,952 8,883 7,539 7,842 8,592 9,116 9,181 9,358 9,306 9,786 10,789 10,559 10,594
</TABLE>
Despite the strong economic growth of the past three calendar quarters
ended March 1999, profits have increased only 3% among S&P 500 companies,
highlighting a real challenge that still faces U.S. companies. Despite a healthy
economy and strong demand, price-conscious consumers held increases in the
Consumer Price Index to a meager 1.5% over the past 12 months. Moreover, profit
gains were concentrated in a small segment of the market: the top 100 companies
of the S&P
7
<PAGE>
500. In the first quarter of 1999, these giants recorded earnings gains of about
8% on profit margins of 11.5%. By contrast, companies 401 to 500 registered a
small decline in earnings and a paltry profit margin of 5.5%.
That strong performance of large-cap companies has led to soaring
valuations and unrealistic expectations. The 100 largest companies in the S&P
500 boast price/earning ratios of about 32-times, while the bottom 100 trade for
about half that. Of perhaps greater concern, Wall Street consensus estimates are
for a 21% rate of earnings growth in the second half of the year--by our lights,
much too high. Companies are far leaner and more productive than just a few
years ago. Moreover, earnings windfalls created by lower corporate taxes and
declining interest costs are behind us. Consider that interest costs were 20% of
earnings (before income taxes and depreciation) in 1992; they were 8% in 1998.
Consequently, profit growth must start at the top line with revenues. Yet top
line growth is missing, with many big-name growth companies recording only small
single-digit revenue gains.
Continued global competition, sustained resistance to price increases and
tightening labor markets will continue to exert pressure on profits. That said,
however, while we had started 1999 expecting flat earnings, a strong first half
has led us to revise our forecast upward to perhaps a 5% increase.
We should note that despite the dominance of large-cap/growth stocks during
the period, leadership began to shift toward more cyclical stocks in
1999--stocks with performance linked more closely to economic strength.
Recently, we have seen also new signs of life in the small- and mid-cap areas of
the stock market. Some analysts see these trends as signaling a real change in
the market and the economy--a resurrection of the economic cycle of
growth-inflation-Federal Reserve Board intervention-recession. We disagree,
however, and expect large-cap growth issues to reassert their leadership as the
year develops.
Over the short term, we are likely to encounter some familiar hurdles:
overly optimistic earnings estimates, which exacerbate disappointment and price
declines; increasing day-trader activity, which destabilizes the market; and,
continued speculation in Internet issues, which has driven the stocks of
companies with no earnings to trade for hundreds of times sales, distorting the
rest of the market. Over the long term, however, we expect stocks to continue to
move upward. The interest rate environment
[GRAPHIC OMITTED]
In the printed version of the document, a line graph
appears which depicts the following plot points:
S&P 500 Index
May 31, 1998-May 31, 1999
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
May-98 Jun-98 Jul-98 Aug-98 Sep-98 Oct-98 Nov-98 Dec-98 Jan-99 Feb-99 Mar-99 Apr-99 May-99
1,133 1,120 957 1,017 1,098 1,163 1,229 1,279 1,238 1,286 1,335 1,301 1,301
</TABLE>
8
<PAGE>
should remain favorable. Lower inflation, slower growth, and further coordinated
interest rate cuts may induce the Federal Reserve Board to ease monetary policy
later in the year, enhancing market liquidity in a period when demand is already
high and the supply of stocks is declining due to buybacks and mergers.
BOND MARKET REVIEW
Despite the roller coaster ride in between, the 30-year U.S. Treasury rate is
about where it was twelve months ago: within a few basis points of 6.00%. That's
a far cry, however, from the 4.75% rate last fall. In the preceding weeks and
months, the Russian default, troubled Latin American markets, and the
near-failure of a major hedge fund operator had thoroughly unsettled the market,
and a flight to quality dramatically increased demand and bond prices (which
move in the opposite direction from interest rates).
With the financial markets extremely skittish in the fall of 1998, the
Federal Reserve Board reduced short-term interest rates from 5.50% to 4.75% to
provide liquidity. That stimulus--along with nearly 150 other central bank
easings around the world during the past twelve months--had the desired affect
of sustaining and accelerating widespread economic growth. Now, however, the
bond markets are focused on inflation and are pushing rates up.
Although we foresee little inflationary threat in the immediate future, the
Federal Reserve Board raised interest rates in June 1999 as concerns about
inflationary pressures and an overheated economy mounted. Despite the recent
intervention by the Federal Reserve Board, we expect rates to actually drift
lower in yield over the coming year, and the 30-year U.S. Treasury Bond to yield
between 5.00% and 5.75% by the end of 1999. Indeed, a number of other factors
also argue for lower rates over the next six to twelve months--despite the
current disquiet:
[_] U.S. economic growth is likely to slow during the summer and fall.
[_] Any inflationary spurt should prove short-lived, as secular deflationary
forces take hold (i.e. global overcapacity, declining crude oil prices,
labor insecurity sparked by merger-related layoffs, and additional
financial meltdowns in foreign countries).
[_] As long-term rates rise, some of the $1.7 trillion currently resting in
money market funds will move into bonds, moderating rate increases.
[GRAPHIC OMITTED]
In the printed version of the document, a line graph
appears which depicts the following plot points:
30-Year Treasury Bonds
May 31, 1998-May 31, 1999
May-98 Jul-98 Sep-98 Nov-98 Jan-99 Mar-99 May-99
5.93 5.68 5.20 5.25 5.09 5.63 5.84
9
<PAGE>
[_] Cash flows into bond mutual funds remain strong--about $7 billion to $8
billion per month.
[_] Asset allocation strategies are likely to focus more on bonds as stock
market volatility increases and small- and mid-cap investors move into a
(theoretically) more predictable asset class.
[_] Healthy tax receipts will eliminate the need for government borrowing, and
$100 billion in debt retirement will reduce supply and increase prices and
therefore decrease rates.
MONEY MARKET REVIEW
The year's declining short-term rate environment was no boon to money market
investors. The Federal Funds Rate stood at 5.50% on June 1, 1998. After three
interventions by the Federal Reserve Board in response to declining market and
economic conditions, the rate leveled at 4.75%, where it stood on May 31, 1999.
Short-term interest rates are influenced almost solely by the actions of
the Federal Reserve Board. By raising and lowering the rates that banks pay to
borrow from the government and from each other, they raise and lower the money
supply, thereby encouraging or weakening economic activity. With signs of
inflation on the horizon, the Federal Reserve Board intervened recently to raise
interest rates and slow the economy. We believe such higher rates will be a
short-lived phenomenon and will likely be reduced by subsequent Federal Reserve
Board action late in 1999 or early next year. As a result, while money market
investors may experience flat or weaker returns, equity and bond investors are
likely to discover that their favorable investment environment lives on.
[GRAPHIC OMITTED]
In the printed version of the document, a line graph
appears which depicts the following plot points:
Federal Funds Rate
May 1996-May 1999
May-96 Nov-96 May-97 Nov-97 May-98 Nov-98 May-99
5.24 5.31 5.50 5.50 5.50 4.75 4.75
/s/ Edward G. Riley, Jr.
- ------------------------
Edward G. Riley, Jr.
Chief Investment Officer
BankBoston, N.A.
10
<PAGE>
BOSTON 1784 FUNDS
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
BOSTON 1784 TAX-FREE MONEY MARKET FUND
Objective: To preserve the principal value of a shareholder's investment and
maintain a high degree of liquidity while providing current income that is
exempt from federal income tax.
Boston 1784 Tax-Free Money Market Fund invests primarily in investment-grade
money market securities that pay interest that is exempt from federal income
tax. The Fund's investments include municipal general obligation securities,
which are backed by the taxing power of the issuer, and securities used to
finance a variety of municipal purposes such as hospitals, transportation,
housing, student loans, utilities and industrial development. As of May 31,
1999, the net assets of the Fund totaled $969.4 million compared to $1 billion
on May 31, 1998.
For the year ended May 31, 1999, the Fund had a total return of 3.01%,
compared with returns of 2.71% by the IBC/Financial Data Stockbroker & General
Purpose Tax-Free Average and 2.72% by the Lipper Tax-Exempt Money Market Funds
Average for the same period. Based on total return, the Fund rated among the top
10% (11 of 127) in the Lipper Tax-Exempt Money Market Funds Average for the
twelve months ended May 31, 1999.
The Fund outperformed its benchmarks due to the "barbelled" maturity
structure maintained during the year ended May 31, 1999. The Fund held both
issues with relatively long maturities to increase yield and a large cash
position to take advantage of any short-term market events.
The Fund continues to seek higher yields by purchasing securities issued in
states that have either low or no state income taxes. To lock in higher yields,
the Fund is currently focusing on attractively priced securities with longer
maturities.
BOSTON 1784 TAX-FEE MONEY MARKET FUND
Comparison of Change in the Value of a $10,000 Investment
in Boston 1784 Tax-Free Money Market Fund versus the
IBC/Financial Data Stockbroker & General Purpose Tax-Free
Average and the Lipper Tax-Exempt Money Market Funds Average
[GRAPHIC OMITTED]
In the printed version of the document, a line graph
appears which depicts the following plot points:
Annualized Annualized Annualized
One-Year 3 Year 5 Year Inception to
Return Return Return Date
-------- ----------- ---------- ------------
3.01% 3.19% 3.28% 3.14%
<TABLE>
<CAPTION>
Initial
Investment
Date
6/30/93 May 94 May 95 May 96 May 97 May 98 May 99
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Boston 1784 Tax-Free Money Market Fund $10,000 $10,221 $10,557 $10,932 $11,284 $11,660 $12,011
IBC/Financial Data Stockholder & General Purpose Avg. $10,000 $10,176 $10,476 $10,807 $11,124 $11,468 $11,779
Lipper Tax-Exempt Money Market Funds Average $10,000 $10,177 $10,478 $10,812 $11,132 $11,477 $11,789
</TABLE>
Past performance of the Fund is not predictive of future performance
* Inception date 6/14/93
11
<PAGE>
BOSTON 1784 U.S. TREASURY MONEY MARKET FUND
Objective: To preserve the principal value of a shareholder's investment and
maintain a high degree of liquidity while providing current income.
Boston 1784 U.S. Treasury Money Market Fund invests primarily in U.S. government
agency securities, U.S. Treasury obligations and repurchase agreements fully
collateralized by U.S. Treasury obligations. The Fund's net assets increased
from $372.7 million on May 31, 1998 to $390.8 on May 31, 1999.
For the year ended May 31, 1999, the Fund had a total return of 4.55%,
compared with returns of 4.61% for the IBC/Financial Data U.S. Government &
Agencies Average and 4.36% for the Lipper U.S. Treasury Money Market Funds
Average for the same period. The 7-day yield as of May 31, 1999 was 4.18%. The
Fund's return reflects a waiver of certain management fees and expenses (see
Financial Highlights).
The Fund is rated AAAm by Standard and Poor's. The rating is based on an
analysis of the Fund's credit quality, market price exposure and management. The
rating signifies that, in the opinion of Standard and Poor's, the Fund offers
excellent safety of investment principal and superior capacity to maintain a
$1.00 per share net asset value at all times. The Fund attempts to maintain
these characteristics through conservative investment practices and strict
internal controls. The Fund is reviewed on a weekly basis by Standard and
Poor's.
The Federal Reserve Board lowered the Federal Funds rate three times in the
second half of 1998 from 5.50% to 4.75%. The interest rate environment therefore
did not favor money market investors during the year ended May 31, 1999.
However, the Fund's investments were concentrated in both shorter maturity U.S.
government agency securities and repurchase agreements and longer maturity U.S.
Treasury securities. The average maturity was from 35 to 45 days, which
positively affected the Fund's performance as interest rates declined.
The Federal Reserve Board tightened monetary policy in June 1999 by raising
short-term interest rates by .25%. Money market investors will benefit for a
period of time from this recent Federal Reserve Board intervention.
BOSTON 1784 U.S. TREASURY MONEY MARKET FUND
Comparison of Change in the Value of a $10,000 Investment
in Boston 1784 U.S. Treasury Money Market Fund versus the
IBC/Financial Data U.S. Government & Agencies Average and the
Lipper U.S. Treasury Money Market Funds Average
[GRAPHIC]
In the printed version of the document, a line graph
appears which depicts the following plot points:
Annualized Annualized Annualized
One-Year 3 Year 5 Year Inception to
Return Return Return Date
-------- ----------- ---------- ------------
4.55% 4.81% 4.88% 4.51%
<TABLE>
<CAPTION>
Initial
Investment
Date
6/30/93 May 94 May 95 May 96 May 97 May 98 May 99
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Boston 1784 U.S. Treasury Money Market Fund $10,000 $10,249 $10,742 $10,296 $11,845 $12,440 $13,066
IBC/Financial Data U.S. Government & Agencies Avg. $10,000 $10,250 $10,726 $11,270 $11,810 $12,402 $12,973
Lipper U.S. Treasury Money Market Funds Average $10,000 $10,246 $10,716 $11,253 $11,783 $12,354 $12,893
</TABLE>
Past performance of the Fund is not predictive of future performance
* Inception date 6/7/93
12
<PAGE>
BOSTON 1784 FUNDS
- --------------------------------------------------------------------------------
BOSTON 1784 PRIME MONEY MARKET FUND
Objective: To preserve the principal value of a shareholder's investment and
maintain a high degree of liquidity while providing current income.
Boston 1784 Prime Money Market Fund invests primarily in high quality money
market instruments, including short-term U.S. government obligations, corporate
bonds, bank obligations (including certificates of deposit, bankers' acceptances
and fixed time obligations), commercial paper, variable rate demand notes,
taxable municipal securities and repurchase agreements. As of May 31, 1999, the
Fund's net assets grew to $165.2 million from $127.6 million in net assets on
May 31, 1998.
For the twelve months ended May 31, 1999, the Fund had a total return of
4.78%, compared with returns of 4.66% for the IBC/Financial Data First Tier
Money Market Average and 4.82% for the Lipper Money Market Funds Average for the
same period. The 7-day yield as of May 31, 1999 was 4.23%. The Fund's return
reflects a waiver of certain management fees and expenses (see Financial
Highlights).
Federal Reserve Board intervention in the form of three interest rate cuts
during the second half of 1998 did not favor money market investors. However,
the Fund outperformed its benchmarks for the twelve months ended May 31, 1999 by
maintaining a slightly longer average maturity of between 45-55 days, which
positively impacted the Fund's performance in a declining interest rate
environment.
In June 1999, the Federal Reserve Board intervened to tighten monetary
policy as a preemptive move against inflation. The .25% increase in short-term
interest rates will boost returns to money market investors.
BOSTON 1784 PRIME MONEY MARKET FUND
Comparison of Change in the Value of a $10,000 Investment
in Boston 1784 Prime Money Market Fund versus the
IBC/Financial Data First Tier Money Market Average
and the Lipper Money Market Funds Average
[GRAPHIC OMITTED]
In the printed version of the document, a line graph
appears which depicts the following plot points
Annualized Annualized Annualized
One-Year 3 Year 5 Year Inception to
Return Return Return Date
-------- ----------- ---------- ------------
4.78% 4.99% 5.02% 4.46%
<TABLE>
<CAPTION>
Initial
Investment
Date
6/30/91 May 92 May 93 May 94 May 95 May 96 May 97 May 98 May 99
------- ------- ------- ------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Boston 1784 Prime Money Market Fund $10,000 $10,433 $10,745 $11,044 $11,577 $12,191 $12,803 $13,464 $14,107
IBC/Financial Data First Tier Average $10,000 $10,415 $10,711 $11,004 $11,529 $12,126 $12,716 $13,360 $13,982
Lipper Money Market Funds Average $10,000 $10,419 $10,718 $11,011 $11,533 $12,118 $12,696 $13,328 $13,939
</TABLE>
Past performance of the Fund is not predictive of future performance
* Inception date 6/6/91
13
<PAGE>
- --------------------------------------------------------------------------------
BOSTON 1784 SHORT-TERM INCOME FUND
Objective: To provide investors with maximum current income, and, as a secondary
goal, to preserve investors' capital.
Boston 1784 Short-Term Income Fund is designed for investors seeking a higher
yield than from a money market fund and more price stability than a longer-term
bond fund. The Fund invests primarily in debt securities of U.S. issuers,
although it can invest in non-U.S. issuers, including those in developing
countries. The Fund's net assets as of May 31, 1999 were $176.0 million compared
to $197.3 million on May 31, 1998.
The Fund's total return for the year ended May 31, 1999 was 4.70%, compared
to returns of 4.35% for the Lipper Short Investment-Grade Debt Average and
5.21% for the Lehman Mutual Fund 1-5 Year Government/ Corporate Bond Index for
the same period. Based on total return, the Fund placed in the second quartile
(47 of 112) in the Lipper Short Investment-Grade Debt Average for the year ended
May 31, 1999. The Fund's return and resulting ranking reflect a waiver of
certain management fees and expenses (see Financial Highlights).
The Fund achieved its goal of a higher yield than money market funds with
relatively low price volatility by selling higher quality U.S. Treasury issues
while adding higher-yielding short-term securities such as corporate bonds and
government agency securities. Rising inflationary pressures coupled with fears
of restrictive Federal Reserve Board monetary policy caused bond prices to
spiral downward over the quarter ended March 31, 1999. Since the Fund held
short-term debt obligations, it was able to avoid the volatility in the
long-term bond market.
In June 1999, the Federal Reserve Board tightened monetary policy by
raising short-term interest rates by .25% as a preemptive measure against
inflationary pressures. However, rates should trade in a narrow band. The Fund
will maintain its current maturity structure in an effort to avoid price
volatility.
BOSTON 1784 SHORT-TERM INCOME FUND
Comparison of Change in the Value of a $10,000 Investment
in Boston 1784 Short-Term Income Fund versus the
Lehman Mutual Fund 1-5 Year Gov't/Corp. Bond Index
and the Lipper Short Investment-Grade Debt Average
[GRAPHIC OMITTED]
In the printed version of the document, a line graph
appears which depicts the following plot points:
Annualized Annualized
One-Year 3 Year Inception to
Return Return Date
-------- ----------- ------------
4.70% 6.05% 6.03%
<TABLE>
<CAPTION>
Initial
Investment
Date
6/30/94 May 95 May 96 May 97 May 98 May 99
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Boston 1784 Short Term Income Fund $10,000 $10,601 $11,107 $11,826 $12,651 $13,246
Lehman Mutual Fund 1-5 Year Gov't/Corp. Index $10,000 $10,700 $11,236 $12,014 $12,944 $13,618
Lipper Short Investment-Grade Debt Average $10,000 $10,548 $11,080 $11,797 $12,572 $13,119
</TABLE>
Past performance of the Fund is not predictive of future performance
* Inception date 7/1/94
14
<PAGE>
BOSTON 1784 FUNDS
- --------------------------------------------------------------------------------
BOSTON 1784 INCOME FUND
Objective: To provide investors with maximum current income, and, as a secondary
goal, to preserve investors' capital.
Boston 1784 Income Fund is an actively managed portfolio of investment-grade,
intermediate- to long-term securities. The assets of the Fund are diversified
among government obligations, corporate securities, mortgaged-backed securities,
asset-backed securities and Yankee bonds (U.S. dollar-denominated bonds issued
in the U.S. by foreign borrowers). On May 31, 1999, the
average-weighted-maturity of the Fund was approximately 8.7 years and the Fund's
duration was about 5.3 years. The Fund's net assets declined from $392.6 million
on May 31, 1998 to $343.2 million in net assets on May 31, 1999.
For the year ended May 31, 1999, the Fund had a total return of 2.83%,
compared with returns of 4.34% for the Lehman Aggregate Bond Index and 2.52% for
the Lipper Corporate Debt A-Rated Average for the same period. The Fund's return
reflects a waiver of certain management fees and expenses (see Financial
Highlights).
During the past year, the bond market seesawed back and forth between
concerns over deflationary pressures exported from foreign countries and
concerns that strong domestic economic growth might lead to inflation. In the
second half of 1998, the Federal Reserve Board reduced short-term interest rates
by .75% to 4.75% to provide liquidity to skittish financial markets.
The Fund's performance was positively affected by its exposure to higher
quality credits over the course of the year. During the fourth fiscal quarter,
to enhance yields, the Fund reduced its exposure to U.S. Treasury securities and
increased its exposure to investment grade corporate bonds.
Although we foresee little inflationary threat in the immediate future, the
Federal Reserve Board raised short-term interest rates in June 1999 as concerns
about inflationary pressures mounted. We expect longer-term interest rates to
drift lower in yield over the coming year, and the 30-year U.S. Treasury Bond to
yield between 5.00% and 5.75%. Should rates rise, we plan to extend the maturity
structure of the Fund's portfolio. We will continue to focus on U.S. Treasury
securities and high quality domestic corporate debt, since we believe that the
yields offered by foreign corporate debt do not justify the additional risk.
BOSTON 1784 INCOME FUND
Comparison of Change in the Value of a $10,000 Investment
in Boston 1784 Income Fund versus the Lehman Aggregate Bond Index
and the Lipper Corporate Debt A-Rated Average
[GRAPHIC OMITTED]
In the printed version of the document, a line graph
appears which depicts the following plot points:
Annualized Annualized
One-Year 3 Year Inception to
Return Return Date
-------- ----------- ------------
2.83% 6.64% 6.70%
<TABLE>
<CAPTION>
Initial
Investment
Date
7/31/94 May 95 May 96 May 97 May 98 May 99
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Boston 1784 Income Fund $10,000 $10,934 $11,211 $12,143 $13,221 $13,596
Lehman Aggregate Bond Index . $10,000 $10,955 $11,435 $12,387 $13,739 $14,336
Lipper Corporate Debt A-Rated Average $10,000 $10,921 $11,301 $12,167 $13,490 $13,830
</TABLE>
Past performance of the Fund is not predictive of future performance
* Inception date 7/1/94
15
<PAGE>
BOSTON 1784 U.S. GOVERNMENT MEDIUM-TERM INCOME FUND
Objective: To provide investors with current income consistent with preservation
of capital.
Boston 1784 U.S. Government Medium-Term Income Fund is an actively managed
portfolio of U.S. Treasury and U.S. government agency short- to medium-term
securities. The Fund's assets are diversified on a sector basis among U.S.
Treasury, U.S. government agency and mortgaged-backed securities. The Fund's
securities are concentrated in the 2-year to 10-year maturity range. On May 31,
1999, the average-weighted-maturity of the Fund was approximately 5.97 years and
the Fund had a duration of 4.0 years. The Fund grew in net assets from $252.7
million on May 31, l998 to $276.8 million on May 31, 1999.
For the year ended May 31, 1999, the Fund had a total return of 3.73%,
compared with returns of 4.98% for the Lehman Intermediate Government Bond Index
and 3.44% for the Lipper Intermediate U.S. Government Funds Average for the same
period. The Fund's return reflects a waiver of certain management fees and
expenses (see Financial Highlights).
Factors that positively affected the Fund's performance included an
overweighting in both mortgage-backed securities and U.S. government agency
securities. Both sectors added to the income return of the Fund. At the same
time, the Fund maintained a slightly longer duration than the Lipper
Intermediate U.S. Government Funds Average and benefited from declining interest
rates.
During the year ended May 31, 1999, deflationary pressures exported from
foreign countries alternated with concerns that strong domestic economic growth
might lead to inflation. In the second half of 1998, the Federal Reserve Board
reduced short-term interest rates by .75% to 4.75% to provide liquidity to
financial markets. Although we foresee little inflationary threat in the
immediate future, the Federal Reserve Board raised short-term interest rates in
June 1999 by .25% in response to concerns about inflationary pressures. We
expect longer-term interest rates to drift downward over the coming year, and
the 30-year U.S. Treasury Bond to yield between 5.00% and 5.75%. We plan to
extend the maturity structure of the Fund's portfolio if interest rates rise,
primarily by adding intermediate-term U.S. Treasury securities and floating-rate
U.S. government agency securities.
BOSTON 1784 U.S. GOVERNMENT MEDIUM-TERM INCOME FUND
Comparison of Change in the Value of a $10,000 Investment
in Boston 1784 U.S. Government Medium-Term Income Fund versus the
Lehman Intermediate Government Bond Index and the
Lipper Intermediate U.S. Government Funds Average
[GRAPHIC OMITTED]
In the printed version of the document, a line graph
appears which depicts the following plot points:
Annualized Annualized Annualized
One-Year 3 Year 5 Year Inception to
Return Return Return Date
-------- ----------- ---------- ------------
3.73% 6.46% 6.33% 5.15%
<TABLE>
<CAPTION>
Initial
Investment
Date
6/30/93 May 94 May 95 May 96 May 97 May 98 May 99
------- ------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Boston 1784 U.S. Gov't. Medium-Term Income Fund $10,000 $9,787 $10,646 $11,024 $11,813 $12,824 $13,303
Lehman Intermediate Government Bond Index $10,000 $9,980 $10,887 $11,380 $12,189 $13,235 $13,894
Lipper Intermediate U.S. Government Funds Average $10,000 $9,826 $10,710 $11,066 $11,837 $12,929 $13,374
</TABLE>
Past performance of the Fund is not predictive of future performance
* Inception date 6/7/93
16
<PAGE>
BOSTON 1784 FUNDS
- --------------------------------------------------------------------------------
BOSTON 1784 TAX-EXEMPT MEDIUM-TERM INCOME FUND
Objective: To provide investors with current income, exempt from federal income
tax, consistent with preservation of capital.
Boston 1784 Tax-Exempt Medium-Term Income Fund is an actively managed,
diversified portfolio of high quality, intermediate-term municipal securities
selected for their potential to achieve maximum tax-free income, a competitive
rate of return and preservation of capital. The Fund attempts to achieve
incremental income yield and price stability by emphasizing both geographical
and sector diversification. On May 31, 1999, the Fund's net assets totaled
$357.0 million compared with $303.6 million on May 31, 1998. Of the Fund's total
assets, 57.3% were rated AAA, 25.1% were rated AA and 11.1% were rated A by
either Standard & Poor's or Moody's.
The Fund's total return for the year ended May 31, 1999 was 4.24%, compared
with a return of 3.72% for the Lipper Intermediate Municipal Debt Funds Average
for the same period, ranking the Fund in the top 15% (20 of 134) of its Lipper
peer group. For the same twelve month period, the total return of the Lehman
7-Year Municipal Bond Index was 4.73%. The Fund's return and resulting ranking
reflect a waiver of certain management fees and expenses (see Financial
Highlights).
The Fund outperformed the Lipper Intermediate Municipal Debt Funds Average
due to a focus on credit quality, premium coupon yields, and slightly longer
maturity and duration. The Fund's .49% total return lag compared to the Lehman
7-Year Municipal Bond Index primarily reflected the Fund's maturity structure
and duration, which adversely affected the Fund's total return during the last
two months of the year ended May 31, 1999.
After hitting historical lows in early October 1998, municipal bond yields
rose from .15% to .5% across all maturities, while Treasury yields rose from
.82% to 1.7% during the same time period. As a result, we believe that municipal
bonds are currently priced well below their fair market values. Continued
productivity gains, worldwide manufacturing overcapacity and deflationary
pressures, along with an anticipated slow-down in personal consumption and
domestic economic growth, will contain inflation and drive interest rates back
toward 5% on the 30-year U.S. Treasury Bond. We have positioned the Fund to
participate in any material bond rally while maintaining a defensive posture
with high quality, premium coupon bonds concentrated in particular states so
that investors can take advantage of their double tax-exempt status.
BOSTON 1784 TAX-EXEMPT MEDIUM-TERM INCOME FUND
Comparison of Change in the Value of a $10,000 Investment
in Boston 1784 Tax-Exempt Medium-Term Income Fund versus the
Lehman 7-Year Municipal Bond Index and the
Lipper Intermediate Municipal Debt Funds Average
[GRAPHIC OMITTED]
In the printed version of the document, a line graph
appears which depicts the following plot points:
Annualized Annualized Annualized
One-Year 3 Year 5 Year Inception to
Return Return Return Date
-------- ----------- ---------- ------------
4.24% 7.05% 6.59% 6.18%
<TABLE>
<CAPTION>
Initial
Investment
Date
6/30/93 May 94 May 95 May 96 May 97 May 98 May 99
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Boston 1784 Tax-Exempt Medium-Term Income Fund $10,000 $10,212 $10,986 $11,449 $12,336 $13,474 $14,047
Lehman Brothers 7-Year Municipal Bond Index $10,000 $10,144 $10,972 $11,481 $12,267 $13,257 $13,884
Lipper Intermediate Municipal Debt Funds Average $10,000 $10,150 $10,874 $11,314 $12,037 $12,939 $13,420
</TABLE>
Past performance of the Fund is not predictive of future performance
* Inception date 6/14/93
17
<PAGE>
- --------------------------------------------------------------------------------
BOSTON 1784 CONNECTICUT TAX-EXEMPT INCOME FUND
Objective: To provide investors with current income exempt from both federal and
Connecticut personal income tax, with a secondary goal of preserving capital.
Boston 1784 Connecticut Tax-Exempt Income Fund is an actively managed,
state-specific portfolio of high quality, intermediate-term municipal securities
selected for their potential to achieve maximum tax-free income, a competitive
rate of return and preservation of capital. The Fund strives to increase yield
and maintain price stability by emphasizing diversification across sectors and
issuers in the State of Connecticut, and by trying to maximize tax-free income,
credit quality and market liquidity. On May 31, 1999, the Fund's net assets
totaled $187.7 million compared with $142.1 million on May 31, 1998. Of the
Fund's total assets, 47.0% were rated AAA, 36.4% were rated AA and 16.6% were
rated A by either Standard & Poor's or Moody's.
The Fund's total return for the year ended May 31, 1999 was 3.72%, compared
with a return of 3.41% for the Lipper Other States Intermediate Municipal Debt
Funds Average and 4.73% for the Lehman 7-Year Municipal Bond Index for the same
period. The Fund's return reflects a waiver of certain management fees and
expenses (see Financial Highlights).
The Fund outperformed its Lipper benchmark due to a focus on credit
quality, premium coupon yields, and a slightly longer average-weighted-maturity
and duration. The Fund lagged the total return of the Lehman 7-year Municipal
Bond Index by 1%, primarily due to the Fund's maturity structure and duration,
which adversely affected the Fund's total return during the last two months of
the year ended May 31, 1999.
Municipal bond yields rose from .15% to .5% across all maturities after
declining to historical lows in October 1998. In contrast, Treasury yields rose
from .82% to 1.7% during the same time period. Therefore, we believe that
municipal bonds are currently priced well below their fair market values. We
feel also that continued productivity gains, worldwide manufacturing
overcapacity and deflationary pressures, and an anticipated slowdown in personal
consumption and domestic economic growth will contain inflation and drive
interest rates back toward 5% on the 30-year U.S. Treasury Bond. Accordingly, we
have positioned the Fund to participate in any significant bond rally, while
maintaining a defensive posture with high quality, premium coupon bonds.
BOSTON 1784 CONNECTICUT TAX-EXEMPT INCOME FUND
Comparison of Change in the Value of a $10,000 Investment
in Boston 1784 Connecticut Tax-Exempt Income Fund versus the
Lehman 7-Year Municipal Bond Index and the
Lipper Other States Intermediate Municipal Debt Funds Average
[GRAPHIC OMITTED]
In the printed version of the document, a line graph
appears which depicts the following plot points:
Annualized Annualized
One-Year 3 Year Inception to
Return Return Date*
-------- ----------- ------------
3.72% 6.73% 6.57%
<TABLE>
<CAPTION>
Initial
Investment
Date
8/31/94 May 95 May 96 May 97 May 98 May 99
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Boston 1784 Connecticut Tax-Exempt Income Fund $10,000 $10,664 $11,103 $11,909 $13,015 $13,499
Lehman 7-Year Municipal Bond Index $10,000 $10,629 $11,123 $11,885 $12,844 $13,451
Lipper Other States Intmdt. Muni Debt Funds Average $10,000 $10,539 $10,924 $11,579 $12,387 $12,810
</TABLE>
Past performance of the Fund is not predictive of future performance
* Inception date 8/1/94
18
<PAGE>
BOSTON 1784 FUNDS
- --------------------------------------------------------------------------------
BOSTON 1784 FLORIDA TAX-EXEMPT INCOME FUND
Objective: To provide investors with current income exempt from federal income
tax through Fund shares which are exempt from Florida intangible personal
property tax, with a secondary goal of preserving capital.
Boston 1784 Florida Tax-Exempt Income Fund is an actively managed,
state-specific portfolio of primarily investment-grade, intermediate- to
longer-term securities. The Fund consists of a balance of prerefunded bonds,
intermediate bonds and longer-term securities. The majority of the Fund's assets
are invested in general obligation bonds issued by the State of Florida and
various municipalities, and revenue bonds issued to finance hospitals,
education, housing, transportation, utilities and industrial development. As of
May 31, 1999, 100% of the bonds in the Fund's portfolio were rated AA or higher
by either Moody's or Standard & Poor's. A portion of these assets were enhanced
with bond insurance.
The Fund's net assets increased from $51.8 million on May 31, 1998 to $68.8
million on May 31, 1999. For the twelve months ended May 31, 1999, the Fund had
a total return of 3.88%, compared with returns of 4.73% for the Lehman 7-Year
Municipal Bond Index and 3.45% for the Lipper Florida Intermediate Municipal
Debt Funds Average. As a result, the Fund ranked in the top 20% of its Lipper
peer group (3 of 15). The Fund's return and resulting ranking reflect a waiver
of certain management fees and expenses (see Financial Highlights).
Important factors that positively affected the Fund's performance during
the past fiscal year included the investment in high quality bonds. The Fund had
an average-weighted-maturity of 8.13 years and a duration of 6.37 years, both of
which were longer than the Lehman 7-Year Municipal Bond Index.
During the year ended May 31, 1999, the Fund focused on improving current
dividend yield while maintaining holdings with relatively high credit quality.
The Fund also increased its diversification by adding bonds of several new
issuers. Current income will continue to be a priority. In the coming months, we
expect to see a reduced supply of new municipal issues. We anticipate that bonds
will move within a narrow trading range and interest rates will eventually
decrease as economic growth slows and fears of inflation diminish.
BOSTON 1784 FLORIDA TAX-EXEMPT INCOME FUND
Comparison of Change in the Value of a $10,000 Investment
in Boston 1784 Florida Tax-Exempt Income Fund versus the
Lehman 7-Year Municipal Bond Index and the
Lipper Florida Intermediate Municipal Debt Funds Average
[GRAPHIC OMITTED]
In the printed version of the document, a line graph
appears which depicts the following plot points:
Annualized
One-Year Inception to
Return Date*
-------- ------------
3.88% 5.97%
<TABLE>
<CAPTION>
Initial
Investment
Date
6/30/97 May 98 May 99
------- ------- -------
<S> <C> <C> <C>
Boston 1784 Florida Tax-Exempt Income Fund $10,000 $10,759 $11,176
Lehman 7-Year Municipal Bond Index $10,000 $10,704 $11,211
Lipper Florida Intermediate Muni Debt Funds Average $10,000 $10,617 $10,983
</TABLE>
Past performance of the Fund is not predictive of future performance
* Inception date 6/30/97
19
<PAGE>
- --------------------------------------------------------------------------------
BOSTON 1784 MASSACHUSETTS TAX-EXEMPT INCOME FUND
Objective: To provide investors with current income, exempt from both federal
and Massachusetts personal income tax, consistent with preservation of capital.
Boston 1784 Massachusetts Tax-Exempt Income Fund is an actively managed,
state-specific portfolio of primarily investment-grade, intermediate- to
longer-term securities. The Fund consists of a balance of prerefunded bonds,
intermediate bonds and longer-term securities. The majority of the Fund's assets
are invested in general obligation bonds issued by the Commonwealth of
Massachusetts and various municipalities, and revenue bonds issued to finance
hospitals, education, housing, transportation, utilities and industrial
development. As of May 31, 1999, approximately 89.9% of the bonds in the Fund
were rated AA or higher by either Moody's or Standard & Poor's. A portion of
these assets were enhanced with bond insurance. On May 31, 1999, the Fund's
assets totaled $267.9 million compared with $206.1 million on May 31, 1998.
For the twelve months ended May 31, 1999, the Fund had a total return of
4.10%, compared with returns of 4.73% for the Lehman 7-Year Municipal Bond Index
and 3.35% for the Lipper Massachusetts Intermediate Municipal Funds Average. As
a result, the Fund ranked at the top of its Lipper peer group (1 of 10). The
Fund's return and resulting ranking reflect a waiver of certain management fees
and expenses (see Financial Highlights).
Several factors that positively affected the Fund's performance during the
past fiscal year included the investment in high quality bonds with current and
slight discount coupons. The Fund had an average-weighted-maturity of 8.66 years
and a duration of 6.55 years, both of which were longer than the Lehman 7-Year
Municipal Bond Index.
During the year ended May 31, 1999, the Fund focused on improving current
dividend yield while maintaining holdings with relatively high credit quality.
The Fund also attempted to increase diversification by adding bonds of new
issuers to its portfolio. Generating current income will continue to be a
priority. We expect to see a reduced supply of new municipal issues in the
coming months. We also expect bonds to move within a narrow trading range and
interest rates to eventually decline as economic growth slows and fears of
inflation diminish.
BOSTON 1784 MASSACHUSETTS TAX-EXEMPT INCOME FUND
Comparison of Change in the Value of a $10,000 Investment
in Boston 1784 Massachusetts Tax-Exempt Income Fund versus the
Lehman 7-Year Municipal Bond Index and the
Lipper Massachusetts Intermediate Municipal Funds Average
[GRAPHIC OMITTED]
In the printed version of the document, a line graph
appears which depicts the following plot points:
Annualized Annualized Annualized
One-Year 3 Year 5 Year Inception to
Return Return Return Date*
-------- ----------- ----------- ------------
4.10% 6.75% 5.96% 5.50%
<TABLE>
<CAPTION>
Initial
Investment
Date
6/30/93 May 94 May 95 May 96 May 97 May 98 May 99
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Boston 1784 Massachusetts Tax-Exempt Income Fund $10,000 $10,126 $10,734 $11,116 $11,928 $12,990 $13,523
Lehman 7-Year Municipal Bond Index $10,000 $10,144 $10,972 $11,481 $12,267 $13,257 $13,884
Lipper Massachusetts Intermediate Municipal Average $10,000 $10,142 $10,766 $11,154 $11,824 $12,666 $13,088
</TABLE>
Past performance of the Fund is not predictive of future performance
* Inception date 6/14/93
20
<PAGE>
BOSTON 1784 FUNDS
- --------------------------------------------------------------------------------
BOSTON 1784 RHODE ISLAND TAX-EXEMPT INCOME FUND
Objective: To provide investors with current income exempt from federal income
tax and Rhode Island personal income and business corporation taxes, with a
secondary goal of preserving capital.
Boston 1784 Rhode Island Tax-Exempt Income Fund is an actively managed,
state-specific portfolio of high quality, intermediate-term municipal
securities. To increase yield and maintain price stability, the Fund emphasizes
diversification across sectors and issuers in the State of Rhode Island. The
Fund also attempts to maximize tax-free income, credit quality and market
liquidity. On May 31, 1999, the Fund's net assets totaled $102.1 million
compared with $76.8 million on May 31,1998. Of the Fund's total assets, 60% were
rated AAA, 20.8% were rated AA and 13% were rated A by either Standard & Poor's
or Moody's.
The Fund's total return for the year ended May 31, 1999 was 4.11%, compared
with a return of 3.41% for the Lipper Other States Intermediate Municipal Debt
Funds Average for the same period, ranking the Fund in the top 5% (4 of 80) of
its Lipper peer group. For the same twelve month period, the Lehman 7-Year
Municipal Bond Index's total return was 4.73%. The Fund's return and resulting
ranking reflect a waiver of certain management fees and expenses (see Financial
Highlights).
The Fund outperformed the Lipper Other States Intermediate Municipal Debt
Funds Average due to a focus on credit quality, premium coupon yields, and
slightly longer average-weighted-maturity and duration. The modest .62% total
return performance lag to the Lehman 7-Year Municipal Bond Index primarily
reflected the Fund's maturity structure and duration, which negatively impacted
the Fund's performance during the last two months of the year ended May 31,
1999.
After declining to historical lows in early October 1998, municipal bond
yields rose from .15% to .5% across all maturities in the following months. By
comparison, however, Treasury yields rose from .82% to 1.7% during the same time
period. Therefore, we believe that municipal bonds are currently priced below
their fair market values. We also believe that manufacturing overcapacity and an
anticipated slowdown in domestic economic growth will contain inflation and
drive interest rates back toward 5% on the 30-year U.S. Treasury Bond. We have
positioned the Fund to take advantage of a rise in bond prices, but will
maintain a defensive posture with high quality, premium coupon bonds.
BOSTON 1784 RHODE ISLAND TAX-EXEMPT INCOME FUND
Comparison of Change in the Value of a $10,000 Investment
in Boston 1784 Rhode Island Tax-Exempt Income Fund versus the
Lehman 7-Year Municipal Bond Index and the
Lipper Other States Intermediate Municipal Debt Funds Average
[GRAPHIC OMITTED]
In the printed version of the document, a line graph
appears which depicts the following plot points:
Annualized Annualized
One-Year 3 Year Inception to
Return Return Date*
-------- ----------- ------------
4.11% 6.65% 6.34%
<TABLE>
<CAPTION>
Initial
Investment
Date
8/31/94 May 95 May 96 May 97 May 98 May 99
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Boston 1784 Rhode Island Tax-Exempt Income Fund $10,000 $10,552 $11,033 $11,872 $12,855 $13,384
Lehman 7-Year Municipal Bond Index $10,000 $10,629 $11,123 $11,885 $12,844 $13,451
Lipper Other States Intmdt. Muni Debt Funds Average $10,000 $10,539 $10,924 $11,579 $12,387 $12,810
</TABLE>
<TABLE>
<CAPTION>
Initial
Investment
Date
8/31/94 May 95 May 96 May 97 May 98 May 99
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Boston 1784 Connecticut Tax-Exempt Income Fund $10,000 $10,664 $11,103 $11,909 $13,015 $13,499
Lehman 7-Year Municipal Bond Index $10,000 $10,629 $11,123 $11,885 $12,844 $13,451
Lipper Other States Intmdt. Muni Debt Funds Average $10,000 $10,539 $10,924 $11,579 $12,387 $12,810
</TABLE>
Past performance of the Fund is not predictive of future performance
* Inception date 8/1/94
21
<PAGE>
- --------------------------------------------------------------------------------
BOSTON 1784 ASSET ALLOCATION FUND
Objective: To provide investors with a favorable total rate of return through
current income and capital appreciation consistent with preservation of capital,
derived from investing in fixed income and equity securities.
Boston 1784 Asset Allocation Fund was allocated approximately 54% to common
stocks, 40% to bonds and 6% to money market instruments on May 31, 1999.
During the twelve months ended May 31, 1999, the Fund's net assets
increased from $50.3 million to $53.4 million. For the year ended May 31, 1999,
the Fund had a total return of 5.92%, compared with returns of 21.05% for the
Standard and Poor's 500 Composite Index (the "S&P 500"), 4.34% for the Lehman
Aggregate Bond Index and 8.71% for the Lipper Balanced Funds Average for the
same period. The Fund's return reflects a waiver of certain management fees and
expenses (see Financial Highlights).
The Fund's concentration of common stocks in the telecommunications
services and cable/media sectors was higher than the S&P 500 during much of the
fiscal year ended May 31, 1999, which positively affected the Fund's
performance. These sectors were beneficiaries of consumer spending,
consolidation and financial restructuring. Recently, the Fund added investments
in more economically sensitive sectors. Still, we believe the strength in these
cyclical sectors will be measured in months, not years, and we will watch
closely for signs of weakness. Foreign exposure will also remain primarily
limited to the developed markets.
The Fund's fixed income portfolio performed well in comparison to the
Lehman Aggregate Bond Index. Consisting of investment-grade, intermediate- to
long-term securities, the performance of the Fund's fixed income portfolio can
be attributed in part to a slightly longer duration than the Lehman Aggregate
Bond Index--an advantage in a period of declining interest rates. The Fund also
benefited from an underweighting in mortgaged-backed securities, many of which
were prepaid in the past year. The Fund's average credit quality improved
recently with an increase in U.S. Treasury securities holdings. On May 31, 1999,
the average-weighted-maturity of the Fund's fixed income portfolio was
approximately 7.9 years with a duration of approximately 5.2 years.
BOSTON 1784 ASSET ALLOCATION FUND
Comparison of Change in the Value of a $10,000 Investment
in Boston 1784 Asset Allocation Fund versus the
S&P 500 Composite Index, the Lehman Aggregate Bond Index
and the Lipper Balanced Funds Average
[GRAPHIC OMITTED]
In the printed version of the document, a line graph
appears which depicts the following plot points:
Annualized Annualized Annualized
One-Year 3 Year 5 Year Inception to
Return Return Return Date
-------- ----------- ---------- ------------
5.92% 13.61% 14.69% 12.15%
<TABLE>
<CAPTION>
Initial
Investment
Date
6/30/93 May 94 May 95 May 96 May 97 May 98 May 99
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Boston 1784 Asset Allocation Fund $10,000 $10,016 $11,503 $13,554 $15,572 $18,765 $19,876
S&P 500 Composite Index $10,000 $10,395 $12,489 $16,039 $20,754 $27,119 $32,828
Lehman Aggregate Bond Index $10,000 $ 9,890 $11,028 $11,511 $12,469 $13,830 $14,430
Lipper Balanced Funds Average $10,000 $10,223 $11,471 $13,503 $15,715 $18,764 $20,398
</TABLE>
Past performance of the Fund is not predictive of future performance
* Inception date 6/14/93
22
<PAGE>
BOSTON 1784 FUNDS
- --------------------------------------------------------------------------------
BOSTON 1784 GROWTH AND INCOME FUND
Objective: To provide investors with long-term growth of capital with a
secondary goal of income.
Boston 1784 Growth and Income Fund is a diversified portfolio invested primarily
in stocks of large- and mid-capitalization companies. While the Fund invests
largely in U.S. companies, as of May 31, 1999, 12.27% of the Fund's assets were
invested in international equities. During the year ended May 31, 1999, the
Fund's net assets decreased to $549.4 million from $554.0 million on May 31,
1998.
For the year ended May 31, 1999, the Fund had a total return of 4.65%,
compared with returns of 21.05% for the Standard & Poor's 500 Composite Index
(the "S&P 500") and 11.48% for the Lipper Growth & Income Funds Average for
the same period. The Fund's return reflects a waiver of certain management fees
and expenses (see Financial Highlights.)
The Fund's performance closely mirrored or exceeded its benchmarks for much
of 1998. Early in the Fund's fiscal year, an overweighting in technology stocks,
primarily in Microsoft, Cisco and Intel, compared with the S&P 500 resulted in
returns that exceeded the S&P 500. In August and September 1998, however, the
Russian debt crisis, the near-failure of a large hedge fund and the sharp
decline in the price of oil drove markets lower. Technology stocks, energy
stocks and foreign holdings in particular were negatively impacted, and the Fund
lagged the S&P 500 due to overweightings in these areas. In October 1998, when
technology and growth stocks rebounded sharply, the Fund again outperformed the
S&P 500. At the beginning of 1999, oil prices also rebounded and the Fund's
overweighted position in this sector positively affected performance. The Fund's
foreign holdings, particularly J.D. Wetherspoon and PizzaExpress, also performed
strongly and boosted returns. At the same time, the Fund's performance was
negatively affected by a market sector shift to cyclical stocks. This shift
depressed the prices of growth stocks, especially in the drug and technology
sectors where the Fund was overweighted.
We believe the market's cyclical emphasis will be temporary and that we
will see a rebound in growth stocks as inflation fears abate and the interest
rate environment becomes more favorable. In the coming year, the Fund will
primarily focus on companies exhibiting growth rates of 20% or more.
BOSTON 1784 GROWTH AND INCOME FUND
Comparison of Change in the Value of a $10,000 Investment
in Boston 1784 Growth and Income Fund versus the S&P 500
Composite Index and the Lipper Growth & Income Funds Average
[GRAPHIC OMITTED]
In the printed version of the document, a line graph
appears which depicts the following plot points:
Annualized Annualized Annualized
One-Year 3 Year 5 Year Inception to
Return Return Return Date*
-------- ----------- ----------- ------------
4.65% 16.20% 18.34% 16.38%
<TABLE>
<CAPTION>
Initial
Investment
Date
6/30/93 May 94 May 95 May 96 May 97 May 98 May 99
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Boston 1784 Growth and Income Fund $10,000 $10,854 $12,709 $16,054 $18,997 $24,070 $25,190
S&P 500 Composite Index $10,000 $10,395 $12,489 $16,039 $20,754 $27,119 $32,828
Lipper Growth & Income Average $10,000 $10,475 $12,011 $15,113 $18,621 $23,381 $26,065
</TABLE>
Past performance of the Fund is not predictive of future performance
* Inception date 6/7/93
23
<PAGE>
- --------------------------------------------------------------------------------
BOSTON 1784 GROWTH FUND
Objective: To provide investors with capital appreciation. Dividend income, if
any, is incidental to this goal.
Boston 1784 Growth Fund is a diversified portfolio invested primarily in stocks
of small- and mid-capitalization companies. During the past twelve months, the
Fund's net assets decreased to $185.5 million from $257.6 million on May 31,
1998.
For the year ended May 31, 1999, the Fund had a total return of -3.54%,
compared with returns of -2.69% for the Russell 2000 Index, 9.74% for the Lipper
Mid-Cap Funds Average and 16.21% for the Lipper Growth Funds Average for the
same period. Prior to the past fiscal year, the Fund used the Lipper Growth
Funds Average as a benchmark, which is heavily weighted toward
large-capitalization companies. The Lipper Mid-Cap Funds Average more closely
mirrors the composition of the Fund. The Fund's return reflects a waiver of
certain management fees and expenses (see Financial Highlights.)
The Fund's performance, compared to its benchmarks, varied during the
fiscal year ended May 31, 1999. While its significant overweighting in
technology stocks proved beneficial during June and July 1998, technology and
energy shares fell sharply in August. During that decline, small-cap stocks
suffered a more severe downturn than large-cap stocks. After rebounding slightly
in September 1998, the market and the value of the Fund's portfolio fell sharply
as fears of a credit crunch developed. An easing by the Federal Reserve Board in
late September had little impact, but a second easing in mid-October sparked a
significant rally. The Fund gained 49.24% between the stock market low in
October 1998 and January 1, 1999, outperforming its benchmarks by a wide margin.
The Fund dramatically reduced its holdings in the energy sector during this
period and focused increasingly on technology companies, particularly those in
the storage area networking (SAN) and fiber channel areas, such as Emulex and
QLogic. The Fund also bolstered its position in consumer cyclical companies,
such as Danaher and Fastenal. Early in 1999, however, large-cap companies
reemerged as market leaders, ending the rally in smaller companies. Weakness in
the software sector also impeded the Fund's performance. In May 1999, the Fund
performed strongly due to a rebound in foreign stocks and good results in the
SAN area.
In the year ahead, we expect improvements in the software industry, as well
as continued gains in the SAN and fiber channel industries, which represent 18%
of the Fund. The Fund will primarily maintain its focus on companies
demonstrating growth rates of 30% or higher.
[GRAPHIC OMITTED]
In the printed version of the document, a line graph
appears which depicts the following plot points:
Annualized Annualized
One-Year 5 Year Inception to
Return Return Date
-------- ---------- ------------
-3.54% 5.73% 9.45%
<TABLE>
<CAPTION>
Initial
Investment
Date
3/31/96 May 96 May 97 May 98 May 99
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Boston 1784 Growth Fund $10,000 $11,270 $12,258 $13,807 $13,319
Russell 2000 Index $10,000 $10,950 $11,713 $14,201 $13,819
Lipper Mid-Cap Funds Average $10,000 $10,847 $11,788 $14,586 $16,007
</TABLE>
24
<PAGE>
- --------------------------------------------------------------------------------
BOSTON 1784 INTERNATIONAL EQUITY FUND
Objective: To provide investors with long-term growth of capital. Dividend
income, if any, is incidental to this goal.
Boston 1784 International Equity Fund was invested in 23 countries with
positions in about 90 companies as of May 31, 1999. In addition, 81.7% of the
Fund was invested in the established markets included in the Morgan Stanley MSCI
EAFE Index. The emerging market positions amounted to about 6% of the Fund's
assets. Since May 31, 1998, the Fund's net assets have declined from $469.8
million to $389.8 million on May 31, 1999.
For the year ended May 31, 1999, the Fund had a total return of -4.85%,
compared to returns of 4.36% for the Morgan Stanley MSCI EAFE Index and -1.23%
for the Lipper International Funds Average for the same period. The Fund's
return reflects a waiver of certain management fees and expenses (see Financial
Highlights).
International equity markets recorded strong gains during the early months
of the Fund's fiscal year ended May 31, 1999, as investors believed the Asian
financial crisis, which started in Thailand one year earlier, was over. Europe
was also judged to be moving smoothly towards the launch of the Euro on January
1, 1999. However, high share valuations were severely tested by a prospective
currency crisis in Brazil and the international markets were increasingly
influenced by the volatile U.S. equity market. When U.S. stocks plunged 19% by
the end of August 1998, major international markets fell by comparable amounts
and adversely affected the Fund's performance. Just as quickly sentiment changed
and, with the help of a series of interest rate cuts in every major economy, the
international markets followed Wall Street to record a strong 1998 year-end
performance.
The focus on Eurozone equities faded in early 1999, when the strength of
the U.S. economy and shares attracted funds from other markets. This negatively
impacted the Fund. Then in March 1999, foreign investors, anxious to correct
underweighted portfolio positions, rewarded early signs of corporate
restructuring and an economic recovery in Japan. During the past six months, the
Fund increased its Japanese exposure from 10% to 20% and slightly increased
positions in other Pacific Basin countries to take advantage of the recovery.
Eurozone positions have been reduced accordingly.
Since the beginning of 1999, "value" stocks have generally outperformed
"growth" stocks. However, we expect corporate profits to rise and restore the
competitive attraction of the international equity markets. We will therefore
continue to emphasize the longer-term growth prospects for each company in the
Fund's portfolio.
BOSTON 1784 INTERNATIONAL EQUITY FUND
Comparison of Change in the Value of a $10,000 Investment
in Boston 1784 International Equity Fund versus the
Morgan Stanley MSCI EAFE Index and the
Lipper International Funds Average
[GRAPHIC OMITTED]
In the printed version of the document, a line graph
appears which depicts the following plot points:
Annualized Annualized
One-Year 3 Year Inception to
Return Return Date
-------- ----------- ------------
-4.85% 3.88% 7.74%
<TABLE>
<CAPTION>
Initial
Investment
Date
1/31/95 May 95 May 96 May 97 May 98 May 99
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Boston 1784 International Equity Fund $10,000 $11,040 $13,146 $14,583 $15,486 $14,735
Morgan Stanley EAFE Index $10,000 $10,862 $12,021 $12,928 $14,365 $14,991
Lipper International Funds Average $10,000 $10,774 $12,394 $13,918 $15,938 $15,742
</TABLE>
Past performance of the Fund is not predictive of future performance
* Inception date 1/3/95
25
<PAGE>
AS OF MAY 31, 1999
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
Boston 1784 Tax-Free Money Market Fund
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
In the printed version of the document, a line graph appears which depicts the
following plot points:
Transportation Bonds 2%
Education Bonds 7%
Public Facility Bonds 3%
Health Care Bonds 10%
Alternative Minimum Tax Bonds 1%
Industrial Development & Pollution Control Bonds 13%
Bond Anticipation Notes 1%
Water & Sewer Bonds 7%
Housing Bonds 6%
Other Revenue Bonds 10%
Tax-Exempt Commercial Paper 3%
Cash Equivalents 18%
General Obligation Bonds 4%
Utility Bonds 15%
% of Total Portfolio Investments
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Municipal Bonds -- 81.2%
Alaska -- 1.0%
Valdez, Arco Transportation
Project RB, Series 1994-A
2.700%, 06/14/99 $ 9,500 $ 9,500
-------
Arizona -- 2.0%
Pima County, Industrial
Development Authority RB (A)
3.400%, 06/02/99 19,000 19,000
-------
California -- 2.8%
California School Cash Reserve
Program Authority TRAN,
Series A, AMBAC
4.500%, 07/02/99 15,000 15,009
California Student Education
Loan Marketing RB,
Series A LOC (A)
3.000%, 06/01/99 12,500 12,500
-------
27,509
-------
Colorado -- 2.4%
Colorado State Health Facility
Authority RB, LOC (A)
3.300%, 06/02/99 23,100 23,100
-------
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Delaware -- 2.0%
Delaware State Health Facility
Authority RB, LOC (A)
3.250%, 06/02/99 $19,900 $19,900
-------
District of Columbia -- 2.1%
District of Columbia Tax &
Revenue GO, Series B
3.750%, 09/30/99 20,000 20,042
-------
Florida -- 3.1%
Miami-Dade County School
Board COP, Series C, FSA
4.000%, 08/01/99 4,360 4,367
Miami-Dade County Water &
Sewer System RB, Series 1994,
FGIC (A)
3.150%, 06/02/99 25,600 25,600
-------
29,967
-------
Georgia -- 8.7%
Burke County, Pollution
Control RB, Oglethorpe Power,
Series A, FGIC (A)
3.150%, 06/02/99 13,750 13,750
Burke County, Pollution Control
Development, Series 2 (A)
3.400%, 06/01/99 20,000 20,000
Georgia State Municipal Electric
Authority RB, LOC (A)
3.200%, 06/02/99 21,800 21,800
Georgia State Municipal Electric
Authority RB, Series B,
LOC (A) (B)
3.200%, 06/02/99 7,000 7,000
Georgia State Municipal Gas
Authority RB, Gas Portfolio II
Project, Series B (A)
3.150%, 06/02/99 9,375 9,375
Southern Georgia Hospital
Authority RB, Series A (A)
3.350%, 06/02/99 12,900 12,900
-------
84,825
-------
26
<PAGE>
BOSTON 1784 FUNDS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Illinois -- 9.1%
Chicago GO, LOC (B)
2.850%, 01/31/00 $ 7,500 $ 7,500
Chicago, Multi-Family
Housing RB, Waveland
Associates Project C,
LOC (A) (B)
3.300%, 06/02/99 10,000 10,000
Illinois State Development
Finance Authority RB,
Chicago Symphony
Project, GOA (A)
3.200%, 06/02/99 26,000 26,000
Illinois State Development
Finance Authority RB,
Series 42A (A)
3.470%, 06/03/99 14,030 14,030
Illinois State Educational
Facility Authority RB,
Shedd Aquarium Society
Project, Series B,
LOC (A) (B)
3.700%, 07/20/99 6,000 6,000
Illinois State Toll Highway
Authority RB (A)
3.250%, 06/02/99 25,000 25,000
-------
88,530
-------
Indiana -- 0.5%
Indiana State Educational
Loan RB, Series E
4.200%, 06/01/00 4,400 4,438
-------
Iowa -- 1.6%
Polk County, Catholic Health
Center RB, Series B (A)
3.250%, 06/02/99 15,300 15,300
-------
Kentucky -- 3.0%
Boone County, Pollution Control
RB, Cincinnati Gas & Electric
Project, LOC (A) (B)
3.800%, 06/01/99 4,100 4,100
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Kentucky Rural Water Finance
RB, Public Project
Construction Notes
4.000%, 07/15/99 $25,080 $25,089
-------
29,189
-------
Louisiana -- 6.9%
De Soto Parish, Pollution
Control RB, Central Louisiana
Electric Company Project,
Series B, LOC (A)
3.200%, 06/02/99 10,000 10,000
Louisiana State Public Facilities
Authority RB, Willis Knighton
Medical Center, LOC (A) (B)
3.400%, 06/02/99 37,000 37,000
Plaquemines, Port Facilities RB,
International Marine Terminal
Project, Series B (A) (B)
3.050%, 03/15/00 10,900 10,900
Rapides Parish, Pollution
Control RB, Central Louisiana
Electric Company Project,
LOC (A) (B)
3.200%, 06/02/99 9,250 9,250
-------
67,150
-------
Maine -- 1.0%
Jay, Pollution Control RB,
Solid Waste Disposal Project,
AMT (A) (B)
4.000%, 06/01/99 10,000 10,000
-------
Massachusetts -- 3.2%
Massachusetts State GO
4.000%, 05/01/00 8,080 8,138
Massachusetts State Housing
Finance Authority RB,
Multi-Family Series A,
GNMA (A)
3.150%, 06/02/99 11,100 11,100
27
<PAGE>
AS OF MAY 31, 1999
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
Boston 1784 Tax-Free Money Market Fund (continued)
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Massachusetts (continued)
Springfield, Massachusetts BAN
4.000%, 07/15/99 $10,000 $10,004
4.000%, 09/02/99 2,000 2,002
-------
31,244
-------
Michigan -- 1.3%
Kent, Hospital Finance
Authority RB, Spectrum
Health Series B, MBIA (A)
3.150%, 06/02/99 12,200 12,200
-------
Mississippi -- 1.6%
Jackson County RB, Chevron
USA Project, Series 93 (A)
3.400%, 06/01/99 11,600 11,600
Mississippi State GO
5.000%, 11/01/99 3,925 3,954
-------
15,554
-------
Missouri -- 0.9%
Missouri State Health &
Educational Facilities
Authority RB, Christian
Health Services,
Series B, LOC (A) (B)
3.200%, 06/02/99 6,150 6,150
Missouri State Higher Education
Loan Authority RB, Series CC
3.200%, 02/15/00 2,715 2,715
-------
8,865
-------
Nebraska -- 1.0%
Nebraska State Public Gas
Supply RB, Series C
3.550%, 03/01/00 3,195 3,202
Omaha, Electric Power
Distribution RB, Series A
4.850%, 02/01/00 6,245 6,314
-------
9,516
-------
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
New Hampshire -- 2.9%
New Hampshire State Health &
Higher Education Facilities
Authority RB, Mary
Hitchcock Project,
Series 85D, FGIC (A) (B)
3.200%, 06/02/99 $12,600 $12,600
New Hampshire State
Health & Higher Education
Facilities Authority RB,
Mary Hitchcock Project,
Series 85H,
FGIC (A) (B)
3.200%, 06/02/99 9,600 9,600
New Hampshire State
Health & Higher Education
Facilities Authority RB,
Veterans Administration
Hospital, New England
Project, Series C,
AMBAC (A) (B)
3.350%, 06/02/99 4,000 4,000
New Hampshire State
Health & Higher Education
Facilities Authority RB,
Veterans Administration
Hospital, New England
Project, Series F,
AMBAC (A) (B)
3.350%, 06/02/99 2,000 2,000
-------
28,200
-------
New York -- 2.5%
New York State Housing
Finance Agency RB,
Series PA 423 (A)
3.370%, 06/03/99 9,105 9,105
New York State Municipal Water
Finance Authority RB,
Series G, FGIC (A) (B)
3.300%, 06/01/99 15,000 15,000
-------
24,105
-------
28
<PAGE>
BOSTON 1784 FUNDS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
North Carolina -- 2.1%
Wake County, Industrial
Facilities & Pollution
Control RB, Carolina
Power & Light Project,
Series B, LOC (A) (B)
3.250%, 06/02/99 $ 8,600 $ 8,600
Wake County, Industrial
Facilities & Pollution
Control RB, Carolina
Power & Light Project,
Series C, LOC (A) (B)
3.250%, 06/02/99 12,250 12,250
-------
20,850
-------
Oklahoma -- 2.4%
Oklahoma State Water Resources
RB, Saint Loan Program,
LOC (A) (B)
3.550%, 09/01/99 23,710 23,710
-------
Pennsylvania -- 4.7%
Quakertown, General
Authority RB, Series A, LOC (A)
3.450%, 06/01/99 11,300 11,300
Quakertown, Hospital Facilities
Authority RB (A) (B)
3.450%, 06/01/99 34,200 34,200
-------
45,500
-------
South Carolina -- 0.6%
Piedmont, Municipal Power
Agency RB, Series B, MBIA (A)
3.300%, 06/02/99 5,400 5,400
-------
Tennessee -- 0.3%
Nashville & Davidson County,
Education & Health
Facilities RB, Metropolitan
Government Vanderbilt
University Series 85-A,
GOI (A)
3.100%, 01/15/00 2,500 2,500
-------
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Texas -- 4.6%
Bexar County, Multi-Family
Housing RB, Altamonte
Apartments Project, FNMA (A)
3.400%, 06/02/99 $11,300 $11,300
Brazos, Industrial
Development RB, Badische
Corporate Port Authority,
LOC (A) (B)
3.850%, 06/01/99 6,300 6,300
Midlothian, Industrial
Development RB (A)
3.300%, 06/02/99 12,000 12,000
Texas, Lower Colorado River
Authority RB, Junior Lien 3rd
Supply Series, MBIA (A)
3.150%, 06/02/99 15,200 15,200
-------
44,800
-------
Utah -- 2.3%
Utah Intermountain Power
TECP, Series 97B
3.100%, 06/09/99 22,100 22,100
-------
Vermont -- 0.8%
Vermont Education & Health
Financing Agency RB,
Middlebury College
Project A (A)
3.100%, 11/01/99 1,500 1,500
Vermont State Health &
Educational Facilities
Authority RB, Series D,
AMBAC (A) (B)
3.350%, 06/02/99 5,900 5,900
-------
7,400
-------
Washington -- 1.5%
Washington State Health Care
Facilities Authority RB, Sisters
of Providence Project,
Series C, LOC (A) (B)
3.300%, 06/01/99 12,100 12,100
29
<PAGE>
AS OF MAY 31, 1999
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
Boston 1784 Tax-Free Money Market Fund (concluded)
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Washington (continued)
Washington State Public Power
Supply RB, Series A
5.300%, 07/01/99 $ 2,400 $ 2,404
--------
14,504
--------
West Virginia -- 1.4%
West Virginia State Hospital
Finance Authority RB,
Oak Hill Hospital Project,
Series A (A)
3.150%, 06/03/99 13,285 13,285
--------
Wisconsin -- 0.9%
Pleasant Prairie, Industrial
Development Authority RB,
Wisconsin Electric Power
Project, LOC (A) (B)
3.250%, 06/03/99 9,000 9,000
--------
Total Municipal Bonds
(Cost $787,183) 787,183
--------
Tax-Exempt Municipal
Trust Certificate -- 0.6%
Municipal Tax-Exempt Trust
Certificate Class A1, MBIA
3.100%, 02/07/00 5,256 5,256
Total Tax-Exempt Municipal
Trust Certificate
(Cost $5,256) 5,256
--------
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Cash Equivalents -- 4.5%
Clipper Caraval Tax-Exempt
Trust, Series 1998-1,
Class A-1, AMBAC
3.250%, 01/06/00 $ 22,825 $ 22,825
Clipper Tax-Exempt Trust,
Series A (A) (B)
3.370%, 06/03/99 20,641 20,641
--------
Total Cash Equivalents
(Cost $43,466) 43,466
--------
Repurchase Agreements -- 13.5%
J.P. Morgan
4.810%, dated 05/28/99, matures
06/01/99, repurchase price
$30,016,033 (collateralized by
U.S. Treasury Instruments:
total market value
$30,600,033) (C) 30,000 30,000
Paine Webber
4.800%, dated 05/28/99, matures
06/01/99, repurchase price
$101,135,185 (collateralized
by U.S. Treasury Instruments:
total market value
$103,104,898) (C) 101,081 101,081
--------
Total Repurchase Agreements
(Cost $131,081) 131,081
--------
Total Investments -- 99.8%
(Cost $966,986) 966,986
--------
Other Assets and Liabilities, Net -- 0.2% 2,394
--------
30
<PAGE>
BOSTON 1784 FUNDS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Description Value (000)
- --------------------------------------------------------------------------------
Net Assets:
Capital Shares (unlimited
authorization -- no par value)
based on 969,493,152 outstanding
shares of beneficial interest $ 969,493
Accumulated net realized loss
on investments (113)
---------
Total Net Assets -- 100.0% $ 969,380
=========
Net Asset Value, Offering and
Redemption Price Per Share $ 1.00
=========
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(A) Variable Rate Security. The rate reported on the Statement of Net Assets is
the rate in effect on May 31, 1999. The date shown is the next scheduled
reset date.
(B) Put, demand or pre-refund feature exists requiring the issuer to repurchase
the instrument prior to maturity. The date shown is the lesser of the put,
demand or pre-refund date.
(C) Tri-Party Repurchase Agreement
AMT--Alternative Minimum Tax
BAN--Bond Anticipation Note
COP--Certificate of Participation
GO--General Obligation Bond
LOC--Securities are held in connection with a letter of credit issued by a major
commercial bank or other financial institution.
RB--Revenue Bond
TECP--Tax Exempt Commercial Paper
TRAN--Tax and Revenue Anticipation Note
The following organizations have provided underlying credit support for the
securities as set forth in the Statement of Net Assets.
AMBAC--American Municipal Bond Assurance Corporation
FGIC--Financial Guaranty Insurance Corporation
FNMA--Federal National Mortgage Association
FSA--Financial Security Assurance
GNMA--Government National Mortgage Association
GOA--General Obligation of Authority
GOI--General Obligation of Institution
MBIA--Municipal Bond Insurance Association
The accompanying notes are an integral part of the financial statements.
31
<PAGE>
AS OF MAY 31, 1999
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
Boston 1784 U.S. Treasury Money Market Fund
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
In the printed version of the document, a line graph appears which depicts the
following plot points:
U.S. Treasury Obligations 18%
U.S. Government Agency Obligations 33%
Cash Equivalents 49%
% of Total Portfolio Investments
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
U.S. Treasury Obligations -- 18.9%
U.S. Treasury Bills (A)
4.774%, 06/15/99 $ 15,000 $ 14,972
4.390%, 07/22/99 5,000 4,969
4.481%, 08/05/99 5,000 4,961
4.544%, 08/19/99 5,000 4,951
4.566%, 10/28/99 5,000 4,908
U.S. Treasury Notes
6.000%, 06/30/99 5,000 5,006
5.875%, 07/31/99 5,000 5,007
5.875%, 08/31/99 5,000 5,016
5.750%, 09/30/99 5,000 5,018
7.125%, 09/30/99 5,000 5,041
5.625%, 11/30/99 2,500 2,510
5.375%, 01/31/00 2,500 2,510
5.500%, 03/31/00 9,000 9,051
--------
Total U.S. Treasury Obligations
(Cost $73,920) 73,920
--------
U.S. Government Agency Obligations -- 33.9%
Federal Farm Credit Bank MTN (B)
5.121%, 06/01/99 5,000 4,998
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Federal Home Loan Bank
5.000%, 12/29/99 $ 5,000 $ 5,000
5.100%, 03/09/00 5,000 4,999
Federal Home Loan Bank (B)
5.161%, 06/01/99 5,000 5,000
4.721%, 06/08/99 5,000 4,999
Federal Home Loan Mortgage
Corporation (A)
4.773%, 06/08/99 7,500 7,493
4.737%, 06/10/99 5,000 4,994
4.826%, 06/11/99 5,000 4,993
4.835%, 06/25/99 7,000 6,978
4.828%, 06/28/99 5,000 4,982
4.830%, 06/29/99 3,000 2,989
4.754%, 07/23/99 10,000 9,932
4.827%, 09/08/99 2,123 2,095
4.856%, 09/24/99 5,000 4,924
Federal National Mortgage
Association (A)
4.754%, 06/03/99 2,700 2,699
4.721%, 06/11/99 8,000 7,990
4.742%, 06/18/99 10,000 9,978
4.874%, 09/09/99 5,000 4,934
4.846%, 09/22/99 9,750 9,605
4.800%, 10/15/99 5,000 4,912
Student Loan Marketing
Association (B)
4.881%, 06/01/99 3,950 3,934
5.101%, 06/01/99 14,000 13,994
--------
Total U.S. Government
Agency Obligations
(Cost $132,422) 132,422
--------
Repurchase Agreements -- 50.9%
Dean Witter
4.790%, dated 05/28/99, matures
06/01/99, repurchase price
$45,023,950 (collateralized
by U.S. Treasury Instruments:
total market value
$45,900,045) (C) 45,000 45,000
32
<PAGE>
BOSTON 1784 FUNDS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Repurchase Agreements (continued)
First Boston
4.750%, dated 05/28/99, matures
06/01/99, repurchase price
$15,007,917 (collateralized
by U.S. Treasury Bonds: total
market value
$15,299,976) (C) $ 15,000 $ 15,000
Greenwich Capital
4.800%, dated 05/28/99,
matures 06/01/99, repurchase
price $40,021,333 (collateralized
by U.S. Treasury Instruments:
total market value
$40,800,036) (C) 40,000 40,000
J.P. Morgan
4.810%, dated 05/28/99, matures
06/01/99, repurchase price
$54,087,573 (collateralized
by U.S. Treasury Instruments:
total market value
$55,139,916) (C) 54,059 54,059
Prudential Securities
4.800%, dated 05/28/99,
matures 06/01/99, repurchase
price $45,024,000 (collateralized
by U.S. Treasury Instruments:
total market value
$45,898,144) (C) 45,000 45,000
---------
Total Repurchase Agreements
(Cost $199,059) 199,059
---------
Total Investments -- 103.7%
(Cost $405,401) 405,401
---------
Other Assets and Liabilities,
Net -- (3.7%) (14,626)
---------
- --------------------------------------------------------------------------------
Description Value (000)
- --------------------------------------------------------------------------------
Net Assets:
Capital Shares (unlimited
authorization -- no par value)
based on 390,753,172 outstanding
shares of beneficial interest $ 390,753
Undistributed net investment income 14
Accumulated net realized gain
on investments 8
---------
Total Net Assets -- 100.0% $ 390,775
==========
Net Asset Value, Offering and
Redemption Price Per Share $ 1.00
==========
(A) The rate reported on the Statement of Net Assets is the effective yield as
of May 31, 1999.
(B) Variable Rate Security. The rate reported on the Statement of Net Assets is
the rate in effect on May 31, 1999. The date shown is the next scheduled
reset date.
(C) Tri-Party Repurchase Agreement
MTN--Medium Term Note
The accompanying notes are an integral part of the financial statements.
33
<PAGE>
AS OF MAY 31, 1999
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
Boston 1784 Prime Money Market Fund
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
In the printed version of the document, a line graph appears which depicts the
following plot points:
Municipal Bonds 14%
Cash Equivalents 15%
Corporate Bonds 7%
U.S. Government Agency Obligations 8%
Commercial Paper 56%
% of Total Portfolio Investments
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Commercial Paper -- 56.3%
Automotive -- 3.0%
Ford Motor (A)
4.833%, 08/05/99 $ 5,000 $ 4,957
-------
Financial Services -- 35.6%
American Express Credit (A)
4.826%, 06/14/99 3,000 2,995
4.826%, 06/16/99 1,300 1,297
Barton Capital (A)
4.840%, 06/09/99 2,000 1,998
Caterpillar (A)
4.807%, 06/01/99 1,400 1,400
4.829%, 06/30/99 5,000 4,981
CIT Group (A)
4.903%, 06/01/99 5,000 5,000
Concord Minuteman Capital (A)
4.927%, 06/18/99 5,000 4,989
General Electric Capital (A)
4.817%, 06/10/99 3,000 2,996
4.863%, 07/28/99 2,373 2,355
J.P. Morgan (A)
4.940%, 06/07/99 4,000 3,997
4.907%, 06/07/99 2,000 1,998
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Lexington Parker (A)
4.932%, 10/07/99 $ 4,000 $ 3,931
Monte Rosa (A)
4.857%, 06/17/99 2,000 1,996
Old Line Funding (A)
4.870%, 06/18/99 2,832 2,826
Prudential Funding (A)
4.810%, 06/04/99 5,000 4,998
Sigma Financial (A)
4.927%, 06/10/99 2,000 1,998
Triple A-1 Funding (A)
4.943%, 06/02/99 4,000 3,999
Wood Street Funding (A)
4.889%, 06/04/99 5,000 4,998
-------
58,752
-------
Food, Beverage & Tobacco -- 3.0%
Anheuser Busch (A)
4.903%, 06/01/99 5,000 5,000
-------
Taxable Municipals -- 5.7%
Dekalb County, Georgia,
Emory University
4.950%, 06/03/99 4,200 4,200
New York City, New York
4.900%, 06/03/99 1,000 1,000
4.950%, 06/03/99 1,000 1,000
4.850%, 06/09/99 1,350 1,350
4.900%, 07/22/99 1,800 1,800
-------
9,350
-------
Petroleum Refining -- 3.0%
BP America (A)
4.923%, 06/01/99 5,000 5,000
-------
Telephones &
Telecommunications -- 3.0%
AT&T (A)
4.772%, 06/08/99 5,000 4,995
-------
34
<PAGE>
BOSTON 1784 FUNDS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Utilities -- 3.0%
Lower Colorado River
Authority
4.900%, 06/02/99 $ 3,000 $ 3,000
4.950%, 06/03/99 2,000 2,000
-------
5,000
-------
Total Commercial Paper
(Cost $93,054) 93,054
-------
Corporate Bonds -- 6.8%
American General
7.700%, 10/15/99 1,150 1,161
AVCO Financial Services
7.250%, 07/15/99 2,000 2,005
Chase Manhattan Bank
5.875%, 08/04/99 500 500
CIT Group, MTN
6.800%, 04/17/00 2,000 2,025
Ford Motor Credit
6.375%, 09/15/99 500 502
6.375%, 04/15/00 750 757
IBM Credit
5.575%, 08/27/99 1,000 1,001
Norwest Financial
6.000%, 03/15/00 2,755 2,772
Texaco Capital
6.875%, 07/15/99 500 501
-------
Total Corporate Bonds
(Cost $11,224) 11,224
-------
U.S. Government Agency Obligations -- 7.6%
Federal Home Loan Bank
5.100%, 03/09/00 5,000 5,000
5.100%, 05/17/00 2,500 2,496
Federal National Mortgage
Association, MTN
5.000%, 05/04/00 5,000 4,994
-------
Total U.S. Government
Agency Obligations
(Cost $12,490) 12,490
-------
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Taxable Municipal Bonds -- 14.0%
Barton Healthcare (B)
4.950%, 06/02/99 $ 900 $ 900
Catholic Health Initiatives (B)
4.900%, 06/02/99 1,000 1,000
Community Health System,
LOC (B)
5.050%, 06/02/99 900 900
Kit Carson County, Colorado,
Agricultural Development RB,
LOC (B)
5.150%, 06/02/99 2,000 2,000
Los Angeles, California,
Community Redevelopment
Agency RB, FSA (B)
4.950%, 06/02/99 5,000 5,000
Maryland State Health & Higher
Education RB, LOC (B)
5.200%, 06/03/99 4,100 4,100
Maryland State Health & Higher
Education Facilities RB,
Series B, LOC (B)
5.100%, 06/02/99 2,300 2,300
Olathe, Kansas, Industrial RB,
LOC (B)
4.900%, 06/03/99 4,000 4,000
Union County, Arkansas,
Industrial RB, LOC (B)
4.950%, 06/02/99 3,000 3,000
-------
Total Taxable Municipal Bonds
(Cost $23,200) 23,200
-------
Repurchase Agreement -- 14.8%
J.P. Morgan
4.810%, dated 05/28/99,
matures 06/01/99, repurchase
price $24,394,061 (collateralized
by U.S. Treasury Instruments:
total market value
$24,868,679) (C) 24,381 24,381
-------
Total Repurchase Agreement
(Cost $24,381) 24,381
-------
35
<PAGE>
AS OF MAY 31, 1999
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
Boston 1784 Prime Money Market Fund (concluded)
- --------------------------------------------------------------------------------
Description Value (000)
- --------------------------------------------------------------------------------
Total Investments -- 99.5%
(Cost $164,349) $ 164,349
---------
Other Assets and Liabilities,
Net -- 0.5% 829
---------
Net Assets:
Capital Shares (unlimited
authorization -- no par value)
based on 165,183,547 outstanding
shares of beneficial interest 165,167
Undistributed net investment income 35
Accumulated net realized loss
on investments (24)
---------
Total Net Assets -- 100.0% $ 165,178
=========
Net Asset Value, Offering and
Redemption Price Per Share $ 1.00
=========
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(A) The rate reported on the Statement of Net Assets is the effective yield as
of May 31,1999.
(B) Variable Rate Security. The rate reported on the Statement of Net Assets is
the rate in effect as of May 31, 1999. The date shown is the next scheduled
reset date.
(C) Tri-Party Repurchase Agreement
LOC--Securities are held in connection with a letter of credit issued by a major
commercial bank or other financial institution.
RB--Revenue Bond
The following organizations have provided underlying credit support for a
security listed above.
FSA--Financial Security Assurance
MTN--Medium Term Note
The accompanying notes are an integral part of the financial statements.
36
<PAGE>
BOSTON 1784 FUNDS
AS OF MAY 31, 1999
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
Boston 1784 Short-Term Income Fund
[GRAPHIC OMITTED]
In the printed version of the document, a line graph appears which depicts the
following plot points:
U.S. Treasury Obligations 13%
Cash Equivalents 4%
Taxable Municipal Bonds 5%
Asset-Backed Securities 14%
U.S. Government Agency Mortgage-Backed Bonds 1%
U.S. Government Agency Obligations 8%
Non-Agency Mortgage-Backed Bonds 8%
Corporate Bonds 47%
% of Total Portfolio Investments
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
U.S. Treasury Obligations -- 13.5%
U.S. Treasury Bond
5.500%, 03/31/03 $ 2,000 $ 1,988
U.S. Treasury Notes
7.750%, 11/30/99 4,000 4,056
7.125%, 02/29/00 1,200 1,219
5.500%, 05/31/00 2,500 2,507
6.375%, 09/30/01 6,000 6,114
6.250%, 01/31/02 2,000 2,034
6.625%, 03/31/02 2,000 2,053
7.250%, 08/15/04 2,000 2,133
-------
Total U.S. Treasury Obligations
(Cost $22,105) 22,104
-------
U.S. Government Agency
Obligations -- 7.6%
Federal Home Loan Bank
5.625%, 03/19/01 5,500 5,498
Federal Home Loan
Mortgage Corporation
5.000%, 02/15/01 5,000 4,950
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Federal National Mortgage
Association
5.750%, 04/15/03 $ 2,000 $ 1,984
-------
Total U.S. Government
Agency Obligations
(Cost $12,598) 12,432
-------
U.S. Government Agency Mortgage-
Backed Bonds -- 0.9%
Federal Deposit Insurance
Corporation, REMIC
6.750%, 05/25/26 761 757
Federal Home Loan Mortgage
Corporation
8.000%, 01/01/02 162 167
Federal Home Loan Mortgage
Corporation, REMIC
7.250%, 04/25/24 52 52
Federal National Mortgage
Association, REMIC
8.950%, 05/25/03 483 498
-------
Total U.S. Government Mortgage-
Backed Bonds
(Cost $1,473) 1,474
-------
Taxable Municipal Bonds -- 4.9%
Carondelet, California, Health
Systems RB, Daniel Freeman
Hospitals, MBIA
6.250%, 07/01/01 4,000 4,015
New York State Dormitory
Authority RB
6.550%, 04/01/00 2,500 2,509
Pennsylvania State Housing
Finance Agency RB, FHA
7.000%, 10/01/06 1,575 1,605
-------
Total Taxable Municipal Bonds
(Cost $8,073) 8,129
-------
37
<PAGE>
AS OF MAY 31, 1999
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
Boston 1784 Short-Term Income Fund (concluded)
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Non-Agency Mortgage-Backed
Bonds -- 7.8%
BankAmerica Manufactured
Contrast Trust III,
Series 1997-2, Class A5
6.390%, 12/10/12 $ 5,500 $ 5,539
CIT RV Owners Trust,
Series 1995-A, Class A
6.250%, 01/15/11 214 216
Citibank Credit Card Trust I
5.500%, 02/15/06 5,000 4,843
Crown Home Equity Loan Trust,
Series 1996-1, Class A3
6.810%, 06/25/11 2,000 1,967
Prudential Home Mortgage
Securities, Series 1993-31,
Class A7
6.000%, 08/25/00 219 219
-------
Total Non-Agency Mortgage-
Backed Bonds
(Cost $12,922) 12,784
-------
Asset-Backed Securities -- 14.0%
Auto Leasing Investors,
Series 1997, Class A-2
5.926%, 08/14/00 5,000 5,012
Centrex Auto Trust,
Series 1996-A, Class A
6.750%, 10/15/04 685 695
Discover Card Master Trust,
Series 1993-2, Class B
5.750%, 11/16/01 5,000 5,001
Fleetwood Credit Grantor Trust,
Series 1995-B, Class A
6.550%, 05/16/11 593 597
Green Tree Recreational,
Equipment & Consumer Trust,
Series 1996-A, Class A1
5.550%, 02/15/18 262 259
PNC Student Loan Trust I,
Series 1997-2, Class A-5
6.530%, 01/25/03 5,000 5,003
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Reliance Auto Receivables,
Series 1996-A, Class A
6.100%, 07/15/02 $ 282 $ 283
Sears Credit Account Master Trust,
Series 1996-4, Class A
6.450%, 10/16/06 1,000 998
University Support Services,
Series 1993-A, Class B (A)
7.330%, 06/20/99 42 43
WFS Financial Owner Trust,
Series 1997-C, Class A4
6.150%, 09/20/02 5,000 5,024
-------
Total Asset-Backed Securities
(Cost $22,859) 22,915
-------
Corporate Bonds -- 47.3%
Electrical Services -- 0.6%
Narragansett Electric
6.630%, 08/12/99 1,000 1,001
-------
Financial Services -- 31.7%
Aristar
6.000%, 05/15/02 5,000 4,946
Associates Corporation of
North America
5.750%, 11/01/03 5,000 4,856
BankAmerica Capital III (A)
5.570%, 07/15/99 5,000 4,843
Equitable Companies
Installment Bond
6.750%, 12/01/00 780 790
Finova Capital
6.500%, 07/28/02 5,000 5,000
Ford Motor Credit
6.000%, 01/14/03 5,000 4,931
General Motors Acceptance
7.875%, 03/07/01 2,000 2,063
5.875%, 01/22/03 2,000 1,965
General Motors Acceptance MTN
5.480%, 12/16/02 5,000 4,863
Heller Financial
6.460%, 10/27/00 5,000 5,053
MBNA America Bank (A)
5.125%, 08/07/99 5,000 5,003
38
<PAGE>
BOSTON 1784 FUNDS
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Financial Services (continued)
Nationsbank Capital
Trust III, YB (A)
5.550%, 07/15/99 $ 2,500 $ 2,450
Salomon Smith Barney Holdings
7.500%, 05/01/02 5,000 5,150
--------
51,913
--------
Food, Beverage & Tobacco -- 3.0%
Campbell Soup
6.150%, 12/01/02 5,000 5,006
--------
Industrial -- 12.0%
American General
7.700%, 10/15/99 5,000 5,047
McKesson
6.600%, 03/01/00 5,000 5,019
Ryder System MTN
7.620%, 09/15/99 3,500 3,518
Sears Roebuck
9.500%, 06/01/99 1,000 1,000
Williams
7.500%, 09/15/99 5,000 5,025
--------
19,609
--------
Total Corporate Bonds
(Cost $77,851) 77,529
--------
Repurchase Agreement -- 4.0%
Paine Webber
4.800%, dated 05/28/99, matures
06/01/99, repurchase price
$6,614,954 (collateralized
by U.S. Treasury Instruments:
total market value
$6,743,787) (B) 6,611 6,611
--------
Total Repurchase Agreement
(Cost $6,611) 6,611
--------
Total Investments -- 100.0%
(Cost $164,492) $163,978
========
- --------------------------------------------------------------------------------
Description
- --------------------------------------------------------------------------------
(A) Variable Rate Security. The rate reported on the Schedule of Investments is
the rate in effect on May 31, 1999. The date shown is the next scheduled
reset date.
(B) Tri-Party Repurchase Agreement
MTN--Medium Term Note
RB--Revenue Bond
REMIC--Real Estate Mortgage Investment Conduit
YB--Yankee Bond
The following organizations have provided underlying credit support for the
securities as set forth in the Schedule of Investments.
FHA--Federal Housing Administration
MBIA--Municipal Bond Insurance Association
The accompanying notes are an integral part of the financial statements.
39
<PAGE>
AS OF MAY 31, 1999
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
Boston 1784 Income Fund
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
In the printed version of the document, a pie chart appears which depicts the
following plot points:
U.S. Treasury Obligations 18%
Yankee Bonds 4%
Cash Equivalents 5%
Asset-Backed Securities 3%
U.S. Government Agency Obligations 10%
Corporate Bonds 30%
Non-Agency Mortgage-Backed Bonds 5%
U.S. Government Agency Mortgage-Backed Bonds 25%
% of Total Portfolio Investments
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
U.S. Government Agency Obligations -- 9.7%
Fannie Mae MTN (A)
4.990%, 08/15/01 $ 4,000 $ 3,530
Federal Home Loan
Mortgage Corporation
7.740%, 06/01/04 2,000 2,000
Federal Home Loan Bank
5.625%, 03/19/01 4,000 3,999
5.125%, 09/15/03 1,070 1,034
5.800%, 09/02/08 6,000 5,791
Federal Home Loan
Mortgage Corporation
8.530%, 02/02/05 5,000 5,065
Federal National
Mortgage Association
5.750%, 04/15/03 1,000 992
5.750%, 06/15/05 10,000 9,845
5.750%, 02/15/08 1,000 970
-------
Total U.S. Government
Agency Obligations
(Cost $34,340) 33,226
-------
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
U.S. Treasury Obligations -- 17.8%
U.S. Treasury Bonds
7.875%, 02/15/21 $ 4,260 $ 5,142
8.000%, 11/15/21 9,250 11,338
6.000%, 02/15/26 700 695
5.250%, 11/15/28 10,985 9,943
U.S. Treasury Notes
6.750%, 06/30/99 5,000 5,009
5.625%, 11/30/99 1,510 1,516
5.625%, 12/31/99 1,367 1,372
5.500%, 12/31/00 7,375 7,389
6.250%, 10/31/01 8,605 8,750
5.500%, 02/28/03 1,000 994
5.500%, 05/31/03 80 79
5.750%, 08/15/03 1,030 1,032
6.500%, 05/15/05 1,386 1,436
6.500%, 10/15/06 2,050 2,131
4.750%, 11/15/08 3,000 2,790
U.S. Treasury STRIPS (B)
10.824%, 02/15/19 5,000 1,487
-------
Total U.S. Treasury Obligations
(Cost $62,143) 61,103
-------
U.S. Government Agency Mortgage-Backed
Bonds -- 25.0%
Federal Home Loan
Mortgage Corporation
7.750%, 09/01/05 524 546
5.750%, 03/15/09 3,500 3,373
6.000%, 11/01/28 17,744 16,887
Federal National
Mortgage Association
6.500%, 05/01/11 3,185 3,170
6.000%, 03/01/13 894 873
6.000%, 04/01/13 894 873
6.000%, 05/01/13 1,890 1,844
6.000%, 06/01/13 11,966 11,671
6.500%, 06/01/28 4,532 4,430
40
<PAGE>
BOSTON 1784 FUNDS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
U.S. Government Agency Mortgage-Backed
Bonds (continued)
Federal National
Mortgage Association, REMIC
7.000%, 09/18/14 $ 5,000 $ 5,045
6.000%, 12/25/16 1,704 1,643
Government National Mortgage
Association
7.000%, 10/15/23 1,193 1,195
8.000%, 06/15/25 127 132
8.000%, 10/15/25 209 217
8.000%, 01/15/26 90 94
8.000%, 02/15/26 124 129
7.500%, 04/15/26 2,772 2,835
8.000%, 05/15/26 152 160
7.000%, 06/15/26 4,922 4,930
8.000%, 06/15/26 420 437
7.500%, 02/15/27 54 55
8.000%, 03/15/27 1,162 1,208
6.500%, 05/15/28 8,609 8,403
6.500%, 06/15/28 10,553 10,300
7.125%, 01/15/29 5,081 5,245
-------
Total U.S. Government Agency Mortgage-
Backed Bonds
(Cost $86,016) 85,695
-------
Asset-Backed Securities -- 3.2%
Fleetwood Credit Grantor Trust,
Series 1995-B, Class A
6.550%, 05/16/11 889 895
Green Tree Financial,
Series 1995-5, Class M1
7.650%, 09/15/26 5,000 5,074
Nomura Asset Securities,
Series 1996-MD5, Class A1B
7.120%, 04/13/36 5,000 5,091
-------
Total Asset-Backed Securities
(Cost $10,899) 11,060
-------
Non-Agency Mortgage-
Backed Bonds -- 5.1%
AFC Home Equity Loan Trust,
Series 1996-3, Class 1A4
7.540%, 12/25/27 $ 4,999 $ 5,117
Merrill Lynch Mortgage Investors,
Series 1989-H, Class B (B)
10.000%, 01/15/10 2,782 2,796
Merrill Lynch Mortgage Investors,
Series 1994-G, Class A3
8.350%, 05/15/14 5,000 5,553
Oakwood Mortgage Investors,
Series 1995-B, Class A3
6.900%, 01/15/21 4,040 3,930
-------
Total Non-Agency Mortgage-
Backed Bonds
(Cost $16,811) 17,396
-------
Corporate Bonds -- 29.8%
Communications Equipment -- 1.5%
Lucent Technologies
5.500%, 11/15/08 1,000 930
Tele Communications
9.800%, 02/01/12 3,300 4,133
-------
5,063
-------
Entertainment -- 1.8%
Time Warner Entertainment
10.150%, 05/01/12 4,965 6,231
-------
Financial Services -- 10.7%
Citigroup
5.800%, 03/15/04 4,000 3,895
First Security
6.875%, 11/15/06 5,000 4,944
First Union (C)
6.550%, 10/15/05 6,000 5,812
Fleet Mortgage Group
6.500%, 09/15/99 3,400 3,410
Ford Motor Credit
6.625%, 06/30/03 6,395 6,435
41
<PAGE>
AS OF MAY 31, 1999
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
Boston 1784 Income Fund (concluded)
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Financial Services (continued)
General Motors Acceptance
6.150%, 04/05/07 $ 5,000 $ 4,869
Heller Financial
5.875%, 11/01/00 2,770 2,777
J.P. Morgan
6.000%, 01/15/09 5,000 4,700
-------
36,842
-------
Industrial -- 8.0%
American Home Products
7.700%, 02/15/00 3,190 3,234
Burlington North
9.250%, 10/01/06 5,070 5,710
Fortune Brands
6.250%, 04/01/08 3,600 3,528
Masco
6.625%, 04/15/18 5,700 5,379
Mckesson
6.300%, 03/01/05 1,814 1,728
Northrop Grumman
7.000%, 03/01/06 2,750 2,722
Weyerhaeuser
7.500%, 03/01/13 5,000 5,244
-------
27,545
-------
Insurance -- 0.7%
Vesta Insurance Group (E)
8.750%, 07/15/25 3,855 2,535
-------
Paper & Paper Products -- 1.2%
Fort James
6.875%, 09/15/07 4,000 4,030
-------
Petroleum & Fuel Products -- 1.4%
Atlantic Richfield
5.900%, 04/15/09 1,900 1,810
Enron Oil & Gas
6.000%, 12/15/08 3,380 3,151
-------
4,961
-------
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Printing & Publishing -- 0.5%
News America
6.625%, 01/09/08 $ 1,660 $ 1,610
--------
Retail -- 2.1%
Gap
6.900%, 09/15/07 3,685 3,773
Staples
7.125%, 08/15/07 3,300 3,321
--------
7,094
--------
Telephones &
Telecommunications -- 1.9%
AT&T
6.500%, 03/15/29 2,850 2,647
Cable and Wireless
Communications
6.625%, 03/06/05 600 589
MCI Worldcom
6.125%, 08/15/01 3,290 3,282
--------
6,518
--------
Total Corporate Bonds
(Cost $107,772) 102,429
--------
Yankee Bonds -- 4.0%
Endesa - Chile Overseas
7.200%, 04/01/06 3,000 2,831
Hydro-Quebec
8.625%, 05/20/02 3,395 3,598
Province of Ontario
7.375%, 01/27/03 3,395 3,522
Trans-Canada Pipelines
9.125%, 04/20/06 3,340 3,770
--------
Total Yankee Bonds
(Cost $13,816) $ 13,721
--------
42
<PAGE>
BOSTON 1784 FUNDS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Repurchase Agreement -- 4.7%
Paine Webber
4.800%, dated 05/28/99, matures
06/01/99, repurchase price
$16,192,352 (collateralized by
U.S. Treasury Instruments:
total market value
$16,507,715) (D) $ 16,184 $ 16,184
---------
Total Repurchase Agreement
(Cost $16,184) 16,184
---------
Total Investments -- 99.3%
(Cost $347,981) 340,814
---------
Other Assets and Liabilities,
Net -- 0.7% 2,382
---------
Net Assets:
Capital Shares (unlimited
authorization -- no par value)
based on 34,548,286 outstanding
shares of beneficial interest 348,152
Undistributed net investment
income 775
Accumulated net realized gain
on investments 1,436
Net unrealized depreciation
on investments (7,167)
---------
Total Net Assets -- 100.0% $ 343,196
=========
Net Asset Value, Offering and
Redemption Price Per Share $ 9.93
=========
(A) Zero Coupon Security. The rate reported on the Statement of Net Assets is
the effective yield as of May 31,1999.
(B) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration normally to qualified institutions.
(C) Mandatory Put Security. The mandatory put date is shown as the maturity
date on the Statement of Net Assets.
(D) Tri-Party Repurchase Agreement
(E) Security is thinly traded.
MTN--Medium Term Note
REMIC--Real Estate Mortgage Investment Conduit
STRIPS--Separately Traded Registered Interest and Principal Securities
The accompanying notes are an integral part of the financial statements.
43
<PAGE>
AS OF MAY 31, 1999
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
Boston 1784 U.S. Government Medium-Term Income Fund
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
In the printed version of the document, a pie chart appears which depicts the
following plot points:
U.S. Treasury Obligations 31%
Cash Equivalents 5%
U.S. Government Mortgage-Backed Bonds 14%
U.S. Government Agency Obligations 43%
Asset-Backed Securities 1%
U.S. Government Guaranted Bonds 6%
% of Total Portfolio Investments
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
U.S. Treasury Obligations -- 32.4%
U.S. Treasury Bonds
11.250%, 02/15/15 $ 700 $ 1,063
6.000%, 02/15/26 6,100 6,055
5.250%, 11/15/28 2,800 2,534
U.S. Treasury Notes
5.375%, 01/31/00 2,800 2,808
5.500%, 03/31/00 5,600 5,620
8.000%, 05/15/01 2,000 2,094
6.625%, 07/31/01 463 474
6.250%, 10/31/01 5,500 5,593
7.500%, 11/15/01 1,600 1,672
6.250%, 01/31/02 2,000 2,034
6.000%, 07/31/02 1,000 1,011
5.500%, 02/28/03 15,000 14,904
5.500%, 05/31/03 19,420 19,284
5.250%, 08/15/03 10,000 9,838
7.500%, 02/15/05 7,800 8,438
6.250%, 02/15/07 770 790
6.625%, 05/15/07 500 525
6.125%, 08/15/07 2,000 2,039
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
U.S. Treasury STRIPS (A)
10.390%, 08/15/10 $ 1,000 $ 511
10.824%, 02/15/19 3,000 892
12.269%, 05/15/20 5,000 1,385
-------
Total U.S. Treasury Obligations
(Cost $91,055) 89,564
-------
U.S. Government Agency
Obligations -- 43.8%
Agency of Housing and Urban
Development, Series 1995-A
8.240%, 08/01/02 2,000 2,113
Agency of Housing and Urban
Development, Series 1997-A
6.210%, 08/01/01 4,000 4,040
6.360%, 08/01/04 5,500 5,564
CABEI AID
6.620%, 10/29/12 10,000 9,900
Costa Rica AID
7.360%, 08/01/01 1,100 1,118
Federal Farm Credit Bank
8.650%, 10/01/99 1,900 1,922
7.350%, 03/24/05 350 370
Federal Farm Credit Bank (B)
5.137%, 06/01/99 10,000 9,998
Federal Home Loan Mortgage
Corporation
5.750%, 07/15/03 3,500 3,469
Federal Home Loan Bank
5.500%, 04/14/00 5,000 5,005
5.625%, 03/19/01 5,000 4,998
6.580%, 01/07/03 3,000 3,021
7.660%, 07/20/04 350 374
Federal Home Loan Bank (B)
5.161%, 06/01/99 7,000 7,000
Federal Home Loan Mortgage
Corporation
7.000%, 07/15/03 1,199 1,209
7.000%, 10/01/03 55 56
8.530%, 02/02/05 1,000 1,013
7.340%, 11/03/06 1,000 1,007
44
<PAGE>
BOSTON 1784 FUNDS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
U.S. Government Agency
Obligations (continued)
Federal National Mortgage
Association
5.750%, 04/15/03 $ 12,400 $ 12,302
5.125%, 02/13/04 805 775
7.550%, 06/10/04 1,500 1,501
6.580%, 03/01/06 1,000 1,006
8.000%, 07/01/07 201 208
6.000%, 05/15/08 5,250 5,171
6.500%, 05/01/11 1,592 1,585
7.785%, 02/01/19 4,817 5,430
10.000%, 10/01/20 1,721 1,861
10.000%, 12/01/20 2,292 2,478
Federal National Mortgage
Association MTN (A)
4.990%, 08/15/01 4,000 3,530
Private Export Funding
Corporation
5.500%, 03/15/01 2,500 2,488
6.310%, 09/30/04 7,000 7,079
6.620%, 10/01/05 1,740 1,773
7.110%, 04/15/07 3,800 4,013
Student Loan Marketing
Association (B)
5.101%, 06/01/99 6,000 5,999
Tennessee Valley Authority
Principal STRIPS (A)
4.374%, 04/15/42 4,000 1,775
--------
Total U.S. Government Agency
Obligations
(Cost $120,885) 121,151
--------
U.S. Government Mortgage-
Backed Bonds -- 14.6%
Federal Deposit Insurance
Corporation, REMIC
6.750%, 05/25/26 1,903 1,893
Federal Home Loan Mortgage
Corporation Gold
7.000%, 12/01/10 1,199 1,218
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage
Corporation, REMIC
6.750%, 02/15/20 $ 1,080 $ 1,081
Federal National Mortgage
Association
6.000%, 04/01/13 10,605 10,344
6.000%, 06/01/13 141 138
Government National Mortgage
Association
8.500%, 10/15/04 72 76
8.500%, 01/15/06 56 59
9.000%, 11/15/17 832 898
7.000%, 10/15/23 673 674
7.500%, 02/15/27 1,493 1,528
6.500%, 03/15/29 19,959 19,480
Student Loan Marketing
Association (B)
5.161%, 06/01/99 3,014 3,002
-------
Total U.S. Government
Mortgage-Backed Bonds
(Cost $40,958) 40,391
-------
U.S. Government
Guaranteed Bonds -- 6.4%
Global Industries
7.250%, 07/15/22 11,587 12,219
Rochester, New York,
U.S. Government Note,
Series 1991-A
5.930%, 08/01/99 100 100
Secunda Atlantic Title XI
6.695%, 04/01/18 3,899 3,856
Sulphur Carriers
8.300%, 10/15/09 1,347 1,430
-------
Total U.S. Government
Guaranteed Bonds
(Cost $16,640) 17,605
-------
45
<PAGE>
AS OF MAY 31, 1999
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
Boston 1784 U.S. Government Medium-Term Income Fund (concluded)
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Asset-Backed Security -- 0.4%
PNC Student Loan Trust I,
Series 1997-2, Class A-2
6.138%, 01/25/00 $ 1,194 $ 1,196
---------
Total Asset-Backed Security
(Cost $1,195) 1,196
---------
Non-Agency Mortgage-
Backed Bond -- 0.0%
Ryland Acceptance Four,
Series 32, Class B
8.600%, 05/01/16 140 140
---------
Total Non-Agency Mortgage-
Backed Bond
(Cost $145) 140
---------
Repurchase Agreement -- 5.0%
Paine Webber
4.800%, dated 05/28/99, matures
06/01/99, repurchase price
$13,882,118 (collateralized
by U.S. Treasury Instruments:
total market value
$14,152,487) (C) 13,875 13,875
---------
Total Repurchase Agreement
(Cost $13,875) 13,875
---------
Total Investments -- 102.6%
(Cost $284,753) 283,922
---------
Other Assets and Liabilities,
Net -- (2.6%) (7,141)
---------
- --------------------------------------------------------------------------------
Description Value (000)
- --------------------------------------------------------------------------------
Net Assets:
Capital Shares (unlimited
authorization -- no par value)
based on 29,277,991 outstanding
shares of beneficial interest $ 283,326
Distributions in excess of net
investment income (536)
Accumulated net realized loss
on investments (5,178)
Net unrealized depreciation
on investments (831)
---------
Total Net Assets -- 100.0% $ 276,781
=========
Net Asset Value, Offering and
Redemption Price Per Share $ 9.45
=========
(A) Zero Coupon Security. The rate reported on the Statement of Net Assets is
the effective yield as of May 31, 1999.
(B) Variable Rate Security. The rate reported on the Statement of Net Assets is
the rate in effect on May 31,1999. The date shown is the next scheduled
reset date.
(C) Tri-Party Repurchase Agreement
AID--Agency for International Development
MTN--Medium Term Note
REMIC--Real Estate Mortgage Investment Conduit
STRIPS--Separately Traded Registered Interest and Principal Securities
The accompanying notes are an integral part of the financial statements.
46
<PAGE>
BOSTON 1784 FUNDS
AS OF MAY 31, 1999
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
Boston 1784 Tax-Exempt Medium-Term Income Fund
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
In the printed version of the document, a pie chart appears which depicts the
following plot points:
Alternative Minimum Tax-Bonds 2%
Health Care Bonds 5%
Cash Equivalents 4%
Transportation Bonds 13%
General Obligation Bonds 32%
Industrial Development & Pollution Control Bonds 1%
Other Revenue Bonds 5%
Resource Recovery Bonds 2%
Housing Bonds 8%
Education Bonds 4%
Public Facility Bonds 1%
Utility Bonds 23%
% of Total Portfolio Investments
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Municipal Bonds -- 96.4%
Alabama -- 0.7%
Alabama State Housing Finance
Authority RB, Series D-1, GNMA
6.000%, 10/01/16 $ 950 $ 993
Alabama State Water Pollution
Control Authority RB, AMBAC
5.000%, 02/15/13 1,500 1,506
-------
2,499
-------
Arkansas -- 0.3%
Arkansas State GO
5.000%, 06/01/15 1,000 986
-------
California -- 6.1%
Burbank, Wastewater
Treatment RB, Series A, FGIC
5.500%, 06/01/15 1,500 1,564
California State GO
5.250%, 10/01/09 1,500 1,597
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
California State GO,
Series BH, AMT, FSA
5.250%, 12/01/12 $ 4,350 $ 4,426
California State GO, FGIC
5.250%, 10/01/10 2,000 2,102
California State Home
Mortgage RB, Series A, MBIA
5.850%, 08/01/16 2,000 2,083
California State Housing
Finance Agency RB,
Home Mortgage, MBIA
5.950%, 08/01/10 1,830 1,919
California State Unlimited Tax GO
5.250%, 06/01/11 1,000 1,059
Los Angeles County,
Metropolitan Transportation
Authority RB, FSA
5.000%, 07/01/14 5,630 5,658
Los Angeles County,
Metropolitan Transportation
Authority RB, AMBAC
5.700%, 07/01/12 1,135 1,219
-------
21,627
-------
Colorado -- 1.8%
Colorado Springs, Sales &
Use Tax RB
5.000%, 12/01/12 4,320 4,348
Denver, Multi-Family Housing RB,
Section 8, Series A
5.350%, 10/01/12 2,000 2,025
-------
6,373
-------
Connecticut -- 2.4%
Connecticut State GO, Series C
5.250%, 10/15/11 4,000 4,190
Connecticut State Health &
Education Facilities
Authority RB, Series D, GOI
6.750%, 07/01/12 1,250 1,341
47
<PAGE>
AS OF MAY 31, 1999
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
Boston 1784 Tax-Exempt Medium-Term Income Fund (continued)
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Connecticut (continued)
Connecticut State Housing
Finance Authority RB,
Series A, GOA
6.100%, 05/15/17 $1,000 $1,047
Connecticut State Unlimited
Tax GO, Series D
5.000%, 12/01/12 2,000 2,032
------
8,610
------
District of Columbia -- 1.0%
District of Columbia GO,
Series A, MBIA
5.000%, 06/01/15 2,500 2,447
Georgetown University RB,
Series A, MBIA
5.950%, 04/01/14 1,000 1,101
------
3,548
------
Florida -- 2.6%
Dade County GO,
Series EE, FGIC
5.625%, 10/01/14 2,560 2,710
Florida State Board of
Education GO, Series A
5.000%, 01/01/15 3,250 3,234
Florida State Board of
Education GO, Series E
5.700%, 06/01/14 2,000 2,137
Village Center Community,
Florida Utility RB
5.250%, 10/01/15 1,000 1,017
------
9,098
------
Georgia -- 0.9%
Georgia State Municipal
Electric Authority RB, MBIA
5.125%, 01/01/12 3,000 3,056
------
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Illinois -- 1.4%
Chicago, O'Hare International
Airport RB, AMBAC
5.625%, 01/01/12 $2,000 $2,105
Illinois State GO
5.000%, 04/01/12 2,750 2,768
------
4,873
------
Louisiana -- 0.6%
Louisiana State GO, FSA
5.000%, 04/15/14 2,000 1,992
------
Maine -- 2.2%
Maine Municipal Bond
Bank RB, FSA
5.150%, 11/01/13 1,250 1,270
Maine State Health & Higher
Educational Facilities
Authority RB, MBIA
5.000%, 07/01/11 1,680 1,703
4.750%, 07/01/13 1,500 1,457
Maine State Housing
Authority RB, Series C-1
5.700%, 11/15/15 2,000 2,058
Maine State Housing
Authority RB, Series F-1, HUD
5.125%, 11/15/15 1,300 1,285
------
7,773
------
Maryland -- 1.6%
Maryland State & Local
Facilities GO, 1st Series
5.000%, 03/01/10 1,500 1,545
Maryland State GO
5.000%, 07/15/10 4,000 4,125
------
5,670
------
48
<PAGE>
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Massachusetts -- 13.9%
Holyoke GO, Series A, FSA
5.600%, 06/15/10 $1,365 $1,450
Massachusetts State Bay
Transportation Authority RB,
Series C, FGIC
5.500%, 03/01/11 3,000 3,203
Massachusetts State GO, AMBAC
5.000%, 08/01/14 2,500 2,503
Massachusetts State GO, Series A
5.000%, 11/01/13 1,200 1,206
Massachusetts State GO,
Series A, MBIA
5.000%, 04/01/14 4,650 4,662
Massachusetts State GO,
Series B, FGIC
5.500%, 06/01/11 2,000 2,103
Massachusetts State GO, Series C
5.250%, 08/01/08 1,500 1,584
Massachusetts State GO,
Series D, FGIC
5.125%, 11/01/12 1,000 1,020
Massachusetts State Grant
Anticipation Note, Series A
5.250%, 12/15/08 3,000 3,161
Massachusetts State Health &
Educational Facilities
Authority RB, Dana Farber
Cancer Project, Series G-1
6.250%, 12/01/08 1,000 1,091
Massachusetts State Health &
Educational Facilities
Authority RB, Eye & Ear
Infirmary, Series B
5.250%, 07/01/11 1,000 1,018
Massachusetts State Health &
Educational Facilities
Authority RB, Harvard Pilgrim
Health, Series A, FSA
5.250%, 07/01/13 2,215 2,265
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Massachusetts State Health &
Educational Facilities
Authority RB, Medical,
Academic & Scientific
Project, Series A
6.250%, 01/01/05 $1,060 $1,154
Massachusetts State Health &
Educational Facilities
Authority RB, Partners
Healthcare System, Series B
5.000%, 07/01/07 2,090 2,145
Massachusetts State Health &
Educational Facilities
Authority RB, Suffolk
University Project,
Series C, CONLEE
5.850%, 07/01/16 1,000 1,064
Massachusetts State Housing
Finance Agency RB, Series 44
5.900%, 12/01/13 785 811
Massachusetts State Housing
Finance Agency RB,
Series A, MBIA
5.600%, 07/01/07 475 506
5.700%, 07/01/08 475 506
Massachusetts State Industrial
Finance Agency RB, College
Issue, CONLEE
5.875%, 07/01/11 1,090 1,179
Massachusetts State Industrial
Finance Agency RB, Resource
Recovery, Ogden Haverhill
Project, AMT
5.150%, 12/01/07 1,250 1,253
Massachusetts State Industrial
Finance Agency RB,
Resource Recovery
4.950%, 12/01/06 1,710 1,721
Massachusetts State Municipal
Wholesale Electric
Company RB, AMBAC
5.150%, 07/01/16 2,000 1,970
49
<PAGE>
AS OF MAY 31, 1999
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
Boston 1784 Tax-Exempt Medium-Term Income Fund (continued)
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Massachusetts (continued)
Massachusetts State Public
Improvements GO
5.000%, 01/01/12 $ 1,350 $ 1,358
Massachusetts State Resource
Recovery Authority RB,
Refusetech Project, Series A
6.150%, 07/01/02 1,595 1,663
6.300%, 07/01/05 3,220 3,437
Massachusetts State Turnpike
Authority RB, Highway
System, Series B
5.125%, 12/15/13 2,500 2,550
Massachusetts State Turnpike
Authority RB, Metropolitan
Highway System,
Sub-Series B, MBIA
5.250%, 01/01/17 1,000 1,005
Massachusetts State Turnpike
Authority RB, Metropolitan
Highway System,
Series C, MBIA (A)
5.400%, 01/01/16 1,000 429
Massachusetts State Turnpike
Authority RB, Series A
5.000%, 01/01/12 1,250 1,252
-------
49,269
-------
Minnesota -- 2.9%
Minnesota State GO
5.000%, 06/01/14 5,000 5,031
Northern Minnesota State
Municipal Power Agency RB,
Electric System, FSA
5.250%, 01/01/12 2,490 2,571
Southern Minnesota Municipal
Power Utility RB
5.000%, 01/01/13 2,715 2,732
-------
10,334
-------
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Mississippi -- 1.9%
Mississippi State Capital
Imports GO, Series A
5.000%, 07/01/09 $1,000 $1,032
Mississippi State GO
5.000%, 06/01/15 3,645 3,622
Mississippi State GO, FGIC
5.000%, 11/01/09 2,000 2,070
------
6,724
------
Missouri -- 0.9%
St. Charles County, Public Water
Supply District #2 COP,
Series A, MBIA
5.500%, 12/01/14 3,000 3,086
------
Nebraska -- 2.7%
Nebraska Public Power
Distribution RB, Series A
5.125%, 01/01/15 3,000 3,012
Nebraska State Investment
Finance Authority RB,
Childrens Healthcare
Services, AMBAC
5.500%, 08/15/17 1,435 1,485
Nebraska State Public Gas
Supply System RB, American
Public Energy, Series A, AMBAC
5.250%, 06/01/11 5,000 5,169
------
9,666
------
Nevada -- 0.7%
Nevada State GO
5.000%, 05/15/15 2,500 2,484
------
New Hampshire -- 1.4%
New Hampshire State Higher
Education & Health Facilities
Authority RB, Dartmouth
Education Loan Remarketing
5.300%, 06/01/15 1,045 1,065
50
<PAGE>
BOSTON 1784 FUNDS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
New Hampshire (continued)
New Hampshire State Higher
Education & Health Facilities
Authority RB, LOC
5.800%, 10/01/12 $1,000 $1,025
New Hampshire State Housing
Finance Authority RB,
Series B, FHA
5.850%, 07/01/10 945 978
New Hampshire State RB
5.000%, 08/15/13 2,050 2,055
------
5,123
------
New Jersey -- 1.0%
New Jersey State Transportation
Authority RB, Series A
5.000%, 06/15/12 3,500 3,520
------
New York -- 10.2%
Metropolitan Transportation
Authority RB
5.125%, 07/01/12 1,225 1,248
Metropolitan Transportation
Authority RB, Commuter
Facilities, Series A, FGIC
5.750%, 07/01/11 1,000 1,075
Metropolitan Transportation
Authority RB, Series C, FSA
5.125%, 07/01/13 5,000 5,100
Metropolitan Transportation
Authority RB, Transportation
Service Contract, Series R
5.500%, 07/01/14 1,740 1,803
New York City GO
5.000%, 08/01/14 4,000 3,940
5.000%, 08/15/14 1,000 985
New York City GO, Series C
5.250%, 08/15/11 2,080 2,129
New York City GO, Series D
6.000%, 02/15/09 1,000 1,078
6.000%, 02/15/12 660 704
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
New York City GO, Series D (B)
6.000%, 02/15/12 $ 630 $ 689
New York City GO, Series F
5.250%, 08/01/14 3,000 3,026
New York City Transitional
Finance Authority RB, Series A
5.000%, 08/15/13 1,350 1,352
New York Metropolitan Transit
Authority Commuter
Facilities RB, Series A, FSA
5.500%, 07/01/15 1,530 1,597
New York State Dormitory
Authority RB, City University
System Consolidated,
Third-1, FGIC
5.250%, 07/01/13 1,580 1,625
New York State Dormitory
Authority RB, Series A, STGTD
5.500%, 05/15/10 1,000 1,039
New York State GO
5.000%, 03/15/14 2,000 1,995
New York State GO,
Series C, AMBAC
5.375%, 10/01/11 3,000 3,116
New York State Housing Finance
Agency RB, Series A, FSA
5.800%, 11/01/09 1,720 1,830
New York State Urban
Development Authority RB,
Youth Facilities Project, MBIA
5.700%, 04/01/14 1,505 1,576
-------
35,907
-------
North Carolina -- 3.5%
North Carolina State, Eastern
Municipal Power
Agency RB, FGIC
6.000%, 01/01/13 2,000 2,148
North Carolina State, Eastern
Municipal Power Agency RB
6.000%, 01/01/14 4,000 4,130
5.600%, 01/01/16 2,000 1,998
51
<PAGE>
AS OF MAY 31, 1999
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
Boston 1784 Tax-Exempt Medium-Term Income Fund (continued)
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
North Carolina (continued)
North Carolina State, Eastern
Municipal Power
Agency RB, Series D
5.875%, 01/01/14 $ 1,035 $ 1,062
North Carolina State, Eastern
Municipal Power Agency RB,
Series D, ACA
5.600%, 01/01/16 3,000 3,105
-------
12,443
-------
Ohio -- 0.8%
Ohio State Public Facilities
Commission RB, Higher
Education Authority, Series II-A
5.000%, 05/01/08 2,900 2,983
-------
Pennsylvania -- 7.4%
Montgomery County GO
5.250%, 10/15/08 1,250 1,330
Pennsylvania State GO
5.250%, 06/15/12 2,155 2,203
Pennsylvania State GO,
1st Series, AMBAC
5.125%, 03/15/12 2,000 2,043
Pennsylvania State Higher
Education & Health
Services RB, Series A
5.750%, 01/01/12 1,300 1,352
Pennsylvania State Higher
Education Facilities
Authority RB, MBIA
5.250%, 01/01/13 2,000 2,050
Pennsylvania State Housing
Finance Agency RB, Single
Family Mortgages, Series A
6.000%, 10/01/13 2,000 2,090
Pennsylvania State Turnpike
Commission RB,
Series A, AMBAC
5.250%, 12/01/13 3,330 3,432
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Philadelphia, Water and
Wastewater Projects RB, FGIC
5.650%, 06/15/12 $ 5,000 $ 5,288
Southeastern Pennsylvania
Transportation Authority RB,
Series A, FGIC
5.125%, 03/01/08 1,450 1,513
Southeastern Pennsylvania
Transportation Authority RB,
Series B, FGIC
5.250%, 03/01/12 4,785 4,941
-------
26,242
-------
Puerto Rico -- 6.7%
Puerto Rico Commonwealth GO
5.250%, 07/01/10 1,000 1,049
5.500%, 07/01/12 2,000 2,153
5.750%, 07/01/17 2,000 2,133
Puerto Rico Electric Power
Authority RB
5.250%, 07/01/14 7,100 7,357
5.500%, 07/01/16 3,000 3,105
Puerto Rico Electric Power
Authority RB, Series CC, FSA
5.000%, 07/01/10 2,435 2,517
Puerto Rico Municipal Finance
Agency RB, Series A, FSA
5.250%, 07/01/10 4,000 4,200
Puerto Rico Public Education &
Health Facilities RB,
Series M, CGTD
5.750%, 07/01/15 1,000 1,044
-------
23,558
-------
Rhode Island -- 2.5%
Rhode Island State Depositors
Economic Protection RB,
Series A, MBIA
6.400%, 08/01/06 1,000 1,124
Rhode Island State Health &
Educational RB
5.100%, 07/01/07 1,520 1,495
52
<PAGE>
BOSTON 1784 FUNDS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Rhode Island (continued)
Rhode Island State Housing &
Mortgage Finance RB,
Series 7B, AMT
6.700%, 10/01/12 $ 1,750 $ 1,848
Rhode Island State Housing &
Mortgage Finance RB,
Series 15B
6.200%, 10/01/06 1,110 1,177
Rhode Island State Housing &
Mortgage Finance RB,
Series 19A
5.700%, 04/01/15 2,500 2,547
Rhode Island State Housing &
Mortgage Finance RB,
Series A, AMBAC
5.700%, 07/01/07 685 731
-------
8,922
-------
South Carolina -- 1.5%
South Carolina State GO,
Highway System, Series A
4.600%, 05/01/12 4,000 3,925
South Carolina State Public
Service Authority RB,
Series B, FGIC
5.875%, 01/01/14 1,150 1,248
-------
5,173
-------
Texas -- 5.0%
Tarrant County, Health Facilities
Authority RB, Harris
Methodist Health System
Project, Series A, AMBAC
5.125%, 09/01/12 2,700 2,707
Texas A&M University RB
5.200%, 05/15/10 2,580 2,664
Texas State GO
5.125%, 10/01/09 4,000 4,175
5.125%, 10/01/14 8,000 8,085
-------
17,631
-------
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Virginia -- 0.5%
Virginia State Housing
Development Authority RB,
Series H
5.700%, 11/01/07 $ 1,655 $ 1,761
-------
Washington -- 10.1%
Washington State Public
Power Supply RB
5.125%, 07/01/13 5,000 5,056
Washington State Public Power
Supply Systems RB, Nuclear
Power Project No. 1, Series B
5.125%, 07/01/14 3,000 2,993
Washington State Public Power
Supply Systems RB, Nuclear
Power Project No. 1, FSA
5.400%, 07/01/12 7,800 7,985
Washington State Public Power
Supply Systems RB, Nuclear
Power Project No. 3, Series A (A)
5.050%, 07/01/13 2,000 980
Washington State Public Power
Supply Systems RB, Nuclear
Power Project No. 3,
Series A, FSA
5.100%, 07/01/10 2,500 2,581
Washington State Public Power
Supply Systems RB, Nuclear
Project No. 2, Series A, FSA
5.000%, 07/01/11 10,115 10,305
Washington State Public Power
Supply Systems RB, Nuclear
Project No. 1, Series A
5.000%, 07/01/11 1,000 998
5.000%, 07/01/13 4,000 3,960
Washington State Public Power
Supply Systems RB, Nuclear
Project No. 2, Series A, FSA
5.125%, 07/01/11 1,000 1,026
-------
35,884
-------
53
<PAGE>
AS OF MAY 31, 1999
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
Boston 1784 Tax-Exempt Medium-Term Income Fund (concluded)
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
West Virginia -- 0.3%
West Virginia State GO
5.000%, 06/01/14 $ 1,000 $ 1,003
--------
Wisconsin -- 0.9%
Wisconsin State Housing &
Economic Development
Authority RB, Home
Ownership, Series E, GOA
5.900%, 09/01/16 1,000 1,034
Wisconsin State Housing &
Economic Development
Authority RB, Series C, GOA
5.800%, 11/01/13 2,125 2,199
--------
3,233
--------
Total Municipal Bonds
(Cost $334,384) 341,051
--------
Repurchase Agreement -- 3.6%
Paine Webber
4.800%, dated 05/28/99, matures
06/01/99, repurchase price
$12,682,963 (collateralized by
U.S. Treasury Instruments:
total market value
$12,929,977) (C) 12,676 12,676
--------
Total Repurchase Agreement
(Cost $12,676) 12,676
--------
Total Investments -- 100.0%
(Cost $347,060) $353,727
========
(A) Zero Coupon Bond. The rate reported on the Schedule of Investments is the
effective yield as of May 31,1999.
(B) Pre-refunded Security. The pre-refunded date is shown as the maturity date
on the Schedule of Investments.
(C) Tri-Party Repurchase Agreement
AMT--Alternative Minimum Tax
COP--Certificate of Participation
GO--General Obligation Bond
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
HUD--Department of Housing & Urban Development
LOC--Securities are held in connection with a letter of credit issued by a major
commercial bank or other financial institution.
RB--Revenue Bond
The following organizations have provided underlying credit support for the
securities as set forth in the Schedule of Investments.
ACA--American Capital Access
AMBAC--American Municipal Bond Assurance Company
CGTD--Commonwealth Guaranteed
CONLEE--College Construction Loan Insurance
FGIC--Financial Guaranty Insurance Corporation
FHA--Federal Housing Administration
FSA--Financial Security Assurance
GNMA--Government National Mortgage Association
GOA--General Obligation of Authority
GOI--General Obligation of Institution
MBIA--Municipal Bond Insurance Association
STGTD--State Guaranteed
The accompanying notes are an integral part of the financial statements.
54
<PAGE>
BOSTON 1784 FUNDS
AS OF MAY 31, 1999
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
Boston 1784 Connecticut Tax-Exempt Income Fund
[GRAPHIC OMITTED]
In the printed version of the document, a pie chart appears which depicts the
following plot points:
Water & Sewer Bonds 3%
Industrial Development & Pollution Control Bonds 2%
Health Care Bonds 16%
Other Revenue Bonds 3%
Resource Recovery Bonds 8%
Cash Equivalents 3%
Education Bonds 3%
Utility Bonds 3%
Housing Bonds 10%
Public Facility Bonds 1%
Alternative Minimum Tax Bonds 4%
Transportation Bonds 13%
General Obligation Bonds 31%
% of Total Portfolio Investments
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Municipal Bonds -- 96.0%
Connecticut -- 81.0%
Bridgeport GO, AMBAC
5.450%, 03/01/11 $1,550 $1,624
Bridgeport GO
6.500%, 09/01/08 1,435 1,659
Bristol, Resource Recovery RB,
Ogden Martin System Project
6.500%, 07/01/14 3,000 3,247
Connecticut State Airport RB,
Bradley International
Airport, FGIC
7.650%, 10/01/12 2,000 2,302
Connecticut State Development RB,
Duncaster Project
6.700%, 09/01/07 3,350 3,597
Connecticut State GO
5.250%, 03/15/14 9,500 9,797
Connecticut State GO, FGIC
5.000%, 09/01/14 880 884
Connecticut State GO, Series A
5.250%, 03/01/14 2,445 2,521
5.125%, 03/15/15 3,895 3,949
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Connecticut State GO, Series B
5.125%, 03/15/11 $1,000 $1,036
Connecticut State GO, Series C
5.800%, 08/15/08 1,500 1,614
Connecticut State GO, Series D
5.125%, 12/15/13 4,790 4,904
5.250%, 12/15/15 500 514
Connecticut State GO, University
of Connecticut Series A, MBIA
5.000%, 06/01/16 3,000 2,966
Connecticut State Health &
Education Facilities
Authority RB
4.650%, 07/01/11 1,390 1,347
Connecticut State Health &
Education Facilities
Authority RB, AMBAC
5.200%, 07/01/14 2,840 2,879
5.000%, 07/01/17 1,000 976
Connecticut State Health &
Education Facilities
Authority RB, Bridgeport
Hospital, Series C, CONLEE
5.250%, 07/01/15 1,615 1,633
Connecticut State Health &
Education Facilities
Authority RB, Greenwich
Hospital, Series A, MBIA
5.750%, 07/01/16 2,000 2,115
Connecticut State Health &
Education Facilities
Authority RB, Hospital For
Special Care
5.375%, 07/01/17 5,000 5,087
Connecticut State Health &
Education Facilities
Authority RB, New Britain
Hospital, Series B, AMBAC
6.000%, 07/01/09 500 545
55
<PAGE>
AS OF MAY 31, 1999
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
Boston 1784 Connecticut Tax-Exempt Income Fund (continued)
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Connecticut (continued)
Connecticut State Health &
Education Facilities
Authority RB, New Haven
Hospital, Series H, MBIA
5.625%, 07/01/16 $1,000 $1,045
Connecticut State Health &
Education Facilities
Authority RB, New Horizons
Village Project, AMBAC
7.050%, 11/01/09 1,000 1,150
Connecticut State Health &
Education Facilities
Authority RB, Newington
Children's Hospital,
Series A, MBIA
5.850%, 07/01/07 1,110 1,199
Connecticut State Health &
Education Facilities
Authority RB, Series D, GOI
6.750%, 07/01/12 2,750 2,949
Connecticut State Health &
Education Facilities
Authority RB, Sharon Health
Care Project, AMBAC
6.000%, 11/01/09 1,000 1,097
Connecticut State Health &
Education Facilities
Authority RB, Stamford
Hospital, MBIA
5.400%, 07/01/09 2,000 2,125
Connecticut State Health &
Education Facilities
Authority RB, William W. Backus
Hospital, Series E, AMBAC
5.000%, 07/01/17 1,000 976
Connecticut State Health &
Education Facilities Authority
Sacred Heart University
Project, Series E
4.900%, 07/01/13 3,400 3,315
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Connecticut State Higher
Education RB, Family
Education Loan Program,
Series A, AMT
7.000%, 11/15/05 $1,095 $1,150
Connecticut State Housing
Finance Authority RB, GOA
6.200%, 05/15/14 430 457
Connecticut State Housing
Finance Authority RB, Mortgage
Finance Program, Series A, GOA
5.950%, 05/15/11 3,215 3,368
6.200%, 05/15/14 1,350 1,429
Connecticut State Housing
Finance Authority RB, Mortgage
Finance Program, Series B
6.050%, 11/15/03 500 537
Connecticut State Housing
Finance Authority RB, Mortgage
Finance Program,
Series C-1, GOA
6.000%, 11/15/10 1,010 1,060
Connecticut State Housing
Finance Authority RB, Mortgage
Finance Program, Series H-1
5.100%, 05/15/17 1,000 989
Connecticut State Housing
Finance Authority RB,
Mortgage Finance Program,
Sub-Series A-3, GOA
5.950%, 05/15/17 1,000 1,037
Connecticut State Housing
Finance Authority RB,
Mortgage Finance Program,
Sub-Series B1
6.000%, 11/15/15 2,000 2,085
Connecticut State Housing
Finance Authority RB,
Mortgage Finance Program,
Sub-Series B1, GOA
6.000%, 05/15/08 230 243
56
<PAGE>
BOSTON 1784 FUNDS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Connecticut (continued)
Connecticut State Housing
Finance Authority RB,
Mortgage Finance Program,
Sub-Series E-1, GOA
5.900%, 05/15/15 $ 4,200 $ 4,378
Connecticut State Resource
Recovery Authority RB,
American Fuel Company,
Series A, MBIA
5.125%, 11/15/14 7,125 7,080
Connecticut State Resource
Recovery Authority RB,
Mid-Connecticut System
Project, Series A, AMT, MBIA
5.500%, 11/15/11 6,000 6,308
Connecticut State Resource
Recovery Authority RB,
Mid-Connecticut System
Project, Series A, MBIA
5.375%, 11/15/10 2,000 2,100
Connecticut State Special Tax RB
5.000%, 11/01/16 3,000 2,936
Connecticut State Special
Tax RB, AMBAC
5.250%, 01/01/11 500 516
Connecticut State Special
Tax RB, Transportation
Infrastructure, Series A
5.700%, 06/01/12 1,160 1,237
Connecticut State Special
Tax RB, Transportation
Infrastructure, Series A, FGIC
5.600%, 06/01/13 1,000 1,051
5.250%, 10/01/14 2,100 2,153
Connecticut State Special
Tax RB, Transportation
Infrastructure, Series B, FGIC
5.500%, 10/01/11 4,920 5,301
Connecticut State Transportation
Improvement RB
5.500%, 10/01/12 4,000 4,190
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Connecticut State Transportation
Infrastructure RB, Series B, FSA
5.250%, 11/01/15 $ 1,000 $ 1,019
Connecticut State Transportation
Infrastructure RB, Series C
5.000%, 10/01/13 2,455 2,458
Connecticut State Unlimited Tax GO
5.250%, 03/15/13 6,000 6,195
Connecticut State Unlimited
Tax GO, Series D
5.000%, 12/01/12 3,500 3,557
Connecticut State Water RB
5.250%, 07/15/11 3,000 3,124
Eastern Connecticut Resource
Recovery Authority RB,
Wheelabrator Libson
Project, Series A
5.500%, 01/01/14 2,775 2,751
Hartford GO, FGIC
5.700%, 10/01/12 500 536
5.750%, 10/01/13 1,000 1,074
4.700%, 01/15/15 1,340 1,300
New Haven GO, FGIC
4.700%, 02/01/15 1,875 1,819
South Central Connecticut
Regional Water Authority RB,
Series A, MBIA
6.000%, 08/01/09 985 1,065
6.000%, 08/01/10 1,045 1,126
Stamford GO
5.000%, 07/15/15 2,195 2,206
University of Connecticut RB,
Series A, MBIA
5.250%, 04/01/14 1,000 1,023
Waterbury, Connecticut
Unlimited Tax GO
4.800%, 02/15/12 1,400 1,372
4.900%, 02/15/13 1,470 1,444
5.000%, 02/15/14 1,395 1,378
--------
152,104
--------
57
<PAGE>
AS OF MAY 31, 1999
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
Boston 1784 Connecticut Tax-Exempt Income Fund (continued)
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Guam -- 0.6%
Guam Power Authority RB,
Series A, AMBAC
5.900%, 10/01/08 $ 1,000 $ 1,106
--------
Puerto Rico -- 14.4%
Puerto Rico Commonwealth GO
5.250%, 07/01/10 1,250 1,311
5.750%, 07/01/17 2,700 2,879
Puerto Rico
Commonwealth GO (A)
5.061%, 07/01/14 4,500 2,121
Puerto Rico Commonwealth
Highway & Transportation
Infrastructure RB, MBIA
5.250%, 07/01/14 2,615 2,707
Puerto Rico Electric Power
Authority RB
5.250%, 07/01/14 2,650 2,746
5.500%, 07/01/14 1,000 1,045
5.500%, 07/01/16 1,000 1,035
Puerto Rico Highway &
Transportation RB, Series X
5.300%, 07/01/04 700 731
Puerto Rico Industrial, Tourist,
Educational, Medical, &
Environmental Control
Facilities RB, Abbott
Chemicals Project
6.500%, 07/01/09 500 501
Puerto Rico Industrial, Tourist,
Educational, Medical, &
Environmental Control
Facilities RB, International
American University,
Series A, MBIA
5.250%, 10/01/12 725 756
5.375%, 10/01/13 975 1,020
5.500%, 10/01/14 650 685
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Puerto Rico Industrial, Tourist,
Educational, Medical, &
Environmental Control
Facilities RB, PepsiCo Project
6.250%, 11/15/13 $2,750 $ 2,980
Puerto Rico Infrastructure
Financing Authority RB, AMBAC
5.250%, 07/01/10 2,500 2,638
Puerto Rico Municipal Finance
Agency RB, Series A, FSA
6.000%, 07/01/09 2,650 2,882
Puerto Rico Public Buildings
Authority RB, MBIA
5.000%, 07/01/11 1,000 1,028
--------
27,065
--------
Total Municipal Bonds
(Cost $176,285) 180,275
--------
Repurchase Agreement -- 3.0%
Paine Webber
4.800%, dated 05/28/99, matures
06/01/99, repurchase price
$5,611,881 (collateralized by
U.S. Treasury Instruments:
total market value
$5,721,179) (B) 5,609 5,609
--------
Total Repurchase Agreement
(Cost $5,609) 5,609
--------
Total Investments -- 99.0%
(Cost $181,893) 185,884
--------
Other Assets and Liabilities,
Net -- 1.0% 1,841
--------
58
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Description Value (000)
- --------------------------------------------------------------------------------
Net Assets:
Capital Shares (unlimited
authorization -- no par value)
based on 17,587,846 outstanding
shares of beneficial interest $182,859
Accumulated net realized gain
on investments 875
Net unrealized appreciation
on investments 3,991
--------
Total Net Assets -- 100.0% $187,725
========
Net Asset Value, Offering and
Redemption Price Per Share $ 10.67
========
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(A) Zero Coupon Bond. The rate reported on the Statement of Net Assets is the
effective yield as of May 31, 1999.
(B) Tri-Party Repurchase Agreement
AMT--Alternative Minimum Tax
GO--General Obligation Bond
RB--Revenue Bond
The following organizations have provided underlying credit support for the
securities as set forth in the Statement of Net Assets.
AMBAC--American Municipal Bond Assurance Corporation
CONLEE--College Construction Loan Insurance Association
FGIC--Financial Guaranty Insurance Corporation
FSA--Financial Security Assurance
GOA--General Obligation of Authority
GOI--General Obligation of Institution
MBIA--Municipal Bond Insurance Association
The accompanying notes are an integral part of the financial statements.
59
<PAGE>
AS OF MAY 31, 1999
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
Boston 1784 Florida Tax-Exempt Income Fund
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
In the printed version of the document, a pie chart appears which depicts the
following plot points:
Participation Notes 1%
Transportation Bonds 9%
Public Facility Bonds 2%
Health Care Bonds 12%
Alternative Minimum Tax Bonds 4%
Housing Bonds 4%
Education Bonds 8%
Other Revenue Bonds 10%
Water & Sewer Bonds 17%
Cash Equivalents 7%
General Obligation Bonds 13%
Utility Bonds 13%
% of Total Portfolio Investments
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Municipal Bonds -- 92.4%
Florida -- 88.8%
Brevard County, Health Facility
Authority RB, Holmes Regional
Medical Center, MBIA
5.625%, 10/01/14 $1,000 $ 1,059
Brevard County, Housing &
Finance Authority RB,
Series B, FSA
7.000%, 03/01/13 220 230
Cape Coral, Water Improvement
RB, FSA
6.375%, 06/01/09 1,000 1,075
Dade County, Aviation RB, Series A
5.250%, 10/01/07 1,000 1,050
Dade County, Aviation RB,
Series A, AMT, MBIA
5.750%, 10/01/15 1,000 1,066
Dade County, Housing Finance
Authority RB, Series D, FSA
6.950%, 12/15/12 470 493
Dade County, Professional Sports
Franchise Facility RB, MBIA
5.250%, 10/01/12 1,385 1,427
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Dade County, Water & Sewer
System RB, FGIC
5.500%, 10/01/18 $3,000 $3,097
Escambia County, Housing
Finance Authority RB,
Series A, AMT, FHA
7.300%, 10/01/17 400 414
Florida State Board Educational
Lottery RB, Series C, FGIC
5.000%, 07/01/13 1,500 1,513
Florida State Board of Education
Capital Outlay GO, Series A
5.750%, 01/01/13 1,000 1,066
5.500%, 06/01/15 2,500 2,578
Florida State Board of Education
Capital Outlay GO,
Series B, MBIA
5.750%, 06/01/11 1,250 1,339
Florida State Board of
Education RB
5.125%, 07/01/11 1,170 1,202
Florida State Educational
Lottery RB, Series A
5.000%, 07/01/15 2,000 1,987
Florida State Finance
Department RB, MBIA
5.500%, 07/01/12 1,000 1,053
Florida State Finance
Department RB,
Series A, AMBAC
5.700%, 07/01/09 2,000 2,140
Florida State Gas Utilities
Project RB
5.000%, 12/01/08 1,000 1,043
Florida State Gulf
Breeze RB, FGIC
5.000%, 12/01/14 2,000 2,005
Florida State Housing
RB, MBIA
5.050%, 07/01/12 1,975 1,987
Florida State Turnpike
Authority RB, FGIC
5.250%, 07/01/11 2,000 2,053
Fort Lauderdale GO
5.500%, 07/01/15 1,000 1,025
60
<PAGE>
BOSTON 1784 FUNDS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Florida (continued)
Gainesville, Utilities
System RB, Series B
5.500%, 10/01/13 $2,000 $2,075
Hillsborough County, Allegany
Health Systems RB, MBIA
6.375%, 12/01/12 1,300 1,427
Hillsborough County, Aviation
Authority, Tampa International
Airport RB, Series B, AMBAC
5.125%, 10/01/17 2,500 2,494
Indian Trace Community, Water
Management RB, MBIA
5.500%, 05/01/07 1,000 1,074
Lee County, Water & Sewer RB,
Series A, AMBAC
5.000%, 10/01/14 2,000 2,005
Manatee County, Florida School
Board COP, MBIA
4.950%, 07/01/14 1,000 993
Naples, Community Hospital
Project RB, MBIA
5.500%, 10/01/16 1,000 1,043
Orlando, Water & Electric
Utilities Commission RB
5.250%, 10/01/14 1,000 1,008
Pinellas County, Sewer RB, FGIC
5.000%, 10/01/13 1,990 2,007
Polk County, Utility
Systems RB, FGIC
5.250%, 10/01/17 1,500 1,513
Port St. Lucie, Special
Assessment, District 1, MBIA
5.850%, 10/01/11 3,070 3,285
Reedy Creek, Improvements GO,
Series A, MBIA
5.750%, 06/01/14 2,500 2,641
Sarasota County, Hospital
Facilities RB, Memorial Health
Systems Project, Series B, MBIA
5.000%, 10/01/10 1,250 1,280
Tampa Bay, Florida Water
Utility Systems RB,
Series B, FGIC
5.125%, 10/01/12 2,250 2,303
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Tampa Health Systems
Catholic Health RB, AMBAC
4.875%, 11/15/15 $1,000 $ 979
Tampa Health Systems
RB, AMBAC
4.875%, 11/15/14 1,000 984
Volusia County, Hospital
Facilities RB, Memorial
Health Systems Project,
AMBAC
5.500%, 11/15/16 1,250 1,298
Volusia County, Sales
Tax RB, MBIA
5.000%, 10/01/16 1,830 1,809
----------
61,120
----------
Puerto Rico -- 3.6%
Puerto Rico Commonwealth
Highway & Transportation
Authority RB, Sub- P R St
Infrastructure Bank, MBIA
5.250%, 07/01/13 1,375 1,423
Puerto Rico Industrial, Tourist,
Educational, Medical, &
Environmental Control
Facilities RB, International
American University,
Series A, MBIA
5.250%, 10/01/12 1,000 1,043
----------
2,466
----------
Total Municipal Bonds
(Cost $62,489) 63,586
----------
Repurchase Agreement -- 6.6%
Paine Webber
4.800%, dated 05/28/99, matures
06/01/99, repurchase price
$4,530,803 (collateralized by
U.S. Treasury Instruments: total
market value $4,619,045) (A) 4,528 4,528
----------
Total Repurchase Agreement
(Cost $4,528) 4,528
----------
61
<PAGE>
AS OF MAY 31, 1999
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
Boston 1784 Florida Tax-Exempt Income Fund (concluded)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Description Value (000)
- --------------------------------------------------------------------------------
Total Investments -- 99.0%
(Cost $67,017) $68,114
----------
Other Assets and Liabilities,
Net -- 1.0% 682
----------
Net Assets:
Capital Shares (unlimited
authorization -- no par value)
based on 6,795,474 outstanding
shares of beneficial interest 67,699
Net unrealized appreciation
on investments 1,097
----------
Total Net Assets -- 100.0% $68,796
==========
Net Asset Value, Offering and
Redemption Price Per Share $10.12
==========
(A) Tri-Party Repurchase Agreement
AMT--Alternative Minimum Tax
GO--General Obligation Bond
RB--Revenue Bond
The following organizations have provided underlying credit support for the
securities as set forth in the Statement of Net Assets.
AMBAC--American Municipal Bond Assurance Corporation
FGIC--Financial Guaranty Insurance Corporation
FHA--Federal Housing Administration
FSA--Financial Security Assurance
MBIA--Municipal Bond Insurance Association
The accompanying notes are an integral part of
the financial statements.
62
<PAGE>
BOSTON 1784 FUNDS
AS OF MAY 31, 1999
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
Boston 1784 Massachusetts Tax-Exempt Income Fund
[GRAPHIC OMITTED]
In the printed version of the document, a pie chart appears which depicts the
following plot points:
Water & Sewer Bonds 9%
General Obligation Bonds 33%
Alternative Minimum Tax Bonds 4%
Health Care Bonds 14%
Housing Bonds 4%
Transportation Bonds 11%
Pre-Refunded Securities 3%
Education Bonds 11%
Utility Bonds 1%
Public Facility Bonds 1%
Resource Recovery Bonds 1%
Cash Equivalents 8%
% of Total Portfolio Investments
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Municipal Bonds -- 90.9%
Massachusetts -- 88.6%
Barnstable GO
5.000%, 03/15/12 $1,000 $ 1,010
Boston GO, Series A, AMBAC
5.650%, 02/01/09 1,500 1,582
Boston, Water and Sewer
Community RB, Series A, FGIC
5.125%, 11/01/15 3,320 3,328
Brockton GO, MBIA
5.125%, 04/01/15 1,500 1,511
Chelsea GO, School Loan
Project, AMBAC
6.000%, 06/15/04 650 707
5.700%, 06/15/06 1,000 1,079
Gloucester GO, FGIC
5.100%, 08/01/14 1,105 1,117
Haverhill GO, FGIC
5.300%, 06/15/12 1,500 1,549
Holyoke GO, FSA
5.200%, 08/01/17 690 696
Holyoke GO, Series A, FSA
5.600%, 06/15/11 1,000 1,059
5.500%, 06/15/16 1,195 1,237
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Lawrence GO, AMBAC
6.250%, 02/15/09 $1,475 $ 1,604
Lowell GO, AMBAC
5.500%, 08/01/11 2,740 2,863
5.500%, 08/01/12 1,720 1,802
Lowell GO, FSA
5.500%, 01/15/10 1,140 1,197
6.625%, 04/01/15 1,000 1,119
Lynn, Massachusetts Water &
Sewer Community RB,
Series A, FSA
5.000%, 12/01/14 1,375 1,370
Malden GO, AMBAC
5.000%, 10/01/14 1,000 1,002
Massachusetts Bay Transportation
Authority RB, GOA
5.500%, 03/01/07 1,500 1,613
6.000%, 03/01/12 4,000 4,311
Massachusetts State
Authority RB, Health &
Educational Facilities
Brandeis University Project,
Series I, MBIA
5.250%, 10/01/12 1,900 1,964
Massachusetts State Bay
Transportation Authority RB,
Series A, GOA
5.800%, 03/01/10 2,640 2,868
Massachusetts State Bay
Transportation Authority RB,
Series A, MBIA
5.000%, 03/01/18 3,000 2,929
5.750%, 03/01/18 710 762
Massachusetts State Bay
Transportation Authority RB,
Series A, MBIA (A)
5.750%, 03/01/18 2,615 2,857
Massachusetts State Bay
Transportation Authority RB,
Series D, GOA
5.600%, 03/01/08 1,885 2,036
Massachusetts State Development
Finance Agency,
Clark University RB
5.250%, 07/01/16 1,445 1,427
63
<PAGE>
AS OF MAY 31, 1999
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
Boston 1784 Massachusetts Tax-Exempt Income Fund (continued)
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Massachusetts (continued)
Massachusetts State
Developmental Financial
Agency RB, Emerson College
Project, AMBAC
5.000%, 01/01/12 $1,455 $ 1,466
Massachusetts State Educational
Financing Authority RB,
Series A, AMT, MBIA
5.125%, 12/01/14 1,000 986
Massachusetts State Educational
Loan Authority RB, Issue E,
Series B, AMT, AMBAC
6.000%, 01/01/12 380 397
6.300%, 07/01/12 795 834
Massachusetts State Finance
Agency RB, Curry College,
Series A, ACA
5.000%, 03/01/13 1,640 1,615
Massachusetts State GO
5.250%, 05/01/12 1,000 1,033
5.250%, 05/01/14 1,000 1,024
5.250%, 08/01/14 5,000 5,106
5.000%, 11/01/14 2,000 2,002
Massachusetts State GO (A)
5.750%, 06/01/16 3,000 3,266
Massachusetts State GO, Series A
5.500%, 02/01/11 3,500 3,631
5.000%, 11/01/13 5,000 5,025
Massachusetts State GO,
Series A, MBIA
5.000%, 04/01/14 3,000 3,007
Massachusetts State GO, Series B
6.500%, 08/01/08 5,315 6,066
Massachusetts State GO,
Series B, FGIC
5.500%, 11/01/07 1,000 1,076
5.125%, 06/01/12 2,000 2,047
Massachusetts State GO,
Series B, FGIC (A)
5.875%, 08/01/10 2,000 2,195
Massachusetts State GO,
Series B, MBIA
5.400%, 11/01/07 2,000 2,140
Massachusetts State GO, Series C
5.250%, 08/01/15 1,750 1,783
5.000%, 08/01/17 2,000 1,957
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Massachusetts State Grant
Anticipation Note, Series A
5.250%, 12/15/11 $4,000 $ 4,145
Massachusetts State Health &
Educational Facilities
Authority RB, Amherst College,
Series G
5.250%, 11/01/15 1,125 1,136
Massachusetts State Health &
Educational Facilities
Authority RB, Baystate Medical
Center Project, Series D, FGIC
6.000%, 07/01/15 2,000 2,142
Massachusetts State Health &
Educational Facilities
Authority RB, Berklee College
of Music, Series E, MBIA
5.000%, 10/01/15 975 966
Massachusetts State Health &
Educational Facilities
Authority RB, Boston Medical
Center, Series A, MBIA
5.250%, 07/01/15 2,500 2,531
5.250%, 07/01/16 2,725 2,745
Massachusetts State Health &
Educational Facilities
Authority RB, Brandeis
University, MBIA
5.250%, 10/01/14 1,500 1,532
Massachusetts State Health &
Educational Facilities
Authority RB, Catholic
Health East, Series A, AMBAC
5.000%, 11/15/18 2,000 1,932
Massachusetts State Health &
Educational Facilities
Authority RB, Dana Farber
Cancer Project, Series G-1
6.250%, 12/01/09 1,175 1,278
Massachusetts State Health &
Educational Facilities
Authority RB, Emerson
Hospital Project,
Series D, FSA
5.800%, 08/15/18 3,000 3,116
64
<PAGE>
BOSTON 1784 FUNDS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Massachusetts (continued)
Massachusetts State Health &
Educational Facilities
Authority RB, Eye & Ear
Hospital, Series B
5.250%, 07/01/09 $1,500 $ 1,551
Massachusetts State Health &
Educational Facilities
Authority RB, Hallmark
Health Systems, Series A, FSA
5.000%, 07/01/12 1,000 1,003
Massachusetts State Health &
Educational Facilities
Authority RB, Harvard Pilgrim
Health, Series A, FSA
5.000%, 07/01/14 2,500 2,478
Massachusetts State Health &
Educational Facilities
Authority RB, Harvard
University Project,
Series M, GOI
5.750%, 12/01/11 1,000 1,038
Massachusetts State Health &
Educational Facilities
Authority RB, Lahey Clinic
Medical Center Project,
Series B, MBIA
5.625%, 07/01/15 500 523
Massachusetts State Health &
Educational Facilities
Authority RB, Massachusetts
General Hospital,
Series G, AMBAC
5.375%, 07/01/11 2,000 2,050
Massachusetts State Health &
Educational Facilities
Authority RB, Newton-Wellesley
Hospital Project, Issue E, MBIA
5.875%, 07/01/15 3,000 3,195
Massachusetts State Health &
Educational Facilities
Authority RB, Partners
Healthcare System, Series B
5.250%, 07/01/10 4,670 4,804
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Massachusetts State Health &
Educational Facilities
Authority RB, Partners
Healthcare Systems,
Series A, MBIA
5.375%, 07/01/17 $2,465 $ 2,490
Massachusetts State Health &
Educational Facilities
Authority RB, Simmons College,
Series C, MBIA
5.000%, 10/01/14 1,000 996
Massachusetts State Health &
Educational Facilities
Authority RB, Smith College
Project, Series D, GOI
5.750%, 07/01/16 2,600 2,720
Massachusetts State Health &
Educational Facilities
Authority RB, Tufts University
Project, Series F, FGIC
5.950%, 08/15/18 3,000 3,169
Massachusetts State Health &
Educational Facilities
Authority RB, UMass Memorial
Issue, Series A, AMBAC
5.250%, 07/01/14 2,000 2,028
Massachusetts State Health &
Educational Facilities
Authority RB, Williams College,
Series F
5.750%, 07/01/19 1,000 1,036
Massachusetts State Health &
Educational Facilities Authority
RB, Partners Healthcare System
5.250%, 07/01/15 2,500 2,528
Massachusetts State Housing
Finance Agency RB, Rental
Mortgage, Series C, AMT, AMBAC
5.450%, 07/01/18 2,805 2,801
Massachusetts State Housing
Finance Agency RB, Residential
Development Project,
Series A, FNMA
6.875%, 11/15/11 1,750 1,890
65
<PAGE>
AS OF MAY 31, 1999
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
Boston 1784 Massachusetts Tax-Exempt Income Fund (continued)
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Massachusetts (continued)
Massachusetts State Housing
Finance Agency RB,
Series A, AMBAC
6.300%, 10/01/13 $4,950 $ 5,241
Massachusetts State Housing
Finance Agency RB,
Series A, MBIA
5.850%, 12/01/08 1,245 1,323
6.100%, 07/01/15 1,590 1,685
Massachusetts State Housing
Finance Agency RB, Single
Family Housing Project,
Series 14, FHA
7.700%, 12/01/14 1,895 1,981
Massachusetts State Industrial
Finance Agency RB, Babson
College Project, Series A
5.375%, 10/01/17 1,000 1,005
Massachusetts State Industrial
Finance Agency RB, Babson
College Project, Series A, MBIA
6.375%, 10/01/09 1,000 1,096
5.750%, 10/01/15 1,000 1,058
Massachusetts State Industrial
Finance Agency RB, College
of Holy Cross, MBIA
5.500%, 03/01/16 1,500 1,545
Massachusetts State Industrial
Finance Agency RB, Worcester
Polytechnical Institution, MBIA
5.125%, 09/01/17 1,550 1,536
Massachusetts State Industrial
Finance Agency Resource
Recovery RB, Ogden Haverhill
Project A, AMT
5.200%, 12/01/08 1,500 1,498
Massachusetts State Municipal
Wholesale Electric
Company RB, Series D, MBIA
6.000%, 07/01/05 1,000 1,068
Massachusetts State Port
Authority RB, Series A, AMT
6.000%, 07/01/13 1,050 1,126
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Massachusetts State Port
Authority RB, Series B, AMT
5.000%, 07/01/13 $41,790 $ 1,783
5.250%, 07/01/14 1,385 1,402
Massachusetts State Port
Authority RB, Series E, AMT
5.250%, 07/01/13 1,000 1,016
Massachusetts State Resource
Recovery Authority RB,
Refusetech Project, Series A
6.150%, 07/01/02 900 938
6.300%, 07/01/05 1,000 1,068
Massachusetts State Special
Obligation RB, Series A
5.500%, 06/01/07 2,000 2,113
5.750%, 06/01/11 2,780 3,002
5.750%, 06/01/12 700 756
Massachusetts State Turnpike
Authority RB, Metropolitan
Highway System, Series A, MBIA
5.000%, 01/01/13 1,000 1,003
Massachusetts State Turnpike
Authority RB, Metropolitan
Highway System,
Sub-Series B, MBIA
5.250%, 01/01/17 1,000 1,005
Massachusetts State Turnpike
Authority RB, Western
Turnpike, Series A, MBIA
5.550%, 01/01/17 1,835 1,842
Massachusetts State Unlimited
Tax GO, Series D
5.000%, 11/01/11 5,000 5,069
Massachusetts State Water
Authority RB, Series B, MBIA
5.500%, 03/01/17 3,500 3,570
Massachusetts State Water
Pollution Abatement Trust RB,
Pooled Loan Program, Series 1
5.600%, 08/01/13 2,090 2,215
Massachusetts State Water
Pollution Abatement Trust RB,
Pooled Loan Program, Series 2
6.125%, 02/01/07 730 812
66
<PAGE>
BOSTON 1784 FUNDS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Massachusetts (continued)
Massachusetts State Water
Pollution Abatement Trust RB,
Series A
5.450%, 02/01/13 $1,000 $ 1,043
5.250%, 08/01/14 1,000 1,016
Massachusetts State Water
Pollution RB
5.700%, 02/01/12 1,450 1,569
5.700%, 02/01/15 3,000 3,253
Massachusetts State Water
Resource Authority RB,
Series B, GOA
5.875%, 11/01/04 1,000 1,073
Massachusetts State Water
Resource Authority RB,
Series C, GOA
6.000%, 11/01/05 2,000 2,148
6.000%, 12/01/11 2,000 2,220
Mendon Upton Regional
School District GO, FGIC
5.500%, 06/01/15 1,405 1,466
5.500%, 06/01/17 1,500 1,553
Nantucket GO
6.800%, 12/01/11 1,425 1,546
Nantucket GO, MBIA
5.250%, 07/15/10 2,250 2,346
Northampton GO, MBIA
5.750%, 05/15/16 775 836
Palmer GO, MBIA
5.500%, 10/01/10 1,500 1,571
Peabody GO, Series A
5.000%, 08/01/13 310 313
5.000%, 08/01/14 510 512
Plymouth County, Partners
Correctional Facility
COP, AMBAC
5.125%, 10/01/13 2,165 2,195
Springfield GO, AMBAC
5.300%, 08/01/11 1,000 1,035
5.300%, 08/01/13 1,000 1,030
Springfield GO, FSA
5.000%, 09/01/11 1,885 1,909
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Springfield GO, State Qualified
Municipal Purpose Loan, FSA
5.250%, 11/15/11 $1,600 $ 1,660
University of Lowell Building
Authority RB, Fifth Series A,
AMBAC
5.625%, 11/01/14 3,000 3,158
Uxbridge GO, MBIA
5.400%, 11/15/16 750 769
West Springfield GO, FGIC
5.000%, 03/01/18 1,225 1,197
Worcester GO, Municipal
Purpose Loan Series B, MBIA
5.250%, 11/01/14 1,875 1,924
Worcester GO, Series G, MBIA
5.300%, 07/01/15 1,000 1,020
----------
237,196
----------
Puerto Rico -- 2.3%
Puerto Rico Commonwealth GO
5.000%, 07/01/08 1,710 1,774
Puerto Rico Commonwealth
GO, FSA
5.500%, 07/01/13 1,000 1,041
Puerto Rico Commonwealth
Highway & Transportation
Authority RB, Sub- P R St
Infrastructure Bank, MBIA
5.250%, 07/01/13 1,300 1,346
Puerto Rico Industrial, Tourist,
Educational, Medical, &
Environmental Control
Facilities RB, International
American University,
Series A, MBIA
5.250%, 10/01/12 1,000 1,043
Puerto Rico Refunding Public
Improvement GO
5.500%, 07/01/13 1,000 1,068
----------
6,272
----------
Total Municipal Bonds
(Cost $237,421) 243,468
----------
67
<PAGE>
AS OF MAY 31, 1999
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
Boston 1784 Massachusetts Tax-Exempt Income Fund (concluded)
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Repurchase Agreement -- 8.0%
Paine Webber
4.800%, dated 05/28/99, matures
06/01/99, repurchase price
$21,360,902 (collateralized
by U.S. Treasury Instruments:
total market value
$21,776,928) (B) $21,350 $ 21,350
---------
Total Repurchase Agreement
(Cost $21,350) 21,350
---------
Total Investments -- 98.9%
(Cost $258,771) 264,818
---------
Other Assets and Liabilities,
Net-- 1.1% 3,053
---------
Net Assets:
Capital Shares (unlimited
authorization -- no par value)
based on 25,776,888 outstanding
shares of beneficial interest 261,898
Accumulated net realized loss
on investments (74)
Net unrealized appreciation
on investments 6,047
---------
Total Net Assets -- 100.0% $267,871
=========
Net Asset Value, Offering and
Redemption Price Per Share $10.39
=========
(A) Pre-refunded Security. The pre-refunded date is shown as the maturity
date on the Statement of Net Assets.
(B) Tri-Party Repurchase Agreement
AMT--Alternative Minimum Tax
COP--Certificate of Participation
GO--General Obligation Bond
RB--Revenue Bond
The following organizations have provided underlying credit support for the
securities as set forth in the Statement of Net Assets.
ACA--American Capital Access
AMBAC--American Municipal Bond Assurance Corporation
FGIC--Financial Guaranty Insurance Corporation
FHA--Federal Housing Administration
FNMA--Federal National Mortgage Association
FSA--Financial Security Assurance
GOA--General Obligation of Authority
GOI--General Obligation of Institution
MBIA--Municipal Bond Insurance Association
The accompanying notes are an integral part of the financial statements.
68
<PAGE>
BOSTON 1784 FUNDS
AS OF MAY 31, 1999
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
Boston 1784 Rhode Island Tax-Exempt Income Fund
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
In the printed version of the document, a pie chart appears which depicts the
following plot points:
Water & Sewer Bonds 4%
Industrial Development & Pollution Control Bonds 3%
Health Care Bonds 7%
Other Revenue Bonds 3%
Cash Equivalents 4%
Education Bonds 11%
Utility Bonds 7%
Housing Bonds 10%
Public Facility Bonds 9%
Alternative Minimum Tax Bonds 6%
Transportation Bonds 6%
General Obligation Bonds 30%
% of Total Portfolio Investments
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Municipal Bonds -- 95.7%
Rhode Island -- 79.9%
Bristol County, Water
Authority RB, MBIA
5.200%, 12/01/14 $1,000 $1,014
Bristol County, Water
Authority RB, Series A, MBIA
5.200%, 12/01/13 1,080 1,096
Central Falls RB,
Detention Facility
5.250%, 01/15/13 1,505 1,516
5.375%, 01/15/18 1,000 991
Central Falls RB, Detention
Facility, FSA
5.375%, 01/15/18 1,000 1,010
Cranston GO, MBIA
6.100%, 06/15/10 1,000 1,095
6.100%, 06/15/15 1,500 1,642
5.500%, 07/15/15 1,305 1,365
Cumberland GO, MBIA
5.100%, 09/01/14 500 506
Exeter West Greenwich
Regional School
District GO, MBIA
5.400%, 11/15/10 1,000 1,047
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Kent County, Water
Authority RB, MBIA
6.000%, 07/15/08 $ 500 $ 541
North Providence GO,
Series A, MBIA
6.000%, 07/01/12 1,100 1,207
6.050%, 07/01/13 500 549
Providence GO, FSA
5.050%, 01/15/05 1,090 1,135
5.100%, 01/15/06 1,085 1,134
Providence GO, Series A, FSA
5.700%, 07/15/12 1,825 1,941
Providence, Housing
Development Authority RB,
Barbara Jordan Apartments
Project, Series A, MBIA
6.500%, 07/01/09 395 424
Providence, Public Building
Authority GO, Series A, FSA
5.400%, 12/15/11 500 523
Providence, Public Building
Authority RB, FSA
5.250%, 12/15/14 1,500 1,537
Rhode Island State Airport
Economic Development RB
5.000%, 07/01/15 1,620 1,602
Rhode Island State Clean
Water Agency RB, Safe
Drinking Water Project,
Series A, AMBAC
6.500%, 01/01/09 500 554
Rhode Island State Clean
Water Agency RB, Water
Pollution Control, MBIA
5.875%, 10/01/15 435 470
Rhode Island State Clean Water
Agency RB, Water Pollution
Control, MBIA (A)
5.875%, 10/01/15 430 472
Rhode Island State Convention
Center Authority RB,
Series A, AMBAC
5.500%, 05/15/13 1,000 1,045
69
<PAGE>
AS OF MAY 31, 1999
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
Boston 1784 Rhode Island Tax-Exempt Income Fund (continued)
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Rhode Island (continued)
Rhode Island State Depositor's
Economic Protection
Agency RB, Series A, FSA
6.500%, 08/01/07 $ 500 $ 569
Rhode Island State Depositor's
Economic Protection Agency RB,
Series B, MBIA
5.800%, 08/01/12 1,000 1,090
Rhode Island State Depositor's
Economic Protection
Agency RB, Special Obligation,
Series A, FSA
5.750%, 08/01/14 1,000 1,090
Rhode Island State GO
5.250%, 07/15/10 1,000 1,047
5.000%, 08/01/11 1,530 1,549
5.000%, 09/01/12 1,665 1,688
Rhode Island State GO, FGIC
5.000%, 09/01/14 2,680 2,687
5.000%, 09/01/16 2,425 2,395
Rhode Island State GO,
Reference Consolidation
Capital Development Loan,
Series A
5.125%, 07/15/13 3,000 3,060
Rhode Island State GO, Series A
5.125%, 07/15/12 1,735 1,776
Rhode Island State Health &
Educational Building RB
5.400%, 07/01/13 1,045 1,020
4.750%, 09/01/14 1,215 1,172
5.500%, 07/01/18 1,000 947
Rhode Island State Health &
Educational Building RB,
Brown University
5.000%, 09/01/15 1,000 983
5.000%, 09/01/16 1,000 979
5.000%, 09/01/17 1,000 971
Rhode Island State Health &
Educational Building RB,
Higher Education Facility,
AMBAC
5.125%, 11/15/14 2,000 2,015
5.000%, 11/15/18 1,000 968
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Rhode Island State Health &
Educational Building RB,
Higher Education Facility,
CONLEE
6.500%, 11/15/08 $ 180 $ 194
Rhode Island State Health &
Educational Building RB,
Kent Hospital Project, MBIA
7.000%, 07/01/10 500 535
Rhode Island State Health &
Educational Building RB,
Landmark Medical Project, FSA
5.600%, 10/01/12 2,000 2,083
Rhode Island State Health &
Educational Building RB,
New England Institutional
Project, CONLEE
5.900%, 03/01/10 400 421
Rhode Island State Health &
Educational Building RB,
Rhode Island School of
Design, MBIA
5.625%, 06/01/16 2,000 2,108
Rhode Island State Health &
Educational Building RB,
Roger Williams Hospital Project
7.750%, 07/01/16 1,000 1,047
5.250%, 11/15/16 1,000 1,004
Rhode Island State Housing &
Mortgage Finance RB
5.550%, 04/01/17 500 505
Rhode Island State Housing &
Mortgage Finance RB,
Series 13
6.700%, 10/01/15 2,000 2,115
Rhode Island State Housing &
Mortgage Finance RB,
Series 19A
5.700%, 04/01/15 1,500 1,528
Rhode Island State Housing &
Mortgage Finance RB, Series 2
7.700%, 10/01/10 500 516
Rhode Island State Housing &
Mortgage Finance RB,
Series 27-B, AMT
5.150%, 10/01/12 2,240 2,218
70
<PAGE>
BOSTON 1784 FUNDS
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Rhode Island (continued)
Rhode Island State Housing &
Mortgage Finance RB,
Series 30-A
4.900%, 10/01/14 $2,000 $ 1,970
Rhode Island State Housing &
Mortgage Finance RB,
Series 7B, AMT
6.700%, 10/01/12 750 792
Rhode Island State Housing &
Mortgage Finance RB,
Series A, LOC
5.650%, 10/01/07 1,000 1,033
Rhode Island State Housing &
Mortgage Finance RB,
Series E-1, AMT, FHA
7.500%, 10/01/11 905 948
Rhode Island State Industrial
Facilities RB
6.000%, 11/01/14 2,250 2,430
Rhode Island State Industrial
Facilities RB, AMT, LOC
6.500%, 03/01/14 500 528
Rhode Island State Port
Authority & Economic
Development RB, Shepard
Building Project, Series B,
AMBAC (A)
6.500%, 06/01/08 500 561
Rhode Island State Public
Projects RB, Series A
5.250%, 02/01/10 1,000 1,044
Rhode Island State Student
Loan Authority RB,
Series B, AMT
7.000%, 12/01/04 1,390 1,472
Rhode Island State Student Loan
Authority RB,
Series B, AMT, LOC
6.850%, 12/01/02 500 529
Rhode Island State Turnpike &
Bridge Authority RB
5.000%, 12/01/11 1,000 991
5.350%, 12/01/17 2,130 2,130
Rhode Island Water Protection
Finance Agency RB, MBIA
6.750%, 10/01/13 25 27
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Warwick GO, Series A, FGIC
5.000%, 03/01/15 $1,180 $ 1,176
5.000%, 03/01/16 1,205 1,193
-------
81,520
-------
Guam -- 1.0%
Guam Power Authority RB
5.250%, 10/01/11 1,000 1,042
-------
Puerto Rico -- 14.8%
Puerto Rico Commonwealth GO
5.750%, 07/01/17 1,000 1,066
Puerto Rico Commonwealth
GO (B)
5.013%, 07/01/14 3,500 1,649
Puerto Rico Electric Power
Authority RB
5.250%, 07/01/14 3,000 3,109
5.500%, 07/01/16 3,000 3,105
Puerto Rico Highway &
Transportation Authority RB,
Series V
6.375%, 07/01/07 1,135 1,209
Puerto Rico Industrial, Medical &
Environmental Pollution
Control RB, PepsiCo
Project, Series A
6.250%, 11/15/13 500 541
Puerto Rico Industrial, Tourist,
Educational, Medical, &
Environmental Control
Facilities RB, International
American University,
Series A, MBIA
5.250%, 10/01/12 360 375
5.375%, 10/01/13 1,550 1,622
5.500%, 10/01/14 350 369
Puerto Rico Public Education &
Health Facilities RB,
Series M, CGTD
5.750%, 07/01/15 2,000 2,087
-------
15,132
-------
Total Municipal Bonds
(Cost $95,835) 97,694
-------
71
<PAGE>
AS OF MAY 31, 1999
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
Boston 1784 Rhode Island Tax-Exempt Income Fund (concluded)
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Repurchase Agreement -- 4.0%
Paine Webber
4.800%, dated 05/28/99, matures
06/01/99, repurchase price
$4,065,003 (collateralized by
U.S. Treasury Instruments:
total market value
$4,144,173) (C) $4,063 $ 4,063
--------
Total Repurchase Agreement
(Cost $4,063) 4,063
--------
Total Investments -- 99.7%
(Cost $99,898) 101,757
--------
Other Assets and Liabilities,
Net -- 0.3% 316
--------
Net Assets:
Capital Shares (unlimited
authorization -- no par value)
based on 9,722,031 outstanding
shares of beneficial interest 100,077
Accumulated net realized gain
on investments 137
Net unrealized appreciation
on investments 1,859
--------
Total Net Assets -- 100.0% $102,073
========
Net Asset Value, Offering and
Redemption Price Per Share $ 10.50
========
(A) Pre-refunded Security. The pre-refunded date is shown as the maturity date
on the Statement of Net Assets.
(B) Zero Coupon Bond. The rate reported on the Statement of Net Assets is the
effective yield as of May 31,1999.
(C) Tri-Party Repurchase Agreement
AMT--Alternative Minimum Tax
GO--General Obligation Bond
LOC--Securities are held in connection with a letter of credit issued by a major
commercial bank or other financial institution.
RB--Revenue Bond
The following organizations have provided underlying credit support for the
securities set forth in the Statement of Net Assets.
AMBAC--American Municipal Bond Assurance Corporation
CGTD--Commonwealth Guaranteed
CONLEE--College Construction Loan Insurance Association
FGIC--Financial Guaranty Insurance Corporation
FHA--Federal Housing Administration
FSA--Financial Security Assurance
MBIA--Municipal Bond Insurance Assurance
The accompanying notes are on integral part of the finanical statements.
72
<PAGE>
BOSTON 1784 FUNDS
AS OF MAY 31, 1999
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
Boston 1784 Asset Allocation Fund
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
In the printed version of the document, a pie chart appears which depicts the
following plot points:
U.S. Treasury Obligations 10%
U.S. Government Agency Obligations 6%
Cash Equivalents 4%
Common Stock 54%
Preferred Stock 1%
Asset-Backed Securities 3%
Corporate Bonds 14%
U.S Mortgage-Backed Bonds 8%
% of Total Portfolio Investments
- --------------------------------------------------------------------------------
Description Shares Value (000)
- --------------------------------------------------------------------------------
Common Stocks -- 53.5%
Aerospace & Defense -- 0.6%
Allied Signal 1,900 $ 110
General Motors Class H 4,200 230
------
340
------
Air Transportation -- 0.3%
AMR* 2,700 176
------
Automotive -- 0.2%
Rockwell International 1,900 105
------
Banks -- 1.1%
Bank of America 8,600 556
------
Beauty Products -- 1.6%
Colgate-Palmolive 2,200 220
Procter & Gamble 6,750 630
------
850
------
Broadcasting, Newspapers &
Advertising -- 2.8%
AT&T-Liberty Media, Class A* 5,850 389
Comcast, Class A 9,400 362
Mediaone Group* 3,400 251
- --------------------------------------------------------------------------------
Description Shares Value (000)
- --------------------------------------------------------------------------------
Omnicom Group 2,850 $ 199
Telewest Comm Plc-Spons ADR* 4,550 197
Univision Communications,
Class A* 1,750 104
------
1,502
------
Capital Goods/Construction -- 3.3%
Alcoa 750 41
Dii Group Inc* 7,600 250
General Electric 7,850 798
Mannesmann AG
Sponsored ADR* 800 110
Molex 5,500 168
Southdown 1,800 114
Tyco International 3,100 271
------
1,752
------
Chemicals -- 0.2%
Air Products & Chemicals 2,750 113
------
Drugs -- 2.0%
Centocor* 4,600 200
Medimmune* 1,900 121
Pfizer 2,550 273
Schering Plough 1,250 56
SmithKline Beecham ADR 3,150 207
Warner-Lambert 3,200 198
------
1,055
------
Electrical Services -- 0.3%
AES* 3,300 164
------
Energy -- 4.2%
Baker Hughes 16,200 504
El Paso Natural Gas 4,800 173
Exxon 4,200 335
Mobil 6,000 607
Schlumberger 10,000 602
------
2,221
------
Entertainment -- 0.6%
Time Warner 4,950 337
------
Financial Services -- 3.7%
American Express 1,300 158
Equitable 4,900 344
73
<PAGE>
AS OF MAY 31, 1999
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
Boston 1784 Asset Allocation Fund (continued)
- --------------------------------------------------------------------------------
Description Shares Value (000)
- --------------------------------------------------------------------------------
Financial Services (continued)
Fannie Mae 5,500 $ 374
Wells Fargo 26,700 1,068
------
1,944
------
Food, Beverage &
Tobacco -- 1.7%
Coca Cola 3,000 205
Nestle, ADR 7,800 703
------
908
------
Health Care -- 4.7%
Cardinal Health 3,500 211
Genzyme* 13,200 535
Johnson & Johnson 9,500 880
Merck 13,200 891
------
2,517
------
Insurance -- 5.3%
Aflac 2,350 120
Allstate 12,300 448
American International Group 12,800 1,463
Citigroup 7,000 464
Unum 3,150 170
XL Capital, Class A 2,900 176
------
2,841
------
Leisure -- 0.2%
Mattel 4,500 119
------
Lumber & Wood
Products -- 0.4%
Georgia Pacific 700 61
Weyerhaeuser 2,300 143
------
204
------
Medical Products &
Services -- 2.7%
Allergan 1,250 116
Boston Scientific* 17,600 668
Elan, ADR* 7,050 381
Medtronic 3,950 280
------
1,445
------
- --------------------------------------------------------------------------------
Description Shares Value (000)
- --------------------------------------------------------------------------------
Miscellaneous Business
Services -- 1.2%
America Online* 1,200 $ 143
DST Systems* 5,500 297
Electronic Data Systems
Corporation 3,300 186
------
626
------
Retail -- 3.8%
Circuit City 1,900 136
Costco* 4,900 355
CVS 7,600 350
Estee Lauder 2,800 255
Home Depot 3,550 202
Kroger* 3,600 211
Lowe's Companies 2,500 130
Wal-Mart Stores 9,600 409
------
2,048
------
Technology -- 6.9%
Analog Devices* 8,000 307
Cisco Systems* 4,350 474
Computer Associates
International 7,400 350
IBM 3,400 395
Intel 4,400 238
Lucent Technologies 19,700 1,120
Microsoft* 4,350 351
Motorola 3,000 248
Texas Instruments 450 49
Vitesse Semiconductor* 2,450 135
------
3,667
------
Telephones &
Telecommunications -- 4.2%
ADC Telecommunications* 2,200 108
Alltel 3,350 240
Centurytel 4,950 190
MCI WorldCom* 3,000 259
Nippon Telegraph & Telephone* 3,900 190
NTL* 3,600 340
SBC Communications 14,000 716
Sprint 1,850 209
------
2,252
------
74
<PAGE>
BOSTON 1784 FUNDS
- --------------------------------------------------------------------------------
Description Shares/Par(000) Value (000)
- --------------------------------------------------------------------------------
Wholesale -- 1.5%
Safeway* 3,500 $ 163
Sysco 21,100 626
------
789
------
Total Common Stocks
(Cost $20,203) 28,531
------
Preferred Stocks -- 0.4%
Hartford Capital II 8 210
------
Total Preferred Stocks
(Cost $200) 210
------
U.S. Treasury Obligations -- 10.0%
U.S. Treasury Bonds
7.250%, 05/15/16 $ 1,100 1,229
7.125%, 02/15/23 300 338
6.125%, 11/15/27 310 313
5.250%, 11/15/28 390 353
U.S. Treasury Notes
5.500%, 04/15/00 200 201
6.250%, 05/31/00 500 505
6.125%, 07/31/00 400 404
6.125%, 09/30/00 590 596
5.625%, 11/30/00 365 366
5.750%, 11/30/02 275 276
5.500%, 05/31/03 750 745
------
Total U.S. Treasury Obligations
(Cost $5,353) 5,326
------
U.S. Government
Mortgage-Backed Bonds -- 8.0%
Federal Home Loan Mortgage
Corporation
5.750%, 03/15/09 500 482
6.000%, 11/01/28 2,464 2,345
Federal National Mortgage
Association
6.000%, 06/01/13 1,164 1,135
- --------------------------------------------------------------------------------
Description Par(000) Value (000)
- --------------------------------------------------------------------------------
Government National Mortgage
Association
6.000%, 04/15/13 $229 $ 224
7.500%, 06/15/23 102 105
------
Total U.S. Government
Mortgage-Backed Bonds
(Cost $4,417) 4,291
------
Corporate Bonds -- 14.3%
Banks -- 1.7%
Chase Manhattan
6.500%, 01/15/09 300 291
Citicorp
6.375%, 11/15/08 300 293
First Union
7.500%, 07/15/06 315 327
------
911
------
Capital Goods/Construction -- 0.9%
Hydro-Quebec, YB
8.625%, 05/20/02 220 233
Province of Ontario, YB
7.375%, 01/27/03 220 228
------
461
------
Communications Equipment -- 0.8%
Lucent Technologies
5.500%, 11/15/08 215 200
Tele Communications
9.800%, 02/01/12 200 251
------
451
------
Entertainment -- 0.5%
Time Warner Entertainment
10.150%, 05/01/12 210 264
------
Financial Services -- 3.3%
Chase Manhattan
8.000%, 06/15/99 200 200
Citigroup
5.800%, 03/15/04 220 214
75
<PAGE>
AS OF MAY 31, 1999
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
Boston 1784 Asset Allocation Fund (concluded)
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Financial Services (continued)
Ford Motor Credit
6.625%, 06/30/03 $425 $ 428
6.750%, 05/15/05 100 100
General Motors Acceptance
6.625%, 10/01/02 200 202
6.150%, 04/05/07 245 239
J.P. Morgan
6.000%, 01/15/09 400 376
------
1,759
------
Industrial -- 3.1%
Burlington North
9.250%, 10/01/06 250 282
Ford Motor
7.250%, 10/01/08 250 258
Northrop Grumman
7.000%, 03/01/06 250 248
Sears Roebuck
6.250%, 01/15/04 500 496
Trans-Canada Pipelines, YB
9.125%, 04/20/06 310 350
------
1,634
------
Paper & Paper Products -- 0.7%
Fort James
6.875%, 09/15/07 360 363
------
Petroleum & Fuel Products -- 0.5%
Atlantic Richfield
5.900%, 04/15/09 100 95
Enron Oil & Gas
6.000%, 12/15/08 215 200
------
295
------
Printing & Publishing -- 0.5%
News America
6.625%, 01/09/08 275 267
------
Retail -- 1.4%
Gap
6.900%, 09/15/07 260 266
Staples
7.125%, 08/15/07 200 201
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Wal-Mart Eurobond
6.750%, 05/24/02 $260 $ 265
------
732
------
Telephones &
Telecommunications -- 0.9%
AT&T
6.500%, 03/15/29 200 186
Cable & Wireless
Communication
6.375%, 03/06/03 100 99
Worldcom
6.125%, 08/15/01 220 219
------
504
------
Total Corporate Bonds
(Cost $7,881) 7,641
------
Asset-Backed Securities -- 3.0%
PNC Student Loan Trust I,
Series 1997-2, Class A6
6.572%, 01/25/04 600 599
Sears Credit Account
Master Trust, Series 1996-4,
Class A
6.450%, 10/16/06 500 499
Sears Credit Account
Master Trust, Series 1997-1,
Class A
6.200%, 07/16/07 500 490
------
Total Asset-Backed Securities
(Cost $1,594) 1,588
------
U.S. Government Agency
Obligations -- 6.0%
Federal Home Loan Bank
5.800%, 09/02/08 250 241
Federal National Mortgage
Association
5.750%, 04/15/03 500 496
6.500%, 03/01/11 355 354
6.500%, 05/01/28 878 858
76
<PAGE>
BOSTON 1784 FUNDS
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
U.S. Government Agency
Obligations (continued)
Federal National Mortgage
Association, MTN
7.070%, 06/25/01 $ 500 $ 501
7.240%, 01/04/07 500 503
Private Export Funding
Corporation
8.400%, 07/31/01 25 26
Tennessee Valley Authority
Principal STRIPS (A)
4.337%, 04/15/42 500 222
-------
Total U.S. Government Agency
Obligations
(Cost $3,182) 3,201
-------
Repurchase Agreement -- 4.2%
Paine Webber
4.800%, dated 05/28/99, matures
06/01/99, repurchase price
$2,267,670 (collateralized by
U.S. Treasury Instruments:
total market value
$2,311,835) (B) 2,266 2,266
-------
Total Repurchase Agreement
(Cost $2,266) 2,266
-------
Total Investments -- 99.4%
(Cost $45,096) 53,054
-------
Other Assets and Liabilities,
Net -- 0.6% 317
-------
- --------------------------------------------------------------------------------
Description Value (000)
- --------------------------------------------------------------------------------
Net Assets:
Capital Shares (unlimited
authorization -- no par value)
based on 3,565,816 outstanding
shares of beneficial interest $44,500
Undistributed net investment income 293
Accumulated net realized gain
on investments 620
Net unrealized appreciation
on investments 7,958
-------
Total Net Assets -- 100.0% $53,371
=======
Net Asset Value, Offering and
Redemption Price Per Share $ 14.97
=======
* Non-income producing security
(A) Zero Coupon Security. The rate reported on the Statement of Net Assets is
the effective yield as of May 31,1999.
(B) Tri-Party Repurchase Agreement
ADR--American Depository Receipt
MTN--Medium Term Note
STRIPS--Separately Traded Registered Interest and Principal Securities
YB--Yankee Bond
The accompanying notes are an integral part of the financial statements.
77
<PAGE>
AS OF MAY 31, 1999
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
Boston 1784 Growth and Income Fund
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
In the printed version of the document, a pie chart appears which depicts the
following plot points:
Capital Goods/Machinery 2%
Cash Equivalents 4%
Telephones & Telecommunications 2%
Technology 18%
Retail 12%
Restaurants 6%
Office Equipment 2%
Medical Products & Services 11%
Insurance 2%
Household Products 4%
Healthcare 11%
Financial Services 5%
Environmental Services 2%
Entertainment 4%
Energy 10%
Consumer Non-Durables 2%
Consumer Durables 3%
% of Total Portfolio Investments
- --------------------------------------------------------------------------------
Description Shares Value (000)
- --------------------------------------------------------------------------------
Common Stocks -- 96.2%
Capital Goods/Machinery -- 1.5%
General Electric 80,000 $ 8,135
-------
Computers & Services -- 2.1%
EMC* 30,000 2,989
Equant-NY Registered
Shares (NL)* 100,000 8,294
-------
11,283
-------
Consumer Durables -- 2.9%
Cintas 250,000 15,875
-------
Consumer Non-Durables -- 2.0%
Coca Cola 160,000 10,930
-------
Containers & Packaging -- 1.8%
Newell Rubbermaid 250,000 10,125
-------
Drugs -- 2.3%
Warner-Lambert 200,000 12,400
-------
- --------------------------------------------------------------------------------
Description Shares Value (000)
- --------------------------------------------------------------------------------
Energy -- 8.3%
Chevron 60,000 $ 5,561
Enron 250,000 17,844
Exxon 150,000 11,981
Mobil 100,000 10,125
-------
45,511
-------
Entertainment -- 2.5%
Time Warner 50,000 3,403
Walt Disney 360,000 10,485
-------
13,888
-------
Environmental Services -- 2.2%
Rentokil Initial (UK) 3,000,000 12,159
-------
Financial Services -- 4.8%
Fifth Third Bancorp 200,000 13,637
Firstar 450,000 12,966
-------
26,603
-------
Gas/Natural Gas -- 1.9%
The Williams Companies 200,000 10,362
-------
Health Care -- 11.7%
Abbott Laboratories 200,000 9,037
Cardinal Health 150,000 9,056
Eli Lilly 150,000 10,716
Johnson & Johnson 120,000 11,115
Omnicare 450,000 10,772
Pfizer 125,000 13,375
-------
64,071
-------
Household Products -- 1.7%
Maytag 135,000 9,526
-------
Insurance -- 2.6%
American International Group 125,000 14,289
-------
Media -- 1.5%
The News Corp ADR (AU) 250,000 8,297
-------
Medical Products & Services -- 8.7%
Biomet 200,000 7,987
Guidant 300,000 15,000
Medtronic 350,000 24,850
-------
47,837
-------
78
<PAGE>
BOSTON 1784 FUNDS
- --------------------------------------------------------------------------------
Description Shares Value (000)
- --------------------------------------------------------------------------------
Office Equipment -- 1.6%
Xerox 160,000 $ 8,990
--------
Restaurants -- 6.4%
J.D. Wetherspoon (UK) 3,525,000 17,665
Outback Steakhouse* 105,000 3,767
PizzaExpress (UK) 935,000 13,944
--------
35,376
--------
Retail -- 12.2%
Bed Bath & Beyond* 600,000 20,512
GrandVision (FR) 274,500 7,471
Home Depot 500,000 28,438
Staples* 375,000 10,781
--------
67,202
--------
Technology -- 15.7%
Cisco Systems* 200,000 21,800
Intel 380,000 20,544
Microsoft* 440,000 35,503
Texas Instruments 75,000 8,203
--------
86,050
--------
Telephones &
Telecommunications -- 1.8%
AT&T 150,000 8,325
MCI WorldCom* 15,000 1,296
--------
9,621
--------
Total Common Stocks
(Cost $298,094) 528,530
--------
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Repurchase Agreement -- 3.7%
Paine Webber
4.80%, dated 05/28/99, matures
6/1/99, repurchase price
$20,523,137 (collateralized
by U.S. Treasury Instruments:
total market value
$20,922,846) (A) $20,512 $ 20,512
--------
Total Repurchase Agreement
(Cost $20,512) 20,512
--------
Total Investments -- 99.9%
(Cost $318,606) $549,042
--------
Other Assets and Liabilities,
Net -- 0.1% 374
--------
Net Assets:
Capital Shares (unlimited
authorization -- no par value)
based on 24,783,850 outstanding
shares of beneficial interest 277,966
Accumulated net realized gain
on investments 41,014
Net unrealized appreciation
on investments 230,436
--------
Total Net Assets -- 100.0% $549,416
========
Net Asset Value, Offering and
Redemption Price Per Share $ 22.17
========
* Non-income producing security
(A) Tri-Party Repurchase Agreements
ADR--American Depository Receipt
AU--Australian Equity
FR--French Equity
NL--Netherlands Equity
UK--United Kingdom Equity
The accompanying notes are an integral part of the financial statements.
79
<PAGE>
AS OF MAY 31, 1999
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
BOSTON 1784 GROWTH FUND
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
In the printed version of the document, a pie chart appears which depicts the
following plot points:
Chemicals 2%
Computer Equipment and Services 16%
Consumer Durables 9%
Data Processing & Management 4%
Drugs 2%
Environmental Services 2%
Financial Services 5%
Health Care 4%
Leasing & Renting 1%
Medical Products & Services 8%
Miscellaneous Business Services 3%
Restaurants 10%
Retail 11%
Technology 13%
Telephones & Telecommunications 3%
Television Broadcasting 2%
Cash Equivalents 5%
% of Total Portfolio Investments
- --------------------------------------------------------------------------------
Description Shares Value (000)
- --------------------------------------------------------------------------------
Common Stocks -- 94.7%
Chemicals -- 1.9%
MacDermid 90,000 $ 3,622
---------
Communications Equipment -- 1.4%
American Tower, Class A* 115,000 2,587
---------
Computer Equipment & Services -- 16.2%
Brocade Communications
Systems* 500 32
Computer Network
Technology* 100,000 2,525
Cree Research* 52,500 2,891
Cypress Semiconductor* 175,000 1,947
Data General* 150,000 1,969
Emulex* 200,000 15,750
New Era of Networks* 80,000 3,560
Rambus* 10,000 775
Semtech 15,000 627
---------
30,076
---------
Consumer Durables -- 8.6%
Cintas 80,000 5,080
Danaher 100,000 6,044
- --------------------------------------------------------------------------------
Description Shares Value (000)
- --------------------------------------------------------------------------------
Jakks Pacific* 115,000 $ 3,184
Miller Herman 80,000 1,615
---------
15,923
---------
Data Processing & Management -- 4.5%
Concord EFS* 125,000 4,234
TSI International Software* 184,000 4,071
---------
8,305
---------
Drugs -- 2.4%
Millennium Pharmaceutical* 70,000 2,651
PharmaPrint* 225,000 1,730
---------
4,381
---------
Environmental Services -- 1.7%
Rentokil Initial (UK) 800,000 3,242
---------
Financial Services -- 5.4%
Fifth Third Bancorp 50,000 3,409
Firstar 127,800 3,682
Litchfield Financial 178,500 2,901
---------
9,992
---------
Health Care -- 4.2%
Omnicare 133,400 3,193
Sabratek* 150,000 3,394
World Heart* 100,000 1,156
---------
7,743
---------
Leasing & Renting -- 0.8%
Comdisco 60,000 1,462
---------
Media -- 0.4%
Source Media* 50,000 825
---------
Medical Products & Services -- 8.1%
Biomet 75,000 2,995
Guidant 100,000 5,000
Medtronic 41,289 2,932
Renal Care Group* 150,000 4,162
---------
15,089
---------
80
<PAGE>
BOSTON 1784 FUNDS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Description Shares Value (000)
- --------------------------------------------------------------------------------
Miscellaneous Business Service -- 2.7%
VeriSign* 37,000 $ 4,385
WebTrends* 20,000 573
---------
4,958
---------
Restaurants -- 10.0%
Buca Inc* 2,000 35
J.D. Wetherspoon (UK) 2,500,000 12,528
P.F Changs China Bistro* 58,000 1,465
PizzaExpress (UK) 310,000 4,623
---------
18,651
---------
Retail -- 11.2%
Bebe Stores* 53,000 1,529
Bed Bath & Beyond* 200,000 6,838
Dollar Tree Stores* 75,000 2,522
Fastenal 80,000 4,100
GrandVision (FR) 100,000 2,722
Guitar Center* 200,000 3,050
---------
20,761
---------
Technology -- 12.4%
Legato Systems* 90,000 4,928
QLogic* 165,000 18,109
---------
23,037
---------
Telephones & Telecommunications -- 1.6%
RCN* 70,000 2,909
---------
Television Broadcasting -- 1.2%
Univision Communications,
Class A* 36,000 2,135
---------
Total Common Stocks
(Cost $120,157) 175,698
---------
- --------------------------------------------------------------------------------
Description Par (000) Value (000)
- --------------------------------------------------------------------------------
Repurchase Agreement -- 4.7%
Paine Webber, 4.80%, dated 05/28/99,
matures 6/1/99, repurchase
price $8,667,651 (collateralized
by U.S. Treasury Instruments:
total market value
$8,836,463) (A) $8,663 $ 8,663
---------
Total Repurchase Agreement
(Cost $8,663) 8,663
---------
Total Investments -- 99.4%
(Cost $128,820) 184,361
---------
Other Assets and Liabilities,
Net -- 0.6% 1,115
---------
Net Assets:
Capital Shares (unlimited
authorization -- no par value)
based on 15,377,172 outstanding
shares of beneficial interest 125,178
Accumulated net investment loss (8)
Accumulated net realized gain
on investments 4,765
Net unrealized appreciation
on investments 55,541
---------
Total Net Assets-- 100.0% $185,476
---------
---------
Net Asset Value, Offering and
Redemption Price Per Share $12.06
---------
---------
* Non-income producing security
(A) Tri-Party Repurchase Agreements
FR--French Equity
UK--United Kingdom Equity
The accompanying notes are an integral part of the financial statements.
81
<PAGE>
AS OF MAY 31, 1999
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
BOSTON 1784 INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
In the printed version of the document, a pie chart appears which depicts the
following plot points:
Australia 2%
Canada 4%
Cash Equivalents 5%
Finland 4%
France 15%
Germany 4%
Israel 1%
Japan 20%
Netherlands 5%
Other Europe 12%
Other Far East 4%
Other North & South America 5%
United Kingdom 19%
% of Total Portfolio Investments
- --------------------------------------------------------------------------------
Description Shares Value (000)
- --------------------------------------------------------------------------------
Foreign Common Stocks -- 91.0%
Australia -- 2.5%
Australia & New Zealand
Banking Group 565,000 $ 4,097
Broken Hill Proprietary 543,000 5,569
---------
9,666
---------
Brazil -- 0.5%
Aracruz Celulose ADR 100,000 1,925
---------
Canada -- 3.8%
George Weston Limited 63,000 2,598
Loblaw 113,000 2,973
Shaw Communications,
Series B 76,000 2,967
The Toronto Dominion Bank 122,000 6,444
---------
14,982
---------
Finland -- 3.4%
Nokia 159,948 11,380
UPM-Kymmene 71,000 2,081
---------
13,461
---------
- --------------------------------------------------------------------------------
Description Shares Value (000)
- --------------------------------------------------------------------------------
France -- 14.6%
Alstom* 138,000 $ 4,076
Axa 41,336 4,765
Banque National de Paris 52,000 4,383
Canal Plus 15,700 4,545
Cap Gemini 48,889 7,043
Carrefour 18,000 2,362
Elf Aquitane 19,000 2,751
Groupe Danone 15,700 4,324
Sanofi-Synthelabo 162,713 6,858
STMicroelectronics ADR 61,100 7,095
Total, Series B* 39,200 4,764
Vivendi 54,000 4,000
Vivendi Rights 54,000 56
---------
57,022
---------
Germany -- 2.5%
Mannesmann 72,700 9,935
---------
Hong Kong -- 1.6%
Cosco Pacific 3,200,000 1,888
HSBC Holdings 132,000 4,324
---------
6,212
---------
Ireland -- 2.7%
Bank of Ireland 198,629 3,678
CRH 213,972 3,655
Jefferson Smurfit Group 1,194,000 3,112
---------
10,445
---------
Israel -- 1.1%
Gilat Satellite Networks ADR* 78,000 4,114
---------
Italy -- 2.1%
Alleanza Assicurazioni 350,000 3,925
Mediaset 502,300 4,071
---------
7,996
---------
Japan -- 19.9%
Aeon Credit Service 29,700 2,318
Aiful 37,200 3,304
Chugai Pharmaceutical 215,000 2,412
Fujitsu 616,000 10,234
Funai Electric* 16,500 2,036
Kao 202,000 5,516
82
<PAGE>
BOSTON 1784 FUNDS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Description Shares Value (000)
- --------------------------------------------------------------------------------
Kokusai Securities 193,000 $ 2,156
Matsushita Communications 45,000 2,872
Matsushita Electric 230,000 4,143
Mycal Card 32,200 1,083
Nippon System Development 46,600 2,142
Nippon Telegraph &
Telephone 473 4,590
NTT Mobile Communication
Network 173 9,405
Ryohin Keikaku 16,000 3,131
Secom 32,000 3,027
Shin-Etsu Chemical 202,000 6,230
Softbank 65,300 7,465
Sony 33,000 3,083
Yahoo Japan* 12 2,448
---------
77,595
---------
Mexico -- 1.5%
Telefonos de Mexico ADR,
Series L 71,000 5,676
---------
Netherlands -- 4.6%
Ahold 137,000 4,781
Benckiser, Series B 126 6
Equant-NY Registered Shares* 32,600 2,704
Getronics 883 34
Heineken 75,400 4,192
KPN 50,000 2,415
Philips Electronics* 22,080 1,981
Randstad Holding 45,800 1,918
---------
18,031
---------
Norway -- 0.9%
Tomra Systems 91,122 3,428
---------
Poland -- 0.0%
Mostostal-Export 2,740 3
---------
Portugal -- 1.0%
Banco Comercial Portugues 141,372 3,849
---------
South Korea -- 1.1%
Housing & Commercial
Bank GDR 166,000 4,461
---------
- --------------------------------------------------------------------------------
Description Shares Value (000)
- --------------------------------------------------------------------------------
Spain -- 2.4%
Banco Santander Central
Hispano 140,325 $ 2,928
Centros Comerciales
Continente 114,000 2,777
Telefonica* 75,464 3,620
---------
9,325
---------
Sweden -- 1.9%
Ericsson, Series B 143,000 3,819
Nordbanken Holding 567,000 3,497
---------
7,316
---------
Switzerland -- 1.7%
Roche Holding-Genusscheine 365 3,862
UBS-Registered 10,200 2,952
---------
6,814
---------
Taiwan -- 0.8%
Taiwan Semiconductor ADR 117,000 3,064
---------
United Kingdom -- 18.9%
Abbey National 95,000 1,956
Airtours 398,000 3,273
Allied Zurich 499,000 6,370
Bank of Scotland 311,300 4,338
Barclays 145,044 4,333
BOC Group 125,000 2,141
BP Amoco 254,000 4,546
British Telecommunications 458,878 7,660
CGU 271,000 3,963
COLT Telecom Group* 110,000 2,325
Glaxo Wellcome 276,276 7,762
Hanson 600,000 5,441
Lloyds TSB Group 2,478 33
Prudential 347,000 4,582
Shell Transportation &
Trading 1,047,000 7,585
Smithkline Beecham 1,871 24
Vodafone Group 380,784 7,260
---------
73,592
---------
83
<PAGE>
AS OF MAY 31, 1999
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
BOSTON 1784 INTERNATIONAL EQUITY FUND (concluded)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Description Shares/Par (000) Value (000)
- --------------------------------------------------------------------------------
United States -- 1.5%
Global TeleSystems Group* 77,200 $ 5,867
---------
Total Foreign Common Stocks
(Cost $302,795) 354,779
---------
Foreign Preferred Stocks -- 1.9%
Brazil -- 0.9%
Telebras ADR 41,000 3,423
---------
Germany -- 1.0%
Porsche 1,720 3,921
---------
Total Foreign Preferred Stocks
(Cost $8,191) 7,344
---------
Repurchase Agreements -- 5.1%
J.P. Morgan,
4.81%, dated 05/28/99, matures
06/01/99, repurchase price
$2,167,446 (collateralized by
U.S. Treasury Instruments: total
market value $2,209,616) (A) $ 2,166 2,166
Paine Webber,
4.80%, dated 05/28/99, matures
06/01/99, repurchase price
$17,886,048 (collateralized by
U.S. Treasury Instruments: total
market value $18,234,398) (A) 17,876 17,876
---------
Total Repurchase Agreements
(Cost $20,042) 20,042
---------
Total Investments -- 98.0%
(Cost $331,028) 382,165
---------
Other Assets and Liabilities,
Net -- 2.0% 7,588
---------
- --------------------------------------------------------------------------------
Description Value (000)
- --------------------------------------------------------------------------------
Net Assets:
Capital Shares (unlimited
authorization -- no par value)
based on 30,162,839 outstanding
shares of beneficial interest $ 307,757
Distributions in excess of net
investment income (3,103)
Accumulated net realized gain
on investments 34,025
Net unrealized appreciation
on investments 51,137
Net unrealized depreciation on
forward foreign currency contracts,
foreign currency and translation
of other assets and liabilities
in foreign currency (63)
---------
Total Net Assets -- 100.0% $ 389,753
=========
Net Asset Value, Offering and
Redemption Price Per Share $12.92
=========
* Non-income producing security
(A) Tri-Party Repurchase Agreement
ADR--American Depository Receipt
GDR--Global Depository Receipt
The accompanying notes are an integral part of
the financial statements.
84
<PAGE>
BOSTON 1784 FUNDS
AS OF MAY 31, 1999
STATEMENTS OF ASSETS AND LIABILITIES (000)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Boston 1784 Short-Term Boston 1784 Tax-Exempt
Income Fund Medium-Term Income Fund
----------------------- -----------------------
ASSETS:
<S> <C> <C>
Investments at value (cost $164,492 and
$347,060, respectively) $163,978 $353,727
Income Receivable 1,847 5,739
Investment Securities Sold 10,099 17,089
Capital Shares Sold 853 579
Other Assets 339 477
-------- --------
Total Assets 177,116 377,611
-------- --------
LIABILITIES:
Income Payable 787 1,274
Investment Securities Purchased -- 18,586
Capital Shares Redeemed 62 20
Accrued Expenses Payable 122 272
Other Liabilities 113 464
-------- --------
Total Liabilities 1,084 20,616
-------- --------
Total Net Assets 176,032 356,995
======== ========
NET ASSETS:
Capital Shares (unlimited authorization --
no par value) based on 17,564,887 and 34,562,022
outstanding shares of beneficial interest, respectively 188,380 346,550
Undistributed (Distributions in excess of) net
investment income 15 (3)
Accumulated net realized gain (loss) on investments (11,847) 3,781
Net unrealized appreciation (depreciation) on
investments (516) 6,667
-------- --------
Total Net Assets $176,032 $356,995
======== ========
Net Asset Value, Offering, and Redemption Price Per Share $ 10.02 $ 10.33
======== ========
</TABLE>
The accompanying notes are an integral part of
the financial statements.
85
<PAGE>
STATEMENTS OF OPERATIONS (000)
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED MAY 31, 1999
<TABLE>
<CAPTION>
BOSTON 1784 FUNDS
- --------------------------------------------------------------------------------
Boston Boston
Boston Boston 1784 Boston 1784
1784 1784 Prime 1784 Boston U.S. Government
Tax-Free U.S. Treasury Money Short-Term 1784 Medium-Term
Money Market Money Market Market Income Income Income
Fund Fund Fund Fund Fund Fund
===========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
INCOME:
Interest Income $36,785 $19,798 $ 8,398 $11,025 $ 23,016 $16,429
Dividend Income -- -- -- -- -- --
Less: Foreign Taxes Withheld -- -- -- -- -- --
------- ------- ------- ------- -------- -------
Total Income 36,785 19,798 8,398 11,025 23,016 16,429
------- ------- ------- ------- -------- -------
EXPENSES:
Investment Advisory Fees 4,228 1,553 633 929 2,760 2,010
Less: Waiver of Investment
Advisory Fees -- (256) (124) -- (224) (181)
Administrator Fees 705 259 106 124 249 181
Shareholder Servicing Fees -- 388 158 -- -- --
12b-1 Fees -- -- -- 464 932 679
Less: Waiver of 12b-1 Fees -- -- -- (464) (932) (679)
Transfer Agent Fees & Expenses 127 386 188 62 64 54
Registration Fees 36 17 12 8 15 21
Trustee Fees 30 11 4 5 11 8
Printing 78 29 12 13 26 20
Amortization of Deferred
Organizational Costs -- -- -- -- -- --
Professional Fees 96 36 14 17 34 25
Custodian Fees 57 34 25 15 26 20
Other Expenses 70 67 -- 8 23 14
------- ------- ------- ------- -------- -------
Total Expenses,
Net of Waivers 5,427 2,524 1,028 1,181 2,984 2,172
------- ------- ------- ------- -------- -------
Net Investment Income (Loss) 31,358 17,274 7,370 9,844 20,032 14,257
------- ------- ------- ------- -------- -------
Net Realized Gain
on Investments 24 6 -- 605 4,091 434
Net Realized Loss from
Forward Foreign
Currency Contracts
and Foreign
Currency Transactions -- -- -- -- -- --
Net Change in Unrealized
Depreciation on Investments -- -- -- (1,760) (12,468) (4,968)
Net Change in Unrealized
Depreciation on Forward Foreign
Currency Contracts, Foreign
Currencies and Translation
of Other Assets and
Liabilities in
Foreign Currency -- -- -- -- -- --
------- ------- ------- ------- -------- -------
Net Realized and Unrealized
Gain (Loss) on
Investments and
Foreign Currency 24 6 -- (1,155) (8,377) (4,534)
------- ------- ------- ------- -------- -------
Net Increase (Decrease) in
Net Assets Resulting
From Operations $31,382 $17,280 $ 7,370 $ 8,689 $ 11,655 $ 9,723
======= ======= ======= ======= ======== =======
</TABLE>
86
<PAGE>
BOSTON 1784 FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Boston Boston Boston Boston Boston
1784 1784 1784 1784 1784 Boston
Tax-Exempt Connecticut Florida Massachusetts Rhode Island 1784
Medium-Term Tax-Exempt Tax-Exempt Tax-Exempt Tax-Exempt Asset
Income Income Income Income Income Allocation
Fund Fund Fund Fund Fund Fund
==========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
INCOME:
Interest Income $16,722 $ 8,765 $ 2,974 $11,987 $4,622 $1,588
Dividend Income -- -- -- -- -- 235
Less: Foreign Taxes Withheld -- -- -- -- -- --
------- ------- ------- ------- ------- ------
Total Income 16,722 8,765 2,974 11,987 4,622 1,823
------- ------- ------- ------- ------- ------
EXPENSES:
Investment Advisory Fees 2,424 1,255 435 1,733 654 382
Less: Waiver of Investment
Advisory Fees (183) (116) (55) (159) (71) --
Administrator Fees 218 113 39 156 59 34
Shareholder Servicing Fees -- -- -- -- -- --
12b-1 Fees 819 424 147 585 221 129
Less: Waiver of 12b-1 Fees (819) (424) (147) (585) (221) (129)
Transfer Agent Fees & Expenses 48 32 19 52 21 49
Registration Fees 22 15 5 19 8 2
Trustee Fees 9 5 2 7 2 1
Printing 25 13 4 18 7 4
Amortization of Deferred
Organizational Costs -- -- 10 -- -- --
Professional Fees 31 16 5 22 8 5
Custodian Fees 23 13 6 17 9 19
Other Expenses 4 11 -- 9 10 1
------- ------- ------- ------- ------- ------
Total Expenses,
Net of Waivers 2,621 1,357 470 1,874 707 497
------- ------- ------- ------- ------- ------
Net Investment Income (Loss) 14,101 7,408 2,504 10,113 3,915 1,326
------- ------- ------- ------- ------- ------
Net Realized Gain
on Investments 6,046 1,143 331 1,109 721 1,850
Net Realized Loss from
Forward Foreign
Currency Contracts
and Foreign
Currency Transactions -- -- -- -- -- --
Net Change in Unrealized
Depreciation on Investments (7,281) (2,686) (821) (2,392) (1,395) (262)
Net Change in Unrealized
Depreciation on Forward Foreign
Currency Contracts, Foreign
Currencies and Translation
of Other Assets and
Liabilities in
Foreign Currency -- -- -- -- -- --
------- ------- ------- ------- ------- ------
Net Realized and Unrealized
Gain (Loss) on
Investments and
Foreign Currency (1,235) (1,543) (490) (1,283) (674) 1,588
------- ------- ------- ------- ------- ------
Net Increase (Decrease) in
Net Assets Resulting
From Operations $12,866 $ 5,865 $ 2,014 $ 8,830 $3,241 $2,914
======= ======= ======= ======= ======= ======
<CAPTION>
Boston Boston
1784 Boston 1784
Growth and 1784 International
Income Growth Equity
Fund Fund Fund
==================================================================================
<S> <C> <C> <C>
INCOME:
Interest Income $ 1,804 $ 518 $ 5,207
Dividend Income 3,929 580 697
Less: Foreign Taxes Withheld (100) (44) (451)
------- ------- --------
Total Income 5,633 1,054 5,453
------- ------- --------
EXPENSES:
Investment Advisory Fees 4,117 1,455 4,358
Less: Waiver of Investment
Advisory Fees -- -- --
Administrator Fees 371 131 291
Shareholder Servicing Fees -- -- --
12b-1 Fees 1,391 492 1,090
Less: Waiver of 12b-1 Fees (1,391) (492) (1,090)
Transfer Agent Fees & Expenses 218 100 75
Registration Fees 21 9 19
Trustee Fees 16 6 13
Printing 41 13 31
Amortization of Deferred
Organizational Costs -- 9 --
Professional Fees 51 18 39
Custodian Fees 90 46 358
Other Expenses 36 39 29
------- ------- --------
Total Expenses,
Net of Waivers 4,961 1,826 5,213
------- ------- --------
Net Investment Income (Loss) 672 (772) 240
------- ------- --------
Net Realized Gain
on Investments 52,160 4,766 35,279
Net Realized Loss from
Forward Foreign
Currency Contracts
and Foreign
Currency Transactions (25) (2) (1,927)
Net Change in Unrealized
Depreciation on Investments (28,015) (15,346) (50,485)
Net Change in Unrealized
Depreciation on Forward Foreign
Currency Contracts, Foreign
Currencies and Translation
of Other Assets and
Liabilities in
Foreign Currency -- -- (2,062)
------- -------- --------
Net Realized and Unrealized
Gain (Loss) on
Investments and
Foreign Currency 24,120 (10,582) (19,195)
------- -------- --------
Net Increase (Decrease) in
Net Assets Resulting
From Operations $24,792 $(11,354) $(18,955)
======= ======== ========
</TABLE>
The accompanying notes are an integral part of
the financial statements.
87
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS (000)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Boston Boston Boston Boston
1784 1784 1784 1784
Tax-Free U.S. Treasury Prime Short-Term
Money Market Money Market Money Market Income
Fund Fund Fund Fund
====================================================================================================================================
6/1/98 6/1/97 6/1/98 6/1/97 6/1/98 6/1/97 6/1/98 6/1/97
to to to to to to to to
5/31/99 5/31/98 5/31/99 5/31/98 5/31/99 5/31/98 5/31/99 5/31/98
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT ACTIVITIES:
Net Investment Income $ 31,358 $ 31,912 $ 17,274 $ 18,222 $ 7,370 $ 6,157 $ 9,844 $ 10,879
Net Realized Gain (Loss) on Investments 24 (11) 6 3 -- (1) 605 837
Net Change in Unrealized Appreciation/
(Depreciation) on Investments -- -- -- -- -- -- (1,760) 1,278
--------- ---------- -------- -------- -------- -------- -------- --------
Net Increase in Net Assets Resulting
from Operations 31,382 31,901 17,280 18,225 7,370 6,156 8,689 12,994
--------- ---------- -------- -------- -------- -------- -------- --------
DISTRIBUTIONS TO
SHAREHOLDERS:
Net Investment Income (31,358) (31,912) (17,274) (18,208) (7,370) (6,157) (9,843) (10,880)
Realized Capital Gains -- -- -- (14) -- -- -- --
--------- ---------- -------- -------- -------- -------- -------- --------
Total Distributions (31,358) (31,912) (17,274) (18,222) (7,370) (6,157) (9,843) (10,880)
--------- ---------- -------- -------- -------- -------- -------- --------
SHARE TRANSACTIONS:
Value from Shares Issued in Connection with
Acquisition of Common Trust Fund Assets -- -- -- -- -- -- -- --
Proceeds from Shares Issued 1,562,128 1,710,272 911,957 731,609 309,603 334,675 42,172 47,498
Reinvestment of Cash Distributions 4,871 5,475 16,728 17,633 6,288 3,939 6,066 6,500
Cost of Shares Redeemed (1,605,367)(1,553,624) (910,573) (766,882) (278,301) (334,124) (68,308) (52,889)
--------- ---------- -------- -------- -------- -------- -------- --------
Increase (Decrease) in Net Assets from
Share Transactions (38,368) 162,123 18,112 (17,640) 37,590 4,490 (20,070) 1,109
--------- ---------- -------- -------- -------- -------- -------- --------
Total Increase (Decrease) in Net Assets (38,344) 162,112 18,118 (17,637) 37,590 4,489 (21,224) 3,223
NET ASSETS:
Beginning of Period 1,007,724 845,612 372,657 390,294 127,588 123,099 197,256 194,033
--------- ---------- -------- -------- -------- -------- -------- --------
NET ASSETS:
End of Period $ 969,380 $1,007,724 $390,775 $372,657 $165,178 $127,588 $176,032 $197,256
========= ========== ======== ======== ======== ======== ======== ========
CAPITAL SHARE TRANSACTIONS:
Shares Issued in Connection with
Acquisition of
Common Trust Fund Assets -- -- -- -- -- -- -- --
Shares Issued 1,562,128 1,710,272 911,957 731,609 309,603 334,675 4,164 4,714
Shares Issued in Lieu of
Cash Distributions 4,871 5,475 16,728 17,631 6,288 3,939 599 645
Shares Redeemed (1,605,367)(1,553,624) (910,573) (766,882) (278,301) (334,124) (6,746) (5,251)
--------- ---------- -------- -------- -------- -------- -------- --------
Net Increase (Decrease) in
Capital Shares (38,368) 162,123 18,112 (17,642) 37,590 4,490 (1,983) 108
========= ========== ======== ======== ======== ======== ======== ========
</TABLE>
(1) Boston 1784 Florida Tax-Exempt Income Fund commenced operations on
June 30, 1997.
88
<PAGE>
BOSTON 1784 FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Boston Boston Boston
1784 1784 1784
Boston U.S. Government Tax-Exempt Connecticut
1784 Medium-Term Medium-Term Tax-Exempt
Income Income Income Income
Fund Fund Fund Fund
================================================================================================================================
6/1/98 6/1/97 6/1/98 6/1/97 6/1/98 6/1/97 6/1/98 6/1/97
to to to to to to to to
5/31/99 5/31/98 5/31/99 5/31/98 5/31/99 5/31/98 5/31/99 5/31/98
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT ACTIVITIES:
Net Investment Income $20,032 $21,734 $14,257 $13,560 $14,101 $12,959 $ 7,408 $ 5,476
Net Realized Gain (Loss) on Investments 4,091 3,216 434 643 6,046 4,330 1,143 905
Net Change in Unrealized Appreciation/
(Depreciation) on Investments (12,468) 5,632 (4,968) 4,799 (7,281) 7,040 (2,686) 3,929
-------- -------- -------- -------- -------- -------- -------- --------
Net Increase in Net Assets Resulting
from Operations 11,655 30,582 9,723 19,002 12,866 24,329 5,865 10,310
-------- -------- -------- -------- -------- -------- -------- --------
DISTRIBUTIONS TO
SHAREHOLDERS:
Net Investment Income (20,031) (21,861) (14,256) (13,561) (14,101) (12,959) (7,408) (5,476)
Realized Capital Gains (2,223) -- -- -- (5,447) (2,598) (1,010) (193)
-------- -------- -------- -------- -------- -------- -------- --------
Total Distributions (22,254) (21,861) (14,256) (13,561) (19,548) (15,557) (8,418) (5,669)
-------- -------- -------- -------- -------- -------- -------- --------
SHARE TRANSACTIONS:
Value from Shares Issued in Connection with
Acquisition of Common Trust Fund Assets -- -- -- -- -- -- -- --
Proceeds from Shares Issued 69,930 97,384 71,574 66,378 88,484 69,083 68,008 48,673
Reinvestment of Cash Distributions 5,831 4,251 1,267 1,330 5,924 2,973 2,159 1,144
Cost of Shares Redeemed (114,522) (52,578) (44,246) (29,571) (34,309) (27,776) (21,996) (15,455)
-------- -------- -------- -------- -------- -------- -------- --------
Increase (Decrease) in Net Assets from
Share Transactions (38,761) 49,057 28,595 38,137 60,099 44,280 48,171 34,362
-------- -------- -------- -------- -------- -------- -------- --------
Total Increase (Decrease) in Net Assets (49,360) 57,778 24,062 43,578 53,417 53,052 45,618 39,003
NET ASSETS:
Beginning of Period 392,556 334,778 252,719 209,141 303,578 250,526 142,107 103,104
-------- -------- -------- -------- -------- -------- -------- --------
NET ASSETS:
End of Period $343,196 $392,556 $276,781 $252,719 $356,995 $303,578 $187,725 $142,107
======== ======== ======== ======== ======== ======== ======== ========
CAPITAL SHARE TRANSACTIONS:
Shares Issued in Connection with
Acquisition of
Common Trust Fund Assets -- -- -- -- -- -- -- --
Shares Issued 6,813 9,526 7,383 6,957 8,401 6,620 6,267 4,557
Shares Issued in Lieu of
Cash Distributions 565 415 130 139 563 287 198 107
Shares Redeemed (11,138) (5,145) (4,567) (3,093) (3,252) (2,663) (2,025) (1,449)
-------- -------- -------- -------- -------- -------- -------- --------
Net Increase (Decrease) in
Capital Shares (3,760) 4,796 2,946 4,003 5,712 4,244 4,440 3,215
======== ======== ======== ======== ======== ======== ======== ========
<CAPTION>
Boston Boston
1784 1784
Florida Massachusetts
Tax-Exempt Tax-Exempt
Income Income
Fund Fund
=========================================================================================
6/1/98 6/30/97 6/1/98 6/1/97
to to to to
5/31/99 5/31/98(1) 5/31/99 5/31/98
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITIES:
Net Investment Income $ 2,504 $ 2,029 $ 10,113 $ 8,072
Net Realized Gain (Loss) on Investments 331 510 1,109 159
Net Change in Unrealized Appreciation/
(Depreciation) on Investments (821) 924 (2,392) 6,487
------- ------- -------- --------
Net Increase in Net Assets Resulting
from Operations 2,014 3,463 8,830 14,718
------- ------- -------- --------
DISTRIBUTIONS TO
SHAREHOLDERS:
Net Investment Income (2,504) (2,029) (10,113) (8,072)
Realized Capital Gains (755) (86) -- --
------- ------- -------- --------
Total Distributions (3,259) (2,115) (10,113) (8,072)
------- ------- -------- --------
SHARE TRANSACTIONS:
Value from Shares Issued in Connection with
Acquisition of Common Trust Fund Assets -- 41,223 -- --
Proceeds from Shares Issued 22,210 12,935 98,037 82,919
Reinvestment of Cash Distributions 767 91 3,049 2,261
Cost of Shares Redeemed (4,729) (3,804) (38,069) (33,148)
------- ------- -------- --------
Increase (Decrease) in Net Assets from
Share Transactions 18,248 50,445 63,017 52,032
------- ------- -------- --------
Total Increase (Decrease) in Net Assets 17,003 51,793 61,734 58,678
NET ASSETS:
Beginning of Period 51,793 -- 206,137 147,459
------- ------- -------- --------
NET ASSETS:
End of Period $68,796 $51,793 $267,871 $206,137
======= ======= ======== ========
CAPITAL SHARE TRANSACTIONS:
Shares Issued in Connection with
Acquisition of
Common Trust Fund Assets -- 4,122 -- --
Shares Issued 2,151 1,269 9,328 8,043
Shares Issued in Lieu of
Cash Distributions 74 9 291 219
Shares Redeemed (458) (372) (3,627) (3,213)
------- ------- -------- --------
Net Increase (Decrease) in
Capital Shares 1,767 5,028 5,992 5,049
======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of
the financial statements.
89
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS (000)
- ---------------------------------------------------------------------------------------------------------------------
Boston
1784 Boston Boston
Rhode Island 1784 1784
Tax-Exempt Asset Growth and
Income Allocation Income
Fund Fund Fund
=======================================================================
6/1/98 6/1/97 6/1/98 6/1/97 6/1/98 6/1/97
to to to to to to
5/31/99 5/31/98 5/31/99 5/31/98 5/31/99 5/31/98
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT ACTIVITIES:
Net Investment Income (Loss) $ 3,915 $ 2,992 $ 1,326 $ 1,143 $ 672 $ 1,853
Net Realized Gain on Investments 721 133 1,850 2,239 52,160 3,027
Net Realized Loss from Forward
Foreign Currency Contracts and Foreign
Currency Transactions -- -- -- -- (25) --
Net Change in Unrealized Appreciation
(Depreciation) on Investments (1,395) 1,822 (262) 4,325 (28,015) 116,058
Net Change in Unrealized Appreciation
(Depreciation) on Foreign Forward
Currency Contracts, Foreign Currencies
and Translation of Other Assets and
Liabilities in Foreign Currency -- -- -- -- -- --
-------- ------- ------- ------- -------- --------
Net Increase (Decrease) in Net Assets
Resulting from Operations 3,241 4,947 2,914 7,707 24,792 120,938
-------- ------- ------- ------- -------- --------
DISTRIBUTIONS TO
SHAREHOLDERS:
Net Investment Income (3,915) (2,992) (1,328) (1,113) (884) (2,391)
Realized Capital Gains (663) (230) (2,229) (1,519) (12,700) (9,315)
-------- ------- ------- ------- -------- --------
Total Distributions (4,578) (3,222) (3,557) (2,632) (13,584) (11,706)
-------- ------- ------- ------- -------- --------
SHARE TRANSACTIONS:
Proceeds from Shares Issued 38,895 26,731 13,741 18,164 228,857 174,666
Reinvestment of Cash Distributions 1,283 686 3,400 2,550 12,381 9,909
Cost of Shares Redeemed (13,565) (6,097) (13,410) (11,028) (257,027) (197,762)
-------- ------- ------- ------- -------- --------
Increase (Decrease) in Net Assets from
Share Transactions 26,613 21,320 3,731 9,686 (15,789) (13,187)
-------- ------- ------- ------- -------- --------
Total Increase (Decrease) in Net Assets 25,276 23,045 3,088 14,761 (4,581) 96,045
NETASSETS:
Beginning of Period 76,797 53,752 50,283 35,522 553,997 457,952
-------- ------- ------- ------- -------- --------
NETASSETS:
End of Period $102,073 $76,797 $53,371 $50,283 $549,416 $553,997
======== ======= ======= ======= ======== ========
CAPITALSHARE TRANSACTIONS:
Shares Issued 3,644 2,532 913 1,246 10,493 8,883
Shares Issued in Lieu of Cash Distributions 120 65 231 178 574 516
Shares Redeemed (1,272) (578) (894) (759) (11,791) (10,004)
-------- ------- ------- ------- -------- --------
Net Increase (Decrease) in Capital Shares 2,492 2,019 250 665 (724) (605)
======== ======= ======= ======= ======== ========
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS (000)
- ---------------------------------------------------------------------------------------------
Boston
Boston 1784
1784 International
Growth Equity
Fund Fund
===============================================
6/1/98 6/1/97 6/1/98 6/1/97
to to to to
5/31/99 5/31/98 5/31/99 5/31/98
-----------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITIES:
Net Investment Income (Loss) $ (772) $ (986) $ 240 $ 172
Net Realized Gain on Investments 4,766 10,066 35,279 2,006
Net Realized Loss from Forward
Foreign Currency Contracts and Foreign
Currency Transactions (2) -- (1,927) (1,046)
Net Change in Unrealized Appreciation
(Depreciation) on Investments (15,346) 23,681 (50,485) 21,711
Net Change in Unrealized Appreciation
(Depreciation) on Foreign Forward
Currency Contracts, Foreign Currencies
and Translation of Other Assets and
Liabilities in Foreign Currency -- -- (2,062) 1,965
-------- -------- -------- --------
Net Increase (Decrease) in Net Assets
Resulting from Operations (11,354) 32,761 (18,955) 24,808
-------- -------- -------- --------
DISTRIBUTIONS TO
SHAREHOLDERS:
Net Investment Income -- -- (997) (5,351)
Realized Capital Gains (6,328) (17,945) (2,548) (5,264)
-------- -------- -------- --------
Total Distributions (6,328) (17,945) (3,545) (10,615)
-------- -------- -------- --------
SHARE TRANSACTIONS:
Proceeds from Shares Issued 181,224 147,413 403,221 188,204
Reinvestment of Cash Distributions 4,590 14,178 1,744 4,260
Cost of Shares Redeemed (240,206) (180,344) (462,531) (239,886)
-------- -------- -------- --------
Increase (Decrease) in Net Assets from
Share Transactions (54,392) (18,753) (57,566) (47,422)
-------- -------- -------- --------
Total Increase (Decrease) in Net Assets (72,074) (3,937) (80,066) (33,229)
NETASSETS:
Beginning of Period 257,550 261,487 469,819 503,048
-------- -------- -------- --------
NETASSETS:
End of Period $185,476 $257,550 $389,753 $469,819
======== ======== ======== ========
CAPITALSHARE TRANSACTIONS:
Shares Issued 16,196 11,199 31,211 14,285
Shares Issued in Lieu of Cash Distributions 417 1,107 137 351
Shares Redeemed (21,152) (13,815) (35,496) (18,447)
-------- -------- -------- --------
Net Increase (Decrease) in Capital Shares (4,539) (1,509) (4,148) (3,811)
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
90
<PAGE>
<TABLE>
<CAPTION>
BOSTON 1784 FUNDS
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------------------------------------------------------------
BOSTON 1784 Money Market Funds
For a Share Outstanding Throughout Each Period
- ------------------------------------------------------------------------------------------------------------------------------------
Dis- Ratio of
tribu- Net Ratio Ratio Net
Net tions Net Asset of of Net Ratio Investment
Asset from Asset Value Expenses Investment of Expenses Income
Value Net Net Value End to Income to Average to Average
Beginning Invest- Invest- End of Average to Net Assets Net Assets
of ment ment of Total Period Net Average (Excluding (Excluding
Period Income Income Period Return (000) Assets Net Assets Waivers) Waivers)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Boston 1784 Tax-Free Money Market Fund
For the year ended
May 31, 1999 $1.00 0.03 (0.03) $1.00 3.01% $ 969,380 0.51% 2.97% 0.51% 2.97%
For the year ended
May 31, 1998 $1.00 0.03 (0.03) $1.00 3.33% $1,007,724 0.53% 3.28% 0.53% 3.28%
For the year ended
May 31, 1997 $1.00 0.03 (0.03) $1.00 3.22% $ 845,612 0.54% 3.17% 0.56% 3.15%
For the year ended
May 31, 1996 $1.00 0.03 (0.03) $1.00 3.55% $ 549,628 0.54% 3.49% 0.60% 3.43%
For the year ended
May 31, 1995 $1.00 0.03 (0.03) $1.00 3.29% $ 539,412 0.50% 3.28% 0.61% 3.17%
- ------------------------------------------------------------------------------------------------------------------------------------
Boston 1784 U.S. Treasury Money Market Fund
For the year ended
May 31, 1999 $1.00 0.04 (0.04) $1.00 4.55% $ 390,775 0.65% 4.45% 0.72% 4.38%
For the year ended
May 31, 1998 $1.00 0.05 (0.05) $1.00 5.02% $ 372,657 0.65% 4.91% 0.70% 4.86%
For the year ended
May 31, 1997 $1.00 0.05 (0.05) $1.00 4.86% $ 390,294 0.64% 4.76% 0.72% 4.68%
For the year ended
May 31, 1996 $1.00 0.05 (0.05) $1.00 5.16% $ 78,999 0.64% 5.02% 0.75% 4.91%
For the year ended
May 31, 1995 $1.00 0.05 (0.05) $1.00 4.81% $ 55,068 0.60% 5.13% 0.92% 4.81%
- ------------------------------------------------------------------------------------------------------------------------------------
Boston 1784 Prime Money Market Fund
For the year ended
May 31, 1999 $1.00 0.05 (0.05) $1.00 4.78% $ 165,178 0.65% 4.66% 0.73% 4.58%
For the year ended
May 31, 1998 $1.00 0.05 (0.05) $1.00 5.16% $ 127,588 0.65% 5.05% 0.70% 5.00%
For the period ended
May 31, 1997 (1) $1.00 0.02 (0.02) $1.00 2.07%* $ 123,099 0.65% 4.98% 0.75% 4.88%
For the year ended
December 31, 1996 $1.00 0.05 (0.05) $1.00 5.02% $ 93,229 0.66% 4.85% 0.66% 4.85%
For the year ended
December 31, 1995 $1.00 0.05 (0.05) $1.00 5.49% $ 156,532 0.62% 5.40% 0.62% 5.40%
For the year ended
December 31, 1994 $1.00 0.04 (0.04) $1.00 3.75% $ 136,923 0.65% 3.64% 0.69% 3.60%
- ------------------------------------------------------------------------------------------------------------------------------------
* Return is for the period indicated and has not been annualized.
(1) Boston 1784 Prime Money Market Fund changed its fiscal year end from December 31 to May 31. Reflects operations for the period
from January 1, 1997 to May 31, 1997.
The accompanying notes are an integral part of the financial statements.
91
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------------------------------------------------------------
BOSTON 1784 Bond Funds
For a Share Outstanding Throughout Each Period
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio Ratio
of of Ratio
Realized Dis- Net Expenses of
and tribu- Ratio Invest- to Net
Net Unrealized tions Dis- Net Net of ment Average Investment
Asset Gains from tribu- Asset Asset Expenses Income Net Income Port-
Value Net or Net tions Value End to to Assets to Average folio
Beginning Invest- (Losses) Invest- from End of Average Average (Ex- Net Assets Turn-
of ment on ment Capital of Total Period Net Net cluding (Excluding over
Period Income Investments Income Gains Period Return (000) Assets Assets Waivers) Waivers) Rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Boston 1784 Short-Term Income Fund
For the year ended
May 31, 1999 $10.09 0.54 (0.07) (0.54) -- $10.02 4.70% $176,032 0.64% 5.30% 0.89% 5.05% 36.57%
For the year ended
May 31, 1998 $ 9.98 0.57 0.11 (0.57) -- $10.09 6.98% $197,256 0.64% 5.67% 0.89% 5.42% 83.84%
For the year ended
May 31, 1997 $ 9.93 0.58 0.05 (0.58) -- $ 9.98 6.47% $194,033 0.65% 5.78% 0.93% 5.50% 128.11%
For the year ended
May 31, 1996 $10.09 0.60 (0.12) (0.60) (0.04) $ 9.93 4.87% $ 86,383 0.63% 5.87% 1.06% 5.44% 95.06%
For the period ended
May 31, 1995(1) $10.00 0.56 0.09 (0.56) -- $10.09 6.74%* $ 52,581 0.48% 6.31% 1.27% 5.52% 84.54%
- ------------------------------------------------------------------------------------------------------------------------------------
Boston 1784 Income Fund
For the year ended
May 31, 1999 $10.25 0.55 (0.26) (0.55) (0.06) $ 9.93 2.83% $343,196 0.80% 5.37% 1.11% 5.06% 64.34%
For the year ended
May 31, 1998 $ 9.99 0.61 0.26 (0.61) -- $10.25 8.88% $392,556 0.80% 5.91% 1.11% 5.60% 79.09%
For the year ended
May 31, 1997 $ 9.90 0.63 0.17 (0.63) (0.08) $ 9.99 8.32% $334,778 0.80% 6.31% 1.15% 5.96% 78.63%
For the year ended
May 31, 1996 $10.39 0.65 (0.37) (0.65) (0.12) $ 9.90 2.64% $235,022 0.80% 6.17% 1.20% 5.77% 100.51%
For the period ended
May 31, 1995(1) $10.00 0.62 0.39 (0.62) -- $10.39 10.69%* $196,515 0.55% 7.01% 1.23% 6.33% 80.53%
- ------------------------------------------------------------------------------------------------------------------------------------
Boston 1784 U.S. Government Medium-Term Income Fund
For the year ended
May 31, 1999 $ 9.60 0.51 (0.15) (0.51) -- $ 9.45 3.73% $276,781 0.80% 5.25% 1.12% 4.93% 47.85%
For the year ended
May 31, 1998 $ 9.37 0.55 0.23 (0.55) -- $ 9.60 8.56% $252,719 0.80% 5.80% 1.12% 5.48% 73.65%
For the year ended
May 31, 1997 $ 9.31 0.59 0.06 (0.59) -- $ 9.37 7.16% $209,141 0.79% 6.30% 1.16% 5.93% 98.22%
For the year ended
May 31, 1996 $ 9.57 0.61 (0.26) (0.61) -- $ 9.31 3.65% $167,494 0.80% 6.23% 1.24% 5.79% 158.66%
For the year ended
May 31, 1995 $ 9.36 0.58 0.21 (0.58) -- $ 9.57 8.79% $130,081 0.80% 6.24% 1.27% 5.77% 142.14%
- ------------------------------------------------------------------------------------------------------------------------------------
* Returns are for the period indicated and have not been annualized.
(1) Boston 1784 Short-Term Income Fund and Boston 1784 Income Fund commenced operations on July 1, 1994. All ratios for the period
have been annualized.
The accompanying notes are an integral part of the financial statements.
92
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BOSTON 1784 FUNDS
- ------------------------------------------------------------------------------------------------------------------------------------
BOSTON 1784 Tax-Exempt Income Funds (continued)
For a Share Outstanding Throughout Each Period
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio Ratio
of of Ratio
Realized Dis- Net Expenses of
and tribu- Ratio Invest- to Net
Net Unrealized tions Dis- Net Net of ment Average Investment
Asset Gains from tribu- Asset Asset Expenses Income Net Income Port-
Value Net or Net tions Value End to to Assets to Average folio
Beginning Invest- (Losses) Invest- from End of Average Average (Ex- Net Assets Turn-
of ment on ment Capital of Total Period Net Net cluding (Excluding over
Period Income Investments Income Gains Period Return (000) Assets Assets Waivers) Waivers) Rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Boston 1784 Tax-Exempt Medium-Term Income Fund
For the year ended
May 31, 1999 $10.52 0.45 (0.01) (0.45) (0.18) $10.33 4.24% $356,995 0.80% 4.31% 1.11% 4.00% 68.58%
For the year ended
May 31, 1998 $10.18 0.48 0.44 (0.48) (0.10) $10.52 9.24% $303,578 0.80% 4.62% 1.12% 4.30% 34.06%
For the year ended
May 31, 1997 $ 9.99 0.50 0.19 (0.50) -- $10.18 7.74% $250,526 0.80% 4.92% 1.17% 4.55% 33.24%
For the year ended
May 31, 1996 $10.14 0.51 (0.09) (0.51) (0.06) $ 9.99 4.31% $196,787 0.79% 4.90% 1.21% 4.48% 37.35%
For the year ended
May 31, 1995 $ 9.90 0.48 0.24 (0.48) -- $10.14 7.58% $176,345 0.80% 5.02% 1.26% 4.56% 74.74%
- -----------------------------------------------------------------------------------------------------------------------------------
Boston 1784 Connecticut Tax-Exempt Income Fund
For the year ended
May 31, 1999 $10.81 0.48 (0.08) (0.48) (0.06) $10.67 3.72% $187,725 0.80% 4.37% 1.12% 4.05% 19.10%
For the year ended
May 31, 1998 $10.38 0.50 0.45 (0.50) (0.02) $10.81 9.29% $142,107 0.80% 4.66% 1.14% 4.32% 16.81%
For the year ended
May 31, 1997 $10.17 0.51 0.21 (0.51) -- $10.38 7.26% $103,104 0.76% 4.94% 1.17% 4.53% 4.28%
For the year ended
May 31, 1996 $10.27 0.53 (0.10) (0.53) -- $10.17 4.20% $ 81,441 0.75% 5.02% 1.29% 4.48% 20.41%
For the period ended
May 31, 1995(1) $10.00 0.45 0.27 (0.45) -- $10.27 7.45%* $ 61,369 0.52% 5.44% 1.40% 4.56% 35.56%
- -----------------------------------------------------------------------------------------------------------------------------------
Boston 1784 Florida Tax-Exempt Income Fund
For the year ended
May 31, 1999 $10.30 0.44 (0.04) (0.44) (0.14) $10.12 3.88% $ 68,796 0.80% 4.25% 1.14% 3.91% 10.88%
For the period ended
May 31, 1998(2) $10.00 0.43 0.32 (0.43) (0.02) $10.30 7.63%* $ 51,793 0.80% 4.59% 1.19% 4.20% 21.35%
- -----------------------------------------------------------------------------------------------------------------------------------
* Returns are for the period indicated and have not been annualized.
(1) Boston 1784 Connecticut Tax-Exempt Income Fund commenced operations on August 1, 1994. All ratios for the period have been
annualized.
(2) Boston 1784 Florida Tax-Exempt Income Fund commenced operations on June 30, 1997. All ratios for the period have been
annualized.
The accompanying notes are an integral part of the financial statements.
93
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------------------------------------------------------------
BOSTON 1784 Tax-Exempt Income Funds
For a Share Outstanding Throughout Each Period
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio Ratio
of of Ratio
Realized Dis- Net Expenses of
and tribu- Ratio Invest- to Net
Net Unrealized tions Dis- Net Net of ment Average Investment
Asset Gains from tribu- Asset Asset Expenses Income Net Income Port-
Value Net or Net tions Value End to to Assets to Average folio
Beginning Invest- (Losses) Invest- from End of Average Average (Ex- Net Assets Turn-
of ment on ment Capital of Total Period Net Net cluding (Excluding over
Period Income Investments Income Gains Period Return (000) Assets Assets Waivers) Waivers) Rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Boston 1784 Massachusetts Tax-Exempt Income Fund
For the year ended
May 31, 1999 $10.42 0.45 (0.03) (0.45) -- $10.39 4.10% $267,871 0.80% 4.32% 1.12% 4.00% 9.32%
For the year ended
May 31, 1998 $10.01 0.47 0.41 (0.47) -- $10.42 8.91% $206,137 0.80% 4.54% 1.14% 4.20% 6.45%
For the year ended
May 31, 1997 $ 9.78 0.47 0.23 (0.47) -- $10.01 7.30% $147,459 0.79% 4.74% 1.18% 4.35% 9.47%
For the year ended
May 31, 1996 $ 9.90 0.48 (0.12) (0.48) -- $ 9.78 3.64% $106,619 0.80% 4.73% 1.28% 4.25% 47.00%
For the year ended
May 31, 1995 $ 9.81 0.47 0.09 (0.47) -- $ 9.90 6.00% $ 82,058 0.80% 4.93% 1.35% 4.38% 34.59%
- ------------------------------------------------------------------------------------------------------------------------------------
Boston 1784 Rhode Island Tax-Exempt Income Fund
For the year ended
May 31, 1999 $10.62 0.47 (0.04) (0.47) (0.08) $10.50 4.11% $102,073 0.80% 4.42% 1.13% 4.09% 12.44%
For the year ended
May 31, 1998 $10.31 0.49 0.35 (0.49) (0.04) $10.62 8.28% $ 76,797 0.80% 4.64% 1.16% 4.28% 13.79%
For the year ended
May 31, 1997 $10.06 0.50 0.25 (0.50) -- $10.31 7.61% $ 53,752 0.79% 4.88% 1.21% 4.46% 8.18%
For the year ended
May 31, 1996 $10.13 0.53 (0.07) (0.53) -- $10.06 4.65% $ 37,904 0.77% 5.16% 1.35% 4.58% 19.68%
For the period ended
May 31, 1995(1) $10.00 0.45 0.13 (0.45) -- $10.13 6.09%* $ 32,495 0.54% 5.56% 1.60% 4.50% 57.51%
- ------------------------------------------------------------------------------------------------------------------------------------
* Return is for the period indicated and has not been annualized.
(1) Boston 1784 Rhode Island Tax-Exempt Income Fund commenced operations on August 1, 1994. All ratios for the period have been
annualized.
The accompanying notes are an integral part of the financial statements.
94
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BOSTON 1784 FUNDS
- ------------------------------------------------------------------------------------------------------------------------------------
BOSTON 1784 Stock Funds (continued)
For a Share Outstanding Throughout Each Period
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio Ratio
of of Ratio
Dis- Net Expenses of
tribu- Ratio Invest- to Net
Net Realized tions Dis- Net Net of ment Average Investment
Asset and from tribu- Asset Asset Expenses Income Net Income Port-
Value Net Unrealized Net tions Value End to to Assets to Average folio
Beginning Invest- Gains Invest- from End of Average Average (Ex- Net Assets Turn-
of ment on ment Capital of Total Period Net Net cluding (Excluding over
Period Income Investments Income Gains Period Return (000) Assets Assets Waivers) Waivers) Rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Boston 1784 Asset Allocation Fund
For the year ended
May 31, 1999 $15.16 0.38 0.48 (0.39) (0.66) $14.97 5.92% $ 53,371 0.96% 2.57% 1.21% 2.32% 49.78%
For the year ended
May 31, 1998 $13.40 0.37 2.30 (0.38) (0.53) $15.16 20.51% $ 50,283 0.98% 2.66% 1.23% 2.41% 47.83%
For the year ended
May 31, 1997 $12.31 0.34 1.44 (0.33) (0.36) $13.40 14.89% $ 35,522 1.07% 2.87% 1.37% 2.57% 23.60%
For the year ended
May 31, 1996 $10.99 0.31 1.61 (0.31) (0.29) $12.31 17.83% $ 16,831 1.25% 2.86% 1.90% 2.21% 39.56%
For the year ended
May 31, 1995 $ 9.84 0.28 1.15 (0.27) (0.01) $10.99 14.84% $ 8,622 1.25% 2.88% 2.51% 1.62% 67.23%
- ------------------------------------------------------------------------------------------------------------------------------------
Boston 1784 Growth and Income Fund
For the year ended
May 31, 1999 $21.72 0.02 0.97 (0.04) (0.50) $22.17 4.65% $549,416 0.89% 0.12% 1.14% (0.13) %50.15%
For the year ended
May 31, 1998 $17.54 0.07 4.55 (0.09) (0.35) $21.72 26.71% $553,997 0.90% 0.36% 1.15% 0.11% 39.03%
For the year ended
May 31, 1997 $15.23 0.12 2.63 (0.11) (0.33) $17.54 18.33% $457,952 0.92% 0.77% 1.19% 0.50% 15.35%
For the year ended
May 31, 1996 $12.16 0.10 3.08 (0.11) (0.00) $15.23 26.32% $303,463 0.94% 0.78% 1.24% 0.48% 39.50%
For the year ended
May 31, 1995 $10.57 0.11 1.67 (0.10) (0.09) $12.16 17.09% $229,200 0.94% 1.05% 1.23% 0.76% 38.94%
- ------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
95
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------------------------------------------------------------
BOSTON 1784 Stock Funds (continued)
For a Share Outstanding Throughout Each Period
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio Ratio
of of Ratio
Realized Dis- Net Expenses of
and tribu- Ratio Invest- to Net
Net Unrealized tions Dis- Net Net of ment Average Investment
Asset Net Gains from tribu- Asset Asset Expenses Income Net Income Port-
Value Invest- or Net tions Value End to to Assets to Average folio
Beginning ment (Losses) Invest- from End of Average Average (Ex- Net Assets Turn-
of Income on ment Capital of Total Period Net Net cluding (Excluding over
Period (Loss) Investments Income Gains Period Return (000) Assets Assets Waivers) Waivers) Rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Boston 1784 Growth Fund
For the year ended
May 31, 1999 $12.93 (0.08) (0.41) -- (0.38) $12.06 (3.54)% $185,476 0.93% (0.39)% 1.18% (0.64)% 61.02%
For the year ended
May 31, 1998 $12.20 (0.05) 1.59 -- (0.81) $12.93 12.64% $257,550 0.91% (0.35)% 1.16% (0.60)% 48.60%
For the year ended
May 31, 1997 $11.27 0.02 0.96 (0.05) (0.00) $12.20 8.77% $261,487 0.77% 0.17% 1.15% (0.21)% 57.46%
For the period ended
May 31, 1996(1) $10.00 0.02 1.25 (0.00) (0.00) $11.27 12.70%* $ 46,026 0.20% 1.75% 1.73% 0.22% 0.00%
- -----------------------------------------------------------------------------------------------------------------------------------
Boston 1784 International Equity Fund
For the year ended
May 31, 1999 $13.69 -- (0.66) (0.03) (0.08) $12.92 (4.85)% $389,753 1.20% 0.06% 1.45% (0.19)% 115.83%
For the year ended
May 31, 1998 $13.20 (0.02) 0.80 (0.15) (0.14) $13.69 6.19% $469,819 1.24% 0.04% 1.49% (0.21)% 103.47%
For the year ended
May 31, 1997 $12.05 0.07 1.23 (0.09) (0.06) $13.20 10.93% $503,048 1.27% 0.41% 1.52% 0.16% 22.88%
For the year ended
May 31, 1996 $10.41 0.11 1.85 (0.27) (0.05) $12.05 19.08% $362,460 1.13% 0.76% 1.61% 0.28% 15.55%
For the period ended
May 31, 1995(2) $10.00 0.06 0.35 (0.00) (0.00) $10.41 4.73%* $148,439 0.89% 2.06% 1.70% 1.25% 11.03%
- ------------------------------------------------------------------------------------------------------------------------------------
* Returns are for the period indicated and have not been annualized.
(1) Boston 1784 Growth Fund commenced operations on March 28, 1996. All ratios for the period have been annualized.
(2) Boston 1784 International Equity Fund commenced operations on January 3, 1995. All ratios for the period have been annualized.
The accompanying notes are an integral part of the financial statements.
96
</TABLE>
<PAGE>
BOSTON 1784 FUNDS
MAY 31, 1999
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. Organization
Boston 1784 Tax-Free Money Market, Boston 1784 U.S. Treasury Money Market,
Boston 1784 Prime Money Market (the "Money Market Funds"), Boston 1784
Short-Term Income, Boston 1784 Income, Boston 1784 U.S. Government Medium-Term
Income (the "Bond Funds"), Boston 1784 Tax-Exempt Medium-Term Income, Boston
1784 Connecticut Tax-Exempt Income, Boston 1784 Florida Tax-Exempt Income,
Boston 1784 Massachusetts Tax-Exempt Income, Boston 1784 Rhode Island Tax-Exempt
Income (the "Tax-Exempt Income Funds"), Boston 1784 Asset Allocation, Boston
1784 Growth and Income, Boston 1784 Growth and Boston 1784 International Equity
Funds (the "Stock Funds") are portfolios offered by Boston 1784 Funds (the
"Trust"), an open-end investment company registered under the Investment Company
Act of 1940, as amended. The Trust is offering shares in 17 separate portfolios
(the "Funds") as of May 31, 1999:
MONEY MARKET FUNDS:
Boston 1784 Tax-Free Money Market Fund
Boston 1784 U.S. Treasury Money Market Fund
Boston 1784 Institutional U.S. Treasury
Money Market Fund
Boston 1784 Prime Money Market Fund
Boston 1784 Institutional Prime Money Market Fund
BOND FUNDS:
Boston 1784 Short-Term Income Fund
Boston 1784 Income Fund
Boston 1784 U.S. Government Medium-Term
Income Fund
TAX-EXEMPT INCOME FUNDS:
Boston 1784 Tax-Exempt Medium-Term Income Fund
Boston 1784 Connecticut Tax-Exempt Income Fund
Boston 1784 Florida Tax-Exempt Income Fund
Boston 1784 Massachusetts Tax-Exempt Income Fund
Boston 1784 Rhode Island Tax-Exempt Income Fund
STOCK FUNDS:
Boston 1784 Asset Allocation Fund
Boston 1784 Growth and Income Fund
Boston 1784 Growth Fund
Boston 1784 International Equity Fund
The Funds' prospectuses provide a description of each Fund's investment
objectives, policies and strategies. The financial statements of Boston 1784
Institutional U.S. Treasury Money Market Fund and Boston 1784 Institutional
Prime Money Market Fund are not presented herein but are presented separately.
The assets of each Fund are segregated, and a shareholder's interest is limited
to the Fund in which shares are held. The financial statements have been
prepared in accordance with generally accepted accounting principles which
require the use of management's estimates. Actual results could differ from
these estimates.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the
Funds.
Security Valuation --
In valuing each of the Stock, Bond and Tax-Exempt Income Fund's assets, bonds
and other fixed income securities are valued on the basis of valuations
furnished by a pricing service, use of which has been approved by
97
<PAGE>
MAY 31, 1999
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
the Board of Trustees of the Trust. In making such valuations, the pricing
services may employ methodologies that utilize actual market transactions,
broker-dealer supplied valuations or other electronic data processing
techniques.
Equity securities listed on a domestic securities exchange for which
quotations are readily available, including securities traded over the counter,
are valued by a pricing service at the last quoted sale price on the principal
exchange on which they are traded on valuation date, or, if there is no such
reported sale on the valuation date, at the most recent quoted bid price.
Equity securities which are primarily traded on a foreign exchange are
generally valued by a pricing service at the preceding closing value on the
exchange.
Securities for which market quotations are not readily available are valued
at their fair value as determined in good faith by the Board of Trustees of the
Trust, or pursuant to procedures adopted by the Board subject to review by the
Board of the resulting valuations.
Investment securities of the Money Market Funds are stated at amortized
cost, which approximates market value. Under this valuation method, purchase
discounts and premiums are accreted and amortized ratably to maturity and are
included in interest income.
Foreign Currency Transactions --
The books and records of the Funds are maintained in U.S. dollars. Foreign
currency amounts are translated into U.S. dollars on the following basis:
I. Market value of investment securities, assets and liabilities at the
current rate of exchange; and
II. Purchases and sales of investment securities, income and expenses at
the relevant rates of exchange prevailing on the respective dates of
such transactions.
The Funds do not isolate that portion of gains and losses on investment
securities that are due to changes in the foreign exchange rates from that due
to changes in market prices of such securities.
The Funds report certain foreign currency related transactions as
components of unrealized and realized gains for financial reporting purposes,
whereas such components are treated as ordinary income for federal income tax
purposes.
Security Transactions and Investment Income --
Security transactions are accounted for on the trade date of the security
purchase or sale. Costs used in determining net realized capital gains and
losses on the sale of securities are those of the specific securities sold,
adjusted for the accretion and amortization of the purchase discounts and
premiums during the respective holding period, with the exception of Boston 1784
U.S. Government Medium-Term Income Fund which does not accrete or amortize
purchase discounts and premiums. Interest income is recorded on the accrual
basis. Dividend income is recorded on ex-date.
Repurchase Agreements --
The Funds invest in tri-party repurchase agreements. Securities pledged as
collateral for tri-party repurchase agreements are
98
<PAGE>
BOSTON 1784 FUNDS
- --------------------------------------------------------------------------------
maintained in a segregated account by the broker's custodian bank until maturity
of the repurchase agreements. Provisions of the agreements and procedures
adopted by the Adviser ensure that the market value of the collateral, including
accrued interest thereon, is sufficient in the event of default by the
counterparty. If the counterparty defaults and the value of the collateral
declines or if the counterparty enters into insolvency proceedings, realization
on the collateral by the Fund may be delayed or limited.
Expenses --
Expenses that are directly related to one of the Funds are charged directly to
that Fund. Other operating expenses of the Trust are prorated to the Funds on
the basis of relative net assets.
Distributions to Shareholders --
The Money Market, Bond and Tax-Exempt Income Funds declare distributions from
net investment income on a daily basis, payable on the first business day of the
following month. Boston 1784 Asset Allocation and Boston 1784 Growth and Income
Funds declare and pay dividends on a quarterly basis. Boston 1784 Growth Fund
declares and pays dividends on a semi-annual basis. Boston 1784 International
Equity Fund declare and pays dividends on an annual basis. Any net realized
capital gains on sales of securities for a Fund are distributed to its
shareholders at least annually.
Federal Income Taxes --
The Trust's policy is to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
taxable income to its shareholders. Accordingly, no provision for federal income
taxes is required in the financial statements. The Funds may be subject to taxes
imposed by countries in which they invest with respect to their investments in
issuers existing or operating in such countries. Such taxes are generally based
on either income earned or repatriated. The Funds accrue such taxes when related
income is earned. The timing and characterization of certain income and capital
gains distributions are determined annually in accordance with federal tax
regulations that may differ from generally accepted accounting principles. These
differences relate primarily to foreign currency-denominated investments,
paydowns on asset-backed securities and certain securities sold at a loss. As a
result, net investment income (loss) and net realized gain (loss) on investment
transactions for a reporting period may differ from distributions during such
period. Accordingly, the following permanent differences have been reclassified
to/from the following accounts:
Accumulated Undistributed
Net Net
Paid-in- Realized Investment
Capital Gain/(Loss) Income
Boston 1784 Funds (000) (000) (000)
================================================================================
Prime Money Market Fund $ (17) $ (19) $ 35
Short-Term Income Fund -- (5) 5
Income Fund -- (95) 95
U.S. Government Medium-Term
Income Fund -- (255) 255
Tax-Exempt Medium-Term
Income Fund -- 3 (3)
Growth and Income Fund -- (237) 237
Growth Fund (765) (2) 767
International Equity Fund (605) (3) 608
99
<PAGE>
MAY 31, 1999
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
Organizational Costs --
Organizational costs have been deferred in the accounts of the Funds and are
being amortized on a straight line basis over a period of sixty months
commencing with operations. In the event any of the initial shares of the Funds
are redeemed by any holder thereof during the period that the Funds are
amortizing their organizational costs, the redemption proceeds payable to the
holders thereof by the Funds will be reduced by the unamortized organizational
costs in the same ratio as the number of shares redeemed bears to the initial
shares outstanding at the time of redemption.
Other --
Some countries in which the Funds invest require governmental approval for the
repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, for various reasons, including a
deterioration in a country's balance of payments, a country may impose temporary
restrictions on foreign capital remittances abroad.
The security exchanges of certain foreign markets are substantially smaller,
less liquid and more volatile than the major securities markets in the United
States. Consequently, acquisition and disposition of securities by the Funds may
be inhibited.
3. Investment Advisory and Custodial Services
Pursuant to an investment advisory agreement dated June 1, 1993, investment
advisory services are provided to the Trust by Bank-Boston, N.A. (the
"Adviser"). The Adviser is entitled to receive a fee of 0.40% of the average
daily net assets of Boston 1784 Tax-Free Money Market, Boston 1784 U.S. Treasury
Money Market and Boston 1784 Prime Money Market Funds, 0.50% of the average
daily net assets of Boston 1784 Short-Term Income Fund, 0.74% of the average
daily net assets of Boston 1784 Income, Boston 1784 U.S. Government Medium-Term
Income, Boston 1784 Tax-Exempt Medium-Term Income, Boston 1784 Connecticut
Tax-Exempt Income, Boston 1784 Florida Tax-Exempt Income, Boston 1784
Massachusetts Tax-Exempt Income, Boston 1784 Rhode Island Tax-Exempt Income,
Boston 1784 Asset Allocation, Boston 1784 Growth and Income and Boston 1784
Growth Funds. Such fees are computed daily and paid monthly. The Adviser has
voluntarily agreed to waive a portion of its fee as necessary to assist the
Funds in maintaining competitive expense ratios. Boston 1784 International
Equity Fund has entered into separate investment advisory agreements (each an
"Advisory Agreement") with BankBoston, N.A. ("BankBoston") and with Kleinwort
Benson Investment Management Americas Inc. ("Kleinwort" and together with
BankBoston the "International Advisers"). The Advisory Agreement with BankBoston
is dated as of November 28, 1994; the Advisory Agreement with Kleinwort is dated
as of October 27, 1995. The International Advisers are entitled to receive an
aggregate fee of 1.00% of the average daily net assets of Boston 1784
International Equity Fund. Such fee is computed daily and paid monthly.
The Trust and BankBoston, N.A. were parties to a custodial agreement dated
June 1, 1993 under which BankBoston, N.A. held cash, securities and other assets
100
<PAGE>
BOSTON 1784 FUNDS
- --------------------------------------------------------------------------------
of the Trust as required by the Investment Company Act of 1940, as amended. For
the period June 1, 1998 to September 30, 1998, BankBoston, N.A. served as the
Funds' custodian and received an annual fee, paid monthly, of 0.01% for the
first $100 million in average daily net assets, 0.0075% for the next $100
million in average daily net assets and 0.005% for the average daily net assets
over $200 million of each of the Funds. On September 30, 1998, the Custodial
Agreement was amended and assigned to Investors Bank & Trust Company ("IBT").
Effective October 1, 1998, IBT is entitled to receive an annual fee, to be paid
monthly, of 0.005% of the market value of each Fund's assets. In the capacity as
custodian to the Trust, BankBoston, N.A. played and IBT plays no role in
determining the investment policies of the Trust or which securities are to be
purchased or sold by the Funds.
4. Administrative and Distribution Services
Pursuant to an administration agreement dated December 1, 1996, SEI Investments
Mutual Funds Services, a wholly-owned subsidiary of SEI Investments Company,
acts as the Trust's Administrator, and is entitled to receive an annual fee of
0.085% of the Trust's first $5 billion of average daily net assets and 0.045% of
the Trust's average daily net assets over $5 billion. Such fee is computed daily
and paid monthly.
SEI Investments Distribution Co. ("SEI Investments"), a wholly-owned
subsidiary of SEI Investments Company, became the Trust's Distributor pursuant
to a distribution agreement dated June 1, 1993, as amended and restated October
27, 1995. The Trust has adopted a distribution plan with respect to each of the
Bond, Tax-Exempt Income and stock Funds pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended (collectively, the "Plan"). The
Distribution Agreement and the Plan provide that the Trust will pay the
Distributor a fee, calculated daily and paid monthly, at an annual rate of 0.25%
of the average daily net assets of each of the Bond, Tax-Exempt Income and Stock
Funds. The Distributor agreed to voluntarily waive all of its 12b-1 distribution
fee for the year ended May 31, 1999.
Pursuant to a Shareholder Services Agreement dated December 1, 1996,
BankBoston, N.A. provides certain shareholder services to Boston 1784 U.S.
Treasury Money Market Fund and Boston 1784 Prime Money Market Fund and receives
compensation, computed daily and paid monthly, at an annual rate of 0.10% of the
average daily net assets of each such Fund. BankBoston, N.A. provides
shareholder services to the other Boston 1784 Funds presented in this report,
for which it does not receive compensation.
Certain officers of the Trust are also officers of the Administrator. Such
officers are paid no fees by the Trust.
The Trust has paid legal fees to a law firm of which the Secretary of the
Trust is a member.
5. Investment Transactions
The cost of security purchases and the proceeds from the sale of securities,
other than temporary cash investments, for the year ended May 31, 1999, are as
presented below for the Bond, Tax-Exempt Income and Stock Funds.
101
<PAGE>
MAY 31, 1999
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
FUND INVESTMENT TRANSACTIONS (000):
<TABLE>
<CAPTION>
PURCHASES SALES
==================================================================
U.S. GOVERNMENT U.S. GOVERNMENT
FOR THE YEAR ENDED MAY 31, 1999 SECURITIES OTHER SECURITIES OTHER
==================================================================
<S> <C> <C> <C> <C>
Boston 1784 Short-Term Income Fund $ 27,693 $ 25,064 $ 37,640 $ 41,493
Boston 1784 Income Fund 119,345 106,598 169,691 91,021
Boston 1784 U.S. Government
Medium-Term Income Fund 136,773 -- 111,570 4,184
Boston 1784 Tax-Exempt Medium-Term Income Fund -- 262,622 -- 216,883
Boston 1784 Connecticut Tax-Exempt Income Fund -- 76,854 -- 30,443
Boston 1784 Florida Tax-Exempt Income Fund -- 21,876 -- 6,033
Boston 1784 Massachusetts Tax-Exempt Income Fund -- 71,839 -- 20,305
Boston 1784 Rhode Island Tax-Exempt Income Fund -- 38,558 -- 10,381
Boston 1784 Asset Allocation Fund 5,979 8,165 7,546 4,967
Boston 1784 Growth and Income Fund -- 263,013 -- 286,074
Boston 1784 Growth Fund -- 115,186 -- 182,409
Boston 1784 International Equity Fund -- 478,832 -- 549,407
</TABLE>
At May 31, 1999, the following Funds have capital loss carryforwards (000):
<TABLE>
<CAPTION>
EXPIRATION 2002 2003 2004 2005 2006 2007
========================================================================
<S> <C> <C> <C> <C> <C> <C>
Boston 1784 Tax-Free Money Market Fund $ -- $ -- $ -- $ 104 $ 9 $ --
Boston 1784 Prime Money Market Fund 23 -- -- -- -- 1
Boston 1784 Short-Term Income Fund 10,933 323 282 309 -- --
Boston 1784 U.S. Government Medium-Term Income Fund -- 3,311 -- 1,867 -- --
Boston 1784 Massachusetts Tax-Exempt Income Fund -- -- -- 74 -- --
</TABLE>
At May 31, 1999, the total cost of securities and the net realized gains or
losses on securities sold for federal income tax purposes was not materially
different from amounts reported for financial purposes.
102
<PAGE>
BOSTON 1784 FUNDS
- --------------------------------------------------------------------------------
The aggregate gross unrealized gains or losses on securities at May 31,
1999 for the Bond, Tax-Exempt Income and Stock Funds are as follows (000):
<TABLE>
<CAPTION>
AGGREGATE AGGREGATE
GROSS GROSS NET
UNREALIZED UNREALIZED UNREALIZED
GAINS LOSSES GAINS/(LOSSES)
=================================================
<S> <C> <C> <C>
Boston 1784 Short-Term Income Fund $ 490 $(1,006) $ (516)
Boston 1784 Income Fund 2,451 (9,618) (7,167)
Boston 1784 U.S. Government Medium-Term Income Fund 2,791 (3,622) (831)
Boston 1784 Tax-Exempt Medium-Term Income Fund 7,628 (961) 6,667
Boston 1784 Connecticut Tax-Exempt Income Fund 5,040 (1,049) 3,991
Boston 1784 Florida Tax-Exempt Income Fund 1,461 (364) 1,097
Boston 1784 Massachusetts Tax-Exempt Income Fund 6,958 (911) 6,047
Boston 1784 Rhode Island Tax-Exempt Income Fund 2,432 (573) 1,859
Boston 1784 Asset Allocation Fund 8,953 (995) 7,958
Boston 1784 Growth and Income Fund 235,646 (5,210) 230,436
Boston 1784 Growth Fund 59,278 (3,737) 55,541
Boston 1784 International Equity Fund 57,968 (6,831) 51,137
</TABLE>
6. Concentration of Credit Risk
Boston 1784 Tax-Free Money Market, Boston 1784 Tax-Exempt Medium-Term Income,
Boston 1784 Connecticut Tax-Exempt Income, Boston 1784 Florida Tax-Exempt
Income, Boston 1784 Massachusetts Tax-Exempt Income and Boston 1784 Rhode Island
Tax-Exempt Income Funds invest in debt instruments of municipal issuers. The
issuers' ability to meet their obligations may be affected by economic
developments in a specific state or region. Boston 1784 Connecticut Tax-Exempt
Income, Boston 1784 Florida Tax-Exempt Income, Boston 1784 Massachusetts
Tax-Exempt Income and Boston 1784 Rhode Island Tax-Exempt Income Funds invest
primarily in obligations located in Connecticut, Florida, Massachusetts and
Rhode Island, respectively.
7. Line of Credit
The Trust has entered into a Line of Credit Agreement.Pursuant to this
agreement, the Trust has access to a $50 million uncommitted line
of credit and a $20 committed secured line of credit. The Trust is charged a
commitment fee of .10% of the unused portion of the committed line of credit.
Borrowings under the line are charged interest at the current overnight Federal
Funds rate plus 0.50%. Each Fund is individually, and not jointly, liable for
its particular advances under the line. During the year ended May 31, 1999, the
following funds were borrowed under the agreement:
103
<PAGE>
MAY 31, 1999
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
MAXIMUM AVERAGE INTEREST AVERAGE
FUND BORROWING LOAN BALANCE DATE PAID RATE
=================================================================================================================
<S> <C> <C> <C> <C> <C>
Growth Fund $1,800,000 $ 866,000 12/11/98-12/15/98 $687 5.60%
Growth Fund 257,000 257,000 12/24/98-12/27/98 146 5.20%
International Equity Fund 3,500,000 3,500,000 3/16/99 516 5.31%
International Equity Fund 4,500,000 4,500,000 4/19/99 648 5.19%
</TABLE>
At May 31, 1999, there were no borrowings outstanding under the agreement.
8. Common Trust Fund Conversion
On June 30, 1997, BankBoston's Florida Tax-Exempt Bond Common Trust Fund was
converted into Boston 1784 Florida Tax-Exempt Income Fund. The assets, which
consisted of securities and related receivables, were converted on a tax-free
basis. The net assets (including unrealized appreciation) of the Common Trust
Fund immediately before the conversion, and the number of shares issued, were as
follows:
Boston 1784
Florida Tax-Exempt
Unrealized Income Fund Shares
Net Assets Appreciation Issued
================================================================================
$41,223,322 $994,489 4,122,332
9. Forward Foreign Currency Contracts
Boston 1784 International Equity Fund enters into forward foreign currency
exchange contracts as hedges against specific transactions or portfolio
positions. The aggregate principal amounts of the contracts are not recorded, as
the Fund does not intend to hold the contracts to maturity. All commitments are
"marked-to-market" daily at the applicable foreign exchange rate and any
resulting unrealized gains or losses are recorded currently. The Fund realizes
gains and losses at the time the forward contracts are extinguished. Such
contracts, which protect the value of the Fund's investment securities against a
decline in value of the hedged currency, do not eliminate fluctuations in the
underlying prices of the securities. They simply establish an exchange rate at a
future date. Although such contracts tend to minimize the risk of loss due to a
decline in the value of a hedged currency, they also tend to limit any potential
gain that might be realized should the value of such foreign currency increase.
104
<PAGE>
- --------------------------------------------------------------------------------
The following forward foreign currency contracts were outstanding at
May 31, 1999:
- --------------------------------------------------------------------------------
BOSTON 1784 INTERNATIONAL EQUITY FUND
FOREIGN CURRENCY PURCHASES:
<TABLE>
<CAPTION>
CONTRACT TO IN EXCHANGE UNREALIZED
MATURITY RECEIVE FOR DEPRECIATION
DATE (000) (000) (000)
========================================================================================================
<S> <C> <C> <C> <C>
6/02/99 EUR 884 $ 936 $(14)
6/30/99 EUR 2,406 2,552 (37)
6/02/99 GBP 88 141 --
6/04/99 GBP 1,006 1,613 --
-------
$(51)
=======
- --------------------------------------------------------------------------------------------------------
</TABLE>
FOREIGN CURRENCY SALES:
<TABLE>
<CAPTION>
CONTRACT TO IN EXCHANGE UNREALIZED
MATURITY RECEIVE FOR DEPRECIATION
DATE (000) (000) (000)
========================================================================================================
<S> <C> <C> <C> <C>
6/03/99 GBP 5,270 $8,372 $(79)
6/01/99 JPY 228,223 1,865 (12)
-------
$(91)
=======
- --------------------------------------------------------------------------------------------------------
</TABLE>
Currency Legend
EUR -- Euro
GBP -- Great British Pounds
JPY -- Japanese Yen
105
<PAGE>
MAY 31, 1999
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
10. Year 2000 Readiness Disclosure
Boston 1784 Funds have been working to prepare for the Year 2000 transition and
have taken steps to provide seamless processing for all systems and applications
utilized by the Funds' service providers. We have sought and received assurances
from each service provider that their computer systems have been remediated for
Year 2000. We are continuing to monitor the progress of these service providers
with respect to the testing of modified systems, and have sought and received
assurances that such testing confirms Year 2000 readiness.
While we have received such assurances, the Funds and their shareholders may
experience losses if these assurances prove to be incorrect. Losses could also
arise as a result of Year 2000 computer difficulties experienced by issuers of
portfolio securities or third parties, such as custodians, banks, and
broker-dealers, with which the Funds do business.
An additional Year 2000 consideration is the readiness of the companies in which
Boston 1784 Funds have invested. The Year 2000, like any other market influence,
could quite possibly impact Fund performance. The impact could as easily be
positive (a company that benefits due to its preparedness)as negative (a company
that suffers from lack of preparedness). Boston 1784 Funds' investment advisers
consider the Year 2000 transition, like any other factor, in making investment
decisions.
It is important to understand that Boston 1784 Funds cannot warrant or guarantee
the Year 2000 readiness of any third party.
106
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and
Board of Trustees of Boston 1784 Funds:
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, of Boston 1784 Short-Term Income Fund and Boston
1784 Tax-Exempt Medium-Term Income Fund, and the statements of net assets of
Boston 1784 Tax-Free Money Market Fund, Boston 1784 U.S. Treasury Money Market
Fund, Boston 1784 Prime Money Market Fund, Boston 1784 Income Fund, Boston 1784
U.S. Government Medium-Term Income Fund, Boston 1784 Connecticut Tax-Exempt
Income Fund, Boston 1784 Florida Tax-Exempt Income Fund, Boston 1784
Massachusetts Tax-Exempt Income Fund, Boston 1784 Rhode Island Tax-Exempt Income
Fund, Boston 1784 Asset Allocation Fund, Boston 1784 Growth and Income Fund,
Boston 1784 Growth Fund, and Boston 1784 International Equity Fund of Boston
1784 Funds (referred to collectively herein as the "Funds"), and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
the Funds at May 31, 1999, the results of their operations, changes in their net
assets and the financial highlights for each of the periods presented
(commencing January 1, 1996 for Boston 1784 Prime Money Market Fund) in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Funds' management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities owned at May 31, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above. The financial highlights of Boston 1784 Prime Money
Market Fund for the fiscal periods presented prior to the year ended December
31, 1996, were audited by other independent accountants whose report dated
February 6, 1996 expressed an unqualified opinion thereon.
PRICEWATERHOUSECOOPERS LLP
2400 Eleven Penn Center
Philadelphia, Pennsylvania
July 9, 1999
107
<PAGE>
NOTICE TO SHAREHOLDERS OF
BOSTON 1784 FUNDS (UNAUDITED)
- --------------------------------------------------------------------------------
For taxpayers filing on a calendar year basis,
this notice is for informational purposes only.
<TABLE>
<CAPTION>
(A)* (B)*
Long-Term Ordinary (D)**
Capital Gains Income Total (C)** Tax- (E)**
Distributions Distributions Distributions Qualifying Exempt Foreign
Fund (Tax Basis) (Tax Basis) (Tax Basis) Dividends (1) Interest Tax Credit
===================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Tax-Free Money Market Fund 0.00% 100.00% 100.00% 0.00% 85.18% 0.00%
U.S. Treasury Money Market Fund 0.00% 100.00% 100.00% 0.00% 0.00% 0.00%
Prime Money Market Fund 0.00% 100.00% 100.00% 0.00% 0.00% 0.00%
Short-Term Income Fund 0.00% 100.00% 100.00% 0.00% 0.00% 0.00%
Income Fund 7.25% 92.75% 100.00% 0.00% 0.00% 0.00%
U.S. Government Medium-Term
Income Fund 0.00% 100.00% 100.00% 0.00% 0.00% 0.00%
Tax-Exempt Medium-Term Income Fund 27.82% 72.18% 100.00% 0.00% 94.69% 0.00%
Connecticut Tax-Exempt Income Fund 7.29% 92.71% 100.00% 0.00% 88.99% 0.00%
Florida Tax-Exempt Income Fund 23.54% 76.46% 100.00% 0.00% 94.47% 0.00%
Massachusetts Tax-Exempt Income Fund 0.00% 100.00% 100.00% 0.00% 93.57% 0.00%
Rhode Island Tax-Exempt Income Fund 14.54% 85.46% 100.00% 0.00% 95.14% 0.00%
Asset Allocation Fund 56.75% 43.25% 100.00% 18.82% 0.00% 0.00%
Growth and Income Fund 93.49% 6.51% 100.00% 100.00% 0.00% 0.00%
Growth Fund 100.00% 0.00% 100.00% 0.00% 0.00% 0.00%
International Equity Fund 71.97% 28.03% 100.00% 0.00% 0.00% 0.00%
</TABLE>
(1) Qualifying dividends represent dividends which qualify for the corporate
dividends received deduction.
* Items (A) and (B) are based on a percentage of the Fund's total
distributions.
** Items (C), (D) and (E) are based on a percentage of ordinary income
distributions of the Fund.
Please consult your tax adviser for proper treatment of this information.
108
<PAGE>
MONEY MARKET FUNDS
[ ] Boston 1784 Tax-Free Money Market Fund
[ ] Boston 1784 U.S. Treasury Money Market Fund
[ ] Boston 1784 Institutional U.S. Treasury Money Market Fund*
[ ] Boston 1784 Prime Money Market Fund
[ ] Boston 1784 Institutional Prime Money Market Fund*
BOND FUNDS
[ ] Boston 1784 Short-Term Income Fund
[ ] Boston 1784 Income Fund
[ ] Boston 1784 U.S. Government Medium-Term Income Fund
TAX-EXEMPT INCOME FUNDS
[ ] Boston 1784 Tax-Exempt Medium-Term Income Fund
[ ] Boston 1784 Connecticut Tax-Exempt Income Fund
[ ] Boston 1784 Florida Tax-Exempt Income Fund
[ ] Boston 1784 Massachusetts Tax-Exempt Income Fund
[ ] Boston 1784 Rhode Island Tax-Exempt Income Fund
STOCK FUNDS
[ ] Boston 1784 Asset Allocation Fund
[ ] Boston 1784 Growth and Income Fund
[ ] Boston 1784 Growth Fund
[ ] Boston 1784 International Equity Fund
*Covered by Boston 1784 Institutional Money Market Funds Annual Report
BOARD OF TRUSTEES
David H. Carter
Tarrant Cutler
Kenneth A. Froot
Sara L. Johnson
Kathryn Flacke Muncil
Robert A. Nesher
Alvin J. Silk
INVESTMENT ADVISER
BankBoston, N.A.
Boston, MA 02110
CO-ADVISER FOR
BOSTON 1784 INTERNATIONAL
EQUITY FUND
Kleinwort Benson Investment
Management Americas Inc.
New York, NY 10005
ADMINISTRATOR
SEI Investments Mutual Funds Services
Oaks, PA 19456
DISTRIBUTOR
SEI Investments Distribution Co.
Oaks, PA 19456
LEGAL COUNSEL
Bingham Dana LLP
Boston, MA 02110
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
Philadelphia, PA 19103
CUSTODIAN
Investors Bank & Trust Company
Boston, MA 02116
[Boston 1784 Funds GRAPHIC OMITTED]
Boston 1784 Funds
P.O. Box 8524
Boston, MA 02266-8524
1-800-BKB-1784
This report and the financial statements contained herein are for the general
information of the shareholders of the funds named above. This report is not
authorized for distribution to prospective investors in a fund unless preceded
or accompanied by a currently effective prospectus.
MF-0148
<PAGE>
EXHIBIT 17(b)(ix)
Boston 1784 Institutional Money Market Funds
[Logo Omitted]
Semi-Annual Report to Shareholders
November 30, 1999
<PAGE>
TABLE OF CONTENTS
================================================================================
LETTER TO SHAREHOLDERS 1
INVESTMENT ADVISER'S REPORT 2
FINANCIAL STATEMENTS 4
BOSTON 1784 FUNDS:
[Bullet] ARE NOT INSURED BY THE FDIC OR ANY OTHER GOVERNMENTAL AGENCY;
[Bullet] ARE NOT GUARANTEED BY BANKBOSTON, N.A. OR ANY OF ITS AFFILIATES;
[Bullet] ARE NOT DEPOSITS OR OBLIGATIONS OF BANKBOSTON, N.A. OR ANY
OF ITS AFFILIATES;
[Bullet] INVOLVE INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL
AMOUNT INVESTED.
BANKBOSTON, N.A. SERVES AS INVESTMENT ADVISER AND SHAREHOLDER
SERVICING AGENT FOR BOSTON 1784 FUNDS. BOSTON 1784 FUNDS ARE
DISTRIBUTED BY SEI INVESTMENTS DISTRIBUTION CO., A PARTY INDEPENDENT
OF BANKBOSTON, N.A. OR ANY OF ITS AFFILIATES. INVESTMENT COUNSELORS
ARE REGISTERED REPRESENTATIVES OF BANKBOSTON INVESTOR SERVICES, INC.
(MEMBER NASD/SIPC), A WHOLLY-OWNED SUBSIDIARY OF BANKBOSTON, N.A.
AN INVESTMENT IN A MONEY MARKET FUND IS NOT INSURED OR GUARANTEED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
ALTHOUGH MONEY MARKET FUNDS SEEK TO PRESERVE THE VALUE OF YOUR INVESTMENT
AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN A MONEY
MARKET FUND.
<PAGE>
BOSTON 1784 INSTITUTIONAL
MONEY MARKET FUNDS
LETTER TO SHAREHOLDERS
================================================================================
[picture of Robert Nesher Omitted]
Robert A. Nesher
President
It is a pleasure to provide you with this semi-annual report for Boston 1784
Institutional Money Market Funds.
BOSTON 1784 INSTITUTIONAL U.S. TREASURY MONEY MARKET FUND remained among the
best performers in its peer group. For the 12 months ended November 30, 1999,
the Fund's total return of 4.77% ranked 18th out of 121 funds (top 15%) in the
Lipper Institutional U.S. Treasury Money Market Funds Average. The total assets
of the Fund as of November 30, 1999 were $4.9 billion.
Also of significance, the Fund sustained its AAAm rating from Standard & Poor's
for the 12 months ended November 30, 1999. The rating signifies that, in the
opinion of Standard & Poor's, the Fund offers excellent safety of investment
principal and superior capacity to maintain a $1.00 per share net asset value
at all times, limiting your exposure to loss through conservative investment
practices and strict internal controls. The rating is based on an analysis
of the Fund's credit quality, market price exposure and management, and is
reviewed on a weekly basis by Standard & Poor's.
BOSTON 1784 INSTITUTIONAL PRIME MONEY MARKET FUND generated a total return of
4.95% for the 12 months ended November 30, 1999. Assets under management
continued to grow rapidly, increasing over 40% to $849 million during the
12-month period.
Please remember that a Fund's performance in the past is not necessarily an
indication of how a Fund will do in the future.
In the Investment Adviser's Report, you will read that money market investors
have benefited from three interest rate increases since June 1999 as the Federal
Reserve Board reacted to inflation fears sparked by a vigorous economy.
Regardless of the Federal Reserve Board's action in the months ahead, we will
strive to maximize the productivity of your investment without compromising its
safety.
I would like to draw your attention also to information relating to the merger
of BankBoston Corporation and Fleet Financial Group, Inc. and the succession of
Oechsle International Advisors LLC as co-adviser of the International Equity
Fund. This information can be found under "Recent Developments" on page 16 of
this report.
If you have questions regarding your account or this report, please feel free to
contact your Investment Counselor or call 1-800-BKB-1784, Monday through Friday
from 8:00 a.m. to 6:00 p.m. (Eastern time).
Thank you for selecting Boston 1784 Funds to manage your cash reserves.
Sincerely,
/s/signature omitted
Robert A. Nesher
President
Boston 1784 Funds
1
<PAGE>
INVESTMENT ADVISER'S REPORT
================================================================================
[picture of Edward G. Riley, Jr. Omitted]
Edward G. Riley, Jr.
It's a good thing records are made to be broken, because the economy and the
financial markets seem to break new ground with each new government press
release and closing bell.
The economy, which several quarters ago broke the record for longest
peacetime expansion, is nudging the mark for longest expansion ever. Economic
(GDP) growth in the third calendar quarter surged 5.5%, evidence of the
tremendous momentum in consumer sectors like autos (which also set a new sales
record) and Internet-related e-commerce activity. Equally impressive are strong
employment growth and a persistently low unemployment rate of 4.2% to 4.4%.
To be sure, 5.5% GDP growth is well above the Federal Reserve Board's 3%
speed limit, and the Board has taken steps to slow the economy--and lower the
risk of inflation--with three increases in the Federal Funds Rate since June
1999.
But strong employment/low unemployment are great enhancers of consumer
confidence and spending, which are the fuel for current economic growth. Couple
these with the hard-to-quantify impact of Y2K-related stockpiling and a broad
rebound in business activity overseas and you have an economy that seems
impervious, so far, to interest rate increases.
In recent months, some experts have advanced the notion that inflation is
dead, and when it hovered around 1.5% it was certainly not much of an issue. But
it can also be argued that high growth, low unemployment and rising spending
must eventually lead to inflation. The reason: simple supply-and-demand factors
will push up the price of goods, while higher wages will push up the cost of
manufacturing. And with inflation at present a less benign 2.6%, pressure on
prices--and the Federal Reserve Board--are building.
The soaring stock market is also contributing to inflationary pressure by
boosting the confidence of virtually any consumer with a 401(k) plan--provided
he or she has invested liberally in technology and Internet stocks. These "new
economy" stocks have driven the NASDAQ and other indices to record highs, with
the Dow Jones Industrial Average breaking the 11,000 barrier and the Standard &
Poor's 500 Composite Index ("S&P 500") rising above 1400.
The equity markets have soared despite developments that once would have been
an anathema to stock prices--raising questions about the efficacy of traditional
Federal
Federal Funds Rate
NOVEMBER 1996-NOVEMBER 1999
[Line Graph Omitted]
Plot Points as follows:
11/96 5/97 11/97 5/98 11/98 5/99 11/99
5.50 5.50 4.75 4.75 5.50 5.31 5.50
2
<PAGE>
BOSTON 1784 INSTITUTIONAL
MONEY MARKET FUNDS
================================================================================
Reserve Board remedies. We've already alluded to the 1-percentage-point
increase in inflation and the Federal Reserve Board's response. Also noteworthy
is the increase in long-term interest rates, from 4.7% a little more than a year
ago to about 6.25% today. Even so, the S&P 500 manages to sustain a relatively
high price/earnings multiple of 24 times.
MONEY MARKET REVIEW
Focusing on its mission to control inflation, the Federal Reserve Board has
raised short-term interest rates three times in 0.25% increments since June
1999, pushing the Federal Funds Rate from 4.75% to 5.50%. While that has been
good news for money market investors, whether the trend is sustained depends as
much on the Federal Reserve Board's fear of a severe stock market correction as
it does on economic growth.
Once again, the Federal Reserve Board finds itself in a precarious position,
trying to cool an overheated economy (and stock market) without ushering in a
severe decline in economic activity. Consequently, it is likely to remain in a
reactive mode in the year ahead--with much more than money market interest rates
hanging in the balance. We expect the Federal Reserve Board to assume a cautious
stance in the short term, tempering rate increases in order to avoid a dramatic
and potentially damaging stock market correction. Over the long term, however,
the Federal Reserve Board will get ahead of the curve and manage to slow the
momentum of the stock market and the economy.
/s/signature omitted
Edward G.Riley, Jr.
BankBoston, N.A.
MR. RILEY LEFT BANKBOSTON ON DECEMBER 31, 1999 TO PURSUE OTHER OPPORTUNITIES.
THIS REPORT COVERS THE PERIOD ENDING NOVEMBER 30, 1999, DURING WHICH TIME HE WAS
ASSOCIATED WITH BANKBOSTON.
3
<PAGE>
AS OF NOVEMBER 30, 1999
STATEMENT OF NET ASSETS (UNAUDITED)
================================================================================
BOSTON 1784 INSTITUTIONAL U.S. TREASURY MONEY MARKET FUND
- -------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- -------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 29.0%
Federal Farm Credit Bank MTN (B)
5.855%, 12/07/99 $ 45,000 $ 44,988
Federal Home Loan Bank
5.201%, 12/01/99 59,089 59,089
5.000%, 12/29/99 15,000 15,000
5.000%, 12/29/99 15,425 15,425
4.910%, 02/09/00 25,000 25,000
5.100%, 03/09/00 23,920 23,919
5.115%, 03/17/00 3,000 3,000
5.040%, 03/29/00 23,990 23,986
5.020%, 05/12/00 28,190 28,180
5.350%, 06/08/00 36,000 35,984
5.710%, 08/09/00 10,000 9,988
Federal Home Loan Bank (A)
5.880%, 12/07/99 45,000 45,000
5.956%, 02/25/00 40,000 40,000
Federal Home Loan Bank (B)
5.895%, 12/08/99 45,000 45,000
Federal Home Loan Mortgage
5.238%, 12/10/99 16,793 16,771
5.343%, 12/15/99 28,765 28,706
5.236%, 12/16/99 39,683 39,597
5.246%, 12/21/99 15,000 14,957
5.603%, 01/27/00 50,000 49,567
5.516%, 06/06/00 45,000 43,771
Federal National Mortgage Association
5.341%, 12/01/99 68,127 68,127
5.325%, 12/02/99 25,000 24,996
5.336%, 12/02/99 50,000 49,993
5.331%, 12/06/99 50,000 49,963
5.335%, 12/07/99 33,907 33,877
5.336%, 12/08/99 70,000 69,928
5.347%, 12/08/99 20,000 19,979
5.252%, 12/10/99 10,500 10,486
5.300%, 12/10/99 30,000 29,961
5.292%, 12/13/99 45,000 44,922
5.240%, 12/17/99 25,000 24,942
5.311%, 12/17/99 50,000 49,883
5.645%, 01/19/00 25,000 24,811
5.619%, 01/20/00 45,000 44,653
5.586%, 02/07/00 25,000 24,744
5.663%, 02/14/00 45,000 44,479
5.050%, 05/12/00 20,000 19,992
- ------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- ------------------------------------------------------
Federal National Mortgage
Association, MTN
5.430%, 01/27/00 $ 20,000 $ 19,988
Student Loan Marketing
Association (B)
5.835%, 12/07/99 148,545 148,505
Student Loan Marketing
Association, MTN (A)
6.005%, 08/03/00 34,000 33,989
----------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(COST $1,446,146) 1,446,146
----------
U.S. TREASURY OBLIGATIONS -- 11.8%
U.S. Treasury Notes
5.375%, 01/31/00 22,500 22,523
5.500%, 03/31/00 106,000 106,194
5.500%, 05/31/00 45,000 45,004
5.375%, 06/30/00 95,000 94,994
5.375%, 07/31/00 46,000 46,029
U.S. Treasury Bills
4.620%, 12/23/99 45,000 44,875
5.204%, 01/20/00 50,000 49,642
4.856%, 02/03/00 45,000 44,621
5.030%, 02/17/00 45,000 44,522
4.877%, 03/02/00 22,500 22,220
4.887%, 03/09/00 22,500 22,198
5.214%, 04/27/00 50,000 48,955
----------
TOTAL U.S. TREASURY OBLIGATIONS
(COST $591,777) 591,777
----------
REPURCHASE AGREEMENTS -- 59.4%
Dean Witter
5.650%, dated 11/30/99, matures
12/01/99, repurchase price
$550,085,137 (collateralized by
U.S. Treasury Instruments:
total market value
$561,000,829) (C) 550,000 550,000
4
<PAGE>
BOSTON 1784 INSTITUTIONAL
MONEY MARKET FUNDS
================================================================================
- ------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- ------------------------------------------------------
Goldman
5.630%, dated 11/30/99, matures
12/01/99, repurchase price
$190,029,307 (collateralized by
U.S. Treasury Instruments:
total market value
$193,800,807) (C) $190,000 $ 190,000
Greenwich Capital
5.660%, dated 11/30/99, matures
12/01/99, repurchase price
$800,124,055 (collateralized by
U.S. Treasury Instruments:
total market value
$816,001,345) (C) 800,000 800,000
HSBC DVP
5.660%, dated 11/30/99, matures
12/01/99, repurchase price
$190,029,463 (collateralized by
U.S. Treasury Instruments:
total market value
$194,118,452) (C) 190,000 190,000
JP Morgan
5.660%, dated 11/30/99, matures
12/01/99, repurchase price
$632,433,055 (collateralized by
U.S. Treasury Instruments:
total market value
$644,981,912) (C) 632,335 632,335
Lehman
5.660%, dated 11/30/99, matures
12/01/99, repurchase price
$190,029,463 (collateralized by
U.S. Treasury Instruments:
total market value
$193,800,083) (C) 190,000 190,000
Prudential
5.670%, dated 11/30/99, matures
12/01/99, repurchase price
$409,078,537 (collateralized by
U.S. Treasury Instruments:
total market value
$414,096,194) (C) 409,015 409,015
----------
- ------------------------------------------------------
DESCRIPTION VALUE (000)
- ------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS
(COST $2,961,350) $2,961,350
----------
TOTAL INVESTMENTS -- 100.2%
(COST $4,999,273) 4,999,273
----------
OTHER ASSETS AND LIABILITIES,
NET -- (0.2%) (11,179)
----------
NET ASSETS:
Capital Shares (unlimited
authorization -- no par value)
based on 4,988,049,468
outstanding shares of beneficial
interest $4,988,049
Distributions in Excess of Net Investment
Income (4)
Accumulated Net Realized Gain on
Investments 49
----------
TOTAL NET ASSETS -- 100.0% $4,988,094
==========
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE $1.00
==========
(A) THE RATE REPORTED ON THE STATEMENT OF NET ASSETS IS THE EFFECTIVE YIELD AS
OF NOVEMBER 30, 1999.
(B) VARIABLE RATE SECURITY. THE RATE REPORTED ON THE STATEMENT OF NET ASSETS IS
THE RATE IN EFFECT ON NOVEMBER 30, 1999. THE DATE SHOWN IS THE NEXT
SCHEDULED RESET DATE.
(C) TRI-PARTY REPURCHASE AGREEMENT
MTN--MEDIUM TERM NOTE
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
5
<PAGE>
AS OF NOVEMBER 30, 1999
STATEMENT OF NET ASSETS (UNAUDITED)
================================================================================
BOSTON 1784 INSTITUTIONAL PRIME MONEY MARKET FUND
- ------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- ------------------------------------------------------
COMMERCIAL PAPER -- 52.5%
AUTOMOTIVE -- 3.5%
BMW (A)
5.345%, 12/02/99 $20,000 $ 19,997
DaimlerChrysler (A)
6.077%, 01/19/00 10,000 9,918
--------
29,915
--------
BANKS -- 2.4%
First Union National Bank (A)
5.569%, 11/24/00 20,000 19,996
--------
CHEMICALS -- 2.6%
Dupont (A)
5.345%, 12/17/99 22,178 22,126
--------
COMMUNICATIONS EQUIPMENT -- 3.5%
Motorola (A)
5.525%, 12/16/99 30,000 29,931
--------
DRUGS -- 3.5%
Pfizer (A)
5.701%, 12/29/99 20,000 19,914
Procter & Gamble (A)
5.347%, 12/14/99 10,000 9,981
--------
29,895
--------
FINANCIAL SERVICES -- 15.9%
BMW US Capital (A)
5.480%, 12/17/99 20,000 19,951
Clipper Receivables (A)
5.449%, 12/08/99 15,000 14,984
Ford Motor Credit (A)
5.324%, 12/03/99 15,000 14,996
6.026%, 01/10/00 10,000 9,934
General Electric Capital (A)
5.345%, 12/09/99 20,000 19,976
General Motors Acceptance (A)
5.312%, 12/07/99 15,000 14,987
JP Morgan (A)
5.730%, 02/01/00 10,000 9,904
National Rural Utilities (A)
5.491%, 12/14/99 30,000 29,941
--------
134,673
--------
- ------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- ------------------------------------------------------
FOOD, BEVERAGE & TOBACCO -- 5.5%
Campbell Soup (A)
5.323%, 12/15/99 $20,000 $ 19,959
Coca Cola (A)
5.286%, 12/06/99 15,000 14,989
Heinz H J (A)
5.310%, 12/10/99 11,333 11,318
--------
46,266
--------
LEASING & RENTING -- 2.1%
International Lease (A)
5.862%, 02/18/00 18,000 17,772
--------
MUNICIPALS -- 1.5%
New York City
5.500%, 12/01/99 4,335 4,335
5.500%, 12/02/99 3,150 3,150
6.100%, 02/23/00 5,300 5,300
--------
12,785
--------
PETROLEUM REFINING -- 3.5%
Koch Industries (A)
5.701%, 12/01/99 30,000 30,000
--------
RETAIL -- 2.9%
Wal-Mart (A)
5.328%, 12/16/99 25,000 24,945
--------
TELEPHONES & TELECOMMUNICATIONS -- 5.6%
BellSouth Telecommunication (A)
5.860%, 01/26/00 17,750 17,590
SBC Communications (A)
5.483%, 12/16/99 30,000 29,932
--------
47,522
--------
TOTAL COMMERCIAL PAPER
(COST $445,826) 445,826
--------
6
<PAGE>
BOSTON 1784 INSTITUTIONAL
MONEY MARKET FUNDS
================================================================================
- ------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- ------------------------------------------------------
CORPORATE BONDS -- 16.9%
Abbey National Treasury
5.701%, 12/01/99 $20,000 $ 20,000
5.050%, 04/17/00 3,000 2,992
Advocare (B)
5.590%, 12/01/99 4,150 4,150
American General
8.000%, 02/15/00 7,050 7,080
Bowie Assisted Living,
Series 1997, LOC (B) (C)
5.800%, 12/01/99 6,700 6,700
Caterpillar Financial Services
5.780%, 03/01/00 3,745 3,744
5.810%, 07/05/00 3,025 3,021
Chrysler Financial, MTN
6.375%, 01/28/00 5,500 5,508
CIT Group, MTN
6.800%, 04/17/00 4,670 4,695
Fifth Third Ohio Bank
5.980%, 01/28/00 12,000 12,000
General Electric Capital
5.040%, 01/18/00 2,000 2,000
5.890%, 05/15/00 5,000 5,000
General Motors Acceptance, MTN
6.700%, 04/17/00 4,000 4,022
7.500%, 06/09/00 4,000 4,029
Household Finance, MTN
6.000%, 05/08/00 5,000 5,005
International Business
Machines
5.790%, 03/20/00 5,000 5,004
6.375%, 06/15/00 3,000 3,010
Mellon Financial
6.300%, 06/01/00 1,500 1,505
NationsBank
5.375%, 04/15/00 2,000 1,995
Norwest Corporation
7.125%, 04/01/00 1,000 1,004
Norwest Financial
6.000%, 03/15/00 3,917 3,924
7.250%, 03/15/00 1,775 1,782
Pepsico
6.800%, 05/15/00 1,700 1,708
Pepsico, MTN
5.875%, 06/01/00 5,400 5,395
- ------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- ------------------------------------------------------
Sears Roebuck Acceptance, MTN
5.880%, 05/08/00 $12,000 $ 11,992
Service Graphics (B)
5.750%, 12/01/99 1,800 1,800
UNO, LOC (B)
5.750%, 12/01/99 2,900 2,900
Wachovia
7.000%, 12/15/99 1,618 1,619
Walt Disney, MTN
5.600%, 01/13/00 10,375 10,376
--------
TOTAL CORPORATE BONDS
(COST $143,960) 143,960
--------
TAXABLE MUNICIPAL BONDS -- 4.5%
Barton Healthcare (B)
5.750%, 12/01/99 600 600
Collier County, Florida,
Community Health Care
Authority RB, LOC (B)
5.650%, 12/02/99 3,000 3,000
Dade County, Florida,
Expressway Authority
Toll System RB, Series 1996,
FGIC (B)
5.600%, 12/02/99 1,200 1,200
Florida Housing Financing Agency,
RB, MBIA (A)
6.000%, 12/01/99 2,500 2,499
Florida Housing Financing Agency,
RB, FSA (A)
6.000%, 12/01/99 5,000 5,000
Health Midwest Venture (B)
5.750%, 12/01/99 1,900 1,900
Illinois State Student Assistance
RB, LOC (B)
5.570%, 12/01/99 5,000 5,000
Los Angeles, California,
Community Redevelopment
Agency RB, FSA (B)
5.700%, 12/01/99 5,500 5,500
Maryland State Health & Higher
Education Facilities RB,
Series B, LOC (B)
5.650%, 12/01/99 3,000 3,000
7
<PAGE>
AS OF NOVEMBER 30, 1999
STATEMENT OF NET ASSETS (UNAUDITED)
================================================================================
BOSTON 1784 INSTITUTIONAL PRIME MONEY MARKET FUND (CONCLUDED)
- ------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- ------------------------------------------------------
Olathe, Kansas, Industrial RB,
LOC (B)
5.600%, 12/02/99 $ 3,500 $ 3,500
Union County, Arkansas,
Industrial RB, LOC (B)
5.750%, 12/01/99 7,000 7,000
--------
TOTAL TAXABLE MUNICIPAL BONDS
(COST $38,199) 38,199
--------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 18.0%
Federal Home Loan Bank
5.100%, 03/09/00 10,000 10,000
5.100%, 05/17/00 7,000 6,995
5.710%, 08/09/00 10,000 9,992
Federal Home Loan Bank (A)
5.905%, 01/28/00 23,000 22,998
Federal Home Loan Mortgage
Corporation
5.611%, 12/01/99 40,000 40,000
5.238%, 12/02/99 30,000 29,996
4.980%, 04/28/00 10,000 9,998
Federal National Mortgage
Association
5.050%, 05/12/00 5,000 4,998
Student Loan Marketing
Association (B)
5.835%, 12/07/99 10,000 9,997
Student Loan Marketing
Association, MTN (A)
6.005%, 08/03/00 8,000 7,997
--------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(COST $152,971) 152,971
--------
REPURCHASE AGREEMENT -- 8.2%
JP Morgan
5.660%, dated 11/30/99, matures
12/01/99, repurchase price
$70,052,861 (collateralized by
U.S. Treasury Instruments:
total market value
$71,442,864) (D) 70,042 70,042
--------
- ------------------------------------------------------
DESCRIPTION VALUE (000)
- ------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(COST $70,042) $ 70,042
--------
TOTAL INVESTMENTS -- 100.1%
(COST $850,998) 850,998
--------
OTHER ASSETS AND LIABILITIES, NET -- (0.1%) $ (1,012)
--------
NET ASSETS:
Capital Shares (unlimited authorization --
no par value) based on 849,993,307
outstanding shares of beneficial interest 849,993
Distributions in Excess of Net Investment
Income (4)
Accumulated Net Realized Loss on
Investments (3)
--------
TOTAL NET ASSETS -- 100.0% $849,986
========
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE $1.00
========
(A) THE RATE REPORTED ON THE STATEMENT OF NET ASSETS IS THE EFFECTIVE YIELD AS
OF NOVEMBER 30, 1999.
(B) VARIABLE RATE SECURITY. THE RATE REPORTED ON THE STATEMENT OF NET ASSETS IS
THE RATE IN EFFECT ON NOVEMBER 30, 1999. THE DATE SHOWN IS THE NEXT
SCHEDULED RESET DATE.
(C) SECURITY EXEMPT FROM REGISTRATION UNDER RULE 144A OF THE SECURITIES
ACT OF 1933. THESE SECURITIES MAY BE RESOLD IN TRANSACTIONS EXEMPT
FROM REGISTRATION NORMALLY TO QUALIFIED INSTITUTIONAL BUYERS.
(D) TRI-PARTY REPURCHASE AGREEMENT
LOC -- SECURITIES ARE HELD IN CONNECTION WITH A LETTER OF CREDIT ISSUED BY A
MAJOR COMMERCIAL BANK OR OTHER FINANCIAL INSTITUTION.
MTN -- MEDIUM TERM NOTE
RB -- REVENUE BOND
THE FOLLOWING ORGANIZATIONS HAVE PROVIDED UNDERLYING CREDIT SUPPORT FOR
THE SECURITIES AS SET FORTH IN THE STATEMENT OF NET ASSETS.
FGIC -- FINANCIAL GUARANTY INSURANCE CORPORATION
FSA -- FINANCIAL SECURITY ASSURANCE
MBIA -- MUNICIPAL BOND INSURANCE ASSOCIATION
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
8
<PAGE>
BOSTON 1784 INSTITUTIONAL
MONEY MARKET FUNDS
STATEMENTS OF OPERATIONS (000) (UNAUDITED)
================================================================================
FOR THE PERIOD ENDED NOVEMBER 30, 1999
BOSTON BOSTON 1784
1784 INSTITUTIONAL INSTITUTIONAL
U.S. TREASURY PRIME MONEY
MONEY MARKET FUND MARKET FUND
================= ===========
INTEREST INCOME: $118,632 $19,474
-------- --------
EXPENSES:
INVESTMENT ADVISORY FEES 4,654 738
LESS: WAIVER OF INVESTMENT ADVISORY FEES -- (21)
ADMINISTRATOR FEES 1,521 241
REGISTRATION FEES 109 30
TRANSFER AGENT FEES & EXPENSES 271 53
PROFESSIONAL FEES 158 23
PRINTING 76 16
CUSTODIAN FEES 108 19
TRUSTEE FEES 41 5
OTHER EXPENSES 111 3
------- -------
TOTAL EXPENSES, NET OF WAIVERS 7,049 1,107
------- -------
NET INVESTMENT INCOME 111,583 18,367
------- -------
NET REALIZED GAIN (LOSS) ON INVESTMENTS 1 --
------- -------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $111,584 $18,367
======== =======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
9
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS (000)
================================================================================
FOR THE PERIOD ENDED NOVEMBER 30, 1999 (UNAUDITED) AND THE PERIOD ENDED MAY 31,
1999
<TABLE>
<CAPTION>
BOSTON BOSTON
1784 INSTITUTIONAL 1784 INSTITUTIONAL
U.S. TREASURY PRIME MONEY
MONEY MARKET FUND MARKET FUND
========================= ===========================
6/1/99 6/1/98 6/1/99 6/1/98
TO TO TO TO
11/30/99 5/31/99 11/30/99 5/31/99
----------- ----------- ----------- -----------
INVESTMENT ACTIVITIES:
<S> <C> <C> <C> <C>
NET INVESTMENT INCOME $ 111,583 $ 199,476 $ 18,367 $ 24,188
NET REALIZED GAIN (LOSS) ON INVESTMENTS 1 49 -- (3)
----------- ------------ ---------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS 111,584 199,525 18,637 24,185
----------- ------------ ---------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
NET INVESTMENT INCOME (111,779) (199,476) (18,371) (24,188)
REALIZED CAPITAL GAINS -- -- -- --
----------- ------------ ---------- -----------
TOTAL DISTRIBUTIONS (111,779) (199,476) (18,371) (24,188)
----------- ------------ ---------- -----------
SHARE TRANSACTIONS:
PROCEEDS FROM SHARES ISSUED 9,182,717 14,696,641 3,822,080 4,471,716
REINVESTMENT OF CASH DISTRIBUTIONS 32,241 74,848 12,056 18,834
COST OF SHARES REDEEMED (8,527,706) (14,711,302) (3,501,047) (4,275,984)
----------- ------------ ---------- -----------
INCREASE IN NET ASSETS
FROM SHARE TRANSACTIONS 642,252 60,187 333,089 214,566
----------- ------------ ---------- -----------
TOTAL INCREASE IN NET ASSETS 642,057 60,236 333,085 214,563
=========== ============ ========== ===========
NET ASSETS:
BEGINNING OF PERIOD 4,346,037 4,285,801 516,901 302,338
----------- ------------ ---------- -----------
NET ASSETS:
END OF PERIOD $ 4,988,094 $ 4,346,037 $849,986 $ 516,901
=========== ============ ========== ===========
CAPITAL SHARE TRANSACTIONS:
SHARES ISSUED 9,182,717 14,696,641 3,822,080 4,471,716
SHARES ISSUED IN LIEU OF CASH DISTRIBUTIONS 32,241 74,848 12,056 18,834
SHARES REDEEMED (8,572,706) (14,711,302) (3,501,047) (4,275,984)
----------- ------------- ----------- -----------
NET INCREASE IN CAPITAL SHARE TRANSACTIONS 642,252 60,187 333,089 214,566
=========== ============= =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
10
<PAGE>
BOSTON 1784 INSTITUTIONAL
MONEY MARKET FUNDS
FINANCIAL HIGHLIGHTS
================================================================================
BOSTON 1784 INSTITUTIONAL MONEY MARKET FUNDS
FOR THE PERIOD ENDED NOVEMBER 30, 1999 (UNAUDITED) AND THE PERIODS ENDED MAY 31
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
RATIO OF NET
RATIO RATIO INVESTMENT
NET NET NET OF NET OF EXPENSES INCOME TO
ASSET DISTRIBUTIONS ASSET ASSETS RATIO INVEST- TO AVERAGE AVERAGE NET
VALUE NET FROM NET VALUE END OF EXPENSES MENT INCOME NET ASSETS ASSETS
BEGINNING INVESTMENT INVESTMENT END TOTAL OF PERIOD TO AVERAGE TO AVERAGE (EXCLUDING (EXCLUDING
OF PERIOD INCOME INCOME OF PERIOD RETURN (000) NET ASSETS NET ASSETS WAIVERS) WAIVERS)
- ------------------------------------------------------------------------------------------------------------------------------------
BOSTON 1784 INSTITUTIONAL
U.S. TREASURY MONEY MARKET FUND
FOR THE SIX MONTH PERIOD ENDED
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NOVEMBER 30, 1999+ $1.00 0.02 (0.02) $1.00 4.77% $4,988,094 0.30% 4.80% 0.30% 4.80%
FOR THE YEAR ENDED
MAY 31, 1999 $1.00 0.05 (0.05) $1.00 4.90% $4,346,037 0.31% 4.79% 0.31% 4.79%
FOR THE YEAR ENDED
MAY 31, 1998 $1.00 0.05 (0.05) $1.00 5.36% $4,285,801 0.33% 5.24% 0.33% 5.24%
FOR THE YEAR ENDED
MAY 31, 1997 $1.00 0.05 (0.05) $1.00 5.16% $2,591,487 0.33% 5.05% 0.34% 5.04%
FOR THE YEAR ENDED
MAY 31, 1996 $1.00 0.05 (0.05) $1.00 5.45% $ 644,733 0.32% 5.29% 0.39% 5.22%
FOR THE YEAR ENDED
MAY 31, 1995 $1.00 0.05 (0.05) $1.00 5.05% $ 395,585 0.30% 5.12% 0.41% 5.01%
- ------------------------------------------------------------------------------------------------------------------------------------
BOSTON 1784 INSTITUTIONAL
PRIME MONEY MARKET FUND
FOR THE SIX MONTH PERIOD ENDED
NOVEMBER 30, 1999+ $1.00 0.02 (0.02) $1.00 4.95% $ 849,986 0.30% 4.98% 0.31% 4.97%
FOR THE YEAR ENDED
MAY 31, 1999 $1.00 0.05 (0.05) $1.00 5.10% $ 516,901 0.30% 4.93% 0.35% 4.88%
FOR THE PERIOD ENDED
MAY 31, 1998 (1) $1.00 0.03 (0.03) $1.00 5.55% $ 302,338 0.27% 5.36% 0.42% 5.21%
- --------------------------------------------------------------------------------------------------------------------------------
<FN>
+ ALL RATIOS FOR THE SEMI-ANNUAL PERIOD ENDED NOVEMBER 30, 1999 INCLUDING
TOTAL RETURN HAVE BEEN ANNUALIZED.
(1) BOSTON 1784 INSTITUTIONAL PRIME MONEY MARKET FUND COMMENCED OPERATIONS
ON NOVEMBER 5, 1997. ALL RATIOS FOR THE PERIOD, INCLUDING TOTAL
RETURN, HAVE BEEN ANNUALIZED.
</FN>
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
11
<PAGE>
NOVEMBER 30, 1999
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
================================================================================
1. ORGANIZATION
Boston 1784 Institutional U.S. Treasury Money Market Fund and Boston 1784
Institutional Prime Money Market Fund are portfolios of Boston 1784 Funds (the
"Trust"), an open-end investment company registered under the Investment Company
Act of 1940, as amended. The Trust is offering shares in 17 separate portfolios
(the "Funds") as of November 30, 1999:
MONEY MARKET FUNDS:
BOSTON 1784 TAX-FREE MONEY MARKET FUND
BOSTON 1784 U.S. TREASURY MONEY MARKET FUND
BOSTON 1784 INSTITUTIONAL U.S. TREASURY
MONEY MARKET FUND
BOSTON 1784 PRIME MONEY MARKET FUND
BOSTON 1784 INSTITUTIONAL PRIME MONEY MARKET FUND
BOND FUNDS:
BOSTON 1784 SHORT-TERM INCOME FUND
BOSTON 1784 INCOME FUND
BOSTON 1784 U.S. GOVERNMENT MEDIUM-TERM
INCOME FUND
TAX-EXEMPT INCOME FUNDS:
BOSTON 1784 TAX-EXEMPT MEDIUM-TERM INCOME FUND
BOSTON 1784 CONNECTICUT TAX-EXEMPT INCOME FUND
BOSTON 1784 FLORIDA TAX-EXEMPT INCOME FUND
BOSTON 1784 MASSACHUSETTS TAX-EXEMPT INCOME FUND
BOSTON 1784 RHODE ISLAND TAX-EXEMPT INCOME FUND
STOCK FUNDS:
BOSTON 1784 ASSET ALLOCATION FUND
BOSTON 1784 GROWTH AND INCOME FUND
BOSTON 1784 GROWTH FUND
BOSTON 1784 INTERNATIONAL EQUITY FUND
The Funds' prospectus provides a description of each Fund's investment
objectives, policies and strategies.
The financial statements of Boston 1784 Institutional U.S. Treasury Money Market
Fund and Boston 1784 Institutional Prime Money Market Fund are included herein.
The financial statements of the other Funds are presented separately. The assets
of each Fund are segregated, and a shareholder's interest is limited to the Fund
in which shares are held. The financial statements have been prepared in
accordance with generally accepted accounting principles which require the use
of management's estimates. Actual results could differ from these estimates.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by Boston
1784 Institutional U.S. Treasury Money Market Fund and Boston 1784 Institutional
Prime Money Market Fund (the "Institutional Funds").
SECURITY VALUATION --
Investment securities of the Institutional Funds are stated at amortized cost,
which approximates market value. Under this valuation method, purchase discounts
and premiums are accreted and amortized ratably to maturity and are included in
interest income.
12
<PAGE>
BOSTON 1784 INSTITUTIONAL
MONEY MARKET FUNDS
================================================================================
SECURITY TRANSACTIONS AND INVESTMENT INCOME --
Security transactions are accounted for on the trade date of the security
purchase or sale. Costs used in determining net realized capital gains and
losses on the sale of securities are those of the specific securities sold,
adjusted for the accretion and amortization of the purchase discounts and
premiums during the respective holding period. Interest income is recorded on
the accrual basis.
REPURCHASE AGREEMENTS --
The Institutional Funds invest in tri-party repurchase agreements. Securities
pledged as collateral for tri-party repurchase agreements are maintained in a
segregated account by the broker's custodian bank until maturity of the
repurchase agreements. Provisions of the repurchase agreements and procedures
adopted by the Adviser are intended to ensure that the market value of the
collateral, including accrued interest thereon, is sufficient in the event of
default by the counterparty. If the counter-party defaults and the value of the
collateral declines or if the counterparty enters into insolvency proceedings,
realization on the collateral by the Institutional Funds may be delayed or
limited.
EXPENSES --
Expenses that are directly related to the Funds are charged directly to the
Funds. Other operating expenses of the Trust are prorated to the Funds on the
basis of relative net assets.
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment income are declared on a daily basis and are
payable on the first business day of the following month. Any net realized
capital gains on sales of securities for the Institutional Funds are distributed
to its shareholders at least annually.
FEDERAL INCOME TAXES --
The Trust's policy is to comply with the require-ments of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
taxable income to its shareholders. Accordingly, no provision for federal
income taxes is required in the financial statements. At November 30, 1999,
the total cost of securities for federal income tax purposes was not materially
different from amounts reported for financial reporting purposes.
ORGANIZATIONAL COSTS --
These costs have been deferred in the account of the Institutional Funds and are
being amortized on a straight line basis over a period of sixty months
commencing with operations. If any or all of the shares representing initial
capital of the Institutional Funds are redeemed by any holder thereof prior to
the end of the amortization period, the proceeds will be reduced by the
unamortized organizational cost balance in the same proportion as the number of
shares redeemed bears to the initial shares outstanding immediately preceding
the redemption.
13
<PAGE>
NOVEMBER 30, 1999
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONCLUDED)
================================================================================
3. INVESTMENT ADVISORY AND CUSTODIAL SERVICES
Pursuant to an investment advisory agreement dated June 1, 1993, investment
advisory services are provided to the Trust by BankBoston, N.A. (the "Adviser").
The Adviser is entitled to receive an annual fee of 0.20% of the average daily
net assets for each of the Institutional Funds. Such fee is computed daily and
paid monthly. BankBoston, N.A. has voluntarily agreed to waive a portion of its
investment advisory fee in order to maintain competitive expense ratios.
The Institutional Funds and BankBoston, N.A. were parties to a custodial
agreement dated June 1, 1993 under which BankBoston, N.A. held cash, securities
and other assets of the Institutional Funds as required by the Investment
Company Act of 1940, as amended. For the period June 1, 1998 to September 30,
1998, BankBoston, N.A. served as the Funds' custodian and received an annual
fee, paid monthly, of 0.01% for the first $100 million in average daily net
assets, 0.0075% for the next $100 million and 0.005% of the average daily net
assets over $200 million of each of the Institutional Funds. On September 30,
1998, the Custodial Agreement was amended and assigned to Investors Bank & Trust
("IBT"). Effective October 1, 1998, IBT is entitled to receive an annual fee, to
be paid monthly, of 0.005% of the market value of each Institutional Fund's
assets. In the capacity as custodian to the Institutional Funds, BankBoston,
N.A. played and IBT plays no role in determining the investment policies of the
Institutional Funds or which securities are to be purchased or sold by the
Institutional Funds.
4. ADMINISTRATIVE AND DISTRIBUTION SERVICES
Pursuant to an administration agreement dated December 1, 1996, SEI Investments
Mutual Funds Services, a wholly-owned subsidiary of SEI Investments Company,
acts as the Trust's Administrator, and is entitled to receive an annual fee of
0.085% of the Trust's first $5 billion of average daily net assets and 0.045% of
the Trust's average daily net assets over $5 billion.Such fee is computed
daily and paid monthly.
SEI Investments Distribution Co. ("SEI Investments"), a wholly-owned
subsidiary of SEI Investments Company, acts as the Institutional Funds'
Distributor pursuant to a distribution agreement dated June 1, 1993, as amended
and restated October 27, 1995. SEI Investments is paid no fees by the
Institutional Funds.
Certain officers of the Trust are also officers of the Administrator. Such
officers are paid no fees by the Trust.
The Trust has paid legal fees to a law firm, of which the Secretary of the
Trust is a member.
14
<PAGE>
BOSTON 1784 INSTITUTIONAL
MONEY MARKET FUNDS
================================================================================
5. LINE OF CREDIT
The Trust has entered into a Line of Credit Agreement. Pursuant to this
agreement, the Trust has access to a $50 million uncommitted line of credit and
a $20 million committed line of credit. The Trust is charged a commitment fee of
.10% of the unused portion of the committed line of credit. Borrowings under the
line are charged interest at the current overnight Federal Funds rate plus
0.50%. Each Fund is individually, and not jointly, liable for its particular
advances under the line. There were no borrowings under the line of credit by
the Institutional Funds during the period ended November 30, 1999.
15
<PAGE>
BOSTON 1784 FUNDS
RECENT DEVELOPMENTS
================================================================================
The merger of BankBoston Corporation, the parent company of BankBoston, with
Fleet Financial Group, Inc., forming FleetBoston Financial Corporation, was
successfully completed on October 1, 1999. BankBoston, the adviser to Boston
1784 Funds, is now a subsidiary of FleetBoston Financial Corporation. Thomas M.
O'Neill is Chief Investment Officer of FleetBoston Financial Corporation.
In addition, Oechsle International Advisors LLC ("Oechsle") will succeed
Kleinwort Benson Investment Management Americas Inc. as co-investment adviser to
the International Equity Fund on or before February 7, 2000. Oechsle is a
U.S.-based investment adviser currently managing approximately $12 billion of
assets, with offices in Boston, England, Japan, Germany and Cayman Island, BWI.
FleetBoston Financial Corporation owns approximately 36% of Oechsle.
Singleton Dewey Keesler, Jr. and Kathleen Harris, CFA of Oechsle will serve as
co-managers of Boston 1784 International Equity Fund, along with Kenton J. Ide,
Director of Investments for BankBoston's Private Bank, who has been a co-manager
of the Fund since 1995. Mr. Keesler is Chief Investment Officer and a portfolio
manager/research analyst with Oechsle, and has been associated with Oechsle
since 1986. Ms. Harris, a principal and portfolio manager with Oechsle, has been
associated with Oechsle since 1995. There will be no change in the management
fees payable by Boston 1784 International Equity Fund.
16
<PAGE>
BOARD OF TRUSTEES
David H. Carter
Tarrant Cutler
Kenneth A. Froot
Sara L. Johnson
Kathryn Flacke Muncil
Robert A. Nesher
Alvin J. Silk
INVESTMENT ADVISER
BankBoston, N.A.
Boston, MA 02110
================================================================================
ADMINISTRATOR
SEI Investments Mutual Funds Services
Oaks, PA 19456
DISTRIBUTOR
SEI Investments Distribution Co.
Oaks, PA 19456
LEGAL COUNSEL
Bingham Dana LLP
Boston, MA 02110
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
Philadelphia, PA 19103
CUSTODIAN
Investors Bank & Trust Company
Boston, MA 02116
[logo omitted]
Boston 1784 Funds
P.O. Box 8524
Boston, MA 02266-8524
1-800-BKB-1784
This report and the financial statements contained herein are for the general
information of the shareholders ofBoston 1784 Institutional U.S. Treasury
Money Market Fund and Boston 1784 Institutional Prime Money Market Fund.
This report is not authorized for distribution to prospective investors in
a Fund unless preceded or accompanied by a currently effective prospectus.
MF-0151
<PAGE>
Semi-Annual
Report
[1784 Boston logo omitted]
To Shareholders
November 30, 1999
<PAGE>
TABLE OF CONTENTS
- ---------------------------------------
LETTER TO SHAREHOLDERS 1
PERFORMANCE HIGHLIGHTS 2
TERMS YOU NEED TO KNOW 4
FUND OBJECTIVES 5
INVESTMENT ADVISER'S REPORT 6
FINANCIAL STATEMENTS 10
- --------------------------------------------------------------------------------
BOSTON 1784 FUNDS:
[Bullet] ARE NOT INSURED BY THE FDIC OR ANY OTHER GOVERNMENTAL AGENCY;
[Bullet] ARE NOT GUARANTEED BY BANKBOSTON, N.A. OR ANY OF ITS AFFILIATES;
[Bullet] ARE NOT DEPOSITS OR OBLIGATIONS OF BANKBOSTON, N.A. OR ANY
OF ITS AFFILIATES;
[Bullet] INVOLVE INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL
AMOUNT INVESTED.
BANKBOSTON, N.A. SERVES AS INVESTMENT ADVISER AND SHAREHOLDER
SERVICING AGENT FOR BOSTON 1784 FUNDS. BOSTON 1784 FUNDS ARE
DISTRIBUTED BY SEI INVESTMENTS DISTRIBUTION CO., A PARTY INDEPENDENT
OF BANKBOSTON, N.A. OR ANY OF ITS AFFILIATES. INVESTMENT COUNSELORS
ARE REGISTERED REPRESENTATIVES OF BANKBOSTON INVESTOR SERVICES, INC.
(MEMBER NASD/SIPC), A WHOLLY-OWNED SUBSIDIARY OF BANKBOSTON, N.A.
- --------------------------------------------------------------------------------
<PAGE>
BOSTON 1784 FUNDS
LETTER TO SHAREHOLDERS
- --------------------------------------------------------------------------------
[ROBERT A. NESHER PHOTO OMITTED]
It is a pleasure to provide you with this semi-annual report for Boston 1784
Funds. In September 1999, the Funds achieved another milestone, surpassing $10
billion in total assets. As of November 30, 1999, there were $10.4 billion in
total assets in the Funds.
You will find detailed information on the performance of individual Boston 1784
Funds in this report. Several Funds deserve special mention, however, as a
result of their performance against their respective peer groups. According to
Lipper rankings for the twelve months ended November 30, 1999:*
[Bullet] BOSTON 1784 TAX-FREE MONEY MARKET FUND ranked 7th out of 134 funds
(top 6%) in the Lipper Tax-Exempt Money Market Funds category.
[Bullet] BOSTON 1784 U.S. TREASURY MONEY MARKET FUND ranked 17th out of 91 funds
(top 19%) in the Lipper U.S. Treasury Money Market Funds category.
[Bullet] BOSTON 1784 INTERNATIONAL EQUITY FUND ranked 73rd out of 604 funds
(top 13%) in the Lipper International Funds category.
[Bullet] BOSTON 1784 ASSET ALLOCATION FUND ranked 138th out of 444 funds
(top 32%) in the Lipper Balanced Funds category.
Please remember that a Fund's performance in the past is not necessarily an
indication of how a Fund will do in the future. The Funds' total returns and
resulting rankings reflect advisory fee and expense waivers.
I would like to draw your attention also to information relating to the merger
of BankBoston Corporation and Fleet Financial Group, Inc. and the succession of
Oechsle International Advisors LLC as co-adviser of the International Equity
Fund. This information can be found under "Recent Developments" on page 87 of
this report.
We are always ready to provide you with information to help you make sound
investment decisions. If you have questions about any Boston 1784 Fund or your
account, or would like a copy of the most recent prospectus, we invite you to
contact your Investment Counselor or call 1-800-BKB-1784, Monday through Friday
from 8:00 a.m. to 6:00 p.m. (Eastern time). Our automated system is ready also
24 hours a day to provide you with account information.
Thank you for choosing Boston 1784 Funds to help meet your investment goals.
Sincerely,
/s/signature omitted
Robert A. Nesher
President
Boston 1784 Funds
*For the five years ended November 30, 1999:
Boston 1784 Tax-Free Money Market Fund ranked 11th out of 108 funds in the
Lipper Tax-Exempt Money Market Funds category. Boston 1784 U.S. Treasury Money
Market Fund ranked 16th out of 70 funds in the Lipper U.S. Treasury Money Market
Funds category. Boston 1784 Asset Allocation Fund ranked 74th out of 209 funds
in the Lipper Balanced Funds category.
1
<PAGE>
PERFORMANCE HIGHLIGHTS OF THE FUNDS
- --------------------------------------------------------------------------------
FOR THE PERIOD JUNE 1, 1999 THROUGH NOVEMBER 30, 1999
<TABLE>
<CAPTION>
INCOME
TOTAL NET ASSETS TOTAL RETURN(1) NAV SHARE PRICE YIELD DISTRIBUTIONS
11-30-99 11-30-99 HIGH LOW 30-DAY 7-DAY PER
(IN MILLIONS) SHARE
---------------------------------------------------------------------------------------------
MONEY MARKET FUNDS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Boston 1784 Tax-Free Money Market $1,058.1 1.53% $1.00 $1.00 $1.00 N/A 3.36% $ 0.02
Boston 1784 U.S. Treasury Money Market 387.1 2.25 1.00 1.00 1.00 N/A 4.90 0.02
Boston 1784 Prime Money Market 170.8 2.43 1.00 1.00 1.00 N/A 4.99 0.02
- ------------------------------------------------------------------------------------------------------------------------------
BOND FUNDS
- ------------------------------------------------------------------------------------------------------------------------------
Boston 1784 Short-Term Income $145.7 1.59% $9.91 $10.03 $9.90 5.86% N/A $ 0.27
Boston 1784 Income 330.3 0.15 9.60 9.92 9.59 6.08 N/A 0.29
Boston 1784 U.S. Government
Medium-Term Income 268.8 0.71 9.27 9.44 9.23 5.59 N/A 0.25
- ------------------------------------------------------------------------------------------------------------------------------
TAX-EXEMPT INCOME FUNDS
- ------------------------------------------------------------------------------------------------------------------------------
Boston 1784 Tax-Exempt
Medium-Term Income $345.2 (2.33)% $9.76 $10.30 $9.71 4.68% N/A $ 0.22
Boston 1784 Connecticut
Tax-Exempt Income 178.3 (1.87) 10.19 10.64 10.08 4.62 N/A 0.23
Boston 1784 Florida
Tax-Exempt Income 68.9 (2.03) 9.70 10.10 9.56 4.58 N/A 0.22
Boston 1784 Massachusetts
Tax-Exempt Income 252.1 (1.88) 9.97 10.36 9.83 4.61 N/A 0.23
Boston 1784 Rhode Island
Tax-Exempt Income 97.0 (2.46) 9.97 10.47 9.86 4.70 N/A 0.23
- ------------------------------------------------------------------------------------------------------------------------------
STOCK FUNDS
- ------------------------------------------------------------------------------------------------------------------------------
Boston 1784 Asset Allocation $ 53.8 7.04% $15.36 $15.89 $14.67 2.43% N/A $ 0.21
Boston 1784 Growth and Income 516.7 9.56 21.96 24.42 21.41 N/A N/A --
Boston 1784 Growth 249.4 43.20 16.10 17.49 11.78 N/A N/A --
Boston 1784 International Equity 477.3 42.75 15.35 17.73 13.03 N/A N/A --
<FN>
Performance data represent past results and are no guarantee of future results.
Investment return and principal value will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost. Yield
fluctuates. Yield reflects the portfolio's earning power, net of fund expenses.
An investment in a money market fund is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency. Although money
market funds seek to preserve the value of your investment at $1.00 per share,
it is possible to lose money by investing in a money market fund.
(1) Returns are for the period indicated and have not been annualized.
2
</FN>
</TABLE>
<PAGE>
BOSTON 1784 FUNDS
TOTAL RETURN FOR THE PERIOD
JUNE 1, 1999 - NOVEMBER 30, 1999
- --------------------------------------------------------------------------------
[BAR CHART OMITTED]
PLOT POINTS FOLLOWS:
BOSTON
1784 FUNDS TOTAL RETURN FOR THE PERIOD ENDED NOVEMBER 30, 1999 (1)
TAX-FREE MONEY MARKET 1.53
U.S. TREASURY MONEY MARKET 2.25
PRIME MONEY MARKET 2.43
SHORT-TERM INCOME 1.59
INCOME 0.15
U.S. GOVERNMENT MEDIUM-TERM INCOME 0.71
TAX-EXEMPT MEDIUM-TERM INCOME (2.33)
CONNECTICUT TAX-EXEMPT INCOME (1.87)
FLORIDA TAX-EXEMPT INCOME (2.03)
MASSACHUSETTS TAX-EXEMPT INCOME (1.88)
RHODE ISLAND TAX-EXEMPT INCOME (2.46)
ASSET ALLOCATION 7.04
GROWTH AND INCOME 9.56
GROWTH 43.20
INTERNATIONAL EQUITY 42.75
(1) RETURNS ARE FOR THE PERIOD INDICATED AND HAVE NOT BEEN ANNUALIZED.
3
<PAGE>
TERMS YOU NEED TO KNOW
- --------------------------------------------------------------------------------
ADVISER is an organization employed by a mutual fund to give professional advice
on the fund's investments and asset management practices
(also called the investment adviser).
ASSETS are the investment holdings and cash owned by a mutual fund.
AVERAGE-WEIGHTED-MATURITY is an average of the maturity dates of the various
securities in a mutual fund based on the dollar value of those securities. It is
calculated by multiplying the market value of each portfolio security by the
time remaining to its maturity, adding these calculations and then dividing the
total by the market value of the portfolio.
BASIS POINT is one one-hundredth of a percentage point.
CAPITAL APPRECIATION is the increase in the market value of a mutual fund's
securities, as reflected in the net asset value of the fund's shares. Capital
appreciation (or growth) is a specific long-term objective of many mutual funds.
COUPON RATE is the stated interest rate on a bond.
DIVERSIFICATION is the practice of investing broadly across a number of
securities to reduce risk; a hallmark of mutual fund investing.
DURATION is a weighted average term-to-maturity of a mutual fund security's cash
flow.
EXPENSE RATIO is a fund's cost of doing business -- disclosed in the prospectus
- -- as a percent of its assets.
INCOME is the dividends, interest, and/or short-term capital gains paid to a
mutual fund's shareholders. Income is earned on a fund's investment portfolio
after deducting operating expenses.
INVESTMENT OBJECTIVE is the goal -- long-term capital growth or current income,
for example -- that an investor and mutual fund pursue together.
LIQUIDITY is the ability to redeem (sell back) all or part of your mutual fund
shares on any business day and receive the current value (which may be more or
less than the original cost).
MANAGEMENT FEE is the amount paid by a mutual fund to the investment adviser for
its services.
NET ASSET VALUE PER SHARE (NAV) is the market worth of one share of a mutual
fund. This figure is derived by taking a fund's total assets -- securities, cash
and any accrued earnings -- deducting liabilities, and dividing by the number of
shares outstanding.
PRINCIPAL is the basic amount of money you invest, not to be confused with
reinvested dividends or capital gains.
TOTAL RETURN is the change in value of an investment from the beginning to the
end of a period, assuming the reinvestment of all distributions. This is based
on a formula set by the Securities and Exchange Commission.
YIELD is the percentage rate at which a fund's portfolio earns income for its
investors, based on a formula set by the Securities and Exchange Commission.
4
<PAGE>
BOSTON 1784 FUNDS
FUND OBJECTIVES
- --------------------------------------------------------------------------------
MONEY MARKET FUNDS
[Bullet] BOSTON 1784 TAX-FREE MONEY MARKET FUND
To preserve the principal value of a shareholder's investment and
maintain a high degree of liquidity while providing current income that
is exempt from federal income tax.
[Bullet] BOSTON 1784 U.S. TREASURY MONEY MARKET FUND
To preserve the principal value of a shareholder's investment and
maintain a high degree of liquidity while providing current income.
[Bullet] BOSTON 1784 PRIME MONEY MARKET FUND
To preserve the principal value of a shareholder's investment and
maintain a high degree of liquidity while providing current income.
BOND FUNDS
[Bullet] BOSTON 1784 SHORT-TERM INCOME FUND
To provide investors with maximum current income, and, as a secondary
goal, to preserve investors' capital. n Boston 1784 Income Fund To
provide investors with maximum current income, and, as a secondary
goal, to preserve investors' capital.
[Bullet] BOSTON 1784 INCOME FUND
To provide investors with maximum current income, and, as a secondary
goal, to preserve investors' capital.
[Bullet] BOSTON 1784 U.S. GOVERNMENT MEDIUM-TERM INCOME FUND
To provide investors with current income consistent with preservation
of capital.
TAX-EXEMPT FUNDS
[Bullet] BOSTON 1784 TAX-EXEMPT MEDIUM-TERM INCOME FUND
To provide investors with current income, exempt from federal income
tax, consistent with preservation of capital.
[Bullet] BOSTON 1784 CONNECTICUT TAX-EXEMPT INCOME FUND
To provide investors with current income exempt from both federal and
Connecticut personal income tax, with a secondary goal of preserving
capital.
[Bullet] BOSTON 1784 FLORIDA TAX-EXEMPT INCOME FUND
To provide investors with current income exempt from federal income tax
through Fund shares which are exempt from Florida intangible personal
property tax, with a secondary goal of preserving capital.
[Bullet] BOSTON 1784 MASSACHUSETTS TAX-EXEMPT
Income Fund To provide investors with current income exempt from both
federal and Massachusetts personal income tax, consistent with
preservation of capital.
[Bullet] BOSTON 1784 RHODE ISLAND TAX-EXEMPT INCOME FUND
To provide investors with current income exempt from federal income tax
and Rhode Island personal income and business corporation taxes, with a
secondary goal of preserving capital.
STOCK FUNDS
[Bullet] BOSTON 1784 ASSET ALLOCATION FUND
To provide investors with a favorable total rate of return through
current income and capital appreciation consistent with preservation of
capital, derived from investing in fixed income and equity securities.
[Bullet] BOSTON 1784 GROWTH AND INCOME FUND
To provide investors with long-term growth of capital with a secondary
goal of income.
[Bullet] BOSTON 1784 GROWTH FUND
To provide investors with capital appreciation. Dividend income, if
any, is incidental to this goal.
[Bullet] BOSTON 1784 INTERNATIONAL EQUITY FUND
To provide investors with long-term growth of capital. Dividend income,
if any, is incidental to this goal.
5
<PAGE>
INVESTMENT ADVISER'S REPORT
- --------------------------------------------------------------------------------
[EDWARD G. RILEY, JR. PHOTO OMITTED]
It's a good thing records are made to be broken, because the economy and the
financial markets seem to break new ground with each new government press
release and closing bell.
The economy, which several quarters ago broke the record for longest
peacetime expansion, is nudging the mark for longest expansion ever. Economic
(GDP) growth in the third calendar quarter of 1999 surged 5.5%, evidence of the
tremendous momentum in consumer sectors like autos (which also set a new sales
record) and Internet-related e-commerce activity. Equally impressive are strong
employment growth and a persistently low unemployment rate of 4.2% to 4.4%.
To be sure, 5.5% GDP growth is well above the Federal Reserve Board's 3%
speed limit, and the Board has taken steps to slow the economy--and lower the
risk of inflation--with three increases in the Federal Funds Rate since June
1999. The rate currently stands at 5.50%.
But strong employment/low unemployment are great enhancers of consumer
confidence and spending, which are the fuel for current economic growth. Couple
these with the hard-to-quantify impact of Y2K-related stockpiling and a broad
rebound in business activity overseas and you have an economy that seems
impervious, so far, to interest rate increases.
In recent months, some experts have advanced the notion that inflation is
dead, and when it hovered around 1.5% it was certainly not much of an issue. But
it can also be argued that high growth, low unemployment and rising spending
must eventually lead to inflation. The reason: simple supply-and-demand factors
will push up the price of goods, while higher wages will push up the cost of
manufacturing. And with inflation at present a less benign 2.6%, pressure on
prices--and the Federal Reserve Board--are building.
STOCK MARKET REVIEW
The soaring stock market is also contributing to inflationary pressure by
boosting the confidence of virtually any consumer with a 401(k)
[down jones line chart omitted]
DOW JONES INDUSTRIAL AVERAGE
NOVEMBER 1998-NOVEMBER 1999
PLOT POINTS FOLLOWS:
9116 11/98
9274
9358 12/98
9306
9786 1/99
10789
11107 2/99
10799
11066 3/99
11002
10655 4/99
11117 5/99
10829 6/99
11030 7/99
10337 8/99
10729 9/99
11035 10/99
10877 11/99
6
<PAGE>
BOSTON 1784 FUNDS
- --------------------------------------------------------------------------------
plan--provided he or she has invested liberally in technology and Internet
stocks. The "new economy" stocks have driven the NASDAQ and other indices to
record highs, with the Dow Jones Industrial Average breaking the 11,000 barrier
and the Standard & Poor's 500 Composite Index ("S&P 500") rising above 1400.
In reality, however, we are in the midst of a "tale of two markets." Exclude
the gains in technology and Internet stocks from the S&P 500 and you discover an
equity market that has gained little or no ground in the last 12 months.
However, investors who positioned their portfolios correctly profited
handsomely. For example, on November 30, 1999, Boston 1784 Growth Fund, which is
heavily invested in technology and Internet ("new economy") stocks, was up
40.64% since January 1999.
It is interesting, however, that even absent technology-related issues, the
broader markets have managed to hold their ground despite developments that once
would have been an anathema to stock prices. We've already discussed the
1-percentage-point increase in inflation and the Federal Reserve Board's
response. Also noteworthy is the increase in long-term interest rates, from 4.7%
a little more than a year ago to about 6.25% as of November 30, 1999. Even so,
the S&P 500 manages to sustain a relatively high price/earnings multiple of 24
times.
Not to be outdone by U.S. indices, the international markets have posted
strong results this year. As economic pressures have eased, business activity
has increased and interest in equities has been revived. Even Japanese markets
zoomed upward, although they have calmed recently. Investors in Boston 1784
International Equity Fund have been among the beneficiaries of this improvement,
with that Fund gaining 38.25% since January 1999.
[PACIFIC STOCK EXCHANGE LINE CHART OMITTED]
PLOT POINTS FOLLOWS:
PACIFIC STOCK EXCHANGE TECHNOLOGY INDEX
NOVEMBER 1998-NOVEMBER 1999
412 11/98
449 12/98
515 1/99
462 2/99
506 3/99
514 4/99
546 5/99
612 6/99
596 7/99
649 8/99
627 9/99
664 10/99
816 11/99
Overall, the outlook for equities remains positive. While the flow of funds
into equity mutual funds is down 50% from last year, it remains at about a $120
billion annual rate, providing plenty of liquidity for further gains. In
addition, a high level of merger and acquisition activity, coupled with
aggressive stock buy-back programs on the part of many corporations, has
tightened the supply of stocks. We could well see a rise in merger
7
<PAGE>
- --------------------------------------------------------------------------------
and acquisition activity in the coming months, as corporations race to beat
the elimination of pooling-of-interest accounting later in 2000. The equity
market may also respond positively as Y2K fears abate in the first quarter.
Regardless of these factors, however, the market will remain caught in a
clash between "new economy" stocks and the Federal Reserve Board's need to slow
growth. Although the Federal Reserve Board has stated that it will not move
solely to influence stock market activity, it's clear that the Open Market
Committee is concerned about the impact of the "wealth effect" on the economy.
[30-YEAR TREASURY LINE CHART OMITTED]
PLOT POINTS FOLLOWS:
30-Year Treasury Bond
November 1998-November 1999
Yield
5.07 11/98
5.09 1/99
5.63 3/99
5.84 5/99
6.10 7/99
6.05 9/99
6.28 11/99
BOND MARKET REVIEW
It's clear that the bond market shares the Federal Reserve Board's concern
about the rapid pace of potentially inflationary economic growth--and that it
has reacted far more negatively than the stock market to inflation fears. This
year's surge in energy prices and overall increases in commodity prices have not
helped matters.
In response, wary bond investors have pushed long-term interest rates up
approximately 1.5% since last fall, from 4.7% to about 6.25% on November 30,
1999. Regardless of the measurable level of inflation, interest rates now
include an "inflation premium." In addition, higher rates are supported by an
excess supply of corporate debt issues as the flow of funds into bond mutual
funds remains a trickle.
While it appears that economic momentum will remain strong, we expect the
Federal Reserve Board to assume a cautious stance in the short term, tempering
rate increases in order to avoid a dramatic and potentially damaging stock
market correction. Over the long term, however, the Federal Reserve Board will
get ahead of the curve and manage to slow the momentum of the stock market and
the economy.
That will be good news for bond investors, as interest rates are likely to
decline accordingly. While cyclical pressures may push up interest rates over
the short term, long-term secular trends remain deflationary. For example, an
aging population continues to focus on saving rather than spending. So despite
temporary cyclical blips, the overall trend in inflation and interest rates is
downward.
8
<PAGE>
BOSTON 1784 FUNDS
- --------------------------------------------------------------------------------
MONEY MARKET REVIEW
Focusing on its mission to control inflation, the Federal Reserve Board has
raised short-term interest rates three times in 0.25% increments since June
1999, pushing the Federal Funds Rate from 4.75% to 5.50%. While that has been
good news for money market investors, whether the trend is sustained depends as
much on the Federal Reserve Board's fear of a severe stock market correction as
it does on economic growth. Once again, the Federal Reserve Board finds itself
in a precarious position, trying to cool an overheated economy (and stock
market) without ushering in a severe decline in economic activity. Consequently,
it is likely to remain in a reactive mode in the year ahead--with much more than
money market interest rates hanging in the balance.
We believe that economic growth is somewhat self-limiting, that the Federal
Reserve Board will be able to move in a timely but temperate fashion, and that
the prevailing upward momentum in stocks will continue. We worry about a world
where chat rooms have become a primary source of guidance for many investors,
and time horizons are measured by the refresh rate on an investor's Web browser.
In our view, though, investors with a disciplined, long-term outlook and sound
asset allocation strategy have little reason to worry.
/s/signature omitted
Edward G. Riley, Jr.
BankBoston, N.A.
MR. RILEY LEFT BANKBOSTON ON DECEMBER 31, 1999 TO PURSUE OTHER OPPORTUNITIES.
THIS REPORT COVERS THE PERIOD ENDING NOVEMBER 30, 1999, DURING WHICH TIME HE WAS
ASSOCIATED WITH BANKBOSTON.
[FEDERAL FUNDS LINE CHART OMITTED]
PLOT POINTS FOLLOWS:
FEDERAL FUNDS RATE
NOVEMBER 1996-NOVEMBER 1999
5.31 11/96
5.50 5/97
5.50 11/97
5.50 5/98
4.75 11/98
4.75 5/99
5.50 11/99
9
<PAGE>
as of November 30, 1999
STATEMENT OF NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
BOSTON 1784 TAX-FREE MONEY MARKET FUND
[PIE CHART OMITTED]
plot points follows:
Transportation Bonds 2%
Utility Bonds 14%
General Obligation Bonds 15%
Cash Equivalents 6%
Tax-Exempt Commercial Paper 6%
Other Revenue Bonds 3%
Education Bonds 11%
Health Care Bonds 12%
Industrial Development &
Pollution Control Bonds 15%
Bond Anticipation Notes 5%
Water & Sewer Bonds 7%
Housing Bonds 4%
% OF TOTAL PORTFOLIO INVESTMENTS
DESCRIPTION PAR (000) VALUE (000)
MUNICIPAL BONDS -- 92.0%
ALASKA -- 0.9%
Valdez, Arco Transportation
Project RB
3.300%, 02/17/00 $ 9,500 $ 9,500
----------
ARIZONA -- 3.7%
Pima County, Industrial
Development Authority RB (A)
4.000%, 12/01/99 19,000 19,000
Salt River, Series A
3.400%, 02/11/00 20,000 20,000
----------
39,000
----------
CALIFORNIA -- 0.7%
California Student Education
Loan Marketing RB,
Series A, LOC (A)
3.200%, 12/01/99 7,000 7,000
----------
COLORADO -- 2.2%
Colorado State Health Facility
Authority RB, LOC (A)
4.000%, 12/01/99 23,100 23,100
----------
DESCRIPTION PAR (000) VALUE (000)
CONNECTICUT -- 1.0%
Connecticut State Health &
Higher Education Facilities RB,
Yale University,
Series T-2 (A)
3.750%, 12/02/99 $10,455 $ 10,455
----------
FLORIDA -- 3.0%
Florida State Housing Finance
Authority RB, FGIC (A)
3.700%, 12/01/99 6,300 6,300
Miami, Dade County Water &
Sewer System RB, Series 1994,
FGIC (A)
3.600%, 12/01/99 25,600 25,600
----------
31,900
----------
GEORGIA -- 4.4%
Burke County, Pollution Control
RB, Oglethorpe Power,
Series A, FGIC (A)
3.900%, 12/01/99 13,750 13,750
Georgia State Municipal Electric
Authority RB, LOC (A)
3.900%, 12/01/99 800 800
Hapeville, Industrial Development
Authority RB, Hapeville Hotel Project,
LOC (A)
3.800%, 12/01/99 7,700 7,700
Southern Georgia Hospital
Authority RB, Series A (A)
3.950%, 12/01/99 24,100 24,100
----------
46,350
----------
HAWAII -- 0.3%
Hawaii State GO
4.400%, 07/01/00 2,925 2,942
----------
ILLINOIS -- 5.2%
Chicago GO (B)
3.750%, 01/31/00 10,000 10,000
Illinois State Development
Finance Authority RB,
Series 42A (A)
3.400%, 12/02/99 14,030 14,030
10
<PAGE>
BOSTON 1784 FUNDS
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
ILLINOIS (CONTINUED)
Illinois State Educational Facility
Authority RB, Shedd Aquarium
Society Project, Series B,
LOC (A) (B)
3.700%, 07/18/00 $ 6,000 $ 6,000
Illinois State Toll Highway
Authority RB (A)
3.900%, 12/02/99 25,000 25,000
----------
55,030
----------
INDIANA -- 0.4%
Indiana State Educational
Loan RB, Series E
4.200%, 06/01/00 4,400 4,419
----------
IOWA -- 1.0%
Iowa Finance Authority, Single
Family RB (A)
2.950%, 01/01/00 3,750 3,735
Iowa Finance Authority, Single
Family RB, Series A (A)
2.950%, 01/01/00 5,440 5,419
Iowa State Student Loan Liquidity
Corporation RB, Series A (A)
4.100%, 12/01/99 2,000 2,000
----------
11,154
----------
KENTUCKY -- 1.4%
Boone County, Pollution Control RB,
Cincinnati Gas & Electric Project,
LOC (A) (B)
3.800%, 12/01/99 4,100 4,100
Ohio County, Kentucky Pollution
Control RB, AMBAC (A)
3.900%, 12/01/99 11,100 11,100
----------
15,200
----------
LOUISIANA -- 4.5%
East Baton Rouge Pollution
Control RB (A)
3.800%, 12/01/99 3,300 3,300
Louisiana State Offshore Terminal
Authority RB, Deepwater Port
Project, LOC, AMBAC (A)
3.800%, 12/01/99 10,800 10,800
DESCRIPTION PAR (000) VALUE (000)
Louisiana State Offshore Terminal
Authority RB, Deepwater Port
Project, LOC (A)
3.600%, 12/01/99 $12,200 $ 12,200
Louisiana State South Port
RB, AMBAC (A)
3.850%, 12/01/99 10,000 10,000
Plaquemines, Port Facilities RB,
International Marine Terminal
Project, Series B (A) (B)
3.050%, 03/15/00 10,900 10,900
----------
47,200
----------
MARYLAND -- 1.6%
Maryland State Department of
Transportation RB
5.000%, 09/01/00 17,225 17,401
----------
MASSACHUSETTS -- 7.6%
Massachusetts State GO,
Series B (A)
3.900%, 12/02/99 37,000 37,000
Massachusetts State GO
4.000%, 05/01/00 8,080 8,106
Massachusetts State Health &
Educational RB (A)
3.850%, 12/01/99 22,400 22,400
3.710%, 12/02/99 13,195 13,195
----------
80,701
----------
MICHIGAN -- 1.2%
Kent, Hospital Finance
Authority RB, Spectrum Health
Series B, MBIA (A)
3.750%, 12/01/99 12,200 12,200
----------
MISSISSIPPI -- 1.0%
Perry County Pollution Control RB,
Leaf River Forest Project,
Series 1992, (A)
3.600%, 12/01/99 10,950 10,950
----------
MISSOURI -- 0.3%
Missouri State Higher Education
Loan Authority RB, Series CC
3.200%, 02/15/00 2,715 2,715
----------
11
<PAGE>
as of november 30, 1999
STATEMENT OF NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
BOSTON 1784 TAX-FREE MONEY MARKET FUND (CONTINUED)
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
NEBRASKA -- 0.9%
Nebraska State Public Gas
Supply RB, Series C
3.550%, 03/01/00 $ 3,195 $ 3,197
Omaha, Electric Power
Distribution RB, Series A
4.850%, 02/01/00 6,245 6,262
----------
9,459
----------
NEW HAMPSHIRE -- 1.6%
New Hampshire State Health &
Higher Education Facilities
Authority RB, Mary Hitchcock
Project, Series 85D, FGIC (A) (B)
3.950%, 12/01/99 12,600 12,600
New Hampshire State Health &
Higher Education Facilities
Authority RB, Veterans
Administration Hospital,
New England Project, Series C,
AMBAC (A) (B)
3.950%, 12/01/99 4,000 4,000
----------
16,600
----------
NEW JERSEY -- 1.1%
Bayonne BAN
4.000%, 07/14/00 11,992 12,006
----------
NEW MEXICO -- 0.6%
Hurley Pollution Control RB (A)
3.700%, 12/01/99 6,600 6,600
----------
NEW YORK -- 7.1%
Long Island Power Authority RB,
Sub-Series 5, LOC (A)
3.600%, 12/01/99 32,300 32,300
New York City GO,
Sub-Series A-5, LOC, (A)
3.800%, 12/01/99 7,915 7,915
New York City, Water & Sewer
Authority RB, Series C, FGIC (A)
3.800%, 12/01/99 10,000 10,000
New York State Housing Finance
Agency RB, Series PA 423 (A)
4.000%, 12/02/99 9,105 9,105
DESCRIPTION PAR (000) VALUE (000)
New York State Local Government
Assistance Corporation RB,
Series B, LOC (A) (B)
3.800%, 12/01/99 $15,400 $ 15,400
----------
74,720
----------
NORTH CAROLINA -- 4.9%
Wake County, Industrial Facilities
& Pollution Control RB,
Carolina Power & Light Project,
Series B, LOC (A)
(B)
3.850%, 12/01/99 8,600 8,600
Wake County, Industrial Facilities
& Pollution Control RB,
Carolina Power & Light Project,
Series C, LOC (A) (B)
3.850%, 12/01/99 34,300 34,300
Wake County, Industrial Facilities
& Pollution Control RB (A)
3.600%, 12/01/99 8,500 8,500
----------
51,400
----------
OHIO -- 0.9%
Ohio State GO, Highway
Improvements, Series D
4.000%, 05/01/00 10,000 10,032
----------
OKLAHOMA -- 2.5%
Oklahoma State Residential
Water Board RB
3.600%, 03/01/00 26,160 26,160
----------
PENNSYLVANIA -- 5.7%
Quakertown, General Authority RB,
Series A, LOC (A)
3.800%, 12/07/99 11,240 11,240
Quakertown, Hospital Facilities
Authority RB (A) (B)
3.800%, 12/07/99 34,200 34,200
Schuylkill County Industrial
Development Authority RB,
Gilberton Power Project (A)
3.850%, 12/01/99 14,800 14,800
----------
60,240
----------
12
<PAGE>
BOSTON 1784 FUNDS
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
SOUTH CAROLINA -- 1.8%
Piedmont, Municipal Power
Agency RB, MBIA (A)
3.900%, 12/01/99 $19,400 $ 19,400
----------
TENNESSEE -- 2.5%
Nashville & Davidson County,
Education & Health Facilities RB,
Metropolitan Government
Vanderbilt University,
Series 85-A, GOI (A)
3.100%, 01/15/00 2,500 2,500
Sullivan County, Industrial
Development Authority,
Pollution Control RB, Mead
Project (A) (B)
3.500%, 12/01/99 19,600 19,600
3.461%, 12/01/99 4,500 4,500
----------
26,600
----------
TEXAS -- 9.2%
Bexar County, Multi-Family
Housing RB, Altamonte
Apartments Project, FNMA (A)
3.900%, 12/01/99 11,300 11,300
Harris County Health Facilities RB,
MBIA (A)
3.850%, 12/01/99 18,000 18,000
Midlothian, Industrial
Development RB (A)
3.850%, 12/01/99 12,000 12,000
North Central Health Facility
Development Corporation RB,
Presbyterian Medical Center
Project, Series D, MBIA (A) (E)
3.700%, 12/01/99 5,010 5,010
Texas Municipal Power TECP
3.800%, 02/09/00 8,500 8,500
Texas State TRAN
4.500%, 08/31/00 35,000 35,199
Texas Utility TECP
3.750%, 12/03/99 7,835 7,835
----------
97,844
----------
UTAH -- 3.6%
Utah State GO, Series B(A)
3.800%, 12/01/99 38,300 38,300
DESCRIPTION PAR (000) VALUE (000)
VERMONT -- 0.6%
Vermont State Health &
Educational Facilities Authority
RB, Series D, AMBAC (A) (B)
3.950%, 12/01/99 $ 5,900 $ 5,900
----------
WASHINGTON -- 4.2%
Washington State Public
Power Supply System
Authority RB, Nuclear Project
No. 2, Series A (B)
7.375%, 07/01/00 5,000 5,215
Washington State
3.700%, 08/10/00 10,525 10,525
Washington State Public
Power RB (B)
7.000%, 07/01/00 5,500 5,726
Washington State Utility RB
5.000%, 07/01/00 17,660 17,840
Washington State Utility RB (B)
7.000%, 07/01/00 4,640 4,830
----------
44,136
----------
WISCONSIN -- 1.4%
Wisconsin State Health &
Elderly Facilities RB
5.500%, 12/01/99 6,550 6,550
Wisconsin State GO, Series B
4.900%, 05/01/00 5,000 5,022
Wisconsin State Utility RB (B)
7.400%, 07/01/00 3,250 3,390
----------
14,962
----------
WYOMING -- 3.0%
Sublette County, Pollution
Control RB, Exxon Project (A)
3.700%, 12/01/99 7,800 7,800
Uinta County, Pollution Control
RB, Chevron USA Project (A)
3.600%, 12/01/99 6,600 6,600
Wyoming Lincoln County, TECP
3.750%, 01/19/00 17,650 17,650
----------
32,050
----------
TOTAL MUNICIPAL BONDS
(Cost $973,626) 973,626
----------
13
<PAGE>
as of november 30, 1999
STATEMENT OF NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
BOSTON 1784 TAX-FREE MONEY MARKET FUND (CONCLUDED)
DESCRIPTION PAR (000) VALUE (000)
TAX-EXEMPT MUNICIPAL TRUST CERTIFICATES -- 1.0%
ABN Amro Munitops Certificate
3.350%, 12/06/06 $10,000 $ 10,000
-------------
TOTAL TAX-EXEMPT MUNICIPAL
TRUST CERTIFICATES
(Cost $10,000) 10,000
-------------
CASH EQUIVALENT -- 0.3%
Clipper Caraval Tax-Exempt Trust,
Series 1998-1, Class A-1, AMBAC
3.250%, 01/06/00 3,039 3,039
-------------
TOTAL CASH EQUIVALENT
(Cost $3,039) 3,039
-------------
REPURCHASE AGREEMENT -- 5.6%
Prudential
5.670%, dated 11/30/99, matures
12/01/99, repurchase price
$59,480,238 (collateralized by
U.S. Treasury Instruments:
total market value
$60,209,808) (C) 59,471 59,471
-------------
TOTAL REPURCHASE AGREEMENT
(Cost $59,471) 59,471
-------------
TOTAL INVESTMENTS -- 98.9%
(Cost $1,046,136) 1,046,136
-------------
OTHER ASSETS AND LIABILITIES, NET -- 1.1% 11,927
-------------
NET ASSETS:
Capital Shares (unlimited
authorization -- no par value)
based on 1,058,176,699 outstanding
shares of beneficial interest 1,058,177
Accumulated Net Realized Loss
on Investments (114)
-------------
TOTAL NET ASSETS -- 100.0% $1,058,063
=============
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE $1.00
=============
(A) Variable Rate Security. The rate reported on the Statement of Net Assets is
the rate in effect on November 30, 1999. The date shown is the next
scheduled reset date.
(B) Put, demand or pre-refund feature exists requiring the issuer to repurchase
the instrument prior to maturity. The date shown is the lesser of the put,
demand or pre-refund date.
(C) Tri-Party Repurchase Agreement
AMT -- Alternative Minimum Tax
BAN -- Bond Anticipation Not
COP -- Certificate of Participation
GO -- General Obligation Bond
LOC -- Securities are held in connection with a letter of credit issued by a
major commercial bank or other financial institution.
RB -- Revenue Bond
TECP -- Tax Exempt Commercial Paper
TRAN -- Tax and Revenue Anticipation Note
The following organizations have provided underlying credit support for the
securities as set forth in the Statement of Net Assets.
AMBAC -- American Municipal Bond Assurance Corporation
FGIC -- Financial Guaranty Insurance Corporation
FNMA -- Federal National Mortgage Association
FSA -- Financial Security Assurance
GNMA -- Government National Mortgage Association
GOA -- General Obligation of Authority
GOI -- General Obligation of Institution
MBIA -- Municipal Bond Insurance Association
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
14
<PAGE>
BOSTON 1784 FUNDS
as of november 30, 1999
STATEMENT OF NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
BOSTON 1784 U.S. TREASURY MONEY MARKET FUND
[pie chart omitted]
plot points follows:
U.S. Treasury Obligations 14%
U.S. Government Agency Obligations 32%
Cash Equivalents 54%
% OF TOTAL PORTFOLIO INVESTMENTS
DESCRIPTION PAR (000) VALUE (000)
U.S. TREASURY OBLIGATIONS -- 14.3%
U.S. Treasury Bills (A)
4.620%, 12/23/99 $ 5,000 $ 4,986
5.204%, 01/20/00 5,000 4,964
4.856%, 02/03/00 5,000 4,958
5.030%, 02/17/00 5,000 4,947
4.877%, 03/02/00 2,500 2,469
4.887%, 03/09/00 2,500 2,466
U.S. Treasury Notes
5.375%, 01/31/00 2,500 2,503
5.500%, 03/31/00 14,000 14,027
5.500%, 05/31/00 5,000 5,000
5.375%, 06/30/00 5,000 5,002
5.375%, 07/31/00 4,000 4,002
----------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $55,324) 55,324
----------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 31.6%
Federal Farm Credit Bank MTN (B)
5.855%, 12/07/99 5,000 4,999
Federal Home Loan Bank
5.000%, 12/29/99 5,000 5,000
5.100%, 03/09/00 5,000 5,000
5.742%, 04/14/00 5,000 4,895
5.350%, 06/08/00 4,000 3,998
DESCRIPTION PAR (000) VALUE (000)
Federal Home Loan Bank (A)
5.880%, 07/28/00 $ 5,000 $ 5,000
Federal Home Loan Bank (B)
5.895%, 12/07/99 5,000 5,000
Federal Home Loan Mortgage
Corporation (A)
5.310%, 12/10/99 4,000 3,995
5.592%, 02/01/00 10,000 9,906
5.516%, 06/06/00 2,815 2,738
Federal National Mortgage
Association (A)
5.336%, 12/02/99 15,000 14,998
5.336%, 12/08/99 10,000 9,990
5.292%, 12/13/99 5,000 4,991
5.240%, 12/17/99 5,000 4,988
5.619%, 01/20/00 5,000 4,962
5.586%, 02/07/00 5,000 4,949
5.663%, 02/14/00 5,000 4,942
Student Loan Marketing
Association (B)
5.615%, 03/07/01 3,950 3,938
5.835%, 03/12/01 10,000 9,996
5.835%, 05/18/01 4,000 3,999
Student Loan Marketing
Association MTN (A)
6.005%, 08/03/00 4,000 3,999
----------
TOTAL U.S. GOVERNMENT AGENCY
OBLIGATIONS
(Cost $122,283) 122,283
----------
REPURCHASE AGREEMENTS -- 54.3%
Dean Witter
5.650%, dated 11/30/99, matures
12/01/99, repurchase price
$50,007,740 (collateralized by
U.S. Treasury Instruments:
total market value
$51,000,075) (C) 50,000 50,000
Goldman
5.630%, dated 11/30/99, matures
12/01/99, repurchase price
$10,001,542 (collateralized by
U.S. Treasury Instruments:
total market value
$10,200,042) (C) 10,000 10,000
15
<PAGE>
as of november 30, 1999
STATEMENT OF NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
BOSTON 1784 U.S. TREASURY MONEY MARKET FUND (CONCLUDED)
DESCRIPTION PAR (000) VALUE (000)
Repurchase Agreements (continued)
Greenwich
5.660%, dated 11/30/99, matures
12/01/99, repurchase price
$50,007,753 (collateralized by
U.S. Treasury Instruments:
total market value
$51,000,084) (C) $50,000 $ 50,000
Hsbc Dvp
5.660%, dated 11/30/99, matures
12/01/99, repurchase price
$10,001,551 (collateralized by
U.S. Treasury Instruments:
total market value
$10,216,760) (C) 10,000 10,000
JP Morgan
5.660%, dated 11/30/99, matures
12/01/99, repurchase price
$70,075,865 (collateralized by
U.S. Treasury Instruments:
total market value
$71,466,324) (C) 70,065 70,065
Lehman
5.660%, dated 11/30/99, matures
12/01/99, repurchase price
$10,001,551 (collateralized by
U.S. Treasury Instruments:
total market value
$10,200,004) (C) 10,000 10,000
Prudential
5.670%, dated 11/30/99, matures
12/01/99, repurchase price
$10,001,553 (collateralized by
U.S. Treasury Instruments:
total market value
$10,124,230) (C) 10,000 10,000
----------
TOTAL REPURCHASE AGREEMENTS
(Cost $210,065) 210,065
----------
VALUE (000)
TOTAL INVESTMENTS -- 100.2%
(Cost $387,672) $387,672
----------
OTHER ASSETS AND LIABILITIES,
NET -- (0.2%) (588)
----------
NET ASSETS:
Capital Shares (unlimited
authorization -- no par value)
based on 387,076,037 outstanding
shares of beneficial interest 387,076
Accumulated Net Realized Gain
on Investments 8
----------
TOTAL NET ASSETS -- 100.0% $387,084
==========
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE $1.00
==========
(A) The rate reported on the Statement of Net Assets is the effective yield as
of November 30, 1999.
(B) Variable Rate Security. The rate reported on the Statement of Net Assets is
the rate in effect on November 30, 1999. The date shown is the next
scheduled reset date.
(C) Tri-Party Repurchase Agreement
MTN -- Medium Term Note
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
16
<PAGE>
BOSTON 1784 FUNDS
as of november 30, 1999
STATEMENT OF NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
Boston 1784 Prime Money Market Fund
- --------------------------------------------------------------------------------
[pie chart omitted]
plot points follows:
U.S. Government Agency Obligations 21%
Cash Equivalents 13%
Commercial Paper 32%
Municipal Bonds 15%
Corporate Bonds 19%
% OF TOTAL PORTFOLIO INVESTMENTS
DESCRIPTION PAR (000) VALUE (000)
COMMERCIAL PAPER -- 32.1%
COMMUNICATIONS EQUIPMENT -- 3.6%
Motorola (A)
5.525%, 12/16/99 $ 6,000 $ 5,986
----------
Drugs -- 2.9%
PFIZER
5.701%, 12/29/99 5,000 4,978
----------
FINANCIAL SERVICES -- 7.6%
BMW US Capital (A)
5.480%, 12/17/99 5,000 4,988
First Union National Bank (A)
5.569%, 11/24/00 3,000 2,999
National Rural Utilities (A)
5.491%, 12/14/99 5,000 4,990
----------
12,977
----------
FOOD, BEVERAGE & TOBACCO -- 4.5%
Campbell Soup (A)
5.323%, 12/15/99 5,000 4,990
Heinz H J (A)
5.324%, 12/02/99 2,700 2,700
----------
7,690
----------
DESCRIPTION PAR (000) VALUE (000)
LEASING & RENTING -- 1.8%
International Lease (A)
5.862%, 02/18/00 $ 3,050 $ 3,011
----------
MUNICIPALS -- 3.0%
New York City
5.500%, 12/01/99 1,350 1,350
5.500%, 12/02/99 1,800 1,800
6.100%, 02/23/00 2,000 2,000
----------
5,150
----------
PETROLEUM REFINING -- 2.9%
Koch Industries (A)
5.701%, 12/01/99 5,000 5,000
----------
RETAIL -- 2.9%
Wal-Mart (A)
5.328%, 12/16/99 5,000 4,989
----------
TELEPHONES & TELECOMMUNICATIONS -- 2.9%
SBC Communications (A)
5.483%, 12/16/99 5,000 4,989
----------
TOTAL COMMERCIAL PAPER
(Cost $54,770) 54,770
----------
CORPORATE BONDS -- 19.4%
Abbey National Treasury
5.701%, 12/01/99 5,000 5,000
American General
8.000%, 02/15/00 1,540 1,546
Associates Corporation of
North America
5.250%, 03/30/00 1,180 1,179
CIT Group, MTN
6.800%, 04/17/00 2,000 2,011
Fifth Third Bank
5.980%, 01/28/00 3,000 3,000
Ford Motor Credit
6.375%, 04/15/00 750 753
General Electric Capital, MTN
5.840%, 03/30/00 400 400
General Motors Acceptance
5.850%, 02/01/00 500 500
General Motors Acceptance, MTN
7.500%, 06/09/00 1,500 1,512
17
<PAGE>
as of november 30, 1999
STATEMENT OF NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
BOSTON 1784 PRIME MONEY MARKET FUND (CONCLUDED)
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
CORPORATE BONDS (CONTINUED)
Household Finance, MTN
6.000%, 05/08/00 $ 3,000 $ 3,003
International Business Machines
6.375%, 06/15/00 2,500 2,509
Morgan JP
6.125%, 10/02/00 500 500
Norwest Financial
6.000%, 03/15/00 2,755 2,761
PepsiCo, MTN
5.875%, 06/01/00 400 400
Sears Roebuck Acceptance
5.880%, 05/08/00 5,000 4,997
Walt Disney, MTN
5.600%, 01/13/00 3,000 3,001
----------
TOTAL CORPORATE BONDS
(Cost $33,072) 33,072
----------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 20.5%
Federal Home Loan Bank
5.100%, 03/09/00 5,000 5,000
5.100%, 05/17/00 2,500 2,498
Federal Home Loan Bank (A)
5.905%, 01/28/00 8,500 8,499
Federal Home Loan Mortgage
Corporation
5.611%, 12/01/99 5,000 5,000
Federal National Mortgage
Association, MTN
5.000%, 05/04/00 5,000 4,997
Student Loan Marketing
Association (A)
5.835%, 05/18/01 5,000 4,998
Student Loan Marketing
Association, MTN (A)
6.005%, 08/03/00 4,000 3,999
----------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(Cost $34,991) 34,991
----------
TAXABLE MUNICIPAL BONDS -- 15.4%
Barton Healthcare (B)
5.750%, 12/01/99 900 900
Catholic Health Initiatives (B)
5.700%, 12/01/99 1,000 1,000
DESCRIPTION PAR (000) VALUE (000)
Community Health System,
LOC (B)
5.650%, 12/01/99 $ 800 $ 800
Florida Housing Financing
Agency RB, MBIA (A)
6.000%, 12/01/99 2,500 2,499
Kit Carson County, Colorado
Agricultural Development
RB, LOC (B)
5.750%, 12/01/99 2,000 2,000
Los Angeles, California
Community Redevelopment
Agency RB, FSA (B)
5.700%, 12/01/99 5,000 5,000
Maryland State Health & Higher
Education Facilities RB,
Series B, LOC (B)
5.650%, 12/01/99 2,300 2,300
Maryland State Health & Higher
Education RB, LOC (B)
5.700%,12/02/99 4,100 4,100
Olathe, Kansas Industrial RB,
LOC (B)
5.600%, 12/02/99 4,000 4,000
Union County, Arkansas Industrial
RB, LOC (B)
5.750%, 12/01/99 3,000 3,000
Waterford, Wisconsin Industrial
RB, LOC (A)
5.750%, 12/01/99 775 775
----------
TOTAL TAXABLE MUNICIPAL BONDS
(Cost $26,374) 26,374
----------
REPURCHASE AGREEMENT -- 12.6%
Prudential
5.670%, dated 11/30/99, matures
12/01/99, repurchase price
$21,517,342 (collateralized by
U.S. Treasury Instruments:
total market value
$21,781,268) (C) 21,514 21,514
----------
TOTAL REPURCHASE AGREEMENT
(Cost $21,514) 21,514
----------
18
<PAGE>
BOSTON 1784 FUNDS
- --------------------------------------------------------------------------------
DESCRIPTION VALUE (000)
TOTAL INVESTMENTS -- 100.0%
(Cost $170,721) $170,721
----------
OTHER ASSETS AND LIABILITIES, NET -- 0.0% 55
----------
NET ASSETS:
Capital Shares (unlimited
authorization -- no par value)
based on 170,783,279 outstanding
shares of beneficial interest 170,766
Distributions in Excess of Net Investment
Income 34
Accumulated Net Realized Loss on Investments (24)
----------
TOTAL NET ASSETS -- 100.0% $170,776
==========
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE $1.00
==========
(A) The rate reported on the Statement of Net Assets is the effective yield as
of November 30, 1999.
(B) Variable Rate Security. The rate reported on the Statement of Net Assets is
the rate in effect as of November 30, 1999. The date shown is the next
scheduled reset date.
(C) Tri-Party Repurchase Agreement
LOC -- Securities are held in connection with a letter of credit issued by a
major commercial bank or other financial institution.
MBIA -- Municipal Bond Insurance Association
MTN -- Medium Term Note
RB -- Revenue Bonds
The following organizations have provided underlying credit support for a
security listed above.
FGIC -- Financial Guaranty Insurance Corporation
FSA -- Financial Security Assurance
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
19
<PAGE>
as of november 30, 1999
STATEMENT OF NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
BOSTON 1784 SHORT-TERM INCOME FUND
- --------------------------------------------------------------------------------
[pie chart omitted}
plot points follows:
U.S. Treasury Obligations 14%
Cash Equivalents 8%
Taxable Municipal Bonds 5%
Asset-Backed Securities 18%
U.S. Government Mortgage-Backed
Bonds 1%
Corporate Bonds 42%
U.S. Government Agency Obligations 12%
% OF TOTAL PORTFOLIO INVESTMENTS
DESCRIPTION PAR (000) VALUE (000)
U.S. TREASURY OBLIGATIONS -- 14.3%
U.S. Treasury Bond
5.500%, 03/31/03 $ 2,000 $ 1,964
U.S. Treasury Notes
7.125%, 02/29/00 1,200 1,205
6.250%, 04/30/01 5,500 5,523
6.375%, 09/30/01 6,000 6,037
6.250%, 01/31/02 2,000 2,009
6.625%, 03/31/02 2,000 2,025
7.250%, 08/15/04 2,000 2,086
----------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $21,044) 20,849
----------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 11.8%
Federal Home Loan Bank
5.875%, 09/17/01 5,000 4,966
5.250%, 04/25/02 5,500 5,368
Federal Home Loan Mortgage Corporation
5.000%, 02/15/01 5,000 4,934
Federal National Mortgage Association
5.750%, 04/15/03 2,000 1,954
----------
DESCRIPTION PAR (000) VALUE (000)
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(Cost $17,391) $ 17,222
----------
U.S. GOVERNMENT MORTGAGE-BACKED BONDS -- 0.7%
Federal Deposit Insurance
Corporation, REMIC
6.750%, 05/25/26 $ 574 568
Federal Home Loan Mortgage
Corporation
8.000%, 01/01/02 113 115
Federal National Mortgage
Association, REMIC
8.950%, 05/25/03 354 362
----------
TOTAL U.S. GOVERNMENT MORTGAGE-
BACKED BONDS
(Cost $1,051) 1,045
----------
TAXABLE MUNICIPAL BONDS -- 5.3%
Carondelet, California, Health Systems
RB, Daniel Freeman Hospitals,
MBIA
6.250%, 07/01/01 4,000 3,975
New York State Dormitory
Authority RB
6.550%, 04/01/00 2,500 2,496
Pennsylvania State Housing
Finance Agency RB, FHA
7.000%, 10/01/06 1,235 1,220
----------
TOTAL TAXABLE MUNICIPAL BONDS
(Cost $7,734) 7,691
----------
NON-AGENCY MORTGAGE-BACKED OBLIGATION -- 0.0%
Prudential Home Mortgage
Securities, Series 1993-31,
Class A7
6.000%, 08/25/00 9 9
----------
TOTAL NON-AGENCY MORTGAGE-BACKED
OBLIGATION
(Cost $9) 9
----------
20
<PAGE>
BOSTON 1784 FUNDS
- --------------------------------------------------------------------------------
BOSTON 1784 SHORT-TERM INCOME FUND (CONTINUED)
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
ASSET-BACKED SECURITIES -- 18.2%
Auto Leasing Investors,
Series 1997, Class A-2
5.926%, 08/14/00 $ 5,000 $ 4,995
CIT RV Owners Trust, Series 1995-A,
Class A
6.250%, 01/15/11 169 169
Citibank Credit Card Trust I
5.500%, 02/15/06 5,000 4,749
Crown Home Equity Loan Trust,
Series 1996-1, Class A3
6.810%, 06/25/11 2,000 1,938
Discover Card, Series 1998-4A, Class A
5.750%, 10/16/03 895 885
Centrex Auto Trust, Series 1996-A,
Class A
6.750%, 10/15/04 465 467
Fleetwood Credit Grantor Trust,
Series 1995-B, Class A
6.550%, 05/16/11 492 489
Green Tree Recreational,
Equipment & Consumer Trust,
Series 1996-A, Class A1
5.550%, 02/15/18 195 194
MBNA Master Credit Card Trust,
Series 1995-D, Class A
6.050%, 11/15/02 1,500 1,498
PNC Student Loan Trust I,
Series 1997-2, Class A-5
6.530%, 01/25/03 5,000 4,913
Reliance Auto Receivables,
Series 1996-A, Class A
6.100%, 07/15/02 132 132
Sears Credit Account Master
Trust, Series 1996-4, Class A
6.450%, 10/16/06 1,000 994
University Support Services,
Series 1993-A, Class B (A)
7.800%, 12/20/99 35 36
WFS Financial Owner Trust,
Series 1997-C, Class A4
6.150%, 09/20/02 5,000 4,993
----------
TOTAL ASSET-BACKED SECURITIES
(Cost $26,857) 26,452
----------
DESCRIPTION PAR (000) VALUE (000)
CORPORATE BONDS -- 41.9%
CHEMICALS -- 3.4%
Praxair
6.700%, 04/15/01 $ 5,000 $ 4,962
----------
FINANCIAL SERVICES -- 28.3%
Aristar
6.000%, 05/15/02 5,000 4,876
Associates Corporation of
North America
5.750%, 11/01/03 5,000 4,794
CIT Group Holdings
6.500%, 06/14/02 4,000 3,965
Equitable Companies
Installment Bond
6.750%, 12/01/00 780 784
Finova Capital
6.500%, 07/28/02 5,000 4,919
Ford Motor Credit
6.000%, 01/14/03 5,000 4,869
General Motors Acceptance
7.875%, 03/07/01 2,000 2,027
GMAC MTN
5.480%, 12/16/02 5,000 4,806
Heller Financial
6.460%, 10/27/00 5,000 5,016
Salomon Smith Barney Holdings
7.500%, 05/01/02 5,000 5,062
----------
41,118
----------
FOOD, BEVERAGE & TOBACCO -- 3.4%
Campbell Soup
6.150%, 12/01/02 5,000 4,925
----------
INDUSTRIAL -- 3.4%
McKesson
6.600%, 03/01/00 5,000 5,000
----------
RETAIL -- 3.4%
Wal-Mart Stores
6.150%, 08/10/01 5,000 4,981
----------
TOTAL CORPORATE BONDS
(Cost $61,898) 60,986
----------
21
<PAGE>
as of november 30, 1999
STATEMENT OF NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
BOSTON 1784 SHORT-TERM INCOME FUND (CONCLUDED)
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
REPURCHASE AGREEMENT -- 8.5%
JP Morgan
5.660%, dated 11/30/99, matures
12/01/99, repurchase price
$12,404,923 (collateralized by
U.S. Treasury Instruments:
total market value
$12,651,064) (B) $12,403 $ 12,403
----------
TOTAL REPURCHASE AGREEMENT
(Cost $12,403) 12,403
----------
TOTAL INVESTMENTS -- 100.7%
(Cost $148,387) 146,657
----------
OTHER ASSETS AND LIABILITIES, NET -- (0.7%) (994)
----------
NET ASSETS:
Capital Shares (unlimited
authorization -- no par value)
based on 14,693,137 outstanding
shares of beneficial interest 159,713
Undistributed Net Investment Income 12
Accumulated Net Realized Loss on Investments (12,332)
Net Unrealized Depreciation on Investments (1,730)
----------
TOTAL NET ASSETS-- 100.0% $145,663
==========
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE $9.91
==========
(A) Variable Rate Security. The rate reported on the Statement of Net Assets is
the rate in effect on November 30, 1999. The date shown is the next
scheduled reset date.
(B) Tri-Party Repurchase Agreement
MTN -- Medium Term Note
RB -- Revenue Bond
REMIC -- Real Estate Mortgage Investment Conduit
The following organizations have provided underlying credit support for th
securities as set forth in the Statement of Net Assets.
FHA -- Federal Housing Administration
MBIA -- Municipal Bond Insurance Association
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
22
<PAGE>
BOSTON 1784 FUNDS
as of november 30, 1999
STATEMENT OF NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
BOSTON 1784 INCOME FUND
- --------------------------------------------------------------------------------
[pie chart omitted]
plot points follows:
U.S. Treasury Obligations 24%
Yankee Bonds 3%
Cash Equivalents 6%
Asset-Backed Securities 3%
U.S. Government Agency Obligations 10%
Corporate Bonds 24%
U.S. Agency Mortgage-Backed Obligations 27%
Non-Agency Mortgage-Backed Obligations 3%
% OF TOTAL PORTFOLIO INVESTMENTS
DESCRIPTION PAR (000) VALUE (000)
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 9.8%
Fannie Mae MTN (A)
4.990%, 08/15/01 $ 4,000 $ 3,610
Federal Home Loan Bank
5.250%, 04/25/02 1,000 976
5.125%, 09/15/03 1,070 1,019
5.800%, 09/02/08 6,000 5,608
Federal Home Loan Mortgage
Corporation
8.530%, 02/02/05 5,000 5,018
Federal National Mortgage
Association
5.750%, 04/15/03 475 464
5.750%, 06/15/05 10,000 9,602
6.250%, 05/15/29 5,700 5,173
Federal National Mortgage
Association
6.375%, 06/15/09 1,000 970
----------
TOTAL U.S. GOVERNMENT AGENCY
OBLIGATIONS
(Cost $33,979) 32,440
----------
DESCRIPTION PAR (000) VALUE (000)
U.S. TREASURY OBLIGATIONS -- 23.5%
U.S. Treasury Bonds
8.125%, 08/15/19 $ 5,000 $ 5,824
7.875%, 02/15/21 4,260 4,872
8.000%, 11/15/21 8,750 10,165
6.000%, 02/15/26 700 656
5.250%, 11/15/28 20,785 17,543
5.250%, 02/15/29 4,050 3,435
U.S. Treasury Notes
6.250%, 10/31/01 8,605 8,643
5.500%, 02/28/03 1,000 983
5.500%, 05/31/03 80 78
5.750%, 08/15/03 1,030 1,017
6.500%, 08/15/05 3,250 3,292
6.875%, 05/15/06 4,750 4,899
7.000%, 07/15/06 2,215 2,301
6.500%, 10/15/06 5,000 5,060
6.000%, 08/15/09 5,580 5,507
6.125%, 08/15/29 2,000 1,960
U.S. Treasury STRIPS (A)
10.824%, 02/15/19 5,000 1,418
----------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $80,387) 77,653
----------
U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED OBLIGATIONS -- 27.2%
Federal Home Loan Mortgage
Corporation
7.750%, 09/01/05 447 455
5.750%, 03/15/09 3,500 3,246
6.000%, 11/01/28 17,213 15,983
Federal National Mortgage
Association
6.000%, 05/15/08 5,100 4,844
6.500%, 05/01/11 2,899 2,835
6.000%, 03/01/13 849 812
6.000%, 04/01/13 831 796
6.000%, 05/01/13 1,791 1,714
6.000%, 06/01/13 9,575 9,162
6.000%, 06/01/13 1,690 1,618
6.500%, 06/01/28 4,360 4,158
8.000%, 11/01/29 9,800 9,938
Federal National Mortgage
Association, REMIC
7.000%, 09/18/14 5,000 4,820
6.000%, 12/25/16 1,464 1,378
23
<PAGE>
as of november 30, 1999
STATEMENT OF NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
BOSTON 1784 INCOME FUND (CONCLUDED)
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED OBLIGATIONS (CONTINUED)
Government National Mortgage Association
7.000%, 10/15/23 $ 1,097 $ 1,072
8.000%, 06/15/25 107 109
8.000%, 10/15/25 208 212
8.000%, 01/15/26 78 80
8.000%, 02/15/26 109 111
7.500%, 04/15/26 2,558 2,555
8.000%, 05/15/26 43 44
8.000%, 05/15/26 91 93
7.000%, 06/15/26 4,491 4,392
8.000%, 06/15/26 364 371
7.500%, 02/15/27 50 50
8.000%, 03/15/27 1,015 1,034
6.500%, 05/15/28 8,427 8,019
6.500%, 06/15/28 9,416 8,960
6.500%, 06/15/28 966 919
----------
TOTAL U.S. GOVERNMENT MORTGAGE-
BACKED OBLIGATIONS
(Cost $92,668) 89,780
----------
ASSET-BACKED SECURITIES -- 3.0%
Citibank Credit, Series 1999-7,
Class A
6.650%, 11/15/06 3,295 3,264
Fleetwood Credit Grantor Trust,
Series 1995-B, Class A
6.550%, 05/16/11 739 734
Ford Credit Auto Owner Trust,
Series 1999-D, Class A
6.520%, 09/15/03 3,000 2,993
MBNA Master Credit Card
Trust, Series 1999-M, Class A
6.600%, 04/16/07 3,000 2,974
----------
TOTAL ASSET-BACKED SECURITIES
(Cost $10,026) 9,965
----------
NON-AGENCY MORTGAGE-
BACKED OBLIGATIONS -- 3.0%
AFC Home Equity Loan Trust,
Series 1996-3, Class 1A4
7.540%, 12/25/27 2,636 2,670
DESCRIPTION PAR (000) VALUE (000)
General Motors Acceptance,
Series 1999-C3, Class A1A
6.974%, 07/15/32 $ 991 $ 985
Merrill Lynch Mortgage Investors,
Series 1989-H, Class B (B)
10.000%, 01/15/10 2,443 2,443
Oakwood Mortgage Investors,
Series 1995-B, Class A3
6.900%, 01/15/21 4,040 3,897
----------
TOTAL NON-AGENCY MORTGAGE-
BACKED OBLIGATIONS
(Cost $10,269) 9,995
----------
CORPORATE BONDS -- 24.2%
AUTOMOTIVE -- 1.5%
DaimlerChrysler
7.200%, 09/01/09 5,000 5,006
----------
BROADCASTING, NEWSPAPERS
& ADVERTISING -- 1.1%
Outdoor Systems
8.875%, 06/15/07 3,500 3,605
----------
COMMUNICATIONS EQUIPMENT -- 0.3%
Lucent Technologies
5.500%, 11/15/08 1,000 903
----------
ENTERTAINMENT -- 1.8%
Time Warner Entertainment
10.150%, 05/01/12 4,965 5,939
----------
FINANCIAL SERVICES -- 6.6%
Aristar
7.250%, 06/15/06 805 785
Dime Bancorp
7.000%, 07/25/01 3,000 2,981
First USA Bank
7.650%, 08/01/03 3,525 3,569
Ford Motor Credit
7.375%, 10/28/09 6,395 6,435
US West Capital Funding
6.875%, 08/15/01 3,400 3,392
JP Morgan
6.000%, 01/15/09 5,000 4,556
----------
21,718
----------
24
<PAGE>
BOSTON 1784 FUNDS
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
INDUSTRIAL -- 7.0%
American Home Products
7.700%, 02/15/00 $ 3,190 $ 3,202
Burlington North
9.250%, 10/01/06 5,070 5,488
Dupont Ei Nemour
6.875%, 10/15/09 4,000 3,935
Fort James
6.875%, 09/15/07 4,000 3,825
Fortune Brands
6.250%, 04/01/08 3,600 3,402
Mckesson
6.300%, 03/01/05 700 640
Northrop Grumman
7.000%, 03/01/06 2,750 2,654
----------
23,146
----------
PETROLEUM & FUEL PRODUCTS -- 1.4%
Atlantic Richfield
5.900%, 04/15/09 1,900 1,727
Enron Oil & Gas
6.000%, 12/15/08 3,380 3,044
----------
4,771
----------
RETAIL -- 1.0%
Staples
7.125%, 08/15/07 3,300 3,205
----------
UTILITIES -- 3.5%
AT&T
6.000%, 03/15/09 3,300 3,040
Cable and Wireless Communications
6.625%, 03/06/05 600 599
MCI Worldcom
6.125%, 04/15/02 1,875 1,840
National Rural Utilities
5.750%, 11/01/08 3,940 3,556
Sprint Capital
6.900%, 05/01/19 2,500 2,315
----------
11,350
----------
TOTAL CORPORATE BONDS
(Cost $82,650) 79,643
----------
YANKEE BONDS -- 3.2%
Hydro-Quebec
8.625%, 05/20/02 3,395 3,519
DESCRIPTION PAR (000) VALUE (000)
Province of Ontario
7.375%, 01/27/03 $ 3,395 $ 3,450
Trans-Canada Pipelines
9.125%, 04/20/06 3,340 3,591
----------
TOTAL YANKEE BONDS
(Cost $10,864) 10,560
----------
REPURCHASE AGREEMENT -- 6.5%
JP Morgan
5.660%, dated 11/30/99, matures
12/01/99, repurchase price
$21,542,340 (collateralized by
U.S. Treasury Instruments:
total market value
$21,969,787) (C) 21,539 21,539
----------
TOTAL REPURCHASE AGREEMENT
(Cost $21,539) 21,539
----------
TOTAL INVESTMENTS -- 100.4%
(Cost $342,382) 331,575
----------
OTHER ASSETS AND LIABILITIES, NET -- (0.4%) (1,310)
----------
NET ASSETS:
Capital Shares (unlimited
authorization -- no par value)
based on 34,393,315 outstanding
shares of beneficial interest 346,721
Undistributed Net Investment Income 313
Accumulated Net Realized Gain on Investments (5,962)
Net Unrealized Depreciation on Investments (10,807)
----------
TOTAL NET ASSETS -- 100.0% $330,265
==========
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE $9.60
==========
(A) Zero Coupon Security. The rate reported on the Statement of Net Assets is
the effective yield as of November 30,1999.
(B) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration normally to qualified institutions.
(C) Tri-Party Repurchase Agreement
MTN -- Medium Term Note
REMIC -- Real Estate Mortgage Investment Conduit
STRIPS -- Separately Traded Registered Interest and Principal Securities
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
25
<PAGE>
as of november 30, 1999
STATEMENT OF NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
BOSTON 1784 U.S. GOVERNMENT MEDIUM-TERM INCOME FUND
- --------------------------------------------------------------------------------
[pie chart omitted]
plot points follows:
U.S. Treasury Obligations 32%
Cash Equivalents 4%
U.S. Government Mortgage-Backed Bonds 17%
U.S. Government Guaranteed Securities 6%
U.S. Government Agency Obligations 41%
% OF TOTAL PORTFOLIO INVESTMENTS
DESCRIPTION PAR (000) VALUE (000)
U.S. TREASURY OBLIGATIONS -- 31.8%
U.S. Treasury Bonds
11.250%, 02/15/15 $ 700 $ 1,005
6.000%, 02/15/26 6,100 5,714
5.250%, 11/15/28 2,800 2,363
5.250%, 02/15/29 3,000 2,544
U.S. Treasury Notes
6.375%, 05/15/00 8,400 8,429
8.000%, 05/15/01 2,000 2,056
6.625%, 07/31/01 463 468
5.625%, 09/30/01 1,000 993
6.250%, 10/31/01 5,500 5,524
7.500%, 11/15/01 1,600 1,643
6.250%, 01/31/02 2,000 2,009
6.000%, 07/31/02 1,000 999
5.500%, 02/28/03 15,000 14,741
5.500%, 05/31/03 19,420 19,046
5.250%, 08/15/03 2,000 1,943
5.875%, 11/15/05 2,000 1,969
7.000%, 07/15/06 7,800 8,103
6.250%, 02/15/07 770 769
6.625%, 05/15/07 500 510
6.125%, 08/15/07 2,000 1,980
DESCRIPTION PAR (000) VALUE (000)
U.S. Treasury STRIPS (A)
10.390%, 08/15/10 $ 1,000 $ 498
10.824%, 02/15/19 3,000 851
12.269%, 05/15/20 5,000 1,309
----------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $88,026) 85,466
----------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 41.0%
Agency of Housing and Urban
Development, Series 1995-A
8.240%, 08/01/02 2,000 2,072
Agency of Housing and Urban
Development, Series 1997-A
6.210%, 08/01/01 4,000 3,998
6.360%, 08/01/04 5,500 5,435
Federal Farm Credit Bank
7.350%, 03/24/05 350 361
Federal Farm Credit Bank (B)
5.835%, 12/07/99 10,000 9,961
Federal Home Loan Bank
5.500%, 04/14/00 5,000 4,991
5.250%, 04/25/02 5,000 4,880
6.580%, 01/07/03 3,000 2,987
7.660%, 07/20/04 350 365
Federal Home Loan Bank (B)
5.895%, 12/07/99 7,000 6,980
Federal Home Loan Mortgage
Corporation
5.750%, 07/15/03 3,500 3,413
7.000%, 07/15/03 178 179
7.000%, 10/01/03 54 55
8.530%, 02/02/05 1,000 1,004
7.340%, 11/03/06 1,000 1,000
Federal National Mortgage
Association
5.750%, 04/15/03 12,400 12,118
5.125%, 02/13/04 805 762
6.580%, 03/01/06 1,000 957
8.000%, 07/01/07 171 175
6.000%, 05/15/08 5,250 4,986
6.500%, 05/01/11 1,449 1,417
7.785%, 02/01/19 4,767 5,145
10.000%, 10/01/20 1,366 1,472
10.000%, 12/01/20 1,733 1,867
26
<PAGE>
BOSTON 1784 FUNDS
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
U.S. GOVERNMENT AGENCY OBLIGATIONS (CONTINUED)
Federal National Mortgage
Association (A)
6.375%, 06/15/09 $10,000 $ 9,705
Federal National Mortgage
Association MTN (A)
4.990%, 08/15/01 4,000 3,610
Private Export Funding
Corporation
5.500%, 03/15/01 2,500 2,475
6.310%, 09/30/04 5,000 4,875
6.620%, 10/01/05 1,740 1,718
7.110%, 04/15/07 3,800 3,861
Student Loan Marketing
Association (B)
5.835%, 12/07/99 6,000 5,977
Tennessee Valley Authority
Principal STRIPS (A)
7.813%, 04/15/42 4,000 1,509
----------
TOTAL U.S. GOVERNMENT AGENCY
Obligations
(Cost $111,594) 110,310
----------
U.S. GOVERNMENT MORTGAGE-BACKED BONDS -- 16.7%
Federal Deposit Insurance Corporation
REMIC, Series 1996 C-1, Class 1-A
6.750%, 05/25/26 1,436 1,419
Federal Home Loan Mortgage
Corporation Gold
7.000%, 12/01/10 1,079 1,076
Federal Home Loan Mortgage
Corporation REMIC,
Series 1663 Class AD
6.750%, 02/15/20 1,080 1,049
Federal National Mortgage
Association
6.000%, 04/01/13 9,983 9,553
6.000%, 06/01/13 132 127
8.000%, 11/01/29 7,795 7,905
Government National Mortgage
Association, Pool #4216
8.500%, 10/15/04 34 36
8.500%, 01/15/06 50 52
9.000%, 11/15/17 706 752
7.000%, 10/15/23 663 649
7.500%, 02/15/27 1,320 1,318
6.500%, 03/15/29 19,464 18,522
DESCRIPTION PAR (000) VALUE (000)
Student Loan Marketing Association,
Series 1997-2, Class A1 (B)
5.895%, 12/07/99 $ 2,529 $ 2,514
----------
TOTAL U.S. GOVERNMENT MORTGAGE-
BACKED BONDS
(Cost $46,297) 44,972
----------
U.S. GOVERNMENT GUARANTEED BONDS -- 6.1%
Global Industries
7.250%, 07/15/22 11,340 11,409
Secunda Atlantic Title XI
6.695%, 04/01/18 3,762 3,567
Sulphur Carriers
8.300%, 10/15/09 1,196 1,263
----------
TOTAL U.S. GOVERNMENT GUARANTEED BONDS
(Cost $16,009) 16,239
----------
NON-AGENCY MORTGAGE-BACKED OBLIGATIONS -- 0.0%
Ryland Acceptance Four, Series 32,
Class B
8.600%, 05/01/16 4 5
----------
TOTAL NON-AGENCY MORTGAGE-BACKED
OBLIGATIONS
(Cost $5) 5
----------
REPURCHASE AGREEMENT -- 3.6%
JP Morgan
5.660%, dated 11/30/99, matures
12/01/99, repurchase price
$9,543,480 (collateralized by
U.S. Treasury Instruments:
total market value
$9,732,843) (C) 9,542 9,542
----------
TOTAL REPURCHASE AGREEMENT
(Cost $9,542) 9,542
----------
TOTAL INVESTMENTS -- 99.2%
(Cost $271,473) 266,534
----------
OTHER ASSETS AND LIABILITIES, NET -- 0.8% 2,276
----------
27
<PAGE>
as of november 30, 1999
STATEMENT OF NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
BOSTON 1784 U.S. GOVERNMENT MEDIUM-TERM INCOME FUND (CONCLUDED)
- --------------------------------------------------------------------------------
DESCRIPTION VALUE (000)
NET ASSETS:
Capital Shares (unlimited
authorization -- no par value)
based on 28,997,446 outstanding
shares of beneficial interest $ 280,727
Undistributed Net Investment Income (408)
Accumulated Net Realized Loss on Investments (6,570)
Net Unrealized Depreciation on Investments (4,939)
----------
TOTAL NET ASSETS-- 100.0% $268,810
==========
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE $9.27
==========
(A) Zero Coupon Security. The rate reported on the Statement of Net Assets is
the effective yield as of November 30, 1999.
(B) Variable Rate Security. The rate reported on the Statement of Net Assets is
the rate in effect on November 30, 1999. The date shown is the next
scheduled reset date.
(C) Tri-Party Repurchase Agreement
MTN -- Medium Term Note
REMIC -- Real Estate Mortgage Investment Conduit
STRIPS -- Separately Traded Registered Interest and Principal Securities
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
28
<PAGE>
BOSTON 1784 FUNDS
as of november 30, 1999
STATEMENT OF NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
BOSTON 1784 TAX-EXEMPT MEDIUM-TERM INCOME FUND
- --------------------------------------------------------------------------------
[pie chart omitted]
plot points follows:
Health Care Bonds 4%
Cash Equivalents 3%
Transportation Bonds 9%
General Obligation Bonds 32%
Industrial Development & Pollution
Control Bonds 1%
Utility Bonds 26%
Public Facility Bonds 2%
Education Bonds 4%
Housing Bonds 9%
Resource Recovery Bonds 2%
Other Revenue Bonds 8%
% OF TOTAL PORTFOLIO INVESTMENTS
DESCRIPTION PAR (000) VALUE (000)
MUNICIPAL BONDS -- 95.1%
ALABAMA -- 0.7%
Alabama State Housing Finance
Authority RB, Series D-1, GNMA
6.000%, 10/01/16 $ 905 $ 915
Alabama State Water Pollution
Control Authority RB, AMBAC
5.000%, 02/15/13 1,500 1,425
----------
2,340
----------
ARKANSAS -- 0.3%
Arkansas State GO
5.000%, 06/01/15 1,000 925
----------
CALIFORNIA -- 2.9%
Burbank, Wastewater Treatment
RB, Series A, FGIC
5.500%, 06/01/15 1,500 1,496
California State GO
5.500%, 02/01/10 1,500 1,554
California State GO, FGIC
5.250%, 10/01/10 2,000 2,032
California State Home Mortgage
RB, Series A, MBIA
5.850%, 08/01/16 2,000 2,012
DESCRIPTION PAR (000) VALUE (000)
California State Housing Finance
Agency RB, Home Mortgage,
MBIA
5.950%, 08/01/10 $ 1,830 $ 1,880
Los Angeles County, Metropolitan
Transportation Authority
RB, AMBAC
5.700%, 07/01/12 1,135 1,175
----------
10,149
----------
COLORADO -- 0.6%
Denver, Multi-Family Housing
RB, Section 8, Series A
5.350%, 10/01/12 2,000 1,930
----------
CONNECTICUT -- 1.0%
Connecticut State Residential
Recovery RB, MBIA
5.125%, 01/01/09 1,000 995
Connecticut State Health &
Education Facilities Authority
RB, Series D, GOI
6.750%, 07/01/12 1,250 1,317
Connecticut State Housing
Finance Authority RB,
Series A, GOA
6.100%, 05/15/17 1,000 1,015
----------
3,327
----------
DISTRICT OF COLUMBIA -- 2.2%
District of Columbia GO,
Series A, MBIA
5.000%, 06/01/15 2,500 2,278
Georgetown University RB,
Series A, MBIA
5.950%, 04/01/14 1,000 1,022
Washington Convention Center
Tax RB, AMBAC,
5.250%, 10/01/14 4,500 4,292
----------
7,592
----------
FLORIDA -- 1.6%
Dade County GO, Series EE, FGIC
5.625%, 10/01/14 2,560 2,579
29
<PAGE>
as of november 30, 1999
STATEMENT OF NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
BOSTON 1784 TAX-EXEMPT MEDIUM-TERM INCOME FUND (CONTINUED)
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
FLORIDA (CONTINUED)
Florida State Board of Education
GO, Series E
5.700%, 06/01/14 $ 2,000 $ 2,020
Village Center Community,
Florida Utility RB
5.250%, 10/01/15 1,000 960
----------
5,559
----------
GEORGIA -- 3.3%
Georgia State GO, Series B
5.750%, 08/01/08 1,000 1,057
Georgia State GO, Series D
5.800%, 11/01/10 3,000 3,176
5.800%, 11/01/12 4,000 4,220
Georgia State Municipal Electric
Authority RB, MBIA
5.125%, 01/01/12 3,000 2,925
----------
11,378
----------
HAWAII -- 0.1%
Hawaii State GO, Series CR, MBIA
5.250%, 04/01/12 500 489
----------
ILLINOIS -- 1.3%
Chicago, O'Hare International
Airport RB, AMBAC
5.625%, 01/01/12 2,000 2,027
Illinois State GO
5.000%, 04/01/12 2,750 2,637
----------
4,664
----------
LOUISIANA -- 0.5%
Louisiana State GO, FSA
5.000%, 04/15/14 2,000 1,867
----------
MAINE -- 2.6%
Maine Municipal Bond Bank RB, FSA
5.250%, 11/01/08 1,705 1,733
5.150%, 11/01/13 1,250 1,203
Maine State Health & Higher
Educational Facilities Authority
RB, MBIA
5.000%, 07/01/11 1,680 1,638
4.750%, 07/01/13 1,500 1,359
DESCRIPTION PAR (000) VALUE (000)
Maine State Housing Authority
RB, Series C-1
5.700%, 11/15/15 $ 2,000 $ 1,970
Maine State Housing Authority
RB, Series F-1, HUD
5.125%, 11/15/15 1,300 1,198
----------
9,101
----------
MARYLAND -- 1.1%
Maryland State & Local
Facilities GO, 1st Series
5.000%, 03/01/10 1,500 1,492
Maryland State & Local
Facilities GO, 2nd Series
5.000%, 07/15/10 2,500 2,487
----------
3,979
----------
MASSACHUSETTS -- 11.8%
Holyoke GO, Series A, FSA
5.600%, 06/15/10 1,365 1,401
Massachusetts Bay Transportation
Authority RB, Series A, MBIA
5.500%, 03/01/12 1,290 1,314
Massachusetts State Bay
Transportation
Authority RB, Series C
5.500%, 03/01/08 1,000 1,032
Massachusetts State GO,
Series B, FGIC
5.000%, 06/01/09 2,200 2,186
Massachusetts State GO
5.750%, 08/01/09 3,650 3,833
5.250%, 08/01/14 2,500 2,425
Massachusetts State GO, AMBAC
5.000%, 08/01/14 2,500 2,359
Massachusetts State GO,
Series A
5.000%, 11/01/13 1,200 1,140
Massachusetts State GO,
Series B, FGIC
5.500%, 06/01/11 2,000 2,037
Massachusetts State GO,
Series D, AMBAC
4.500%, 11/01/15 3,000 2,572
30
<PAGE>
BOSTON 1784 FUNDS
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
MASSACHUSETTS (CONTINUED)
Massachusetts State Health &
Educational Facilities Authority RB,
Dana Farber Cancer Project,
Series G-1
6.250%, 12/01/08 $ 1,000 $ 1,040
Massachusetts State Health &
Educational Facilities Authority RB,
Eye & Ear Infirmary, Series B
5.250%, 07/01/11 1,000 981
Massachusetts State Health &
Educational Facilities Authority RB,
Harvard Pilgrim Health,
Series A, FSA
5.250%, 07/01/13 2,215 2,154
Massachusetts State Health &
Educational Facilities Authority RB,
Medical, Academic & Scientific
Project, Series A
6.250%, 01/01/05 1,060 1,116
Massachusetts State Health &
Educational Facilities Authority RB,
Suffolk University Project,
Series C, CONLEE
5.850%, 07/01/16 1,000 1,005
Massachusetts State Housing
Finance Agency RB,
Series A, MBIA
5.600%, 07/01/07 475 488
5.700%, 07/01/08 475 488
Massachusetts State Industrial
Finance Agency RB, College Issue,
CONLEE
5.875%, 07/01/11 1,090 1,139
Massachusetts State Industrial
Finance Agency RB, Resource
Recovery
4.950%, 12/01/06 1,710 1,622
Massachusetts State Industrial
Finance Agency RB, Resource
Recovery, Ogden Haverhill
Project, AMT
5.150%, 12/01/07 1,250 1,187
DESCRIPTION PAR (000) VALUE (000)
Massachusetts State Municipal
Wholesale Electric
Company RB, AMBAC
5.150%, 07/01/16 $ 2,000 $ 1,845
Massachusetts State Resource
Recovery Authority RB, Refusetech
Project, Series A
6.150%, 07/01/02 1,595 1,629
6.300%, 07/01/05 3,220 3,333
Massachusetts State Turnpike
Authority RB, Metropolitan
Highway System, Series C,
MBIA (A)
5.400%, 01/01/16 1,000 391
Massachusetts State Turnpike
Authority RB, Metropolitan
Highway System, Sub-Series B,
MBIA
5.250%, 01/01/17 1,000 940
Massachusetts State Turnpike
Authority RB, Series A
5.000%, 01/01/12 1,250 1,197
----------
40,854
----------
MICHIGAN -- 1.8%
Michigan State Building
Authority RB, Series I,
MBIA
4.750%, 10/15/13 3,250 2,978
Michigan State House of
Representatives COP, AMBAC
5.250%, 08/15/14 3,220 3,144
----------
6,122
----------
MINNESOTA -- 2.7%
Northern Minnesota State
Municipal Power Agency RB,
Electric System, FSA
5.250%, 01/01/12 2,490 2,471
Southern Minnesota State
Municipal Power Agency RB,
Power Supply Systems RB,
Series A, AMBAC
5.000%, 01/01/11 4,320 4,239
31
<PAGE>
as of november 30, 1999
STATEMENT OF NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
BOSTON 1784 TAX-EXEMPT MEDIUM-TERM INCOME FUND (CONTINUED)
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
MINNESOTA (CONTINUED)
Southern Minnesota Municipal
Power Agency RB
5.000%, 01/01/13 $ 2,715 $ 2,610
----------
9,320
----------
MISSISSIPPI -- 0.3%
Mississippi State Capital
Imports GO, Series A
5.000%, 07/01/09 1,000 988
----------
MISSOURI -- 0.9%
St. Charles County, Public Water
Supply District #2 COP,
Series A, MBIA
5.500%, 12/01/14 3,000 2,966
----------
NEBRASKA -- 2.1%
Nebraska State Investment
Finance Authority RB,
Childrens Healthcare Services,
AMBAC
5.500%, 08/15/17 1,435 1,390
Nebraska State Public Gas Supply
System RB, American Public
Energy, Series A, AMBAC
5.250%, 06/01/11 6,000 5,850
----------
7,240
----------
NEVADA -- 1.0%
Nevada State Capital & Cultural
Affairs GO, Series A
5.500%, 02/01/11 1,000 1,016
Nevada State GO, Series A
5.000%, 07/01/13 2,500 2,366
----------
3,382
----------
NEW HAMPSHIRE -- 2.3%
New Hampshire State Higher
Education & Health Facilities
Authority RB, Dartmouth Education
Loan Remarketing
5.300%, 06/01/15 1,045 1,014
DESCRIPTION PAR (000) VALUE (000)
New Hampshire State Higher
Education & Health Facilities
Authority RB, LOC
5.800%, 10/01/12 $ 1,000 $ 1,008
New Hampshire State Housing
Finance Authority RB, Series B, FHA
5.850%, 07/01/10 900 911
New Hampshire State RB
5.000%, 08/15/13 2,050 1,955
New Hampshire Municipal Bond
Bank RB, Series B, FSA
5.250%, 08/15/11 3,115 3,115
----------
8,003
----------
NEW JERSEY -- 1.9%
New Jersey State Transportation
Authority RB, Series A
5.500%, 06/15/08 3,000 3,120
5.000%, 06/15/12 3,500 3,378
----------
6,498
----------
NEW YORK -- 11.7%
Long Island Power Authority,
New York Electric System RB, FSA
5.500%, 12/01/12 1,500 1,530
Metropolitan Transportation
Authority RB, Commuter Facilities,
Series A, FGIC
5.750%, 07/01/11 1,000 1,033
Metropolitan Transportation
Authority RB, Series C, FSA
5.125%, 07/01/13 5,000 4,806
Metropolitan Transportation
Authority RB, Transportation
Service Contract, Series R
5.500%, 07/01/14 1,740 1,703
New York City GO
5.000%, 08/01/14 4,000 3,710
5.000%, 08/15/14 1,000 926
New York City GO, Series C
5.250%, 08/15/11 2,080 2,049
New York City GO, Series D
6.000%, 02/15/09 1,000 1,043
6.000%, 02/15/12 600 620
32
<PAGE>
BOSTON 1784 FUNDS
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
NEW YORK (CONTINUED)
New York City GO, Series F
5.250%, 08/01/14 $ 3,000 $ 2,850
New York Metropolitan Transit
Authority Commuter Facilities RB,
Series A, FSA
5.500%, 07/01/15 1,530 1,501
New York State Urban
Development RB, Correctional
Facilities, MBIA
5.000%, 01/01/13 1,500 1,427
New York State Dormitory
Authority RB, Mental Health
Services Facility, MBIA
5.000%, 08/15/14 1,000 938
New York State Dormitory
Authority RB, Series A, STGTD
5.500%, 05/15/10 1,000 1,009
New York State GO
5.000%, 03/15/14 2,000 1,880
New York State GO, Series C,
AMBAC
5.375%, 10/01/11 3,000 3,030
New York State Housing Finance
Agency RB, Series A, FSA
5.800%, 11/01/09 1,720 1,765
New York State Urban
Developement RB
5.250%, 01/01/14 7,225 7,071
New York State Urban
Development Authority RB,
Youth Facilities Project, MBIA
5.700%, 04/01/14 1,505 1,513
----------
40,404
----------
NORTH CAROLINA -- 4.1%
North Carolina State,
Eastern Municipal Power
Agency RB
6.000%, 01/01/14 4,000 3,880
5.600%, 01/01/16 2,000 1,823
North Carolina State,
Eastern Municipal Power
Agency RB, FGIC
6.000%, 01/01/13 2,000 2,043
DESCRIPTION PAR (000) VALUE (000)
North Carolina State,
Eastern Municipal Power
Agency RB, Series D
5.875%, 01/01/14 $1,035 $ 992
North Carolina State,
Eastern Municipal Power
Agency RB, Series D, ACA-CBI
5.600%, 01/01/16 3,000 2,963
North Carolina State Public GO,
Series A
5.250%, 03/01/12 2,500 2,500
----------
14,201
----------
OHIO -- 1.5%
Ohio State Infrastructure GO,
Series A
5.750%, 02/01/11 2,280 2,391
Ohio State Public Facilities
Commission RB, Higher
Education Authority, Series II-A
5.000%, 05/01/08 2,900 2,889
----------
5,280
----------
OKLAHOMA -- 0.8%
Oklahoma State Turnpike
Authority RB, Series B, FGIC
5.250%, 01/01/12 2,750 2,747
----------
PENNSYLVANIA -- 4.4%
Montgomery County GO
5.250%, 10/15/08 1,250 1,275
Pennsylvania State GO
5.250%, 06/15/12 2,155 2,128
Pennsylvania State GO,
1st Series, AMBAC
5.125%, 03/15/12 2,000 1,953
Pennsylvania State Higher
Education & Health
Services RB, Series A
5.750%, 01/01/12 1,300 1,256
Pennsylvania State Higher
Education Facilities
Authority RB, MBIA
5.250%, 01/01/13 2,000 1,958
33
<PAGE>
as of november 30, 1999
STATEMENT OF NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
BOSTON 1784 TAX-EXEMPT MEDIUM-TERM INCOME FUND (CONTINUED)
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
PENNSYLVANIA (CONTINUED)
Pennsylvania State Housing
Finance Agency RB, Single
Family Mortgages, Series A
6.000%, 10/01/13 $ 2,000 $ 2,025
Philadelphia, Water and
Wastewater Projects RB, FGIC
5.650%, 06/15/12 3,000 3,064
Southeastern Pennsylvania
Transportation Authority RB,
Series A, FGIC
5.125%, 03/01/08 1,450 1,454
----------
15,113
----------
PUERTO RICO -- 5.7%
Puerto Rico Commonwealth,
Public Improvement GO, FSA
5.500%, 07/01/12 2,000 2,055
Puerto Rico Commonwealth
GO, FSA
5.250%, 07/01/10 1,000 1,019
Puerto Rico Electric Power
Authority RB, Series CC, MBIA
5.000%, 07/01/10 2,050 2,047
Puerto Rico Electric Power
Authority RB
5.250%, 07/01/14 4,700 4,594
5.500%, 07/01/16 3,000 2,933
Puerto Rico Electric Power
Authority RB, Series CC, FSA
5.000%, 07/01/10 2,435 2,432
Puerto Rico Municipal Finance
Agency RB, Series A, FSA
5.250%, 07/01/10 1,500 1,526
Puerto Rico Public Education &
Health Facilities RB, Series M, CGTD
5.750%, 07/01/15 1,000 1,006
Puerto Rico GO, FSA
5.750%, 07/01/17 2,000 2,020
----------
19,632
----------
RHODE ISLAND -- 2.4%
Providence Public Building RB
5.375%, 12/15/11 1,000 1,003
DESCRIPTION PAR (000) VALUE (000)
Rhode Island State Depositor's
Economic Protection RB,
Series A, MBIA
6.400%, 08/01/06 $ 1,000 $ 1,084
Rhode Island State Housing &
Mortgage Finance RB, Series 15B
6.200%, 10/01/06 1,110 1,157
Rhode Island State Housing &
Mortgage Finance RB, Series 19A
5.700%, 04/01/15 2,500 2,450
Rhode Island State GO
5.500%, 09/01/15 2,740 2,695
----------
8,389
----------
SOUTH CAROLINA -- 1.4%
South Carolina State GO, Highway
System, Series A
4.600%, 05/01/12 4,000 3,730
South Carolina State Public Service
Authority RB, Series B, FGIC
5.875%, 01/01/14 1,150 1,183
----------
4,913
----------
TEXAS -- 3.7%
Tarrant County, Health Facilities
Authority RB, Harris Methodist
Health System Project, Series A,
AMBAC
5.125%, 09/01/12 2,700 2,606
Texas A&M University RB
5.200%, 05/15/10 2,580 2,574
Texas State GO
5.125%, 10/01/14 8,000 7,590
----------
12,770
----------
UTAH -- 1.3%
Utah State, Intermountain Power
Agency RB, Power Supply,
Series A, MBIA
5.250%, 07/01/12 4,500 4,438
----------
VIRGINIA -- 1.4%
Richmond GO, FSA
5.125%, 01/15/07 3,000 2,974
34
<PAGE>
BOSTON 1784 FUNDS
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
VIRGINIA (CONTINUED)
Virginia State Housing
Development Authority RB,
Series H
5.700%, 11/01/07 $ 1,655 $ 1,698
----------
4,672
----------
WASHINGTON -- 11.6%
Grant County Washington
Utility RB
5.250%, 01/01/14 2,400 2,292
Seattle Municipal Light &
Power RB
5.875%, 10/01/10 2,300 2,418
Washington State Convention &
Trade Center RB, MBIA
5.000%, 07/01/10 1,500 1,470
Washington State Public Power
Supply Systems RB
5.125%, 07/01/13 5,000 4,713
Washington State Public Power
Supply Systems RB, Nuclear
Power Project No. 1, Series B
5.125%, 07/01/14 3,000 2,798
Washington State Public Power
Supply Systems RB, Nuclear
Power Project No. 1, FSA
5.400%, 07/01/12 7,800 7,673
Washington State Public Power
Supply Systems RB, Nuclear
Power Project No. 3, Series A (A)
5.757%, 07/01/13 2,000 925
Washington State Public Power
Supply Systems RB, Nuclear
Power Project No. 3, Series A, FSA
5.100%, 07/01/10 2,500 2,450
Washington State Public Power
Supply Systems RB, Nuclear
Project No. 2, Series A, FSA
5.000%, 07/01/11 10,115 9,710
Washington State Public Power
Supply Systems RB, Nuclear Project
No. 1, Series A
5.000%, 07/01/11 1,000 955
5.000%, 07/01/13 4,000 3,735
DESCRIPTION PAR (000) VALUE (000)
Washington State Public Power
Supply Systems RB, Nuclear Project
No. 2, Series A, FSA
5.125%, 07/01/11 $ 1,000 $ 971
----------
40,110
----------
WEST VIRGINIA -- 0.6%
West Virginia State GO
5.250%, 06/01/11 1,000 1,003
5.000%, 06/01/14 1,000 941
----------
1,944
----------
WISCONSIN -- 1.5%
Wisconsin State Housing &
Economic Development
Authority RB, Series C, GOA
5.800%, 11/01/13 2,125 2,133
Wisconsin State Housing &
Economic Development Authority RB,
Home Ownership, Series E, GOA
5.900%, 09/01/16 1,000 998
Wisconsin State Transit RB
5.250%, 07/01/11 2,020 2,023
----------
5,154
----------
TOTAL MUNICIPAL BONDS
(Cost $334,181) 328,440
----------
REPURCHASE AGREEMENT -- 2.6%
JP Morgan
5.660%, dated 11/30/99, matures
12/01/99, repurchase price
$8,946,387 (collateralized by
U.S. Treasury Instruments:
total market value
$9,123,903) (B) 8,945 8,945
----------
TOTAL REPURCHASE AGREEMENT
(Cost $8,945) 8,945
----------
TOTAL INVESTMENTS -- 97.7%
(Cost $343,126) 337,385
----------
OTHER ASSETS AND LIABILITIES, NET -- 2.3% 7,777
----------
35
<PAGE>
as of november 30, 1999
STATEMENT OF NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
BOSTON 1784 TAX-EXEMPT MEDIUM-TERM INCOME FUND (CONCLUDED)
DESCRIPTION VALUE (000)
NET ASSETS:
Capital Shares (unlimited
authorization -- no par value)
based on 35,356,203 outstanding
shares of beneficial interest $ 354,409
Distribution in excess of Net
Investment Income (3)
Accumulated Net Realized Loss on
Investments (3,503)
Net Unrealized Depreciation on Investments (5,741)
----------
TOTAL NET ASSETS -- 100.0% $345,162
==========
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE $9.76
==========
(A) Zero Coupon Bond. The rate reported on the Statement of Net Assets is the
effective yield as of November 30, 1999.
(B) Tri-Party Repurchase Agreement
AMT -- Alternative Minimum Tax
COP -- Certificate of Participation
GO -- General Obligation Bond
HUD -- Department of Housing & Urban Development
LOC -- Securities are held in connection with a letter of credit issued by a
major commercial bank or other financial institution.
RB -- Revenue Bond
The following organizations have provided underlying credit support for the
securities as set forth in the Statement of Net Assets.
AMBAC -- American Municipal Bond Assurance Company
CGTD -- Commonwealth Guaranteed
CONLEE -- College Construction Loan Insurance
COP-- Certificate of Participation
FGIC -- Financial Guaranty Insurance Corporation
FHA -- Federal Housing Administration
FSA -- Financial Security Assurance
GNMA -- Government National Mortgage Association
GOA -- General Obligation of Authority
GOI -- General Obligation of Institution
MBIA -- Municipal Bond Insurance Association
STGTD -- State Guaranteed
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
36
<PAGE>
BOSTON 1784 FUNDS
as of november 30, 1999
STATEMENT OF NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
BOSTON 1784 CONNECTICUT TAX-EXEMPT INCOME FUND
- --------------------------------------------------------------------------------
[pie chart omitted]
plot points follows:
Resource Recovery Bonds 8%
Transportation Bonds 10%
Utility Bonds 8%
Water & Sewer Bonds 2%
Alternative Minimum Tax Bonds 4%
Cash Equivalents 2%
Education Bonds 3%
General Obligation Bonds 28%
Public Facility Bonds 1%
Other Revenue Bonds 4%
Housing Bonds 14%
Health Care Bonds 16%
% OF TOTAL PORTFOLIO INVESTMENTS
DESCRIPTION PAR (000) VALUE (000)
MUNICIPAL BONDS -- 96.8%
CONNECTICUT -- 77.3%
Bridgeport GO
6.500%, 09/01/08 $ 1,435 $ 1,587
Bridgeport GO, AMBAC
5.450%, 03/01/11 1,550 1,567
Bristol, Resource Recovery RB,
Ogden Martin System Project
6.500%, 07/01/14 3,000 3,116
Connecticut State GO,
Callable 03/15/08 @ 101
5.250%, 03/15/14 2,500 2,444
5.250%, 06/15/10 2,025 2,043
Connecticut State GO
5.250%, 03/15/14 2,500 2,444
Connecticut State GO, FGIC
5.000%, 09/01/14 880 836
Connecticut State GO, Series A
5.250%, 03/01/14 2,445 2,390
5.125%, 03/15/15 3,895 3,700
Connecticut State GO, Series B
5.125%, 03/15/11 1,005 999
DESCRIPTION PAR (000) VALUE (000)
Connecticut State GO, Series C
5.800%, 08/15/08 $ 1,500 $ 1,569
Connecticut State GO, Series D
5.125%, 12/15/13 4,790 4,646
5.250%, 12/15/15 500 482
Connecticut State Health &
Education Facilities Authority RB
4.650%, 07/01/11 1,390 1,298
Connecticut State Health &
Education Facilities Authority RB,
AMBAC
5.200%, 07/01/14 2,840 2,733
5.000%, 07/01/17 1,000 907
Connecticut State Health &
Education Facilities Authority RB,
Bridgeport Hospital, Series C,
CONLEE
5.250%, 07/01/15 1,615 1,546
Connecticut State Health &
Education Facilities Authority RB,
Greenwich Hospital, Series A, MBIA
5.750%, 07/01/16 2,000 2,002
Connecticut State Health &
Education Facilities Authority RB,
Hospital For Special Care
5.375%, 07/01/17 5,000 4,750
Connecticut State Health &
Education Facilities Authority RB,
New Britain Hospital, Series B,
AMBAC
6.000%, 07/01/09 1,000 1,061
Connecticut State Health &
Education Facilities Authority RB,
New Haven Hospital, Series H,
MBIA
5.625%, 07/01/16 1,000 994
Connecticut State Health &
Education Facilities Authority RB,
New Horizons Village Project,
AMBAC
7.050%, 11/01/09 1,000 1,115
Connecticut State Health &
Education Facilities Authority RB,
Newington Children's Hospital,
Series A, MBIA
5.850%, 07/01/07 1,110 1,167
37
<PAGE>
as of november 30, 1999
STATEMENT OF NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
BOSTON 1784 CONNECTICUT TAX-EXEMPT INCOME FUND (CONTINUED)
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
Connecticut State Health &
Education Facilities Authority RB,
Series D, GOI
6.750%, 07/01/12 $ 2,750 $ 2,898
Connecticut State Health &
Education Facilities Authority RB,
Sharon Health Care Project,
AMBAC
6.000%, 11/01/09 1,000 1,066
Connecticut State Health &
Education Facilities Authority RB,
Stamford Hospital, MBIA
5.400%, 07/01/09 2,000 2,045
Connecticut State Health &
Education Facilities Authority RB,
William W. Backus Hospital,
Series E, AMBAC
5.000%, 07/01/17 1,000 906
Connecticut State Health &
Education Facilities Authority RB,
Sacred Heart University Project,
Series E
4.900%, 07/01/13 3,400 3,141
Connecticut State Higher
Education RB, Family Education
Loan Program, Series A, AMT
7.000%, 11/15/05 1,070 1,106
5.625%, 11/15/11 1,215 1,242
Connecticut State Hospital RB
5.300%, 07/01/10 2,740 2,771
Connecticut State Housing Finance
Authority RB, GOA
6.200%, 05/15/14 430 442
Connecticut State Housing Finance
Authority RB, Mortgage Finance
Program, Series A, GOA
5.950%, 05/15/11 3,215 3,279
6.200%, 05/15/14 1,350 1,387
Connecticut State Housing Finance
Authority RB, Mortgage Finance
Program, Series C-1, GOA
6.000%, 11/15/10 1,010 1,034
DESCRIPTION PAR (000) VALUE (000)
Connecticut State Housing Finance
Authority RB, Mortgage Finance
Program, Series H-1
5.100%, 05/15/17 $ 1,000 $ 921
Connecticut State Housing Finance
Authority RB, Mortgage Finance
Program, Sub-Series A-3, GOA
5.950%, 05/15/17 1,000 1,007
Connecticut State Housing Finance
Authority RB, Mortgage Finance
Program, Sub-Series B1
6.000%, 11/15/15 2,000 2,020
Connecticut State Housing Finance
Authority RB, Mortgage Finance
Program, Sub-Series B1, GOA
6.000%, 05/15/08 230 238
Connecticut State Housing Finance
Authority RB, Mortgage Finance
Program, Sub-Series E-1, GOA
5.900%, 05/15/15 4,200 4,226
Connecticut State Residential
Recovery RB, MBIA
5.125%, 01/01/09 4,000 3,980
5.400%, 10/01/10 2,000 2,035
Connecticut State Resource
Recovery Authority RB, American
Fuel Company, Series A, MBIA
5.125%, 11/15/14 7,125 6,671
Connecticut State Resource
Recovery Authority RB,
Mid-Connecticut System Project,
Series A, AMT, MBIA
5.500%, 11/15/11 6,000 6,097
Connecticut State Resource
Recovery Authority RB,
Mid-Connecticut System Project,
Series A, MBIA
5.375%, 11/15/10 2,000 2,023
Connecticut State Special Tax RB,
AMBAC
5.250%, 01/01/11 1,000 1,001
Connecticut State Special Tax RB,
Transportation Infrastructure, Series A
5.700%, 06/01/12 1,160 1,195
38
<PAGE>
BOSTON 1784 FUNDS
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
Connecticut State Special Tax RB,
Transportation Infrastructure,
Series A, FGIC
5.600%, 06/01/13 $ 1,000 $ 1,011
5.250%, 10/01/14 2,100 2,055
Connecticut State Special Tax RB,
Transportation Infrastructure,
Series B, FGIC
5.500%, 10/01/11 4,920 5,154
Connecticut State Transportation
Improvement RB
5.500%, 10/01/12 4,000 4,055
Connecticut State Transportation
Infrastructure RB, Series B, FSA
5.250%, 11/01/15 1,000 968
Connecticut State
Unlimited Tax GO
5.250%, 03/15/13 6,000 5,918
Connecticut State
Unlimited Tax GO, Series D
5.000%, 12/01/12 3,500 3,386
Connecticut State Water RB
5.250%, 07/15/11 1,000 1,003
Eastern Connecticut Resource
Recovery Authority RB,
Wheelabrator Libson Project,
Series A
5.500%, 01/01/14 2,775 2,477
Hartford GO, FGIC
5.700%, 10/01/12 500 518
5.750%, 10/01/13 1,000 1,038
4.700%, 01/15/15 1,340 1,206
New Haven GO, FGIC
4.700%, 02/01/15 1,875 1,688
South Central Connecticut
Regional Water Authority RB,
Series A, MBIA
6.000%, 08/01/09 985 1,038
6.000%, 08/01/10 1,045 1,099
Stamford GO
5.000%, 07/15/15 2,195 2,061
University of Connecticut RB,
Series A, MBIA
5.250%, 04/01/14 1,000 974
DESCRIPTION PAR (000) VALUE (000)
Waterbury, Connecticut
Unlimited Tax GO
4.800%, 02/15/12 $ 1,400 $ 1,321
4.900%, 02/15/13 1,470 1,380
5.000%, 02/15/14 1,395 1,301
----------
137,778
----------
PUERTO RICO -- 19.5%
Puerto Rico Commonwealth GO (A)
5.061%, 07/01/14 4,500 1,969
Puerto Rico Commonwealth
Highway & Transportation
Infrastructure RB, MBIA
5.250%, 07/01/14 2,615 2,556
Puerto Rico
Commonwealth GO, FSA
5.250%, 07/01/10 1,250 1,273
Puerto Rico Electric Power
Authority RB, FSA,
5.250%, 07/01/14 3,500 3,421
Puerto Rico Electric Power
Authority RB, Series CC, MBIA
5.000%, 07/01/10 2,000 1,998
Puerto Rico Electric Power
Authority RB
5.250%, 07/01/14 9,650 9,433
5.500%, 07/01/14 1,000 990
5.500%, 07/01/16 1,000 978
Puerto Rico Highway &
Transportation RB, Series X
5.300%, 07/01/04 700 710
Puerto Rico Industrial, Tourist,
Educational, Medical, &
Environmental Control
Facilities RB, International
American University, Series A,
MBIA
5.250%, 10/01/12 725 727
5.375%, 10/01/13 975 969
5.500%, 10/01/14 650 652
Puerto Rico Infrastructure
Financing Authority RB, AMBAC
5.250%, 07/01/10 2,500 2,547
39
<PAGE>
as of november 30, 1999
STATEMENT OF NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
BOSTON 1784 CONNECTICUT TAX-EXEMPT INCOME FUND (CONCLUDED)
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
Puerto Rico Municipal Finance
Agency RB, Series A, FSA
6.000%, 07/01/09 $ 2,650 $ 2,819
Puerto Rico Public Buildings
Authority RB, MBIA
5.000%, 07/01/11 1,000 990
Puerto Rico GO, FSA
5.750%, 07/01/17 2,700 2,727
----------
34,759
----------
TOTAL MUNICIPAL BONDS
(Cost $176,154) 172,537
----------
REPURCHASE AGREEMENT -- 2.4%
JP Morgan
5.660%, dated 11/30/99, matures
12/01/99, repurchase price
$4,256,660 (collateralized by
U.S. Treasury Instruments:
total market value
$4,341,121) (B) 4,256 4,256
----------
TOTAL REPURCHASE AGREEMENt
(Cost $4,256) 4,256
----------
TOTAL INVESTMENTS -- 99.2%
(Cost $180,410) 176,793
----------
OTHER ASSETS AND LIABILITIES, NET -- 0.8% 1,477
----------
NET ASSETS:
Capital Shares (unlimited
authorization -- no par value)
based on 17,500,165 outstanding
shares of beneficial interest 181,958
Undistributed Net Investment Income 2
Accumulated Net Realized (Loss) on Investments (73)
Net Unrealized (Depreciation) on Investments (3,617)
----------
TOTAL NET ASSETS -- 100.0% $178,270
==========
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE $10.19
==========
(A) Zero Coupon Bond. The rate reported on the Statement of Net Assets is the
effective yield as of November 30, 1999.
(B) Tri-Party Repurchase Agreement
AMT -- Alternative Minimum Tax
GO -- General Obligation Bond
RB -- Revenue Bond
The following organizations have provided underlying credit support for the
securities as set forth in the Statement of Net Assets.
AMBAC -- American Municipal Bond Assurance Corporation
CONLEE -- College Construction Loan Insurance Association
FGIC--Financial Guaranty Insurance Corporation
FSA--Financial Security Assurance
GOA--General Obligation of Authority
GOI--General Obligation of Institution
MBIA--Municipal Bond Insurance Association
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
40
<PAGE>
BOSTON 1784 FUNDS
as of november 30, 1999
STATEMENT OF NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
BOSTON 1784 FLORIDA TAX-EXEMPT INCOME FUND
- --------------------------------------------------------------------------------
[pie chart omitted]
plot points follows:
Transportation Bonds 8%
Participation Notes 1%
Utility Bonds 12%
General Obligation Bonds 12%
Cash Equivalents 6%
Water & Sewer Bonds 18%
Public Facility Bonds 4%
Health Care Bonds 11%
Alternative Minimum Tax Bonds 3%
Housing Bonds 3%
Education Bonds 8%
Other Revenue Bonds 14%
% OF TOTAL PORTFOLIO INVESTMENTS
DESCRIPTION PAR (000) VALUE (000)
MUNICIPAL BONDS -- 92.7%
Florida -- 89.3%
Brevard County, Health Facility
Authority RB, Holmes Regional
Medical Center, MBIA
5.625%, 10/01/14 $ 1,000 $ 1,006
Brevard County, Housing &
Finance Authority RB,
Series B, FSA
7.000%, 03/01/13 185 191
Cape Coral, Water
Improvement RB, FSA
6.375%, 06/01/09 1,000 1,056
Dade County, Aviation RB, Series A
5.250%, 10/01/07 1,000 1,020
Dade County, Aviation RB, Series A,
AMT, MBIA
5.750%, 10/01/15 1,000 1,005
Dade County, Housing Finance
Authority RB, Series D, FSA
6.950%, 12/15/12 355 369
Dade County, Professional Sports
Franchise Facility RB, MBIA
5.250%, 10/01/12 1,385 1,371
Dade County, Water & Sewer
System RB, FGIC
5.500%, 10/01/18 3,000 2,921
DESCRIPTION PAR (000) VALUE (000)
Escambia County, Housing Finance
Authority RB, Series A, AMT, FHA
7.300%, 10/01/17 $ 300 $ 307
Florida State Board Educational
Lottery RB, Series C, FGIC
5.000%, 07/01/13 1,500 1,431
Florida State Board of Education
Capital Outlay GO, Series A
5.750%, 01/01/13 1,000 1,014
5.500%, 06/01/15 2,500 2,469
Florida State Board of Education
Capital Outlay GO, Series B, MBIA
5.750%, 06/01/11 1,250 1,291
Florida State Board of Education RB
5.125%, 07/01/11 1,170 1,161
Florida State Educational Lottery RB,
Series A
5.000%, 07/01/15 2,000 1,862
Florida State Finance
Department RB, MBIA
5.500%, 07/01/12 1,000 1,011
Florida State Finance
Department RB, Series A, AMBAC
5.700%, 07/01/09 2,000 2,060
Florida State Finance Department
General Services RB, FSA
5.000%, 07/01/06 1,500 1,517
Florida State Gas Utilities Project RB
5.000%, 12/01/08 1,000 986
Florida State Housing RB, MBIA
5.050%, 07/01/12 1,900 1,800
Florida State Turnpike
Authority RB, FGIC
5.250%, 07/01/11 2,000 2,005
Fort Lauderdale GO
5.500%, 07/01/15 1,000 981
Gainesville, Utilities System RB,
Series B
5.500%, 10/01/13 2,000 2,012
Gulf Breeze RB, FGIC
5.000%, 12/01/14 2,000 1,885
Gulf Breeze RB, Series B, FGIC
4.900%, 12/01/08 500 496
Hillsborough County, Allegany
Health Systems RB, MBIA
6.375%, 12/01/12 1,300 1,389
41
<PAGE>
as of november 30, 1999
STATEMENT OF NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
BOSTON 1784 FLORIDA TAX-EXEMPT INCOME FUND (CONCLUDED)
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
Hillsborough County, Aviation
Authority, Tampa International
Airport RB, Series B, AMBAC
5.125%, 10/01/17 $ 2,500 $ 2,319
Indian Trace Community, Water
Management RB, MBIA
5.500%, 05/01/07 1,000 1,038
Lee County, Water & Sewer RB,
Series A, AMBAC
5.000%, 10/01/14 2,000 1,885
Manatee County, Florida School
Board COP, MBIA
4.950%, 07/01/14 1,000 925
Naples, Community Hospital
Project RB, MBIA
5.500%, 10/01/16 1,000 976
Orlando, Water & Electric Utilities
Commission RB
5.250%, 10/01/14 1,000 974
Palm Beach County, Criminal Justice
Facilities RB, FGIC
5.375%, 06/01/09 1,500 1,538
Pinellas County, Sewer RB, FGIC
5.000%, 10/01/13 1,990 1,898
Polk County, Utility Systems RB, FGIC
5.250%, 10/01/17 1,500 1,421
Port St. Lucie, Special Assessment,
District 1, MBIA
5.850%, 10/01/11 3,070 3,200
Reedy Creek, Improvements GO,
Series A, MBIA
5.750%, 06/01/14 2,500 2,541
Sarasota County, Hospital
Facilities RB, Memorial Health
Systems Project, Series B, MBIA
5.000%, 10/01/10 1,250 1,238
Tampa Bay, Florida Water Utility
Systems RB, Series B, FGIC
5.125%, 10/01/12 2,250 2,208
Tampa Health Systems Catholic
Health RB, AMBAC
4.875%, 11/15/15 1,000 913
Tampa Health Systems RB, AMBAC
4.875%, 11/15/14 1,000 916
DESCRIPTION PAR (000) VALUE (000)
Volusia County, Hospital Facilities RB,
Memorial Health Systems Project,
AMBAC
5.500%, 11/15/16 $ 1,250 $ 1,220
Volusia County, Sales Tax RB, MBIA
5.000%, 10/01/16 1,830 1,679
----------
61,505
----------
PUERTO RICO -- 3.4%
Puerto Rico Commonwealth Highway &
Transportation Authority RB, Sub- P R
St Infrastructure Bank, MBIA
5.250%, 07/01/13 1,375 1,351
Puerto Rico Industrial, Tourist,
Educational, Medical, &
Environmental Control Facilities RB,
International American University,
Series A, MBIA
5.250%, 10/01/12 1,000 1,003
----------
2,354
----------
TOTAL MUNICIPAL BONDS
(Cost $65,706) 63,859
----------
REPURCHASE AGREEMENT -- 6.2%
JP Morgan
5.660%, dated 11/30/99, matures
12/01/99, repurchase price
$4,268,662 (collateralized by
U.S. Treasury Instruments:
total market value
$4,353,361) (A) 4,268 4,268
----------
TOTAL REPURCHASE AGREEMENT
(Cost $4,268) 4,268
----------
TOTAL INVESTMENTS -- 98.9%
(Cost $69,974) 68,127
----------
Other Assets and Liabilities, Net -- 1.1% 737
----------
42
<PAGE>
BOSTON 1784 FUNDS
- --------------------------------------------------------------------------------
DESCRIPTION VALUE (000)
NET ASSETS:
Capital Shares (unlimited
authorization -- no par value)
based on 7,097,858 outstanding
shares of beneficial interest $ 70,711
Net Unrealized Depreciation on Investments (1,847)
----------
TOTAL NET ASSETS-- 100.0% $68,864
==========
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE $9.70
==========
(A) Tri-Party Repurchase Agreement
AMT -- Alternative Minimum Tax
COP -- Certificate of Participation
GO -- General Obligation Bond
RB -- Revenue Bond
The following organizations have provided underlying credit support for the
securities as set forth in the Statement of Net Assets.
AMBAC -- American Municipal Bond Assurance Corporation
FGIC -- Financial Guaranty Insurance Corporation
FHA -- Federal Housing Administration
FSA -- Financial Security Assurance
MBIA -- Municipal Bond Insurance Association
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
43
<PAGE>
as of november 30, 1999
STATEMENT OF NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
BOSTON 1784 MASSACHUSETTS TAX-EXEMPT INCOME FUND
- --------------------------------------------------------------------------------
[pie chart omitted]
plot points follows:
Resource Recovery Bonds 1%
Public Facility Bonds 1%
Cash Equivalents 6%
Water & Sewer Bonds 9%
General Obligation Bonds 35%
Education Bonds 11%
Pre-Refunded Securities 3%
Transportation Bonds 11%
Housing Bonds 4%
Health Care Bonds 15%
Alternative Minimum Tax Bonds 4%
% OF TOTAL PORTFOLIO INVESTMENTS
DESCRIPTION PAR (000) VALUE (000)
MUNICIPAL BONDS -- 93.6%
MASSACHUSETTS -- 91.2%
Barnstable GO
5.000%, 03/15/12 $ 1,000 $ 962
Boston GO, Series A, AMBAC
5.650%, 02/01/09 1,500 1,539
Boston, Water and Sewer
Community RB, Series A, FGIC
5.125%, 11/01/15 3,320 3,129
Brockton GO, MBIA
5.125%, 04/01/15 1,500 1,412
Chelsea GO, School Loan Project,
AMBAC
6.000%, 06/15/04 650 687
5.700%, 06/15/06 1,000 1,045
Gloucester GO, FGIC
5.100%, 08/01/14 1,105 1,053
Haverhill GO, FGIC
5.300%, 06/15/12 1,500 1,491
Holyoke GO, FSA
5.200%, 08/01/17 690 646
Holyoke GO, Series A, FSA
5.600%, 06/15/11 1,000 1,021
5.500%, 06/15/16 1,195 1,174
Lawrence GO, AMBAC
6.250%, 02/15/09 1,475 1,560
DESCRIPTION PAR (000) VALUE (000)
Lowell GO, AMBAC
5.500%, 08/01/11 $ 2,740 $ 2,761
5.500%, 08/01/12 1,720 1,735
Lowell GO, FSA
5.500%, 01/15/10 1,140 1,159
6.625%, 04/01/15 1,000 1,075
Lynn, Massachusetts Water &
Sewer Community RB,
Series A, FSA
5.000%, 12/01/14 1,375 1,292
Malden GO, AMBAC
5.000%, 10/01/14 1,000 941
Massachusetts Bay Transportation
Authority RB, GOA
5.500%, 03/01/07 795 838
5.500%, 03/01/07 705 729
6.000%, 03/01/12 130 138
6.000%, 03/01/12 3,870 4,001
Massachusetts State Authority RB,
Health & Educational Facilities
Brandeis University Project,
Series I, MBIA
5.250%, 10/01/12 1,900 1,881
Massachusetts State Bay
Transportation Authority RB,
Series A, GOA
5.800%, 03/01/10 2,640 2,808
Massachusetts State Bay
Transportation Authority RB,
Series A, MBIA
5.000%, 03/01/18 3,000 2,674
5.750%, 03/01/18 710 704
Massachusetts State Bay
Transportation Authority RB,
Series A, MBIA (A)
5.750%, 03/01/18 2,615 2,785
Massachusetts State Bay
Transportation Authority RB,
Series D, GOA
5.600%, 03/01/08 1,885 1,960
Massachusetts State Construction
Loan GO, Series C, FGIC
5.250%, 09/01/08 3,200 3,256
Massachusetts State Development
Finance Agency, Clark University RB
5.250%, 07/01/16 1,445 1,337
44
<PAGE>
BOSTON 1784 FUNDS
DESCRIPTION PAR (000) VALUE (000)
Massachusetts State Developmental
Financial Agency RB, Emerson
College Project, AMBAC
5.000%, 01/01/12 $ 1,455 $ 1,406
Massachusetts State Educational
Financing Authority RB, Series A,
AMT, MBIA
5.125%, 12/01/14 1,000 937
Massachusetts State Educational
Loan Authority RB, Issue E,
Series B, AMT, AMBAC
6.000%, 01/01/12 365 374
6.300%, 07/01/12 770 801
Massachusetts State Finance
Agency RB, Curry College,
Series A, ACA
5.000%, 03/01/13 1,640 1,531
Massachusetts State GO
5.250%, 05/01/12 1,000 987
5.250%, 05/01/14 1,000 970
5.250%, 08/01/14 5,000 4,850
5.000%, 11/01/14 2,000 1,877
Massachusetts State GO, AMBAC
5.750%, 08/01/09 2,000 2,100
Massachusetts State GO (A)
5.750%, 06/01/16 3,000 3,176
Massachusetts State GO, Series A
5.500%, 02/01/11 3,500 3,544
5.000%, 11/01/13 5,000 4,750
Massachusetts State GO, Series A,
MBIA
5.000%, 04/01/14 3,000 2,835
Massachusetts State GO, Series B
6.500%, 08/01/08 5,315 5,853
Massachusetts State GO, Series B,
FGIC
5.500%, 11/01/07 1,000 1,037
5.125%, 06/01/12 2,000 1,957
Massachusetts State GO, Series B,
FGIC (A)
5.875%, 08/01/10 2,000 2,140
Massachusetts State GO, Series B,
MBIA
5.400%, 11/01/07 2,000 2,062
Massachusetts State GO, Series C
5.250%, 08/01/15 1,750 1,673
5.000%, 08/01/17 2,000 1,797
DESCRIPTION PAR (000) VALUE (000)
Massachusetts State Grant
Anticipation Note, Series A
5.250%, 12/15/11 $ 4,000 $ 3,960
Massachusetts State Health &
Educational Facilities Authority
RB, Amherst College, Series G
5.250%, 11/01/15 1,125 1,073
Massachusetts State Health &
Educational Facilities Authority RB,
Baystate Medical Center
Project, Series D, FGIC
6.000%, 07/01/15 2,000 2,027
Massachusetts State Health &
Educational Facilities Authority RB,
Berklee College of Music,
Series E, MBIA
5.000%, 10/01/15 975 901
Massachusetts State Health &
Educational Facilities Authority RB,
Boston Medical Center,
Series A, MBIA
5.250%, 07/01/15 2,500 2,378
5.250%, 07/01/16 2,725 2,565
Massachusetts State Health &
Educational Facilities Authority RB,
Brandeis University, MBIA
5.250%, 10/01/14 1,500 1,449
Massachusetts State Health &
Educational Facilities Authority RB,
Catholic Health East, Series A,
AMBAC
5.000%, 11/15/18 2,000 1,792
Massachusetts State Health &
Educational Facilities Authority RB,
Dana Farber Cancer Project,
Series G-1
6.250%, 12/01/09 1,175 1,218
Massachusetts State Health &
Educational Facilities Authority RB,
Emerson Hospital Project,
Series D, FSA
5.800%, 08/15/18 3,000 2,944
Massachusetts State Health &
Educational Facilities Authority RB,
Eye & Ear Hospital, Series B
5.250%, 07/01/09 1,500 1,492
45
<PAGE>
as of november 30, 1999
STATEMENT OF NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
BOSTON 1784 MASSACHUSETTS TAX-EXEMPT INCOME FUND (CONTINUED)
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
Massachusetts State Health &
Educational Facilities Authority
RB, Hallmark Health Systems,
Series A, FSA
5.000%, 07/01/12 $ 1,000 $ 961
Massachusetts State Health &
Educational Facilities Authority
RB, Harvard Pilgrim Health,
Series A, FSA
5.000%, 07/01/14 2,500 2,341
Massachusetts State Health &
Educational Facilities Authority
RB, Harvard University Project,
Series M, GOI
5.750%, 12/01/11 1,000 1,026
Massachusetts State Health &
Educational Facilities Authority
RB, Lahey Clinic Medical Center
Project, Series B, MBIA
5.625%, 07/01/15 500 497
Massachusetts State Health &
Educational Facilities Authority
RB, Massachusetts General Hospital,
Series G, AMBAC
5.375%, 07/01/11 2,000 2,005
Massachusetts State Health &
Educational Facilities Authority
RB, Newton-Wellesley Hospital
Project, Issue E, MBIA
5.875%, 07/01/15 3,000 3,022
Massachusetts State Health &
Educational Facilities Authority
RB, Partners Healthcare System,
Series B
5.250%, 07/01/10 4,670 4,472
Massachusetts State Health &
Educational Facilities Authority
RB, Partners Healthcare Systems,
Series A, MBIA
5.375%, 07/01/17 2,465 2,314
Massachusetts State Health &
Educational Facilities Authority
RB, Simmons College, Series C,
MBIA
5.000%, 10/01/14 1,000 936
DESCRIPTION PAR (000) VALUE (000)
Massachusetts State Health &
Educational Facilities Authority
RB, Smith College Project,
Series D, GOI
5.750%, 07/01/16 $ 2,600 $ 2,574
Massachusetts State Health &
Educational Facilities Authority
RB, Tufts University Project,
Series F, FGIC
5.950%, 08/15/18 3,000 3,004
Massachusetts State Health &
Educational Facilities Authority
RB, UMass Memorial Issue,
Series A, AMBAC
5.250%, 07/01/14 2,000 1,925
Massachusetts State Health &
Educational Facilities Authority
RB, Williams College, Series F
5.750%, 07/01/19 1,000 981
Massachusetts State Health &
Educational Facilities Authority RB,
Partners Healthcare System
5.250%, 07/01/15 2,500 2,356
Massachusetts State Housing
Finance Agency RB, Rental
Mortgage, Series C, AMT, AMBAC
5.450%, 07/01/18 2,805 2,626
Massachusetts State Housing
Finance Agency RB, Residential
Development Project, Series A,
FNMA
6.875%, 11/15/11 1,750 1,853
Massachusetts State Housing
Finance Agency RB, Series A,
AMBAC
6.300%, 10/01/13 4,950 5,111
Massachusetts State Housing
Finance Agency RB, Series A,
MBIA
5.850%, 12/01/08 1,245 1,279
6.100%, 07/01/15 1,590 1,626
Massachusetts State Industrial
Finance Agency RB, Babson
College Project, Series A
5.375%, 10/01/17 1,000 924
46
<PAGE>
BOSTON 1784 FUNDS
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
Massachusetts State Industrial
Finance Agency RB, Babson
College Project, Series A, MBIA
6.375%, 10/01/09 $ 1,000 $ 1,071
5.750%, 10/01/15 1,000 1,004
Massachusetts State Industrial
Finance Agency RB, College of
Holy Cross, MBIA
5.500%, 03/01/16 1,500 1,459
Massachusetts State Industrial
Finance Agency RB, Worcester
Polytechnical Institution, MBIA
5.125%, 09/01/17 1,550 1,434
Massachusetts State Industrial
Finance Agency Resource
Recovery RB, Ogden Haverhill
Project A, AMT
5.200%, 12/01/08 1,500 1,412
Massachusetts State Municipal
Wholesale Electric Company RB,
Series D, MBIA
6.000%, 07/01/05 1,000 1,047
Massachusetts State Port Authority
RB, Series A, AMT
6.000%, 07/01/13 1,050 1,078
Massachusetts State Port Authority
RB, Series B, AMT
5.250%, 07/01/14 1,385 1,312
Massachusetts State Port Authority
RB, Series B, AMT
5.000%, 07/01/13 1,790 1,674
Massachusetts State Port Authority
RB, Series E, AMT
5.250%, 07/01/13 1,000 967
Massachusetts State Resource
Recovery Authority RB,
Refusetech Project, Series A
6.150%, 07/01/02 900 919
6.300%, 07/01/05 1,000 1,035
Massachusetts State Special
Obligation RB, Series A
5.500%, 06/01/07 2,000 2,060
5.750%, 06/01/11 2,780 2,929
5.750%, 06/01/12 700 738
DESCRIPTION PAR (000) VALUE (000)
Massachusetts State Turnpike
Authority RB, Metropolitan
Highway System, Series A, MBIA
5.000%, 01/01/13 $ 1,000 $ 953
Massachusetts State Turnpike
Authority RB, Metropolitan
Highway System, Sub-Series B,
MBIA
5.250%, 01/01/17 1,000 940
Massachusetts State Turnpike
Authority RB, Western Turnpike,
Series A, MBIA
5.550%, 01/01/17 1,835 1,837
Massachusetts State Unlimited Tax
GO, Series D
5.000%, 11/01/11 5,000 4,881
Massachusetts State Water
Authority RB, Series B, MBIA
5.500%, 03/01/17 3,500 3,382
Massachusetts State Water
Pollution Abatement Trust RB,
Pooled Loan Program, Series 1
5.600%, 08/01/13 2,090 2,114
Massachusetts State Water
Pollution Abatement Trust RB,
Pooled Loan Program, Series 2
6.125%, 02/01/07 730 786
Massachusetts State Water Pollution
Abatement Trust RB, Series A
5.450%, 02/01/13 1,000 999
5.250%, 08/01/14 1,000 959
Massachusetts State Water
Pollution RB
5.700%, 02/01/12 1,450 1,525
5.700%, 02/01/15 3,000 3,159
Massachusetts State Water
Resource Authority RB,
Series B, GOA
5.875%, 11/01/04 1,000 1,049
Massachusetts State Water
Resource Authority RB,
Series C, GOA
6.000%, 11/01/05 2,000 2,100
6.000%, 12/01/11 2,000 2,108
47
<PAGE>
as of november 30, 1999
STATEMENT OF NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
BOSTON 1784 MASSACHUSETTS TAX-EXEMPT INCOME FUND (CONCLUDED)
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
Mendon Upton Regional School
District GO, FGIC
5.500%, 06/01/15 $ 1,405 $ 1,398
5.500%, 06/01/17 1,500 1,453
Nantucket GO
6.800%, 12/01/11 1,425 1,511
Nantucket GO, MBIA
5.250%, 07/15/10 2,250 2,258
Northampton GO, MBIA
5.750%, 05/15/16 775 786
Palmer GO, MBIA
5.500%, 10/01/10 1,500 1,524
Peabody GO, Series A
5.000%, 08/01/13 310 296
5.000%, 08/01/14 510 480
Plymouth County, Partners
Correctional Facility COP, AMBAC
5.125%, 10/01/13 2,165 2,081
Springfield GO, AMBAC
5.300%, 08/01/11 1,000 1,000
5.300%, 08/01/13 1,000 984
Springfield GO, FSA
5.000%, 09/01/11 1,885 1,840
Springfield GO, State Qualified
Municipal Purpose Loan, FSA
5.250%, 11/15/11 1,600 1,596
University of Lowell Building
Authority RB, Fifth Series A, AMBAC
5.625%, 11/01/14 3,000 3,008
Uxbridge GO, MBIA
5.400%, 11/15/16 750 725
West Springfield GO, FGIC
5.000%, 03/01/18 1,225 1,106
Worcester GO, Municipal Purpose
Loan Series B, MBIA
5.250%, 11/01/14 1,875 1,819
Worcester GO, Series G, MBIA
5.300%, 07/01/15 1,000 969
----------
229,847
----------
DESCRIPTION PAR (000) VALUE (000)
PUERTO RICO -- 2.4%
Puerto Rico Commonwealth GO
5.000%, 07/01/08 $ 1,710 $ 1,708
Puerto Rico Commonwealth GO,
FSA
5.500%, 07/01/13 1,000 1,003
Puerto Rico Commonwealth
Highway & Transportation
Authority RB, Sub- P R
St Infrastructure Bank, MBIA
5.250%, 07/01/13 1,300 1,277
Puerto Rico Industrial, Tourist,
Educational, Medical, &
Environmental Control Facilities
RB, International American University,
Series A, MBIA
5.250%, 10/01/12 1,000 1,003
Puerto Rico Refunding Public
Improvement GO
5.500%, 07/01/13 1,000 1,011
----------
6,002
----------
TOTAL MUNICIPAL BONDS
(Cost $240,705) 235,849
----------
REPURCHASE AGREEMENT -- 5.4%
JP Morgan
5.660%, dated 11/30/99, matures
12/01/99, repurchase price
$13,698,124 (collateralized by
U.S. Treasury Instruments:
total market value
$13,969,925) (B) 13,696 13,696
----------
TOTAL REPURCHASE AGREEMENT
(Cost $13,696) 13,696
----------
TOTAL INVESTMENTS -- 99.0%
(Cost $254,401) 249,545
----------
48
<PAGE>
BOSTON 1784 FUNDS
DESCRIPTION VALUE (000)
OTHER ASSETS AND LIABILITIES, NET -- 1.0% $ 2,523
----------
NET ASSETS:
Capital Shares (unlimited
authorization -- no par value)
based on 25,287,707 outstanding
shares of beneficial interest 257,051
Accumulated Net Realized Loss on Investments (127)
Net Unrealized Depreciation on Investments (4,856)
----------
TOTAL NET ASSETS -- 100.0% $252,068
===========
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE $9.97
==========
(A) Pre-refunded Security. The pre-refunded date is shown as the maturity date
on the Statement of Net Assets.
(B) Tri-Party Repurchase Agreement
AMT -- Alternative Minimum Tax
COP -- Certificate of Participation
GO -- General Obligation Bond
RB -- Revenue Bond
The following organizations have provided underlying credit support for the
securities as set forth in the Statement of Net Assets.
AMBAC -- American Municipal Bond Assurance Corporation
FGIC -- Financial Guaranty Insurance Corporation
FNMA -- Federal National Mortgage Association
FSA -- Financial Security Assurance
GOA -- General Obligation of Authority
GOI -- General Obligation of Institution
MBIA -- Municipal Bond Insurance Association
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
49
<PAGE>
as of november 30, 1999
STATEMENT OF NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
BOSTON 1784 RHODE ISLAND TAX-EXEMPT INCOME FUND
- --------------------------------------------------------------------------------
[pie chart omitted]
plot points follows:
Health Care Bonds 6%
Utility Bonds 7%
Cash Equivalents 4%
Transportation Bonds 5%
Water & Sewer Bonds 4%
General Obligation Bonds 36%
Other Revenue Bonds 3%
Public Facility Bonds 10%
Housing Bonds 10%
Alternative Minimum Tax Bonds 4%
Education Bonds 9%
Industrial Development & Pollution
Control Bonds 2%
% OF TOTAL PORTFOLIO INVESTMENTS
DESCRIPTION PAR (000) VALUE (000)
MUNICIPAL BONDS -- 94.6%
RHODE ISLAND -- 80.6%
Bristol County, Water Authority
RB, MBIA
5.200%, 12/01/14 $ 1,000 $ 955
Bristol County, Water Authority RB,
Series A, MBIA
5.200%, 12/01/13 1,080 1,042
Central Falls RB, Detention Facility
5.250%, 01/15/13 1,505 1,434
5.375%, 01/15/18 1,000 924
Central Falls RB, Detention
Facility, FSA
5.375%, 01/15/18 1,000 945
Cranston GO, MBIA
6.100%, 06/15/10 1,000 1,065
6.100%, 06/15/15 1,500 1,581
5.500%, 07/15/15 1,305 1,298
Cumberland GO, MBIA
5.100%, 09/01/14 500 477
Exeter West Greenwich Regional
School District GO, MBIA
5.400%, 11/15/10 1,000 1,016
DESCRIPTION PAR (000) VALUE (000)
Kent County, Water Authority RB,
MBIA
6.000%, 07/15/08 $ 500 $ 526
North Providence GO, Series A,
MBIA
6.000%, 07/01/12 1,100 1,167
6.050%, 07/01/13 500 530
Providence GO, FSA
5.100%, 01/15/06 1,085 1,101
Providence GO, Series A, FSA
5.700%, 07/15/12 1,825 1,875
Providence, Public Building
Authority RB
5.375%, 12/15/11 1,035 1,038
5.125%, 12/15/14 500 469
Providence, Housing Development
Authority RB, Barbara Jordan
Apartments Project, Series A,
MBIA
6.500%, 07/01/09 380 397
Providence, Public Building
Authority GO, Series A, FSA
5.400%, 12/15/11 500 502
Providence, Public Building
Authority RB, FSA
5.250%, 12/15/14 1,500 1,431
Rhode Island State Airport
Economic Development RB
5.000%, 07/01/15 1,620 1,486
Rhode Island State Clean Water
Agency RB, Safe Drinking Water
Project, Series A, AMBAC
6.500%, 01/01/09 500 537
Rhode Island State Clean Water
Agency RB, Water Pollution
Control, MBIA
5.875%, 10/01/15 435 448
Rhode Island State Convention
Center Authority RB, Series A,
AMBAC
5.500%, 05/15/13 1,000 1,011
Rhode Island State Depositor's
Economic Protection Agency RB,
Series A, FSA
6.500%, 08/01/07 500 547
50
<PAGE>
BOSTON 1784 FUNDS
DESCRIPTION PAR (000) VALUE (000)
Rhode Island State Depositor's
Economic Protection Agency RB,
Series B, MBIA
5.800%, 08/01/12 $ 1,000 $ 1,051
Rhode Island State Depositor's
Economic Protection Agency RB,
Special Obligation, Series A, FSA
5.750%, 08/01/14 1,000 1,030
Rhode Island State GO
5.000%, 07/15/07 3,000 3,011
5.250%, 09/01/08 2,580 2,625
5.250%, 07/15/10 1,000 1,006
5.000%, 08/01/11 1,530 1,490
5.200%, 09/01/11 1,250 1,239
5.000%, 09/01/12 1,665 1,603
5.500%, 09/01/15 500 492
Rhode Island State GO, FGIC
5.000%, 09/01/14 2,680 2,502
5.000%, 09/01/16 2,425 2,222
Rhode Island State GO, Reference
Consolidation Capital Development
Loan, Series A
5.125%, 07/15/13 3,000 2,884
Rhode Island State GO, Series A
5.125%, 07/15/12 1,735 1,694
Rhode Island State Health &
Educational Building RB
4.750%, 09/01/14 1,215 1,103
Rhode Island State Health &
Educational Building RB,
Brown University
5.000%, 09/01/15 1,000 920
5.000%, 09/01/16 1,000 910
5.000%, 09/01/17 1,000 902
Rhode Island State Health &
Educational Building RB,
Higher Education Facility, AMBAC
5.125%, 11/15/14 2,000 1,868
5.000%, 11/15/18 1,000 885
Rhode Island State Health &
Educational Building RB, Higher
Education Facility, CONLEE
6.500%, 11/15/08 180 189
DESCRIPTION PAR (000) VALUE (000)
Rhode Island State Health &
Educational Building RB, Kent
Hospital Project, MBIA
7.000%, 07/01/10 $ 500 $ 525
Rhode Island State Health &
Educational Building RB,
Landmark Medical Project, FSA
5.600%, 10/01/12 2,000 2,018
Rhode Island State Health &
Educational Building RB,
New England Institutional Project,
CONLEE
5.900%, 03/01/10 400 408
Rhode Island State Health &
Educational Building RB,
Rhode Island School of Design,
MBIA
5.625%, 06/01/16 2,000 1,978
Rhode Island State Health &
Educational Building RB,
Roger Williams Hospital Project
5.250%, 11/15/16 1,000 933
Rhode Island State Housing &
Mortgage Finance RB
5.550%, 04/01/17 500 480
Rhode Island State Housing &
Mortgage Finance RB, Series 13
6.700%, 10/01/15 2,000 2,058
Rhode Island State Housing &
Mortgage Finance RB, Series 19A
5.700%, 04/01/15 1,500 1,470
Rhode Island State Housing &
Mortgage Finance RB,
Series 27-B, AMT
5.150%, 10/01/12 2,240 2,108
Rhode Island State Housing &
Mortgage Finance RB,
Series 30-A
4.900%, 10/01/14 2,000 1,838
Rhode Island State Housing &
Mortgage Finance RB,
Series A, LOC
5.650%, 10/01/07 1,000 1,006
51
<PAGE>
as of november 30, 1999
STATEMENT OF NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
BOSTON 1784 RHODE ISLAND TAX-EXEMPT INCOME FUND (CONCLUDED)
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
Rhode Island State Housing &
Mortgage Finance RB,
Series E-1, AMT, FHA
7.500%, 10/01/11 $ 885 $ 917
Rhode Island State Industrial
Facilities RB
6.000%, 11/01/14 2,250 2,371
Rhode Island State Industrial
Facilities RB, AMT, LOC
6.500%, 03/01/14 500 512
Rhode Island State Public Projects
RB, Series A
5.250%, 02/01/10 1,000 1,003
Rhode Island State Turnpike &
Bridge Authority RB
5.000%, 12/01/11 1,000 936
5.350%, 12/01/17 2,130 1,976
Warwick GO, Series A, FGIC
5.000%, 03/01/15 1,180 1,099
5.000%, 03/01/16 1,205 1,107
----------
78,171
----------
PUERTO RICO -- 13.0%
Puerto Rico GO, FSA
5.750%, 07/01/17 1,000 1,010
Puerto Rico Commonwealth
GO (B)
5.230%, 07/01/14 3,500 1,531
Puerto Rico Electric Power
Authority RB
5.250%, 07/01/14 3,000 2,932
5.500%, 07/01/16 3,000 2,932
Puerto Rico Industrial, Tourist,
Educational, Medical, &
Environmental Control Facilities
RB, International American
University, Series A, MBIA
5.250%, 10/01/12 360 361
5.375%, 10/01/13 1,550 1,540
5.500%, 10/01/14 350 351
Puerto Rico Public Education &
Health Facilities RB, Series M,
CGTD
5.750%, 07/01/15 2,000 2,012
----------
12,669
----------
DESCRIPTION PAR (000) VALUE (000)
GUAM -- 1.0%
Guam Power Authority RB
5.250%, 10/01/11 $ 1,000 $ 1,007
----------
TOTAL MUNICIPAL BONDS
(Cost $94,772) 91,847
----------
REPURCHASE AGREEMENT -- 3.7%
JP Morgan
5.660%, dated 11/30/99, matures
12/01/99, repurchase price
$3,562,552 (collateralized by
U.S. Treasury Instruments:
total market value
$3,633,241) (C) 3,562 3,562
----------
TOTAL REPURCHASE AGREEMENT
(Cost $3,562) 3,562
----------
TOTAL INVESTMENTS -- 98.3%
(Cost $98,334) 95,409
----------
OTHER ASSETS AND LIABILITIES, NET -- 1.7% 1,612
----------
NET ASSETS:
Capital Shares (unlimited
authorization -- no par value)
based on 9,732,145 outstanding
shares of beneficial interest 100,176
Accumulated Net Realized Loss on Investments (230)
Net Unrealized Depreciation on Investments (2,925)
----------
TOTAL NET ASSETS-- 100.0% $97,021
==========
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE $9.97
==========
52
<PAGE>
BOSTON 1784 FUNDS
- --------------------------------------------------------------------------------
(A) Pre-refunded Security. The pre-refunded date is shown as the maturity date
on the Statement of Net Assets.
(B) Zero Coupon Bond. The rate reported on the Statement of Net Assets is the
effective yield as of November 30, 1999.
(C) Tri-Party Repurchase Agreement
AMT -- Alternative Minimum Tax
GO -- General Obligation Bond
LOC -- Securities are held in connection with a letter of credit issued by a
major commercial bank or other financial institution.
RB -- Revenue Bond
The following organizations have provided underlying credit support for the
securities set forth in the Statement of Net Assets.
AMBAC -- American Municipal Bond Assurance Corporation
CGTD -- Commonwealth Guaranteed
CONLEE -- College Construction Loan Insurance Association
FGIC -- Financial Guaranty Insurance Corporation
FHA -- Federal Housing Administration
FSA -- Financial Security Assurance
MBIA -- Municipal Bond Insurance Assurance
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
53
<PAGE>
as of november 30, 1999
STATEMENT OF NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
BOSTON 1784 ASSET ALLOCATION FUND
- --------------------------------------------------------------------------------
[pie chart omitted]
plot points follows:
U.S. Government Mortgage-Backed Obligations 9%
U.S. Treasury Obligations 9%
U.S. Government Agency Obligation 4%
Cash Equivalents 4%
Common Stock 55%
Corporate Bonds 15%
Asset-Backed Securities 4%
% OF TOTAL PORTFOLIO INVESTMENTS
DESCRIPTION SHARES VALUE (000)
COMMON STOCKS -- 53.6%
AEROSPACE & DEFENSE -- 0.3%
Allied Signal 3,150 $ 188
----------
AIR TRANSPORTATION -- 0.1%
FDX* 1,500 63
----------
AUTOMOTIVE -- 0.6%
General Motors Class H* 3,700 317
----------
BANKS -- 0.4%
Bank of America 3,600 211
----------
BEAUTY PRODUCTS -- 1.8%
Colgate-Palmolive 4,400 241
Procter & Gamble 6,750 729
----------
970
----------
BROADCASTING, NEWSPAPERS & ADVERTISING -- 4.6%
Adelphia Communications,
Class A* 2,100 118
AT&T-Liberty Media, Class A* 12,000 502
Clear Channel Communications* 2,200 177
Comcast, Class A 9,200 416
Mediaone Group* 3,900 309
Omnicom Group 2,700 238
Rogers Commuications* 4,900 112
SBS Broadcasting SA* 5,200 211
DESCRIPTION SHARES VALUE (000)
Telewest Comm PLC-Sponsored
ADR* 2,845 $ 138
Univision Communications,
Class A* 2,950 258
----------
2,479
----------
CAPITAL GOODS/CONSTRUCTION -- 4.3%
Dii Group Inc* 6,400 404
General Electric 7,800 1,014
Mannesmann AG Sponsored ADR* 1,250 260
Molex 5,100 258
Southdown 2,700 125
Tyco International 7,000 280
----------
2,341
----------
DRUGS -- 1.5%
Amgen (A)* 4,000 182
Medimmune* 1,000 120
Pfizer 5,700 206
Schering Plough 1,700 87
Warner-Lambert 2,500 224
----------
819
----------
ELECTRICAL SERVICES -- 0.4%
AES* 4,200 243
----------
ENERGY -- 3.7%
Baker Hughes 14,500 366
El Paso Natural Gas 4,700 181
Exxon 3,400 270
Mobil 5,800 605
Schlumberger 9,500 571
----------
1,993
----------
ENTERTAINMENT -- 0.5%
Time Warner 4,000 247
----------
ENVIRONMENTAL PRODUCTS -- 0.2%
Waters* 2,150 105
----------
FINANCIAL SERVICES -- 3.0%
American Express 1,200 182
Fannie Mae 2,900 193
Wells Fargo 26,400 1,228
----------
1,603
----------
54
<PAGE>
BOSTON 1784 FUNDS
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
FOOD, BEVERAGE & TOBACCO -- 1.3%
Coca Cola 3,200 $ 215
Nestle, Sponsored ADR 5,200 468
----------
683
----------
HEALTH CARE -- 4.2%
Cardinal Health 2,200 115
Genzyme* 4,600 166
Johnson & Johnson 9,350 970
Merck 12,700 997
----------
2,248
----------
INSURANCE -- 5.2%
Aflac 3,100 148
American International Group 15,150 1,564
AXA Financial 9,800 329
Citigroup 10,600 571
XL Capital, Class A 3,200 163
----------
2,775
----------
LEISURE -- 0.2%
Mattel 6,000 86
----------
LUMBER & WOOD PRODUCTS -- 0.5%
Georgia Pacific 2,350 94
Weyerhaeuser 2,650 162
----------
256
----------
MEDICAL PRODUCTS & SERVICES -- 2.0%
Allergan 1,400 138
Boston Scientific* 14,300 302
Elan, Sponsored ADR* 12,200 334
Medtronic 8,000 311
----------
1,085
----------
MISCELLANEOUS BUSINESS SERVICES -- 0.9%
DST Systems* 3,300 208
Electronic Data Systems
Corporation 4,000 257
Parametric Technology* 1,400 32
----------
497
----------
DESCRIPTION SHARES VALUE (000)
PETROLEUM & FUEL PRODUCTS -- 0.4%
Apache 2,800 $ 100
Burlington Resources 2,700 91
----------
191
----------
PETROLEUM REFINING -- 0.2%
Kerr-McGee $ 1,950 112
----------
Printing & Publishing -- 0.4%
Gannett 1,500 107
New York Times, Class A 2,500 96
----------
203
----------
PROFESSIONAL SERVICES -- 0.1%
Unitedglobalcom Inc.* 700 73
----------
RAILROADS -- 0.1%
Canadian National Railway 1,900 57
----------
RETAIL -- 3.2%
Circuit City 2,650 129
Costco Wholesale* 3,300 303
CVS 4, 300 171
Estee Lauder 4,400 186
Home Depot 3,100 245
Kroger* 6,100 130
Wal-Mart Stores 9,500 547
----------
1,711
----------
TECHNOLOGY -- 7.6%
Analog Devices* 7,100 408
Cisco Systems* 8,650 771
IBM 2, 450 252
Intel 4,100 314
Lucent Technologies 16,250 1,187
Microsoft* 4,300 391
Motorola 3,200 366
Texas Instruments 2,150 207
Vitesse Semiconductor* 4,800 216
----------
4,112
----------
TELEPHONES & TELECOMMUNICATIONS -- 4.6%
ADC Telecommunications* 3,450 184
Alltel 3,350 290
Centurytel 5,100 235
MCI WorldCom* 2,950 244
Nextlink Communications* 2,300 115
55
<PAGE>
as of november 30, 1999
STATEMENT OF NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
BOSTON 1784 ASSET ALLOCATION FUND (CONTINUED)
- --------------------------------------------------------------------------------
DESCRIPTION SHARES/PAR (000) VALUE (000)
Nippon Telegraph & Telephone* 4,100 $ 366
Nokia, ADR 1,050 145
NTL* 4,400 401
SBC Communications 10,100 525
----------
2,505
----------
TESTING LABORATORIES -- 0.1%
PE - PE Biosystems 1,000 82
----------
WHOLESALE -- 1.2%
Sysco 16,700 636
----------
TOTAL COMMON STOCKS
(Cost $18,492) 28,891
----------
PREFERRED STOCK -- 0.4%
Hartford Capital II 8,000 194
----------
TOTAL PREFERRED STOCK
(Cost $200) 194
----------
U.S. TREASURY OBLIGATIONS -- 9.2%
U.S. Treasury Bonds
7.250%, 05/15/16 $ 1,100 1,170
7.250%, 08/15/22 350 378
7.125%, 02/15/23 300 320
6.125%, 11/15/27 150 143
5.250%, 11/15/28 1,390 1,173
5.250%, 02/15/29 200 170
U.S. Treasury Notes
6.125%, 07/31/00 400 401
6.125%, 09/30/00 450 451
5.625%, 11/30/00 245 244
6.000%, 08/15/09 500 493
----------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $5,131) 4,943
----------
U.S. GOVERNMENT MORTGAGE-BACKED BONDS -- 8.9%
Federal Home Loan Mortgage
Corporation
5.750%, 03/15/09 500 464
6.000%, 11/01/28 2,390 2,220
DESCRIPTION PAR (000) VALUE (000)
Federal National Mortgage
Association
6.000%, 06/01/13 $ 1,116 $ 1,068
8.000%, 11/01/29 730 740
Government National Mortgage
Association
6.000%, 04/15/13 213 205
7.500%, 06/15/23 88 89
----------
TOTAL U.S. GOVERNMENT MORTGAGE-
BACKED BONDS
(Cost $5,008) 4,786
----------
CORPORATE BONDS -- 14.5%
BANKS -- 1.1%
Citicorp
6.375%, 11/15/08 300 280
First Union
7.500%, 07/15/06 315 317
----------
597
----------
CAPITAL GOODS/CONSTRUCTION -- 0.8%
Hydro-Quebec, YB
8.625%, 05/20/02 220 228
Province of Ontario, YB
7.375%, 01/27/03 220 224
----------
452
----------
COMMUNICATIONS EQUIPMENT -- 1.4%
STMicroelectronics ADR 1 137
Lucent Technologies
5.500%, 11/15/08 415 375
Tele Communications
9.800%, 02/01/12 200 238
----------
750
----------
ENTERTAINMENT -- 0.5%
Time Warner Entertainment
10.150%, 05/01/12 210 251
----------
FINANCIAL SERVICES -- 3.0%
Ford Motor Credit
6.750%, 05/15/05 100 98
7.375%, 10/28/09 425 428
56
<PAGE>
BOSTON 1784 FUNDS
DESCRIPTION PAR (000) VALUE (000)
First USA Bank
7.650%, 08/01/03 $ 265 $ 268
General Motors Acceptance
6.625%, 10/01/02 200 198
JP Morgan
6.000%, 01/15/09 400 364
National Rural Utilities
5.750%, 11/01/08 300 271
----------
1,627
----------
INDUSTRIAL -- 2.9%
Burlington North
9.250%, 10/01/06 250 271
DaimlerChrysler
7.200%, 09/01/09 245 245
Dupont Ei Nemour
6.875%, 10/15/09 200 197
Ford Motor
7.250%, 10/01/08 250 247
Northrop Grumman
7.000%, 03/01/06 250 241
Trans-Canada Pipelines, YB
9.125%, 04/20/06 310 333
----------
1,534
----------
INTERNET SERVICES -- 0.5%
Doubleclick* 1 120
Yahoo* 1 144
----------
264
----------
PAPER & PAPER PRODUCTS -- 0.6%
Fort James
6.875%, 09/15/07 360 344
----------
PETROLEUM & FUEL PRODUCTS -- 1.1%
Atlantic Richfield
5.900%, 04/15/09 350 318
Enron Oil & Gas
6.000%, 12/15/08 315 284
----------
602
----------
DESCRIPTION PAR (000) VALUE (000)
RETAIL -- 0.8%
Staples
7.125%, 08/15/07 $ 200 $ 194
Wal-Mart Eurobond
6.750%, 05/24/02 260 261
----------
455
----------
TELEPHONES & TELECOMMUNICATIONS -- 1.8%
Cable & Wireless Communication
6.375%, 03/06/03 200 199
MCI Worldcom
6.125%, 04/15/02 140 137
Sprint Capital
6.900%, 05/01/19 375 347
Telewest Communication, PLC (B)
0.000%, 11/15/99 2 --
US West Capital Funding
6.875%, 08/15/01 275 274
----------
957
----------
TOTAL CORPORATE BONDS
(Cost $8,037) 7,833
----------
ASSET-BACKED SECURITIES -- 4.3%
Citibank Credit Series 1999-7
Class A
6.650%, 11/15/06 250 248
Ford Credit Auto Owner Trust,
Series 1999-D, Class A
6.520%, 09/15/03 250 249
General Motors Acceptance
6.974%, 07/15/32 218 217
PNC Student Loan Trust I,
Series 1997-2, Class A6
6.572%, 01/25/04 600 587
Sears Credit Account Master Trust,
Series 1996-4, Class A
6.450%, 10/16/06 500 497
Sears Credit Account Master
Trust, Series 1997-1, Class A
6.200%, 07/16/07 500 492
----------
TOTAL ASSET-BACKED SECURITIES
(Cost $2,314) 2,290
----------
57
<PAGE>
as of november 30, 1999
STATEMENT OF NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
BOSTON 1784 ASSET ALLOCATION FUND (CONCLUDED)
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 4.3%
Federal Home Loan Bank
5.800%, 09/02/08 $ 250 $ 234
Federal National Mortgage
Association
5.750%, 04/15/03 235 230
6.500%, 03/01/11 343 336
6.500%, 05/01/28 861 821
Federal National Mortgage
Association, MTN
7.240%, 01/04/07 500 500
Private Export Funding Corporation
8.400%, 07/31/01 25 26
Tennessee Valley Authority Principal
STRIPS (A)
7.813%, 04/15/42 500 189
----------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(Cost $2,393) 2,336
----------
REPURCHASE AGREEMENT -- 4.3%
JP Morgan
5.660%, dated 11/30/99, matures
12/01/99, repurchase price
$2,322,360 (collateralized by
U.S. Treasury Instruments:
total market value
$2,368,441) (B) 2,322 2,322
----------
TOTAL REPURCHASE AGREEMENT
(Cost $2,322) 2,322
----------
TOTAL INVESTMENTS -- 99.5%
(Cost $43,897) 53,595
----------
OTHER ASSETS AND LIABILITIES, NET -- 0.5% 249
----------
VALUE (000)
NET ASSETS:
Capital Shares (unlimited
authorization -- no par value)
based on 3,504,344 outstanding
shares of beneficial interest $ 43,604
Undistributed Net Investment Income 211
Accumulated Net Realized Gain on
Investments 331
Net Unrealized Appreciation on
Investments 9,698
----------
TOTAL NET ASSETS -- 100.0% $53,844
==========
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE $15.36
==========
* Non-income producing security
(A) Zero Coupon Security. The rate reported on the Statement of Net Assets is
the effective rate as of November 30, 1999.
(B) Tri-Party Repurchase Agreement
ADR -- American Depository Receipt
MTN -- Medium Term Note
STRIPS -- Separately Traded Registered Interest and Principal Securities
YB -- Yankee Bond
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
58
<PAGE>
BOSTON 1784 FUNDS
as of november 30, 1999
STATEMENT OF NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
BOSTON 1784 GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
[pie chart omitted]
plot points follows:
Technology 22%
Telephone & Telecommunications 6%
Cash Equivalent 4%
Capital Goods/Machinery 2%
Communications Equipment 4%
Computers & Services 4%
Consumer Durables 2%
Consumer Non-Durables 2%
Data Processing & Management 1%
Drugs 5%
Energy 6%
Entertainment 1%
Financial Services 5%
Gas/Natural Gas 2%
Retail 11%
Restaurants 7%
Printing & Publishing 1%
Petroleum Refining 1%
Medical Products & Services 6%
Insurance 3%
Health Care 5%
% OF TOTAL PORTFOLIO INVESTMENTS
DESCRIPTION SHARES VALUE (000)
COMMON STOCKS -- 96.4%
CAPITAL GOODS/MACHINERY -- 2.0%
General Electric 80,000 $ 10,400
----------
COMMUNICATIONS EQUIPMENT -- 4.2%
Qualcomm* 60,000 21,739
----------
COMPUTERS & SERVICES -- 3.9%
Adaptec* 200,000 10,775
Equant-NY Registered
Shares (NL)* 100,000 9,425
----------
20,200
----------
CONSUMER DURABLES -- 2.2%
Cintas 250,000 11,484
----------
CONSUMER NON-DURABLES -- 2.1%
Coca-Cola 160,000 10,770
----------
DATA PROCESSING & MANAGEMENT -- 1.0%
Concord EFS* 200,000 5,300
----------
DESCRIPTION SHARES VALUE (000)
DRUGS -- 5.0%
Schering-Plough 110,000 $ 5,624
Warner-Lambert 225,000 20,180
----------
25,804
----------
ENERGY -- 6.0%
Enron 500,000 19,031
Exxon 150,000 11,897
----------
30,928
----------
ENTERTAINMENT -- 1.2%
Time Warner 100,000 6,169
----------
FINANCIAL SERVICES -- 5.2%
Fifth Third Bancorp 200,000 14,000
Firstar 500,000 13,000
----------
27,000
----------
GAS/NATURAL GAS -- 2.0%
The Williams Companies 300,000 10,125
----------
HEALTH CARE -- 5.0%
Johnson & Johnson 120,000 12,450
Pfizer 375,000 13,570
----------
26,020
----------
INSURANCE -- 3.1%
American International
Group 156,250 16,133
----------
MEDICAL PRODUCTS & SERVICES -- 6.2%
Guidant* 250,000 12,500
Medtronic 500,000 19,437
----------
31,937
----------
PETROLEUM REFINING -- 1.1%
Murphy Oil 100,000 5,650
----------
PRINTING & PUBLISHING -- 0.6%
Reader's Digest, Class A 100,000 2,900
----------
RESTAURANTS -- 7.1%
J.D. Wetherspoon (UK) 3,525,000 22,559
Outback Steakhouse* 105,000 2,474
PizzaExpress (UK) 935,000 11,497
----------
36,530
----------
59
<PAGE>
as of november 30, 1999
STATEMENT OF NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
BOSTON 1784 GROWTH AND INCOME FUND (CONCLUDED)
- --------------------------------------------------------------------------------
DESCRIPTION SHARES/PAR (000) VALUE (000)
RETAIL -- 10.5%
Bed Bath & Beyond* 600,000 $ 18,750
Home Depot 450,000 35,578
----------
54,328
----------
TECHNOLOGY -- 21.7%
Cisco Systems* 400,000 35,675
Intel 380,000 29,141
Microsoft* 300,000 27,314
QLogic* 50,000 5,656
Texas Instruments 150,000 14,409
----------
112,195
----------
TELEPHONES & TELECOMMUNICATIONS -- 6.3%
AT&T 300,000 16,763
JDS Uniphase* 40,000 9,145
MCI WorldCom* 40,000 3,308
Qwest Communications
International* 100,000 3,419
----------
32,635
----------
TOTAL COMMON STOCKS
(Cost $244,602) 498,247
----------
REPURCHASE AGREEMENT -- 3.6%
JP Morgan
5.660%, dated 11/30/99, matures
12/01/99, repurchase price
$18,584,881 (collateralized by
U.S. Treasury Instruments:
total market value
$18,953,646) (A) $18,582 18,582
----------
TOTAL REPURCHASE AGREEMENT
(Cost $18,582) 18,582
----------
TOTAL INVESTMENTS -- 100.0%
(Cost $263,184) 516,829
----------
OTHER ASSETS AND LIABILITIES, NET -- 0.0% (97)
----------
VALUE (000)
NET ASSETS:
Capital Shares (unlimited
authorization -- no par value)
based on 23,528,939 outstanding
shares of beneficial interest $248,631
Accumulated net investment loss (263)
Accumulated net realized gain on investments 14,719
Net unrealized appreciation on investments 253,645
----------
TOTAL NET ASSETS -- 100.0% $516,732
==========
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE $21.96
==========
* Non-income producing security
(A) Tri-Party Repurchase Agreement
NL -- Netherlands Equity
UK -- United Kingdom Equity
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
60
<PAGE>
BOSTON 1784 FUNDS
as of november 30, 1999
STATEMENT OF NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
BOSTON 1784 GROWTH FUND
- --------------------------------------------------------------------------------
[pie chart omitted]
plot points follows:
Technology 15%
Wholesale 1%
Cash Equivalents 3%
Petroleum & Fuel Products 1%
Energy 3%
Consumer Products 1%
Television Broadcasting 1%
Broadcasting Newspapers
& Advertising 2%
Computer Equipment & Services 16%
Consumer Druables 4%
Data Processing & Management 2%
Drugs 3%
Capital Goods/Construction 1%
Financial Services 3%
Communications Equipment 3%
Computer & Services 8%
Medical Products & Services 4%
Miscellaneous Business Services 8%
Restaurants 11%
Retail 10%
% OF TOTAL PORTFOLIO INVESTMENTS
DESCRIPTION SHARES VALUE (000)
COMMON STOCKS -- 95.8%
BROADCASTING, NEWSPAPERS & ADVERTISING -- 2.2%
Antec* 100,000 $ 5,600
----------
CAPITAL GOODS/CONSTRUCTION -- 1.2%
Elcor 90,000 2,914
----------
COMMUNICATIONS EQUIPMENT -- 2.9%
VerticalNet* 82,000 7,185
----------
COMPUTER EQUIPMENT & SERVICES -- 15.5%
Cree Research* 76,000 4,341
Cypress Semiconductor* 175,000 4,769
Emulex* 130,000 21,125
Semtech* 175,000 8,537
----------
38,772
----------
COMPUTERS & SERVICES -- 7.4%
Ancor Communications* 220,000 13,337
Crossroads Systems* 13,400 1,182
Finistar* 1,931 223
DESCRIPTION SHARES VALUE (000)
Gadzoox Networks* 1,800 $ 142
MicroStrategy* 20,000 2,450
Splitrock Services* 70,000 1,120
----------
18,454
----------
CONSUMER DURABLES -- 3.4%
Cintas 80,000 3,675
Danaher 100,000 4,912
----------
8,587
----------
CONSUMER PRODUCTS -- 0.5%
Steven Madden* 100,000 1,281
----------
DATA PROCESSING & MANAGEMENT -- 2.1%
Concord EFS* 200,000 5,300
----------
DRUGS -- 2.7%
Millennium Pharmaceutical* 70,000 6,814
----------
ENERGY -- 3.2%
Basin Exploration* 90,000 1,592
St. Mary Land & Exploration 115,000 2,401
Stone Energy* 100,000 3,894
----------
7,887
----------
FINANCIAL SERVICES -- 2.9%
Fifth Third Bancorp 50,000 3,500
Firstar 150,000 3,900
----------
7,400
----------
HEALTH CARE -- 0.4%
World Heart* 100,000 913
----------
MEDICAL PRODUCTS & SERVICES -- 3.7%
ATS Medical* 100,000 950
Guidant* 100,000 5,000
Medtronic 82,579 3,210
----------
9,160
----------
MISCELLANEOUS BUSINESS SERVICES -- 8.2%
Musicmaker.com* 200,000 1,500
Telescan* 125,000 3,359
VeriSign* 74,000 13,750
WebTrends* 30,000 1,727
----------
20,336
----------
61
<PAGE>
as of november 30, 1999
STATEMENT OF NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
Boston 1784 Growth Fund (concluded)
- --------------------------------------------------------------------------------
DESCRIPTION SHARES/PAR (000) VALUE (000)
PETROLEUM & FUEL PRODUCTS -- 1.3%
Shaw Group* 160,000 $ 3,340
----------
RESTAURANTS -- 11.2%
J.D. Wetherspoon (UK) 2,500,000 16,000
P.F Changs China Bistro* 220,000 5,593
Papa John's International* 70,000 2,513
PizzaExpress (UK) 310,000 3,812
----------
27,918
----------
RETAIL -- 8.7%
99 Cents Only Stores* 50,000 1,419
Bebe Stores* 50,000 1,556
Bed Bath & Beyond* 200,000 6,250
Dollar Tree Stores* 175,000 7,831
Fastenal 120,000 4,620
----------
21,676
----------
TECHNOLOGY -- 15.0%
Legato Systems* 180,000 12,156
QLogic* 200,000 22,625
Sterling Software* 100,000 2,631
----------
37,412
----------
TELEPHONES & TELECOMMUNICATIONS -- 0.9%
Network Access Solutions* 100,000 2,125
----------
TELEVISION BROADCASTING -- 1.3%
Univision Communications,
Class A* 36,000 3,150
----------
WHOLESALE -- 1.1%
Miami Computer Supply* 100,000 2,800
----------
TOTAL COMMON STOCKS
(Cost $122,902) 239,024
----------
REPURCHASE AGREEMENT -- 2.6%
JP Morgan
5.660%, dated 11/30/99, matures
12/01/99, repurchase price
$6,402,993 (collateralized by
U.S. Treasury Instruments:
total market value
$6,530,042) (A) $6,402 6,402
----------
DESCRIPTION VALUE (000)
TOTAL REPURCHASE AGREEMENT
(Cost $6,402) $ 6,402
----------
TOTAL INVESTMENTS -- 98.4%
(Cost $129,304) 245,426
----------
OTHER ASSETS AND LIABILITIES, NET -- 1.6% 3,970
----------
NET ASSETS:
Capital Shares (unlimited
authorization -- no par value)
based on 15,491,744 outstanding
shares of beneficial interest 127,369
Accumulated net investment loss (448)
Accumulated net realized gain on
investments 6,353
Net unrealized appreciation on investments 116,122
----------
TOTAL NET ASSETS -- 100.0% $249,396
==========
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE $16.10
==========
* Non-income producing security
(A) Tri-Party Repurchase Agreement
(UK) -- United Kingdom Equity
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
62
<PAGE>
BOSTON 1784 FUNDS
as of november 30, 1999
SCHEDULE OF INVESTMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
BOSTON 1784 INTERNATIONAL EQUITY FUND
- -------------------------------------------------------------------------------
[pie chart omitted]
plot points follows:
United Kingdom 13%
Cash Equivalent 10%
Australia 1%
Finland 5%
Other Europe 10%
France 10%
Germany 9%
Other Far East 8%
Other North & South America 2%
Japan 32%
% OF TOTAL PORTFOLIO INVESTMENTS
DESCRIPTION SHARES VALUE (000)
FOREIGN COMMON STOCKS -- 95.8%
AUSTRALIA -- 0.9%
Broken Hill Proprietary 392,842 $ 4,304
----------
BRAZIL -- 0.4%
Aracruz Celulose ADR 95,200 1,940
----------
CANADA -- 0.9%
Nortel Networks 59,200 4,381
----------
CHINA -- 2.8%
China Telecom* 2,426,000 13,027
----------
FINLAND -- 5.0%
Nokia 115,448 16,375
Sonera Group 67,100 2,776
UPM-Kymmene 146,900 4,920
----------
24,071
----------
FRANCE -- 11.2%
Alstom 90,900 2,586
Axa 24,336 3,287
Banque National de Paris 92,400 8,482
Cap Gemini 24,989 4,427
Carrefour 29,100 5,079
DESCRIPTION SHARES VALUE (000)
Lafarge 26,100 $ 2,466
Sanofi-Synthelabo* 95,308 3,932
STMicroelectronics ADR 126,100 15,747
Total Fina, Class B 57,400 7,649
----------
53,655
----------
GERMANY -- 9.3%
Allianz 19,700 5,778
Bayerische Vereinsbank 95,400 5,928
Deutsche Bank 85,900 5,672
EM.TV & Merchandising-- New 25,000 1,891
Epcos* 58,100 3,575
Mannesmann 80,000 16,657
Siemens 46,900 4,736
----------
44,237
----------
HONG KONG -- 1.7%
HSBC Holdings 263,200 3,493
Hutchison Whampoa 401,000 4,931
----------
8,424
----------
IRELAND -- 0.7%
Jefferson Smurfit Group 1,140,100 3,088
----------
ITALY -- 1.0%
Mediaset 191,400 2,182
Telecom Italia Mobile 350,000 2,754
----------
4,936
----------
JAPAN -- 34.0%
Advantest 20,200 3,372
Aeon Credit Service 12,300 2,186
Aiful 28,700 4,672
Asahi Bank 230,000 1,613
Credit Saison 9,400 190
Daiwa Securities Group 628,000 8,979
Fujitsu 273,000 9,692
Funai Electric 15,300 9,588
Furukawa Electric 728,000 7,789
Industrial Bank of Japan 455,000 5,368
Japan Telecom 239 9,375
Marubeni 1,240,000 4,828
Matsushita Communications 35,000 6,727
Murata Manufacturing 39,000 6,471
Mycal Card 23,000 1,105
NEC 305,000 7,134
63
<PAGE>
as of november 30, 1999
SCHEDULE OF INVESTMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
BOSTON 1784 INTERNATIONAL EQUITY FUND (CONCLUDED)
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
Nikko Securities 450,000 $ 5,605
Nippon System Development 33,800 3,812
Nippon Telegraph & Telephone 400 7,179
Nomura Securities 129,000 2,302
NTT Mobile Communication
Network 389 13,657
Ryohin Keikaku 11,500 2,712
Secom 62,000 6,992
Shin-Etsu Chemical 110,000 4,347
Softbank 15,000 10,841
Sony 45,800 8,489
Yahoo Japan* 10 7,061
----------
162,086
----------
MEXICO -- 1.0%
Telefonos de Mexico ADR,
Series L 50,600 4,684
----------
NETHERLANDS -- 2.9%
Ahold 2,740 87
Akzo Nobel 38,300 1,642
ASM Lithography Holdings* 79,300 7,417
Heineken 52,400 2,537
ING Groep 35,800 2,017
----------
13,700
----------
NORWAY -- 0.4%
Tomra Systems 51,622 1,813
----------
SINGAPORE -- 1.0%
DBS Group Holdings Limited 194,525 2,523
Singapore Press Holdings 115,000 2,156
----------
4,679
----------
SOUTH KOREA -- 3.3%
Housing & Commercial Bank
GDR* 52,400 1,454
Korea Telecom ADR* 108,600 5,756
Pohang Iron & Steel ADR* 111,300 4,000
Samsung Electronics --
GDR 144A 42,500 4,438
----------
15,648
----------
DESCRIPTION SHARES VALUE (000)
SPAIN -- 0.6%
Telefonica - New* 3,007 $ 50
Telefonica* 143,992 3,004
----------
3,054
----------
SWEDEN -- 1.8%
Ericsson, Series B 128,400 6,229
Nordbanken Holding 425,000 2,549
----------
8,778
----------
SWITZERLAND -- 3.1%
Clariant 3,800 1,636
Holderbank Financiere Glarus 4,390 5,514
Roche Holding-Genusscheine 286 3,461
UBS-Registered 15,280 4,189
----------
14,800
----------
TAIWAN -- 1.0%
Taiwan Semiconductor ADR 137,210 4,914
----------
UNITED KINGDOM -- 12.8%
Allied Zurich 286,400 3,474
Bank of Scotland 2,431 29
Barclays 99,944 2,894
BP Amoco 590,000 6,017
British Telecommunications 243,678 4,900
CMG 54,200 2,866
Dixons Group 368,300 8,039
Glaxo Wellcome 262,542 7,879
Imperial Tobacco Group 226,600 2,372
Lloyds TSB Group 238,278 3,056
Misys 214,300 2,329
Prudential 273,300 4,496
Reckitt & Colman 630 8
Shell Transportation &
Trading 1,001,200 7,711
Vodafone Group 989,545 4,669
----------
60,739
----------
TOTAL FOREIGN COMMON STOCK
(Cost $321,642) 456,958
----------
64
<PAGE>
BOSTON 1784 FUNDS
DESCRIPTION SHARES/PAR (000) VALUE (000)
FOREIGN PREFERRED STOCK -- 0.6%
GERMANY -- 0.6%
Porsche 1,017 $ 2,917
-----------
TOTAL FOREIGN PREFERRED STOCK
(Cost $2,722) 2,917
-----------
REPURCHASE AGREEMENT -- 11.0%
JP Morgan
5.660%, dated 11/30/99, matures
12/01/99, repurchase price
$52,668,166 (collateralized by
U.S. Treasury Instruments:
total market value
$53,713,218) (A) $52,660 52,660
-----------
TOTAL REPURCHASE AGREEMENT
(Cost $52,660) 52,660
-----------
TOTAL INVESTMENTS -- 107.4%
(Cost $377,024) $512,535
===========
* Non-income producing security
(A) Tri-Party Repurchase Agreement
ADR-- American Depository Receipt
GDR -- Global Depository Receipt
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
65
<PAGE>
This page intentionally left blank.
<PAGE>
BOSTON 1784 FUNDS
AS OF NOVEMBER 30, 1999
STATEMENTS OF ASSETS AND LIABILITIES (000) (UNAUDITED)
- --------------------------------------------------------------------------------
Boston 1784 International
Equity Fund
----------------------------
ASSETS:
Investments at value (cost $377,024) $512,535
Cash and Foreign Currency 303
Income Receivable 1,340
Investment Securities Sold 1,612
Capital Shares Sold 231
Other Assets 34
------------
Total Assets 516,055
------------
LIABILITIES:
Investment Securities Purchased 30,403
Capital Shares Redeemed 7,739
Accrued Expenses Payable 592
Other Liabilities 48
------------
Total Liabilities 38,782
------------
Total Net Assets 477,273
============
NET ASSETS:
Capital Shares (unlimited authorization --
no par value) based on 31,103,235
outstanding shares of beneficial interest 320,536
Accumulated net investment loss (2,548)
Accumulated net realized gain on investments 23,809
Net unrealized appreciation on investments 135,511
Net unrealized depreciation on forward currency
contracts, foreign currency and translation of
other assets and liabilities in foreign currency (35)
------------
Total Net Assets $477,273
------------
------------
Net Asset Value, Offering, and Redemption Price Per Share $ 15.35
------------
------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
67
<PAGE>
STATEMENTS OF OPERATIONS (000) (UNAUDITED)
- --------------------------------------------------------------------------------
FOR THE SIX MONTH PERIOD ENDED NOVEMBER 30, 1999
<TABLE>
<CAPTION>
BOSTON BOSTON
BOSTON BOSTON 1784 BOSTON 1784
1784 1784 PRIME 1784 BOSTON U.S. GOVERNMENT
TAX-FREE U.S. TREASURY MONEY SHORT-TERM 1784 MEDIUM-TERM
MONEY MARKET MONEY MARKET MARKET INCOME INCOME INCOME
FUND FUND FUND FUND FUND FUND
===================================================================================================================================
INCOME:
<S> <C> <C> <C> <C> <C> <C>
Interest Income $17,115 $10,244 $4,493 $4,575 $11,124 $8,459
Dividend Income -- -- -- -- -- --
Less: Foreign Taxes Withheld -- -- -- -- -- --
------- ------- ------- --------- --------- -------
Total Income 17,115 10,244 4,493 4,575 11,124 8,459
------- ------- ------- --------- --------- -------
EXPENSES:
Investment Advisory Fees 1,938 804 340 382 1,270 1,017
Less: Waiver of Investment
Advisory Fees -- (78) (69) -- (97) (84)
Administrator Fees 316 132 56 49 112 90
Shareholder Servicing Fees -- 201 85 -- -- --
12b-1 Fees -- -- -- 191 429 344
Less: Waiver of 12b-1 Fees -- -- -- (191) (429) (344)
Transfer Agent Fees & Expenses 84 196 111 40 43 38
Registration Fees 16 3 3 2 6 4
Trustee Fees 10 4 1 2 3 3
Printing 18 7 4 2 8 7
Amortization of Deferred
Organizational Costs -- -- -- -- -- --
Professional Fees 37 15 6 6 13 10
Custodian Fees 26 4 8 5 11 8
Other Expenses 6 19 8 1 4 7
------- ------- ------- --------- --------- -------
Total Expenses, Net of Waivers 2,451 1,307 553 489 1,373 1,100
------- ------- ------- --------- --------- -------
Net Investment Income (Loss) 14,664 8,937 3,940 4,086 9,751 7,359
------- ------- ------- --------- --------- -------
Net Realized Gain (Loss)
on Investments (1) -- -- (485) (5,586) (1,392)
Net Realized Gain (Loss) from
Forward Foreign
Currency Contracts and Foreign
Currency Transactions -- -- -- -- -- --
Net Change in Unrealized
Appreciation (Depreciation)
on Investments -- -- -- (1,214) (3,640) (4,108)
Net Change in Unrealized Appreciation on
Forward Foreign Currency Contracts,
Foreign Currencies and Translation
of Other Assets and Liabilities in
Foreign Currency -- -- -- -- -- --
------- ------- ------- --------- --------- -------
Net Realized and Unrealized Gain
(Loss) on Investments and
Foreign Currency (1) -- -- (1,699) (9,226) (5,500)
------- ------- ------- --------- --------- -------
Net Increase (Decrease) in Net Assets
Resulting From Operations $14,663 $ 8,937 $3,940 $ 2,387 $ 525 $ 1,859
======= ======= ======= ========= ========= =======
</TABLE>
68
<PAGE>
BOSTON 1784 FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BOSTON BOSTON BOSTON BOSTON BOSTON
1784 1784 1784 1784 1784 BOSTON BOSTON BOSTON
TAX-EXEMPT CONNECTICUT FLORIDA MASSACHUSETTS RHODE ISLAND 1784 1784 BOSTON 1784
MEDIUM-TERM TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT ASSET GROWTH AND 1784 INTERNATIONAL
INCOME INCOME INCOME INCOME INCOME ALLOCATION INCOME GROWTH EQUITY
FUND FUND FUND FUND FUND FUND FUND FUND FUND
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 9,090 $ 4,770 $ 1,797 $ 6,830 $ 2,639 $ 792 $ 354 $ 331 $ 2,745
-- -- -- -- -- 122 1,720 157 486
-- -- -- -- -- -- (12) -- (169)
- --------- ------- ------- ------- ------- ------- ------- -------- --------
9,090 4,770 1,797 6,830 2,639 914 2,062 488 3,062
- --------- ------- ------- ------- ------- ------- ------- -------- --------
1,287 675 257 963 367 199 1,939 773 2,072
(100) (60) (31) (89) (37) -- -- -- --
114 60 22 85 32 18 171 68 135
-- -- -- -- -- -- -- -- --
435 228 87 325 123 67 655 261 518
(435) (228) (87) (325) (123) (67) (655) (261) (518)
40 31 18 43 22 36 125 59 48
6 3 1 4 1 -- 8 3 6
3 2 1 3 1 1 5 2 4
8 5 2 7 2 1 13 5 9
-- -- -- -- -- -- -- -- --
13 7 3 9 4 2 21 6 15
10 4 2 7 3 12 33 16 111
11 2 3 9 1 1 6 4 9
- --------- ------- ------- ------- ------- ------- ------- -------- --------
1,392 729 278 1,041 396 270 2,321 936 2,409
- --------- ------- ------- ------- ------- ------- ------- -------- --------
7,698 4,041 1,519 5,789 2,243 644 (259) (448) 653
- --------- ------- ------- ------- ------- ------- ------- -------- --------
(3,498) (56) -- (53) 37 1,275 24,817 19,484 70,470
-- -- -- -- -- -- (4) 8 (98)
(12,408) (7,608) (2,944) (10,903) (4,784) 1,740 23,209 60,581 84,374
-- -- -- -- -- -- -- -- 28
- --------- ------- ------- ------- ------- ------- ------- -------- --------
(15,906) (7,664) (2,944) (10,956) (4,747) 3,015 48,022 80,073 154,774
- --------- ------- ------- ------- ------- ------- ------- -------- --------
$ (8,208) $(3,623) $(1,425) $(5,167) $(2,504) $3,659 $47,763 $ 79,625 $155,427
========= ======= ======= ======= ======= ======= ======= ======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
69
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS (000) (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BOSTON BOSTON BOSTON BOSTON
1784 1784 1784 1784
TAX-FREE U.S. TREASURY PRIME SHORT-TERM
MONEY MARKET MONEY MARKET MONEY MARKET INCOME
FUND FUND FUND FUND
====================================================================================================================================
6/1/99 6/1/98 6/1/99 6/1/98 6/1/99 6/1/98 6/1/99 6/1/98
to to to to to to to to
11/30/99 5/31/99 11/30/99 5/31/99 11/30/99 5/31/99 11/30/99 5/31/99
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Investment Income $ 14,664 $ 31,358 $8,937 $ 17,274 $ 3,940 $ 7,370 $ 4,086 $ 9,844
Net Realized Gain (Loss) on Investments (1) 24 -- 6 -- -- (485) 605
Net Change in Unrealized Depreciation
on Investments -- -- -- -- -- -- (1,214) (1,760)
---------- ---------- -------- -------- -------- -------- -------- --------
Net Increase (Decrease) in Net Assets Resulting
from Operations 14,663 31,382 8,937 17,280 3,940 7,370 2,387 8,689
---------- ---------- -------- -------- -------- -------- -------- --------
DISTRIBUTIONS TO
SHAREHOLDERS:
Net Investment Income (14,664) (31,358) (8,951) (17,274) (3,941) (7,370) (4,089) (9,843)
Realized Capital Gains -- -- -- -- -- -- -- --
---------- ---------- -------- -------- -------- -------- -------- --------
Total Distributions (14,664) (31,358) (8,951) (17,274) (3,941) (7,370) (4,089) (9,843)
---------- ---------- -------- -------- -------- -------- -------- --------
SHARE TRANSACTIONS:
Proceeds from Shares Issued 828,639 1,562,128 463,389 911,957 214,332 309,603 13,203 42,172
Reinvestment of Cash Distributions 2,040 4,871 7,577 16,728 3,019 6,288 2,862 6,066
Cost of Shares Redeemed (741,995)(1,605,367)(474,643)(910,573)(211,752) (278,301) (44,732) (68,308)
---------- ---------- -------- -------- -------- -------- -------- --------
Increase (Decrease) in Net Assets from
Share Transactions 88,684 (38,368) (3,677) 18,112 5,599 37,590 (28,667) (20,070)
---------- ---------- -------- -------- -------- -------- -------- --------
Total Increase (Decrease) in
Net Assets 88,683 (38,344) (3,691) 18,118 5,598 37,590 (30,369) (21,224)
NET ASSETS:
Beginning of Period 969,380 1,007,724 390,775 372,657 165,178 127,588 176,032 197,256
---------- ---------- -------- -------- -------- -------- -------- --------
NET ASSETS:
End of Period $1,058,063 $ 969,380 $387,084 $390,775 $170,776 $165,178 $145,663 $176,032
========== ========== ======== ======== ======== ======== ======== ========
CAPITAL SHARE TRANSACTIONS:
Shares Issued 828,639 1,562,128 463,389 911,957 214,332 309,603 1,324 4,164
Shares Issued in Lieu of
Cash Distributions 2,040 4,871 7,577 16,728 3,019 6,288 288 599
Shares Redeemed (741,995)(1,605,367)(474,643)(910,573) (211,752)(278,301) (4,483) (6,746)
---------- ---------- -------- -------- -------- -------- -------- --------
Net Increase (Decrease) in
Capital Shares 88,684 (38,368) (3,677) 18,112 5,599 37,590 (2,871) (1,983)
========== ========== ======== ======== ======== ======== ======== ========
</TABLE>
70
<PAGE>
BOSTON 1784 FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BOSTON BOSTON BOSTON BOSTON BOSTON
1784 1784 1784 1784 1784
BOSTON U.S. GOVERNMENT TAX-EXEMPT CONNECTICUT FLORIDA MASSACHUSETTS
1784 MEDIUM-TERM MEDIUM-TERM TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT
INCOME INCOME INCOME INCOME INCOME INCOME
FUND FUND FUND FUND FUND FUND
====================================================================================================================================
6/1/99 6/1/98 6/1/99 6/1/98 6/1/99 6/1/98 6/1/99 6/1/98 6/1/99 6/30/98 6/1/99 6/1/98
to to to to to to to to to to to to
11/30/99 5/31/99 11/30/99 5/31/99 11/30/99 5/31/99 11/30/99 5/31/99 11/30/99 5/31/99 11/30/99 5/31/99
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 9,751 $ 20,032 $ 7,359 $ 14,257 $ 7,698 $ 14,101 $ 4,041 $ 7,408 $ 1,519 $ 2,504 $ 5,789 $ 10,113
(5,586) 4,091 (1,392) 434 (3,498) 6,046 (56) 1,143 -- 331 (53) 1,109
(3,640) (12,468) (4,108) (4,968) (12,408) (7,281) (7,608) (2,686) (2,944) (821) (10,903) (2,392)
- -------- -------- -------- -------- -------- -------- -------- -------- ------- ------- -------- --------
525 11,655 1,859 9,723 (8,208) 12,866 (3,623) 5,865 (1,425) 2,014 (5,167) 8,830
- -------- -------- -------- -------- -------- -------- -------- -------- ------- ------- -------- --------
(10,213) (20,031) (7,231) (14,256) (7,698) (14,101) (4,039) (7,408) (1,519) (2,504) (5,789) (10,113)
(1,812) (2,223) -- -- (3,786) (5,447) (892) (1,010) -- (755) -- --
- -------- -------- -------- -------- -------- -------- -------- -------- ------- ------- -------- --------
(12,025) (22,254) (7,231) (14,256) (11,484) (19,548) (4,931) (8,418) (1,519) (3,259) (5,789) (10,113)
- -------- -------- -------- -------- -------- -------- -------- -------- ------- ------- -------- --------
48,780 69,930 21,827 71,574 46,221 88,484 19,747 68,008 9,188 22,210 40,685 98,037
2,259 5,831 598 1,267 4,129 5,924 1,660 2,159 19 767 1,623 3,049
(52,470)(114,522) (25,024) (44,246) (42,491) (34,309) (22,308) (21,996) (6,195) (4,729) (47,155) (38,069)
- -------- -------- -------- -------- -------- -------- -------- -------- ------- ------- -------- --------
(1,431) (38,761) (2,599) 28,595 7,859 60,099 (901) 48,171 3,012 18,248 (4,847) 63,017
- -------- -------- -------- -------- -------- -------- -------- -------- ------- ------- -------- --------
(12,931) (49,360) (7,971) 24,062 (11,833) 53,417 (9,455) 45,618 68 17,003 (15,803) 61,734
343,196 392,556 276,781 252,719 356,995 303,578 187,725 142,107 68,796 51,793 267,871 206,137
- -------- -------- -------- -------- -------- -------- -------- -------- ------- ------- -------- --------
$330,265 $343,196 $268,810 $276,781 $345,162 $356,995 $178,270 $187,725 $68,864 $68,796 $252,068 $267,871
======== ======== ======== ======== ======== ======== ======== ======== ======= ======= ======== ========
4,981 6,813 2,339 7,383 4,627 8,401 1,906 6,267 930 2,151 4,033 9,328
232 565 64 130 420 563 162 198 2 74 161 291
(5,368) (11,138) (2,684) (4,567) (4,252) (3,252) (2,155) (2,025) (630) (458) (4,683) (3,627)
- -------- -------- -------- -------- -------- -------- -------- -------- ------- ------- -------- --------
(155) (3,760) (281) 2,946 795 5,712 (87) 4,440 302 1,767 (489) 5,992
======== ======== ======== ======== ======== ======== ======== ======== ======= ======= ======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
71
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS (000) (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BOSTON
1784 BOSTON BOSTON BOSTON
RHODE ISLAND 1784 1784 BOSTON 1784
TAX-EXEMPT ASSET GROWTH AND 1784 INTERNATIONAL
INCOME ALLOCATION INCOME GROWTH EQUITY
FUND FUND FUND FUND FUND
====================================================================================================================================
6/1/99 6/1/98 6/1/99 6/1/98 6/1/99 6/1/98 6/1/99 6/1/98 6/1/99 6/1/98
to to to to to to to to to to
11/30/99 5/31/99 11/30/99 5/31/99 11/30/99 5/31/99 11/30/99 5/31/99 11/30/99 5/31/99
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net Investment Income
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(Loss) $ 2,243 $ 3,915 $ 644 $ 1,326 $ (259) $ 672 $ (448) $ (772) $ 653 $ 240
Net Realized Gain on
Investments 37 721 1,275 1,850 24,817 52,160 19,484 4,766 70,470 35,279
Net Realized Gain (Loss)
from Forward Foreign
Currency Contracts and
Foreign Currency Transactions -- -- -- (4) (25) 8 (2) (98) (1,927)
Net Change in Unrealized
Appreciation (Depreciation)
on Investments (4,784) (1,395) 1,740 (262) 23,209 (28,015) 60,581 (15,346) 84,374 (50,485)
Net Change in Unrealized
Appreciation (Depreciation)
on Foreign Forward Currency
Contracts, Foreign Currencies
and Translation of Othe
Assets and Liabilities in
Foreign Currency -- -- -- -- -- -- -- -- 28 (2,062)
-------- -------- ------- ------- -------- -------- -------- -------- -------- --------
Net Increase (Decrease) in Net Assets
Resulting from Operations (2,504) 3,241 3,659 2,914 47,763 24,792 79,625 (11,354) 155,427 (18,955)
-------- -------- ------- ------- -------- -------- -------- -------- -------- --------
DISTRIBUTIONS TO
SHAREHOLDERS:
Net Investment Income (2,243) (3,915) (726) (1,328) -- (884) -- -- -- (997)
Realized Capital Gains (404) (663) (1,564) (2,229) (51,112) (12,700) (17,896) (6,328) (80,686) (2,548)
-------- -------- ------- ------- -------- -------- -------- -------- -------- --------
Total Distributions (2,647) (4,578) (2,290) (3,557) (51,112) (13,584) (17,896) (6,328) (80,686) (3,545)
-------- -------- ------- ------- -------- -------- -------- -------- -------- --------
SHARE TRANSACTIONS:
Proceeds from Shares Issued 15,487 38,895 5,120 13,741 52,641 228,857 132,677 181,224 434,725 403,221
Reinvestment of Cash
Distributions 715 1,283 2,152 3,400 48,643 12,381 9,381 4,590 48,162 1,744
Cost of Shares Redeemed (16,103) (13,565) (8,168)(13,410)(130,619)(257,027)(139,867)(240,206)(470,108)(462,531)
-------- -------- ------- ------- -------- -------- -------- -------- -------- --------
Increase (Decrease) in Net Assets from
Share Transactions 99 26,613 (896) 3,731 (29,335) (15,789) 2,191 (54,392) 12,779 (57,566)
-------- -------- ------- ------- -------- -------- -------- -------- -------- --------
Total Increase (Decrease)
in Net Assets (5,052) 25,276 473 3,088 (32,684) (4,581) 63,920 (72,074) 87,520 (80,066)
NET ASSETS:
Beginning of Period 102,073 76,797 53,371 50,283 549,416 553,997 185,476 257,550 389,753 469,819
-------- -------- ------- ------- -------- -------- -------- -------- -------- --------
NET ASSETS:
End of Period $ 97,021 $102,073 $53,844 $53,371 $516,732 $549,416 $249,396 $185,476 $477,273 $389,753
======== ======== ======= ======= ======== ======== ======== ======== ======== ========
CAPITAL SHARE TRANSACTIONS:
Shares Issued 4,033 3,644 4,033 913 2,313 10,493 9,510 16,196 29,045 31,211
Shares Issued in Lieu
of Cash Distributions 161 120 161 231 2,181 574 569 417 3,264 137
Shares Redeemed (4,683) (1,272) (4,683) (894) (5,749) (11,791) (9,964) (21,152) (31,369) (35,496)
-------- -------- ------- ------- -------- -------- -------- -------- -------- --------
Net Increase (Decrease)
in Capital Shares (489) 2,492 (489) 250 (1,255) (724) 115 (4,539) 940 (4,148)
======== ======== ======= ======= ======== ======== ======== ======== ======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
72
<PAGE>
BOSTON 1784 FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
BOSTON 1784 MONEY MARKET FUNDS
For the period ended November 30, 1999 (Unaudited) and the periods ended May 31
For a Share Outstanding Throughout Each Period
- ------------------------------------------------------------------------------------------------------------------------------------
RATIO RATIO OF
NET NET NET RATIO OF EXPENSES NET INCOME
ASSET DISTRIBUTIONS ASSET ASSETS RATIO OF NET TO AVERAGE TO AVERAGE
VALUE NET FROM NET VALUE END OF EXPENSES INCOME NET ASSETS NET ASSETS
BEGINNING INVESTMENT INVESTMENT END TOTAL OF PERIOD TO AVERAGE TO AVERAGE (EXCLUDING (EXCLUDING
OF PERIOD INCOME INCOME OF PERIOD RETURN (000) NET ASSETS NET ASSETS WAIVERS) WAIVERS)
- ------------------------------------------------------------------------------------------------------------------------------------
BOSTON 1784 TAX-FREE MONEY MARKET FUND
For the six month period
ended November 30, 1999+ $1.00 0.02 (0.02) $1.00 1.53%* $1,058,063 0.51% 3.03% 0.51% 3.03%
For the year ended
May 31, 1999 $1.00 0.03 (0.03) $1.00 3.01% $ 969,380 0.51% 2.97% 0.51% 2.97%
For the year ended
May 31, 1998 $1.00 0.03 (0.03) $1.00 3.33% $1,007,724 0.53% 3.28% 0.53% 3.28%
For the year ended
May 31, 1997 $1.00 0.03 (0.03) $1.00 3.22% $ 845,612 0.54% 3.17% 0.56% 3.15%
For the year ended
May 31, 1996 $1.00 0.03 (0.03) $1.00 3.55% $ 549,628 0.54% 3.49% 0.60% 3.43%
For the year ended
May 31, 1995 $1.00 0.03 (0.03) $1.00 3.29% $ 539,412 0.50% 3.28% 0.61% 3.17%
- ------------------------------------------------------------------------------------------------------------------------------------
BOSTON 1784 U.S. TREASURY MONEY MARKET FUND
For the six month period
ended November 30, 1999+ $1.00 0.02 (0.02) $1.00 2.25%* $ 387,084 0.65% 4.45% 0.69% 4.41%
For the year ended
May 31, 1999 $1.00 0.04 (0.04) $1.00 4.55% $ 390,775 0.65% 4.45% 0.72% 4.38%
For the year ended
May 31, 1998 $1.00 0.05 (0.05) $1.00 5.02% $ 372,657 0.65% 4.91% 0.70% 4.86%
For the year ended
May 31, 1997 $1.00 0.05 (0.05) $1.00 4.86% $ 390,294 0.64% 4.76% 0.72% 4.68%
For the year ended
May 31, 1996 $1.00 0.05 (0.05) $1.00 5.16% $ 78,999 0.64% 5.02% 0.75% 4.91%
For the year ended
May 31, 1995 $1.00 0.05 (0.05) $1.00 4.81% $ 55,068 0.60% 5.13% 0.92% 4.81%
- ------------------------------------------------------------------------------------------------------------------------------------
BOSTON 1784 PRIME MONEY MARKET FUND
For the six month period
ended November 30, 19 99+ $1.00 0.02 (0.02) $1.00 2.43%* $ 170,776 0.65% 4.63% 0.73% 4.55%
For the year ended
May 31, 1999 $1.00 0.05 (0.05) $1.00 4.78% $ 165,178 0.65% 4.66% 0.73% 4.58%
For the year ended
May 31, 1998 $1.00 0.05 (0.05) $1.00 5.16% $ 127,588 0.65% 5.05% 0.70% 5.00%
For the period ended
May 31, 1997 (1) $1.00 0.02 (0.02) $1.00 2.07%* $ 123,099 0.65% 4.98% 0.75% 4.88%
For the year ended
December 31, 1996 $1.00 0.05 (0.05) $1.00 5.02% $ 93,229 0.66% 4.85% 0.66% 4.85%
For the year ended
December 31, 1995 $1.00 0.05 (0.05) $1.00 5.49% $ 156,532 0.62% 5.40% 0.62% 5.40%
For the year ended
December 31, 1994 $1.00 0.04 (0.04) $1.00 3.75% $ 136,923 0.65% 3.64% 0.69% 3.60%
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
+ All ratios for the period including total return have been annualized.
* Return is for the period indicated and has not been annualized.
(1) Boston 1784 Prime Money Market Fund changed its fiscal year end from
December 31 to May 31. Reflects operations for the period from January 1,
1997 to May 31, 1997.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
73
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
BOSTON 1784 BOND FUNDS
For the period ended November 30, 1999 (Unaudited) and the periods ended May 31
For a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET REALIZED AND NET NET RATIO
ASSET UNREALIZED DISTRIBUTIONS DISTRIBUTIONS ASSET ASSETS RATIO OF NET
VALUE NET GAINS OR FROM NET FROM VALUE END OF EXPENSES INCOME
BEGINNING INVESTMENT (LOSSES) ON INVESTMENT CAPITAL END TOTAL OF PERIOD TO AVERAGE TO AVERAGE
OF PERIOD INCOME INVESTMENTS INCOME GAINS OF PERIOD RETURN (000) NET ASSETS NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
BOSTON 1784 SHORT-TERM INCOME FUND
For the six month
period ended
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
November 30, 1999+ $10.02 0.27 (0.11) (0.27) -- $ 9.91 1.59%* $145,663 0.64% 5.36%
For the year ended
May 31, 1999 $10.09 0.54 (0.07) (0.54) -- $10.02 4.70% $176,032 0.64% 5.30%
For the year ended
May 31, 1998 $ 9.98 0.57 0.11 (0.57) -- $10.09 6.98% $197,256 0.64% 5.67%
For the year ended
May 31, 1997 $ 9.93 0.58 0.05 (0.58) -- $ 9.98 6.47% $194,033 0.65% 5.78%
For the year ended
May 31, 1996 $10.09 0.60 (0.12) (0.60) (0.04) $ 9.93 4.87% $ 86,383 0.63% 5.87%
For the period ended
May 31, 1995(1) $10.00 0.56 0.09 (0.56) -- $10.09 6.74%* $ 52,581 0.48% 6.31%
- ------------------------------------------------------------------------------------------------------------------------------------
BOSTON 1784 INCOME FUND
For the six month period ended
November 30, 1999+ $ 9.93 0.30 (0.29) (0.29) (0.05) $ 9.60 0.15%* $330,265 0.80% 5.68%
For the year ended
May 31, 1999 $10.25 0.55 (0.26) (0.55) (0.06) $ 9.93 2.83% $343,196 0.80% 5.37%
For the year ended
May 31, 1998 $ 9.99 0.61 0.26 (0.61) -- $10.25 8.88% $392,556 0.80% 5.91%
For the year ended
May 31, 1997 $ 9.90 0.63 0.17 (0.63) (0.08) $ 9.99 8.32% $334,778 0.80% 6.31%
For the year ended
May 31, 1996 $10.39 0.65 (0.37) (0.65) (0.12) $ 9.90 2.64% $235,022 0.80% 6.17%
For the period ended
May 31, 1995(1) $10.00 0.62 0.39 (0.62) -- $10.39 10.69%* $196,515 0.55% 7.01%
- ------------------------------------------------------------------------------------------------------------------------------------
BOSTON 1784 U.S. GOVERNMENT MEDIUM-TERM INCOME FUND
For the six month period ended
November 30, 1999+ $ 9.45 0.25 (0.18) (0.25) -- $ 9.27 0.71%* $268,810 0.80% 5.36%
For the year ended
May 31, 1999 $ 9.60 0.51 (0.15) (0.51) -- $ 9.45 3.73% $276,781 0.80% 5.25%
For the year ended
May 31, 1998 $ 9.37 0.55 0.23 (0.55) -- $ 9.60 8.56% $252,719 0.80% 5.80%
For the year ended
May 31, 1997 $ 9.31 0.59 0.06 (0.59) -- $ 9.37 7.16% $209,141 0.79% 6.30%
For the year ended
May 31, 1996 $ 9.57 0.61 (0.26) (0.61) -- $ 9.31 3.65% $167,494 0.80% 6.23%
For the year ended
May 31, 1995 $ 9.36 0.58 0.21 (0.58) -- $ 9.57 8.79% $130,081 0.80% 6.24%
- ------------------------------------------------------------------------------------------------------------------------------------
[TABLE CONTINUED]
- --------------------------------------
RATIO RATIO
OF EXPENSES NET INCOME
TO AVERAGE TO AVERAGE
NET ASSETS NET ASSETS PORTFOLIO
(EXCLUDING (EXCLUDING TURNOVER
WAIVERS) WAIVERS) RATE
BOSTON 1784 SHORT-TERM INCOME FUND
For the six month
period ended
<S> <C> <C> <C>
November 30, 1999+ 0.89% 5.11% 23.43%
For the year ended
May 31, 1999 0.89% 5.05% 36.57%
For the year ended
May 31, 1998 0.89% 5.42% 83.84%
For the year ended
May 31, 1997 0.93% 5.50% 128.11%
For the year ended
May 31, 1996 1.06% 5.44% 95.06%
For the period ended
May 31, 1995(1) 1.27% 5.52% 84.54%
- ------------------------------------------------------
BOSTON 1784 INCOME FUND
For the six month period ended
November 30, 1999+ 1.11% 5.37% 59.26%
For the year ended
May 31, 1999 1.11% 5.06% 64.34%
For the year ended
May 31, 1998 1.11% 5.60% 79.09%
For the year ended
May 31, 1997 1.15% 5.96% 78.63%
For the year ended
May 31, 1996 1.20% 5.77% 100.51%
For the period ended
May 31, 1995(1) 1.23% 6.33% 80.53%
- ------------------------------------------------------
BOSTON 1784 U.S. GOVERNMENT MEDIUM-TERM INCOME FUND
For the six month period ended
November 30, 1999+ 1.11% 5.05% 23.75%
For the year ended
May 31, 1999 1.12% 4.93% 47.85%
For the year ended
May 31, 1998 1.12% 5.48% 73.65%
For the year ended
May 31, 1997 1.16% 5.93% 98.22%
For the year ended
May 31, 1996 1.24% 5.79% 158.66%
For the year ended
May 31, 1995 1.27% 5.77% 142.14%
- ------------------------------------------------------
<FN>
+All ratios for the period including total return have been annualized.
*Returns are for the period indicated and have not been annualized.
(1) Boston 1784 Short-Term Income Fund and Boston 1784 Income Fund commenced
operations on July 1, 1994. All ratios for the period have been annualized.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
74
<PAGE>
BOSTON 1784 FUNDS
BOSTON 1784 TAX-EXEMPT INCOME FUNDS
For the period ended November 30, 1999 (Unaudited) and the periods ended May 31
For a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET REALIZED AND NET NET RATIO
ASSET UNREALIZED DISTRIBUTIONS DISTRIBUTIONS ASSET ASSETS RATIO OF NET
VALUE NET GAINS OR FROM NET FROM VALUE END OF EXPENSES INCOME
BEGINNING INVESTMENT (LOSSES) ON INVESTMENT CAPITAL END TOTAL OF PERIOD TO AVERAGE TO AVERAGE
OF PERIOD INCOME INVESTMENTS INCOME GAINS OF PERIOD RETURN (000) NET ASSETS NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
Boston 1784 Tax-Exempt Medium-Term Income Fund
For the six month period ended
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
November 30, 1999+ $10.33 0.22 (0.46) (0.22) (0.11) $ 9.76 (2.33)%* $345,162 0.80% 4.43%
For the year ended
May 31, 1999 $10.52 0.45 (0.01) (0.45) (0.18 $10.33 4.24% $356,995 0.80% 4.31%
For the year ended
May 31, 1998 $10.18 0.48 0.44 (0.48) (0.10) $10.52 9.24% $303,578 0.80% 4.62%
For the year ended
May 31, 1997 $ 9.99 0.50 0.19 (0.50) -- $10.18 7.74% $250,526 0.80% 4.92%
For the year ended
May 31, 1996 $10.14 0.51 (0.09) (0.51) (0.06) $ 9.99 4.31% $196,787 0.79% 4.90%
For the year ended
May 31, 1995 $ 9.90 0.48 0.24 (0.48) -- $10.14 7.58% $176,345 0.80% 5.02%
- ------------------------------------------------------------------------------------------------------------------------------------
Boston 1784 Connecticut Tax-Exempt Income Fund
For the six month period ended
November 30, 1999+ $10.67 0.23 (0.43) (0.23) (0.05) $10.19 (1.87)%* $178,270 0.80% 4.43%
For the year ended
May 31, 1999 $10.81 0.48 (0.08) (0.48) (0.06) $10.67 3.72% $187,725 0.80% 4.37%
For the year ended
May 31, 1998 $10.38 0.50 0.45 (0.50) (0.02) $10.81 9.29% $142,107 0.80% 4.66%
For the year ended
May 31, 1997 $10.17 0.51 0.21 (0.51) -- $10.38 7.26% $103,104 0.76% 4.94%
For the year ended
May 31, 1996 $10.27 0.53 (0.10) (0.53) -- $10.17 4.20% $ 81,441 0.75% 5.02%
For the period ended
May 31, 1995(1) $10.00 0.45 0.27 (0.45) -- $10.27 7.45%* $ 61,369 0.52% 5.44%
- ------------------------------------------------------------------------------------------------------------------------------------
Boston 1784 Florida Tax-Exempt Income Fund
For the six month period ended
November 30, 1999+ $10.12 0.22 (0.42) (0.22) -- $ 9.70 2.03%* $ 68,864 0.80% 4.37%
For the year ended
May 31, 1999 $10.30 0.44 (0.04) (0.44) (0.14) $10.12 3.88% $ 68,796 0.80% 4.25%
For the period ended
May 31, 1998(2) $10.00 0.43 0.32 (0.43) (0.02) $10.30 7.63%* $ 51,793 0.80% 4.59%
- ------------------------------------------------------------------------------------------------------------------------------------
[TABLE CONTINUED]
- ---------------------------------------------
RATIO RATIO
OF EXPENSES NET INCOME
TO AVERAGE TO AVERAGE
NET ASSETS NET ASSETS PORTFOLIO
(EXCLUDING (EXCLUDING TURNOVER
WAIVERS) WAIVERS) RATE
- ---------------------------------------------
Boston 1784 Tax-Exempt Medium-Term Income Fund
For the six month period ended
<S> <C> <C> <C>
November 30, 1999+ 1.11% 4.12% 31.81%
For the year ended
May 31, 1999 1.11% 4.00% 68.58%
For the year ended
May 31, 1998 1.12% 4.30% 34.06%
For the year ended
May 31, 1997 1.17% 4.55% 33.24%
For the year ended
May 31, 1996 1.21% 4.48% 37.35%
For the year ended
May 31, 1995 1.26% 4.56% 74.74%
- ------------------------------------------------------
Boston 1784 Connecticut Tax-Exempt Income Fund
For the six month period ended
November 30, 1999+ 1.12% 4.11% 16.84%
For the year ended
May 31, 1999 1.12% 4.05% 19.10%
For the year ended
May 31, 1998 1.14% 4.32% 16.81%
For the year ended
May 31, 1997 1.17% 4.53% 4.28%
For the year ended
May 31, 1996 1.29% 4.48% 20.41%
For the period ended
May 31, 1995(1) 1.40% 4.56% 35.56%
- -----------------------------------------------------
Boston 1784 Florida Tax-Exempt Income Fund
For the six month period ended
November 30, 1999+ 1.14% 4.03% 0.51%
For the year ended
May 31, 1999 1.14% 3.91% 10.88%
For the period ended
May 31, 1998(2) 1.19% 4.20% 21.35%
- ------------------------------------------------------
<FN>
+ All ratios for the period including total return have been annualized.
* Returns are for the period indicated and have not been annualized.
(1) Boston 1784 Connecticut Tax-Exempt Income Fund commenced operations on
August 1, 1994. All ratios for the period have been annualized. (2) Boston 1784
Florida Tax-Exempt Income Fund commenced operations on June 30, 1997. All ratios
for the period have been annualized.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
75
<PAGE>
FINANCIAL HIGHLIGHTS
BOSTON 1784 TAX-EXEMPT INCOME FUNDS (CONTINUED)
For the period ended November 30, 1999 (Unaudited) and the periods ended May 31
For a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET REALIZED AND NET NET RATIO
ASSET UNREALIZED DISTRIBUTIONS DISTRIBUTIONS ASSET ASSETS RATIO OF NET
VALUE NET GAINS OR FROM NET FROM VALUE END OF EXPENSES INCOME
BEGINNING INVESTMENT (LOSSES) ON INVESTMENT CAPITAL END TOTAL OF PERIOD TO AVERAGE TO AVERAGE
OF PERIOD INCOME INVESTMENTS INCOME GAINS OF PERIOD RETURN (000) NET ASSETS NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
BOSTON 1784 Massachusetts Tax-exempt Income Fund
For the six month period ended
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
November 30, 1999+ $10.39 0.23 (0.42) (0.23) -- $ 9.97 (1.88)%* $252,068 0.80% 4.45%
For the year ended
May 31, 1999 $10.42 0.45 (0.03) (0.45) -- $10.39 4.10% $267,871 0.80% 4.32%
For the year ended
May 31, 1998 $10.01 0.47 0.41 (0.47) -- $10.42 8.91% $206,137 0.80% 4.54%
For the year ended
May 31, 1997 $ 9.78 0.47 0.23 (0.47) -- $10.01 7.30% $147,459 0.79% 4.74%
For the year ended
May 31, 1996 $ 9.90 0.48 (0.12) (0.48) -- $ 9.78 3.64% $106,619 0.80% 4.73%
For the year ended
May 31, 1995 $ 9.81 0.47 0.09 (0.47) -- $ 9.90 6.00% $ 82,058 0.80% 4.93%
- ------------------------------------------------------------------------------------------------------------------------------------
Boston 1784 Rhode Island Tax-Exempt Income Fund
For the six month period ended
November 30, 1999+ $10.50 0.23 (0.49) (0.23) (0.04) $ 9.97 (2.46)%* $ 97,021 0.80% 4.53%
For the year ended
May 31, 1999 $10.62 0.47 (0.04) (0.47) (0.08) $10.50 4.11% $102,073 0.80% 4.42%
For the year ended
May 31, 1998 $10.31 0.49 0.35 (0.49) (0.04) $10.62 8.28% $ 76,797 0.80% 4.64%
For the year ended
May 31, 1997 $10.06 0.50 0.25 (0.50) -- $10.31 7.61% $ 53,752 0.79% 4.88%
For the year ended
May 31, 1996 $10.13 0.53 (0.07) (0.53) -- $10.06 4.65% $ 37,904 0.77% 5.16%
For the period ended
May 31, 1995(1) $10.00 0.45 0.13 (0.45) -- $10.13 6.09%* $ 32,495 0.54% 5.56%
- ------------------------------------------------------------------------------------------------------------------------------------
[TABLE CONTINUED]
-----------------------------------------------
RATIO RATIO
OF EXPENSES NET INCOME
TO AVERAGE TO AVERAGE
NET ASSETS NET ASSETS PORTFOLIO
(EXCLUDING (EXCLUDING TURNOVER
WAIVERS) WAIVERS) RATE
-----------------------------------------------
BOSTON 1784 Massachusetts Tax-exempt Income Fund
For the six month period ended
<S> <C> <C> <C>
- - November 30, 1999+ 1.12% 4.13% 0.82%
For the year ended
May 31, 1999 1.12% 4.00% 9.32%
For the year ended
May 31, 1998 1.14% 4.20% 6.45%
For the year ended
May 31, 1997 1.18% 4.35% 9.47%
For the year ended
May 31, 1996 1.28% 4.25% 47.00%
For the year ended
May 31, 1995 1.35% 4.38% 34.59%
----------------------------------------------------
Boston 1784 Rhode Island Tax-Exempt Income Fund
For the six month period ended
November 30, 1999+ 1.12% 4.21% 9.47%
For the year ended
May 31, 1999 1.13% 4.09% 12.44%
For the year ended
May 31, 1998 1.16% 4.28% 13.79%
For the year ended
May 31, 1997 1.21% 4.46% 8.18%
For the year ended
May 31, 1996 1.35% 4.58% 19.68%
For the period ended
May 31, 1995(1) 1.60% 4.50% 57.51%
----------------------------------------------------
<FN>
+ All ratios for the period including total return have been annualized.
* Returns are for the period indicated and have not been annualized.
(1) Boston 1784 Rhode Island Tax-Exempt Income Fund commenced operations on
August 1, 1994. All ratios for the period have been annualized.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
76
<PAGE>
BOSTON 1784 FUNDS
- --------------------------------------------------------------------------------
BOSTON 1784 STOCK FUNDS
For the period ended November 30, 1999 (Unaudited) and the periods ended May 31
For a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET REALIZED AND NET NET RATIO
ASSET UNREALIZED DISTRIBUTIONS DISTRIBUTIONS ASSET ASSETS RATIO OF NET
VALUE NET GAINS OR FROM NET FROM VALUE END OF EXPENSES INCOME
BEGINNING INVESTMENT (LOSSES) ON INVESTMENT CAPITAL END TOTAL OF PERIOD TO AVERAGE TO AVERAGE
OF PERIOD INCOME INVESTMENTS INCOME GAINS OF PERIOD RETURN (000) NET ASSETS NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
Boston 1784 Asset Allocation Fund
For the six month period ended
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
November 30, 1999+ $14.97 0.21 0.85 (0.21) (0.46) $15.36 7.04%* $ 53,844 1.00% 2.39%
For the year ended
May 31, 1999 $15.16 0.38 0.48 (0.39) (0.66) $14.97 5.92% $ 53,371 0.96% 2.57%
For the year ended
May 31, 1998 $13.40 0.37 2.30 (0.38) (0.53) $15.16 20.51% $ 50,283 0.98% 2.66%
For the year ended
May 31, 1997 $12.31 0.34 1.44 (0.33) (0.36) $13.40 14.89% $ 35,522 1.07% 2.87%
For the year ended
May 31, 1996 $10.99 0.31 1.61 (0.31) (0.29) $12.31 17.83% $ 16,831 1.25% 2.86%
For the year ended
May 31, 1995 $ 9.84 0.28 1.15 (0.27) (0.01) $10.99 14.84% $ 8,622 1.25% 2.88%
- ------------------------------------------------------------------------------------------------------------------------------------
Boston 1784 Growth and Income Fund
For the six month period ended
November 30, 1999+ $22.17 (0.01) 2.17 (0.00) (2.37) $21.96 9.56%* $516,732 0.89% (0.10)%
For the year ended
May 31, 1999 $21.72 0.02 0.97 (0.04) (0.50) $22.17 4.65% $549,416 0.89% 0.12%
For the year ended
May 31, 1998 $17.54 0.07 4.55 (0.09) (0.35) $21.72 26.71% $553,997 0.90% 0.36%
For the year ended
May 31, 1997 $15.23 0.12 2.63 (0.11) (0.33) $17.54 18.33% $457,952 0.92% 0.77%
For the year ended
May 31, 1996 $12.16 0.10 3.08 (0.11) (0.00) $15.23 26.32% $303,463 0.94% 0.78%
For the year ended
May 31, 1995 $10.57 0.11 1.67 (0.10) (0.09) $12.16 17.09% $229,200 0.94% 1.05%
- ------------------------------------------------------------------------------------------------------------------------------------
[TABLE CONTINUED]
- ------------------------------------------
RATIO RATIO
OF EXPENSES NET INCOME
TO AVERAGE TO AVERAGE
NET ASSETS NET ASSETS PORTFOLIO
(EXCLUDING (EXCLUDING TURNOVER
WAIVERS) WAIVERS) RATE
- ------------------------------------------
Boston 1784 Asset Allocation Fund
For the six month period ended
<S> <C> <C> <C>
November 30, 1999+ 1.25% 2.14% 22.09%
For the year ended
May 31, 1999 1.21% 2.32% 49.78%
For the year ended
May 31, 1998 1.23% 2.41% 47.83%
For the year ended
May 31, 1997 1.37% 2.57% 23.60%
For the year ended
May 31, 1996 1.90% 2.21% 39.56%
For the year ended
May 31, 1995 2.51% 1.62% 67.23%
- ------------------------------------------------------
Boston 1784 Growth and Income Fund
For the six month period ended
November 30, 1999+ 1.14% (0.35)% 16.65%
For the year ended
May 31, 1999 1.14% (0.13)% 50.15%
For the year ended
May 31, 1998 1.15% 0.11% 39.03%
For the year ended
May 31, 1997 1.19% 0.50% 15.35%
For the year ended
May 31, 1996 1.24% 0.48% 39.50%
For the year ended
May 31, 1995 1.23% 0.76% 38.94%
- ------------------------------------------------------
<FN>
+ All ratios for the period have been annualized.
* Returns are for the period indicated and have not been annualized.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
77
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
BOSTON 1784 STOCK FUNDS (CONTINUED)
For the period ended November 30, 1999 (Unaudited) and the periods ended May 31
For a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET REALIZED AND NET NET RATIO
ASSET UNREALIZED DISTRIBUTIONS DISTRIBUTIONS ASSET ASSETS RATIO OF NET
VALUE NET GAINS OR FROM NET FROM VALUE END OF EXPENSES INCOME
BEGINNING INVESTMENT (LOSSES) ON INVESTMENT CAPITAL END TOTAL OF PERIOD TO AVERAGE TO AVERAGE
OF PERIOD INCOME INVESTMENTS INCOME GAINS OF PERIOD RETURN (000) NET ASSETS NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
Boston 1784 Growth Fund
For the six month period ended
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
November 30, 1999+ $12.06 (0.02) 5.26 (0.00) (1.20) $16.10 43.20%* $249,396 0.90% (0.43)%
For the year ended
May 31, 1999 $12.93 (0.08) (0.41) (0.00) (0.38) $12.06 (3.54)% $185,476 0.93% (0.39)%
For the year ended
May 31, 1998 $12.20 (0.05) 1.59 (0.00) (0.81) $12.93 12.64% $257,550 0.91% (0.35)%
For the year ended
May 31, 1997 $11.27 0.02 0.96 (0.05) (0.00) $12.20 8.77% $261,487 0.77% 0.17%
For the period ended
May 31, 1996(1) $10.00 0.02 1.25 (0.00) (0.00) $11.27 12.70%* $ 46,026 0.20% 1.75%
- ------------------------------------------------------------------------------------------------------------------------------------
Boston 1784 International Equity Fund
For the six month period ended
November 30, 1999+ $12.92 0.02 5.37 (0.00) (2.96) $15.35 42.75%* $477,273 1.16% 0.32%
For the year ended
May 31, 1999 $13.69 (0.00) (0.66) (0.03) (0.08) $12.92 (4.85)% $389,753 1.20% 0.06%
For the year ended
May 31, 1998 $13.20 (0.02) 0.80 (0.15) (0.14) $13.69 6.19% $469,819 1.24% 0.04%
For the year ended
May 31, 1997 $12.05 0.07 1.23 (0.09) (0.06) $13.20 10.93% $503,048 1.27% 0.41%
For the year ended
May 31, 1996 $10.41 0.11 1.85 (0.27) (0.05) $12.05 19.08% $362,460 1.13% 0.76%
For the period ended
May 31, 1995(2) $10.00 0.06 0.35 (0.00) (0.00) $10.41 4.73%* $148,439 0.89% 2.06%
- ------------------------------------------------------------------------------------------------------------------------------------
[TABLE CONTINUED]
- ------------------------------------------
RATIO RATIO
OF EXPENSES NET INCOME
TO AVERAGE TO AVERAGE
NET ASSETS NET ASSETS PORTFOLIO
(EXCLUDING (EXCLUDING TURNOVER
WAIVERS) WAIVERS) RATE
- ------------------------------------------
Boston 1784 Growth Fund
For the six month period ended
<S> <C> <C> <C>
November 30, 1999+ 1.15% (0.68)% 45.05%
For the year ended
May 31, 1999 1.18% (0.64)% 61.02%
For the year ended
May 31, 1998 1.16% (0.60)% 48.60%
For the year ended
May 31, 1997 1.15% (0.21)% 57.46%
For the period ended
May 31, 1996(1) 1.73% 0.22% 0.00%
- -----------------------------------------------------
Boston 1784 International Equity Fund
For the six month period ended
November 30, 1999+ 1.41% 0.07% 67.12%
For the year ended
May 31, 1999 1.45% (0.19)% 115.83%
For the year ended
May 31, 1998 1.49% (0.21)% 103.47%
For the year ended
May 31, 1997 1.52% 0.16% 22.88%
For the year ended
May 31, 1996 1.61% 0.28% 15.55%
For the period ended
May 31, 1995(2) 1.70% 1.25% 11.03%
- ------------------------------------------------------
<FN>
+ All ratios for the period have been annualized.
* Returns are for the period indicated and have not been annualized.
(1) Boston 1784 Growth Fund commenced operations on March 28, 1996. All ratios
for the period have been annualized. (2) Boston 1784 International Equity Fund
commenced operations on January 3, 1995. All ratios for the period have been
annualized.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
78
<PAGE>
BOSTON 1784 FUNDS
november 30, 1999
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
1. ORGANIZATION
Boston 1784 Tax-Free Money Market, Boston 1784 U.S. Treasury Money Market,
Boston 1784 Prime Money Market (the "Money Market Funds"), Boston 1784
Short-Term Income, Boston 1784 Income, Boston 1784 U.S. Government Medium-Term
Income (the "Bond Funds"), Boston 1784 Tax-Exempt Medium-Term Income, Boston
1784 Connecticut Tax-Exempt Income, Boston 1784 Florida Tax-Exempt Income,
Boston 1784 Massachusetts Tax-Exempt Income, Boston 1784 Rhode Island Tax-Exempt
Income (the "Tax-Exempt Income Funds"), Boston 1784 Asset Allocation, Boston
1784 Growth and Income, Boston 1784 Growth and Boston 1784 International Equity
Funds (the "Stock Funds") are portfolios offered by Boston 1784 Funds (the
"Trust"), an open-end investment company registered under the Investment Company
Act of 1940, as amended. The Trust is offering shares in 17 separate portfolios
(the "Funds") as of November 30, 1999:
MONEY MARKET FUNDS:
Boston 1784 Tax-Free Money Market Fund
Boston 1784 U.S. Treasury Money Market Fund
Boston 1784 Institutional U.S. Treasury
Money Market Fund
Boston 1784 Prime Money Market Fund
Boston 1784 Institutional Prime Money Market Fund
BOND FUNDS:
Boston 1784 Short-Term Income Fund
Boston 1784 Income Fund
Boston 1784 U.S. Government Medium-Term
Income Fund
TAX-EXEMPT INCOME FUNDS:
Boston 1784 Tax-Exempt Medium-Term Income Fund
Boston 1784 Connecticut Tax-Exempt Income Fund
Boston 1784 Florida Tax-Exempt Income Fund
Boston 1784 Massachusetts Tax-Exempt Income Fund
Boston 1784 Rhode Island Tax-Exempt Income Fund
STOCK FUNDS:
Boston 1784 Asset Allocation Fund
Boston 1784 Growth and Income Fund
Boston 1784 Growth Fund
Boston 1784 International Equity Fund
The Funds' prospectus provides a description of each Fund's investment
objectives, policies and strategies. The financial statements of Boston 1784
Institutional U.S. Treasury Money Market Fund and Boston 1784 Institutional
Prime Money Market Fund are not presented herein but are presented separately.
The assets of each Fund are segregated, and a shareholder's interest is limited
to the Fund in which shares are held. The financial statements have been
prepared in accordance with generally accepted accounting principles which
require the use of management's estimates. Actual results could differ from
these estimates.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Funds.
SECURITY VALUATION --
In valuing each of the Stock, Bond and Tax-Exempt Income Fund's assets, bonds
and other fixed income securities are valued on the basis of valuations
furnished by a pricing service, use of which has been approved by
79
<PAGE>
november 30, 1999
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
the Board of Trustees of the Trust. In making such valuations, the pricing
services may employ methodologies that utilize actual market transactions,
broker-dealer supplied valuations or other electronic data processing
techniques.
Equity securities listed on a domestic securities exchange for which
quotations are readily available, including securities traded over the counter,
are valued by a pricing service at the last quoted sale price on the principal
exchange on which they are traded on valuation date, or, if there is no such
reported sale on the valuation date, at the most recent quoted bid price.
Equity securities which are primarily traded on a foreign exchange are
generally valued by a pricing service at the preceding closing value on the
exchange. Securities for which market quotations are not readily available are
valued at their fair value as determined in good faith by the Board of Trustees
of the Trust, or pursuant to procedures adopted by the Board subject to review
by the Board of the resulting valuations.
Investment securities of the Money Market Funds are stated at amortized
cost, which approximates market value. Under this valuation method, purchase
discounts and premiums are accreted and amortized ratably to maturity and are
included in interest income.
FOREIGN CURRENCY TRANSACTIONS --
The books and records of the Funds are
maintained in U.S. dollars. Foreign currency amounts are translated into U.S.
dollars on the following basis:
I. market value of investment securities, assets and liabilities at the
current rate of exchange; and
II. purchases and sales of investment securities, income and expenses at
the relevant rates of exchange prevailing on the respective dates of
such transactions.
The Funds do not isolate that portion of gains and losses on investment
securities that are due to changes in the foreign exchange rates from that due
to changes in market prices of such securities.
The Funds report certain foreign currency related transactions as
components of unrealized and realized gains for financial reporting purposes,
whereas such components are treated as ordinary income for federal income tax
purposes.
SECURITY TRANSACTIONS AND INVESTMENT INCOME --
Security transactions are accounted for on the trade date of the security
purchase or sale. Costs used in determining net realized capital gains and
losses on the sale of securities are those of the specific securities sold,
adjusted for the accretion and amortization of the purchase discounts and
premiums during the respective holding period, with the exception of Boston 1784
U.S. Government Medium- Term Income Fund which does not accrete or amortize
purchase discounts and premiums. Interest income is recorded on the accrual
basis. Dividend income is recorded on ex-date.
REPURCHASE AGREEMENTS --
The Funds invest in tri-party repurchase agreements. Securities pledged as
collateral for tri-party repurchase agreements are
80
<PAGE>
BOSTON 1784 FUNDS
- --------------------------------------------------------------------------------
maintained in a segregated account by the broker's custodian bank until maturity
of the repurchase agreements. Provisions of the agreements and procedures
adopted by the Adviser ensure that the market value of the collateral, including
accrued interest thereon, is sufficient in the event of default by the
counterparty. If the counterparty defaults and the value of the collateral
declines, or if the counterparty enters into insolvency proceedings, realization
on the collateral by the Fund may be delayed or limited.
EXPENSES --
Expenses that are directly related to one of the Funds are charged directly to
that Fund. Other operating expenses of the Trust are prorated to the Funds on
the basis of relative net assets.
DISTRIBUTIONS TO SHAREHOLDERS --
The Money Market, Bond and Tax-Exempt Income Funds declare distributions from
net investment income on a daily basis, payable on the first business day of the
following month. Boston 1784 Asset Allocation and Boston 1784 Growth and Income
Funds declare and pay dividends on a quarterly basis. Boston 1784 Growth Fund
declares and pays dividends on a semi-annual basis. Boston 1784 International
Equity Fund declares and pays dividends on an annual basis. Any net realized
capital gains on sales of securities for a Fund are distributed to its
shareholders at least annually.
FEDERAL INCOME TAXES --
The Trust's policy is to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
taxable income to its shareholders. Accordingly, no provision for federal income
taxes is required in the financial statements. The Funds may be subject to taxes
imposed by countries in which they invest with respect to their investments in
issuers existing or operating in such countries. Such taxes are generally based
on either income earned or repatriated. The Funds accrue such taxes when related
income is earned.
ORGANIZATIONAL COSTS --
Organizational costs have been deferred in the accounts of the Funds and are
being amortized on a straight line basis over a period of sixty months
commencing with operations. In the event any of the initial shares of the Funds
are redeemed by any holder thereof during the period that the Funds are
amortizing their organizational costs, the redemption proceeds payable to the
holders thereof by the Funds will be reduced by the unamortized organizational
costs in the same ratio as the number of shares redeemed bears to the initial
shares outstanding at the time of redemption.
OTHER --
Some countries in which the Funds invest require governmental approval for the
repatriation of investment income, capital or the proceeds of sales of
securities by
81
<PAGE>
NOVEMBER 30, 1999
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
foreign investors. In addition, for various reasons, including a deterioration
in a country's balance of payments, a country may impose temporary restrictions
on foreign capital remittances abroad. The security exchanges of certain foreign
markets are substantially smaller, less liquid and more volatile than the major
securities markets in the United States. Consequently, acquisition and
disposition of securities by the Funds may be inhibited.
3. INVESTMENT ADVISORY AND CUSTODIAL SERVICES
Pursuant to an investment advisory agreement dated June 1, 1993, investment
advisory services are provided to the Trust by Bank-Boston, N.A. (the
"Adviser"). The Adviser is entitled to receive a fee of 0.40% of the average
daily net assets of Boston 1784 Tax-Free Money Market, Boston 1784 U.S. Treasury
Money Market and Boston 1784 Prime Money Market Funds, 0.50% of the average
daily net assets of Boston 1784 Short-Term Income Fund, 0.74% of the average
daily net assets of Boston 1784 Income, Boston 1784 U.S. Government Medium-Term
Income, Boston 1784 Tax-Exempt Medium-Term Income, Boston 1784 Connecticut
Tax-Exempt Income, Boston 1784 Florida Tax-Exempt Income, Boston 1784
Massachusetts Tax-Exempt Income, Boston 1784 Rhode Island Tax-Exempt Income,
Boston 1784 Asset Allocation, Boston 1784 Growth and Income and Boston 1784
Growth Funds. Such fees are computed daily and paid monthly. The Adviser has
voluntarily agreed to waive a portion of its fee as necessary to assist the
Funds in maintaining competitive expense ratios. Boston 1784 International
Equity Fund has entered into separate investment advisory agreements (each an
"Advisory Agreement") with BankBoston, N.A. ("BankBoston") and with Kleinwort
Benson Investment Management Americas Inc. ("Kleinwort" and together with
BankBoston the "International Advisers"). The Advisory Agreement with BankBoston
is dated as of November 28, 1994; the Advisory Agreement with Kleinwort is dated
as of October 27, 1995. The International Advisers are entitled to receive an
aggregate fee of 1.00% of the average daily net assets of Boston 1784
International Equity Fund. Such fee is computed daily and paid monthly.
The Trust and BankBoston, N.A. were parties to a custodial agreement dated
June 1, 1993 under which BankBoston, N.A. held cash, securities and other assets
of the Trust as required by the Investment Company Act of 1940, as amended. For
the period June 1, 1998 to September 30, 1998, BankBoston, N.A. served as the
Funds' custodian and received an annual fee, paid monthly, of 0.01% for the
first $100 million in average daily net assets, 0.0075% for the next $100
million in average daily net assets and 0.005% for the average daily net assets
over $200 million of each of the Funds. On September 30, 1998, the Custodial
Agreement was amended and assigned to Investors Bank & Trust
82
<PAGE>
BOSTON 1784 FUNDS
Company ("IBT"). Effective October 1, 1998, IBT is entitled to receive an annual
fee, to be paid monthly, of 0.005% of the market value of each Fund's assets. In
the capacity as custodian to the Trust, BankBoston, N.A. played and IBT plays no
role in determining the investment policies of the Trust or which securities are
to be purchased or sold by the Funds.
4. ADMINISTRATIVE AND DISTRIBUTION SERVICES
Pursuant to an administration agreement dated December 1, 1996, SEI Investments
Mutual Funds Services, a wholly-owned subsidiary of SEI Investments Company,
acts as the Trust's Administrator, and is entitled to receive an annual fee of
0.085% of the Trust's first $5 billion of average daily net assets and 0.045% of
the Trust's average daily net assets over $5 billion. Such fee is computed daily
and paid monthly.
SEI Investments Distribution Co. ("SEI Investments"), a wholly-owned
subsidiary of SEI Investments Company, became the Trust's Distributor pursuant
to a distribution agreement dated June 1, 1993, as amended and restated October
27, 1995. The Trust has adopted a distribution plan with respect to each of the
Bond, Tax-Exempt Income and stock Funds pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended (collectively, the "Plan"). The
Distribution Agreement and the Plan provide that the Trust will pay the
Distributor a fee, calculated daily and paid monthly, at an annual rate of 0.25%
of the average daily net assets of each of the Bond, Tax-Exempt Income and Stock
Funds. The Distributor agreed to voluntarily waive all of its 12b-1 distribution
fee for the six month period ended November 30, 1999.
Pursuant to a Shareholder Services Agreement dated December 1, 1996,
BankBoston, N.A. provides certain shareholder services to Boston 1784 U.S.
Treasury Money Market Fund and Boston 1784 Prime Money Market Fund and receives
compensation, computed daily and paid monthly, at an annual rate of 0.10% of the
average daily net assets of each such Fund. BankBoston, N.A. provides
shareholder services to the other Boston 1784 Funds presented in this report,
for which it does not receive compensation.
Certain officers of the Trust are also officers of the Administrator. Such
officers are paid no fees by the Trust. The Trust has paid legal fees to a
law firm of which the Secretary of the Trust is a member.
5. INVESTMENT TRANSACTIONS
The cost of security purchases and the proceeds from the sale of securities,
other than temporary cash investments, for the six month period ended November
30, 1999, are as presented below for the Bond, Tax-Exempt Income and Stock
Funds.
83
<PAGE>
NOVEMBER 30, 1999
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
FUND INVESTMENT TRANSACTIONS (000):
<CAPTION>
PURCHASES SALES
====================================================================================================================================
U.S. GOVERNMENT U.S. GOVERNMENT
FOR THE PERIOD ENDED NOVEMBER 30, 1999 SECURITIES OTHER SECURITIES OTHER
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Boston 1784 Short-Term Income Fund $ 15,926 $ 13,985 $ 12,412 $ 25,588
Boston 1784 Income Fund 114,500 68,946 89,957 105,025
Boston 1784 U.S. Government
Medium-Term Income Fund 54,305 -- 68,260 1,577
Boston 1784 Tax-Exempt Medium-Term Income Fund -- 109,700 -- 106,425
Boston 1784 Connecticut Tax-Exempt Income Fund -- 29,376 -- 29,434
Boston 1784 Florida Tax-Exempt Income Fund -- 3,585 -- 325
Boston 1784 Massachusetts Tax-Exempt Income Fund -- 5,414 -- 1,935
Boston 1784 Rhode Island Tax-Exempt Income Fund -- 8,941 -- 10,051
Boston 1784 Asset Allocation Fund 2,909 4,274 3,318 3,754
Boston 1784 Growth and Income Fund -- 84,364 -- 162,673
Boston 1784 Growth Fund -- 88,222 -- 103,744
Boston 1784 International Equity Fund -- 262,616 -- 323,634
</TABLE>
The aggregate gross unrealized gains or losses on securities at November
30, 1999 for the Bond, Tax-Exempt Income and Stock Funds are as follows (000):
<TABLE>
<CAPTION>
AGGREGATE AGGREGATE
GROSS GROSS NET
UNREALIZED UNREALIZED UNREALIZED
GAINS LOSSES GAINS/(LOSSES)
======================================================================================================
<S> <C> <C> <C> <C>
Boston 1784 Short-Term Income Fund $ 53 $(1,783) $ (1,730)
Boston 1784 Income Fund 349 (11,156) (10,807)
Boston 1784 U.S. Government Medium-Term Income Fund 1,100 (6,039) (4,939)
Boston 1784 Tax-Exempt Medium-Term Income Fund 2,190 (7,931) (5,741)
Boston 1784 Connecticut Tax-Exempt Income Fund 1,799 (5,416) (3,617)
Boston 1784 Florida Tax-Exempt Income Fund 346 (2,193) (1,847)
Boston 1784 Massachusetts Tax-Exempt Income Fund 2,464 (7,320) (4,856)
Boston 1784 Rhode Island Tax-Exempt Income Fund 783 (3,708) (2,925)
Boston 1784 Asset Allocation Fund 11,275 (1,577) 9,698
Boston 1784 Growth and Income Fund 255,663 (2,018) 253,645
Boston 1784 Growth Fund 119,237 (3,115) 116,122
Boston 1784 International Equity Fund 140,435 (4,924) 135,511
</TABLE>
84
<PAGE>
BOSTON 1784 FUNDS
- --------------------------------------------------------------------------------
6. CONCENTRATION OF CREDIT RISK
Boston 1784 Tax-Free Money Market, Boston 1784 Tax-Exempt Medium-Term Income,
Boston 1784 Connecticut Tax-Exempt Income, Boston 1784 Florida Tax-Exempt
Income, Boston 1784 Massachusetts Tax-Exempt Income and Boston 1784 Rhode Island
Tax-Exempt Income Funds invest in debt instruments of municipal issuers. The
issuers' ability to meet their obligations may be affected by economic
developments in a specific state or region. Boston 1784 Connecticut Tax-Exempt
Income, Boston 1784 Florida Tax-Exempt Income, Boston 1784 Massachusetts
Tax-Exempt Income and Boston 1784 Rhode Island Tax-Exempt Income Funds invest
primarily in obligations located in Connecticut, Florida, Massachusetts and
Rhode Island, respectively.
7. LINE OF CREDIT
The Trust has entered into a Line of Credit Agreement. Pursuant to this
agreement, the Trust has access to a $50 million uncommitted line of credit and
a $20 million committed line of credit. The Trust is charged a commitment fee of
.10% of the unused portion of the committed line of credit. Borrowings under the
line are charged interest at the current overnight Federal Funds rate plus
0.50%. Each Fund is individually, and not jointly, liable for its particular
advances under the line. For the six month period ended November 30, 1999, the
following funds were borrowed under the agreement.
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
MAXIMUM AVERAGE INTEREST AVERAGE
FUND BORROWING LOAN BALANCE DATE PAID RATE
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
International Equity Fund $13,500,000 $6,760,000 11/18/99-11/22/99 $5,268 5.99%
</TABLE>
At November 30, 1999, there were no borrowings outstanding under the agreement.
85
<PAGE>
NOVEMBER 30, 1999
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
8. FORWARD FOREIGN CURRENCY CONTRACTS
Boston 1784 International Equity Fund enters into forward foreign currency
exchange contracts as hedges against
specific transactions or portfolio positions. The aggregate principal amounts of
the contracts are not recorded, as the Fund does not intend to hold the
contracts to maturity. All commitments are "marked-to-market" daily at the
applicable foreign exchange rate and any resulting unrealized gains or losses
are recorded currently. The Fund realizes gains and losses at the time the
forward contracts are extinguished. Such contracts, which protect the value of
the Fund's investment securities against a decline in value of the hedged
currency, do not eliminate fluctuations in the underlying prices of the
securities. They simply establish an exchange rate at a future date. Although
such contracts tend to minimize the risk of loss due to a decline in the value
of a hedged currency, they also tend to limit any potential gain that might be
realized should the value of such foreign currency increase.
The following forward foreign currency contracts were outstanding at November
30, 1999:
- --------------------------------------------------------------------------------
BOSTON 1784 INTERNATIONAL EQUITY FUND
FOREIGN CURRENCY SALES:
<TABLE>
<CAPTION>
CONTRACT TO IN EXCHANGE UNREALIZED
MATURITY RECEIVE FOR DEPRECIATION
DATE (000) (000) (000)
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
12/01/99 GBP 114 $214 $ 33
=====
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
Currency Legend
GBP -- Great British Pounds
</FN>
</TABLE>
86
<PAGE>
BOSTON 1784 FUNDS
RECENT DEVELOPMENTS
- --------------------------------------------------------------------------------
The merger of BankBoston Corporation, the parent company of BankBoston, with
Fleet Financial Group, Inc., forming FleetBoston Financial Corporation, was
successfully completed on October 1, 1999. BankBoston, the adviser to Boston
1784 Funds, is now a subsidiary of FleetBoston Financial Corporation.
In addition, Oechsle International Advisors LLC ("Oechsle") will succeed
Kleinwort Benson Investment Management Americas Inc. as co-investment adviser to
the International Equity Fund on or before February 7, 2000. Oechsle is a
U.S.-based investment adviser currently managing approximately $12 billion of
assets, with offices in Boston, England, Japan, Germany and Cayman Island, BWI.
FleetBoston Financial Corporation owns approximately 36% of Oechsle.
Singleton Dewey Keesler, Jr. and Kathleen Harris, CFA of Oechsle will serve as
co-managers of Boston 1784 International Equity Fund, along with Kenton J. Ide,
Director of Investments for BankBoston's Private Bank, who has been a co-manager
of the Fund since 1995. Mr. Keesler is Chief Investment Officer and a portfolio
manager/research analyst with Oechsle, and has been associated with Oechsle
since 1986. Ms. Harris, a principal and portfolio manager with Oechsle, has been
associated with Oechsle since 1995. There will be no change in the management
fees payable by Boston 1784 International Equity Fund.
87
<PAGE>
NOTES
- --------------------------------------------------------------------------------
<PAGE>
BLANK PAGE
<PAGE>
MONEY MARKET FUNDS
[Bullet] Boston 1784 Tax-Free Money Market Fund
[Bullet] Boston 1784 U.S. Treasury Money Market Fund
[Bullet] Boston 1784 Institutional U.S. Treasury
Money Market Fund*
[Bullet] Boston 1784 Prime Money Market Fund
[Bullet] Boston 1784 Institutional Prime Money
Market Fund*
BOND FUNDS
[Bullet] Boston 1784 Short-Term Income Fund
[Bullet] Boston 1784 Income Fund
[Bullet] Boston 1784 U.S. Government
Medium-Term Income Fund
TAX-EXEMPT INCOME FUNDS
[Bullet] Boston 1784 Tax-Exempt Medium-Term Income Fund
[Bullet] Boston 1784 Connecticut Tax-Exempt Income Fund
[Bullet] Boston 1784 Florida Tax-Exempt Income Fund
[Bullet] Boston 1784 Massachusetts Tax-Exempt Income Fund
[Bullet] Boston 1784 Rhode Island Tax-Exempt Income Fund
STOCK FUNDS
[Bullet] Boston 1784 Asset Allocation Fund
[Bullet] Boston 1784 Growth and Income Fund
[Bullet] Boston 1784 Growth Fund
[Bullet] Boston 1784 International Equity Fund
* Covered by Boston 1784 Institutional Money Market Funds Semi-Annual Report
[Boston logo omitted]
Boston 1784 Funds
P.O. Box 8524
Boston, MA 02266-8524
1-800-BKB-1784
BOARD OF TRUSTEES
David H. Carter
Tarrant Cutler
Kenneth A. Froot
Sara L. Johnson
Kathryn Flacke Muncil
Robert A. Nesher
Alvin J. Silk
INVESTMENT ADVISER
BankBoston, N.A.
Boston, MA 02110
CO-ADVISER FOR
BOSTON 1784 INTERNATIONAL EQUITY FUND
Kleinwort Benson Investment
Management Americas Inc.
New York, NY 10005
ADMINISTRATOR
SEI Investments Mutual Funds Services
Oaks, PA 19456
DISTRIBUTOR
SEI Investments Distribution Co.
Oaks, PA 19456
LEGAL COUNSEL
Bingham Dana LLP
Boston, MA 02110
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
Philadelphia, PA 19103
CUSTODIAN
Investors Bank & Trust Company
Boston, MA 02116
This report and the financial statements contained herein are for the general
information of the shareholders of the funds named above. This report is not
authorized for distribution to prospective investors in a fund unless
preceded or accompanied by a currently effective prospectus.
MF-0149
