<PAGE> 1
As filed with the Securities and Exchange Commission on May 30, 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. 22 [x]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]
Amendment No. 24 [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):
[ ] immediately upon filing pursuant to paragraph (b), or
[ ] on August 1, 1997 pursuant to paragraph (b), or
[x] 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>
<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....................................... 14
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.............................................. 19
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.................... 22
Purchase Procedures - Direct Investors............................. 22
Other Purchase Information......................................... 22
Redemption Procedures - Customers of Institutions.................. 23
Redemption Procedures - Direct Investors........................... 24
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.......................................... 29
MISCELLANEOUS............................................................ 29
</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
(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 600 Small
Company Index (the "S&P 600 Small Company Index").
The UTILITY INDEX FUND - U.S. publicly traded common stocks of companies in the
utility industry, as represented by the Standard & Poor's Utility Index (the
"S&P Utility Index").
The U.S. TREASURY INDEX FUND - U.S. Treasury notes and bonds, as represented by
the U.S. Treasury component (the "U.S. Treasury Index") of the Salomon Brothers
Broad Investment-Grade Bond Index.
Shares of the Funds are offered without any sales charge or redemption fee. Each
Fund will incur management fees.
SHARES OF THE FUNDS ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUNDS ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL VARY AS A RESULT OF MARKET CONDITIONS OR OTHER FACTORS SO THAT SHARES
OF THE FUNDS, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
AN INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL AMOUNT INVESTED.
This Prospectus sets forth concisely certain information about the Trust that
you should know before making an investment decision. You are encouraged to read
this Prospectus carefully and retain it for future reference. Additional
information about the Trust is contained in a Statement of Additional
Information bearing the same date and is available free of charge by calling
Galaxy II at (800) 628-0414 or by writing to Galaxy II, c/o First Data Investor
Services Group, Inc., 4400 Computer Drive, P.O. Box 5108, 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 the Trust's Large Company Index, Small
Company Index, Utility Index and U.S. Treasury Index Funds. A Prospectus
for the Municipal Bond Fund may be obtained by calling (800) 628-0414.
Q: Who advises the Funds?
A: The Funds are managed by Fleet Investment Advisors Inc. ("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 Plans ("SEPs"), Multi- Employee Pension Plan accounts ("MERPs")
and Keogh Plans 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 bonds and common
stocks. You should consider your investment in the Funds to be long-term.
The Funds are not designed to provide you with a means to speculate on
short-term movements in the stock market.
Q: What shareholder privileges are offered by the Funds?
A: Direct Investors and Customers of Institutions may, after appropriate
prior authorization, exchange shares of a Fund having a value of at least
$100 for shares of any of the other funds or portfolios offered by the
Trust or otherwise advised by Fleet 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 (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 (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
[_______________________________], independent accountants, whose report is
contained in the Trust's Annual Report to Shareholders and [___________________]
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 (800)
628-0414.
LARGE COMPANY INDEX FUND
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
PERIOD
YEAR ENDED MARCH 31, ENDED
----------------------------------------------------------------- MARCH 31,
1997 1996 1995 1994 1993 1992 1991(1)
---- ------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period.................................... $ 15.76 $ 14.36 $ 14.59 $ 13.04 $ 12.10 $ 10.00
------- -------- -------- -------- -------- -------
Income from Investment Operations:
Net investment income(2).................... 0.38 0.37 0.36 0.34 0.31 0.15
Net realized and unrealized
gain (loss) on
investments and futures contracts.......... 4.57 1.73 (0.20) 1.55 0.95 2.10
------- -------- -------- -------- -------- -------
Total from Investment
Operations:.......................... 4.95 2.10 0.16 1.89 1.26 2.25
------- -------- -------- -------- -------- -------
Less Dividends:
Dividends from net investment
income..................................... (0.31) (0.37) (0.36) (0.34) (0.31) (0.15)
Dividends from net realized
capital gains.............................. (0.34) (0.33) (0.03) -- (0.01) --
------- -------- -------- -------- -------- -------
Total Dividends:....................... (0.65) (0.70) (0.39) (0.34) (0.32) (0.15)
------- -------- -------- -------- -------- -------
Net increase (decrease) in net asset
value........................................ 4.30 1.40 (0.23) 1.55 0.94 2.10
------- -------- -------- -------- -------- -------
Net Asset Value, End of Period................. $ 20.06 $ 15.76 $ 14.36 $ 14.59 $ 13.04 $ 12.10
======= ======== ======== ======== ======== =======
Total Return................................... 31.80% 15.07% 1.02% 14.68% 10.43% 22.60%(5)
Ratios/Supplemental Data:
Net Assets, End of
Period (in 000's)............................ $240,689 $147,597 $143,828 $133,426 $87,118 $17,215
Ratios to average net assets:
Net investment income including reimbursement 2.11% 2.48% 2.41% 2.57% 2.79% 3.45%(4)
Operating expenses including reimbursement.. 0.40% 0.40% 0.40% 0.40% 0.40% 0.40%(4)
Operating expenses excluding reimbursement... 0.41% 0.41% 0.40% 0.40% 0.40% 0.40%(4)
Portfolio Turnover Rate........................ 5% 7% 4% 0% 0% 0%
Average Commission Rate Paid(3)............... $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 $_____, $0.38 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
YEAR ENDED MARCH 31, ENDED
-------------------------------------------------------------- MARCH 31,
1997 1996 1995 1994 1993 1992 1991(1)
---- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period .................................... $ 17.62 $ 17.49 $ 17.42 $ 15.39 $ 13.08 $ 10.00
------- -------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income(2) ..................... 0.32 0.32 0.26 0.25 0.20 0.15
Net realized and unrealized
gain (loss) on
investments and futures contracts .......... 5.07 0.91 0.39 2.07 2.40 3.01
------- -------- -------- -------- -------- --------
Total from Investment
Operations: ......................... 5.39 1.23 0.65 2.32 2.60 3.16
------- -------- -------- -------- -------- --------
Less Dividends:
Dividends from net investment
income ..................................... (0.38) (0.32) (0.25) (0.24) (0.22) (0.08)
Dividends from net realized
capital gains .............................. (0.33) (0.78) (0.33) (0.05) (0.07) --
------- -------- -------- -------- -------- --------
Total Dividends: ........................ (0.71) (1.10) (0.58) (0.29) (0.29) (0.08)
------- -------- -------- -------- -------- --------
Net increase (decrease) in net
asset value .................................. 4.68 0.13 0.07 2.03 2.31 3.08
------- -------- -------- -------- -------- --------
Net Asset Value, End of Period ................ $ 22.30 $ 17.62 $ 17.49 $ 17.42 $ 15.39 $ 13.08
======= ======== ======== ======== ======== ========
Total Return ................................... 30.85% 7.60% 3.64% 15.20% 20.04% 31.83%(5)
Ratios/Supplemental Data:
Net Assets, End of
Period (in 000's) ............................ $291,724 $235,295 $255,347 $213,669 $116,290 $ 16,334
Ratios to average net assets:
Net investment income including
reimbursement................................ 1.52% 1.72% 1.55% 1.80% 2.26%(4) 2.98%(4)
Operating expenses including reimbursement .. 0.40% 0.40% 0.40% 0.40% 0.40%(4) 0.40%(4)
Operating expenses excluding reimbursement ... 0.41% 0.40% 0.40% 0.40% 0.40% 0.40%(4)
Portfolio Turnover Rate ........................ 14% 10% 17% 5% 6% 1%
Average Commission Rate Paid(3) ................ $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 $____, $0.31 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
YEAR ENDED MARCH 31, ENDED
--------------------------------------- MARCH 31,
1997 1996 1995 1994 1993(1)
---- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 9.88 $ 9.99 $ 10.93 $ 10.00
------- ------- ------- -------
Income from Investment Operations:
Net investment income(2)........................... 0.44 0.47 0.43 0.06
Net realized and unrealized gain (loss) on
investments..................................... 2.15 (0.03) (0.93) 0.93
------- ------- ------- -------
Total from Investment Operations:............. 2.59 0.44 (0.50) 0.99
------- ------- ------- -------
Less Dividends:
Dividends from net investment income............... (0.44) (0.46) (0.43) (0.06)
Dividends from net realized capital gains.......... -- (0.08) (0.01) --
Dividends in excess of net realized capital gains.. -- (0.01) -- --
------- ------- ------- -------
Total Dividends:.............................. (0.44) (0.55) (0.44) (0.06)
------- ------- ------- -------
Net increase (decrease) in net asset value........... 2.15 (0.11) (0.94) 0.93
------- ------- ------- -------
Net Asset Value, End of Period....................... $ 12.03 $ 9.88 $ 9.99 $ 10.93
======= ======= ======= =======
Total Return......................................... 26.61% 4.67% 4.83% 9.85%(5)
Ratios/Supplemental Data:
Net Assets, End of Period (in 000's)................. $56,383 $52,831 $68,445 $38,151
Ratios to average net assets:
Net investment income including reimbursement...... 3.79% 4.62% 4.08% 4.66%(4)
Operating expenses including reimbursement........ 0.40% 0.40% 0.40% 0.40%(4)
Operating expenses excluding reimbursement......... 0.41% 0.41% 0.40% 0.40%(4)
Portfolio Turnover Rate.............................. 12% 5% 19% 0%(5)
Average Commission Rate Paid(3)...................... $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 $____, $0.44 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 ..................................... $ 9.91 $ 10.38 $ 11.01 $ 10.39 $ 10.00
-------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income(2) ...................... 0.66 0.65 0.58 0.63 0.51
Net realized and unrealized
gain (loss) on investments ................. 0.33 (0.29) (0.29) 0.75 0.38
-------- -------- -------- -------- --------
Total from Investment
Operations ............................ 0.99 0.36 0.29 1.38 0.89
-------- -------- -------- -------- --------
Less Dividends:
Dividends from net investment
income ..................................... (0.65) (0.66) (0.58) (0.63) (0.50)
Dividends in excess of net investment
income ..................................... (0.01) (0.01) -- -- --
Distributions from net realized
capital gains .............................. -- -- (0.34) (0.13) --
Dividends in excess of net realized
capital gains ................................ -- (0.16) -- -- --
-------- -------- -------- -------- --------
Total Dividends: ......................... (0.66) (0.83) (0.92) (0.76) (0.50)
-------- -------- -------- -------- --------
Net increase (decrease) in net
asset value ................................... (0.33) (0.47) (0.63) 0.62 0.39
-------- -------- -------- -------- --------
Net Asset Value, End of Period .................. $ 10.24 $ 9.91 $ 10.38 $ 11.01 $ 10.39
======== ======== ======== ======== ========
Total Return .................................... 10.09% 3.81% 2.40% 13.69% 8.99%(4)
Ratios/Supplemental Data:
Net Assets, End of
Period (in 000's) ............................. $124,944 $104,251 $138,225 $145,353 $102,830
Ratios to average net assets:
Net investment income including reimbursement.. 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%(3)
Operating expenses excluding reimbursement .... 0.41% 0.41% 0.40% 0.40% 0.40%(3)
Portfolio Turnover Rate ......................... 35% 50% 75% 35% 57%
</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 $____, $0.66 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 600 Small Company Index.
The UTILITY INDEX FUND seeks to provide investment results that, before
the deduction of operating expenses, match the price and yield performance of
U.S. publicly traded common stocks of companies engaged in the utility industry,
as represented by the S&P Utility Index.
The U.S. TREASURY INDEX FUND seeks to provide investment results that,
before deduction of operating expenses, match the price and yield performance of
U.S. Treasury notes and bonds, as represented by the U.S. Treasury Index.
The investment objective of a Fund may not be changed without the approval
of the holders of a "majority" of the outstanding voting shares of that Fund.
The term "majority" is defined in the Investment Company Act of 1940, as amended
(the "1940 Act"). There can be no assurance that the investment objective of any
Fund will be achieved.
Risk considerations related to the Funds' investments are described under
"Other Investment Practices" and "Investment Risks."
THE INDEXING APPROACH
The Funds are not managed in a traditional sense, that is, by making
discretionary judgments based on analysis of economic, financial and market
conditions. Instead, the Funds seek to match the investment performance of their
respective market segments, as represented by their respective indexes, through
the use of sophisticated computer models to determine which stocks or bonds
should be purchased or sold, while keeping transaction and administrative costs
to a minimum. Each Fund will attempt to be fully invested in securities of its
respective index and will invest at least 80% of its net assets in those
securities. The Fund's investment adviser, Fleet Investment Advisors Inc.
("Fleet"), 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 Ratings Group ("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.
The common stock of Fleet Financial Group, Inc., the parent of Fleet, is
in the S&P 500. The Large Company Index Fund will invest its assets in Fleet
Financial Group, Inc. common stock approximately in proportion to the percentage
Fleet Financial Group, Inc. common stock represents in the S&P 500. Purchases
and sales of Fleet Financial Group, Inc. common stock, like all other stock in
the S&P 500, will be made solely in accordance with the directions generated by
the computer models utilized by Fleet to assist in duplicating the performance
of the S&P 500 and will not be made on the basis of any fundamental or technical
analysis of, or other similar specific
-13-
<PAGE> 18
information concerning Fleet Financial Group, Inc. As of December 31, 1996,
Fleet Financial Group, Inc. common stock represented approximately .23% of the
S&P 500.
THE SMALL COMPANY INDEX FUND
The S&P 600 Small Company 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 600 Small Company Index is based on each stock's
relative total market capitalization. As of December 31, 1996, stocks in the S&P
600 Small Company 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 600 Small Company Index as of December 31, 1996 was
approximately $483 million, although the capitalization of some companies
included in the S&P 600 Small Company 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 600 Small
Company Index. These fundamental exposures include dividend yield,
price-earnings multiples and average growth rates.
The portfolio optimization program is expected to provide an effective
method of substantially duplicating the dividend income and capital gains
produced by the S&P 600 Small Company Index. Since the Fund does not hold every
stock in the S&P 600 Small Company Index, it is not expected to track the S&P
600 Small Company Index with the same degree of accuracy that the Large Company
Index Fund should track the S&P 500, although the Fund will seek a correlation
of at least 0.95, before deduction of operating expenses. The Fund will not
purchase stocks not represented in the S&P 600 Small Company Index.
THE UTILITY INDEX FUND
The S&P Utility 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 Utility
Index is comprised of approximately 40 stocks. The weighting of stocks in the
S&P Utility Index is based on each stock's relative market capitalization. As of
December 31, 1996, the S&P Utility 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>
Telephone/Telecommunications................................ 0%
Electric.................................................... 75.33%
Gas and Water............................................... 24.67%
Communications/Long Distance/Cable.......................... 0%
</TABLE>
-14-
<PAGE> 19
Like the S&P 500 and S&P 600 Small Company Index, the weighting of stocks in the
S&P Utility Index is based on each stock's relative market capitalization.
Normally, the Utility Index Fund will hold every stock in the S&P Utility Index
and will hold each stock in approximately the same percentage as that stock
represents in the S&P Utility Index.
THE U.S. TREASURY INDEX FUND
The U.S. Treasury Index is composed of all U.S. Treasury notes and bonds with
remaining maturities of at least one year and outstanding principal of at least
$25 million. Securities in the index are weighted by market value, that is, the
price per bond or note multiplied by the number of bonds or notes outstanding.
Salomon updates the roster of securities represented in the index once each
month, adding new notes and bonds issued in the past month and removing those
notes and bonds that no longer meet the index's criteria. The following table
further describes the 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.................................................... 18.4%
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 S&P or P-1
or better by Moody's Investors Service, Inc.), and certificates of deposit and
time deposits of banking institutions having total assets in excess of $1
billion. The Funds may also hold these investments in connection with
"repurchase agreements" (which are not subject to the 2% limitation above). In
these agreements, a bank or non-bank dealer agrees to "repurchase" the
investment from the Fund at the Fund's cost plus a specified interest rate
within a specified time period, usually one to seven days. Repurchase agreements
involve certain risks in the event of default or insolvency of the other party,
including possible delays or restrictions upon the subject Fund's ability to
dispose of the underlying securities.
SECURITIES LENDING
Each Fund may realize additional net investment income and help offset
some of its expenses by lending securities constituting up to 33 1/3% of its
total assets to qualified brokers, dealers and other financial organizations,
which percentage limitation is a fundamental policy of each Fund. These loans
will be collateralized by cash, letters of credit or U.S. Government Securities,
which are maintained at all times in an amount at least equal to the current
market value of the loaned securities, plus any dividends and interest accrued
thereon. The Fund involved continues to be entitled to the interest and
dividends payable on the loaned security and receives interest on the amount of
the loan. Any gain or 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 long-distance
telephone service and gas utilities, with the need to make large investments in
technology to meet this competition; and
- restriction to relatively mature markets, particularly among water
companies, which constrain potential for growth.
The Fund will concentrate its investments in the utility industry. As a
result, the Fund's investments may be subject to greater risk and market
fluctuation than a fund that has securities representing a broader range of
investment alternatives.
The Fund's policy of concentrating its investments in the utility industry
is a fundamental policy of the Fund and cannot be changed without approval of a
majority of the Fund's outstanding voting securities.
While the "full faith and credit" of the U.S. Government guarantees the
stated interest rate and principal at maturity of U.S. Treasury notes and bonds,
the market value of these securities will fluctuate due to changing interest
rates. In general, bond prices rise when interest rates fall, and bond prices
fall when interest rates rise. Longer-term bonds are typically affected more
dramatically than shorter-term bonds. The following table illustrates the
changes caused by a 2% change in interest rates on the market prices of
non-callable bonds with various maturities:
<TABLE>
<CAPTION>
2% INCREASE IN 2% DECREASE IN
MATURITY INTEREST RATES INTEREST RATES
- -------- -------------- --------------
<S> <C> <C>
1 year..................................... -2% +2%
5 years.................................... -8% +9%
10 years................................... -14% +17%
30 years................................... -25% +39%
</TABLE>
As of March 31, 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 registration form 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, 199__.
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. 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 distributing 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
(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 (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 (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 part of their shares in
accordance with procedures governing their accounts at Institutions. It is the
responsibility of the Institutions to transmit redemption orders to 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 part 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 FDIC, 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 (800) 628-0414.
Redemption by Telephone. Direct Investors may redeem shares by calling
(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.")
Redemption by Wire. Direct Investors who have so indicated on the
application, or have subsequently arranged in writing to do so, may redeem
shares by instructing 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 application or in written
instructions subsequently received by FDISG. To request redemption of shares by
wire, Direct Investors should call (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 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. 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 600 Small Company Index,
the S&P Utility 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 (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. Call (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
(800) 628-0414) with respect to IRAs, SEPs and Keogh Plans and from Fleet
Brokerage Securities , Inc. (call (800) 221-8210) with respect to MERPs.
AUTOMATIC INVESTMENT PROGRAM
The Automatic Investment Program permits a Direct Investor to purchase
Fund shares (minimum of $50 per transaction) each month. Provided the Direct
Investor's financial institution allows automatic withdrawals, Fund shares are
purchased by transferring funds from a Direct Investor's checking, bank money
market or NOW account designated by the investor. The account designated will be
debited in the specified amount, and Fund shares will be purchased, once a
month, on or about either the first or fifteenth day. Only an account maintained
at a domestic financial institution which is an Automated Clearing House member
may be so designated.
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.
MISCELLANEOUS
"Standard & Poor's," "S&P," "S&P 500," "Standard & Poor's 500," and "500"
are service marks of McGraw Hill, 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 McGraw Hill, 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 600
Small Company Index or the S&P Utility 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 600 Small Company Index and the S&P Utility
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 600 SMALL COMPANY INDEX OR THE S&P UTILITY INDEX OR ANY DATA
INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY
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<PAGE> 34
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 600 SMALL
COMPANY INDEX OR THE S&P UTILITY 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 (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,
Other Services Sub-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>
<PAGE> 36
<TABLE>
<S> <C>
Underwriters Portfolio Transactions
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 (800) 628-0414. Information
regarding the status of shareholder accounts may be obtained by calling First
Data Investor Services Group, Inc. ("FDISG"), the Trust's transfer agent, at
(800) 628-0414.
<PAGE> 39
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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....................... 11
ADDITIONAL INFORMATION CONCERNING TAXES.............................. 12
TRUSTEES AND OFFICERS................................................ 14
ADVISORY, ADMINISTRATION, SUB-ADMINISTRATION, CUSTODY
AND TRANSFER AGENCY AGREEMENTS...................................... 17
Investment Adviser, Administrator and
Sub-Administrator.............................................. 17
Authority to Act as Investment Adviser......................... 19
Custodian and Transfer Agent................................... 20
PERFORMANCE AND YIELD INFORMATION.................................... 20
COUNSEL.............................................................. 23
INDEPENDENT ACCOUNTANTS.............................................. 23
GENERAL INFORMATION.................................................. 23
FINANCIAL STATEMENTS................................................. 24
</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 600 Small
Company Index (the "S&P 600 Small Company Index"). The investment objective of
the Utility Fund is to provide investment results that, before the deduction of
operating expenses, match the price and yield performance of U.S. publicly
traded common stocks of companies in the utility industry, as represented by the
Standard & Poor's Utility Index (the "S&P Utility Index"). The investment
objective of the U.S. Treasury Fund is to provide investment results that,
before deduction of operating expenses, match the price and yield performance of
U.S. Treasury notes and bonds, as represented by the U.S. Treasury component
(the "U.S. Treasury Index") of the Salomon Brothers Broad Investment-Grade Bond
Index.
A Prospectus and Statement of Additional Information describing the
fifth investment option available through Galaxy II, the Municipal Bond Fund,
can be obtained by calling Galaxy II at (800) 628-0414.
<PAGE> 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 600 Small
Company Index, the S&P Utility Index, and the U.S. Treasury Index is available
free of charge by calling Galaxy II at (800) 628-0414, or by writing to Galaxy
II, c/o 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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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
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<PAGE> 46
outstanding voting securities. The Fund expects, however, to invest at least 80%
of its total assets in utility companies.
VALUATION OF PORTFOLIO SECURITIES
Portfolio securities which are listed on the New York Stock Exchange
or the American Stock Exchange are valued at the last quoted sales price, or if
no sales occurred, the closing bid price. Investments in U.S. Government
Securities (other than short-term securities) are valued at the average of the
quoted bid and asked prices in the over-the-counter market. Short-term
investments that mature in 60 days or less are valued on the basis of amortized
cost (which involves valuing an investment instrument at its cost and,
thereafter, assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument) unless Galaxy II's Board of Trustees has determined
that amortized cost does not approximate market value. Other securities for
which market quotations are readily available are valued as nearly as possible
in the manner described above. Securities may be valued by a pricing service
when such prices are believed to reflect the fair market value of such
securities. Other assets and securities for which market quotations are not
readily available are valued based on fair value as determined in good faith in
accordance with procedures established by the Board of Trustees.
INVESTMENT LIMITATIONS
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
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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 600
Small Company Index and shareholders of the Utility Fund approved a change from
the Russell 1000 Utility Index to the S&P Utility 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
Board approval had been obtained and that shareholder approval was not
required before changing the Fund's benchmark index to the S&P Utility Index,
proceeded to rebalance the Fund's portfolio pursuant to this desired change in
the index. Once Fleet became aware that 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. Based on estimates of the financial impact to the Utility Fund
and its shareholders resulting from this error, Fleet has undertaken to
reimburse the Utility Fund and to adjust its shareholder accounts as necessary
to eliminate any material adverse impact to the Fund or its shareholders.
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 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.
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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 $_______,
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 $_______, 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 $_______, 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 $__, respectively, in commissions to
broker-dealers for execution of portfolio transactions.
The Trust is required to identify any securities of its regular
brokers or dealers that the Trust has acquired during its most recent fiscal
year. At March 31, 1997, (a) the Large Company Fund held common stock of
___________________________ (b) the Small Company Fund held common stock of
____________________.
Since Galaxy II does not market shares of the Funds through
intermediary brokers or dealers, it is not Galaxy II's practice to allocate
brokerage or principal business on the basis of sales of its shares.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Funds are sold on a continuous basis by 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
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(other than customary weekend and holiday closings); or (c) the SEC has by order
permitted such suspension.
ADDITIONAL INFORMATION CONCERNING TAXES
Each Fund has qualified each year in the past and each Fund intends
to qualify each year in the future as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended (the "Code"). Provided that a Fund (a)
qualifies as a regulated investment company and (b) distributes to its
shareholders at least 90% of its "investment company taxable income" (that is,
its income minus its "net capital gains" and after taking into account certain
required adjustments), the Fund generally will not be subject to federal income
tax to the extent its net investment income (that is, its income other than its
net realized capital gains) and its net realized long-term and short-term
capital gains are distributed to its shareholders in accordance with the Code.
Because of the Code's requirements for qualification as a regulated investment
company, each Fund may be restricted in the utilization of certain of the
investment techniques described above and in the Prospectus.
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
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<PAGE> 52
them as if they were closed out) and (2) may cause that Fund to recognize income
without receiving cash with which to pay dividends or make distributions in
amounts necessary to satisfy the distribution requirements for avoiding income
and excise taxes. Each Fund will monitor its transactions, will make the
appropriate tax elections and will make the appropriate entries in its books and
records when it acquires any futures contract or hedged investment so that, to
the extent possible, (1) neither the Fund nor its shareholders will be treated
as receiving a materially greater amount of capital gains or distributions than
actually realized or received, (2) the Fund will be able to use substantially
all of its losses for the fiscal years in which the losses actually occur and
(3) the Fund will continue to qualify as a regulated investment company.
Net realized long-term capital gains will be distributed as
described in the Prospectus. Such distributions ("capital gain dividends") will
be taxable to a shareholder as long-term capital gains, regardless of how long a
shareholder has held Fund shares. However, if a shareholder receives a capital
gain dividend with respect to any share and if such share is held by the
shareholder for six months or less, then any loss on the 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
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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.
Positions Held with Galaxy II and
Principal Occupation(s) During
Name and Address Past 5 Years
- ---------------- ---------------------------------
Dwight E. Vicks, Jr. Trustee and Chairman of the Board
Vicks Lithograph &
Printing Corporation President & Director, Vicks
Commercial Drive Lithograph & Printing
P.O. Box 270 Corporation (book manufacturing
Yorkville, NY 13495 and commercial printing); Director,
Age 63 Utica First Insurance Company;
Trustee, Savings Bank of Utica; Director,
Monitor Life Insurance Company; Director,
Commercial Travelers Mutual Insurance
Company; Chairman of the Board, The Galaxy
Fund and The Galaxy VIP Fund.
*John T. O'Neill Trustee, President and Treasurer
Hasbro, Inc.
200 Narragansett Executive Vice President and CFO,
Park Drive Hasbro, Inc. (toy and game
Pawtucket, RI 02862 manufacturer), since 1987; Trustee,
Age 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
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<PAGE> 54
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.
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, First Data Investor Services
Services Group, Inc. Group, Inc., 1990 to present.
4400 Computer Drive
P.O. Box 5108
Westboro, MA 01581
Age 37
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<PAGE> 55
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"). 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.
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<PAGE> 56
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
COMPENSA-
PENSION OR TION FROM
RETIREMENT GALAXY II
BENEFITS AND 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 $ None $
Dwight E. Vicks, Jr. $ None $
Donald B. Miller ** $ None $
Louis DeThomasis $ None $
John T. O'Neill $ None $
James M. Seed ** $ None $
</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 $______ and $______ 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, Massachusetts 02109.
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<PAGE> 57
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.
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
$_______, respectively, with respect to the Large Company Fund, $178,169,
$264,753 and $_______, respectively, with respect to the Small Company Fund,
$43,024, $55,279 and $_______, respectively, with respect to the Utility Fund,
and $83,856, $117,603 and $_______, 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
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<PAGE> 58
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 $_____, respectively, with respect to the Large Company
Fund, $527,906, $787,499 and $_____, respectively, with respect to the Small
Company Fund, $122,471, $164,968 and $_____, respectively, with respect to the
Utility Fund, and $244,968, $352,810 and $_____, 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.
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<PAGE> 59
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, 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. ("FDSIG") 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
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<PAGE> 60
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 _____% and _____%, respectively, with respect to the Large Company
Fund, _____% and _____%, 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 _____% and _____%, 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 _____% and _____%, 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
_____%. For the Utility Fund, the total return for the one-year period ended
March 31, 1997 was _____%. The average annual total return for the Utility Fund
for the period beginning January 5, 1993 (commencement of operations) through
March 31, 1997 was _____%. These total return figures have been adjusted by (i)
____%, ____% and _____% for the five-year period ended March 31, 1997 for the
Large Company Fund, Small Company Fund and U.S. Treasury Fund, respectively,
(ii) _____%, _____%, _____% and _____% for the one-year period ended March 31,
1997 with respect to the Large Company Fund, Small Company Fund, U.S. Treasury
Fund and Utility Fund, respectively, and (iii) and _____%, _____%, _____% and
_____% for the life of the Fund with respect to the Large Company Fund, the
Small Company Fund, the U.S. Treasury Fund and the Utility Fund, respectively,
to reflect, based upon a hypothetical $1,000 initial investment, the imposition
of $10.00 annual account maintenance fees. FNB has agreed to waive until further
notice receipt of the $10.00 annual account maintenance fees. Aggregate total
return may be shown by means of schedules, charts or graphs, and may indicate
subtotals of the various components of total return (that is, change in value of
initial investment, income dividends and capital gains distributions). A Fund's
"average annual total return" figures described in the Prospectus are computed
according to a formula prescribed by the SEC. The formula can be expressed as
follows:
n
P(1+T) =ERV
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<PAGE> 61
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 6
YIELD = 2[(____________________+1) -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 _____%.
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.
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<PAGE> 62
Comparative performance information may be used from time to time in
advertising the shares of a Fund, including data from Lipper Analytical
Services, Inc., Ibbotson Associates, Morningstar, Inc., the S&P 500, the Russell
3000 Index, the S&P 600 Small Company Index, the Dow Jones Industrial Average,
the BIG Index, the U.S. Treasury Index, the S&P Utility Index and other industry
publications.
Galaxy II may compare the performance of the Large Company Fund and
the Small Company Fund to certain U.S. diversified equity mutual funds, as
calculated by Morningstar, Inc. or another industry service and with that of the
S&P 500 and the S&P 600 Small Company Index, respectively. The performance of
the Utility Fund may be compared to certain utility funds, as calculated by
Morningstar, Inc. or another industry service and with that of the S&P Utility
Index. In addition, the Trust may compare the performance of the U.S. Treasury
Fund to certain U.S. fixed income mutual funds, as
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<PAGE> 63
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.
INDEPENDENT ACCOUNTANTS
[________________], independent accountants, with offices at
[____________________________________________], currently serve as auditors to
Galaxy II. [__________________] 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.
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<PAGE> 64
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 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 May 15, 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: For the Municipal Bond Fund -- Robert
G. Jacob, 4223 Wieuca Overlook, Atlanta, GA 30342, 9.84%. For the Large Company
Index Fund -- Norstar Trust Company, Gales & Co., Funds Control, Attn: Julie
Hogestyn, One East Avenue, Rochester, NY 14638, 36.6%; Fleet Savings Plus Plan,
Fleet Financial Group, 50 Kennedy Plaza, Providence, RI 02903, 14.7%. For the
U.S. Treasury Index Fund -- Norstar Trust Company, Gales & Co., Funds Control,
Attn: Julie Hogestyn, One East Avenue, Rochester, NY 14638, 9.26%; Priests
Retirement Plan, Diocese of Albany, c/o Fleet Financial Group, 50 Kennedy
Plaza, Providence, RI 02903, 5.3%. There were no persons who owned of record 5%
or more of the outstanding shares of the Small Company Index Fund and the
Utility Index Fund.
FINANCIAL STATEMENTS
[TO BE PROVIDED]
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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 Fund; Investment
Objective and Policies; Performance and
Yield Information; Miscellaneous
5A. Management's Discussion of Fund
Performance Not Applicable
6. Capital Stock and Other Securities How to Purchase and Redeem Shares;
Description of Shares; Miscellaneous
7. Purchase of Securities Being How to Purchase and Redeem Shares
Offered
8. Redemption or Repurchase How to Purchase and Redeem Shares;
Description of Shares; Investor Programs
9. Pending Legal Proceedings Not Applicable
</TABLE>
-1-
<PAGE> 66
GALAXY FUND II
THE 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............................ 10
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
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<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
PERFORMANCE AND YIELD INFORMATION.................................. 22
MISCELLANEOUS...................................................... 23
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<PAGE> 69
GALAXY FUND II - THE 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 (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
(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
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<PAGE> 71
HIGHLIGHTS
Q: What is Galaxy Fund II?
A: The Trust is an open-end investment company (commonly known as a mutual
fund) that offers investors the opportunity to invest in different
investment portfolios, each having separate investment objectives and
policies. This Prospectus describes the Trust's Municipal Bond Fund (the
"Fund"). A Prospectus for the Large Company Index, Small Company Index,
Utility Index and U.S. Treasury Index Funds may be obtained by calling
(800) 628-0414.
Q: Who advises the Fund?
A: The Fund is managed by Fleet Investment Advisors Inc. ( "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 Plans ("SEPs"), Multi-Employee Pension Plan accounts ("MERPs") and
Keogh Plans 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> 72
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 (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> 73
form of application is available from Fleet Brokerage Securities, Inc.
(call (800) 221-8210). The Trust also offers an Automatic Investment
Program, which allows a Direct Investor to purchase Fund shares each
month, as well as other shareholder privileges. See "Investor Programs."
-5-
<PAGE> 74
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> 75
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 [____________________],
independent accountants, whose report is contained in the Trust's Annual Report
to Shareholders and is [_________________] 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 (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........... $ $ 9.94 $ 9.89 $ 10.00
---------- ---------- ---------- ------------
Income from Investment Operations:
Net investment income(2)..................... 0.46 0.46 0.43
Net realized and unrealized gain (loss)
on investments............................ 0.26 0.05 (0.11)
---------- ---------- ---------- ------------
Total from Investment Operations........ 0.72 0.51 0.32
---------- ---------- ---------- ------------
Less Dividends:
Dividends from net investment income......... (0.46) (0.46) (0.43)
Dividends from net realized capital gains -- -- --
---------- ---------- ---------- ------------
Total Dividends:........................ (0.46) (0.46) (0.43)
---------- ---------- ---------- ------------
Net increase (decrease) in net asset
value ....................................... 0.26 0.05 (0.11)
---------- ---------- ---------- ------------
Net Asset Value, End of Period................ $ $ 10.20 $ 9.94 $ 9.89
========== ========== ========== ============
Total Return................................... 7.36% 5.34% 3.10%(4)
Ratios/Supplemental Data:
Net Assets, End of Period (in 000's)........... $ $ 22,478 $ 24,560 $ 33,352
Ratios to average net assets:
Net investment income including reimbursement 4.54% 4.72% 4.35%(3)
Operating expenses including reimbursement 0.60% 0.60% 0.60%(3)
Operating expenses excluding reimbursement 0.61% 0.63% 0.60%(3)
Portfolio Turnover Rate........................ 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 $____, $0.46 and $0.46, respectively.
3 Annualized
4 Not Annualized
-7-
<PAGE> 76
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 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> 77
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 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> 78
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> 79
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> 80
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> 81
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.
-13-
<PAGE> 82
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 (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 (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 (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
-14-
<PAGE> 83
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 part of their shares in
accordance with procedures governing their accounts at Institutions. It is the
responsibility of the Institutions to transmit redemption orders to 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 part of their shares in accordance with
any of the procedures described below.
REDEMPTION PROCEDURES - DIRECT INVESTORS
Redemption by Mail. Shares may be redeemed by a Direct Investor by
submitting a written request for redemption to:
Galaxy Fund II
4400 Computer Drive
P.O. Box 5108
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 FDIC, 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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<PAGE> 84
proper receipt by FDISG of the redemption request. Questions with respect to the
proper form for redemption requests should be directed to FDISG at (800) 628-
0414.
Redemption by Telephone. Direct Investors may redeem shares by calling
(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.")
Redemption by Wire. Direct Investors who have so indicated on the
application, or have subsequently arranged in writing to do so, may redeem
shares by instructing 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 application or in written
instructions subsequently received by FDISG. To request redemption of shares by
wire, Direct Investors should call (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 registration 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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<PAGE> 86
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,
199__.
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. 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 distributing 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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<PAGE> 88
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 (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, the U.S. Treasury
Index Fund or the 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 (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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<PAGE> 90
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
(800) 628-0414) with respect to IRAs, SEPs and Keogh Plans and from Fleet
Brokerage Securities , Inc. (call (800) 221-8210) with respect to MERPs.
AUTOMATIC INVESTMENT PROGRAM
The Automatic Investment Program permits a Direct Investor to purchase
Fund shares (minimum of $50 per transaction) each month. Provided the Direct
Investor's financial institution allows automatic withdrawals, Fund shares are
purchased by transferring funds from a Direct Investor's checking, bank money
market or NOW account designated by the investor. The account designated will be
debited in the specified amount, and Fund shares will be purchased, once a
month, on or about either the first or fifteenth day. Only an account maintained
at a domestic financial institution which is an Automated Clearing House member
may be so designated.
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.
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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 (800)
628-0414.
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GALAXY FUND II
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 Objective; 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 Fund"
Investment Advisory and Advisory, Administration,
Other Services Sub-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>
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<PAGE> 94
<TABLE>
<S> <C>
Calculation of Performance Performance and Yield Information
Data
Financial Statements Financial Statements
</TABLE>
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<PAGE> 95
GALAXY FUND II
STATEMENT OF ADDITIONAL INFORMATION
MUNICIPAL BOND FUND
JULY 29, 1997
<PAGE> 96
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 (800) 628-0414. Information regarding the status of shareholder
accounts may be obtained by calling First Data Investor Services Group, Inc.
("FDISG"), the Trust's transfer agent, at (800) 628-0414.
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<PAGE> 97
TABLE OF CONTENTS
Page
----
INVESTMENT OBJECTIVE................................................. 4
INVESTMENT POLICIES AND RISK CONSIDERATIONS.......................... 4
U.S. Government Securities..................................... 4
Bank Obligations............................................... 4
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
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<PAGE> 98
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 (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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<PAGE> 99
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
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limit the amount of fluctuation permitted in futures contract prices during a
single trading day. Once the daily limit has been reached in a particular
contract, no trades may be made that day at a price beyond that limit. It is
possible that futures contract prices could move to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of futures positions and subjecting the Fund to substantial losses.
In such event, and in the event of adverse price movements, the Fund would
continue to be required to make daily cash payments of variation margin.
Further, there can be no assurance that there will be a perfect correlation
between movements in the price of the security or index underlying the futures
contract and movements in the price of the municipal securities which are the
subject of the hedge. The degree of imperfection of correlation depends upon
various circumstances, such as variations in speculative market demand for
futures contracts and municipal securities and technical influences in futures
trading, and differences between the municipal securities being hedged and the
municipal securities underlying the futures contracts, in such respects as
interest rate levels, maturities and creditworthiness of issuers. A decision of
whether, when and how to hedge involves the exercise of skill and judgment and
even a well-conceived hedge may be unsuccessful to some degree because of market
behavior or unexpected trends in interest rates.
Losses incurred in futures transactions and the costs of these
transactions will affect the Fund's performance. In addition, the Fund might
have to sell securities to meet daily variation margin requirements at a time
when it would be disadvantageous to do so. These sales of securities may, but
will not necessarily, be at increased prices.
The ability of the Fund to trade in futures contracts and options on
futures contracts may be materially limited by the requirements of the Internal
Revenue Code of 1986, as amended (the "Code"), applicable to a regulated
investment company. See "Additional Information Concerning Taxes" below.
OPTIONS ON FUTURES CONTRACTS
The Fund may purchase put and call options on interest rate and
municipal bond index futures contracts which are traded on a United States
exchange as a hedge against changes in interest rates, and may enter into
closing transactions with respect to such options to terminate existing
positions. The Fund would sell put and call options on futures contracts only as
part of closing sale transactions to terminate its options positions. There is
no guarantee that such closing transactions can be effected.
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Options on futures contracts, as contrasted with the direct
investment in such contracts, gives the purchaser the right, in return for the
premium paid, to assume a position in futures contracts at a specified exercise
price at any time prior to the expiration date of the options. Upon exercise of
an option, the delivery of the futures position by the writer of the option to
the holder of the option will be accompanied by delivery of the accumulated
balance in the writer's futures margin account, which represents the amount by
which the market price of the futures contract exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option on the
futures contract. The potential loss related to the purchase of an option on a
futures contract is limited to the premium paid for the option (plus transaction
costs). Because the value of the option is fixed at the point of sale, there are
no daily cash payments to reflect changes in the value of the underlying
contract; however, the value of the option does change daily and that change
would be reflected in the net asset value of the Fund.
Galaxy II will set aside with its custodian, or with a designated
sub-custodian, cash or 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,
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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 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
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the interest paid on them qualifies as excluded from gross income (but not
necessarily from alternative minimum taxable income) for federal income tax
purposes in the opinion of bond counsel to the issuer ("AMT bonds"). The Fund
may invest up to 20% of its assets in AMT bonds.
Municipal securities may be issued to finance life care facilities,
which are an alternative form of long-term housing for the elderly that offer
residents the independence of a condominium life-style and, if needed, the
comprehensive care of nursing home services. Bonds to finance these facilities
have been issued by various state industrial development authorities. Because
the bonds are secured only by the revenues of each facility and not by state or
local government tax payments, they are subject to a wide variety of risks,
including a drop in occupancy levels, the difficulty of maintaining adequate
financial reserves to secure estimated actuarial liabilities, the possibility of
regulatory cost restrictions applied to health care delivery and competition
from alternative health care or conventional housing facilities.
Municipal leases are municipal securities that may take the form of
a lease or an installment purchase contract issued by state and local
governmental authorities to obtain funds to acquire a wide variety of equipment
and facilities such as fire and sanitation vehicles, computer equipment and
other capital assets. These obligations have evolved to make it possible for
state and local government authorities to acquire property and equipment without
meeting constitutional and statutory requirements for the issuance of debt.
Thus, municipal leases have special risks not normally associated with municipal
securities. These obligations frequently contain "non-appropriation" clauses
that provide that the governmental issuer of the obligation has no obligation to
make future payments under the lease or contract unless money is appropriated
for those purposes by the legislative body on a yearly or other periodic basis.
In addition to the non-appropriation risk, municipal leases represent a type of
financing that has not yet developed the depth of marketability associated with
other municipal securities. Moreover, although municipal leases will be secured
by the leased equipment, the disposition of the equipment in the event of
foreclosure might prove to be difficult. The Fund does not intend to invest more
than 5% of its net assets in municipal leases.
The yields on municipal securities are dependent on a variety of
factors, including general economic and monetary conditions, money market
factors, conditions of the municipal securities market, the size of a particular
offering, maturity of the obligation, and rating of the issue.
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Municipal securities may also be subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors, such as the Federal Bankruptcy Code, and laws, if any, which may be
enacted by Congress or state legislatures extending the time for payment of
principal or interest, or both, or imposing other constraints upon enforcement
of such obligations or upon the ability of municipalities to levy taxes. There
is also the possibility that as a result of litigation or other conditions the
power or ability of any one or more issuers to pay, when due, the principal of
and interest on its or their municipal securities may be materially affected.
The Fund will not invest more than 25% of its total assets in
municipal securities whose issuers conduct their principal activities in the
same state. The Fund may invest without limitation in municipal securities that
are repayable out of revenue streams generated from economically related
projects or facilities. Investments in these obligations could involve an
increased risk to the Fund should any of the related projects or facilities
experience financial difficulties. In addition, there could be economic,
business or political developments or changes which might affect all municipal
securities of a similar type. However, the Fund believes that the most important
consideration affecting risk is the quality of particular issues of municipal
securities rather than factors affecting all, or broad classes of, municipal
securities.
Tax legislation in recent years has included several provisions that
may affect the supply of, and the demand for, municipal securities, as well as
the tax-exempt nature of interest paid on those obligations. Neither Galaxy II
nor 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 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
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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 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 the Board of Trustees of Galaxy II.
Portfolio securities which are listed on the New York Stock Exchange
or the American Stock Exchange are valued at the last quoted sales price, or if
no sales occurred, the closing bid price. Investments in U.S. Government
Securities (other than short-term investments) are valued at the average of the
quoted bid and asked prices in the over-the-counter market. Short-term
investments that mature in 60 days or less are valued on the basis of amortized
cost (which involves valuing an investment instrument at its cost and,
thereafter, assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument) unless Galaxy II's Board of Trustees has determined
that amortized cost does not approximate market value. Other securities for
which market quotations are readily
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available are valued as nearly as possible in the manner described above.
Securities may be valued by a pricing service when such prices are believed to
reflect the fair market value of such securities. Other assets and securities
for which market quotations are not readily available are valued based on fair
value as determined in good faith in accordance with procedures established by
the Board of Trustees.
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, a distribution plan or a change in a
fundamental investment policy as the lesser of (a) 67% or more of the shares
present at the meeting, if the holders of more than 50% of the outstanding
shares of the Fund are present or represented by proxy, or (b) more than 50% of
the outstanding shares of the Fund.
The Fund may not:
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1. Under normal market conditions invest less than 80% of its net
assets in municipal securities.
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
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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.
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
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restriction, private activity bonds, where the payment of principal and interest
is the ultimate responsibility of 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 ____%, 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
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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 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 that Galaxy II has acquired during its most recent fiscal
year. At March 31, 1997, the Fund did not hold any securities of it's regular
brokers or dealers or it's parents.
ADDITIONAL INFORMATION CONCERNING TAXES
As described above and in the Prospectus, the Fund is designed to
provide shareholders with current income which is excluded from gross income for
regular federal income tax purposes. The Fund is not intended to constitute a
balanced investment program and is not designed for investors seeking capital
gains or maximum tax-exempt income irrespective of fluctuations in principal.
Investment in the Fund would not be suitable for tax-exempt institutions,
qualified retirement plans (including those that cover self-employed
individuals) and individual retirement accounts since such investors would not
gain any additional tax benefit from the receipt of tax-exempt income.
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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
the extent the Fund's dividends are attributable to dividends received by the
Fund from U.S. corporations.
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<PAGE> 113
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 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
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<PAGE> 114
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.
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
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<PAGE> 115
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.
Positions Held with Galaxy II and
Principal Occupation(s) During
Name, Address and Age Past 5 Years
- --------------------- -----------------------------------
Dwight E. Vicks, Jr. Trustee and Chairman of the Board
Vicks Lithograph &
Printing Corporation President & Direct,
Commercial Drive Vicks Lithograph &
P.O. Box 270 Printing Corporation (book
Yorkville, NY 13495 manufacturing and commercial
Age 63 printing); Director, Utica First
Insurance Company; Trustee, Savings
Bank of Utica; Director, Monitor
Life Insurance Company; Director,
Commercial Travelers Mutual
Insurance Company; Chairman of the
Board, The Galaxy Fund and The
Galaxy VIP Fund.
*John T. O'Neill Trustee, President and Treasurer
Hasbro, Inc.
200 Narragansett Executive Vice President and CFO,
Park Drive Hasbro, Inc.(toy and game
Pawtucket, RI 02862 manufacturer), since 1987;
Age 52 Trustee, President and Treasurer,
The Galaxy Fund and The Galaxy
VIP Fund.
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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.
W. Bruce McConnel, III Secretary
Drinker Biddle & Reath LLP
Philadelphia National Partner of the law firm of
Bank Building Drinker, Biddle & Reath LLP,
1345 Chestnut St. Philadelphia, Pennsylvania.
Philadelphia, PA 19107
Age 54
Jylanne Dune Vice President and Assistant
First Data Investor Treasurer
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<PAGE> 117
Positions Held with Galaxy II and
Principal Occupation(s) During
Name, Address and Age Past 5 Years
- --------------------- -----------------------------------
Services Group, Inc. First Data Investor Services Group,
4400 Computer Drive Inc., 1990 to present.
P.O. Box 5108
Westboro, MA 01581
Age 37
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"). 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
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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
COMPENSA-
PENSION OR TION FROM
RETIREMENT GALAXY II
BENEFITS AND 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 $ None $
Dwight E. Vicks, Jr. $ None $
Donald B. Miller ** $ None $
Louis DeThomasis $ None $
John T. O'Neill $ None $
James M. Seed ** $ None $
</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 $______ and $______ accrued during
Galaxy II's fiscal year ended March 31, 1997 for Messrs. Miller and Seed,
respectively.
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<PAGE> 119
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 $______, 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
with First Data Investor Services Group,
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<PAGE> 120
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 adminstration 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
$______, 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> 121
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> 122
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 now
accounts or for the accounts of others ("Direct Investors").
Galaxy II may suspend the right of redemption or postpone the date
of payment for shares for more than seven days during any period when (a)
trading in the markets the Fund normally utilizes is restricted, or an
emergency, as defined by the rules and regulations of the SEC, exists making
disposal of a Fund's investments or determination 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:
n
P(1+T) =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> 123
The total return for the Fund for the one-year period ended March
31, 1997 was ____%.
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 6
YIELD = 2[( ______________ +1) -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 ____%.
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 ____% for a Federal marginal income tax ("FMIT") bracket of
28%, ____% for a FMIT bracket of 31%, ____% for a FMIT bracket of 36% and ____%
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 data from Lipper Analytical
Services, Inc., Morningstar, Inc., or similar independent services that monitor
the performance of mutual funds, or other industry publications.
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<PAGE> 124
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
[__________________], independent accountants, with offices at
[_____________________________________________], currently serve as auditors to
Galaxy II . [_______________] 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 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
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<PAGE> 125
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 May 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: For the Municipal Bond Fund -- Robert
G. Jacob, 4223 Wieuca Overlook, Atlanta, GA 30342, 9.84%. For the Large Company
Index Fund -- Norstar Trust Company, Gales & Co., Funds Control, Attn: Julie
Hogestyn, One East Avenue, Rochester, NY 14638, 36.6%; Fleet Savings Plus Plan,
Fleet Financial Group, 50 Kennedy Plaza, Providence, RI 02903, 14.7%. For the
U.S. Treasury Index Fund -- Norstar Trust Company, Gales & Co., Funds Control,
Attn: Julie Hogestyn, One East Avenue, Rochester, NY 14638, 9.26%; Priests
Retirement Plan, Diocese of Albany, c/o Fleet Financial Group, 50 Kennedy
Plaza, Providence, RI 02903, 5.3%. There were no persons who owned of record 5%
or more of the outstanding shares of the Small Company Index Fund and the
Utility Index Fund.
FINANCIAL STATEMENTS
[TO BE PROVIDED]
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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
A-1
<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")
A-2
<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"
A-3
<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.
A-4
<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
To be filed by Amendment.
(b) Exhibits:
(1) Declaration of Trust of Registrant is incorporated herein by
reference to Registrant's Registration Statement on Form N-1A
filed with the Commission on February 28, 1990.
(1)(a) Amendment No. 1 to Declaration of Trust of Registrant is
incorporated herein by reference to Pre-Effective Amendment No. 1
to Registrant's Registration Statement on Form N-1A filed with
the Commission on May 7, 1990.
(1)(b) Amendment No. 2 to Declaration of Trust of Registrant dated June
30, 1994 is incorporated by reference to Post-Effective Amendment
No. 18 to Registrant's Registration Statement on Form N-1A filed
with the Commission on July 28, 1995.
(2)(a) By-Laws of Registrant are incorporated herein by reference to
Post-Effective Amendment No. 2 to Registrant's Registration
Statement on Form N-1A filed with the Commission on May 24, 1991.
(2)(b) Amendment No. 1 to By-laws of Registrant dated June 30, 1994 is
incorporated by reference to Post-Effective Amendment No. 18 to
Registrant's Registration Statement on Form N-1A filed with the
Commission on July 28, 1995.
(3) Not applicable.
(4) Not applicable.
(5) Investment Advisory Agreement between Registrant and Fleet
Investment Advisors Inc. dated June 30, 1994 is incorporated by
reference to Post-
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<PAGE> 132
Effective Amendment No. 18 to Registrant's Registration Statement
on Form N-1A filed with the Commission on July 28, 1995.
(6) Amended and Restated Distribution Agreement among Registrant,
First Data Investor Services Group, Inc. and 440 Financial
Distributors, Inc. dated June 1, 1996.
(7)(a) Galaxy Fund II Deferred Compensation Plan and Related Agreement
effective as of March 1, 1996.
(7)(b) The Galaxy Fund/The Galaxy VIP Fund/Galaxy Fund II Deferred
Compensation Plan and Related Agreement effective as of January
1, 1997.
(8)(a) Custody Agreement among Registrant, The Chase Manhattan Bank,
N.A. and Fleet National Bank dated June 30, 1994 is incorporated
by reference to Post-Effective Amendment No. 18 to Registrant's
Registration Statement on Form N-1A filed with the Commission on
July 28, 1995.
(9)(a) Administration Agreement between Registrant and Fleet National
Bank dated October, 1994 is incorporated by reference to
Post-Effective Amendment No. 18 to Registrant's Registration
Statement on Form N-1A filed with the Commission on July 28,
1995.
(9)(b) Sub-Administration Agreement between Fleet National Bank and The
Shareholder Services Group, Inc., d/b/a 440 Financial dated March
31, 1995 is incorporated by reference to Post-Effective Amendment
No. 18 to Registrant's Registration Statement on Form N-1A filed
with the Commission on July 28, 1995.
(9)(c) Amended and Restated Transfer Agency Agreement among Registrant,
First Data Investor Services Group, Inc. and Fleet National Bank
dated June 1, 1996.
(10)1 Opinion of counsel that shares are validly issued, fully paid and
non-assessable.
(11)(a) Consent of Independent Accountants to be filed by Amendment.
(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.
C-2
<PAGE> 133
(11)(c) Consent of Persons Nominated to Become Trustees is incorporated
herein by reference to Post-Effective Amendment No. 16 to
Registrant's Registration Statement on Form N-1A filed with the
Commission on April 22, 1994.
(12) Not applicable.
(13)(a) Purchase Agreement for Large Company Index Fund and Small Company
Index Fund is incorporated herein by reference to Pre-Effective
Amendment No. 4 to Registrant's Registration Statement on Form
N-1A filed with the Commission on August 28, 1990.
(13)(b) Purchase Agreement for U.S. Treasury Index Fund is incorporated
herein by reference to Post-Effective Amendment No. 2 to
Registrant's Registration Statement on Form N-1A filed with the
Commission on March 28, 1991.
(13)(c) Purchase Agreement for Utility Index Fund is incorporated herein
by reference to Post-Effective Amendment No. 6 to Registrant's
Registration Statement on Form N-1A filed with the Commission on
November 6, 1992.
(13)(d) Purchase Agreement for Municipal Bond Fund is incorporated herein
by reference to Post-Effective Amendment No. 9 to Registrant's
Registration Statement on Form N-1A filed with the Commission on
April 13, 1993.
(14) Not applicable.
(15) Not applicable.
(16)(a) Schedule for Computation of Performance Quotations is
incorporated herein by reference to Post-Effective Amendment No.
6 to Registrant's Registration Statement on Form N-1A filed with
the Commission on November 6, 1992.
(16)(b) Schedule for Computation of Performance Quotations for Utility
Index Fund is incorporated herein by reference to Post-Effective
Amendment No. 10 to Registrant's Registration Statement on Form
N-1A filed with the Commission on May 28, 1993.
(16)(c) Schedule for Computation of Performance Quotations for Municipal
Bond Fund is incorporated herein by reference to Post-Effective
Amendment No. 13 to Registrant's Registration Statement on Form
N-1A filed with the Commission on October 29, 1993.
(27) Financial Data Schedules
C-3
<PAGE> 134
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
</TABLE>
Item 27. Indemnification
Indemnification of Registrant's principal underwriter, custodian and
transfer agent against certain losses is provided for respectively in Section
1.12 of the Amended and Restated Distribution Agreement included herein as
Exhibit 6, in Section 20 of the Custody Agreement incorporated by reference
herein as Exhibit 8 and in Section 18 of the Amended and Restated Transfer
Agency Agreement, included herein as Exhibit 9(c). Registrant has obtained from
a major insurance carrier a directors' and officers' liability policy covering
certain types of errors and omissions. In addition, under Article XI, Sections 1
and 2 of the Declaration of Trust (the "Trust Agreement"), any past or present
trustee or officer of Registrant, including persons who serve at the
Registrant's request as directors, officers or trustees of another organization
in which Registrant has any interest as a shareholder, creditor or otherwise)
(hereinafter referred to as a "Covered Person") is indemnified to the fullest
extent permitted by law against liability and all expenses reasonably incurred
by him in connection with any claim, action, suit or proceeding to which he may
be a party or otherwise involved by reason of his being or having been a Covered
Person of Registrant, and against amounts paid or incurred by him in the
settlement thereof. These provisions do not authorize indemnification when it is
determined, in the manner specified in the Trust Agreement, that such Covered
Person has not acted in good faith in the reasonable belief that his actions
were in or not opposed to the best interests of the Registrant. Moreover, this
provision does not authorize indemnification when it is determined, in the
manner specified in the Trust Agreement, that the Covered Person would otherwise
be liable to the Registrant or its shareholders by reason of willful
misfeasance, bad faith, gross
C-4
<PAGE> 135
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 (the "Advisers Act").
The list required by this Item 28 of officers and directors of Fleet,
together with information as to any business profession, vocation or employment
of a substantial nature engaged in by such officers and directors during the
past two years, is incorporated herein by reference to Schedules A and D of Form
ADV filed by Fleet pursuant to the Advisers Act (SEC File No. 801-20312).
Item 29. Principal Underwriter
(a) In addition to Galaxy Fund II, First Data Distributors, Inc.
(formerly known as 440 Financial Distributors, Inc.) (the "Distributor")
currently acts as distributor for The Galaxy Fund and The Galaxy VIP Fund. The
Distributor is registered with the Securities and Exchange Commission as a
broker-dealer and is a member of the National Association of Securities Dealers.
The Distributor is a subsidiary of First Data Investor Services Group, Inc.,
which is located at 4400 Computer Drive, P.O. Box 5108, Westboro, Massachusetts
01581.
C-5
<PAGE> 136
(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);
(5) Drinker Biddle & Reath LLP, 1345 Chestnut Street, Suite 1100,
Philadelphia, Pennsylvania 19107 (Registrant's Declaration of
Trust, Code of Regulations and minute books); and
(6) The Chase Manhattan Bank, 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
C-6
<PAGE> 137
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-7
<PAGE> 138
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, as amended, the Registrant has duly caused this
Post-Effective Amendment No. 22 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 30th day of May, 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, this
Post-Effective Amendment No. 22 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 May 30, 1997
- -------------------------- and Treasurer
John T. O'Neill
* Dwight E. Vicks, Jr. Chairman of the May 30, 1997
- -------------------------- Board of Trustees
Dwight E. Vicks, Jr.
* Donald B. Miller Trustee May 30, 1997
- --------------------------
Donald B. Miller
* Louis DeThomasis Trustee May 30, 1997
- --------------------------
Louis DeThomasis
* Bradford S. Wellman Trustee May 30, 1997
- --------------------------
Bradford S. Wellman
* James M. Seed Trustee May 30, 1997
- --------------------------
James M. Seed
</TABLE>
C-8
<PAGE> 139
*By:/s/John T. O'Neill
- --------------------------
John T. O'Neill
Attorney-in-Fact
C-9
<PAGE> 140
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> 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 15, 1996 /s/ Donald B. Miller
------------------------------------
Donald B. Miller
<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 24, 1996 /s/ Brother Louis DeThomasis
------------------------------------
Brother Louis DeThomasis
<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 16, 1996 /s/ Bradford S. Wellman
------------------------------------
Bradford S. Wellman
<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 18, 1996 /s/ James M. Seed
------------------------------------
James M. Seed
<PAGE> 145
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ----------- --------
<S> <C> <C>
(6) Amended and Restated Distribution Agreement
(7)(a) Galaxy Fund II Deferred Compensation Plan and
Related Agreement
(7)(b) The Galaxy Fund/The Galaxy VIP Fund/Galaxy Fund II
Deferred Compensation Plan and Related Agreement
(9)(c) Transfer Agency Agreement
(11)(b) Consent of Drinker Biddle & Reath LLP
(27) Financial Data Schedules
</TABLE>
<PAGE> 1
EXHIBIT (6)
AMENDED AND RESTATED
DISTRIBUTION AGREEMENT
First Data Investor Services Group, Inc.
4400 Computer Drive
Westboro, Massachusetts 01581
440 Financial Distributors, Inc.
4400 Computer Drive
Westboro, Massachusetts 01581
June 1, 1996
Dear Sirs/Mesdames:
This is to confirm that, in consideration of the agreements hereinafter
contained by and among Galaxy Fund II, a Massachusetts business trust ("Galaxy
II"), First Data Investor Services Group, Inc., a Massachusetts corporation
("FDISG"), and 440 Financial Distributors, Inc., a Massachusetts corporation
(the "Distributor") and a wholly-owned subsidiary of FDISG, the undersigned have
agreed that the Distributor shall be, for the period of this Agreement, the
distributor of Galaxy II's units of beneficial interest ("Shares"), representing
interests in Galaxy II's investment portfolios listed on Exhibit A attached
hereto (hereafter referred to as the "Fund" or "Funds" as appropriate). The
Distributor currently serves as distributor for the Funds pursuant to a
Distribution Agreement dated as of March 31, 1995 by and among Galaxy II, FDISG
and the Distributor (the "Existing Agreement"). The parties hereto wish to amend
and restate the Existing Agreement in its entirety in order to reflect certain
changes to the terms thereof.
1.1 The Distributor will act as agent for the distribution of the Shares
covered by the registration statement and prospectuses then in effect under the
Securities Act of 1933, as amended (the "1933 Act").
1.2 The Distributor agrees to use appropriate efforts 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. Galaxy II
understands that the Distributor is the distributor, and may in the future be
the distributor, of the shares of other investment companies' portfolios
("Portfolios") including Portfolios having investment objectives similar to
those of the Funds. Galaxy II further understands that investors and potential
investors in the Funds
<PAGE> 2
may invest in shares of such other Portfolios. Galaxy II agrees that the
Distributor's duties to such Portfolios shall not be deemed in conflict with its
duties to Galaxy II under this paragraph 1.2.
1.3 The Distributor shall, at its own expense, finance appropriate
activities which it deems reasonable which are primarily intended to result in
the sale of the 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.
1.4 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 1933 Act, the Securities Exchange Act of 1934, as
amended (the "1934 Act"), and the Investment Company Act of 1940, as amended
(the "1940 Act"), by the Securities and Exchange Commission or any securities
association registered under the 1934 Act.
1.5 The Distributor agrees to provide (a) two wholesalers dedicating to
supporting sales of Shares of the Funds and The Galaxy Fund, and (b) will
provide one or more persons, during normal business hours, to respond to
telephone questions with respect to the Funds.
1.6 The Distributor will transmit any orders received by it for purchase
or redemption of the Shares to Galaxy II's transfer agent and custodian.
1.7 Whenever in their judgment such action is warranted for any reason
including, without limitation, market, economic or political conditions, or by
abnormal circumstances of any kind, Galaxy II's officers 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.
1.8 The Distributor will act only on its own behalf if it chooses to enter
into selling agreements with selected dealers or others.
1.9 Galaxy II 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.
1.10 Each of Galaxy II and the Distributor shall furnish each other from
time to time for use in connection with the sale
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<PAGE> 3
of the Shares such information with respect to the Funds and the Shares as the
other may reasonably request in writing; and each warrants that the statements
contained in any such information shall fairly show or represent what they
purport to show or represent. Galaxy II shall also furnish the Distributor upon
request with: (a) audited annual and unaudited semi-annual statements of the
Funds' books and accounts, (b) quarterly earning statements of the Funds, (c) a
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 as the
Distributor may reasonably request.
1.11 Galaxy II represents to the Distributor that all registration
statements and prospectuses filed by Galaxy II with the Securities and Exchange
Commission under the 1933 Act with respect to the Shares have been prepared in
conformity with the requirements of said Act and rules and regulations of the
Securities and Exchange Commission thereunder. As used in this Agreement the
terms "registration statement" and "prospectus" shall mean any registration
statement and prospectus filed with the Securities and Exchange Commission and
any amendments and supplements thereto, including statements of additional
information incorporated therein by reference, which at any time shall have been
filed with the Securities and Exchange Commission. Galaxy II represents and
warrants to the Distributor that any registration statement and prospectus, when
such registration statement becomes effective, will contain all statements
required to be stated therein in conformity with said Act and the rules and
regulations of the Securities and Exchange Commission; 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 neither
any registration statement nor any 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,
amendments, supplement or supplements to the registration statement or any
prospectus, as in light of future developments, may, in the opinion of the
Distributor's counsel, be necessary or advisable. The Distributor shall promptly
notify Galaxy II of any advice given to it by the Distributor's counsel
regarding the necessity or advisability so to amend or supplement such
registration statement or prospectus. If Galaxy II shall not propose such
amendment or amendments and/or supplement or supplements within fifteen days
after receipt by Galaxy II of a written request from the Distributor to do so,
the Distributor may, at its option, terminate this agreement. Galaxy II shall
not file any amendment to any registration statement or supplement to any
prospectus without
-3-
<PAGE> 4
giving the Distributor reasonable notice thereof in advance; provided, however,
that nothing contained in this Agreement shall in any way limit the right of
Galaxy II to file at any time such amendments to any registration statement
and/or supplements to any prospectus, of whatever character, as Galaxy II may
deem advisable, such right being in all respects absolute and unconditional.
1.12 Galaxy II authorizes the Distributor (and dealers pursuant to any
agreements described in Section 1.8 above) to use any prospectus in the form
furnished by Galaxy II from time to time in connection with the sale of the
Shares. Galaxy II 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 any
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 Galaxy II'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 statements or representations contained in any
registration statement or in any prospectus that were furnished in writing to
Galaxy II or its counsel by the Distributor and used in the answers to the
registration statement or in the corresponding statements made in the
prospectus, or arising out of or based upon any omission or alleged omission to
state a material fact in connection with the giving of such information required
to be stated in such answers or necessary to make the answers not misleading;
and further provided that Galaxy II's agreement to indemnify the Distributor and
Galaxy II's representations and warranties hereinbefore set forth in paragraph
1.11 shall not be deemed to cover any liability to Galaxy II 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 obligations and duties
under this Agreement. Galaxy II's agreement to indemnify the Distributor, its
officers and directors, and any such controlling person, as aforesaid, is
expressly conditioned upon Galaxy II's being notified of any action brought
against the Distributor, its officers or directors, or any such controlling
person, such notification to
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<PAGE> 5
be given by letter or by telegram addressed to Galaxy II at its principal office
in Westboro, Massachusetts, and sent to Galaxy II by the person against whom
such action is brought, within 10 days after the summons or other first legal
process shall have been served. The failure so to notify Galaxy II of any such
action shall not relieve Galaxy II from any liability which Galaxy II may have
to the person against whom such action is brought by reason of any such untrue,
or allegedly untrue, statement or omission, or alleged omission, otherwise than
on account of Galaxy II's indemnity agreement contained in this paragraph 1.12.
Galaxy II will be entitled to assume the defense of any suit brought to enforce
any such claim, demand or liability, but, in such case, such defense shall be
conducted by counsel of good standing chosen by Galaxy II and approved by the
Distributor, which approval shall not unreasonably be withheld. In the event
Galaxy II elects to assume the defense of any such suit and retain counsel of
good standing approved by the Distributor, the defendant or defendants in such
suit shall bear the reasonable fees and expenses of any additional counsel
retained by any of them; but in case Galaxy II does not elect to assume the
defense of any such suit, or in case the Distributor reasonably does not approve
of counsel chosen by Galaxy II, Galaxy II will reimburse the Distributor, its
officers and directors, or the controlling person or persons named as defendant
or defendants in such suit, for the reasonable fees and expenses of any counsel
retained by the Distributor or them. Galaxy II's indemnification agreement
contained in this paragraph 1.12 and Galaxy II'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 the delivery of any
Shares. This agreement of indemnity 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 the controlling persons and their
successors. Galaxy II agrees promptly to notify the Distributor of the
commencement of any litigation or proceedings against Galaxy II or any of its
officers or trustees in connection with the issue and sale of any Shares.
1.13 FDISG and the Distributor agree to indemnify, defend and hold Galaxy
II, its several officers and trustees, and any person who controls Galaxy II
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 Galaxy II, 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 Galaxy II, its officers or trustees, or such
-5-
<PAGE> 6
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 Galaxy II or
its counsel and used 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 Galaxy II or its counsel and required to be stated in such
answers or necessary to make such information not misleading. FDISG's and the
Distributor's agreement to indemnify Galaxy II, its officers and trustees, and
any such controlling person, as aforesaid, is expressly conditioned upon FDISG's
and the Distributor's being notified of any action brought against Galaxy II,
its officers or trustees, or any such controlling person, such notification to
be given by letter or telegram addressed to FDISG and the Distributor at their
principal offices in Westboro, Massachusetts, and sent to FDISG and the
Distributor by the person against whom such action is brought, within 10 days
after the summons or other first legal process shall have been served. FDISG and
the Distributor shall have the right of first control of the defense of such
action, with counsel of their own choosing, satisfactory to Galaxy II, if such
action is based solely upon such alleged misstatement or omission on the
Distributor's part, and in any other event Galaxy II, its officers or trustees
or such controlling person shall each have the right to participate in the
defense or preparation of the defense of any such action. The failure so to
notify FDISG and the Distributor of any such action shall not relieve FDISG and
the Distributor from any liability which FDISG and the Distributor may have to
Galaxy II, its officers or trustees, or to such controlling person by reason of
any such untrue or alleged untrue statement, or omission or alleged omission,
otherwise than on account of FDISG's and the Distributor's indemnity agreement
contained in this paragraph 1.13. FDISG's and the Distributor's indemnification
agreement contained in this paragraph 1.13 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 Galaxy II or its officers and
trustees, and shall survive the delivery of any Shares. FDISG and the
Distributor agree to notify Galaxy II promptly of the commencement of any
litigation or proceedings against FDISG and the Distributor or any of their
officers, directors or consulting persons in connection with the issuance and
sale of any of the Shares.
1.14 No Shares shall be offered by either the Distributor or Galaxy II
under any of the provisions of this Agreement and no orders for the purchase or
sale of Shares hereunder shall be accepted by Galaxy II if and so long as
effectiveness of the registration statement then in effect or any necessary
amendments
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<PAGE> 7
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 said Act
is not on file with the Securities and Exchange Commission; provided, however,
that nothing contained in this paragraph 1.14 shall in any way restrict or have
any application to or bearing upon Galaxy II's obligation to repurchase Shares
from any shareholder in accordance with the provisions of Galaxy II's prospectus
or Declaration of Trust.
1.15 Galaxy II agrees to advise the Distributor as soon as reasonably
practical by a notice in writing delivered to the Distributor:
(a) of any request by the Securities and Exchange Commission for
amendments of the registration statement or prospectus then in effect or
for additional information;
(b) in the event of the issuance by the Securities and Exchange
Commission of any stop order suspending the effectiveness of the
registration statement or prospectus then in effect or the initiation by
service of process on Galaxy II 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 which 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 action of the Securities and Exchange Commission with
respect to any amendment to any registration statement or prospectus which
may from time to time be filed with the Securities and Exchange Commission.
For purposes of this paragraph 1.15, informal requests by or acts of the
Staff of the Securities and Exchange Commission shall not be deemed actions of
or requests by the Securities and Exchange Commission.
1.16 The Distributor agrees on behalf of itself and its employees to treat
confidentially and as proprietary information of Galaxy II all records and other
information relative to Galaxy II and its prior, present or potential
shareholders, and not to use such records and information for any purpose other
than performance of its responsibilities and duties hereunder, except after
prior notification to and approval in writing by Galaxy II, which approval may
not be withheld where the Distributor may be exposed to civil or criminal
contempt proceedings for failure to comply, when requested to divulge such
information by duly constituted authorities, or when so requested by Galaxy II.
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<PAGE> 8
1.17 This Agreement shall be governed by the laws of the
Commonwealth of Massachusetts.
1.18 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, as amended from time to time, 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 Galaxy II.
The obligations of Galaxy II entered into in the name or on behalf thereof by
any of the Trustees, representatives, agents, officers, shareholders, nominees,
or employees, whether past, present or future, are made not individually, but in
such capacities, and are not binding upon any of such individuals or the
shareholders personally, but bind only the property of Galaxy II, and all
persons dealing with a Fund must look solely to the property of Galaxy II
belonging to such Fund for the enforcement of any claims against Galaxy II.
1.19 FDISG and the Distributor shall not be liable for any error of
judgment or mistake of law or for any loss suffered by Galaxy II in connection
with the performance by the Distributor of its services hereunder, except for a
loss resulting from willful misfeasance, bad faith or negligence on the part of
the Distributor in the performance of its duties or from reckless disregard by
it of its obligations and duties under this Agreement.
2. This Agreement shall become effective as of June 1, 1996 and, if not
sooner terminated, shall continue in effect until May 31, 1997. Thereafter, this
Agreement, shall continue in effect with respect to a particular Fund for
successive twelve month periods ending on May 31, provided such continuance is
specifically approved at least annually (a) by the vote of a majority of those
members of Galaxy II's Board of Trustees who are not interested persons (as
defined in the 1940 Act) to this Agreement cast in person at a meeting called
for the purpose of voting on such approval, and (b) by Galaxy II's Board of
Trustees or by the vote of a majority of the outstanding voting securities of
such Fund. Notwithstanding the foregoing, this Agreement may be terminated as to
any Fund at any time, without the payment of any penalty, by Galaxy II's Board
of Trustees or by vote of a majority of the outstanding voting securities of
such Fund, or by the Distributor, on 60 days' written notice (which notice may
be waived by the party entitled to receive the same). This Agreement will
immediately terminate in the event of its assignment. (As used in this
Agreement, the terms "majority of the outstanding voting securities,"
"interested persons" and "assignment" shall have the same meanings as such terms
in the 1940 Act.)
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<PAGE> 9
Please confirm that the foregoing is in accordance with your understanding
by indicating your acceptance hereof at the place below indicated, whereupon it
shall become a binding agreement between us.
Very truly yours,
GALAXY FUND II
By:/s/John T. O'Neill
------------------------------
President
Accepted:
FIRST DATA INVESTOR SERVICES
GROUP, INC.
By:/s/Barbara L. Worthen
-------------------------------
Title:
440 FINANCIAL DISTRIBUTORS, INC.
By:/s/Tammy K. Hall
-------------------------------
Title:
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<PAGE> 10
EXHIBIT A
Large Company Index Fund
Small Company Index Fund
U.S. Treasury Index Fund
Utility Index Fund
Municipal Bond Fund
<PAGE> 1
EXHIBIT (7)(a)
GALAXY FUND II
SUMMARY OF
DEFERRED COMPENSATION PLAN
Basic Plan: The Galaxy Fund II Deferred Compensation Plan (the "Plan") is a
nonqualified unfunded deferred compensation plan under which individual
Agreements ("Deferred Compensation Agreements" or "Agreements") are executed
between one or more of the Trustees and Galaxy Fund II (the "Trust").
Eligibility: All members of the Board of the Trust are eligible to participate.
Amount to be Deferred: All or a portion of the compensation earned by a Trustee
from the Trust may be deferred and credited to a Deferred Compensation Account
for the Trustee.
Election to Defer: A Trustee elects to defer his compensation by executing a
Deferred Compensation Agreement prior to the beginning of the calendar year in
which the compensation will be earned. A Trustee may also elect to defer fees
subsequently earned in the calendar year of election if such election is made
within 30 days of the Plan's effective date or within 30 days of the Trustee's
first becoming eligible to participate in the Plan. Until terminated or replaced
with a new Agreement, the Agreement will be effective for subsequent years.
A Trustee may establish a new Agreement with respect to future compensation on
an annual basis. For example, even if a Trustee does not enter into a Deferred
Compensation Agreement during the first year he is able to do so, he will still
have the opportunity to defer compensation earned in a subsequent year by
executing an appropriate agreement prior to January 1 of the calendar year for
which he seeks deferral. A Trustee can also annually enter into a new Agreement
whereby he elects to change the method by which he will receive payment of
amounts deferred in future years, or changes the percentage of compensation
deferred. For each new Agreement entered into which changes the method of
receipt of deferred amounts, a new Deferred Compensation Account will be
established for the Trustee.
A trustee may terminate an election to defer by notifying the Trust in writing.
Earnings on Deferred Amounts: A Trustee may elect to have his
Deferred Compensation Account(s) invested in any combination of
investment options offered by the Trust. The income, gains and
losses credited to the Trustee's Account(s) will reflect the
<PAGE> 2
income, gains, and losses achieved by the chosen investment option(s). The
Trustee may also elect to change the investment allocation of past and future
deferred amounts in his Deferred Compensation Accounts once per calendar quarter
upon proper notice to the Trust. The Board of Trustees will periodically
announce which investment options will be available under the Plan. The Trustee
Account Allocation Election Form attached to the Agreement lists the investment
options currently available under the Plan.
Distribution of Deferred Amounts: Distributions will begin as of January 31 of
the year following the year in which the Trustee dies, retires, resigns, becomes
disabled or otherwise ceases to be a member of the Board of Trustees. At the
time the Trustee enters into the Agreement, the Trustee will elect to receive
payments either in a single sum or in annual payments for a period of two to 15
years. The Trustee's elections as to the manner of receiving payments may not be
changed with respect to any year covered by that Agreement. A Trustee may
execute a new Agreement and thereby make a different election as to the manner
of payment with respect to compensation for services performed in later years.
Beneficiary Designation: May be amended at any time by providing written notice
to the Trust.
Hardship Distributions: Provision is made for hardship distribution in the case
of unforeseeable emergencies.
Taxability of Fees: Deferred compensation should be taxable as ordinary income
in the year distributed to the Trustee. Such distributions may be subject to
withholding pursuant to the tax laws in effect at the time of distribution. In
addition, under current law, self-employment taxes will be due on deferred
Trustee's fees in the year they are received by the Trustee, rather than in the
year earned.
Security of Deferred Amounts: A Trustee's claim against the Trust for amounts
due under the Plan will have the same standing as that of any unsecured general
creditor. The Trust will have no obligation to set aside monies to fund its
obligations under the Plan, and all distributions under the Plan will be made
from the general funds of the Trust.
Annual Report: The Trust will provide each participating Trustee with an annual
statement of his Deferred Compensation Account balance(s).
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<PAGE> 3
GALAXY FUND II
DEFERRED COMPENSATION PLAN
1. Eligibility. Each Trustee of the Board of Trustees (the "Board")
of Galaxy Fund II (the "Trust") shall be eligible to participate in the Galaxy
Fund II Deferred Compensation Plan (the "Plan").
2. Terms of Participation
(a) A Trustee may elect to participate in the Plan by signing
the Deferred Compensation Agreement (the "Agreement") in the form attached
hereto and incorporated by reference herein. A Trustee's participation will
commence on January 1 of the calendar year immediately following the year in
which the Trustee executed the Agreement, except that when a Trustee executes an
Agreement within 30 days of the Plan's initial effective date or within 30 days
of first becoming eligible to participate in the Plan, participation will
commence with respect to services to be performed subsequent to the date of the
Agreement.
(b) Participation in the Plan will continue until the Trustee
furnishes written notice to the Trust that the Trustee terminates his
participation in the Plan or until such time as the Trust terminates the Plan
pursuant to Section 6 below. Termination by a Trustee shall be made by written
notice delivered or mailed to the Treasurer of the Trust (the "Treasurer") (or
his delegate) no later than December 31 of the calendar year preceding the
calendar year in which such termination is to take effect.
(c) A Trustee who has terminated his participation may
subsequently elect to participate in the Plan by executing a new Agreement in
accordance with subsection (a) above.
(d) A Trustee may alter the amount of deferral for any future
calendar year, and/or elect a different method by which he will receive amounts
deferred for future calendar years, if the Trustee and the Trust enter into a
new Agreement on or before December 31 of the calendar year preceding the
calendar year for which the new Agreement is to take effect. For each new
Agreement which changes the method of receipt of deferred amounts, a new record
account (the "Deferred Compensation Account" or "Account") will be established
for the Trustee.
3. Deferred Compensation Account. While a Trustee participates in
the Plan pursuant to an Agreement, all deferred compensation payable by the
Trust for the Trustee's services shall be credited to the Trustee's Deferred
Compensation Account
<PAGE> 4
under the applicable Agreement. A Trustee shall allocate amounts in his
Account(s) among the investment options available under the Plan by submitting a
written request to the Treasurer (or his delegate) on such form as may be
required by the Treasurer prior to the date deferrals are scheduled to begin.
The Board shall specify from time to time the investment options available under
the Plan. The Trustee may request that the investment allocation of his Account,
including past as well as future deferrals, be changed by submitting a written
request to the Treasurer (or his delegate) on such form as may be required by
the Treasurer, or by telephoning the Treasurer (or his delegate); provided that
a Trustee may make an investment allocation change only once per calendar
quarter. Such changes shall become effective as soon as administratively
feasible after the Treasurer (or his delegate) receives such request.
The Trustee's Account(s) will be credited with any income, gains and
losses that would have been realized if amounts equal to the deferred amounts
had been invested in accordance with the Trustee's allocation election on the
date such deferred amounts were credited to the Trustee's Account(s). For this
purpose, any amounts that would have been received, had amounts been invested as
described above, from a chosen investment option will be treated as if
reinvested in that option on the date such amounts would have been received.
4. Distribution. As of January 31 of the year following the year in
which the Trustee dies, retires, resigns, becomes disabled or otherwise ceases
to be a member of the Board, the total amount credited to the Trustee's Account
under the applicable Agreement shall be distributed to the Trustee (or upon his
death, to his designated beneficiary) in accordance with one of the alternatives
set forth below:
(i) one single-sum payment; or
(ii) any number of annual installments (as calculated in the
following paragraph) for a period of two to 15 years. Installments shall be paid
annually as of January 31 until the balance in the Trustee's Account is
exhausted.
Selection of an alternative shall be made at the time the Trustee
executes the Agreement. Except as provided in the following paragraph, the
amount of each installment payment, other than the final payment, shall be equal
to 1/n multiplied by the balance in the Trustee's Account as of the previous
December 31, where "n" equals the number of payments yet to be made. The final
payment will equal the balance in the Trustee's Account as of the final January
31 payment date, and such payment shall be made as soon as practicable after
such date. For example, if payments are to be made in ten annual installments
commencing on January 31, 2000, the first payment will be equal to 1/10th of
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<PAGE> 5
the December 31, 1999 balance in the Account, and the following year's payment
would be equal to 1/9th of the December 31, 2000 balance.
If the balance in the Trustee's Account as of the date of the first
scheduled payment is less than $2,000, the Trust shall instead pay such amount
in a single sum as of that date. Further, the Trustee may not select a period of
time which will cause an annual payment to be less than $1,000. Notwithstanding
the foregoing, in the event the Trustee ceases to be a Trustee of the Trust and
becomes a proprietor, officer, partner, or employee of, or otherwise becomes
affiliated with, any business or entity that is in competition with the Trust,
or becomes employed by any governmental agency having jurisdiction over the
affairs of the Trust, the Trust reserves the right at the sole discretion of the
Board to make an immediate single-sum payment to the Trustee in an amount equal
to the balance in the Trustee's Account at that time.
Notwithstanding the preceding two paragraphs, the Trust may at any
time make a single sum payment to the Trustee (or surviving beneficiary) equal
to a part or all of the balance in the Trustee's Account upon a showing of an
unforeseeable (i.e., unanticipated) financial emergency caused by an event
beyond the control of the Trustee (or surviving beneficiary) which would result
in severe financial hardship to the Trustee (or surviving beneficiary) if such
payment were not made. The determination of whether such emergency exists shall
be made at the sole discretion of the Board (with the Trustee requesting the
payment not participating in the discussion or the decision). The amount of the
payment shall be limited to the amount necessary to meet the financial
emergency, and any remaining balance in the Trustee's Account shall thereafter
be paid at the time and in the manner otherwise set forth in this Section.
If there is no beneficiary designation in effect at the Trustee's
death or the designated beneficiary is dead at the Trustee's death, any amounts
in the Trustee's Account shall be paid in a single sum to the Trustee's estate.
If the designated beneficiary dies after beginning to receive installment
payments, any amounts payable from the Trustee's Account shall be paid in a
single sum to the beneficiary's estate at the beneficiary's death.
5. Designation of Beneficiary. A Trustee may designate in writing
any person or legal entity as his beneficiary to receive any amounts payable
from his Account(s) upon his death. If the Trustee should die without
effectively designating a surviving beneficiary, his beneficiary shall be his
estate.
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<PAGE> 6
6. Amendment and Termination of the Plan. The Trust reserves the
right to amend or terminate the Plan by a Board resolution. A written notice of
any such amendment or termination shall be delivered or mailed to each
participating Trustee no later than December 31 of the calendar year preceding
the calendar year in which the amendment or termination is to take effect. The
balance in the Trustee's Account(s) shall remain subject to the provisions of
the Plan and distribution will not be accelerated because of the termination of
the Plan.
7. Non-Assignability. The right of the Trustee or any other person
to receive payments under this Plan or any Agreement hereunder shall not be
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance, attachment, or garnishment by creditors of the Trustee or
any beneficiary.
8. Miscellaneous
(a) No Funding. The Trust shall not be required to fund or
secure in any way its obligations hereunder. Nothing in the Plan or in any
Agreement hereunder and no action taken pursuant to the provisions of the Plan
or of any Agreement hereunder shall be construed to create a trust or a
fiduciary relationship of any kind. Payments under the Plan and any Agreement
hereunder shall be made when due from the general assets of the Trust. Neither a
Trustee nor his designated beneficiary shall acquire any interest in such assets
by virtue of the Plan or any Agreement hereunder. This Plan constitutes a mere
promise by the Trust to make payments in the future, and to the extent that a
Trustee or his designated beneficiary acquires a right to receive any payment
from the Trust under the Plan, such right shall be no greater than the right of
any unsecured general creditor of the Trust. The Trust intends for this Plan to
be unfunded for tax purposes and for the purposes of Title I of the Employee
Retirement Income Security Act of 1974, as amended.
(b) Interpretation. The Trust shall have full power and
authority to interpret, construe and administer this Plan and any Agreement
hereunder and its interpretation and construction thereof, and actions
hereunder, including any valuation of the Trustee's Account(s), or the amount or
recipients of the payment to be made therefrom, shall be binding and conclusive
on all persons for all purposes. The Trust shall not be liable to any person for
any action taken or omitted in connection with the interpretation and
administration of this Plan and any Agreement hereunder unless attributable to
its own willful misconduct or lack of good faith.
(c) Withholding. To the extent required by law, the Trust
shall withhold federal or state income or employment
-4-
<PAGE> 7
taxes from any payments under the Plan or any Agreement hereunder and shall
furnish the Trustee (or beneficiary) and the applicable governmental agency or
agencies with such reports, statements or information as may be required in
connection with such payments.
(d) Incapacity of Payee. If the Trust shall find that any
person to whom any payment is payable under this Plan or any Agreement hereunder
is unable to care for his affairs because of illness or accident, or is a minor,
any payment due (unless a prior claim therefor shall have been made by a duly
appointed guardian, committee or other legal representative) may be paid to the
spouse, a parent, or a brother or sister, or to any person deemed by the Trust
to have incurred expense for the person who is otherwise entitled to payment, in
such manner and proportions as the Trust may determine. Any such payment shall
serve to discharge the liability of the Trust under this Agreement to make
payment to the person who is otherwise entitled to payment.
(e) Expenses. All expenses incurred in administering this Plan
and any Agreement hereunder shall be paid by the Trust.
(f) No Additional Rights. Nothing in this Plan or any
Agreement hereunder shall be construed as conferring any right on the part of
the Trustee to be or remain a Trustee of the Trust or to receive any particular
amount of Trustee's fees.
(g) Binding Nature. This Plan and any Agreement hereunder
shall be binding upon, and inure to the benefit of, the Trust, its successors
and assigns, and each Trustee and his heirs, executors, administrators and legal
representatives.
(h) Governing Law. This Plan and any Agreement hereunder shall
be governed by and construed under the laws of the Commonwealth of
Massachusetts.
(i) Effective Date. This Plan shall be effective as of March
1, 1996.
Date: December 7, 1995 Adopted by the
Board of Trustees
of Galaxy Fund II
-5-
<PAGE> 8
GALAXY FUND II
DEFERRED COMPENSATION AGREEMENT
This Agreement is entered into this 25th day of March, 1996, between
Galaxy Fund II (the "Trust") (consisting of the Large Company Index, Small
Company Index, Utility Index, U.S. Treasury Index and Municipal Bond Funds) and
any other investment portfolio that may be established by the Trust in the
future, and James M. Seed (the "Trustee").
WHEREAS, the Trustee will be rendering valuable services to the Trust as a
member of the Board of Trustees (the "Board"), and the Trust is willing to
accommodate the Trustee's desire to be compensated for such services on a
deferred basis;
NOW, THEREFORE, the parties hereto agree as follows:
1. With respect to services performed by the Trustee for the Trust on
and after March 1, 1996, the Trustee shall defer 100% of the amounts
otherwise payable to the Trustee for serving as a Trustee. The
deferred compensation shall be credited to a book reserve maintained
by the Trust in the Trustee's name, together with credited amounts
in the nature of income, gains and losses (the "Account"). The
Account maintained for the Trustee shall be paid to the Trustee on a
deferred basis in accordance with the terms of this Agreement.
2. The Trust shall credit the Trustee's Account as of the day such
amount would be paid to the Trustee if this Agreement were not in
effect. Such Account shall be valued at fair market value as of the
last day of the calendar year and such other dates as are necessary
for the proper administration of this Agreement, and the Trustee
shall receive a written accounting of his Account balance following
such valuation.
The Trustee may request that all or a portion of the amount in his
Account be allocated among one or more of the investment options
offered by the Board under the Galaxy Fund II Deferred Compensation
Plan (the "Plan"). The initial allocation request may be made at the
time of enrollment. Once made, an investment allocation request
shall remain in effect for all future amounts allocated to the
Trustee's Account until changed by the Trustee. The Trustee may
change his investment allocation for past deferrals and future
deferrals by submitting a written request to the Treasurer of the
Trust (the "Treasurer") (or his delegate) on such form as may be
required by the Treasurer or by telephoning the Treasurer (or his
delegate); provided that, the
<PAGE> 9
Trustee may make an investment allocation change only once per
calendar quarter. Such changes shall become effective as soon as
administratively feasible after the Treasurer (or his delegate)
receives such request. Although the Trust intends to invest the
amounts in the Trustee's Account according to the Trustee's
requests, the Trust reserves the right to invest the amounts in the
Trustee's Account without regard to such requests.
The Trustee agrees on behalf of the Trustee and any designated
beneficiary to assume all risks in connection with the investment
performance of any amounts which are invested or which continue to
be invested in accordance with the investment directions of the
Trustee.
Title to and beneficial ownership of any assets, whether cash or
investments, which the Trust may use to pay benefits hereunder,
shall at all times remain in the Trust, and the Trustee and any
designated beneficiary shall not have any property interest
whatsoever in any specific assets of the Trust.
3. As of January 31 of the calendar year following the
calendar year in which the Trustee dies, retires,
resigns, becomes disabled or otherwise ceases to be a
member of the Board, the Trust (subject to the terms of
the Plan) shall: [check one]
/ / pay the Trustee (or his beneficiary) a single-sum
amount equal to the balance in the Trustee's
Account on that date; or
/ / commence making annual payments to the Trustee (or his
beneficiary) for a period of 10 [insert a whole number from
two through 15] years.
If the second box is selected, such payments shall be made on
January 31st of each year in approximately equal annual installments
as adjusted and computed by the Trust in accordance with the terms
of the Plan, with the final payment equalling the then remaining
balance in the Trustee's Account.
<PAGE> 10
4. In the event the Trustee dies before payments have commenced or been
completed under Section 3, the Trust shall make payment in
accordance with Section 3 to the Trustee's designated beneficiary,
whose name, address, and Social Security number are:
Eva M. Seed
192 Cedar Street
East Greenwich, Rhode Island 02818
###-##-####
If there is no beneficiary designation in effect at the Trustee's
death or the designated beneficiary is dead at the Trustee's death,
any amounts in the Trustee's Account shall be paid in a single sum
to the Trustee's estate. If the designated beneficiary dies after
beginning to receive installment payments, any amounts payable from
the Trustee's Account shall be paid in a single sum to the
beneficiary's estate at the beneficiary's death.
5. This Agreement shall remain in effect with respect to the Trustee's
compensation for services performed as a Trustee of the Trust in all
future years unless terminated on a prospective basis in writing in
accordance with the terms of the Plan. The Trustee may subsequently
elect to defer his compensation by executing a new Deferred
Compensation Agreement. If a new Agreement is entered into which
changes the manner in which deferred amounts will be distributed, a
new Trustee's Account will be established for purposes of crediting
deferrals, income, gains, and losses under the new Agreement. Any
new Agreement shall relate solely to compensation for services
performed after the new Agreement becomes effective and shall not
alter the terms of this Agreement with respect to the deferred
payment of compensation for services performed during any calendar
year in which this Agreement was in effect. Notwithstanding the
foregoing, the Trustee may at any time amend the beneficiary
designation hereunder by written notice to the Trust.
6. This Agreement constitutes a mere promise by the Trust to make
benefit payments in the future, and the right of any person to
receive such payments under this Agreement shall be no greater than
the right of any unsecured general creditor of the Trust. The Trust
and Trustee intend for this Agreement to be unfunded for tax
purposes and for the purposes of Title I of the
-3-
<PAGE> 11
Employee Retirement Income Security Act of 1974, as amended.
7. Any written notice to the Trust referred to in this Agreement shall
be made by mailing or delivering such notice to the Trust, c/o Neil
Forrest, First Data Investor Services Group, Inc., 4400 Computer
Drive, Westboro, MA 01581-5108 to the attention of the Treasurer.
Any written notice to the Trustee referred to in this Agreement
shall be made by delivery to the Trustee in person or by mailing
such notice to the Trustee at his last known residential or business
address.
8. This Agreement is subject to all of the terms contained in the Plan
as attached hereto and incorporated by reference herein.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the date first above written.
GALAXY FUND II
By:/s/John T. O'Neill
---------------------------------
Title:President and Treasurer
------------------------------
James M. Seed, TRUSTEE
/s/James M. Seed
------------------------------------
(Signature of Trustee)
-4-
<PAGE> 12
GALAXY FUND II DEFERRED COMPENSATION PLAN
TRUSTEE ACCOUNT ALLOCATION REQUEST
I hereby request to have my Account(s) under the Galaxy Fund II
Deferred Compensation Plan invested in the following investment options in the
percentages indicated as soon as administratively feasible. This request
supersedes any prior requests I have made with respect to such Plan, and applies
to amounts deferred in the past under the Plan as well as to future deferrals. I
hereby agree to assume all risks in connection with the investment performance
of the amounts which are invested in accordance with this election.
<TABLE>
<CAPTION>
Percentage
Invested Investment Option
-------- -----------------
<S> <C>
100% U.S. Treasury Bills Account (two-year rate,
--- adjusted quarterly)
100%
===
</TABLE>
DATED:March 25, 1996 /s/James M. Seed
---------------------------
<PAGE> 1
EXHIBIT (7)(b)
THE GALAXY FUND
THE GALAXY VIP FUND
GALAXY FUND II
SUMMARY OF
DEFERRED COMPENSATION PLAN
Basic Plan: The Galaxy Fund/The Galaxy VIP Fund/Galaxy Fund II Deferred
Compensation Plan (the "Plan") is a nonqualified unfunded deferred compensation
plan under which individual Agreements ("Deferred Compensation Agreements" or
"Agreements") are executed between one or more of the Trustees and The Galaxy
Fund, The Galaxy VIP Fund and Galaxy Fund II (the "Trusts").
Eligibility: All members of the Boards of the Trusts are eligible to
participate.
Amounts Deferred Under Prior Plans: The Galaxy Fund Deferred Compensation Plan,
The Galaxy VIP Fund Deferred Compensation Plan and Galaxy Fund II Deferred
Compensation Plan (the "Original Plans") have been merged into the Plan. Any
amounts which were deferred under the Original Plans by a Trustee, plus
earnings, will be paid from the Plan in accordance with the Trustee's elections
under the Original Plans.
Amount to be Deferred: All or a portion of the compensation earned by a Trustee
from the Trusts may be deferred and credited to a Deferred Compensation Account
for the Trustee.
Election to Defer: A Trustee elects to defer his compensation by executing a
Deferred Compensation Agreement prior to the beginning of the calendar year in
which the compensation will be earned. A Trustee may also elect to defer fees
subsequently earned in the calendar year of election if such election is made
within 30 days of the Plan's effective date or within 30 days of the Trustee's
first becoming eligible to participate in the Plan. Until terminated or replaced
with a new Agreement, the Agreement will be effective for subsequent years.
A Trustee may establish a new Agreement with respect to future compensation on
an annual basis. For example, even if a Trustee does not enter into a Deferred
Compensation Agreement during the first year he is able to do so, he will still
have the opportunity to defer compensation earned in a subsequent year by
executing an appropriate agreement prior to January 1 of the calendar year for
which he seeks deferral. A Trustee can also annually enter into a new Agreement
whereby he elects to change the method by which he will receive payment of
amounts deferred in future years, or changes the percentage of compensation
<PAGE> 2
deferred. For each new Agreement entered into which changes the date of receipt
of deferred amounts, a new Deferred Compensation Account will be established for
the Trustee.
A trustee may terminate an election to defer by notifying the Trusts in writing.
Earnings on Deferred Amounts: A Trustee may elect to have his Deferred
Compensation Account(s) invested in any combination of investment options
offered by the Trusts. The Galaxy VIP Fund's portfolios will not be offered as
investment options under the Plan. The income, gains and losses credited to the
Trustee's Account(s) will reflect the income, gains, and losses achieved by the
chosen investment option(s). The Trustee may also elect to change the investment
allocation of past and future deferred amounts in his Deferred Compensation
Accounts once per calendar quarter upon proper notice to the Trusts. The Boards
of Trustees will periodically announce which investment options will be
available under the Plan. The Trustee Account Allocation Election Form attached
to the Agreement lists the investment options currently available under the
Plan.
Distribution of Deferred Amounts: Distributions will begin as of January 31 of
the year following the year in which the Trustee dies, retires, resigns, becomes
disabled or otherwise ceases to be a member of the Boards of Trustees. At the
time the Trustee enters into the Agreement, the Trustee will elect to receive
payments either in a single sum or in annual payments for a period of two to 15
years. The Trustee's elections as to the time and manner of receiving payments
may not be changed with respect to any year covered by that Agreement. A Trustee
may execute a new Agreement and thereby make a different election as to the
manner of payment with respect to compensation for services performed in later
years.
Beneficiary Designation: May be amended at any time by providing written notice
to the Trusts.
Hardship Distributions: Provision is made for hardship distribution in the case
of unforeseeable emergencies.
Taxability of Fees: Deferred compensation should be taxable as ordinary income
in the year distributed to the Trustee. Such distributions may be subject to
withholding pursuant to the tax laws in effect at the time of distribution. In
addition, under current law, self-employment taxes will be due on deferred
Trustee's fees in the year they are received by the Trustee, rather than in the
year earned.
Security of Deferred Amounts: A Trustee's claim against the Trusts for amounts
due under the Plan will have the same standing as that of any unsecured general
creditor. The Trusts will have
-2-
<PAGE> 3
no obligation to set aside monies to fund their obligations under the Plan, and
all distributions under the Plan will be made from the general funds of the
Trusts.
Annual Report: The Trusts will provide each participating Trustee with an annual
statement of his Deferred Compensation Account balance(s).
-3-
<PAGE> 4
THE GALAXY FUND
THE GALAXY VIP FUND
GALAXY FUND II
DEFERRED COMPENSATION PLAN
1. Eligibility. Each Trustee of the Boards of Trustees (the
"Board") of The Galaxy Fund, The Galaxy VIP Fund and Galaxy Fund II (the
"Trusts") shall be eligible to participate in The Galaxy Fund/The Galaxy VIP
Fund/Galaxy Fund II Deferred Compensation Plan (the "Plan").
2. Terms of Participation
(a) A Trustee may elect to participate in the Plan by
signing a Deferred Compensation Agreement (the "Agreement") in the form attached
hereto and incorporated by reference herein. A Trustee's participation will
commence on January 1 of the calendar year immediately following the year in
which the Trustee executed the Agreement, except that when a Trustee executes an
Agreement within 30 days of the Plan's initial effective date or within 30 days
of first becoming eligible to participate in the Plan, participation will
commence with respect to services to be performed subsequent to the date of the
Agreement.
(b) Participation in the Plan will continue until the
Trustee furnishes written notice to the Trusts that the Trustee terminates his
participation in the Plan or until such time as the Trusts terminate the Plan
pursuant to Section 6 below. Termination by a Trustee shall be made by written
notice delivered or mailed to the Treasurer of the Trusts (the "Treasurer") (or
his delegate) no later than December 31 of the calendar year preceding the
calendar year in which such termination is to take effect.
(c) A Trustee who has terminated his participation
may subsequently elect to participate in the Plan by executing a new Agreement
in accordance with subsection (a) above.
(d) A Trustee may alter the amount of deferral for
any future calendar year, and/or elect a different method by which he will
receive amounts deferred for future calendar years, if the Trustee and the
Trusts enter into a new Agreement on or before December 31 of the calendar year
preceding the calendar year for which the new Agreement is to take effect. For
each new Agreement which changes the method of receipt of deferred amounts, a
new record account (the "Deferred Compensation Account" or "Account") will be
established for the Trustee.
<PAGE> 5
3. Deferred Compensation Account. While a Trustee participates
in the Plan pursuant to an Agreement, all deferred compensation payable by the
Trusts for the Trustee's services shall be credited to the Trustee's Deferred
Compensation Account under the applicable Agreement. A Trustee shall allocate
amounts in his Account(s) among the investment options available under the Plan
by submitting a written request to the Treasurer (or his delegate) on such form
as may be required by the Treasurer prior to the date deferrals are scheduled to
begin. The Boards shall specify from time to time the investment options
available under the Plan. The Galaxy VIP Fund's portfolios will not be offered
as investment options under the Plan. The Trustee may request that the
investment allocation of his Account, including past as well as future
deferrals, be changed by submitting a written request to the Treasurer (or his
delegate) on such form as may be required by the Treasurer, or by telephoning
the Treasurer (or his delegate); provided that a Trustee may make an investment
allocation change only once per calendar quarter. Such changes shall become
effective as soon as administratively feasible after the Treasurer (or his
delegate) receives such request.
The Trustee's Account(s) will be credited with any income,
gains and losses that would have been realized if amounts equal to the deferred
amounts had been invested in accordance with the Trustee's allocation election
on the date such deferred amounts were credited to the Trustee's Account(s). For
this purpose, any amounts that would have been received, had amounts been
invested as described above, from a chosen investment option will be treated as
if reinvested in that option on the date such amounts would have been received.
4. Distribution. As of January 31 of the year following the
year in which the Trustee dies, retires, resigns, becomes disabled or otherwise
ceases to be a member of the Boards, the total amount credited to the Trustee's
Account under the applicable Agreement shall be distributed to the Trustee (or
upon his death, to his designated beneficiary) in accordance with one of the
alternatives set forth below:
(i) one single-sum payment; or
(ii) any number of annual installments (as calculated
in the following paragraph) for a period of two to 15 years. Installments shall
be paid annually as of January 31 until the balance in the Trustee's Account is
exhausted.
Selection of an alternative shall be made at the time the
Trustee executes the Agreement. Except as provided in the following paragraph,
the amount of each installment payment, other than the final payment, shall be
equal to 1/n multiplied by the balance in the Trustee's Account as of the
previous December 31, where "n" equals the number of payments yet to be made.
The
-2-
<PAGE> 6
final payment will equal the balance in the Trustee's Account as of the final
January 31 payment date, and such payment shall be made as soon as practicable
after such date. For example, if payments are to be made in ten annual
installments commencing on January 31, 2000, the first payment will be equal to
1/10th of the December 31, 1999 balance in the Account, and the following year's
payment would be equal to 1/9th of the December 31, 2000 balance.
If the balance in the Trustee's Account as of the date of the
first scheduled payment is less than $2,000, the Trusts shall instead pay such
amount in a single sum as of that date. Further, the Trustee may not select a
period of time which will cause an annual payment to be less than $1,000.
Notwithstanding the foregoing, in the event the Trustee ceases to be a Trustee
of the Trusts and becomes a proprietor, officer, partner, or employee of, or
otherwise becomes affiliated with, any business or entity that is in competition
with any of the Trusts, or becomes employed by any governmental agency having
jurisdiction over the affairs of any of the Trusts, the Trusts reserve the right
at the sole discretion of the Boards to make an immediate single-sum payment to
the Trustee in an amount equal to the balance in the Trustee's Account at that
time.
Notwithstanding the preceding two paragraphs, the Trusts may
at any time make a single-sum payment to a Trustee (or surviving beneficiary)
equal to a part or all of the balance in the Trustee's Account upon a showing of
an unforeseeable (i.e., unanticipated) financial emergency caused by an event
beyond the control of the Trustee (or surviving beneficiary) which would result
in severe financial hardship to the Trustee (or surviving beneficiary) if such
payment were not made. The determination of whether such emergency exists shall
be made at the sole discretion of the Boards (with the Trustee requesting the
payment not participating in the discussion or the decision). The amount of the
payment shall be limited to the amount necessary to meet the financial
emergency, and any remaining balance in the Trustee's Account shall thereafter
be paid at the time and in the manner otherwise set forth in this Section.
If there is no beneficiary designation in effect at the
Trustee's death or the designated beneficiary is dead at the Trustee's death,
any amounts in the Trustee's Account shall be paid in a single sum to the
Trustee's estate. If the designated beneficiary dies after beginning to receive
installment payments, any amounts payable from the Trustee's Account shall be
paid in a single sum to the beneficiary's estate at the beneficiary's death.
5. Designation of Beneficiary. A Trustee may designate in
writing any person or legal entity as his beneficiary to receive any amounts
payable from his Account(s)
-3-
<PAGE> 7
upon his death. If the Trustee should die without effectively designating a
surviving beneficiary, his beneficiary shall be his estate.
6. Amendment and Termination of the Plan. The Trusts reserve
the right to amend or terminate the Plan by a joint resolution of the Boards. A
written notice of any such amendment or termination shall be delivered or mailed
to each participating Trustee no later than December 31 of the calendar year
preceding the calendar year in which the amendment or termination is to take
effect. The balance in the Trustee's Account(s) shall remain subject to the
provisions of the Plan and distribution will not be accelerated because of the
termination of the Plan.
7. Non-Assignability. The right of a Trustee or any other
person to receive payments under this Plan or any Agreement hereunder shall not
be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, attachment, or garnishment by creditors of the
Trustee or any beneficiary.
8. Miscellaneous
(a) No Funding. The Trusts shall not be required to
fund or secure in any way their respective obligations hereunder. Nothing in the
Plan or in any Agreement hereunder and no action taken pursuant to the
provisions of the Plan or of any Agreement hereunder shall be construed to
create a trust or a fiduciary relationship of any kind. Payments under the Plan
and any Agreement hereunder shall be made when due from the general assets of
the Trusts. Neither a Trustee nor his designated beneficiary shall acquire any
interest in such assets by virtue of the Plan or any Agreement hereunder. This
Plan constitutes a mere promise by the Trusts to make payments in the future,
and to the extent that a Trustee or his designated beneficiary acquires a right
to receive any payment from the Trusts under the Plan, such right shall be no
greater than the right of any unsecured general creditor of the Trusts. The
Trusts intend for this Plan to be unfunded for tax purposes and for the purposes
of Title I of the Employee Retirement Income Security Act of 1974, as amended.
(b) Interpretation. The Trusts shall have full power
and authority to interpret, construe and administer this Plan and any Agreement
hereunder and their interpretation and construction thereof, and actions
hereunder, including any valuation of the Trustee's Account(s), or the amount or
recipients of the payment to be made therefrom, shall be binding and conclusive
on all persons for all purposes. The Trusts shall not be liable to any person
for any action taken or omitted in connection with the interpretation and
administration of this
-4-
<PAGE> 8
Plan and any Agreement hereunder unless attributable to their own willful
misconduct or lack of good faith.
(c) Withholding. To the extent required by law, the
Trusts shall withhold federal or state income or employment taxes from any
payments under the Plan or any Agreement hereunder and shall furnish the Trustee
(or beneficiary) and the applicable governmental agency or agencies with such
reports, statements or information as may be required in connection with such
payments.
(d) Incapacity of Payee. If the Trusts shall find
that any person to whom any payment is payable under this Plan or any Agreement
hereunder is unable to care for his affairs because of illness or accident, or
is a minor, any payment due (unless a prior claim therefor shall have been made
by a duly appointed guardian, committee or other legal representative) may be
paid to the spouse, a parent, or a brother or sister, or to any person deemed by
the Trusts to have incurred expense for the person who is otherwise entitled to
payment, in such manner and proportions as the Trusts may determine. Any such
payment shall serve to discharge the liability of the Trusts under this
Agreement to make payment to the person who is otherwise entitled to payment.
(e) Expenses. All expenses incurred in administering
this Plan and any Agreement hereunder shall be paid by the Trusts.
(f) No Additional Rights. Nothing in this Plan or any
Agreement hereunder shall be construed as conferring any right on the part of
the Trustee to be or remain a Trustee of the Trusts or to receive any particular
amount of Trustee's fees.
(g) Binding Notice. This Plan and any Agreement
hereunder shall be binding upon, and inure to the benefit of, the Trusts, their
respective successors and assigns, and each Trustee and his heirs, executors,
administrators and legal representatives.
(h) Governing Law. This Plan and any Agreement
hereunder shall be governed by and construed under the laws of the Commonwealth
of Massachusetts.
(i) Effective Date. This Plan shall be effective as
of January 1, 1997. The Galaxy Fund Deferred Compensation Plan, The Galaxy VIP
Fund Deferred Compensation Plan and Galaxy Fund II Deferred Compensation Plan
(the "Original Plans") are hereby merged into the Plan. Any amounts which were
deferred
-5-
<PAGE> 9
under the Original Plans by a Trustee, and earnings thereon, shall be paid from
the Plan in accordance with the terms of the Trustee's elections under the
Original Plans.
Adopted: December 7, 1995 Adopted by the
Revised: December 5, 1996 Boards of Trustees
of The Galaxy Fund,
The Galaxy VIP Fund and
Galaxy Fund II
-6-
<PAGE> 10
THE GALAXY FUND/THE GALAXY VIP FUND/GALAXY FUND II
DEFERRED COMPENSATION PLAN AGREEMENT
This Agreement is entered into this ____ day of ___________, 19__,
between The Galaxy Fund (consisting of the Institutional Treasury Money Market,
Money Market, Government, Tax-Exempt, Connecticut Municipal Money Market,
Massachusetts Municipal Money Market, U.S. Treasury, Equity Value, Equity
Growth, Equity Income, International Equity, Small Company Equity, Asset
Allocation, Small Cap Value, Growth and Income, Short-Term Bond, Intermediate
Government Income, Corporate Bond, High Quality Bond, Tax-Exempt Bond, New York
Municipal Bond, Connecticut Municipal Bond, Massachusetts Municipal Bond and
Rhode Island Municipal Bond Funds), The Galaxy VIP Fund (consisting of the Money
Market Fund, Equity Fund, Asset Allocation Fund and High Quality Bond Fund),
Galaxy Fund II (together with The Galaxy Fund and The Galaxy VIP Fund, the
"Trusts") (consisting of the Large Company Index, Small Company Index, Utility
Index, U.S. Treasury Index and Municipal Bond Funds) and any other investment
portfolio that may be established by the Trusts in the future, and
____________________ (the "Trustee") pursuant to The Galaxy Fund/The Galaxy VIP
Fund/Galaxy Fund II Deferred Compensation Plan (the "Plan").
WHEREAS, the Trustee will be rendering valuable services to the Trusts
as a member of the Boards of Trustees (the "Board"),
-7-
<PAGE> 11
and the Trusts are willing to accommodate the Trustee's desire to be compensated
for such services on a deferred basis;
NOW, THEREFORE, the parties hereto agree as follows:
1. With respect to services performed by the Trustee for
the Trusts on and after _____________, 19__, the
Trustee shall defer ____% of the amounts otherwise
payable to the Trustee for serving as a Trustee. The
deferred compensation shall be credited to a book
reserve maintained by the Trusts in the Trustee's name,
together with credited amounts in the nature of income,
gains and losses (the "Account"). The Account
maintained for the Trustee shall be paid to the Trustee
on a deferred basis in accordance with the terms of
this Agreement.
2. The Trusts shall credit the Trustee's Account as of the day
such amount would be paid to the Trustee if this Agreement
were not in effect. Such Account shall be valued at fair
market value as of the last day of the calendar year and such
other dates as are necessary for the proper administration of
this Agreement, and the Trustee shall receive a written
accounting of his Account balance following such valuation.
-8-
<PAGE> 12
The Trustee may request that all or a portion of the amount in
his Account be allocated among one or more of the investment
options offered by the Board under The Plan. The Galaxy VIP
Fund's portfolios will not be offered as investment options
under the Plan. The initial allocation request may be made at
the time of enrollment. Once made, an investment allocation
request shall remain in effect for all future amounts
allocated to the Trustee's Account until changed by the
Trustee. The Trustee may change his investment allocation for
past deferrals and future deferrals by submitting a written
request to the Treasurer of the Trusts (the "Treasurer") (or
his delegate) on such form as may be required by the Treasurer
or by telephoning the Treasurer (or his delegate); provided
that, the Trustee may make an investment allocation change
only once per calendar quarter. Such changes shall become
effective as soon as administratively feasible after the
Treasurer (or his delegate) receives such request. Although
the Trusts intend to invest the amounts in the Trustee's
Account according to the Trustee's requests, the Trusts
reserve the right to invest the amounts in the Trustee's
Account without regard to such requests.
The Trustee agrees on behalf of the Trustee and any
designated beneficiary to assume all risks in
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<PAGE> 13
connection with the investment performance of any amounts
which are invested or which continue to be invested in
accordance with the investment directions of the Trustee.
Title to and beneficial ownership of any assets, whether cash
or investments, which the Trusts may use to pay benefits
hereunder, shall at all times remain in the Trusts, and the
Trustee and any designated beneficiary shall not have any
property interest whatsoever in any specific assets of the
Trusts.
3. As of January 31 of the calendar year following the calendar
year the Trustee dies, retires, resigns, becomes disabled or
otherwise ceases to be a member of the Board, the Trusts
(subject to the terms of the Plan) shall: [check one]
/ / pay the Trustee (or his beneficiary) a single-sum
amount equal to the balance in the Trustee's
Account on that date; or
/ / commence making annual payments to the Trustee (or
his beneficiary) for a period of __ [insert a whole
number from two through 15] years.
-10-
<PAGE> 14
If the second box is selected, such payments shall be made on
January 31st of each year in approximately equal annual
installments as adjusted and computed by the Trusts in
accordance with the terms of the Plan, with the final payment
equalling the then remaining balance in the Trustee's Account.
4. In the event the Trustee dies before payments have commenced
or been completed under Section 3, the Trusts shall make
payment in accordance with Section 3 to the Trustee's
designated beneficiary, whose name, address, and Social
Security number are:
--------------------------------------
--------------------------------------
--------------------------------------
--------------------------------------
If there is no beneficiary designation in effect at the
Trustee's death or the designated beneficiary is dead at the
Trustee's death, any amounts in the Trustee's Account shall be
paid in a single sum to the Trustee's estate. If the
designated beneficiary dies after
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<PAGE> 15
beginning to receive installment payments, any amounts payable
from the Trustee's Account shall be paid in a single sum to
the beneficiary's estate at the beneficiary's death.
5. This Agreement shall remain in effect with respect to the
Trustee's compensation for services performed as a Trustee of
the Trusts in all future years unless terminated on a
prospective basis in writing in accordance with the terms of
the Plan. The Trustee may subsequently elect to defer his
compensation by executing a new Deferred Compensation
Agreement. If a new Agreement is entered into which changes
the manner in which deferred amounts will be distributed, a
new Trustee's Account will be established for purposes of
crediting deferrals, income, gains, and losses under the new
Agreement. Any new Agreement shall relate solely to
compensation for services performed after the new Agreement
becomes effective and shall not alter the terms of this
Agreement with respect to the deferred payment of compensation
for services performed during any calendar year in which this
Agreement was in effect. Notwithstanding the foregoing, the
Trustee may at any time amend the beneficiary designation
hereunder by written notice to the Trusts.
-12-
<PAGE> 16
6. This Agreement constitutes a mere promise by the Trusts to
make benefit payments in the future, and the right of any
person to receive such payments under this Agreement shall be
no greater than the right of any unsecured general creditor of
the Trusts. The Trusts and Trustee intend for this Agreement
to be unfunded for tax purposes and for the purposes of Title
I of the Employee Retirement Income Security Act of 1974, as
amended.
7. Any written notice to the Trusts referred to in this Agreement
shall be made by mailing or delivering such notice to the
Trusts to the attention of the Treasurer, c/o Jylanne Dunne,
First Data Investor Services Group, Inc., 4400 Computer Drive,
Westboro, MA 01581-5108. Any written notice to the Trustee
referred to in this Agreement shall be made by delivery to the
Trustee in person or by mailing such notice to the Trustee at
his last known residential or business address.
8. This Agreement is subject to all of the terms contained in the
Plan as attached hereto and incorporated by reference herein.
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<PAGE> 17
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first above written.
THE GALAXY FUND
By:___________________________
Title:________________________
THE GALAXY VIP FUND
By:___________________________
Title:________________________
GALAXY FUND II
By:___________________________
Title:________________________
TRUSTEE
______________________________
(Signature of Trustee)
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<PAGE> 18
THE GALAXY FUND/THE GALAXY VIP FUND/GALAXY FUND II
DEFERRED COMPENSATION PLAN
TRUSTEE ACCOUNT ALLOCATION REQUEST
I hereby request to have my Account(s) under The Galaxy
Fund/The Galaxy VIP Fund/Galaxy Fund II Deferred Compensation Plan (the "Plan")
invested in the following investment options in the percentages indicated as
soon as administratively feasible. This request supersedes any prior requests I
have made with respect to the Plan, and applies to amounts deferred in the past
under the Plan as well as to future deferrals. I hereby agree to assume all
risks in connection with the investment performance of the amounts which are
invested in accordance with this election.
<TABLE>
<CAPTION>
Percentage
Invested Investment Option
-------- -----------------
<S> <C>
100% U.S. Treasury Bills Account (two-year rate,
--- adjusted quarterly)
100%
===
</TABLE>
DATED:_____________________, 1996 ________________________
<PAGE> 1
EXHIBIT (9)(c)
AMENDED AND RESTATED
TRANSFER AGENCY AGREEMENT
THIS AGREEMENT is made as of this 1st day of June, 1996 by and among
GALAXY FUND II, a Massachusetts business trust (the "Fund"), FIRST DATA INVESTOR
SERVICES GROUP, INC., a Massachusetts corporation (the "Transfer Agent"), and
FLEET NATIONAL BANK (the "Administrator").
W I T N E S E T H
WHEREAS, the Fund is registered as an open-end, diversified management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"), is offering units of beneficial interest, and is currently
classifying such units into five series and may add further classes or series in
the future (such units, of all classes and series, are herein called the
"Shares"); and
WHEREAS, the Transfer Agent currently serves as transfer agent,
registrar, dividend disbursing agent, and custodian of certain retirement plans
and agent in connection with certain activities, for the Fund's existing series
of shares and for such additional classes or series as the Fund may issue
pursuant to a Transfer Agency Agreement dated as of March 31, 1995 by and among
the Fund, the Transfer Agent and the Administrator (the "Existing Agreement");
and
WHEREAS, the Administrator and the Fund have agreed that the
Administrator shall provide certain administrative services to the Fund and
shall bear certain expenses of the Fund's operations, including all amounts
payable to the Transfer Agent under the Existing Agreement; and
WHEREAS, the parties hereto wish to amend and restate the Existing
Agreement in its entirety to reflect certain changes to the terms thereof;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints the Transfer Agent to serve
for the period and on the terms set forth in this Agreement as transfer agent,
registrar and dividend disbursing agent, custodian of certain retirement plans
and agent in connection with any accumulation, open-account or similar plans
provided to the shareholders of each of the respective portfolios
<PAGE> 2
of the Fund (each a "Portfolio") and set out in the currently effective
prospectus and statement of additional information of the Fund on behalf of the
applicable Portfolio, including without limitation, any periodic investment plan
or periodic withdrawal program. The Fund may from time to time issue separate
classes or series of Shares or classify and reclassify Shares of such classes or
series. The Transfer Agent 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. The Transfer Agent
accepts such appointment and agrees to furnish the services herein set forth,
subject, however, to the performance standards set forth in Appendix I to this
Agreement.
2. Delivery of Documents. The Fund has furnished the Transfer Agent
with copies properly certified or authenticated of each of the following:
(a) Resolutions of the Fund's Board of Trustees authorizing
the appointment of the Transfer Agent as transfer agent, registrar and
dividend disbursing agent for the Fund and approving this Agreement;
(b) The Fund's Declaration of Trust filed with the Secretary
of the Commonwealth of Massachusetts on February 28, 1990 and all
amendments thereto (such Declaration of Trust, as currently in effect
and as it shall from time to time be amended, is herein called the
"Declaration of Trust");
(c) The Fund's Code of Regulations and all amendments thereto
(such Code of Regulations, as currently in effect and as it shall from
time to time be amended, is herein called the "Code");
(d) The Amended and Restated Distribution Agreement among the
Transfer Agent, 440 Financial Distributors, Inc. (the "Distributor")
and the Fund dated as of even date herewith (the "Distribution
Agreement");
(e) The Fund's Notification of Registration filed pursuant to
Section 8(a) of the 1940 Act on Form N-8A with the Securities and
Exchange Commission (the "SEC") on February 28, 1990;
(f) The Fund's Registration Statement on Form N-1A under the
1940 Act and the Securities Act of 1933, as amended (the "1933 Act") as
filed with the SEC on February 28, 1990 (File No. 33-33617) relating to
the Shares, and all amendments thereto;
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<PAGE> 3
(g) The Fund's most recent prospectus or prospectuses and
statement or statements of additional information (such prospectus or
prospectuses and statement or statements of additional information, as
currently in effect, and all amendments and supplements thereto, are
herein collectively called the "Prospectus"); and
(h) Before entering into a transaction regulated by the
Commodity Futures Trading Commission ("CFTC"), a copy of either (i) a
filed notice of eligibility to claim the exclusion from the definition
of "commodity pool operator" contained in Section 2(a)(1)(A) of the
Commodity Exchange Act (the "CEA") that is provided in Rule 4.5 under
the CEA, together with all supplements as are required by the CFTC, or
(ii) a letter which has been granted the Fund by the CFTC which states
that the Fund will not be treated as a "pool" as defined in Section
4.10(d) of the CFTC's General Regulations, or (iii), a letter which has
been granted the Fund by the CFTC which states that the CFTC will not
take any enforcement action if the Fund does not register as a
"commodity pool operator."
The Fund will furnish the Transfer Agent from time to time with copies
of all amendments of or supplements to the foregoing, if any.
3. Definitions.
(a) "Authorized Persons". As used in this Agreement, the term
"Authorized Person" means the Fund's President, Treasurer and any other
person, whether or not any such person is an officer or employee of the
Fund, duly authorized by the Board of Trustees of the Fund to give Oral
and Written Instructions on behalf of the Fund as may be received by
the Transfer Agent from time to time.
(b) "Oral Instructions". As used in this Agreement, the term
"Oral Instructions" means oral instructions actually received by the
Transfer Agent from an Authorized Person or from a person reasonably
believed by the Transfer Agent to be an Authorized Person. The Fund
agrees to deliver to the Transfer Agent, at the time and in the manner
specified in Paragraph 4(b) of this Agreement, Written Instructions
confirming Oral Instructions.
(c) "Written Instructions". As used in this Agreement, the
term "Written Instructions" means written instructions delivered by
mail, tested telegram, cable, telex or facsimile sending device, and
received by the Transfer Agent, signed by an Authorized Person.
-3-
<PAGE> 4
(d) "Shareholder". As used in this Agreement, the term
"Shareholder" means each holder of at least one Share.
4. Instructions Consistent with Declaration of Trust and Code.
(a) Unless otherwise provided in this Agreement, the Transfer
Agent shall act only upon Oral and Written Instructions. Although the
Transfer Agent may take cognizance of the provisions of the Declaration
of Trust and the Code of the Fund, the Transfer Agent may assume that
any Oral or Written Instructions received hereunder are not in any way
inconsistent with any provisions of such Declaration of Trust or the
Code or any vote, resolution or proceeding of the Shareholders, or of
the Board of Trustees, or of any committee thereof.
(b) The Transfer Agent shall be entitled to rely upon any Oral
Instructions and any Written Instructions actually received by the
Transfer Agent pursuant to this Agreement. The Fund agrees to forward
to the Transfer Agent Written Instructions confirming Oral Instructions
in such manner that, to the extent practicable, the Written
Instructions are received by the Transfer Agent (whether by hand
delivery, telex, facsimile sending device or otherwise) by the close of
business of the same day, to the extent practicable, that such Oral
Instructions are given to the Transfer Agent, and in any event by the
end of the next business day. The Fund agrees that the fact that such
confirming Written Instructions are not received by the Transfer Agent
shall in no way affect the validity of the transactions or
enforceability of the transactions authorized by the Fund by giving
Oral Instructions. The Fund agrees that the Transfer Agent shall incur
no liability to the Fund in acting upon Oral Instructions given to the
Transfer Agent hereunder concerning such transactions provided such
instructions reasonably appear to have been received from an Authorized
Person.
5. Issuance, Redemption and Exchange of Shares.
(a) Issuance of Shares. Upon receipt of a purchase order from
a prospective Shareholder for the purchase of Shares of a particular
series or class and sufficient information to enable the Transfer Agent
to establish a Shareholder account, and after confirmation of receipt
or crediting of federal funds for the order from the Fund's custodian,
the Transfer Agent shall issue and credit the account of the
Shareholder with Shares of the appropriate series or class in the
manner described in the Prospectus.
-4-
<PAGE> 5
(b) Redemption of Shares. Upon receipt of a redemption order
from the Fund's Distributor or a Shareholder, the Transfer Agent shall
redeem the number and class or series of Shares indicated thereon from
the redeeming Shareholder's account and receive from the Fund's
custodian and disburse to the redeeming Shareholder the redemption
proceeds therefor, or arrange for direct payment of redemption proceeds
to such Shareholder by the custodian, in accordance with such
procedures and controls as are mutually agreed from time to time by and
among the Fund, the Transfer Agent and the custodian.
(c) Exchange of Shares. Upon receipt of an exchange order from
a Shareholder and in accordance with the Prospectus and such procedures
and controls as are mutually agreed upon from time to time by and among
the Fund, the Transfer Agent and the Fund's custodian, the Transfer
Agent shall arrange for the exchange of Shares of a class or series of
the Fund having an exchange privilege for Shares of other classes or
series of the Fund.
6. Authorized Shares. The Fund is authorized to issue an unlimited
number of Shares. The Fund agrees to notify the Transfer Agent promptly of any
change in or termination of the Fund's declaration under Rule 24f-2 of the 1940
Act.
7. Dividends and Distributions. The Fund shall furnish the Transfer
Agent with appropriate evidence of action taken by the Fund's Board of Trustees
authorizing the declaration and payment of dividends and distributions to the
Fund's Shareholders. After deducting any amount required to be withheld by any
applicable laws, rules and regulations, the Transfer Agent shall, as agent for
each Shareholder and in accordance with the provisions of the Declaration of
Trust and Prospectus, receive from the Fund's custodian and pay such Shareholder
such dividends and/or distributions in cash or, with respect to any Shareholder
who has properly elected to have his dividends and/or distributions reinvested
in Shares of a Portfolio, reinvest such dividends and/or distributions in
additional full and fractional Shares. In lieu of receiving from the Fund's
custodian and paying to Shareholders cash dividends and/or distributions, the
Transfer Agent may arrange for the direct payment of cash dividends and
distributions to Shareholders by the custodian, in accordance with such
procedures and controls as are mutually agreed upon from time to time by and
among the Fund, the Transfer Agent and the custodian.
The Transfer Agent 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
-5-
<PAGE> 6
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, the Transfer Agent 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. Communications with Shareholders.
(a) Communications to Shareholders. The Transfer Agent will
address and mail all communications by the Fund to Shareholders or
their authorized representatives, including reports to Shareholders,
dividend and distribution notices and proxy materials for its meetings
of Shareholders. The Transfer Agent will receive and tabulate the proxy
cards for the meetings of Shareholders. The Transfer Agent may in its
discretion, and at the Administrator's expense, retain an agent to
perform the shareholder communication services described herein.
(b) Correspondence. The Transfer Agent will answer such
correspondence from Shareholders, securities brokers and others
relating to its duties hereunder and such other correspondence as may
from time to time be mutually agreed upon between the Transfer Agent
and the Fund.
9. Records.
(a) The Transfer Agent shall keep accounts for each
Shareholder showing the following information:
(i) name, address and United States tax
identification or Social Security number;
(ii) number and class or series of Shares held and
number of Shares for which certificates, if any, have been issued,
including certificate numbers and denominations;
(iii) 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;
(iv) any stop or restraining order placed against
a Shareholder's account;
(v) any correspondence relating to the current
maintenance of a Shareholder's account;
-6-
<PAGE> 7
(vi) information with respect to withholdings
effected; and
(vii) any information required in order for the
Transfer Agent to perform any calculations contemplated or required by
this Agreement.
(b) The Transfer Agent shall keep subaccounts of 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.
(c) The Transfer Agent shall record the issuance of Shares of
the Fund and maintain pursuant to SEC Rule 17Ad-10(e) a record of the
total number of Shares which are authorized, based upon data provided
to it by the Fund, and issued and outstanding. The Transfer Agent shall
also provide the Fund on a regular basis with the total number of
Shares 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 function shall be the sole
responsibility of the Fund.
(d) The books and records pertaining to the Fund which are in
the possession of the Transfer Agent shall be the property of the Fund.
Such books and records shall be prepared and maintained as required by
the 1940 Act and other applicable securities laws and rules and
regulations. The Fund, or the Fund's authorized representatives, shall
have access to such books and records at all times during the Transfer
Agent's normal business hours, and such books and records shall be
surrendered to the Fund promptly upon request. Upon the reasonable
request of the Fund, copies of any such books and records shall be
provided by the Transfer Agent to the Fund or the Fund's authorized
representative at the Fund's expense.
10. Ongoing Functions. The Transfer Agent will perform the following
functions on an ongoing basis for each class or series of the Fund:
(a) furnish state-by-state registration reports to the Fund;
(b) calculate any applicable load or compensation payment, as
applicable, and provide such information to the Fund, if any;
-7-
<PAGE> 8
(c) calculate dealer commissions for the Fund, as applicable,
if any;
(d) provide toll-free lines for direct Shareholder use, plus
customer liaison staff with on-line inquiry capacity if needed as
determined by the parties hereto;
(e) mail duplicate confirmations to dealers of their clients'
activity, whether executed through the dealer or directly with Transfer
Agent, if any;
(f) 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
the Transfer Agent;
(g) provide Shareholder lists and statistical information
concerning accounts to the Fund; and
(h) provide timely notification of Fund activity, and such
other information as may be agreed upon from time to time by the
Transfer Agent and the Fund's custodian, to the Fund or the custodian.
In addition to and neither in lieu nor in contravention of the services
set forth in the above paragraphs (5) through (9) and subparagraphs (a) through
(h), the Transfer Agent shall (i) perform the customary services of a transfer
agent, dividend disbursing agent, custodian of certain retirement plans and, as
relevant, agent in connection with accumulation, open-account or similar plans
(including without limitation any periodic investment plan or periodic
withdrawal program), including but not limited to: maintaining all Shareholder
accounts, preparing Shareholder meeting lists, mailing proxies, receiving and
tabulating proxies, mailing Shareholder reports and Prospectuses to current
Shareholders, withholding taxes on U.S. resident and non-resident alien
accounts, preparing and filing U.S. Treasury Department Forms 1099 and other
appropriate forms required with respect to dividends and distributions by
federal and state authorities for all Shareholders, preparing and mailing
confirmation forms and statements of account to Shareholders for all purchases
and redemptions of Shares and other confirmable transactions in Shareholder
accounts, preparing and mailing activity statements for Shareholders at the
direction of the Fund on a periodic basis and as requested by Shareholders, and
providing Shareholder account information and (ii) provide a system which will
enable the Fund to monitor the total number of Shares sold in each State.
11. Cooperation with Accountants. The Transfer Agent shall cooperate
with the Fund's independent certified public
-8-
<PAGE> 9
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.
12. Confidentiality. The Transfer Agent agrees on behalf of itself and
its employees to treat confidentially and as the proprietary information of the
Fund all records and other information relative to the Fund and its prior,
present or potential Shareholders and not to use such records and information
for any purpose other than performance of its responsibilities and duties
hereunder, except after prior notification to and approval in writing by the
Fund, which approval may not be withheld where the Transfer Agent may be exposed
to civil or criminal contempt proceedings for failure to comply, when requested
to divulge such information by duly constituted authorities, or when so
requested by the Fund.
13. Operational Improvements. The Transfer Agent agrees to make the
following operational improvements within sixty (60) days of the date of this
Agreement: synchronization of "master file" update; provision of additional
resources and procedures for problem resolution; and improvement of the accuracy
and reconciliation of account transaction data. The Transfer Agent agrees to
make the following operational improvements within ninety (90) days of the date
of this Agreement: development of same-day order entry processing.
14. Equipment Failures. In the event of equipment failures beyond the
Transfer Agent's control, the Transfer Agent shall, at no additional expense to
the Fund, take reasonable steps to minimize service interruptions but shall have
no liability with respect thereto. The Transfer Agent shall enter into and shall
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.
15. Right to Receive Advice.
(a) Advice of Fund. If the Transfer Agent shall be in doubt as
to any action to be taken or omitted by it, it may request, and shall
receive, from the Fund directions or advice.
(b) Advice of Counsel. If the Transfer Agent shall be in doubt
as to any question of law involved in any action to be taken or omitted
by the Transfer Agent, it may request advice at its own cost from
counsel of its own choosing (who may be counsel for Fleet, the Fund's
custodian, the
-9-
<PAGE> 10
Distributor, the Fund or the Transfer Agent, at the option of the
Transfer Agent).
(c) Conflicting Advice. In case of conflict between directions
or advice received by the Transfer Agent pursuant to subparagraph (a)
of this paragraph and written advice received by the Transfer Agent
pursuant to subparagraph (b) of this paragraph, the Transfer Agent
shall be entitled to rely on and follow the written advice received
pursuant to the latter provision alone.
(d) Protection of the Transfer Agent. The Transfer Agent shall
be protected in any action or inaction which it takes in reliance on
any directions or advice received pursuant to subparagraphs (a) or (b)
of this paragraph which the Transfer Agent, after receipt of any such
directions or advice, reasonably and in good faith believes to be
consistent with such directions or advice. However, nothing in this
paragraph shall be construed as imposing upon the Transfer Agent any
obligation (i) to seek such directions or advice, or (ii) to act in
accordance with such directions or advice when received, unless, under
the terms of another provision of this Agreement, the same is a
condition to the Transfer Agent's properly taking or omitting to take
such action. Nothing in this subparagraph (d) shall excuse the Transfer
Agent when an action or omission on the part of the Transfer Agent
constitutes willful misfeasance, bad faith, negligence or reckless
disregard by the Transfer Agent of its duties under this Agreement.
16. Compliance with Governmental Rules and Regulations. The Fund
assumes full responsibility for insuring that the contents of the Prospectus
comply with all applicable requirements of the 1933 Act, the 1940 Act, the CEA
and any laws, rules and regulations of governmental authorities having
jurisdiction.
17. Compensation. As sole compensation for the services rendered by the
Transfer Agent during the term of this Agreement, the Administrator will pay to
the Transfer Agent such monthly fees as the Transfer Agent and the Administrator
may agree from time to time in writing, for each class or series of the Fund,
subject, however to the performance standards set forth in Appendix I to this
Agreement.
18. Indemnification. The Fund agrees to indemnify and hold the Transfer
Agent harmless from all taxes, charges, expenses, assessments, claims and
liabilities (including, without limitations, liabilities arising under the 1933
Act, the Securities Exchange Act of 1934, as amended, the 1940 Act, the CEA and
any state and foreign securities and blue sky laws, all as or as to be amended
from time to time) and expenses, including
-10-
<PAGE> 11
(without limitation) reasonable attorneys' fees and disbursements, arising
directly or indirectly from any action or thing which the Transfer Agent
reasonably takes or does or omits to take or do as required by this Agreement or
in reliance on the advice of the Fund, provided that the Transfer Agent shall
not be indemnified against any liability to the Fund or to its Shareholders (or
any expenses incident to such liability) arising out of the Transfer Agent's
negligent failure to perform its duties under this Agreement.
The Transfer Agent shall indemnify and hold the Fund harmless from and
against any and all losses, damages, costs, charges, reasonable counsel fees,
payments, expenses and liability arising out of or attributable to any action or
failure or omission to act by the Transfer Agent as a result of the Transfer
Agent's lack of good faith, negligence or willful misconduct. Neither the Fund
nor the Transfer Agent shall be liable to the other for consequential damages
under any provision of this Agreement or for any consequential damages arising
out of any act or failure to act thereunder.
19. Responsibility of the Transfer Agent. The Transfer Agent shall be
under no duty to take any action on behalf of the Fund except as specifically
set forth herein or as may be specifically agreed to by the Transfer Agent in
writing. In the performance of its duties hereunder, the Transfer Agent shall be
obligated to exercise care and diligence and to act in good faith and to use its
best efforts within reasonable limits to ensure the accuracy of all services
performed under this Agreement. The Transfer Agent shall be responsible for its
own negligent failure to perform its duties under this Agreement, but to the
extent that duties, obligations and responsibilities are not expressly set forth
in this Agreement, the Transfer Agent shall not be liable for any act or
omission which does not constitute willful misfeasance, bad faith or negligence
on the part of the Transfer Agent or reckless disregard of such duties,
obligations and responsibilities. Without limiting the generality of the
foregoing or of any other provision of this Agreement, the Transfer Agent in
connection with its duties under this Agreement shall not be under any duty or
obligation to inquire into and shall not be liable for or in respect of (a) the
validity or invalidity or authority or lack thereof of any advice, direction,
notice or other instrument which conforms to the applicable requirements of this
Agreement, if any, and which the Transfer Agent reasonably believes to be
genuine, or (b) delays or errors or loss of data occurring by reason of
circumstances beyond the Transfer Agent's control, including acts of civil or
military authority, national emergencies, labor difficulties, fire, mechanical
breakdown (except as provided in paragraph 14), flood or catastrophe, acts of
God, insurrection, war, riots or failure of the mails, transportation,
communication or power supply.
-11-
<PAGE> 12
20. Registration as Transfer Agent. The Transfer Agent represents that
it has and is currently registered as a transfer agent with the SEC and
applicable state regulators and has complied with the regulations of the SEC
applicable to registered transfer agents. The Transfer Agent agrees that it will
take reasonable action to continue to be registered as a transfer agent with the
appropriate federal and state agencies for the duration of this Agreement.
Should the Transfer Agent fail to be registered with the appropriate federal
agency as a transfer agent at any time during this Agreement, the Fund may
(notwithstanding Paragraph 21 hereof), on written notice to the Transfer Agent,
immediately terminate this Agreement.
21. Duration and Termination. This Agreement shall become effective as
of June 1, 1996 and, unless sooner terminated as provided herein, shall continue
until May 31, 1997 and thereafter shall continue automatically for successive
annual periods ending on May 31 of each year. Notwithstanding the foregoing,
this Agreement may be terminated at any time without the payment of any penalty
by the Transfer Agent, the Fund or the Administrator on sixty (60) days' written
notice to the other parties hereto.
22. Notices. All notices and other communications (collectively
referred to as "a Notice" or "Notices" in this paragraph) hereunder shall be in
writing or by confirming telegram, cable, telex or facsimile sending device.
Notices shall be addressed (a) if to the Transfer Agent, at the Transfer Agent's
address, 4400 Computer Drive, Westboro, Massachusetts 01581; (b) if to the Fund,
at the address of the Fund; (c) if to the Administrator, at the Administrator's
address, Fleet National Bank, 100 Westminster Street, Providence, Rhode Island,
02903, Attention: Don Ross; or (d) if to none of the foregoing, at such other
address as to which the sender shall have been notified by any such Notice or
other communication. If the location of the sender of a Notice and the address
of the addressee thereof are, at the time of sending, more than 100 miles apart,
the Notice may be sent by first-class mail, in which case it shall be deemed to
have been given three days after it is sent, or if sent by confirming telegram,
cable, telex or facsimile sending device, it shall be deemed to have been given
immediately. If the location of the sender of a Notice and the address of the
addressee thereof are, at the time of sending, not more than 100 miles apart,
the Notice may be sent by first-class mail, in which case it shall be deemed to
have been given two days after it is sent, or if sent by messenger, it shall be
deemed to have been given on the day it is delivered, or if sent by confirming
telegram, cable, telex or facsimile sending device, it shall be deemed to have
been given immediately. All postage, cable, telegram, telex and facsimile
sending device charges arising from the sending of a Notice hereunder shall be
paid by the sender.
-12-
<PAGE> 13
23. Further Actions. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
24. Amendments. This Agreement or any part hereof may be changed or
waived only by an instrument in writing signed by the party against which
enforcement of such change or waiver is sought.
25. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
26. Names. 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 the
Fund entered into in the name or on behalf thereof by any of the Trustees,
representatives, agents, officers or employees, whether past, present or future,
are made not individually, but in such capacities, and are not binding upon any
of such individuals or the shareholders personally, but bind only the property
of the Fund, and all persons dealing with a Portfolio of the Fund must look
solely to the property of the Fund belonging to such Portfolio for the
enforcement of any claims against the Fund.
27. Miscellaneous. This Agreement embodies the entire agreement and
understanding between the parties hereto, and supersedes all prior agreements
and understandings relating to the subject matter hereof. The captions in 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. This Agreement shall be deemed to be a contract made in Massachusetts
and governed by Massachusetts law. If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby. This Agreement shall
be binding and shall insure to the benefit of the parties hereto and their
respective successors.
IN WITNESS WHEREOF, the parties hereto have caused this
-13-
<PAGE> 14
Agreement to be executed by their officers designated below as of the day and
year first above written.
[SEAL] GALAXY FUND II
Attest:/s/W.Bruce McConnel By:/s/John T. O'Neill
___________________ ________________________________________
Secretary President
[SEAL] FIRST DATA INVESTOR SERVICES
GROUP, INC.
Attest:__________________ By:/s/Robert A.(illegible)
________________________________________
Title: Title:
[SEAL] FLEET NATIONAL BANK
Only with respect to Section 17
of this Agreement
Attest:__________________ By:/s/David Rabinowitz
________________________________________
Title: Title:
-14-
<PAGE> 15
APPENDIX I
TO THE
AMENDED AND RESTATED TRANSFER AGENCY AGREEMENT
AMONG
GALAXY FUND II (THE "FUND"),
FIRST DATA INVESTOR SERVICES GROUP, INC.
(THE "TRANSFER AGENT")
AND
FLEET NATIONAL BANK (THE "ADMINISTRATOR")
PERFORMANCE STANDARDS
Pursuant to Paragraph 1 of this Agreement, the Transfer Agent
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 in the chart attached
hereto, may be revised from time to time upon mutual agreement of the parties.
Each of the performance standards will be monitored by a
Quality Assurance Team:
(a) In the event that the Transfer Agent fails to meet a
particular performance standard (except for any failure due to circumstances
beyond its control) in any particular month, the Transfer Agent agrees to take
appropriate corrective action within the following thirty (30) day period.
(b) In the event that the Transfer Agent 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 the
Transfer Agent hereunder for such service shall be reduced by one percent (1%)
for the second of those two months.
(c) In the event that the Transfer Agent fails to meet a
particular performance standard (except for any failure due to circumstances
beyond its control) in three (3) consecutive months, the fee payable to the
Transfer Agent 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 the Transfer Agent fails to meet a
particular performance standard (except for any failure due to circumstances
beyond its control) for any three (3) months within a six (6)-month period, then
the Fund or the Administrator shall have the right to terminate this Agreement
upon forty-five (45) days' written notice to the Transfer Agent.
I-1
<PAGE> 16
(e) In the event that there is no specific fee for a
particular service set forth in the written fee agreement between the Fund and
the Administrator, then any reduction in the fee payable to the Transfer Agent
as a result of a failure to meet a particular standard for that service
hereunder shall be taken as a reduction in the annual per account maintenance
fee.
I-2
<PAGE> 17
PERFORMANCE STANDARDS
<TABLE>
<CAPTION>
===============================================================================
ITEM STANDARD
===============================================================================
GENERAL PROCESSING:
- -------------------------------------------------------------------------------
<S> <C>
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 days
- -------------------------------------------------------------------------------
Maintenance Items 3 business days
- -------------------------------------------------------------------------------
Not in good order items Call out same day
- -------------------------------------------------------------------------------
Research received by phone 100% called with
status report within
48 hours; 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
- -------------------------------------------------------------------------------
PRINT/MAIL:
- -------------------------------------------------------------------------------
Monthly Statements 5 business days
- -------------------------------------------------------------------------------
Daily Confirmations T + 2
- -------------------------------------------------------------------------------
Checks T + 1
- -------------------------------------------------------------------------------
Ad Hoc Projects 5 business days from receipt
- -------------------------------------------------------------------------------
FULFILLMENT: within 24 hours
===============================================================================
</TABLE>
I-3
<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. 22 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
May 30, 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>
