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GALAXY FUND II
("GALAXY II" OR THE "TRUST")
LARGE COMPANY INDEX FUND
SMALL COMPANY INDEX FUND
UTILITY INDEX FUND
U.S. TREASURY INDEX FUND
(THE "FUNDS")
SUPPLEMENT DATED MAY 9, 1997 TO
PROSPECTUS DATED AUGUST 1, 1996
At a Special Meeting of Shareholders of Galaxy II's Small Company
Index Fund and Utility Index Fund held on May 9, 1997, the shareholders of each
of these Funds approved a change in the respective Funds' benchmark indexes.
As a result, the Funds' Prospectus is amended and supplemented as follows:
1. THE FOLLOWING REPLACES THE THIRD AND FOURTH FULL PARAGRAPHS ON
PAGE 3 OF THE PROSPECTUS:
The SMALL COMPANY INDEX FUND - U.S. publicly traded common stock 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").
2. THE FOLLOWING REPLACES THE SECOND AND THIRD FULL PARAGRAPHS
UNDER THE HEADING "INVESTMENT OBJECTIVES AND POLICIES" ON PAGE 11 OF THE
PROSPECTUS:
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.
3. THE FOLLOWING REPLACES THE FOURTH SENTENCE IN THE SECOND FULL
PARAGRAPH UNDER THE HEADING "INVESTMENT OBJECTIVES AND POLICIES -- THE INDEXING
APPROACH" ON PAGES 11-12 OF THE PROSPECTUS:
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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.
4. THE FOLLOWING REPLACES THE THIRD FULL PARAGRAPH UNDER THE
HEADING "INVESTMENT OBJECTIVES AND POLICIES -- THE INDEXING APPROACH" ON PAGES
11-12 OF THE PROSPECTUS:
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.
5. THE FOLLOWING REPLACES THE THREE PARAGRAPHS UNDER THE HEADING
"INVESTMENT OBJECTIVES AND POLICIES -- THE SMALL COMPANY INDEX FUND" ON PAGES
12-13 OF THE PROSPECTUS:
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 account 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 is
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 may 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 may 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
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operating expenses. The Fund will not purchase stocks not represented in the
S&P 600 Small Company Index.
6. THE FOLLOWING REPLACES THE TWO PARAGRAPHS UNDER THE HEADING
"INVESTMENT OBJECTIVES AND POLICIES -- THE UTILITY INDEX FUND" ON PAGE 13 OF
THE PROSPECTUS:
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>
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.
7. THE FOLLOWING REPLACES THE LAST SENTENCE IN THE FIRST FULL
PARAGRAPH UNDER THE HEADING "PERFORMANCE AND YIELD INFORMATION" ON PAGES 23-24
OF THE PROSPECTUS:
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.
8. THE FOLLOWING REPLACES THE LAST THREE PARAGRAPHS UNDER THE
HEADING "LICENSE AGREEMENTS" ON PAGE 26 OF THE PROSPECTUS:
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,
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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 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.
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