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THE GALAXY FUND
STATEMENT OF ADDITIONAL INFORMATION
JULY 6, 2000
Revised November 22, 2000
GALAXY PAN ASIA FUND
RETAIL A SHARES, RETAIL B SHARES AND
TRUST SHARES
This Statement of Additional Information is not a prospectus. It relates to
the prospectuses for the Galaxy Pan Asia Fund (the "Fund") as listed below, as
they may be supplemented or revised from time to time (the "Prospectuses"). The
Prospectuses 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 Fund dated
July 6, 2000
- Prospectus for Trust Shares of the Fund dated July 6, 2000
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TABLE OF CONTENTS
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GENERAL INFORMATION..................................................................................1
DESCRIPTION OF GALAXY AND ITS SHARES.................................................................1
INVESTMENT STRATEGIES, POLICIES AND RISKS............................................................4
Special Risk Considerations...............................................................5
Foreign Securities........................................................................5
Asia and the Pacific Basin................................................................5
Japan ....................................................................................6
Other Investment Policies and Risk Considerations.........................................8
Ratings ..................................................................................8
U.S. Government Obligations and Money Market Instruments..................................8
Variable and Floating Rate Obligations...................................................10
Repurchase and Reverse Repurchase Agreements.............................................11
Securities Lending.......................................................................11
Investment Company Securities............................................................12
Derivative Securities....................................................................12
American, European and Global Depository Receipts........................................18
Convertible Securities...................................................................18
When-Issued Transactions.................................................................19
Restricted and Illiquid Securities.......................................................20
Portfolio Turnover.......................................................................20
INVESTMENT LIMITATIONS..............................................................................21
VALUATION OF PORTFOLIO SECURITIES...................................................................23
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION......................................................24
Purchases of Retail A Shares and Retail B Shares.........................................24
General .................................................................................24
Customers of Institutions................................................................25
Applicable Sales Charge - Retail A Shares................................................25
Computation of Offering Price - Retail A Shares..........................................27
Quantity Discounts.......................................................................27
Applicable Sales Charge - Retail B Shares................................................29
Characteristics of Retail A Shares and Retail B Shares...................................30
Factors to Consider When Selecting Retail A Shares or Retail B Shares....................31
Purchases of Trust Shares................................................................32
OTHER PURCHASE INFORMATION..........................................................................33
Redemption of Retail A Shares, Retail B Shares and Trust Shares..........................33
INVESTOR PROGRAMS-RETAIL A SHARES AND RETAIL B SHARES...............................................33
Exchange Privilege.......................................................................33
Retirement Plans.........................................................................34
Automatic Investment Program and Systematic Withdrawal Plan..............................35
Payroll Deduction Program................................................................36
College Investment Program...............................................................36
Direct Deposit Program...................................................................36
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TAXES ..............................................................................................36
Taxation of Certain Financial Instruments and Investments................................37
TRUSTEES AND OFFICERS...............................................................................37
Shareholder and Trustee Liability........................................................41
INVESTMENT ADVISER AND SUB-ADVISER..................................................................42
ADMINISTRATOR.......................................................................................43
CUSTODIAN AND TRANSFER AGENT........................................................................44
EXPENSES ...........................................................................................46
PORTFOLIO TRANSACTIONS..............................................................................46
DISTRIBUTION PLANS..................................................................................47
Retail A Shares Plan................................................................................47
Retail B Shares Plan................................................................................47
Both Distribution Plans.............................................................................48
DISTRIBUTOR.........................................................................................49
AUDITORS ...........................................................................................49
COUNSEL ............................................................................................49
CODES OF ETHICS.....................................................................................50
PERFORMANCE AND YIELD INFORMATION...................................................................50
Performance Reporting....................................................................52
MISCELLANEOUS.......................................................................................53
APPENDIX A ........................................................................................A-1
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GENERAL INFORMATION
This Statement of Additional Information should be read in
conjunction with a current Prospectus. This Statement of Additional Information
relates to the Prospectuses for Trust Shares, Retail A Shares and Retail B
Shares of the Galaxy Pan Asia Fund (the "Fund"). This Statement of Additional
Information is incorporated by reference in its entirety into the Prospectuses.
No investment in shares of the Fund should be made without reading a Prospectus.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, FLEETBOSTON FINANCIAL CORPORATION OR ANY OF ITS AFFILIATES,
FLEET INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUND 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 FUND, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
AN INVESTMENT IN THE FUND INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
THE PRINCIPAL AMOUNT INVESTED.
DESCRIPTION OF GALAXY AND ITS SHARES
The Galaxy Fund ("Galaxy") is an open-end management investment
company currently offering shares of beneficial interest in thirty-seven
investment portfolios: Money Market Fund, Government Fund, U.S. Treasury Fund,
Tax-Exempt Fund, Connecticut Municipal Money Market Fund, Massachusetts
Municipal Money Market Fund, Institutional Money Market Fund, Institutional
Government Money Market Fund, Institutional Treasury Money Market Fund, Prime
Reserves, Government Reserves, Tax-Exempt Reserves, Equity Value Fund, Equity
Growth Fund, Growth Fund II, Equity Income Fund, International Equity Fund, Pan
Asia Fund, Small Company Equity Fund, Asset Allocation Fund, Small Cap Value
Fund, Growth and Income Fund, Strategic Equity Fund, Short-Term Bond Fund,
Intermediate Government Income Fund, High Quality Bond Fund, Corporate Bond
Fund, Tax-Exempt Bond Fund, Intermediate Tax-Exempt Bond Fund, New Jersey
Municipal Bond Fund, New York Municipal Bond Fund, Connecticut Municipal Bond
Fund, Connecticut Intermediate Municipal Bond Fund, Massachusetts Municipal Bond
Fund, Massachusetts Intermediate Municipal Bond Fund, Rhode Island Municipal
Bond Fund and Florida Municipal Bond Fund. Galaxy is also authorized to issue
shares of beneficial interest in two additional investment portfolios, the
MidCap Equity Fund and the New York Municipal Money Market Fund. As of the date
of this Statement of Additional Information, however, the MidCap Equity Fund and
the New York Municipal Money Market Fund had not commenced investment
operations.
Galaxy was organized as a Massachusetts business trust on March 31,
1986. Galaxy's Declaration of Trust authorizes the Board of Trustees to classify
or reclassify any unissued shares into one or more classes or series of shares
by setting or changing in any one or more respects their respective preferences,
conversion or other rights, voting powers, restrictions, limitations as
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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 Fund as follows: Class
NN - Series 1 shares (Trust Shares), Class NN - Series 2 shares (Retail A
Shares), Class NN - Series 3 shares (Retail B Shares), Class NN - Series 4
shares (Prime A Shares), and Class NN - Series 5 shares (Prime B Shares), each
series representing interests in the Pan Asia Fund. The 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 the Fund (i.e., Retail A Shares, Retail
B Shares, Prime A Shares, Prime 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 Distribution
Plan for 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 "Distribution Plan" and "Distribution
and Services Plan" below.
In the event of a liquidation or dissolution of Galaxy or the Fund,
shareholders of the Fund would be entitled to receive the assets available for
distribution belonging to the Fund, and a proportionate distribution, based upon
the relative asset values of the Fund and Galaxy's other portfolios, of any
general assets of Galaxy not belonging to any particular portfolio, which are
available for distribution. Shareholders of the Fund are entitled to participate
in the net distributable assets of the Fund based on the number of shares of the
Fund that are held by each shareholder, except that each series of the 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 the Fund will vote together in
the aggregate and not by series on all matters, except that only shares of a
particular series of the 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 of the Fund will be entitled to
vote on matters submitted to a vote of shareholders pertaining to Galaxy's
Distribution Plan for Retail A Shares and only Retail B Shares of the 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 the Fund, as well as those of any other investment
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portfolio now or hereafter offered by Galaxy, will vote together in the
aggregate and not separately on a portfolio-by-portfolio 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 the portfolio affected
by the matter. The Fund is deemed to be affected by a matter unless it is clear
that the interests of each portfolio 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 the Fund only if approved by a majority of the outstanding
shares of the 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 the 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 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 the Fund's assets
into money and, in connection therewith, to cause all outstanding shares of the
Fund to be redeemed at their net asset value; or (c) combine the assets
belonging to the Fund with the assets belonging to another portfolio of Galaxy
and, in connection therewith, to cause all outstanding shares of the 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
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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, and UOB Global Capital LLC ("UOBGC"), the Fund's sub-adviser, will use
their best efforts to achieve the Fund's investment objective, although such
achievement cannot be assured. The investment objective of the Fund as described
in its Prospectuses may not be changed without the approval of the holders of a
majority of its outstanding shares (as defined under "Miscellaneous"). Except as
noted below under "Investment Limitations," the Fund's investment policies may
be changed without shareholder approval. An investor should not consider an
investment in the Fund to be a complete investment program. The following
investment strategies, policies and risks supplement those set forth in the
Prospectuses.
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 may be accessible only
through investment in other investment companies that are specifically
authorized to invest in such securities. The Fund does not currently intend
to invest in countries in which it can only invest in securities through
other investment companies, but the Fund reserves the right to do so. 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. The Fund
may also enter into foreign currency exchange contracts to hedge against
currency risk. 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 Fund.
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SPECIAL RISK CONSIDERATIONS
FOREIGN SECURITIES
Investments in foreign securities may involve higher costs than
investments in U.S. securities, including higher transaction costs, as well as
the imposition of additional taxes by foreign governments. In addition, foreign
investments may include additional risks associated with currency exchange
rates, less complete financial information about the issuers, less market
liquidity, and political instability. Future political and economic
developments, the possible imposition of withholding taxes on interest income,
the possible seizure or nationalization of foreign holdings, the possible
establishment of exchange controls, or the adoption of other governmental
restrictions, might adversely affect the payment of dividends or principal and
interest on foreign obligations.
Although the Fund may invest in securities denominated in foreign
currencies, the Fund values its securities and other assets in U.S. dollars. As
a result, the net asset value of the Fund's shares may fluctuate with U.S.
dollar exchange rates as well as with price changes of the Fund's securities in
the various local markets and currencies. Thus, an increase in the value of the
U.S. dollar compared to the currencies in which the Fund makes its investments
could reduce the effect of increases and magnify the effect of decreases in the
price of the Fund's securities in their local markets. Conversely, a decrease in
the value of the U.S. dollar will have the opposite effect of magnifying the
effect of increases and reducing the effect of decreases in the prices of the
Fund's securities in their local markets. In addition to favorable and
unfavorable currency exchange rate developments, the Fund is subject to the
possible imposition of exchange control regulations or freezes on convertibility
of currency.
Certain of the risks associated with investments in foreign
securities are heightened with respect to investments in countries with emerging
economies or emerging securities markets. The risks of expropriation,
nationalization and social, political and economic instability are greater in
those countries than in more developed capital markets.
ASIA AND THE PACIFIC BASIN
Many Asian countries may be subject to greater social, political and
economic instability than is experienced in the United States. This instability
may result from (a) authoritarian governments, (b) military involvement in
political and economic decisions, (c) unrest associated with demands of the
people for improved social, economic and political conditions, (d) internal
insurgencies, (e) hostilities with neighboring countries, and (f) ethnic,
religious and racial estrangement.
Most Asian countries depend heavily on international trade and are
therefore impacted by trade barriers and the economic conditions of their
trading partners. The economies of Asian countries could be adversely affected
by the enactment of protective trade legislation by principal trading partners,
reduction of foreign investment in Asian countries, or a general decline in
international securities markets.
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Many developing Asian countries have experienced rapid economic
growth driven by the success of market reforms and a boost in infrastructure
expenditures. Growth of large middle classes and increased consumer spending
have resulted from rapid increases in household incomes. Although the rise in
domestic demand has lessened reliance on exports in many developing Asian
countries, enhanced competition in export markets has also contributed to the
economic growth of many of these countries. Productivity improvements has
enabled many Asian countries to achieve or maintain their status as top
importers while at the same time improving domestic living standards.
Southeast Asian currency markets experienced severe selling pressures
from abroad during the fourth quarter of 1997, with heavy selling by foreign
investors and speculators of currencies viewed to be overvalued. The Thai Baht
first experienced these pressures, but currencies of Hong Kong, South Korea,
Taiwan, Singapore, the Philippines, Malaysia and Indonesia have also been
affected. Concern by foreign investors with the general financial prospects of
the region also have placed pressures on the equity and fixed income markets in
the region.
Korea and Thailand, two countries at the center of the Asian crisis,
have made positive advances toward economic recovery and restoration of
confidence, although complete turnarounds are not yet assured. Indonesia, by
contrast, continues to experience difficult conditions. Malaysia has imposed
external payments controls in an attempt to shield its economy from the region's
troubles. Japan remains subject to significant risks, notwithstanding
significant fiscal stimulus and new programs to deal with problems in the
banking sector. Economic growth in China appears to be slowing, and both Chinese
and Hong Kong currencies have experienced substantial pressure.
JAPAN
The Fund currently intends to concentrate its investments in
securities of companies located in Japan and, thus, is more highly exposed to
risks specific to investments in Japan than to those associated with investments
in other Asian countries. This risk is tempered by the Fund's ability to reduce
its investments in Japan during unfavorable periods.
Japan's economic growth in the 1990's slowed considerably compared to
the previous decade. The decrease in gross national product in 1998 was the
worst year during the post-World War II period. Significant fiscal spending has
been employed to help boost the economy. Consumer prices are stable, although
wholesale prices are experiencing deflation. Earnings per worker have declined
nominally. Unemployment has increased to historical levels.
In spite of its problems, the Japanese economy has several strong
areas. The manufacturing sector features some of the most innovative electronics
and precision machinery firms in the world, as well as global leaders in
automotive and machinery industries. Japan's educational accomplishments tend to
outpace those of other developed countries. Japan also has a well developed
public sector infrastructure.
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Among Japan's economic weaknesses are its financial system, which
includes a large amount of non-performing loans, causing financial
intermediaries to become conservative in lending practices. Many companies carry
high debt loads and have low returns on assets compared to historical measures
in Japan as well as some other industrialized countries. The increased need for
labor mobility to adapt to emerging technologies and global competition is
causing fundamental changes in the labor market that are at odds with the
historical concept of lifetime employment. New accounting rules and decision
making processes, in addition to changed incentives for managers, are redefining
corporate governance.
Because of the expanding fiscal policy and the negative effects of
industrial and financial sector restructuring on business investment and wages,
growth may continue to be hindered in the near term. Cuts in employment and
investment may cause economic performance to suffer.
To give maximum support to the economy, the Bank of Japan has reduced
interest rates in the overnight market to near 0%. Yields on long term bonds
have nonetheless increased since the end of 1998 due to large deficits in the
government budget and the reluctance of some institutions to buy even
government-issued securities with significant duration risk.
The Japanese yen has fluctuated widely. Financial observers generally
consider that a very strong yen likely would adversely affect Japan's economy,
although other Asian countries might benefit.
Japan's political environment is stable. A general election must be
held by November 2000, during which all seats in Japan's Lower House will be up
for election. An election for the Upper House is scheduled for July 2001.
Japan has large and active securities markets, including the Tokyo
Stock Exchange and several regional exchanges. There is an active
over-the-counter market for fixed income securities. Japan also has well
developed derivatives markets. Securities markets are regulated by both private
and public agencies.
Japan's reporting, accounting and auditing standards vary
considerably from those of the United States. The past decade has seen the
introduction of stricter requirements. Beginning in March 2001, mark-to-market
valuation for marketable securities held for trading purposes will become
mandatory, as will the methods of the International Accounting Standards system.
Consideration is being given to requiring that land values based on discounted
cash flow models be disclosed, as well as current book value disclosure.
Japan depends heavily on international trade and is adversely
affected by trade tariffs and other protectionist measures imposed by its
trading partners, and can also be impacted by the economic conditions of those
trading partners. Because a relatively small percentage of Japan's land is
suitable for agriculture, it is highly dependent on imports of certain food
products. In addition, Japan's manufacturing industries rely on imported raw
materials and fuels, including iron ore, copper, oil and forest products. Japan
has experienced trade tensions with certain
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countries, particularly the United States, because of its high volume of exports
of goods, such as automobiles, machine tools and semiconductors. Japan has
entered into some trade agreements to help reduce these tensions. Relaxing of
barriers to imports, or pressures exerted by trade partners, could negatively
affect Japan's economy. Japan might also be affected by a substantial rise in
world oil or commodity prices. Because of its dependence on exports to sustain
Japan's economy, any decrease in exports could be seen as a sign of weakness
that might adversely affect securities markets.
Japan is located in a part of the world that is susceptible to
earthquakes, volcanoes and other natural disasters. Devastating natural
disasters can have enough impact to affect the country's economy.
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Investment methods described in the Prospectuses and this Statement
of Additional Information are among those which the Fund has 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 Fund may only purchase debt securities rated "A" or higher by
Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Ratings Group
("S&P") or, if unrated, determined by Fleet or UOBGC to be of comparable
quality. Issuers of commercial paper, bank obligations or repurchase agreements
in which the 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.
Subsequent to its purchase by the 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 UOBGC, 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 Fund and
applicable regulations of the Securities and Exchange Commission ("SEC").
However, the Fund will sell promptly any security that is not rated investment
grade by either S&P or Moody's if such securities exceed 5% of the Fund's net
assets.
U.S. GOVERNMENT OBLIGATIONS AND MONEY MARKET INSTRUMENTS
The 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
but not limited to bank obligations, commercial paper and corporate bonds with
remaining maturities of 397 days or less.
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Examples of the types of obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities (hereinafter, "U.S. Government
obligations") that may be held by the Fund include, without limitation, direct
obligations of the U.S. Treasury, and securities issued or guaranteed by the
Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, Federal
Housing Administration, Farmers Home Administration, Export-Import Bank of the
United States, Small Business Administration, Government National Mortgage
Association, Federal National Mortgage Association, General Services
Administration, Central Bank for Cooperatives, Federal Home Loan Mortgage
Corporation, Federal Intermediate Credit Banks, Resolution Trust Corporation and
Maritime Administration.
U.S. Treasury securities differ only in their interest rates,
maturities and time of issuance: Treasury Bills have initial maturities of one
year or less; Treasury Notes have initial maturities of one to ten years; and
Treasury Bonds generally have initial maturities of more than ten years.
Obligations of certain agencies and instrumentalities of the U.S. Government,
such as those of the Government National Mortgage Association, are supported by
the full faith and credit of the U.S. Treasury; others, such as those of the
Federal Home Loan Banks, are supported by the right of the issuer to borrow from
the Treasury; others, such as those of the Federal National Mortgage
Association, are supported by the discretionary authority of the U.S. Government
to purchase the agency's obligations; still others, such as those of the Federal
Home Loan Mortgage Corporation, are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored instrumentalities if it
is not obligated to do so by law. Some of these instruments may be variable or
floating rate instruments.
Bank obligations include bankers' acceptances, negotiable
certificates of deposit and non-negotiable time deposits issued for a definite
period of time and earning a specified return by a U.S. bank which is a member
of the Federal Reserve System or is insured by the Federal Deposit Insurance
Corporation ("FDIC"), or by a savings and loan association or savings bank which
is insured by the FDIC. 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% of the Fund's net assets. Investments
by the Fund in non-negotiable time deposits are limited to no more than 5% of
the 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 the Fund to additional risks, including
future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure
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or nationalization of foreign deposits, the possible establishment of exchange
controls, or the adoption of foreign governmental restrictions which might
adversely affect the payment of principal and interest on such obligations. In
addition, foreign branches of U.S. banks and U.S. branches of foreign banks may
be subject to less stringent reserve requirements and to different accounting,
auditing, reporting and recordkeeping standards than those applicable to
domestic branches of U.S. banks. Such investments may also subject the Fund to
investment risks similar to those accompanying direct investments in foreign
securities. See "Special Risk Considerations -- Foreign Securities." The Fund
will invest in the obligations of U.S. branches of foreign banks or foreign
branches of U.S. banks only when Fleet and/or UOBGC believe that the credit risk
with respect to the instrument is minimal.
Commercial paper may include variable and floating rate instruments
which are unsecured instruments that permit the indebtedness thereunder to vary.
Variable rate instruments provide for periodic adjustments in the interest rate.
Floating rate instruments provide for automatic adjustment of the interest rate
whenever some other specified interest rate changes. Some variable and floating
rate obligations are direct lending arrangements between the purchaser and the
issuer and there may be no active secondary market. However, in the case of
variable and floating rate obligations with a demand feature, the 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, the 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 Fund may also purchase Rule 144A
securities. See "Investment Limitations" below.
VARIABLE AND FLOATING RATE OBLIGATIONS
The Fund may purchase variable and floating rate instruments in
accordance with its investment objectives and policies as described in the
Prospectuses and this Statement of Additional Information. If such an instrument
is not rated, Fleet or UOBGC must determine that such instrument is comparable
to rated instruments eligible for purchase by the 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 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, however, will be deemed to have a maturity equal to the period remaining
until the next interest rate adjustment.
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REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
The 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 UOBGC. The Fund will not enter into repurchase
agreements with Fleet or UOBGC 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 15% limit described
below in Investment Limitation No. 3 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 the
Fund at not less than the agreed upon repurchase price. If the seller defaulted
on its repurchase obligation, the Fund 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 the 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 the 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 the Fund under the 1940 Act.
The 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 the Fund may decline below the repurchase
price. The Fund would pay interest on amounts obtained pursuant to a reverse
repurchase agreement. Whenever the 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 the Fund under the 1940 Act.
SECURITIES LENDING
The 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.
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The Fund would continue to accrue interest on the securities loaned and would
also earn income on the loans. Any cash collateral received by the 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 and/or
UOBGC to be of good standing and only when, in Fleet's and/or UOBGC's judgment,
the income to be earned from the loan justifies the attendant risks. The Fund
currently intends to limit the lending of its portfolio securities so that, at
any given time, securities loaned by the Fund represent not more than one-third
of the value of its total assets.
INVESTMENT COMPANY SECURITIES
The 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. The 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. Investments in other investment companies will
cause the 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
Fund within the limits prescribed by the 1940 Act. The 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 UOBGC.
DERIVATIVE SECURITIES
The Fund may from time to time, in accordance with its 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 the Fund will be unable to sell a derivative
security when it wants to because of lack of market depth or market disruption;
pricing risk that the value of a derivative security will not correlate exactly
to the
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value of the underlying assets, rates or indices on which it is based; and
operations risk that loss will occur as a result of inadequate systems and
controls, human error or otherwise. Some derivative securities are more complex
than others, and for those instruments that have been developed recently, data
are lacking regarding their actual performance over complete market cycles.
Fleet and/or UOBGC will evaluate the risks presented by the
derivative securities purchased by the Fund, and will determine, in connection
with their day-to-day management of the Fund, how such securities will be used
in furtherance of the Fund's investment objectives. It is possible, however,
that Fleet's and/or UOBGC's evaluations will prove to be inaccurate or
incomplete and, even when accurate and complete, it is possible that the Fund
will, because of the risks discussed above, incur loss as a result of their
investments in derivative securities.
WRITING COVERED OPTIONS. The Fund may write (sell) covered call and
put options on any securities in which it may invest. A call option written by
the Fund obligates it to sell specified securities to the holder of the option
at a specified price if the option is exercised at any time before the
expiration date. All call options written by the Fund are covered, which means
that the Fund will own the securities subject to the option as long as the
option is outstanding or the Fund will use the other methods described below.
The Fund's purpose in writing covered call options is to realize greater income
than would be realized on portfolio securities transactions alone. However, the
Fund may forego the opportunity to profit from an increase in the market price
of the underlying security.
A put option written by the Fund would obligate the Fund to purchase
specified securities from the option holder at a specified price if the option
is exercised at any time before the expiration date. All put options written by
the Fund would be covered, which means that the Fund will segregate cash or
liquid assets with a value at least equal to the exercise price of the put
option or will use the other methods described below. The purpose of writing
such options is to generate additional income for the Fund. However, in return
for the option premium, the Fund accepts the risk that it may be required to
purchase the underlying securities at a price in excess of the securities'
market value at the time of purchase.
Call and put options written by the Fund will also be considered to
be covered to the extent that the Fund's liabilities under such options are
wholly or partially offset by its rights under call and put options purchased by
the Fund or by an offsetting forward contract which, by virtue of its exercise
price or otherwise, reduces a Fund's net exposure on its written option
position.
The Fund may also write (sell) covered call and put options on any
securities index consisting of securities in which it may invest. Options on
securities indices are similar to options on securities, except that the
exercise of securities index options requires cash payments and does not involve
the actual purchase or sale of securities. In addition, securities index options
are designed to reflect price fluctuations in a group of securities or segment
of the securities market rather than price fluctuations in a single security.
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The Fund may cover call options on a securities index by owning
securities whose price changes are expected to be similar to those of the
underlying index, or by having an absolute and immediate right to acquire such
securities without additional cash consideration (or for additional cash
consideration which has been segregated by the Fund) upon conversion or exchange
of other securities in its portfolio. The Fund may cover call and put options on
a securities index by segregating cash or liquid assets with a value equal to
the exercise price.
The Fund may terminate its obligations under an exchange traded call
or put option by purchasing an option identical to the one it has written.
Obligations under over-the-counter options may be terminated only by entering
into an offsetting transaction with the counterparty to such option. Such
purchases are referred to as "closing purchase transactions."
PURCHASING OPTIONS. The Fund may purchase put and call options on any
securities in which it may invest or options on any securities index composed of
securities in which it may invest. The Fund would also be able to enter into
closing sale transactions in order to realize gains or minimize losses on
options it had purchased.
The Fund may purchase call options in anticipation of an increase in
the market value of securities of the type in which it may invest. The purchase
of a call option would entitle the Fund, in return for the premium paid, to
purchase specified securities at a specified price during the option period. The
Fund would ordinarily realize a gain if, during the option period, the value of
such securities exceeded the sum of the exercise price, the premium paid and
transaction costs; otherwise the Fund would realize either no gain or a loss on
the purchase of the call option.
The Fund may purchase put options in anticipation of a decline in the
market value of securities in its portfolio ("protective puts") or in securities
in which it may invest. The purchase of a put option would entitle the Fund, in
exchange for the premium paid, to sell specified securities at a specified price
during the option period. The purchase of protective puts is designed to offset
or hedge against a decline in the market value of the Fund's securities. Put
options may also be purchased by the Fund for the purpose of affirmatively
benefiting from a decline in the price of securities which it does not own. The
Fund would ordinarily realize a gain if, during the option period, the value of
the underlying securities decreased below the exercise price sufficiently to
more than cover the premium and transaction costs; otherwise the Fund would
realize either no gain or a loss on the purchase of the put option. Gains and
losses on the purchase of protective put options would tend to be offset by
countervailing changes in the value of the underlying portfolio securities.
The Fund would purchase put and call options on securities indices
for the same purposes as it would purchase options on individual securities. For
a description of options on securities indices, see "Writing Covered Options"
above.
RISKS ASSOCIATED WITH OPTIONS TRANSACTIONS. There is no assurance
that a liquid secondary market on an options exchange will exist for any
particular exchange-traded option or at any particular time. If the Fund is
unable to effect a closing purchase transaction with respect to covered options
it has written, the Fund will not be able to sell the underlying securities or
dispose
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of segregated assets until the options expire or are exercised. Similarly, if
the Fund is unable to effect a closing sale transaction with respect to options
it has purchased, it will have to exercise the options in order to realize any
profit and will incur transaction costs upon the purchase or sale of underlying
securities.
Reasons for the absence of a liquid secondary market on an exchange
include the following: (i) there may be insufficient trading interest in certain
options; (ii) restrictions may be imposed by an exchange on opening or closing
transactions or both; (iii) trading halts, suspensions or other restrictions may
be imposed with respect to particular classes or series of options; (iv) unusual
or unforeseen circumstances may interrupt normal operations on an exchange; (v)
the facilities of an exchange or the Options Clearing Corporation may not at all
times be adequate to handle current trading volume; or (vi) 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 on that exchange 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.
The Fund may purchase and sell both options that are traded on U.S.
and foreign exchanges and options traded over-the-counter with broker-dealers
who make markets in these options. The ability to terminate over-the-counter
options is more limited than with exchange-traded options and may involve the
risk that broker-dealers participating in such transactions will not fulfill
their obligations.
Transactions by the Fund in options on securities and indices will be
subject to limitations established by each of the exchanges, boards of trade or
other trading facilities governing the maximum number of options in each class
which may be written or purchased by a single investor or group of investors
acting in concert. Thus, the number of options which the Fund may write or
purchase may be affected by options written or purchased by other investment
advisory clients of Fleet and/or UOBGC. An exchange, board of trade or other
trading facility may order the liquidation of positions found to be in excess of
these limits, and it may impose certain other sanctions.
The writing and purchase of options is a highly specialized activity
which involves investment techniques and risks different from those associated
with ordinary portfolio securities transactions. The use of options to seek to
increase total return involves the risk of loss if Fleet and/or UOBGC is
incorrect in its expectation of fluctuations in securities prices or interest
rates. The successful use of options for hedging purposes also depends in part
on the ability of Fleet and/or UOBGC to manage future price fluctuations and the
degree of correlation between the options and securities markets. If Fleet
and/or UOBGC is incorrect in its expectation of changes in securities prices or
determination of the correlation between the securities indices on which options
are written and purchased and the securities in the Fund's investment portfolio,
the investment performance of the Fund will be less favorable than it would have
been in the absence of such options transactions. The writing of options could
increase the Fund's portfolio turnover rate and, therefore, associated brokerage
commissions or spreads.
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OPTIONS ON FOREIGN STOCK INDEXES. The 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 SIMEX and Topix.
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 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 UOBGC'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.
FUTURES CONTRACTS. The Fund may enter into futures contracts.
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. When the Fund purchases or sells a furtures contract,
the Fund must allocate assets as an initial deposit on the contract. The
initial deposit may be as low as approximately 5% or less of the value of the
contract. The futures contract is marked to market daily thereafter and the
Fund may be required to pay or entitled to receive additional "variation
margin," based on a decrease or increase in the value of the futures contract.
Futures contracts call for the actual delivery or acquisition of
securities or, in the case of futures contracts based on indices, the making
or acceptance of a cash settlement at a specified future time; however, the
contractual obligation is usually fulfilled before the date specified in the
contract by closing out the futures contract position through the purchase or
sale, on a commodities exchange, of an identical futures contract. Positions
in futures contracts may be closed out only if a liquid secondary market for
such contract is available, and there can be no assurance that such a liquid
secondary market will exist for any particular futures contract. With respect
to stock index futures, because 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.
The Fund's ability to use transactions in futures contracts
effectively depends on, among other factors, Fleet's or UOBGC's judgment as to
the expected price movements in the securities underlying the futures
contracts. In addition, it is possible in some circumstances that the 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.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Because the 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 Fund from time to time may enter into foreign currency exchange
transactions to convert the U.S. dollar to foreign currencies, to convert
foreign currencies to the U.S. dollar and to convert foreign currencies to other
foreign
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currencies. The 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 the 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 the 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.
The 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 the Fund's portfolio securities or in foreign
exchange rates, or prevent loss if the prices of these securities should
decline.
The Fund 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 the Fund's long-term investment
decisions, the Fund 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
The Fund may invest in ADRs, EDRs and 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 Fund's limitations with respect to such
securities. If the 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."
CONVERTIBLE SECURITIES
The Fund may from time to time, in accordance with its investment
policies, invest in convertible securities. Convertible securities are fixed
income securities which may be exchanged or converted into a predetermined
number of shares of the issuer's underlying common stock at the option of the
holder during a specified time period. Convertible securities may take the form
of convertible preferred stock, convertible bonds or debentures, units
consisting of "usable" bonds and warrants or a combination of the features of
several of these securities.
Convertible bonds and convertible preferred stocks generally retain
the investment characteristics of fixed income securities until they have been
converted but also react to movements in the underlying equity securities. The
holder is entitled to receive the fixed income
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of a bond or the dividend preference of a preferred stock until the holder
elects to exercise the conversion privilege. Usable bonds are corporate bonds
that can be used in whole or in part, customarily at full face value, in lieu of
cash to purchase the issuer's common stock. When owned as part of a unit along
with warrants, which are options to buy the common stock, they function as
convertible bonds, except that the warrants generally will expire before the
bond's maturity. Convertible securities are senior to equity securities and
therefore have a claim to the assets of the issuer prior to the holders of
common stock in the case of liquidation. However, convertible securities are
generally subordinated to similar non-convertible securities of the same issuer.
The interest income and dividends from convertible bonds and preferred stocks
provide a stable stream of income with generally higher yields than common
stocks, but lower than non-convertible securities of similar quality. The Fund
will exchange or convert the convertible securities held in its portfolio into
shares of the underlying common stock in instances in which, in Fleet's and/or
UOBGC's opinion, the investment characteristics of the underlying common shares
will assist the Fund in achieving its investment objective. Otherwise, the Fund
will hold or trade the convertible securities. In selecting convertible
securities for the Fund, Fleet and/or UOBGC 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 and/or UOBGC considers numerous factors, including
the economic and political outlook, the value of the security relative to other
investment alternatives, trends in the determinants of the issuer's profits, and
the issuer's management capability and practices.
WHEN-ISSUED TRANSACTIONS
The Fund may purchase eligible securities on a "when-issued" basis.
When-issued transactions, which involve a commitment by the Fund to purchase or
sell particular securities with payment and delivery taking place at a future
date (perhaps one or two months later), permit the Fund to lock in a price or
yield on a security it owns or intends to purchase, regardless of future changes
in interest rates. When-issued 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.
The Fund may dispose of a commitment prior to settlement if Fleet or
UOBGC, as the case may be, deems it appropriate to do so. In addition, the 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 Fund may realize short-term profits or
losses upon the sale of such commitments.
When the Fund agrees to purchase securities on a when-issued 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. The 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.
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When the Fund engages in when-issued 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 the 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
The 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 Fund, 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
Fund, 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
Fund believes 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 Fund intends, 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 Fund does 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. The 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 Fund's 15% limitation on purchases of
illiquid instruments described under "Investment Limitations" below, Rule 144A
securities will not be considered to be illiquid if Fleet and/or UOBGC has
determined, in accordance with guidelines established by the Board of Trustees,
that an adequate trading market exists for such securities.
PORTFOLIO TURNOVER
The Fund may sell a portfolio investment soon after its acquisition
if Fleet and/or UOBGC 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
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<PAGE>
transaction costs, which must be ultimately borne by the Fund's shareholders.
High portfolio turnover may result in the realization of substantial net capital
gains.
INVESTMENT LIMITATIONS
In addition to the Fund's investment objective as stated in the
Prospectuses, the following investment limitations are matters of fundamental
policy and may not be changed without the affirmative vote of the holders of a
majority of the Fund's outstanding shares (as defined under "Miscellaneous").
The Fund may not:
1. 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.
2. 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 33% 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 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 of the value of the Fund's 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.
3. Invest more than 15% 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,
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 the Fund's
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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 1933 Act;
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
with the Fund's investment objective, policies and
limitations may be deemed to be underwriting.
7. Purchase or sell real estate; except that the Fund may
purchase securities that are secured by real estate, and the
Fund may purchase securities of issuers which deal in real
estate or interests therein; however, the Fund 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 Fund may enter into forward currency contracts and
foreign currency futures contracts and related options to
the extent permitted by its investment objectives and
policies.
9. Invest in or sell put options, call options, straddles,
spreads, or any combination thereof; provided, however, that
the Fund may write covered call and put 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 the Fund may purchase put and call options to
the extent permitted by its investment objectives and
policies.
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 Fund may
acquire such securities in accordance with the 1940 Act.
12. 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 (a) there is no limitation
with respect to obligations issued or guaranteed by the
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<PAGE>
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, the Fund 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.
With respect to Investment Limitation No. 4 above, the Fund does not
intend to acquire more than 10% of the outstanding voting securities of any one
issuer.
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 the Fund's portfolio securities generally will not
constitute a violation of the limitation. If the value of the 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 the
Fund's asset coverage at any time falls below that required by the 1940 Act, the
Fund will reduce the amount of its borrowings in the manner required by the 1940
Act to the extent necessary to satisfy the asset coverage requirement.
VALUATION OF PORTFOLIO SECURITIES
In determining market value, the Fund's 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, in which case 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. 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.
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. dollar equivalents 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 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
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<PAGE>
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 the Fund are sold on a continuous basis by Galaxy's
distributor, Provident Distributors, Inc. ("PDI"). PDI is a registered
broker/dealer with its principal offices at 3200 Horizon Drive, King of Prussia,
PA 19406. PDI has agreed to use appropriate efforts to solicit all purchase
orders.
PURCHASES OF RETAIL A SHARES AND RETAIL B SHARES
GENERAL
Investments in Retail A Shares of the Fund are subject to a front-end
sales charge. Investments in Retail B Shares of the 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.
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 Fund. 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 Financial 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 the New York Stock Exchange (the "Exchange") is open for business
("Business Days"). If an institution accepts a purchase order from a customer on
a non-Business Day, the order will not be executed until it is received and
accepted by PDI on a Business Day in accordance with PDI's procedures.
Galaxy has authorized certain brokers to accept purchase, exchange
and redemption orders on behalf of Galaxy with respect to Retail A Shares of the
Fund. 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 Fund accepted by any
such authorized broker or designated intermediary will be effected at the Fund's
net asset value per share next determined after acceptance of such order and
will not be subject to the front-end
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<PAGE>
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.
APPLICABLE SALES CHARGE - RETAIL A SHARES
The public offering price for Retail A Shares of the Fund is the sum
of the net asset value of the Retail A Shares purchased plus any applicable
front-end sales charge as described in the applicable Prospectus. A deferred
sales charge of up to 1.00% is assessed on certain redemptions of Retail A
Shares that are purchased with no initial sales charge as part of an investment
of $500,000 or more. A portion of the front-end sales charge may be reallowed to
broker-dealers as follows:
<TABLE>
<CAPTION>
REALLOWANCE TO
DEALERS
-------
AS A % OF
OFFERING PRICE
AMOUNT OF TRANSACTION PER SHARE
--------------------- ---------
<S> <C>
Less than $50,000 3.25
$50,000 but less than $100,000 3.00
$100,000 but less than $250,000 2.50
$250,000 but less than $500,000 2.00
$500,000 and over 0.00
</TABLE>
The appropriate reallowance to dealers will be paid by PDI to
broker-dealer organizations which have entered into agreements with PDI. The
reallowance to dealers may be changed from time to time.
Certain affiliates of Fleet may, at their own expense, provide
additional compensation to broker-dealer affiliates of Fleet and to unaffiliated
broker-dealers whose customers purchase significant amounts of Retail A Shares
of the Fund. Such compensation will not represent an
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<PAGE>
additional expense to the Fund or its shareholders, since it will be paid from
the assets of Fleet's affiliates.
In certain situations or for certain individuals, the front-end sales
charge for Retail A Shares of the Fund 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 Fund by the following
categories of investors or in the following types of transactions:
- purchases by directors, officers and employees of broker-dealers
having agreements with PDI pertaining to the sale of Retail A
Shares to the extent permitted by such organizations;
- purchases by current and retired members of Galaxy's Board of
Trustees and members of their immediate families;
- purchases by officers, directors, employees and retirees of
FleetBoston Financial Corporation and any of its affiliates and
members of their immediate families;
- purchases by officers, directors, employees and retirees of PFPC
Inc. and members of their immediate families;
- purchases by persons who are also plan participants in any
employee benefit plan which is the record or beneficial holder of
Trust Shares of the Fund or any of the other portfolios offered
by Galaxy;
- purchases by institutional investors, including but not limited
to bank trust departments and registered investment advisers;
- purchases by clients of investment advisers or financial planners
who place trades for their own accounts if such accounts are
linked to the master accounts of such investment advisers or
financial planners on the books of the broker-dealer through whom
Retail A Shares are purchased;
- purchases by institutional clients of broker-dealers, including
retirement and deferred compensation plans and the trusts used to
fund these plans, which place trades through an omnibus account
maintained with Galaxy by the broker-dealer; and
- purchases prior to July 1, 1999 by former deposit customers of
financial institutions (other than registered broker-dealers)
acquired by FleetBoston Financial Corporation in February 1998.
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<PAGE>
COMPUTATION OF OFFERING PRICE - RETAIL A SHARES
An illustration of the computation of the offering price per share of
Retail A Shares of the Fund, using the net asset value of Retail A Shares on the
date Retail A Shares are first offered to the public and the maximum front-end
sales charge of 3.75%, is as follows:
Net Assets................................ $ 10.00
Outstanding Shares........................ 1
Net Asset Value Per Share................. $ 10.00
Sales Charge (3.75% of
the offering price)....................... $ .39
Offering Price to Public.................. $ 10.39
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.
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<PAGE>
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.
REINSTATEMENT PRIVILEGE. Investors may reinvest all or any portion of
their redemption proceeds in Retail A Shares of the Fund 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
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<PAGE>
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 Fund 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 Fund 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 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 broker-dealer affiliates and to unaffiliated
broker-dealers 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
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<PAGE>
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 an investor, provided the investor was the beneficial owner of
shares of the Fund (or any of the other portfolios offered by Galaxy or
otherwise advised by Fleet or its affiliates) before December 1, 1995. In
addition to the foregoing exemptions, no contingent deferred sales charge will
be imposed on redemptions made pursuant to the Systematic Withdrawal Plan,
subject to the limitations set forth under "Investor Programs - Retail A Shares
and Retail B Shares -- Automatic Investment Program and Systematic Withdrawal
Plan" below.
CHARACTERISTICS OF RETAIL A SHARES AND RETAIL B SHARES
The primary difference between Retail A Shares and Retail B Shares
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 Fund are sold at their net asset value plus a
front-end sales charge of up to 3.75%. This front-end sales charge may be
reduced or waived in some cases. See the applicable Prospectus and "Applicable
Sales Charges -- Retail A Shares" and "Quantity Discounts" above. Retail A
Shares of the Fund are currently subject to ongoing distribution fees at an
annual rate of up to .25% of the Fund's average daily net assets attributable to
its Retail A Shares.
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<PAGE>
Retail B Shares of the Fund are sold at net asset value without an
initial sales charge. Normally, however, a deferred sales charge is paid if the
Retail B 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 1.00% 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 Retail B 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
distribution 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
Before purchasing Retail A Shares or Retail B Shares of the Fund,
investors should consider whether, during the anticipated periods of their
investments in the Fund, the accumulated distribution and shareholder servicing
fees and potential contingent deferred sales charge on Retail B Shares prior to
conversion would be less than the initial sales charge and accumulated
distribution 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 distribution 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 distribution 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
distribution fees applicable to Retail A Shares. For example, if net asset value
remains constant, the aggregate distribution and shareholder servicing fees with
respect to Retail B Shares of the Fund would equal or exceed the initial sales
charge and aggregate distribution 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 Financial
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 Fund may also be sold to clients, members and
employees of UOBGC.
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<PAGE>
OTHER PURCHASE INFORMATION
On a Business Day or a Trust Business Day when the Exchange closes
early due to a partial holiday or otherwise, Galaxy will advance the time at
which purchase orders must be received in order to be processed on that Business
Day or Trust Business Day.
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 Fund 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 the 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 Fund normally utilizes is restricted, or an emergency, as
defined by the rules and regulations of the SEC exists making disposal of the
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 the 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 Fund.
EXCHANGE PRIVILEGE
The minimum initial investment to establish an account in another
Galaxy portfolio by exchange, except for the Institutional Government Money
Market Fund, is $2,500, unless (i) the
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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 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 the Fund and the investment of the redemption proceeds in Retail
Shares of another 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 the 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 the Fund. 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 Fund are available for purchase in connection
with the following tax-deferred prototype retirement plans:
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<PAGE>
INDIVIDUAL RETIREMENT ARRANGEMENTS ("IRAS") (including traditional,
Roth and Education IRAs and "roll-overs" from existing retirement plans), a
retirement-savings vehicle for qualifying individuals. The minimum initial
investment for an IRA account is $500 (including a spousal account).
SIMPLIFIED EMPLOYEE PENSION PLANS ("SEPS"), a form of retirement plan
for sole proprietors, partnerships and corporations. The minimum initial
investment for a SEP account is $500.
MULTI-EMPLOYEE RETIREMENT PLANS ("MERPS"), a retirement vehicle
established by employers for their employees which is qualified under Section
401(k) and 403(b) of the Code. The minimum initial investment for a MERP is
$500.
KEOGH PLANS, a retirement vehicle for self-employed individuals. The
minimum initial investment for a Keogh Plan is $500.
Detailed information concerning eligibility and other matters related
to these plans and the form of application is available from PFPC (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 the 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 assessed on
redemptions of Retail B Shares made through the Systematic Withdrawal Plan that
do not exceed 12% of an
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<PAGE>
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 PFPC (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
The Fund intends 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 the Fund itself generally will be relieved of federal income and
excise taxes. If the 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
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<PAGE>
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). The 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 Fund 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 Fund 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 the 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 contracts and options that may be engaged in by the
Fund, and investments in passive foreign investment companies ("PFICs"), are
complex and, in some cases, uncertain. Such transactions and investments may
cause the 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 the 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 Fund 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 & Printing
Vicks Lithograph & Corporation (book manufacturing and commercial
Printing Corporation printing); Director, Utica First Insurance
Commercial Drive Company; Trustee, Savings Bank of Utica; Director,
P.O. Box 270 Monitor Life Insurance Company; Director,
Yorkville, NY 13495 Commercial Travelers Mutual Insurance Company;
Age 66 Trustee, The Galaxy VIP Fund; Trustee, Galaxy Fund
II.
John T. O'Neill(1) President, Treasurer & Private Investor; Executive Vice President and
28 Narragansett Bay Avenue Trustee CFO, Hasbro, Inc. (toy and game manufacturer)
Warwick, RI 02889 until December 1999; Trustee, The Galaxy VIP Fund;
Age 55 Trustee, Galaxy Fund II.
Louis DeThomasis Trustee President, Saint Mary's College of Minnesota;
Saint Mary's College Director, Bright Day Travel, Inc.; Trustee,
of Minnesota Religious Communities Trust; Trustee, The Galaxy
Winona, MN 55987 VIP Fund; Trustee, Galaxy Fund II.
Age 59
Donald B. Miller Trustee Chairman, Horizon Media, Inc. (broadcast
10725 Quail Covey Road services); Director/Trustee, Lexington Funds;
Boynton Beach, FL 33436 Chairman, Executive Committee, Compton
Age 74 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, The
One Citizens Plaza Astra Ventures, Incorporated (previously,
Providence, RI 02903 Buffinton Box Company - manufacturer of cardboard
Age 58 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 Director,
2468 Ohio Street Acadia Management Company (investment services);
Bangor, ME 04401 Director, Essex County Gas Company, until January
Age 68 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
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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>
William Greilich Vice President Vice President, PFPC Inc., 1991-96; Vice President
PFPC Inc. and Division Manager, PFPC Inc., 1996 to present.
4400 Computer Drive
Westborough, MA 01581-5108
Age 46
</TABLE>
-------------------------
1. May be deemed to be an "interested person" within the definition set
forth in Section 2(a)(19) of the 1940 Act.
Effective 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
UOBGC, or any of their affiliates,
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<PAGE>
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 from
Aggregate Compensation from Accrued as Part of Galaxy and Fund Complex
Name of Person/Position Galaxy Fund Expenses *Paid to Trustees
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bradford S. Wellman $39,395 None $55,750
Trustee
-------------------------------------------------------------------------------------------------------------------------------
Dwight E. Vicks, Jr. $42,875 None $60,500
Chairman and Trustee
-------------------------------------------------------------------------------------------------------------------------------
Donald B. Miller** $40,042 None $56,500
Trustee
-------------------------------------------------------------------------------------------------------------------------------
Rev. Louis DeThomasis $37,643 None $53,250
Trustee
-------------------------------------------------------------------------------------------------------------------------------
John T. O'Neill $41,813 None $59,000
President, Treasurer
and Trustee
-------------------------------------------------------------------------------------------------------------------------------
James M. Seed** $39,355 None $55,750
Trustee
===============================================================================================================================
</TABLE>
-----------
* The "Fund Complex" consists of Galaxy, The Galaxy VIP Fund and Galaxy
Fund II which comprised a total of 43 separate portfolios as of
October 31, 1999.
** Deferred compensation (including interest) in the amounts of $43,939
and $65,944 accrued during Galaxy's fiscal year ended October 31,
1999 for Messrs. Miller and Seed, respectively.
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. However, Galaxy's Declaration of Trust provides that shareholders
shall not be subject to any personal liability for the acts or obligations of
Galaxy, and that every note, bond, contract, order or other undertaking made by
Galaxy shall contain a provision to the effect that the shareholders are not
personally liable thereunder. The Declaration of Trust provides for
indemnification out of the trust property of any shareholder held personally
liable solely by reason of his or her being or having been a shareholder and not
because of his or her acts or omissions outside such capacity or some other
reason. The Declaration of Trust also provides that Galaxy shall, upon
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<PAGE>
request, assume the defense of any claim made against any shareholder for any
act or obligation of Galaxy, and shall satisfy any judgment thereon. Thus, the
risk of shareholder liability is limited to circumstances in which Galaxy itself
would be unable to meet its obligations.
The Declaration of Trust states further that no trustee, officer or
agent of Galaxy shall be personally liable for or on account of any contract,
debt, claim, damage, judgment or decree arising out of or connected with the
administration or preservation of the trust estate or the conduct of any
business of Galaxy; nor shall any trustee be personally liable to any person for
any action or failure to act except by reason of his own bad faith, willful
misfeasance, gross negligence or reckless disregard of his duties as trustee.
The Declaration of Trust also provides that all persons having any claim against
the trustees or Galaxy shall look solely to the trust property for payment.
With the exceptions stated, the Declaration of Trust provides that a
trustee is entitled to be indemnified against all liabilities and expenses
reasonably incurred by him in connection with the defense or disposition of any
proceeding in which he may be involved or with which he may be threatened by
reason of his being or having been a trustee, and that the Board of Trustees
shall indemnify representatives and employees of Galaxy to the same extent to
which they themselves are entitled to indemnification.
INVESTMENT ADVISER AND SUB-ADVISER
Fleet serves as investment adviser to the Fund. In its Advisory
Agreement, Fleet has agreed to provide investment advisory services to the Fund
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 Fund. See "Expenses" below.
For the services provided and expenses assumed with respect to the
Fund, Fleet is entitled to receive advisory fees, computed daily and paid
monthly, at the annual rate of 1.20% of the average daily net assets of the
Fund.
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 Fund 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 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 the Fund. The term "majority of the
outstanding shares of the Fund" means, with respect to approval of an Advisory
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<PAGE>
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 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 UOBGC, which is an indirect majority-owned subsidiary of United
Overseas Bank Group and which has its principal offices at 592 Fifth Avenue,
Suite 602, New York, New York 10036, as the sub-adviser to the Fund. As of
December 31, 1999, UOBGC, together with its affiliates, had discretionary
management authority over approximately $2.17 billion in assets.
Under its Sub-Advisory Agreement with Fleet, UOBGC 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 UOBGC in connection with the Fund's continuous
investment program; approves lists of foreign countries recommended by UOBGC 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 UOBGC with information concerning relevant economic and
political developments. UOBGC will provide services under the Sub-Advisory
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 UOBGC 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 UOBGC, computed daily and paid
monthly, at the annual rate of 0.72% of the average daily net assets of the
Fund.
ADMINISTRATOR
PFPC Inc. ("PFPC") (formerly known as First Data Investor Services
Group, Inc.), located at 4400 Computer Drive, Westborough, Massachusetts
01581-5108, serves as the Fund's administrator. PFPC is an indirect
majority-owned subsidiary of PNC Financial Services Group.
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<PAGE>
PFPC generally assists the Fund in its administration and operation.
PFPC also serves as administrator to the other portfolios of Galaxy. For the
services provided to the Fund, PFPC is entitled to receive administration fees
based on the combined average daily net assets of the Fund and the other
portfolios offered by Galaxy, computed daily and paid monthly, at the following
annual rates:
<TABLE>
<CAPTION>
COMBINED AVERAGE DAILY NET ASSETS ANNUAL RATE
--------------------------------- -----------
<S> <C>
Up to $2.5 billion........................... 0.090%
From $2.5 to $5 billion...................... 0.085%
From $5 to $12 billion....................... 0.075%
From $12 to $15 billion...................... 0.065%
From $15 to $18 billion...................... 0.060%
From $18 to $21 billion...................... 0.0575%
Over $21 billion............................. 0.0525%
</TABLE>
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 Fund.
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, provide certain other services such as internal
auditing services required by Galaxy, and compute the net asset value and net
income of the Fund. PFPC prepares the Fund's 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 Fund's 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 Fund's assets
pursuant to a Global Custody Agreement. Chase Manhattan may employ
sub-custodians for the Fund for the purpose of providing custodial services for
the Fund's 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 the Fund; (ii) hold
and disburse portfolio securities on account of the Fund; (iii) collect and make
disbursements of money on behalf of the Fund;
-44-
<PAGE>
(iv) collect and receive all income and other payments and distributions on
account of the 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 Fund's operations. Chase
Manhattan is authorized to select one or more banks or trust companies to serve
as sub-custodian for the Fund, 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 Fund 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 Fund's 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 Fund for the purpose of providing custodial services for the foreign assets
of the Fund held outside the U.S. The assets of the Fund are held under bank
custodianship in compliance with the 1940 Act.
PFPC serves as the Fund's 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 the Fund; (ii)
transmit all communications by the 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 the 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 Fund to PFPC have been increased by an amount
equal to these fees. In substance, therefore, the holders of Trust Shares of the
Fund 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 Fund held by defined
contribution plans. Pursuant to an agreement between Fleet Bank and PFPC, Fleet
Bank is paid $21.00 per year for each defined contribution plan participant
account. PFPC bears this expense directly, and shareholders of Trust Shares of
the Fund bear this expense indirectly through fees paid to PFPC for transfer
agency services.
-45-
<PAGE>
EXPENSES
Fleet and PFPC bear all expenses in connection with the performance
of their services for the Fund, except that Galaxy bears the expenses incurred
in the Fund's 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 Fund also pays for brokerage
fees and commissions in connection with the purchase of portfolio securities.
PORTFOLIO TRANSACTIONS
Fleet or UOBGC will select specific portfolio investments and effect
transactions for the Fund. Fleet and UOBGC seek to obtain the best net price and
the most favorable execution of orders. Fleet or UOBGC may, in its discretion,
effect transactions in portfolio securities with dealers who provide research
advice or other services to the Fund, Fleet or UOBGC. Fleet or UOBGC is
authorized to pay a broker or dealer who provides such brokerage and research
services a commission for executing a portfolio transaction for the Fund which
is in excess of the amount of commission another broker or dealer would have
charged for effecting that transaction if Fleet or UOBGC 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 UOBGC's overall
responsibilities to the 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
Agreement between Galaxy and Fleet and the Sub-Advisory Agreement between Fleet
and UOBGC are not reduced by reason of receiving such brokerage and research
services. The Board of Trustees will periodically review the commissions paid by
the Fund to determine if the commissions paid over representative periods of
time were reasonable in relation to the benefits inuring to the Fund.
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
-46-
<PAGE>
agency or instrumentality. No brokerage commissions are typically paid on
purchases and sales of U.S. Government securities.
The Fund 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
Fund will not acquire portfolio securities from, make savings deposits in, enter
into repurchase or reverse repurchase agreements with, or sell securities to,
Fleet, UOBGC, PFPC, or their affiliates, and will not give preference to
affiliates and correspondent banks of Fleet with respect to such transactions.
Investment decisions for the Fund are made independently from those
for the other portfolios of Galaxy and for any other investment companies and
accounts advised or managed by Fleet or UOBGC. When a purchase or sale of the
same security is made at substantially the same time on behalf of the 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 UOBGC 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 the Fund
or the size of the position obtained or sold by the Fund. To the extent
permitted by law, Fleet or UOBGC may aggregate the securities to be sold or
purchased for the Fund with those to be sold or purchased for Galaxy's other
portfolios, or other investment companies or accounts in order to obtain best
execution.
DISTRIBUTION PLANS
RETAIL A SHARES PLAN
Galaxy has adopted a Distribution Plan pursuant to Rule 12b-1 under
the 1940 Act (the "Rule") with respect to Retail A Shares of the Fund (the
"Retail A Shares Plan"). Under the Retail A Shares Plan, Galaxy may pay PDI or
another person for expenses and activities intended to result in the sale of
Retail A Shares, including the payment of commissions to broker-dealers and
other industry professionals who sell Retail A Shares and the direct or indirect
cost of financing such payments.
Under the Retail A Shares Plan, payments by Galaxy for distribution
expenses may not exceed the annualized rate of 0.30% of the average daily net
assets attributable to the Fund's outstanding Retail A Shares. As of the date of
this Statement of Additional Information, Galaxy intends to limit the Fund's
payments for distribution expenses to not more than 0.25% (on an annualized
basis) of the average daily net asset value of the Fund's outstanding Retail A
Shares.
RETAIL B SHARES PLAN
Galaxy has adopted a Distribution and Services Plan pursuant to the
Rule with respect to Retail B Shares of the Fund (the "Retail B Shares Plan").
Under the Retail B Shares Plan, Galaxy may pay (a) PDI or another person for
expenses and activities intended to result in the
-47-
<PAGE>
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 Shares 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 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 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 Retail B
Shares 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.
BOTH DISTRIBUTION PLANS
Payments for distribution expenses under the Retail A Shares Plan and
Retail B Shares Plan (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 a report 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. The
12b-1 Plans provide that they may not be amended to increase materially the
costs which Retail A Shares or Retail B Shares of the Fund 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 Fund and holders of Retail A
Shares and Retail B Shares. The 12b-1
-48-
<PAGE>
Plans are subject to annual reapproval by a majority of the 12b-1 Trustees and
are terminable at any time with respect to the Fund by a vote of a majority of
the 12b-1 Trustees or by vote of the holders of a majority of the Retail A
Shares or Retail B Shares of the Fund, as applicable. Any agreement entered into
pursuant to the 12b-1 Plans with an institution ("Service Organization") is
terminable with respect to the Fund without penalty, at any time, by vote of a
majority of the 12b-1 Trustees, by vote of the holders of a majority of the
Retail A Shares or Retail B Shares of the Fund, as applicable, 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 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.
DISTRIBUTOR
PDI serves as Galaxy's distributor. PDI is a registered broker-dealer
with principal offices located at 3200 Horizon Drive, King of Prussia,
Pennsylvania 19406. Jane Haegele is the sole shareholder of PDI.
Unless otherwise terminated, the Distribution Agreement between
Galaxy and PDI remains in effect until November 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 Fund as described in the applicable Prospectus
and this Statement of Additional Information. PDI is also entitled to the
payment of contingent deferred sales charges upon the redemption of Retail B
Shares of the Fund.
AUDITORS
Ernst & Young LLP, independent auditors, with offices at 200
Clarendon Street, Boston, Massachusetts 02110, serve as auditors for Galaxy.
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.
-49-
<PAGE>
CODES OF ETHICS
Galaxy, Fleet and UOBGC have adopted codes of ethics pursuant to Rule
17j-1 under the 1940 Act that permit investment personnel subject to their
particular codes of ethics to invest in securities, including securities that
may be purchased or held by the Fund, for their own accounts. The codes of
ethics are on public file with, and available from, the Securities and Exchange
Commission's Public Reference Room in Washington, D.C.
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 Fund's 30-day (or one month) standard yields are calculated
separately for each series of shares in the Fund in accordance with the method
prescribed by the SEC for mutual funds:
YIELD = 2[(a-b)/cd +1 ) TO THE POWER OF 6 - 1]
Where: a = dividends and interest earned by the 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 the
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 the 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
-50-
<PAGE>
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 the 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) the 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.
If the Fund advertises its "average annual total return," it computes
such return separately for each series of shares by determining the average
annual compounded rate of return during specified periods that equates the
initial amount invested to the ending redeemable value of such investment
according to the following formula:
T = [(ERV/P) - 1] TO THE POWER OF 1/n
Where: T = average annual total return;
ERV= ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the l, 5 or 10 year (or other)
periods at the end of the applicable period (or a
fractional portion thereof);
P = hypothetical initial payment of $1,000; and
n = period covered by the computation, expressed in years.
If the Fund advertises its "aggregate total return," it 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,
-51-
<PAGE>
(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 Fund's 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 Fund may also calculate total return quotations without deducting
the maximum sales charge imposed on purchases of Prime A Shares or redemptions
of Prime B Shares. The effect of not deducting the sales charge will be to
increase the total return reflected.
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to shareholders,
the performance of the Fund 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 Fund 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 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 Fund. Performance data will
be calculated separately for Trust Shares, Retail A Shares and Retail B Shares
of the Fund.
The standard yield is computed as described above. The 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 Fund may also advertise its 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 the 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 the
Fund's operations, or on a year-by-year basis. The Fund may also use "aggregate
total return" figures for various periods, representing the cumulative change in
the value of an investment in the Fund for the specified
-52-
<PAGE>
period. Both methods of calculating total return reflect the maximum front-end
sales load for Retail A Shares of the Fund and the applicable contingent
deferred sales charge for Retail B Shares of the Fund and assume that dividends
and capital gain distributions made by the Fund during the period are reinvested
in Fund shares.
The Fund 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 Fund will fluctuate and any quotation of
performance should not be considered as representative of the future performance
of the Fund. Since yields fluctuate, yield data cannot necessarily be used to
compare an investment in the 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 the Fund will not be
included in performance calculations.
The portfolio manager of the Fund 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" the Fund or series of the Fund means the consideration received by
Galaxy upon the issuance of shares in the 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 portfolio. In
determining the net asset value of a particular series of the 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 Galaxy portfolios 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
portfolio, are conclusive.
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<PAGE>
Shareholders will receive unaudited semi-annual reports describing
the Fund's 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
the Fund or a particular series of shares in the 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
the Fund or such series of shares, or (b) 67% or more of the shares of the Fund
or such series of shares present at a meeting if more than 50% of the
outstanding shares of the Fund or such series of shares are represented at the
meeting in person or by proxy.
As of May 22, 2000, the name, address and percentage ownership of the
entities or persons that held of record or beneficially more than 5% of the
outstanding shares of each class of shares of Galaxy's investment portfolios
were as follows:
<TABLE>
<CAPTION>
PERCENT
REGISTRATION NAME OWNERSHIP
---------------------------------------------------------------------
<S> <C>
MONEY MARKET FUND
TRUST
Fleet New York 99.53%
Fleet Investment
Services
159 East Main St.
NY/RO/T03C
Rochester, NY 14638-
0001
RETAIL B
Wylle O'Brian 5.11%
69 Edgewood Ave.
Haverhill, MA 01832-
2909
TAX-EXEMPT MONEY MARKET
TRUST
Fleet New York 96.34%
Fleet Investment
Services
159 East Main St.
NY/RO/T03C
Rochester, NY 14638-
0001
RETAIL A
Brenda May Earl 12.41%
279 Central Park West
PH-19A
New York, NY 10024-
3080
Joseph Dimenna 11.54%
1049 Fifth Ave. Apt. P3
New York, NY 10028-
0115
GOVERNMENT MONEY MARKET
TRUST
Fleet New York 98.09%
Fleet Investment
Services
159 East Main St.
NY/RO/T03C
Rochester, NY 14638-
0001
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<PAGE>
<CAPTION>
PERCENT
REGISTRATION NAME OWNERSHIP
---------------------------------------------------------------------
<S> <C>
U.S. TREASURY MONEY MARKET
TRUST
Fleet New York 94.58%
Fleet Investment
Services
159 East Main St.
NY/RO/T03C
Rochester, NY 14638-0001
RETAIL A
US Clearing A Division 9.33%
of Fleet Securities Inc.
26 Broadway
New York, NY 10004-1703
Taqua Systems Inc. 5.15%
75 Attucks Lane
Hyannis, MA 02601-1867
INSTITUTIONAL TREASURY MONEY MARKET
TRUST
Fleet New York 89.73%
Fleet Investment
Services
159 East Main St.
NY/RO/T03C
Rochester, NY 14638-0001
Luitpold 6.33%
Pharmaceuticals Inc.
Kirk Sobecki, CFO
Attn: Harold Noviello
One Luitpold Dr.
Shirley, NY 11967
MASSACHUSETTS MUNICIPAL MONEY MARKET
RETAIL A
Fleet New York 55.55%
Fleet Investment
Services
159 East Main St.
NY/RO/T03C
Rochester, NY 14638-0001
CONNECTICUT MUNICIPAL MONEY MARKET
RETAIL A
Fleet New York 45.07%
Fleet Investment
Services
159 East Main St.
NY/RO/T03C
Rochester, NY 14638-0001
EQUITY VALUE
TRUST
Gales & Co. 76.08%
Fleet Investment
Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 14.84%
Fleet Investment
Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
55
<PAGE>
<CAPTION>
PERCENT
REGISTRATION NAME OWNERSHIP
---------------------------------------------------------------------
<S> <C>
Gales & Co. 7.24%
Fleet Investment
Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638- 0001
EQUITY GROWTH
TRUST
Gales & Co. 68.04%
Fleet Investment
Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638- 0001
Gales & Co. 17.32%
Fleet Investment
Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 13.87%
Fleet Investment
Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
PRIME A
US Clearing A Division
of Fleet Securities Inc. 49.88%
FBO# 104-32732-16
Hilda Brandt
Roland Park Place
830 W. 40th Street, Apt.
359
Baltimore, MD 21211-2176
US Clearing A Division 26.03%
of Fleet Securities Inc.
FBO# 114-97238-17
Sara Mallow
936 Broadway
New York, NY 10010-6013
US Clearing A Division of Fleet 8.66%
Securities Inc.
FBO# 120-97689-18
Yook Y Doo
46-34 Robinson St.
Flushing, NY 11355-3445
US Clearing A Division of Fleet 6.86%
Securities Inc.
FBO# 021-90471-15
Mabel L Bowman
35634 Meyers Ct.
Fremont, CA 94536-2540
56
<PAGE>
<CAPTION>
PERCENT
REGISTRATION NAME OWNERSHIP
---------------------------------------------------------------------
<S> <C>
US Clearing A Division of Fleet 5.33%
Securities Inc.
FBO# 143-27206-11
Mary V Mastroianni &
Pasqual Mastroianni JT
Ten
1811 Randolph Road
Schenectady, NY
12308-2021
PRIME B
US Clearing A Division of Fleet 19.66%
Securities Inc.
FBO# 111-98315-17
Thomas J Bernfeld
185 West End Avenue, Apt. 21D
New York, NY 10023-5548
US Clearing A Division of Fleet 12.70%
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
US Clearing A Division of Fleet 12.33%
Securities Inc.
FBO# 024-90318-16
Lynn C. Sherrie
P.O. Box 316
Wilson, NY 14172-0316
US Clearing A Division of Fleet 10.64%
Securities Inc.
FBO# 221-00085-18
Walter M. Swiecicki & Cathleen
Swiecicki JT WROS
119 Old Beekman Road
Monmouth Junction, NJ 08852-3114
US Clearing A Division of Fleet 5.84%
Securities Inc.
FBO# 183-97247-11
W P Fleming
66500 E 253rd
Grove, OK 74344-6163
EQUITY INCOME
TRUST
Gales & Co. 52.31%
Fleet Investment Services
Mutual Funds Unit - NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 33.73%
Fleet Investment Services
Mutual Funds Unit - NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
57
<PAGE>
<CAPTION>
PERCENT
REGISTRATION NAME OWNERSHIP
---------------------------------------------------------------------
<S> <C>
Gales & Co. 12.33%
Fleet Investment Services
Mutual Funds Unit - NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
INTERNATIONAL EQUITY
TRUST
Gales & Co. 41.62%
Fleet Investment Services
Mutual Funds Unit - NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 38.06%
Fleet Investment Services
Mutual Funds Unit - NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 13.28%
Fleet Investment Services
Mutual Funds Unit - NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
RETAIL A
Charles Schwab & Co. Inc. 8.15%
Special Custody Acct. for
Exclusive of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104-4122
PRIME A
US Clearing A Division of Fleet 80.62%
Securities Inc.
FBO 125-98055-11
Albert F Twanmo
6508 81st St.
Cabin John, MD 20818-1203
US Clearing A Division of Fleet 14.83%
Securities Inc.
FBO 136-99157-13
Jon-Paul Dadaian
178 Clarken Drive
West Orange, NJ 07052-3441
PRIME B
US Clearing A Division of Fleet 79.69%
Securities Inc.
FBO# 102-59241-17
Church & Friary of St. Francis
of Assisi
c/o Fr. Ronald P Stark OFM
135 West 31st St.
New York, NY 10001-3405
58
<PAGE>
<CAPTION>
PERCENT
REGISTRATION NAME OWNERSHIP
---------------------------------------------------------------------
<S> <C>
GROWTH & INCOME
TRUST
Gales & Co. 77.71%
Fleet Investment Services
Mutual Funds Unit - NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 18.37%
Fleet Investment Services
Mutual Funds Unit - NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
PRIME A
US Clearing A Division of Fleet 35.96%
Securities Inc.
FBO# 160-27022-17 Linda Shaw,
Trustee for the
Linda J Shaw Trust
920 Meadows road
Geneva, IL 60134-3052
US Clearing A Division of Fleet 29.10%
Securities Inc.
FBO# 113-27816-16
Pamela M Fein
68 Oak Ridge Drive
Bethany, CT 06524-3118
US Clearing A Division of Fleet 24.31%
Securities Inc.
FBO# 175-97327-10
Margaret Ann Gillenwater
2525 E Prince Road #23
Tucson, AZ 85716-1146
US Clearing A Division of Fleet 6.32%
Securities Inc.
FBO# 103-80060-19
Saint Clare School Endowment Fund
Attn: Fr, O'Shea/Andrew J
Houvouras &/or Bruce Blatman
821 Prosperity Farms Road
No. Palm Beach, FL 33408-4299
PRIME B
US Clearing A Division of Fleet 29.49%
Securities Inc.
FBO# 147-97497-13
Martin Allen Sante
15222 Birch Lakeshore Drive
Vandalia, MI 49095-9741
59
<PAGE>
<CAPTION>
PERCENT
REGISTRATION NAME OWNERSHIP
---------------------------------------------------------------------
<S> <C>
US Clearing A Division of Fleet 19.45%
Securities Inc.
FBO# 103-31744-16
Irwin Luftig & Elaine Luftig
6119 Bear Creek Ct
Lake Worth, FL 33467-6812
US Clearing A Division of Fleet 16.54%
Securities Inc.
FBO# 148-28677-18
Linda M. Berke & Michael E.
Berke JT TEN
30941 Westwood Road
Farmington Hills, MI 48331-1466
US Clearing A Division of Fleet 16.14%
Securities Inc.
FBO# 147-29019-15
Walter W Quan
2617 Skyline Drive
Lorain, OH 44053-2243
US Clearing A Division of Fleet 6.18%
Securities Inc.
FBO# 013-90166-12
Florence G. St. Onge
34 Cedar Lane
Warren, RI 02885-2236
US Clearing A Division of Fleet 5.94%
Securities Inc.
FBO# 108-00116-10 Michael
Kennedy & Carleen Kennedy JT
WROS
12 Walton Avenue
Locust Valley, NY 11560-1227
ASSET ALLOCATION
TRUST
Gales & Co. 92.66%
Fleet Investment Services
Mutual Funds Unit - NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 6.62%
Fleet Investment Services
Mutual Funds Unit - NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
PRIME A
US Clearing A Division of Fleet 22.80%
Securities Inc.
FBO# 114-97238-17
Sara Mallow
936 Broadway
New York, NY 10010-6013
60
<PAGE>
<CAPTION>
PERCENT
REGISTRATION NAME OWNERSHIP
---------------------------------------------------------------------
<S> <C>
US Clearing A Division of Fleet 22.62%
Securities Inc.
FBO# 147-97697-11
Ray Wayne Prince
11010 Stephens Road
Berlin Heights, OH 44814-9673
US Clearing A Division of Fleet 14.56%
Securities Inc.
FBO# 175-97327-10
Margaret Ann Gillenwater
2525 E Prince Road #23
Tucson, AZ 85716-1146
US Clearing A Division of Fleet 13.10%
Securities Inc.
FBO# 166-98586-13
Pamela Ann Radamaker
1001 Tramway Blvd NE
Albuquerque, NM 87112-6280
US Clearing A Division of Fleet 7.44%
Securities Inc.
FBO 170-29789-15
Nicholas G. Roselli & Nicholas
A. Roselli JT WROS
315 Southampton Road
Westfield, MA 01085-1360
US Clearing A Division of Fleet 5.26%
Securities Inc.
FBO 194-97099-17
James Kenneth Winter
28 South Fork Cove
Senatobia, MS 38668-6329
PRIME B
US Clearing A Division of Fleet 10.05%
Securities Inc.
FBO# 138-97818-14
Carol Y Foster
524 Marie Avenue
Blountstown, FL 32424-1218
US Clearing A Division of Fleet 9.59%
Securities Inc.
FBO# 102-92974-11
Ann E Herzog
74 Tacoma Street
Staten Island, NY 10304-4222
US Clearing A Division of Fleet 6.39%
Securities Inc.
FBO# 166-98559-16
Ann P Sargent
422 Los Encinos Avenue
San Jose, CA 95134-1336
61
<PAGE>
<CAPTION>
PERCENT
REGISTRATION NAME OWNERSHIP
---------------------------------------------------------------------
<S> <C>
US Clearing A Division of Fleet 6.20%
Securities Inc.
FBO# 166-97970-19
Alicia E Schober
10139 Ridgeway Drive
Cupertino, CA 95014-2658
US Clearing A Division of Fleet 5.69%
Securities Inc.
FBO# 194-14889-16
Paul R Thornton &
Karin Z Thornton JT TEN
1207 Oak Glen Lane
Sugar Land, TX 77479-6175
US Clearing A Division of Fleet 6.05%
Securities Inc.
FBO# 147-29049-19
Randall Prince
Rt. 1, Box 865
Turtletown, TN 37391-9700
SMALL COMPANY EQUITY
TRUST
Gales & Co. 60.66%
Fleet Investment Services
Mutual Funds Unit - NY/RO/TO4A
159 East Main Street
Rochester, NY 14638
Gales & Co. 28.34%
Fleet Investment Services
Mutual Funds Unit - NY/RO/TO4A
159 East Main Street
Rochester, NY 14638
Gales & Co. 7.26%
Fleet Investment Services
Mutual Funds Unit - NY/RO/TO4A
159 East Main Street
Rochester, NY 14638
SMALL CAP VALUE
TRUST
Gales & Co. 46.53%
Fleet Investment Services
Mutual Funds Unit - NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 32.48%
Fleet Investment Services
Mutual Funds Unit - NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
62
<PAGE>
<CAPTION>
PERCENT
REGISTRATION NAME OWNERSHIP
---------------------------------------------------------------------
<S> <C>
Gales & Co. 18.38%
Fleet Investment Services
Mutual Funds Unit - NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
PRIME A
US Clearing A Division of Fleet 30.36%
Securities Inc.
FBO# 104-32732-16
Hilda Brandt
3900 North Charles Street
Baltimore, MD 21218-1724
US Clearing A Division of Fleet 19.13%
Securities Inc.
FBO# 150-98301-11
N Clifford Nelson Jr.
58 Middlebury Road
Orchard Park, NY 14127-3581
US Clearing A Division of Fleet 19.00%
Securities Inc.
FBO# 102-60254-19
Frederick W Geissinger
601 NW 2nd Street
Evansville, IN 47708-1013
US Clearing A Division of Fleet 12.77%
Securities Inc.
FBO# 103-97564-14
Thomas X McKenna
170 Turtle Creek Drive
Tequesta, FL 33469-1547
US Clearing A Division of Fleet 9.35%
Securities Inc.
FBO# 103-31296-18
Edward U Roddy III
109 Angler Avenue
Palm Beach, FL 33480-3101
PRIME B
US Clearing A Division of Fleet 14.31%
Securities Inc.
FBO# 111-98315-17
Thomas J Bernfeld
185 West End Avenue, Apt. 21D
New York, NY 10023-5548
US Clearing A Division of Fleet 9.70%
Securities Inc.
FBO# 107-30623-15
Andrejs Zvejnieks
2337 Christopher Walk
Atlanta, GA 30327-1110
US Clearing A Division of Fleet 7.55%
Securities Inc.
FBO# 108-98472-11
Rufus O.Eddins, Jr.
360 Dominion Circle
Knoxville, TN 37922-2750
63
<PAGE>
<CAPTION>
PERCENT
REGISTRATION NAME OWNERSHIP
---------------------------------------------------------------------
<S> <C>
US Clearing A Division of Fleet 7.25%
Securities Inc.
FBO# 221-97250-13
Micheal A Veschi
106 Exmoor Court
Leesburg, VA 20176-2049
STRATEGIC EQUITY
TRUST
Gales & Co. 97.22%
Fleet Investment Services
Mutual Funds Unit - NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
RETAIL B
Violet K. Saidnehr 5.90%
260 Middle Neck Road
Great Neck, NY 11021-1175
INTERMEDIATE GOVERNMENT INCOME
TRUST
Gales & Co. 37.37%
Fleet Investment Services
Mutual Funds Unit - NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 33.74%
Fleet Investment Services
Mutual Funds Unit - NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 25.30%
Fleet Investment Services
Mutual Funds Unit - NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
RETAIL B
Adriana Vita 7.42%
345 Park Ave.
New York, NY 10154
HIGH QUALITY BOND
TRUST
Gales & Co. 57.48%
Fleet Investment Services
Mutual Funds Unit - NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
64
<PAGE>
<CAPTION>
PERCENT
REGISTRATION NAME OWNERSHIP
---------------------------------------------------------------------
<S> <C>
Gales & Co. 26.57%
Fleet Investment Services
Mutual Funds Unit - NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 13.63%
Fleet Investment Services
Mutual Funds Unit - NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
PRIME A
US Clearing A Division of Fleet 45.67%
Securities Inc.
FBO# 103-30971-12
Doris G Schack
FBO - Doris G Schack Living Trust
9161 East Evans
Scottsdale, AZ 85260-7575
US Clearing A Division of Fleet 33.77%
Securities Inc.
FBO# 132-90090-11
Virginia Holmes
303 Bella Vista Drive
Ithaca, NY 14850-5774
US Clearing A Division of Fleet 20.23%
Securities Inc.
FBO# 013-02964-11
Jane L Grayhurst
770 Boylston St., Apt 10G
Boston, MA 02199-7709
PRIME B
US Clearing A Division of Fleet 30.75%
Securities Inc.
FBO# 200-70099-19
Neil C Feldman
41 Windham way
Englishtown, NJ 07726-8216
US Clearing A Division of Fleet 12.41%
Securities Inc.
FBO# 119-97697-10
Ira Zornberg
4219 Nautilus Avenue
Brooklyn, NY 11224-1019
US Clearing A Division of Fleet 12.22%
Securities Inc.
FBO# 147-24459-13
Jay Robert Klein
26800 Amhearst Circle #209
Cleveland, OH 44122-7572
US Clearing A Division of Fleet 11.68%
Securities Inc.
FBO# 102-68909-11
Marjorie Dion
301 Raimond Street
Yaphank, NY 11980-9725
65
<PAGE>
<CAPTION>
PERCENT
REGISTRATION NAME OWNERSHIP
---------------------------------------------------------------------
<S> <C>
US Clearing A Division of Fleet 7.91%
Securities Inc.
FBO# 157-98031-13
Patricia Fusco
112 E. Chapel Avenue
Cherry Hill, NJ 08034-1204
US Clearing A Division of Fleet 5.86%
Securities Inc.
FBO# 238-97175-19
Marie Gottfried
10208 Andover Coach
Circle H-2
Lake Worth, FL 33467-8158
US Clearing A Division of Fleet 5.46%
Securities Inc.
FBO# 013-03576-19
Louise Brown & Sandra Fontaine
JT TEN
172 High Street
Woonsocket, RI 02895-4311
SHORT-TERM BOND
TRUST
Gales & Co. 43.57%
Fleet Investment Services
Mutual Funds Unit - NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 31.50%
Fleet Investment Services
Mutual Funds Unit - NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 21.51%
Fleet Investment Services
Mutual Funds Unit - NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
RETAIL B
Chelsea Police Relief Assoc. 17.41%
John R. Phillips Treas. &
Michael McCona Clerk
180 Crescent Avenue
Chelsea, MA 02150-3017
Josue Colon Cust 9.70%
Hazel Colon UGMA CT
400 Lasalle St
New Britan, CT 06051-1316
Elizabeth Mugar 9.17%
10 Chestnut St.
Apt. 1808
Springfield, MA 01103-1709
66
<PAGE>
<CAPTION>
PERCENT
REGISTRATION NAME OWNERSHIP
---------------------------------------------------------------------
<S> <C>
TAX-EXEMPT BOND
TRUST
Gales & Co. 38.51%
Fleet Investment Services
Mutual Funds Unit - NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 24.35%
Fleet Investment Services
Mutual Funds Unit - NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 32.16%
Fleet Investment Services
Mutual Funds Unit - NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
RETAIL A
Charles Dagraca & Barbara 7.83%
Dagraca JT WROS
20 William Penn Rd.
Warren, NJ 07059
RETAIL B
Sylvia Fendler 11.54%
72 Brinkerhoff Ave.
Stamford, Ct. 06905
Frances E. Stady 6.07%
P.O. BOX 433
3176 Main St.
Yorkshire, NY 14173-0433
US Clearing A Division of Fleet 5.14%
Securities Inc.
FBO 978-02869-11
Carol Guy & Ali E. Guy
14 Thomas St.
Scarsdale, NY 10583-1031
CONNECTICUT MUNICIPAL BOND
TRUST
Gales & Co. 68.00%
Fleet Investment Services
Mutual Funds Unit - NY/RO/TO4A
159 East Main Street
Rochester, NY 14638
Gales & Co. 23.64%
Fleet Investment Services
Mutual Funds Unit - NY/RO/TO4A
159 East Main Street
Rochester, NY 14638
67
<PAGE>
<CAPTION>
PERCENT
REGISTRATION NAME OWNERSHIP
---------------------------------------------------------------------
<S> <C>
Bob & Co. 8.12%
c/o Bank of Boston
Attn: Mutual Fd Dept 45-02-06
PO Box 1809
Boston, MA 02105-1809
RETAIL A
Maria Luisa Carcangiu & Juan 6.39%
Rosai
JT WROS
36 Beach Ave.
Milford, CT 06460
MASSACHUSETTS MUNICIPAL BOND
TRUST
Gales & Co. 43.63%
Fleet Investment Services
Mutual Funds Unit - NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 41.97%
Fleet Investment Services
Mutual Funds Unit - NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Bob & Co. 12.44%
c/o Bank of Boston
Attn: Mutual Fd Dept 45-02-06
PO Box 1809
Boston, MA 02105-1809
CORPORATE BOND
TRUST
Gales & Co. 41.24%
Fleet Investment Services
Mutual Funds Unit - NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 31.19%
Fleet Investment Services
Mutual Funds Unit - NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 17.64%
Fleet Investment Services
Mutual Funds Unit - NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
68
<PAGE>
<CAPTION>
PERCENT
REGISTRATION NAME OWNERSHIP
---------------------------------------------------------------------
<S> <C>
RHODE ISLAND MUNICIPAL BOND
RETAIL A
Gales & Co. 35.16%
Fleet Investment Services
Mutual Funds Unit - NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Bob & Co. 23.94%
c/o Bank of Boston
Attn: Mutual Fd Dept. 45-02-06
PO Box 1809
Boston, MA 02105-1809
James R. McCulloch 7.65%
c/o Microfibre
PO Box 1208
Pawtucket, RI 02862-1208
NEW YORK MUNICIPAL BOND
TRUST
Gales & Co. 64.12%
Fleet Investment Services
Mutual Funds Unit - NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Bob & Co. 16.34%
c/o Bank of Boston
ATTN: Mutual Fund
Dept. 45-02-06
P.O. Box 1809
Boston, MA 02105-1809
Gales & Co. 12.08%
Fleet Investment Services
Mutual Funds Unit - NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 7.25%
Fleet Investment Services
Mutual Funds Unit - NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
RETAIL A
Marilyn J Brantley 12.87%
5954 Van Allen Road
Belfast, NY 14711-
8750
NEW JERSEY MUNI BOND
69
<PAGE>
<CAPTION>
PERCENT
REGISTRATION NAME OWNERSHIP
---------------------------------------------------------------------
<S> <C>
TRUST
Gales & Co. 51.84%
Fleet Investment Services
Mutual Funds Unit - NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 31.91%
Fleet Investment Services
Mutual Funds Unit - NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Bob & Co. 15.95%
c/o Bank of Boston
ATTN: Mutual Fund Dept. 45-02-06
P.O. Box 1809
Boston, MA 02105-1809
RETAIL A
John W Maki & Kimberly McGrath 73.71%
Maki JT WROS
1 Connet Lane
Mendham, NJ 07945-2938
William Minnaard 10.84%
50 Rock Road
Unit A6
Hawthorne, NJ 07506-1570
PRIME RESERVES
U.S. Clearing 100.00%
26 Broadway
New York, NY 10004-1703
GOVERNMENT RESERVES
U.S. Clearing 100.00%
26 Broadway
New York, NY 10004-1703
TAX-EXEMPT RESERVES
U.S. Clearing 100.00%
26 Broadway
New York, NY 10004-1703
</TABLE>
70
<PAGE>
As of May 22, 2000, the name, address and percentage ownership of the
entities or persons that held beneficially more than 5% of the outstanding Trust
Shares of each of Galaxy's investment portfolios were as follows:
<TABLE>
<CAPTION>
REGISTRATION NAME PERCENT
----------------- ---------
OWNERSHIP
---------
<S> <C>
MONEY MARKET
Stable Asset Fund 12.28%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
GOVERNMENT MONEY
Advent Realty Limited Partnership 5.82%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
U.S. TREASURY MONEY
Loring Walcott Client Sweep Acct 24.70%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
EQUITY VALUE
Fleet Savings Plus-Equity Value 26.69%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
EQUITY GROWTH
Fleet Savings Plus-Equity Growth 23.09%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
Nusco Retiree Health VEBA Trust 6.91%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
INTERNATIONAL EQUITY
FFG International Equity Fund 11.17%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
Fleet Savings Plus-Intl Equity 10.03%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
INTERMEDIATE GOVT INC
Nusco Retiree Health VEBA Trust 6.61%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
71
<PAGE>
<CAPTION>
REGISTRATION NAME PERCENT
----------------- ---------
OWNERSHIP
---------
<S> <C>
STRATEGIC EQUITY FUND
FFG Retirement & Pension VDG 93.57%
C/O Fleet Financial Group
159 East Main
Rochester, NY 14638
HIGH QUALITY BOND
Fleet Savings Plus Plan-HQ Bond 17.58%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
SHORT TERM BOND FUND
Willcox & Gibbs Retirement Plan 5.47%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
ASSET ALLOCATION
Fleet Savings Plus-Asset Allocation 27.27%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
SMALL COMPANY EQUITY
Fleet Savings Plus-Small Company 31.47%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
TAX EXEMPT BOND
Nusco Retiree Health VEBA Trust 37.33%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
CONNECTICUT MUNI BOND
Winnifred M Purdy 7.64%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
CORPORATE BOND
Cole Hersee Pension Plan 7.87%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
GROWTH INCOME
Fleet Savings Plus-Grth Income 44.75%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
Crompton & Knowles IARP 9.82%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
72
<PAGE>
<CAPTION>
REGISTRATION NAME PERCENT
----------------- ---------
OWNERSHIP
---------
<S> <C>
SMALL CAP VALUE
FFG Emp Ret Misc Assets SNC 25.60%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
CVS Inc 401K P/S Pln 3 5.68%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
INSTITUTIONAL GOVT
Duncanson & Holt Inc 5.66%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
NEW JERSEY MUNI BOND
Perillo Tours 22.11%
C/O Norstar Trust Co/Gales & Co
159 East Main
Rochester, NY 14638
Royal Chambord IMA 11.05%
C/O Norstar Trust Co/Gales & Co
159 East Main
Rochester, NY 14638
McKee Wendell A. Marital Trust 10.98%
C/O Norstar Trust Co/Gales & Co
159 East Main
Rochester, NY 14638
Varco Inc IMA 5.53%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
Terry, Julia Lee Inv Adv 5.20%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
Tiernan Diana IA 5.02%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
</TABLE>
73
<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
