<PAGE> 1
As filed with the Securities and Exchange Commission on July 29, 1997
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. 23 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 25 [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
P.O. Box 5108
Westboro, 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,LLP
1345 Chestnut Street, Suite 1100
Philadelphia, Pennsylvania 19107
(Name and Address of Agent for Service)
Copy to:
Jylanne Dunne, Vice President
First Data Investor Services Group, Inc.
4400 Computer Drive
P.O. Box 5108
Westboro, Massachusetts 01581
----------
It is proposed that this filing will become effective (check appropriate box):
[X] immediately upon filing pursuant to paragraph (b), or
[ ] on August 1, 1997 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.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940,
Registrant has registered an indefinite number of shares of beneficial interest
under the Securities Act of 1933. Registrant filed a Rule 24f-2 Notice for its
most recent fiscal year on May 30, 1997. Registrant continues its election to
register an indefinite number of shares pursuant to Rule 24f-2.
<PAGE> 2
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>
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>
-1-
<PAGE> 3
GALAXY FUND II
LARGE COMPANY INDEX FUND
SMALL COMPANY INDEX FUND
UTILITY INDEX FUND
U.S. TREASURY INDEX FUND
PROSPECTUS
JULY 29, 1997
<PAGE> 4
- --------------------------------------------------------------------------------
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.......................................................... 6
FINANCIAL HIGHLIGHTS..................................................... 8
INVESTMENT OBJECTIVES AND POLICIES....................................... 12
The Indexing Approach.............................................. 12
The Large Company Index Fund....................................... 13
The Small Company Index Fund....................................... 13
The Utility Index Fund............................................. 14
The U.S. Treasury Index Fund....................................... 15
OTHER INVESTMENT PRACTICES AND RISK CONSIDERATIONS....................... 16
Temporary Cash Balances............................................ 16
Securities Lending................................................. 16
Stock Index Futures Contracts...................................... 16
INVESTMENT LIMITATIONS................................................... 17
INVESTMENT RISKS......................................................... 17
PRICING OF SHARES........................................................ 18
DIVIDENDS AND DISTRIBUTIONS.............................................. 18
TAXES ................................................................... 19
MANAGEMENT OF THE FUNDS.................................................. 20
Investment Adviser................................................. 20
Administrator and Sub-Administrator............................... 21
Distributor........................................................ 21
Custodian and Transfer Agent...................................... 21
HOW TO PURCHASE AND REDEEM SHARES........................................ 21
Purchase Procedures - Customers of Institutions.................... 21
Purchase Procedures - Direct Investors............................. 22
Other Purchase Information......................................... 22
Redemption Procedures - Customers of Institutions.................. 23
Redemption Procedures - Direct Investors........................... 23
Other Redemption Information ...................................... 25
DESCRIPTION OF SHARES.................................................... 25
PERFORMANCE AND YIELD INFORMATION........................................ 26
INVESTOR PROGRAMS........................................................ 27
Exchange Privilege................................................. 27
Retirement Plans................................................... 28
Automatic Investment Program....................................... 28
Systematic Withdrawal Plan......................................... 28
Payroll Deduction Program.......................................... 28
College Investment Program......................................... 29
Direct Deposit Program............................................. 29
INFORMATION SERVICES..................................................... 29
Galaxy II Information Center -- 24 Hour Information Service........ 29
Voice Response System.............................................. 30
Galaxy II Shareholder Services..................................... 30
MISCELLANEOUS............................................................ 30
</TABLE>
<PAGE> 5
GALAXY FUND II - THE INDEXED FUNDS
<TABLE>
<S> <C>
4400 Computer Drive For an application and information regarding
P.O. Box 5108 purchases, redemptions, exchanges and other
Westboro, Massachusetts 01581-5108 shareholder services or for current performance, call
1-800-628-0414.
</TABLE>
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 Standard & Poor's
SmallCap 600 Stock Price Index (the "S&P SmallCap 600 Index").
The UTILITY INDEX FUND - U.S. publicly traded common stocks of
companies in the utility industry, as represented by the Standard & Poor's
Utilities Composite Stock Price Index (the "S&P Utilities 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 1-800-628-0414 or by writing to Galaxy II, c/o First
Data Investor Services Group, Inc., 4400 Computer Drive, P.O. Box 5108,
Westboro, Massachusetts 01581. The Statement of Additional Information has been
<PAGE> 6
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.
JULY 29, 1997
-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 Galaxy II'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 1-800-628-0414.
Q: Who advises the Funds?
A: The Funds are managed by Fleet Investment Advisors Inc. ("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 December 31, 1996 of approximately $85 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 First Data Distributors, Inc. ("FD
Distributors"). 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 FIS Securities, Inc., Fleet
Brokerage Securities, Inc., Fleet Securities, Inc., Fleet Enterprises,
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 Plan accounts ("SEPs"), Multi- Employee Pension Plan accounts
("MERPs") and Keogh Plan accounts is $500 (including 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 Fund shares. See "How to Purchase and Redeem Shares--Other Purchase
Information" below.
Q: When are dividends paid?
-3-
<PAGE> 8
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?
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 Company 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 common stocks and
bonds. 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 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 FD Distributors (call 1-800-628-
-4-
<PAGE> 9
0414). 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, Inc. (call 1-800-221-8210). 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> 10
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, 1997. "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. ("FDISG"), the Funds'
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.
Fleet National Bank ("FNB"), the Funds' 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>
-6-
<PAGE> 11
These expense figures do not reflect the annual account maintenance fee
for each Fund of $10.00 that would otherwise be payable by shareholders had not
FDISG 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.
-7-
<PAGE> 12
FINANCIAL HIGHLIGHTS
The following Financial Highlights for the fiscal years ended March 31,
1995, March 31, 1996 and March 31, 1997 have been audited by Coopers & Lybrand
L.L.P., independent accountants, whose report is contained in the Trust's
Annual Report to Shareholders is incorporated by reference into the Statement
of Additional Information. The Financial Highlights for the remaining periods
were audited by other auditors. 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 1-800-628-0414.
LARGE COMPANY INDEX FUND
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
PERIOD
ENDED
YEAR ENDED MARCH 31, MARCH 31
----------------------------------------------------------------- ---------
1997 1996 1995 1994 1993 1992 1991(1)
---- ------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period.................................... $20.06 $ 15.76 $ 14.36 $ 14.59 $ 13.04 $ 12.10 $ 10.00
------ ------- -------- -------- -------- -------- -------
Income from Investment Operations:
Net investment income(2).................... 0.43 0.38 0.37 0.36 0.34 0.31 0.15
Net realized and unrealized
gain (loss) on
investments and futures contracts.......... 3.41 4.57 1.73 (0.20) 1.55 0.95 2.10
------ ------- -------- -------- -------- -------- -------
Total from Investment
Operations:.......................... 3.84 4.95 2.10 0.16 1.89 1.26 2.25
------ ------- -------- -------- -------- -------- -------
Less Dividends:
Dividends from net investment
income..................................... (0.38) (0.31) (0.37) (0.36) (0.34) (0.31) (0.15)
Dividends from net realized
capital gains.............................. (0.43) (0.34) (0.33) (0.03) -- (0.01) --
------ ------- -------- -------- -------- -------- -------
Total Dividends:....................... 0.81 (0.65) (0.70) (0.39) (0.34) (0.32) (0.15)
------ ------- -------- -------- -------- -------- -------
Net increase (decrease) in net asset
value........................................ 3.03 4.30 1.40 (0.23) 1.55 0.94 2.10
------ ------- -------- -------- -------- -------- -------
Net Asset Value, End of Period................. $23.09 $ 20.06 $ 15.76 $ 14.36 $ 14.59 $ 13.04 $ 12.10
====== ======= ======== ======== ======== ======== =======
Total Return................................... 19.32% 31.80% 15.07% 1.02% 14.68% 10.43% 22.60%(5)
Ratios/Supplemental Data:
Net Assets, End of
Period (in 000's)............................ $421,652 $240,689 $147,597 $143,828 $133,426 $87,118 $17,215
Ratios to average net assets:
Net investment income including reimbursement 2.19% 2.11% 2.48% 2.41% 2.57% 2.79% 3.45%(5)
Operating expenses including reimbursement.. 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40%(5)
Operating expenses excluding reimbursement... 0.40% 0.41% 0.41% 0.40% 0.40% 0.40% 0.40%(5)
Portfolio Turnover Rate........................ 11% 5% 7% 4% 0% 0% 0%(5)
Average Commission Rate Paid(3)............... $0.0387 $0.0203 N/A N/A N/A N/A N/A
</TABLE>
1 The Fund commenced operations on October 1, 1990.
2 Net investment income per share before reimbursement by the
sub-administrator for the fiscal years ended March 31, 1997, 1996 and 1995
was $0.43, $0.38 and $0.37, respectively.
3 Required disclosure for fiscal years beginning on or after September 1,
1995.
4 Annualized
5 Not Annualized
-8-
<PAGE> 13
SMALL COMPANY INDEX FUND
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
PERIOD
ENDED
YEAR ENDED MARCH 31, MARCH 31
-------------------------------------------------------------- --------
1997 1996 1995 1994 1993 1992 1991(1)
---- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period .................................... $22.30 $ 17.62 $ 17.49 $ 17.42 $ 15.39 $ 13.08 $ 10.00
------ ------- -------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income(2) ..................... 0.38 0.32 0.32 0.26 0.25 0.20 0.15
Net realized and unrealized
gain (loss) on
investments and futures contracts .......... 1.76 5.07 0.91 0.39 2.07 2.40 3.01
------ ------- -------- -------- -------- -------- --------
Total from Investment
Operations: ......................... 2.14 5.39 1.23 0.65 2.32 2.60 3.16
------ ------- -------- -------- -------- -------- --------
Less Dividends:
Dividends from net investment
income ..................................... (0.34) (0.38) (0.32) (0.25) (0.24) (0.22) (0.08)
Dividends from net realized
capital gains .............................. (1.46) (0.33) (0.78) (0.33) (0.05) (0.07) --
------- ------- -------- -------- -------- -------- --------
Total Dividends: ........................ 1.80 (0.71) (1.10) (0.58) (0.29) (0.29) (0.08)
------- ------- -------- -------- -------- -------- --------
Net increase (decrease) in net
asset value .................................. 0.34 4.68 0.13 0.07 2.03 2.31 3.08
------- ------- -------- -------- -------- -------- --------
Net Asset Value, End of Period ................ $22.64 $ 22.30 $ 17.62 $ 17.49 $ 17.42 $ 15.39 $ 13.08
======= ======= ======== ======== ======== ======== ========
Total Return ................................... 9.60% 30.85% 7.60% 3.64% 15.20% 20.04% 31.83%(5)
Ratios/Supplemental Data:
Net Assets, End of
Period (in 000's) ............................ $309,474 291,724 $235,295 $255,347 $213,669 $116,290 $ 16,334
Ratios to average net assets:
Net investment income including
reimbursement................................ 1.59% 1.52% 1.72% 1.55% 1.80% 2.26% 2.98%(4)
Operating expenses including reimbursement .. 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40%(4)
Operating expenses excluding reimbursement ... 0.40% 0.41% 0.40% 0.40% 0.40% 0.40% 0.40%(4)
Portfolio Turnover Rate ........................ 8% 14% 10% 17% 5% 6% 1%(5)
Average Commission Rate Paid(3) ................ $0.0480 $0.0225 N/A N/A N/A N/A N/A
</TABLE>
1 The Fund commenced operations on October 1, 1990.
2 Net investment income per share before reimbursement by the
sub-administrator for the fiscal years ended March 31, 1997, 1996 and 1995
was $0.38, $0.31 and $0.31 , respectively.
3 Required disclosure for fiscal years beginning on or after September 1,
1995.
4 Annualized
5 Not Annualized
-9-
<PAGE> 14
UTILITY INDEX FUND
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
PERIOD
ENDED
YEAR ENDED MARCH 31, MARCH 31,
--------------------------------------- ---------
1997 1996 1995 1994 1993(1)
---- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $12.03 $ 9.88 $ 9.99 $ 10.93 $ 10.00
------ ------- ------- ------- -------
Income from Investment Operations:
Net investment income(2)........................... 0.49 0.44 0.47 0.43 0.06
Net realized and unrealized gain (loss) on
investments..................................... (0.09) 2.15 (0.03) (0.93) 0.93
------ ------- ------- ------- -------
Total from Investment Operations:............. 0.40 2.59 0.44 (0.50) 0.99
------ ------- ------- ------- -------
Less Dividends:
Dividends from net investment income............... (0.46) (0.44) (0.46) (0.43) (0.06)
Dividends from net realized capital gains.......... (0.55) -- (0.08) (0.01) --
Dividends in excess of net realized capital gains.. -- -- (0.01) -- --
------ ------- ------- ------- -------
Total Dividends:.............................. (1.01) (0.44) (0.55) (0.44) (0.06)
------ ------- ------- ------- -------
Net increase (decrease) in net asset value........... (0.61) 2.15 (0.11) (0.94) 0.93
------ ------- ------- ------- -------
Net Asset Value, End of Period....................... $11.42 $ 12.03 $ 9.88 $ 9.99 $ 10.93
====== ======= ======= ======= =======
Total Return......................................... 3.46% 26.61% 4.67% 4.83% 9.85%(5)
Ratios/Supplemental Data:
Net Assets, End of Period (in 000's)................. $45,582 $56,383 $52,831 $68,445 $38,151
Ratios to average net assets:
Net investment income including reimbursement...... 3.96% 3.79% 4.62% 4.08% 4.66%(4)
Operating expenses including reimbursement........ 0.40% 0.40% 0.40% 0.40% 0.40%(4)
Operating expenses excluding reimbursement......... 0.40% 0.41% 0.41% 0.40% 0.40%(4)
Portfolio Turnover Rate.............................. 170% 12% 5% 19% 0%(5)
Average Commission Rate Paid(3)...................... $0.0572 $0.0230 N/A N/A N/A
</TABLE>
1 The Fund commenced operations on January 5, 1993.
2 Net investment income per share before reimbursement by the
sub-administrator for the fiscal years ended March 31, 1997, 1996 and 1995
was $0.49, $0.44 and $0.47, respectively.
3 Required disclosure for fiscal years beginning on or after September 1,
1995.
4 Annualized
5 Not Annualized
-10-
<PAGE> 15
U.S. TREASURY INDEX FUND
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
Period
Ended
Year Ended March 31, March 31,
---------------------------------------------------------- --------
1997 1996 1995 1994 1993 1992(1)
---- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period ..................................... $10.24 $ 9.91 $ 10.38 $ 11.01 $ 10.39 $ 10.00
-------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income(2) ...................... 0.64 0.66 0.65 0.58 0.63 0.51
Net realized and unrealized
gain (loss) on investments ................. (0.25) 0.33 (0.29) (0.29) 0.75 0.38
------ -------- -------- -------- -------- --------
Total from Investment
Operations ............................ 0.39 0.99 0.36 0.29 1.38 0.89
------ -------- -------- -------- -------- --------
Less Dividends:
Dividends from net investment
income ..................................... (0.64) (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: ......................... (0.64) (0.66) (0.83) (0.92) (0.76) (0.50)
------ -------- -------- -------- -------- --------
Net increase (decrease) in net
asset value ................................... (0.25) (0.33) (0.47) (0.63) 0.62 0.39
------ -------- -------- -------- -------- --------
Net Asset Value, End of Period .................. $ 9.99 $ 10.24 $ 9.91 $ 10.38 $ 11.01 $ 10.39
====== ======== ======== ======== ======== ========
Total Return .................................... 3.91% 10.09% 3.81% 2.40% 13.69% 8.99%(4)
Ratios/Supplemental Data:
Net Assets, End of
Period (in 000's) .............................$111,313 $124,944 $104,251 $138,225 $145,353 $102,830
Ratios to average net assets:
Net investment income including reimbursement.. 6.31% 6.35% 6.43% 5.21% 5.87% 6.40%(3)
Operating expenses including reimbursement .... 0.40% 0.40% 0.40% 0.40% 0.40% 0.40%(3)
Operating expenses excluding reimbursement .... 0.40% 0.41% 0.41% 0.40% 0.40% 0.40%(3)
Portfolio Turnover Rate ......................... 39% 35% 50% 75% 35% 57%(4)
</TABLE>
1 The Fund commenced operations on June 4, 1991.
2 Net investment income per share before reimbursement by the
sub-administrator for the fiscal years ended March 31, 1997, 1996 and 1995
was $0.64, $0.66 and $0.65, respectively.
3 Annualized
4 Not Annualized
-11-
<PAGE> 16
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 S&P SmallCap 600 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 S&P Utilities 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"), 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, Fleet believes that,
before deduction of operating expenses, there will be a very high correlation
between the returns generated by the Funds and their respective
-12-
<PAGE> 17
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 ("S&P") or Salomon Brothers Inc.
("Salomon") calculate their respective indexes, and the timing of purchases and
redemptions. Fleet 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 or Salomon as to its attractiveness as an investment. S&P and
Salomon are not sponsors of, or in any way affiliated with, the Funds.
Fleet 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, 1996 the stocks in
the S&P 500 had an average market capitalization of $5.6 trillion and accounted
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. Fleet
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.
-13-
<PAGE> 18
THE SMALL COMPANY INDEX FUND
The S&P SmallCap 600 Index is comprised of approximately 600 U.S.
common stocks with small market capitalizations . Like the S&P 500, the
weighting of stocks in the S&P SmallCap 600 Index is based on each stock's
relative total market capitalization. As of December 31, 1996, stocks in the S&P
SmallCap 600 Index accounted for about 4% of the total market value of all
publicly traded U.S. common stocks. The average capitalization of stocks
included in the S&P SmallCap 600 Index as of December 31, 1996 was
approximately $483 million, although the capitalization of some companies
included in the S&P SmallCap 600 Index is significantly higher.
The Small Company Index Fund will not hold all of the issues in the S&P
600 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 S&P SmallCap 600
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 S&P SmallCap 600 Index. Since the Fund does not hold every
stock in the S&P SmallCap 600 Index, it is not expected to track the S&P
SmallCap 600 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 will not
purchase stocks not represented in the S&P SmallCap 600 Index.
THE UTILITY INDEX FUND
The S&P Utilities Index is an index of U.S. common stocks designed to
measure the performance of the utility sector of the S&P 500. The S&P Utilities
Index is comprised of approximately 40 stocks. The weighting of stocks in the
S&P Utilities Index is based on each stock's relative market capitalization. As
of December 31, 1996, the S&P Utilities Index included 40 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>
Electric.................................................... 75.33%
Gas and Water............................................... 24.67%
</TABLE>
-14-
<PAGE> 19
Like the S&P 500 and S&P SmallCap 600 Index, the weighting of stocks in
the S&P Utilities Index is based on each stock's relative market
capitalization. Normally, the Utility Index Fund will hold every stock in the
S&P Utilities Index and will hold each stock in approximately the same
percentage as that stock represents in the S&P Utilities 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 U.S. Treasury Index Fund as of December
31, 1996:
U.S. TREASURY
INDEX FUND
-------------
Number of Issues.......................................................... 29
Total Market Value........................................... $114,294,949.78
Minimum Maturity................................................... 1.1 Years
Maximum Maturity.................................................. 27.9 Years
Weighted Average Maturity.......................................... 8.5 Years
Percent of Market Value with remaining
Maturity of:
1-3 years........................................................ 37.8%
3-7 years........................................................ 22.9%
7-10 years....................................................... 12.4%
10-20 years....................................................... 7.1%
Over 20 years.................................................... 18.5%
Cash equivalent reserve................................................. 1.3%
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. 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 Fleet to be in the best interests of
the Fund's shareholders. See "Taxes."
-15-
<PAGE> 20
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 and segregated assets with respect to 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 Standard &
Poor's Ratings Group 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 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, Fleet 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 liquid securities equal to the total market value
of the underlying futures contract, less amounts held in the Fund's commodity
brokerage account.
-16-
<PAGE> 21
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 deviation of return. Consequently, the Utility Index Fund may have less
price volatility than either the Large Company 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.
-17-
<PAGE> 22
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 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, 1997, the weighted average maturity of the U.S. Treasury
Index Fund was 8.355 years. Thus, the U.S. Treasury Index Fund is subject to
moderate levels of interest rate risk.
PRICING OF SHARES
On every day the New York Stock Exchange (the "NYSE") is open, First Data
Investor Services Group, Inc. ("FDISG"), the Funds' sub-administrator,
calculates the net asset value per share of each Fund separately, as of the
close of regular trading on the NYSE (currently, 4:00 p.m.
-18-
<PAGE> 23
Eastern Time). 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 application or by notifying
FDISG 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.
FDISG 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.
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
-19-
<PAGE> 24
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 Funds' 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. ("Fleet"), with principal offices at 75
State Street, Boston, Massachusetts 02109, serves as investment adviser to the
Funds. Fleet 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. Fleet is an indirect wholly-owned
subsidiary of Fleet Financial Group, Inc., a registered bank holding company
with total assets as of December 31, 1996 of approximately $85 billion. Fleet is
also an indirect wholly-owned subsidiary of Fleet National Bank, the Funds'
administrator. To fulfill its responsibilities, Fleet employs the personnel,
software and support systems needed to manage indexed portfolios.
-20-
<PAGE> 25
Fleet 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 Fleet's compensation
during the fiscal year ended March 31, 1997.
ADMINISTRATOR AND SUB-ADMINISTRATOR
Fleet National Bank ("FNB") provides the Trust with office facilities and
support personnel and generally assists in all aspects of administration and
operation of the Trust. FNB, with principal offices at 50 Kennedy Plaza,
Providence, Rhode Island 02903-2305, is an indirect wholly-owned subsidiary of
Fleet Financial Group, Inc. FNB 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. FNB receives a fee from each Fund at an annual rate of
0.30% of the average daily net assets of the Fund, which was the rate of FNB's
compensation during the fiscal year ended March 31, 1997. From time to time, the
Administrator may waive voluntarily all or a portion of the administration fee
payable to it by the Funds.
FNB has entered into a sub-administration agreement with First Data
Investor Services Group, Inc. ("FDISG") , located at 4400 Computer Drive, P.O.
Box 5108, Westboro, Massachusetts 01581, a wholly-owned subsidiary of First Data
Corporation, to provide administrative services to the Trust and to serve as
shareholder servicing agent. FNB bears the fees of FDISG for providing such
services.
DISTRIBUTOR
First Data Distributors, Inc. ("FD Distributors"), a wholly-owned
subsidiary of FDISG, is responsible for the marketing and distribution of the
shares of each Fund. FD Distributors is a registered broker/dealer with
principal offices located at 4400 Computer Drive, P.O. Box 5108, Westboro,
Massachusetts 01581. FD Distributors does not receive any compensation from
Galaxy II or the Funds for its services.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank (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 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 Statement of Additional
Information. Communications to FDISG should be directed to FDISG at 4400
Computer Drive, P.O. Box 5108, Westboro, Massachusetts 01581.
HOW TO PURCHASE AND REDEEM SHARES
FD Distributors 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 FIS Securities, Inc.,
Fleet Brokerage Securities, Inc., Fleet Securities, Inc., Fleet Enterprises,
Inc., Fleet Financial Group, Inc., its affiliates, their correspondent banks and
other qualified banks, savings and loan associations
-21-
<PAGE> 26
and broker/dealers ("Institutions") on behalf of their customers ("Customers").
Purchases by Direct Investors may take place only on days on which FD
Distributors, the Custodian and FNB 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 FD
Distributors on a Business Day in accordance with FD Distributors' procedures.
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 FD Distributors and for wiring required funds in payment to the
Custodian on a timely basis. FD Distributors is responsible for transmitting
such orders to FDISG 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. FDISG 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 FDISG, confirmations of share purchases and
redemptions and pertinent account statements will either be sent by FDISG
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
Westboro, MA 01581
All initial purchase orders placed by mail must be accompanied by a
purchase application. Applications may be obtained by calling FD Distributors at
1-800-628-0414.
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 FD
Distributors, 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
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<PAGE> 27
purchase by wire, an investor must telephone FD Distributors at 1-800-628-0414
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, Westboro, Massachusetts 01581. Applications may be obtained by
calling FD Distributors at 1-800-628-0414.
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 (including 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 FD Distributors 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 FD Distributors 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 that date, provided that the Custodian receives the purchase price
in federal funds or other immediately available funds prior to 4:00 p.m. on the
fifth Business Day following the receipt of such order. Such order will be
executed on the day on which the purchase price is received in proper form. If
funds are not received by such date and time, the order will not be accepted and
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.
REDEMPTION PROCEDURES - CUSTOMERS OF INSTITUTIONS
Customers of Institutions may redeem all or a portion of their shares in
accordance with procedures governing their accounts at Institutions. It is the
responsibility of the Institutions to transmit redemption orders to FD
Distributors 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 FD Distributors on a Business
Day will normally be wired on the third Business Day to the Institutions.
Direct Investors may redeem all or a portion of their shares in
accordance with any of the procedures described below.
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<PAGE> 28
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
Westboro, 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 Federal Deposit
Insurance Corporation, a trust company, a member firm of a national securities
exchange or any other eligible guarantor institution. FDISG will not accept
guarantees from notaries public. FDISG 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 FDISG 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 FDISG of the redemption request. Questions with
respect to the proper form for redemption requests should be directed to FDISG
at 1-800-628-0414.
Redemption by Telephone. Direct Investors may redeem shares by calling
1-800-628-0414 and instructing FDISG 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" above for details regarding signature guarantees.)
Redemption by Wire. Direct Investors who have so indicated on the account
application, or have subsequently arranged in writing to do so, may redeem
shares by instructing FDISG 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. FDISG 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 account application or in
written instructions subsequently received by FDISG. To request redemption of
shares by wire, Direct Investors should call 1-800-628-0414.
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.
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<PAGE> 29
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 FDISG 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.
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 FD Distributors. 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
Each 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, 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
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<PAGE> 30
the aggregate and not by 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 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 S&P SmallCap 600 Index,
the S&P Utilities Index or the U.S. Treasury Index.
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.
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<PAGE> 31
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 or its affiliates in which the Direct Investor or
Customer maintains an 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 by exchange in another Fund offered by the Trust 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 Fleet or its affiliates.
The redemption will be made at the per share net asset value next determined
after the exchange request is received. The shares of the fund or portfolio to
be acquired will be purchased at the per share net asset value next determined
after acceptance of the exchange request plus any applicable sales charge.
Investors may find the exchange privilege useful if their investment
objectives or market outlook should change after they invest in any of the
Funds. For further information regarding the Trust's exchange privilege, Direct
Investors should call 1-800-628-0414. Customers of Institutions should call
their Institution for such information. Customers exercising the exchange
privilege with the Municipal Bond Fund or another portfolio offered by the Trust
or otherwise advised by Fleet or its affiliates should request and review a
prospectus for such Fund or portfolio prior to making an exchange. Telephone
1-800-628-0414 to request a prospectus and/or to make an exchange.
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.
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<PAGE> 32
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
(including a spousal account).
Simplified Employee Pension Plans ("SEPs"), a form of retirement plan for
sole proprietors, partnerships and corporations. The minimum initial investment
for a SEP account is $500.
Multi-Employee 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 FD Distributors (call
1-800-628-0414) with respect to IRAs, SEPs and Keogh Plans and from Fleet
Brokerage Securities , Inc. (call 1-800-221-8210) 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.
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
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<PAGE> 33
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 FDISG (but not less than five days before a payment date).
There is no charge for this service.
PAYROLL DEDUCTION PROGRAM
The Payroll Deduction Program provides Direct Investors with a
convenient, systematic way to purchase Fund shares by deducting a minimum amount
of $25 per pay period from their paycheck. To be eligible for the Program, the
payroll department of a Direct Investor's employer must have the capability to
forward transactions directly through the Automated Clearing House (ACH), or
indirectly through a third party payroll processing company that has access to
the ACH. A Direct Investor must complete and submit a Galaxy II Payroll
Deduction Application to his or her employer's payroll department, which will
arrange for the specified amount to be debited from the Direct Investor's
paycheck each pay period. Shares of the Funds will be purchased within three
days after the debit occurs. If the designated day falls on a weekend or
non-Business Day, the purchase will be made on the Business Day closest to the
designated day. A Direct Investor should allow between two to four weeks for the
Payroll Deduction Program to be established after submitting an application to
the employer's payroll department.
COLLEGE INVESTMENT PROGRAM
The College Investment Program (the "College Program") permits a Direct
Investor to open an account with Galaxy II and purchase Fund shares with a
minimum amount of $100 for initial or subsequent investments, except that if the
Direct Investor purchases shares through the Automatic Investment Program, the
minimum per transaction is $50. The College Program is designed to assist Direct
Investors who want to finance a college savings plan. See "Investor Programs --
Automatic Investment Program" for information on the Automatic Investment
Program. Galaxy II reserves the right to redeem accounts participating in the
College Program involuntarily, upon 60 days' written notice, if the account's
net asset value falls below the applicable minimum initial investment as a
result of redemptions. See "How to Purchase and Redeem Shares -- Other
Redemption Information" above for further information.
Direct Investors in the College Program will receive consolidated monthly
statements of their accounts. Detailed information concerning College Program
accounts and applications may be obtained from FD Distributors (call
1-800-628-0414).
DIRECT DEPOSIT PROGRAM
Direct Investors receiving social security benefits are eligible for the
Direct Deposit Program. This Program enables a Direct Investor to purchase Fund
shares by having social security payments automatically deposited into his or
her Fund account. There is no minimum deposit requirement. For instructions on
how to enroll in the Direct Deposit Program, Direct Investors should call FD
Distributors at 1-800-628-0414. Death or legal incapacity will terminate a
Direct Investor's participation in the Program. A Direct Investor may elect at
any time to terminate his or her participation by notifying in writing the
Social Security Administration. Further, Galaxy II may terminate a Direct
Investor's participation upon 30 days' notice to the Direct Investor.
INFORMATION SERVICES
GALAXY II INFORMATION CENTER -- 24 HOUR INFORMATION SERVICE
The Galaxy II Information Center provides Fund performance and investment
information 24 hours a day, seven days a week. To access the Galaxy II
Information Center, just call 1-800-628-0414.
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<PAGE> 34
VOICE RESPONSE SYSTEM
The Voice Response System provides Direct Investors automated access to
Fund and account information as well as the ability to make telephone exchanges
and redemptions. These transactions are subject to the terms and conditions
described under Investor Programs. To access the Voice Response System, just
call 1-800-628-0414 from any touch-tone telephone and follow the recorded
instructions.
GALAXY II SHAREHOLDER SERVICES
For account information and recent exchange transactions, Direct Investors
can call Galaxy II Shareholder Services Monday through Friday, between the hours
of 9:00 a.m. to 5:00 p.m. (Eastern Time) at 1-800-628-0414.
Galaxy II also offers a TDD service for the hearing impaired. Just call
1-800-696-6515, 24 hours a day, seven days a week.
Direct Investors residing outside the United States can contact
Galaxy II by calling 1-508-855-5237.
Investment returns and principal values will vary with market conditions so
that an investor's shares, when redeemed, may be worth more or less than their
original cost. Past performance is no guarantee of future results. Unless
otherwise indicated, total return figures include changes in share price and
reinvestment of dividends and capital gains distributions, if any.
MISCELLANEOUS
"Standard & Poor's," "S&P," "Standard & Poor's 500," "S&P 500," "500,"
"Standard & Poor's SmallCap 600 Index" and "S&P SmallCap 600 Index" are service
marks of The McGraw Hill Companies, Inc. and have been licensed to Fleet for use
by the Trust.
The Large Company Index Fund, the Small Company Index Fund and the Utility
Index Fund are not sponsored, endorsed, sold or promoted by Standard & Poor's
Ratings Group ("S&P"), a division of The McGraw Hill Companies, Inc. S&P makes
no representation or warranty, express or implied, to the shareholders of the
Large Company Index Fund, the Small Company Index Fund or the Utility Index Fund
or any member of the public regarding the advisability of investing in
securities generally or in the Large Company Index Fund, the Small Company Index
Fund or the Utility Index Fund particularly or the ability of the S&P 500, the
S&P SmallCap 600 Index or the S&P Utilities Index to track general stock market
performance. S&P has no obligation to take the needs of the Trust or the
shareholders of the Large Company Index Fund, the Small Company Index Fund or
the Utility Index Fund into consideration in determining, composing or
calculating the S&P 500, the S&P SmallCap 600 Index and the S&P Utilities 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, the Small
Company Index Fund or the Utility Index Fund or the timing of the issuance or
sale of the shares of the Large Company Index Fund, the Small Company Index Fund
or the Utility Index Fund or in the determination or calculation of the equation
by which the shares of the Large Company Index Fund, the Small Company Index
Fund or the Utility 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, the Small Company Index Fund or the
Utility Index Fund.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P
500, THE S&P SMALLCAP 600 INDEX OR THE S&P UTILITIES 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, THE
SMALL COMPANY INDEX FUND OR THE UTILITY INDEX FUND OR ANY OTHER PERSON OR ENTITY
FROM THE USE OF THE S&P 500, THE S&P SMALLCAP 600 INDEX OR THE S&P UTILITIES
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 Salomon Brothers Broad Investment-Grade Bond Index is a registered
trademark of Salomon Brothers Inc.
Shareholders will receive unaudited semi-annual reports describing the
Funds' investment operations and annual financial statements audited by
independent certified public accountants.
Inquiries regarding the Funds may be directed to Galaxy II at 1-800-
628-0414.
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<PAGE> 35
GALAXY FUND II
THE INDEXED FUNDS
FORM N-1A
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(a)
<TABLE>
<CAPTION>
Part B Heading in Statement of
Item No. Additional Information
- -------- -----------------------
<S> <C>
Cover Page Cover Page
Table of Contents Table of Contents
General Information and Not Applicable
History
Investment Objectives and Investment Objectives; Investment Policies
Policies and Risk Considerations; Investment
Limitations
Management of the Fund Trustees and Officers
Control Persons and Principal See Prospectus--"Management of the
Holders of Securities Funds"
Investment Advisory and Advisory, Administration, Sub-
Other Services Administration, Custody and Transfer
Agency Agreements; Independent
Accountants; Counsel
Brokerage Allocation and Other Portfolio Transactions
Securities
Capital Stock and Other See Prospectus--"Description of Shares"
Securities
Purchases and Redemptions Additional Purchase and Redemption
Information
Tax Status Additional Information Concerning
Taxes
Underwriters Portfolio Transactions
</TABLE>
<PAGE> 36
<TABLE>
<CAPTION>
<S> <C>
Calculation of Performance Performance and Yield Information
Data
Financial Statements Financial Statements
</TABLE>
-2-
<PAGE> 37
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
JULY 29, 1997
<PAGE> 38
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 July 29, 1997 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 First Data
Distributors, Inc. ("FD Distributors"), the Trust's distributor, at
1-800-628-0414. 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 1-800-628-0414.
<PAGE> 39
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
INVESTMENT OBJECTIVES.................................................................................. 1
INVESTMENT POLICIES AND RISK CONSIDERATIONS............................................................ 2
The Indexing Approach......................................................................... 2
U.S. Government Securities.................................................................... 2
Bank Obligations.............................................................................. 2
Futures Contracts............................................................................. 3
Lending of Portfolio Securities............................................................... 5
Repurchase Agreements......................................................................... 5
Investing in Utilities........................................................................ 6
Valuation of Portfolio Securities............................................................. 7
INVESTMENT LIMITATIONS................................................................................. 7
Portfolio Turnover............................................................................ 9
Portfolio Transactions........................................................................ 10
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION......................................................... 12
ADDITIONAL INFORMATION CONCERNING TAXES................................................................ 12
TRUSTEES AND OFFICERS.................................................................................. 14
ADVISORY, ADMINISTRATION, SUB-ADMINISTRATION, CUSTODY
AND TRANSFER AGENCY AGREEMENTS........................................................................ 18
Investment Adviser and Administrator........................................................ 18
Authority to Act as Investment Adviser....................................................... 20
Custodian and Transfer Agent................................................................. 21
PERFORMANCE AND YIELD INFORMATION..................................................................... 21
COUNSEL................................................................................................ 23
INDEPENDENT ACCOUNTANTS............................................................................... 24
GENERAL INFORMATION................................................................................... 24
FINANCIAL STATEMENTS.................................................................................. 25
</TABLE>
<PAGE> 40
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 Standard & Poor's SmallCap 600
Stock Price Index (the "S&P SmallCap 600 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
Standard & Poor's Utilities Composite Stock Price Index (the "S&P Utilities
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 1-800-628-0414.
<PAGE> 41
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 S&P SmallCap
600 Index, the S&P Utilities Index, and the U.S. Treasury Index is available
free of charge by calling Galaxy II at 1-800-628-0414, or by writing to Galaxy
II, c/o First Data Investor Services Group, Inc., 4400 Computer Drive, P.O. Box
5108, Westboro, 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
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).
BANK OBLIGATIONS
Certificates of deposit and time deposits in which the
Funds may invest are generally limited to those instruments
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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. ("Fleet"), the Funds' adviser, 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 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.
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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 liquid securities 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 liquid securities 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 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.
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<PAGE> 44
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.
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
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<PAGE> 45
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, Fleet, 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.
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 in excess of 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
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<PAGE> 46
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 Galaxy II's Board of Trustees.
INVESTMENT LIMITATIONS
The investment limitations set forth below 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. 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.
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
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<PAGE> 47
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.
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
-8-
<PAGE> 48
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.
If a percentage restriction (other than that contained in
investment limitation number 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. 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.
The Funds follow an index strategy and, therefore, any
variation in a Fund's portfolio turnover rate generally would be related to an
increase or decrease in the assets of the Fund resulting in the necessity of the
Fund buying or selling securities. For the fiscal years ended March 31, 1996 and
1997,
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<PAGE> 49
respectively, the portfolio turnover rates were as follows: the Large Company
Index Fund, 5% and 11%; the Small Company Index Fund, 14% and 8%; the Utility
Index Fund, 12% and 170%; the U.S. Treasury Index Fund, 35% and 39%. At a
special meeting of shareholders of Galaxy II's Small Company Fund and Utility
Fund held on May 9, 1997, shareholders of each Fund approved a change in each
Fund's benchmark index. Specifically, shareholders of the Small Company Fund
approved a change from the Russell Special Small Company Index to the S&P
SmallCap 600 Index and shareholders of the Utility Fund approved a change from
the Russell 1000 Utility Index to the S&P Utilities Index. As a result, during
the current fiscal year it is expected that, with respect to the Small Company
Fund, there will be a significant variation in the Fund's portfolio turnover
rate from that reported during the fiscal year ended March 31, 1997 because of
the need to rebalance the Fund's portfolio in accordance with the new benchmark
index.
There was a significant variation in the portfolio turnover
rate for the Utility Fund for the fiscal year ended March 31, 1997 as compared
to the fiscal year ended March 31, 1996 because Fleet, in the mistaken belief
that the Board approval had been obtained and that shareholder approval was not
required before changing the Fund's benchmark index to the S&P Utilities Index,
proceeded to rebalance the Fund's portfolio pursuant to this desired change in
the index. Once Fleet became aware that the Board approval had not been obtained
and that shareholder approval was required, Fleet reversed these steps and
rebalanced the Fund's portfolio to bring it in line with the Russell 1000
Utility Index. Fleet has reimbursed the Utility Fund and adjusted its
shareholder accounts as necessary to eliminate any material negative impact to
the Fund or its shareholders resulting from this error.
PORTFOLIO TRANSACTIONS
Fleet will select specific portfolio investments and effect
transactions for the Funds. Fleet seeks to obtain the best net price and the
most favorable execution of orders. Fleet may, in its discretion, effect
transactions in portfolio securities with dealers who provide research advice or
other services to the Funds or Fleet. Fleet is authorized to pay a broker or
dealer who provides such brokerage and research services a commission for
executing a portfolio transaction for any Fund which is in excess of the amount
of commission another broker or dealer would have charged for effecting that
transaction if Fleet determines in good faith that such commission was
reasonable in relation to the value of the brokerage and research services
provided by such broker or dealer, viewed in terms of either that particular
transaction or Fleet's overall responsibilities to the particular Fund and to
the Trust. Such brokerage and research services might consist of
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<PAGE> 50
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 Fleet are not reduced by reason of receiving such brokerage and research
services. The Board of Trustees will periodically review the commissions paid by
the Funds to determine if the commissions paid over representative periods of
time were reasonable in relation to the benefits inuring to the Funds.
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, 1995, March 31, 1996
and March 31, 1997, the Large Company Fund paid $22,022, $22,538 and $118,621,
respectively, in commissions to broker-dealers for execution of portfolio
transactions and, for the same periods, the Small Company Fund paid $132,261,
$95,120 and $105,820, respectively, in commissions. For the fiscal years ended
March 31, 1995, March 31, 1996 and March 31, 1997 the Utility Fund paid $20,912,
$16,044 and $296,342, respectively, in commissions to broker-dealers. During the
fiscal years ended March 31, 1995, March 31, 1996 and March 31, 1997, the U.S.
Treasury Index Fund paid $237, $0 and $0, respectively, in commissions to
broker-dealers for execution of portfolio transactions.
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.
The Trust is required to identify any securities of its
regular brokers or dealers or their parents that the Trust has
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<PAGE> 51
acquired during its most recent fiscal year. At March 31, 1997, (a) the Large
Company Fund held common stock of (i) Morgan Stanley Group in the amount of
$558,125; (ii) Chase Manhattan Corp. in the amount of $2,497,353; (iii) Merrill
Lynch and Co., Inc. in the amount of $879,532; and (iv) Salomon Inc. in the
amount of $330,621; and (b) the Small Company Fund held common stock of Paine
Webber Group, Inc. in the amount of $470,363.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Funds are sold on a continuous basis by Galaxy
II's distributor, First Data Distributors, Inc. ("FD Distributors"), and FD
Distributors 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 FIS Securities, Inc., Fleet Brokerage Securities
Inc., Fleet Securities, Inc., Fleet Enterprises, Inc., Fleet Financial Group,
Inc., 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 Funds'
investments or determination of their net asset values 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
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<PAGE> 52
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.
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 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
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<PAGE> 53
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.
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. Each trustee who is an "interested
person" of Galaxy II, as defined in the 1940 Act, is indicated by an asterisk.
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<PAGE> 54
<TABLE>
<CAPTION>
Positions Held with Galaxy II and
Principal Occupation(s) During
Name and Address Past 5 Years
- ---------------- ---------------------------------
<S> <C>
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 64 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); Trustee,
Age 52 President and Treasurer, The Galaxy
Fund and The Galaxy VIP Fund.
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>
-15-
<PAGE> 55
<TABLE>
<CAPTION>
Positions Held with Galaxy II and
Principal Occupation(s) During
Name and Address 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; Director, Essex
Age 65 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 LLP
Philadelphia National Partner of the law firm of Drinker
Bank Building Biddle & Reath LLP, Philadelphia,
1345 Chestnut St. Pennsylvania.
Philadelphia, PA 19107
Age 54
Jylanne Dunne Vice President and Assistant
First Data Investor Treasurer
Services Group, Inc.
4400 Computer Drive Employee of First Data
P.O. Box 5108 Investor Services Group, Inc.
Westboro, MA 01581
Age 37
</TABLE>
Effective November 1, 1996, each trustee receives an annual
aggregate fee of $29,000 for his services as a trustee of Galaxy II, The Galaxy
Fund ("Galaxy") and The Galaxy VIP Fund ("Galaxy VIP"), plus an additional
$2,250 for each in-person Galaxy Board meeting attended and $1,500 for each
in-person Galaxy VIP or Galaxy II Board meeting attended not held concurrently
with an in-person Galaxy meeting, and is reimbursed for expenses incurred in
attending meetings. Each trustee also receives $500 for each telephone Board
meeting in which the
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<PAGE> 56
trustee participates, $1,000 for each in-person Board committee meeting attended
and $500 for each telephone Board committee meeting in which the trustee
participates. The Chairman of the Boards of Galaxy II, Galaxy and Galaxy VIP is
entitled to an additional annual aggregate fee in the amount of $4,000 and the
President and Treasurer of Galaxy II, Galaxy and Galaxy VIP is entitled to an
additional annual aggregate fee of $2,500, for their services in these
respective capacities. The foregoing trustees' and officers' fees are allocated
among the portfolios of Galaxy II, Galaxy and Galaxy VIP based on their relative
net assets.
Prior to November 1, 1996, each trustee received 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 attended and $500 for each telephone
Galaxy II Board meeting in which the trustee participated and was reimbursed for
expenses incurred in attending all meetings.
Beginning March 1, 1996, each trustee became entitled to
participate in The Galaxy Fund, The Galaxy VIP Fund and Galaxy Fund II Deferred
Compensation Plans (the "Original Plans"). Effective January 1, 1997, the
Original Plans were merged into The Galaxy Fund/The Galaxy VIP Fund/Galaxy Fund
II Deferred Compensation Plan (together with the Original Plans, the "Plan").
Under the Plan, a trustee may elect to have his deferred fees treated as if they
had been invested by Galaxy II, Galaxy and Galaxy VIP in the shares of one or
more portfolios in Galaxy II or Galaxy, or other types of investment options,
and the amount paid to the trustees under the Plan will be determined based upon
the performance of such investments. Deferral of trustees' fees will have no
effect on a portfolio's assets, liabilities, and net income per share, and will
not obligate Galaxy II, Galaxy and Galaxy VIP to retain the services of any
trustee or obligate a portfolio to any level of compensation to the trustee.
Galaxy II, Galaxy and Galaxy VIP may invest in underlying securities without
shareholder approval.
No employee of FDISG 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.
As of the date of this Statement of Additional Information,
the trustees and officers of Galaxy II owned less than 1% of its outstanding
shares.
The following chart provides certain information about the
trustee fees for the year ended March 31, 1997:
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<PAGE> 57
<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSA-
RETIREMENT TION FROM
BENEFITS FUND
AGGREGATE ACCRUED COMPLEX*
NAME OF COMPENSATION AS PART OF PAID TO
PERSON FROM GALAXY II GALAXY II EXPENSES TRUSTEES
- ------- -------------- ------------------ ---------
<S> <C> <C> <C>
Bradford S. Wellman $5,701 None $37,500
Dwight E. Vicks, Jr. $5,880 None $40,000
Donald B. Miller** $5,701 None $38,215
Louis DeThomasis $5,701 None $36,500
John T. O'Neill $5,063 None $36,750
James M. Seed** $5,701 None $37,747
</TABLE>
* The "Fund Complex" consists of Galaxy II, The Galaxy Fund and The
Galaxy VIP Fund. Each trustee of Galaxy II also serves as a trustee of
The Galaxy Fund and The Galaxy VIP Fund.
** Deferred compensation in the amounts of $5,701 and $5,701 accrued
during Galaxy II's fiscal year ended March 31, 1997 for Messrs. Miller
and Seed, respectively.
ADVISORY, ADMINISTRATION, SUB-ADMINISTRATION,
CUSTODY AND TRANSFER AGENCY 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 75 State Street, Boston, Massachussetts 02109.
Pursuant to the 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 Fleet under
the Advisory Agreement are described in the Prospectus. Fleet bears all expenses
in connection with its duties under the Advisory Agreement.
-18-
<PAGE> 58
For the period April 1, 1994 through June 30, 1994, IBM Credit
Investment Management Corporation ("IBM"), the Trust's former adviser, earned
advisory fees of $35,830, $62,824, $16,429 and $32,672 with respect to the Large
Company Fund, Small Company Fund, Utility Fund and U.S. Treasury Fund,
respectively, pursuant to the advisory agreement then in effect. For the period
July 1, 1994 through March 31, 1995 and for the fiscal years ended March 31,
1996 and March 31, 1997, Fleet earned advisory fees of $106,047, $194,615 and
$324,858, respectively, with respect to the Large Company Fund, $178,169,
$264,753 and $311,685, respectively, with respect to the Small Company Fund,
$43,024, $55,279 and $51,447, respectively, with respect to the Utility Fund,
and $83,856, $117,603 and $116,944, respectively, with respect to the U.S.
Treasury Fund.
Pursuant to its administration agreement with Galaxy II (the
"Administration Agreement"), Fleet National Bank ("FNB") generally assists in
certain aspects of the administration and operation of the Funds. FNB 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, FNB 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, FNB may delegate to
another organization the performance of some or all of these services, in which
case FNB 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. FNB has entered into a Sub-Administration Agreement
with First Data Investor Services Group, Inc. ("FDISG"), pursuant to which FDISG
has agreed to provide the Trust with the services which the Trust is entitled to
receive under the Administration Agreement with FNB.
For the period April 1, 1994 through June 30, 1994, IBM, the
Trust's former administrator, earned administration fees of $107,490, $188,472,
$49,314 and $98,600, with respect to the Large Company Fund, Small Company Fund,
Utility Fund and U.S. Treasury Fund, respectively. For the period July 1, 1994
through March 31, 1995 and for the fiscal years ended March 31, 1996 and March
31, 1997, FNB earned administration fees of $311,540, $581,697 and $974,572,
respectively, with respect to the Large Company Fund, $527,906, $787,499 and
$935,055, respectively, with respect to the Small Company Fund, $122,471,
$164,968 and $154,341, respectively, with respect to the Utility Fund, and
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<PAGE> 59
$244,968, $352,810 and $350,831, respectively, with respect to the U.S. Treasury
Fund.
FNB 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 Fleet, FNB, FD
Distributors 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 FNB 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 Fleet, a breach of fiduciary duty with respect to the
receipt of compensation for services), neither Fleet nor FNB, 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 Fleet or FNB,
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.
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. Fleet,
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<PAGE> 60
FNB, 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 AND TRANSFER AGENT
The Chase Manhattan Bank (the "Custodian") serves as custodian
to the Funds pursuant to a Mutual Fund Custody Agreement (the "Custody
Agreement"). Under the 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. ("FDISG") serves as
Galaxy II's transfer agent and dividend disbursing agent pursuant to a Transfer
Agency and Services 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 notices 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.
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.
The average annual total returns for the one-year and five-year periods ended
March 31, 1997 were 19.32% and 15.96%, respectively, with respect to the Large
Company Fund, 9.60% and 13.01%,
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<PAGE> 61
respectively, with respect to the Small Company Fund. 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) through March 31, 1997
were 17.42% and 17.93%, respectively. For the U.S. Treasury Fund, the average
annual total returns for the one-year and five-year periods ended March 31, 1997
were 3.91% and 6.69%, respectively. The average annual total return for the U.S.
Treasury Fund for the period beginning June 4, 1991 (commencement of operations)
through March 31, 1997 was 7.29%. For the Utility Fund, the total return for the
one-year period ended March 31, 1997 was 3.46%. The average annual total return
for the Utility Fund for the period beginning January 5, 1993 (commencement of
operations) through March 31, 1997 was 8.87%. 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 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, 1997 for the
U.S. Treasury Fund was 6.32%.
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<PAGE> 62
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 S&P
SmallCap 600 Index, the Dow Jones Industrial Average, the BIG Index, the U.S.
Treasury Index, the S&P Utilities 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 Morningstar, Inc. or another industry service and with that of
the S&P 500 and the S&P SmallCap 600 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 S&P Utilities
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.
COUNSEL
Drinker Biddle & Reath LLP (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.
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<PAGE> 63
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., independent accountants, with
offices at One Post Office Square, Boston, Massachusetts 02109, currently serve
as auditors to Galaxy II. Coopers & Lybrand L.L.P. performs an annual audit of
Galaxy II's financial statements and provides other services related to filings
with respect to securities regulations. Reports of its activities are provided
to the Board of Trustees.
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. FDISG 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. 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 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
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<PAGE> 64
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 1, 1997, the name, address and percentage ownership
of the persons that owned of record 5% or more of the outstanding shares of any
portfolio of Galaxy II were as follows: Large Company Index Fund -- Norstar
Trust Company, Gates & Co., Funds Control, Attn: Julie Hogestyn, One East
Avenue, Rochester, New York 14638, (35.83%); Fleet Financial Group, 50 Kennedy
Plaza, Providence, Rhode Island 02903, (15.23%); U.S. Treasury Index Fund --
Norstar Trust Company, Gales & Co., Funds Control, Attn: Julie Hogestyn, One
East Avenue, Rochester, New York 14638, (9.42%); Diocese of Albany, c/o Fleet
Financial Group, 50 Kennedy Plaza, Providence, Rhode Island 02903, (5.33%);
Municipal Bond Fund -- Robert G. Jacob, 4223 Wieuca Overlook, Atlanta, Georgia
30342, (9.90%). No person owned of record 5% or more of the outstanding shares
of the Small Company Index Fund or the Utility Index Fund.
FINANCIAL STATEMENTS
Galaxy II's audited financial statements and notes thereto in
Galaxy II's Annual Report to Shareholders for the fiscal year ended March 31,
1997 (the "Annual Report") are incorporated into this Statement of Additional
Information by reference. No other parts of the Annual Report are incorporated
by reference herein. The financial statements included in the Annual Report
(with the exception of the financial highlights for periods prior to the fiscal
year ended March 31, 1995 which were audited by other auditors) have been
audited by Galaxy II's independent accountants, Coopers & Lybrand L.L.P., whose
report thereon is incorporated herein by reference. Such financial statements
have been incorporated herein in reliance upon such report given upon the
authority of Coopers & Lybrand L.L.P. as experts in accounting and auditing.
Additional copies of the Annual Report may be obtained at no charge by
telephoning Galaxy II at 1-800-628-0414.
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<PAGE> 65
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>
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 Funds; 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>
-1-
<PAGE> 66
GALAXY FUND II
MUNICIPAL BOND FUND
PROSPECTUS
JULY 29, 1997
<PAGE> 67
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT 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
Page
----
HIGHLIGHTS......................................................... 2
EXPENSE SUMMARY.................................................... 5
FINANCIAL HIGHLIGHTS............................................... 6
INVESTMENT OBJECTIVE AND POLICIES.................................. 7
Risk Considerations.......................................... 7
Investment Policies.......................................... 7
INVESTMENT LIMITATIONS............................................. 9
INVESTMENT RISKS................................................... 9
WHO SHOULD INVEST.................................................. 10
COMPARING TAX-EXEMPT AND TAXABLE YIELDS............................ 11
PRICING OF SHARES.................................................. 12
HOW TO PURCHASE AND REDEEM SHARES.................................. 12
Purchase Procedures - Customers of Institutions.............. 12
Purchase Procedures - Direct Investors....................... 13
Other Purchase Information................................... 13
Redemption Procedures - Customers of Institutions............ 14
Redemption Procedures - Direct Investors..................... 14
Other Redemption Information................................. 16
DIVIDENDS, DISTRIBUTIONS AND TAXES................................. 16
State and Local Taxes........................................ 17
-i-
<PAGE> 68
Page
----
MANAGEMENT OF THE FUND............................................. 17
Investment Adviser........................................... 18
Administrator and Sub-Administrator.......................... 18
Distributor.................................................. 18
Custodian and Transfer Agent.................................. 19
DESCRIPTION OF SHARES.............................................. 19
INVESTOR PROGRAMS.................................................. 19
Exchange Privilege........................................... 19
Retirement Plans............................................. 20
Automatic Investment Program................................. 21
Systematic Withdrawal Plan................................... 21
Payroll Deduction Program.................................... 21
College Investment Program................................... 22
Direct Deposit Program....................................... 22
INFORMATION SERVICES............................................... 22
Galaxy II Information Center -- 24 Hour
Information Service.......................................... 22
Voice Response System........................................ 22
Galaxy II Shareholder Services............................... 23
PERFORMANCE AND YIELD INFORMATION.................................. 23
MISCELLANEOUS...................................................... 24
-ii-
<PAGE> 69
GALAXY FUND II - MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C>
4400 Computer Drive For an application and information
P.O. Box 5108 regarding purchases, redemptions,
Westboro, Massachusetts 01581-5108 exchanges and other shareholder services or
for current performance, call 1-800-628-0414.
</TABLE>
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 65% of the Fund's municipal securities will be rated A or higher by
major rating 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
1-800-628-0414 or by writing to Galaxy II c/o First Data Investor Services
Group, Inc., 4400 Computer Drive, P.O. Box 5108, Westboro, 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.
JULY 29, 1997
<PAGE> 70
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 Galaxy II'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 1-800-628-0414.
Q: Who advises the Fund?
A: The Fund is managed by Fleet Investment Advisors Inc. ( "Fleet"), an
indirect, wholly-owned subsidiary of Fleet Financial Group, Inc. Fleet is
a financial services company with total assets as of December 31, 1996 of
approximately $85 billion. See "Management of the Fund--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 First Data Distributors, Inc. ("FD
Distributors"). 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 FIS Securities, Inc., Fleet
Brokerage Securities, Inc., Fleet Securities, Inc., Fleet Enterprises,
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 Plan accounts ("SEPs"), Multi-Employee Pension Plan accounts
("MERPs") and Keogh Plan accounts is $500 (including 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 Fund shares. See "How to Purchase and Redeem Shares--Purchase of
Shares" below.
Q: When are dividends paid?
-3-
<PAGE> 71
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.
Market risk is the possibility that market prices of bonds will decline
without regard to fluctuations in prevailing interest rates.
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 65% of the Fund's
municipal securities must be rated A or higher by Moody's Investors
Service, Inc. ("Moody's"), Standard & Poor's Ratings Group ("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 Fleet 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 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 FD Distributors (call 1-800-628-0414).
Shares of the Fund are available for purchase in connection with MERPs
accounts, and detailed information concerning eligibility and other
matters and the
-4-
<PAGE> 72
form of application is available from Fleet Brokerage Securities, Inc.
(call 1-800-221-8210). 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> 73
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, 1997. "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 ("FNB"), the Fund's 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> 74
FINANCIAL HIGHLIGHTS
The following Financial Highlights for the fiscal years ended March 31,
1995, March 31, 1996, and March 31, 1997 have been audited by Coopers & Lybrand
L.L.P., independent accountants, whose report is contained in the Trust's
Annual Report to Shareholders and is incorporated by reference into the
Statement of Additional Information. The Financial Highlights for the period
ended March 31, 1994 have been audited by other auditors. 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
1-800-628-0414.
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Period Ended
March 31, March 31, March 31, March 31,
1997 1996 1995 1994(1)
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........... $ 10.20 $ 9.94 $ 9.89 $ 10.00
---------- ---------- ---------- ------------
Income from Investment Operations:
Net investment income(2)..................... 0.47 0.46 0.46 0.43
Net realized and unrealized gain (loss)
on investments............................ (0.05) 0.26 0.05 (0.11)
---------- ---------- ---------- ------------
Total from Investment Operations........ 0.42 0.72 0.51 0.32
---------- ---------- ---------- ------------
Less Dividends:
Dividends from net investment income......... (0.47) (0.46) (0.46) (0.43)
Dividends from net realized capital gains -- -- -- --
---------- ---------- ---------- ------------
Total Dividends:........................ (0.47) (0.46) (0.46) (0.43)
---------- ---------- ---------- ------------
Net increase (decrease) in net asset
value ....................................... (0.05) 0.26 0.05 (0.11)
---------- ---------- ---------- ------------
Net Asset Value, End of Period................ $ 10.15 $ 10.20 $ 9.94 $ 9.89
========== ========== ========== ============
Total Return................................... 4.15% 7.36% 5.34% 3.10%(4)
Ratios/Supplemental Data:
Net Assets, End of Period (in 000's)........... $ 19,921 $ 22,478 $ 24,560 $ 33,352
Ratios to average net assets:
Net investment income including reimbursement 4.57% 4.54% 4.72% 4.35%(3)
Operating expenses including reimbursement 0.60% 0.60% 0.60% 0.60%(3)
Operating expenses excluding reimbursement 0.60% 0.61% 0.63% 0.60%(3)
Portfolio Turnover Rate........................ 7% 2% 47% 56%(4)
</TABLE>
- -------------------------
1 The Fund commenced operations on April 15, 1993.
2 Net investment income per share before reimbursement by the sub-
administrator for the fiscal years ended March 31, 1997, 1996 and 1995
was $0.47, $0.46 and $0.46, respectively.
3 Annualized
4 Not Annualized
-7-
<PAGE> 75
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.
Municipal securities purchased by the Fund will consist primarily of
issues which are rated investment grade, i.e. within the four highest rating
categories assigned by S&P ("AAA", "AA", "A", and "BBB") or Moody's ("Aaa",
"Aa", "A", and "Baa") or another nationally recognized statistical rating
organization ("NRSRO"). Under normal market conditions, at least 65% of the
municipal securities held by the Fund will be rated at least A or its equivalent
by S&P or Moody's or another NRSRO. In no case will the Fund purchase municipal
securities rated below BBB by S&P or Baa by Moody's or the equivalent by 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
securities:
- - 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.
-8-
<PAGE> 76
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.
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 total 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.
-9-
<PAGE> 77
INVESTMENT LIMITATIONS
The Fund has adopted certain limitations on its investment practices,
including the following:
(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 its 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 total 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.
-10-
<PAGE> 78
Market risk is the possibility that market prices of bonds will decline
without regard to fluctuations in prevailing interest rates.
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 65% of the Fund's municipal securities
will be rated A or higher by Moody's, S&P or another NRSRO), 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 Fleet 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-exempt income, you
should calculate the "tax equivalent yield" for the
-11-
<PAGE> 79
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:
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> 80
PRICING OF SHARES
On every day the New York Stock Exchange (the "NYSE") is open, First Data
Investor Services Group, Inc. ("FDISG"), the Fund's sub-administrator,
calculates the net asset value per share for the Fund as of the close of regular
trading on the NYSE (currently, 4:00 p.m. Eastern Time). 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
FD Distributors 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 FIS Securities, Inc.,
Fleet Brokerage Securities, Inc., Fleet Securities, Inc., Fleet Enterprises,
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 FD Distributors, the Fund's
custodian and FNB 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 FD Distributors on a
Business Day in accordance with FD Distributors' procedures.
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 FD Distributors and for wiring required funds in payment to the Fund's
custodian on a timely basis. FD Distributors is responsible for transmitting
such orders to FDISG 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. FDISG 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 FDISG, confirmations of share purchases and
redemptions and pertinent account statements will either be sent by FDISG
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.
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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
Westboro, MA 01581
All purchase orders placed by mail must be accompanied by a purchase
application. Applications may be obtained by calling FD Distributors at 1-800-
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 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 FD Distributors, 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 cancelled.
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 FD
Distributors at 1-800-628-0414 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, Westboro, Massachusetts 01581. Applications may be obtained by
calling FD Distributors at 1-800-628-0414.
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 (including 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 FD Distributors 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 FD Distributors from an Institution or a Direct Investor on a
Business Day prior to the close of regular
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trading hours on the NYSE (currently 4:00 p.m. Eastern Time) will be executed at
the net asset value per share determined on that date, provided that the Fund's
custodian receives the purchase price in federal funds or other immediately
available funds prior to 4:00 p.m. on the fifth Business Day following the
receipt of such order. Such order will be executed on the day on which the
purchase price is received in proper form. If funds are not received by such
date and time, the order will not be accepted and 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 FD Distributors on a
Business Day in accordance with the above procedures.
REDEMPTION PROCEDURES - CUSTOMERS OF INSTITUTIONS
Customers of Institutions may redeem all or a portion of their shares in
accordance with procedures governing their accounts at Institutions. It is the
responsibility of the Institutions to transmit redemption orders to FD
Distributors 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 FD Distributors on a Business
Day will normally be wired on the third Business Day to the Institutions.
Direct Investors may redeem all or a portion 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
Westboro, 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 Federal Deposit
Insurance Corporation, a trust company, a member firm of a national securities
exchange or any other eligible guarantor institution. FDISG will not accept
guarantees from notaries public. FDISG 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 FDISG receives all required documents in proper form. The Fund
ordinarily will make payment for shares redeemed by mail within five Business
Days after
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proper receipt by FDISG of the redemption request. Questions with respect to the
proper form for redemption requests should be directed to FDISG at 1-800-628-
0414.
Redemption by Telephone. Direct Investors may redeem shares by calling
1-800-628-0414 and instructing FDISG 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" above for details regarding signature guarantees.)
Redemption by Wire. Direct Investors who have so indicated on the account
application, or have subsequently arranged in writing to do so, may redeem
shares by instructing FDISG 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. FDISG 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 account application or
in written instructions subsequently received by FDISG. To request redemption
of shares by wire, Direct Investors should call 1-800-628-0414.
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 the 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 FDISG 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.
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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.
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 FD Distributors. 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 application form or by notifying FDISG 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
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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 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 or portfolios offered by the
Trust or otherwise advised by Fleet or its affiliates. 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 those 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 Fund's investment
adviser and the Trust's officers who are responsible for the day-to-day
management of the Trust's affairs.
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INVESTMENT ADVISER
Fleet Investment Advisors Inc. ("Fleet"), with principal offices at 75
State Street, Boston, Massachusetts 02109, serves as investment adviser to the
Fund. Fleet 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. Fleet is an indirect, wholly-owned
subsidiary of Fleet Financial Group, Inc., a registered bank holding company
with total assets as of December 31, 1996 of approximately $85 billion. Fleet is
also an indirect, wholly-owned subsidiary of Fleet National Bank, the Fund's
administrator. To fulfill its responsibilities, Fleet employs the personnel,
software and support systems needed to manage the Fund.
For its services as investment adviser, Fleet 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 Fleet's compensation during the fiscal year ended March 31,
1997.
The organizational arrangements of Fleet require that all investment
decisions with respect to the Fund be made by Fleet's Tax-Exempt Investment
Policy Committee, and no one person is responsible for making recommendations to
that Committee.
ADMINISTRATOR AND SUB-ADMINISTRATOR
Fleet National Bank ("FNB") provides the Trust with office facilities and
support personnel and generally assists in all aspects of administration and
operation of the Trust. FNB, with principal offices at 50 Kennedy Plaza,
Providence, Rhode Island 02903-2305, is a wholly-owned subsidiary of Fleet
Financial Group, Inc. FNB 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, FNB receives
a fee from the Fund at an annual rate of .35% of the average daily net assets of
the Fund, which was the rate of FNB's compensation during the fiscal year ended
March 31, 1997. From time to time, FNB may waive voluntarily all or a portion
of the administration fee payable to it by the Fund.
FNB has entered into a sub-administration agreement with First Data
Investor Services Group, Inc. ("FDISG"), 4400 Computer Drive, P.O. Box 5108,
Westboro, Massachusetts 01581, a wholly-owned subsidiary of First Data
Corporation, to provide administrative services to the Trust and to serve as
shareholder servicing agent. FNB bears the fees of FDISG for providing such
services.
DISTRIBUTOR
First Data Distributors, Inc. ("FD Distributors"), a wholly-owned
subsidiary of FDISG, is responsible for the marketing and distribution of the
shares of the Fund. FD Distributors is a registered broker-dealer with principal
offices located at 4400 Computer Drive, P.O. Box 5108, Westboro, Massachusetts
01581. FD Distributors does not receive any compensation from Galaxy II or the
Fund for its services.
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CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank (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, Westboro, 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 constitute the interests 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 for fractional shares held. Generally, shares of the Trust will
vote in the aggregate and not by 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 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 or its affiliates in which the Direct Investor or
Customer maintains an 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 by exchange in another Fund offered by the Trust 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.
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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 Fleet or its
affiliates. The redemption will be made at the per share net asset value next
determined after the exchange request is received. The shares of the fund or
portfolio to be acquired will be purchased at the per share net asset value next
determined after acceptance of the exchange request plus any applicable sales
charge.
Investors may find the exchange privilege useful if their investment
objectives or market outlook should change after they invest in the Fund. For
further information regarding the Trust's exchange privilege, Direct Investors
should call 1-800-628-0414. 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, U.S. Treasury
Index Fund or Utility Index Fund or another portfolio otherwise advised by
Fleet or its affiliates should request and review a prospectus for such Fund or
portfolio prior to making an exchange. Telephone 1-800-628-0414 to request a
prospectus and/or to make exchanges .
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
(including a spousal account).
Simplified Employee Pension Plans ("SEPs"), a form of retirement plan for
sole proprietors, partnerships and corporations. The minimum initial investment
for a SEP account is $500.
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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 FD Distributors (call
1-800-628-0414) with respect to IRAs, SEPs and Keogh Plans and from Fleet
Brokerage Securities , Inc. (call 1-800-221-8210) 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.
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 FDISG (but not
less than five days before a payment date). There is no charge for this service.
PAYROLL DEDUCTION PROGRAM
The Payroll Deduction Program provides Direct Investors with a convenient,
systematic way to purchase Fund shares by deducting a minimum amount of $25 per
pay period from their paycheck. To be eligible for the Program, the payroll
department of a Direct Investor's employer must have the capability to forward
transactions directly through the Automated Clearing House (ACH), or indirectly
through a third party payroll processing company that has access to the ACH. A
Direct Investor must complete and submit a Galaxy II Payroll Deduction
Application to his or her employer's payroll department, which will arrange for
the specified amount to be debited from the Direct Investor's paycheck each pay
period. Shares of the Fund will be purchased within three days after the debit
occurs. If the designated day falls on a weekend or non-Business Day, the
purchase will be made on the Business Day closest to the designated day. A
Direct Investor should allow between two to four weeks for the Payroll Deduction
Program to be established after submitting an application to the employer's
payroll department.
COLLEGE INVESTMENT PROGRAM
The College Investment Program (the "College Program") permits a Direct
Investor to open an account with Galaxy II and purchase Fund shares with a
minimum amount of $100 for initial or subsequent investments, except that if the
Direct Investor purchases shares through the Automatic Investment Program, the
minimum per transaction is $50. The College Program is designed to assist Direct
Investors who want to finance a college savings plan. See "Investor Programs --
Automatic Investment Program" for information on the Automatic Investment
Program. Galaxy II reserves the right to redeem accounts participating in the
College Program involuntarily, upon 60 days' written notice, if the account's
net asset value falls below the applicable minimum initial investment as a
result of redemptions. See "How to Purchase and Redeem Shares -- Other
Redemption Information" above for further information.
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Direct Investors in the College Program will receive consolidated monthly
statements of their accounts. Detailed information concerning College Program
accounts and applications may be obtained from FD Distributors (call
1-800-628-0414).
DIRECT DEPOSIT PROGRAM
Direct Investors receiving social security benefits are eligible for the
Direct Deposit Program. This Program enables a Direct Investor to purchase Fund
shares by having social security payments automatically deposited into his or
her Fund account. There is no minimum deposit requirement. For instructions on
how to enroll in the Direct Deposit Program, Direct Investors should call FD
Distributors at 1-800-628-0414. Death or legal incapacity will terminate a
Direct Investor's participation in the Program. A Direct Investor may elect at
any time to terminate his or her participation by notifying in writing the
Social Security Administration. Further, Galaxy II may terminate a Direct
Investor's participation upon 30 days' notice to the Direct Investor.
INFORMATION SERVICES
GALAXY II INFORMATION CENTER -- 24 HOUR INFORMATION SERVICE
The Galaxy II Information Center provides Fund performance and investment
information 24 hours a day, seven days a week. To access the Galaxy II
Information Center, just call 1-800-628-0414.
VOICE RESPONSE SYSTEM
The Voice Response System provides Direct Investors automated access to
Fund and account information as well as the ability to make telephone exchanges
and redemptions. These transactions are subject to the terms and conditions
described under Investor Programs. To access the Voice Response System, just
call 1-800-628-0414 from any touch-tone telephone and follow the recorded
instructions.
GALAXY II SHAREHOLDER SERVICES
For account information and recent exchange transactions, Direct Investors
can call Galaxy II Shareholder Services Monday through Friday, between the hours
of 9:00 a.m. to 5:00 p.m. (Eastern Time) at 1-800-628-0414.
Galaxy II also offers a TDD service for the hearing impaired. Just call
1-800-696-6515, 24 hours a day, seven days a week.
Direct Investors residing outside the United States can contact
Galaxy II by calling 1-508-855-5237.
Investment returns and principal values will vary with market conditions so
that an investor's shares, when redeemed, may be worth more or less than their
original cost. Past performance is no guarantee of future results. Unless
otherwise indicated, total return figures include changes in share price and
reinvestment of dividends and capital gains distributions, if any.
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 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 the kind and quality of the
instruments held in a portfolio, portfolio maturity, operating expenses, and
market conditions.
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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
1-800-628-0414.
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GALAXY FUND II
THE MUNICIPAL BOND FUND
FORM N-1A
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(a)
<TABLE>
<CAPTION>
Part B Heading in Statement of
Item No. Additional Information
- -------- ------------------------
<S> <C>
Cover Page Cover Page
Table of Contents Table of Contents
General Information and Not Applicable
History
Investment Objectives and Investment Objectives; Investment Policies
Policies and Risk Considerations; Investment
Limitations
Management of the Fund Trustees and Officers
Control Persons and Principal See Prospectus--"Management of the
Holders of Securities Funds"
Investment Advisory and Advisory, Administration, Sub-
Other Services Administration, Custody and Transfer
Agency Agreements; Independent
Accountants; Counsel
Brokerage Allocation and Other Portfolio Transactions
Securities
Capital Stock and Other See Prospectus--"Description of Shares"
Securities
Purchases and Redemptions Additional Purchase and Redemption
Information
Tax Status Additional Information Concerning
Taxes
</TABLE>
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<PAGE> 93
<TABLE>
<CAPTION>
<S> <C>
Underwriters Portfolio Transactions
Calculation of Performance Performance and Yield Information
Data
Financial Statements Financial Statements
</TABLE>
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<PAGE> 94
GALAXY FUND II
STATEMENT OF ADDITIONAL INFORMATION
MUNICIPAL BOND FUND
JULY 29, 1997
<PAGE> 95
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 July 29, 1997, 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 FD Distributors, Inc. ("FD Distributors"), the Trust's
distributor, at 1-800-628-0414. 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 1-800-628-0414.
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<PAGE> 96
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<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
When-Issued and Delayed-Delivery Securities....................................................11
Valuation of Portfolio Securities............................................................. 12
Ratings as Investment Criteria................................................................ 13
INVESTMENT LIMITATIONS................................................................................. 13
PORTFOLIO TURNOVER..................................................................................... 16
PORTFOLIO TRANSACTIONS................................................................................. 16
ADDITIONAL INFORMATION CONCERNING TAXES................................................................ 17
TRUSTEES AND OFFICERS.................................................................................. 21
ADVISORY, ADMINISTRATION, SUB-ADMINISTRATION, CUSTODY AND
TRANSFER AGENCY AGREEMENTS.......................................................................... 25
Investment Adviser, Administrator and Sub-
Administrator............................................................................... 25
Authority to Act as Investment Adviser........................................................ 26
Custodian and Transfer Agent.................................................................. 27
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION......................................................... 28
PERFORMANCE AND YIELD INFORMATION...................................................................... 28
COUNSEL................................................................................................ 30
INDEPENDENT ACCOUNTANTS................................................................................ 30
GENERAL INFORMATION.................................................................................... 30
FINANCIAL STATEMENTS.................................................................................. 31
APPENDIX............................................................................................. A-1
</TABLE>
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<PAGE> 97
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 65% of the Fund's municipal securities will be rated at least A or the
equivalent by major rating 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 1-800-628-0414.
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. ("Fleet"),
the Fund's adviser, 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 liquid securities 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 liquid securities 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 Fleet 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 limit the amount of fluctuation permitted in futures contract prices
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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.
Options on futures contracts, as contrasted with the direct
investment in such contracts, gives the purchaser the
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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 liquid securities 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 Fleet, 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. 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 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
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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, Fleet, 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 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
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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.
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
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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 Fleet 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 Fleet can predict whether additional legislation adversely
affecting the municipal securities market will be enacted in the future. Galaxy
II will monitor legislative developments and consider whether changes in the
investment 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 consisting of cash or liquid securities equal to
the amount of the when-issued or delayed-delivery commitments will be
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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 First Data Investor Services Group, Inc. ("FDISG"), the Fund's
sub-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 Fleet under the general supervision and responsibility
of Galaxy II's Board of Trustees.
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 such
securities. Other assets and securities for which market
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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 Fleet as initial criteria for the selection of
portfolio securities on behalf of the Fund, Fleet 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, Fleet 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
The investment limitations set forth below may not be changed
without the approval by a vote of a majority of the outstanding shares of the
Fund. A majority vote by shareholders is defined, with respect to the approval
of an investment advisory agreement 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
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<PAGE> 108
mortgages or 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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<PAGE> 109
companies within the same industry, are grouped together as an "industry."
If a percentage restriction (other than that contained in
investment limitation number 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 year ended March 31, 1996 and
March 31, 1997, the Fund's portfolio turnover rate was 2% and 7%, 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.
PORTFOLIO TRANSACTIONS
Fleet will select specific portfolio investments and effect
transactions for the Fund. Fleet seeks to obtain the best net price and the most
favorable execution of orders. Fleet may, in its discretion, effect transactions
in portfolio securities with dealers who provide research advice or other
services to the Fund or Fleet. Fleet is authorized to pay a broker or dealer who
provides such brokerage and research services a commission for executing a
portfolio transaction for the Fund which is in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction if Fleet determines in good faith that such commission was
reasonable in relation to the value of the brokerage and research services
provided by such broker or dealer, viewed in terms of either that particular
transaction or Fleet's overall responsibilities to the 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 Fleet are not
reduced by reason of receiving such
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<PAGE> 110
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 practice to allocate
brokerage or principal business on the basis of sales of its shares.
Galaxy II is required to identify any securities of its
regular brokers or dealers or their parents that Galaxy II has acquired during
its most recent fiscal year. At March 31, 1997, (a) the Large Company Index Fund
held common stock of (i) Morgan Stanley Group in the amount of $558,125; (ii)
Chase Manhattan Corp. in the amount of $2,497,353; (iii) Merrill Lynch and Co.,
Inc. in the amount of $879,532; and (iv) Salomon Inc. in the amount of $330,621;
and (b) the Small Company Index Fund held common stock of Paine Webber Group,
Inc. in the amount of $470,363.
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
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<PAGE> 111
gain any additional tax benefit from the receipt of tax-exempt income.
The Fund has qualified each year in the past and intends to
qualify each year in the future 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.
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
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<PAGE> 112
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.
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
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<PAGE> 113
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 ("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.
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<PAGE> 114
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. Each trustee who is an "interested
person" of the Trust, as defined in the 1940 Act, is indicated by an asterisk.
<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 (book
Yorkville, NY 13495 manufacturing and commercial
Age 64 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.
</TABLE>
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<PAGE> 115
<TABLE>
<S> <C>
*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); Trustee, President
Age 52 and Treasurer, The Galaxy Fund and
The Galaxy VIP Fund.
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.
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; Director, Essex
Age 65 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.
</TABLE>
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<PAGE> 116
<TABLE>
<CAPTION>
Positions Held with Galaxy II and
Principal Occupation(s) During
Name, Address and Age Past 5 Years
- --------------------- ---------------------------------
<S> <C>
W. Bruce McConnel, III Secretary
Drinker Biddle & Reath LLP
Philadelphia National Partner of the law firm of Drinker
Bank Building Biddle & Reath LLP, Philadelphia,
1345 Chestnut St. Pennsylvania.
Philadelphia, PA 19107
Age 54
Jylanne Dunne Vice President and Assistant
First Data Investor Treasurer
Services Group, Inc.
4400 Computer Drive Employee of First Data Investor
P.O. Box 5108 Services Group, Inc.
Westboro, MA 01581
Age 37
</TABLE>
Effective November 1, 1996, each trustee receives an annual
aggregate fee of $29,000 for his services as a trustee of Galaxy II, The Galaxy
Fund ("Galaxy") and The Galaxy VIP Fund ("Galaxy VIP"), plus an additional
$2,250 for each in-person Galaxy Board meeting attended and $1,500 for each
in-person Galaxy VIP or Galaxy II Board meeting attended not held concurrently
with an in-person Galaxy meeting, and is reimbursed for expenses incurred in
attending meetings. Each trustee also receives $500 for each telephone Board
meeting in which the trustee participates, $1,000 for each in-person Board
committee meeting attended and $500 for each telephone Board committee meeting
in which the trustee participates. The Chairman of the Boards of Galaxy II,
Galaxy and Galaxy VIP is entitled to an additional annual aggregate fee in the
amount of $4,000 and the President and Treasurer of Galaxy II, Galaxy and Galaxy
VIP is entitled to an additional annual aggregate fee of $2,500, for their
services in these respective capacities. The foregoing trustees' and officers'
fees are allocated among the portfolios of Galaxy II, Galaxy and Galaxy VIP
based on their relative net assets.
Prior to November 1, 1996, each trustee received 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 attended and $500 for each telephone
Galaxy II Board meeting in which the trustee participated and was reimbursed for
expenses incurred in attending all meetings.
Beginning March 1, 1996, each trustee became entitled to
participate in The Galaxy Fund, The Galaxy VIP Fund and Galaxy Fund II Deferred
Compensation Plans (the "Original Plans").
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<PAGE> 117
Effective January 1, 1997, the Original Plans were merged into The Galaxy
Fund/The Galaxy VIP Fund/Galaxy Fund II Deferred Compensation Plan (together
with the Original Plans, the "Plan"). Under the Plan, a trustee may elect to
have his deferred fees treated as if they had been invested by Galaxy II, Galaxy
and Galaxy VIP in the shares of one or more portfolios in Galaxy II or Galaxy,
or other types of investment options, and the amount paid to the trustees under
the Plan will be determined based upon the performance of such investments.
Deferral of trustees' fees will have no effect on a portfolio's assets,
liabilities, and net income per share, and will not obligate Galaxy II, Galaxy
and Galaxy VIP to retain the services of any trustee or obligate a portfolio to
any level of compensation to the trustee. Galaxy II, Galaxy and Galaxy VIP may
invest in underlying securities without shareholder approval.
No employee of FDISG 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.
As of the date of this Statement of Additional Information,
the trustees and officers of Galaxy II owned less than 1% of its outstanding
shares.
The following chart provides certain information about the
trustee fees for the year ended March 31, 1997:
<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSA-
RETIREMENT TION FROM
BENEFITS FUND
AGGREGATE ACCRUED COMPLEX*
NAME OF COMPENSATION AS PART OF PAID TO
PERSON FROM GALAXY II GALAXY II EXPENSES TRUSTEES
- ------- -------------- ------------------ ----------
<S> <C> <C> <C>
Bradford S. Wellman $5,701 None $37,500
Dwight E. Vicks, Jr. $5,880 None $40,000
Donald B. Miller** $5,701 None $38,215
Louis DeThomasis $5,701 None $36,500
John T. O'Neill $5,063 None $36,750
James M. Seed** $5,701 None $37,747
</TABLE>
* The "Fund Complex" consists of Galaxy II, The Galaxy Fund and The
Galaxy VIP Fund. Each trustee of Galaxy II also serves as a trustee of
The Galaxy Fund and The Galaxy VIP Fund.
** Deferred compensation in the amounts of $5,701 and $5,701 accrued
during Galaxy II's fiscal year ended March 31, 1997 for Messrs. Miller
and Seed, respectively.
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<PAGE> 118
ADVISORY, ADMINISTRATION, SUB-ADMINISTRATION,
CUSTODY AND TRANSFER AGENCY AGREEMENTS
INVESTMENT ADVISER, ADMINISTRATOR AND SUB-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 75 State Street, Boston, Massachusetts 02109.
Pursuant to the 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 Fleet under
the Advisory Agreement are described in the Prospectus. Fleet bears all expenses
in connection with its duties under the Advisory Agreement.
For the period April 1, 1994 through June 30, 1994, IBM Credit
Investment Management Corporation ("IBM"), the Trust's former adviser, earned
advisory fees of $20,007 with respect to the Fund pursuant to the advisory
agreement then in effect. For the period July 1, 1994 through March 31, 1995 and
the fiscal years ended March 31, 1996 and March 31, 1997, Fleet earned advisory
fees of $50,719, $59,097 and $51,631, respectively, with respect to the Fund.
Pursuant to an administration agreement with the Trust (the
"Administration Agreement"), Fleet National Bank ("FNB"), 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, FNB 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, FNB prepares the Fund's annual and semi-annual reports to the
Securities and Exchange Commission ("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, FNB may delegate to
another organization the performance of some or all of these services, in which
case FNB 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. FNB has entered into a Sub-Administration Agreement
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<PAGE> 119
with First Data Investor Services Group, Inc. ("FDISG"), pursuant to which FDISG
has agreed to provide the Trust with the services which the Trust is entitled to
receive under the Administration Agreement with FNB.
For the period April 1, 1994 through June 30, 1994, IBM, the
Trust's former administrator, earned administration fees of $28,197 with respect
to the Fund pursuant to the administration agreement then in effect. For the
period July 1, 1994 through March 31, 1995 and for the fiscal years ended March
31, 1996 and March 31, 1997, FNB earned administration fees of $64,406, $82,017
and $72,282, respectively, with respect to the Fund.
FNB 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 Fleet, FNB, FD
Distributors 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 FNB 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 Fleet, a breach of fiduciary duty with respect to the
receipt of compensation for services), neither Fleet nor FNB 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 Fleet or FNB, 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.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of
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<PAGE> 120
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. Fleet, FNB, 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 AND TRANSFER AGENT
The Chase Manhattan Bank (the "Custodian") serves as custodian
to the Fund pursuant to a Mutual Fund Custody Agreement (the "Custody
Agreement"). Under the 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.
FDISG serves as the Trust's transfer agent and dividend
disbursing agent pursuant to a Transfer Agency and Services 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 notices 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.
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<PAGE> 121
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Fund are sold on a continuous basis by Galaxy
II's distributor, First Data Distributors, Inc. ("FD Distributors"), and FD
Distributors 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 FIS Securities, Inc., Fleet Brokerage Securities Inc., Fleet
Securities, Inc., Fleet Enterprises, Inc., Fleet Financial Group, Inc., 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 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 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.
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
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.
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<PAGE> 122
The average annual total return for the Fund for the one-year
period ended March 31, 1997 was 4.15%. The average annual total return for the
Fund for the period beginning April 15, 1993 (commencement of operations)
through March 31, 1997 was 5.02%.
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, 1997 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,
1997 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 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
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<PAGE> 123
data from Lipper Analytical Services, Inc., Morningstar, Inc., or similar
independent services that monitor the performance of mutual funds, or other
industry publications.
COUNSEL
Drinker Biddle & Reath LLP (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
Coopers & Lybrand L.L.P., independent accountants, with
offices at One Post Office Square, Boston, Massachusetts 02109, currently serve
as auditors to Galaxy II. Coopers & Lybrand L.L.P. performs an annual audit of
Galaxy II's financial statements and provides other services related to filings
with respect to securities regulations. Reports of its activities are provided
to the Board of Trustees.
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. FDISG 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
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<PAGE> 124
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 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 15, 1997, the name, address and percentage
ownership of the persons who owned of record 5% or more of the outstanding
shares of any portfolio of Galaxy II were as follows: Large Company Index Fund
- -- Norstar Trust Company, Gales & Co., Funds Control, Attn: Julie Hogestyn, One
East Avenue, Rochester, New York 14638, (35.83%); Fleet Financial Group, 50
Kennedy Plaza, Providence, Rhode Island 02903, (15.23%); U.S. Treasury Index
Fund -- Norstar Trust Company, Gales & Co., Funds Control, Attn: Julie Hogestyn,
One East Avenue, Rochester, New York 14638, (9.42%); Diocese of Albany, c/o
Fleet Financial Group, 50 Kennedy Plaza, Providence, Rhode Island 02903,
(5.33%); Municipal Bond Fund -- Robert G. Jacob, 4223 Wieuca Overlook, Atlanta,
Georgia 30342, (9.90%). No person owned of record 5% or more of the outstanding
shares of the Small Company Index Fund or the Utility Index Fund.
FINANCIAL STATEMENTS
Galaxy II's audited financial statements and notes thereto in
Galaxy II's Annual Report to Shareholders for the fiscal year ended March 31,
1997 (the "Annual Report") are incorporated into this Statement of Additional
Information by reference. No other parts of the Annual Report are incorporated
by reference herein. The financial statements included in the Annual Report
(with the exception of the financial highlights for periods prior to the fiscal
year ended March 31, 1995 which were audited by other auditors) have been
audited by Galaxy II's independent accountants, Coopers & Lybrand L.L.P., whose
report thereon is incorporated herein by reference. Such financial statements
have been incorporated herein in reliance upon such report given upon the
authority of Coopers & Lybrand L.L.P. as experts in accounting and auditing.
Additional copies of the
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<PAGE> 125
Annual Report may be obtained at no charge by telephoning Galaxy II at
1-800-628-0414.
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<PAGE> 126
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> 127
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> 128
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> 129
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.
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<PAGE> 130
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> 131
GALAXY FUND II
FORM N-1A
Part C. Other Information
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
(1) Included in Part A:
Financial Highlights for a share outstanding
throughout each period for the fiscal years ended
March 31, 1997, 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 the Small Company Index Fund, for the years
ended March 31, 1997, 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, 1997, 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, 1997, 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.
(2) Incorporated by reference into Part B:
The financial statements contained in Registrant's
Annual Report to Shareholders dated March 31, 1997,
which has been previously filed with the Commission.
(3) All required financial statements are included in or
incorporated by reference into 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.
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<PAGE> 132
(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 herein 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 herein 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.
(4) Not applicable.
(5) Investment Advisory Agreement between Registrant and
Fleet Investment Advisors Inc. dated June 30, 1994 is
incorporated herein 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)(a) Amended and Restated Distribution Agreement among
Registrant, First Data Investor Services Group, Inc.
and 440 Financial Distributors, Inc. dated June 1, 1996
is incorporated herein by reference to Post-Effective
Amendment No. 22 to Registrant's Registration Statement
on Form N-1A filed with the Commission on May 30,
1997.
(6)(b) Form of Distribution Agreement between Registrant and
First Data Distributors, Inc.
(7)(a) Galaxy Fund II Deferred Compensation Plan and Related
Agreement effective as of March 1, 1996 is incorporated
herein by reference to Post-Effective Amendment No. 22
to Registrant's Registration Statement on Form N-1A
filed with the Commission on May 30, 1997.
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<PAGE> 133
(7)(b) The Galaxy Fund/The Galaxy VIP Fund/Galaxy Fund II
Deferred Compensation Plan and Related Agreement
effective as of January 1, 1997 is incorporated herein
by reference to Post-Effective Amendment No. 22 to
Registrant's Registration Statement on Form N-1A filed
with the Commission on May 30, 1997.
(8)(a) Custody Agreement among Registrant, The Chase Manhattan
Bank, N.A. and Fleet National Bank dated June 30, 1994
is incorporated herein 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
herein 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
herein 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) Amended and Restated Transfer Agency Agreement among
Registrant, First Data Investor Services Group, Inc.
and Fleet National Bank dated June 1, 1996 is
incorporated herein by reference to Post-Effective
Amendment No. 22 to Registrant's Registration Statement
on Form N-1A filed with the Commission on May 30, 1997.
(9)(d) Form of Transfer Agency and Services Agreement among
Registrant, First Data Investor Services Group, Inc.
and Fleet National Bank.
(10)1 Opinion of counsel that shares are validly issued,
fully paid and non-assessable.
(11)(a) Consent of Coopers & Lybrand L.L.P.
(11)(b) Consent of Drinker Biddle & Reath LLP.
- ---------------
1 Filed with the Securities and Exchange Commission ("SEC") on May 30, 1997
under Rule 24f-2 as part of Registrant's 24f-2 Notice.
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<PAGE> 134
(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
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<PAGE> 135
Amendment No. 13 to Registrant's Registration Statement on
Form N-1A filed with the Commission on October 29, 1993.
(27) Financial Data Schedules
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 May 15, 1997
--------------- ------------------------
<S> <C>
Large Company Index Fund 17,306
Small Company Index Fund 20,306
U.S. Treasury Index Fund 6,220
Utility Index Fund 5,027
Municipal Bond Fund 1,041
Item 27. Indemnification
</TABLE>
Indemnification of Registrant's principal underwriter,
custodian and transfer agent against certain losses is provided for respectively
in Section 1.12 of the Amended and Restated Distribution Agreement incorporated
by reference herein as Exhibit (6)(a), in Section 1.15 of the Form of
Distribution Agreement included herein as Exhibit (6)(b), in Section 20 of the
Custody Agreement incorporated by reference herein as Exhibit (8), in Section 18
of the Amended and Restated Transfer Agency Agreement incorporated by reference
herein as Exhibit (9)(c), and in Article 10 of the Form of Transfer Agency and
Services Agreement included herein as Exhibit (9)(d). 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
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<PAGE> 136
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 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, as amended (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).
C-6
<PAGE> 137
Item 29. Principal Underwriter
(a) In addition to Galaxy Fund II, First Data Distributors,
Inc. (the "Distributor") currently acts as distributor for The Galaxy Fund, The
Galaxy VIP Fund, BT Insurance Funds Trust, CT & T Funds, Panorama Funds, and
Wilshire Target Funds, Inc. 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 Group, Inc., which is located at 4400 Computer Drive, P.O. Box
5108, Westboro, Massachusetts 01581.
(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 Group, 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., 75 State Street,
Boston, Massachusetts 02106 (records relating to its
functions as investment adviser to all of the
Registrant's Funds);
(2) First Data Distributors, Inc., 4400 Computer Drive,
P.O. Box 5108, Westboro, 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 Group, Inc., 4400
Computer Drive, P.O. Box 5108, Westboro,
Massachusetts 01581 (records relating to its
functions as transfer agent and sub-administrator);
C-7
<PAGE> 138
(5) Drinker Biddle & Reath LLP, 1345 Chestnut Street,
Suite 1100, Philadelphia, Pennsylvania 19107
(Registrant's Declaration of Trust, By-Laws and
minute books); and
(6) The Chase Manhattan Bank, 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 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> 139
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, the Registrant
certifies that it meets all the requirements for effectiveness of this
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment No. 23 to its Registration
Statement on Form N-1A to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Pawtucket, State of Rhode Island, on the 28
day of July, 1997.
GALAXY FUND II
By: /s/ John T. O'Neill
------------------------------
John T. O'Neill
President
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Post-Effective Amendment No. 23 to its 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 28, 1997
- -------------------------- and Treasurer
John T. O'Neill
* Dwight E. Vicks, Jr. Chairman of the July 28, 1997
- ------------------------- Board of Trustees
Dwight E. Vicks, Jr.
* Donald B. Miller Trustee July 28, 1997
- --------------------------
Donald B. Miller
* Louis DeThomasis Trustee July 28, 1997
- -------------------------
Louis DeThomasis
* Bradford S. Wellman Trustee July 28, 1997
- ------------------------
Bradford S. Wellman
* James M. Seed Trustee July 28, 1997
- -------------------------
James M. Seed
</TABLE>
C-9
<PAGE> 140
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
*By: /s/ John T. O'Neill
---------------------------
John T. O'Neill
Attorney-in-Fact
</TABLE>
C-10
<PAGE> 141
GALAXY FUND II
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints John
T. O'Neill and W. Bruce McConnel, III, and either of them his true and lawful
attorney-in fact and agent with full power of substitution or resubstitution,
for him and in his name, place and stead, in his capacity as trustee or officer,
or both, to execute any and all amendments to the Trust's Registration Statement
on Form N-1A pursuant to the Investment Company Act of 1940, as amended, and the
Securities Act of 1933, as amended ("Acts"), and all instruments necessary or
incidental in connection therewith pursuant to said Acts and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, and to file the same with the Securities and Exchange Commission, and
either of said attorneys shall have full power and authority, to do and perform
in the name and on behalf of the undersigned in any and all capacities, every
act whatsoever requisite or necessary to be done, as fully and to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys, or either of them, may lawfully do or cause to be done
by virtue hereof.
Dated: July 16, 1996 /s/ Dwight E. Vicks, Jr.
-----------------------------
Dwight E. Vicks, Jr.
<PAGE> 142
GALAXY FUND II
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints John
T. O'Neill and W. Bruce McConnel, III, and either of them his true and lawful
attorney-in fact and agent with full power of substitution or resubstitution,
for him and in his name, place and stead, in his capacity as trustee or officer,
or both, to execute any and all amendments to the Trust's Registration Statement
on Form N-1A pursuant to the Investment Company Act of 1940, as amended, and the
Securities Act of 1933, as amended ("Acts"), and all instruments necessary or
incidental in connection therewith pursuant to said Acts and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, and to file the same with the Securities and Exchange Commission, and
either of said attorneys shall have full power and authority, to do and perform
in the name and on behalf of the undersigned in any and all capacities, every
act whatsoever requisite or necessary to be done, as fully and to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys, or either of them, may lawfully do or cause to be done
by virtue hereof.
Dated: July 15, 1996 /s/ Donald B. Miller
-----------------------------
Donald B. Miller
<PAGE> 143
GALAXY FUND II
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints John
T. O'Neill and W. Bruce McConnel, III, and either of them his true and lawful
attorney-in fact and agent with full power of substitution or resubstitution,
for him and in his name, place and stead, in his capacity as trustee or officer,
or both, to execute any and all amendments to the Trust's Registration Statement
on Form N-1A pursuant to the Investment Company Act of 1940, as amended, and the
Securities Act of 1933, as amended ("Acts"), and all instruments necessary or
incidental in connection therewith pursuant to said Acts and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, and to file the same with the Securities and Exchange Commission, and
either of said attorneys shall have full power and authority, to do and perform
in the name and on behalf of the undersigned in any and all capacities, every
act whatsoever requisite or necessary to be done, as fully and to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys, or either of them, may lawfully do or cause to be done
by virtue hereof.
Dated: July 24, 1996 /s/ Brother Louis DeThomasis
-----------------------------
Brother Louis DeThomasis
<PAGE> 144
GALAXY FUND II
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints John
T. O'Neill and W. Bruce McConnel, III, and either of them his true and lawful
attorney-in fact and agent with full power of substitution or resubstitution,
for him and in his name, place and stead, in his capacity as trustee or officer,
or both, to execute any and all amendments to the Trust's Registration Statement
on Form N-1A pursuant to the Investment Company Act of 1940, as amended, and the
Securities Act of 1933, as amended ("Acts"), and all instruments necessary or
incidental in connection therewith pursuant to said Acts and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, and to file the same with the Securities and Exchange Commission, and
either of said attorneys shall have full power and authority, to do and perform
in the name and on behalf of the undersigned in any and all capacities, every
act whatsoever requisite or necessary to be done, as fully and to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys, or either of them, may lawfully do or cause to be done
by virtue hereof.
Dated: July 16, 1996 /s/ Bradford S. Wellman
-----------------------------
Bradford S. Wellman
<PAGE> 145
GALAXY FUND II
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints John
T. O'Neill and W. Bruce McConnel, III, and either of them his true and lawful
attorney-in fact and agent with full power of substitution or resubstitution,
for him and in his name, place and stead, in his capacity as trustee or officer,
or both, to execute any and all amendments to the Trust's Registration Statement
on Form N-1A pursuant to the Investment Company Act of 1940, as amended, and the
Securities Act of 1933, as amended ("Acts"), and all instruments necessary or
incidental in connection therewith pursuant to said Acts and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, and to file the same with the Securities and Exchange Commission, and
either of said attorneys shall have full power and authority, to do and perform
in the name and on behalf of the undersigned in any and all capacities, every
act whatsoever requisite or necessary to be done, as fully and to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys, or either of them, may lawfully do or cause to be done
by virtue hereof.
Dated: July 18, 1996 /s/ James M. Seed
-----------------------------
James M. Seed
<PAGE> 146
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
----------- ----------- --------
<S> <C> <C>
(6)(b) Form of Distribution Agreement between Registrant
and First Data Distributors, Inc.
(9)(d) Form of Transfer Agency and Services Agreement
Among Registrant, First Data Investor Services
Group, Inc. and Fleet National Bank
(11)(a) Consent of Coopers & Lybrand L.L.P.
(11)(b) Consent of Drinker Biddle & Reath LLP
(27) Financial Data Schedules
</TABLE>
<PAGE> 1
EXHIBIT (6)(b)
DISTRIBUTION AGREEMENT
THIS AGREEMENT is made as of this 1st day of June, 1997 (the
"Agreement") by and between Galaxy Fund II (the "Company"), a Massachusetts
business trust, and First Data Distributors, Inc. (the "Distributor"), a
Massachusetts corporation.
WHEREAS, the Company is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
and is currently offering units of beneficial interest (such units of all
classes and series are hereinafter called the "Shares"), representing interests
in investment portfolios of the Company identified on Schedule A hereto (the
"Funds") which are registered with the Securities and Exchange Commission (the
"SEC") pursuant to the Company's Registration Statement on Form N-1A (the
"Registration Statement"); and
WHEREAS, the Company desires to retain the Distributor as distributor
for the Funds to provide for the sale and distribution of the Shares of the
Funds identified on Schedule A and for such additional classes or series as the
Company may issue, and the Distributor is prepared to provide such services
commencing on the date first written above.
NOW THEREFORE, in consideration of the premises and mutual covenants
set forth herein and intending to be legally bound hereby the parties hereto
agree as follows:
1. SERVICE AS DISTRIBUTOR
1.1 The Distributor will act as the Company's disclosed agent for the
distribution of the Shares covered by the Registration Statement then
in effect under the Securities Act of 1933, as amended (the "1933
Act"). The Distributor will have no liability for payment for the
purchase of Shares sold pursuant to this Agreement or with respect to
redemptions or repurchases of Shares.
1.2 The Distributor agrees to use efforts deemed appropriate by the
Distributor to solicit orders for the sale of the Shares and will
undertake such advertising and promotion as it believes reasonable in
connection with such solicitation. The Distributor shall, at its own
expense, finance appropriate activities which it deems reasonable which
are primarily intended to result in the sale of Shares, including, but
not limited to, advertising, compensation of underwriters, dealers and
sales personnel, the printing and mailing of Prospectuses to other than
current shareholders, and the printing and mailing of sales literature.
<PAGE> 2
1.3 The Company understands that the Distributor is now, and may in the
future be, the distributor of the shares of several investment
companies or series (collectively, the "Investment Entities"),
including Investment Entities having investment objectives similar to
those of the Funds. The Company further understands that investors and
potential investors in the Funds may invest in shares of such other
Investment Entities. The Company agrees that the Distributor's duties
to such Investment Entities shall not be deemed in conflict with its
duties to the Company under this Section 1.3.
1.4 The Distributor agrees to provide (a) two wholesalers dedicated to
supporting sales of Shares of the Funds and The Galaxy Fund, and (b)
one or more persons, during normal business hours, to respond to
telephone questions with respect to the Funds.
1.5 The Distributor may enter into selling agreements with selected dealers
or other institutions with respect to the offering of Shares to the
public. Each selling agreement will provide that (a) all payments for
purchases of Shares will be sent directly from the dealer or such other
institution to the Funds' transfer agent and (b) if payment is not made
with respect to purchases of Shares at the customary or required time
for settlement of the transaction, the Distributor will have the right
to cancel the sale of Shares ordered by the dealer or such other
institution, in which case the dealer or such other institution will be
responsible for any loss suffered by any Fund or the Distributor
resulting from such cancellation. The Distributor may also act as
disclosed agent for a Fund and sell Shares of that Fund to individual
investors, such transactions to be specifically approved by an officer
of that Fund.
1.6 The Distributor will send a confirmation to each purchaser of Shares
under this Agreement. Such confirmations will comply with all
applicable Federal and state laws and rules and regulations of
authorized regulatory bodies and will clearly state that the
Distributor is acting as agent in the transaction and that all
remittances, registration instructions and certifications for
redemption should be sent directly to the Funds' transfer agent. Such
confirmations will also set forth the mailing address and delivery
address of the Funds' transfer agent.
1.7 The Distributor shall not utilize any materials in connection with the
sale or offering of Shares except the Company's then current
Prospectuses and Statements of Additional Information and such other
materials as the Company shall provide or approve.
-2-
<PAGE> 3
1.8 All activities by the Distributor and its agents and employees, as
distributor of the Shares, shall comply with all applicable laws, rules
and regulations, including, without limitation, all rules and
regulations made or adopted pursuant to the 1940 Act by the SEC or the
National Association of Securities Dealers.
1.9 The Distributor will transmit any orders received by it for purchase or
redemption of the Shares to the transfer agent and custodian for the
Company.
1.10 Whenever in their judgment such action is warranted by unusual market,
economic or political conditions or abnormal circumstances of any kind,
officers of the Company may decline to accept any orders for, or make
any sales of, the Shares until such time as those officers deem it
advisable to accept such orders and to make such sales, and the Company
shall notify the Distributor promptly of any such determination.
1.11 The Company agrees to pay all costs and expenses in connection with the
registration of Shares under the 1933 Act and all expenses in
connection with maintaining facilities for the issue and transfer of
Shares and for supplying information, prices and other data to be
furnished by the Company hereunder, and all expenses in connection with
the preparation and printing of the Company's Prospectuses and
Statements of Additional Information for regulatory purposes and for
distribution to existing shareholders.
1.12 The Company agrees at its own expense to execute any and all documents
and to furnish any and all information and otherwise to take all
actions that may be reasonably necessary in connection with the
qualification of the Shares for sale in such states as the Distributor
may designate. The Company shall notify the Distributor in writing of
the states in which the Shares are to be sold and shall notify the
Distributor in writing of any changes to the information contained in
the previous notification.
1.13 The Company shall furnish from time to time, for use in connection with
the sale of the Shares, such information with respect to the Company
and the Shares as the Distributor may reasonably request; and the
Company warrants that the statements contained in any such information
shall fairly show or represent what they purport to show or represent.
The Company shall also furnish the Distributor upon request with: (a)
audited annual statements and unaudited semi-annual statements of the
Funds' books and accounts prepared by the Company, (b) quarterly
earnings statements of the Funds prepared by the Company, (c) a
-3-
<PAGE> 4
monthly itemized list of the securities in the Funds, (d) monthly
balance sheets as soon as practicable after the end of each month, and
(e) from time to time such additional information regarding the Funds'
financial condition of the Company as the Distributor may reasonably
request.
1.14 The Company represents to the Distributor that all Registration
Statements and Prospectuses filed by the Company with the SEC under the
1933 Act with respect to the Shares have been prepared in conformity
with the requirements of the 1933 Act and the rules and regulations of
the SEC thereunder. As used in this Agreement, the terms "Registration
Statement" and "Prospectus" shall mean any Registration Statement and
any Prospectus including any Statement of Additional Information
incorporated therein by reference relating to the Company filed with
the SEC and any amendments or supplements thereto at any time filed
with the SEC. The Company represents and warrants to the Distributor
that any Registration Statement and Prospectus, when such Registration
Statement becomes effective, will contain statements required to be
stated therein in conformity with the 1933 Act and the rules and
regulations of the SEC; that all statements of fact contained in any
such Registration Statement and Prospectus will be true and correct
when such Registration Statement becomes effective; and that no
Registration Statement or Prospectus when such Registration Statement
becomes effective will include an untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading to a purchaser
of the Shares. The Distributor may but shall not be obligated to
propose from time to time such amendment or amendments to any
Registration Statement and such supplement or supplements to any
Prospectus as, in the light of future developments, may, in the opinion
of the Distributor's counsel, be necessary or advisable. The
Distributor shall promptly notify the Company of any advice given to it
by its counsel regarding the necessity or advisability of amending or
supplementing such Registration Statement. If the Company shall not
propose such amendment or amendments and/or supplement or supplements
within fifteen days after receipt by the Company of a written request
from the Distributor to do so, the Distributor may, at its option,
terminate this Agreement. The Company shall not file any amendment to
any Registration Statement or supplement to any Prospectus without
giving the Distributor reasonable notice thereof in advance; provided,
however, that nothing contained in this Agreement shall in any way
limit the Company's right to file at any time such amendments to any
Registration Statements and/or supplements to any Prospectus, of
whatever character, as the Company may deem advisable, such right being
in all respects absolute and unconditional.
-4-
<PAGE> 5
1.15 The Company authorizes the Distributor (and dealers pursuant to any
agreements described in Section 1.5 above) to use any Prospectus in the
form furnished by the Company from time to time in connection with the
sale of the Shares. The Company agrees to indemnify, defend and hold
the Distributor, its several officers and directors, and any person who
controls the Distributor within the meaning of Section 15 of the 1933
Act, free and harmless from and against any and all claims, demands,
liabilities and expenses (including the cost of investigating or
defending such claims, demands or liabilities and pay reasonable
counsel fees incurred in connection therewith) which the Distributor,
its officers and directors, or any such controlling person, may incur
under the 1933 Act, or under common law or otherwise, arising out of or
based upon any untrue statement, or alleged untrue statement of a
material fact contained in any Registration Statement or any Prospectus
or arising out of or based upon any omission, or alleged omission, to
state a material fact required to be stated in either any Registration
Statement or any Prospectus or necessary to make the statements in
either thereof not misleading; provided, however, that the Company's
agreement to indemnify the Distributor, its officers or directors, and
any such controlling person, shall not be deemed to cover any claims,
demand, liabilities or expenses arising out of any representations or
statements contained in any Registration Statement or in any Prospectus
that were furnished in writing to the Company or its counsel by the
Distributor expressly for use in the answers to the Registration
Statement or in the corresponding statements made in the Prospectus, or
arising out or based upon any omission or alleged omission to state a
material fact in connection with such information furnished in writing
by the Distributor to the Company or its counsel and required to be
stated in such answers or necessary to make such answers not
misleading; and further provided that the Company's agreement to
indemnify the Distributor and the Company's representations and
warranties hereinbefore set forth in Section 1.14 shall not be deemed
to cover any liability to the Company or its shareholders to which the
Distributor would otherwise be subject by reason of willful
misfeasance, bad faith or negligence in the performance of its duties,
or by reason of the Distributor's reckless disregard of its duties and
obligations under this Agreement. The Company's indemnification
agreement contained in this Section 1.15 and the Company's
representations and warranties in this Agreement shall remain operative
and in full force and effect regardless of any investigation made by or
on behalf of the Distributor, its officers and directors, or any
controlling person, and shall survive delivery of any Shares. The
Company agrees promptly to notify the Distributor of the commencement
of any litigation or
-5-
<PAGE> 6
proceedings against the Company or any of its officers or trustees in
connection with the issue and sale of any Shares. This agreement to
indemnify will inure exclusively to the Distributor's benefit, to the
benefit of its several officers and directors and their respective
estates, and to the benefit of its controlling persons and their
successors.
1.16 The Distributor agrees to indemnify, defend and hold the Company, its
several officers and trustees, and any person who controls the Company
within the meaning of Section 15 of the 1933 Act, free and harmless
from and against any and all claims, demands, liabilities and expenses
(including the costs of investigating or defending such claims,
demands, or liabilities and any reasonable counsel fees incurred in
connection therewith) which the Company, its officers or trustees, or
any such controlling person, may incur under the 1933 Act, or under
common law or otherwise, but only to the extent that such liability or
expense incurred by the Company, its officers or trustees, or such
controlling person, resulting from such claims or demands, shall arise
out of or be based upon any untrue, or alleged untrue, statement of a
material fact contained in information furnished in writing by the
Distributor to the Company or its counsel expressly for use in the
answers to any of the items of the Registration Statement or in the
corresponding statements made in the Prospectus, or shall arise out of
or be based upon any omission, or alleged omission, to state a material
fact in connection with such information furnished in writing by the
Distributor to the Company or its counsel and required to be stated in
such answers or necessary to make such information not misleading. The
Distributor's indemnification agreement contained in this Section 1.16
and representations and warranties in this Agreement shall remain
operative and in full force and effect regardless of any investigation
made by or on behalf of the Company or its officers and trustees, and
shall survive the delivery of any Shares. The Distributor agrees
promptly to notify the Company of the commencement of any litigation or
proceedings against the Distributor or any of its officers, directors
or controlling persons in connection with the issuance and sale of any
of the Shares.
1.17 (a) In any case in which one party hereto (the "Indemnifying Party")
may be asked to indemnify or hold the other party hereto (the
"Indemnified Party") harmless, the Indemnified Party will notify the
Indemnifying Party in writing promptly after identifying any situation
which it believes presents or appears likely to present a claim for
indemnification (an "Indemnification Claim") against the Indemnifying
Party, although the failure to do so shall not relieve the Indemnifying
Party from any liability which it may otherwise have to the Indemnified
Party, and the
-6-
<PAGE> 7
Indemnifying Party shall keep the Indemnifying Party advised with
respect to all developments concerning such situation. The Indemnifying
Party shall be entitled to participate at its own expense in the
defense, or if it so elects, to assume the defense of, any
Indemnification Claim which may be the subject of this indemnification,
and, in the event that the Indemnifying Party so elects, such defense
shall be conducted by counsel of good standing chosen by the
Indemnifying Party and approved by the Indemnified Party, which
approval shall not be unreasonably withheld. In the event the
Indemnifying Party elects to assume the defense of any such
Indemnification Claim and retain such counsel, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by
the Indemnified Party. The Indemnified Party will not confess any
Indemnification Claim or make any compromise in any case in which the
Indemnifying Party will be asked to provide indemnification, except
with the Indemnifying Party's prior written consent.
(b) In the event that the Company is the Indemnifying Party and the
Indemnifying Party does not elect to assume the defense of any such
Indemnification Claim, or in case the Distributor reasonably does not
approve of counsel chosen by the Company, the Company will reimburse
the Distributor, its officers, directors and employees, or the
controlling person or persons named as defendant or defendants in such
Indemnification Claim, for the fees and expenses of any counsel
retained by the Distributor or them.
(c) The obligations of the parties hereto under Sections 1.15 through
1.17 shall survive the termination of this Agreement.
1.18 No Shares shall be offered by either the Distributor or the Company
under any of the provisions of this Agreement and no orders for the
purchase or sale of Shares hereunder shall be accepted by the Company
if and so long as effectiveness of the Registration Statement then in
effect or any necessary amendments thereto shall be suspended under any
of the provisions of the 1933 Act, or if and so long as a current
prospectus as required by Section 5(b)(2) of the 1933 Act is not on
file with the SEC; provided, however, that nothing contained in this
Section 1.22 shall in any way restrict or have any application to or
bearing upon the Company's obligation to redeem Shares tendered for
redemption by any shareholder in accordance with the provisions of the
Company's Registration Statement or Declaration of Trust.
1.19 The Company agrees to advise the Distributor as soon as reasonably
practical by a notice in writing delivered to the Distributor:
-7-
<PAGE> 8
(a) of any request by the SEC for amendments to the Registration
Statement or Prospectus then in effect or for additional information;
(b) in the event of the issuance by the SEC of any stop order
suspending the effectiveness of the Registration Statement or
Prospectus then in effect or the initiation by service of process on
the Company of any proceeding for that purpose;
(c) of the happening of any event that makes untrue any statement of a
material fact made in the Registration Statement or Prospectus then in
effect or that requires the making of a change in such Registration
Statement or Prospectus in order to make the statements therein not
misleading; and
(d) of all actions of the SEC with respect to any amendments to any
Registration Statement or Prospectus which may from time to time be
filed with the SEC.
For purposes of this Section 1.23, informal requests by or acts of the
staff of the SEC shall not be deemed actions of or requests by the SEC.
2. TERM
2.1 This Agreement shall become effective on the date first written above
and, unless sooner terminated as provided herein, shall continue for an
initial one-year term and thereafter shall continue automatically for
successive one-year terms, provided such continuance is specifically
approved at least annually by (i) the Company's Board of Trustees or
(ii) by a vote of a majority (as defined in the 1940 Act and Rule 18f-2
thereunder) of the outstanding voting securities of the Company,
provided that in either event the continuance is also approved by a
majority of the Trustees who are not parties to this Agreement and who
are not interested persons (as defined in the 1940 Act) of any party to
this Agreement, by vote cast in person at a meeting called for the
purpose of voting on such approval. This Agreement is terminable
without penalty, on at least sixty days' written notice, by the
Company's Board of Trustees, by vote of a majority (as defined in the
1940 Act and Rule 18f-2 thereunder) of the outstanding voting
securities of the Company, or by the Distributor. This Agreement will
also terminate automatically in the event of its assignment (as defined
in the 1940 Act and the rules thereunder).
2.2 In the event a termination notice is given by the Company and provided
that the Distributor is not in default under this Agreement at the time
of such termination notice, all
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<PAGE> 9
reasonable expenses associated with movement of records and materials
and conversion thereof to a successor distributor will be borne by the
Company.
3. LIMITATION OF LIABILITY
3.1 The Distributor shall not be liable to the Company for any error of
judgment or mistake of law or for any loss suffered by the Company in
connection with the performance of its obligations and duties under
this Agreement, except a loss resulting from the Distributor's willful
misfeasance, bad faith or negligence in the performance of such
obligations and duties, or by reason of its reckless disregard thereof.
3.2 Each party shall have the duty to mitigate damages for which the other
party may become responsible.
3.3 NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, IN NO EVENT
SHALL EITHER PARTY, ITS AFFILIATES OR ANY OF ITS OR THEIR DIRECTORS,
TRUSTEES, OFFICERS, EMPLOYEES, AGENTS OR SUBCONTRACTORS BE LIABLE TO
THE OTHER PARTY CONSEQUENTIAL DAMAGES[, PROVIDED, HOWEVER, THAT NOTHING
CONTAINED IN THIS SECTION 3.3 SHALL BE CONSTRUED SO AS TO LIMIT THE
RIGHT OF ANY SHAREHOLDER OF THE COMPANY, WHETHER SUING ON HIS, HER OR
ITS OWN BEHALF OR DERIVATIVELY THROUGH THE COMPANY, TO CONSEQUENTIAL
DAMAGES].
4. MODIFICATIONS AND WAIVERS
No change, termination, modification, or waiver of any term or
condition of the Agreement shall be valid unless in writing signed by
each party. No such writing shall be effective as against the Company
unless said writing is executed by the President of the Company. No
such writing shall be effective as against the Distributor unless said
writing is executed by a Senior Vice President, Executive Vice
President or President of the Distributor. A party's waiver of a breach
of any term or condition in the Agreement shall not be deemed a waiver
of any subsequent breach of the same or another term or condition.
5. NO PRESUMPTION AGAINST DRAFTER
The Distributor and the Company have jointly participated in the
negotiation and drafting of this Agreement. The Agreement shall be
construed as if drafted jointly by the Company and the Distributor, and
no presumptions arise favoring any party by virtue of the authorship of
any provision of this Agreement.
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<PAGE> 10
6. PUBLICITY
Neither the Distributor nor the Company shall release or publish news
releases, public announcements, advertising or other publicity relating
to this Agreement or to the transactions contemplated by it without
prior review and written approval of the other party; provided,
however, that either party may make such disclosures as are required by
legal, accounting or regulatory requirements after making reasonable
efforts in the circumstances to consult in advance with the other
party.
7. SEVERABILITY
The parties intend every provision of this Agreement to be severable.
If a court of competent jurisdiction determines that any term or
provision is illegal or invalid for any reason, the illegality or
invalidity shall not affect the validity of the remainder of this
Agreement. In such case, the parties shall in good faith modify or
substitute such provision consistent with the original intent of the
parties. Without limiting the generality of this paragraph, if a court
determines that any remedy stated in this Agreement has failed of its
essential purpose, then all other provisions of this Agreement shall
remain fully effective.
8. FORCE MAJEURE
No party shall be liable for any default or delay in the performance of
its obligations under this Agreement if and to the extent such default
or delay is caused, directly or indirectly, by circumstances beyond
such party's reasonable control. In any such event, the non-performing
party shall be excused from any further performance and observance of
the obligations so affected only for so long as such circumstances
prevail and such party continues to use commercially reasonable efforts
to recommence performance or observance as soon as practicable.
10. MISCELLANEOUS
10.1 Any notice or other instrument authorized or required by this Agreement
to be given in writing to the Company or the Distributor shall be
sufficiently given if addressed to the party and received by it at its
office set forth below or at such other place as it may from time to
time designate in writing.
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<PAGE> 11
To the Company:
John T. O'Neill, President
Galaxy Fund II
c/o HASBRO, Inc.
200 Narragansett Park Drive
Pawtucket, Rhode Island 02862
with a copy to:
W. Bruce McConnel, III
Drinker Biddle & Reath LLP
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, Pennsylvania 19107
To the Distributor:
First Data Distributors, Inc.
4400 Computer Drive
Westboro, Massachusetts 01581
Attention: President
with a copy to the Distributor's Chief
Legal Officer
10.2 The laws of the Commonwealth of Massachusetts, excluding the laws on
conflicts of laws, and the applicable provisions of the 1940 Act shall
govern the interpretation, validity, and enforcement of this Agreement.
To the extent the provisions of Massachusetts law or the provisions
hereof conflict with the 1940 Act, the 1940 Act shall control. All
actions arising from or related to this Agreement shall be brought in
the state and federal courts sitting in the City of Boston, and the
Distributor and the Company hereby submit themselves to the exclusive
jurisdiction of those courts.
10.3 This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original and which collectively shall be
deemed to constitute only one instrument.
10.4 The captions of this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions
hereof or otherwise affect their construction or effect.
10.5 This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and is not intended
to confer upon any other person any rights or remedies hereunder.
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<PAGE> 12
11. CONFIDENTIALITY
11.1 The parties agree that the Proprietary Information (defined below) and
the contents of this Agreement (collectively "Confidential
Information") are confidential information of the parties and their
respective licensers. The Company and the Distributor shall exercise at
least the same degree of care, but not less than reasonable care, to
safeguard the confidentiality of the Confidential Information of the
other as it would to protect its own Confidential Information. The
Company and the Distributor may use the Confidential Information only
to exercise their respective rights or perform their respective duties
under this Agreement. Except as otherwise required by law and except as
disclosed in the Company's Registration Statement and filed as an
exhibit thereto, the Company and the Distributor shall not duplicate,
sell or disclose to others the Confidential Information of the other,
in whole or in part, without the prior written permission of the other
party. The Company and the Distributor may, however, disclose
Confidential Information to its employees who have a need to know the
Confidential Information to perform work for the other, provided that
the Company and the Distributor shall use reasonable efforts to ensure
that the Confidential Information is not duplicated or disclosed by its
employees in breach of this Agreement. The Company and the Distributor
may also disclose the Confidential Information to independent
contractors, auditors and professional advisors, provided they first
agree in writing to be bound by confidentiality obligations
substantially similar to this Section 11. Notwithstanding the previous
sentence, in no event shall either the Company or the Distributor
disclose the Confidential Information to any competitor of the other
without specific, prior written consent.
11.2 Proprietary Information means:
(a) any data of information that is competitively sensitive material,
and not generally known to the public, including, but not limited to,
information about product plans, marketing strategies, finance,
operations, customer relationships, customer profiles, sales estimates,
business plans, and internal performance results relating to the past,
present or future business activities of the Company or the
Distributor, their respective subsidiaries and affiliated companies and
the customers, clients and suppliers of any of them;
(b) any scientific or technical information, design, process,
procedure, formula, or improvement that is commercially valuable and
secret in the sense that its
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<PAGE> 13
confidentiality affords the Company or the Distributor a
competitive advantage over its competitors; and
(c) all confidential or proprietary concepts, documentation, reports,
data, specifications, computer software, source code, object code, flow
charts, databases, inventions, know-how, show-how and trade secrets,
whether or not patentable or copyrightable.
11.3 Confidential Information includes, without limitation, all documents,
inventions, substances, engineering and laboratory notebooks, drawings,
diagrams, specifications, bills of material, equipment, prototypes and
models, and any other tangible manifestation of the foregoing of either
party which now exist or come into the control or possession of the
other.
11.4 Notwithstanding the foregoing, it is hereby understood and agreed by
the parties hereto that any marketing strategies, financing plans,
customer profiles, sales estimates, business plans or similar items
prepared or developed by the Distributor for the benefit of the Company
shall be considered the Proprietary Information of the Company and
nothing in this Agreement shall be construed to prevent or prohibit the
Company from disclosing such Proprietary Information to a successor
distributor.
12. OBLIGATIONS OF THE TRUST
The names "Galaxy Fund II" and "Trustees of Galaxy Fund II" refer
respectively to the Trust created and the Trustees, as trustees but not
individually or personally, acting from time to time under a
Declaration of Trust dated February 22, 1990 which is hereby referred
to and a copy of which is on file at the office of the State Secretary
of the Commonwealth of Massachusetts and at the principal office of the
Company. The obligations of "Galaxy Fund II" entered into in the name
or on behalf thereof by any of the Trustees, representatives or agents
are made not individually, but in such capacities, and are not binding
upon any of the Trustees, Shareholders, or representatives of the
Company personally, but bind only the Trust Property, and all persons
dealing with any class of Shares of the Company must look solely to the
Trust Property belonging to such class for the enforcement of any
claims against the Company.
13. ENTIRE AGREEMENT
This Agreement, including the Schedule hereto, constitutes the entire
agreement between the parties with respect to the subject matter hereof
and supersedes all prior and
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<PAGE> 14
contemporaneous proposals, agreements, contracts, representations, and
understandings, whether written or oral, between the parties with
respect to the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
GALAXY FUND II
By:________________________________
Name:______________________________
Title:_____________________________
FIRST DATA DISTRIBUTORS, INC.
By:________________________________
Name:______________________________
Title:_____________________________
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<PAGE> 15
SCHEDULE A
NAME OF FUNDS
Large Company Index Fund
Small Company Index Fund
U.S. Treasury Index Fund
Utility Index Fund
Municipal Bond Fund
A-1
<PAGE> 1
EXHIBIT(9)(d)
TRANSFER AGENCY AND SERVICES AGREEMENT
THIS AGREEMENT, dated as of this 1st day of June, 1997 between GALAXY
FUND II (the "Fund"), a Massachusetts business trust, and FIRST DATA INVESTOR
SERVICES GROUP, INC. ("FDISG"), a Massachusetts corporation.
WITNESSETH
WHEREAS, the Fund is authorized to issue Shares in separate classes and
series, with each such classes representing interests in a separate portfolio of
securities or other assets.
WHEREAS, the Fund initially intends to offer Shares in those Portfolios
identified in the attached Exhibit 1, which such Portfolios, together with all
other Portfolios subsequently established by the Fund, shall be subject to this
Agreement in accordance with Article 14;
WEEREAS, the Fund, on behalf of the Portfolios, desires to appoint
FDISG as its transfer agent, dividend disbursing agent and agent in connection
with certain other activities and FDISG desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants and promises
hereinafter set forth, the Fund and FDISG agree as follows:
Article 1 Definitions.
1.1 Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
(a) "Articles of Incorporation" shall mean the Articles of
Incorporation, Declaration of Trust, or other similar organizational
document as the case may be, of the Fund as the same may be amended
from time to time.
(b) "Authorized Person" shall be deemed to include (i) any
authorized officer of the Fund; or (ii) any person, whether or not such
person is an officer or employee of the Fund, duly authorized to give
Oral Instructions or Written Instructions on behalf of the Fund as
indicated in writing to FDISG from time to time.
(c) "Board of Directors" shall mean the Board of Directors or
Board of Trustees of the Fund, as the case may be.
<PAGE> 2
(d) "Commission" shall mean the Securities and Exchange
Commission.
(e) "Custodian" refers to any custodian or subcustodian of
securities and other property which the Fund may from time to time
deposit, or cause to be deposited or held under its name or account,
with such a custodian or subcustodian pursuant to a Custodian or
Subcustodian Agreement.
(f) "1933 Act" shall mean the Securities Act of 1933 and the
rules and regulations promulgated thereunder, all as amended from time
to time.
(g) "1934 Act" shall mean the Securities Exchange Act of 1934
and the rules and regulations promulgated thereunder, all as amended
from time to time.
(h) "1940 Act" shall mean the Investment Company Act of 1940
and the rules and regulations promulgated thereunder, all as amended
from time to time.
(i) "Oral Instructions" shall mean instructions, other than
Written Instructions, actually received by FDISG from an Authorized
Person or from a person reasonably believed by FDISG to be an
Authorized Person.
(j) "Portfolio" shall mean each separate class of shares
offered by the Fund representing interests in a separate portfolio of
securities and other assets.
(k) "Prospectus" shall mean the most recently dated Fund
Prospectuses and Statements of Additional Information, including any
supplements thereto if any, which have become effective under the 1933
Act and the 1940 Act.
(l) "Shares" refers collectively to such shares of capital
stock or beneficial interest, as the case may be, or class or series
thereof, of each respective Portfolio of the Fund as may be issued from
time to time.
(m) "Shareholder" shall mean a record owner of at least one
Share or any fraction thereof of each respective Portfolio of the Fund.
(n) "Written Instructions" shall mean a written communication
signed by an Authorized Person or by a person reasonably believed by
FDISG to be an Authorized Person and actually received by FDISG.
Written Instructions shall include manually executed originals and
authorized electronic transmissions, including telefacsimile of a
manually executed original or other process.
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<PAGE> 3
Article 2 Appointment of FDISG.
The Fund, on behalf of the Portfolios, hereby appoints and constitutes
FDISG as transfer agent and dividend disbursing agent for Shares of each
respective Portfolio of the Fund and as shareholder servicing agent for the Fund
for the period and on the terms set forth in this Agreement. The Fund may from
time to time issue separate classes or series of Shares or classify or
reclassify Shares of each class or series. FDISG shall identify to each such
class or series property belonging to such class or series and in such reports,
confirmations and notices to the Fund called for under this Agreement shall
identify the class or series to which such report, confirmation or notice
pertains. FDISG accepts such appointment and agrees to furnish the services
herein set forth and in accordance with the written procedures which may be
agreed to in writing from time to time by the Fund and FDISG, in return for the
compensation as provided in Section 6 of this Agreement, subject, however, to
the performance standards set forth in Appendix I to this Agreement.
Article 3 Duties of FDISG.
3.1 FDISG shall be responsible for:
(a) Administering and/or performing the customary services of
a transfer agent; acting as service agent in connection with dividend
and distribution functions; and performing shareholder account and
administrative agent functions in connection with the issuance,
transfer and redemption or repurchase (including coordination with the
Custodian) of Shares of each Portfolio, as more fully described in the
written schedule of Duties of FDISG annexed hereto as Schedule A and
incorporated herein, and in accordance with the terms of the Prospectus
of the Fund on behalf of the applicable Portfolio, applicable law and
the procedures agreed to in writing from time to time by FDISG and the
Fund.
(b) Recording the issuance of Shares and maintaining pursuant
to Rule 17Ad-10(e) of the 1934 Act a record of the total number of
Shares of each Portfolio which are authorized, based upon data provided
to it by the Fund, and issued and outstanding. FDISG shall provide the
Fund on a regular basis with the total number of Shares of each
Portfolio which are authorized and issued and outstanding and shall
have no obligation, when recording the issuance of Shares, to monitor
the issuance of such Shares or to take cognizance of any laws relating
to the issue or sale of such Shares, which functions shall be the sole
responsibility of the Fund.
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<PAGE> 4
(c) In addition to providing the foregoing services, the Fund
hereby engages FDISG to provide the print/mail services as set forth in
Schedule B annexed hereto and incorporated herein, for the fees also
identified in Schedule B. FDISG agrees to perform such print/mail
services subject to the terms and conditions of this Agreement.
(d) Notwithstanding any of the foregoing provisions of this
Agreement, FDISG shall be under no duty or obligation to inquire into,
and shall not be liable for: (i) the legality of the issuance or sale
of any Shares or the sufficiency of the amount to be received therefor;
(ii) the legality of the redemption of any Shares, or the propriety of
the amount to be paid therefor; (iii) the legality of the declaration
of any dividend by the Board of Directors, or the legality of the
issuance of any Shares in payment of any dividend; or (iv) the legality
of any recapitalization or readjustment of the Shares.
3.2 In addition, the Fund shall (i) identify to FDISG in writing those
transactions and assets to be treated as exempt from blue sky reporting for each
State and (ii) verify the establishment of transactions for each State on the
system prior to activation and thereafter monitor the daily activity for each
State. The responsibility of FDISG for the Fund's blue sky State registration
status is solely limited to the initial establishment of transactions subject to
blue sky compliance by the Fund and the reporting of such transactions to the
Fund as provided above.
3.3 In addition to the duties set forth herein, FDISG shall perform
such other duties and functions, and shall be paid such amounts therefor, as may
from time to time be agreed upon in writing by the Fund and FDISG.
Article 4 Recordkeeping and Other Information.
4.1 FDISG shall create and maintain all records required of it pursuant
to its duties hereunder and as set forth in Schedule A in accordance with all
applicable laws, rules and regulations, including records required by Section
31(a) of the 1940 Act. Where applicable, such records shall be maintained by
FDISG for the periods and in the places required by Rule 31a-2 under the 1940
Act.
4.2 To the extent required by Section 31 of the 1940 Act, FDISG agrees
that all such records prepared or maintained by FDISG relating to the services
to be performed by FDISG hereunder are the property of the Fund and will be
preserved, maintained and made available in accordance with such Section and
other applicable securities laws and rules and regulations. The Fund,
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<PAGE> 5
or the Fund's authorized representatives, shall have access to such records at
all times during FDISG's normal business hours and such records will be
surrendered promptly to the Fund on and in accordance with the Fund's request.
Upon the reasonable request of the Fund, copies of any such records shall be
provided by FDISG to the Fund or the Fund's authorized representative at the
Fund's expense.
4.3 In case of any requests or demands for the inspection of
Shareholder records of the Fund, FDISG will endeavor to notify the Fund of such
request and secure Written Instructions as to the handling of such request.
FDISG reserves the right, however, to exhibit the Shareholder records to any
person whenever it is advised by its counsel that it may be held liable for the
failure to comply with such request.
Article 5 Fund Instructions.
5.1 Subject to FDISG meeting the standard of care set forth in Article
11, FDISG will have no liability when acting upon Written or Oral Instructions
reasonably believed to have been executed or orally communicated by an
Authorized Person and will not be held to have any notice of any change of
authority of any person until receipt of a Written Instruction thereof from the
Fund. FDISG will also have no liability when processing Share certificates which
it reasonably believes to bear the proper manual or facsimile signatures of the
officers of the Fund and the proper countersignature of FDISG.
5.2 At any time, FDISG may request Written Instructions from the Fund
and may seek advice from legal counsel for the Fund, or its own legal counsel,
at its own expense, with respect to any matter arising in connection with this
Agreement, and subject to FDISG meeting the standard of care set forth in
Article 11, it shall not be liable for any action taken or not taken by it in
good faith in accordance with such Written Instructions or in accordance with
the advice of counsel for the Fund or for FDISG. Written Instructions requested
by FDISG pursuant to this Section 5.2 will be provided by the Fund within a
reasonable period of time.
5.3 Unless otherwise provided in this Agreement, FDISG, its officers,
agents or employees, shall act only upon Oral Instructions or Written
Instructions and shall be entitled to rely upon only Oral Instructions and any
Written Instructions actually received by them pursuant to this Agreement,
provided that such Oral Instructions and Written Instructions reasonably appear
to have been given by an Authorized Person. The Fund agrees that all Oral
Instructions shall be followed within one business day by confirming Written
Instructions, and that the Fund's failure to so confirm shall not impair in any
respect FDISGs right to rely on Oral Instructions.
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<PAGE> 6
Article 6 Compensation.
6.1 The Fund on behalf of each of the Portfolios will compensate FDISG
for the performance of its obligations hereunder in accordance with the fees set
forth in the written Fee Schedule annexed hereto as Schedule B and incorporated
herein, subject, however, to the performance standards set forth in Appendix I
to this Agreement.
6.2 In addition to those fees set forth in Section 6.1 above, the Fund
on behalf of each of the Portfolios agrees to pay, and will be billed separately
for, out-of-pocket expenses incurred by FDISG in the performance of its duties
hereunder. Out-of-pocket expenses shall include, but shall not be limited to,
the items specified in the written schedule of out-of-pocket charges annexed
hereto as Schedule C and incorporated herein. Unspecified out-of-pocket expenses
shall be limited to those out-of-pocket expenses reasonably incurred by FDISG in
the performance of its obligations hereunder. In the event that the cost of
unspecified out-of-pocket expenses exceed one thousand dollars ($1,000) FDISG
will receive prior written approval from the Fund before incurring such
expenses.
6.3 The Fund on behalf of each of the Portfolios agrees to pay all fees
and out-of-pocket expenses within thirty (30) days following the receipt of the
respective invoice.
6.4 Any compensation payable to FDISG hereunder pursuant to Schedules B
and C hereof may be adjusted from time to time by attaching hereto a revised
Schedule B or C, as the case may be, executed and dated by the parties hereto.
6.5 The Fund acknowledges that the fees that FDISG charges the Fund
under this Agreement reflect the allocation of risk between the parties,
including the disclaimer of warranties in Section 9.3 and the limitations on
liability in Article 12. Modifying the allocation of risk from what is stated
here would affect the fees that FDISG charges, and in consideration of those
fees, the Fund agrees to the stated allocation of risk.
Article 7 Documents.
In connection with the appointment of FDISG, the Fund shall, on or
before the date this Agreement goes into effect, but in any case within a
reasonable period of time for FDISG to prepare to perform its duties hereunder,
deliver or cause to be delivered to FDISG the documents set forth in the written
schedule of Fund Documents annexed hereto as Schedule D.
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<PAGE> 7
Article 8 Transfer Agent System.
8.1 FDISG shall retain title to and ownership of any and all data
bases, computer programs, screen formats, report formats, interactive design
techniques, derivative works, inventions, discoveries, patentable or
copyrightable matters, concepts, expertise, patents, copyrights, trade secrets,
and other related legal rights utilized by FDISG in connection with the services
provided by FDISG to the Fund herein (the "FDISG System").
8.2 FDISG hereby grants to the Fund a limited license to the FDISG
System for the sole and limited purpose of having FDISG provide the services
contemplated hereunder and nothing contained in this Agreement shall be
construed or interpreted otherwise and such license shall immediately terminate
with the termination of this Agreement.
8.3 In the event that the Fund, including any affiliate or agent of the
Fund or any third party acting on behalf of the Fund is provided with direct
access to the FDISG System for either account inquiry or to transit transaction
information, including but not limited to maintenance, exchanges, purchases and
redemptions, such direct access capability shall be limited to direct entry to
the FDISG System by means of on-line mainframe terminal entry or PC emulation of
such mainframe terminal entry and any other non-conforming method of
transmission of information to the FDISG System is strictly prohibited without
the prior written consent of FDISG.
Article 9 Representations and Warranties.
9.1 FDISG represents and warrants to the Fund that:
(a) it is a corporation duly organized, validly existing and
in good standing under the laws of the Commonwealth of Massachusetts;
(b) it is empowered under applicable laws and by its Articles
of Incorporation and By-Laws to enter into and perform this Agreement;
(c) all requisite corporate proceedings have been taken to
authorize it to enter into this Agreement;
(d) it is duly registered with its appropriate regulatory
agency as a transfer agent and such registration will remain in effect
for the duration of this Agreement; and
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<PAGE> 8
(e) it has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and
obligations under this Agreement.
9.2 The Fund represents and warrants to FDISG that:
(a) it is duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is organized;
(b) it is empowered under applicable laws and by its Articles
of Incorporation and By-Laws to enter into this Agreement;
(c) all corporate proceedings required by said Articles of
Incorporation, By-Laws and applicable laws have been taken to authorize
it to enter into this Agreement;
(d) a registration statement under the 1933 Act, as amended,
and the 1940 Act on behalf of each of the Portfolios is currently
effective and will remain effective, and all appropriate state
securities law filings have been made and will continue to be made,
with respect to all Shares of the Fund being offered for sale; and
(e) all outstanding Shares are validly issued, fully paid and
non-assessable and when Shares are hereafter issued in accordance with
the terms of the Fund's Articles of Incorporation and its Prospectus
with respect to each Portfolio, such Shares shall be validly issued,
fully paid and non-assessable.
9.3 THIS IS A SERVICE AGREEMENT. EXCEPT AS EXPRESSLY PROVIDED IN THIS
AGREEMENT, FDISG DISCLAIMS ALL OTHER REPRESENTATIONS OR WARRANTIES, EXPRESS OR
IMPLIED, MADE TO THE FUND OR ANY OTHER PERSON.
Article 10 Indemnification.
10.1 FDISG shall not be responsible for and the Fund on behalf of each
Portfolio shall indemnify and hold FDISG harmless from and against any and all
claims, costs, expenses (including reasonable attorneys' fees), losses, damages,
charges, payments and liabilities of any sort or kind which may be asserted
against FDISG or for which FDISG may be held to be liable (a "Claim") arising
out of or attributable to any of the following unless such Claim resulted from a
negligent act or omission to act or bad faith by FDISG in the performance of its
duties hereunder:
(a) any actions of FDISG required to be taken pursuant to this
Agreement;
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<PAGE> 9
(b) FDISG's reasonable reliance on, or reasonable use of
information, data, records and documents (including but not limited to
magnetic tapes, computer printouts, hard copies and microfilm copies)
received by FDISG from the Fund, or any authorized third party acting
on behalf of the Fund, including but not limited to the prior transfer
agent for the Fund, in the performance of FDISG's duties and
obligations hereunder;
(c) the reliance on, or the implementation of, any Written or
Oral Instructions or any other instructions or requests of the Fund on
behalf of the applicable Portfolio;
(d) the offer or sales of Shares in violation of any
requirement under the securities laws or regulations of any state that
such Shares be registered in such state or in violation of any stop
order or other determination or ruling by any state with respect to the
offer or sale of such Shares in such state; and
(e) the Fund's refusal or failure to comply with the terms of
this Agreement, or any Claim which arises out of the Fund's negligence
or misconduct or the breach of any representation or warranty of the
Fund made herein.
10.2 In any case in which the Fund may be asked to indemnify or hold
FDISG harmless, FDISG will notify the Fund promptly after identifying any
situation which it believes presents or appears likely to present a claim for
indemnification ("Indemnification Claim") against the Fund although the failure
to do so shall not prevent recovery by FDISG and shall keep the Fund advised
with respect to all developments concerning such Indemnification Claim. The Fund
shall have the option to defend FDISG against any Indemnification Claim which
may be the subject of this indemnification, and, in the event that the Fund so
elects, such defense shall be conducted by counsel chosen by the Fund and
satisfactory to FDISG, and thereupon the Fund shall take over complete defense
of the Indemnification Claim and FDISG shall sustain no further legal or other
expenses in respect of such Indemnification Claim. FDISG will not confess any
Indemnification Claim or make any compromise in any case in which the Fund will
be asked to provide indemnification, except with the Fund's prior written
consent. Subject to Section 10.3 hereof, the obligations of the parties hereto
under this Article 10 shall survive the termination of this Agreement.
10.3 Any Indemnification Claim under this Agreement must be made prior
to the earlier of:
(a) one year after FDISG becomes aware of the event for which
indemnification is claimed; or
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<PAGE> 10
(b) one year after the earlier of the termination of this
Agreement or the expiration of the term of this Agreement.
10.4 Except for remedies that cannot be waived as a matter of law (and
injunctive or provisional relief), the provisions of this Article 10 shall be
FDISG's sole and exclusive remedy for claims or other actions or proceedings to
which the Fund's indemnification obligations pursuant to this Article 10 may
apply.
Article 11 Standard of Care.
11.1 In the performance of its duties hereunder, FDISG shall be
obligated to exercise care and diligence and to act in good faith and to use its
best efforts within commercially reasonable limits to ensure the accuracy of all
services performed under this Agreement, but assumes no responsibility for loss
or damage to the Fund unless said loss or damages are caused by FDISGs own
negligence, bad faith or willful misconduct or that of its employees, agents or
representatives.
11.2 Each party shall have the duty to mitigate damages for which the
other party may become responsible.
Article 12 Consequential Damages.
NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, IN NO EVENT
SHALL EITHER PARTY, ITS AFFILIATES OR ANY OF ITS OR THEIR DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS OR SUBCONTRACTORS BE LIABLE FOR CONSEQUENTIAL DAMAGES.
Article 13 Term and Termination.
13.1 This Agreement shall be effective on the date first written above
and shall continue for a period of one (1) year (the "Initial Term").
13.2 Upon the expiration of the Initial Term, this Agreement shall
continue automatically for successive terms of one (1) year ("Renewal Terms")
each, unless the Fund or FDISG provides written notice to the other of its
intent not to renew. Such notice must be received not less than sixty (60) days
prior to the expiration of the Initial Term or the then current Renewal Term.
13.3 The Fund may terminate this Agreement in the event that the
negligent action or negligent omission to act on the part of FDISG causes
damages to the Fund in excess of one hundred thousand dollars ($100,000).
"Damages to the Fund" are defined as damages caused by a single event, or
cumulative series of events related to the same matter, which generates a
monetary loss. The Fund's right to terminate under this Section 13.3
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<PAGE> 11
shall remain effective in the event FDISG has made the Fund whole with respect
to the damages caused. Unless the Fund provides FDISG with written notice of the
Fund's intent to exercise its option under this Section 13.3 within 30 days
after the Fund becomes aware of the occurrence, the Fund shall have waived its
option to terminate under this provision.
13.4 If a party hereto is guilty of a material failure to perform its
duties and obligations hereunder (a "Defaulting Party"), the other party (the
"Non-Defaulting Party") may give written notice thereof to the Defaulting Party,
and if such material breach shall not have been remedied within thirty (30) days
after such written notice is given, then the Non-Defaulting Party may terminate
this Agreement by giving thirty (30) days written notice of such termination to
the Defaulting Party. If FDISG is the Non-Defaulting Party, its termination of
this Agreement shall not constitute a waiver of any other rights or remedies of
FDISG with respect to services performed prior to such termination or rights of
FDISG to be reimbursed for out-of-pocket expenses. In all cases, termination by
the Non-Defaulting Party shall not constitute a waiver by the Non-Defaulting
Party of any other rights it might have under this Agreement or otherwise
against the Defaulting Party.
13.5 The Fund shall have the right to terminate this Agreement at any
time if the Fund reorganizes into another entity, liquidates or otherwise ceases
to exist. In the event the Fund terminates the Agreement pursuant to this
Section 13.5, the Fund shall reimburse FDISG for all reasonable costs associated
with such termination.
13.6 In the event that FDISG fails to be registered as a transfer agent
with the appropriate federal agency at any time during the term of this
Agreement, the Fund may, upon written notice to FDISG, immediately terminate
this Agreement.
13.7 In the event this Agreement is terminated by the Fund pursuant to
Sections 3.3, 3.4 or 3.6 hereof or pursuant to paragraph (d) of the Performance
Standards set forth in Appendix I hereto, all reasonable expenses associated
with movement of records and materials and conversion thereof to a successor
transfer agent will be borne by the FDISG and the Fund shall not be responsible
for FDISG's costs associated with such termination. In the event of termination
of this Agreement pursuant to any other Sections of this Agreement, all
reasonable expenses associated with conversion will be borne by the Fund.
Article 14 Additional Portfolios
14.1 In the event that the Fund establishes one or more Portfolios in
addition to those identified in Exhibit 1 with respect to which the Fund desires
to have FDISG render services
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as transfer agent under the terms hereof, the Fund shall so notify FDISG in
writing, and if FDISG agrees in writing to provide such services, Exhibit 1
shall be amended to include such additional Portfolios.
Article 15 Confidentiality.
15.1 The parties agree that the Proprietary Information (defined below)
and the contents of this Agreement (collectively "Confidential Information") are
confidential information of the parties and their respective licensors. The Fund
and FDISG shall exercise at least the same degree of care, but not less than
reasonable care, to safeguard the confidentiality of the Confidential
Information of the other as it would exercise to protect its own Confidential
Information. The Fund and FDISG may use the Confidential Information only to
exercise their respective rights or perform their respective duties under this
Agreement. Except as required by law and except as disclosed in the Fund's
registration statement or filed as an exhibit thereto, the Fund and FDISG shall
not duplicate, sell or disclose to others the Confidential Information of the
other, in whole or in part, without the prior written permission of the other
party. The Fund and FDISG may, however, disclose Confidential Information to
their employees who have a need to know the Confidential Information to perform
work for the other, provided that the Fund and FDISG shall use reasonable
efforts to ensure that the Confidential Information is not duplicated or
disclosed by its employees in breach of this Agreement. The Fund and FDISG may
also disclose the Confidential Information to independent contractors, auditors,
and professional advisors, provided they first agree in writing to be bound by
confidentiality obligations substantially similar to this Section 15.1.
Notwithstanding the previous sentence, in no event shall either the Fund or
FDISG disclose the Confidential Information to any competitor of the other
without specific, prior written consent.
15.2 Proprietary Information means:
(a) any data or information that is competitively sensitive
material, and not generally known to the public, including, but not
limited to, information about product plans, marketing strategies,
finance, operations, customer relationships, customer profiles, sales
estimates, business plans, and internal performance results relating to
the past, present or future business activities of the Fund or FDISG,
their respective subsidiaries and affiliated companies and the
customers, clients and suppliers of any of them;
(b) any scientific or technical information, design, process,
procedure, formula, or improvement that is commercially valuable and
secret in the sense that its
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<PAGE> 13
confidentiality affords the Fund or FDISG a competitive
advantage over its competitors; and
(c) all confidential or proprietary concepts, documentation,
reports, data, specifications, computer software, source code, object
code, flow charts, databases, inventions, know-how, show-how and trade
secrets, whether or not patentable or copyrightable.
15.3 Confidential Information includes, without limitation, all
documents, inventions, substances, engineering and laboratory notebooks,
drawings, diagrams, specifications, bills of material, equipment, prototypes and
models, and any other tangible manifestation of the foregoing of either party
which now exist or come into the control or possession of the other.
Article 16 Force Majeure.
16.1 No party shall be liable for any default or delay in the
performance of its obligations under this Agreement if and to the extent such
default or delay is caused, directly or indirectly, by circumstances beyond such
party's reasonable control. In any such event, the non-performing party shall be
excused from any further performance and observance of the obligations so
affected only for as long as such circumstances prevail and such party continues
to use commercially reasonable efforts to recommence performance or observance
as soon as practicable.
16.2 Notwithstanding Section 16.1, in the event of equipment failures
beyond FDISG's control, FDISG shall, at no additional expense to the Fund, take
reasonable steps to minimize service interruptions but shall have no liability
with respect thereto. FDISG shall enter into and maintain in effect with
appropriate parties one or more agreements making reasonable provision for
emergency use of electronic data processing equipment to the extent appropriate
equipment is available.
Article 17 Assignment and Subcontracting.
This Agreement, its benefits and obligations shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. This Agreement may not be assigned or otherwise transferred
by either party hereto, without the prior written consent of the other party,
which consent shall not be unreasonably withheld; provided, however, that FDISG
may, in its sole discretion, assign all its right, title and interest in this
Agreement to an affiliate, parent or subsidiary, provided that, in the
reasonable judgment of the Board of Trustees of the Fund acting in its sole
discretion: (i) the financial capacity of such assignee is not materially less
than that of FDISG; (ii) the nature and quality
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<PAGE> 14
of the services to be provided hereunder, including the Performance Standards
set forth in Appendix I, are not materially adversely affected by such
assignment; and (iii) the quality and capability of the personnel and facilities
of the assignee are not materially less than those of FDISG. FDISG may, in its
sole discretion, engage subcontractors to perform any non-material or
non-substantive obligations contained in this Agreement that it is otherwise
required to perform hereunder, provided that FDISG shall be responsible for all
compensation payable to such subcontractors and shall remain responsible for the
acts and omissions of such subcontractors to the extent that it is hereunder.
Article 18 Notice.
Any notice or other instrument authorized or required by this Agreement
to be given in writing to the Fund or FDISG, shall be sufficiently given if
addressed to that party and received by it at its office set forth below or at
such other place as it may from time to time designate in writing.
To the Fund:
John T. O'Neill, President
Galaxy Fund II
c/o HASBRO, Inc.
200 Narragansett Park Drive
Pawtucket, Rhode Island 02862
with a copy to:
W. Bruce McConnel, III
Drinker Biddle & Reath LLP
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, Pennsylvania 19107
To FDISG:
First Data Investor Services Group, Inc.
4400 Computer Drive
Westboro, Massachusetts 01581
Attention: President
with a copy to FDISG's General Counsel
Article 19 Governing Law/Venue.
The laws of the Commonwealth of Massachusetts, excluding the laws on
conflicts of laws, shall govern the interpretation, validity, and enforcement of
this Agreement. All actions arising from or related to this Agreement shall be
brought in the state
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<PAGE> 15
and federal courts sitting in the City of Boston, and FDISG and the Fund hereby
submit themselves to the exclusive jurisdiction of those courts.
Article 20 Counterparts.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original; but such counterparts shall, together,
constitute only one instrument.
Article 21 Captions.
The captions of this Agreement are included for convenience of
reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
Article 22 Publicity.
Neither FDISG nor the Fund shall release or publish news releases,
public announcements, advertising or other publicity relating to this Agreement
or to the transactions contemplated by it without the prior review and written
approval of the other party; provided, however, that either party may make such
disclosures as are required by legal, accounting or regulatory requirements
after making reasonable efforts in the circumstances to consult in advance with
the other party.
Article 23 Relationship of Parties.
The parties agree that they are independent contractors and not
partners or co-venturers and nothing contained herein shall be interpreted or
construed otherwise.
Article 24 Cooperation with Accountants
FDISG shall cooperate with the Fund's independent certified public
accountants and shall take all reasonable action in the performance of its
obligations under this Agreement to assure that the necessary information is
made available to such accountants for the expression of their opinion as such
may be required from time to time by the Fund.
Article 26 Entire Agreement; Severability.
26.1 This Agreement, including the Schedules, Addenda, and Exhibits
hereto, constitutes the entire Agreement between the parties with respect to the
subject matter hereof and supersedes all prior and contemporaneous proposals,
agreements, contracts, representations, and understandings, whether written or
oral, between the parties with respect to the subject matter hereof.
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<PAGE> 16
No change, termination, modification, or waiver of any term or condition of the
Agreement shall be valid unless in writing signed by each party. No such writing
shall be effective as against the Fund unless said writing is executed by the
President of the Fund. No such writing shall be effective as against FDISG
unless said writing is executed by a Senior Vice President, Executive Vice
President, or President of FDISG. A party's waiver of a breach of any term or
condition in the Agreement shall not be deemed a waiver of any subsequent breach
of the same or another term or condition.
26.2 The parties intend every provision of this Agreement to be
severable. If a court of competent jurisdiction determines that any term or
provision is illegal or invalid for any reason, the illegality or invalidity
shall not affect the validity of the remainder of this Agreement. In such case,
the parties shall in good faith modify or substitute such provision consistent
with the original intent of the parties. Without limiting the generality of this
paragraph, if a court determines that any remedy stated in this Agreement has
failed of its essential purpose, then all other provisions of this Agreement,
including the limitations on liability and exclusion of damages, shall remain
fully effective.
26.3 The names "Galaxy Fund II" and "Trustees of Galaxy Fund II" refer
respectively to the Trust created and the Trustees, as trustees but not
individually or personally, acting from time to time under a Declaration of
Trust dated February 22, 1990 which is hereby referred to and a copy of which is
on file at the office of the State Secretary of the Commonwealth of
Massachusetts and at the principal office of the Fund. The obligations of
"Galaxy Fund II" entered into in the name or on behalf thereof by any of the
Trustees, representatives or agents are made not individually, but in such
capacities, and are not binding upon any of the Trustees, Shareholders, or
representatives of the Fund personally, but bind only the Trust Property, and
all persons dealing with any class of Shares of the
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<PAGE> 17
Fund must look solely to the Trust Property belonging to such class for the
enforcement of any claims against the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers, as of the day and year first above
written.
GALAXY FUND II
By:________________________________
Title:_____________________________
FIRST DATA INVESTOR SERVICES GROUP,
INC.
By:________________________________
Title:_____________________________
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<PAGE> 18
Exhibit 1
LIST OF PORTFOLIOS
Large Company Index Fund
Small Company Index Fund
U.S. Treasury Index Fund
Utility Index Fund
Municipal Bond Fund
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<PAGE> 19
Schedule A
DUTIES OF FDISG
1. Shareholder Information. (a) FDISG shall maintain a record of the
number of Shares held by each Shareholder of record which shall include name,
address, taxpayer identification numbers and which shall indicate whether such
Shares are held in certificated or uncertificated form and shall include
historical information regarding the account of each Shareholder, including
dividends and distributions paid and the date and price for all transactions in
a Shareholder's account; any stop or restraining order placed against a
Shareholder's account; information with respect to withholdings; any information
required for FDISG to perform any calculations contemplated or required by the
Agreement to which this is a Schedule (the "Agreement"); FDISG shall keep a
record of all redemption checks and dividend checks returned by the postal
authorities, and shall maintain such records as are required by law.
(b) FDISG shall keep subaccounts for each Shareholder requesting
such service in connection with Shares held by such Shareholder for separate
accounts, containing the same information for each subaccount as required by
subparagraph (a) above.
2. Shareholder Services. FDISG shall respond as appropriate to all
inquiries and communications from Shareholders, securities brokers and others
relating to Shareholder accounts with respect to its duties hereunder and such
other information and communications as may be from time to time mutually agreed
upon in writing by FDISG and the Fund.
3. Share Certificates.
(a) At the expense of the Fund, the Fund shall supply FDISG with an
adequate supply of blank share certificates to meet FDISG requirements therefor.
Such Share certificates shall be properly signed by facsimile. The Fund agrees
that, notwithstanding the death, resignation, or removal of any officer of the
Fund whose signature appears on such certificates, FDISG or its agent may
continue to countersign certificates which bear such signatures until otherwise
directed by Written Instructions.
(b) FDISG shall issue replacement Share certificates in lieu of
certificates which have been lost, stolen or destroyed, upon receipt by FDISG of
properly executed affidavits and lost certificate bonds, in form satisfactory to
FDISG, with the Fund and FDISG named as obligees under the bond.
(c) FDISG shall also maintain a record of each certificate issued,
the number of Shares represented thereby and
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<PAGE> 20
the Shareholder of record. With respect to Shares held in open accounts or
uncertificated form (i.e., no certificate being issued with respect thereto),
FDISG shall maintain comparable records of the Shareholders thereof, including
their names, addresses and taxpayer identification numbers. FDISG shall further
maintain a stop transfer record on lost and/or replaced certificates.
4. Mailing Communications to Shareholders; Proxy Materials. FDISG will
address and mail all communications by then Fund to Shareholders or their
authorized representatives, including reports to Shareholders, dividend and
distribution notices and proxy material for the Fund's meetings of Shareholders.
In connection with meetings of Shareholders, FDISG will prepare Shareholder
lists, mail and certify as to the mailing of proxy materials, process and
tabulate returned proxy cards, report on proxies voted prior to meetings, act as
inspector of election at meetings and certify Shares voted at meetings.
5. Sales of Shares.
(a) FDISG shall not be required to issue any Shares of the Fund
where it has received Written Instructions from the Fund or official notice from
any appropriate authority that the sale of the Shares of the Fund has been
suspended or discontinued. The existence of such Written Instructions or such
official notice shall be conclusive evidence of the right of FDISG to rely on
such Written Instructions or official notice.
(b) In the event that any check or other order for the payment of
money is returned unpaid for any reason, FDISG will endeavor to: (i) give prompt
notice of such return to the Fund or its designee; (ii) place a stop transfer
order against all Shares issued as a result of such check or order; and (iii)
take such actions as FDISG may from time to time deem appropriate.
6. Transfer and Repurchase.
(a) FDISG shall process all requests to transfer or redeem Shares in
accordance with the transfer or repurchase procedures set forth in the Fund's
Prospectus.
(b) FDISG will transfer or repurchase Shares upon receipt of Oral or
Written Instructions or otherwise pursuant to the Prospectus and Share
certificates, if any, properly endorsed for transfer or redemption, accompanied
by such documents as FDISG reasonably may deem necessary.
(c) FDISG reserves the right to refuse to transfer or repurchase
Shares until it is satisfied that the endorsement on the instructions is valid
and genuine. FDISG also reserves the
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<PAGE> 21
right to refuse to transfer or repurchase Shares until it is satisfied that the
requested transfer or repurchase is legally authorized, and it shall incur no
liability for the refusal, in good faith, to make transfers or repurchases which
FDISG, in its good judgment, deems improper or unauthorized, or until it is
reasonably satisfied that there is no basis to any claims adverse to such
transfer or repurchase.
(d) When Shares are redeemed, FDISG shall, upon receipt of the
instructions and documents in proper form, deliver to the Custodian and the Fund
or its designee a notification setting forth the number of Shares to be
repurchased. Such repurchased shares shall be reflected on appropriate accounts
maintained by FDISG reflecting outstanding Shares of the Fund and Shares
attributed to individual accounts.
(e) FDISG, upon receipt of the monies provided to it by the
Custodian for the repurchase of Shares, shall disburse the redemption proceeds
to the person entitled to such proceeds, all in accordance with the procedures
and controls as are mutually agreed to in writing from time to time by the Fund,
FDISG and the Custodian.
(f) FDISG shall not process or effect any repurchase with respect to
Shares of the Fund after receipt by FDISG or its agent of notification of the
suspension of the determination of the net asset value of the Fund.
7. Dividends
(a) Upon the declaration of each dividend and each capital gains
distribution by the Board of Directors of the Fund with respect to Shares of the
Fund, the Fund shall furnish or cause to be furnished to FDISG Written
Instructions setting forth the date of the declaration of such dividend or
distribution, the ex-dividend date, the date of payment thereof, the record date
as of which Shareholders entitled to payment shall be determined, the amount
payable per Share to the Shareholders of record as of that date, the total
amount payable on the payment date and whether such dividend or distribution is
to be paid in Shares at net asset value.
(b) On or before the payment date specified in such resolution of
the Board of Directors, the Fund will provide FDISG with sufficient cash to make
payment on the payment date to the Shareholders as of the record date.
(c) If FDISG does not receive sufficient cash from the Fund to make
total dividend and/or distribution payments on the date of payment to all
Shareholders of the Fund as of the record date, FDISG will notify the Fund. The
Fund hereby instructs FDISG to process dividend and/or distribution payments to
all
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<PAGE> 22
Shareholders as of the record date regardless of whether sufficient cash is
available on the payment date. Subject to FDISG meeting the standard of care set
forth in Article 11 hereof, the Fund shall be responsible for and shall
indemnify and hold FDISG harmless from all claims asserted by others with
respect to the actions of FDISG in complying with the foregoing sentence.
(d) FDISG shall prepare and file with the Internal Revenue Service
and/or other appropriate taxing authorities, and address and mail to
Shareholders or their authorized representatives, such returns and information
relating to dividends and distributions paid by the Fund as are required to be
so prepared, filed and mailed by applicable laws, rules and regulations, or such
substitute form of notice as may from time to time be permitted or required by
the Internal Revenue Service and/or other appropriate taxing authorities. On
behalf of the Fund, FDISG shall pay on a timely basis to the appropriate federal
authorities any taxes required by applicable federal tax laws to be withheld by
the Fund on dividends and distributions paid by the Fund.
8. Ongoing Functions. FDISG will perform the following functions on an
ongoing basis for each class or series of Shares of the Fund:
(a) furnish state-by-state registration reports to the Fund;
(b) calculate dealer commissions for the Fund, as applicable, if
any;
(c) provide toll-free lines for direct Shareholder use, plus
customer liaison staff with on-line inquiry capacity;
(d) mail duplicate confirmations to dealers of their clients'
activity, whether executed through the dealer or directly with FDISG, if any;
(e) provide detail for underwriter or broker confirmations and other
participating dealer Shareholder accounting, in accordance with such procedures
as may be agreed upon from time to time by the Fund and FDISG;
(f) provide Shareholder lists and statistical information concerning
accounts to the Funds; and
(g) provide timely notification of Fund activity, and such other
information as may be agreed upon from time to time by FDISG and the Custodian,
to the Fund or the Custodian.
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<PAGE> 23
9. In addition to and neither in lieu nor in contravention of the
services set forth above, FDISG shall: (i) perform all the customary services of
a transfer agent, registrar, dividend disbursing agent and agent of the dividend
reinvestment and cash purchase plan as described herein consistent with those
requirements in effect as at the date of this Agreement. The detailed
definition, frequency, limitations and associated costs (if any) set out in the
attached fee schedule, include but are not limited to: maintaining all
Shareholder accounts, preparing Shareholder meeting lists, mailing proxies,
tabulating proxies, mailing Shareholder reports to current Shareholders,
withholding taxes on U.S. resident and non-resident alien accounts where
applicable, preparing and filing U.S. Treasury Department Forms 1099 and other
appropriate forms required with respect to dividends and distributions by
federal authorities for all Shareholders.
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<PAGE> 24
Schedule B
FEE SCHEDULE
For the services to be rendered, the facilities to be furnished and the
payments to be made by FDISG, as provided for in this Agreement, the Fund, on
behalf of each Portfolio, will pay FDISG on the first business day of each month
a fee for the previous month at the rates listed below. Upon any termination of
this Agreement before the end of any month, the fee for such part of a month
shall be prorated according to the proportion which such period bears to the
full monthly period and shall be payable upon the date of termination of this
Agreement.
Shareholder Services
ANNUAL FUND MINIMUM
Fees are based on annual per shareholder account charge for account maintenance
and fees for certain shareholder generated transactions plus all out-of-pocket
expenses. There is a minimum annual fee per Portfolio of $5,000 per year.
ANNUAL MAINTENANCE FEE
Fees are billable on a monthly basis at the rate of 1/12 of the annual fee. A
charge is made for an account in the month that an account opens or closes. The
Annual Maintenance Charge is $14.00 per account.
NEW ACCOUNT SET-UP CHARGE
$5.00 per account
PRODUCTION AND MASS MAIL
The per piece fees for production and mass mail exclude postage which will be
invoiced as an out-of-pocket expense at cost.
DAILY, MONTHLY AND DIVIDEND STATEMENTS
Printing, folding, inserting, metering and mailing (includes return envelope
inserting) $ .075/ea
Additional Inserts
1st .002/ea
2nd .005/ea
3rd .010/ea
4th .010/ea
5th .010/ea
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<PAGE> 25
FIDUCIARY FEE STATEMENTS
Printing, inserting, metering, mailing and
return envelope inserting $ .11/ea
W-8 STATEMENTS
Printing, folding, inserting, metering, mailing,
mailer or return envelope inserting $ .155/ea
W-8 STATEMENTS (BULK)
Printing, folding, inserting, metering, mailing,
mailer or return envelope inserting $1.305/ea
Credit for return handling and processing $ .70/ea
Additional inserts
1st .002/ea
2nd .005/ea
3rd .010/ea
4th .010/ea
5th .010/ea
W-9 STATEMENTS
Printing, folding, inserting, metering, mailing
and mailer or return envelope inserting $ .155/ea
W-9 SOLICITATIONS (BULK)
Solicitation printing, folding, inserting, metering,
mailing and mailer or return envelope inserting $ .905/ea
Credit for return handling and processing $ .50/ea
Additional inserts
1st .002/ea
2nd .005/ea
3rd .010/ea
4th .010/ea
5th .010/ea
LASER CHECKS
Printing, folding, inserting, metering and mailing
(includes return envelope inserting) $ .085/ea
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<PAGE> 26
Additional inserts
1st .002/ea
2nd .005/ea
3rd .010/ea
4th .010/ea
5th .010/ea
PROXIES
Proxy Base Stock .0238/ea
Printing plate charge 25.00/side
Copy setting fees 50.00/ea
Proxy printing
1 to 9,999 .15/ea
10,000 to 49,999 .05/ea
50,000 plus .025/ea
Inserting, bursting, metering and mailing
over 3,501 pieces .0105/ea
2,501 to 3,500 .12/ea
1,501 to 2,500 .15/ea
1 to 1,500 .17/ea
Additional inserts
1st .002/ea
2nd .005/ea
3rd .010/ea
4th .010/ea
5th .010/ea
Manual processing/counting $13.00/hr
NEW ACCOUNT LETTERS
Printing, folding, inserting, metering .070/pg
Additional inserts
1st .002/ea
2nd .005/ea
3rd .010/ea
4th .010/ea
5th .010/ea
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<PAGE> 27
Schedule C
OUT-OF-POCKET EXPENSES
The Fund shall reimburse FDISG monthly for applicable out-of-pocket
expenses, including, but not limited to the following items:
- Microfiche/microfilm production
- Magnetic media tapes and freight
- Printing costs, including certificates, envelopes,
checks and stationery
- Postage (bulk, pre-sort, ZIP+4, barcoding, first class)
direct pass through to the Fund
- Due diligence mailings
- Telephone and telecommunication costs, including all
lease, maintenance and line costs
- Ad hoc reports
- Proxy solicitations, mailings and tabulations
- Daily & Distribution advice mailings
- Shipping, Certified and Overnight mail and insurance
- Year-end forms and mailings
- Terminals, communication lines, printers and other
equipment and any expenses incurred in connection with
such terminals and lines
- Duplicating services
- Courier services
- Incoming and outgoing wire charges
- Federal Reserve charges for check clearance
- Overtime, as approved in advance by the Fund
- Temporary staff, as approved in advance by the Fund
- Travel and entertainment, as approved in advance by the
Fund
- Record retention as required by the Fund, retrieval and
destruction costs, including, but not limited to exit fees
charged by third party record keeping vendors
- Third party audit reviews
- Ad hoc SQL time
- Insurance
- Such other miscellaneous expenses reasonably incurred
by FDISG in performing its duties and responsibilities
under this Agreement.
The Fund agrees that postage and mailing expenses will be paid on the
day of or prior to mailing as agreed with FDISG. In addition, the Fund will
promptly reimburse FDISG for any other unscheduled expenses incurred by FDISG
whenever the Fund and FDISG mutually agree that such expenses are not otherwise
properly bome by FDISG as part of its duties and obligations under the
Agreement.
-27-
<PAGE> 28
Schedule D
FUND DOCUMENTS
- Certified copy of the Articles of Incorporation of the
Fund, as amended
- Certified copy of the By-laws of the Fund, as amended,
- Copy of the resolutions of the Board of Directors
authorizing the execution and delivery of this
Agreement
- Specimens of the certificates for Shares of the Fund, if
applicable, in the form approved by the Board of Directors of
the Fund, with a certificate of the Secretary of the Fund as
to such approval
- All account application forms and other documents
relating to Shareholder accounts or to any plan,
program or service offered by the Fund
-28-
<PAGE> 29
Appendix I
Pursuant to Section 2 of this Agreement, FDISG has agreed to perform
the services described in this Agreement in accordance with the Performance
Standards set forth in this Appendix I. The parties agree that such Performance
Standards, which are described below, may be revised from time to time upon the
mutual agreement of the parties.
Each of the performance standards will be monitored by a Quality
Assurance Team:
(a) In the event that FDISG fails to meet a particular Performance
Standard (except any failure due to circumstances beyond its control) in any
particular month, FDISG agrees to take appropriate corrective action within the
following thirty (30) day period.
(b) In the event that FDISG fails to meet a particular Performance
Standard (except for any failure due to circumstances beyond its control) in two
(2) consecutive months, the fee payable to FDISG hereunder for such service
shall be reduced by one percent (1%) for the second of those two months.
(c) In the event that FDISG fails to meet a particular Performance
Standard (except for any failure due to circumstances beyond its control) for
any three (3) consecutive months, the fee payable to FDISG hereunder for such
service shall be reduced by one and one-half percent (1.5%) for the third of
those three months.
(d) In the event that FDISG fails to meet a particular Performance
Standard (except for any failure due to circumstances beyond its control) for
any three (3) months within any six (6) month period, the Fund shall have the
right to terminate this Agreement upon forty-five (45) days' written notice to
FDISG.
(e) In the event that there is no specific fee for a particular service
set forth in Schedule A hereto, then any reduction in the fee payable to FDISG
as a result of a failure to meet a particular performance standard for that
service hereunder shall be taken as a reduction in the annual per account
maintenance fee.
-29-
<PAGE> 30
(f) The Performance Standards shall be as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
ITEM STANDARD
- ------------------------------------------------------------------------------------------
<S> <C>
- ------------------------------------------------------------------------------------------
GENERAL PROCESSING
- ------------------------------------------------------------------------------------------
New Account Set-Up 100% processed same day
- ------------------------------------------------------------------------------------------
Financial Quality Control 100% processed same day
- ------------------------------------------------------------------------------------------
Non-Financial Correspondence 100% acknowledged by telephone
within 24 hours of receipt;
items less than 30 days old
resolved within 3 business
days; items older than 30 days
resolved within 5 business day
- ------------------------------------------------------------------------------------------
Maintenance Items 3 business days
- ------------------------------------------------------------------------------------------
Not In Good Order Items 100% called on same day
- ------------------------------------------------------------------------------------------
Research Received by Phone 100% called with
status report within
48 hours of receipt;
100% resolved within
3 business days
- ------------------------------------------------------------------------------------------
Research Received by Mail 100% acknowledged by
telephone within 24
hours of receipt;
100% resolved within
4 business days
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
PHONES
- ------------------------------------------------------------------------------------------
Abandonment Rate 3% or less
- ------------------------------------------------------------------------------------------
Average Speed of Answer 20 seconds or less
- ------------------------------------------------------------------------------------------
Service Level 90% of calls will be answered
in 20 seconds or less
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
FULFILLMENT within 24 hours
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
PRINT/MAIL
- ------------------------------------------------------------------------------------------
Monthly Statements 5 business days
- ------------------------------------------------------------------------------------------
Daily Confirmations T + 2
- ------------------------------------------------------------------------------------------
Checks T + 1
- ------------------------------------------------------------------------------------------
Ad hoc Projects 5 business days from receipt
of request
- ------------------------------------------------------------------------------------------
</TABLE>
-30-
<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.
23 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 6, 1997
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,
1997 into the Statements 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 headings "Independent Accountants"
and "Financial Statements" in the Statements of Additional Information.
/s/ Coopers & Lybrand L.L.P.
----------------------------
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
July 25, 1997
<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. 23 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 LLP
July 28, 1997 ------------------------------
DRINKER BIDDLE & REATH LLP
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 01
<NAME> GALAXY II LARGE COMPANY INDEX
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 328,835,005
<INVESTMENTS-AT-VALUE> 425,234,327
<RECEIVABLES> 1,607,069
<ASSETS-OTHER> 2,168,957
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 429,010,353
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,358,481
<TOTAL-LIABILITIES> 7,358,481
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 305,554,894
<SHARES-COMMON-STOCK> 18,258,594
<SHARES-COMMON-PRIOR> 11,998,707
<ACCUMULATED-NII-CURRENT> 2,289,515
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 23,064,041
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 90,743,422
<NET-ASSETS> 421,651,872
<DIVIDEND-INCOME> 5,847,208
<INTEREST-INCOME> 2,553,793
<OTHER-INCOME> 0
<EXPENSES-NET> 1,299,430
<NET-INVESTMENT-INCOME> 7,101,571
<REALIZED-GAINS-CURRENT> 26,707,295
<APPREC-INCREASE-CURRENT> 20,512,222
<NET-CHANGE-FROM-OPS> 54,321,088
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (5,762,133)
<DISTRIBUTIONS-OF-GAINS> (6,412,382)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 196,028,098
<NUMBER-OF-SHARES-REDEEMED> 67,780,439
<SHARES-REINVESTED> 10,568,314
<NET-CHANGE-IN-ASSETS> 180,962,546
<ACCUMULATED-NII-PRIOR> 950,077
<ACCUMULATED-GAINS-PRIOR> 2,769,128
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 324,858
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,313,118
<AVERAGE-NET-ASSETS> 324,857,477
<PER-SHARE-NAV-BEGIN> 20.06
<PER-SHARE-NII> .43
<PER-SHARE-GAIN-APPREC> 3.41
<PER-SHARE-DIVIDEND> (0.38)
<PER-SHARE-DISTRIBUTIONS> (0.43)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 23.09
<EXPENSE-RATIO> .40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 02
<NAME> SMALL COMPANY INDEX
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 223,853,459
<INVESTMENTS-AT-VALUE> 311,579,366
<RECEIVABLES> 1,074,978
<ASSETS-OTHER> 747,917
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 313,402,261
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,928,590
<TOTAL-LIABILITIES> 3,928,590
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 210,115,497
<SHARES-COMMON-STOCK> 13,670,431
<SHARES-COMMON-PRIOR> 13,083,419
<ACCUMULATED-NII-CURRENT> 842,015
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 13,984,652
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 84,531,507
<NET-ASSETS> 309,473,671
<DIVIDEND-INCOME> 4,355,040
<INTEREST-INCOME> 1,848,969
<OTHER-INCOME> 0
<EXPENSES-NET> 1,246,740
<NET-INVESTMENT-INCOME> 4,957,269
<REALIZED-GAINS-CURRENT> 21,136,021
<APPREC-INCREASE-CURRENT> 1,822,970
<NET-CHANGE-FROM-OPS> 27,916,260
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,406,973)
<DISTRIBUTIONS-OF-GAINS> (18,978,395)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 38,027,651
<NUMBER-OF-SHARES-REDEEMED> 47,392,281
<SHARES-REINVESTED> 22,583,158
<NET-CHANGE-IN-ASSETS> 17,749,420
<ACCUMULATED-NII-PRIOR> 291,719
<ACCUMULATED-GAINS-PRIOR> 11,827,026
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 311,685
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,259,874
<AVERAGE-NET-ASSETS> 311,685,188
<PER-SHARE-NAV-BEGIN> 22.3
<PER-SHARE-NII> 0.38
<PER-SHARE-GAIN-APPREC> 1.76
<PER-SHARE-DIVIDEND> (0.34)
<PER-SHARE-DISTRIBUTIONS> (1.46)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 22.64
<EXPENSE-RATIO> 0.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 003
<NAME> US TREASURY INDEX
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 110,906,719
<INVESTMENTS-AT-VALUE> 109,253,159
<RECEIVABLES> 2,423,346
<ASSETS-OTHER> 2,207
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 111,678,712
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 366,035
<TOTAL-LIABILITIES> 366,035
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 118,023,457
<SHARES-COMMON-STOCK> 11,147,791
<SHARES-COMMON-PRIOR> 12,198,618
<ACCUMULATED-NII-CURRENT> 137,973
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 5,195,193
<ACCUM-APPREC-OR-DEPREC> (1,653,560)
<NET-ASSETS> 111,312,677
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,852,462
<OTHER-INCOME> 0
<EXPENSES-NET> 467,775
<NET-INVESTMENT-INCOME> 7,384,687
<REALIZED-GAINS-CURRENT> 186,629
<APPREC-INCREASE-CURRENT> (3,069,827)
<NET-CHANGE-FROM-OPS> 4,501,489
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (7,380,371)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 16,091,716
<NUMBER-OF-SHARES-REDEEMED> 32,657,054
<SHARES-REINVESTED> 5,812,718
<NET-CHANGE-IN-ASSETS> (13,631,502)
<ACCUMULATED-NII-PRIOR> 23,099
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (5,271,264)
<GROSS-ADVISORY-FEES> 116,944
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 472,703
<AVERAGE-NET-ASSETS> 116,943,765
<PER-SHARE-NAV-BEGIN> 10.24
<PER-SHARE-NII> 0.64
<PER-SHARE-GAIN-APPREC> (0.25)
<PER-SHARE-DIVIDEND> (0.64)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.99
<EXPENSE-RATIO> 0.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 004
<NAME> GALAXY II UTILITY INDEX
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 45,047,104
<INVESTMENTS-AT-VALUE> 45,601,928
<RECEIVABLES> 213,252
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 45,815,180
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 232,761
<TOTAL-LIABILITIES> 232,761
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 44,993,649
<SHARES-COMMON-STOCK> 3,990,722
<SHARES-COMMON-PRIOR> 4,686,392
<ACCUMULATED-NII-CURRENT> 188,804
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (154,858)
<ACCUM-APPREC-OR-DEPREC> 554,824
<NET-ASSETS> 45,582,419
<DIVIDEND-INCOME> 2,203,157
<INTEREST-INCOME> 39,470
<OTHER-INCOME> 0
<EXPENSES-NET> 205,788
<NET-INVESTMENT-INCOME> 2,036,839
<REALIZED-GAINS-CURRENT> 3,706,859
<APPREC-INCREASE-CURRENT> (3,930,293)
<NET-CHANGE-FROM-OPS> 1,813,405
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,928,333)
<DISTRIBUTIONS-OF-GAINS> (2,272,644)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,858,430
<NUMBER-OF-SHARES-REDEEMED> 15,208,160
<SHARES-REINVESTED> 3,936,226
<NET-CHANGE-IN-ASSETS> (10,801,076)
<ACCUMULATED-NII-PRIOR> 80,298
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 15,891,073
<GROSS-ADVISORY-FEES> 51,447
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 207,956
<AVERAGE-NET-ASSETS> 51,447,005
<PER-SHARE-NAV-BEGIN> 12.03
<PER-SHARE-NII> 0.49
<PER-SHARE-GAIN-APPREC> (0.09)
<PER-SHARE-DIVIDEND> (0.46)
<PER-SHARE-DISTRIBUTIONS> (0.55)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.42
<EXPENSE-RATIO> .40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 005
<NAME> MUNICIPAL BOND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 19,794,902
<INVESTMENTS-AT-VALUE> 20,134,273
<RECEIVABLES> 313,951
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 20,448,224
<PAYABLE-FOR-SECURITIES> 496,017
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 31,004
<TOTAL-LIABILITIES> 527,021
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 20,552,549
<SHARES-COMMON-STOCK> 1,961,952
<SHARES-COMMON-PRIOR> 2,202,864
<ACCUMULATED-NII-CURRENT> 22,217
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 992,934
<ACCUM-APPREC-OR-DEPREC> 339,371
<NET-ASSETS> 19,921,203
<DIVIDEND-INCOME> 2,283
<INTEREST-INCOME> 1,065,530
<OTHER-INCOME> 0
<EXPENSES-NET> 123,913
<NET-INVESTMENT-INCOME> 943,900
<REALIZED-GAINS-CURRENT> 117,357
<APPREC-INCREASE-CURRENT> (228,249)
<NET-CHANGE-FROM-OPS> 833,008
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (943,276)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,660,657
<NUMBER-OF-SHARES-REDEEMED> 7,929,582
<SHARES-REINVESTED> 822,158
<NET-CHANGE-IN-ASSETS> (2,557,035)
<ACCUMULATED-NII-PRIOR> 21,593
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 1,110,291
<GROSS-ADVISORY-FEES> 51,631
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 124,783
<AVERAGE-NET-ASSETS> 20,652,103
<PER-SHARE-NAV-BEGIN> 10.2
<PER-SHARE-NII> 0.47
<PER-SHARE-GAIN-APPREC> (0.05)
<PER-SHARE-DIVIDEND> (0.47)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.15
<EXPENSE-RATIO> 0.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
