<PAGE> 1
As filed with the Securities and Exchange Commission on
July 29, 1996
Securities Act File No. 33-33617
Investment Company Act File No. 811-06051
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [x]
Pre-Effective Amendment No. [ ]
Post Effective Amendment No. 19 [x]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]
Amendment No. 23 [x]
(Check appropriate box or boxes)
______________________
GALAXY FUND II
(formerly named IBM CREDIT MUTUAL FUNDS)
(Exact Name of Registrant as Specified in Charter)
4400 Computer Drive
Westborough, Massachusetts 01581-5108
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (800) 628-0414
W. Bruce McConnel, III
DRINKER BIDDLE & REATH
1345 Chestnut Street, Suite 1100
Philadelphia, Pennsylvania 19107
(Name and Address of Agent for Service)
Copy to:
Neil Forrest, Vice President and Assistant Treasurer
First Data Investor Services Group, Inc.
4400 Computer Drive
Westborough, Massachusetts 01581
______________________
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b), or
[x] on August 1, 1996 pursuant to paragraph (b), or
[ ] 60 days after filing pursuant to paragraph (a)(i), or
[ ] on_____(date) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on_____(date) pursuant to paragraph (a)(ii) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
================================================================================
<PAGE> 2
PROPOSED FILING
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
Title of Amount of Proposed Proposed Amount of
Securities Shares Maximum Maximum Registration
Being Being Offering Aggregate Fee (1)
Registered Registered Price/Share Offering Price
<S> <C> <C> <C> <C>
Shares of
Common Stock 8,230,540 $14.52(average $290,400 $100
net asset value)
</TABLE>
(1) Registrant had actual aggregate redemptions of $138,468,181 (9,281,497
shares) for its fiscal year ended March 31, 1996. Registrant has used $1,597,732
(1,070,957) thereof for reductions in the filing fee pursuant to Rule 24f-2(c)
under the Investment Company Act of 1940 and has previously used no available
redemptions for reductions pursuant to Rule 24e-2(a) of the 1940 Act during the
current year. Registrant elects to use redemptions in the aggregate amount of
$136,870,449 (8,210,540 shares) for reductions in the filing fee pursuant to
Rule 24e-2(a) in its current amendment. While no fee is required to register the
8,210,540 shares, the Registrant has elected to register, for $100, an
additional $290,400 (20,000 shares of Common Stock at $14.52 per share). The
proposed maximum offering price per share has been calculated based on the
average of the prices of the Funds of Registrant as determined on July 16, 1996
pursuant to Rule 457(d).
Registrant has registered an indefinite number of Shares of
Common Stock under the Securities Act of 1933 pursuant to Rule 24f-2. The Rule
24f-2 Notice for the Registrant's fiscal year ended March 31, 1996 was filed on
May 29, 1996.
<PAGE> 3
GALAXY FUND II
THE INDEXED FUNDS
FORM N-1A
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(a)
<TABLE>
<CAPTION>
Part A
Item No. Prospectus Heading
- -------- ------------------
<S> <C> <C>
1. Cover Page Cover Page
2. Synopsis Highlights and Expense Summary
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant Highlights; Investment Objectives and Policies; Investment Limitations
5. Management of the Fund Management of the Funds; Investment Objectives and Policies;
Performance and Yield Information; Miscellaneous
5A. Management's Discussion of
Fund Performance Not Applicable
6. Capital Stock and Other Securities How to Purchase and Redeem Shares; Description of Shares;
Miscellaneous
7. Purchase of Securities Being How to Purchase and Redeem Shares
Offered
8. Redemption or Repurchase How to Purchase and Redeem Shares; Description of Shares;
Investor Programs
9. Pending Legal Proceedings Not Applicable
</TABLE>
<PAGE> 4
GALAXY FUND II
LARGE COMPANY INDEX FUND
SMALL COMPANY INDEX FUND
UTILITY INDEX FUND
U.S. TREASURY INDEX FUND
PROSPECTUS
AUGUST 1, 1996
<PAGE> 5
GALAXY FUND II - THE INDEXED FUNDS
4400 COMPUTER DRIVE
P.O. BOX 5108
WESTBOROUGH, MASSACHUSETTS 01581-5108
For application and information regarding initial purchases and current
performance, call (800) 628-0414. For additional purchases, redemptions,
exchanges and other shareholder services, call (800) 628-0413.
GALAXY FUND II ("Galaxy II" or the "Trust") is a no-load, open-end investment
company which offers you five investment options. This Prospectus describes four
of these options (the "Funds"). The Funds use a strategy called indexing,
seeking to provide investment results that, before deduction of operating
expenses, match the price and yield performance of particular sets of securities
or market segments. The Funds and their market segments are:
The LARGE COMPANY INDEX FUND - U.S. publicly traded common stocks with large
stock market capitalizations, as represented by the Standard & Poor's 500
Composite Stock Price Index (the "S&P 500").
The SMALL COMPANY INDEX FUND - U.S. publicly traded common stocks with smaller
stock market capitalizations, as represented by the Russell Special Small
Company(TM) Index (the "Small Company Index").
The UTILITY INDEX FUND - U.S. publicly traded common stocks of companies in the
utility industry, as represented by the Russell 1000(R) Utility Index (the
"Utility Index").
The U.S. TREASURY INDEX FUND - U.S. Treasury notes and bonds, as represented by
the U.S. Treasury component (the "U.S. Treasury Index") of the Salomon Brothers
Broad Investment-Grade Bond Index.
Shares of the Funds are offered without any sales charge or redemption fee. Each
Fund will incur management fees.
SHARES OF THE FUNDS ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUNDS ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL VARY AS A RESULT OF MARKET CONDITIONS OR OTHER FACTORS SO THAT SHARES
OF THE FUNDS, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
AN INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL AMOUNT INVESTED.
This Prospectus sets forth concisely certain information about the Trust that
you should know before making an investment decision. You are encouraged to read
this Prospectus carefully and retain it for future reference. Additional
information about the Trust is contained in a Statement of Additional
Information bearing the same date and is available free of charge by calling
Galaxy II at (800) 628-0414 or by writing to Galaxy II, c/o First Data Investor
Services Group, Inc., 4400 Computer Drive, P.O. Box 5108, Westborough,
Massachusetts 01581. The Statement of Additional Information has been filed with
the Securities and Exchange Commission and, as amended from time to time, is
incorporated by reference into this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
August 1, 1996
<PAGE> 6
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS
OR THEIR DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE
FUNDS OR BY THEIR DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
HIGHLIGHTS...................................................................................................... 3
EXPENSE SUMMARY................................................................................................. 5
FINANCIAL HIGHLIGHTS............................................................................................ 6
INVESTMENT OBJECTIVES AND POLICIES.............................................................................. 10
The Indexing Approach.................................................................................. 10
The Large Company Index Fund........................................................................... 11
The Small Company Index Fund........................................................................... 11
The Utility Index Fund................................................................................. 12
The U.S. Treasury Index Fund........................................................................... 12
OTHER INVESTMENT PRACTICES AND RISK CONSIDERATIONS.............................................................. 13
Temporary Cash Balances................................................................................ 13
Securities Lending..................................................................................... 13
Stock Index Futures Contracts.......................................................................... 14
INVESTMENT LIMITATIONS.......................................................................................... 14
INVESTMENT RISKS................................................................................................ 14
PRICING OF SHARES............................................................................................... 16
DIVIDENDS AND DISTRIBUTIONS..................................................................................... 16
TAXES ....................................................................................................... 17
MANAGEMENT OF THE FUNDS......................................................................................... 17
Investment Adviser..................................................................................... 17
Administrator.......................................................................................... 18
Distributor............................................................................................ 18
Custodian.............................................................................................. 18
HOW TO PURCHASE AND REDEEM SHARES............................................................................... 19
Distributor............................................................................................ 19
Purchase Procedures Customers of Institutions......................................................... 19
Purchase Procedures Direct Investors.................................................................. 19
Other Purchase Information............................................................................. 20
Redemption Procedures Customers of Institutions....................................................... 21
Redemption Procedures Direct Investors................................................................ 21
Other Redemption Information .......................................................................... 22
DESCRIPTION OF SHARES........................................................................................... 23
PERFORMANCE AND YIELD INFORMATION............................................................................... 23
INVESTOR PROGRAMS............................................................................................... 24
Exchange Privilege..................................................................................... 24
Retirement Plans....................................................................................... 25
Automatic Investment Program and Systematic Withdrawal Plan............................................ 26
Investing by Payroll Deduction by Regular IBM Employees ............................................... 26
LICENSE AGREEMENTS.............................................................................................. 26
MISCELLANEOUS................................................................................................... 27
</TABLE>
-2-
<PAGE> 7
HIGHLIGHTS
Q: What is Galaxy Fund II?
A: The Trust is an open-end investment company (commonly known as a mutual
fund) that offers investors the opportunity to invest in different
investment portfolios, each having separate investment objectives and
policies. This Prospectus describes the Trust's Large Company Index,
Small Company Index, Utility Index and U.S. Treasury Index Funds. A
Prospectus for the Municipal Bond Fund may be obtained by calling (800)
628-0414.
Q: Who advises the Funds?
A: The Funds are managed by Fleet Investment Advisors Inc. (the
"Investment Adviser" or "Fleet"), an indirect wholly-owned subsidiary
of Fleet Financial Group, Inc. Fleet Financial Group, Inc. is a
financial services company with total assets as of June 30, 1996 of
approximately $87.7 billion. See "Management of the Funds--Investment
Adviser."
Q: What advantages do the Funds offer?
A: The Funds offer investors the opportunity to invest in a variety of
investment portfolios without having to become involved with the
detailed accounting and safekeeping procedures normally associated with
direct investments in securities.
Q: How does one buy and redeem shares?
A: The Funds are distributed by 440 Financial Distributors, Inc. Shares of
the Funds are sold to individuals or corporations, who submit a
purchase application to the Trust, purchasing either for their own
accounts or for the accounts of others ("Direct Investors"). Shares may
also be purchased by Fleet Brokerage Securities Corporation, Fleet
Securities, Inc., Fleet Financial Group, Inc., its affiliates, their
correspondent banks and other qualified banks, savings and loan
associations and broker/dealers ("Institutions") on behalf of their
customers ("Customers"). Share purchase and redemption information for
both Direct Investors and Customers is provided in this Prospectus
under "How to Purchase and Redeem Shares." The minimum initial
investment for Direct Investors and the minimum initial aggregate
investment for Institutions purchasing on behalf of their Customers is
$2,500. The minimum investment for subsequent purchases is $100. The
minimum investment requirement with respect to Individual Retirement
Accounts ("IRAs"), Simplified Employee Pension Plans ("SEPs"),
Multi-Employee Pension Plan accounts ("MERPs") and Keogh Plans is $500
($250 for spousal IRA accounts). There are no minimum investment
requirements for investors participating in the Automatic Investment
Program described below. Institutions may require Customers to maintain
certain minimum investments in Retail Shares. See "How to Purchase and
Redeem Shares--Other Purchase Information" below.
Q: When are dividends paid?
A: The net investment income of the Small Company Index and Large Company
Index Funds is declared and paid annually. The net investment income of
the Utility Index Fund is declared and paid quarterly. The net
investment income of the U.S. Treasury Index Fund is declared daily and
paid monthly. Net realized capital gains of the Funds are distributed
at least annually. See "Dividends and Distributions."
Q: What potential risks are presented by the Funds' investment practices?
-3-
<PAGE> 8
A: A Fund's ability to match its performance with an index may be affected
by, among other things, changes in the securities markets, the manner
in which the index is calculated and the timing of purchases and
redemptions of the Fund's shares. The Trust expects the investment of
each Fund to decline in value whenever the market, as represented by
the securities in the index, declines.
LARGE COMPANY INDEX FUND: The Fund should exhibit price
volatility similar to that of the S&P 500.
SMALL COMPANY INDEX FUND: Since it invests in smaller
companies, the Fund may have greater price volatility and less
liquidity than the Large Company Index Fund.
UTILITY INDEX FUND: Historically, utility stocks have been one
of the least volatile sectors of the U.S. stock market when measured by
statistics such as standard deviation of return. Consequently, the
Utility Index Fund may have less price volatility than either the Large
or Small Company Index Funds, although there can be no assurance of
this. The Utility Index Fund is subject to industry risk and market
risk. Industry risk is the possibility that a particular group of
related stocks in a particular industry will decline in price due to
industry-specific developments. The Fund will concentrate its
investments in the utility industry. As a result, the Fund's
investments may be subject to greater risk and market fluctuation than
a fund that has securities representing a broader range of investment
alternatives.
U.S. TREASURY INDEX FUND: While the "full faith and credit" of
the U.S. Government guarantees the stated interest rate and principal
at maturity of U.S. Treasury notes and bonds, the market value of these
securities will fluctuate due to changing interest rates. The U.S.
Treasury Index Fund is subject to moderate levels of interest rate
risk.
It is impossible to eliminate risk from investments in bonds and common
stocks. You should consider your investment in the Funds to be
long-term. The Funds are not designed to provide you with a means to
speculate on short-term movements in the stock market.
Q: What shareholder privileges are offered by the Funds?
A: Direct Investors and Customers of Institutions may, after appropriate
prior authorization, exchange shares of a Fund having a value of at
least $100 for shares of any of the other funds or portfolios offered
by the Trust or otherwise advised by Fleet Investment Advisors Inc. or
its affiliates in which the Direct Investor or Customer maintains an
existing account, provided that such other shares may legally be sold
in the state of the investor's residence. The Trust offers IRAs, SEPs,
and Keogh Plan accounts, which can be established by contacting the
Trust's Distributor (call (800) 628-0413). Shares of the Funds are
available for purchase in connection with MERPs accounts, and detailed
information concerning eligibility and other matters and the form of
application is available from Fleet Brokerage Securities Corporation
(call (800) 221-8210). The Trust also offers an Automatic Investment
Program, which allows a Direct Investor to purchase Fund shares each
month as well as other shareholder privileges. See "Investor Programs."
-4-
<PAGE> 9
EXPENSE SUMMARY
The following table illustrates expenses and fees that you would incur, either
directly or indirectly, as a shareholder of each Fund. The expenses and fees for
each Fund are for the fiscal year ended March 31, 1996. "Other Expenses" are
based on estimated amounts for the Funds' current fiscal year.
<TABLE>
<CAPTION>
LARGE SMALL U.S.
COMPANY COMPANY UTILITY TREASURY
INDEX INDEX INDEX INDEX
SHAREHOLDER TRANSACTION EXPENSES FUND FUND FUND FUND
- -------------------------------- ------- ------- ------- --------
<S> <C> <C> <C> <C>
Sales Load Imposed on Purchases................................ None None None None
Sales Load Imposed on Reinvested Dividends..................... None None None None
Redemption Fees................................................ None None None None
Exchange Fees.................................................. None None None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE
OF AVERAGE DAILY NET ASSETS)
Advisory and Administration Fees............................... 0.40% 0.40% 0.40% 0.40%
12b-1 Fees..................................................... None None None None
Other Expenses................................................. 0.00% 0.00% 0.00% 0.00%
Total Fund Operating Expenses.................................. 0.40% 0.40% 0.40% 0.40%
Account Maintenance Fee (per year per account
after waivers) $0.00* $0.00* $0.00* $0.00*
</TABLE>
- ---------------
* First Data Investor Services Group, Inc. (the "Sub-Administrator") has
agreed until further notice to waive receipt of the annual account
maintenance fee of $10.00 otherwise payable by shareholders of each
Fund to defray the costs of maintaining shareholder accounts. See
"Dividends and Distributions" for more information about this fee.
The Administrator is responsible for the payment of all of the expenses of the
Funds, other than certain limited expenses (such as brokerage fees and
commissions, interest on borrowings, taxes and such extraordinary, non-recurring
expenses as may arise). For a further description of the various costs and
expenses shown above, see "Management of the Funds."
EXAMPLE: You would pay the following expenses on a $1,000 investment in each
Fund over various time periods. It assumes that your investment grows 5% per
year and that you redeem your investment at the end of each time period.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Large Company Index Fund............................................ $4 $13 $22 $49
Small Company Index Fund............................................ $4 $13 $22 $49
Utility Index Fund.................................................. $4 $13 $22 $49
U.S. Treasury Index Fund............................................ $4 $13 $22 $49
</TABLE>
These expense figures do not reflect the account maintenance fee for each Fund
of $10.00, for the one year period and an additional $20.00 in each of the
three, five, and ten year periods, that would otherwise be payable by
shareholders had not the Sub-Administrator agreed to waive until further notice
receipt of this fee.
THESE EXAMPLES ARE NOT REPRESENTATIONS OF PAST OR FUTURE EXPENSES OR
PERFORMANCE. ACTUAL EXPENSES MAY BE MORE OR LESS THAN SHOWN IN THESE EXAMPLES.
For example, certain shareholders who redeem by wire will incur a charge,
currently $5.00 per wire redemption. Also, each Fund's actual performance may be
better or worse than the 5% growth per year assumed in the examples.
-5-
<PAGE> 10
FINANCIAL HIGHLIGHTS
The following financial highlights for the fiscal years ended March 31,
1995 and March 31, 1996 have been audited by Coopers and Lybrand L.L.P.,
independent accountants, whose report is contained in the Trust's Annual Report
to Shareholders and is incorporated by reference in the Statement of Additional
Information. The Financial Highlights for the remaining periods were audited by
Price Waterhouse, L.L.P. Further information about the performance of the Funds
is also contained in the Funds' Annual Report to Shareholders which may be
obtained without charge by calling Galaxy II at (800) 628-0414.
LARGE COMPANY INDEX FUND
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
Period
Ended
Year Ended March 31, March 31,
----------------------------------------------------------- ---------
1996 1995 1994 1993 1992 1991(A)
-------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of period........... $ 15.76 $ 14.36 $ 14.59 $ 13.04 $ 12.10 $ 10.00
-------- -------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income(1).................... 0.38 0.37 0.36 0.34 0.31 0.15
Net realized and unrealized gain (loss) on
investments and futures.................. 4.57 1.73 (0.20) 1.55 0.95 2.10
-------- -------- -------- -------- -------- --------
Total from Investment Operations:.... 4.95 2.10 0.16 1.89 1.26 2.25
-------- -------- -------- -------- -------- --------
Less Dividends:
Dividends from net investment income........ (0.31) (0.37) (0.36) (0.34) (0.31) (0.15)
Distributions from net realized capital
gains .................................... (0.34) (0.33) (0.03) -- (0.01) --
-------- -------- -------- -------- -------- --------
Total Dividends:..................... (0.65) (0.70) (0.39) (0.34) (0.32) (0.15)
-------- -------- -------- -------- -------- --------
Net increase (decrease) in net asset
value ..................................... 4.30 1.40 (0.23) 1.55 0.94 2.10
-------- -------- -------- -------- -------- --------
Net Asset Value, End of period................. $ 20.06 $ 15.76 $ 14.36 $ 14.59 $ 13.04 $ 12.10
======== ======== ======== ======== ======== ========
Total Return .................................. 31.80% 15.07% 1.02% 14.68% 10.43% 22.60%*
Ratios/Supplemental Data:
Net Assets, End of Period (000's).............. $240,689 $147,597 $143,828 $133,426 $ 87,118 $ 17,215
Ratios to average net assets:
Net investment income....................... 2.11% 2.48% 2.41% 2.57% 2.79% 3.45%+
Net Operating Expenses(1)................... 0.40% 0.40% 0.40% 0.40% 0.40% 0.40%+
Portfolio Turnover Rate........................ 5% 7% 4% 0% 0% 0%
Average Commission Rate Paid(2)................ $ 0.0203 N/A N/A N/A N/A N/A
</TABLE>
- ----------
+ Annualized
* Not Annualized
(A) The Fund commenced operations on October 1, 1990.
(1) Net investment income per share and the net operating expense ratios
before reimbursement by the sub-administrator for the years ended March
31, 1996 and 1995 were $0.38 and 0.41% and $0.37 and 0.41%,
respectively.
(2) Required disclosure for the year ended 3/31/96.
-6-
<PAGE> 11
SMALL COMPANY INDEX FUND
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
Period
Ended
Year Ended March 31, March 31,
----------------------------------------------------------- ---------
1996 1995 1994 1993 1992 1991(A)
-------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of period........... $ 17.62 $ 17.49 $ 17.42 $ 15.39 $ 13.08 $ 10.00
-------- -------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income(1).................... 0.32 0.32 0.26 0.25 0.20 0.15
Net realized and unrealized gain (loss) on
investments and futures.................. 5.07 0.91 0.39 2.07 2.40 3.01
-------- -------- -------- -------- -------- --------
Total from Investment Operations:.... 5.39 1.23 0.65 2.32 2.60 3.16
-------- -------- -------- -------- -------- --------
Less Dividends:
Dividends from net investment income........ (0.38) (0.32) (0.25) (0.24) (0.22) (0.08)
Distributions from net realized capital gains. (0.33) (0.78) (0.33) (0.05) (0.07) --
-------- -------- -------- -------- -------- --------
Total Dividends:..................... (0.71) (1.10) (0.58) (0.29) (0.29) (0.08)
-------- -------- -------- -------- -------- --------
Net increase (decrease) in net asset value..... 4.68 0.13 0.07) 2.03 2.31 3.08
-------- -------- -------- -------- -------- --------
Net Asset Value, End of period................. $ 22.30 $ 17.62 $ 17.49 $ 17.42 $ 15.39 $ 13.08
======== ======== ======== ======== ======== ========
Total Return .................................. 30.85% 7.60% 3.64% 15.20% 20.04% 31.83%*
Ratios/Supplemental Data:
Net Assets, End of Period (000's).............. $291,724 $235,295 $255,347 $213,669 $116,290 $ 16,334
Ratios to average net assets:
Net investment income....................... 1.52% 1.72% 1.55% 1.80% 2.26% 2.98%+
Net Operating Expenses(1)................... 0.40% 0.40% 0.40% 0.40% 0.40% 0.40%+
Portfolio Turnover Rate........................ 14% 10% 17% 5% 6% 1%
Average Commission Rate Paid(2)................ $ 0.0225 N/A N/A N/A N/A N/A
</TABLE>
- ----------
+ Annualized
* Not Annualized
(A) The Fund commenced operations on October 1, 1990.
(1) Net investment income per share and the net operating expense ratios
before reimbursement by the sub-administrator for the years ended March
31, 1996 and 1995 were $0.31 and 0.41% and $0.31 and 0.40%,
respectively.
(2) Required disclosure for the year ended 3/31/96.
-7-
<PAGE> 12
UTILITY INDEX FUND
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
Period
Ended
Year Ended March 31, March 31,
--------------------------------------- ---------
1996 1995 1994 1993(A)
------- ------- ------- --------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of period............ $ 9.88 $ 9.99 $ 10.93 $ 10.00
------- ------- ------- -------
Income from Investment Operations:
Net investment income(1)..................... 0.44 0.47 0.43 0.06
Net realized and unrealized gain (loss) on
investments............................... 2.15 (0.03) (0.93) 0.93
------- ------- ------- -------
Total from Investment Operations:..... 2.59 0.44 (0.50) 0.99
------- ------- ------- -------
Less Dividends:
Dividends from net investment income......... (0.44) (0.46) (0.43) (0.06)
Dividends from net realized capital gains.... -- (0.08) (0.01) --
Dividends in excess of net realized capital
gains. -- (0.01) -- --
------- ------- ------- -------
Total Dividends:...................... (0.44) (0.55) (0.44) (0.06)
------- ------- ------- -------
Net increase (decrease) in net asset value...... 2.15 (0.11) (0.94) 0.93
------- ------- ------- -------
Net Asset Value, End of period.................. $ 12.03 $ 9.88 $ 9.99 $ 10.93
======= ======= ======= =======
Total Return ................................... 26.61% 4.67% 4.83% 9.85%*
Ratios/Supplemental Data:
Net Assets, End of Period (000's)............... $56,383 $52,831 $68,445 $38,151
Ratios to average net assets:
Net investment income........................ 3.79% 4.62% 4.08% 4.66%+
Net Operating Expenses(1).................... 0.40% 0.40% 0.40% 0.40%+
Portfolio Turnover Rate......................... 12% 5% 19% 0%
Average Commission Rate Paid(2)................. $0.0230 N/A N/A N/A
</TABLE>
- ----------
+ Annualized
* Not Annualized
(A) The Fund commenced operations on January 5, 1993.
(1) Net investment income per share and the net operating expense ratios
before reimbursement by the sub-administrator for the years ended March
31, 1996 and 1995 were $0.44 and 0.41% and $0.47 and 0.41%,
respectively.
(2) Required disclosure for the year ended 3/31/96.
-8-
<PAGE> 13
U.S. TREASURY INDEX FUND
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
Period
Ended
Year Ended March 31, March 31,
-------------------------------------- ---------
1996 1995 1994 1993 1992(A)
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of period............ $ 9.91 $ 10.38 $ 11.01 $ 10.39 $ 10.00
-------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income(1)..................... 0.66 0.65 0.58 0.63 0.51
Net realized and unrealized gain (loss)
on investments............................ 0.33 (0.29) (0.29) 0.75 0.38
-------- -------- -------- -------- --------
Total from Investment Operations...... 0.99 0.36 0.29 1.38 0.89
-------- -------- -------- -------- --------
Less Dividends:
Dividends from net investment income......... (0.65) (0.66) (0.58) (0.63) (0.50)
Dividends in excess of net investment
income.................................... (0.01) (0.01) -- -- --
Distributions from net realized capital
gains..................................... --- -- (0.34) (0.13) --
Dividends in excess of net realized
capital gains............................... --- (0.16) -- -- --
-------- -------- -------- -------- --------
Total Dividends:...................... (0.66) (0.83) (0.92) (0.76) (0.50)
-------- -------- -------- -------- --------
Net increase (decrease) in net
asset value.................................. 0.33) (0.47) (0.63) 0.62 0.39
-------- -------- -------- -------- --------
Net Asset Value, End of period.................. $ 10.24 $ 9.91 $ 10.38 $ 11.01 $ 10.39
======== ======== ======== ======== ========
Total Return ................................... 10.09% 3.81% 2.40% 13.69% 8.99%*
Ratios/Supplemental Data:
Net Assets, End of Period (000's)............... $124,944 $104,251 $138,225 $145,353 $102,830
Ratios to average net assets:
Net investment income........................ 6.35% 6.43% 5.21% 5.87% 6.40%+
Net Operating expenses(1).................... 0.40% 0.40% 0.40% 0.40% 0.40%+
Portfolio Turnover Rate......................... 35% 50% 75% 35% 57%
</TABLE>
- ----------
+ Annualized
* Not Annualized
(A) The Fund commenced operations on June 4, 1991.
(1) Net investment income per share and the net operating expense ratios
before reimbursement by the sub-administrator for the years ended March
31, 1996 and 1995 were $0.66 and 0.41% and $0.65 and 0.41%,
respectively.
-9-
<PAGE> 14
INVESTMENT OBJECTIVES AND POLICIES
The Trust offers you four indexed investment options:
The Large Company Index Fund seeks to provide investment results that,
before deduction of operating expenses, match the price and yield performance of
U.S. publicly traded common stocks with large stock market capitalizations, as
represented by the S&P 500.
The Small Company Index Fund seeks to provide investment results that,
before deduction of operating expenses, match the price and yield performance of
U.S. publicly traded common stocks with smaller stock market capitalizations, as
represented by the Small Company Index.
The Utility Index Fund seeks to provide investment results that, before
the deduction of operating expenses, match the price and yield performance of
U.S. publicly traded common stocks of companies engaged in the utility industry,
as represented by the Utility Index.
The U.S. Treasury Index Fund seeks to provide investment results that,
before deduction of operating expenses, match the price and yield performance of
U.S. Treasury notes and bonds, as represented by the U.S. Treasury Index.
The investment objective of a Fund may not be changed without the
approval of the holders of a "majority" of the outstanding voting shares of that
Fund. The term "majority" is defined in the Investment Company Act of 1940, as
amended (the "1940 Act"). There can be no assurance that the investment
objective of any Fund will be achieved.
Risk considerations related to the Funds' investments are described
under "Other Investment Practices" and "Investment Risks."
THE INDEXING APPROACH
The Funds are not managed in a traditional sense, that is, by making
discretionary judgments based on analysis of economic, financial and market
conditions. Instead, the Funds seek to match the investment performance of their
respective market segments, as represented by their respective indexes, through
the use of sophisticated computer models to determine which stocks or bonds
should be purchased or sold, while keeping transaction and administrative costs
to a minimum. Each Fund will attempt to be fully invested in securities of its
respective index and will invest at least 80% of its net assets in those
securities. The Fund's investment adviser, Fleet Investment Advisors Inc.
("Fleet" or the "Investment Adviser"), generally selects securities for the
Funds on the basis of their weightings in the respective indexes. A Fund will
only purchase a security that is included in its respective index at the time of
such purchase. With respect to the remaining portion of its net assets, each
Fund has the ability to hold temporary cash balances and, if appropriate, in the
case of the Large Company Index Fund, the Small Company Index Fund and the
Utility Index Fund (the "Stock Funds") to use stock index futures contracts to
increase efficiency. Each Fund also may lend securities constituting up to
33 1/3% of its total assets.
While there can be no guarantee that each Fund's investment results
will precisely match the results of its corresponding index, the Investment
Adviser believes that, before deduction of operating expenses, there will be a
very high correlation between the returns generated by the Funds and their
respective indexes. Each Fund will attempt to achieve a correlation between the
performance of its portfolio and that of its respective index of at least 0.95
before deduction of operating expenses. A correlation of 1.00 would indicate
perfect correlation, which would be achieved when a Fund's net asset value,
including the value of its dividend and capital gains distributions, increases
or decreases in exact proportion to changes in its respective index. Each Fund's
ability to correlate its performance with its respective index, however, may be
affected by, among other things, changes in securities markets, the manner in
which Standard & Poor's Corporation ("S&P"), Frank Russell Company ("Russell")
or Salomon Brothers Inc. ("Salomon") calculate their respective indexes, and the
timing of
-10-
<PAGE> 15
purchases and redemptions. The Investment Adviser monitors the correlation of
the performance of the Funds in relation to their indexes under the supervision
of the Board of Trustees. In the unlikely event that a high correlation is not
achieved, the Board of Trustees will take appropriate steps based on the reasons
for the lower than expected correlation.
The inclusion of a security in any of the Funds' indexes in no way
implies an opinion by S&P, Russell or Salomon as to its attractiveness as an
investment. S&P, Russell and Salomon are not sponsors of, or in any way
affiliated with, the Funds.
The Investment Adviser believes that the indexing approach should
involve less turnover, and thus lower brokerage costs, transfer taxes and
operating expenses, than in more traditionally managed funds, although there is
no assurance that this will be the case. Ordinarily, a Fund will buy or sell
securities only to reflect changes in an index (including mergers or changes in
the composition of an index) or to accommodate cash flows into and out of the
Fund. The costs and other expenses incurred in securities transactions, apart
from any difference between the investment results of a Fund and that of its
respective index, may cause the return of a Fund to be lower than the return of
its respective index. The Funds may invest in less than all of the securities
included in their respective indexes, which may result in a return that does not
match that of the indexes, after taking expenses into account.
THE LARGE COMPANY INDEX FUND
The S&P 500 is composed of approximately 500 common stocks, most of
which are listed on the New York Stock Exchange (the "NYSE"). S&P chooses the
stocks for the S&P 500 on a statistical basis. As of December 31, 1995 the
stocks in the S&P 500 have an average market capitalization of $6.7 billion and
account for approximately 69% of the total market value of all U.S. common
stocks. Normally, the Large Company Index Fund will hold all 500 stocks in the
S&P 500 and will hold each stock in approximately the same percentage as that
stock represents in the S&P 500. "Market capitalization" for a company is the
market price per share of stock multiplied by the number of shares outstanding.
The Investment Adviser believes that the S&P 500 is an appropriate benchmark for
the Fund because it is diversified, it is familiar to many investors and it is
widely accepted as a reference for common stock investments.
The common stock of Fleet Financial Corporation, the parent of the
Investment Adviser, is in the S&P 500. The Large Company Index Fund will invest
its assets in Fleet Financial Corporation stock approximately in proportion to
the percentage Fleet Financial Corporation stock represents in the S&P 500.
Purchases and sales of Fleet Financial Corporation stock, like all other stock
in the S&P 500, will be made solely in accordance with the directions generated
by the computer models utilized by the Investment Adviser to assist in
duplicating the performance of the S&P 500 and will not be made on the basis of
any fundamental or technical analysis of, or other similar specific information
concerning Fleet Financial Corporation. As of June 30, 1996, Fleet Financial
Corporation stock represented approximately 0.22% of the S&P 500.
THE SMALL COMPANY INDEX FUND
Russell chooses stocks for the Small Company Index on the basis of
market capitalization. To create the Small Company Index, Russell selects, with
certain exceptions, the 3,000 companies with the largest market capitalizations
and eliminates from this list any company that is included in the S&P 500. Like
the S&P 500, the weighting of stocks in the Small Company Index is based on each
stock's relative total market capitalization. As of December 31, 1995, stocks in
the Small Company Index account for about 29% of the total market value of all
publicly traded U.S. common stocks. The average capitalization of stocks
included in the Small Company Index currently is approximately $.41 billion,
although the capitalization of some companies included in the Small Company
Index is significantly higher. Because this group of stocks does not overlap
with the S&P 500, the Investment Adviser believes that the Small Company Index
is an appropriate benchmark for the Small Company Index Fund, creating a
complement to the S&P 500-based Large Company Index Fund.
-11-
<PAGE> 16
The Small Company Index Fund will not hold all of the issues in the
Small Company Index because of the costs involved and the illiquidity of many of
the securities. Instead, the Fund will use a statistical technique known as
"portfolio optimization." Through portfolio optimization, each stock is
considered for inclusion in the Fund based on its contribution to the market
capitalization, industry representation and fundamental exposures of the Fund
and their similarity to these financial characteristics in the Small Company
Index. These fundamental exposures include dividend yield, price-earnings
multiples and average growth rates.
The portfolio optimization program is expected to provide an effective
method of substantially duplicating the dividend income and capital gains
produced by the Small Company Index. Since the Fund does not hold every stock in
the Small Company Index, it is not expected to track the Small Company Index
with the same degree of accuracy that the Large Company Index Fund should track
the S&P 500, although the Fund will seek a correlation of at least 0.95, before
deduction of operating expenses. The Fund expects to own at least 750 of the
2,500 stocks in the Small Company Index. The Fund will not purchase stocks not
represented in the Small Company Index.
THE UTILITY INDEX FUND
Russell chooses stocks for the Utility Index on the basis of market
capitalization and industry participation. To create the Utility Index, Russell
chooses, with certain exceptions, the 1,000 companies with the largest market
capitalizations and further selects those companies from this list that engage
in the generation, transmission or distribution of electricity,
telecommunications, gas or water. As of December 31, 1995, the Utility Index
included 120 companies, reflecting the various segments of the utility industry
in the following percentages (on a market capitalization basis):
<TABLE>
<CAPTION>
% OF
SECTOR INDEX
- ------ -----
<S> <C>
Telephone/Telecommunications.................................... 52.51%
Electric........................................................ 32.06%
Gas and Water................................................... 5.11%
Communications/Long Distance/Cable.............................. 10.33%
</TABLE>
Like the S&P 500 and Small Company Index, the weighting of stocks in the Utility
Index is based on each stock's relative market capitalization. Normally, the
Utility Index Fund will hold every stock in the Utility Index and will hold each
stock in approximately the same percentage as that stock represents in the
Utility Index.
THE U.S. TREASURY INDEX FUND
The U.S. Treasury Index is composed of all U.S. Treasury notes and bonds with
remaining maturities of at least one year and outstanding principal of at least
$25 million. Securities in the index are weighted by market value, that is, the
price per bond or note multiplied by the number of bonds or notes outstanding.
Salomon updates the roster of securities represented in the index once each
month, adding new notes and bonds issued in the past month and removing those
notes and bonds that no longer meet the index's criteria. The following table
further describes the index as of December 31, 1995:
-12-
<PAGE> 17
<TABLE>
<CAPTION>
U.S. TREASURY
INDEX
-------------
<S> <C>
Number of Issues.......................................... 30
Total Market Value........................................ $126 million
Minimum Maturity.......................................... 1.6 year
Maximum Maturity.......................................... 28.9 years
Weighted Average Maturity................................. 8 years
Percent of Market Value with remaining
Maturity of:
1-3 years........................................ 34%
3-7 years........................................ 31%
7-10 years....................................... 13%
10-20 years...................................... 3%
Over 20 years.................................... 17%
Cash equivalent reserve................................... 2%
</TABLE>
Like the Small Company Index Fund, the U.S. Treasury Index Fund will
not hold all of the issues in its index because of the costs involved and the
illiquidity of many of the securities. Instead, each security will be considered
for inclusion in the Fund based on its contribution to the total market value,
average coupon rate and average weighted maturity of the Fund and its similarity
to these financial characteristics of the Fund's index.
The U.S. Treasury Index Fund is authorized to engage in the "Other
Investment Practices" (except the use of stock index futures contracts)
described below. Because the U.S. Treasury Index Fund expects to generate income
generally exempt from state and local income taxes, it will engage in such
investment practices only when deemed by the Investment Adviser to be in the
best interests of the Fund's shareholders. See "Taxes."
OTHER INVESTMENT PRACTICES AND RISK CONSIDERATIONS
TEMPORARY CASH BALANCES
Each Fund will hold very small temporary cash balances to efficiently
manage transactional expenses. These cash balances generally are expected, under
normal conditions, not to exceed 2% of its net assets at any time (excluding
amounts used as margin for futures transactions and collateral for securities
loans and repurchase agreements). The Funds may invest these temporary cash
balances in short-term securities of the U.S. Government or its agencies and
instrumentalities ("U.S. Government Securities"), high quality commercial paper
(rated A-1 or better by S&P or P-1 or better by Moody's Investors Service,
Inc.), and certificates of deposit and time deposits of banking institutions
having total assets in excess of $1 billion. The Funds may also hold these
investments in connection with "repurchase agreements" (which are not subject to
the 2% limitation above). In these agreements, a bank or non-bank dealer agrees
to "repurchase" the investment from the Fund at the Fund's cost plus a specified
interest rate within a specified time period, usually one to seven days.
Repurchase agreements involve certain risks in the event of default or
insolvency of the other party, including possible delays or restrictions upon
the subject Fund's ability to dispose of the underlying securities.
SECURITIES LENDING
Each Fund may realize additional net investment income and help offset
some of its expenses by lending securities constituting up to 33 1/3% of its
total assets to qualified brokers, dealers and other financial organizations,
which percentage limitation is a fundamental policy of each Fund. These loans
will be collateralized by cash, letters of credit or U.S. Government Securities,
which are maintained at all times in an amount at least equal to the current
market value of the loaned securities, plus any dividends and interest accrued
thereon. The Fund involved continues to be entitled to the interest and
dividends payable on the loaned security and receives interest on the amount of
the loan. Any gain or
-13-
<PAGE> 18
loss in the market price of the securities loaned that might occur during the
term of the loan would be for the account of the Fund. As with any loan, there
are risks of delay in recovery and in some cases even loss of rights in
collateral should the borrower of the securities fail financially or breach its
agreement with the Fund.
STOCK INDEX FUTURES CONTRACTS
The Stock Funds each may invest in stock index futures contracts that
are traded on a national exchange in order to hedge its positions or for other
permissible purposes. While there is some risk that the use of these instruments
may reduce the correlation between the performance of these Funds and the
indexes, the Investment Adviser believes that, under certain circumstances, the
cost savings associated with stock index futures contracts can be greater than
the risks involved. A Fund may not use stock index futures contracts as a
temporary defensive or stock-index arbitrage trading strategy. A Fund may not
enter into futures contracts other than for bona fide hedging purposes if the
aggregate initial margin deposits on its non-hedging futures contracts exceed 5%
of the Fund's net asset value, after taking into account unrealized profits and
unrealized losses on futures contracts it has entered into. When a Fund enters
into a long position in a stock index future, it must set aside with the Fund's
custodian an amount of cash or cash equivalents equal to the total market value
of the underlying futures contract, less amounts held in the Fund's commodity
brokerage account.
INVESTMENT LIMITATIONS
The Trust has adopted certain limitations on its investments, other
than investments in U.S. Government Securities. Some of these limitations are:
(1) With respect to 75% of its total assets, a Fund will not
invest more than 5% of its total assets in the securities of
any one issuer;
(2) A Fund will not invest more than 25% of its total assets in
issuers conducting their principal business activities in any
one industry, except that the Utility Index Fund will invest
in excess of 25% of its respective assets in the securities of
companies within the utility industry;
(3) A Fund will not purchase more than 10% of the voting
securities of any one issuer; and
(4) A Fund will not borrow money except for temporary or emergency
reasons. Total borrowings cannot exceed 33 1/3% of a Fund's
total assets and all borrowings must be repaid before a Fund
can purchase any securities. A Fund may not borrow for
leverage.
These investment restrictions, and certain of those contained in the
Trust's Statement of Additional Information, can be changed for a Fund only with
the approval of the holders of a majority of the outstanding shares of that
Fund.
INVESTMENT RISKS
A Fund's ability to match its performance with an index may be affected
by, among other things, changes in the securities markets, the manner in which
the index is calculated and the timing of purchases and redemptions of the
Fund's shares. The Trust expects the investments of each Fund to decline in
value whenever the market, as represented by the securities in its index,
declines.
The Large Company Index Fund should exhibit price volatility similar to
that of the S&P 500. The Small Company Index Fund, since it invests in smaller
companies, may have greater price volatility and less liquidity than the Large
Company Index Fund. Historically, utility stocks have been one of the least
volatile sectors of the U.S. stock market when measured by statistics such as
standard
-14-
<PAGE> 19
deviation of return. Consequently, the Utility Index Fund may have less price
volatility than either the Large or Small Company Index Funds, although there
can be no assurance of this.
It is impossible to eliminate risk from investments in common stocks.
The average annual total return of the U.S. stock market, as measured by
Ibbotson Associates, from 1926 to 1994 was 12.16%. Returns in individual
calendar years ranged from a low of -43.3% (in 1931) to a high of 53.9% (in
1933). You should consider your investment in the Stock Funds to be long-term.
These Funds are not designed to provide you with a means to speculate on
short-term movements in the stock market.
The Utility Index Fund is subject to industry risk. Industry risk is
the possibility that a particular group of related stocks, such as those stocks
in a particular industry, will decline in price due to industry-specific
developments. For the utility industry, these developments could include:
- changing regulations which could limit profits, dividends, or access
to new markets;
- unexpected increases in fuel, environmental compliance, safety, or
other operating costs, including high interest costs on borrowings needed for
capital improvement projects;
- increasing competition, particularly among providers of long-distance
telephone service and gas utilities, with the need to make large investments in
technology to meet this competition; and
- restriction to relatively mature markets, particularly among water
companies, which constrain potential for growth.
The Fund will concentrate its investments in the utility industry. As a
result, the Fund's investments may be subject to greater risk and market
fluctuation than a fund that has securities representing a broader range of
investment alternatives.
The Fund's policy of concentrating its investments in the utility
industry is a fundamental policy of the Fund and cannot be changed without
approval of a majority of the Fund's outstanding voting securities.
While the "full faith and credit" of the U.S. Government guarantees the
stated interest rate and principal at maturity of U.S. Treasury notes and bonds,
the market value of these securities will fluctuate due to changing interest
rates. In general, bond prices rise when interest rates fall, and bond prices
fall when interest rates rise. Longer-term bonds are typically affected more
dramatically than shorter-term bonds. The following table illustrates the
changes caused by a 2% change in interest rates on the market prices of
non-callable bonds with various maturities:
<TABLE>
<CAPTION>
2% INCREASE IN 2% DECREASE IN
MATURITY INTEREST RATES INTEREST RATES
- -------- -------------- --------------
<S> <C> <C>
1 year......................................................... -2% +2%
5 years........................................................ -8% +9%
10 years....................................................... -14% +17%
30 years....................................................... -25% +39%
</TABLE>
As of March 31, 1996, the weighted average maturity of the U.S.
Treasury Index Fund was 8.362 years. Thus, the U.S. Treasury Index Fund is
subject to moderate levels of interest rate risk.
-15-
<PAGE> 20
PRICING OF SHARES
On every day the New York Stock Exchange (the "NYSE") is open, the
Sub-Administrator calculates the net asset value per share for each Fund
separately, as of the close of regular trading on the NYSE. In calculating net
asset value, investments are valued based on their market values, but when
market quotations are not readily available, investments are valued based on
fair value as determined in good faith in accordance with procedures established
by the Board of Trustees. Bonds and other fixed income securities may be valued
on the basis of prices provided by a pricing service when such prices are
believed to reflect the market value of such securities. The prices provided by
a pricing service may be determined without regard to bid or last sale prices of
each security but take into account institutional size transactions in similar
groups of securities as well as any developments relating to specific
securities.
DIVIDENDS AND DISTRIBUTIONS
Each Fund intends to distribute substantially all of its net investment
income and its net realized capital gains to its shareholders each year.
Dividend declaration and payment frequencies are:
<TABLE>
<CAPTION>
NET INVESTMENT REALIZED
INCOME CAPITAL GAINS
-------------- -------------
<S> <C> <C>
Large Company Index Fund............................................ Annually Annually
Small Company Index Fund............................................ Annually Annually
Utility Index Fund.................................................. Quarterly Annually
U.S. Treasury Index Fund ........................................... Declaration-Daily Annually
Payment-Monthly
</TABLE>
Dividends and distributions may be made on a more frequent basis to
comply with the distribution requirements of the Internal Revenue Code of 1986,
as amended (the "Code").
You will receive all dividends and capital gains distributions as
additional shares of the Fund that paid the dividend or distribution at its then
current net asset value, unless you elect to receive cash. You may elect to
receive cash by so specifying on your account registration form or by notifying
the Sub-Administrator in writing. Shareholders electing to reinvest dividends in
the U.S. Treasury Index Fund will receive confirmation of their dividend on
regular, quarterly statements. As with all purchases and redemptions, you pay no
sales commissions or fees of any kind on shares acquired through reinvestment of
dividends and distributions.
The Sub-Administrator has agreed to waive until further notice receipt
of the $10.00 annual account maintenance fee otherwise automatically charged to
each Fund account at the time a dividend is credited to the account. The Board
of Trustees reserves the right to change the annual account maintenance fee.
-16-
<PAGE> 21
TAXES
Since each Fund intends to (a) qualify each year as a "regulated
investment company" within the meaning of the Code and (b) distribute to its
shareholders at least 90% of its "investment company taxable income," a Fund
itself will not be subject to Federal income tax to the extent that its net
investment income and its net realized capital gains are distributed to its
shareholders in accordance with the Code. As a regulated investment company,
each Fund will be subject to a 4% non-deductible excise tax if it fails to
currently distribute specified percentages of its ordinary taxable income and
capital gain net income (excess of capital gain over capital losses). Each Fund
expects to pay dividends and 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,
unless the Board of Trustees determines that it is not in the best interest of
the shareholders to do so.
Except as described in the following paragraph, dividends paid from
Fund income other than net capital gains will be taxable to you as ordinary
income. Distributions derived from net realized long-term capital gains will be
taxable to you as long-term capital gains, regardless of how long you have held
shares of a Fund. As a general rule, your gain or loss on a sale or redemption
of Fund shares will be a long-term capital gain or loss if you have held your
shares for more than one year and will be a short-term capital gain or loss if
you have held your shares for one year or less. If you hold shares for six
months or less and during that time receive a capital gain dividend on those
shares, any loss recognized on the sale or exchange of those shares will be
treated as a long-term capital loss to the extent of the capital gain dividend.
Many states do not tax dividends attributable to interest on U.S.
Treasury notes and bonds that are distributed by mutual funds which primarily
invest in such securities and which satisfy certain reporting and
diversification requirements. The U.S. Treasury Index Fund intends to be such a
fund and to satisfy such requirements and thus expects that its dividends
attributable to interest on its U.S. Treasury notes and bonds will, as a general
rule, be substantially free of state and local income tax.
However, all income from the Fund is subject to Federal taxes.
Statements as to the tax status of your dividends and distributions
will be mailed annually. The Trust will also send you, if applicable, various
written notices after the close of its tax year with respect to certain
dividends and distributions that were, or were deemed to be, received from a
Fund during that tax year. You should consult your tax adviser with regard to
your tax situation, including any state and local tax liabilities.
MANAGEMENT OF THE FUNDS
The Board of Trustees sets strategic and policy directions for the
Trust and oversees management. The Board selects and supervises the Investment
Adviser and the Trust's officers who are responsible for the day-to-day
management of the Trust's affairs.
INVESTMENT ADVISER
Fleet Investment Advisors Inc. (the "Investment Adviser"), with
principal offices at 45 East Avenue, Rochester, New York 14604, serves as
investment adviser to the Funds. The Investment Adviser also provides investment
management and advisory services to individual and institutional
-17-
<PAGE> 22
clients, and manages the investment portfolios of The Galaxy Fund and The Galaxy
VIP Fund. The Investment Adviser is an indirect wholly-owned subsidiary of Fleet
Financial Group, Inc., a registered bank holding company, that as of June 30,
1996, managed or advised approximately $46.7 billion in equity, fixed income and
short-term assets. The Investment Adviser is also an indirect wholly-owned
subsidiary of the Administrator. To fulfill its responsibilities, the Investment
Adviser employs the personnel, software and support systems needed to manage
indexed portfolios.
The Investment Adviser receives a fee from each Fund at the annual rate
of 0.10% of the average daily net assets of the Fund, which was the rate of the
Investment Adviser's compensation during the fiscal year ended March 31, 1996.
ADMINISTRATOR
Fleet National Bank (the "Administrator") provides the Trust with
office facilities and support personnel and generally assists in all aspects of
administration and operation of the Trust. The Administrator, with principal
offices at 50 Kennedy Plaza, Providence, Rhode Island 02903-2305, is an indirect
wholly-owned subsidiary of Fleet Financial Group, Inc. The Administrator pays
all of the expenses of the Funds, except the fees and expenses of those Trustees
who are not interested persons of the Trust, brokerage fees and commissions,
interest on borrowings, taxes and such extraordinary, nonrecurring expenses as
may arise, including litigation to which the Trust may be a party. The
Administrator receives a fee from each Fund at an annual rate of 0.30% of the
average daily net assets of the Fund. From time to time, the Administrator may
waive all or a portion of the administration fee payable to it by the Funds,
either voluntarily or pursuant to applicable statutory limitations.
The Administrator has entered into a sub-administration agreement with
First Data Investor Investor Services Group, Inc. ("FDISG") formerly known as
The Shareholder Services Group, Inc., d/b/a 440 Financial ("Sub-Administrator"),
4400 Computer Drive, P.O. Box 5108, Westborough, Massachusetts 01581, a
Massachusetts corporation and a wholly-owned subsidiary of First Data
Corporation, to provide administrative services to the Trust. The
Sub-Administrator also serves as shareholder servicing agent. The Administrator
bears the fees of the Sub-Administrator for serving in these capacities.
DISTRIBUTOR
440 Financial Distributors, Inc. (the "Distributor"), a Massachusetts
corporation and a wholly-owned subsidiary of FDISG, is responsible for the
marketing and distributing of the shares of each Fund. The Distributor is a
registered broker/dealer with principal offices located at 4400 Computer Drive,
P.O. Box 5108, Westborough, Massachusetts 01581. The Distributor does not
receive any compensation from Galaxy II or the Funds for its services.
CUSTODIAN
The Chase Manhattan Bank, N.A. (the "Custodian"), located at 1211
Avenue of the Americas, New York, New York 10036, a wholly-owned subsidiary of
The Chase Manhattan Corporation, serves as the custodian of the Funds' assets,
and FDISG serves as the Funds' transfer and dividend disbursing agent. Services
performed by both entities for the Funds are described in the
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<PAGE> 23
Statement of Additional Information. Communications to FDISG should be directed
to FDISG at 4400 Computer Drive, P.O. Box 5108, Westborough, Massachusetts
01581.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
The Distributor has established several procedures to enable different
types of investors to purchase shares of the Funds. The shares may be purchased
by individuals or corporations who submit a purchase application to the Trust,
purchasing directly either for their own accounts or for the accounts of others
("Direct Investors"). Shares may also be purchased by Fleet Brokerage Securities
Corporation, Fleet Securities, Inc., Fleet Financial Group, Inc., its
affiliates, their correspondent banks and other qualified banks, savings and
loan associations and broker/dealers ("Institutions") on behalf of their
customers ("Customers"). Purchases by Direct Investors may take place only on
days on which the Distributor, the Custodian and the Administrator are open for
business ("Business Days"). If an Institution accepts a purchase order from a
Customer on a non-Business Day, the order will not be executed until it is
received and accepted by the Distributor on a Business Day in accordance with
the Distributor's procedures. Shares of the Funds will be issued to Direct
Investors only in exchange for monetary consideration as described below.
PURCHASE PROCEDURES - CUSTOMERS OF INSTITUTIONS
Purchase orders are placed by Customers of Institutions through their
Institution. The Institution is responsible for transmitting Customer purchase
orders to the Distributor and for wiring required funds in payment to the
Custodian on a timely basis. The Distributor is responsible for transmitting
such orders to the Sub-Administrator for execution. Shares purchased by
Institutions on behalf of their Customers will normally be held of record by the
Institution and beneficial ownership of the shares will be recorded by the
Institution and reflected in the account statements provided to their Customers.
The Sub-Administrator may establish an account of record for each Customer of an
Institution reflecting beneficial ownership of shares. Depending on the terms of
the arrangement between a particular Institution and the Sub-Administrator,
confirmations of share purchases and redemptions and pertinent account
statements will either be sent by the Sub-Administrator directly to a Customer
with a copy to the Institution, or will be furnished directly to the Customer by
the Institution. Other procedures for the purchase of shares established by
Institutions in connection with the requirements of their Customer accounts may
apply. Customers wishing to purchase shares through their Institution should
contact such entity directly for appropriate purchase instructions.
PURCHASE PROCEDURES - DIRECT INVESTORS
Purchases by Mail. Shares may be purchased by completing a purchase
application and mailing it, together with a check payable to each Fund in which
a Direct Investor wishes to invest, to:
Galaxy Fund II
4400 Computer Drive
P.O. Box 5108
Westborough, MA 01581
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<PAGE> 24
All initial purchase orders placed by mail must be accompanied by a
purchase application. Applications may be obtained by calling the Distributor at
(800) 628-0414.
Subsequent investments in an existing account in any Fund may be made
at any time by sending a check for a minimum of $100 payable to the Fund in
which the additional investment is being made to the Trust at the address above
along with either (a) the detachable form that regularly accompanies
confirmation of a prior transaction, (b) a subsequent order form that may be
obtained from the Distributor, or (c) a letter stating the amount of the
investment, the name of the Fund and the account number in which the investment
is to be made. If a Direct Investor's check does not clear, the purchase will be
canceled.
OTHER PURCHASE INFORMATION
Purchases by Wire. Investors may also purchase shares by arranging to
transmit Federal funds by wire to Fleet Bank of Massachusetts, N.A. as agent for
FDISG. Prior to making any purchase by wire, an investor must telephone the
Distributor at (800) 628-0413 to place an order and for instructions.
Direct Investors making initial investments by wire must promptly
complete a purchase application and forward it to Galaxy Fund II, 4400 Computer
Drive, P.O. Box 5108, Westborough, Massachusetts 01581. Applications may be
obtained by calling the Distributor at (800) 628-0414.
Except as provided in "Investor Programs" below, the minimum initial
investment by a Direct Investor, or initial aggregate investment by an
Institution investing on behalf of its Customers, is $2,500. The minimum
investment for subsequent purchases is $100. The minimum investment requirement
with respect to IRAs, SEPs, MERPs and Keogh Plans (see below under "Retirement
Plans") is $500 ($250 for spousal IRA accounts). There are no minimum investment
requirements for investors participating in the Automatic Investment Program
described below. Customers may agree with a particular Institution to change the
minimum initial and minimum subsequent purchase requirements with respect to
their accounts.
The Trust or the Distributor each reserves the right to reject any
purchase order, in whole or in part, or to waive any minimum investment
requirement. The issuance of shares to Direct Investors and Institutions is
recorded on the books of the Trust and share certificates will not be issued.
Effective Time of Purchases. A purchase order for shares received and
accepted by the Distributor from an Institution or a Direct Investor on a
Business Day prior to the close of regular trading hours on the NYSE (currently,
4:00 p.m. Eastern Time) will be executed at the net asset value per share
determined on the day on which payment for the shares is received in proper
form. If payment is not received within five business days following receipt of
such order, notice thereof will be given promptly to the Institution or Direct
Investor submitting the order. Payment for orders which are not received or
accepted will be returned.
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<PAGE> 25
REDEMPTION PROCEDURES - CUSTOMERS OF INSTITUTIONS
Customers of Institutions may redeem all or part of their shares in
accordance with procedures governing their accounts at Institutions. It is the
responsibility of the Institutions to transmit redemption orders to the
Distributor and credit their Customers' accounts with the redemption proceeds on
a timely basis. No charge for wiring redemption payments to Institutions is
imposed by the Trust, although Institutions may charge a Customer's account for
redemption services. Information relating to such redemption services and
charges, if any, is available from the Institutions.
Payments for redemption orders received by the Distributor on a
Business Day will normally be wired on the third Business Day to the
Institutions.
Direct Investors may redeem all or part of their shares in accordance
with any of the procedures described below.
REDEMPTION PROCEDURES - DIRECT INVESTORS
Redemption by Mail. Shares may be redeemed by a Direct Investor by
submitting a written request for redemption to:
Galaxy Fund II
4400 Computer Drive
P.O. Box 5108
Westborough, MA 01581
A written redemption request must (i) state the number of shares to be
redeemed, (ii) identify the shareholder account number and social security
number or tax identification number, and (iii) be signed by each registered
owner exactly as the shares are registered. A redemption request for an amount
in excess of $10,000, or for any amount if the proceeds are to be sent elsewhere
than the address of record, must be accompanied by signature guarantees. The
guarantor of a signature must be a bank that is a member of the FDIC, a trust
company, a member firm of a national securities exchange or any other eligible
guarantor institution. The Sub-Administrator will not accept guarantees from
notaries public. The Sub-Administrator may require additional supporting
documents for redemptions made by corporations, executors, administrators,
trustees and guardians. A redemption request will not be deemed to be properly
received until the Sub-Administrator receives all required documents in proper
form. The Funds ordinarily will make payment for shares redeemed by mail within
five Business Days after proper receipt by the Sub-Administrator of the
redemption request. Questions with respect to the proper form for redemption
requests should be directed to the Sub-Administrator at (800) 628-0413.
Redemption by Telephone. Direct Investors may redeem shares by calling
(800) 628-0413 and instructing the Sub-Administrator to mail a check for
redemption proceeds of up to $10,000 to the address of record. A redemption
request for an amount in excess of $10,000 or for any amount if the proceeds are
to be sent elsewhere than the address of record, must be accompanied by
signature guarantees. (See "Redemption by Mail.")
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<PAGE> 26
Redemption by Wire. Direct Investors who have so indicated on the
application, or have subsequently arranged in writing to do so, may redeem
shares by instructing the Sub-Administrator by wire or telephone to wire the
redemption proceeds of $1,000 or more directly to a Direct Investor's account at
any commercial bank in the United States. The Sub-Administrator charges a $5.00
fee for each wire redemption and the fee is deducted from the redemption
proceeds. The redemption proceeds must be paid to the same bank and account as
designated on the application or in written instructions subsequently received
by the Sub-Administrator. To request redemption of shares by wire, Direct
Investors should call (800) 628-0413.
In order to arrange for redemption by wire after an account has been
opened or to change the bank or account designated to receive redemption
proceeds, a written request must be sent to the Trust at the address listed
above under "Redemption by Mail." Such requests must be signed by the investor
and accompanied by a signature guarantee (see "Redemption by Mail" above for
details regarding guarantees). Further documentation may be requested from
corporations, executors, administrators, trustees, or guardians. If, due to
temporary adverse conditions, investors are unable to effect telephone
transactions, investors are encouraged to follow the procedures for transactions
by wire or mail which are described above.
The Trust reserves the right to refuse a wire or telephone redemption
if it believes it is advisable to do so. Procedures for redeeming shares by wire
or telephone may be modified or terminated at any time. Neither the Trust nor
any of its service contractors will be liable for any loss, expense or cost for
acting upon any telephone instructions believed genuine unless it acts with
willful misfeasance, bad faith or gross negligence. Accordingly, investors will
bear the risk of loss. In attempting to confirm that telephone instructions are
genuine, the Trust will use such procedures as are considered reasonable,
including recording those instructions and requesting information as to account
registration (such as the name in which an account is registered, the account
number, recent transactions in the account, and the account holder's social
security number, address and/or bank). To the extent that the Trust fails to use
reasonable procedures as a basis for its belief, it and/or its service
contractors may be liable for instructions that prove to be fraudulent and
unauthorized.
No redemption by a Direct Investor in any Fund will be processed until
the Trust has received a completed application with respect to the Direct
Investor's account.
If any portion of the shares to be redeemed represents an investment
made by personal check, the Trust reserves the right to delay payment of
proceeds until the Sub-Administrator is reasonably satisfied that the check has
been collected, which could take up to 15 days from the purchase date. A Direct
Investor who anticipates the need for more immediate access to his or her
investment should purchase shares by Federal funds or bank wire or by certified
or cashier's check. Banks normally impose a charge in connection with the use of
bank wires, as well as certified checks, cashier's checks and Federal funds.
OTHER REDEMPTION INFORMATION
The Trust reserves the right to redeem accounts (other than retirement
plan accounts) involuntarily, upon 60 days' written notice, if the account's net
asset value falls below $250 as a result of redemptions. In addition, if an
investor has agreed with a particular Institution to maintain a minimum balance
in his or her account at the Institution with respect to Fund shares, and the
balance
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<PAGE> 27
in such account falls below that minimum, the Customer may be obliged by the
Institution to redeem all of his or her shares.
The Trust may require any information reasonably necessary to ensure
that a redemption has been duly authorized.
Redemption orders are effected at the net asset value per share next
determined after receipt and acceptance of the order by the Distributor. The
Trust reserves the right to wire redemption proceeds within seven days after
receiving the redemption order if, in its judgment, an earlier payment could
adversely affect a Fund.
DESCRIPTION OF SHARES
The Trust was organized on February 22, 1990 under the laws of the
Commonwealth of Massachusetts and is a business entity commonly known as a
"Massachusetts business trust." The Trust offers shares of beneficial interest,
par value $.001 per share. Five series of shares have been authorized for sale
to the public, four of whose shares constitute the interests of the Funds
described in this Prospectus. When matters are submitted for shareholder vote,
shareholders of each Fund will have one vote for each full share held and
proportionate, fractional votes for fractional shares held. Generally, shares of
the Trust 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.
Normally, no meetings of shareholders will be held for the purpose of
electing Trustees unless and until such time as less than a majority of the
Trustees holding office have been elected by shareholders, at which time the
Trustees then in office will call a shareholders' meeting for the election of
Trustees. Shareholders of record of no less than two-thirds of the outstanding
shares of the Trust may remove a Trustee through a declaration in writing or by
vote cast in person or by proxy at a meeting called for that purpose. A meeting
will be called for the purpose of voting on the removal of a Trustee at the
written request of holders of 10% of the Trust's outstanding shares.
Shareholders who satisfy certain criteria will be assisted by the Trust in
communicating with other shareholders in seeking the holding of the meeting.
PERFORMANCE AND YIELD INFORMATION
From time to time, in advertisements or in reports to shareholders, the
performance and yields of the Funds may be quoted and compared to those of other
mutual funds with similar investment objectives and to stock or other relevant
bond indexes or to rankings prepared by independent services or other financial
or industry publications that monitor the performance of mutual funds. For
example, the performance of the Funds may be compared to data prepared by Lipper
Analytical Services, Inc., a widely recognized independent service which
monitors the performance of mutual funds, the S&P 500, the Consumer Price Index,
the Dow Jones Industrial Average, a recognized unmanaged index of common stocks
of 30 industrial companies listed on the NYSE, the Small Company Index, the
Utility Index or the U.S. Treasury Index.
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<PAGE> 28
Performance and yield 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 and yields of the
Funds.
The standard yield is computed by dividing a Fund's average daily net
investment income per share during a 30-day (or one month) base period
identified in the advertisement by the net asset value per share on the last day
of the period, and annualizing the result on a semi-annual basis. The Funds may
also advertise their "effective yield" which is calculated similarly but, when
annualized, the income earned by an investment in a Fund is assumed to be
reinvested.
The Funds may also advertise their performance using "average annual
total return" over various periods of time. Such total return figures reflect
the average percentage change in the value of an investment in a Fund from the
beginning date of the measuring period to the end of the measuring period.
Average total return figures will be given for the most recent one-, five- and
ten-year periods (if applicable), and may be given for other periods as well,
such as from the commencement of a Fund's operations, or on a year-by-year
basis. Each Fund may also use "aggregate total return" figures for various
periods, representing the cumulative change in the value of an investment in a
Fund for the specified period. Both methods of calculating total return assume
that dividends and capital gain distributions made by a Fund during the period
are reinvested in Fund shares.
Performance and yields of the Funds will fluctuate and any quotation of
performance or yield should not be considered as representative of future
performance. Since yields fluctuate, yield data cannot necessarily be used to
compare an investment in a Fund's shares with bank deposits, savings accounts
and similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that
performance and yield are generally functions of the kind and quality of the
instruments held in a portfolio, portfolio maturity, operating expenses, and
market conditions.
INVESTOR PROGRAMS
EXCHANGE PRIVILEGE
Direct Investors and Customers of Institutions may, after appropriate
prior authorization, exchange shares of a Fund having a value of at least $100
for shares of any of the other funds or portfolios offered by the Trust or
otherwise advised by Fleet Investment Advisors Inc. or its affiliates in which
the Direct Investor or Customer maintains an existing account, provided that
such other shares may legally be sold in the state of the investor's residence.
The minimum initial investment to establish a new account in another Fund by
exchange is $2,500, unless at the time of the exchange the Direct Investor or
Customer elects, with respect to the Fund into which the exchange is being made,
to participate in the Automatic Investment Program described below, in which
event there is no minimum initial investment requirement.
An exchange involves a redemption of all or a portion of the shares of
a Fund and the investment of the redemption proceeds in shares of another fund
or portfolio offered by the Trust or otherwise advised by the Investment Adviser
or its affiliates. The redemption will be made at the per share net asset value
next determined after the exchange request is received. The shares of the fund
to
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<PAGE> 29
be acquired will be purchased at the per share net asset value next determined
after acceptance of the exchange request.
Investors may find the exchange privilege useful if their investment
objectives or market outlook should change after they invest in any of the
Funds. For further information regarding the Trust's exchange privilege, Direct
Investors should call (800) 628-0413. Customers of Institutions should call
their Institution for such information. Customers exercising the exchange
privilege with the Municipal Bond Fund or another fund or portfolio offered by
the Trust or otherwise advised by the Investment Adviser should request and
review its prospectus prior to making an exchange (call (800) 628-0414 for a
prospectus). Telephone all exchanges to (800) 628-0413.
In order to prevent abuse of this privilege to the disadvantage of
other shareholders, the Trust reserves the right to terminate the exchange
privilege of any shareholder who requests more than three exchanges a year. The
Trust 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 expenses to the Trust 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 Securities and Exchange Commission.
The Trust does not charge any exchange fee. However, Institutions may
charge such fees with respect to either all exchange requests or with respect to
any request which exceeds the permissible number of free exchanges during a
particular period. Customers of Institutions should contact their Institution
for applicable information.
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, the Customer should consult a tax or other
financial adviser to determine the tax consequences.
RETIREMENT PLANS
Shares of the Funds are available for purchase in connection with the
following tax-deferred prototype retirement plans:
Individual Retirement Accounts ("IRAs") (including "rollovers" from
existing retirement plans), a retirement-savings vehicle for qualifying
individuals. The minimum initial investment for an IRA account is $500 ($250 for
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 Pension Plans ("MERPs"), a retirement vehicle
established by employers for their employees which is qualified under Section
401(k) and 403(b) of the Internal Revenue Code.
The minimum initial investment for a MERP is $500.
Keogh Plan, a retirement vehicle for self-employed individuals. The
minimum initial investment for a Keogh Plan is $500.
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<PAGE> 30
Detailed information concerning eligibility and other matters related
to these plans and the form of application is available from the Distributor
(call (800) 628-0413) with respect to IRAs, SEPs and Keogh Plans and from Fleet
Brokerage Securities Corporation (call (800) 221-8210) with respect to MERPs.
AUTOMATIC INVESTMENT PROGRAM AND SYSTEMATIC WITHDRAWAL PLAN
The Automatic Investment Program permits a Direct Investor to purchase
Fund shares (minimum of $50 per transaction) each month. Provided the Direct
Investor's financial institution allows automatic withdrawals, Fund shares are
purchased by transferring funds from a Direct Investor's checking, bank money
market or NOW account designated by the investor. The account designated will be
debited in the specified amount, and Fund shares will be purchased, once a
month, on or about either the first or fifteenth day. Only an account maintained
at a domestic financial institution which is an Automated Clearing House member
may be so designated.
The Systematic Withdrawal Plan permits a Direct Investor to withdraw
Fund shares on a monthly, quarterly, semi-annual or annual basis, if the account
has a starting value of at least $10,000. Proceeds of the redemption will be
sent to the shareholder's address of record or financial institution on or about
the twenty-fifth day of each month. If withdrawals 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 the
Administrator (but not less than five days before a payment date). There is no
charge for this service.
INVESTING BY PAYROLL DEDUCTION BY REGULAR IBM EMPLOYEES
Until June 30, 1997, regular IBM employees may buy shares in the Fund
through payroll deduction. The minimum investment is $25 per account per pay
period. Deductions from any one employee may be invested in up to ten funds or
portfolios offered by the Trust or otherwise advised by the Investment Adviser
or its affiliates. IBM employees investing by payroll deduction in other funds
or portfolios offered by the Trust or otherwise advised by the Investment
Adviser or its affiliates should request and review the fund or portfolio's
prospectus prior to making an investment (call (800) 628-0414 for a prospectus).
Deductions will begin as soon as practicable following the submission of your
Galaxy II Payroll Deduction Authorization Form. You may change or stop payroll
deduction by submitting a new Galaxy II Payroll Deduction Authorization Form.
Payroll deduction investments will be reported on quarterly customer statements.
Closing your account by redeeming all of its shares will not automatically
cancel your payroll deduction investment.
The Funds may also offer their shares to employees of other companies
through payroll deduction.
LICENSE AGREEMENTS
"Standard & Poor's," "S&P," "S&P 500," "Standard and Poor's 500," and
"500" are service marks of Standard & Poor's Corporation and have been licensed
to the Trust.
The Large Company Index Fund is not sponsored, endorsed, sold or
promoted by Standard & Poor's ("S&P"). S&P makes no representation or warranty,
express or implied, to the shareholders of the Large Company Index Fund or any
member of the public regarding the advisability of
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<PAGE> 31
investing in securities generally or in the Large Company Index Fund
particularly or the ability of the S&P 500 Index to track general stock market
performance. S&P's only relationship to the Trust is the licensing of certain
trademarks and trade names of S&P and of the S&P 500 Index which is determined,
composed and calculated by S&P without regard to the Trust or the Large Company
Index Fund. S&P has no obligation to take the needs of the Trust or the
shareholders of the Large Company Index Fund into consideration in determining,
composing or calculating the S&P 500 Index. S&P is not responsible for and has
not participated in the determination of the prices and amount of the shares of
the Large Company Index Fund or the timing of the issuance or sale of the shares
of the Large Company Index Fund or in the determination or calculation of the
equation by which the shares of the Large Company Index Fund are to be converted
into cash. S&P has no obligation or liability in connection with the
administration, marketing or trading of the Large Company Index Fund.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P
500 INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY
ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR
IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE TRUST, SHAREHOLDERS OF THE LARGE
COMPANY INDEX FUND, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500
INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO
EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR
CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE
POSSIBILITY OF SUCH DAMAGES.
The Russell Special(TM) Small Company Index and the Russell 1000(R)
Utility Index are registered trademarks of the Frank Russell Company and are
being used under license. The Salomon Brothers Broad Investment-Grade Bond Index
is a registered trademark of Salomon Brothers Inc.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by
independent certified public accountants.
Inquiries regarding the Funds may be directed to Galaxy II at (800)
628-0414 (applications and information concerning initial purchases and current
performance) or (800) 628-0413 (additional purchases, redemptions, exchanges and
other shareholder services).
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<PAGE> 32
GALAXY FUND II - THE INDEXED FUNDS
STATEMENT OF ADDITIONAL INFORMATION
THE LARGE COMPANY INDEX FUND
THE SMALL COMPANY INDEX FUND
THE UTILITY INDEX FUND
THE U.S. TREASURY INDEX FUND
AUGUST 1, 1996
<PAGE> 33
This Statement of Additional Information is meant to be read
in conjunction with the Prospectus of Galaxy Fund II ("Galaxy II" or the
"Trust") dated August 1, 1996 relating to four indexed funds (the "Prospectus")
and is incorporated by reference in its entirety into the Prospectus. Because
this Statement of Additional Information is not itself a prospectus, no
investment in shares of the Trust should be made solely upon the information
contained herein. Copies of the Prospectus and of Galaxy II's Prospectus
relating to the Municipal Bond Fund may be obtained by calling 440 Financial
Distributors, Inc. (the "Distributor"), the Trust's distributor, at (800)
628-0414. Information regarding the status of shareholder accounts may be
obtained by calling First Data Investor Services Group, Inc. ("FDISG"), the
Trust's transfer agent, at (800) 628-0413.
<PAGE> 34
TABLE OF CONTENTS
Page
----
INVESTMENT OBJECTIVES........................................................ 1
INVESTMENT POLICIES AND RISK CONSIDERATIONS.................................. 2
The Indexing Approach...................................... 2
U.S. Government Securities................................. 2
Bank Obligations........................................... 3
Futures Contracts.......................................... 3
Lending of Portfolio Securities............................ 5
Repurchase Agreements...................................... 6
Investing in Utilities..................................... 7
Valuation of Portfolio Securities.......................... 7
INVESTMENT LIMITATIONS.............................................. 7
Portfolio Turnover......................................... 10
Portfolio Transactions..................................... 10
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION...................... 12
ADDITIONAL INFORMATION CONCERNING TAXES............................. 12
TRUSTEES AND OFFICERS............................................... 14
ADVISORY, ADMINISTRATION, CUSTODIAN, TRANSFER AGENT
AND DIVIDEND PAYING AGENT AGREEMENTS............................... 19
Investment Adviser and Administrator....................... 19
Authority to Act as Investment Adviser..................... 22
Custodian, Transfer Agent and Dividend Paying Agent........ 22
PERFORMANCE AND YIELD INFORMATION................................... 23
COUNSEL............................................................. 25
INDEPENDENT ACCOUNTANTS............................................. 25
GENERAL INFORMATION................................................. 26
FINANCIAL STATEMENTS................................................ 28
REPORT OF INDEPENDENT ACCOUNTANTS DATED
May 10, 1996.............................................................FS-34
<PAGE> 35
INVESTMENT OBJECTIVES
Galaxy II, which is a no-load, open-end, management investment
company, offers investors five investment options, four of which, the Large
Company Index Fund (the "Large Company Fund"), the Small Company Index Fund (the
"Small Company Fund"), the Utility Index Fund (the "Utility Fund"), and the U.S.
Treasury Index Fund (the "U.S. Treasury Fund", and together with the Large
Company Fund, the Small Company Fund and the Utility Fund, the "Funds"), are
described in this Statement of Additional Information. The investment objective
of the Large Company Fund is to provide investment results that, before
deduction of operating expenses, match the price and yield performance of U.S.
publicly traded common stocks with large stock market capitalizations, as
represented by the Standard & Poor's 500 Composite Stock Price Index (the "S&P
500"). The investment objective of the Small Company Fund is to provide
investment results that, before deduction of operating expenses, match the price
and yield performance of U.S. publicly traded common stocks with smaller stock
market capitalizations, as represented by the Russell SpecialTM Small Company
Index (the "Small Company Index"). The investment objective of the Utility Fund
is to provide investment results that, before the deduction of operating
expenses, match the price and yield performance of U.S. publicly traded common
stocks of companies in the utility industry, as represented by the Russell
1000(R) Utility Index (the "Utility Index"). The investment objective of the
U.S. Treasury Fund is to provide investment results that, before deduction of
operating expenses, match the price and yield performance of U.S. Treasury notes
and bonds, as represented by the U.S. Treasury component (the "U.S. Treasury
Index") of the Salomon Brothers Broad Investment-Grade Bond Index.
A Prospectus and Statement of Additional Information
describing the fifth investment option available through Galaxy II, the
Municipal Bond Fund, can be obtained by calling Galaxy II at (800) 628-0414.
<PAGE> 36
INVESTMENT POLICIES AND RISK CONSIDERATIONS
The following policies supplement the descriptions of the
Funds' investment objectives and policies in the Prospectus.
THE INDEXING APPROACH
In using sophisticated computer models to select securities, a
Fund will only purchase a security that is included in its respective index at
the time of such purchase. A Fund may, however, temporarily continue to hold a
security that has been deleted from its respective index pending the rebalancing
of the Fund's portfolio. A list of securities included, as of the date of this
Statement of Additional Information, in each of the S&P 500, the Small Company
Index, the Utility Index, and the U.S. Treasury Index is available free of
charge by calling Galaxy II at (800) 628-0414, or by writing to Galaxy II, c/o
FDISG, 4400 Computer Drive, P.O. Box 5108, Westborough, Massachusetts 01581.
As noted in the Prospectus, the Small Company Fund and the
U.S. Treasury Fund will not hold all of the issues in their respective indexes
because of the costs involved and the illiquidity of many of the securities. The
Small Company Fund expects to own at least 750 of the 2500 securities in the
Small Company Index and will not purchase stocks not represented in the Small
Company Index. The U.S. Treasury Fund will hold a limited number of the notes
and bonds represented in the U.S. Treasury Index.
U.S. GOVERNMENT SECURITIES
As noted in the Prospectus, a Fund may invest in short-term
debt obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities ("U.S. Government Securities"). U.S. Government Securities in
which a Fund may invest include direct obligations of the U.S. Treasury and
obligations issued by U.S. government agencies and instrumentalities. Included
among direct obligations of the United States are Treasury Bills, Treasury Notes
and Treasury Bonds, which differ principally in terms of their maturities.
Included among the securities issued by those agencies and instrumentalities
are: securities that are supported by the full faith and credit of the United
States (such as Government National Mortgage Association certificates);
securities that are supported by the right of the issuer to borrow from the U.S.
Treasury (such as securities of Federal Home Loan Banks); and securities that
are supported by the credit of the instrumentality (such as Federal National
Mortgage Association and Federal Home Loan Mortgage Corporation bonds).
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<PAGE> 37
BANK OBLIGATIONS
Certificates of deposit and time deposits in which the Funds
may invest are generally limited to those instruments issued by U.S. and foreign
banks, savings and loan associations and other banking institutions having total
assets in excess of $1 billion. Certificates of deposit ("CDs") are short-term
negotiable obligations of commercial banks; and time deposits ("TDs") are
non-negotiable deposits maintained in banking institutions for specified periods
of time at stated interest rates. The Funds may invest in U.S.
dollar-denominated CDs and TDs, including instruments issued or supported by the
credit of U.S. or foreign banks or savings institutions having total assets at
the time of purchase in excess of $1 billion. The Funds will invest in an
obligation of a foreign bank or foreign branch of U.S. banks only if Fleet
Investment Advisors Inc. (the "Investment Adviser" or "Fleet") deems the
obligation to present minimal credit risks. Nevertheless, this kind of
obligation entails risks that are different from those of investments in
domestic obligations of U.S. banks due to differences in political, regulatory
and economic systems and conditions. The Funds will treat TDs maturing in more
than seven calendar days as illiquid securities.
FUTURES CONTRACTS
The Large Company Fund, the Small Company Fund, and the
Utility Fund (the "Stock Funds") may enter into stock index futures contracts
that are traded on a national exchange. A Stock Fund will enter into stock index
futures contracts only for bona-fide hedging purposes, or as otherwise permitted
by Commodity Futures Trading Commission ("CFTC") regulations. If permitted, a
Stock Fund may use stock index futures to maintain cash reserves while remaining
fully invested, to facilitate trading, to reduce transaction costs or to seek
higher investment returns when a stock index futures contract is priced more
attractively than the underlying index.
A stock index futures contract is an agreement between a
seller and a buyer to deliver and take delivery of, respectively, a commodity
which is represented by a multiple of a stock price index at a future specified
date. The delivery is a cash settlement of the difference between the original
transaction price and the final price of the index times the multiple at the
termination of the contract. No physical delivery of the underlying stocks in
the index is made. By entering into a stock index futures contract, a Stock Fund
is able to seek to protect its assets from fluctuations in value without
necessarily buying or selling the assets.
A Fund may not engage in futures activities for other than
bona fide hedging purposes if the aggregate initial margin
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<PAGE> 38
deposits on its non-hedging futures contracts and premiums paid on its related
options exceed 5% of the fair market value of the Fund's total assets, after
taking into account unrealized profits and unrealized losses on futures
contracts it has entered into.
No consideration is paid or received by a Fund upon the
purchase or sale of a futures contract. Upon entering into a futures contract, a
Fund will be required to deposit in a segregated account with its custodian an
amount of cash or cash equivalents, such as U.S. Government Securities or
high-grade debt obligations, equal to approximately 1 to 10% of the contract
amount (this amount is subject to change by the exchange on which the contract
is traded and brokers may require a higher amount). This amount is known as
"initial margin" and is in the nature of a performance bond or good faith
deposit on the contract, which is returned to the Fund involved upon termination
of the futures contract, assuming all contractual obligations have been
satisfied. The broker will have access to amounts in the margin account if a
Fund fails to meet its contractual obligations. Subsequent payments, known as
"variation margin," to and from the broker, will be made daily as the price of
the index or securities underlying the futures contract fluctuates, making the
long and short positions in the futures contract more or less valuable, a
process known as "marking-to-market." At any time prior to the expiration of a
futures contract, the Fund may elect to close the position by taking an opposite
position, which will operate to terminate the Fund's existing position in the
contract.
Galaxy II will set aside with its custodian, or with a
designated subcustodian, cash or cash equivalents, at least equal to the
underlying commodity value of each long position the Fund assumes in commodity
futures contracts or will take other actions consistent with regulatory
requirements, to avoid leverage.
There are several risks in connection with investing in
futures contracts. For example, although the Funds intend to enter into futures
contracts only if there is an active market for such contracts, there is no
assurance that a liquid market will exist for the contracts at any particular
time. Most futures exchanges limit the amount of fluctuation permitted in
futures contract prices during a single trading day. Once the daily limit has
been reached in a particular contract, no trades may be made that day at a price
beyond that limit. It is possible that futures contract prices could move to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and subjecting a Fund
to substantial losses. In such event, and in the event of adverse price
movements, a Fund would continue to be required to make daily cash payments of
variation margin. In addition, there can be no assurance that there will be a
perfect correlation between movements in the price of stocks
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<PAGE> 39
underlying a stock index futures contract and movements in the price of stocks
underlying a Fund's benchmark index. There is some risk, therefore, that the use
of stock index futures contracts may reduce the correlation between the
performance of a Stock Fund and its index.
Losses incurred in futures transactions and the costs of these
transactions will affect a Fund's performance. In addition, a Fund might have to
sell securities to meet daily variation margin requirements at a time when it
would be disadvantageous to do so. These sales of securities may, but will not
necessarily, be at increased prices.
LENDING OF PORTFOLIO SECURITIES
Each Fund may lend portfolio securities to brokers, dealers
and other financial organizations that meet capital and other credit
requirements or other criteria established by the Board of Trustees. These
loans, if and when made, may not exceed 33-1/3% of the Fund's total assets taken
at value. Loans of portfolio securities will be collateralized by cash, letters
of credit or U.S. Government Securities, which are maintained at all times in an
amount at least equal to the current market value of the loaned securities plus
any dividends and interest accrued thereon. From time to time, a Fund may return
a part of the interest earned from the investment of collateral received for
securities loaned to the borrower and/or a third party that is unaffiliated with
the Fund and that is acting as a "placing agent", provided that the Board of
Trustees (1) determines that any amount paid to a placing agent is reasonable
and based solely upon services rendered and (2) considers the propriety of any
amount paid to a borrower.
A Fund will adhere to the following conditions whenever its
portfolio securities are loaned: (a) the Fund must receive cash or equivalent
securities from the borrower as collateral at least equal to 100% of the current
market value of the loaned securities plus any interest and dividends accrued
thereon; (b) the borrower must increase such collateral whenever the market
value of the securities plus any accrued interest or dividends rises above the
level of such collateral; (c) the Fund must be able to terminate the loan at any
time; (d) the Fund must receive reasonable interest on the loan, as well as any
dividends, interest or other distributions on the loaned securities, and any
increase in market value; (e) the Fund may pay only reasonable custodian fees in
connection with the loan; and (f) voting rights on the loaned securities may
pass to the borrower, provided, however, that if a material event adversely
affecting the investment occurs, the Board of Trustees must terminate the loan
and regain the right to vote the securities.
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<PAGE> 40
REPURCHASE AGREEMENTS
Each Fund may invest in repurchase agreement transactions with
respect to U.S. Government Securities. A Fund will enter into repurchase
agreements only with member banks of the Federal Reserve System having total
assets in excess of $5 billion or non-bank dealers that are listed on the
Federal Reserve Bank of New York's list of reporting dealers. Repurchase
agreements are contracts under which the buyer of a security simultaneously
commits to resell the security to the seller at an agreed-upon price and date.
Under the terms of a typical repurchase agreement, a Fund would acquire a U.S.
Government Security for a relatively short period (usually not more than seven
days) subject to an obligation of the seller to repurchase, and the Fund to
resell, the U.S. Government Security at an agreed-upon price and time, thereby
determining the yield during the Fund's holding period. This arrangement results
in a fixed rate of return that is not subject to market fluctuations during the
Fund's holding period. Under each repurchase agreement, the selling institution
will be required to maintain the value of the securities subject to the
repurchase agreement at not less than 101% of the repurchase price.
Repurchase agreements involve certain risks in the event of
default or insolvency of the other party, including possible delays or
restrictions upon the subject Fund's ability to dispose of the underlying
securities. In evaluating these potential risks, the Investment Adviser, acting
under the supervision of the Board of Trustees, and on an ongoing basis,
monitors (a) the value of the collateral underlying each repurchase agreement of
the Funds to determine whether the value is at least equal to the total amount
of the repurchase obligation, including interest, and (b) the creditworthiness
of the banks and dealers with which the Funds enter into repurchase agreements.
A Fund will not enter into repurchase agreements that would cause more than 5%
of its net assets to be invested in illiquid securities.
A joint trading account may be used by the Funds to enter into
repurchase agreements. Each Fund's decision to invest in the joint account will
be solely at its option; a Fund will not be required either to invest a minimum
amount or to maintain a minimum balance. The Board of Trustees will evaluate
annually the joint account arrangement and will continue participation only if
it determines that there is a reasonable likelihood that each participating Fund
and its shareholders would benefit from continued participation and that no
participant will be treated on a less advantageous basis than another
participant.
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<PAGE> 41
INVESTING IN UTILITIES
The Utility Fund will concentrate its investments in the
utility industry. As a result, the Fund's investments may be subject to greater
risk and market fluctuation than a fund that had securities representing a
broader range of investment alternatives. The Fund's concentration policy means
that it will invest at least 25% of its total assets in utility companies, which
policy is a fundamental policy of the Fund and cannot be changed without
approval of a majority of the Fund's outstanding voting securities. The Fund
expects, however, to invest at least 80% of its total assets in utility
companies.
VALUATION OF PORTFOLIO SECURITIES
Portfolio securities which are listed on the New York Stock
Exchange or the American Stock Exchange are valued at the last quoted sales
price, or if no sales occurred, the closing bid price. Investments in U.S.
Government Securities (other than short-term securities) are valued at the
average of the quoted bid and asked prices in the over-the-counter market.
Short-term investments that mature in 60 days or less are valued on the basis of
amortized cost (which involves valuing an investment instrument at its cost and,
thereafter, assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument) unless Galaxy II's Board of Trustees has determined
that amortized cost does not approximate market value. Other securities for
which market quotations are readily available are valued as nearly as possible
in the manner described above. Securities may be valued by a pricing service
when such prices are believed to reflect the fair market value of such
securities. Other assets and securities for which market quotations are not
readily available are valued based on fair value as determined in good faith in
accordance with procedures established by the Board of Trustees.
INVESTMENT LIMITATIONS
Investment limitations numbered 1 through 13 as they affect a
particular Fund may not be changed without the approval by a vote of a majority
of the outstanding shares of that Fund. Investment limitations numbered 14
through 16 may be changed by a vote of the Board of Trustees at any time. A
majority vote by shareholders, with respect to the approval of an investment
advisory agreement, a distribution plan or a change in a fundamental investment
policy, is defined as the lesser of (a) 67% or more of the shares present at the
meeting, if the holders of more than 50% of the outstanding shares of the Fund
are present or represented by proxy, or (b) more than 50% of the outstanding
shares of the Fund.
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<PAGE> 42
A Fund may not:
1. Purchase the securities of any issuer if as a result more
than 5% of the value of the Fund's total assets would be invested in the
securities of such issuer, except that (a) this 5% limitation does not apply to
U.S. Government Securities and (b) up to 25% of the value of the Fund's total
assets may be invested without regard to this 5% limitation.
2. Borrow money or issue senior securities except that the
Fund may borrow from banks for temporary or emergency purposes, and not for
leveraging, and then in amounts not in excess of 33-1/3% of the value of the
Fund's total assets at the time of such borrowing; or mortgage, pledge or
hypothecate any assets except in connection with any bank borrowing and in
amounts not in excess of the lesser of the dollar amounts borrowed or 33-1/3% of
the value of the Fund's total assets at the time of such borrowing. Whenever
borrowings are outstanding, a Fund will not make any additional investments
(including roll-overs). For purposes of this restriction, collateral
arrangements with respect to (a) the purchase and sale of options on stock
indexes and (b) initial and variation margin for futures contracts, will not be
deemed to be issuances of senior securities or to be pledges of a Fund's assets.
3. Purchase any securities that 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 issuers conducting their principal business activities in the same
industry, except that the Utility Fund will invest in excess of 25% of its
assets in the securities of companies within the utility industry, and provided
that there shall be no limit on the purchase of U.S. Government Securities.
4. Make loans, except that the Fund may purchase or hold debt
obligations, lend portfolio securities and enter into repurchase agreements, as
described herein and in the Prospectus.
5. Underwrite any issue of securities except to the extent
that the sale of portfolio securities in accordance with the Fund's investment
objective, policies and limitations may be deemed to be underwriting.
6. Purchase or sell real estate or real estate limited
partnership interests, or invest in oil, gas or mineral leases, or mineral
exploration or development programs, except that the Fund may invest in
securities secured by real estate, mortgages or interests therein and may
purchase securities issued by companies that invest or deal in any of the above.
7. Make short sales of securities or maintain a short
position.
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8. Purchase securities of other investment companies except as
they may be acquired in connection with a merger, consolidation, acquisition,
reorganization or offer of exchange and except as permitted under the Investment
Company Act of 1940, as amended (the "1940 Act"). Purchases made in connection
with this restriction may subject shareholders to duplicate fees and expenses.
9. Purchase more than 10% of the voting securities of any one
issuer, more than 10% of the securities of any class of any one issuer or more
than 10% of the outstanding debt securities of any one issuer; provided that
this limitation shall not apply to investments in U.S. Government Securities.
10. Purchase securities on margin, except that a Fund may
obtain any short-term credits necessary for the clearance of purchases and sales
of securities. For purposes of this restriction, the deposit or payment of
initial or variation margin in connection with futures contracts or related
options will not be deemed to be a purchase of securities on margin by the Fund.
11. Invest in commodities, except that the Stock Funds may
invest in stock index futures as described in this Statement of Additional
Information and in the Prospectus.
12. Invest in companies for the purpose of exercising
control or management.
13. Invest more than 5% of the value of the Fund's net assets
in securities which may be illiquid because of legal or contractual restrictions
on resale or securities for which there are no readily available market
quotations. For purposes of this limitation, repurchase agreements with
maturities greater than seven days shall be considered illiquid securities.
14. Purchase any security if as a result the Fund would then
have more than 5% of its total assets invested in securities of companies
(including predecessors) that have been in continuous operation for fewer than
three years.
15. Purchase or retain securities of any company if, to the
knowledge of Galaxy II, any of Galaxy II's officers or Trustees or any officer
or director of Galaxy II's investment adviser individually owns more than 1/2 of
1% of the outstanding securities of such company and together they own
beneficially more than 5% of the securities.
16. Purchase warrants.
Galaxy II may make commitments more restrictive than the
restrictions listed above with respect to a Fund so as to
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<PAGE> 44
permit the sale of shares of the Fund in certain states. Should Galaxy II
determine that any such commitment is no longer in the best interest of the Fund
involved and its shareholders, Galaxy II will revoke the commitment by
terminating the sale of shares of the Fund in the state involved or may
otherwise modify its commitment based on a change in the involved state's
restrictions. If a percentage restriction (other than that contained in
Investment Limitation 2) is adhered to at the time of an investment, a later
increase or decrease in the percentage of assets resulting from a change in the
values of portfolio securities or in the amount of the relevant Fund's assets
will not constitute a violation of such restriction.
PORTFOLIO TURNOVER
Galaxy II cannot accurately predict the Funds' respective
portfolio turnover rates. For the fiscal years ended March 31, 1996 and 1995,
respectively, the portfolio turnover rates were as follows: the Large Company
Fund, 5% and 7%; the Small Company Fund, 14% and 10%; the U.S. Treasury Fund,
35% and 50%; and the Utility Fund, 12% and 5%. Portfolio turnover rate is
calculated by dividing the lesser of a Fund's annual sales or purchases of
portfolio securities by the monthly average value of securities in the Fund
during the year, excluding any portfolio security, the maturity of which at the
time of acquisition was one year or less. Higher portfolio turnover rates can
result in corresponding increases in brokerage commissions. A Fund will not
consider its turnover rate a limiting factor in making investment decisions
consistent with its investment objective and policies.
PORTFOLIO TRANSACTIONS
The Investment Adviser will select specific portfolio
investments and effect transactions for the Funds. The Investment Adviser seeks
to obtain the best net price and the most favorable execution of orders. The
Investment Adviser may, in its discretion, effect transactions in portfolio
securities with dealers who provide research advice or other services to the
Funds or the Investment Adviser. The Investment Adviser is authorized to pay a
broker or dealer who provides such brokerage and research services a commission
for executing a portfolio transaction for any Fund which is in excess of the
amount of commission another broker or dealer would have charged for effecting
that transaction if the Investment Adviser 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 the Investment Adviser's overall responsibilities to
the particular Fund and to the Trust. Such brokerage and research services might
consist of reports and statistics relating to specific companies or industries,
general summaries
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<PAGE> 45
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 II and the
Investment Adviser are not reduced by reason of receiving such brokerage and
research services. The Board of Trustees will periodically review the
commissions paid by the Funds to determine if the commissions paid over
representative periods of time were reasonable in relation to the benefits
inuring to the Funds.
Transactions on U.S. stock exchanges involve the payment of
negotiated brokerage commissions. On exchanges on which commissions are
negotiated, the cost of transactions may vary among different brokers. There is
generally no stated commission in the case of securities traded in U.S.
over-the-counter markets, but the prices of those securities include undisclosed
commissions or mark-ups. The cost of securities purchased from underwriters
includes an underwriting commission or concession, and the prices at which
securities are purchased from and sold to dealers include a dealer's mark-up or
mark-down. U.S. Government Securities are generally purchased from underwriters
or dealers, although certain newly issued U.S. Government Securities may be
purchased directly from the U.S. Treasury or from the issuing agency or
instrumentality. No brokerage commissions are typically paid on purchases and
sales of U.S. Government Securities.
During the fiscal years ended March 31, 1994, March 31, 1995
and March 31, 1996, the Large Company Fund paid $8,002, $22,022 and $22,538,
respectively, in commissions to broker-dealers for execution of portfolio
transactions and, for the same periods, the Small Company Fund paid $113,705,
$132,261 and $95,120, respectively, in commissions. For the fiscal years ended
March 31, 1994, March 31, 1995 and March 31, 1996 the Utility Fund paid $55,415,
$20,912 and $16,044, respectively, in commissions to broker-dealers. During the
fiscal years ended March 31, 1995 and March 31, 1996, the U.S. Treasury Index
Fund paid $237 and $0, respectively, in commissions to broker-dealers for
execution of portfolio transactions. These Funds follow an index strategy and,
therefore, any variation in turnover rate would be related to an increase or
decrease in assets of a Fund resulting in the necessity of such Fund buying or
selling securities.
The Trust is required to identify any securities of its
"regular brokers or dealers" that the Trust has acquired during its most recent
fiscal year. At March 31, 1996, (a) the Large Company Fund held common stock of
Merrill Lynch and Co., Inc. in the amount of $494,627 and in Salomon, Inc. in
the amount of $192,338; and (b) the Small Company Fund held common stock of Bear
Stearns Cos. in the amount of $954,385.
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Since Galaxy II does not market shares of the Funds through
intermediary brokers or dealers, it is not Galaxy II's practice to allocate
brokerage or principal business on the basis of sales of its shares.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Funds are sold on a continuous basis by the
Distributor, and the Distributor has agreed to use appropriate efforts to
solicit all purchase orders. As described in the Prospectus, shares of the Funds
are sold to customers ("Customers") of Fleet Brokerage Securities Corporation,
Fleet Securities, Inc., Fleet Financial Group, Inc. ("Fleet Group"), its
affiliates, their correspondent banks, and other qualified banks, savings and
loan associations and broker/dealers ("Institutions"). As described in the
Prospectus, Shares may also be sold to individuals or corporations, who submit a
purchase application to Galaxy II, purchasing either for their own accounts or
for the accounts of others ("Direct Investors").
Galaxy II may suspend the right of redemption or postpone the
date of payment for shares for more than seven days during any period when (a)
trading in the markets the Funds normally utilized is restricted, or an
emergency, as defined by the rules and regulations of the Securities and
Exchange Commission (the "SEC"), exists making disposal of the Fund's
investments or determination of its net asset value not reasonably practicable;
(b) the New York Stock Exchange is closed (other than customary weekend and
holiday closings); or (c) the SEC has by order permitted such suspension.
ADDITIONAL INFORMATION CONCERNING TAXES
Each Fund has qualified each year in the past and each Fund
intends to qualify each year in the future as a "regulated investment company"
under the Internal Revenue Code of 1986, as amended (the "Code"). Provided that
a Fund (a) qualifies as a regulated investment company and (b) distributes to
its shareholders at least 90% of its "investment company taxable income" (that
is, its income minus its "net capital gains" and after taking into account
certain required adjustments), the Fund generally will not be subject to Federal
income tax to the extent its net investment income (that is, its income other
than its net realized capital gains) and its net realized long-term and
short-term capital gains are distributed to its shareholders in accordance with
the Code. Because of the Code's requirements for qualification as a regulated
investment company, each Fund may be restricted in the utilization of certain of
the investment techniques described above and in the Prospectus.
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As noted in the Prospectus, each Fund expects to pay dividends
and to make distributions as necessary to avoid the application of the 4%
non-deductible excise tax measured with respect to certain undistributed amounts
of ordinary income and capital gain. A Fund may also, in order to avoid the 4%
excise tax, declare one or more dividends in October, November or December of
any calendar year, payable to shareholders of record on a specified date in such
a month. If a Fund declares such dividends, then each such shareholder will be
treated as receiving such dividends and the Fund will be treated as having paid
the dividends on December 31 of that year provided that the Fund pays such
dividends to such shareholders during January of the following calendar year. As
a general rule, dividends paid by a Fund will qualify for the dividends-received
deduction for corporate shareholders if such Fund dividends are attributable to
dividends received by the Fund from U.S. corporations and certain holding period
requirements are met.
As described above and in the Prospectus, the Stock Funds are
authorized to buy and sell exchange-traded stock index futures contracts. Each
Fund's transactions, if any, in futures contracts will be subject to special
provisions of the Code that, among other things, may affect the character of
gains and losses recognized by the Fund (i.e., may affect whether gains or
losses are ordinary or capital), accelerate recognition of income to the Fund
and defer Fund losses. These rules could therefore affect the character, amount
and timing of distributions to shareholders. These provisions also (1) will
require each Fund to mark-to-market certain types of its positions (i.e., treat
them as if they were closed out) and (2) may cause that Fund to recognize income
without receiving cash with which to pay dividends or make distributions in
amounts necessary to satisfy the distribution requirements for avoiding income
and excise taxes. Each Fund will monitor its transactions, will make the
appropriate tax elections and will make the appropriate entries in its books and
records when it acquires any futures contract or hedged investment so that, to
the extent possible, (1) neither the Fund nor its shareholders will be treated
as receiving a materially greater amount of capital gains or distributions than
actually realized or received, (2) the Fund will be able to use substantially
all of its losses for the fiscal years in which the losses actually occur and
(3) the Fund will continue to qualify as a regulated investment company.
Net realized long-term capital gains will be distributed as
described in the Prospectus. Such distributions ("capital gain dividends") will
be taxable to a shareholder as long-term capital gains, regardless of how long a
shareholder has held Fund shares. However, if a shareholder receives a capital
gain dividend with respect to any share and if such share is held by the
shareholder for six months or less, then any loss on the
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<PAGE> 48
sale or redemption of such share will be treated as a long-term capital loss to
the extent of the capital gain dividend.
A shareholder of a Fund receiving dividends or distributions
in the form of additional shares will be treated for Federal income tax purposes
as receiving a distribution in an amount equal to the amount of money that a
shareholder receiving cash dividends or distributions receives and will have a
cost basis in the shares equal to that amount.
Investors considering buying shares of a Fund on or just prior
to the record date for a taxable dividend or capital gain distribution should be
aware that the amount of the forthcoming dividend or distribution payment,
although, in effect, a return of capital will be a taxable dividend or
distribution payment.
If a shareholder fails to furnish a correct taxpayer
identification number, fails to report fully dividend or interest income, or
fails to certify that he or she has provided a correct taxpayer identification
number and that he or she is not subject to backup withholding, then the
shareholder may be subject to a 31% "backup withholding tax" with respect to (a)
dividends and distributions and (b) the proceeds of any sales or redemptions of
a Fund's shares. An individual's taxpayer identification number is his or her
social security number. Corporate shareholders and certain other shareholders
specified in the Code generally are exempt from backup withholding. The 31%
"backup withholding tax" is not an additional tax and may be credited against a
taxpayer's regular Federal income tax liability. Dividends and distributions
also may be subject to state and local taxes depending on each shareholder's
particular situation.
The foregoing is only a summary of certain tax considerations
generally affecting the Funds and their shareholders, and is not intended as a
substitute for careful tax planning. Shareholders are urged to consult their tax
advisers with respect to the particular tax consequences to them of an
investment in a Fund.
TRUSTEES AND OFFICERS
The trustees and executive officers of Galaxy II, their
addresses, their principal occupations during the past five years, ages and
other affiliations are set forth below. The executive officers of Galaxy II are
employees of organizations that provide services to the Funds. Each trustee who
is an "interested person" of Galaxy II, as defined in the 1940 Act, is indicated
by an asterisk. Each other trustee has no relationship with the Investment
Adviser or the Former Adviser (as hereafter defined).
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Positions Held with Galaxy II and
Principal Occupation(s) During
Name and Address Past 5 Years
- ---------------- ---------------------------------
Dwight E. Vicks, Jr. Trustee and Chairman of the Board
Vicks Lithograph &
Printing Corporation President & Director, Vicks
Commercial Drive Lithograph & Printing
P.O. Box 270 Corporation (book manufacturing
Yorkville, NY 13495 and commercial printing); Director,
Age 63 Utica First Insurance Company;
Trustee, Savings Bank of
Utica; Director, Monitor
Life Insurance Company;
Director, Commercial
Travelers Mutual Insurance
Company; Chairman of the
Board, The Galaxy Fund and
The Galaxy VIP Fund.
*John T. O'Neill Trustee, President and Treasurer
Hasbro, Inc.
200 Narragansett Executive Vice President and CFO,
Park Drive Hasbro, Inc. (toy and game
Pawtucket, RI 02862 manufacturer), since 1987; Trustee,
Age 55 President and Treasurer, The Galaxy
Fund and The Galaxy VIP
Fund; Managing Partner,
KPMG Peat Marwick
(accounting firm), 1986.
Louis DeThomasis Trustee
Saint Mary's College
of Minnesota President, Saint Mary's College of
Winona, MN 55987 Minnesota; Director, Bright Day
Age 55 Travel, Inc.; Trustee, Religious
Communities Trust; Trustee, The
Galaxy Fund and The Galaxy VIP
Fund.
Donald B. Miller Trustee
10725 Quail Covey Road
Boynton Beach, FL 33436 Chairman, Horizon Media, Inc.
Age 70 (broadcast services); Director/
Trustee, Lexington Funds; Director,
Maguire Group of Connecticut, Inc.
(consulting engineers); Trustee,
Keuka College; Trustee, The Galaxy
Fund and The Galaxy VIP Fund.
15
<PAGE> 50
James M. Seed Trustee
The Astra Ventures, Inc.
One Citizens Plaza Chairman and President, The Astra
Providence, RI 02903 Projects, Incorporated (land
Age 55 development); President, The Astra
Ventures, Incorporated
(previously, Buffinton Box
Company - manufacturer of
cardboard boxes); Trustee,
The Galaxy Fund and The
Galaxy VIP Fund;
Commissioner, Rhode Island
Investment Commission.
*Bradford S. Wellman Trustee
2468 Ohio Street
Bangor, ME 04401 Private Investor; President, Ames &
Age 65 Wellman, from 1978 to 1991;
President, Pingree
Associates, Inc., from 1974
until 1990; Director, Essex
County Gas Company, until
January 1994; Director,
Maine Mutual Fire Insurance
Co.; Member, Maine Finance
Authority; Trustee, The
Galaxy Fund and The Galaxy
VIP Fund.
W. Bruce McConnel, III Secretary
Drinker Biddle & Reath
Philadelphia National Partner of the law firm Drinker
Bank Building Biddle & Reath, Philadelphia,
1345 Chestnut St. Pennsylvania.
Philadelphia, PA 19107
Age 53
Neil Forrest Vice President and Assistant
First Data Investor Treasurer
Services Group, Inc.
4400 Computer Drive Vice President, Investment
P.O. Box 5108 Marketing and Strategic Planning
Westborough, MA 01581 Manufacturers and Traders Trust Co.
Age 36 1990-1992; First Data Investor
Services Group, Inc. 1992-present.
The following chart provides certain information about Galaxy
II trustee fees for the year ended March 31, 1996:
16
<PAGE> 51
<TABLE>
<CAPTION>
TOTAL
COMPENSA-
PENSION OR TION FROM
RETIREMENT COMPANY
BENEFITS AND FUND
AGGREGATE ACCRUED COMPLEX*
NAME OF COMPENSATION AS PART OF PAID TO
PERSON FROM THE COMPANY FUND EXPENSES TRUSTEES
- ------ ---------------- ------------- --------
<S> <C> <C> <C>
Bradford S. Wellman $5,000 None $29,750
Dwight E. Vicks, Jr. $5,000 None $36,100
Donald B. Miller $5,000 None $32,000
Louis DeThomasis $5,000 None $32,000
John T. O'Neill $5,000 None $34,625
James M. Seed $5,000 None $32,000
</TABLE>
* The "Fund Complex" consists of The Galaxy Fund, The Galaxy VIP Fund and
Galaxy Fund II.
Each trustee of The Galaxy Fund, The Galaxy VIP Fund and Galaxy Fund II
receives an annual aggregate fee of $23,000 plus (i) with respect to The Galaxy
Fund, a meeting fee of $1,500 for each Board meeting attended, (ii) with respect
to The Galaxy VIP Fund, a meeting fee of $1,500 for each Board meeting attended
which is not held concurrently with a Board meeting of The Galaxy Fund, and
(iii) $500 for each telephone Board meeting in which a trustee participates, in
addition to reimbursement for reasonable out-of-pocket expenses incurred in
attending meetings. The Chairman of the Boards of The Galaxy Fund and The Galaxy
VIP Fund is entitled to an additional annual aggregate fee in the amount of
$4,000 for his services in these capacities and the President and Treasurer of
The Galaxy Fund and The Galaxy VIP Fund is entitled to receive an aggregate
annual fee of $2,500 for his services in these capacities. Beginning March 1,
1996, each trustee is also entitled to participate in The Galaxy Fund, The
Galaxy VIP Fund and Galaxy Fund II Deferred Compensation Plans (the "Plans").
The Plans, which are substantially identical, provide that a trustee may defer
all or a portion of the compensation earned from each of the Trusts to a
deferred compensation account. Monies in the deferred compensation account will
be invested according to the investment options selected by the trustee. No
employee of First Data receives any compensation from Galaxy II for acting as an
officer. No person who is an officer, director or employee of Fleet, or any of
its affiliates, serves as a trustee, officer or employee of Galaxy II.
17
<PAGE> 52
As of June 1, 1996, the aforementioned Trustees and officers
of Galaxy II as a group owned no shares of the Large Company Fund, the Small
Company Fund, the U.S. Treasury Fund, the Utility Fund or the Municipal Bond
Fund.
ADVISORY, ADMINISTRATION, CUSTODIAN, TRANSFER AGENT
AND DIVIDEND PAYING AGENT AGREEMENTS
INVESTMENT ADVISER AND ADMINISTRATOR
Fleet, an indirect subsidiary of Fleet Financial Group, Inc.,
serves as the investment adviser to the Funds. Fleet's principal offices are
located at 45 East Avenue, Rochester, New York 14604.
Pursuant to its investment advisory agreement with Galaxy II,
Fleet, subject to the general supervision of Galaxy II's Board of Trustees and
in accordance with each Fund's investment policies, manages each Fund, makes
decisions with respect to and places orders for all purchases and sales of its
portfolio securities and maintains related records. The fees paid to the
Investment Adviser under the Advisory Agreement are described in the Prospectus.
Prior to July 1, 1994, IBM Credit Management Corporation, a wholly-owned
subsidiary IBM Credit Corporation, served as the investment adviser to the Trust
(the "Former Adviser") for the same fees as those charged by Fleet Investment
Advisors Inc. For the fiscal year ended March 31, 1994 and for the period ended
June 30, 1994, the Former Adviser earned $143,524 and $35,830, respectively, as
adviser to the Large Company Fund, and for the period July 1, 1994 through March
31, 1995 and for the year ended March 31, 1996, Fleet earned $106,047 and
$194,615, respectively, as adviser to the Large Company Fund. For the fiscal
year ended March 31, 1994, and for the period ended June 30, 1994, the Former
Adviser earned $243,272 and $62,824, respectively, as adviser to the Small
Company Fund and for the period July 1, 1994 through March 31, 1995 and for the
year ended March 31, 1996, Fleet earned $178,169 and $264,753, respectively, as
adviser to the Small Company Fund. For the fiscal year ended March 31, 1994 and
for the period ended June 30, 1994, the Former Adviser earned $72,948 and
$16,429, respectively, as adviser to the Utility Fund, and for the period July
1, 1994 through March 31, 1995 and for the year ended March 31, 1996, Fleet
earned $43,024 and $55,279, respectively, as adviser to the Utility Fund. For
the fiscal years ended March 31, 1994 and for the period ended June 30, 1994,
the Former Adviser earned $149,615 and $32,672, respectively, as adviser to the
U.S. Treasury Fund and for the period July 1, 1994 through March 31, 1995 and
for the year ended March 31, 1996 Fleet earned $83,856 and $117,603,
respectively, as adviser to the U.S. Treasury Fund.
18
<PAGE> 53
Pursuant to its administration agreement with Galaxy II (the
"Administration Agreement"), Fleet National Bank (the "Administrator") generally
assists in certain aspects of the administration and operation of the Funds. The
Administrator has agreed to maintain office facilities for Galaxy II, furnish
Galaxy II with statistical and research data, clerical, accounting, and
bookkeeping services, certain other services such as internal auditing services
required by Galaxy II, and compute the net asset value and net income of the
Funds. In addition, the Administrator prepares the Funds' annual and semi-annual
reports to the SEC, Federal and state tax returns, and filings with state
securities commissions, arranges for and bears the cost of processing share
purchase and redemption orders, maintains the Funds' financial accounts and
records, and generally assists in all aspects of Galaxy II's operations.
Pursuant to the Administration Agreement, the Administrator may delegate to
another organization the performance of some or all of these services, in which
case the Administrator will be responsible for all compensation payable to such
organization and will remain liable for losses or failures resulting from the
actions or omissions of such agent. The Administrator has entered into a
Sub-Administration Agreement with First Data Investor Services Group, Inc.
("FDISG"), pursuant to which the Sub-Administrator has agreed to provide the
Trust with the services which the Trust is entitled to receive under the
Administration Agreement with the Administrator.
For the fiscal years ended March 31, 1994 and for the period
through June 30, 1994, the Former Adviser earned $430,573 and $107,490,
respectively, as administrator of the Large Company Fund and the Administrator
earned $311,540 and $581,697 for the period July 1, 1994 through March 31, 1995
and for the year ended March 31, 1996, respectively. For the fiscal year ended
March 31, 1994 and for the period through June 30, 1994, the Former Adviser
earned $729,817 and $188,472, respectively, as administrator of the Small
Company Fund and the Administrator earned $527,906 and $787,499 for the period
July 1, 1994 through March 31, 1995 and for the year ended March 31, 1996,
respectively. For the fiscal year ended March 31, 1994, and the period through
June 30, 1994, the Former Adviser earned $218,845 and $49,314, respectively, as
administrator of the Utility Fund and the Administrator earned $122,471 and
$164,968 for the period July 1, 1994 through March 31, 1995 and for the year
ended March 31, 1996, respectively. For the fiscal year ended March 31, 1994 and
for the period through June 30, 1994, the Former Adviser earned $448,845 and
$98,600, respectively, as administrator of the U.S. Treasury Fund and the
Administrator earned $244,968 and $352,810 for the period July 1, 1994 through
March 31, 1995 and for the year ended March 31, 1996, respectively.
The Administrator pays the salaries of all officers and
employees who are employed by both it and Galaxy II, and
19
<PAGE> 54
maintains office facilities for Galaxy II. The Investment Adviser and the
Administrator bear all expenses in connection with their respective duties under
the Advisory and Administration Agreements and the Administrator bears all of
Galaxy II's expenses with the following exceptions: brokerage fees and
commissions; fees and expenses of Trustees who are not officers, directors or
employees of the Investment Adviser, the Administrator, the Distributor or any
of their affiliates; taxes; interest; and any extraordinary non-recurring
expenses, including litigation to which Galaxy II may be a party. The fees paid
to the Administrator under the Administration Agreement are described in the
Prospectus.
The Advisory and Administration Agreements provide that,
absent willful misfeasance, bad faith, gross negligence or reckless disregard of
duty (or, in the case of the Investment Adviser, a breach of fiduciary duty with
respect to the receipt of compensation for services), neither the Investment
Adviser, nor the Administrator, as the case may be, shall be liable to Galaxy II
for any error of judgment or mistake of law or for any loss sustained by Galaxy
II. The Advisory and Administration Agreements are terminable without penalty by
Galaxy II on sixty days' written notice when authorized by vote of a majority of
its Board of Trustees, or by the Investment Adviser or Administrator, as the
case may be, on sixty days' written notice. In addition, the Advisory Agreement
is terminable without penalty by Galaxy II on sixty days' written notice when
authorized by a majority vote of its outstanding voting shares and will
automatically terminate in the event of its "assignment" as defined in the 1940
Act.
Each of the Advisory and Administration Agreements provides
that the agreement remains in effect until June 30 of each year, unless earlier
terminated, as long as such continuance is annually approved by a vote of
trustees who are not parties to the contract or "interested persons", as defined
by the 1940 Act, of any such party cast in person at a meeting specially called
for the purpose of voting on the continuance of the Advisory Agreement.
The Investment Adviser and the Administrator have agreed that
if in any fiscal year the aggregate expenses of a Fund (as defined under the
securities regulations of any state having jurisdiction over the Fund) exceed
the expense limitation of such state, the Investment Adviser and the
Administrator will reduce its advisory and administration fee, respectively,
payable by that Fund or reimburse the Fund to the extent required by state law.
A fee reduction, if any, will be accrued on a daily basis. The most restrictive
annual expense limitation applicable to a Fund is 2.5% of the first $30 million
of the average net assets of the Fund, 2% of the next $70 million of the average
net assets of the Fund and 1.5% of any remaining average net assets of the Fund.
20
<PAGE> 55
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling or distributing securities such as shares of
the Funds, but do not prohibit such a bank holding company or its affiliates or
banks generally from acting as investment adviser, administrator, transfer agent
or custodian to such an investment company or from purchasing shares of such a
company as agent for and upon the order of customers. The Investment Adviser,
Administrator, the Funds' custodian and certain financial institutions which
have agreed to provide shareholder support services that are banks or bank
affiliates are subject to such banking laws and regulations. Should legislative,
judicial or administrative action prohibit or restrict the activities of such
companies in connection with their services to the Funds, Galaxy II might be
required to alter materially or discontinue its arrangements with such companies
and change its method of operation. It is anticipated, however, that any
resulting change in the Funds' method of operation would not affect their net
asset value per share or result in financial losses to any shareholder. State
securities laws on this issue may differ from Federal law and banks and
financial institutions may be required to register as dealers pursuant to state
law.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND PAYING AGENT
The Chase Manhattan Bank, N.A. (the "Custodian") serves as
custodian to the Funds pursuant to a Custody Agreement. Under its custody
agreement, the Custodian has agreed to: (i) maintain a separate account or
accounts in the name of each Fund; (ii) hold and disburse portfolio securities
on account of each Fund; (iii) collect and make disbursements of money on behalf
of each Fund; (iv) collect and receive all income and other payments and
distributions on account of each Fund's portfolio securities; and (v) respond to
correspondence from security brokers and others relating to its duties.
First Data Investor Services Group, Inc. ("FDSIG") serves as
Galaxy II's transfer agent and dividend disbursing agent pursuant to a Transfer
Agency Agreement ("Transfer Agency Agreement"). Under the Transfer Agency
Agreement, FDISG has agreed to: (i) issue and redeem shares of each Fund; (ii)
transmit all communications by each Fund to its shareholders of record,
including reports to shareholders, dividend and distribution notice and proxy
materials for meetings of shareholders; (iii) respond to correspondence by
security brokers
21
<PAGE> 56
and others relating to its duties; and (iv) maintain shareholder accounts.
PERFORMANCE AND YIELD INFORMATION
From time to time, a Fund may quote its performance, as based
upon its total return, its yield in the case of the Utility Fund or the U.S.
Treasury Fund, or its tax-equivalent yield in the case of the U.S. Treasury
Fund, in advertisements or in reports and other communications to shareholders.
For the Large Company Fund and the Small Company Fund, the total returns for the
twelve-month period ending March 31, 1996 were 31.80% and 30.88%, respectively.
The average annual total returns for the Large Company Fund and the Small
Company Fund for the period beginning October 1, 1990 (commencement of
operations) and ending March 31, 1996 were 17.07% and 19.47%, respectively. For
the U.S. Treasury Fund, the total return for the twelve-month period ending
March 31, 1996 was 10.1%. The average annual total return for the U.S. Treasury
Fund for the period beginning June 4, 1991 (commencement of operations) through
March 31, 1996 was 8.1%. For the Utility Fund, the total return for the
twelve-month period ending March 31, 1996 was 26.60%. The average annual total
return for the Utility Fund for the period beginning January 5, 1993
(commencement of operations) through March 31, 1996 was 9.87%. These total
return figures have been adjusted by 1.05%, 1.06%, 0.97% and 0.97% for the
twelve-month period ended March 31, 1996, and by 0.86%, 0.79%, 0.92% and 0.64%
for the life of the Fund, for the Large Company Fund, the Small Company Fund,
the U.S. Treasury Fund and the Utility Fund, respectively, to reflect, based
upon a hypothetical $1,000 initial investment, the imposition of $10.00 annual
account maintenance fees. The Administrator has agreed to waive until further
notice receipt of the $10.00 annual account maintenance fees. Aggregate total
return may be shown by means of schedules, charts or graphs, and may indicate
subtotals of the various components of total return (that is, change in value of
initial investment, income dividends and capital gains distributions). A Fund's
"average annual total return" figures described in the Prospectus are computed
according to a formula prescribed by the SEC. The formula can be expressed as
follows:
P(1+T)(n)=ERV
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = Ending Redeemable Value of a hypothetical $1,000
investment made at the beginning of a period, at the end
of a 1-, 5- or 10-year period (or fractional
22
<PAGE> 57
portion thereof), assuming reinvestment of all
dividends and distributions.
Yield is calculated by annualizing the net investment income
generated by the U.S. Treasury Fund over a specified thirty-day period according
to the following formula:
a-b
YIELD = 2[( ___________________ +1)(6)-1]
cd
For purposes of this formula: "a" is dividends and interest earned during the
period; "b" is expenses accrued for the period (net of reimbursements); "c" is
the average daily number of shares outstanding during the period that were
entitled to receive dividends; and "d" is the maximum offering price per share
on the last day of the period.
The yield for the 30-day period ended March 31, 1996 for the
U.S. Treasury Fund was 5.83%.
Tax-equivalent yield is calculated over a specified thirty-day
period by dividing that portion of the Fund's yield which is tax-exempt by one
minus a stated income tax rate and adding the product to that portion, if any,
of the yield of the Fund that is not tax-exempt.
A Fund's performance will vary from time to time depending
upon market conditions, the composition of its portfolio and its operating
expenses. Consequently, any given performance quotation should not be considered
representative of a Fund's performance for any specified period in the future.
In addition, because the performance will fluctuate, it may not provide a basis
for comparing an investment in a Fund with certain bank deposits or other
investments that pay a fixed yield for a stated period of time. Investors
comparing a Fund's performance with that of other mutual funds should give
consideration to the quality and maturity of the respective investment
companies' portfolio securities.
Comparative performance information may be used from time to
time in advertising the shares of a Fund, including data from Lipper Analytical
Services, Inc., Ibbotson Associates, Morningstar, Inc., the S&P 500, the Russell
3000 Index, the Small Company Index, the Dow Jones Industrial Average, the BIG
Index, the U.S. Treasury Index, the Utility Index and other industry
publications.
Galaxy II may compare the performance of the Large Company
Fund and the Small Company Fund to certain U.S. diversified equity mutual funds,
as calculated by
23
<PAGE> 58
Morningstar, Inc. or another industry service and with that of the S&P 500 and
the Small Company Index, respectively. The performance of the Utility Fund may
be compared to certain utility funds, as calculated by Morningstar, Inc. or
another industry service and with that of the Utility Index. In addition, the
Trust may compare the performance of the U.S. Treasury Fund to certain U.S.
fixed income mutual funds, as calculated by Morningstar, Inc. or another
industry service and with that of the U.S. Treasury Index.
The following chart shows the performance of the benchmark
indexes for the past ten calendar years.
<TABLE>
<CAPTION>
SMALL U.S.
COMPANY TREASURY UTILITY
YEAR S&P500 INDEX INDEX INDEX
<S> <C> <C> <C> <C>
1995 37.58% 33.01% 37.96% 37.58%
1994 1.3 -2.7 -3.4 -8.3
1993 10.0 13.2 10.7 14.2
1992 7.6 14.1 7.2 12.1
1991 30.5 6.6 15.3 21.0
1990 -3.1 -11.2 8.6 -8.2
1989 31.7 24.4 14.4 46.4
1988 16.6 20.9 7.1 20.1
1987 5.1 -5.4 1.9 -3.0
1986 18.6 13.2 15.7 26.7
Average 15.59% 10.61% 11.55% 15.86%
</TABLE>
The quoted performance of the benchmark indexes shown above is not intended to
indicate the future performance of a Fund. The Manager believes that the
investment results of each Fund will approximate the return of its respective
index, before taking expenses incurred by the Fund into account.
COUNSEL
Drinker Biddle & Reath (of which Mr. McConnel, Secretary of
Galaxy II, is a partner), Philadelphia National Bank Building, 1345 Chestnut
Street, Philadelphia, Pennsylvania 19107, is counsel to Galaxy II and will pass
upon certain legal matters on its behalf.
INDEPENDENT ACCOUNTANTS
The financial highlights for the respective Funds included in
its Prospectus and the financial statements for all
24
<PAGE> 59
Funds of Galaxy II attached to this Statement of Additional Information for the
respective fiscal periods ended March 31 of each calendar year (with the
exception of the fiscal years ended March 31, 1995 and March 31, 1996) have been
audited by the Trust's former independent accountant, Price Waterhouse, LLP, 300
Atlantic Street, Stamford, Connecticut 06904, for the periods included in their
report thereon which appears therein. Coopers & Lybrand L.L.P., independent
certified public accountants, with offices at One Post Office Square, Boston,
Massachusetts 02109, currently serves as independent accountant to Galaxy II and
has audited the financial highlights for the respective Funds included in the
Prospectus and the financial statements for all Funds included in the Statement
of Additional Information for the fiscal years ended March 31, 1995 and 1996.
GENERAL INFORMATION
The Trust is organized as an unincorporated business trust
under the laws of the Commonwealth of Massachusetts pursuant to a Declaration of
Trust dated February 22, 1990 (the "Trust Agreement"). Under the Trust
Agreement, the Board of Trustees has authority to create an unlimited number of
shares of beneficial interest with a par value of $.001 per share.
In the interest of economy and convenience, certificates
representing shares in Galaxy II are not physically issued. Fleet National Bank
maintains a record of each shareholder's ownership of Galaxy II shares. Shares
do not have cumulative voting rights, which means that holders of more than 50%
of the shares voting for the election of Trustees can elect all Trustees. Shares
are transferable, but have no preemptive, conversion or subscription rights.
Shareholders generally vote by Fund, except with respect to the election of
Trustees and the selection of independent accountants. Trustees were elected and
investment advisory agreements with the Former Adviser with respect to the Large
Company Fund, the Small Company Fund and the U.S. Treasury Fund were submitted
for approval at the first meeting of shareholders on October 28, 1991. At a
shareholders meeting held on June 15, 1994, Trustees were elected and the
Advisory Agreement was approved with respect to each of the Funds. There will
normally be no meetings of shareholders for the purpose of electing Trustees
unless and until such time as less than a majority of Trustees holding office
have been elected by shareholders, at which time Trustees then in office will
call a shareholders' meeting for the election of Trustees. Under the 1940 Act,
shareholders of record of no less than two-thirds of the outstanding shares of
Galaxy II may remove a Trustee through a declaration in writing or by vote cast
in person or by proxy at a meeting called for that purpose. Under the Trust
Agreement, Trustees are required to call a meeting of shareholders for the
purpose of voting upon the question of removal of any such
25
<PAGE> 60
Trustee when requested in writing to do so by the shareholders of record of not
less than 10% of Galaxy II's outstanding shares.
Massachusetts law provides that shareholders could, under
certain circumstances, be held personally liable for the obligations of the
Trust. The Trust Agreement disclaims shareholder liability for acts or
obligations of Galaxy II, however, and requires that notice of the disclaimer be
given in each agreement, obligation or instrument entered into or executed by
the Trust or a Trustee. The Trust Agreement provides for indemnification from
Galaxy II's property for all losses and expenses of any shareholder held
personally liable for the obligations of Galaxy II. Thus, the risk of a
shareholder's incurring financial loss on account of shareholder liability is
limited to circumstances in which Galaxy II would be unable to meet its
obligations, a possibility that Galaxy II's management believes is remote. Upon
payment of any liability incurred by Galaxy II, the shareholder paying the
liability will be entitled to reimbursement from the general assets of Galaxy
II. Trustees intend to conduct the operations of Galaxy II in such a way so as
to avoid, as far as possible, ultimate liability of the shareholders for
liabilities of Galaxy II.
As of July 18, 1996, the name, address and percentage
ownership of the persons that owned of record 5% or more of the Large Company
Fund's outstanding shares were as follows: Norstar Trust Company, Gales & Co.,
Funds Control, Attn: Julie Hogestyn, One East Avenue, Rochester, New York 14638,
17.64%; Olsen & Co., Attn: Corporate Actions OF-0503, One Federal Street,
Boston, Massachusetts 02110-2003, 10.25%. As of July 18, 1996, the name, address
and percentage ownership of the person that owned of record 5% or more of the
U.S. Treasury Index Fund's outstanding shares were as follows: Norstar Trust
Company, Gales & Co., Funds Control, Attn: Julie Hogestyn, One East Avenue,
Rochester, New York 14638, 9.52%. No person owned of record 5% or more of the
outstanding shares of the Small Company Fund or the Utility Fund.
26
<PAGE> 61
FINANCIAL STATEMENTS
The Trust's audited financial statements for the fiscal year
ended March 31, 1996 with respect to the Large Company Fund, the Small Company
Fund, the U.S. Treasury Fund, the Utility Fund and the Municipal Bond Fund are
attached.
<PAGE> 62
GALAXY FUND II
THE MUNICIPAL BOND FUND
FORM N-1A
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(a)
<TABLE>
<CAPTION>
Part A
Item No. Prospectus Heading
- -------- ------------------
<S> <C> <C>
1. Cover Page Cover Page
2. Synopsis Highlights; Expense Summary
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant Highlights; Investment Objective and Policies; Investment Limitations
5. Management of the Fund Management of the Fund; Investment Objective and Policies; Performance and Yield
Information; Miscellaneous
5A. Management's Discussion of Fund
Performance Not Applicable
6. Capital Stock and Other Securities How to Purchase and Redeem Shares; Description of Shares; Miscellaneous
7. Purchase of Securities Being How to Purchase and Redeem Shares
Offered
8. Redemption or Repurchase How to Purchase and Redeem Shares; Description of Shares; Investor Programs
9. Pending Legal Proceedings Not Applicable
</TABLE>
<PAGE> 63
GALAXY FUND II
THE MUNICIPAL BOND FUND
PROSPECTUS
AUGUST 1, 1996
<PAGE> 64
GALAXY FUND II - THE MUNICIPAL BOND FUND
4400 COMPUTER DRIVE
P.O. BOX 5108
WESTBOROUGH, MASSACHUSETTS 01581-5108
FOR AN APPLICATION AND INFORMATION
REGARDING INITIAL PURCHASES AND CURRENT
PERFORMANCE CALL (800) 628-0414. FOR ADDITIONAL
PURCHASES, REDEMPTIONS, EXCHANGES AND OTHER
SHAREHOLDER SERVICES, CALL (800) 628-0413.
The MUNICIPAL BOND FUND (the "Fund") seeks to provide investors with
the highest level of income exempt from regular Federal income tax consistent
with prudent investment management and preservation of capital. In seeking its
objective, the Fund will normally invest substantially all of its assets in a
diversified portfolio of municipal securities. Under normal market conditions,
at least 95% of the Fund's municipal securities will be rated A or higher by
major credit agencies. The Fund is a series of shares of Galaxy Fund II ("Galaxy
II" or the "Trust"), a no-load, open-end, investment company. Currently, there
are four other series of shares (together, the "Funds") offered to the public by
the Trust.
Shares of the Fund are offered without any sales charge or redemption
fee, although the Fund will incur management fees.
SHARES OF THE FUND ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, FLEET FINANCIAL GROUP, INC. 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 THE POSSIBLE LOSS
OF PRINCIPAL AMOUNT INVESTED.
This Prospectus sets forth concisely certain information about the Fund
that you should know before making an investment decision. You are encouraged to
read this Prospectus carefully and retain it for future reference. Additional
information about the Fund is contained in a Statement of Additional Information
bearing the same date and is available free of charge by calling Galaxy II at
(800) 628-0414 or by writing to Galaxy II c/o First Data Investor Services
Group, Inc. The Statement of Additional Information has been filed with the
Securities and Exchange Commission and, as amended from time to time, is
incorporated by reference into this Prospectus.
-------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
August 1, 1996
<PAGE> 65
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR THE STATEMENT
OF ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE IN CONNECTION WITH
THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN
ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER MAY NOT LAWFULLY BE
MADE.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
HIGHLIGHTS............................................................................................. 3
EXPENSE SUMMARY........................................................................................ 6
FINANCIAL HIGHLIGHTS................................................................................... 7
INVESTMENT OBJECTIVE AND POLICIES...................................................................... 8
Risk Considerations........................................................................... 8
Investment Policies........................................................................... 8
INVESTMENT LIMITATIONS................................................................................. 9
INVESTMENT RISKS....................................................................................... 10
WHO SHOULD INVEST...................................................................................... 11
COMPARING TAX-EXEMPT AND TAXABLE YIELDS................................................................ 11
PRICING OF SHARES...................................................................................... 13
HOW TO PURCHASE AND REDEEM SHARES...................................................................... 13
Purchase Procedures - Customers of Institutions............................................... 13
Purchase Procedures - Direct Investors........................................................ 14
Other Purchase Information.................................................................... 14
Redemption Procedures - Customers of Institutions............................................. 15
Redemption Procedures - Direct Investors...................................................... 15
Other Redemption Information.................................................................. 16
DIVIDENDS, DISTRIBUTIONS AND TAXES..................................................................... 17
State and Local Taxes......................................................................... 18
MANAGEMENT OF THE FUND................................................................................. 18
Investment Adviser............................................................................ 18
Administrator................................................................................. 19
Distributor................................................................................... 19
Custodian..................................................................................... 19
DESCRIPTION OF SHARES.................................................................................. 19
INVESTOR PROGRAMS...................................................................................... 20
Exchange Privilege............................................................................ 20
Retirement Plans.............................................................................. 21
Automatic Investment Program.................................................................. 21
Systematic Withdrawal Plan.................................................................... 22
Investing by Payroll Deduction by Regular IBM Employees....................................... 22
PERFORMANCE AND YIELD INFORMATION...................................................................... 22
MISCELLANEOUS.......................................................................................... 23
</TABLE>
-2-
<PAGE> 66
HIGHLIGHTS
Q: What is Galaxy Fund II?
A: The Trust is an open-end investment company (commonly known as a mutual
fund) that offers investors the opportunity to invest in different
investment portfolios, each having separate investment objectives and
policies. This Prospectus describes the Trust's Municipal Bond Fund
(the "Fund"). A Prospectus for the Large Company Index, Small Company
Index, Utility Index and U.S. Treasury Index Funds may be obtained by
calling (800) 628-0414.
Q: Who advises the Fund?
A: The Fund is managed by Fleet Investment Advisors Inc. (the "Investment
Adviser" or "Fleet"), an indirect, wholly-owned subsidiary of Fleet
Financial Group, Inc. Fleet Financial Group, Inc. is a financial
services company with total assets as of June 30, 1996 of approximately
$87.7 billion. See "Management of the Funds--Investment Adviser."
Q: What advantages does the Fund offer?
A: The Fund offers investors the opportunity to invest in an investment
portfolio without having to become involved with the detailed
accounting and safekeeping procedures normally associated with direct
investments in securities.
Q: How does one buy and redeem shares?
A: The Fund is distributed by 440 Financial Distributors, Inc. Shares of
the Fund are sold to individuals or corporations, who submit a purchase
application to the Trust, purchasing either for their own accounts or
for the accounts of others ("Direct Investors"). Shares may also be
purchased by Fleet Brokerage Securities Corporation, Fleet Securities,
Inc., Fleet Financial Group, Inc., its affiliates, their correspondent
banks and other qualified banks, savings and loan associations and
broker/dealers ("Institutions") on behalf of their customers
("Customers"). Share purchase and redemption information for both
Direct Investors and Customers is provided in this Prospectus under
"How to Purchase and Redeem Shares." The minimum initial investment for
Direct Investors and the minimum initial aggregate investment for
Institutions purchasing on behalf of their Customers is $2,500. The
minimum investment for subsequent purchases is $100. The minimum
investment requirement with respect to Individual Retirement Accounts
("IRAs"), Simplified Employee Pension Plans ("SEPs"), Multi-Employee
Pension Plan accounts ("MERPs") and Keogh Plans is $500 ($250 for
spousal IRA accounts). There are no minimum investment requirements for
investors participating in the Automatic Investment Program described
below. Institutions may require Customers to maintain certain minimum
investments in Retail Shares. See "How to Purchase and Redeem
Shares--Purchase of Shares" below.
Q: When are dividends paid?
-3-
<PAGE> 67
A: The net investment income of the Municipal Bond Fund is declared daily
and paid monthly. Net realized capital gains of the Fund are
distributed at least annually. See "Dividends and Distributions."
Q: What potential risks are presented by the Fund's investment practices?
A: The Fund may use municipal bond index futures contracts, interest rate
futures contracts and options thereon to a limited extent. Futures
contracts and options pose some risks, primarily: (i) there may be
imperfect correlation between the change in market value of the
securities held by the Fund and the prices of the futures contracts and
options; and (ii) the possible lack of a liquid secondary market for a
futures contract and the resulting inability to close a futures
contract prior to its maturity date. The risk of imperfect correlation
is minimized by investing only in those contracts whose price
fluctuations are expected to resemble those of the Fund's underlying
securities. The illiquidity risk will be minimized by entering into
such transactions on a national exchange with an active and liquid
secondary market.
Interest rate risk is the potential for fluctuations in bond prices due
to changing interest rates. In general, bond prices rise when interest
rates fall, and bond prices fall when interest rates rise. Longer-term
bonds are affected more dramatically than shorter-term bonds. As the
Fund expects to maintain an average dollar-weighted maturity of 7 to 12
years, it is subject to a moderate amount of interest rate risk.
Credit risk is the possibility that a bond issuer will fail to make
timely payments of interest or principal to the Fund. The credit risk
of a Fund depends on the credit quality of its underlying securities.
As the Fund expects to maintain high credit quality (at least 95% of
the Fund's municipal securities must be rated A or higher by Moody's,
S&P or another nationally recognized statistical rating organization),
the Fund's credit risk is expected to be low.
Call risk is the possibility that, during periods of falling interest
rates, a municipal security with a high stated interest rate will be
prepaid, or "called," prior to its expected maturity date. As a result,
the Fund will be required to invest the unanticipated proceeds at lower
interest rates, and the Fund's income may decline. As the Fund may
invest in some callable securities, it may be exposed to call risk.
Manager risk is the possibility that the Fund's investment adviser will
fail to execute the Fund's investment strategy effectively. If this
happens, the Fund may fail to meet its stated objective.
Q: What shareholder privileges are offered by the Fund?
A: Direct Investors and Customers of Institutions may, after appropriate
prior authorization, exchange shares of the Fund having a value of at
least $100 for shares of any of the other funds or portfolios offered
by the Trust or otherwise advised by Fleet Investment Advisors Inc. or
its affiliates in which the Direct Investor or Customer maintains an
existing account, provided that such other shares may legally be sold
in the state of the investor's residence. The Trust offers IRAs, SEPs
and Keogh Plan accounts, which can be established by contacting the
Trust's Distributor (call (800) 628-0413). Shares of the Fund are
available for purchase in connection with MERPs accounts, and detailed
information concerning eligibility
-4-
<PAGE> 68
and other matters and the form of application is available from Fleet
Brokerage Securities Corporation (call (800) 221-8210). The Trust also
offers an Automatic Investment Program, which allows a Direct Investor
to purchase Fund shares each month as well as other shareholder
privileges. See "Investor Programs."
-5-
<PAGE> 69
EXPENSE SUMMARY
The following table illustrates expenses and fees that you would incur, either
directly or indirectly, as a shareholder of the Fund. The expenses and fees for
the Fund are for the fiscal year ended March 31, 1996. "Other Expenses" are
based on estimated amounts for the Fund's current fiscal year.
<TABLE>
<CAPTION>
MUNICIPAL
BOND FUND
---------
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases................................................................ None
Sales Load Imposed on Reinvested Dividends..................................................... None
Redemption Fee................................................................................. None
Exchange Fee................................................................................... None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
Advisory and Administration Fees............................................................... 0.60%
12b-1 Fee...................................................................................... None
Other Expenses................................................................................. 0.00%
Total Fund Operating Expenses.................................................................. 0.60%
</TABLE>
Fleet National Bank (the "Administrator") is responsible for the payment of all
of the expenses of the Fund, other than certain limited expenses (such as
brokerage fees and commissions, interest on borrowings, taxes and such
extraordinary, non-recurring expenses as may arise). For a further description
of the various costs and expenses shown above, see "Management of the Fund."
The following example shows what you would pay on a $1,000 investment in the
Fund over various time periods. It assumes that your investment grows 5% per
year and that you redeem your investment at the end of each time period.
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Municipal Bond Fund............................................... $6 $19 $33 $73
</TABLE>
THIS EXAMPLE IS NOT A REPRESENTATION OF PAST OR FUTURE EXPENSES OR PERFORMANCE.
ACTUAL EXPENSES MAY BE MORE OR LESS THAN SHOWN IN THE EXAMPLE. For example,
certain shareholders who redeem by wire will incur a charge, currently $5.00 per
wire redemption. Also, the Fund's actual performance may be better or worse than
the 5% growth per year assumed in the example.
-6-
<PAGE> 70
FINANCIAL HIGHLIGHTS
The following Financial Highlights for the fiscal years ended March 31, 1995 and
March 31, 1996 have been audited by Coopers and Lybrand L.L.P., independent
accountants, whose report is contained in the Trust's Annual Report to
Shareholders and is incorporated by reference in the Statement of Additional
Information. The Financial Highlights for the period ended March 31, 1994 have
been audited by Price Waterhouse, L.L.P. Further information about the
performance of the Fund is also contained in the Fund's Annual Report to
Shareholders which may be obtained without charge by calling Galaxy II at (800)
628-0414.
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
Year Ended Year Ended Period Ended
March 31, 1996 March 31, 1995 March 31, 1994(A)
-------------- -------------- -----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of period $ 9.94 $ 9.89 $ 10.00
---------- ---------- ----------
Income from Investment Operations:
Net investment income(1) 0.46 0.46 0.43
Net realized and unrealized gain (loss)
on investments 0.26 0.05 (0.11)
---------- ---------- ----------
Total from Investment Operations 0.72 0.51 0.32
---------- ---------- ----------
Less Dividends:
Dividends from net investment income (0.46) (0.46) (0.43)
Distributions from net realized capital gains -- -- --
---------- ---------- ----------
Total Dividends: (0.46) (0.46) (0.43)
---------- ---------- ----------
Net increase (decrease) in net asset
value 0.26 0.05 (0.11)
---------- ---------- ----------
Net Asset Value, End of period $ 10.20 $ 9.94 $ 9.89
========== ========== ==========
Total Return 7.36% 5.34% 3.10%*
Ratios/Supplemental Data:
Net Assets, End of Period (000's) $ 22,478 $ 24,560 $ 33,352
Ratios to average net assets:
Net investment income 4.54% 4.72% 4.35%+
Net Operating Expenses(1) 0.60% 0.60% 0.60%+
Portfolio Turnover Rate 2% 47% 56%
</TABLE>
- -------------------------
+ Annualized
* Not Annualized
(A) The Fund commenced operations on April 15, 1993.
(1) Net investment income per share and the net operating expense ratios
before reimbursement by the sub-administrator for the years ended March
31, 1996 and 1995 were $0.46 and 0.61% and $0.46 and 0.63%, respectively.
-7-
<PAGE> 71
INVESTMENT OBJECTIVE AND POLICIES
The Municipal Bond Fund seeks to provide investors with the highest
level of income exempt from regular Federal income tax consistent with prudent
investment management and preservation of capital.
The investment objective of the Fund may not be changed without the
approval of the holders of a "majority" of the outstanding voting shares of the
Fund. The term "majority" is defined in the Investment Company Act of 1940, as
amended (the "1940 Act"). There can be no assurance that the investment
objective of the Fund will be achieved.
RISK CONSIDERATIONS
Risk considerations related to the Fund's investments are described
under "Investment Policies" and "Investment Risks."
INVESTMENT POLICIES
The Fund will normally invest substantially all--but not less than
80%--of its net assets in municipal securities. Municipal securities are debt
obligations issued by state and local governments and regional governmental
authorities, which provide interest income that is exempt from regular Federal
income taxes. These may include municipal leases which may take the form of a
lease or an installment purchase issued by state and local governments to
acquire equipment and facilities. Normally, the Fund will invest at least 65% of
its total assets in municipal securities that are issued as municipal bonds.
Under normal market conditions, at least 95% of the municipal
securities held by the Fund must be rated at least A or its equivalent by
Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Ratings Group
("S&P") or another nationally recognized statistical rating organization
("NRSRO"). In no case will the Fund purchase municipal securities rated below
investment grade BBB by S&P or Baa by Moody's or the equivalent from another
NRSRO.
Pending investment of proceeds or for other temporary purposes, the
Fund may invest up to 20% of its net assets in the following short-term
municipal obligations:
- - Short-term municipal notes rated MIG-1 or MIG-2 by Moody's or SP-1+ or
SP-1 by S&P;
- - Tax-exempt commercial paper rated P-1 by Moody's or A-1+ by S&P;
- - Municipal bonds with an effective maturity of one year or less which
are rated A or higher by Moody's or S&P;
- - Unrated short-term obligations from an issuer whose outstanding
long-term obligations are rated A or higher by Moody's or S&P; and
- - Tax-exempt funds, including tax-exempt money market funds, subject to
the requirements of applicable law. In no case will the Fund invest
more than 10% of its net assets in such investments. These investments
will result in shareholders paying duplicate or multiple fees, as such
funds incur expenses similar to those of the Fund. The Fund will only
invest in other funds when it believes the yields on such funds are
beneficial even including multiple fees.
Under normal market conditions, the Fund expects to maintain a
dollar-weighted average maturity between 7 and 12 years. There is no limit on
the maturity of any individual security in the Fund.
-8-
<PAGE> 72
The Fund may purchase municipal securities on a "when-issued" basis.
In buying such securities, the Fund commits to buy securities at a certain price
even though the securities may not be delivered for up to 45 days. The Fund pays
for the securities and begins earning interest when the securities are actually
delivered. Consequently, it is possible that the market price of the securities
at the time of delivery may be higher or lower than the purchase price.
The Fund is authorized to invest up to 20% of its net assets in "AMT"
bonds. AMT bonds are tax-exempt "private activity" bonds issued after August 7,
1986 whose proceeds are directed at least in part to a private, for-profit
organization. While the income from AMT bonds is exempt from regular Federal
income tax, it is a tax preference item for purposes of the "alternative minimum
tax." The alternative minimum tax is a special tax that applies to a limited
number of taxpayers who have certain adjustments or tax preference items.
Although the Fund does not expect to do so, except in unusual
circumstances, it may invest up to 20% of its net assets in the following
taxable money market securities: obligations of the U.S. Government and its
agencies or instrumentalities; bank certificates of deposit and bankers'
acceptances; and repurchase agreements collateralized by these securities.
The Fund may use municipal bond index futures contracts, interest rate
futures contracts and options thereon to a limited extent. Specifically, the
Fund may enter into futures contracts and options thereon provided that initial
margin and premiums required to establish such positions that are not bona fide
hedging positions (as defined by the Commodity Futures Trading Commission) will
not exceed 5% of its net asset value, after taking into account unrealized
profits and losses on any such contracts it has entered into. In addition, the
Fund may enter into futures contracts and options transactions only to the
extent that obligations under such contracts or transactions represent not more
than 20% of the Fund's assets.
The Fund may use these instruments for several reasons: to maintain
cash reserves while remaining effectively fully invested, to facilitate trading,
to reduce transaction costs, to seek higher investment returns when a futures
contract is priced more attractively than the underlying municipal securities,
or to hedge against changes in the value of the portfolio securities due to
anticipated changes in interest rates and market conditions and where the
transactions are economically appropriate to the reduction of risks inherent in
the management of the Fund. The Fund will not use futures contracts or options
transactions to leverage its assets.
Futures contracts and options pose some risks, primarily: (i) there
may be imperfect correlation between the change in market value of the
securities held by the Fund and the prices of the futures contracts and options;
and (ii) the possible lack of a liquid secondary market for a futures contract
and the resulting inability to close a futures contract prior to its maturity
date. The risk of imperfect correlation is minimized by investing only in those
contracts whose price fluctuations are expected to resemble those of the Fund's
underlying securities. The illiquidity risk will be minimized by entering into
such transactions on a national exchange with an active and liquid secondary
market.
INVESTMENT LIMITATIONS
The Fund has adopted certain limitations on its investment practices, including
the following:
-9-
<PAGE> 73
(1) The Fund will normally not invest less than 80% of its net assets in
securities other than municipal securities; however, the Fund may
invest up to 20% of its net assets in certain short-term taxable
securities and in municipal bond index futures contracts, interest rate
futures contracts and options thereon;
(2) The Fund will not borrow money except for temporary or emergency
purposes and then not in excess of 33-1/3% of total assets; the Fund
will repay all borrowings before making additional investments;
(3) With respect to 75% of its total assets, the Fund will not invest more
than 5% of its assets in securities of one issuer (except the U.S.
Government, its agencies and instrumentalities); for purposes of this
limitation, the issuer will be identified based on a determination of
the source of assets and revenues committed to meeting interest and
principal payments of each security;
(4) The Fund will not purchase any securities which would cause more than
25% of the value of the Fund's net assets at the time of such purchase
to be invested in the securities of one or more issuers conducting
their principal activities in the same state; and
(5) The Fund will not pledge, mortgage or hypothecate more than 33-1/3% of
its assets.
These investment restrictions, and certain of those contained in the
Fund's Statement of Additional Information, can be changed only with the
approval of the holders of a majority of the outstanding shares of the Fund.
INVESTMENT RISKS
Interest rate risk is the potential for fluctuations in bond prices
due to changing interest rates. In general, bond prices rise when interest rates
fall, and bond prices fall when interest rates rise. Longer-term bonds are
affected more dramatically than shorter-term bonds. The following table
illustrates the changes caused by a 2% change in interest rates on the market
prices of non-callable bonds with various maturities:
<TABLE>
<CAPTION>
2% INCREASE IN 2% DECREASE IN
MATURITY INTEREST RATES INTEREST RATES
- -------- -------------- --------------
<S> <C> <C>
1 year........................................... -2% +2%
5 years.......................................... -8% +9%
10 years......................................... -14% +17%
30 years......................................... -25% +39%
</TABLE>
As the Fund expects to maintain an average dollar-weighted maturity of
7 to 12 years, it is subject to a moderate amount of interest rate risk.
Credit risk is the possibility that a bond issuer will fail to make
timely payments of interest or principal to the Fund. The credit risk of a Fund
depends on the credit quality of its underlying securities. As the Fund expects
to maintain high credit quality (at least 95% of the Fund's municipal securities
must be rated A or higher by Moody's, S&P or another nationally recognized
statistical rating organization), the Fund's credit risk is expected to be low.
-10-
<PAGE> 74
Call risk is the possibility that, during periods of falling interest
rates, a municipal security with a high stated interest rate will be prepaid, or
"called," prior to its expected maturity date. As a result, the Fund will be
required to invest the unanticipated proceeds at lower interest rates, and the
Fund's income may decline. As the Fund may invest in some callable securities,
it may be exposed to call risk.
Manager risk is the possibility that the Fund's investment adviser will
fail to execute the Fund's investment strategy effectively. If this happens, the
Fund may fail to meet its stated objective.
WHO SHOULD INVEST
The Fund is intended for investors seeking income that is exempt from
regular Federal income taxes. As a rule, tax-free income is attractive to
investors in high Federal income tax brackets. Investors in lower Federal income
tax brackets may find a taxable income investment more suitable to their needs
since the after-tax yield of the taxable investment may be greater than the
tax-exempt yield offered by an investment such as the Fund.
You can determine whether tax-exempt or taxable income is more
attractive in your particular case by calculating the "tax equivalent yield" of
the Fund and comparing it with the yield from a comparable taxable mutual fund
investment. See "Comparing Tax-Exempt and Taxable Yields" below.
Because the Fund invests in municipal bonds of all durations, the price
per share of the Fund will fluctuate, particularly due to interest rate risk.
The Fund is intended for investors willing to accept share price fluctuations in
return for potentially higher and more constant yields. These share price
fluctuations may cause the share price at the time of an investor's redemption
to be more or less than the purchase price, thus affecting the investor's total
return from an investment in the Fund.
The Fund intends to invest virtually all of its assets in debt
obligations. As such, capital growth is not an objective of the Fund, though
some incidental capital gains or losses may be realized in the course of the
Fund's operations. The Fund is intended for investors willing to forego capital
growth in return for potentially more constant yields. Of course, there may be
other fixed-income investments, particularly longer-term investments, which
offer a higher yield than the Fund.
COMPARING TAX-EXEMPT AND TAXABLE YIELDS
Before choosing a tax-exempt investment such as the Fund, you should
determine if you would be better off with taxable or tax-exempt income in your
particular marginal tax bracket. To compare taxable and tax-free income, you
should calculate the "tax equivalent yield" for the Fund and compare it with the
yield of a taxable investment with similar credit and maturity standards.
The tax equivalent yield for the Fund is based upon the Fund's
tax-exempt yield and your marginal tax bracket. The formula is:
Fund's Tax-Exempt Yield = Your Tax
------------------------------
100% - Your Marginal Tax Bracket Equivalent Yield
For example, if you are in the 28% tax bracket and can earn a
tax-exempt yield of 4.0%, the tax equivalent yield would be 5.56%, as shown
here:
-11-
<PAGE> 75
4.0% = 4.0% = 5.56%
--------- -----
100% - 28% 72%
In this example you would invest in the 4.0% tax-exempt investment if
your taxable alternative yielded less than 5.56%. You would invest in the
taxable investment if you expected its yield to be greater than 5.56% (assuming,
of course, similar credit and maturity standards).
The following table shows tax equivalent yields for various tax
brackets and tax-exempt yields. There can be no guarantee that the Fund will
achieve any specific yield. Also, though the Fund's objective is to seek
tax-exempt income, it is possible from time to time for some small portion of
the Fund's income to be taxable. Also, a portion of the Fund's income may be
subject to the alternative minimum tax.
<TABLE>
<CAPTION>
TAX EQUIVALENT RATES BASED ON
FEDERAL TAX-EXEMPT YIELD OF:
MARGINAL INCOME -------------------------------------------------------------
TAX BRACKET 2% 3% 4% 5% 6% 7% 8%
------------- -- -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C> <C>
15% 2.4% 3.5% 4.7% 5.9% 7.1% 8.2% 9.4%
28% 2.8 4.2 5.6 6.9 8.3 9.7 11.1
31% 2.9 4.3 5.8 7.2 8.7 10.1 11.6
36% 3.1 4.7 6.2 7.8 9.4 10.9 12.5
</TABLE>
-12-
<PAGE> 76
PRICING OF SHARES
On every day the New York Stock Exchange (the "NYSE") is open, First
Data Investor Services Group, Inc. (the "Sub-Administrator") calculates the net
asset value per share for the Fund as of the close of regular trading on the
NYSE. In calculating net asset value, investments are valued based on their
market values, but when market quotations are not readily available, investments
are valued based on fair value as determined in good faith in accordance with
procedures established by the Board of Trustees. Bonds and other fixed income
securities may be valued on the basis of prices provided by a pricing service
when such prices are believed to reflect the market value of such securities.
The prices provided by a pricing service may be determined without regard to bid
or last sale prices of each security but take into account institutional size
transactions in similar groups of securities as well as any developments
relating to specific securities.
HOW TO PURCHASE AND REDEEM SHARES
The Distributor has established several procedures to enable different
types of investors to purchase shares of the Fund. The shares may be purchased
by individuals or corporations who submit a purchase application to the Trust,
purchasing directly either for their own accounts or for the accounts of others
("Direct Investors"). Shares may also be purchased by Fleet Brokerage Securities
Corporation, Fleet Securities, Inc., Fleet Financial Group, Inc., its
affiliates, their correspondent banks and other qualified banks, savings and
loan associations and broker/dealers ("Institutions") on behalf of their
customers ("Customers"). Purchases by Direct Investors may take place only on
days on which the Distributor, the Custodian and the Administrator are open for
business ("Business Days"). If an Institution accepts a purchase order from a
Customer on a non-Business Day, the order will not be executed until it is
received and accepted by the Distributor on a Business Day in accordance with
the Distributor's procedures. Shares of the Fund will be issued to Direct
Investors only in exchange for monetary consideration as described below.
PURCHASE PROCEDURES - CUSTOMERS OF INSTITUTIONS
Purchase orders are placed by Customers of Institutions through their
Institution. The Institution is responsible for transmitting Customer purchase
orders to the Distributor and for wiring required funds in payment to the
Custodian on a timely basis. The Distributor is responsible for transmitting
such orders to the Sub-Administrator for execution. Shares purchased by
Institutions on behalf of their Customers will normally be held of record by the
Institution and beneficial ownership of the shares will be recorded by the
Institution and reflected in the account statements provided to their Customers.
The Sub-Administrator may establish an account of record for each Customer of an
Institution reflecting beneficial ownership of shares. Depending on the terms of
the arrangement between a particular Institution and the Sub-Administrator,
confirmations of share purchases and redemptions and pertinent account
statements will either be sent by the Sub-Administrator directly to a Customer
with a copy to the Institution, or will be furnished directly to the Customer by
the Institution. Other procedures for the purchase of shares established by
Institutions in connection with the requirements of their Customer accounts may
apply. Customers wishing to purchase shares through their Institution should
contact such entity directly for appropriate purchase instructions.
-13-
<PAGE> 77
PURCHASE PROCEDURES - DIRECT INVESTORS
Purchases by Mail. Shares may be purchased by completing a purchase
application and mailing it, together with a check payable to the Fund to:
Galaxy Fund II
4400 Computer Drive
P.O. Box 5108
Westborough, MA 01581
All purchase orders placed by mail must be accompanied by a purchase
application. Applications may be obtained by calling the Distributor at (800)
628-0414.
Subsequent investments in an existing account in the Fund may be made
at any time by sending a check for a minimum of $100 payable to the Fund in
which the additional investment is being made to the Trust at the address above
along with either (a) the detachable form that regularly accompanies
confirmation of a prior transaction, (b) a subsequent order form that may be
obtained from the Distributor, or (c) a letter stating the amount of the
investment, the name of the Fund and the account number in which the investment
is to be made. If a Direct Investor's check does not clear, the purchase will be
canceled.
OTHER PURCHASE INFORMATION
Purchases by Wire. Investors may also purchase shares by arranging to
transmit Federal funds by wire to Fleet Bank of Massachusetts, N.A. as agent for
First Data Investor Services Group, Inc. Prior to making any purchase by wire,
an investor must telephone the Distributor at (800) 628-0413 to place an order
and for instructions.
Direct Investors making initial investments by wire must promptly
complete a purchase application and forward it to Galaxy Fund II, 4400 Computer
Drive, P.O. Box 5108, Westborough, Massachusetts 01581. Applications may be
obtained by calling the Distributor at (800) 628-0414.
Except as provided in "Investor Programs" below, the minimum initial
investment by a Direct Investor, or initial aggregate investment by an
Institution investing on behalf of its Customers, is $2,500. The minimum
investment for subsequent purchases is $100. The minimum investment requirement
with respect to IRAs, SEPs, MERPs and Keogh Plans (see below under "Retirement
Plans") is $500 ($250 for spousal IRA accounts). There are no minimum investment
requirements for investors participating in the Automatic Investment Program
described below. Customers may agree with a particular Institution to change the
minimum initial and minimum subsequent purchase requirements with respect to
their accounts.
The Trust or the Distributor each reserves the right to reject any
purchase order, in whole or in part, or to waive any minimum investment
requirement. The issuance of shares to Direct Investors and Institutions is
recorded on the books of the Trust and share certificates will not be issued.
Effective Time of Purchases. A purchase order for shares received and
accepted by the Distributor from an Institution or a Direct Investor on a
Business Day prior to the close of regular trading hours on the NYSE (currently
4:00 p.m. Eastern Time) will be executed at the net asset value per share
determined on
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the day on which payment for the shares is received in proper form. If payment
is not received within five business days following receipt of such order,
notice thereof will be given promptly to the Institution or Direct Investor
submitting the order. Payment for orders which are not received or accepted
will be returned. 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 the Distributor on a Business Day in accordance with the above
procedures.
REDEMPTION PROCEDURES - CUSTOMERS OF INSTITUTIONS
Customers of Institutions may redeem all or part of their shares in
accordance with procedures governing their accounts at Institutions. It is the
responsibility of the Institutions to transmit redemption orders to the
Distributor and credit their Customers' accounts with the redemption proceeds on
a timely basis. No charge for wiring redemption payments to Institutions is
imposed by the Trust, although Institutions may charge a Customer's account for
redemption services. Information relating to such redemption services and
charges, if any, is available from the Institutions.
Payments for redemption orders received by the Distributor on a
Business Day will normally be wired on the third Business Day to the
Institutions.
Direct Investors may redeem all or part of their shares in accordance
with any of the procedures described below.
REDEMPTION PROCEDURES - DIRECT INVESTORS
Redemption by Mail. Shares may be redeemed by a Direct Investor by
submitting a written request for redemption to:
Galaxy Fund II
4400 Computer Drive
P.O. Box 5108
Westborough, MA 01581
A written redemption request must (i) state the number of shares to be
redeemed, (ii) identify the shareholder account number and social security
number or tax identification number, and (iii) be signed by each registered
owner exactly as the shares are registered. A redemption request for an amount
in excess of $10,000, or for any amount if the proceeds are to be sent elsewhere
than the address of record, must be accompanied by signature guarantees. The
guarantor of a signature must be a bank that is a member of the FDIC, a trust
company, a member firm of a national securities exchange or any other eligible
guarantor institution. The Sub-Administrator will not accept guarantees from
notaries public. The Sub-Administrator may require additional supporting
documents for redemptions made by corporations, executors, administrators,
trustees and guardians. A redemption request will not be deemed to be properly
received until the Sub-Administrator receives all required documents in proper
form. The Fund ordinarily will make payment for shares redeemed by mail within
five Business Days after proper receipt by the Sub-Administrator of the
redemption request. Questions with respect to the proper form for redemption
requests should be directed to the Sub-Administrator at (800) 628-0413.
Redemption by Telephone. Direct Investors may redeem shares by calling
(800) 628-0413 and instructing the Sub-Administrator to mail a check for
redemption proceeds of up to $10,000 to the address of
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record. A redemption request for an amount in excess of $10,000 or for any
amount if the proceeds are to be sent elsewhere than the address of record, must
be accompanied by signature guarantees. (See "Redemption by Mail.")
Redemption by Wire. Direct Investors who have so indicated on the
application, or have subsequently arranged in writing to do so, may redeem
shares by instructing the Sub-Administrator by wire or telephone to wire the
redemption proceeds of $1,000 or more directly to a Direct Investor's account at
any commercial bank in the United States. The Sub-Administrator charges a $5.00
fee for each wire redemption and the fee is deducted from the redemption
proceeds. The redemption proceeds must be paid to the same bank and account as
designated on the application or in written instructions subsequently received
by the Sub-Administrator. To request redemption of shares by wire, Direct
Investors should call (800) 628-0413.
In order to arrange for redemption by wire after an account has been
opened or to change the bank or account designated to receive redemption
proceeds, a written request must be sent to the Trust at the address listed
above under "Redemption by Mail." Such requests must be signed by the investor
and accompanied by a signature guarantee (see "Redemption by Mail" above for
details regarding signature guarantees). Further documentation may be requested
from corporations, executors, administrators, trustees, or guardians. If, due to
temporary adverse conditions, investors are unable to effect telephone
transactions, investors are encouraged to follow the procedures for transactions
by wire or mail which are described above.
The Trust reserves the right to refuse a wire or telephone redemption
if it believes it is advisable to do so. Procedures for redeeming shares by wire
or telephone may be modified or terminated at any time. Neither the Trust nor
any of its service contractors will be liable for any loss, expense or cost for
acting upon any telephone instructions believed genuine unless it acts with
willful misfeasance, bad faith or gross negligence. Accordingly, investors will
bear the risk of loss. In attempting to confirm that telephone instructions are
genuine, the Trust will use such procedures as are considered reasonable,
including recording those instructions and requesting information as to account
registration (such as the name in which an account is registered, the account
number, recent transactions in the account, and the account holder's social
security number, address and/or bank). To the extent that the Trust fails to use
reasonable procedures as a basis for its belief, it and/or its service
contractors may be liable for instructions that prove to be fraudulent and
unauthorized.
No redemption by a Direct Investor in any Fund will be processed until
the Trust has received a completed application with respect to the Direct
Investor's account. If any portion of the shares to be redeemed represents an
investment made by personal check, the Trust reserves the right to delay payment
of proceeds until the Administrator is reasonably satisfied that the check has
been collected, which could take up to 15 days from the purchase date. A Direct
Investor who anticipates the need for more immediate access to his or her
investment should purchase shares by Federal funds or bank wire or by certified
or cashier's check. Banks normally impose a charge in connection with the use of
bank wires, as well as certified checks, cashier's checks and Federal funds.
OTHER REDEMPTION INFORMATION
The Trust reserves the right to redeem accounts (other than retirement
plan accounts) involuntarily, upon 60 days' written notice, if the account's net
asset value falls below $250 as a result of redemptions. In addition, if an
investor has agreed with a particular Institution to maintain a minimum balance
in his or her account at the Institution with respect to Fund shares, and the
balance in such account falls below that minimum, the Customer may be obliged by
the Institution to redeem all of his or her shares.
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<PAGE> 80
The Trust may require any information reasonably necessary to ensure
that a redemption has been duly authorized.
Redemption orders are effected at the net asset value per share next
determined after receipt and acceptance of the order by the Distributor. The
Trust reserves the right to wire redemption proceeds within seven days after
receiving the redemption order if, in its judgment, an earlier payment could
adversely affect a Fund.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends consisting of virtually all ordinary income of the Fund will
be declared daily and will be payable to shareholders of record at the close of
the previous business day. Such dividends will be paid monthly. Capital gains
distributions, if any, will be made annually. Dividends and distributions may be
made on a more frequent basis to comply with the distribution requirements of
the Internal Revenue Code of 1986, as amended (the "Code").
You will receive all dividends and capital gains distributions as
additional shares of the Fund at their then current net asset value, unless you
elect to receive cash. You may elect to receive cash by so specifying on your
account registration form or by notifying the Sub-Administrator in writing.
Shareholders electing to reinvest dividends in the Fund will receive
confirmation of their dividends on regular, quarterly statements. As with all
purchases and redemptions, you pay no sales commissions or fees of any kind on
shares acquired through reinvestment of dividends and distributions.
Since the Fund intends to (a) qualify each year as a "regulated
investment company" within the meaning of the Code and (b) distribute to its
shareholders at least 90% of its net tax-exempt interest income and 90% of its
"investment company taxable income," if any, the Fund will not be subject to
Federal income tax to the extent that its net investment income and its net
realized capital gains are distributed to its shareholders in accordance with
the Code. As a regulated investment company, the Fund will be subject to a 4%
non-deductible excise tax if it fails to currently distribute an amount equal to
specified percentages of its ordinary taxable income and capital gain net income
(excess of capital gain over capital losses). The Fund expects to pay dividends
and to make distributions or deemed distributions as are necessary to avoid the
application of this tax, unless the Board of Trustees determines that it is not
in the best interest of the shareholders to do so.
The Fund intends to invest a sufficient portion of its assets in
municipal securities so that it will qualify to pay "exempt-interest dividends"
to shareholders. Such exempt-interest dividends distributed to shareholders
generally are excluded from a shareholder's gross income for Federal income tax
purposes. A portion of the Fund's dividends, while exempt from the regular
Federal income tax, may be a tax preference item for purposes of the Federal
alternative minimum tax.
Distributions paid by the Fund from long-term capital gains, whether
received in cash or reinvested in additional shares, are taxable, regardless of
the length of time you have owned shares in the Fund. Also, any short-term
capital gains or any taxable interest income will be distributed as a taxable
ordinary dividend distribution. The Fund expects distributions of capital gains,
whether long-term or short-term, and taxable interest income to be negligible in
comparison to exempt-interest dividends.
Although dividend income from the Fund is expected to be exempt from
regular Federal income taxes, a sale or other disposition of the Fund's shares
is a taxable event, and may result in a capital gain or
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loss. This gain or loss may be realized by any redemption of the Fund's shares,
including an exchange of shares between the Fund and another of the Funds
offered by the Trust. In addition, any capital loss realized from municipal
securities held for six months or less is disallowed to the extent of tax-exempt
income received. In other words, if you held shares in the Fund for six months
or less, and sold those shares (or a portion of those shares) at a loss, the
capital loss you report is reduced by the tax-exempt dividends paid on these
shares.
STATE AND LOCAL TAXES
Tax-exempt dividends and capital gains distributions from the Fund and
any capital gains or losses realized from the redemption of shares may be
subject to state and local taxes. However, some states allow shareholders to
exclude from state income tax that portion of the Fund's tax-exempt income that
is attributable to municipal securities issued within the shareholder's own
state. To assist shareholders of these states, the Fund will provide a breakdown
of its tax-exempt interest income on a state-by-state basis at year-end.
The tax discussion set forth above is included for general information
purposes only. Prospective investors should consult their own tax advisers
concerning the tax consequences of an investment in the Fund.
Statements as to the tax status of your dividends and distributions
will be mailed annually. The Trust will also send you, if applicable, various
written notices after the close of its tax year with respect to certain
dividends and distributions that were, or were deemed to be, received from the
Fund during that tax year.
MANAGEMENT OF THE FUND
The Board of Trustees sets strategic and policy directions for the
Trust and oversees management. The Board selects and supervises the Investment
Adviser and Galaxy II's officers who are responsible for the day-to-day
management of its affairs.
INVESTMENT ADVISER
Fleet Investment Advisors Inc. (the "Investment Adviser"), with
principal offices at 45 East Avenue, Rochester, New York 14604, serves as
investment adviser to the Fund. The Investment Adviser also provides investment
management and advisory services to individual and institutional clients, and
manages the investment portfolios of The Galaxy Fund and The Galaxy VIP Fund.
The Investment Adviser is an indirect, wholly-owned subsidiary of Fleet
Financial Group, Inc., a registered bank holding company, that as of June 30,
1996, managed or advised approximately $46.7 billion. The Investment Adviser is
also an indirect, wholly-owned subsidiary of the Administrator. To fulfill its
responsibilities, the Investment Adviser employs the personnel, software and
support systems needed to manage the Fund.
For its services as investment adviser, the Investment Adviser receives
a fee from the Fund at the annual rate of .25% of the average daily net assets
of the Fund, which was the rate of the Investment Adviser's compensation during
the fiscal year ended March 31, 1996.
Mary McGoldrick of Fleet Investment Advisors Inc. is primarily
responsible for the day-to-day management of the Fund. She assumed this
responsibility on June 30, 1994, when Fleet Investment Advisors Inc. became the
Fund's new investment adviser. Ms. McGoldrick has worked for the Investment
Adviser
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since February 1990, serving as a portfolio manager for personal clients, a
common trust fund and the Galaxy Tax-Exempt Bond Fund, a portfolio of The Galaxy
Fund. Prior to working for the Investment Adviser, Ms. McGoldrick was a member
of the Trust Department of Fleet National Bank.
ADMINISTRATOR
Fleet National Bank ("Administrator") provides the Trust with office
facilities and support personnel and generally assists in all aspects of
administration and operation of the Trust. The Administrator, with principal
offices at 50 Kennedy Plaza, Providence, Rhode Island 02903-2305, is a
wholly-owned subsidiary of Fleet Financial Group, Inc. The Administrator pays
all of the expenses of the Fund, except the fees and expenses of those Trustees
who are not interested persons of the Trust, brokerage fees and commissions,
interest on borrowings, taxes and such extraordinary, non-recurring expenses as
may arise, including litigation to which the Trust may be a party. For its
services as administrator, the Administrator receives a fee from the Fund at an
annual rate of .35% of the average daily net assets of the Fund. From time to
time, the Administrator may waive all or a portion of the administration fee
payable to it by the Fund, either voluntarily or pursuant to applicable
statutory limitations.
The Administrator has entered into a sub-administration agreement with
First Data Investor Services Group, Inc. (the "Sub-Administrator" or "FDISG"),
4400 Computer Drive, P.O. Box 5108, Westborough, Massachusetts 01581, a
wholly-owned subsidiary of First Data Corporation to provide administrative
services to the Trust. The Sub-Administrator also serves as shareholder
servicing agent. The Administrator bears the fees of the Sub-Administrator for
serving in these capacities.
DISTRIBUTOR
440 Financial Distributors, Inc. (the "Distributor"), a wholly-owned
subsidiary of FDISG, is responsible for the marketing and distributing of the
shares of the Fund. The Distributor is a registered broker-dealer with principal
offices located at 4400 Computer Drive, P.O. Box 5108, Westborough,
Massachusetts 01581. The Distributor does not receive any compensation from
Galaxy II or the Fund for its services.
CUSTODIAN
The Chase Manhattan Bank, N.A. (the "Custodian"), located at 1 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, and
FDISG serves as the Fund's transfer and dividend disbursing agent. Services
performed by both entities for the Fund are described in the Statement of
Additional Information. Communications to FDISG should be directed to FDISG at
4400 Computer Drive, P.O. Box 5108, Westborough, Massachusetts 01581.
DESCRIPTION OF SHARES
The Fund is a series of shares of the Trust. The Trust was organized on
February 22, 1990 under the laws of the Commonwealth of Massachusetts and is a
business entity commonly known as a "Massachusetts business trust." The Trust
offers shares of beneficial interest, par value $.001 per share. Currently, five
series of shares have been authorized for sale to the public (together, the
"Funds") one of whose shares constitutes the interest of the Fund described in
this Prospectus. When matters are submitted for shareholder vote, shareholders
of each Fund will have one vote for each full share held and proportionate,
fractional votes
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for fractional shares held. Generally, shares of the Trust 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.
Normally, no meetings of shareholders will be held for the purpose of
electing Trustees unless and until such time as less than a majority of the
Trustees holding office have been elected by shareholders, at which time the
Trustees then in office will call a shareholders' meeting for the election of
Trustees. Shareholders of record of no less than two-thirds of the outstanding
shares of the Trust may remove a Trustee through a declaration in writing or by
vote cast in person or by proxy at a meeting called for that purpose. A meeting
will be called for the purpose of voting on the removal of a Trustee at the
written request of holders of 10% of the Trust's outstanding shares.
Shareholders who satisfy certain criteria will be assisted by the Trust in
communicating with other shareholders in seeking the holding of the meeting.
INVESTOR PROGRAMS
EXCHANGE PRIVILEGE
Direct Investors and Customers of Institutions may, after appropriate
prior authorization, exchange shares of the Fund having a value of at least $100
for shares of any of the other funds or portfolios offered by the Trust or
otherwise advised by Fleet Investment Advisors Inc. or its affiliates in which
the Direct Investor or Customer maintains an existing account, provided that
such other shares may legally be sold in the state of the investor's residence.
The minimum initial investment to establish a new account in another fund or
portfolio offered by the Trust or otherwise advised by Fleet Investment Advisors
Inc. or its affiliates by exchange is $2,500, unless at the time of the exchange
the Direct Investor or Customer elects, with respect to the Fund into which the
exchange is being made, to participate in the Automatic Investment Program
described below, in which event there is no minimum initial investment
requirement.
An exchange involves a redemption of all or a portion of the shares of
a Fund and the investment of the redemption proceeds in shares of another fund
or portfolio offered by the Trust or otherwise advised by the Investment Adviser
or its affiliates. The redemption will be made at the per share net asset value
next determined after the exchange request is received. The shares of the fund
to be acquired will be purchased at the per share net asset value next
determined after acceptance of the exchange request.
Investors may find the exchange privilege useful if their investment
objectives or market outlook should change after they invest in any of the
Funds. For further information regarding the Trust's exchange privilege, Direct
Investors should call (800) 628-0413. Customers of Institutions should call
their Institution for such information. Customers exercising the exchange
privilege with the Large Company Index Fund, Small Company Index Fund, the U.S.
Treasury Index Fund and the Utility Index Fund should request and review a
prospectus for these Funds prior to making an exchange (call (800) 628-0414 for
a prospectus). Telephone all exchanges to (800) 628-0413.
In order to prevent abuse of this privilege to the disadvantage of
other shareholders, the Trust reserves the right to terminate the exchange
privilege of any shareholder who requests more than three exchanges a year. The
Trust 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 expenses to the Trust which will result from
effecting additional exchange requests. The exchange privilege may be modified
or terminated at
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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 Securities and Exchange Commission.
The Trust does not charge any exchange fee. However, Institutions may
charge such fees with respect to either all exchange requests or with respect to
any request which exceeds the permissible number of free exchanges during a
particular period. Customers of Institutions should contact their Institution
for applicable information.
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, the Customer should consult a tax or other
financial adviser to determine the tax consequences.
RETIREMENT PLANS
Shares of the Funds are available for purchase in connection with the
following tax-deferred prototype retirement plans:
Individual Retirement Accounts ("IRAs") (including "rollovers" from
existing retirement plans), a retirement-savings vehicle for qualifying
individuals. The minimum initial investment for an IRA account is $500 ($250 for
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 Pension Plans ("MERPs"), a retirement vehicle
established by employers for their employees which is qualified under Section
401(k) and 403(b) of the Internal Revenue Code. The minimum initial investment
for a MERP is $500.
Keogh Plan, 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 the Distributor
(call (800) 628-0413) with respect to IRAs, SEPs and Keogh Plans and from Fleet
Brokerage Securities Corporation (call (800) 221-8210) with respect to MERPs.
AUTOMATIC INVESTMENT PROGRAM
The Automatic Investment Program permits a Direct Investor to purchase
Fund shares (minimum of $50 per transaction) each month. Provided the Direct
Investor's financial institution allows automatic withdrawals, Fund shares are
purchased by transferring funds from a Direct Investor's checking, bank money
market or NOW account designated by the investor. The account designated will be
debited in the specified amount, and Fund shares will be purchased, once a
month, on or about either the first or fifteenth day. Only an account maintained
at a domestic financial institution which is an Automated Clearing House member
may be so designated.
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<PAGE> 85
SYSTEMATIC WITHDRAWAL PLAN
The Systematic Withdrawal Plan permits a Direct Investor to withdraw
Fund shares on a monthly, quarterly, semi-annual or annual basis, if the account
has a starting value of at least $10,000. Proceeds of the redemption will be
sent to the shareholder's address of record or financial institution on or about
the twenty-fifth day of each month. If withdrawals 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 the
Sub-Administrator (but not less than five days before a payment date). There is
no charge for this service.
INVESTING BY PAYROLL DEDUCTION BY REGULAR IBM EMPLOYEES
Until June 30, 1997, regular IBM employees may buy shares in the Fund
through payroll deduction. The minimum investment is $25 per account per pay
period. Deductions from any one employee may be invested in up to ten funds or
portfolios offered by the Trust or otherwise advised by the Investment Adviser
or its affiliates. IBM employees investing by payroll deduction in other funds
or portfolios offered by the Trust or otherwise advised by the Investment
Adviser or its affiliates should request and review the fund or portfolio's
prospectus prior to making an investment (call (800) 628-0414 for a prospectus).
Deductions will begin as soon as practicable following the submission of your
Galaxy II Payroll Deduction Authorization Form. You may change or stop your
payroll deduction by submitting a new Galaxy II Payroll Deduction Authorization
Form. Payroll deduction investments will be reported on quarterly customer
statements. Closing your account by redeeming all of its shares will not
automatically cancel your payroll deduction investment.
The Fund may also offer its shares to employees of other companies
through payroll deduction.
PERFORMANCE AND YIELD INFORMATION
From time to time, in advertisements or in reports to shareholders, the
performance and yields of the Fund may be quoted and compared to those of other
mutual funds with similar investment objectives and to stock or other relevant
bond indexes 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.
Performance and yield 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 and yields of the
Fund.
The standard yield is computed by dividing the Fund's average daily net
investment income per share during a 30-day (or one month) base period
identified in the advertisement by the net asset value per share on the last day
of the period, and annualizing the result on a semi-annual basis. 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 quote its "tax equivalent yield" which
demonstrates the level of taxable yield necessary to produce an after-tax
equivalent yield to the Fund's tax-free yield. It is calculated by increasing
the Fund's yield (calculated as above) by the amount necessary to reflect the
payment of income taxes at stated tax rates. The tax-equivalent yield will
always be higher than the Fund's yield.
The Fund may also advertise its performance using "average annual total
return" over various periods of time. Such total return figures reflect the
average percentage change in the value of an investment in the
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<PAGE> 86
Fund from the beginning date of the measuring period to the end of the measuring
period. 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 period. Both methods of calculating
total return assume that dividend and capital gain distributions made by the
Fund during the period are reinvested in Fund shares.
Performance and yields of the Fund will fluctuate and any quotation of
performance or yield should not be considered as representative of future
performance. 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 and yield are generally functions of kind and quality of the
instruments held in a portfolio, portfolio maturity, operating expenses, and
market conditions.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by
independent certified public accountants.
Inquiries regarding the Fund may be directed to Galaxy II at (800)
628-0414 (applications and information concerning initial purchases and current
performance) or (800) 628-0413 (additional purchases, redemptions, exchanges and
other shareholder services).
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<PAGE> 87
GALAXY FUND II
STATEMENT OF ADDITIONAL INFORMATION
MUNICIPAL BOND FUND
AUGUST 1, 1996
<PAGE> 88
This Statement of Additional Information is meant to be read
in conjunction with the Prospectus of Galaxy Fund II ("Galaxy II" or the
"Trust") dated August 1, 1996, relating to the Municipal Bond Fund (the "Fund"),
and is incorporated by reference in its entirety into that Prospectus (the
"Prospectus"). Because this Statement of Additional Information is not itself a
prospectus, no investment in shares of the Fund should be made solely upon the
information contained herein. Copies of the Prospectus relating to the Fund may
be obtained by calling 440 Financial Distributors, Inc. (the "Distributor"), the
Trust's distributor, at (800) 628-0414. Information regarding the status of
shareholder accounts may be obtained by calling First Data Investor Services
Group, Inc. ("FDISG"), the Trust's transfer agent, at (800) 628-0413.
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<PAGE> 89
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INVESTMENT OBJECTIVE................................................................................... 4
INVESTMENT POLICIES AND RISK CONSIDERATIONS............................................................ 4
U.S. Government Securities.................................................................... 4
Bank Obligations.............................................................................. 5
Securities Of Other Investment Companies...................................................... 5
Futures Contracts............................................................................. 5
Options on Futures Contracts.................................................................. 7
Repurchase Agreements......................................................................... 8
Municipal Securities.......................................................................... 9
Valuation of Portfolio Securities............................................................. 12
Ratings as Investment Criteria................................................................ 13
INVESTMENT LIMITATIONS................................................................................. 14
PORTFOLIO TURNOVER..................................................................................... 17
PORTFOLIO TRANSACTIONS................................................................................. 17
ADDITIONAL INFORMATION CONCERNING TAXES................................................................ 18
TRUSTEES AND OFFICERS.................................................................................. 22
ADVISORY, ADMINISTRATION, CUSTODIAN, TRANSFER AGENCY
AND DIVIDEND PAYING AGENT AGREEMENTS.............................................................. 26
Investment Adviser and Administrator.......................................................... 26
Authority to Act as Investment Adviser........................................................ 28
Custodian, Transfer Agent and Dividend Paying Agent........................................... 28
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION......................................................... 29
PERFORMANCE AND YIELD INFORMATION...................................................................... 29
COUNSEL................................................................................................ 31
INDEPENDENT ACCOUNTANTS................................................................................ 31
GENERAL INFORMATION.................................................................................... 32
FINANCIAL STATEMENTS .................................................................................. FS-1
REPORT OF INDEPENDENT ACCOUNTANTS DATED
May 10, 1996...................................................................................... FS-34
APPENDIX............................................................................................... A-1
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INVESTMENT OBJECTIVE
The Fund seeks to provide investors the highest level of
income exempt from regular Federal income tax as is consistent with prudent
investment management and preservation of capital. Under normal market
conditions, the Fund will invest substantially all of its total assets in a
diversified portfolio of municipal securities. Under normal market conditions,
at least 95% of the Fund's municipal securities will be rated at least A or the
equivalent by major credit agencies. The Fund is a series of shares of Galaxy
II, a no-load, open-end investment company. Currently, there are four other
series of shares offered to the public by Galaxy II.
A Prospectus and Statement of Additional Information
describing the four other investment options currently available to the public
through Galaxy II, the Large Company Index Fund, the Small Company Index Fund,
the U.S. Treasury Index Fund and the Utility Index Fund (collectively with the
Fund, the "Funds"), can be obtained by calling Galaxy II at (800) 628-0414.
INVESTMENT POLICIES AND RISK CONSIDERATIONS
The following policies supplement the descriptions of the
Fund's investment objective and policies in the Prospectus.
U.S. GOVERNMENT SECURITIES
As noted in the Prospectus, the Fund may invest in short-term
debt obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities ("U.S. Government Securities"). U.S. Government Securities in
which the Fund may invest include direct obligations of the U.S. Treasury and
obligations issued by U.S. government agencies and instrumentalities. Included
among direct obligations of the United States are Treasury Bills, Treasury Notes
and Treasury Bonds, which differ principally in terms of their maturities.
Included among the securities issued by those agencies and instrumentalities
are: securities that are supported by the full faith and credit of the United
States (such as Government National Mortgage Association certificates);
securities that are supported by the right of the issuer to borrow from the U.S.
Treasury (such as securities of Federal Home Loan Banks); and securities that
are supported by the credit of the instrumentality (such as Federal National
Mortgage Association and Federal Home Loan Mortgage Corporation bonds).
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BANK OBLIGATIONS
Certificates of deposit in which the Fund may invest are
generally limited to those instruments issued by U.S. and foreign banks, savings
and loan associations and other banking institutions having total assets in
excess of $1 billion. Certificates of deposit ("CDs") are short-term negotiable
obligations of commercial banks. The Fund may invest in U.S. dollar-denominated
CDs, including instruments issued or supported by the credit of U.S. or foreign
banks or savings institutions having total assets at the time of purchase in
excess of $1 billion. The Fund will invest in an obligation of a foreign bank or
foreign branch of U.S. banks only if Fleet Investment Advisors Inc. (the
"Investment Adviser" or "Fleet") deems the obligation to present minimal credit
risks. Nevertheless, this kind of obligation entails risks that are different
from those of investments in domestic obligations of U.S. banks due to
differences in political, regulatory and economic systems and conditions.
SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest in securities of other investment
companies to the extent permitted under the Investment Company Act of 1940, as
amended (the "1940 Act"). Presently, under the 1940 Act, the Fund may hold
securities of another investment company in amounts which (a) do not exceed 3%
of the total outstanding voting stock of such company, (b) do not exceed 5% of
the value of the Fund's total assets and (c) when added to all other investment
company securities held by the Fund, do not exceed 10% of the value of the
Fund's total assets. Purchases of securities of other investment companies may
subject shareholders to duplicate fees and expenses.
FUTURES CONTRACTS
The Fund may enter into interest rate futures contracts and
municipal bond index futures contracts. The Fund will enter into such futures
contracts only for "bona fide hedging" purposes, or as otherwise permitted by
Commodity Futures Trading Commission ("CFTC") regulations. The Fund may not
engage in futures activities if the aggregate initial margin deposits on its
existing futures contracts and the premiums paid for unexpired options required
to establish positions other than those considered to be "bona fide hedging" by
the CFTC would exceed 5% of the Fund's net asset value, after taking into
account unrealized profits and unrealized losses on futures contracts it has
entered into.
An interest rate futures contract is a standardized
contract for the future delivery of a specified security (such as
a U.S. Treasury bond or U.S. Treasury note) or its equivalent at
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a future date at a price set at the time of the contract. A municipal bond index
futures contract is an agreement pursuant to which two parties agree to take or
make delivery of an amount of cash equal to the difference between the value of
the index at the close of the last trading day of the contract and the price at
which the index contract was originally written. No physical delivery of the
underlying securities is made. By entering into an interest rate or municipal
bond index futures contract, the Fund is able to seek to protect its assets from
fluctuations in interest rates on tax-exempt securities without actually buying
or selling the long-term municipal securities.
No consideration is paid or received by the Fund upon the
purchase or sale of a futures contract. Upon entering into a futures contract,
the Fund will be required to deposit in a segregated account with its custodian
an amount of cash or cash equivalents, such as U.S. Government Securities or
high-grade debt obligations, equal to approximately 1 to 10% of the contract
amount (this amount is subject to change by the exchange on which the contract
is traded and brokers may require a higher amount). This amount is known as
"initial margin" and is in the nature of a performance bond or good faith
deposit on the contract, which is returned to the Fund upon termination of the
futures contract, assuming all contractual obligations have been satisfied. The
broker will have access to amounts in the margin account if the Fund fails to
meet its contractual obligations. Subsequent payments, known as "variation
margin," to and from the broker, will be made daily as the price of the index or
securities underlying the futures contract fluctuates, making the long and short
positions in the futures contract more or less valuable, a process known as
"marking-to-market." At any time prior to the expiration of a futures contract,
the Fund may elect to close the position by taking an opposite position, which
will operate to terminate the Fund's existing position in the contract.
Galaxy II will set aside with its custodian, or with a
designated sub-custodian, cash or cash equivalents, at least equal to the
underlying commodity value of each long position the Fund assumes in commodity
futures contracts or will take other actions consistent with regulatory
requirements to avoid leverage.
There are several risks in connection with investing in
futures contracts. Successful use of such futures contracts by the Fund is
subject to the ability of the Investment Adviser to predict correctly movements
in the direction of interest rates. Such predictions involve skills and
techniques which may be different from those involved in the management of a
municipal bond portfolio. In addition, although the Fund intends to enter into
futures contracts only if there is an active market for such contracts, there is
no assurance that a liquid market will exist for the contracts at any particular
time. Most futures exchanges
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limit the amount of fluctuation permitted in futures contract prices during a
single trading day. Once the daily limit has been reached in a particular
contract, no trades may be made that day at a price beyond that limit. It is
possible that futures contract prices could move to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of futures positions and subjecting the Fund to substantial losses.
In such event, and in the event of adverse price movements, the Fund would
continue to be required to make daily cash payments of variation margin.
Further, there can be no assurance that there will be a perfect correlation
between movements in the price of the security or index underlying the futures
contract and movements in the price of the municipal securities which are the
subject of the hedge. The degree of imperfection of correlation depends upon
various circumstances, such as variations in speculative market demand for
futures contracts and municipal securities and technical influences in futures
trading, and differences between the municipal securities being hedged and the
municipal securities underlying the futures contracts, in such respects as
interest rate levels, maturities and creditworthiness of issuers. A decision of
whether, when and how to hedge involves the exercise of skill and judgment and
even a well-conceived hedge may be unsuccessful to some degree because of market
behavior or unexpected trends in interest rates.
Losses incurred in futures transactions and the costs of these
transactions will affect the Fund's performance. In addition, the Fund might
have to sell securities to meet daily variation margin requirements at a time
when it would be disadvantageous to do so. These sales of securities may, but
will not necessarily, be at increased prices.
The ability of the Fund to trade in futures contracts and
options on futures contracts may be materially limited by the requirements of
the Internal Revenue Code of 1986, as amended (the "Code"), applicable to a
regulated investment company. See "Additional Information Concerning Taxes"
below.
OPTIONS ON FUTURES CONTRACTS
The Fund may purchase put and call options on interest rate
and municipal bond index futures contracts which are traded on a United States
exchange as a hedge against changes in interest rates, and may enter into
closing transactions with respect to such options to terminate existing
positions. The Fund would sell put and call options on futures contracts only as
part of closing sale transactions to terminate its options positions. There is
no guarantee that such closing transactions can be effected.
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Options on futures contracts, as contrasted with the direct
investment in such contracts, gives the purchaser the right, in return for the
premium paid, to assume a position in futures contracts at a specified exercise
price at any time prior to the expiration date of the options. Upon exercise of
an option, the delivery of the futures position by the writer of the option to
the holder of the option will be accompanied by delivery of the accumulated
balance in the writer's futures margin account, which represents the amount by
which the market price of the futures contract exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option on the
futures contract. The potential loss related to the purchase of an option on a
futures contract is limited to the premium paid for the option (plus transaction
costs). Because the value of the option is fixed at the point of sale, there are
no daily cash payments to reflect changes in the value of the underlying
contract; however, the value of the option does change daily and that change
would be reflected in the net asset value of the Fund.
Galaxy II will set aside with its custodian, or with a
designated sub-custodian, cash or cash equivalents, at least equal to the
underlying commodity value of each long position the Fund assumes in options on
futures contracts or will take other actions consistent with regulatory
requirements, to avoid leverage.
There are several risks relating to options on futures
contracts. The ability to establish and close out positions on such options will
be subject to the existence of a liquid market. In addition, the Fund's purchase
of put or call options will be based upon predictions as to anticipated interest
rate trends by the Investment Adviser, which could prove to be inaccurate. Even
if these expectations are correct there may be an imperfect correlation between
the change in the value of the options and of the Fund's portfolio securities.
REPURCHASE AGREEMENTS
The Fund may invest in repurchase agreement transactions
pending investment of proceeds or for other temporary purposes ("Temporary
Investments"). The Fund will enter into repurchase agreements only with member
banks of the Federal Reserve System having total assets in excess of $5 billion
or non-bank dealers that are listed on the Federal Reserve Bank of New York's
list of reporting dealers. Repurchase agreements are contracts under which the
buyer of a security simultaneously commits to resell the security to the seller
at an agreed-upon price and date. Under the terms of a typical repurchase
agreement, the Fund would acquire a Temporary Investment for a relatively short
period (usually not more than seven days) subject to an obligation of the seller
to repurchase,
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and the Fund to resell, the Temporary Investment at an agreed-upon price and
time, thereby determining the yield during the Fund's holding period. This
arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Fund's holding period. Under each repurchase agreement,
the selling institution will be required to maintain the value of the securities
subject to the repurchase agreement at not less than 101% of the repurchase
price.
Repurchase agreements involve certain risks in the event of
default or insolvency of the other party, including possible delays or
restrictions upon the Fund's ability to dispose of the underlying securities. In
evaluating these potential risks, the Investment Adviser, acting under the
supervision of the Board of Trustees, and on an ongoing basis, monitors (a) the
value of the collateral underlying each repurchase agreement of the Fund to
determine whether the value is at least equal to the total amount of the
repurchase obligation, including interest, and (b) the creditworthiness of the
banks and dealers with which the Fund enters into repurchase agreements. The
Fund will not enter into repurchase agreements that would cause more than 5% of
its net assets to be invested in illiquid securities.
A joint trading account may be used by the Fund to enter into
repurchase agreements. The Fund's decision to invest in the joint account will
be solely at its option; the Fund will not be required either to invest a
minimum amount or to maintain a minimum balance. The Board of Trustees will
evaluate annually the joint account arrangement and will continue participation
only if it determines that there is a reasonable likelihood that the Fund and
its shareholders would benefit from continued participation and that no
participant will be treated on a less advantageous basis than another
participant.
MUNICIPAL SECURITIES
The term "municipal securities" as used in the Prospectus and
this Statement of Additional Information means debt obligations issued by, or on
behalf of, states, territories and possessions of the United States and the
District of Columbia and their political subdivisions, agencies and
instrumentalities or multi-state agencies or authorities, the interest from
which debt obligations is, in the opinion of bond counsel to the issuer,
excluded from gross income for regular Federal income tax purposes. Municipal
securities generally are understood to include debt obligations issued to obtain
funds for various public purposes, including the construction of a wide range of
public facilities, refunding of outstanding obligations, payment of general
operating expenses and extensions of loans to public institutions and
facilities. Private activity bonds that are issued by or on behalf of public
authorities to finance privately
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operated facilities are considered to be municipal securities if the interest
paid on them qualifies as excluded from gross income (but not necessarily from
alternative minimum taxable income) for Federal income tax purposes in the
opinion of bond counsel to the issuer ("AMT bonds"). The Fund may invest up to
20% of its assets in AMT bonds.
Municipal securities may be issued to finance life care
facilities, which are an alternative form of long-term housing for the elderly
that offer residents the independence of a condominium life-style and, if
needed, the comprehensive care of nursing home services. Bonds to finance these
facilities have been issued by various state industrial development authorities.
Because the bonds are secured only by the revenues of each facility and not by
state or local government tax payments, they are subject to a wide variety of
risks, including a drop in occupancy levels, the difficulty of maintaining
adequate financial reserves to secure estimated actuarial liabilities, the
possibility of regulatory cost restrictions applied to health care delivery and
competition from alternative health care or conventional housing facilities.
Municipal leases are municipal securities that may take the
form of a lease or an installment purchase contract issued by state and local
governmental authorities to obtain funds to acquire a wide variety of equipment
and facilities such as fire and sanitation vehicles, computer equipment and
other capital assets. These obligations have evolved to make it possible for
state and local government authorities to acquire property and equipment without
meeting constitutional and statutory requirements for the issuance of debt.
Thus, municipal leases have special risks not normally associated with municipal
securities. These obligations frequently contain "non-appropriation" clauses
that provide that the governmental issuer of the obligation has no obligation to
make future payments under the lease or contract unless money is appropriated
for those purposes by the legislative body on a yearly or other periodic basis.
In addition to the non-appropriation risk, municipal leases represent a type of
financing that has not yet developed the depth of marketability associated with
other municipal securities. Moreover, although municipal leases will be secured
by the leased equipment, the disposition of the equipment in the event of
foreclosure might prove to be difficult. The Fund does not intend to invest more
than 5% of its net assets in municipal leases.
The yields on municipal securities are dependent on a variety
of factors, including general economic and monetary conditions, money market
factors, conditions of the municipal securities market, the size of a particular
offering, maturity of the obligation, and rating of the issue.
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Municipal securities may also be subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors, such as the Federal Bankruptcy Code, and laws, if any, which may be
enacted by Congress or state legislatures extending the time for payment of
principal or interest, or both, or imposing other constraints upon enforcement
of such obligations or upon the ability of municipalities to levy taxes. There
is also the possibility that as a result of litigation or other conditions the
power or ability of any one or more issuers to pay, when due, the principal of
and interest on its or their municipal securities may be materially affected.
The Fund will not invest more than 25% of its total assets in
municipal securities whose issuers conduct their principal activities in the
same state. The Fund may invest without limitation in municipal securities that
are repayable out of revenue streams generated from economically related
projects or facilities. Investments in these obligations could involve an
increased risk to the Fund should any of the related projects or facilities
experience financial difficulties. In addition, there could be economic,
business or political developments or changes which might affect all municipal
securities of a similar type. However, the Fund believes that the most important
consideration affecting risk is the quality of particular issues of municipal
securities rather than factors affecting all, or broad classes of, municipal
securities.
Tax legislation in recent years has included several
provisions that may affect the supply of, and the demand for, municipal
securities, as well as the tax-exempt nature of interest paid on those
obligations. Neither Galaxy II nor the Investment Adviser can predict with
certainty the effect of recent tax law changes upon the municipal securities
market, including the availability of instruments for investment by the Fund. In
addition, neither Galaxy II nor the Investment Adviser can predict whether
additional legislation adversely affecting the municipal security market will be
enacted in the future. Galaxy II will monitor legislative developments and
consider whether changes in the objective or policies of the Fund need to be
made in response to those developments.
When-Issued and Delayed-Delivery Securities. Municipal
securities are subject to changes in value based upon the public's perception of
the creditworthiness of the issuers and changes, real or anticipated, in the
level of interest rates. In general, municipal securities tend to appreciate
when interest rates decline and depreciate when interest rates rise. Purchasing
municipal securities on a when-issued or delayed-delivery basis, therefore, can
involve the risk that the yields available in the market when the delivery takes
place actually may be higher than those obtained in the transaction itself. To
account for this risk, a separate account of the Fund
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consisting of cash or liquid debt securities equal to the amount of the
when-issued or delayed-delivery commitments will be established at the Fund's
custodian bank. For the purpose of determining the adequacy of the securities in
the account, the deposited securities will be valued at market or fair value. If
the market or fair value of such securities declines, additional cash or
securities will be placed in the account on a daily basis so that the value of
the account will equal the amount of such commitments by the Fund. Upon the
settlement date of the when-issued or delayed-delivery securities, the Fund will
meet its obligations from the then-available cash flow, sale of securities held
in the separate account, sale of other securities or although it would not
normally expect to do so, from the sale of the securities themselves (which may
have a greater or lesser value than the Fund's payment obligations). Sales of
securities to meet such obligations may involve the realization of capital
gains, which are not exempt from federal income taxes.
VALUATION OF PORTFOLIO SECURITIES
Debt securities of U.S. issuers (other than U.S. Government
Securities and short-term investments), including municipal securities, are
valued by Fleet National Bank (the "Administrator") after consultation with a
pricing service. When, in the judgment of the pricing service, quoted bid prices
for investments of the Fund are readily available and are representative of the
bid side of the market, these investments are valued at the mean between the
quoted bid prices and asked prices. Investments of the Fund that are not
regularly quoted are carried at fair value as determined by the Board of
Trustees, which may rely on the assistance of the pricing service. The
procedures of the pricing service are reviewed periodically by the Investment
Adviser under the general supervision and responsibility of the Board of
Trustees of Galaxy II.
Portfolio securities which are listed on the New York Stock
Exchange or the American Stock Exchange are valued at the last quoted sales
price, or if no sales occurred, the closing bid price. Investments in U.S.
Government Securities (other than short-term investments) are valued at the
average of the quoted bid and asked prices in the over-the-counter market.
Short-term investments that mature in 60 days or less are valued on the basis of
amortized cost (which involves valuing an investment instrument at its cost and,
thereafter, assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument) unless Galaxy II's Board of Trustees has determined
that amortized cost does not approximate market value. Other securities for
which market quotations are readily available are valued as nearly as possible
in the manner described above. Securities may be valued by a pricing service
when such prices are believed to reflect the fair market value of
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such securities. Other assets and securities for which market quotations are not
readily available are valued based on fair value as determined in good faith in
accordance with procedures established by the Board of Trustees.
RATINGS AS INVESTMENT CRITERIA
The ratings of nationally recognized statistical rating
organizations ("NRSROs") such as Standard & Poor's Ratings Group ("S&P") or
Moody's Investors Service, Inc. ("Moody's") represent the opinions of those
organizations as to the quality of securities that they rate. Although these
ratings, which are relative and subjective and are not absolute standards of
quality, will be used by the Investment Adviser as initial criteria for the
selection of portfolio securities on behalf of the Fund, the Investment Adviser
will also rely upon its own analysis to evaluate potential investments.
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 required
for purchase by the Fund. Although a change in rating may not necessarily
require the sale of the securities by the Fund, the Investment Adviser will
consider the event in its determination of whether the Fund should continue to
hold the securities. In the event of a default by the issuer of the security,
the Fund will dispose of the security as soon as practicable, unless Galaxy II's
Board of Trustees determines that disposal of the security would not be in the
best interests of the Fund. To the extent that a NRSRO's ratings change as a
result of a change in the NRSRO or its rating system, the Fund will attempt to
use comparable ratings as standards for its investments in accordance with its
investment objective and policies.
INVESTMENT LIMITATIONS
Investment limitations numbered 1 through 15 may not be
changed without the approval by a vote of a majority of the outstanding shares
of the Fund. Investment limitations numbered 16 through 18 may be changed by a
vote of the Board of Trustees at any time. A majority vote by shareholders is
defined, with respect to the approval of an investment advisory agreement, a
distribution plan or a change in a fundamental investment policy as the lesser
of (a) 67% or more of the shares present at the meeting, if the holders of more
than 50% of the outstanding shares of the Fund are present or represented by
proxy, or (b) more than 50% of the outstanding shares of the Fund.
The Fund may not:
1. Under normal market conditions invest less than 80% of its
net assets in municipal securities.
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2. With respect to 75% of its total assets, purchase the
securities of any issuer if as a result more than 5% of the value of the Fund's
total assets would be invested in the securities of such issuer, except that
this 5% limitation does not apply to U.S. Government Securities. For purposes of
this limitation, the issuer will be identified based on a determination of the
source of assets and revenues committed to meeting interest and principal
payments of each security. The Fund will regard each state and each of its
political subdivisions, agencies and instrumentalities and each multi-state
agency, as separate issuers for purposes of this restriction. If private
companies are responsible for payment of principal and interest, the Fund will
regard each such company as a separate issuer for purposes of this restriction.
All securities of a foreign government and its agencies will be treated as a
single issuer for purposes of this restriction.
3. Borrow money or issue senior securities except that the
Fund may borrow from banks for temporary or emergency purposes, and not for
leveraging, and then in amounts not in excess of 33-1/3% of the value of the
Fund's total assets at the time of such borrowing; or mortgage, pledge or
hypothecate any assets except in connection with any bank borrowing and in
amounts not in excess of the lesser of the dollar amounts borrowed or 33-1/3% of
the value of the Fund's total assets at the time of such borrowing. The Fund
will repay all borrowings before making additional investments. For purposes of
this restriction, collateral arrangements with respect to (a) the purchase and
sale of options on futures contracts and (b) initial and variation margin for
futures contracts, will not be deemed to be issuances of senior securities or to
be pledges of the Fund's assets.
4. Purchase any securities that would cause 25% or more of the
value of the Fund's net assets at the time of purchase to be invested in the
securities of issuers conducting their principal business activities in the same
state.
5. Make loans, except that the Fund may purchase or hold debt
obligations and enter into repurchase agreements, as described herein and in the
Prospectus.
6. Underwrite any issue of securities except to the extent
that the sale of portfolio securities in accordance with the Fund's investment
objective, policies and limitations may be deemed to be underwriting.
7. Purchase or sell real estate or real estate limited
partnership interests, or invest in oil, gas or mineral leases, or mineral
exploration or development programs, except that the Fund may invest in
securities secured by real estate mortgages or
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interests therein and may purchase securities issued by companies that invest or
deal in any of the above.
8. Make short sales of securities or maintain a short
position.
9. Purchase securities of other investment companies except as
they may be acquired in connection with a merger, consolidation, acquisition,
reorganization or offer of exchange and except as permitted under the 1940 Act.
10. With respect to 75% of its total assets, purchase more
than 10% of the voting securities of any one issuer, more than 10% of the
securities of any class of any one issuer or more than 10% of the outstanding
debt securities of any one issuer; provided that this limitation shall not apply
to investments in U.S. Government Securities. The Fund will regard each state
and each of its political subdivisions, agencies and instrumentalities and each
multi-state agency, as separate issuers for purposes of this restriction. If
private companies are responsible for payment of principal and interest, the
Fund will regard each such company as a separate issuer for purposes of this
restriction. All securities of a foreign government and its agencies will be
treated as a single issuer for purposes of this restriction.
11. Purchase securities on margin, except that the Fund may
obtain any short-term credits necessary for the clearance of purchases and sales
of securities. For purposes of this restriction, the deposit or payment of
initial or variation margin in connection with futures contracts or related
options will not be deemed to be a purchase of securities on margin by the Fund.
12. Invest in commodities, except that the Fund may invest in
futures contracts and options thereon as described herein and in the Prospectus.
13. Invest in companies for the purpose of exercising control
or management.
14. Invest more than 15% of the value of the Fund's net assets
in securities which may be illiquid because of legal or contractual restrictions
on resale or securities for which there are no readily available market
quotations.
15. Invest more than 25% of its assets in the securities of
issuers in any single industry; provided that there shall be no limitation on
the purchase of municipal securities and U.S. Government Securities. For the
purposes of this restriction, private activity bonds, where the payment of
principal and interest is the ultimate responsibility of
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companies within the same industry, are grouped together as an "industry."
16. Purchase any security if as a result the Fund would then
have more than 5% of its total assets invested in securities of companies
(including predecessors) that have been in continuous operation for fewer than
three years, except that in the case of industrial revenue bonds purchased by
the Fund, this restriction will apply to the entity supplying the revenues from
which the issue is to be paid.
17. Purchase or retain securities of any company if, to the
knowledge of Galaxy II, any of Galaxy II's officers or Trustees or any officer
or director of Galaxy II's investment adviser individually owns more than 1/2 of
1% of the outstanding securities of such company and together they own
beneficially more than 5% of the securities.
18. Purchase warrants.
Galaxy II may make commitments more restrictive than the
restrictions listed above with respect to the Fund so as to permit the sale of
shares of the Fund in certain states. Should Galaxy II determine that any such
commitment is no longer in the best interest of the Fund and its shareholders,
Galaxy II will revoke the commitment by terminating the sale of shares of the
Fund in the state involved or may otherwise modify its commitment based on a
change in the involved state's restrictions. If a percentage restriction (other
than that contained in investment limitation 3) is adhered to at the time of an
investment, a later increase or decrease in the percentage of assets resulting
from a change in the values of portfolio securities or in the amount of the
Fund's assets will not constitute a violation of such restriction.
PORTFOLIO TURNOVER
Galaxy II cannot accurately predict the Fund's portfolio
turnover rate. However, the annual turnover rate of the Fund generally is
expected to be less than 100%. For the fiscal years ended March 31, 1995 and
March 31, 1996, the Fund's portfolio turnover rate was 47% and 2%, respectively.
Portfolio turnover rate is calculated by dividing the lesser of the Fund's
annual sales or purchases of portfolio securities by the monthly average value
of securities in the Fund during the year, excluding any portfolio security, the
maturity of which at the time of acquisition was one year or less. Higher
portfolio turnover rates can result in corresponding increases in brokerage
commissions. The Fund will not consider its turnover rate a limiting factor in
making investment decisions consistent with its investment objective and
policies.
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PORTFOLIO TRANSACTIONS
The Investment Adviser will select specific portfolio
investments and effect transactions for the Fund. The Investment Adviser seeks
to obtain the best net price and the most favorable execution of orders. The
Investment Adviser may, in its discretion, effect transactions in portfolio
securities with dealers who provide research advice or other services to the
Fund or the Investment Adviser. The Investment Adviser 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 the Investment Adviser 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 the Investment Adviser's overall responsibilities to
the Fund and to the Trust. 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
II and the Investment Adviser 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.
Municipal securities and U.S. Government Securities are
generally purchased from underwriters or dealers, although certain newly issued
municipal securities and U.S. Government Securities may be purchased directly
from the issuing agency or instrumentality. No brokerage commissions are
typically paid on purchases and sales of municipal securities or U.S. Government
Securities.
Transactions on U.S. stock exchanges involve the payment of
negotiated brokerage commissions. 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.
Since Galaxy II does not market shares of the Fund through
intermediary brokers or dealers, it is not Galaxy II's
-17-
<PAGE> 104
practice to allocate brokerage or principal business on the basis
of sales of its shares.
ADDITIONAL INFORMATION CONCERNING TAXES
As described above and in the Prospectus, the Fund is designed
to provide shareholders with current income which is excluded from gross income
for regular Federal income tax purposes. The Fund is not intended to constitute
a balanced investment program and is not designed for investors seeking capital
gains or maximum tax-exempt income irrespective of fluctuations in principal.
Investment in the Fund would not be suitable for tax-exempt institutions,
qualified retirement plans (including those that cover self-employed
individuals) and individual retirement accounts since such investors would not
gain any additional tax benefit from the receipt of tax-exempt income.
The Fund intends to qualify each year as a "regulated
investment company" under the Code. Provided that the Fund (a) is a regulated
investment company and (b) distributes to its shareholders (i) at least 90% of
its "investment company taxable income" (that is, its income minus its "net
capital gains" and after taking into account certain required adjustments) and
(ii) at least 90% of its tax-exempt interest income (reduced by certain
expenses), the Fund generally will not be subject to Federal income tax to the
extent its net investment income (that is, its income other than its net
realized capital gains) and its net realized long-term and short-term capital
gains are distributed to its shareholders in accordance with the Code. The
Fund's net investment income for dividend purposes consists of (i) interest
accrued and discount earned on the Fund's assets, (ii) less amortization of
market premium on such assets, accrued expenses directly attributable to the
Fund, and the general expenses (e.g., legal, accounting and trustees' fees) of
the Trust prorated to the Fund on the basis of its relative net assets. The
amortization of market discount on the Fund's assets is not included in the
calculation of net income, unless the Fund elects to include accrued market
discount currently.
Although the Fund expects to be relieved of all or
substantially all Federal, state and local income and franchise taxes, depending
upon the extent of its activities in states and localities in which its offices
are maintained, in which its agents or independent contractors are located or in
which it is otherwise deemed to be conducting business, that portion of the
Fund's income which is treated as earned in any such state or locality could be
subject to state and local tax. Any such taxes paid by the Fund would reduce the
amount of income and gains available for distribution to shareholders.
-18-
<PAGE> 105
As noted in the Prospectus, the Fund expects to pay dividends
and to make distributions as necessary to avoid the application of the 4%
non-deductible excise tax measured with respect to certain undistributed amounts
of taxable ordinary income and capital gain. The Fund may also, in order to
avoid the 4% excise tax, declare one or more dividends in October, November or
December of any calendar year, payable to shareholders of record on a specified
date in such a month. If the Fund declares such dividends, then each such
shareholder will be treated as receiving such dividends and the Fund will be
treated as having paid such dividends on December 31 of that year provided that
the Fund pays such dividends to such shareholders during January of the
following calendar year. As a general rule, dividends paid by the Fund will
qualify for the dividends-received deduction for corporate shareholders only to
the extent the Fund's dividends are attributable to dividends received by the
Fund from U.S. corporations.
As described above and in the Prospectus, the Fund is
authorized to invest in futures contracts and options on futures contracts.
Galaxy II anticipates that this investment activity will not prevent the Fund
from qualifying as a regulated investment company. As a general rule, this
investment activity will increase or decrease the amount of long-term and
short-term capital gains or losses realized by the Fund involved, and,
accordingly, will affect the amount of capital gains distributed to the Fund's
shareholders.
For Federal income tax purposes, gain or loss on the futures
contracts described above (collectively referred to herein as "section 1256
contracts") is taxed pursuant to a special "mark-to-market system." Under the
mark-to-market system, the Fund may be treated as realizing a greater or lesser
amount of gains or losses than actually realized. As a general rule, gain or
loss on section 1256 contracts is treated as 60% long-term capital gain or loss
and 40% short-term capital gain or loss and, accordingly, the mark-to-market
system generally will affect the amount and timing of capital gains or losses
that may be taxable to the Fund and the amount of distribution taxable to a
shareholder. Moreover, if the Fund invests in both section 1256 contracts and
offsetting positions in such contracts, then the Fund might not be able to
receive the benefit of certain realized losses for an indeterminate period of
time. The Fund expects that its activities with respect to section 1256
contracts and offsetting positions in such contracts (a) will not cause it or
its shareholders to be treated as receiving a materially greater amount of
capital gains or distributions than actually realized or received and (b) will
permit it to use substantially all of its losses for the fiscal years in which
such losses actually occur.
-19-
<PAGE> 106
In order for the Fund to pay exempt-interest dividends for any
taxable year, at the close of each taxable quarter, at least 50% of the
aggregate value of the Fund's portfolio must consist of exempt-interest
obligations. Within 60 days after the close of the taxable year of the Fund, the
Trust will notify the Fund's shareholders of the portion of the dividends paid
that constitutes an exempt-interest dividend with respect to that taxable year.
The percentage of total dividends paid by the Fund with respect to any taxable
year that qualifies as federal exempt-interest dividends will be the same for
all shareholders receiving dividends from the Fund for that year.
A portion of the interest on indebtedness incurred by a
shareholder to purchase or carry shares of the Fund, equal to the percentage of
the total non-capital gain dividends distributed during the shareholder's
taxable year that are exempt-interest dividends, is not deductible for Federal
income tax purposes. If a shareholder of the Fund holds shares for six months or
less, any loss on the sale or exchange of those shares will be disallowed to the
extent of the amount of exempt-interest dividends received with respect to the
shares. In addition, the Code may require a shareholder, if he or she receives
exempt-interest dividends, to treat as Federal taxable income a portion of
certain otherwise non-taxable social security and railroad retirement benefit
payments. Furthermore, that portion of any exempt-interest dividend paid by the
Fund which represents income derived from "private activity bonds" held by the
Fund may not retain its tax-exempt status in the hands of a shareholder who is a
"substantial user" of a facility financed by such bonds, or a "related person"
thereof.
While exempt-interest dividends are exempt from regular
Federal income tax, they may be subject to alternative minimum tax (currently
imposed at the rate of 26%-28% on non-corporate taxpayers and at the rate of 20%
in the case of corporate taxpayers), in two circumstances. First,
exempt-interest dividends derived from private activity bonds issued after
August 7, 1986 generally will constitute an item of tax preference for both
corporate and non-corporate taxpayers. Second, exempt-interest dividends derived
from all bonds, regardless of the date of issue, must be taken into account by
corporate taxpayers in determining certain adjustments for alternative minimum
and environmental tax purposes. Receipt of exempt-interest dividends may result
in collateral Federal income tax consequences to certain other taxpayers,
including subchapter S corporate shareholders, financial institutions, property
and casualty insurance companies, and foreign corporations engaged in trade or
business in the United States. Prospective investors should consult their own
tax advisers as to such consequences.
Net realized long-term capital gains will be distributed as
described in the Prospectus. Such distributions
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<PAGE> 107
("capital gain dividends") will be taxable to a shareholder as long-term capital
gains, regardless of how long a shareholder has held Fund shares. However, if a
shareholder receives a capital gain dividend with respect to any share and if
such share is held by the shareholder for six months or less, then any loss on
the sale or redemption of such share will be treated as a long-term capital loss
to the extent of the capital gain dividend.
Investors considering buying shares of the Fund on or just
prior to the record date for a taxable dividend or capital gain distribution
should be aware that the amount of the forthcoming dividend or distribution
payment, although in effect a return of capital, will be a taxable dividend or
distribution payment.
If a shareholder fails to furnish a correct taxpayer
identification number, fails to report fully dividend or interest income, or
fails to certify that he or she has provided a correct taxpayer identification
number and that he or she is not subject to backup withholding, then the
shareholder may be subject to a 31% "backup withholding tax" with respect to (a)
dividends and distributions and (b) the proceeds of any sales or redemptions of
the Fund's shares. An individual's taxpayer identification number is his or her
social security number. The 31% "backup withholding tax" is not an additional
tax and may be credited against a taxpayer's regular Federal income tax
liability.
The foregoing is only a summary of certain tax considerations
generally affecting the Fund and its shareholders, and is not intended as a
substitute for careful tax planning. Shareholders are urged to consult their tax
advisers with specific reference to their own tax situations, including their
state and local tax liabilities.
TRUSTEES AND OFFICERS
The trustees and executive officers of Galaxy II, their
addresses, ages and their principal occupations during the past five years and
other affiliations are set forth below. The executive officers of Galaxy II are
employees of organizations that provide services to the Fund. Each trustee who
is an "interested person" of the Trust, as defined in the 1940 Act, is indicated
by an asterisk. Each other trustee has no relationship with the Investment
Adviser or the Former Adviser (as hereinafter defined).
-21-
<PAGE> 108
<TABLE>
<CAPTION>
Positions Held with Galaxy II and
Principal Occupation(s) During
Name, Address and Age Past 5 Years
- --------------------- ------------
<S> <C>
Dwight E. Vicks, Jr. Trustee and Chairman of the Board
Vicks Lithograph &
Printing Corporation President & Director,
Commercial Drive Vicks Lithograph &
P.O. Box 270 Printing Corporation
Yorkville, NY 13495 (book manufacturing and commercial
Age 63 printing); Director, Utica First
Insurance Company; Trustee,
Savings Bank of Utica;
Director, Monitor Life
Insurance Company;
Director, Commercial
Travelers Mutual Insurance
Company; Chairman of the
Board, The Galaxy Fund and
The Galaxy VIP Fund.
*John T. O'Neill Trustee, President and Treasurer
Hasbro, Inc.
200 Narragansett Executive Vice President and CFO,
Park Drive Hasbro, Inc.(toy and game
Pawtucket, RI 02862 manufacturer), since 1987; Trustee,
Age 55 President and Treasurer, The Galaxy
Fund and the Galaxy VIP
Fund; Managing Partner,
KPMG Peat Marwick
(accounting firm), 1986.
Louis DeThomasis Trustee
Saint Mary's College
of Minnesota President, Saint Mary's College of
Winona, MN 55987 Minnesota; Director, Bright Day
Age 55 Travel, Inc.; Trustee, Religious
Communities Trust; Trustee, The
Galaxy Fund and The Galaxy VIP
Fund.
Donald B. Miller Trustee
10725 Quail Covey Road
Boynton Beach, FL 33436 Chairman, Horizon Media, Inc.
Age 70 (broadcast services); Director/
Trustee, Lexington Funds; Director,
Maguire Group of Connecticut, Inc.
(consulting engineers); Trustee,
Keuka College; Trustee, The Galaxy
Fund and The Galaxy VIP Fund.
</TABLE>
-22-
<PAGE> 109
<TABLE>
<CAPTION>
Positions Held with Galaxy II and
Principal Occupation(s) During
Name, Address and Age Past 5 Years
- --------------------- ------------
<S> <C>
James M. Seed Trustee
The Astra Ventures, Inc.
One Citizens Plaza Chairman and President, The Astra
Providence, RI 02903 Projects, Incorporated (land
Age 55 development); President, The Astra
Ventures, Incorporated
(previously, Buffinton Box
Company - manufacturer of
cardboard boxes); Trustee,
The Galaxy Fund and The
Galaxy VIP Fund;
Commissioner, Rhode Island
Investment Commission.
*Bradford S. Wellman Trustee
2468 Ohio Street
Bangor, ME 04401 Private Investor; President, Ames &
Age 65 Wellman, from 1978 to 1991;
President, Pingree
Associates, Inc., from 1974
until 1990; Director, Essex
County Gas Company, until
January 1994; Director,
Maine Mutual Fire Insurance
Co.; Member, Maine Finance
Authority; Trustee, The
Galaxy Fund and The Galaxy
VIP Fund.
W. Bruce McConnel, III Secretary
Drinker Biddle & Reath
Philadelphia National Partner of the law firm Drinker
Bank Building Biddle & Reath, Philadelphia,
1345 Chestnut St. Pennsylvania.
Philadelphia, PA 19107
Age 53
Neil Forrest Vice President and Assistant
First Data Investor Treasurer
Services Group, Inc.
4400 Computer Drive Vice President, Investment
P.O. Box 5108 Marketing and Strategic Planning,
Westborough, MA 01581 Manufacturers and Traders Trust Co.
Age 36 1990-1992; First Data Investor
Services Group, Inc. 1992-present.
</TABLE>
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<PAGE> 110
The following chart provides certain information about the
trustee fees for the year ended March 31, 1996:
<TABLE>
<CAPTION>
TOTAL
COMPENSA-
PENSION OR TION FROM
RETIREMENT COMPANY
BENEFITS AND FUND
AGGREGATE ACCRUED COMPLEX*
NAME OF COMPENSATION AS PART OF PAID TO
PERSON FROM THE COMPANY FUND EXPENSES TRUSTEES
- ------ ---------------- ------------- --------
<S> <C> <C> <C>
Bradford S. Wellman $5,000 None $29,750
Dwight E. Vicks, Jr. $5,000 None $36,100
Donald B. Miller $5,000 None $32,000
Louis DeThomasis $5,000 None $32,000
John T. O'Neill $5,000 None $34,625
James M. Seed $5,000 None $32,000
</TABLE>
* The "Fund Complex" consists of The Galaxy Fund, The Galaxy VIP and
Galaxy Fund II.
Each trustee receives an annual fee of $5,000 for his services as a
trustee of Galaxy II plus an additional $750 for each in-person Galaxy II Board
meeting and $500 for each telephone Galaxy II Board meeting attended and is
reimbursed for expenses incurred in attending meetings. Beginning March 1,
1996, each trustee is also entitled to participate in the Galaxy II Deferred
Compensation Plan (the "Plan"). The Plan provides that a trustee may defer all
or a portion of the compensation earned from Galaxy II to a deferred
compensation account. Monies in the deferred compensation account will be
invested according to the investment options selected by the trustee. No
employee of First Data receives any compensation from Galaxy II for acting as an
officer. No person who is an officer, director or employee of Fleet, or any of
its affiliates, serves as a trustee, officer or employee of Galaxy II.
-24-
<PAGE> 111
As of June 1, 1996, the aforementioned trustees and officers
of Galaxy II as a group owned no shares of the Large Company Fund, the Small
Company Fund, the U.S. Treasury Fund, the Utility Fund or the Municipal Bond
Fund.
ADVISORY, ADMINISTRATION, CUSTODIAN, TRANSFER AGENCY
AND DIVIDEND PAYING AGENT AGREEMENTS
INVESTMENT ADVISER AND ADMINISTRATOR
Fleet, an indirect subsidiary of Fleet Financial Group, Inc.,
serves as the investment adviser to the Fund. Fleet's principal offices are
located at 45 East Avenue, Rochester, New York 14604.
Pursuant to its investment advisory agreement with Galaxy II,
Fleet, subject to the general supervision of Galaxy II's Board of Trustees and
in accordance with the Fund's investment policies, manages the Fund, makes
decisions with respect to and places orders for all purchases and sales of its
portfolio securities and maintains related records. The fees paid to the
Investment Adviser under the Advisory Agreement are described in the Prospectus.
For the period April 1, 1994 through June 30, 1994, IBM Credit
Investment Management Corporation, the Former Adviser, earned $20,007 and Fleet
earned $50,719 for the period July 1, 1994 through March 31, 1995 and $59,097
for the year ended March 31, 1996.
Pursuant to an administration agreement with the Trust (the
"Administration Agreement"), the Administrator, subject to the supervision of
the Board of Trustees, generally assists in certain aspects of the
administration and operation of the Fund. Under the Administration Agreement,
the Administrator has agreed to maintain office facilities for Galaxy II,
furnish Galaxy II with statistical and research data, clerical, accounting, and
bookkeeping services, certain other services such as internal auditing services
required by Galaxy II, and compute the net asset value and net income of the
Fund. In addition, the Administrator 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 II's operations.
Pursuant to the Administration Agreement, the Administrator may delegate to
another organization the performance of some or all of these services, in which
case the Administrator will be responsible for all compensation payable to such
organization and will remain liable for losses or failures resulting from the
actions or omissions of such agent. The Administrator has entered into a
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<PAGE> 112
Sub-Administration Agreement with First Data Investor Services Group. Inc. (the
"Sub-Administrator" or "FDISG"), pursuant to which the Sub-Administrator has
agreed to provide the Trust with the services which the Trust is entitled to
receive under the Administration Agreement with the Administrator.
For the period April 1, 1994 through June 30, 1994, the Former
Adviser earned $28,197 as administrator of the Fund and the Administrator earned
$64,406 for the period July 1, 1994 through March 31, 1995 and $82,017 for the
year ended March 31, 1996 for the Fund.
The Administrator pays the salaries of all officers and
employees who are employed by both it and Galaxy II. The Administrator bears all
expenses in connection with its duties under the Administration Agreement and
bears all of Galaxy II's expenses with the following exceptions: brokerage fees
and commissions; fees and expenses of Trustees who are not officers, directors
or employees of the Investment Adviser, the Administrator, the Distributor or
any of their affiliates; taxes; interest; and any extraordinary non-recurring
expenses, including litigation to which Galaxy II may be a party. The fees paid
to the Administrator under the Administration Agreement are described in the
Prospectus.
The Advisory and Administration Agreements provide that,
absent willful misfeasance, bad faith, gross negligence or reckless disregard of
duty (or, in the case of the Investment Adviser, a breach of fiduciary duty with
respect to the receipt of compensation for services), neither the Investment
Adviser nor the Administrator shall be liable to the Trust for any error of
judgment or mistake of law or for any loss sustained by the Trust. The Advisory
and Administration Agreements are terminable without penalty by Galaxy II on
sixty days' written notice when authorized by vote of a majority of its Board of
Trustees or by the Investment Adviser or Administrator, as the case may be, on
sixty days' written notice. In addition, the Advisory Agreement is terminable
without penalty by Galaxy II on sixty days' written notice when authorized by a
majority vote of its outstanding voting shares and will automatically terminate
in the event of its "assignment" as defined in the 1940 Act.
Each of the Advisory and Administration Agreements provide
that the agreement remains in effect until June 30 of each year, unless earlier
terminated, as long as such continuance is annually approved by a vote of
trustees who are not parties to the contract or "interested persons", as defined
by the 1940 Act, of any such party cast in person at a meeting specially called
for the purpose of voting on the continuance of the agreement.
The Investment Adviser and the Administrator have agreed that
if in any fiscal year the aggregate expenses of the
-26-
<PAGE> 113
Fund (as defined under the securities regulations of any state having
jurisdiction over the Fund) exceed the expense limitation of such state, the
Investment Adviser and the Administrator will reduce their fees or reimburse the
Fund to the extent required by state law. A fee reduction, if any, will be
accrued on a daily basis. The most restrictive annual expense limitation
applicable to the Fund is 2.5% of the first $30 million of the average net
assets of the Fund, 2% of the next $70 million of the average net assets of the
Fund and 1.5% of any remaining average net assets of the Fund.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling or distributing securities such as shares of
the Fund, but do not prohibit such a bank holding company or its affiliates or
banks generally from acting as investment adviser, administrator, transfer agent
or custodian to such an investment company or from purchasing shares of such a
company as agent for and upon the order of customers. The Investment Adviser,
the Administrator, the Fund's custodian and institutions which have agreed to
provide shareholder support services that are banks or bank affiliates are
subject to such banking laws and regulations. Should legislative, judicial or
administrative action prohibit or restrict the activities of such companies in
connection with their services to the Fund, Galaxy II might be required to alter
materially or discontinue its arrangements with such companies and change its
method of operation. It is anticipated, however, that any resulting change in
the Fund's method of operation would not affect its net asset value per share or
result in financial losses to any shareholder. State securities laws on this
issue may differ from Federal law and banks and financial institutions may be
required to register as dealers pursuant to state law.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND PAYING AGENT
The Chase Manhattan Bank, N.A. (the "Custodian") serves as
custodian to the Fund pursuant to a Global Custody Agreement. Under its custody
agreement, the Custodian 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; (iv) collect and receive all income and other payments and
distributions on account of the Fund's portfolio securities; and (v) respond to
correspondence from security brokers and others relating to its duties.
-27-
<PAGE> 114
FDISG serves as the Trust's transfer agent and dividend
disbursing agent pursuant to a Transfer Agency Agreement ("Transfer Agency
Agreement"). Under the Transfer Agency Agreement, the Transfer Agent has agreed
to: (i) issue and redeem shares of each Fund; (ii) transmit all communications
by each Fund to its shareholders of record, including reports to shareholders,
dividend and distribution notice and proxy materials for meetings of
shareholders; (iii) respond to correspondence by security brokers and others
relating to its duties; and (iv) maintain shareholder accounts.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Fund are sold on a continuous basis by the
Distributor, and the Distributor has agreed to use appropriate efforts to
solicit all purchase orders. As described in the Prospectus, shares of the Fund
are sold to customers ("Customers") of Fleet Brokerage Securities Corporation,
Fleet Securities, Inc., Fleet Financial Group, Inc. ("Fleet Group"), its
affiliates, their correspondent banks, and other qualified banks, savings and
loan associations and broker/dealers ("Institutions"). As described in the
Prospectus, Shares may also be sold to individuals or corporations, who submit a
purchase application to Galaxy II, purchasing either for their now accounts or
for the accounts of others ("Direct Investors").
Galaxy II 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 a Fund's investments or determination or its net asset value not
reasonably practicable; (b) the New York Stock Exchange is closed (other than
customary weekend and holiday closings); or (c) the SEC has by order permitted
such suspension.
PERFORMANCE AND YIELD INFORMATION
From time to time, the Fund may quote its performance, as
based upon its total return, its yield or its tax-equivalent yield, in
advertisements or in reports and other communications to shareholders. Aggregate
total return may be shown by means of schedules, charts or graphs, and may
indicate subtotals of the various components of the total return (that is,
change in value of the initial investment, income dividends and capital gains
distributions). The Fund's "average annual total return" figures described in
the Prospectus are computed according to a formula prescribed by the SEC. The
formula can be expressed as follows:
P(1+T)(n) = ERV
-28-
<PAGE> 115
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = Ending Redeemable Value of a hypothetical $1,000
investment made at the beginning of a period, at the end
of a 1-, 5- or 10-year period (or fractional portion
thereof), assuming reinvestment of all dividends and
distributions.
The total return for the Fund for the fiscal year ended March
31, 1996 was 7.36%.
Yield is calculated by annualizing the net investment income
generated by the Fund over a specified thirty-day period according to the
following formula:
a-b
YIELD = 2[( -------------- +1)(6) - 1]
cd
For purposes of this formula: "a" is dividends and interest earned during the
period; "b" is expenses accrued for the period (net of reimbursements); "c" is
the average daily number of shares outstanding during the period that were
entitled to receive dividends; and "d" is the maximum offering price per share
on the last day of the period.
The yield for the 30-day period ended March 31, 1996 for the
Fund was 4.42%.
Tax-equivalent yield is calculated over a specified thirty-day
period by dividing that portion of the Fund's yield which is tax-exempt by one
minus a stated income tax rate and adding the product to that portion, if any,
of the yield of the Fund that is not tax-exempt.
The tax-equivalent yield for the 30-day period ended March 31,
1996 for the Fund was 6.14% for a Federal marginal income tax ("FMIT") bracket
of 28%, 6.41% for a FMIT bracket of 31%, 6.91% for a FMIT bracket of 36% and
7.32% for a FMIT bracket of 39.6%.
The Fund's performance will vary from time to time depending
upon market conditions, the composition of its portfolio and its operating
expenses. Consequently, any given performance quotation should not be considered
representative of the Fund's performance for any specified period in the future.
In addition, because the performance will fluctuate, it may not
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<PAGE> 116
provide a basis for comparing an investment in the Fund with certain bank
deposits or other investments that pay a fixed yield for a stated period of
time. Investors comparing the Fund's performance with that of other mutual funds
should give consideration to the quality and maturity of the respective
investment companies' portfolio securities.
Comparative performance information may be used from time to
time in advertising the shares of the Fund, including data from Lipper
Analytical Services, Inc., Morningstar, Inc., or similar independent services
that monitor the performance of
mutual funds, or other industry publications.
The following table shows the approximate average yields of
AAA rated, general obligation municipal securities as of October 21, 1995:
<TABLE>
<CAPTION>
Years to Maturity
-----------------
1 5 7 10 20 30
- - - -- -- --
<S> <C> <C> <C> <C> <C> <C>
Yield......... 3.66% 4.23% 4.43% 4.73% 5.49% 5.59%
</TABLE>
Source: Bloomberg Financial Markets
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE ABOVE
CHART IS NOT INTENDED TO REFLECT THE PERFORMANCE OF THE FUND.
COUNSEL
Drinker Biddle & Reath (of which Mr. McConnel, Secretary of
the Trust, is a partner), Philadelphia National Bank Building, 1345 Chestnut
Street, Philadelphia, Pennsylvania 19107, are counsel to Galaxy II and will pass
upon certain legal matters on its behalf.
INDEPENDENT ACCOUNTANTS
The financial highlights for the Fund included in the
Prospectus and the financial statements for all Funds of Galaxy II attached to
this Statement of Additional Information for the respective fiscal periods ended
March 31 of each calendar year (with the exception for the fiscal years ended
March 31, 1995 and March 31, 1996) have been audited by the Trust's former
independent accountant, Price Waterhouse LLP, 300 Atlantic Street, Stamford,
Connecticut 06904, for the periods included in their report thereon which
appears therein. Coopers & Lybrand L.L.P., independent certified public
accountants, with offices at One Post Office Square, Boston, Massachusetts
02109, currently serve as auditors to Galaxy II and have audited the financial
highlights for the respective Fund included in the Prospectus and
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<PAGE> 117
the financial statements for all Funds in the Statement of Additional
Information for the fiscal years ended March 31, 1995 and March 31, 1996.
GENERAL INFORMATION
Galaxy II is organized as an unincorporated business trust
under the laws of the Commonwealth of Massachusetts pursuant to a Declaration of
Trust dated February 22, 1990 (the "Trust Agreement"). Under the Trust
Agreement, the Board of Trustees has authority to create an unlimited number of
shares of beneficial interest with a par value of $.001 per share.
In the interest of economy and convenience, certificates
representing shares in Galaxy II are not physically issued. The Distributor
maintains a record of each shareholder's ownership of Galaxy II shares. Shares
do not have cumulative voting rights, which means that holders of more than 50%
of the shares voting for the election of Trustees can elect all Trustees. Shares
are transferable, but have no preemptive, conversion or subscription rights.
Shareholders generally vote by series of Galaxy II, except with respect to the
election of Trustees and the selection of independent accountants. Trustees were
elected and the Fund's investment advisory agreement was approved by
shareholders at a meeting of shareholders on June 15, 1994. There will normally
be no meetings of shareholders for the purpose of electing Trustees unless and
until such time as less than a majority of the Trustees holding office have been
elected by shareholders, at which time the Trustees then in office will call a
shareholders' meeting for the election of Trustees. Under the 1940 Act,
shareholders of record of no less than two-thirds of the outstanding shares of
Galaxy II may remove a Trustee through a declaration in writing or by vote cast
in person or by proxy at a meeting called for that purpose. Under the Trust
Agreement, the Trustees are required to call a meeting of shareholders for the
purpose of voting upon the question of removal of any such Trustee when
requested in writing to do so by the shareholders of record of not less than 10%
of Galaxy II's outstanding shares.
Massachusetts law provides that shareholders could, under
certain circumstances, be held personally liable for the obligations of Galaxy
II. The Trust Agreement disclaims shareholder liability for acts or obligations
of Galaxy II, however, and requires that notice of the disclaimer be given in
each agreement, obligation or instrument entered into or executed by Galaxy II
or a Trustee. The Trust Agreement provides for indemnification from Galaxy II's
property for all losses and expenses of any shareholder held personally liable
for the obligations of Galaxy II. Thus, the risk of a shareholder's incurring
financial loss on account of shareholder liability is limited to circumstances
in which Galaxy II would be unable to
-31-
<PAGE> 118
meet its obligations, a possibility that Galaxy II's management believes is
remote. Upon payment of any liability incurred by Galaxy II, the shareholder
paying the liability will be entitled to reimbursement from the general assets
of Galaxy II. The Trustees intend to conduct the operations of Galaxy II in such
a way so as to avoid, as far as possible, ultimate liability of the shareholders
for liabilities of Galaxy II.
As of July 18, 1996, the name, address and percentage
ownership of the person who owned of record 5% or more of the Fund's outstanding
shares were as follows: Barbara S. Easton & Marvin L. Easton, JT ROS, 231
Charity Court, Naples, Florida 33962-5012, 9.76%.
-32-
<PAGE> 119
FINANCIAL STATEMENTS
The Trust's audited financial statements for the fiscal year
ended March 31, 1996 with respect to the Large Company Index Fund, the Small
Company Index Fund, the Utility Fund Index, the U.S. Treasury Index Fund, and
the Municipal Bond Fund are attached.
FS-1
<PAGE> 120
- ----------------
GALAXY FUND II
- ----------------
<TABLE>
LARGE COMPANY INDEX FUND
PORTFOLIO OF INVESTMENTS
MARCH 31, 1996
<CAPTION>
VALUE
SHARES (NOTE 2)
- ------ --------
<S> <C> <C>
COMMON STOCKS - 95.53%
CONSUMER STAPLES - 22.87%
37,400 Abbott Laboratories .............................. $ 1,524,050
1,279 Alberto-Culver Co., Class B ...................... 49,242
2,987 Allergan, Inc. ................................... 110,146
3,791 ALZA Corp.* ...................................... 116,573
8,634 American Brands, Inc. ............................ 365,866
14,685 American Home Products Corp. ..................... 1,591,487
12,548 Amgen, Inc.* ..................................... 729,353
12,028 Anheuser-Busch Cos., Inc. ........................ 810,387
24,767 Archer-Daniels-Midland Co. ....................... 455,094
3,231 Avon Products, Inc. .............................. 277,058
2,700 Bard (C.R.), Inc. ................................ 96,188
2,722 Bausch & Lomb, Inc. .............................. 100,714
13,194 Baxter International, Inc. ....................... 597,029
3,071 Becton Dickinson & Co. ........................... 251,438
4,698 Beverly Enterprises, Inc.* ....................... 51,678
5,427 Biomet, Inc.* .................................... 75,978
24,074 Bristol-Myers Squibb Co. ......................... 2,061,336
3,211 Brown-Forman Corp., Class B ...................... 128,841
11,770 Campbell Soup Co. ................................ 716,499
2,503 Clorox Co. ....................................... 215,571
59,352 Coca-Cola Co. (C) ................................ 4,903,959
7,018 Colgate Palmolive Co. ............................ 546,527
21,128 Columbia/HCA Healthcare Corp. .................... 1,220,142
2,173 Community Psychiatric Centers* ................... 18,199
11,272 ConAgra, Inc. .................................... 457,925
1,839 Coors (Adolph) Co., Class B ...................... 32,872
7,065 CPC International, Inc. .......................... 490,134
7,518 Darden Restaurants, Inc. ......................... 101,493
9,800 Federated Department Stores, Inc.* ............... 316,050
1,825 Fleming Cos., Inc. ............................... 26,006
3,703 Fruit of the Loom, Inc., Class A* ................ 95,815
7,614 General Mills, Inc. .............................. 444,467
20,954 Gillette Co. ..................................... 1,084,387
17,794 Heinz (H. J.) Co. ................................ 589,426
3,686 Hershey Foods Corp. .............................. 274,607
7,600 Humana, Inc.* .................................... 190,950
5,232 International Flavors & Fragrances, Inc. ......... 250,482
30,501 Johnson & Johnson ................................ 2,813,716
10,385 Kellogg Co. ...................................... 786,664
13,247 Kimberly-Clark Corp. ............................. 986,902
26,328 Lilly (Eli) & Co. ................................ 1,711,320
12,782 Limited, Inc. .................................... 242,858
3,513 Liz Claiborne, Inc. .............................. 120,320
1,099 Luby's Cafeterias, Inc. .......................... 25,414
2,924 Manor Care, Inc. ................................. 114,767
32,805 McDonald's Corp. ................................. 1,574,640
10,892 Medtronic, Inc. .................................. 649,436
58,405 Merck & Co., Inc. ................................ 3,635,711
6,758 Nike, Inc., Class B .............................. 549,088
37,400 PepsiCo, Inc. .................................... 2,365,550
29,850 Pfizer, Inc. ..................................... 1,999,950
23,845 Pharmacia & Upjohn, Inc. ......................... 950,819
39,817 Philip Morris Cos., Inc. ......................... 3,493,942
4,015 Pioneer Hi-Bred International, Inc. .............. 211,289
2,833 Premark International, Inc. ...................... 151,920
32,429 Procter & Gamble Co. ............................. 2,748,358
6,251 Quaker Oats Co. .................................. 208,627
5,013 Ralston Purina Group ............................. 335,244
3,486 Reebok International, Ltd. ....................... 96,301
VALUE
SHARES (NOTE 2)
- ------ --------
CONSUMER STAPLES (CONTINUED)
3,918 Rite Aid Corp. ................................... $ 120,968
7,476 Rubbermaid, Inc. ................................. 212,132
1,953 Russell Corp. .................................... 52,243
2,701 Ryan's Family Steak Houses, Inc.* ................ 24,309
22,974 Sara Lee Corp. ................................... 749,527
17,505 Schering-Plough Corp. ............................ 1,017,478
17,525 Seagram Co., Ltd. ................................ 567,372
18,566 Sears Roebuck & Co. .............................. 905,093
985 Shared Medical Systems Corp. ..................... 59,346
2,049 Shoney's, Inc.* .................................. 18,441
970 Springs Industries, Inc., Class A ................ 44,620
3,264 St. Jude Medical, Inc.* .......................... 121,788
3,278 SuperValu, Inc. .................................. 101,208
8,594 Sysco Corp. ...................................... 282,528
9,559 Tenet Healthcare Corp.* .......................... 200,739
2,678 U.S. Surgical Corp. .............................. 87,705
7,609 Unilever NV, New York Shares, ADR ................ 1,032,922
8,336 United Healthcare Corp. .......................... 512,664
9,288 UST, Inc. ........................................ 296,055
3,025 V.F. Corp. ....................................... 167,131
6,407 Warner-Lambert Co. ............................... 661,523
5,570 Wendy's International, Inc. ...................... 100,956
7,288 Winn-Dixie Stores, Inc. .......................... 245,059
5,446 Wrigley (William) Jr. Co. ........................ 319,272
-----------
55,041,884
-----------
TECHNOLOGY - 14.59%
6,338 Advanced Micro Devices, Inc. ..................... 109,331
23,247 AirTouch Communications, Inc.* ................... 723,563
5,628 Amdahl Corp.* .................................... 47,838
75,485 American Telephone & Telegraph Corp.(C) .......... 4,623,435
10,318 AMP, Inc. ........................................ 426,907
5,853 Apple Computer, Inc. ............................. 143,764
8,522 Applied Materials, Inc.* ......................... 297,205
2,184 Autodesk, Inc. ................................... 82,446
13,406 Automatic Data Processing, Inc. .................. 527,861
8,900 Bay Networks, Inc.* .............................. 273,675
8,202 Boston Scientific Corp.* ......................... 377,292
3,295 Cabletron Systems, Inc.* ......................... 218,294
3,166 Ceridian Corp.* .................................. 136,138
25,910 Cisco Systems, Inc.* ............................. 1,201,576
7,700 3 Com Corp.* ..................................... 307,038
1 360 Communications Co.* .......................... 16
12,626 Compaq Computer Corp.* ........................... 487,679
11,408 Computer Associates International, Inc ........... 817,098
2,590 Computer Sciences Corp.* ......................... 182,271
10,868 Corning, Inc. .................................... 380,380
1,201 Cray Research, Inc.* ............................. 34,979
1,821 Data General Corp.* .............................. 26,632
6,997 Digital Equipment Corp.* ......................... 385,710
12,431 Dow Chemical Co. ................................. 1,079,943
5,345 DSC Communications Corp.* ........................ 144,315
2,512 EG & G, Inc. ..................................... 56,206
10,400 EMC Corp.* ....................................... 227,500
5,700 General Instrument Corp.* ........................ 156,094
2,259 General Signal Corp. ............................. 81,889
1,850 Harris Corp. ..................................... 114,469
24,161 Hewlett-Packard Co. .............................. 2,271,134
6,046 Honeywell, Inc. .................................. 334,042
</TABLE>
See Notes to Financial Statements.
FS-1
<PAGE> 121
- --------------
GALAXY FUND II
- --------------
<TABLE>
LARGE COMPANY INDEX FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
MARCH 31, 1996
<CAPTION>
VALUE
SHARES (NOTE 2)
- ------ --------
<S> <C> <C>
TECHNOLOGY (CONTINUED)
39,016 Intel Corp. ...................................... $ 2,219,035
2,184 Intergraph Corp.* ................................ 34,944
26,981 International Business Machines Corp. ............ 2,998,264
8,078 Loral Corp. ...................................... 395,822
6,000 LSI Logic Corp.* ................................. 160,500
31,860 MCI Communications Corp. ......................... 963,765
9,863 Micron Technology, Inc. .......................... 309,452
27,966 Microsoft Corp.* ................................. 2,883,994
27,871 Motorola, Inc. ................................... 1,477,163
6,522 National Semiconductor Corp.* .................... 90,493
11,937 Northern Telecom, Ltd. ........................... 569,992
17,690 Novell, Inc.* .................................... 236,604
20,679 Oracle Corp.* .................................... 974,498
2,039 Perkin-Elmer Corp. ............................... 110,361
7,286 Pitney-Bowes, Inc. ............................... 357,014
3,568 Scientific-Atlanta, Inc. ......................... 63,332
7,516 Silicon Graphics, Inc.* .......................... 187,900
16,589 Sprint Corp. ..................................... 630,382
8,852 Sun Microsystems, Inc.* .......................... 387,275
5,516 Tandem Computers, Inc.* .......................... 48,955
1,515 Tektronix, Inc. .................................. 49,238
30,828 Tele-Communications, Inc.,
TCI Group, Class A* .............................. 572,245
2,648 Teledyne, Inc. ................................... 74,144
4,117 Tellabs, Inc.* ................................... 199,160
8,946 Texas Instruments, Inc. .......................... 455,128
869 Thomas & Betts Corp. ............................. 65,175
7,312 Tyco International, Ltd. ......................... 261,404
22,194 U.S. West, Inc., Media Group* .................... 457,751
8,321 Unisys Corp.* .................................... 49,926
2,486 Western Atlas, Inc.* ............................. 149,160
19,395 Westinghouse Electric Corp. ...................... 373,354
8,700 Worldcom, Inc.* .................................. 400,287
5,069 Xerox Corp. ...................................... 636,160
-----------
35,119,597
-----------
FINANCIAL - 13.82%
5,526 Aetna Life & Casualty Co. ........................ 417,213
5,497 Ahmanson (H.F.) & Co. ............................ 133,302
2,159 Alexander & Alexander Services, Inc. ............. 40,751
21,278 Allstate Corp. ................................... 896,336
22,807 American Express Co. ............................. 1,126,096
9,660 American General Corp. ........................... 333,270
22,458 American International Group, Inc. ............... 2,102,630
21,331 Banc One Corp. ................................... 759,917
5,430 Bank of Boston Corp. ............................. 269,464
9,565 Bank of New York Co., Inc. ....................... 492,598
17,579 BankAmerica Corp. ................................ 1,362,373
3,706 Bankers Trust New York Corp. ..................... 262,663
4,584 Barnett Banks, Inc. .............................. 285,354
2,481 Beneficial Corp. ................................. 142,968
4,899 Block (H & R), Inc. .............................. 176,976
7,322 Boatmen's Bancshares, Inc. ....................... 287,389
8,354 Chase Manhattan Corp. ............................ 614,019
11,886 Chemical Banking Corp. ........................... 837,963
4,120 Chubb Corp. ...................................... 386,765
3,485 Cigna Corp. ...................................... 398,161
122,848 Citicorp ......................................... 1,827,840
VALUE
SHARES (NOTE 2)
- ------ --------
FINANCIAL (CONTINUED)
5,400 Comerica, Inc. ................................... $ 225,450
6,599 CoreStates Financial Corp. ....................... 279,633
8,003 Dean Witter, Discover & Co. ...................... 458,172
8,546 Federal Home Loan Mortgage Corp. ................. 728,547
51,712 Federal National Mortgage Association ............ 1,648,320
4,800 Fifth Third Bancorp .............................. 278,400
6,100 First Bank System, Inc. .......................... 363,713
15,102 First Chicago NBD Corp. .......................... 626,733
10,562 First Data Corp. ................................. 744,621
3,557 First Interstate Bancorp ......................... 617,140
13,122 First Union Corp. ................................ 793,881
12,631 Fleet Financial Group, Inc. ...................... 511,556
3,825 General Re Corp. ................................. 557,494
2,732 Golden West Financial Corp. ...................... 146,504
6,500 Great Western Financial Corp. .................... 156,813
6,500 Green Tree Financial Corp. ....................... 223,438
4,703 Household International, Inc. .................... 316,277
5,536 ITT Corp.* ....................................... 332,160
5,536 ITT Hartford Group, Inc. ......................... 271,264
5,536 ITT Industries, Inc. ............................. 141,168
3,394 Jefferson-Pilot Corp. ............................ 182,852
11,125 KeyCorp .......................................... 429,703
5,033 Lincoln National Corp. ........................... 255,425
5,560 Loews Corp. ...................................... 420,475
3,477 Marsh & McLennan Cos ............................. 322,926
10,803 MBNA Corp. ....................................... 320,039
6,659 Mellon Bank Corp. ................................ 367,077
8,142 Merrill Lynch & Co., Inc. ........................ 494,627
8,807 Morgan (J.P.) & Co., Inc. ........................ 730,981
7,300 Morgan Stanley Group, Inc. ....................... 377,775
7,000 National City Corp. .............................. 245,875
13,939 Nationsbank Corp. ................................ 1,116,862
16,840 Norwest Corp. .................................... 618,870
15,770 PNC Bank Corp. ................................... 484,928
4,555 Providian Corp. .................................. 203,267
1,294 Pulte Corp. ...................................... 34,776
2,670 Republic New York Corp. .......................... 158,865
5,978 Safeco Corp. ..................................... 200,263
5,129 Salomon, Inc. .................................... 192,338
4,020 St. Paul Cos., Inc. .............................. 223,110
5,360 SunTrust Banks, Inc. ............................. 375,200
3,386 Torchmark Corp. .................................. 152,370
3,181 Transamerica Corp. ............................... 238,177
15,278 Travelers Group, Inc. ............................ 1,008,340
7,143 U.S. Bancorp ..................................... 242,862
1,696 USLife Corp. ..................................... 49,820
3,400 UNUM Corp. ....................................... 202,300
5,303 USF & G Corp. .................................... 82,197
8,037 Wachovia Corp. ................................... 359,656
2,292 Wells Fargo & Co. ................................ 598,212
----------
33,265,500
----------
CONSUMER CYCLICAL - 9.04%
12,000 Albertson's, Inc. ................................ 445,500
3,445 American Greetings Corp., Class A ................ 95,168
1,741 Armstrong World Industries, Inc. ................. 108,160
2,236 Bally Entertainment Corp.* ....................... 38,571
4,069 Black & Decker Corp. ............................. 154,113
</TABLE>
See Notes to Financial Statements.
FS-2
<PAGE> 122
- --------------
GALAXY FUND II
- --------------
<TABLE>
LARGE COMPANY INDEX FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
MARCH 31, 1996
<CAPTION>
VALUE
SHARES (NOTE 2)
- ------ --------
<S> <C> <C>
CONSUMER CYCLICAL (CONTINUED)
1,310 Briggs & Stratton Corp. .......................... $ 56,494
767 Brown Group, Inc. ................................ 10,355
4,544 Brunswick Corp. .................................. 104,512
1,313 Centex Corp. ..................................... 40,703
5,284 Charming Shoppes, Inc. ........................... 27,246
4,554 Circuit City Stores, Inc. ........................ 136,051
11,527 Comcast Corp., Special Class A ................... 203,884
3,913 Cooper Tire & Rubber Co. ......................... 100,760
1,519 Crane Co. ........................................ 61,330
8,380 CUC International, Inc.* ......................... 245,115
4,838 Dana Corp. ....................................... 161,468
3,371 Dayton-Hudson Corp. .............................. 286,114
3,919 Deluxe Corp. ..................................... 122,959
4,519 Dial Corp. ....................................... 126,532
5,409 Dillard Department Stores, Inc., class A ......... 187,287
32,497 Disney (Walt) Co. ................................ 2,075,746
7,387 Donnelley (R.R.) & Sons Co. ...................... 254,852
4,577 Dow Jones & Co., Inc. ............................ 176,215
7,876 Dun & Bradstreet Corp. ........................... 477,483
16,257 Eastman Kodak Co. ................................ 1,154,247
3,682 Eaton Corp. ...................................... 221,841
2,818 Echlin, Inc. ..................................... 102,153
6,676 Gannett Co., Inc. ................................ 448,961
6,742 Gap, Inc. ........................................ 373,338
5,899 Genuine Parts Co. ................................ 265,455
2,827 Giant Food, Inc., Class A ........................ 93,291
1,198 Goodrich (B.F.) Co. .............................. 95,241
7,293 Goodyear Tire & Rubber Co. ....................... 371,943
1,845 Great Atlantic & Pacific Tea Co. ................. 57,195
3,468 Harcourt General, Inc. ........................... 157,361
1,534 Harland (John H.) Co. ............................ 33,748
4,936 Harrah's Entertainment, Inc.* .................... 144,995
4,180 Hasbro, Inc. ..................................... 154,660
2,283 Hilton Hotels Corp. .............................. 214,602
22,585 Home Depot, Inc. ................................. 1,081,257
3,706 Interpublic Group Cos., Inc. ..................... 175,109
1,758 Jostens, Inc. .................................... 39,335
1,509 Kaufman & Broad Home Corp. ....................... 24,144
1,742 King World Productions, Inc.* .................... 72,075
21,704 Kmart Corp. ...................................... 203,475
2,389 Knight-Ridder, Inc. .............................. 162,751
5,859 Kroger Co.* ...................................... 237,290
978 Longs Drug Stores, Inc. .......................... 46,211
7,676 Lowe's Cos., Inc. ................................ 274,417
5,994 Marriott International, Inc. ..................... 284,715
7,693 Masco Corp. ...................................... 223,097
13,130 Mattel, Inc. ..................................... 356,151
11,837 May Department Stores Co. ........................ 571,135
5,106 Maytag Corp. ..................................... 103,397
2,387 McGraw-Hill Cos., Inc. ........................... 207,072
4,993 Melville Corp. ................................... 179,124
1,740 Mercantile Stores Co., Inc. ...................... 106,793
1,228 Meredith Corp. ................................... 50,655
4,867 Moore Corp., Ltd. ................................ 94,907
2,386 National Service Industries, Inc. ................ 86,493
4,622 New York Times Co., Class A ...................... 134,038
7,604 Newell Co. ....................................... 203,407
3,911 Nordstrom, Inc. .................................. 189,439
974 Outboard Marine Corp. ............................ 18,628
2,368 Owens-Corning Fiberglas Corp.* ................... 95,016
10,488 Penney (J.C.), Inc. .............................. 521,778
VALUE
SHARES (NOTE 2)
- ------ --------
CONSUMER CYCLICAL (CONTINUED)
2,920 Pep Boys-Manny, Moe & Jack ....................... $ 97,820
2,189 Polaroid Corp. ................................... 98,505
9,212 Price/Costco, Inc.* .............................. 172,725
2,750 Safety-Kleen Corp. ............................... 39,531
4,954 Service Corp., International ..................... 241,508
4,026 Sherwin-Williams Co. ............................. 178,654
1,955 Snap-On, Inc. .................................... 91,396
2,163 Stanley Works .................................... 118,965
2,296 Stride Rite Corp. ................................ 20,951
2,891 Tandy Corp. ...................................... 133,709
18,202 Time Warner, Inc.................................. 744,007
5,360 Times Mirror Co., Class A ........................ 211,050
3,468 TJX Cos., Inc. ................................... 87,134
12,990 Toys 'R' Us, Inc.* ............................... 350,730
3,049 Tribune Co. ...................................... 200,853
7,316 U.S. Healthcare, Inc. ............................ 335,622
108,795 Wal-Mart Stores, Inc. ............................ 2,515,873
11,536 Walgreen Co. ..................................... 376,362
3,471 Whirlpool Corp. .................................. 191,773
4,992 Whitman Corp. .................................... 121,056
6,198 Woolworth Corp.* ................................. 96,844
----------
21,752,626
----------
UTILITIES - 8.94%
8,851 Alltel Corp. ..................................... 274,381
8,904 American Electric Power, Inc. .................... 371,742
26,336 Ameritech Corp. .................................. 1,435,312
7,003 Baltimore Gas & Electric Co. ..................... 193,458
20,559 Bell Atlantic Corp. .............................. 1,269,518
46,704 BellSouth Corp. .................................. 1,728,048
7,405 Carolina Power & Light Co. ....................... 275,836
9,020 Central & South West Corp. ....................... 257,070
7,388 Cinergy Corp. .................................... 221,640
5,085 Coastal Corp. .................................... 200,858
2,384 Columbia Gas System, Inc. ........................ 109,366
11,275 Consolidated Edison Co. of New York, Inc. ........ 359,391
4,537 Consolidated Natural Gas Co. ..................... 197,360
8,155 Dominion Resources, Inc. ......................... 323,142
6,955 DTE Energy Co. ................................... 233,862
9,826 Duke Power Co. ................................... 496,213
21,275 Edison International ............................. 364,334
12,139 Enron Corp. ...................................... 447,626
3,249 ENSERCH Corp. .................................... 52,796
10,902 Entergy Corp. .................................... 305,256
8,783 FPL Group, Inc. .................................. 397,431
5,758 General Public Utilities Corp. ................... 190,014
45,725 GTE Corp. ........................................ 2,006,182
12,674 Houston Industries, Inc. ......................... 274,075
6,829 Niagara Mohawk Power Corp. ....................... 45,242
2,412 NICOR, Inc. ...................................... 64,521
5,780 Noram Energy Corp. ............................... 53,465
3,244 Northern States Power Co. ........................ 158,145
20,243 NYNEX Corp. ...................................... 1,009,620
7,280 Ohio Edison Co. .................................. 164,710
1,301 Oneok, Inc. ...................................... 31,061
3,981 Pacific Enterprises .............................. 103,008
20,213 Pacific Gas & Electric Co. ....................... 457,319
20,057 Pacific Telesis Group ............................ 554,075
13,391 PacifiCorp ....................................... 279,537
7,120 Panhandle Eastern Corp. .......................... 221,610
</TABLE>
See Notes to Financial Statements.
FS-3
<PAGE> 123
- --------------
GALAXY FUND II
- --------------
<TABLE>
LARGE COMPANY INDEX FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
MARCH 31, 1996
<CAPTION>
VALUE
SHARES (NOTE 2)
- ------ --------
<S> <C> <C>
UTILITIES (CONTINUED)
10,521 PECO Energy Co. .................................. $ 280,122
1,628 People's Energy Corp. ............................ 52,707
7,600 P P & L Resources, Inc. .......................... 185,250
11,649 Public Service Enterprise Group, Inc. ............ 320,348
4,310 Santa Fe Energy Resources, Inc.* ................. 45,255
28,788 SBC Communications, Inc. ......................... 1,514,969
4,027 Sonat, Inc. ...................................... 144,972
31,551 Southern Co. ..................................... 753,280
8,454 Tenneco, Inc. .................................... 472,367
10,881 Texas Utilities Co. .............................. 450,201
22,194 U.S. West, Inc., Communications Group ............ 718,531
10,209 Unicom Corp. ..................................... 275,643
4,940 Union Electric Co. ............................... 202,540
17,105 Viacom, Inc., Class B* ........................... 720,548
4,839 Williams Cos., Inc. .............................. 243,765
-----------
21,507,722
-----------
ENERGY - 8.48%
4,424 Amerada Hess Corp. ............................... 243,320
23,618 Amoco Corp. ...................................... 1,706,401
3,026 Ashland, Inc. .................................... 116,123
7,613 Atlantic Richfield Co. ........................... 905,947
6,523 Baker Hughes, Inc. ............................... 190,798
5,972 Burlington Resources, Inc. ....................... 221,711
30,706 Chevron Corp. .................................... 1,723,374
8,585 Dresser Industries, Inc. ......................... 261,843
985 Eastern Enterprises .............................. 34,968
58,711 Exxon Corp. (C) .................................. 4,792,282
5,414 Halliburton Co. .................................. 307,921
1,192 Helmerich & Payne, Inc. .......................... 40,230
2,493 Kerr-McGee Corp. ................................. 158,306
1,614 Louisiana Land & Exploration Co. ................. 75,253
2,581 McDermott International, Inc. .................... 49,684
18,717 Mobil Corp. ...................................... 2,168,832
14,853 Occidental Petroleum Corp. ....................... 397,318
5,094 Oryx Energy Co.* ................................. 70,679
2,162 Pennzoil Co. ..................................... 85,940
12,359 Phillips Petroleum Co. ........................... 488,181
3,988 Rowan Cos., Inc.* ................................ 50,847
25,433 Royal Dutch Petroleum Co., ADR ................... 3,592,411
11,311 Schlumberger, Ltd. ............................... 894,983
3,561 Sun Co., Inc. .................................... 102,824
12,579 Texaco, Inc. ..................................... 1,081,794
11,603 Unocal Corp. ..................................... 387,250
13,619 USX-Marathon Group ............................... 262,166
-----------
20,411,386
-----------
CAPITAL GOODS - 7.17%
5,348 Alco Standard Corp. .............................. 278,765
6,937 American Stores Co. .............................. 228,921
2,640 Andrew Corp.* .................................... 100,980
16,210 Boeing Co. ....................................... 1,404,191
10,159 Browning-Ferris Industries, Inc. ................. 320,009
9,370 Caterpillar, Inc. ................................ 637,160
1,714 Cincinnati Milacron, Inc. ........................ 44,993
5,213 Cooper Industries, Inc. .......................... 203,307
1,905 Cummins Engine Co., Inc. ......................... 76,914
12,709 Deere & Co. ...................................... 530,601
5,354 Dover Corp. ...................................... 244,946
10,763 Emerson Electric Co. ............................. 869,112
VALUE
SHARES (NOTE 2)
- ------ --------
CAPITAL GOODS (CONTINUED)
2,171 Fleetwood Enterprises, Inc. ...................... $ 53,732
3,911 Fluor Corp. ...................................... 266,926
1,734 FMC Corp.* ....................................... 130,267
1,935 Foster Wheeler Corp. ............................. 85,866
2,989 General Dynamics Corp. ........................... 174,857
79,145 General Electric Co. (C) ......................... 6,163,412
1,647 Giddings & Lewis, Inc. ........................... 31,293
2,403 Grainger (W.W.), Inc. ............................ 161,301
2,342 Harnischfeger Industries, Inc. ................... 90,753
5,620 Illinois Tool Works, Inc. ........................ 363,193
5,197 Ingersoll-Rand Co. ............................... 211,778
1,952 Johnson Controls, Inc. ........................... 145,668
14,176 Laidlaw, Inc., Class B ........................... 150,620
5,331 McDonnell Douglas Corp. .......................... 488,453
429 Nacco Industries, Inc., Class A .................. 24,399
3,597 Navistar International Corp.* .................... 37,319
2,382 Northrop Grumman Corp. ........................... 151,555
2,370 Ogden Corp. ...................................... 46,215
1,874 PACCAR, Inc. ..................................... 91,358
3,529 Parker-Hannifin Corp. ............................ 132,338
11,768 Raytheon Co. ..................................... 603,110
10,380 Rockwell International Corp. ..................... 611,123
4,028 Textron, Inc. .................................... 322,240
1,515 Timken Co. ....................................... 69,879
3,037 TRW, Inc. ........................................ 270,673
5,763 United Technologies Corp. ........................ 646,897
1,937 Varity Corp.* .................................... 83,775
22,731 WMX Technologies, Inc. ........................... 721,709
-----------
17,270,608
-----------
BASIC MATERIALS - 5.93%
5,328 Air Products & Chemicals, Inc. ................... 291,042
10,649 Alcan Aluminum, Ltd. ............................. 343,430
13,262 Allied Signal, Inc. .............................. 784,116
8,465 Aluminum Co. of America .......................... 530,121
4,861 Armco, Inc.* ..................................... 26,128
1,958 ASARCO, Inc. ..................................... 68,530
2,481 Avery-Dennison Corp. ............................. 133,974
1,494 Ball Corp. ....................................... 46,314
16,684 Barrick Gold Corp. ............................... 506,777
2,492 Bemis, Inc. ...................................... 78,187
5,437 Bethlehem Steel Corp.* ........................... 71,361
2,357 Boise Cascade Corp. .............................. 98,994
4,654 Champion International Corp. ..................... 210,594
5,334 Crown Cork & Seal Co., Inc. ...................... 260,033
4,482 Cyprus Amax Minerals Co. ......................... 126,617
26,500 duPont (E.I.) deNemours & Co. .................... 2,199,492
3,735 Eastman Chemical Co. ............................. 258,182
6,698 Engelhard Corp. .................................. 156,566
4,234 Georgia-Pacific Corp. ............................ 293,734
4,635 Grace (W.R.) & Co. ............................... 362,689
2,991 Great Lakes Chemical Corp. ....................... 201,519
5,301 Hercules, Inc. ................................... 328,662
5,714 Inco, Ltd., Class A .............................. 180,705
2,338 Inland Steel Industries, Inc. .................... 57,866
14,464 International Paper Co. .......................... 569,533
3,913 James River Corp. of Virginia .................... 100,760
5,234 Louisiana-Pacific Corp. .......................... 127,579
3,568 Mallinckrodt Group, Inc. ......................... 134,246
2,529 Mead Corp. ....................................... 136,566
</TABLE>
See Notes to Financial Statements.
FS-4
<PAGE> 124
- --------------
GALAXY FUND II
- --------------
<TABLE>
LARGE COMPANY INDEX FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
MARCH 31, 1996
<CAPTION>
VALUE
SHARES (NOTE 2)
- ------ --------
<S> <C> <C>
BASIC MATERIALS (CONTINUED)
2,097 Millipore Corp. .................................. $ 80,210
5,469 Monsanto Co. ..................................... 839,492
7,152 Morton International, Inc. ....................... 274,458
3,162 Nalco Chemical Co. ............................... 97,232
4,569 Newmont Mining Corp. ............................. 258,720
4,128 Nucor Corp. ...................................... 244,068
5,474 Pall Corp. ....................................... 140,271
3,263 Phelps Dodge Corp. ............................... 223,923
11,398 Placer Dome, Inc. ................................ 329,117
1,310 Potlatch Corp. ................................... 56,003
9,311 PPG Industries, Inc. ............................. 455,075
6,740 Praxair, Inc. .................................... 268,758
2,147 Raychem Corp. .................................... 138,482
2,829 Reynolds Metals Co. .............................. 167,265
3,255 Rohm & Haas Co. .................................. 216,458
2,268 SIGMA-Aldrich Corp. .............................. 129,843
4,614 Stone Container Corp. ............................ 64,596
2,611 Temple-Inland, Inc. .............................. 122,391
1,314 Trinova Corp. .................................... 41,884
3,264 Union Camp Corp. ................................. 161,976
6,538 Union Carbide Corp. .............................. 324,448
3,975 USX-U.S. Steel Group, Inc. ....................... 137,634
4,828 Westvaco Corp. ................................... 141,823
9,582 Weyerhaeuser Co. ................................. 441,970
2,600 Willamette Industries, Inc. ...................... 156,650
4,317 Worthington Industries, Inc. ..................... 85,800
-----------
14,282,864
-----------
TRANSPORTATION - 3.90%
3,556 AMR Corp.* ....................................... 318,262
6,760 Burlington Northern Santa Fe Corp. ............... 555,165
1,849 Caliber System, Inc. ............................. 79,276
3,400 Case Corp. ....................................... 172,975
18,020 Chrysler Corp. ................................... 1,121,745
3,708 Conrail, Inc. .................................... 265,586
2,044 Consolidated Freightways, Inc. ................... 52,378
9,966 CSX Corp. ........................................ 454,699
2,385 Delta Air Lines, Inc. ............................ 183,347
3,101 Ecolab, Inc. ..................................... 93,030
2,505 Federal Express Corp.* ........................... 175,037
50,921 Ford Motor Co. ................................... 1,750,407
35,285 General Motors Corp. ............................. 1,878,926
9,500 Lockheed Martin Corp. ............................ 720,813
6,075 Norfolk Southern Corp. ........................... 516,375
3,589 Ryder System, Inc. ............................... 97,800
6,696 Southwest Airlines Co. ........................... 198,369
9,867 Union Pacific Corp. .............................. 677,123
2,995 U.S. Air Group, Inc.* ............................ 54,659
1,307 Yellow Corp. ..................................... 16,338
-----------
9,382,310
-----------
METALS AND MINING - 0.79%
6,096 Echo Bay Mines, Ltd. ............................. 82,296
9,584 Freeport-McMoran Copper, Class B ................. 303,094
6,530 Homestake Mining Co. ............................. 126,519
19,754 Minnesota Mining & Manufacturing Co. ............. 1,281,541
6,232 Santa Fe Pacific Gold Corp. ...................... 99,712
-----------
1,893,162
-----------
TOTAL COMMON STOCKS............................... 229,927,659
-----------
(Cost $159,777,729)
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
- ------ --------
<S> <C> <C>
PREFERRED STOCK - 0.00%
- -----------------------
122 Teledyne, Inc., Class E .......................... $ 1,769
------------
TOTAL PREFERRED STOCK 1,769
------------
(Cost $1,830)
PAR VALUE
- ---------
U.S. GOVERNMENT OBLIGATION (A) - 0.21%
U.S. TREASURY BILL - 0.21%
$ 500,000 4.99%, 06/27/96 (B) .............................. 494,452
------------
TOTAL U.S. GOVERNMENT OBLIGATION ................. 494,452
------------
(Cost $494,452)
REPURCHASE AGREEMENT - 4.25%
10,238,192 Chase Securities, Inc. ..........................
5.20%, 04/01/96, Dated 03/29/96
Repurchase Price $10,242,629
(Collateralized by U.S. Treasury Bond
11.25%, Due 2015, Total Par Value $6,865,000,
Market Value $10,091,550) ........................ 10,238,192
------------
TOTAL REPURCHASE AGREEMENT 10,238,192
------------
(Cost $10,238,192)
TOTAL INVESTMENTS - 99.99% ....................... 240,662,072
------------
(Cost $170,512,203)
NET OTHER ASSETS AND LIABILITIES - 0.01% .................... 27,254
------------
NET ASSETS - 100.00% ........................................ $240,689,326
============
- ----------
<FN>
* Non-income producing security.
ADR American Depository Receipt.
(A) Annualized yield at time of purchase.
(B) Security has been deposited as an initial margin on open futures contracts.
</TABLE>
<TABLE>
At March 31, 1996, the Fund's open futures contracts were as follows:
<CAPTION>
NUMBER OF
CONTRACTS CURRENT
PURCHASED EXPIRATION OPENING MARKET
(SOLD) CONTRACT TYPE DATE POSITION VALUE
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
32 S&P 500 Stock Index 6/96 $10,338,670 $10,420,000
<FN>
(C) All or a portion of these shares are used as collateral on open futures
contracts.
</TABLE>
See Notes to Financial Statements.
FS-5
<PAGE> 125
- ----------------
Galaxy Fund II
- ----------------
<TABLE>
SMALL COMPANY INDEX FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
MARCH 31, 1996
<CAPTION>
VALUE
SHARES (NOTE 2)
- ------ --------
COMMON STOCKS - 93.92%
FINANCIAL - 17.89%
<S> <C> <C>
6,600 Acordia, Inc. .................................... $ 209,550
40,762 AFLAC, Inc. ...................................... 1,273,813
4,700 Alex Brown, Inc. ................................. 243,813
432 Alleghany Corp.* ................................. 85,415
10,600 AMBAC, Inc. ...................................... 510,125
7,700 American Annuity Group, Inc. ..................... 91,438
1,300 American Bankers Insurance Group, Inc. 45,825
4,100 American Health Properties, Inc. ................. 92,250
2,600 American National Insurance Co. .................. 175,500
10,200 American Re Corp. ................................ 408,000
6,600 Americredit Corp.* ............................... 91,575
5,500 Ampal American Israel Corp., Class A 31,625
11,750 AmSouth Bancorp .................................. 456,781
2,400 Amvestors Financial Corp. ........................ 30,600
26,050 AON Corp. ........................................ 1,348,088
6,000 Argonaut Group, Inc. ............................. 186,000
9,450 Bancorp Hawaii, Inc. ............................. 331,938
5,980 BancorpSouth, Inc. ............................... 149,500
500 Bank of Granite Corp. ............................ 15,125
8,400 BanPonce Corp. ................................... 388,500
5,100 Baybanks, Inc. ................................... 548,250
38,561 Bear Stearns Cos., Inc. .......................... 954,385
4,400 Berkley (W.R.) Corp. ............................. 203,500
5,200 Berkshire Realty Co. ............................. 51,350
800 BHC Financial, Inc. .............................. 10,900
6,700 Boatmen's Bancshares, Inc. ....................... 262,975
11,967 California Federal Bancorp, Inc.* ................ 213,910
12,500 Capital One Financial Corp. ...................... 343,750
700 Capital Re Corp. ................................. 25,200
4,800 Capstead Mortgage Corp............................ 120,000
1,800 Cash America International, Inc. ................. 9,675
300 CCB Financial Corp. .............................. 15,075
4,500 Center Financial Corp. ........................... 81,563
8,700 Central Fidelity Banks, Inc. ..................... 295,800
11,230 Charter One Financial, Inc. ...................... 379,013
14,553 Cincinnati Financial Corp. ....................... 922,296
500 Citizens Bancorp ................................. 15,125
1,321 Citizens, Inc., Class A* ......................... 11,722
8,400 City National Corp. .............................. 114,450
1,000 CNA Financial Corp.* ............................. 111,250
5,000 Coast Savings Financial, Inc.* ................... 156,250
4,100 Collective Bancorp, Inc. ......................... 103,525
6,945 Commerce Bancshares, Inc. ........................ 241,339
6,900 Commercial Federal Corp. ......................... 268,238
9,050 Compass Bancshares, Inc. ......................... 291,863
7,100 Conseco, Inc. .................................... 513,863
22,477 Countrywide Credit Industries, Inc. .............. 497,304
2,400 Cousins Properties, Inc. ......................... 46,800
3,900 Crawford & Co., Class B .......................... 61,425
10,000 Crestar Financial Corp. .......................... 575,000
3,800 CRI Liquidating REIT, Inc. ....................... 14,250
11,200 Criimi Mae, Inc. ................................. 113,400
2,000 Cullen/Frost Bankers, Inc. ....................... 98,500
4,600 CWM Mortgage Holdings, Inc. ...................... 74,175
5,600 Dauphin Deposit Corp. ............................ 168,000
1,600 Deposit Guaranty Corp. ........................... 75,600
32,818 Dime Bancorp, Inc.* .............................. 406,123
1,785 Downey Financial Corp. ........................... 41,948
1,000 Eaton Vance Corp. ................................ 32,500
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
- ------ --------
FINANCIAL (CONTINUED)
<S> <C> <C>
14,083 Edwards (A.G.), Inc. ............................. $ 350,315
3,600 Enhance Financial Services Group, Inc. ........... 99,450
45,400 Equifax, Inc. .................................... 913,675
19,000 Equitable Cos., Inc. ............................. 460,750
6,300 Equitable of Iowa Cos. ........................... 225,225
307 F & M National Corp. ............................. 5,334
6,700 Federal Realty Investment Trust .................. 149,075
5,500 First American Corp. ............................. 244,750
400 First American Financial Corp. ................... 11,500
2,500 First Citizens Bancshares, Inc., Class A ......... 150,000
4,700 First Colony Corp. ............................... 112,213
7,187 First Commerce Corp. ............................. 237,172
1,348 First Commercial Corp. ........................... 42,125
1,200 First Empire State Corp. ......................... 295,200
2,000 First Financial Bancorp .......................... 70,000
5,100 First Financial Corp. ............................ 109,013
4,500 First Hawaiian, Inc. ............................. 124,313
1,909 First Michigan Bank Corp. ........................ 57,747
17,265 First of America Bank Corp. ...................... 800,664
17,100 First Security Corp. ............................. 474,525
17,100 First Tennessee National Corp. ................... 564,300
9,500 First USA, Inc. .................................. 537,938
11,850 First Virginia Banks, Inc. ....................... 478,444
11,200 Firstar Corp. .................................... 501,200
4,500 Firstbank Puerto Rico ............................ 108,000
4,900 Foremost Corp. of America ........................ 269,500
11,200 Franklin Resources, Inc. ......................... 638,400
4,455 Fremont General Corp. ............................ 105,249
4,200 Fund American Enterprises Holdings, Inc. ......... 323,400
1,274 Gainsco, Inc. .................................... 14,173
3,700 Gallagher (Arthur J.) & Co. ...................... 134,588
8,468 Glendale Federal Savings Bank* ................... 153,483
800 Greater New York Savings Bank* ................... 9,500
900 Hancock Holding Co. .............................. 32,175
5,000 Hartford Steam Boiler Inspection & Insurance Co. . 253,125
7,600 Health & Retirement Properties Trust ............. 131,100
5,000 Health Care Property Investors, Inc. ............. 157,500
26,400 Hibernia Corp., Class A .......................... 280,500
7,400 Horace Mann Educators Corp. ...................... 225,700
32,581 Huntington Bancshares, Inc. ...................... 777,871
6,270 Imperial Credit Industries, Inc.* ................ 153,615
8,700 Integra Financial Corp. .......................... 610,088
332 Investors Financial Services Corp.* .............. 7,262
5,300 John Alden Financial Corp. ....................... 93,413
3,600 John Nuveen Co., Class A ......................... 87,750
9,800 Kansas City Southern Industries, Inc. ............ 455,700
3,300 Keystone Financial, Inc. ......................... 108,075
5,500 Labone, Inc. ..................................... 90,750
5,250 Legg Mason, Inc. ................................. 152,906
21,300 Lehman Brothers Holdings, Inc. ................... 569,775
300 Liberty Bancorp, Inc. ............................ 11,100
3,600 Liberty Corp. .................................... 118,800
8,900 Life Partners Group, Inc. ........................ 184,675
1,900 Life Re Corp. .................................... 51,300
300 Magna Bancorp, Inc. .............................. 9,300
5,200 Magna Group, Inc. ................................ 120,250
800 Mark Twain Bancshares, Inc. ...................... 30,000
20,060 Marshall & Ilsley Corp. .......................... 524,068
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
FS-6
<PAGE> 126
- --------------
Galaxy Fund II
- --------------
<TABLE>
SMALL COMPANY INDEX FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
MARCH 31, 1996
<CAPTION>
VALUE
SHARES (NOTE 2)
- ------ --------
FINANCIAL (CONTINUED)
<S> <C> <C>
8,600 MBIA, Inc. ....................................... $645,000
2,700 MDC Holdings, Inc. ............................... 19,575
8,700 Mercantile Bancorp, Inc. ......................... 398,025
10,300 Mercantile Bankshares Corp. ...................... 270,375
700 Mercer International, Inc.* ...................... 14,875
27,999 Mercury Finance Co. .............................. 395,486
2,200 Mercury General Corp. ............................ 91,575
13,200 Meridian Bancorp, Inc. ........................... 689,700
1,800 Merry Land & Investment, Inc. .................... 39,150
16,400 MGIC Investment Corp. ............................ 893,800
4,174 Mid-Am, Inc. ..................................... 76,697
1,600 NAC Re Corp. ..................................... 52,200
1,900 National Auto Credit, Inc.* ...................... 28,738
1,050 National Commerce Bancorp. ....................... 32,550
5,600 National Re Corp. ................................ 189,000
8,200 Nationwide Health Properties, Inc. ............... 172,200
2,871 NBT Bancorp, Inc. ................................ 48,807
11,500 New Plan Realty Trust ............................ 237,188
2,300 North American Mortgage Co. ...................... 47,150
3,440 North Fork Bancorp., Inc. ........................ 82,130
15,350 Northern Trust Corp. ............................. 828,900
8,000 Ohio Casualty Corp. .............................. 288,000
12,337 Old Kent Financial Corp. ......................... 491,938
2,430 Old National Bancorp ............................. 80,798
14,200 Old Republic International Corp. ................. 461,500
2,600 ONBANCorp, Inc. .................................. 91,000
5,156 Orion Capital Corp. .............................. 233,309
16,650 Paine Webber Group, Inc. ......................... 366,300
1,100 PEC Israel Economic Corp.* ....................... 23,650
1,500 PennCorp Financial Group, Inc. ................... 47,250
1,200 People's Bank .................................... 25,800
3,000 Peoples Heritage Financial Group, Inc. ........... 65,250
9,200 Phoenix Resource Cos., Inc. ...................... 219,650
1,200 Pioneer Group, Inc. .............................. 34,800
4,700 Price Enterprises, Inc. .......................... 74,025
3,300 Price (T. Rowe) & Associates, Inc. ............... 174,900
14,500 Progessive Corp. of Ohio ......................... 647,063
3,600 Protective Life Corp. ............................ 121,500
2,100 Provident Bankshares Corp. ....................... 69,825
8,600 Provident Cos., Inc. ............................. 261,225
9,600 Public Storage, Inc. ............................. 195,600
1,100 PXRE Corp. ....................................... 28,050
9,424 Quick & Reilly Group, Inc. ....................... 278,008
2,500 RCSB Financial, Inc. ............................. 59,063
12,976 Regions Financial Corp. .......................... 569,322
4,729 Resource Bancshares Mortgage Group, Inc.* ........ 73,891
3,900 Resource Mortgage Capital, Inc. .................. 79,463
12,300 Riggs National Corp.* ............................ 152,213
14,100 Rockefeller Center Properties, Inc. .............. 111,038
3,816 Roosevelt Financial Group, Inc. .................. 70,596
13,800 Rouse Co. ........................................ 301,875
7,600 S & T Bancorp, Inc. .............................. 233,700
29,500 Schwab (Charles) Corp. ........................... 755,938
700 Seafield Capital Corp. ........................... 25,900
6,996 Security Capital Pacific Trust ................... 153,912
12,500 Signet Banking Corp. ............................. 310,938
19,220 Southern National Corp. .......................... 533,355
17,150 Southtrust Corp. ................................. 473,769
3,880 Sovereign Bancorp, Inc............................ 43,165
4,400 St. Paul Bancorp, Inc. ........................... 108,350
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
- ------ --------
FINANCIAL (CONTINUED)
<S> <C> <C>
8,900 Standard Federal Bancorp., Inc. ................... $ 378,250
6,500 Star Banc Corp. ................................... 419,250
17,500 State Street Boston Corp. ......................... 875,000
1,800 Stewart Information Services Corp. ................ 35,550
22,600 Student Loan Marketing Association (D) ............ 1,728,900
22,127 Summit Bancorp .................................... 818,699
9,350 SunAmerica, Inc. .................................. 471,006
625 Susquehanna Bancshares, Inc. ...................... 17,656
16,700 Synovus Financial Corp. ........................... 563,625
5,600 Taubman Centers, Inc. ............................. 55,300
1,200 TCF Financial Corp. ............................... 43,500
800 Trans Financial, Inc. ............................. 13,300
1,600 Transatlantic Holdings, Inc. ...................... 109,200
400 Trenwick Group, Inc. .............................. 20,400
6,000 Trust Co. of New Jersey ........................... 81,000
8,500 20th Century Industries* .......................... 142,375
12,348 U.S. Bancorp ...................................... 419,832
2,347 UMB Financial Corp. ............................... 90,360
7,387 Union Planters Corp. .............................. 223,457
4,300 United Asset Management Corp. ..................... 199,413
2,600 United Bankshares, Inc. ........................... 76,050
2,700 United Carolina Bankshares Corp. .................. 66,150
3,300 United Cos. Financial Corp. ....................... 105,188
7,600 United Dominion Realty Trust ...................... 111,150
7,200 United Insurance Cos., Inc.* ...................... 159,300
12,000 Unitrin, Inc. ..................................... 552,000
4,300 Universal Health Realty Income Trust .............. 84,388
2,000 UST Corp. ......................................... 26,750
9,413 Valley National Bancorp............................ 261,211
2,900 Vornado Realty Trust .............................. 110,200
10,290 Washington Federal, Inc. .......................... 223,808
13,050 Washington Mutual, Inc. ........................... 388,238
6,200 Washington National Corp. ......................... 165,850
1,100 Washington, REIT .................................. 17,600
3,400 Weingarten Realty Investment ...................... 121,975
3,400 Wellsford Residential Property Trust .............. 74,375
1,100 Whitney Holding Corp. ............................. 34,375
11,300 Wilmington Trust Corp. ............................ 364,425
4,400 Zions Bancorp ..................................... 311,300
-----------
52,193,228
-----------
</TABLE>
<TABLE>
CONSUMER STAPLES - 17.39%
<S> <C> <C>
7,300 AAR Corp .......................................... 148,738
1,900 ADAC Laboratories ................................. 33,488
5,800 Airgas, Inc.* ..................................... 230,550
3,600 Alliance Pharmaceutical Corp.* .................... 62,550
1,000 American Medical Response, Inc.* .................. 35,500
5,700 Amylin Pharmaceuticals, Inc.* ..................... 56,288
4,300 AnnTaylor Stores Corp.* ........................... 77,400
2,400 Apogee Enterprises, Inc. .......................... 52,200
450 Apple South, Inc. ................................. 11,025
19,300 Applied Bioscience International, Inc.* ........... 176,113
6,340 Apria Healthcare Group, Inc.* ..................... 201,295
3,500 Athena Neurosciences, Inc.* ....................... 65,188
1,500 Aztar Corp.* ...................................... 12,750
7,666 Ballard Medical Products .......................... 137,988
5,700 Barr Laboratories, Inc.* .......................... 140,363
4,500 BBN Corp.* ........................................ 114,188
314 Benson Eyecare Corp.* ............................. 2,865
9,193 Bergen Brunswig Corp., Class A .................... 240,167
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
FS-7
<PAGE> 127
- --------------
Galaxy Fund II
- --------------
<TABLE>
SMALL COMPANY INDEX FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
MARCH 31, 1996
<CAPTION>
VALUE
SHARES (NOTE 2)
- ------ --------
CONSUMER STAPLES (CONTINUED)
<S> <C> <C>
9,900 Best Buy Co., Inc.* ............................... $ 172,013
1,300 Bindley Western Industries, Inc. .................. 20,638
7,500 Biogen, Inc.* ..................................... 446,250
1,400 Blair Corp. ....................................... 35,350
69 Block Drug, Inc., Class A ......................... 2,855
3,400 Books-A-Million, Inc.* ............................ 37,400
7,800 Borg-Warner Automotive, Inc. ...................... 259,350
15,650 Brinker International, Inc.* ...................... 262,138
2,100 Brown (Tom), Inc.* ................................ 29,663
7,000 Buffets, Inc.* .................................... 99,750
9,800 Burlington Industries, Inc.* ...................... 123,725
13,300 Callaway Golf Co. ................................. 355,775
12,100 Caraustar Industries, Inc. ........................ 302,500
8,756 Cardinal Health, Inc. ............................. 562,573
24,300 Caremark International, Inc. ...................... 610,538
6,900 Carter-Wallace, Inc. .............................. 112,988
5,600 Cato Corp., Class A ............................... 56,700
16,900 Centocor, Inc.* ................................... 610,513
2,400 Champion Enterprises, Inc.* ....................... 68,700
4,200 Chemed Corp. ...................................... 155,925
9,400 Chiquita Brands International, Inc. ............... 145,700
8,800 Chiron Corp.* ..................................... 864,600
7,400 Chronimed, Inc.* .................................. 148,925
4,600 Church & Dwight Co., Inc. ......................... 96,025
6,900 Claire's Stores, Inc. ............................. 125,063
900 Clarcor, Inc. ..................................... 19,575
5,200 Coca-Cola Bottling Co. ............................ 175,500
20,200 Coca-Cola Enterprises, Inc. ....................... 623,675
2,400 Coleman, Inc.* .................................... 105,900
2,561 Community Health Systems, Inc.* ................... 105,001
4,200 Coventry Corp.* ................................... 71,925
15,750 Cracker Barrel Old Country Store, Inc. ............ 366,188
5,100 Cross (A.T.) Co., Class A ......................... 80,325
4,000 Cytogen Corp.* .................................... 26,000
11,400 Dean Foods Co. .................................... 285,000
1,200 Dekalb Genetics Corp., Class B .................... 89,100
1,300 Delchamps, Inc. ................................... 27,625
700 Diagnostic Products Corp. ......................... 28,263
10,200 Dole Food, Inc. ................................... 392,700
13,843 Dollar General Corp. .............................. 401,447
8,600 Dress Barn, Inc.* ................................. 101,050
5,300 Dreyer's Grand Ice Cream, Inc. .................... 178,875
24,800 Duracell International, Inc. (D) .................. 1,230,700
5,000 Duty Free International, Inc. ..................... 66,250
12,180 Enzo Biochem, Inc.* ............................... 207,060
10,800 Family Dollar Stores, Inc. ........................ 159,300
10,428 FHP International Corp.* .......................... 329,786
900 Fieldcrest Cannon, Inc.* .......................... 18,675
8,800 First Brands Corp. ................................ 246,400
2,500 Flagstar Cos., Inc.* .............................. 7,813
12,900 Foodmaker, Inc.* .................................. 90,300
23,600 Forest Laboratories, Inc.* ........................ 1,150,500
13,199 Foundation Health Corp.* .......................... 503,212
5,200 Fred Meyer, Inc.* ................................. 145,600
3,600 Fresenius USA, Inc.* .............................. 73,350
12,100 Furniture Brands International, Inc.* ............. 111,925
7,600 Furon Co. ......................................... 167,200
3,150 G & K Services, Inc., Class A ..................... 84,263
5,500 Genesis Health Ventures, Inc.* .................... 222,063
7,700 Good Guys, Inc. ................................... 67,375
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
- ------ --------
CONSUMER STAPLES (CONTINUED)
<S> <C> <C>
15,100 Griffon Corp.* .................................... $ 141,563
1,700 Guilford Mills, Inc. .............................. 41,650
4,800 Gymboree Corp.* ................................... 125,400
3,800 Haemonetics Corp.* ................................ 62,700
11,400 Hancock Fabrics, Inc. ............................. 112,575
9,200 Hannaford Brothers Co. ............................ 266,800
26,550 Harte-Hanks Communications, Inc. .................. 564,188
9,550 Haverty Furniture Cos., Inc. ...................... 130,119
8,560 HBO & Co. ......................................... 806,780
3,400 Health Care REIT, Inc. ............................ 75,225
4,700 Health Care & Retirement Corp.* ................... 177,425
10,462 Health Management Associates, Inc., Class A* ...... 366,170
12,100 Health Systems International, Inc.* ............... 441,650
22,200 Healthsource, Inc.* ............................... 860,250
32,542 HEALTHSOUTH Corp.* ................................ 1,106,320
9,580 Healthwise of America, Inc.* ...................... 380,805
5,800 Herbalife International, Inc. ..................... 63,800
20,400 HFS, Inc.* ........................................ 991,950
8,100 Hillenbrand Industries, Inc. ...................... 280,463
13,056 Home Shopping Network, Inc.* ...................... 132,192
4,400 Hometown Buffet, Inc. ............................. 53,350
5,422 Horizon/CMS Healthcare Corp.* ..................... 75,908
8,900 Hormel Foods Corp. ................................ 233,625
25,300 Host Marriott Corp.* .............................. 341,550
5,060 Host Marriott Services Corp.* ..................... 35,420
2,550 Hudson Foods, Inc., Class A ....................... 36,338
28,900 IBP, Inc. ......................................... 740,563
9,240 ICN Pharmaceuticals, Inc. ......................... 204,435
11,000 ICOS Corp.* ....................................... 103,125
7,300 Immulogic Pharmaceutical Corp.* ................... 96,725
3,300 Immunex Corp.* .................................... 53,213
7,400 International Dairy Queen, Inc., Class A* ......... 162,916
5,150 International Multifoods Corp. .................... 98,494
9,800 Interneuron Pharmaceuticals, Inc.* ................ 363,825
8,300 Interstate Bakeries Corp. ......................... 203,350
4,200 Invacare Corp. .................................... 118,650
5,500 Isomedix, Inc.* ................................... 77,000
14,890 IVAX Corp. ........................................ 385,279
9,100 J & J Snack Foods Corp.* .......................... 108,063
500 Jacobs Engineering Group, Inc.* ................... 14,125
3,100 Jones Apparel Group, Inc.* ........................ 150,350
11,900 Kaman Corp., Class A .............................. 129,413
5,700 Kaydon Corp. ...................................... 199,500
6,900 Kellwood Co. ...................................... 106,950
19,800 Kinetic Concepts, Inc. ............................ 264,825
9,300 Kohl's Corp.* ..................................... 589,388
12,600 Komag, Inc.* ...................................... 305,550
10,800 La Quinta Inns, Inc. .............................. 317,250
8,121 Lancaster Colony Corp. ............................ 302,507
2,900 Lance, Inc. ....................................... 45,131
22,600 Leggett & Platt, Inc. ............................. 516,975
7,200 Lennar Corp. ...................................... 179,100
900 Life Technologies, Inc. ........................... 25,200
2,527 Ligand Pharmaceuticals, Class B* .................. 29,376
2,600 Lincare Holdings, Inc.* ........................... 84,500
4,950 Lindsay Manufacturing Co. ......................... 170,775
6,600 Liposome, Inc.* ................................... 137,775
4,400 Lone Star Steakhouse & Saloon* .................... 168,300
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
FS-8
<PAGE> 128
- --------------
Galaxy Fund II
- --------------
<TABLE>
SMALL COMPANY INDEX FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
MARCH 31, 1996
<CAPTION>
VALUE
SHARES (NOTE 2)
- ------ --------
CONSUMER STAPLES (CONTINUED)
<S> <C> <C>
9,400 MacFrugals Bargains Close-Outs, Inc.* ............. $ 131,600
4,000 Magellan Health Services, Inc.* ................... 90,000
22,300 Mccormick & Co., Inc. ............................. 490,600
6,400 Medimmune, Inc.* .................................. 100,800
7,200 Meditrust ......................................... 243,900
2,000 MGM Grand, Inc.* .................................. 76,750
12,400 Michael Foods, Inc. ............................... 130,200
3,800 Michaels Stores, Inc.* ............................ 53,200
5,400 Mid Atlantic Medical Services, Inc.* .............. 124,875
13,350 Mirage Resorts, Inc.* ............................. 585,731
4,050 Mohawk Industries, Inc.* .......................... 60,750
6,500 Multicare Cos., Inc.* ............................. 184,438
31,000 Mylan Laboratories, Inc. .......................... 651,000
1,800 National Presto Industries, Inc. .................. 72,000
600 Nautica Enterprises, Inc.* ........................ 28,650
8,600 Neiman-Marcus Group, Inc.* ........................ 191,350
6,000 Noven Pharmaceuticals, Inc.* ...................... 86,250
1,400 Nu-Kote Holding, Inc., Class A* ................... 24,675
2,000 Oakwood Homes Corp. ............................... 99,250
20,086 Office Depot, Inc.* ............................... 394,188
1,564 Omega Healthcare Investors, Inc. .................. 44,770
5,350 Outback Steakhouse, Inc.* ......................... 201,628
3,450 Owens & Minor, Inc. ............................... 41,400
9,800 Oxford Health Plans, Inc.* ........................ 859,950
5,900 Oxford Industries, Inc. ........................... 103,988
7,500 Pacificare Health Systems, Inc., Class B* ......... 639,375
3,900 Park-Ohio Industries, Inc.* ....................... 64,350
800 Penn Traffic Co. .................................. 11,900
4,600 Penwest, Ltd. ..................................... 87,400
11,200 Perrigo Co.* ...................................... 151,200
1,300 Pharmaceutical Marketing Services, Inc.* .......... 17,550
3,000 Phillips-Van Heusen Corp. ......................... 35,250
900 Phycor, Inc.* ..................................... 39,600
5,100 Physician Corp. of America* ....................... 81,600
10,920 Pier 1 Imports, Inc. .............................. 137,865
7,100 Pope & Talbot, Inc. ............................... 98,513
8,400 Pyxis Corp.* ...................................... 215,775
4,000 Quantum Health Resources, Inc.* ................... 42,000
5,300 Ralcorp Holdings, Inc.* ........................... 135,813
3,800 Regis Corp. ....................................... 116,850
8,000 Renal Treatment Centers, Inc.* .................... 190,000
15,500 Revco D. S., Inc.* ................................ 426,250
9,938 Richfood Holdings, Inc. ........................... 280,127
68,340 RJR Nabisco Holdings Corp. (D) .................... 2,067,285
1,200 Roberts Pharmaceutical Corp.* ..................... 22,650
7,500 Rock Bottom Restaurants, Inc.* .................... 71,250
600 Ryland Group, Inc. ................................ 9,675
11,200 Savannah Foods & Industries, Inc. ................. 121,800
6,000 Scherer (R.P.) Corp.* ............................. 263,250
6,500 Scios Inc.* ....................................... 29,656
2,700 Sequus Pharmaceuticals, Inc.* ..................... 37,294
30,050 Service Merchandise, Inc.* ........................ 157,763
6,100 Shopko Stores, Inc. ............................... 85,400
2,900 Showboat, Inc. .................................... 71,050
500 Sierra Health Services, Inc.* ..................... 16,313
2,300 Smithfield Foods, Inc.* ........................... 66,700
5,900 Smucker (J.M.) Co., Class A ....................... 131,275
1,800 Sofamor/Danek Group, Inc.* ........................ 60,975
10,000 Southland Corp.* .................................. 33,125
600 Spiegel, Inc., Class A ............................ 6,150
3,819 Standard Commercial Corp.* ........................ 34,371
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
- ------ --------
CONSUMER STAPLES (CONTINUED)
<S> <C> <C>
1,700 Standex International Corp. ....................... $ 51,213
4,600 Stanhome, Inc. .................................... 146,625
23,600 Starbucks Corp.* .................................. 550,175
9,800 Steris Corp.* ..................................... 294,000
10,100 Stop & Shop Cos., Inc.* ........................... 333,300
4,695 Strawbridge & Clothier, Class A ................... 89,792
11,100 Stryker Corp. ..................................... 545,981
700 Summit Care Corp.* ................................ 14,875
6,150 Summit Technology, Inc.* .......................... 145,294
18,700 Sunbeam Corp. ..................................... 317,900
5,100 Sunrise Medical, Inc.* ............................ 71,400
18,800 Sybron International Corp.* ....................... 460,600
11,900 Tambrands, Inc. ................................... 556,325
7,150 Tecnol Medical Products, Inc.* .................... 125,237
5,600 Tejon Ranch Co. ................................... 91,000
1,100 Theratech, Inc.* .................................. 23,375
600 Thermo Cardiosystems, Inc.* ....................... 40,650
3,200 Tiffany & Co. ..................................... 181,600
1,300 Timberland Co., Class A* .......................... 27,788
9,000 Toll Brothers, Inc.* .............................. 155,250
4,130 Tootsie Roll Industries, Inc. ..................... 150,756
21,400 Topps, Inc.* ...................................... 117,700
3,100 Triarc Cos., Inc.* ................................ 38,750
5,600 Tyco Toys, Inc.* .................................. 33,600
27,166 Tyson Foods, Inc., Class A ........................ 631,610
17,375 Unifi, Inc. ....................................... 427,859
10,700 Universal Corp. ................................... 268,838
7,900 Universal Foods Corp. ............................. 301,188
7,000 Universal Health Services, Inc., Class B* ......... 371,875
1,600 Urban Outfitters, Inc.* ........................... 48,400
68,700 U.S. Bioscience, Inc.* ............................ 450,844
6,600 U.S. Filter Corp.* ................................ 184,800
900 Valmont Industries, Inc. .......................... 27,000
12,127 Value Health, Inc.* ............................... 333,493
4,426 Vencor, Inc.* ..................................... 152,697
8,000 Ventritex, Inc.* .................................. 123,000
6,600 Vicor Corp.* ...................................... 100,650
1,400 Visx, Inc.* ....................................... 51,100
8,550 Vivra, Inc.* ...................................... 254,363
6,900 Vons Cos., Inc.* .................................. 214,763
7,300 Waban, Inc.* ...................................... 191,625
8,600 Warnaco Group, Inc., Class A ...................... 207,475
9,422 Watson Pharmaceuticals, Inc.* ..................... 376,880
2,800 WD-40 Co. ......................................... 135,100
1,400 Webb Corp. ........................................ 25,725
3,900 Wellpoint Health Networks, Inc., Class A* ......... 136,500
3,100 Whole Foods Market, Inc.* ......................... 56,575
4,050 Williams-Sonoma, Inc.* ............................ 92,138
1,700 Windmere Corp. .................................... 16,575
600 WLR Foods, Inc. ................................... 8,100
900 Wolverine World Wide, Inc. ........................ 25,200
-----------
50,727,980
-----------
TECHNOLOGY - 15.86%
14,800 Acxiom Corp.* ..................................... 353,350
16,400 Adaptec, Inc.* .................................... 791,300
20,800 Adobe Systems, Inc. (D) ........................... 670,800
2,200 Advanced Technology Laboratories, Inc.* ........... 59,400
19,400 America Online, Inc.* ............................. 1,086,400
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
FS-9
<PAGE> 129
- --------------
Galaxy Fund II
- --------------
<TABLE>
SMALL COMPANY INDEX FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
MARCH 31, 1996
<CAPTION>
VALUE
SHARES (NOTE 2)
- ------ --------
TECHNOLOGY (CONTINUED)
<S> <C> <C>
17,600 American Power Conversion Corp.* .................. $ 176,000
3,000 Amphenol Corp., Class A* .......................... 70,125
57,425 Analog Devices, Inc.* ............................. 1,607,900
6,600 Analysts International Corp. ...................... 224,400
5,600 Anixter International, Inc.* ...................... 94,500
1,700 Antec Corp.* ...................................... 26,350
10,900 Applix, Inc.* ..................................... 381,500
1,500 Aquarion Co. ...................................... 38,250
11,304 Arrow Electronics, Inc.* .......................... 531,288
22,900 Ascend Communications, Inc.* ...................... 1,233,738
25 Associated Group, Inc., Class A* .................. 481
8,686 AST Research, Inc.* ............................... 41,394
11,200 Atmel Corp.* ...................................... 285,600
1,300 Augat, Inc. ....................................... 22,750
3,100 Aura Systems, Inc.* ............................... 15,306
2,000 Avid Technology, Inc.* ............................ 42,000
10,600 Avnet, Inc. ....................................... 511,450
2,500 Banyan Systems, Inc.* ............................. 19,063
8,300 BE Aerospace, Inc.* ............................... 91,300
2,200 BHC Communications, Inc., Class A* ................ 205,700
4,100 BISYS Group, Inc.* ................................ 135,813
3,600 Black Box Corp.* .................................. 61,200
2,000 BMC Industries, Inc. .............................. 43,000
9,100 BMC Software, Inc.* ............................... 498,225
450 Boole & Babbage, Inc.* ............................ 11,531
6,410 Borland International, Inc.* ...................... 115,380
3,000 Boston Technology, Inc.* .......................... 39,750
6,400 Broderbund Software, Inc.* ........................ 241,600
5,000 Brooktree Corp.* .................................. 45,000
6,500 BW/IP, Inc. ....................................... 116,188
11,800 C-Cube Microsystems, Inc.* ........................ 619,500
2,600 C-Tec Corp.* ...................................... 96,850
15,450 Cadence Design Systems, Inc.* ..................... 681,731
7,100 Calgene, Inc.* .................................... 40,825
6,400 California Microwave, Inc.* ....................... 118,400
9,900 Cascade Communications Corp.* ..................... 888,525
400 Catalina Marketing Corp.* ......................... 31,250
8,300 Catellus Development Corp.* ....................... 64,325
1,100 CDI Corp.* ........................................ 29,425
7,700 Century Telephone Enterprises, Inc. ............... 244,475
8,700 Cephalon, Inc.* ................................... 225,113
1,368 Ceridian Corp.* ................................... 58,824
2,400 Cerner Corp.* ..................................... 55,800
5,400 Cheyenne Software, Inc.* .......................... 85,050
7,700 Chips & Technologies, Inc.* ....................... 69,300
14,600 Cirrus Logic, Inc.* ............................... 263,713
1,300 Coherent, Inc.* ................................... 55,250
600 CommNet Cellular, Inc.* ........................... 16,725
2,000 Computer Network Technology Corp.* ................ 11,250
5,400 Compuware Corp.* .................................. 124,200
4,300 Comverse Technology, Inc.* ........................ 103,738
3,100 Continuum, Inc.* .................................. 129,038
1,900 Control Data Systems, Inc.* ....................... 37,644
1,900 CopyTele, Inc.* ................................... 18,644
2,900 Cox Communications, Inc., Class A* ................ 63,438
9,150 Credence Systems Corp.* ........................... 153,263
26,500 Cypress Semiconductor Corp.* ...................... 311,375
2,400 Cyrix Corp.* ...................................... 57,300
11,900 Dallas Semiconductor Corp. ........................ 218,663
4,000 Datascope Corp.* .................................. 94,000
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
- ------ --------
TECHNOLOGY (CONTINUED)
<S> <C> <C>
31,300 Dell Computer Corp.* .............................. $1,048,550
700 Devon Group, Inc.* ................................ 19,950
300 Dialogic Corp.* ................................... 12,675
1,800 DSP Group, Inc.* .................................. 22,500
4,400 Dynatech Corp.* ................................... 103,400
3,600 Ennis Business Forms, Inc. ........................ 40,950
5,100 Exabyte Corp.* .................................... 83,194
700 Exide Electronics Group, Inc. ..................... 9,275
3,000 Fair Issac & Co., Inc. ............................ 90,000
11,366 Federal Signal Corp. .............................. 291,254
1,700 FileNet Corp.* .................................... 98,175
5,500 Firstmerit Corp. .................................. 170,500
10,300 Fiserv, Inc.* ..................................... 288,400
2,800 Fore Systems, Inc.* ............................... 200,200
600 Franklin Electric, Inc. ........................... 21,600
1,400 Fusion Systems Corp.* ............................. 35,350
2,400 General Datacomm Industries, Inc.* ................ 25,500
1,700 Gerber Scientific, Inc. ........................... 25,500
34,900 Guidant Corp. ..................................... 1,888,963
1,500 Gupta Corp.* ...................................... 8,344
1,680 Harman International Industries, Inc. ............. 63,000
2,100 Heartland Wireless Communications, Inc.* .......... 54,075
2,700 Hunt Manufacturing Co. ............................ 41,175
13,200 IDEXX Laboratories, Inc.* ......................... 554,400
5,100 Information Resources, Inc.* ...................... 73,950
32,400 Informix Corp.* ................................... 854,550
18,400 Input/Output, Inc.* ............................... 570,400
3,800 Insituform Technologies, Inc., Class A* ........... 39,900
23,700 Integrated Device Technology, Inc.* ............... 269,588
8,000 Interdigital Communications Corp.* ................ 70,500
9,300 Interface, Inc., Class A .......................... 111,600
7,866 International Cabletel, Inc.* ..................... 236,963
7,600 International Rectifier Corp.* .................... 136,800
3,800 Intervoice, Inc.* ................................. 108,775
18,900 Iomega Corp.* ..................................... 484,313
4,400 Kimball International, Inc., Class B .............. 125,400
16,000 KLA Instruments Corp.* ............................ 362,000
10,100 Lam Research Corp.* ............................... 353,500
1,300 Landmark Graphics Corp.* .......................... 21,613
2,900 Landstar System, Inc.* ............................ 72,500
9,600 Lattice Semiconductor Corp.* ...................... 272,400
25,300 Linear Technology Corp. ........................... 1,056,275
10,000 MacNeal-Schwendler Corp. .......................... 142,500
1,800 Macromedia, Inc.* ................................. 76,950
8,000 Magnetek, Inc.* ................................... 63,000
4,799 Mark IV Industries, Inc. .......................... 105,578
1,400 Marquette Electronics, Inc., Class A* ............. 27,125
4,000 Marshall Industries, Inc.* ........................ 122,000
1,500 Material Sciences Corp.* .......................... 22,313
19,000 Maxim Integrated Products, Inc.* .................. 589,000
500 McWhorter Technologies, Inc.* ..................... 8,688
6,100 Measurex Corp. .................................... 176,900
3,200 MediSense, Inc.* .................................. 142,600
1,600 Merix Corp.* ...................................... 59,200
3,200 Metricom, Inc.* ................................... 40,800
500 Micro Linear Corp.* ............................... 4,563
1,200 MicroAge, Inc.* ................................... 12,450
5,250 Microchip Technology, Inc.* ....................... 144,375
2,500 Micron Electronics, Inc.* ......................... 24,688
6,100 Microtouch Systems, Inc.* ......................... 93,025
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
FS-10
<PAGE> 130
- ----------------
Galaxy Fund II
- ----------------
<TABLE>
SMALL COMPANY INDEX FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
MARCH 31, 1996
<CAPTION>
VALUE
SHARES (NOTE 2)
- ------ --------
TECHNOLOGY (CONTINUED)
<S> <C> <C>
4,900 Minnesota Educational Computing Corp.* ............ $ 110,250
9,500 Mobile Telecommunications Technologies Corp.* ..... 148,438
18,008 Molex, Inc. ....................................... 628,029
3,900 MTS Systems Corp. ................................. 146,250
9,128 Nellcor Puritan Bennett, Inc.* .................... 586,474
9,200 Netcom On-Line Communication Services, Inc.* ...... 220,800
15,000 NetManage, Inc.* .................................. 163,125
5,800 Network General Corp.* ............................ 232,000
15,000 New World Communications Group, Inc., Class A* .... 294,375
1,900 Novellus Systems, Inc.* ........................... 84,550
3,600 Oak Industries, Inc.* ............................. 89,550
5,600 Octel Communications Corp.* ....................... 270,200
1,300 OIS Optical Imaging Systems, Inc.* ................ 5,038
800 Optical Data Systems, Inc.* ....................... 16,400
1,350 Osmonics, Inc.* ................................... 25,313
1,200 Pacific Scientific Co. ............................ 25,350
22,800 Parametric Technology Corp.* ...................... 892,050
1,171 Paxar Corp.* ...................................... 18,590
7,900 Paxson Communications Corp.* ...................... 123,438
9,850 Paychex, Inc. ..................................... 576,225
5,400 PeopleSoft, Inc.* ................................. 310,500
16,650 Pioneer Standard Electronics, Inc. ................ 255,994
3,100 Policy Management Systems Corp.* .................. 139,500
7,350 Premier Industrial Corp. .......................... 239,794
100 Presstek, Inc.* ................................... 10,838
2,400 Progress Software Corp.* .......................... 36,000
5,300 Protein Design Laboratories, Inc.* ................ 130,513
12,450 Quantum Corp.* .................................... 224,100
12,800 Reynolds & Reynolds Co., Class A .................. 524,800
8,000 Robotic Vision Systems, Inc.* ..................... 129,000
10,000 Sanmina Corp.* .................................... 297,500
6,500 SCI Systems, Inc.* ................................ 238,063
25,004 Seagate Technology, Inc.* ......................... 1,368,969
13,000 Sensormatic Electronics Corp. ..................... 263,250
1,300 Shiva Corp.* ...................................... 117,975
7,200 Sierra On-Line, Inc.* ............................. 242,100
4,900 Softdesk, Inc.* ................................... 66,150
2,100 Spacelabs Medical, Inc.* .......................... 48,825
7,600 Standard Microsystems Corp.* ...................... 121,600
7,900 Standard Register Co. ............................. 187,625
7,746 Sterling Software, Inc.* .......................... 546,093
13,528 Storage Technology Corp.* ......................... 353,419
23,200 StrataCom, Inc.* .................................. 849,700
4,700 Stratus Computer, Inc.* ........................... 130,425
8,900 Structural Dynamics Research Corp.* ............... 300,375
10,000 Sungard Data Systems, Inc.* ....................... 342,500
11,600 Sybase, Inc.* ..................................... 269,700
6,300 Symantec Corp.* ................................... 81,113
2,400 Symmetricom, Inc.* ................................ 23,700
4,000 Synopsys, Inc.* ................................... 128,000
2,400 Syratech Corp.* ................................... 61,800
11,925 System Software Associates, Inc. .................. 304,088
700 Systems & Computer Technology Corp.* .............. 10,325
7,400 Systemsoft Corp.* ................................. 118,400
7,800 Tech Data Corp.* .................................. 130,650
20,000 Teradyne, Inc.* ................................... 335,000
4,600 3D Systems Corp.* ................................. 96,600
6,400 3DO Co.* .......................................... 58,400
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
- ------ --------
TECHNOLOGY (CONTINUED)
<S> <C> <C>
6,800 Total System Services, Inc. ....................... $ 282,200
6,600 Tseng Laboratories, Inc. .......................... 66,000
2,100 U.S. Long Distance Corp.* ......................... 41,738
5,400 U.S. Robotics Corp.* .............................. 697,950
9,500 Unitrode Corp.* ................................... 230,375
6,650 Vanguard Cellular Systems, Inc., Class A* ......... 133,000
5,000 VeriFone, Inc.* ................................... 210,000
3,200 Viewlogic Systems, Inc.* .......................... 35,200
8,600 Viking Office Products, Inc.* ..................... 478,375
6,232 Vishay Intertechnology, Inc.* ..................... 168,264
6,500 VLSI Technology, Inc.* ............................ 83,688
9,600 Wallace Computer Services, Inc. ................... 560,400
700 Westcott Communications, Inc.* .................... 12,425
8,800 Western Digital Corp.* ............................ 169,400
23,600 Wheelabrator Technologies, Inc. ................... 392,350
1,500 WMS Industries, Inc.* ............................. 26,063
6,500 Wyle Electronics .................................. 225,063
31,900 Xilinx, Inc.* ..................................... 1,012,825
5,300 Young Broadcasting Corp., Class A* ................ 157,675
11,200 Zero Corp. ........................................ 187,600
6,600 Zilog, Inc.* ...................................... 222,750
-----------
46,272,548
-----------
CONSUMER CYCLICAL - 11.81%
7,750 Acclaim Entertainment, Inc.* ...................... 81,859
13,750 Advanta Corp., Class A ............................ 715,000
6,500 ADVO, Inc. ........................................ 63,375
11,846 AES Corp.* ........................................ 294,669
700 Alexander's, Inc.* ................................ 46,200
1,700 Allen Group, Inc. ................................. 32,938
5,250 American Business Information, Inc.* .............. 84,000
3,200 American Classic Voyages Co. ...................... 26,400
5,100 American Media, Inc., Class A* .................... 18,488
2,200 Ameron, Inc. ...................................... 82,225
600 Arbor Drugs, Inc. ................................. 12,600
4,500 Arctco, Inc. ...................................... 44,438
4,000 Argosy Gaming Corp.* .............................. 30,000
2,300 Arvin Industries, Inc. ............................ 47,725
6,200 Autotote Corp., Class A* .......................... 19,375
28,000 AutoZone, Inc.* ................................... 948,500
5,300 Bandag, Inc. ...................................... 279,575
6,825 Banta Corp. ....................................... 182,569
7,700 Belo (A.H.) Corp., Class A ........................ 261,800
12,466 Bob Evans Farms, Inc. ............................. 202,573
13,937 Bombay Co., Inc.* ................................. 113,238
17,700 Boyd Gaming Corp.* ................................ 196,913
6,200 Breed Technologies, Inc. .......................... 115,475
2,300 Burlington Coat Factory Warehouse Corp.* .......... 27,025
8,850 Butler Manufacturing Co. .......................... 292,050
10,200 Cablevision Systems Corp., Class A* ............... 586,500
5,400 Carlisle Cos., Inc. ............................... 234,225
3,300 Carson Pirie Scott & Co.* ......................... 74,250
5,000 Casey's General Stores, Inc. ...................... 117,500
1,200 Casino America, Inc.* ............................. 8,250
3,100 Casino Magic Corp.* ............................... 12,497
7,800 CellStar Corp.* ................................... 118,950
2,800 Central Newspapers, Inc., Class A ................. 99,750
15,093 Century Communications Corp., Class A* ............ 146,213
4,681 Chris-Craft Industries, Inc.* ..................... 195,446
2,700 Chromcraft Revington, Inc.* ....................... 65,138
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
FS-11
<PAGE> 131
- ----------------
Galaxy Fund II
- ----------------
<TABLE>
SMALL COMPANY INDEX FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
MARCH 31, 1996
<CAPTION>
VALUE
SHARES (NOTE 2)
- ------ --------
CONSUMER CYCLICAL (CONTINUED)
<S> <C> <C>
13,250 Circus Circus Enterprises, Inc.* .................. $ 445,531
16,035 Clayton Homes, Inc. ............................... 334,731
1,600 Clear Channel Communications, Inc.* ............... 90,400
9,980 Comdisco, Inc. .................................... 220,808
3,400 CompUSA, Inc.* .................................... 188,275
11,000 Consolidated Stores Corp.* ........................ 368,500
5,300 CPI Corp. ......................................... 84,800
6,400 Crown Crafts, Inc. ................................ 60,800
10,300 Danaher Corp. ..................................... 381,100
5,300 Discovery Zone, Inc.* ............................. 4,638
5,100 Donaldson Co., Inc. ............................... 140,250
2,300 Eagle Hardware & Garden, Inc.* .................... 23,575
7,800 Eckerd Corp.* ..................................... 375,375
1,000 Exide Corp.* ...................................... 23,375
900 Express Scripts, Inc., Class A* ................... 42,075
2,645 Fedders Corp. ..................................... 17,193
3,400 Fibreboard Corp.* ................................. 80,325
1,900 Fisher Scientific International, Inc. ............. 72,675
17,050 Flowers Industries, Inc. .......................... 230,175
105,400 Food Lion, Inc., Class B .......................... 632,400
1,100 Franklin Quest Co.* ............................... 29,700
9,200 Friedman's, Inc., Class A* ........................ 184,000
5,400 Gartner Group, Inc., Class A* ..................... 329,400
10,500 Gaylord Entertainment Co., Class A ................ 283,500
10,200 GenCorp, Inc. ..................................... 127,500
96,900 General Motors Corp., Class E (D) ................. 5,523,300
37,000 General Motors Corp., Class H ..................... 2,340,250
6,000 Gibson Greetings, Inc.* ........................... 81,000
5,250 Goody's Family Clothing, Inc. ..................... 46,594
5,115 Grand Casinos, Inc.* .............................. 153,450
8,200 GTECH Holdings Corp.* ............................. 254,200
5,700 Hanover Direct, Inc. .............................. 6,769
22,000 Harley-Davidson, Inc. ............................. 855,250
10,390 Healthcare Compare Corp.* ......................... 523,396
14,800 Hechinger Co., Class A ............................ 53,650
13,200 Heilig-Meyers Co. ................................. 272,250
3,300 Hollywood Park, Inc. .............................. 32,588
4,000 Houghton Mifflin Co. .............................. 176,500
6,900 Huffy Corp. ....................................... 73,313
1,800 In Focus Systems, Inc.* ........................... 63,113
12,900 Infinity Broadcasting Corp., Class A* ............. 559,538
1,900 Integrated Health Services, Inc. .................. 44,413
9,900 Intelligent Electronics, Inc. ..................... 54,450
4,400 Juno Lighting, Inc. ............................... 60,500
8,150 Kelly Services, Inc., Class A ..................... 261,055
3,000 Kindercare Learning Centers, Inc.* ................ 37,500
3,900 La-Z-Boy Chair Co. ................................ 121,388
5,300 Lafarge Corp. ..................................... 100,038
18,100 Lear Seating Corp.* ............................... 590,513
11,200 Lee Enterprises, Inc. ............................. 236,600
21,600 Manpower, Inc. .................................... 669,600
7,526 Marvel Entertainment Group, Inc.* ................. 79,023
4,400 Medaphis Corp.* ................................... 213,400
3,691 Medpartners/Mullikin, Inc.* ....................... 105,194
1,800 Medusa Corp. ...................................... 55,125
1,725 Men's Wearhouse, Inc.* ............................ 54,338
7,500 Miller (Herman), Inc. ............................. 232,500
5,300 Modine Manufacturing Co. .......................... 140,450
2,275 Morrison Fresh Cooking, Inc.* ..................... 17,916
3,033 Morrison Health Care, Inc.* ....................... 50,803
10,000 Musicland Stores Corp.* ........................... 38,750
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
- ------ --------
CONSUMER CYCLICAL (CONTINUED)
<S> <C> <C>
10,793 Myers Industries, Inc. ........................... $ 182,132
6,500 National Computer Systems, Inc. ................... 131,625
15,140 NovaCare, Inc.* ................................... 105,980
11,455 Olsten Corp. ...................................... 369,424
16,200 Omnicom Group, Inc. ............................... 729,000
10,720 OrNda Healthcorp* ................................. 308,200
1,800 Oshkosh Truck Corp., Class B ...................... 27,225
7,050 PETsMART, Inc.* ................................... 255,563
3,900 PHH Corp. ......................................... 216,938
4,300 Pinkertons, Inc.* ................................. 93,525
1,500 Playboy Enterprises, Inc., Class B* ............... 15,188
6,900 Players International, Inc.* ...................... 65,658
4,100 Primadonna Resorts, Inc.* ......................... 62,525
9,800 QUALCOMM, Inc.* ................................... 406,700
1,100 Renters Choice, Inc.* ............................. 19,113
1,400 Republic Gypsum Co. ............................... 18,375
6,300 Rio Hotel & Casino, Inc.* ......................... 96,075
1,600 Robert Half International, Inc.* .................. 77,800
6,350 Rollins, Inc. ..................................... 148,431
6,600 Ross Stores, Inc. ................................. 165,825
4,550 Ruby Tuesday, Inc.* ............................... 104,650
14,600 Ruddick Corp. ..................................... 178,850
75,000 Safeway, Inc.* .................................... 2,137,500
2,900 Scholastic Corp.* ................................. 199,375
8,962 Schulman (A.), Inc. ............................... 189,322
20,600 Shaw Industries, Inc. ............................. 226,600
1,000 Smith (A.O.) Corp. ................................ 23,625
8,600 Smith's Food & Drug Centers, Inc.,Class B ......... 206,400
4,900 Sodak Gaming, Inc.* ............................... 116,375
3,800 Sotheby's Holdings, Inc., Class A ................. 55,575
8,000 Southdown, Inc. ................................... 189,000
7,350 Spartan Motors, Inc. .............................. 56,044
5,700 Spelling Entertainment Group, Inc.* ............... 57,000
2,800 Standard-Pacific Corp. ............................ 20,300
20,738 Staples, Inc.* .................................... 422,527
6,800 Station Casinos, Inc.* ............................ 79,050
5,850 Stewart Enterprises, Inc., Class A ................ 250,088
11,756 Sun Healthcare Group, Inc.* ....................... 155,767
2,800 Sun Television & Appliances, Inc. ................. 11,550
4,900 Superior Industries International, Inc. ........... 122,500
8,400 TBC Corp.* ........................................ 60,900
2,500 U.S. Home Corp.* .................................. 64,375
9,900 USG Corp.* ........................................ 251,213
2,400 Walbro Corp. ...................................... 48,900
1,700 Washington Post Co., Class B ...................... 506,813
4,600 Weis Markets, Inc. ................................ 138,575
8,100 Western Publishing Group, Inc.* ................... 79,988
8,200 Westwood One, Inc.* ............................... 150,675
3,500 Winnebago Industries, Inc. ........................ 30,188
-----------
34,456,574
-----------
UTILITIES - 11.14%
11,100 AGL Resources, Inc. ............................... 203,963
34,600 Allegheny Power Systems, Inc. ..................... 1,050,975
7,200 American Water Works, Inc. ........................ 277,200
1,400 Arch Communications Group, Inc.* .................. 32,375
600 Aspect Telecommunications Corp.* .................. 27,450
15,400 Atlantic Energy, Inc .............................. 257,950
15,200 Boston Edison Co .................................. 410,400
10,250 Brooklyn Union Gas Co ............................. 274,188
700 California Water Service Co. ...................... 24,500
</TABLE>
See Notes to Financial Statements.
FS-12
<PAGE> 132
- ----------------
Galaxy Fund II
- ----------------
<TABLE>
SMALL COMPANY INDEX FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
MARCH 31, 1996
<CAPTION>
VALUE
SHARES (NOTE 2)
- ------ --------
UTILITIES (CONTINUED)
<S> <C> <C>
1,900 Cellular Communications International, Inc.* ...... $ 63,175
600 Cellular Communications of Puerto Rico, Inc.* ..... 16,200
38,900 Centerior Energy Corp. ............................ 311,200
4,800 Central Louisiana Electric, Inc. .................. 129,000
10,100 Central Maine Power Co. ........................... 146,450
2,700 CILCORP, Inc. ..................................... 116,100
18,100 Cincinnati Bell, Inc. ............................. 941,200
9,900 CIPSCO, Inc. ...................................... 382,388
8,655 Citizens Utilities Co., Class B ................... 94,126
23,900 CMS Energy Corp. .................................. 705,050
13,624 Comsat Corp. ...................................... 318,461
15,200 Delmarva Power & Light Co. ........................ 323,000
29,050 DPL, Inc. ......................................... 693,569
22,950 DQE, Inc. ......................................... 662,681
3,150 E'town Corp. ...................................... 85,838
3,300 Eastern Utilities Associates ...................... 70,950
4,800 Embrace Systems Corp. (B)* ........................ 0
28,900 Enova Corp. ....................................... 661,088
7,200 Equitable Resources, Inc. ......................... 210,600
25,800 Florida Progress Corp. ............................ 880,425
28,900 Frontier Corp. .................................... 910,350
9,500 Geotek Communications, Inc.* ...................... 97,375
9,450 Glenayre Technologies, Inc.* ...................... 361,463
5,600 Hawaiian Electric Industries, Inc. ................ 196,000
13,000 Idaho Power Co. ................................... 377,000
7,800 IES Industries, Inc. .............................. 217,425
24,700 Illinova Corp. .................................... 694,688
600 IPALCO Enterprises, Inc. .......................... 16,050
18,300 Kansas City Power & Light Co. ..................... 466,650
11,700 KU Energy Corp. ................................... 336,375
9,500 L G & E Energy Corp. .............................. 407,313
3,900 Lincoln Telecommunications Co. .................... 75,075
28,800 Long Island Lighting Co. .......................... 507,600
8,500 MAPCO, Inc. ....................................... 474,938
19,400 MCN Corp. ......................................... 448,625
1,300 MFS Communications Co., Inc.* ..................... 80,925
23,814 MidAmerican Energy Co. ............................ 425,675
8,200 Minnesota Power & Light Co. ....................... 227,550
15,400 Montana Power Co. ................................. 333,025
7,200 National Fuel Gas Co. ............................. 249,300
11,200 Nevada Power Co. .................................. 245,000
16,100 New England Electric System ....................... 615,825
20,400 New York State Electric & Gas Corp. ............... 479,400
21,005 NEXTEL Communications, Inc., Class A* ............. 396,469
15,500 NIPSCO Industries, Inc. ........................... 577,375
1,200 North Carolina Natural Gas Corp. .................. 30,150
36,400 Northeast Utilities ............................... 718,900
1,200 Northwest Natural Gas Co. ......................... 38,100
1,800 Northwestern Public Service Co. ................... 52,200
3,800 NUI Corp. ......................................... 70,775
11,500 Oklahoma Gas & Electric Co. ....................... 458,563
3,300 Orange & Rockland Utilities, Inc. ................. 118,388
2,500 Otter Tail Power Co. .............................. 95,625
10,900 Paging Network, Inc.* ............................. 272,500
600 Pennsylvania Enterprises, Inc. .................... 23,175
900 People's Choice TV Corp.* ......................... 16,425
5,200 PictureTel Corp.* ................................. 161,200
5,544 Piedmont Natural Gas Co., Inc. .................... 123,354
22,100 Pinnacle West Capital Corp. ....................... 638,138
13,500 Portland General Corp. ............................ 415,125
31,400 Potomac Electric Power Co. ........................ 820,325
</TABLE>
[CAPTION]
<TABLE>
VALUE
SHARES (NOTE 2)
- ------ --------
UTILITIES (CONTINUED)
<S> <C> <C>
15,100 Public Service Co. of Colorado .................... $ 532,275
11,300 Public Service Co. of New Mexico* ................. 210,463
6,450 Public Service Co. of North Carolina .............. 103,200
17,000 Puget Sound Power & Light Co. ..................... 433,500
14,400 Rochester Gas & Electric Corp. .................... 311,400
25,700 SCANA Corp. ....................................... 706,750
2,400 Scripps (E.W.) Co., Class A ....................... 100,500
7,400 Sierra Pacific Resources .......................... 185,925
18,300 Southern New England Telecommunications Corp. ..... 736,575
11,700 Southwest Gas Corp. ............................... 201,825
3,500 Southwestern Energy Co. ........................... 42,000
12,900 Southwestern Public Service Co. ................... 428,925
8,500 Symbol Technologies, Inc.* ........................ 298,563
5,600 TCA Cable TV, Inc. ................................ 163,100
32,600 TECO Energy, Inc. ................................. 810,925
8,600 Telephone & Data Systems, Inc. .................... 397,750
32,200 Tucson Electric Power Co.* ........................ 92,575
18,200 Turner Broadcasting System, Inc., Class B ......... 493,675
8,400 U.S. Cellular Corp. ............................... 289,800
9,400 UGI Corp. ......................................... 199,750
4,700 United Cities Gas Co. ............................. 83,425
6,600 United Water Resources, Inc. ...................... 86,625
11,500 UtiliCorp United, Inc. ............................ 329,188
12,800 Valero Energy Corp. ............................... 315,200
5,700 Washington Energy Co. ............................. 116,850
9,000 Washington Gas Light Co. .......................... 196,875
11,500 Washington Water Power Co. ........................ 219,938
4,000 Western Gas Resources, Inc. ....................... 57,500
17,024 Western Resources, Inc. ........................... 519,232
1,500 Western Waste Industries* ......................... 57,188
25,850 Wisconsin Energy Corp. ............................ 733,494
6,600 WPL Holdings, Inc. ................................ 203,775
5,700 WPS Resources Corp. ............................... 191,663
----------
32,491,345
----------
BASIC MATERIALS - 4.98%
4,200 Acme Metals, Inc.* ................................ 76,650
3,600 Actel Corp.* ...................................... 55,350
8,800 Allegheny Ludlum Corp. ............................ 162,800
300 Alpharma, Inc., Class A ........................... 6,975
1,900 Amcol International Corp. ......................... 23,988
800 Armor All Products Corp. .......................... 13,100
300 Ashland Coal, Inc. ................................ 7,013
700 Astec Industries, Inc.* ........................... 7,088
3,300 Birmingham Steel Corp. ............................ 48,675
10,900 Bowater, Inc. ..................................... 406,025
4,400 Brush Wellman, Inc. ............................... 78,650
6,100 Calgon Carbon Corp. ............................... 73,963
4,600 CalMat Co. ........................................ 83,950
7,050 Castle (A.M.) & Co. ............................... 207,975
1,200 Chesapeake Corp. .................................. 36,300
6,300 Consolidated Papers, Inc. ......................... 354,375
11,500 Crompton & Knowles Corp. .......................... 168,188
6,000 Dexter Corp. ...................................... 159,000
23,591 Ethyl Corp. ....................................... 227,063
2,500 Gaylord Container Corp., Class A* ................. 22,969
8,400 Georgia Gulf Corp. ................................ 315,000
6,600 Glatfelter (P.H.) Co. ............................. 114,675
7,300 Handy & Harman .................................... 119,538
</TABLE>
See Notes to Financial Statements.
FS-13
<PAGE> 133
- ----------------
Galaxy Fund II
- ----------------
<TABLE>
SMALL COMPANY INDEX FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
MARCH 31, 1996
<CAPTION>
VALUE
SHARES (NOTE 2)
- ------ --------
BASIC MATERIALS (CONTINUED)
<S> <C> <C>
7,350 Hanna (M.A.) Co. .................................. $ 255,413
7,600 Harsco Corp. ...................................... 503,500
14,000 IMC Global, Inc. .................................. 511,000
12,500 Intermet Corp.* ................................... 164,063
3,300 International Aluminum Corp. ...................... 88,275
28,500 International Game Technology ..................... 388,313
8,700 Jefferson Smurfit Corp.* .......................... 96,788
7,800 Justin Industries, Inc. ........................... 90,675
4,000 Kennametal, Inc. .................................. 144,500
1,800 Lilly Industries, Inc., Class A ................... 24,525
6,700 Loctite Corp. ..................................... 338,350
11,400 Longview Fibre Co. ................................ 192,375
22,000 LTV Corp.* ........................................ 286,000
2,200 Lukens, Inc. ...................................... 54,725
12,200 Lyondell Petrochemical Co. ........................ 372,100
5,000 Manville Corp.* ................................... 70,000
2,900 Maxxam, Inc.* ..................................... 141,738
7,700 Minerals Technologies, Inc. ....................... 266,613
3,600 Mississippi Chemical Corp. ........................ 72,900
2,400 Mueller Industries, Inc.* ......................... 84,900
6,000 Mycogen Corp. ..................................... 103,500
11,700 Northwestern Steel & Wire Co.* .................... 73,125
14,100 O'Sullivan Corp. .................................. 155,100
4,500 Olin Corp. ........................................ 391,500
9,500 OM Group, Inc. .................................... 352,688
5,900 Oregon Steel Mills, Inc. .......................... 83,338
34,100 Owens-Illinois, Inc.* ............................. 549,863
9,700 Pentair, Inc. ..................................... 244,925
7,400 Platinum Technology, Inc.* ........................ 111,925
6,300 Quanex Corp. ...................................... 137,813
3,300 Rayonier, Inc. .................................... 119,625
11,900 Rhone-Poulenc Rorer, Inc. ......................... 725,900
16,643 RPM, Inc. ......................................... 257,967
6,000 Scotts Co., Class A* .............................. 106,500
9,600 Sealed Air Corp.* ................................. 327,600
1,000 Sequa Corp., Class A* ............................. 34,125
11,900 Shorewood Packaging Corp.* ........................ 179,988
9,300 Solectron Corp.* .................................. 409,200
27,470 Sonoco Products Co. ............................... 748,558
3,000 St. Joe Paper Co. ................................. 173,250
4,900 Telxon Corp. ...................................... 104,125
1,300 Tencor Instruments* ............................... 23,400
23,400 Terra Industries, Inc. ............................ 301,275
500 Texas Industries, Inc. ............................ 31,813
8,300 Thiokol Corp. ..................................... 364,163
500 TriMas Corp. ...................................... 11,000
1,000 Valspar Corp. ..................................... 45,375
5,676 Wausau Paper Mills Co. ............................ 130,548
17,500 WCI Steel, Inc. ................................... 91,875
6,600 Wellman, Inc. ..................................... 155,100
6,500 WHX Corp.* ........................................ 73,125
10,500 Witco Corp. ....................................... 370,125
9,000 Wolverine Tube, Inc.* ............................. 365,625
17,300 Zeigler Coal Holding Co. .......................... 250,850
------------
14,520,952
------------
CAPITAL GOODS - 4.37%
17,500 ADC Telecommunications, Inc.* ..................... 603,750
6,900 AGCO Corp. ........................................ 166,463
5,600 Air & Water Technologies Corp., Class A* .......... 31,500
4,600 Alliant Techsystems, Inc.* ........................ 222,525
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
- ------ --------
CAPITAL GOODS (CONTINUED)
<S> <C> <C>
2,800 Allied Products Corp. ............................. $ 63,350
6,300 American Management Systems, Inc.* ................ 160,650
29,600 American Standard Cos., Inc.* ..................... 865,800
13,200 AMETEK, Inc. ...................................... 232,650
7,600 AMSCO International, Inc.* ........................ 106,400
6,000 Applied Power, Inc., Class A ...................... 195,750
7,400 AptarGroup, Inc. .................................. 307,100
13,919 BancTec, Inc.* .................................... 240,103
8,550 Bearings, Inc. .................................... 242,606
4,600 Checkpoint Systems, Inc.* ......................... 114,425
4,100 Coltec Industries, Inc.* .......................... 49,713
8,550 Commercial Intertech Corp. ........................ 161,381
6,666 Commercial Metals Co. ............................. 191,648
600 Corrections Corp. of America* ..................... 34,200
600 Curtiss-Wright Corp. .............................. 31,200
1,100 Daniel Industries, Inc. ........................... 14,850
4,000 Dentsply International, Inc. ...................... 161,000
10,912 Diebold, Inc. ..................................... 432,388
1,900 Digital Microwave Corp.* .......................... 17,100
8,200 Dionex Corp.* ..................................... 290,075
7,500 Duriron Co., Inc. ................................. 206,250
7,100 Federal-Mogul Corp ................................ 132,238
4,200 GATX Corp. ........................................ 193,200
8,500 Gentex Corp.* ..................................... 252,875
6,200 Goulds Pumps, Inc. ................................ 135,625
2,798 Healthdyne Technologies, Inc.* .................... 34,800
7,751 Hubbell, Inc., Class B ............................ 502,846
900 IDEX Corp. ........................................ 34,988
9,200 IMCO Recycling, Inc. .............................. 181,700
1,700 IMO Industries, Inc.* ............................. 10,838
6,600 Kasler Holding Co.* ............................... 52,800
2,800 KEMET Corp.* ...................................... 63,350
6,500 Keystone International, Inc. ...................... 146,250
7,414 Litton Industries, Inc.* .......................... 341,044
10,800 Martech USA, Inc. (B)* ............................ 0
7,000 Mascotech, Inc. ................................... 93,625
1,400 Mid-American Waste Systems, Inc.* ................. 2,450
3,500 Molten Metal Technology, Inc. ..................... 117,250
2,700 Nordson Corp. ..................................... 164,025
2,100 Nortek, Inc.* ..................................... 25,463
2,000 Orbital Sciences Corp.* ........................... 27,000
5,850 Pittway Corp., Class A ............................ 289,575
9,144 Raymond Corp.* .................................... 160,028
5,000 Regal Beloit Corp. ................................ 105,000
1,400 Roper Industries, Inc. ............................ 64,400
1,900 Silicon Valley Group, Inc.* ....................... 46,313
9,900 Simpson Industries, Inc. .......................... 92,813
4,800 Starrett (L.S.) Co., Class A ...................... 120,000
8,100 Stewart & Stevenson Services, Inc. ................ 227,813
21,800 Sundstrand Corp. .................................. 888,350
600 Teleflex, Inc. .................................... 27,075
13,850 Thermo Electron Corp. ............................. 824,075
8,100 Trinity Industries, Inc. .......................... 282,488
5,416 U.S.A. Waste Services, Inc.* ...................... 138,108
8,900 Varian Associates, Inc. ........................... 443,888
8,800 Vulcan Materials Co. .............................. 498,300
5,700 Watts Industries, Inc., Class A ................... 113,288
6,600 Wyman-Gordon Co.* ................................. 111,375
13,200 York International Corp ........................... 646,800
------------
12,734,933
------------
</TABLE>
See Notes to Financial Statements.
FS-14
<PAGE> 134
- ----------------
Galaxy Fund II
- ----------------
<TABLE>
SMALL COMPANY INDEX FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
MARCH 31, 1996
<CAPTION>
VALUE
SHARES (NOTE 2)
- ------ --------
ENERGY - 3.81%
<S> <C> <C>
4,500 Albemarle Corp. ................................... $ 100,688
23,100 Anadarko Petroleum Corp ........................... 1,282,050
15,852 Apache Corp. ...................................... 426,023
3,500 ARCO Chemical Co. ................................. 181,563
300 Atmos Energy Corp. ................................ 6,900
2,800 Benton Oil & Gas Co.* ............................. 44,100
8,700 Berry Petroleum Co., Class A ...................... 95,700
4,000 BJ Services Co.* .................................. 134,000
540 BJ Services Co. Warrants* ......................... 6,075
19,000 Cabot Corp. ....................................... 579,500
3,400 Cabot Oil & Gas Corp., Class A .................... 48,450
9,960 California Energy Co., Inc.* ...................... 265,185
4,200 Cooper Cameron Corp.* ............................. 176,400
10,300 Devon Energy Corp. ................................ 242,050
7,100 Diamond Shamrock, Inc. ............................ 230,750
13,090 El Paso Natural Gas Co. ........................... 484,330
3,100 Energy Ventures, Inc.* ............................ 82,538
9,000 Enron Oil & Gas Co. ............................... 237,375
1,825 Ensco International, Inc.* ........................ 50,872
200 FINA, Inc., Class A ............................... 9,675
9,000 Finova Group, Inc. ................................ 491,625
4,150 Fuller (H.B.) Co. ................................. 123,463
23,800 Global Marine, Inc.* .............................. 238,000
2,800 Global Natural Resources, Inc.* ................... 37,100
4,100 Hondo Oil & Gas Co.* .............................. 50,738
1,800 KCS Energy, Inc. .................................. 27,900
6,150 KN Energy, Inc. ................................... 191,419
1,200 Lone Star Technologies, Inc.* ..................... 12,600
2,000 Mine Safety Appliances Co. ........................ 92,500
7,050 Mitchell Energy & Development Corp., Class A ...... 121,613
10,715 Murphy Oil Corp. .................................. 459,406
34,100 NGC Corp. ......................................... 434,775
7,600 Noble Affiliates, Inc. ............................ 247,000
7,800 Noble Drilling Corp.* ............................. 96,525
900 Nuevo Energy Co.* ................................. 25,875
4,100 Oceaneering International, Inc.* .................. 55,863
7,300 Parker & Parsley Petroleum Co. .................... 167,900
21,500 Parker Drilling Co.* .............................. 150,500
5,300 Pogo Producing Co. ................................ 165,625
1,400 Production Operators Corp. ........................ 43,400
10,300 Quaker State Corp. ................................ 144,200
11,600 Questar Corp. ..................................... 382,800
6,000 Reading & Bates Corp.* ............................ 118,500
1,800 RPC, Inc.* ........................................ 18,675
8,700 Seagull Energy Corp.* ............................. 196,838
8,500 Smith International, Inc.* ........................ 214,625
5,300 Snyder Oil Corp. .................................. 44,388
880 Tejas Gas Corp.* .................................. 43,010
15,300 Tesoro Petroleum Corp.* ........................... 130,050
5,600 Texas Meridian Resources Corp.* ................... 67,200
8,800 Tosco Corp. ....................................... 412,500
9,100 Triton Energy, Ltd., Class A ...................... 507,325
1,700 Tuboscope Vetco International Corp.* .............. 16,575
9,900 Ultramar Corp. .................................... 285,863
10,200 Union Texas Petroleum Holdings, Inc. .............. 201,450
6,000 Varco International, Inc.* ........................ 72,750
9,978 Weatherford Enterra, Inc.* ........................ 347,983
-----------
11,122,783
-----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
- ------ --------
TRANSPORTATION - 2.32%
<S> <C> <C>
4,400 Airborne Freight Corp. ............................ $ 111,100
13,900 Alexander & Baldwin, Inc. ......................... 333,600
16,908 America West Airlines, Inc., Class B* ............. 361,409
3,100 American Freightways Corp.* ....................... 39,913
6,800 American President Cos., Ltd. ..................... 156,400
1,600 Arnold Industries, Inc. ........................... 25,200
9,300 Atlantic Southeast Airlines, Inc. ................. 238,313
11,137 Comair Holdings, Inc. ............................. 387,011
6,400 Continental Airlines, Inc., Class B* .............. 360,800
800 Covenant Transport, Inc., Class A* ................ 13,000
7,738 Fritz Cos., Inc.* ................................. 301,782
2,100 Greyhound Lines, Inc.* ............................ 7,875
6,400 Hunt (J.B.) Transport Services, Inc. .............. 126,400
16,200 Illinois Central Corp., Series A .................. 461,700
5,200 Kirby Corp.* ...................................... 89,050
9,100 Kysor Industrial Corp. ............................ 240,013
1,725 Lawyers Title Corp. ............................... 32,344
800 Lo-Jack Corp.* .................................... 7,600
6,300 Mesa Airlines, Inc.* .............................. 67,725
900 M.S. Carriers, Inc.* .............................. 17,100
16,300 Northwest Airlines Corp., Class A* ................ 835,375
9,600 Offshore Logistics, Inc.* ......................... 126,000
7,200 Overseas Shipholding Group, Inc. .................. 131,400
11,000 Republic Industries, Inc.* ........................ 345,125
2,250 Rollins Truck Leasing Corp. ....................... 23,344
16,000 Rural/Metro Corp.* ................................ 428,000
300 Sanifill, Inc.* ................................... 11,513
7,000 Southern Pacific Rail Corp.* ...................... 164,500
2,600 Standard Products Co. ............................. 63,375
14,100 Tidewater, Inc. ................................... 535,800
9,450 TNT Freightways Corp. ............................. 214,988
3,300 Top Source Technologies, Inc.* .................... 21,656
1,400 United Waste Systems, Inc.* ....................... 70,000
3,000 Wabash National Corp. ............................. 56,625
1,600 Werner Enterprises, Inc. .......................... 38,400
2,600 Wisconsin Central Transportation Corp.* ........... 172,900
3,200 XTRA Corp. ........................................ 149,600
----------
6,766,936
----------
METALS AND MINING - 1.80%
2,100 Alumax, Inc.* ..................................... 74,288
13,300 Amax Gold, Inc.* .................................. 91,438
43,000 Battle Mountain Gold .............................. 419,250
3,300 Carpenter Technology Corp. ........................ 127,050
8,071 Coeur d'Alene Mines Corp. ......................... 164,447
6,783 Freeport-McMoRan, Inc. ............................ 270,472
59,032 Freeport-McmoRan Copper & Gold, Inc., Class A ..... 1,815,234
13,300 Hecla Mining Co.* ................................. 101,413
36,400 Newmont Gold Co. .................................. 2,042,950
6,600 Varlen Corp. ...................................... 151,800
----------
5,258,342
----------
DURABLE GOODS - 1.50%
5,200 Acuson Corp.* .................................... . 81,900
1,700 Albany International Corp., Class A ............... 34,000
749 Alltrista Corp.* .................................. 17,882
16,000 Altera Corp.* ..................................... 894,000
6,800 Beckman Instruments, Inc. ......................... 265,200
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
FS-15
<PAGE> 135
- ----------------
Galaxy Fund II
- ----------------
<TABLE>
SMALL COMPANY INDEX FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
MARCH 31, 1996
<CAPTION>
VALUE
SHARES (NOTE 2)
- ------ --------
DURABLE GOODS (CONTINUED)
<S> <C> <C>
3,000 Borg-Warner Security Corp.* ....................... $ 33,375
7,800 Cintas Corp. ...................................... 390,000
12,600 Electronic Arts, Inc.* ............................ 333,900
4,300 Empi, Inc.* ....................................... 79,013
13,200 Fastenal Co. ...................................... 508,200
1,300 Figgie International, Inc., Class A* .............. 17,550
6,500 Genzyme Corp., General Division* .................. 357,500
6,900 HON Industries, Inc. .............................. 158,700
12,500 Mentor Graphics Corp.* ............................ 178,125
16,600 Nabors Industries, Inc.* .......................... 236,550
4,600 OEA, Inc. ......................................... 167,900
5,300 Precision Castparts Corp. ......................... 212,000
12,600 Read-Rite Corp.* .................................. 236,250
6,800 Sequent Computer Systems, Inc.* ................... 79,050
5,200 Valassis Communications, Inc.* .................... 86,450
------------
4,367,545
------------
CONSUMER PRODUCTS - 0.46%
28,200 Readers Digest Association, Inc., Class A (D) ..... 1,332,450
------------
1,332,450
------------
CHEMICALS AND DRUGS - 0.42%
8,400 Betz Laboratories, Inc. ........................... 390,600
8,500 Ferro Corp. ....................................... 241,188
20,400 Lubrizol Corp. .................................... 601,800
------------
1,233,588
------------
MISCELLANEOUS - 0.10%
5,400 Flightsafety International, Inc. .................. 301,050
------------
301,050
------------
BUILDING AND CONSTRUCTION - 0.07%
3,200 Castle & Cooke, Inc.* ............................. 52,400
1,500 Chittenden Corp. .................................. 40,125
2,800 IWC Resources Corp. ............................... 58,100
2,700 TJ International, Inc. ............................ 42,525
------------
193,150
------------
TOTAL COMMON STOCKS ............................... 273,973,404
------------
(Cost $191,393,257)
</TABLE>
<TABLE>
<CAPTION>
VALUE
PAR VALUE (NOTE 2)
- --------- --------
U.S. GOVERNMENT OBLIGATION - 0.17%
<S> <C> <C>
U.S. TREASURY BILL (A)(C) - 0.17%
$500,000 4.99%, 06/27/96 .................................. $ 494,055
------------
TOTAL U.S. GOVERNMENT OBLIGATION ................. 494,055
------------
(Cost $494,055)
REPURCHASE AGREEMENT - 4.70%
13,715,715 Chase Securities, Inc.
5.20%, 04/01/96, Dated 03/29/96
Repurchase Price $13,721,658
(Collateralized by U.S. Treasury Bond
11.25%, Due 2015, Total Par Value $9,200,000
Market Value $13,526,875) ........................ 13,715,715
------------
TOTAL REPURCHASE AGREEMENT ....................... 13,715,715
------------
(Cost $13,715,715)
TOTAL INVESTMENTS - 98.79% ................................... 288,183,174
------------
(Cost $205,603,027)
NET OTHER ASSETS AND LIABILITIES - 1.21% ..................... 3,541,077
------------
NET ASSETS - 100.00% ......................................... $291,724,251
============
- ----------
<FN>
* Non-income producing security.
REIT Real Estate Investment Trust.
(A) Annualized yield at time of purchase.
(B) Filed for bankruptcy.
(C) Security has been deposited as an initial margin on open futures contracts.
</TABLE>
<TABLE>
At March 31, 1996, the Fund's open futures contracts were as follows:
<CAPTION>
NUMBER OF
CONTRACTS CURRENT
PURCHASED EXPIRATION OPENING MARKET
(SOLD) CONTRACT TYPE DATE POSITION VALUE
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
146 Midcap 6/96 $16,844,110 $16,972,500
(D) All or a portion of these shares are used as collateral on open futures
contracts.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
FS-16
<PAGE> 136
- ----------------
Galaxy Fund II
- ----------------
<TABLE>
UTILITY INDEX FUND
PORTFOLIO OF INVESTMENTS
MARCH 31, 1996
<CAPTION>
VALUE
SHARES (NOTE 2)
- ------ --------
COMMON STOCKS - 99.12%
UTILITIES - 74.21%
<S> <C> <C>
3,200 AGL Resources, Inc. ............................... $ 58,800
9,100 Allegheny Power Systems, Inc. ..................... 276,413
14,500 ALLTEL Corp. ...................................... 449,500
15,200 American Electric Power, Inc. ..................... 634,600
1,300 American Water Works, Inc. ........................ 50,050
44,200 Ameritech Corp. ................................... 2,408,900
5,500 Atlantic Energy, Inc. ............................. 92,125
13,900 Baltimore Gas & Electric Co. ...................... 383,988
34,500 Bell Atlantic Corp. ............................... 2,130,375
79,400 BellSouth Corp. ................................... 2,937,800
3,700 Boston Edison Co. ................................. 99,900
2,900 Brooklyn Union Gas Co. ............................ 77,575
12,600 Carolina Power & Light Co. ........................ 469,350
11,000 Centerior Energy Corp. ............................ 88,000
16,300 Central & South West Corp. ........................ 464,550
4,900 Cincinnati Bell, Inc. ............................. 254,800
12,647 Cinergy Corp. ..................................... 379,410
2,400 CIPSCO, Inc. ...................................... 92,700
6,000 CMS Energy Corp. .................................. 177,000
3,600 Columbia Gas System, Inc. ......................... 165,150
2,900 Comsat Corp. ...................................... 67,788
19,200 Consolidated Edison Co. of New York ............... 612,000
6,700 Consolidated Natural Gas Co. ...................... 291,450
4,700 Delmarva Power & Light Co. ........................ 99,875
13,800 Dominion Resources, Inc. .......................... 546,825
7,400 DPL, Inc. ......................................... 176,675
6,100 DQE, Inc. ......................................... 176,138
11,900 DTE Energy Co. .................................... 400,138
16,300 Duke Power Co. .................................... 823,150
24,900 Edison International .............................. 426,413
9,000 Enova Corp. ....................................... 205,875
6,600 Enserch Corp. ..................................... 107,250
18,683 Entergy Corp. ..................................... 523,124
7,900 Florida Progress Corp. ............................ 269,588
14,400 FPL Group, Inc. ................................... 651,600
13,100 Frontier Corp. .................................... 412,650
10,500 General Public Utilities Corp. .................... 346,500
4,650 Glenayre Technologies, Inc.* ...................... 177,863
77,000 GTE Corp. ......................................... 3,378,375
1,700 Hawaiian Electric Industries, Inc. ................ 59,500
18,600 Houston Industries, Inc. .......................... 402,225
3,000 Idaho Power Co. ................................... 87,000
6,300 Illinova Corp. .................................... 177,188
4,050 IPALCO Enterprises, Inc. .......................... 108,338
5,100 Kansas City Power & Light Co. ..................... 130,050
3,600 KU Energy Corp. ................................... 103,500
4,700 LCI International, Inc.* .......................... 115,150
2,800 L G & E Energy Corp. .............................. 120,050
10,700 Long Island Lighting Co. .......................... 188,588
3,800 MCN Corp. ......................................... 87,875
1,800 MFS Communications Co., Inc.* ..................... 112,050
3,900 Midamerican Energy Co. ............................ 69,713
1,900 Minnesota Power & Light Co. ....................... 52,725
3,600 Montana Power Co. ................................. 77,850
3,000 National Fuel Gas Co. ............................. 103,875
4,500 Nevada Power Co. .................................. 98,438
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
- ------ --------
UTILITIES (CONTINUED)
<S> <C> <C>
5,500 New England Electric System ....................... $ 210,375
5,700 New York State Electric & Gas Corp. ............... 133,950
9,600 Nextel Communications, Inc., Class A* ............. 181,200
8,900 NGC Corp. ......................................... 113,475
13,300 Niagara Mohawk Power Corp. ........................ 88,113
3,200 NICOR, Inc. ....................................... 85,600
4,700 NIPSCO Industries, Inc. ........................... 175,075
9,600 Noram Energy Corp. ................................ 88,800
8,900 Northeast Utilities ............................... 175,775
4,600 Northern States Power Co. ......................... 224,250
34,000 NYNEX Corp. ....................................... 1,695,750
12,000 Ohio Edison Co. ................................... 271,500
3,200 Oklahoma Gas & Electric Co. ....................... 127,600
6,800 Pacific Enterprises ............................... 175,950
33,100 Pacific Gas & Electric Co. ........................ 748,888
34,600 Pacific Telesis Group ............................. 955,825
21,900 PacifiCorp ........................................ 457,163
8,600 Paging Network, Inc.* ............................. 215,000
12,400 Panhandle Eastern Corp. ........................... 385,950
17,900 PECO Energy Co. ................................... 476,588
2,100 Peoples Energy Corp. .............................. 67,988
6,800 Pinnacle West Capital Corp. ....................... 196,350
3,700 Portland General Corp. ............................ 113,775
9,600 Potomac Electric Power Co. ........................ 250,800
10,000 P P & L Resources, Inc. ........................... 243,750
5,100 Public Service Co. of Colorado .................... 179,775
20,000 Public Service Enterprise Group, Inc. ............. 550,000
3,900 Puget Sound Power & Light Co. ..................... 99,450
2,700 Questar Corp. ..................................... 89,100
2,700 Rochester Gas & Electric Corp. .................... 58,388
48,300 SBC Communications, Inc. .......................... 2,541,788
5,800 Scana Corp. ....................................... 159,500
7,100 Sonat, Inc. ....................................... 255,600
52,700 Southern Co. ...................................... 1,258,213
4,100 Southern New England Telecommunication Corp. ...... 165,025
2,400 Southwestern Public Service Co. ................... 79,800
9,600 TECO Energy, Inc. ................................. 238,800
3,900 Telephone & Data Systems, Inc. .................... 180,375
17,400 Texas Utilities Co. ............................... 719,925
3,200 United States Cellular Corp.* ..................... 110,400
36,700 U.S. West Communications Group .................... 1,188,163
17,400 Unicom Corp. ...................................... 469,800
8,300 Union Electric Co. ................................ 340,300
3,300 UtiliCorp United, Inc. ............................ 94,463
2,300 Washington Gas Light Co. .......................... 50,313
3,600 Washington Water Power Co. ........................ 68,850
4,900 Western Resources, Inc. ........................... 149,450
8,200 Williams Cos., Inc. ............................... 413,075
9,200 Wisconsin Energy Corp. ............................ 261,050
15,189 Worldcom, Inc.* ................................... 698,694
2,800 WPL Holdings, Inc. ................................ 86,450
------------
41,844,615
------------
TECHNOLOGY - 23.90%
38,800 AirTouch Communications, Inc.* .................... 1,207,650
126,800 American Telephone & Telegraph Corp. .............. 7,766,487
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
FS-17
<PAGE> 137
- ----------------
Galaxy Fund II
- ----------------
<TABLE>
UTILITY INDEX FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
MARCH 31, 1996
<CAPTION>
VALUE
SHARES (NOTE 2)
- ------ --------
TECHNOLOGY (CONTINUED)
<S> <C> <C>
6,600 Ascend Communications, Inc.* ...................... $ 355,575
2,600 Century Telephone Enterprises, Inc. ............... 82,550
4,100 Cox Communications, Inc., Class A* ................ 89,688
54,200 MCI Communications Corp. .......................... 1,639,550
4,300 Mobile Telecommunications Technologies Corp.* ..... 67,188
27,098 Sprint Corp. ...................................... 1,029,724
9,033 360 Communications Co.* ........................... 215,655
52,700 Tele-Communications, Inc., Series A, TCI Group* ... 978,244
2,100 Vanguard Cellular Systems, Inc., Class A* ......... 42,000
------------
13,474,311
------------
CONSUMER CYCLICAL - 1.01%
1,300 Cablevision Systems Corp., Class A* ............... 74,750
19,800 Comcast Corp., Special, Class A ................... 350,213
3,400 QUALCOMM, Inc.* ................................... 141,100
------------
566,063
------------
TOTAL COMMON STOCKS ............................... 55,884,989
------------
(Cost $51,399,872)
REPURCHASE AGREEMENT - 0.44%
PAR VALUE
- ---------
$ 247,838 Chase Securities, Inc.
5.20%, 04/01/96, Dated 3/29/96
Repurchase Price $247,946
(Collateralized by U.S. Treasury Note,
6.875%, Due 1997, Total Par Value $250,000.
Market Value $253,125) ............................ 247,838
------------
TOTAL REPURCHASE AGREEMENT ........................ 247,838
------------
(Cost $247,838)
TOTAL INVESTMENTS - 99.56% ................................... 56,132,827
------------
(Cost $51,647,710)
NET OTHER ASSETS AND LIABILITIES - 0.44% ..................... 250,668
------------
NET ASSETS - 100.00% ......................................... $ 56,383,495
============
- ----------
<FN>
* Non-income producing security.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
FS-18
<PAGE> 138
- ----------------
Galaxy Fund II
- ----------------
<TABLE>
U.S. TREASURY INDEX FUND
PORTFOLIO OF INVESTMENTS
MARCH 31, 1996
<CAPTION>
VALUE
PAR VALUE (NOTE 2)
- --------- --------
U.S. GOVERNMENT OBLIGATIONS - 96.86%
U.S. TREASURY NOTES - 72.20%
<S> <C> <C>
$7,552,000 8.63%, 08/15/97 ............................... $7,844,791
5,855,000 5.63%, 08/31/97 ............................... 5,851,891
5,091,000 6.00%, 11/30/97 ............................... 5,112,021
7,200,000 7.88%, 04/15/98 ............................... 7,485,905
1,752,000 9.25%, 08/15/98 ............................... 1,881,543
6,600,000 7.13%, 10/15/98 ............................... 6,792,449
3,000,000 5.13%, 12/31/98 ............................... 2,942,217
3,500,000 5.00%, 01/31/99 ............................... 3,417,712
1,750,000 8.88%, 02/15/99 ............................... 1,884,538
2,800,000 5.50%, 02/28/99 ............................... 2,768,805
3,100,000 7.00%, 04/15/99 ............................... 3,189,153
4,400,000 6.38%, 07/15/99 ............................... 4,450,684
3,400,000 7.75%, 01/31/00 ............................... 3,593,491
4,700,000 5.50%, 04/15/00 ............................... 4,618,309
4,000,000 6.25%, 05/31/00 ............................... 4,022,796
2,953,000 8.75%, 08/15/00 ............................... 3,251,368
3,250,000 7.50%, 11/15/01 ............................... 3,450,814
1,900,000 7.50%, 05/15/02 ............................... 2,024,049
3,000,000 6.38%, 08/15/02 ............................... 3,019,167
1,800,000 6.25%, 02/15/03 ............................... 1,795,858
3,000,000 5.75%, 08/15/03 ............................... 2,898,480
3,600,000 7.25%, 05/15/04 ............................... 3,795,764
3,750,000 7.88%, 11/15/04 ............................... 4,111,759
------------
90,203,564
------------
U.S. TREASURY BONDS - 24.66%
400,000 10.75%, 08/15/05 ............................... 519,511
3,630,000 11.75%, 11/15/14 ............................... 5,262,952
4,100,000 7.25%, 05/15/16 ............................... 4,281,790
7,864,000 8.88%, 08/15/17 ............................... 9,636,538
4,021,000 8.50%, 02/15/20 ............................... 4,778,874
5,850,000 7.50%, 11/15/24 ............................... 6,331,391
------------
30,811,056
------------
TOTAL U.S. GOVERNMENT OBLIGATIONS ............. 121,014,620
------------
(Cost $119,598,353)
REPURCHASE AGREEMENT - 1.33%
$1,664,852 Chase Securities, Inc.
5.20%, 04/01/96, Dated 03/29/96
Repurchase Price $1,665,574
(Collateralized by U.S. Treasury Note,
6.00%, Due 1997, Total Par Value 1,690,000,
Market Value $1,697,394) ...................... $ 1,664,852
------------
TOTAL REPURCHASE AGREEMENT .................... 1,664,852
------------
(Cost $1,664,852)
TOTAL INVESTMENTS - 98.19% ................................... 122,679,472
------------
(Cost - $121,263,205)
NET OTHER ASSETS AND LIABILITIES - 1.81% ..................... 2,264,707
------------
NET ASSETS - 100.00% ......................................... $124,944,179
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
FS-19
<PAGE> 139
- ----------------
Galaxy Fund II
- ----------------
<TABLE>
MUNICIPAL BOND FUND
PORTFOLIO OF INVESTMENTS
MARCH 31, 1996
<CAPTION>
VALUE
PAR VALUE (NOTE 2)
- --------- --------
MUNICIPAL BONDS - 99.06%
<S> <C> <C>
ALABAMA - 4.34%
$ 980,000 Auburn University Revenues, Athletic, Series 1993
5.20%, 04/01/04
Insured: MBIA .................................... $ 975,100
---------
FLORIDA - 4.59%
1,000,000 Florida State Board of Education Capital Outlay
Public Education, Series A, GO
5.70%, 06/01/08 .................................. 1,032,500
---------
GEORGIA - 4.56%
1,000,000 Atlanta Airport Facilities Revenue, Series A
5.20%, 01/01/02
Insured: AMBAC ................................... 1,025,000
---------
ILLINOIS - 11.53%
500,000 Chicago Metropolitan Water Reclamation District
Greater Chicago, Series 1993, GO
5.10%, 12/01/03 .................................. 510,000
1,000,000 Illinois Health Facilities Authority Revenue
University of Chicago Hospitals, Series 1993 A
5.25%, 08/15/03
Insured: MBIA .................................... 1,018,750
500,000 Illinois State Sales Tax Revenue, Series V
6.00%, 06/15/08 .................................. 525,000
500,000 Kane County Community School District
Number 304
Geneva, Series 1992, GO
6.00%, 06/01/04
Insured: FGIC .................................... 536,875
---------
2,590,625
---------
LOUISIANA - 2.21%
500,000 Jefferson Parish Hospital Revenue
Service District 1, Series 1993
4.80%, 01/01/02
Insured: FGIC .................................... 496,250
---------
MASSACHUSETTS - 8.19%
1,000,000 Massachusetts State Consolidated Loan,
Series B, GO
5.70%, 08/01/07
Insured: FGIC .................................... 1,040,000
800,000 Springfield, Series 1993 B, GO
5.05%, 01/15/04
Insured: MBIA .................................... 802,000
---------
1,842,000
---------
MISSOURI - 9.35%
1,000,000 Sikeston Electric Revenue
6.00%, 06/01/04
Insured: MBIA .................................... $1,077,500
1,000,000 St. Louis Water Revenue
5.30%, 07/01/99
Insured: FGIC .................................... 1,023,750
---------
2,101,250
---------
NEVADA - 8.17%
1,000,000 Clark County School District Revenue
Series 1993 B, GO
5.00%, 05/01/02
Insured: FGIC .................................... 1,010,000
300,000 Henderson, Water Revenue, Series 1993 A, GO
5.65%, 12/01/03
Insured: AMBAC ................................... 314,625
500,000 Las Vegas Valley Water District Revenue, GO
5.40%, 09/01/04
Insured: AMBAC ................................... 511,875
---------
1,836,500
---------
NEW HAMPSHIRE - 5.62%
750,000 New Hampshire HEFA
Mary Hitchcock Memorial Hospital, Series 1993 A
5.00%, 08/15/03
Insured: FGIC .................................... 753,750
500,000 New Hampshire Municipal Bond Bank,
Series 1993 A
5.25%, 11/15/03 .................................. 510,000
---------
1,263,750
---------
NEW JERSEY - 4.65%
1,000,000 New Jersey Health Care Facilities
Financing Authority
Dover General Hospital and Medical Center
5.60%, 07/01/02
Insured: MBIA .................................... 1,046,250
---------
NEW YORK - 6.74%
500,000 Battery Park City Authority Revenue
Junior Lien, Series 1993 B
4.70%, 11/01/00 .................................. 496,875
500,000 New York Municipal Water Finance Authority
Water and Sewer System Revenue, Series 1993 B
4.75%, 06/15/01 .................................. 500,625
500,000 New York State Environmental
Facilities Corp., PCR
5.75%, 06/15/09 .................................. 516,875
---------
1,514,375
---------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
FS-20
<PAGE> 140
- ----------------
Galaxy Fund II
- ----------------
<TABLE>
MUNICIPAL BOND FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
MARCH 31, 1996
<CAPTION>
VALUE
PAR VALUE (NOTE 2)
- --------- --------
<S> <C> <C>
PENNSYLVANIA - 4.50%
$1,000,000 Pennsylvania State IDA, Economic Development
5.00%, 01/01/00
Insured: AMBAC ................................... $ 1,011,250
-----------
TEXAS - 6.22%
500,000 Carrollton Farmers Branch
Independent School District, Series 1993, GO
5.10%, 02/15/04 .................................. 503,750
375,000 Harlingen Waterworks and Sewer System
5.25%, 11/01/10
Insured: MBIA .................................... 367,500
500,000 Houston Water and Sewer System Revenue
Junior Lien, Series 1992 A
5.75%, 12/01/03
Insured: MBIA .................................... 526,875
-----------
1,398,125
-----------
UTAH - 2.38%
525,000 Utah Associated Municipal Power System Revenue
Central - St. George Project, Series 1993
5.15%, 12/01/03
Insured: AMBAC ................................... 535,500
-----------
VIRGINIA - 4.58%
1,000,000 Virginia State Transportation Board
Transportation Contract Revenue, Route 28 Project
6.00%, 04/01/10 .................................. 1,030,000
-----------
WASHINGTON - 6.83%
1,000,000 Seattle Municipal Light & Power Revenue, Series B
5.75%, 08/01/07 .................................. $1,033,750
500,000 Washington State Public Power Supply System
Nuclear Project Number 1 Revenue, Series 1993 B
5.10%, 07/01/04
Insured: MBIA .................................... 501,875
-----------
1,535,625
-----------
WISCONSIN - 4.60%
1,000,000 Milwaukee Corporate Purpose, Series A, GO
5.50%, 06/15/08 .................................. 1,033,750
-----------
TOTAL INVESTMENTS - 99.06% ................................... 22,267,850
-----------
(Cost $21,700,230)
NET OTHER ASSETS AND LIABILITIES - 0.94% ..................... 210,388
-----------
NET ASSETS - 100.00% ......................................... $22,478,238
===========
- ----------
<FN>
AMBAC American Municipal Bond Assurance Corp.
FGIC Financial Guaranty Insurance Corp.
GO General Obligation
HEFA Health and Educational Facilities Authority
IDA Industrial Development Authority
MBIA Municipal Bond Insurance Association
PCR Pollution Control Revenue
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
FS-21
<PAGE> 141
- ----------------
Galaxy Fund II
- ----------------
<TABLE>
STATEMENTS OF ASSETS AND LIABILITIES
MARCH 31, 1996
<CAPTION>
LARGE SMALL U.S.
COMPANY COMPANY UTILITY TREASURY MUNICIPAL
INDEX FUND INDEX FUND INDEX FUND INDEX FUND BOND FUND
---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments (Note 2):
Investments at cost ......................... $ 160,274,011 $ 191,887,312 $ 51,399,872 $ 119,598,353 $ 21,700,230
Repurchase Agreements ....................... 10,238,192 13,715,715 247,838 1,664,852 --
Net unrealized appreciation (depreciation) .. 70,149,869 82,580,147 4,485,117 1,416,267 567,620
------------- ------------- ------------- ------------- -------------
Total investments at value ................ 240,662,072 288,183,174 56,132,827 122,679,472 22,267,850
Cash .......................................... 3,394 327 -- -- --
Receivable for daily variation margin
on futures contracts ....................... -- 99,960 -- -- --
Receivable for investments sold ............... 14,641 2,787,244 -- -- --
Receivable for shares sold .................... 581,329 502,809 92,312 318,402 9,641
Interest and dividend receivables ............. 396,661 343,045 183,927 2,249,784 335,226
------------- ------------- ------------- ------------- -------------
Total Assets .............................. 241,658,097 291,916,559 56,409,066 125,247,658 22,612,717
------------- ------------- ------------- ------------- -------------
LIABILITIES:
Payable for investments purchased ............. 783,206 -- -- -- --
Payable for shares repurchased ................ 49,585 96,224 6,622 139,543 0
Payable to custodian .......................... -- -- 115 -- 114,253
Distributions payable ......................... -- -- -- 121,343 8,716
Payable for daily variation margin
on futures contracts ........................ 56,000 -- -- -- --
Advisory fee payable (Note 4) ................. 19,994 24,021 4,709 10,649 4,799
Administration fee payable (Note 4) ........... 59,986 72,063 14,125 31,944 6,711
------------- ------------- ------------- ------------- -------------
Total Liabilities ....................... 968,771 192,308 25,571 303,479 134,479
------------- ------------- ------------- ------------- -------------
NET ASSETS ..................................... 240,689,326 291,724,251 56,383,495 124,944,179 22,478,238
============= ============= ============= ============= =============
NET ASSETS CONSIST OF:
Par value (Note 3) ............................ $ 11,999 $ 13,083 $ 4,686 $ 12,199 $ 2,203
Paid-in capital in excess of par value ........ 166,726,922 196,883,886 53,402,467 128,763,878 22,997,113
Undistributed (overdistributed)
net investment income ....................... 950,077 291,719 80,298 23,099 21,593
Accumulated net realized gain (loss) on
investments sold and futures contracts ...... 2,769,128 11,827,026 (1,589,073) (5,271,264) (1,110,291)
Unrealized appreciation (depreciation)
of investments and futures contracts ........ 70,231,200 82,708,537 4,485,117 1,416,267 567,620
------------- ------------- ------------- ------------- -------------
TOTAL NET ASSETS ............................... $ 240,689,326 $ 291,724,251 $ 56,383,495 $ 124,944,179 $ 22,478,238
============= ============= ============= ============= =============
SHARES OF BENEFICIAL INTEREST OUTSTANDING ...... 11,998,707 13,083,419 4,686,392 12,198,618 2,202,864
NET ASSET VALUE,
offering and redemption price per share
(Net Assets / Shares Outstanding) ......... $ 20.06 $ 22.30 $ 12.03 $ 10.24 $ 10.20
============= ============= ============= ============= =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
FS-22
<PAGE> 142
- --------------
GALAXY FUND II
- --------------
<TABLE>
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1996
<CAPTION>
LARGE SMALL U.S.
COMPANY COMPANY UTILITY TREASURY MUNICIPAL
INDEX FUND INDEX FUND INDEX FUND INDEX FUND BOND FUND
---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest (Note 2) ................................ 306,690 558,173 23,703 7,924,207 1,202,574
Dividend (Note 2) ................................ 4,557,162 4,474,825 2,281,470 -- --
----------- ----------- ----------- ----------- ----------
Total Investment Income ........................ 4,863,852 5,032,998 2,305,173 7,924,207 1,202,574
----------- ----------- ----------- ----------- ----------
EXPENSES:
Investment advisory fee (Note 4) .................. 194,615 264,753 55,279 117,603 59,097
Administration fee (Note 4) ....................... 581,697 787,499 164,968 352,810 82,017
Trustees fees (Note 4) ............................ 11,595 15,693 3,288 7,024 1,400
----------- ----------- ----------- ----------- ----------
Total Expenses before reimbursement ............. 787,907 1,067,945 223,535 477,437 142,514
Less: Reimbursement by sub-administrator (Note 4) (11,595) (15,693) (3,288) (7,024) (1,400)
----------- ----------- ----------- ----------- ----------
Total Expenses net of reimbursement ............. 776,312 1,052,252 220,247 470,413 141,114
----------- ----------- ----------- ----------- ----------
NET INVESTMENT INCOME ................................. 4,087,540 3,980,746 2,084,926 7,453,794 1,061,460
----------- ----------- ----------- ----------- ----------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (NOTE 2):
Net realized gain (loss) on investment sold ....... 3,658,009 13,922,758 (494,211) 489,553 24,569
Net realized gain (loss) on futures contracts ..... 1,108,385 1,344,925 -- -- --
----------- ----------- ----------- ----------- ----------
Net realized gain (loss) on investments sold
and futures contracts ..................... 4,766,394 15,267,683 (494,211) 489,553 24,569
Net change in unrealized appreciation
(depreciation) on investments sold
and futures contracts .......................... 43,100,141 50,356,620 11,134,521 2,627,125 609,928
----------- ----------- ----------- ----------- ----------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS ................................. 47,866,535 65,624,303 10,640,310 3,116,678 634,497
----------- ----------- ----------- ----------- ----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS ...................... $51,954,075 $69,605,049 $12,725,236 $10,570,472 $1,695,957
=========== =========== =========== =========== ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
FS-23
<PAGE> 143
- --------------
GALAXY FUND II
- --------------
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
LARGE COMPANY INDEX FUND SMALL COMPANY INDEX FUND
YEARS ENDED MARCH 31, YEARS ENDED MARCH 31,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET ASSETS AT BEGINNING OF PERIOD: .................................. $147,597,190 $143,827,623 $235,294,714 $255,346,570
------------ ------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS:
Net investment income ............................................. 4,087,540 3,524,343 3,980,746 4,136,582
Net realized gain (loss) on investments sold
and futures contracts ........................................... 4,766,394 3,346,885 15,267,683 5,469,858
Net change in unrealized appreciation
(depreciation) of investments and futures contracts ............. 43,100,141 13,100,963 50,356,620 7,352,947
------------ ------------ ------------ ------------
Net increase (decrease) in net assets resulting
from operations ................................................. 51,954,075 19,972,191 69,605,049 16,959,387
------------ ------------ ------------ ------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income: ............................................ (3,206,646) (3,497,258) (4,757,318) (4,172,587)
Dividends in excess of net investment income ...................... -- -- -- --
Net realized gain on investments .................................. (3,754,041) (3,053,288) (4,274,380) (10,375,944)
Dividends in excess of net realized gain on investments ........... -- -- -- --
Return of capital ................................................. -- -- -- --
------------ ------------ ------------ ------------
Total Dividends ................................................. (6,960,687) (6,550,546) (9,031,698) (14,548,531)
------------ ------------ ------------ ------------
SHARE TRANSACTIONS:
Net proceeds from sales of shares ................................. 78,100,033 21,883,550 40,205,781 31,022,102
Issued to shareholders in reinvestment
of dividends .................................................... 6,344,797 6,276,842 8,699,735 14,147,774
Costs of shares repurchased ....................................... (36,346,082) (37,812,470) (53,049,330) (67,632,588)
------------ ------------ ------------ ------------
Net increase (decrease) in net assets from share transactions ..... 48,098,748 (9,652,078) (4,143,814) (22,462,712)
------------ ------------ ------------ ------------
Net increase in net assets ........................................ 93,092,136 3,769,567 56,429,537 (20,051,856)
------------ ------------ ------------ ------------
NET ASSETS AT END OF PERIOD (INCLUDING LINE A) ...................... $240,689,326 $147,597,190 $291,724,251 $235,294,714
============ ============ ============ ============
(A) Accumulated undistributed (overdistributed) net investment income $ 950,077 $ 69,183 $ 291,719 $ 1,068,291
============ ============ ============ ============
OTHER INFORMATION:
SHARE TRANSACTIONS:
Sold .............................................................. 4,288,969 1,471,323 1,958,689 1,783,921
Issued to shareholders in reinvestment
of dividends .................................................... 341,875 428,648 418,056 876,546
Repurchased ....................................................... (1,995,829) (2,548,892) (2,647,174) (3,905,141)
------------ ------------ ------------ ------------
Net increase (decrease) in shares outstanding ................... 2,635,015 (648,921) (270,429) (1,244,674)
============ ============ ============ ============
</TABLE>
See Notes to Financial Statements.
FS-24
<PAGE> 144
<TABLE>
<CAPTION>
UTILITY INDEX FUND U.S. TREASURY INDEX FUND MUNICIPAL BOND FUND
YEARS ENDED MARCH 31, YEARS ENDED MARCH 31, YEARS ENDED MARCH 31,
1996 1995 1996 1995 1996 1995
- ------------ ------------ ------------ ------------ ----------- ------------
<C> <C> <C> <C> <C> <C>
$ 52,831,112 $ 68,444,762 $104,250,685 $138,225,244 $24,559,594 $ 33,352,444
- ------------ ------------ ------------ ------------ ----------- ------------
2,084,926 2,746,549 7,453,794 7,489,284 1,061,460 1,335,592
(494,211) (1,051,438) 489,553 (3,631,305) 24,569 (1,071,810)
11,134,521 753,302 2,627,125 (227,559) 609,928 1,013,967
- ------------ ------------ ------------ ------------ ----------- ------------
12,725,236 2,448,413 10,570,472 3,630,420 1,695,957 1,277,749
- ------------ ------------ ------------ ------------ ----------- ------------
(2,114,529) (2,658,065) (7,385,819) (7,582,470) (1,061,460) (1,326,592)
-- -- (67,974) (73,790) -- --
-- (490,699) -- -- -- --
-- (43,424) -- (1,789,194) -- --
-- -- -- (55,162) -- --
- ------------ ------------ ------------ ------------ ----------- ------------
(2,114,529) (3,192,188) (7,453,793) (9,500,616) (1,061,460) (1,326,592)
- ------------ ------------ ------------ ------------ ----------- ------------
6,908,802 7,273,913 38,639,829 12,236,048 2,239,987 3,245,583
1,935,740 2,900,165 6,197,486 8,472,368 953,563 1,209,050
(15,902,866) (25,043,953) (27,260,500) (48,812,779) (5,909,403) (13,198,640)
- ------------ ------------ ------------ ------------ ----------- ------------
(7,058,324) (14,869,875) 17,576,815 (28,104,363) (2,715,853) (8,744,007)
- ------------ ------------ ------------ ------------ ----------- ------------
3,552,383 (15,613,650) 20,693,494 (33,974,559) (2,081,356) (8,792,850)
- ------------ ------------ ------------ ------------ ----------- ------------
$ 56,383,495 $ 52,831,112 $124,944,179 $104,250,685 $22,478,238 $ 24,559,594
============ ============ ============ ============ =========== ============
$ 80,298 $ 109,901 $ 23,099 $ (67,975) $ 21,593 $ 21,592
============ ============ ============ ============ =========== ============
596,420 730,210 3,712,495 1,220,368 218,792 331,420
171,694 299,833 596,650 855,095 93,310 123,821
(1,430,584) (2,529,880) (2,628,230) (4,880,675) (579,680) (1,355,956)
- ------------ ------------ ------------ ------------ ----------- ------------
(662,470) (1,499,837) 1,680,915 (2,805,212) (267,578) (900,715)
============ ============ ============ ============ =========== ============
</TABLE>
See Notes to Financial Statements.
FS-25
<PAGE> 145
- --------------
GALAXY FUND II
- --------------
<TABLE>
LARGE COMPANY INDEX FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<CAPTION>
YEARS ENDED MARCH 31,
-------------------------------------------------------
1996 1995 1994(1) 1993(1) 1992(1)
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of year ........ $ 15.76 $ 14.36 $ 14.59 $ 13.04 $ 12.10
-------- -------- -------- -------- -------
Income from Investment Operations:
Net investment income(3) ................ 0.38 0.37 0.36 0.34 0.31
Net realized and unrealized gain (loss)
on investments and futures contracts .. 4.57 1.73 (0.20) 1.55 0.95
-------- -------- -------- -------- -------
Total from Investment Operations .... 4.95 2.10 0.16 1.89 1.26
-------- -------- -------- -------- -------
Less Dividends:
Dividends from net investment income .... (0.31) (0.37) (0.36) (0.34) (0.31)
Dividends from net realized capital gains (0.34) (0.33) (0.03) -- (0.01)
-------- -------- -------- -------- -------
Total Dividends ..................... (0.65) (0.70) (0.39) (0.34) (0.32)
-------- -------- -------- -------- -------
Net Increase (decrease) in net asset value 4.30 1.40 (0.23) 1.55 0.94
-------- -------- -------- -------- -------
Net Asset Value, End of year .............. $ 20.06 $ 15.76 $ 14.36 $ 14.59 $ 13.04
======== ======== ======== ======== =======
Total Return .............................. 31.80% 15.07% 1.02% 14.68% 10.43%
Ratios/Supplemental Data:
Net assets, End of year (in 000's) ........ $240,689 $147,597 $143,828 $133,426 $87,118
Ratios to average net assets:
Net investment income ................... 2.11% 2.48% 2.41% 2.57% 2.79%
Net operating expenses(3) ............... 0.40% 0.40% 0.40% 0.40% 0.40%
Portfolio turnover rate ................... 5% 7% 4% 0% 0%
Average Commission Rate Paid(2) ........... $ 0.0203 NA NA NA NA
<FN>
- ----------
(1) Audited by other auditors.
(2) Required disclosure for the year ended 3/31/96.
(3) Net investment income per share and the net operating expense ratios before
reimbursement by the sub-administrator for the years ended March 31, 1996
and 1995 were $0.38 and 0.41% and $0.37 and 0.41%, respectively.
</TABLE>
See Notes to Financial Statements.
FS-26
<PAGE> 146
- --------------
GALAXY FUND II
- --------------
<TABLE>
SMALL COMPANY INDEX FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<CAPTION>
YEARS ENDED MARCH 31,
----------------------------------------------------------------------
1996 1995 1994(1) 1993(1) 1992(1)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of year ........ $ 17.62 $ 17.49 $ 17.42 $ 15.39 $ 13.08
-------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income(3) ................ 0.32 0.32 0.26 0.25 0.20
Net realized and unrealized gain (loss)
on investments and futures contracts .. 5.07 0.91 0.39 2.07 2.40
-------- -------- -------- -------- --------
Total from Investment Operations .... 5.39 1.23 0.65 2.32 2.60
-------- -------- -------- -------- --------
Less Dividends:
Dividends from net investment income .... (0.38) (0.32) (0.25) (0.24) (0.22)
Dividends from net realized capital gains (0.33) (0.78) (0.33) (0.05) (0.07)
-------- -------- -------- -------- --------
Total Dividends ....................... (0.71) (1.10) (0.58) (0.29) (0.29)
-------- -------- -------- -------- --------
Net Increase (decrease) in net asset value 4.68 0.13 0.07 2.03 2.31
-------- -------- -------- -------- --------
Net Asset Value, End of year .............. $ 22.30 $ 17.62 $ 17.49 $ 17.42 $ 15.39
======== ======== ======== ======== ========
Total Return .............................. 30.85% 7.60% 3.64% 15.20% 20.04%
Ratios/Supplemental Data:
Net assets, End of year (in 000's) ........ $291,724 $235,295 $255,347 $213,669 $116,290
Ratios to average net assets:
Net investment income ................... 1.52% 1.72% 1.55% 1.80% 2.26%
Net operating expenses(3) ............... 0.40% 0.40% 0.40% 0.40% 0.40%
Portfolio turnover rate ................... 14% 10% 17% 5% 6%
Average Commission Rate Paid(2) ........... $ 0.0225 NA NA NA NA
<FN>
- ----------
(1) Audited by other auditors.
(2) Required disclosure for the year ended 3/31/96.
(3) Net investment income per share and the net operating expense ratios before
reimbursement by the sub-administrator for the years ended March 31, 1996
and 1995 were $0.31 and 0.41% and $0.31 and 0.40%, respectively
</TABLE>
See Notes to Financial Statements.
FS-27
<PAGE> 147
- --------------
GALAXY FUND II
- --------------
<TABLE>
UTILITY INDEX FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<CAPTION>
YEARS ENDED MARCH 31,
------------------------------------------------------
1996 1995 1994(1) 1993(1)(2)
------- ------- ------- ---------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of year ................ $ 9.88 $ 9.99 $ 10.93 $ 10.00
------- ------- ------- -------
Income from Investment Operations:
Net investment income (4) ....................... 0.44 0.47 0.43 0.06
Net realized and unrealized gain (loss)
on investments ................................ 2.15 (0.03) (0.93) 0.93
------- ------- ------- -------
Total from Investment Operations ............ 2.59 0.44 (0.50) 0.99
------- ------- ------- -------
Less Dividends:
Dividends from net investment income ............ (0.44) (0.46) (0.43) (0.06)
Dividends from net realized capital gains ....... -- (0.08) (0.01) --
Dividends in excess of net realized capital gains -- (0.01) -- --
------- ------- ------- -------
Total Dividends ............................... (0.44) (0.55) (0.44) (0.06)
------- ------- ------- -------
Net Increase (decrease) in net asset value ........ 2.15 (0.11) (0.94) 0.93
------- ------- ------- -------
Net Asset Value, End of year ...................... $ 12.03 $ 9.88 $ 9.99 $ 10.93
======= ======= ======= =======
Total Return ...................................... 26.61% 4.67% 4.83% 9.85%**
Ratios/Supplemental Data:
Net assets, End of year (in 000's) ................ $56,383 $52,831 $68,445 $38,151
Ratios to average net assets:
Net investment income ........................... 3.79% 4.62% 4.08% 4.66%*
Net operating expenses (4) ...................... 0.40% 0.40% 0.40% 0.40%*
Portfolio turnover rate ........................... 12% 5% 19% 0%
Average Commissions Rate Paid(3) .................. $0.0230 NA NA NA
<FN>
- ----------
* Annualized.
** Not Annualized.
(1) Audited by other auditors.
(2) The Fund commenced operations on January 5, 1993.
(3) Required disclosure for the year ended 3/31/96.
(4) Net investment income per share and the net operating expense ratios before
reimbursement by the sub-administrator for the years ended March 31, 1996
and 1995 were $0.44 and 0.41% and $0.47 and 0.41%, respectively.
</TABLE>
See Notes to Financial Statements.
FS-28
<PAGE> 148
- --------------
GALAXY FUND II
- --------------
<TABLE>
U.S. TREASURY INDEX FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<CAPTION>
YEARS ENDED MARCH 31,
---------------------------------------------------------------------
1996 1995 1994(1) 1993(1) 1992(1)(2)
-------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of year ................ $ 9.91 $ 10.38 $ 11.01 $ 10.39 $ 10.00
-------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income (3) ....................... 0.66 0.65 0.58 0.63 0.51
Net realized and unrealized gain (loss)
on investments ................................ 0.33 (0.29) (0.29) 0.75 0.38
-------- -------- -------- -------- --------
Total from Investment Operations ............ 0.99 0.36 0.29 1.38 0.89
-------- -------- -------- -------- --------
Less Dividends:
Dividends from net investment income ............ (0.65) (0.66) (0.58) (0.63) (0.50)
Dividends in excess of net investment income .... (0.01) (0.01) -- -- --
Dividends from net realized capital gains ....... -- -- (0.34) (0.13) --
Dividends in excess of net realized capital gains -- (0.16) -- -- --
-------- -------- -------- -------- --------
Total Dividends ............................. (0.66) (0.83) (0.92) (0.76) (0.50)
-------- -------- -------- -------- --------
Net increase (decrease) in net asset value ........ 0.33 (0.47) (0.63) 0.62 0.39
-------- -------- -------- -------- --------
Net Asset Value, End of year ...................... $ 10.24 $ 9.91 $ 10.38 $ 11.01 $ 10.39
======== ======== ======== ======== ========
Total Return ...................................... 10.09% 3.81% 2.40% 13.69% 8.99%**
Ratios/Supplemental Data:
Net assets, End of year (in 000's) ................ $124,944 $104,251 $138,225 $145,353 $102,830
Ratios to average net assets:
Net investment income ........................... 6.35% 6.43% 5.21% 5.87% 6.40%*
Net operating expenses (3) ...................... 0.40% 0.40% 0.40% 0.40% 0.40%*
Portfolio turnover rate ........................... 35% 50% 75% 35% 57%
<FN>
- ----------
* Annualized.
** Not Annualized.
(1) Audited by other auditors.
(2) The Fund commenced operations on June 4,1991.
(3) Net investment income per share and the net operating expense ratios before
reimbursement by the sub-administrator for the years ended March 31, 1996
and 1995 were $0.66 and 0.41% and $0.65 and 0.41%, respectively.
</TABLE>
See Notes to Financial Statements.
FS-29
<PAGE> 149
- --------------
GALAXY FUND II
- --------------
<TABLE>
MUNICIPAL BOND FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<CAPTION>
YEARS ENDED MARCH 31,
----------------------------------
1996 1995 1994(1)(2)
------- ------- ----------
<S> <C> <C> <C>
Net Asset Value, Beginning of year ............................. $ 9.94 $ 9.89 $ 10.00
------- ------- -------
Income from Investment Operations:
Net investment income (3) .................................... 0.46 0.46 0.43
Net realized and unrealized gain (loss)
on investments ............................................. 0.26 0.05 (0.11)
------- ------- -------
Total from Investment Operations ......................... 0.72 0.51 0.32
------- ------- -------
Less Dividends:
Dividends from net investment income ......................... (0.46) (0.46) (0.43)
Dividends from net realized capital gains .................... -- -- --
------- ------- -------
Total Dividends .......................................... (0.46) (0.46) (0.43)
------- ------- -------
Net Increase (decrease) in net asset value ..................... 0.26 0.05 (0.11)
------- ------- -------
Net Asset Value, End of year ................................... $ 10.20 $ 9.94 $ 9.89
======= ======= =======
Total Return ................................................... 7.36% 5.34% 3.10%**
Ratios/Supplemental Data:
Net assets, End of year (in 000's) ............................. $22,478 $24,560 $33,352
Ratios to average net assets:
Net investment income ........................................ 4.54% 4.72% 4.35%*
Net operating expenses (3) ................................... 0.60% 0.60% 0.60%*
Portfolio turnover rate ........................................ 2% 47% 56%
<FN>
- ----------
* Annualized.
** Not Annualized.
(1) Audited by other auditors.
(2) The Fund commenced operations on April 15, 1993.
(3) Net investment income per share and the net operating expense ratios before
reimbursement by the sub-administrator for the years ended March 31, 1996
and 1995 were $0.46 and 0.61% and $0.46 and 0.63%, respectively.
</TABLE>
See Notes to Financial Statements.
FS-30
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GALAXY FUND II
- --------------
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION:
Galaxy Fund II ("Galaxy II" or the "Trust"), formerly the "IBM Mutual Funds", is
registered under the Investment Company Act of 1940, as amended, as an open-end
investment company established as a Massachusetts Business Trust. As of the date
of this report, the Trust offered five managed investment portfolios. The
accompanying financial statements and financial highlights are those of the
Large Company Index Fund, the Small Company Index Fund, the Utility Index Fund,
the U.S. Treasury Index Fund, and the Municipal Bond Fund (individually a
"Fund", collectively the "Funds").
2. SIGNIFICANT ACCOUNTING POLICIES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies in conformity with
generally accepted accounting principles consistently followed by the Trust in
the preparation of its financial statements.
PORTFOLIO VALUATION: Listed investment securities are valued by an independent
pricing service approved by the Trust's Board of Trustees at the last quoted
sale price on the principal exchange where such securities are traded. Unlisted
securities or listed securities for which last sales prices are not available
are valued at the closing bid price in the principal market where such
securities trade. U.S. Government securities (other than short-term investments)
are valued at the average of the quoted bid and asked prices in the
over-the-counter market. Debt securities of U.S. issuers (other than U.S.
Government securities and short-term securities), including municipal
securities, are valued at the average between the quoted bid price and the asked
price. Short-term obligations that mature in 60 days or less are valued at
amortized cost, which approximates market value. Futures contracts are valued at
the settlement price established each day by the board of trade or exchange on
which they are traded.
Investments for which market quotations are not readily available are valued
based on fair value as determined in good faith in accordance with procedures
established by and under the general supervision of the Board of Trustees.
REPURCHASE AGREEMENTS: Each Fund may invest in repurchase agreement transactions
with institutions that the Trust's investment adviser has determined are
creditworthy pursuant to guidelines established by the Trust's Board of
Trustees. Each repurchase agreement is recorded at cost. Each Fund requires that
the collateral be transferred to the Trust's custodian in a manner that is
intended to enable the Fund to obtain those securities in the event of a
counterparty default. The value of the collateral securities, including accrued
interest, is monitored daily to ensure that the value of the collateral equals
or exceeds 101% of the repurchase price. Repurchase agreements involve certain
risks in the event of default or insolvency of the counterparty, including
possible delays or restrictions upon a Fund's ability to dispose of the
underlying collateral securities and a possible decline in the value of the
underlying securities during the period while the Fund seeks to assert its
rights.
FUTURES CONTRACTS: All Funds, except the U.S. Treasury Index Fund, may enter
into futures contracts for the delayed delivery of securities at a fixed price
at some future date or the change in the value of a specified financial index
over a predetermined time period. Cash or securities are deposited with brokers
in order to establish and maintain a position. Subsequent payments made or
received by the fund based on the daily change in the market value of the
position are recorded as unrealized gain or loss until the contract is closed
out at which time the gain or loss is realized.
SECURITY TRANSACTIONS AND INVESTMENT INCOME: Security transactions are accounted
for on the trade date basis. Net realized gains or losses on sales of securities
are determined on the identified cost method. Interest income and expenses are
recorded on the accrual basis. Dividends are recorded on the ex-dividend date.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: Dividends from net investment
income are declared daily and paid monthly for the U.S. Treasury Index Fund and
the Municipal Bond Fund, declared and paid quarterly for the Utility Index Fund
and are declared and paid annually for the Small Company Index Fund. On
September 7, 1995, the Board of Trustees approved an amendment to the dividend
policy of the Large Company Index Fund pursuant to which the Fund will declare
and pay dividends from net investment income on an annual basis. Net realized
capital gains, if any, are distributed at least annually. Income dividends and
capital gain dividends are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles.
FS-31
<PAGE> 151
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GALAXY FUND II
- --------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FEDERAL INCOME TAXES: The Trust treats each Fund as a separate entity for
Federal income tax purposes. Each Fund intends to qualify each year as a
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended. By so qualifying, each Fund will not be subject to Federal
income taxes to the extent that it distributes substantially all of its taxable
or tax-exempt income, if any, for its tax year ending March 31. In addition, by
distributing in each calendar year substantially all of its net investment
income, capital gains, and certain other amounts, if any, each Fund will not be
subject to a Federal excise tax. Therefore, no Federal income tax provision is
required.
3. SHARES OF BENEFICIAL INTEREST:
The Trust's Declaration of Trust authorizes the Trustees to issue an unlimited
number of shares of beneficial interest, with $0.001 par value.
4. INVESTMENT ADVISORY, ADMINISTRATIVE AND DISTRIBUTION AGREEMENTS:
Effective July 1, 1994, the Trust and Fleet Investment Advisors Inc. (the
"Investment Adviser"), an indirect wholly-owned subsidiary of Fleet Financial
Group, Inc., became parties to an investment advisory agreement under which the
Investment Adviser provides advisory services for a fee, computed daily and paid
monthly, at the annual rate of 0.10% of the average daily net assets of the
Large Company Index, Small Company Index, Utility Index, and U.S. Treasury Index
Funds, and 0.25% of the average daily net assets of the Municipal Bond Fund.
Prior to July 1, 1994, IBM Credit Investment Management Corporation, a
wholly-owned subsidiary of IBM Credit Corporation, served as the investment
adviser to the Trust for the same fees as those charged by Fleet Investment
Advisors Inc.
Effective July 1, 1994, the Trust and Fleet National Bank (the "Administrator")
became parties to an administrative agreement. Under the agreement, the
Administrator pays all expenses of the Funds, except the fees and expenses of
the Trustees who are not interested persons of the Trust, brokerage fees and
commissions, interest on borrowings, taxes and such extraordinary, non-recurring
expenses as may arise, including litigation to which the Trust may be a party.
For its services as administrator, the Administrator receives a fee at an annual
rate of 0.30% of the average daily net assets of each of the Large Company
Index, Small Company Index, Utility Index and U.S. Treasury Index Funds, and
0.35% of the average daily net assets of the Municipal Bond Fund.
Effective March 31, 1995, the Administrator entered into a sub-administration
agreement with First Data Investor Services Group, Inc. ("FDISG") formerly known
as The Shareholder Services Group, Inc. doing business as 440 Financial, a
wholly-owned subsidiary of First Data Corporation ("First Data"), under which
FDISG (the "Sub-Administrator") provides administrative, accounting and transfer
agent services to the Trust. The Administrator bears the fees of the
Sub-Administrator for serving in this capacity.
Prior to March 31, 1995, the sub-administration services described above were
provided by 440 Financial Group of Worcester, Inc., a wholly-owned subsidiary of
State Mutual Life Assurance Company of America ("State Mutual"), for the same
annual fees. On that date, FDISG acquired substantially all of the assets of 440
Financial Group of Worcester, Inc. Prior to July 1, 1994, IBM Credit Investment
Management Corporation served as administrator to the IBM Mutual Funds for the
same fees as those charged by Fleet National Bank and Flagship Financial, Inc.
served as the sub-administrator to the IBM Mutual Funds.
440 Financial Distributors, Inc., a wholly-owned subsidiary of FDISG and an
indirect wholly-owned subsidiary of First Data, acts as the exclusive
distributor of the Trust's shares. Prior to March 31, 1995, the Distributor was
a wholly-owned subsidiary of 440 Financial Group of Worcester, Inc. and an
indirect wholly-owned subsidiary of State Mutual. Prior to July 1, 1994, IBM
Credit Distributors Corporation, a wholly-owned subsidiary of IBM Credit
Corporation, served as the Trust's distributor.
Certain officers of the Trust may be officers of the Sub-Administrator and/or
Distributor. Such officers receive no compensation from the Trust for serving in
their respective roles. No officer, director or employee of the Investment
Adviser serves as an officer, Trustee or employee of the Trust. Each Trustee is
entitled to receive for services of the Trust, The Galaxy VIP Fund ("VIP") and
The Galaxy Fund ("Galaxy"), affiliated registered investment companies, an
aggregate fee of $23,000 per annum plus certain other fees for attending or
participating in meetings. The Chairman of the Boards of Trustees of the Trust,
VIP and Galaxy is entitled to an additional annual fee of $4,000 and the
President and Treasurer of the Trust, VIP and Galaxy is entitled to an
additional annual fee of $2,500 for their services in these capacities. These
fees are allocated among the Funds of the Trust, VIP and Galaxy based on their
relative net assets. The sub-administrator voluntarily agreed to reimburse the
funds for Trustee fees so that total expenses would not exceed certain expense
limitations. The sub-administrator at its discretion may revise or discontinue
the voluntary expense reimbursement.
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<PAGE> 152
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GALAXY FUND II
- --------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. SECURITIES TRANSACTIONS:
<TABLE>
The cost of purchases and the proceeds from sales of securities (excluding
short-term investments and futures contracts) for the year ended March 31, 1996
for each Fund were as follows:
<CAPTION>
U.S. Government Other Investment
Securities Securities
---------------------- ----------------------------
Purchases Sales Purchases Sales
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Large Company Index .... $ -- $ -- $50,387,468 $ 9,981,775
Small Company Index .... -- -- 35,752,607 53,278,979
Utility Index .......... -- -- 6,369,713 13,136,571
U.S. Treasury Index .... 57,156,535 39,744,791 -- --
Municipal Bond ......... -- -- 374,875 2,581,497
</TABLE>
<TABLE>
The aggregate cost, gross unrealized appreciation and depreciation and net
unrealized appreciation (depreciation) for all securities as computed on a
Federal income tax basis, at March 31, 1996 for each Fund is as follows:
<CAPTION>
Cost Appreciation (Depreciation) Net
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Large Company Index ........ $170,593,449 $73,672,203 $ 3,603,580 $70,068,623
Small Company Index ........ 205,708,904 96,336,317 13,862,047 82,474,270
Utility Index .............. 51,827,434 6,779,666 2,474,273 4,305,393
U.S. Treasury Index ........ 121,285,939 2,985,630 1,592,097 1,393,533
Municipal Bond ............. 21,700,230 584,966 17,346 567,620
</TABLE>
During the fiscal year ended March 31, 1996, the Large Company Index Fund and
the Small Company Index Fund made distributions from long-term capital gains of
$3,388,748 and $4,053,139, respectively.
<TABLE>
At March 31, 1996, the following Funds had capital loss carryforwards:
<CAPTION>
Capital loss Expiration
Carryforward Date
-------------- ----------
<S> <C> <C>
Utility Index ......... $ 351,703 2003
1,057,646 2004
U.S. Treasury Index ... 4,700,515 2003
548,015 2004
Municipal Bond ........ 18,541 2002
888,409 2003
203,341 2004
</TABLE>
6. FINANCIAL INSTRUMENTS:
The Large Company Index, Small Company Index, Utility Index and Municipal Bond
Funds may enter into stock index futures contracts that are traded on a national
exchange. These Funds will enter into stock index futures contracts for hedging
purposes, to maintain cash reserves while remaining fully invested, to
facilitate trading, to reduce transaction costs or to seek higher investment
returns when a stock index futures contract is priced more attractively than the
securities comprising the index. In addition, the Municipal Bond Fund may
purchase put or call options on interest rate and municipal bond index futures
contracts as a hedge against changes in interest rates, and may enter into
closing transactions with respect to such options to terminate existing
positions. The Fund will segregate assets to cover its commitments on purchased
futures contracts.
Risks associated with using financial instruments such as futures as a hedge
include an imperfect correlation between the movements in the price of the
instruments and the price of the underlying securities and interest rates, an
illiquid secondary market for the instruments or the inability of counterparties
to perform under the terms of the contract.
7. CONCENTRATION OF CREDIT RISK:
The Utility Index Fund will concentrate its investments in the utility industry.
As a result, the Fund's investments may be subject to greater risk and market
fluctuation than a fund that has securities representing a broader range of
investment alternatives.
FS-33
<PAGE> 153
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Galaxy Fund II:
We have audited the accompanying statements of assets and liabilities of
the Large Company Index Fund, Small Company Index Fund, Utility Index Fund, U.S.
Treasury Index Fund and Municipal Bond Fund (five series of Galaxy Fund II),
including the portfolios of investments, as of March 31, 1996, and the related
statements of operations for the year then ended, and the statements of changes
in net assets and financial highlights for each of the two years in the period
then ended. These financial statements and financial highlights are the
responsibility of Galaxy Fund II's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits. The financial highlights of the aforementioned portfolios of Galaxy Fund
II for periods prior to the year ended March 31, 1995, presented herein, were
audited by other auditors whose report dated May 16, 1994 expressed an
unqualified opinion on such financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of March
31, 1996 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
aforementioned portfolios of Galaxy Fund II as of March 31, 1996, the results of
their operations for the year then ended and the changes in their net assets and
financial highlights for each of the two years in the period then ended, in
conformity with generally accepted accounting principles.
Boston, Massachusetts Coopers & Lybrand L.L.P.
May 10, 1996
FS-34
<PAGE> 154
APPENDIX
DESCRIPTION OF MUNICIPAL SECURITIES RATINGS
DESCRIPTION OF S&P MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's
for municipal debt:
"AAA" - This designation represents the highest rating
assigned by Standard & Poor's to a debt obligation and indicates an extremely
strong capacity to pay interest and repay principal.
"AA" - Debt is considered to have a very strong capacity to
pay interest and repay principal and differs from AAA issues only in small
degree.
"A" - Debt is considered to have a strong capacity to pay
interest and repay principal although such issues are somewhat more susceptible
to the adverse effects of changes in circumstances and economic conditions than
debt in higher-rated categories.
"BBB" - Debt is regarded as having an adequate capacity to pay
interest and repay principal. Whereas such issues normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher-rated categories.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded, on balance,
as predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "C" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
"BB" - Debt has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
"B" - Debt has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial or economic conditions will likely impair capacity
or willingness to pay
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<PAGE> 155
interest and repay principal. The "B" rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied "BB" or "BB-"
rating.
"CCC" - Debt has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial or economic conditions, it is not likely to
have the capacity to pay interest and repay principal. The "CCC" rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied "B" or "B-" rating.
"CC" - This rating is typically applied to debt subordinated
to senior debt that is assigned an actual or implied "CCC" rating.
"C" - This rating is typically applied to debt subordinated to
senior debt which is assigned an actual or implied "CCC-" debt rating. The "C"
rating may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
"CI" - This rating is reserved for income bonds on which no
interest is being paid.
"D" - Debt is in payment default. This rating is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S & P believes that such
payments will be made during such grace period. "D" rating is also used upon the
filing of a bankruptcy petition if debt service payments 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 rating is attached to highlight derivative, hybrid,
and certain other obligations that S & P believes may experience high volatility
or high variability in expected returns due to non-credit risks. Examples of
such obligations are: securities whose principal or interest return is indexed
to equities, commodities, or currencies; certain swaps and options; and interest
only and principal only mortgage securities. The absence of an "r" symbol should
not be taken as an indication that an obligation will exhibit no volatility or
variability in total return.
DESCRIPTION OF S&P MUNICIPAL NOTE RATINGS
Municipal notes with maturities of three years or less are usually
given note ratings (designated "SP-1", "SP-2" or "SP-3")
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<PAGE> 156
to distinguish more clearly the credit quality of notes as compared to bonds.
Notes rated SP-1 have a very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety characteristics
are given the designation of "SP-1+". Notes rated SP-2 have satisfactory
capacity to pay principal and interest. Notes rated SP-3 exhibit speculative
capacity to pay principal and interest.
DESCRIPTION OF MOODY'S MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Moody's for municipal
long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "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 considered 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 some speculative elements; "B" indicates a general lack of
characteristics of desirable investment; "Caa" represents a poor standing; "Ca"
represents obligations which are speculative in a high degree; and "C"
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<PAGE> 157
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 operation 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.
(P)... - When applied to forward delivery bonds,
indicates that the rating is provisional pending delivery of the
bonds. The rating may be revised prior to delivery if changes
occur in the legal documents or the underlying credit quality of
the bonds.
DESCRIPTION OF MOODY'S MUNICIPAL NOTE RATINGS
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG") and for variable rate
demand obligations are designated Variable Moody's Investment Grade ("VMIG").
This distinction recognizes the differences between short-term credit risk and
long-term risk. Loans bearing the designation "MIG-1"/"VMIG-1" are the best
quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated and broad-based access to the market for
refinancing. Loans bearing the designation "MIG-2"/"VMIG-2" are of high quality,
with margins of protection ample although not as large as in the preceding
group. Loans bearing the designation "MIG-3"/"VMIG-3" are of favorable quality,
with all security elements accounted for but lacking the undeniable strength of
the higher grades. Liquidity and cash flow protection may be narrow and market
access for refinancing, in particular, is likely to be less well established.
Loans bearing the designation "MIG-4"/"VMIG-4" are of adequate quality, carrying
specific risk but having protection commonly regarded as required of an
investment security and not distinctly or predominantly speculative.
A-4
<PAGE> 158
Part C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to this Post-Effective Amendment.
<PAGE> 159
GALAXY FUND II
FORM N-1A
Part C. Other Information
Item 24. Financial Statements and Exhibits
(a) Financial Statements
(1) Financial Statements included in Part A:
(i) Large Company Index Fund, Small Company Index Fund, U.S.
Treasury Index Fund, Utility Index Fund and Municipal Bond
Fund: Financial Highlights
(2) Financial Statements included in Part B:
(i) Schedule of Investments of the Large Company Index Fund, the
Small Company Index Fund, the U.S. Treasury Index Fund, the
Utility Index Fund and the Municipal Bond Fund at March 31,
1996;
Statement of Assets and Liabilities of the Large Company Index
Fund, the Small Company Index Fund, the U.S. Treasury Index
Fund, the Utility Index Fund and the Municipal Bond Fund at
March 31, 1996;
Statement of Operations for the fiscal year ended March 31,
1996 for the Large Company Index Fund, the Small Company Index
Fund, the U.S. Treasury Index Fund, the Utility Index Fund and
the Municipal Bond Fund;
Statement of Changes in Net Assets for the years ended March
31, 1996, March 31, 1995, March 31, 1994 and March 31, 1993
for the Large Company Index Fund, the Small Company Index Fund
and the U.S. Treasury Index Fund, and for the years ended
March 31, 1996, March 31, 1995 and March 31, 1994 and the
period January 5, 1993 (commencement of operations) through
March 31, 1993 for the Utility Index Fund, and for the fiscal
years ended March 31, 1996 and March 31, 1995 and the period
April 15, 1993 (commencement of operations) through March 31,
1994 for the Municipal Bond Fund;
Financial Highlights for a share outstanding throughout each
period for the years ended March 31, 1996, March 31, 1995,
March 31, 1994, March 31, 1993 and March 31, 1992 and the
period October 1, 1990 (commencement of operations) through
March 31, 1991 for the Large Company Index Fund and
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<PAGE> 160
the Small Company Index Fund, for the years ended March 31,
1996, March 31, 1995, March 31, 1994, March 31, 1993 and the
period June 4, 1991 (commencement of operations) through March
31, 1992 for the U.S. Treasury Index Fund, for the years ended
March 31, 1996, March 31, 1995, March 31, 1994 and the period
January 5, 1993 (commencement of operations) through March 31,
1993 for the Utility Index Fund, and for the fiscal years
ended March 31, 1996 and March 31, 1995 and the period April
15, 1993 (commencement of operations) through March 31, 1994
for the Municipal Bond Fund;
Notes to Financial Statements; and
Report of Independent Accountants.
(ii) All required financial statements are included in Parts A and
B hereof. All other financial statements and schedules are
inapplicable.
(b) Exhibits:
(1) Declaration of Trust of Registrant is incorporated herein by
reference to Registrant's Registration Statement on Form N-1A
filed with the Commission on February 28, 1990.
(1)(a) Amendment No. 1 to Declaration of Trust of Registrant is
incorporated herein by reference to Pre-Effective Amendment
No. 1 to Registrant's Registration Statement on Form N-1A
filed with the Commission on May 7, 1990.
(1)(b) Amendment No. 2 to Declaration of Trust of Registrant dated
June 30, 1994 is incorporated by reference to Post-Effective
Amendment No. 18 to Registrant's Registration Statement on
Form N-1A filed with the Commission on July 28, 1995.
(2)(a) By-Laws of Registrant are incorporated herein by reference to
Post-Effective Amendment No. 2 to Registrant's Registration
Statement on Form N-1A filed with the Commission on May 24,
1991.
(2)(b) Amendment No. 1 to By-laws of Registrant dated June 30, 1994
is incorporated by reference to Post-Effective Amendment No.
18 to Registrant's Registration Statement on Form N-1A filed
with the Commission on July 28, 1995.
(3) Not applicable.
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<PAGE> 161
(4) Not applicable.
(5) Investment Advisory Agreement between Registrant and Fleet
Investment Advisors Inc. dated June 30, 1994 is incorporated
by reference to Post- Effective Amendment No. 18 to
Registrant's Registration Statement on Form N-1A filed with
the Commission on July 28, 1995.
(6) Distribution Agreement between Registrant and 440 Financial
Distributors, Inc. dated March 31, 1995 is incorporated by
reference to Post-Effective Amendment No. 18 to Registrant's
Registration Statement on Form N-1A filed with the Commission
on July 28, 1995.
(7)(a) Deferred Compensation Plan dated December 7, 1995.
(7)(b) Deferred Compensation Agreement dated March 26, 1996.
(8)(a) Custody Agreement between Registrant, The Chase Manhattan
Bank, N.A. and Fleet National Bank dated June 30, 1994 is
incorporated by reference to Post-Effective Amendment No. 18
to Registrant's Registration Statement on Form N-1A filed with
the Commission on July 28, 1995.
(9)(a) Administration Agreement between Registrant and Fleet National
Bank dated October, 1994 is incorporated by reference to
Post-Effective Amendment No. 18 to Registrant's Registration
Statement on Form N-1A filed with the Commission on July 28,
1995.
(9)(b) Sub-Administration Agreement between Fleet National Bank and
The Shareholder Services Group, Inc., d/b/a 440 Financial
dated March 31, 1995 is incorporated by reference to
Post-Effective Amendment No. 18 to Registrant's Registration
Statement on Form N-1A filed with the Commission on July 28,
1995.
(9)(c) Transfer Agency Agreement between Registrant, The Shareholder
Services Group, Inc., d/b/a 440 Financial and Fleet National
Bank dated March 31, 1995 is incorporated by reference to
Post-Effective Amendment No. 18 to Registrant's Registration
Statement on Form N-1A filed with the Commission on July 28,
1995.
(10) Opinion of Drinker Biddle & Reath.
(11)(a) Consent of Coopers & Lybrand L.L.P.
(11)(b) Consent of Drinker Biddle & Reath.
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<PAGE> 162
(11)(c) Consent of Persons Nominated to Become Trustees is
incorporated herein by reference to Post-Effective Amendment
No. 16 to Registrant's Registration Statement on Form N-1A
filed with the Commission on April 22, 1994.
(12) Not applicable.
(13)(a) Purchase Agreement for Large Company Index Fund and Small
Company Index Fund is incorporated herein by reference to
Pre-Effective Amendment No. 4 to Registrant's Registration
Statement on Form N-1A filed with the Commission on August 28,
1990.
(13)(b) Purchase Agreement for U.S. Treasury Index Fund is
incorporated herein by reference to Post-Effective Amendment
No. 2 to Registrant's Registration Statement on Form N-1A
filed with the Commission on March 28, 1991.
(13)(c) Purchase Agreement for Utility Index Fund is incorporated
herein by reference to Post-Effective Amendment No. 6 to
Registrant's Registration Statement on Form N-1A filed with
the Commission on November 6, 1992.
(13)(d) Purchase Agreement for Municipal Bond Fund is incorporated
herein by reference to Post-Effective Amendment No. 9 to
Registrant's Registration Statement on Form N-1A filed with
the Commission on April 13, 1993.
(14) Not applicable.
(15) Not applicable.
(16)(a) Schedule for Computation of Performance Quotations is
incorporated herein by reference to Post-Effective Amendment
No. 6 to Registrant's Registration Statement on Form N-1A
filed with the Commission on November 6, 1992.
(16)(b) Schedule for Computation of Performance Quotations for Utility
Index Fund is incorporated herein by reference to
Post-Effective Amendment No. 10 to Registrant's Registration
Statement on Form N-1A filed with the Commission on May 28,
1993.
(16)(c) Schedule for Computation of Performance Quotations for
Municipal Bond Fund is incorporated herein by reference to
Post-Effective Amendment No. 13 to Registrant's Registration
Statement on Form N-1A filed with the Commission on October
29, 1993.
(17) Financial Data Schedules
C-4
<PAGE> 163
Item 25. Persons Controlled by or Under Common Control with Registrant
Registrant is controlled by its Board of Trustees.
Item 26. Number of Holders of Securities
<TABLE>
<CAPTION>
Number of Record Holders
Title of Series as of June 30, 1996
--------------- ------------------------
<S> <C>
Large Company Index Fund 16,727
Small Company Index Fund 21,389
U.S. Treasury Index Fund 7,274
Utility Index Fund 6,103
Municipal Bond Fund 1,194
</TABLE>
Item 27. Indemnification
Indemnification of Registrant's principal underwriter, custodian and
transfer agent against certain losses is provided for respectively in Section
1.12 of the Distribution Agreement included herein as Exhibit 6, in Section 20
of the Custody Agreement included herein as Exhibit 8 and in Section 17 of the
Transfer Agency Agreement, included herein as Exhibit 9(c). Registrant has
obtained from a major insurance carrier a directors' and officers' liability
policy covering certain types of errors and omissions. In addition, under
Article XI, Sections 1 and 2 of the Declaration of Trust (the "Trust
Agreement"), any past or present trustee or officer of Registrant, including
persons who serve at the Registrant's request as directors, officers or trustees
of another organization in which Registrant has any interest as a shareholder,
creditor or otherwise) (hereinafter referred to as a "Covered Person") is
indemnified to the fullest extent permitted by law against liability and all
expenses reasonably incurred by him in connection with any claim, action, suit
or proceeding to which he may be a party or otherwise involved by reason of his
being or having been a Covered Person of Registrant, and against amounts paid or
incurred by him in the settlement thereof. These provisions do not authorize
indemnification when it is determined, in the manner specified in the Trust
Agreement, that such Covered Person has not acted in good faith in the
reasonable belief that his actions were in or not opposed to the best interests
of the Registrant. Moreover, this provision does not authorize indemnification
when it is determined, in the manner specified in the Trust Agreement, that the
Covered Person would otherwise be liable to the Registrant or its shareholders
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of his duties involved in the conduct of his
C-5
<PAGE> 164
office. Expenses may be paid by the Registrant in advance of the final
disposition of any claim, action, suit or proceeding upon receipt of an
undertaking by a Covered Person to repay those expenses to the Registrant in the
event that it is ultimately determined that indemnification of the expenses is
not authorized under the Trust Agreement and the Covered Person either provides
security for such undertaking or insures the Registrant against losses from such
advances or the majority of disinterested Trustees or independent legal counsel
determines, in the manner specified in the Trust Agreement, that there is reason
to believe the Covered Person will be entitled to indemnification.
Insofar as indemnification for liability arising under the Securities
Act of 1933, as amended (the "Securities Act"), may be permitted to Trustees,
officers and controlling persons of Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a Trustee, officer
or controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such Trustee, officer or controlling person
in connection with the securities' being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Advisers
Fleet Investment Advisors Inc. ("Fleet") is an investment adviser
registered under the Investment Advisers Act of 1940 (the "Advisers Act").
The list required by this Item 28 of officers and directors of Fleet,
together with information as to any business profession, vocation or employment
of a substantial nature engaged in by such officers and directors during the
past two years, is incorporated herein by reference to Schedules A and D of Form
ADV filed by Fleet pursuant to the Advisers Act (SEC File No. 801-20312).
Item 29. Principal Underwriter
(a) In addition to Galaxy Fund II, 440 Financial Distributors, Inc.
(the "Distributor") currently acts as distributor for The Galaxy Fund and The
Galaxy VIP Fund. The Distributor is registered with the Securities and Exchange
Commission as a broker-dealer and is a member of the National Association of
Securities Dealers. The Distributor is a subsidiary of First Data Investor
Services, Inc., which is located at 4400 Computer Drive, P.O. Box 5108,
Westborough, Massachusetts 01581.
C-6
<PAGE> 165
(b) The information required by this Item 29(b) with respect to each
director, officer, or partner of the Distributor is incorporated by reference to
Schedule A of Form BD filed by the Distributor with the Securities and Exchange
Commission pursuant to the Securities Act of 1934 (File No. 8-14716).
(c) The Distributor receives no compensation from the Registrant for
distribution of its shares. The Distributor is an affiliated person of First
Data Investor Services, Inc., the Registrant's sub-administrator and transfer
agent, which receives sub-administration and transfer agency fees as described
in Parts A and B of this Registration Statement.
Item 30. Location of Accounts and Records
The records and books of the Registrant and the Funds are located at
the offices of:
(1) Fleet Investment Advisors Inc., 45 East Avenue, Rochester, New
York 14604 (records relating to its functions as investment
adviser to all of the Registrant's Funds);
(2) 440 Financial Distributors, Inc., 4400 Computer Drive, P.O.
Box 5108, Westborough, Massachusetts 01581 (records relating
to its functions as distributor);
(3) Fleet National Bank, 111 Westminster Street, Providence, Rhode
Island 02903 (records relating to its functions as
administrator);
(4) First Data Investor Services, Inc., 4400 Computer Drive, P.O.
Box 5108, Westborough, Massachusetts 01581 (records relating
to its functions as transfer agent and sub-administrator);
(5) Drinker Biddle & Reath, 1345 Chestnut Street, Suite 1100,
Philadelphia, Pennsylvania 19107 (Registrant's Declaration of
Trust, Code of Regulations and minute books); and
(6) The Chase Manhattan Bank, N.A., 1211 Avenue of the Americas,
New York, New York 10036 (records relating to its functions as
custodian).
Item 31. Management Services
Not applicable.
Item 32. Undertakings
Registrant hereby undertakes to call a meeting of shareholders for the
purpose of voting upon the question of removal of a trustee or trustees of
Registrant when requested in
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<PAGE> 166
writing to do so by the holders of at least 10% of Registrant's outstanding
shares. Registrant hereby undertakes further, in connection with the meeting, to
comply with the provisions of Section 16(c) of the Investment Company Act of
1940, as amended, relating to communications with shareholders of certain
common-law trusts. Registrant hereby undertakes further to furnish each person
to whom a prospectus is delivered with a copy of the Registrant's latest annual
report to shareholders, upon request and without charge.
C-8
<PAGE> 167
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment No. 19 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Pawtucket, State of Rhode Island, on the 29th day of July, 1996.
GALAXY FUND II
By:/s/ John T. O'Neill
--------------------------
John T. O'Neill
President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 19 to the Registration Statement has been signed
below by the following persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
*/s/ John T. O'Neill Trustee, President July 29, 1996
- ---------------------------- and Treasurer
John T. O'Neill
*/s/ Dwight E. Vicks, Jr. Chairman of the July 29, 1996
- ----------------------------- Board of Trustees
Dwight E. Vicks, Jr.
*/s/ Donald B. Miller Trustee July 29, 1996
- ----------------------------
Donald B. Miller
*/s/ Louis DeThomasis Trustee July 29, 1996
- ----------------------------
Louis DeThomasis
*/s/ Bradford S. Wellman Trustee July 29, 1996
- -----------------------------
Bradford S. Wellman
*/s/ James M. Seed Trustee July 29, 1996
- ----------------------------
James M. Seed
</TABLE>
*By: /s/W. Bruce McConnel, III
-------------------------
W. Bruce McConnel, III
Attorney-in-Fact
C-9
<PAGE> 168
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ------------ --------
<S> <C>
(7)(a) Deferred Compensation Plan
(7)(b) Deferred Compensation Agreement
(10) Opinion of Drinker Biddle & Reath.
(11)(a) Consent of Coopers & Lybrand L.L.P.
(11)(b) Consent of Drinker Biddle & Reath
(17) Financial Data Schedules
</TABLE>
<PAGE> 1
EXHIBIT 7(a)
GALAXY FUND II
SUMMARY OF
DEFERRED COMPENSATION PLAN
Basic Plan: The Galaxy Fund II Deferred Compensation Plan (the "Plan") is a
nonqualified unfunded deferred compensation plan under which individual
Agreements ("Deferred Compensation Agreements" or "Agreements") are executed
between one or more of the Trustees and Galaxy Fund II (the "Trust").
Eligibility: All members of the Board of the Trust are eligible to
participate.
Amount to be Deferred: All or a portion of the compensation earned by a
Trustee from the Trust may be deferred and credited to a Deferred Compensation
Account for the Trustee.
Election to Defer: A Trustee elects to defer his compensation by executing a
Deferred Compensation Agreement prior to the beginning of the calendar year in
which the compensation will be earned. A Trustee may also elect to defer fees
subsequently earned in the calendar year of election if such election is made
within 30 days of the Plan's effective date or within 30 days of the Trustee's
first becoming eligible to participate in the Plan. Until terminated or
replaced with a new Agreement, the Agreement will be effective for subsequent
years.
A Trustee may establish a new Agreement with respect to future compensation on
an annual basis. For example, even if a Trustee does not enter into a Deferred
Compensation Agreement during the first year he is able to do so, he will still
have the opportunity to defer compensation earned in a subsequent year by
executing an appropriate agreement prior to January 1 of the calendar year for
which he seeks deferral. A Trustee can also annually enter into a new
Agreement whereby he elects to change the method by which he will receive
payment of amounts deferred in future years, or changes the percentage of
compensation deferred. For each new Agreement entered into which changes the
method of receipt of deferred amounts, a new Deferred Compensation Account will
be established for the Trustee.
A trustee may terminate an election to defer by notifying the Trust in writing.
Earnings on Deferred Amounts: A Trustee may elect to have his Deferred
Compensation Account(s) invested in any combination of investment options
offered by the Trust. The income, gains and losses credited to the Trustee's
Account(s) will reflect the income, gains, and losses achieved by the chosen
investment option(s). The Trustee may also elect to change the investment
allocation of past and future deferred amounts in his Deferred
<PAGE> 2
Compensation Accounts once per calendar quarter upon proper notice to the
Trust. The Board of Trustees will periodically announce which investment
options will be available under the Plan. The Trustee Account Allocation
Election Form attached to the Agreement lists the investment options currently
available under the Plan.
Distribution of Deferred Amounts: Distributions will begin as of January 31 of
the year following the year in which the Trustee dies, retires, resigns,
becomes disabled or otherwise ceases to be a member of the Board of Trustees.
At the time the Trustee enters into the Agreement, the Trustee will elect to
receive payments either in a single sum or in annual payments for a period of
two to 15 years. The Trustee's elections as to the manner of receiving
payments may not be changed with respect to any year covered by that Agreement.
A Trustee may execute a new Agreement and thereby make a different election as
to the manner of payment with respect to compensation for services performed in
later years.
Beneficiary Designation: May be amended at any time by providing written
notice to the Trust.
Hardship Distributions: Provision is made for hardship distribution in the
case of unforeseeable emergencies.
Taxability of Fees: Deferred compensation should be taxable as ordinary income
in the year distributed to the Trustee. Such distributions may be subject to
withholding pursuant to the tax laws in effect at the time of distribution. In
addition, under current law, self-employment taxes will be due on deferred
Trustee's fees in the year they are received by the Trustee, rather than in the
year earned.
Security of Deferred Amounts: A Trustee's claim against the Trust for amounts
due under the Plan will have the same standing as that of any unsecured general
creditor. The Trust will have no obligation to set aside monies to fund its
obligations under the Plan, and all distributions under the Plan will be made
from the general funds of the Trust.
Annual Report: The Trust will provide each participating Trustee with an
annual statement of his Deferred Compensation Account balance(s).
-2-
<PAGE> 3
GALAXY FUND II
DEFERRED COMPENSATION PLAN
1. Eligibility. Each Trustee of the Board of Trustees
(the "Board") of Galaxy Fund II (the "Trust") shall be eligible to participate
in the Galaxy Fund II Deferred Compensation Plan (the "Plan").
2. Terms of Participation
(a) A Trustee may elect to participate in the
Plan by signing the Deferred Compensation Agreement (the "Agreement") in the
form attached hereto and incorporated by reference herein. A Trustee's
participation will commence on January 1 of the calendar year immediately
following the year in which the Trustee executed the Agreement, except that
when a Trustee executes an Agreement within 30 days of the Plan's initial
effective date or within 30 days of first becoming eligible to participate in
the Plan, participation will commence with respect to services to be performed
subsequent to the date of the Agreement.
(b) Participation in the Plan will continue until
the Trustee furnishes written notice to the Trust that the Trustee terminates
his participation in the Plan or until such time as the Trust terminates the
Plan pursuant to Section 6 below. Termination by a Trustee shall be made by
written notice delivered or mailed to the Treasurer of the Trust (the
"Treasurer") (or his delegate) no later than December 31 of the calendar year
preceding the calendar year in which such termination is to take effect.
(c) A Trustee who has terminated his
participation may subsequently elect to participate in the Plan by executing a
new Agreement in accordance with subsection (a) above.
(d) A Trustee may alter the amount of deferral
for any future calendar year, and/or elect a different method by which he will
receive amounts deferred for future calendar years, if the Trustee and the
Trust enter into a new Agreement on or before December 31 of the calendar year
preceding the calendar year for which the new Agreement is to take effect. For
each new Agreement which changes the method of receipt of deferred amounts, a
new record account (the "Deferred Compensation Account" or "Account") will be
established for the Trustee.
3. Deferred Compensation Account. While a Trustee
participates in the Plan pursuant to an Agreement, all deferred compensation
payable by the Trust for the Trustee's services shall be credited to the
Trustee's Deferred Compensation Account
<PAGE> 4
under the applicable Agreement. A Trustee shall allocate amounts in his
Account(s) among the investment options available under the Plan by submitting
a written request to the Treasurer (or his delegate) on such form as may be
required by the Treasurer prior to the date deferrals are scheduled to begin.
The Board shall specify from time to time the investment options available
under the Plan. The Trustee may request that the investment allocation of his
Account, including past as well as future deferrals, be changed by submitting a
written request to the Treasurer (or his delegate) on such form as may be
required by the Treasurer, or by telephoning the Treasurer (or his delegate);
provided that a Trustee may make an investment allocation change only once per
calendar quarter. Such changes shall become effective as soon as
administratively feasible after the Treasurer (or his delegate) receives such
request.
The Trustee's Account(s) will be credited with any income,
gains and losses that would have been realized if amounts equal to the deferred
amounts had been invested in accordance with the Trustee's allocation election
on the date such deferred amounts were credited to the Trustee's Account(s).
For this purpose, any amounts that would have been received, had amounts been
invested as described above, from a chosen investment option will be treated as
if reinvested in that option on the date such amounts would have been received.
4. Distribution. As of January 31 of the year following
the year in which the Trustee dies, retires, resigns, becomes disabled or
otherwise ceases to be a member of the Board, the total amount credited to the
Trustee's Account under the applicable Agreement shall be distributed to the
Trustee (or upon his death, to his designated beneficiary) in accordance with
one of the alternatives set forth below:
(i) one single-sum payment; or
(ii) any number of annual installments (as
calculated in the following paragraph) for a period of two to 15 years.
Installments shall be paid annually as of January 31 until the balance in the
Trustee's Account is exhausted.
Selection of an alternative shall be made at the time the
Trustee executes the Agreement. Except as provided in the following paragraph,
the amount of each installment payment, other than the final payment, shall be
equal to 1/n multiplied by the balance in the Trustee's Account as of the
previous December 31, where "n" equals the number of payments yet to be made.
The final payment will equal the balance in the Trustee's Account as of the
final January 31 payment date, and such payment shall be made as soon as
practicable after such date. For example, if payments are to be made in ten
annual installments commencing on January 31, 2000, the first payment will be
equal to 1/10th of
-2-
<PAGE> 5
the December 31, 1999 balance in the Account, and the following year's payment
would be equal to 1/9th of the December 31, 2000 balance.
If the balance in the Trustee's Account as of the date of the
first scheduled payment is less than $2,000, the Trust shall instead pay such
amount in a single sum as of that date. Further, the Trustee may not select a
period of time which will cause an annual payment to be less than $1,000.
Notwithstanding the foregoing, in the event the Trustee ceases to be a Trustee
of the Trust and becomes a proprietor, officer, partner, or employee of, or
otherwise becomes affiliated with, any business or entity that is in
competition with the Trust, or becomes employed by any governmental agency
having jurisdiction over the affairs of the Trust, the Trust reserves the right
at the sole discretion of the Board to make an immediate single-sum payment to
the Trustee in an amount equal to the balance in the Trustee's Account at that
time.
Notwithstanding the preceding two paragraphs, the Trust may at
any time make a single sum payment to the Trustee (or surviving beneficiary)
equal to a part or all of the balance in the Trustee's Account upon a showing
of an unforeseeable (i.e., unanticipated) financial emergency caused by an
event beyond the control of the Trustee (or surviving beneficiary) which would
result in severe financial hardship to the Trustee (or surviving beneficiary)
if such payment were not made. The determination of whether such emergency
exists shall be made at the sole discretion of the Board (with the Trustee
requesting the payment not participating in the discussion or the decision).
The amount of the payment shall be limited to the amount necessary to meet the
financial emergency, and any remaining balance in the Trustee's Account shall
thereafter be paid at the time and in the manner otherwise set forth in this
Section.
If there is no beneficiary designation in effect at the
Trustee's death or the designated beneficiary is dead at the Trustee's death,
any amounts in the Trustee's Account shall be paid in a single sum to the
Trustee's estate. If the designated beneficiary dies after beginning to
receive installment payments, any amounts payable from the Trustee's Account
shall be paid in a single sum to the beneficiary's estate at the beneficiary's
death.
5. Designation of Beneficiary. A Trustee may designate
in writing any person or legal entity as his beneficiary to receive any amounts
payable from his Account(s) upon his death. If the Trustee should die without
effectively designating a surviving beneficiary, his beneficiary shall be his
estate.
-3-
<PAGE> 6
6. Amendment and Termination of the Plan. The Trust
reserves the right to amend or terminate the Plan by a Board resolution. A
written notice of any such amendment or termination shall be delivered or
mailed to each participating Trustee no later than December 31 of the calendar
year preceding the calendar year in which the amendment or termination is to
take effect. The balance in the Trustee's Account(s) shall remain subject to
the provisions of the Plan and distribution will not be accelerated because of
the termination of the Plan.
7. Non-Assignability. The right of the Trustee or any
other person to receive payments under this Plan or any Agreement hereunder
shall not be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, attachment, or garnishment by creditors of the
Trustee or any beneficiary.
8. Miscellaneous
(a) No Funding. The Trust shall not be required
to fund or secure in any way its obligations hereunder. Nothing in the Plan or
in any Agreement hereunder and no action taken pursuant to the provisions of
the Plan or of any Agreement hereunder shall be construed to create a trust or
a fiduciary relationship of any kind. Payments under the Plan and any
Agreement hereunder shall be made when due from the general assets of the
Trust. Neither a Trustee nor his designated beneficiary shall acquire any
interest in such assets by virtue of the Plan or any Agreement hereunder. This
Plan constitutes a mere promise by the Trust to make payments in the future,
and to the extent that a Trustee or his designated beneficiary acquires a right
to receive any payment from the Trust under the Plan, such right shall be no
greater than the right of any unsecured general creditor of the Trust. The
Trust intends for this Plan to be unfunded for tax purposes and for the
purposes of Title I of the Employee Retirement Income Security Act of 1974, as
amended.
(b) Interpretation. The Trust shall have full
power and authority to interpret, construe and administer this Plan and any
Agreement hereunder and its interpretation and construction thereof, and
actions hereunder, including any valuation of the Trustee's Account(s), or the
amount or recipients of the payment to be made therefrom, shall be binding and
conclusive on all persons for all purposes. The Trust shall not be liable to
any person for any action taken or omitted in connection with the
interpretation and administration of this Plan and any Agreement hereunder
unless attributable to its own willful misconduct or lack of good faith.
(c) Withholding. To the extent required by law,
the Trust shall withhold federal or state income or employment
-4-
<PAGE> 7
taxes from any payments under the Plan or any Agreement hereunder and shall
furnish the Trustee (or beneficiary) and the applicable governmental agency or
agencies with such reports, statements or information as may be required in
connection with such payments.
(d) Incapacity of Payee. If the Trust shall find
that any person to whom any payment is payable under this Plan or any Agreement
hereunder is unable to care for his affairs because of illness or accident, or
is a minor, any payment due (unless a prior claim therefor shall have been made
by a duly appointed guardian, committee or other legal representative) may be
paid to the spouse, a parent, or a brother or sister, or to any person deemed
by the Trust to have incurred expense for the person who is otherwise entitled
to payment, in such manner and proportions as the Trust may determine. Any
such payment shall serve to discharge the liability of the Trust under this
Agreement to make payment to the person who is otherwise entitled to payment.
(e) Expenses. All expenses incurred in
administering this Plan and any Agreement hereunder shall be paid by the Trust.
(f) No Additional Rights. Nothing in this Plan
or any Agreement hereunder shall be construed as conferring any right on the
part of the Trustee to be or remain a Trustee of the Trust or to receive any
particular amount of Trustee's fees.
(g) Binding Nature. This Plan and any Agreement
hereunder shall be binding upon, and inure to the benefit of, the Trust, its
successors and assigns, and each Trustee and his heirs, executors,
administrators and legal representatives.
(h) Governing Law. This Plan and any Agreement
hereunder shall be governed by and construed under the laws of the Commonwealth
of Massachusetts.
(i) Effective Date. This Plan shall be effective as of March 1, 1996.
Date: December 7, 1995 Adopted by the
Board of Trustees
of Galaxy Fund II
-5-
<PAGE> 1
EXHIBIT 7(b)
GALAXY FUND II
DEFERRED COMPENSATION AGREEMENT
This Agreement is entered into this 25th day of March, 1996, between
Galaxy Fund II (the "Trust") (consisting of the Large Company Index, Small
Company Index, Utility Index, U.S. Treasury Index and Municipal Bond Funds) and
any other investment portfolio that may be established by the Trust in the
future, and James M. Seed (the "Trustee").
WHEREAS, the Trustee will be rendering valuable services to the Trust
as a member of the Board of Trustees (the "Board"), and the Trust is willing to
accommodate the Trustee's desire to be compensated for such services on a
deferred basis;
NOW, THEREFORE, the parties hereto agree as follows:
1. With respect to services performed by the Trustee for the
Trust on and after March 1, 1996, the Trustee shall defer 100%
of the amounts otherwise payable to the Trustee for serving as
a Trustee. The deferred compensation shall be credited to a
book reserve maintained by the Trust in the Trustee's name,
together with credited amounts in the nature of income, gains
and losses (the "Account"). The Account maintained for the
Trustee shall be paid to the Trustee on a deferred basis in
accordance with the terms of this Agreement.
2. The Trust shall credit the Trustee's Account as of the day
such amount would be paid to the Trustee if this Agreement
were not in effect. Such Account shall be valued at fair
market value as of the last day of the calendar year and such
other dates as are necessary for the proper administration of
this Agreement, and the Trustee shall receive a written
accounting of his Account balance following such valuation.
The Trustee may request that all or a portion of the amount in
his Account be allocated among one or more of the investment
options offered by the Board under the Galaxy Fund II Deferred
Compensation Plan (the "Plan"). The initial allocation
request may be made at the time of enrollment. Once made, an
investment allocation request shall remain in effect for all
future amounts allocated to the Trustee's Account until
changed by the Trustee. The Trustee may change his investment
allocation for past deferrals and future deferrals by
submitting a written request to the Treasurer of the Trust
(the "Treasurer") (or his delegate) on such form as may be
required by the Treasurer or by telephoning the Treasurer (or
his delegate); provided that, the
<PAGE> 2
Trustee may make an investment allocation change only once per
calendar quarter. Such changes shall become effective as soon
as administratively feasible after the Treasurer (or his
delegate) receives such request. Although the Trust intends
to invest the amounts in the Trustee's Account according to
the Trustee's requests, the Trust reserves the right to invest
the amounts in the Trustee's Account without regard to such
requests.
The Trustee agrees on behalf of the Trustee and any designated
beneficiary to assume all risks in connection with the
investment performance of any amounts which are invested or
which continue to be invested in accordance with the
investment directions of the Trustee.
Title to and beneficial ownership of any assets, whether cash
or investments, which the Trust may use to pay benefits
hereunder, shall at all times remain in the Trust, and the
Trustee and any designated beneficiary shall not have any
property interest whatsoever in any specific assets of the
Trust.
3. As of January 31 of the calendar year following the calendar
year in which the Trustee dies, retires, resigns, becomes
disabled or otherwise ceases to be a member of the Board, the
Trust (subject to the terms of the Plan) shall: [check one]
[ ] pay the Trustee (or his beneficiary) a single-sum
amount equal to the balance in the Trustee's Account
on that date; or
[ ] commence making annual payments to the Trustee (or
his beneficiary) for a period of 10 [insert a whole
number from two through 15] years.
If the second box is selected, such payments shall be made on
January 31st of each year in approximately equal annual
installments as adjusted and computed by the Trust in
accordance with the terms of the Plan, with the final payment
equalling the then remaining balance in the Trustee's Account.
<PAGE> 3
4. In the event the Trustee dies before payments have commenced
or been completed under Section 3, the Trust shall make
payment in accordance with Section 3 to the Trustee's
designated beneficiary, whose name, address, and Social
Security number are:
Eva M. Seed
192 Cedar Street
East Greenwich, Rhode Island 02818
###-##-####
If there is no beneficiary designation in effect at the
Trustee's death or the designated beneficiary is dead at the
Trustee's death, any amounts in the Trustee's Account shall be
paid in a single sum to the Trustee's estate. If the
designated beneficiary dies after beginning to receive
installment payments, any amounts payable from the Trustee's
Account shall be paid in a single sum to the beneficiary's
estate at the beneficiary's death.
5. This Agreement shall remain in effect with respect to the
Trustee's compensation for services performed as a Trustee of
the Trust in all future years unless terminated on a
prospective basis in writing in accordance with the terms of
the Plan. The Trustee may subsequently elect to defer his
compensation by executing a new Deferred Compensation
Agreement. If a new Agreement is entered into which changes
the manner in which deferred amounts will be distributed, a
new Trustee's Account will be established for purposes of
crediting deferrals, income, gains, and losses under the new
Agreement. Any new Agreement shall relate solely to
compensation for services performed after the new Agreement
becomes effective and shall not alter the terms of this
Agreement with respect to the deferred payment of compensation
for services performed during any calendar year in which this
Agreement was in effect. Notwithstanding the foregoing, the
Trustee may at any time amend the beneficiary designation
hereunder by written notice to the Trust.
6. This Agreement constitutes a mere promise by the Trust to make
benefit payments in the future, and the right of any person to
receive such payments under this Agreement shall be no greater
than the right of any unsecured general creditor of the Trust.
The Trust and Trustee intend for this Agreement to be unfunded
for tax purposes and for the purposes of Title I of the
-3-
<PAGE> 4
Employee Retirement Income Security Act of 1974, as amended.
7. Any written notice to the Trust referred to in this Agreement
shall be made by mailing or delivering such notice to the
Trust, c/o Neil Forrest, First Data Investor Services Group,
Inc., 4400 Computer Drive, Westboro, MA 01581-5108 to the
attention of the Treasurer. Any written notice to the Trustee
referred to in this Agreement shall be made by delivery to the
Trustee in person or by mailing such notice to the Trustee at
his last known residential or business address.
8. This Agreement is subject to all of the terms contained in the
Plan as attached hereto and incorporated by reference herein.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first above written.
GALAXY FUND II
By:/s/John T. O'Neill
Title:President and Treasurer
James M. Seed, TRUSTEE
/s/James M. Seed
(Signature of Trustee)
-4-
<PAGE> 5
GALAXY FUND II DEFERRED COMPENSATION PLAN
TRUSTEE ACCOUNT ALLOCATION REQUEST
I hereby request to have my Account(s) under the Galaxy Fund
II Deferred Compensation Plan invested in the following investment options in
the percentages indicated as soon as administratively feasible. This request
supersedes any prior requests I have made with respect to such Plan, and
applies to amounts deferred in the past under the Plan as well as to future
deferrals. I hereby agree to assume all risks in connection with the
investment performance of the amounts which are invested in accordance with
this election.
<TABLE>
<CAPTION>
Percentage
Invested Investment Option
---------- -------------------------
<S> <C>
100% U.S. Treasury Bills Account (two-year rate,
----------
adjusted quarterly)
100%
==========
</TABLE>
DATED:March 25, 1996 /s/James M. Seed
__________________________
<PAGE> 1
EXHIBIT 10
July 29, 1996
Galaxy Fund II
4400 Computer Drive
Westborough, Massachusetts 01581
RE: POST-EFFECTIVE AMENDMENT NO. 19 TO THE REGISTRATION
STATEMENT ON FORM N-1A FOR GALAXY FUND II/LARGE COMPANY
INDEX FUND, SMALL COMPANY INDEX FUND, UTILITY INDEX
FUND, U.S. TREASURY INDEX FUND AND MUNICIPAL BOND
FUND -- REGISTRATION NOS. 33-33617/811-06051
Ladies and Gentlemen:
We have acted as counsel for Galaxy Fund II, a Massachusetts
business trust (the "Trust"), and have been informed by the Trust of the
registration of 8,230,540 shares of the Trust ("Trust Shares"), pursuant to
Post-Effective Amendment No. 19 to the Trust's Registration Statement under the
Securities Act of 1933. The registration of such Trust Shares has been made in
reliance on Rule 24e-2 under the Investment Company Act of 1940. The Trust is
an open-end investment company authorized to issue an unlimited number of Trust
Shares, par value $.001 per share, of each of the Funds identified above, and
we assume that it will remain so authorized. We have reviewed the Trust's
Declaration of Trust, as amended, its By-Laws, resolutions adopted by its Board
of Trustees and such other legal and factual matters as we have deemed
appropriate. We have relied on an opinion of Ropes & Gray, special
Massachusetts counsel to the Trust, insofar as our opinion below relates to
matters arising under the laws of the Commonwealth of Massachusetts.
On the basis of the foregoing, we are of the opinion that the
foregoing 8,230,540 shares of the Trust, when issued for payment as described
in the Trust's Prospectuses, will be validly issued, fully paid, and
non-assessable by the Trust.
<PAGE> 2
Galaxy Fund II
July 29, 1995
Page 2
Under Massachusetts law, shareholders of a Massachusetts
business trust could, under certain circumstances, be held personally liable for
the obligations of the trust. However, the Declaration of Trust disclaims
shareholder liability in connection with Trust property or the acts, obligations
or affairs of the Trust. The Declaration of Trust also states that neither the
Trust nor its trustees, nor any officer, employee or agent of the Trust, shall
have any power to bind any shareholder of the Trust personally or, except as
specifically provided in the Declaration of Trust, to call upon any such
shareholder for the payment of any sum of money or assessment whatsoever other
than such as the shareholder may at any time personally agree to pay by way of
subscription for shares of the Trust or otherwise. The Declaration of Trust
further provides that every note, bond, contract or other undertaking issued by
or on behalf of the Trust or its trustees shall include a recitation limiting
the obligation represented thereby to the Trust and its assets (but that the
omission of such a recitation shall not operate to bind any shareholder of the
Trust). The Declaration of Trust provides for indemnification out of the assets
of the Trust belonging to the series of shares owned by a shareholder for all
claims and liabilities to which that shareholder may become subject by reason of
his or her being or having been a shareholder, and for all legal and other
expenses reasonably incurred by the shareholder in connection with any such
claim or liability. Thus, the risk of a shareholder's incurring financial loss
on account of shareholder liability is limited to circumstances in which the
relevant series of shares itself would be unable to meet its obligations, except
that a shareholder may be liable for amounts that the shareholder has personally
agreed to pay by way of subscription for shares of the Trust or otherwise.
We hereby consent to this opinion with the Securities and
Exchange Commission as an exhibit to Post-Effective Amendment No. 19 to the
Trust's Registration Statement.
Very truly yours,
/s/Drinker Biddle & Reath
DRINKER BIDDLE & REATH
<PAGE> 1
EXHIBIT 11(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees of
Galaxy Fund II:
We hereby consent to the following with respect to Post-Effective Amendment No.
19 to the Registration Statement on Form N-1A (File No. 33-33617) under the
Securities Act of 1933, as amended, of Galaxy Fund II:
1. The incorporation by reference of our report dated May 10, 1996
accompanying the financial statements of the Large Company Index Fund,
Small Company Index Fund, Utility Index Fund, U.S. Treasury Index Fund
and Municipal Bond Fund (five series of Galaxy Fund II) as of March
31, 1996 into the Statement of Additional Information.
2. The reference to our firm under the heading "Financial Highlights" in
the Prospectuses.
3. The reference to our firm under the heading "Independent Accountants"
in the Statements of Additional Information.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
July 26, 1996
<PAGE> 1
EXHIBIT 11(b)
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the references to our
Firm under the caption "Counsel" in the Statement of Additional Information
that is included in Post-Effective Amendment No. 19 to the Registration
Statement on Form N-1A under the Investment Company Act of 1940, as amended, of
Galaxy Fund II. This consent does not constitute a consent under Section 7 of
the Securities Act of 1933, and in consenting to the use of our name and the
references to our Firm under such caption we have not certified any part of the
Registration Statement and do not otherwise come within the categories of
persons whose consent is required under Section 7 or the rules and regulations
of the Securities and Exchange Commission thereunder.
Philadelphia, Pennsylvania /s/Drinker Biddle & Reath
July 29, 1996 DRINKER BIDDLE & REATH
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> LARGE COMPANY INDEX
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 170,523,949
<INVESTMENTS-AT-VALUE> 240,676,298
<RECEIVABLES> 853,533
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 127,851
<TOTAL-ASSETS> 241,657,682
<PAYABLE-FOR-SECURITIES> 783,206
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 73,565
<TOTAL-LIABILITIES> 856,771
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 166,738,921
<SHARES-COMMON-STOCK> 11,998,707
<SHARES-COMMON-PRIOR> 9,363,692
<ACCUMULATED-NII-CURRENT> 950,077
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,766,233
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 70,233,680
<NET-ASSETS> 240,688,911
<DIVIDEND-INCOME> 4,557,162
<INTEREST-INCOME> 306,690
<OTHER-INCOME> 0
<EXPENSES-NET> 776,312
<NET-INVESTMENT-INCOME> 4,087,540
<REALIZED-GAINS-CURRENT> 4,763,499
<APPREC-INCREASE-CURRENT> 43,102,621
<NET-CHANGE-FROM-OPS> 51,953,660
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,206,646)
<DISTRIBUTIONS-OF-GAINS> (3,754,041)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 78,100,034
<NUMBER-OF-SHARES-REDEEMED> (36,346,082)
<SHARES-REINVESTED> 6,344,797
<NET-CHANGE-IN-ASSETS> 93,091,721
<ACCUMULATED-NII-PRIOR> 69,183
<ACCUMULATED-GAINS-PRIOR> 1,756,775
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 194,615
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 776,312
<AVERAGE-NET-ASSETS> 193,899,160
<PER-SHARE-NAV-BEGIN> 15.76
<PER-SHARE-NII> 0.38
<PER-SHARE-GAIN-APPREC> 4.57
<PER-SHARE-DIVIDEND> (0.31)
<PER-SHARE-DISTRIBUTIONS> (0.34)
<RETURNS-OF-CAPITAL> (0.65)
<PER-SHARE-NAV-END> 20.06
<EXPENSE-RATIO> 0.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> GALAXY II SMALL CO. INDEX
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 205,479,347
<INVESTMENTS-AT-VALUE> 288,183,174
<RECEIVABLES> 3,583,779
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 249,566
<TOTAL-ASSETS> 291,916,559
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 192,308
<TOTAL-LIABILITIES> 192,308
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 196,896,969
<SHARES-COMMON-STOCK> 13,083,419
<SHARES-COMMON-PRIOR> 13,353,848
<ACCUMULATED-NII-CURRENT> 291,719
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 11,827,026
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 82,708,537
<NET-ASSETS> 291,724,253
<DIVIDEND-INCOME> 4,474,301
<INTEREST-INCOME> 558,173
<OTHER-INCOME> 524
<EXPENSES-NET> 1,052,252
<NET-INVESTMENT-INCOME> 3,980,746
<REALIZED-GAINS-CURRENT> 15,267,683
<APPREC-INCREASE-CURRENT> 50,356,620
<NET-CHANGE-FROM-OPS> 69,605,049
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,757,318)
<DISTRIBUTIONS-OF-GAINS> (4,274,380)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 40,205,782
<NUMBER-OF-SHARES-REDEEMED> (53,049,330)
<SHARES-REINVESTED> 8,699,735
<NET-CHANGE-IN-ASSETS> 56,429,537
<ACCUMULATED-NII-PRIOR> 1,068,291
<ACCUMULATED-GAINS-PRIOR> 833,723
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 264,753
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,052,252
<AVERAGE-NET-ASSETS> 262,499,547
<PER-SHARE-NAV-BEGIN> 17.62
<PER-SHARE-NII> 0.32
<PER-SHARE-GAIN-APPREC> 5.07
<PER-SHARE-DIVIDEND> (0.38)
<PER-SHARE-DISTRIBUTIONS> (0.33)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 22.30
<EXPENSE-RATIO> 0.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> GALAXY II US TREASURY INDEX
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 121,263,205
<INVESTMENTS-AT-VALUE> 122,679,472
<RECEIVABLES> 2,568,186
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 920
<TOTAL-ASSETS> 125,248,578
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 304,399
<TOTAL-LIABILITIES> 304,399
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 128,776,077
<SHARES-COMMON-STOCK> 12,198,618
<SHARES-COMMON-PRIOR> 10,517,703
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (67,975)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (5,180,190)
<ACCUM-APPREC-OR-DEPREC> 1,416,267
<NET-ASSETS> 124,944,179
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,924,207
<OTHER-INCOME> 0
<EXPENSES-NET> 470,414
<NET-INVESTMENT-INCOME> 7,453,793
<REALIZED-GAINS-CURRENT> 489,553
<APPREC-INCREASE-CURRENT> 2,627,125
<NET-CHANGE-FROM-OPS> 10,570,472
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (7,453,793)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 38,639,829
<NUMBER-OF-SHARES-REDEEMED> (27,260,500)
<SHARES-REINVESTED> 6,197,486
<NET-CHANGE-IN-ASSETS> 20,693,494
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (67,975)
<OVERDIST-NET-GAINS-PRIOR> (5,669,743)
<GROSS-ADVISORY-FEES> 117,604
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 470,414
<AVERAGE-NET-ASSETS> 117,465,985
<PER-SHARE-NAV-BEGIN> 9.91
<PER-SHARE-NII> 0.66
<PER-SHARE-GAIN-APPREC> 0.29
<PER-SHARE-DIVIDEND> (0.66)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.24
<EXPENSE-RATIO> 0.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> GALAXY II UTILITY INDEX
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 51,647,710
<INVESTMENTS-AT-VALUE> 56,132,827
<RECEIVABLES> 276,239
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 56,409,066
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 25,571
<TOTAL-LIABILITIES> 25,571
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 53,407,153
<SHARES-COMMON-STOCK> 4,686,391
<SHARES-COMMON-PRIOR> 5,348,862
<ACCUMULATED-NII-CURRENT> 80,298
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (1,589,073)
<ACCUM-APPREC-OR-DEPREC> 4,485,117
<NET-ASSETS> 56,383,495
<DIVIDEND-INCOME> 2,281,470
<INTEREST-INCOME> 23,703
<OTHER-INCOME> 0
<EXPENSES-NET> 220,247
<NET-INVESTMENT-INCOME> 2,084,926
<REALIZED-GAINS-CURRENT> (494,211)
<APPREC-INCREASE-CURRENT> 11,134,521
<NET-CHANGE-FROM-OPS> 12,725,236
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,114,529)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,908,802
<NUMBER-OF-SHARES-REDEEMED> (15,902,866)
<SHARES-REINVESTED> 1,935,740
<NET-CHANGE-IN-ASSETS> 3,552,383
<ACCUMULATED-NII-PRIOR> 109,901
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (1,094,862)
<GROSS-ADVISORY-FEES> 55,279
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 220,247
<AVERAGE-NET-ASSETS> 54,989,246
<PER-SHARE-NAV-BEGIN> 9.88
<PER-SHARE-NII> 0.44
<PER-SHARE-GAIN-APPREC> 2.15
<PER-SHARE-DIVIDEND> (0.44)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.03
<EXPENSE-RATIO> 0.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> Galaxy II Muni Bond Fund
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 21,700,230
<INVESTMENTS-AT-VALUE> 22,267,850
<RECEIVABLES> 344,867
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 22,612,717
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 134,478
<TOTAL-LIABILITIES> 134,478
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 22,999,318
<SHARES-COMMON-STOCK> 2,202,864
<SHARES-COMMON-PRIOR> 2,470,442
<ACCUMULATED-NII-CURRENT> 21,592
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (1,110,292)
<ACCUM-APPREC-OR-DEPREC> 567,620
<NET-ASSETS> 22,478,238
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,202,574
<OTHER-INCOME> 0
<EXPENSES-NET> 141,114
<NET-INVESTMENT-INCOME> 1,061,460
<REALIZED-GAINS-CURRENT> 24,569
<APPREC-INCREASE-CURRENT> 609,928
<NET-CHANGE-FROM-OPS> 1,695,957
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,061,460)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,239,986
<NUMBER-OF-SHARES-REDEEMED> (5,909,403)
<SHARES-REINVESTED> 953,563
<NET-CHANGE-IN-ASSETS> (2,081,356)
<ACCUMULATED-NII-PRIOR> 21,592
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (1,134,861)
<GROSS-ADVISORY-FEES> 59,097
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 141,114
<AVERAGE-NET-ASSETS> 23,404,793
<PER-SHARE-NAV-BEGIN> 9.94
<PER-SHARE-NII> 0.46
<PER-SHARE-GAIN-APPREC> 0.26
<PER-SHARE-DIVIDEND> (0.46)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
