<PAGE>
As filed with the Securities and Exchange Commission on July 29, 1998
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. 24 /x/
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /x/
Amendment No. 26 /x/
(Check appropriate box or boxes)
--------------------
GALAXY FUND II
(formerly named IBM CREDIT MUTUAL FUNDS)
(Exact Name of Registrant as Specified in Charter)
4400 Computer Drive
P.O. Box 5108
Westboro, Massachusetts 01581-5108
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (800) 628-0414
W. Bruce McConnel, III
DRINKER BIDDLE & REATH, LLP
1345 Chestnut Street, Suite 1100
Philadelphia, Pennsylvania 19107
(Name and Address of Agent for Service)
Copy to:
Jylanne Dunne, Vice President
First Data Investor Services Group, Inc.
4400 Computer Drive
P.O. Box 5108
Westboro, Massachusetts 01581
--------------------
It is proposed that this filing will become effective (check appropriate box):
/X/ immediately upon filing pursuant to paragraph (b), or
on (date) pursuant to paragraph (b), or
--------------
60 days after filing pursuant to paragraph (a)(i), or
on (date) pursuant to paragraph (a)(i)
--------------
75 days after filing pursuant to paragraph (a)(ii)
on (date) pursuant to paragraph (a)(ii) of Rule 485
--------------
If appropriate, check the following box:
this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
GALAXY FUND II
THE INDEXED FUNDS
FORM N-1A
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(a)
-----------------------
Part A
Item No. Prospectus Heading
- -------- ------------------
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 Reporting;
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
<PAGE>
GALAXY FUND II
Large Company Index Fund
Small Company Index Fund
Utility Index Fund
U.S. Treasury Index Fund
Prospectus
July 29, 1998
<PAGE>
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
PAGE
HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
EXPENSE SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
FINANCIAL HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . 7
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . . . . . . 11
The Indexing Approach . . . . . . . . . . . . . . . . . . . . . . . 11
The Large Company Index Fund. . . . . . . . . . . . . . . . . . . . . 12
The Small Company Index Fund. . . . . . . . . . . . . . . . . . . . . 12
The Utility Index Fund. . . . . . . . . . . . . . . . . . . . . . . . 13
The U.S. Treasury Index Fund. . . . . . . . . . . . . . . . . . . . . 13
OTHER INVESTMENT PRACTICES AND RISK CONSIDERATIONS . . . . . . . . . . . . 14
Temporary Cash Balances . . . . . . . . . . . . . . . . . . . . . . . 14
Securities Lending. . . . . . . . . . . . . . . . . . . . . . . . . . 15
Stock Index Futures Contracts . . . . . . . . . . . . . . . . . . . . 15
INVESTMENT LIMITATIONS . . . . . . . . . . . . . . . . . . . . . . . . . 15
INVESTMENT RISKS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
PRICING OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
DIVIDENDS AND DISTRIBUTIONS. . . . . . . . . . . . . . . . . . . . . . . . 17
TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
MANAGEMENT OF THE FUNDS. . . . . . . . . . . . . . . . . . . . . . . . . 19
Investment Adviser. . . . . . . . . . . . . . . . . . . . . . . . . 19
Administrator And Sub-Administrator . . . . . . . . . . . . . . . . 19
Distributor . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Custodian And Transfer Agent. . . . . . . . . . . . . . . . . . . . 20
HOW TO PURCHASE AND REDEEM SHARES. . . . . . . . . . . . . . . . . . . . 20
Purchase Procedures - Customers Of Institutions . . . . . . . . . . 20
Purchase Procedures - Direct Investors . . . . . . . . . . . . . . . 21
Other Purchase Information. . . . . . . . . . . . . . . . . . . . . 21
Redemption Procedures - Customers Of Institutions . . . . . . . . . 22
Redemption Procedures - Direct Investors. . . . . . . . . . . . . . . 22
Other Redemption Information. . . . . . . . . . . . . . . . . . . . 24
DESCRIPTION OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . 24
Agreements for Sub-Account Services . . . . . . . . . . . . . . . . . 25
PERFORMANCE REPORTING. . . . . . . . . . . . . . . . . . . . . . . . . . . 25
INVESTOR PROGRAMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Exchange Privilege. . . . . . . . . . . . . . . . . . . . . . . . . 26
Retirement Plans. . . . . . . . . . . . . . . . . . . . . . . . . . 27
PAGE
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<PAGE>
Automatic Investment Program. . . . . . . . . . . . . . . . . . . . 27
Systematic Withdrawal Plan. . . . . . . . . . . . . . . . . . . . . 27
Payroll Deduction Program . . . . . . . . . . . . . . . . . . . . . 28
College Investment Program. . . . . . . . . . . . . . . . . . . . . 28
Direct Deposit Program. . . . . . . . . . . . . . . . . . . . . . . 28
INFORMATION SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Galaxy II Information Center - 24 Hour Information Service. . . . . 29
Voice Response System . . . . . . . . . . . . . . . . . . . . . . . 29
Galaxy II Shareholder Services. . . . . . . . . . . . . . . . . . . 29
MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
-ii-
<PAGE>
GALAXY FUND II - THE INDEXED FUNDS
4400 Computer Drive For an application and information
P.O. Box 5108 regarding purchases, redemptions,
Westboro, Massachusetts 01581-5108 exchanges and other shareholder services
or for current performance, call
1-800-628-0414.
Galaxy Fund II ("Galaxy II"^) is a no-load, open-end investment company
which offers five investment options. This Prospectus describes four of those
options (the "Funds"). The Funds use a strategy called indexing, seeking to
provide investment results that, before deduction of operating expenses, match
the price and yield performance of particular sets of securities or market
segments. The Funds and their market segments are:
The LARGE COMPANY INDEX FUND - U.S. publicly traded common stocks with
large stock market capitalizations, as represented by the Standard & Poor's 500
Composite Stock Price Index (the "S&P 500").
The SMALL COMPANY INDEX FUND - U.S. publicly traded common stocks with
smaller stock market capitalizations, as represented by the Standard & Poor's
SmallCap 600 Stock Price Index (the "S&P SmallCap 600 Index").
The UTILITY INDEX FUND - U.S. publicly traded common stocks of companies in
the utility industry, as represented by the Standard & Poor's Utilities
Composite Stock Price Index (the "S&P Utilities Index").
The U.S. TREASURY INDEX FUND - U.S. Treasury notes and bonds, as
represented by the U.S. Treasury component (the "U.S. Treasury Index") of the
Salomon Brothers Broad Investment-Grade Bond Index.
Shares of the Funds are offered without any sales charge or redemption fee.
Each Fund will incur management fees.
SHARES OF THE FUNDS ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUNDS ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL VARY AS A RESULT OF MARKET CONDITIONS OR OTHER FACTORS SO THAT SHARES
OF THE FUNDS, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
AN INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL AMOUNT INVESTED.
<PAGE>
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.
This Prospectus sets forth concisely certain information about Galaxy II
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 Galaxy II is contained in a Statement of Additional
Information bearing the same date and is available free of charge by calling
Galaxy II at 1-800-628-0414 or by writing to Galaxy II, c/o First Data Investor
Services Group, Inc., 4400 Computer Drive, P.O. Box 5108, Westboro,
Massachusetts 01581. The Statement of Additional Information has been filed with
the Securities and Exchange Commission and, as amended from time to time, is
incorporated by reference into this Prospectus.
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July 29, 1998
-2-
<PAGE>
HIGHLIGHTS
Q: What is Galaxy Fund II?
A: Galaxy Fund II ("Galaxy II") is an open-end investment company (commonly
known as a mutual fund) that offers investors the opportunity to invest in
different investment portfolios, each having separate investment objectives and
policies. This Prospectus describes Galaxy II's Large Company Index, Small
Company Index, Utility Index and U.S. Treasury Index Funds. A Prospectus for
the Municipal Bond Fund may be obtained by calling 1-800-628-0414.
Q: Who advises the Funds?
A: The Funds are managed by Fleet Investment Advisors Inc. ("Fleet"), an
indirect wholly-owned subsidiary of Fleet Financial Group, Inc. Fleet Financial
Group, Inc. is a financial services company with total assets as of December 31,
1997 of approximately $85.5 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 Galaxy II, 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." Except as provided below in "Investor Programs",
the minimum initial investment for Direct Investors and the minimum initial
aggregate investment for Institutions purchasing on behalf of their Customers is
$2,500. The minimum investment for subsequent purchases is $100. The minimum
investment requirement with respect to Individual Retirement Accounts ("IRAs"),
Simplified Employee Pension Plan accounts ("SEPs"), Multi-Employee Pension Plan
accounts ("MERPs") and Keogh Plan accounts is $500 (including spousal IRA
accounts). There are no minimum investment requirements for investors
participating in the Automatic Investment Program described below. Institutions
may require Customers to maintain certain minimum investments in Fund shares.
See "How to Purchase and Redeem Shares--Other Purchase Information" below.
Q: When are dividends paid?
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
-3-
<PAGE>
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. Galaxy II expects the investments of each Fund to decline in value
whenever the market, as represented by the securities in the index, declines.
LARGE COMPANY INDEX FUND: The Fund should exhibit price volatility
similar to that of the S&P 500.
SMALL COMPANY INDEX FUND: Since it invests in smaller companies, the
Fund may have greater price volatility and less liquidity than the Large
Company Index Fund.
UTILITY INDEX FUND: Historically, utility stocks have been one of the
least volatile sectors of the U.S. stock market when measured by statistics
such as standard deviation of return. Consequently, the Utility Index Fund
may have less price volatility than either the Large Company or Small
Company Index Funds, although there can be no assurance of this. The
Utility Index Fund is subject to industry risk and market risk. Industry
risk is the possibility that a particular group of related stocks in a
particular industry will decline in price due to industry-specific
developments. The Fund will concentrate its investments in the utility
industry. As a result, the Fund's investments may be subject to greater
risk and market fluctuation than a fund that has securities representing a
broader range of investment alternatives.
U.S. TREASURY INDEX FUND: While the "full faith and credit" of the
U.S. Government guarantees the stated interest rate and principal at
maturity of U.S. Treasury notes and bonds, the market value of these
securities will fluctuate due to changing interest rates. The U.S.
Treasury Index Fund is subject to moderate levels of interest rate risk.
It is impossible to eliminate risk from investments in common stocks and
bonds. You should consider your investment in the Funds to be long-term.
The Funds are not designed to provide you with a means to speculate on
short-term movements in the stock market.
Q: What shareholder privileges are offered by the Funds?
A: Direct Investors and Customers of Institutions may, after appropriate prior
authorization, exchange shares of a Fund having a value of at least $100 for
shares of any of the other funds or portfolios offered by Galaxy II 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. Galaxy II offers IRAs, SEPsand
Keogh Plan accounts, which can be established by contacting FD Distributors
(call 1-800-628-0414). Shares of the Funds are available for purchase in
connection with MERPs , and detailed information concerning eligibility and
other matters and the form of application is available from Fleet Brokerage
Securities, Inc. (call 1-800-221-8210). Galaxy II also offers an Automatic
Investment Program, which allows a Direct Investor to purchase Fund shares each
month as well as other shareholder privileges. See "Investor Programs."
-4-
<PAGE>
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 based on the fees and expenses incurred by the Fund during the
last fiscal year , restated to reflect the fees and expenses which each Fund
expects to incur during the 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 percentageof 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 . . . . . . . . . . . . . . 0.08% 0.01% 0.00% 0.02%
Total Fund Operating Expenses . . . . . . . 0.48% 0.41% 0.40% 0.42%
Account Maintenance Fee (per year per $0.00* $0.00* $0.00* $0.00*
account after waivers)
</TABLE>
- --------------
* First Data Investor Services Group, Inc. ("Investor Services Group"), 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,
annual sub-account fees payable with respect to shares of the Funds held by
defined contribution plans, 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. . . . . . . . $5 $15 $26 $59
Small Company Index Fund. . . . . . . . $4 $12 $22 $50
Utility Index Fund. . . . . . . . . . . $4 $12 $22 $49
U.S. Treasury Index Fund. . . . . . . . $4 $13 $23 $51
</TABLE>
-5-
<PAGE>
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
Investor Services Group 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.
-6-
<PAGE>
FINANCIAL HIGHLIGHTS
The following Financial Highlights have been audited by
PricewaterhouseCoopers LLP independent accountants, whose report is contained
in Galaxy II's Annual Report to Shareholders and is incorporated by reference
into the Statement of Additional Information. Further information about the
performance of the Funds is also contained in Galaxy II's Annual Report to
Shareholders which may be obtained without charge by calling Galaxy II at
1-800-628-0414.
<TABLE>
<CAPTION>
Large Company Index Fund
For a Share Outstanding Throughout Each Period
Period
Ended
Year Ended March 31, March 31,
--------------------------------------------------------------- ----------
1998 1997 1996 1995 1994 1993 1992 1991 (1)
-------- -------- -------- -------- --------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of period $ 23.09 $ 20.06 $ 15.76 $ 14.36 $ 14.59 $ 13.04 $ 12.10 $ 10.00
Income from Investment Operations: -------- -------- -------- -------- -------- -------- ------- -------
Net investment income(2) 0.40 0.43 0.38 0.37 0.36 0.34 0.31 0.15
Net realized and unrealized
gain (loss) on investments
and futures contracts. . . . . . . . . 10.23 3.41 4.57 1.73 (0.20) 1.55 0.95 2.10
Total from Investment Operations: -------- -------- -------- -------- -------- -------- ------- -------
10.63 3.84 4.95 2.10 0.16 1.89 1.26 2.25
-------- -------- -------- -------- -------- -------- ------- -------
Less Dividends:
Dividends from net investment income (0.44) (0.38) (0.31) (0.37) (0.36) (0.34) (0.31) (0.15)
Dividends from net realized
capital gains. . . . . . . . . . . . . (1.36) (0.43) (0.34) (0.33) (0.03) -- (0.01) --
-------- -------- -------- -------- -------- -------- ------- -------
Total Dividends: . . . . . . . . . . (1.80) (0.81) (0.65) (0.70) (0.39) (0.34) (0.32) (0.15)
-------- -------- -------- -------- -------- -------- ------- -------
Net Increase (decrease) in net asset
value . . . . . . . . . . . . . . . . . 8.83 3.03 4.30 1.40 (0.23) 1.55 0.94 2.10
-------- -------- -------- -------- -------- -------- ------- -------
Net Asset Value, End of period $ 31.92 $ 23.09 $ 20.06 $ 15.76 $ 14.36 $ 14.59 $ 13.04 $ 12.10
Total Return. . . . . . . . . . . . . . . 47.29% 19.32% 31.80% 15.07% 1.02% 14.68% 10.43% 22.60%(5)
Ratios/Supplemental Data:
Net assets, End of
period (in 000's) . . . . . . . . . . . $626,740 $421,652 $240,689 $147,597 $143,828 $133,426 $87,118 $17,215
Ratios to average net assets:
Net investment income including
reimbursement . . . . . . . . . . . . . 1.44% 2.19% 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% 0.40% 0.40%(4)
Operating expenses excluding
reimbursement . . . . . . . . . . . . . 0.40% 0.40% 0.41% 0.41% 0.40% 0.40% 0.40% 0.40%(4)
Portfolio turnover rate 3% 11% 5% 7% 4% 0% 0% 0%(5)
Average Commission Rate Paid(3) $ 0.0390 $ 0.0387 $ 0.0203 N/A N/A N/A N/A N/A
</TABLE>
- ------------------------
(1)The Fund commenced operations on October 1, 1990.
(2)Net investment income per share before reimbursement by the
sub-administrator for the fiscal years ended March 31, 1998, 1997, 1996
and 1995 was $0.40, $0.43, $0.38 and $0.37, respectively.
(3)Required disclosure for fiscal years beginning on or after
September 1, 1995.
(4)Annualized.
(5)Not Annualized.
-7-
<PAGE>
<TABLE>
<CAPTION>
Small Company Index Fund
For a Share Outstanding Throughout Each Period
Period
Ended
Year Ended March 31, March 31,
----------------------------------------------------------------- ----------
1998(6) 1997 1996 1995 1994 1993 1992 1991(1)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of period. . . $ 22.64 $ 22.30 $ 17.62 $ 17.49 $ 17.42 $ 15.39 $ 13.08 $ 10.00
Income from Investment Operations:
Net investment income(2). . . . . . . . 0.27 0.38 0.32 0.32 0.26 0.25 0.20 0.15
Net realized and unrealized
gain on investments
and futures contracts . . . . . . . . 7.64 1.76 5.07 0.91 0.39 2.07 2.40 3.01
Total from Investment Operations: 7.91 2.14 5.39 1.23 0.65 2.32 2.60 3.16
Less Dividends:
Dividends from net investment income. . (0.33) (0.34) (0.38) (0.32) (0.25) (0.24) (0.22) (0.08)
Dividends from net realized capital gains (9.49) (1.46) (0.33) (0.78) (0.33) (0.05) (0.07) --
Total Dividends: . . . . . . . . . . (9.82) (1.80) (0.71) (1.10) (0.58) (0.29) (0.29) (0.08)
Net Increase (decrease) in net asset value (1.91) 0.34 4.68 0.13 0.07 2.03 2.31 3.08
Net Asset Value, End of period. . . . . . $ 20.73 $ 22.64 $ 22.30 $ 17.62 $ 17.49 $ 17.42 $ 15.39 $ 13.08
Total Return. . . . . . . . . . . . . . . 41.22% 9.60% 30.85% 7.60% 3.64% 15.20% 20.04% 31.83%(5)
Ratios/Supplemental Data:
Net assets, End of
period (in 000's) . . . . . . . . . . . $399,162 $309,474 $291,724 $235,295 $255,347 $213,669 $116,290 $16,334
Ratios to average net assets:
Net investment income including
reimbursement . . . . . . . . . . . . . 0.97% 1.59% 1.52% 1.72% 1.55% 1.80% 2.26% 2.98%(4)
Operating expenses including
reimbursement . . . . . . . . . . . . . 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40%(4)
Operating expenses excluding
reimbursement . . . . . . . . . . . . . 0.40% 0.40% 0.41% 0.40% 0.40% 0.40% 0.40% 0.40%(4)
Portfolio turnover rate 99% 8% 14% 10% 17% 5% 6% 1%(5)
Average Commission Rate Paid(3) . . . . . $ 0.0297 $ 0.0480 $ 0.0225 N/A N/A N/A N/A N/A
</TABLE>
- -----------------------------
(1)The Fund commenced operations on October 1, 1990.
(2)Net investment income per share before reimbursement by the
sub-administrator for the fiscal years ended March 31, 1998, 1997, 1996
and 1995 was $0.27, $0.38, $0.31 and $0.31, respectively.
(3)Required disclosure for fiscal years beginning on or after
September 1, 1995.
(4)Annualized.
(5)Not Annualized.
(6)At a Special Meeting of Shareholders of the Small Company Index Fund held
on May 9, 1997, shareholders approved a change in the Fund's target index
from the Russell Special Small Company Index to the Standard & Poor's
SmallCap 600 Stock Price Index.
-8-
<PAGE>
<TABLE>
<CAPTION>
Utility Index Fund
For a Share Outstanding Throughout Each Period
Period
Ended
Year Ended March 31, March 31,
------------------------------------------------- -----------
1998(6) 1997 1996 1995 1994 1993(1)
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of period. . . . . . . . $ 11.42 $ 12.03 $ 9.88 $ 9.99 $ 10.93 $ 10.00
Income from Investment Operations:
Net investment income(2). . . . . . . . . . . . 0.54 0.49 0.44 0.47 0.43 0.06
Net realized and unrealized gain (loss) on
investments. . . . . . . . . . . . . . . . . . 3.71 (0.09) 2.15 (0.03) (0.93) 0.93
Total from Investment Operations:. . . . . . . 4.25 0.40 2.59 0.44 (0.50) 0.99
Less Dividends:
Dividends from net investment income. . . . . . (0.60) (0.46) (0.44) (0.46) (0.43) (0.06)
Dividends from net realized capital gains . . . (0.82) (0.55) -- (0.08) (0.01) --
Dividends in excess of net realized capital gains -- -- -- (0.01) -- --
Return of Capital . . . . . . . . . . . . . . . (0.07) -- -- -- -- --
Total Dividends: . . . . . . . . . . . . . . . (1.49) (1.01) (0.44) (0.55) (0.44) (0.06)
Net Increase (decrease) in net asset value. . . . . 2.76 (0.61) 2.15 (0.11) (0.94) 0.93
Net Asset Value, End of period. . . . . . . . . . . $ 14.18 $ 11.42 $ 12.03 $ 9.88 $ 9.99 $ 10.93
Total Return. . . . . . . . . . . . . . . . . . . . 39.07% 3.46% 26.61% 4.67% 4.83% 9.85%(5)
Ratios/Supplemental Data:
Net assets, End of period (in 000's). . . . . . . . $55,864 $45,582 $56,383 $52,831 $68,445 $38,151
Ratios to average net assets:
Net investment income including reimbursement . 4.24% 3.96% 3.79% 4.62% 4.08% 4.66%(4)
Operating expenses including reimbursement. . . 0.40% 0.40% 0.40% 0.40% 0.40% 0.40%(4)
Operating expenses excluding reimbursement. . . 0.40% 0.40% 0.41% 0.41% 0.40% 0.40%(4)
Portfolio turnover rate . . . . . . . . . . . . . . 72% 170% 12% 5% 19% 0%(5)
Average Commission Rate Paid(3) . . . . . . . . . . $0.0497 $0.0572 $0.0230 N/A N/A N/A
</TABLE>
- -----------------------------
(1)The Fund commenced operations on January 5, 1993.
(2)Net investment income per share before reimbursement by the sub-administrator
for the fiscal years ended March 31, 1998, 1997, 1996
and 1995 was $0.54, $0.49, $0.44 and $0.47, respectively.
(3)Required disclosure for fiscal years beginning on or after September 1, 1995.
(4)Annualized.
(5)Not Annualized.
(6)At a Special Meeting of Shareholders of the Utility Index Fund held on
May 9, 1997, shareholders approved a change in the Fund's target index from
the Russell 1000 Utility Index to the Standard & Poor's Utilities Composite
Stock Price Index.
-9-
<PAGE>
<TABLE>
<CAPTION>
U.S. Treasury Index Fund
For a Share Outstanding Throughout Each Period
Period
Ended
Year Ended March 31, March 31,
-------------------------------------------------------------- ----------
1998 1997 1996 1995 1994 1993 1992(1)
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of period. . . . . . . . $ 9.99 $ 10.24 $ 9.91 $ 10.38 $ 11.01 $ 10.39 $ 10.00
Income from Investment Operations:
Net investment income(2) . . . . . . . . . . . 0.63 0.64 0.66 0.65 0.58 0.63 0.51
Net realized and unrealized
gain (loss) on investments. . . . . . . . 0.51 (0.25) 0.33 (0.29) (0.29) 0.75 0.38
Total from Investment Operations 1.14 0.39 0.99 0.36 0.29 1.38 0.89
Less Dividends:
Dividends from net investment income . . . . . (0.63) (0.64) (0.65) (0.66) (0.58) (0.63) (0.50)
Dividends in excess of net investment
income . . . . . . . . . . . . . . . . . . -- -- (0.01) (0.01) -- -- --
Distributions from net realized
capital gains. . . . . . . . . . . . . . . -- -- -- -- (0.34) (0.13) --
Dividends in excess of net realized
capital gains. . . . . . . . . . . . . . . . . -- -- -- (0.16) -- -- --
Total Dividends: . . . . . . . . . . . (0.63) (0.64) (0.66) (0.83) (0.92) (0.76) (0.50)
Net increase (decrease) in net asset value. . . . . 0.51 (0.25) (0.33) (0.47) (0.63) 0.62 0.39
Net Asset Value, End of period. . . . . . . . . . . $ 10.50 $ 9.99 $ 10.24 $ 9.91 $ 10.38 $ 11.01 $ 10.39
Total Return. . . . . . . . . . . . . . . . . . . . 11.72% 3.91% 10.09% 3.81% 2.40% 13.69% 8.99%(4)
Ratios/Supplemental Data:
Net assets, End of
period (in 000's). . . . . . . . . . . . . . . $118,368 $111,313 $124,944 $104,251 $138,225 $145,353 $102,830
Ratios to average net assets:
Net investment income including
reimbursement. . . . . . . . . . . . . . . 6.12% 6.31% 6.35% 6.43% 5.21% 5.87% 6.40%(3)
Operating expenses including
reimbursement. . . . . . . . . . . . . . . 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40%(3)
Operating expenses excluding
reimbursement. . . . . . . . . . . . . . . 0.40% 0.40% 0.41% 0.41% 0.40% 0.40% 0.40%(3)
Portfolio turnover rate 79% 39% 35% 50% 75% 35% 57%(4)
</TABLE>
- -----------------------------
(1)The Fund commenced operations on June 4, 1991.
(2)Net investment income per share before reimbursement by the
sub-administrator for the fiscal years ended March 31, 1998, 1997, 1996
and 1995 was $0.63, $0.64, $0.66 and $0.65, respectively.
(3)Annualized.
(4)Not Annualized.
-10-
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Galaxy II offers four indexed investment options:
The LARGE COMPANY INDEX FUND seeks to provide investment results that,
before deduction of operating expenses, match the price and yield performance of
U.S. publicly traded common stocks with large stock market capitalizations, as
represented by the S&P 500.
The SMALL COMPANY INDEX FUND seeks to provide investment results that,
before deduction of operating expenses, match the price and yield performance of
U.S. publicly traded common stocks with smaller stock market capitalizations, as
represented by the S&P SmallCap 600 Index.
The UTILITY INDEX FUND seeks to provide investment results that, before the
deduction of operating expenses, match the price and yield performance of U.S.
publicly traded common stocks of companies engaged in the utility industry, as
represented by the S&P Utilities Index.
The U.S. TREASURY INDEX FUND seeks to provide investment results that,
before deduction of operating expenses, match the price and yield performance of
U.S. Treasury notes and bonds, as represented by the U.S. Treasury Index.
The investment objective of a Fund may not be changed without the approval
of the holders of a "majority" of the outstanding voting shares of that Fund.
The term "majority" is defined in the Investment Company Act of 1940, as amended
(the "1940 Act"). There can be no assurance that the investment objective of any
Fund will be achieved.
Risk considerations related to the Funds' investments are described under
"Other Investment Practices" and "Investment Risks."
The Indexing Approach
The Funds are not managed in a traditional sense, that is, by making
discretionary judgments based on analysis of economic, financial and market
conditions. Instead, the Funds seek to match the investment performance of their
respective market segments, as represented by their respective indexes, through
the use of sophisticated computer models to determine which stocks or bonds
should be purchased or sold, while keeping transaction and administrative costs
to a minimum. Each Fund will attempt to be fully invested in securities of its
respective index and will invest at least 80% of its net assets in those
securities. The Fund's investment adviser, Fleet Investment Advisors Inc.
("Fleet"), generally selects securities for the Funds on the basis of their
weightings in the respective indexes. A Fund will only purchase a security that
is included in its respective index at the time of such purchase. With respect
to the remaining portion of its net assets, each Fund has the ability to hold
temporary cash balances and, if appropriate, in the case of the Large Company
Index Fund, the Small Company Index Fund and the Utility Index Fund (the "Stock
Funds") to use stock index futures contracts to increase efficiency. Each Fund
also may lend securities constituting up to 33 1/3% of its total assets.
While there can be no guarantee that each Fund's investment results will
precisely match the results of its corresponding index, Fleet believes that,
before deduction of operating expenses, there will be a very high correlation
between the returns generated by the Funds and their respective 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
-11-
<PAGE>
respective index. Each Fund's ability to correlate its performance with its
respective index, however, may be affected by, among other things, changes in
securities markets, the manner in which Standard & Poor's ("S&P") or Salomon
Brothers Inc. ("Salomon") calculate their respective indexes, and the timing of
purchases and redemptions. Fleet monitors the correlation of the performance of
the Funds in relation to their indexes under the supervision of the Board of
Trustees. In the unlikely event that a high correlation is not achieved, the
Board of Trustees will take appropriate steps based on the reasons for the lower
than expected correlation.
The inclusion of a security in any of the Funds' indexes in no way implies
an opinion by S&P or Salomon as to its attractiveness as an investment. S&P and
Salomon are not sponsors of, or in any way affiliated with, the Funds.
Fleet believes that the indexing approach should involve less turnover, and
thus lower brokerage costs, transfer taxes and operating expenses, than in more
traditionally managed funds, although there is no assurance that this will be
the case. Ordinarily, a Fund will buy or sell securities only to reflect
changes in an index (including mergers or changes in the composition of an
index) or to accommodate cash flows into and out of the Fund. The costs and
other expenses incurred in securities transactions, apart from any difference
between the investment results of a Fund and that of its respective index, may
cause the return of a Fund to be lower than the return of its respective index.
The Funds may invest in less than all of the securities included in their
respective indexes, which may result in a return that does not match that of the
indexes, after taking expenses into account.
THE LARGE COMPANY INDEX FUND
The S&P 500 is composed of approximately 500 common stocks, most of which
are listed on the New York Stock Exchange (the "NYSE"). S&P chooses the stocks
for the S&P 500 on a statistical basis. As of December 31, 1997, the stocks in
the S&P 500 had an average market capitalization of $15,313,000,000 and
accounted for approximately 73% 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 SMALL COMPANY INDEX FUND
The S&P SmallCap 600 Index is comprised of approximately 600 U.S. common
stocks with small market capitalizations. Like the S&P 500, the weighting of
stocks in the S&P SmallCap 600 Index is based on each stock's relative total
market capitalization. As of December 31, 1997, stocks in the S&P SmallCap 600
Index accounted for about 3% of the total market value of all publicly traded
U.S. common stocks. The average capitalization of stocks included in the S&P
SmallCap 600 Index as of December 31, 1997 was approximately $587 million,
although the capitalization of some companies included in the S&P SmallCap 600
Index is significantly higher.
-12-
<PAGE>
Normally, the Small Company Index Fund will hold all 600 stocks in the S&P
SmallCap 600 Index and will hold each stock in approximately the same percentage
as that stock represents in the S&P SmallCap 600 Index. From time to time,
however, when deemed advisable by Fleet, the Fund will not hold all of the
issues in the S&P SmallCap 600 Index but instead will use a statistical
technique known as "portfolio optimization". Through portfolio optimization,
each stock is considered for inclusion in the Fund based on its contribution to
the market capitalization, industry representation and fundamental exposures of
the Fund and their similarity to these financial characteristics in the S&P
SmallCap 600 Index. These fundamental exposures include dividend yield,
price-earnings multiples and average growth rates.
When utilized, the portfolio optimization program is expected to provide an
effective method of substantially duplicating the dividend income and capital
gains produced by the S&P SmallCap 600 Index. Since the Fund does not hold
every stock in the S&P SmallCap 600 Index when utilizing portfolio optimization,
it is not expected to track the S&P SmallCap 600 Index with the same degree of
accuracy as when it holds all 600 stocks in the Index, although the Fund will
seek a correlation of at least 0.95, before deduction of operating expenses.
THE UTILITY INDEX FUND
The S&P Utilities Index is an index of U.S. common stocks designed to
measure the performance of the utility sector of the S&P 500. The S&P Utilities
Index is comprised of approximately 40 stocks. The weighting of stocks in the
S&P Utilities Index is based on each stock's relative market capitalization. As
of December 31, 1997, the S&P Utilities Index included 37 companies, reflecting
the various segments of the utility industry in the following percentages (on a
market capitalization basis):
<TABLE>
<CAPTION>
% of
Sector Index
- ------ -------
<S> <C>
Electric. . . . . . . . . . . . . . . . . . . . . . . 77.56%
Gas and Water . . . . . . . . . . . . . . . . . . . . 22.44%
</TABLE>
Like the S&P 500 and S&P SmallCap 600 Index, the weighting of stocks in
the S&P Utilities Index is based on each stock's relative market
capitalization. Normally, the Utility Index Fund will hold every stock in the
S&P Utilities Index and will hold each stock in approximately the same
percentage as that stock represents in the S&P Utilities Index. From time to
time, however, the Fund may be unable to hold each stock in approximately the
same percentage as that stock represents in the S&P Utility Index because of
the Fund's fundamental diversification policy described in Investment
Limitation No. 2 below. See "Investment Limitations."
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, 1997:
-13-
<PAGE>
<TABLE>
<CAPTION>
U.S. Treasury
Index Fund
--------------
<S> <C>
Number of Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Total Market Value . . . . . . . . . . . . . . . . . . . . . . . $113,952,205
Minimum Maturity . . . . . . . . . . . . . . . . . . . . . . . . . 1.1 Years
Maximum Maturity . . . . . . . . . . . . . . . . . . . . . . . . . 29.6 Years
Weighted Average Maturity. . . . . . . . . . . . . . . . . . . . . 8.5 Years
Percent of Market Value with remaining
Maturity of:
1-3 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35.4%
3-7 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28.6%
7-10 years. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.1%
10-20 years . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.4%
Over 20 years . . . . . . . . . . . . . . . . . . . . . . . . . . 15.1%
Cash equivalent reserve. . . . . . . . . . . . . . . . . . . . . . . . 1.4%
</TABLE>
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."
OTHER INVESTMENT PRACTICES AND RISK CONSIDERATIONS
TEMPORARY CASH BALANCES
Each Fund will hold very small temporary cash balances to efficiently
manage transactional expenses. These cash balances generally are expected,
under normal conditions, not to exceed 2% of its net assets at any time
(excluding amounts used as margin and segregated assets with respect to
futures transactions and collateral for securities loans and repurchase
agreements). The Funds may invest these temporary cash balances in short-term
securities of the U.S. Government or its agencies and instrumentalities
("U.S. Government securities"), high quality commercial paper (rated A-1 or
better by Standard & Poor's Ratings Group or P-1 or better by Moody's
Investors Service, Inc.), certificates of deposit and time deposits of
banking institutions having total assets in excess of $1 billion, and
repurchase agreements collateralized by U.S. Government securities. The
Funds may also hold these investments in connection with "U.S. Treasury
rolls", which are not subject to the 2% limitation above.
In repurchase agreements, a Fund purchases portfolio securities subject
to a seller's agreement to repurchase them at a mutually specified date
(generally within one to seven days) and price. Repurchase agreements will be
entered into only with financial institutions, such as banks and
broker-dealers, which are deemed creditworthy by Fleet under guidelines
approved by Galaxy II's Board of Trustees. No Fund will enter into repurchase
agreements with Fleet or any of its affiliates. The seller under a repurchase
agreement will be required to maintain the value of the securities which are
subject to the agreement and held by a Fund at not less than the agreed upon
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 U.S. Treasury rolls, a Fund sells outstanding U.S. Treasury
securities and buys back on a delayed settlement basis the same U.S. Treasury
securities. During the period prior to the delayed settlement
-14-
<PAGE>
date, the assets from the sale of the U.S. Treasury securities are invested
in cash equivalent instruments such as those described above. U.S. Treasury
rolls entail the risk that a Fund could suffer an opportunity loss if the
counterparty to the roll failed to perform its obligations on the settlement
date, and if market conditions changed adversely. Each Fund intends, however,
to enter into U.S. Treasury rolls only with U.S. Government securities
dealers recognized by the Federal Reserve Bank or with member banks of the
Federal Reserve System. For financial reporting and tax purposes, the Funds
propose to treat U.S. Treasury rolls as two separate transactions, one
involving the purchase of a security and a separate transaction involving a
sale. The Funds do not currently intend to enter into U.S. Treasury rolls
that are accounted for as a financing.
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.
INVESTMENT LIMITATIONS
The Funds have adopted certain limitations on their 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
-15-
<PAGE>
(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 Funds'
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. Galaxy II 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.
The Utility Index Fund is subject to industry risk. Industry risk is the
possibility that a particular group of related stocks, such as those stocks in a
particular industry, will decline in price due to industry-specific
developments. For the utility industry, these developments could include:
- changing regulations which could limit profits, dividends, or access
to new markets;
- unexpected increases in fuel, environmental compliance, safety, or
other operating costs, including high interest costs on borrowings needed for
capital improvement projects;
- increasing competition, particularly among providers of gas utilities,
with the need to make large investments in technology to meet this competition;
and
- restriction to relatively mature markets, particularly among water
companies, which constrain potential for growth.
The Fund will concentrate its investments in the utility industry. As a
result, the Fund's investments may be subject to greater risk and market
fluctuation than a fund that has securities representing a broader range of
investment alternatives.
-16-
<PAGE>
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, 1998, the weighted average maturity of the U.S. Treasury
Index Fund was 8.923 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. ("Investor Services Group"), Galaxy II's
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.
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 Galaxy II's 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.
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Dividend declaration and payment frequencies are:
<TABLE>
<CAPTION>
NET INVESTMENT REALIZED
INCOME APITAL GAINS
-------------- ------------
<S> <C> <C>
Large Company Index Fund. . . . . . . . . . Annually Annually
Small Company Index Fund. . . . . . . . . . Annually Annually
Utility Index Fund. . . . . . . . . . . . . Quarterly Annually
U.S. Treasury Index Fund. . . . . . . . . . Declaration-Daily Annually
Payment-Monthly
</TABLE>
Dividends and distributions may be made on a more frequent basis to comply
with the distribution requirements of the Internal Revenue Code of 1986, as
amended (the "Code").
You will receive all dividends and capital gains distributions as
additional shares of the Fund that paid the dividend or distribution at its then
current net asset value, unless you elect to receive cash. You may elect to
receive cash by so specifying on your account application or by notifying
Investor Services Group, Galaxy II's transfer agent, in writing. Shareholders
electing to reinvest dividends in the U.S. Treasury Index 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.
Investor Services Group 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
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 or mid-term capital gains will be taxable to you as long-term or
mid-term capital gains, as the case may be, regardless of how long you have held
shares of a Fund. You will be taxable on distributions regardless of whether
they are paid in cash or reinvested in additional shares.
As a general rule, your gain or loss on a sale or redemption of Fund shares
(including an exchange of Fund shares for shares of another fund) will be a
long-term capital gain or loss if you have held your shares for more than 18
months, a mid-term capital gain or loss if you have held your shares for less
than 18 months but more than 12 months, and a short-term capital gain or loss if
you have held your shares for 12 months 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.
Most states do not tax mutual fund dividends attributable to interest on
U.S. Treasury securities. Some states attempt to limit this exemption to
distributions by mutual funds that primarily invest in such securities and that
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.
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<PAGE>
Statements as to the tax status of your dividends and distributions will be
mailed annually. Galaxy II 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 Galaxy II
and oversees management. The Board selects and supervises the Funds' investment
adviser and Galaxy II's officers who are responsible for the day-to-day
management of Galaxy II'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 other investment portfolio
of Galaxy II, the investment portfolios of The Galaxy Fund and certain of the
investment portfolios of 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, 1997 of approximately $85.5 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.
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, 1998.
Fleet is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, to the extent permitted
by law or order of the Securities and Exchange Commission ("SEC"), financial
institutions that are affiliated with Fleet or that have sold shares of the
Funds, if Fleet believes that the quality of the transaction and the commission
are comparable to what they would be with other qualified brokerage firms.
ADMINISTRATOR AND SUB-ADMINISTRATOR
Fleet National Bank ("FNB") provides Galaxy II with office facilities and
support personnel and generally assists in all aspects of administration and
operation of Galaxy II. 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 Galaxy
II, brokerage fees and commissions, interest on borrowings, taxes, annual
sub-account fees payable with respect to shares of the Funds held by defined
contribution plans, and such extraordinary, nonrecurring expenses as may arise,
including litigation to which Galaxy II may be a party. FNB receives a fee from
each Fund at an annual rate of 0.30% of the average daily net assets of the
Fund, which was the rate of FNB's compensation during the fiscal year ended
March 31, 1998. 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. ("Investor Services Group"), located at 4400
Computer Drive, P.O. Box 5108, Westboro, Massachusetts 01581, a wholly-owned
subsidiary of First Data Corporation, to provide administrative
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services to Galaxy II and to serve as shareholder servicing agent. FNB bears
the fees of Investor Services Group for providing such services.
DISTRIBUTOR
First Data Distributors, Inc. ("FD Distributors"), a wholly-owned
subsidiary of Investor Services Group, is responsible for the marketing and
distribution of the shares of each Fund. FD Distributors is a registered
broker/dealer with principal offices located at 4400 Computer Drive, P.O. Box
5108, Westboro, Massachusetts 01581. FD Distributors does not receive any
compensation from Galaxy II or the Funds for its services.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank (the "Custodian"), located at 1 Chase Manhattan
Plaza, New York, New York 10081, a wholly-owned subsidiary of The Chase
Manhattan Corporation, serves as the custodian of the Funds' assets, and
Investor Services Group 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 Investor Services Group
should be directed to Investor Services Group 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. Shares may be purchased by
individuals or corporations who submit a purchase application to Galaxy II,
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
Custodian and Investor Services Group 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 Investor Services Group 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.
Investor Services Group 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 Investor Services
Group, confirmations of share purchases and redemptions and pertinent account
statements will either be sent by Investor Services Group directly to a Customer
with a copy to the Institution, or will be furnished directly to the Customer by
the Institution. Other procedures for the purchase of shares established by
Institutions in connection with the requirements of their Customer accounts may
apply. Customers wishing to purchase shares through their Institution should
contact such entity directly for appropriate purchase instructions.
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<PAGE>
PURCHASE PROCEDURES - DIRECT INVESTORS
PURCHASES BY MAIL. Shares may be purchased by completing a purchase
application and mailing it, together with a check payable to each Fund in which
a Direct Investor wishes to invest, to:
Galaxy Fund II
4400 Computer Drive
P.O. Box 5108
Westboro, MA 01581
ALL INITIAL PURCHASE ORDERS PLACED BY MAIL MUST BE ACCOMPANIED BY A
PURCHASE APPLICATION. APPLICATIONS MAY BE OBTAINED BY CALLING FD DISTRIBUTORS
AT 1-800-628-0414.
Subsequent investments in an existing account in any Fund may be made at
any time by sending a check for a minimum of $100 payable to the Fund in which
the additional investment is being made to Galaxy II at the above address 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 National Bank as agent for Investor
Services Group. Prior to making any purchase by wire, an investor must
telephone FD Distributors at 1-800-628-0414 to place an order and for
instructions.
Direct Investors making initial investments by wire must promptly complete
a purchase application and forward it to Galaxy Fund II, 4400 Computer Drive,
P.O. Box 5108, Westboro, Massachusetts 01581. Applications may be obtained by
calling FD Distributors at 1-800-628-0414.
Except as provided in "Investor Programs" below, the minimum initial
investment by a Direct Investor, or initial aggregate investment by an
Institution investing on behalf of its Customers, is $2,500. The minimum
investment for subsequent purchases is $100. The minimum investment requirement
with respect to IRAs, SEPs, MERPs and Keogh Plans (see below under "Retirement
Plans") is $500 (including spousal IRA accounts). There are no minimum
investment requirements for investors participating in the Automatic Investment
Program described below. Customers may agree with a particular Institution to
change the minimum initial and minimum subsequent purchase requirements with
respect to their accounts.
Galaxy II 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 Galaxy II and share certificates will not be issued.
EFFECTIVE TIME OF PURCHASES. 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
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<PAGE>
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. On a Business Day when the NYSE closes
early due to a partial holiday or otherwise, Galaxy II will advance the time at
which purchase orders must be received in order to be processed on that Business
Day.
REDEMPTION PROCEDURES - CUSTOMERS OF INSTITUTIONS
Customers of Institutions may redeem all or a portion of their shares in
accordance with procedures governing their accounts at Institutions. It is the
responsibility of the Institutions to transmit redemption orders to FD
Distributors and credit their Customers' accounts with the redemption proceeds
on a timely basis. No charge for wiring redemption payments to Institutions is
imposed by Galaxy II, although Institutions may charge a Customer's account for
redemption services. Information relating to such redemption services and
charges, if any, is available from the Institutions.
Payments for redemption orders received by FD Distributors on a Business
Day will normally be wired on the third Business Day to the Institutions.
DIRECT INVESTORS MAY REDEEM ALL OR A PORTION OF THEIR SHARES IN ACCORDANCE
WITH ANY OF THE PROCEDURES DESCRIBED BELOW.
REDEMPTION PROCEDURES - DIRECT INVESTORS
REDEMPTION BY MAIL. Shares may be redeemed by a Direct Investor by
submitting a written request for redemption to:
Galaxy Fund II
4400 Computer Drive
P.O. Box 5108
Westboro, MA 01581
A written redemption request must (i) state the name of the Fund and 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 $50,000, or for any amount where (i) the proceeds are
to be sent elsewhere than the address of record, (ii) the proceeds are to be
sent to an address of record which has changed in the preceding 30 days, or
(iii) the check is to be made payable to someone other than the registered
owner(s), must be accompanied by signature guarantees. The guarantor of a
signature must be a bank that is a member of the Federal Deposit Insurance
Corporation, a trust company, a member firm of a national securities exchange or
any other eligible guarantor institution. FD Distributors will not accept
guarantees from notaries public. FD Distributors 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 FD Distributors 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 FD Distributors of the
redemption request. Questions with respect to the proper form for redemption
requests should be directed to FD Distributors at 1-800-628-0414.
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<PAGE>
REDEMPTION BY TELEPHONE. Direct Investors may redeem shares by calling
1-800-628-0414 and instructing FD Distributors to mail a check for redemption
proceeds of up to $50,000 to the address of record. A redemption request for an
amount in excess of $50,000, or for any amount where (i) the proceeds are to be
sent elsewhere than the address of record, (ii) the proceeds are to be sent to
an address of record which has changed in the preceding 30 days, or (iii) the
check is to be made payable to someone other than the registered owner(s), must
be accompanied by signature guarantees. (See "Redemption by Mail" above for
details regarding signature guarantees.)
REDEMPTION BY WIRE. Direct Investors who have so indicated on the account
application, or have subsequently arranged in writing to do so, may redeem
shares by instructing FD Distributors 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. FD Distributors charges a $5.00 fee
for each wire redemption and the fee is deducted from the redemption proceeds.
The redemption proceeds must be paid to the same bank and account as designated
on the account application or in written instructions subsequently received by
FD Distributors. To request redemption of shares by wire, Direct Investors
should call 1-800-628-0414.
In order to arrange for redemption by wire after an account has been opened
or to change the bank or account designated to receive redemption proceeds, a
written request must be sent to Galaxy II 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.
Galaxy II 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. In attempting to confirm
that telephone instructions are genuine, Galaxy II 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). If Galaxy II
fails to follow established procedures for the authentication of telephone
instructions, it may be liable for losses due to unauthorized or fraudulent
telephone transactions.
NO REDEMPTION BY A DIRECT INVESTOR IN ANY FUND WILL BE PROCESSED UNTIL
GALAXY II 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, GALAXY II RESERVES THE RIGHT TO DELAY
PAYMENT OF PROCEEDS UNTIL FD DISTRIBUTORS 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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<PAGE>
OTHER REDEMPTION INFORMATION
Galaxy II 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.
Galaxy II 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. On a
Business Day when the NYSE closes early due to a partial holiday or otherwise,
Galaxy II will advance the time at which redemptions orders must be received in
order to be processed on that Business Day. Galaxy II 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 Galaxy II. Galaxy II 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." Galaxy II
offers shares of beneficial interest, par value $.001 per share. Currently,
five series of shares have been authorized for sale to the public, four of whose
shares constitute the interests of the Funds described in this Prospectus. When
matters are submitted for shareholder vote, shareholders of each Fund will have
one vote for each full share held and proportionate, fractional votes for
fractional shares held. Generally, shares of Galaxy II 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 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. 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 Galaxy II's outstanding shares.
Shareholders who satisfy certain criteria will be assisted by Galaxy II in
communicating with other shareholders in seeking the holding of the meeting.
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Agreements for Sub-Account Services
Galaxy II and Investor Services Group may enter into agreements with one or
more entities, including FNB and other affiliates of Fleet, pursuant to which
such entities agree to perform certain sub-account and administrative functions
("Sub-Account Services") on a per account basis with respect to shares of the
Funds held by defined contribution plans, including maintaining records
reflecting separately with respect to each plan participant's sub-account all
purchases and redemptions of Fund shares and the dollar value of Fund shares in
each sub-account; crediting to each participant's sub-account all dividends and
distributions with respect to that sub-account; and transmitting to each
participant a periodic statement regarding the sub-account as well as any proxy
materials, reports and other material Fund communications. Such entities are
compensated by Investor Services Group for the Sub-Account Services and in
connection therewith the transfer agency fees payable by the Funds to Investor
Services Group have been increased by an amount equal to these fees. In
substance, therefore, the shareholders of the Funds indirectly bear these fees.
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to shareholders, the
performance of the Funds may be quoted and compared to that of other mutual
funds with similar investment objectives and to stock or other relevant bond
indexes or to rankings prepared by independent services or other financial or
industry publications that monitor the performance of mutual funds. For
example, the performance of the Funds may be compared to data prepared by LIPPER
ANALYTICAL SERVICES, INC., a widely recognized independent service which
monitors the performance of mutual funds, the S&P 500, the Consumer Price Index,
the Dow Jones Industrial Average, a recognized unmanaged index of common stocks
of 30 industrial companies listed on the NYSE, the S&P SmallCap 600 Index, the
S&P Utilities Index or the U.S. Treasury Index.
Performance 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" figures 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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The performance of the Funds will fluctuate and any quotation of
performance 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 data
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 Galaxy II 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 Galaxy II 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, or in the College Investment Program described
below, in which event the minimum initial investment is generally $100.
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 Galaxy II 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 Galaxy II's exchange privilege, Direct
Investors should call 1-800-628-0414. Customers of Institutions should call
their Institution for such information. Customers exercising the exchange
privilege with Galaxy II's Municipal Bond Fund or another portfolio otherwise
advised by Fleet or its affiliates should request and review a prospectus for
such fund or portfolio prior to making an exchange. Telephone 1-800-628-0414 to
request a prospectus and/or to make an exchange.
In order to prevent abuse of this privilege to the disadvantage of other
shareholders, Galaxy II's reserves the right to terminate the exchange privilege
of any shareholder who requests more than three exchanges a year. Galaxy II 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 Galaxy II 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.
Galaxy II 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
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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 traditional, Roth and
Education IRAs and "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 Code. The minimum initial investment for a MERP is $500.
KEOGH PLAN, a retirement vehicle for self-employed individuals. The minimum
initial investment for a Keogh Plan is $500.
Detailed information concerning eligibility and other matters related to
these plans and the form of application is available from FD Distributors (call
1-800-628-0414) with respect to IRAs, SEPs and Keogh Plans and from Fleet
Brokerage Securities, Inc. (call 1-800-221-8210) with respect to MERPs.
AUTOMATIC INVESTMENT PROGRAM
The Automatic Investment Program permits a Direct Investor to purchase Fund
shares each month or each quarter (minimum of $50 per transaction except for
Direct Investors purchasing Fund shares to be held in an Education IRA, in which
event the minimum amount is $40 per month or $125 per quarter). 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 on a monthly or quarterly basis on any Business Day designated by a
Direct Investor. If the designated day follows a weekend or holiday, the
purchase will be made on the Business Day closest to the designated day. Only an
account maintained at a domestic financial institution which is an Automated
Clearing House 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 on any Business Day
designated by a Direct Investor, if the account has a starting value of at least
$10,000. If the designated day falls on a weekend or holiday, the redemption
will be made on the Business Day closest to the designated day. Proceeds of the
redemption will be sent to the shareholder's address of record or financial
institution within three Business Days of the redemption. If withdrawals exceed
purchases and dividends, the number of shares
-27-
<PAGE>
in the account will be reduced. Investors may terminate the Systematic
Withdrawal Plan at any time upon written notice to Investor Services Group (but
not less than five days before a payment date). There is no charge for this
service.
PAYROLL DEDUCTION PROGRAM
The Payroll Deduction Program provides Direct Investors with a convenient,
systematic way to purchase Fund shares by deducting a minimum amount of $25 per
pay period from their paycheck. To be eligible for the Program, the payroll
department of a Direct Investor's employer must have the capability to forward
transactions directly through the Automated Clearing House (ACH), or indirectly
through a third party payroll processing company that has access to the ACH. A
Direct Investor must complete and submit a Galaxy II Payroll Deduction
Application to his or her employer's payroll department, which will arrange for
the specified amount to be debited from the Direct Investor's paycheck each pay
period. Shares of the Funds will be purchased within three days after the debit
occurs. If the designated day falls on a weekend or non-Business Day, the
purchase will be made on the Business Day closest to the designated day. A
Direct Investor should allow between two to four weeks for the Payroll Deduction
Program to be established after submitting an application to the employer's
payroll department.
COLLEGE INVESTMENT PROGRAM
The College Investment Program (the "College Program") permits a Direct
Investor to open an account with Galaxy II and purchase Fund shares with a
minimum amount of $100 for initial or subsequent investments, except that if the
Direct Investor purchases shares through the Automatic Investment Program, the
minimum per transaction is $50. The College Program is designed to assist
Direct Investors who want to finance a college savings plan. See "Investor
Programs -- Automatic Investment Program" for information on the Automatic
Investment Program. Galaxy II reserves the right to redeem accounts
participating in the College Program involuntarily, upon 60 days' written
notice, if the account's net asset value falls below the applicable minimum
initial investment as a result of redemptions. See "How to Purchase and Redeem
Shares -- Other Redemption Information" above for further information.
Direct Investors in the College Program will receive consolidated monthly
statements of their accounts. Detailed information concerning College Program
accounts and applications may be obtained from FD Distributors (call
1-800-628-0414).
DIRECT DEPOSIT PROGRAM
Direct Investors receiving social security benefits are eligible for the
Direct Deposit Program. This Program enables a Direct Investor to purchase Fund
shares by having social security payments automatically deposited into his or
her Fund account. There is no minimum deposit requirement. For instructions on
how to enroll in the Direct Deposit Program, Direct Investors should call FD
Distributors at 1-800-628-0414. Death or legal incapacity will terminate a
Direct Investor's participation in the Program. A Direct Investor may elect at
any time to terminate his or her participation by notifying in writing the
Social Security Administration. Further, Galaxy II may terminate a Direct
Investor's participation upon 30 days' notice to the Direct Investor.
-28-
<PAGE>
INFORMATION SERVICES
GALAXY II INFORMATION CENTER -- 24 HOUR INFORMATION SERVICE
The Galaxy II Information Center provides Fund performance and investment
information 24 hours a day, seven days a week. To access the Galaxy II
Information Center, just call 1-800-628-0414.
VOICE RESPONSE SYSTEM
The Voice Response System provides Direct Investors automated access to
Fund and account information as well as the ability to make telephone exchanges
and redemptions. These transactions are subject to the terms and conditions
described under Investor Programs. To access the Voice Response System, just
call 1-800-628-0414 from any touch-tone telephone and follow the recorded
instructions.
GALAXY II SHAREHOLDER SERVICES
For account information and recent exchange transactions, Direct Investors
can call Galaxy II Shareholder Services Monday through Friday, between the hours
of 9:00 a.m. to 5:00 p.m. (Eastern Time) at 1-800-628-0414.
Galaxy II also offers a TDD service for the hearing impaired. Just call
1-800-696-6515, 24 hours a day, seven days a week.
Direct Investors residing outside the United States can contact Galaxy II
by calling 1-508-855-5237.
Investment returns and principal values will vary with market conditions so
that an investor's shares, when redeemed, may be worth more or less than their
original cost. Past performance is no guarantee of future results. Unless
otherwise indicated, total return figures include changes in share price and
reinvestment of dividends and capital gains distributions, if any.
MISCELLANEOUS
"Standard & Poor's," "S&P," "Standard & Poor's 500," "S&P 500," "500,"
"Standard & Poor's SmallCap 600 Index" and "S&P SmallCap 600 Index" are service
marks of The McGraw Hill Companies, Inc. and have been licensed to Fleet for use
by Galaxy II.
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
("S&P"), a division of The McGraw Hill Companies, Inc. S&P makes no
representation or warranty, express or implied, to the shareholders of the Large
Company Index Fund, the Small Company Index Fund or the Utility Index Fund or
any member of the public regarding the advisability of investing in securities
generally or in the Large Company Index Fund, the Small Company Index Fund or
the Utility Index Fund particularly or the ability of the S&P 500, the S&P
SmallCap 600 Index or the S&P Utilities Index to track general stock market
performance. S&P has no obligation to take the needs of Galaxy II or the
shareholders of the Large Company Index Fund, the Small Company Index Fund or
the Utility Index Fund into consideration in determining, composing or
calculating the S&P 500, the S&P SmallCap 600 Index and the S&P Utilities Index.
S&P is not responsible for and has not participated in the determination of the
prices and amount of the shares of the Large Company Index Fund, the Small
Company Index Fund or the Utility Index Fund or the timing of the issuance or
sale of the shares of the Large Company Index Fund, the Small Company Index Fund
or
-29-
<PAGE>
the Utility Index Fund or in the determination or calculation of the equation by
which the shares of the Large Company Index Fund, the Small Company Index Fund
or the Utility Index Fund are to be converted into cash. S&P has no obligation
or liability in connection with the administration, marketing or trading of the
Large Company Index Fund, the Small Company Index Fund or the Utility Index
Fund.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500,
THE S&P SMALLCAP 600 INDEX OR THE S&P UTILITIES INDEX OR ANY DATA INCLUDED
THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR
INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS
TO BE OBTAINED BY GALAXY II, SHAREHOLDERS OF THE LARGE COMPANY INDEX FUND, THE
SMALL COMPANY INDEX FUND OR THE UTILITY INDEX FUND OR ANY OTHER PERSON OR ENTITY
FROM THE USE OF THE S&P 500, THE S&P SMALLCAP 600 INDEX OR THE S&P UTILITIES
INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN
NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR
CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE
POSSIBILITY OF SUCH DAMAGES.
The Salomon Brothers Broad Investment-Grade Bond Index is a registered
trademark of Salomon Brothers Inc.
Shareholders will receive unaudited semi-annual reports describing the
Funds' investment operations and annual financial statements audited by
independent certified public accountants.
Inquiries regarding the Funds may be directed to Galaxy II at
1-800-628-0414.
Year 2000 Risks. Like other investment companies, financial and business
organizations and individuals around the world, Galaxy II could be adversely
affected if the computer systems used by Fleet and Galaxy II's other service
providers do not properly process and calculate date-related information and
data from and after January 1, 2000. This is commonly known as the "Year 2000
Problem." Fleet is taking steps to address the Year 2000 Problem with respect
to the computer systems that it uses and to obtain assurance that comparable
steps are being taken by Galaxy II's other major service providers. At this
time, however, there can be no assurance that these steps will be sufficient to
avoid any adverse impact on Galaxy II as a result of the Year 2000 Problem.
-30-
<PAGE>
GALAXY FUND II
THE MUNICIPAL BOND FUND
FORM N-1A
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(a)
Part A
Item No. Prospectus Heading
- -------- ------------------
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
Reporting; 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
-2-
<PAGE>
GALAXY FUND II
MUNICIPAL BOND FUND
PROSPECTUS
JULY 29, 1998
<PAGE>
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>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
HIGHLIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
EXPENSE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
FINANCIAL HIGHLIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
INVESTMENT OBJECTIVE AND POLICIES . . . . . . . . . . . . . . . . . . . . . 6
Risk Considerations. . . . . . . . . . . . . . . . . . . . . . . . . . 6
Investment Policies. . . . . . . . . . . . . . . . . . . . . . . . . . 6
INVESTMENT LIMITATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
INVESTMENT RISKS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
WHO SHOULD INVEST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
COMPARING TAX-EXEMPT AND TAXABLE YIELDS . . . . . . . . . . . . . . . . . . 9
PRICING OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
HOW TO PURCHASE AND REDEEM SHARES . . . . . . . . . . . . . . . . . . . . . 11
Purchase Procedures - Customers of Institutions. . . . . . . . . . . . 11
Purchase Procedures - Direct Investors . . . . . . . . . . . . . . . . 12
Other Purchase Information . . . . . . . . . . . . . . . . . . . . . . 12
Redemption Procedures - Customers of Institutions. . . . . . . . . . . 13
Redemption Procedures - Direct Investors . . . . . . . . . . . . . . . 13
Other Redemption Information . . . . . . . . . . . . . . . . . . . . . 14
DIVIDENDS, DISTRIBUTIONS AND TAXES. . . . . . . . . . . . . . . . . . . . . 15
State and Local Taxes. . . . . . . . . . . . . . . . . . . . . . . . . 15
MANAGEMENT OF THE FUND. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Investment Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Administrator and Sub-Administrator. . . . . . . . . . . . . . . . . . 17
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Distributor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Custodian and Transfer Agent . . . . . . . . . . . . . . . . . . . . . 17
DESCRIPTION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
INVESTOR PROGRAMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Exchange Privilege . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Automatic Investment Program . . . . . . . . . . . . . . . . . . . . . 19
Systematic Withdrawal Plan . . . . . . . . . . . . . . . . . . . . . . 19
Payroll Deduction Program. . . . . . . . . . . . . . . . . . . . . . . 20
College Investment Program . . . . . . . . . . . . . . . . . . . . . . 20
Direct Deposit Program . . . . . . . . . . . . . . . . . . . . . . . . 20
INFORMATION SERVICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Galaxy II Information Center - 24 Hour Information Service . . . . . . 20
Voice Response System. . . . . . . . . . . . . . . . . . . . . . . . . 21
Galaxy II Shareholder Services . . . . . . . . . . . . . . . . . . . . 21
PERFORMANCE REPORTING . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
-ii-
<PAGE>
GALAXY FUND II - MUNICIPAL BOND FUND
4400 Computer Drive For an application and information
P.O. Box 5108 regarding purchases, redemptions,
Westboro, Massachusetts 01581-5108 exchanges and other shareholder services
or for current performance, call
1-800-628-0414.
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"), a no-load, open-end, investment company. Currently, there are
four other series of shares offered to the public by Galaxy II.
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.
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.
This Prospectus sets forth concisely certain information about the
Fund that you should know before making an investment decision. You are
encouraged to read this Prospectus carefully and retain it for future reference.
Additional information about the Fund is contained in a Statement of Additional
Information bearing the same date and is available free of charge by calling
Galaxy II at 1-800-628-0414 or by writing to Galaxy II c/o First Data Investor
Services Group, Inc., 4400 Computer Drive, P.O. Box 5108, Westboro,
Massachusetts 01581. The Statement of Additional Information has been filed
with the Securities and Exchange Commission and, as amended from time to time,
is incorporated by reference into this Prospectus.
--------------------
JULY 29, 1998
<PAGE>
HIGHLIGHTS
Q: What is Galaxy Fund II?
A: Galaxy Fund II ("Galaxy II") is an open-end investment company (commonly
known as a mutual fund) that offers investors the opportunity to invest in
different investment portfolios, each having separate investment objectives
and policies. This Prospectus describes Galaxy II's Municipal Bond Fund
(the "Fund"). A Prospectus for the Large Company Index, Small Company
Index, Utility Index and U.S. Treasury Index Funds may be obtained by
calling 1-800-628-0414.
Q: Who advises the Fund?
A: The Fund is managed by Fleet Investment Advisors Inc. ("Fleet"), an
indirect, wholly-owned subsidiary of Fleet Financial Group, Inc. Fleet is
a financial services company with total assets as of December 31, 1997 of
approximately $85.5 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 Galaxy II, 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." Except as provided below in "Investor Programs," 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. 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?
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?
-2-
<PAGE>
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 the 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 Galaxy II 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. Galaxy II
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."
-3-
<PAGE>
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, 1998. "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.
-4-
<PAGE>
FINANCIAL HIGHLIGHTS
The following Financial Highlights have been audited by
PricewaterhouseCoopers LLP, independent accountants, whose report is
contained in Galaxy II's Annual Report to Shareholders and is incorporated by
reference into the Statement of Additional Information. Further information
about the performance of the Fund is also contained in Galaxy II's Annual
Report to Shareholders which may be obtained without charge by calling Galaxy
II at 1-800-628-0414.
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Period Ended
March 31, March 31, March 31, March 31, March 31,
1998 1997 1996 1995 1994(1)
---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of period. . . . . . . . . . $ 10.15 $ 10.20 $ 9.94 $ 9.89 $ 10.00
------- ------- ------- ------- -------
Income from Investment Operations:
Net investment income(2) . . . . . . . . . . . . . 0.47 0.47 0.46 0.46 0.43
Net realized and unrealized gain (loss)
on investments. . . . . . . . . . . . . . . . 0.36 (0.05) 0.26 0.05 (0.11)
------- ------- ------- ------- -------
Total from Investment Operations:. . . . 0.83 0.42 0.72 0.51 0.32
------- ------- ------- ------- -------
Less Dividends:
Dividends from net investment income . . . . . . . (0.47) (0.47) (0.46) (0.46) (0.43)
Dividends from net realized capital gains. . . . .
------- ------- ------- ------- -------
Total Dividends: . . . . . . . . . . . . (0.47) (0.47) (0.46) (0.46) (0.43)
------- ------- ------- ------- -------
Net Increase (decrease) in net asset value. . . . . . . 0.36 0.05) 0.26 .05 (0.11)
------- ------- ------- ------- -------
Net Asset Value, End of period. . . . . . . . . . . . . $ 10.51 $ 10.15 $ 10.20 $ 9.94 $ 9.89
------- ------- ------- ------- -------
Total Return. . . . . . . . . . . . . . . . . . . . . . 8.29% 4.15% 7.36% 5.34% 3.10%(4)
Ratios/Supplemental Data:
Net assets, End of period (in 000's). . . . . . . . . . $18,147 $19,921 $22,478 $24,560 $33,352
Ratios to average net assets:
Net investment income including reimbursement. . . 4.49% 4.57% 4.54% 4.72% 4.35%(3)
Operating expenses including reimbursement . . . . 0.60% 0.60% 0.60% 0.60% 0.60%(3)
Operating expenses excluding reimbursement . . . . 0.60% 0.60% 0.61% 0.63% 0.60%(3)
Portfolio turnover rate . . . . . . . . . . . . . . . . 28% 7% 2% 47% 56%(4)
</TABLE>
- -------------------------
(1) The Fund commenced operations on April 15, 1993.
(2) Net investment income per share before reimbursement by the
sub-administrator for the fiscal years ended March 31, 1998, 1997, 1996 and
1995 was $0.47, $0.47, $0.46 and $0.46, respectively.
(3) Annualized.
(4) Not Annualized.
-5-
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The Municipal Bond Fund seeks to provide investors with the highest
level of income exempt from regular federal income tax consistent with prudent
investment management and preservation of capital.
The investment objective of the Fund may not be changed without the
approval of the holders of a "majority" of the outstanding voting shares of the
Fund. The term "majority" is defined in the Investment Company Act of 1940, as
amended (the "1940 Act"). There can be no assurance that the investment
objective of the Fund will be achieved.
RISK CONSIDERATIONS
Risk considerations related to the Fund's investments are described
under "Investment Policies" and "Investment Risks."
INVESTMENT POLICIES
The Fund will normally invest substantially all, but not less than
80%, of its net assets in municipal securities. Municipal securities are debt
obligations issued by state and local governments and regional governmental
authorities, which provide interest income that is exempt from regular federal
income taxes. These may include municipal leases which may take the form of a
lease or an installment purchase issued by state and local governments to
acquire equipment and facilities. Normally, the Fund will invest at least 65% of
its total assets in municipal securities that are issued as municipal bonds.
Municipal securities purchased by the Fund will consist primarily of
issues which are rated investment grade, i.e. within the four highest rating
categories assigned by S&P ("AAA", "AA", "A", and "BBB") or Moody's ("Aaa",
"Aa", "A", and "Baa") or another nationally recognized statistical rating
organization ("NRSRO"). Under normal market conditions, at least 65% of the
municipal securities held by the Fund will be rated at least A or its equivalent
by S&P or Moody's or another NRSRO. In no case will the Fund purchase municipal
securities rated below BBB by S&P or Baa by Moody's or the equivalent by another
NRSRO.
Pending investment of proceeds or for other temporary purposes, the
Fund may invest up to 20% of its net assets in the following short-term
municipal securities:
- - Short-term municipal notes rated MIG-1 or MIG-2 by Moody's or SP-1+ or SP-1
by S&P;
- - Tax-exempt commercial paper rated P-1 by Moody's or A-1+ by S&P;
- - Municipal bonds with an effective maturity of one year or less which are
rated A or higher by Moody's or S&P;
- - Unrated short-term obligations from an issuer whose outstanding long-term
obligations are rated A or higher by Moody's or S&P; and
- - Tax-exempt funds, including tax-exempt money market funds, subject to the
requirements of applicable law. In no case will the Fund invest more than
10% of its net assets in such investments. These investments will result in
shareholders paying duplicate or multiple fees, as such funds incur
-6-
<PAGE>
expenses similar to those of the Fund. The Fund will only invest in other
funds when it believes the yields on such funds are beneficial even
including multiple fees.
Under normal market conditions, the Fund expects to maintain a
dollar-weighted average maturity of between 7 and 12 years. There is no limit on
the maturity of any individual security in the Fund.
The Fund may purchase municipal securities on a "when-issued" basis.
In buying such securities, the Fund commits to buy securities at a certain price
even though the securities may not be delivered for up to 45 days. The Fund pays
for the securities and begins earning interest when the securities are actually
delivered. Consequently, it is possible that the market price of the securities
at the time of delivery may be higher or lower than the purchase price.
The Fund is authorized to invest up to 20% of its net assets in "AMT"
bonds. AMT bonds are tax-exempt "private activity" bonds issued after August 7,
1986 whose proceeds are directed at least in part to a private, for-profit
organization. While the income from AMT bonds is exempt from regular federal
income tax, it is a tax preference item for purposes of the "alternative minimum
tax." The alternative minimum tax is a special tax that applies to a limited
number of taxpayers who have certain adjustments or tax preference items.
Although the Fund does not expect to do so, except in unusual
circumstances, it may invest up to 20% of its net assets in the following
taxable money market securities: obligations of the U.S. Government and its
agencies or instrumentalities; bank certificates of deposit and bankers'
acceptances; and repurchase agreements collateralized by these securities.
The Fund may use municipal bond index futures contracts, interest rate
futures contracts and options thereon to a limited extent. Specifically, the
Fund may enter into futures contracts and options thereon provided that initial
margin and premiums required to establish such positions that are not bona fide
hedging positions (as defined by the Commodity Futures Trading Commission) will
not exceed 5% of its net asset value, after taking into account unrealized
profits and losses on any such contracts it has entered into. In addition, the
Fund may enter into futures contracts and options transactions only to the
extent that obligations under such contracts or transactions represent not more
than 20% of the Fund's total assets.
The Fund may use these instruments for several reasons: to maintain
cash reserves while remaining effectively fully invested, to facilitate trading,
to reduce transaction costs, to seek higher investment returns when a futures
contract is priced more attractively than the underlying municipal securities,
or to hedge against changes in the value of the portfolio securities due to
anticipated changes in interest rates and market conditions and where the
transactions are economically appropriate to the reduction of risks inherent in
the management of the Fund. The Fund will not use futures contracts or options
transactions to leverage its assets.
Futures contracts and options pose some risks, primarily: (i) there
may be imperfect correlation between the change in market value of the
securities held by the Fund and the prices of the futures contracts and options;
and (ii) the possible lack of a liquid secondary market for a futures contract
and the resulting inability to close a futures contract prior to its maturity
date. The risk of imperfect correlation is minimized by investing only in those
contracts whose price fluctuations are expected to resemble those of the Fund's
underlying securities. The illiquidity risk will be minimized by entering into
such transactions on a national exchange with an active and liquid secondary
market.
-7-
<PAGE>
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.
Market risk is the possibility that market prices of bonds will
decline without regard to fluctuations in prevailing interest rates.
-8-
<PAGE>
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 the
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 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:
-9-
<PAGE>
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%
39.6% 3.3% 5.0% 6.6% 8.3% 9.9% 11.6% 13.2%
</TABLE>
-10-
<PAGE>
PRICING OF SHARES
On every day the New York Stock Exchange (the "NYSE") is open, First
Data Investor Services Group, Inc. ("Investor Services Group"), Galaxy II's
sub-administrator, calculates the net asset value per share of 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 Galaxy II's 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
First Data Distributors, Inc. ("FD Distributors"), Galaxy II's
distributor, has established several procedures to enable different types of
investors to purchase shares of the Fund. Shares may be purchased by
individuals or corporations who submit a purchase application to Galaxy II,
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, Galaxy II's custodian and Investor Services Group,
Galaxy II's transfer agent, 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
Galaxy II's custodian on a timely basis. FD Distributors is responsible for
transmitting such orders to Investor Services Group 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. Investor Services Group 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
Investor Services Group, confirmations of share purchases and redemptions and
pertinent account statements will either be sent by Investor Services Group
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.
-11-
<PAGE>
PURCHASE PROCEDURES - DIRECT INVESTORS
PURCHASES BY MAIL. Shares may be purchased by completing a purchase
application and mailing it, together with a check payable to the Fund to:
Galaxy Fund II
4400 Computer Drive
P.O. Box 5108
Westboro, MA 01581
ALL PURCHASE ORDERS PLACED BY MAIL MUST BE ACCOMPANIED BY A PURCHASE
APPLICATION. APPLICATIONS MAY BE OBTAINED BY CALLING FD DISTRIBUTORS AT
1-800-628-0414.
Subsequent investments in an existing account in the Fund may be made
at any time by sending a check for a minimum of $100 payable to the Fund to
Galaxy II at the above address 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 National Bank as agent for Investor
Services Group, Galaxy II's transfer agent. Prior to making any purchase by
wire, an investor must telephone FD Distributors at 1-800-628-0414 to place an
order and for instructions.
Direct Investors making initial investments by wire must promptly
complete a purchase application and forward it to Galaxy Fund II, 4400 Computer
Drive, P.O. Box 5108, Westboro, Massachusetts 01581. Applications may be
obtained by calling FD Distributors at 1-800-628-0414.
Except as provided in "Investor Programs" below, the minimum initial
investment by a Direct Investor, or initial aggregate investment by an
Institution investing on behalf of its Customers, is $2,500. The minimum
investment for subsequent purchases is $100. 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.
Galaxy II 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 Galaxy II 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 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
-12-
<PAGE>
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. On a Business Day when the NYSE closes early due to a
partial holiday or otherwise, Galaxy II will advance the time at which purchase
orders must be received in order to be processed on that Business Day.
REDEMPTION PROCEDURES - CUSTOMERS OF INSTITUTIONS
Customers of Institutions may redeem all or a portion of their shares
in accordance with procedures governing their accounts at Institutions. It is
the responsibility of the Institutions to transmit redemption orders to FD
Distributors and credit their Customers' accounts with the redemption proceeds
on a timely basis. No charge for wiring redemption payments to Institutions is
imposed by Galaxy II, although Institutions may charge a Customer's account
for redemption services. Information relating to such redemption services and
charges, if any, is available from the Institutions.
Payments for redemption orders received by FD Distributors on a
Business Day will normally be wired on the third Business Day to the
Institutions.
DIRECT INVESTORS MAY REDEEM ALL OR A PORTION OF THEIR SHARES IN
ACCORDANCE WITH ANY OF THE PROCEDURES DESCRIBED BELOW.
REDEMPTION PROCEDURES - DIRECT INVESTORS
REDEMPTION BY MAIL. Shares may be redeemed by a Direct Investor by
submitting a written request for redemption to:
Galaxy Fund II
4400 Computer Drive
P.O. Box 5108
Westboro, MA 01581
A written redemption request must (i) state the name of the Fund
and 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 $50,000, or for
any amount where (i) the proceeds are to be sent elsewhere than the address
of record, (ii) the proceeds are to be sent to an address of record which has
changed in the preceding 30 days, or (iii) the check is to be made payable to
someone other than the registered owner(s), must be accompanied by signature
guarantees. The guarantor of a signature must be a bank that is a member of
the Federal Deposit Insurance Corporation, a trust company, a member firm of
a national securities exchange or any other eligible guarantor institution.
FD Distributors will not accept guarantees from notaries public. FD
Distributors 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 FD
Distributors receives all required documents in proper form. The Fund
ordinarily will make payment for shares redeemed by mail within five Business
Days after proper receipt by FD Distributors of the redemption request.
Questions with respect to the proper form for redemption requests should be
directed to FD Distributors at 1-800-628-0414.
REDEMPTION BY TELEPHONE. Direct Investors may redeem shares by
calling 1-800-628-0414 and instructing FD Distributors to mail a check for
redemption proceeds of up to $50,000 to the address of record. A redemption
request for an amount in excess of $50,000, or for any amount where (i) the
proceeds are to be sent elsewhere than the address of record, (ii) the proceeds
are to be sent to an
-13-
<PAGE>
address of record which has changed in the preceding 30 days, or (iii) the check
is to be made payable to someone other than the registered owner(s), must be
accompanied by signature guarantees. (See "Redemption by Mail" above for details
regarding signature guarantees.)
REDEMPTION BY WIRE. Direct Investors who have so indicated on the
account application, or have subsequently arranged in writing to do so, may
redeem shares by instructing FD Distributors 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. FD Distributors charges a $5.00 fee
for each wire redemption and the fee is deducted from the redemption proceeds.
The redemption proceeds must be paid to the same bank and account as designated
on the account application or in written instructions subsequently received by
FD Distributors. To request redemption of shares by wire, Direct Investors
should call 1-800-628-0414.
In order to arrange for redemption by wire after an account has been
opened or to change the bank or account designated to receive redemption
proceeds, a written request must be sent to Galaxy II 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.
Galaxy II 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. In attempting to
confirm that telephone instructions are genuine, Galaxy II 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).
If Galaxy II fails to follow established procedures for the authentication of
telephone instructions, it may be liable for losses due to unauthorized or
fraudulent telephone transactions.
NO REDEMPTION BY A DIRECT INVESTOR IN THE FUND WILL BE PROCESSED UNTIL
GALAXY II 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, GALAXY II RESERVES THE RIGHT TO DELAY PAYMENT
OF PROCEEDS UNTIL FD DISTRIBUTORS 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
Galaxy II reserves the right to redeem 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.
Galaxy II may require any information reasonably necessary to ensure
that a redemption has been duly authorized.
-14-
<PAGE>
Redemption orders are effected at the net asset value per share next
determined after receipt and acceptance of the order by FD Distributors. On a
Business Day when the NYSE closes early due to a partial holiday or otherwise,
Galaxy II will advance the time at which redemption orders must be received in
order to be processed on that Business Day. Galaxy II 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 the Fund.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends consisting of virtually all ordinary income of the Fund will
be declared daily and will be payable to shareholders of record at the close of
the previous Business Day. Such dividends will be paid monthly. Capital gains
distributions, if any, will be made annually. Dividends and distributions may be
made on a more frequent basis to comply with the distribution requirements of
the Internal Revenue Code of 1986, as amended (the "Code").
You will receive all dividends and capital gains distributions as
additional shares of the Fund at their then current net asset value, unless you
elect to receive cash. You may elect to receive cash by so specifying on your
account application or by notifying Investor Services Group, Galaxy II's
transfer agent, 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.
The Fund intends to invest a sufficient portion of its assets in
municipal securities so that it will qualify to pay "exempt-interest dividends"
to shareholders. Such exempt-interest dividends distributed to shareholders
generally are excluded from a shareholder's gross income for federal income tax
purposes. A portion of the Fund's dividends, while exempt from the regular
federal income tax, may be a tax preference item for purposes of the federal
alternative minimum tax.
Distributions paid by the Fund from long-term capital gains, whether
received in cash or reinvested in additional shares, are taxable, regardless of
the length of time you have owned shares in the Fund. Also, any short-term
capital gains or any taxable interest income will be distributed as a taxable
ordinary dividend distribution. The Fund expects distributions of capital gains,
whether long-term or short-term, and taxable interest income to be negligible in
comparison to exempt-interest dividends.
Although dividend income from the Fund is expected to be exempt from
regular federal income taxes, a sale or other disposition of the Fund's shares
is a taxable event, and may result in a capital gain or 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
Galaxy II 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
-15-
<PAGE>
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. Galaxy II 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 Galaxy
II's and oversees management. The Board selects and supervises the Fund's
investment adviser and Galaxy II's officers who are responsible for the
day-to-day management of Galaxy II'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 Fund. Fleet also provides investment management and advisory services to
individual and institutional clients, and manages the other investment
portfolios of Galaxy II, the investment portfolios of The Galaxy Fund and
certain of the investment portfolios of 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, 1997 of
approximately $85.5 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, 1998.
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.
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<PAGE>
Fleet is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, to the extent permitted
by law or order of the Securities and Exchange Commission ("SEC"), financial
institutions that are affiliated with Fleet or that have sold shares of the
Fund, if Fleet believes that the quality of the transaction and the commission
are comparable to what they would be with other qualified brokerage firms.
ADMINISTRATOR AND SUB-ADMINISTRATOR
Fleet National Bank ("FNB") provides Galaxy II with office facilities
and support personnel and generally assists in all aspects of administration and
operation of Galaxy II. 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 Galaxy II,
brokerage fees and commissions, interest on borrowings, taxes and such
extraordinary, non-recurring expenses as may arise, including litigation to
which Galaxy II may be a party. For its services as administrator, FNB receives
a fee from the Fund at an annual rate of .35% of the average daily net assets of
the Fund, which was the rate of FNB's compensation during the fiscal year ended
March 31, 1998. 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. ("Investor Services Group"), 4400 Computer Drive,
P.O. Box 5108, Westboro, Massachusetts 01581, a wholly-owned subsidiary of First
Data Corporation, to provide administrative services to Galaxy II and to serve
as shareholder servicing agent. FNB bears the fees of Investor Services Group
for providing such services.
DISTRIBUTOR
First Data Distributors, Inc. ("FD Distributors"), a wholly-owned
subsidiary of Investor Services Group, is responsible for the marketing and
distribution of the shares of the Fund. FD Distributors is a registered
broker-dealer with principal offices located at 4400 Computer Drive, P.O. Box
5108, Westboro, Massachusetts 01581. FD Distributors does not receive any
compensation from Galaxy II or the Fund for its services.
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
Investor Services Group 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 Investor Services Group
should be directed to Investor Services Group at 4400 Computer Drive, P.O. Box
5108, Westboro, Massachusetts 01581.
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<PAGE>
DESCRIPTION OF SHARES
The Fund is a series of shares of Galaxy II. Galaxy II 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." Galaxy II offers shares of beneficial interest, par value
$.001 per share. Currently, five series of shares have been authorized for
sale to the public, 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 Galaxy II 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 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. 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 Galaxy II's outstanding shares.
Shareholders who satisfy certain criteria will be assisted by Galaxy II 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 Galaxy II 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 Galaxy II is
$2,500, unless at the time of the exchange the Direct Investor or Customer
elects, with respect to the fund or portfolio into which the exchange is being
made, to participate in the Automatic Investment Program described below, in
which event there is no minimum initial investment requirement, or in the
College Investment Program Described below, in which event the minimum initial
investment is generally $100.
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 Galaxy II 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 Galaxy II's exchange privilege, Direct Investors
should call 1-800-628-0414. Customers of Institutions should call their
Institution for such information. Customers exercising the exchange privilege
with the Large Company Index Fund, Small Company Index Fund, U.S. Treasury Index
Fund or Utility Index Fund or another
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<PAGE>
portfolio otherwise advised by Fleet or its affiliates should request and review
a prospectus for such Fund or portfolio prior to making an exchange. Telephone
1-800-628-0414 to request a prospectus and/or to make exchanges.
In order to prevent abuse of this privilege to the disadvantage of
other shareholders, Galaxy II reserves the right to terminate the exchange
privilege of any shareholder who requests more than three exchanges a year.
Galaxy II 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 Galaxy II 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.
Galaxy II 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.
AUTOMATIC INVESTMENT PROGRAM
The Automatic Investment Program permits a Direct Investor to purchase
Fund shares (minimum of $50 per transaction) each month or each quarter.
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 on a monthly or quarterly basis on any Business
Day designated by a Direct Investor. If the designated day falls on a weekend
or holiday, the purchase will be made on the Business Day closest to the
designated day. Only an account maintained at a domestic financial institution
which is an Automated Clearing House 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 on any Business
Day designated by a Direct Investor, if the account has a starting value of at
least $10,000. If the designated day falls on a weekend or holiday, the
redemption will be made on the Business Day closest to the designated day.
Proceeds of the redemption will be sent to the shareholder's address of record
or financial institution within three Business Days of the redemption. If
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 FD Distributors (but not less than five days before
a payment date). There is no charge for this service.
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<PAGE>
PAYROLL DEDUCTION PROGRAM
The Payroll Deduction Program provides Direct Investors with a
convenient, systematic way to purchase Fund shares by deducting a minimum amount
of $25 per pay period from their paycheck. To be eligible for the Program, the
payroll department of a Direct Investor's employer must have the capability to
forward transactions directly through the Automated Clearing House (ACH), or
indirectly through a third party payroll processing company that has access to
the ACH. A Direct Investor must complete and submit a Galaxy II Payroll
Deduction Application to his or her employer's payroll department, which will
arrange for the specified amount to be debited from the Direct Investor's
paycheck each pay period. Shares of the Fund will be purchased within three
days after the debit occurs. If the designated day falls on a weekend or
non-Business Day, the purchase will be made on the Business Day closest to the
designated day. A Direct Investor should allow between two to four weeks for
the Payroll Deduction Program to be established after submitting an application
to the employer's payroll department.
COLLEGE INVESTMENT PROGRAM
The College Investment Program (the "College Program") permits a
Direct Investor to open an account with Galaxy II and purchase Fund shares with
a minimum amount of $100 for initial or subsequent investments, except that if
the Direct Investor purchases shares through the Automatic Investment Program,
the minimum per transaction is $50. The College Program is designed to assist
Direct Investors who want to finance a college savings plan. See "Investor
Programs -- Automatic Investment Program" for information on the Automatic
Investment Program. Galaxy II reserves the right to redeem accounts
participating in the College Program involuntarily, upon 60 days' written
notice, if the account's net asset value falls below the applicable minimum
initial investment as a result of redemptions. See "How to Purchase and Redeem
Shares -- Other Redemption Information" above for further information.
Direct Investors in the College Program will receive consolidated
monthly statements of their accounts. Detailed information concerning College
Program accounts and applications may be obtained from FD Distributors (call
1-800-628-0414).
DIRECT DEPOSIT PROGRAM
Direct Investors receiving social security benefits are eligible for
the Direct Deposit Program. This Program enables a Direct Investor to purchase
Fund shares by having social security payments automatically deposited into his
or her Fund account. There is no minimum deposit requirement. For instructions
on how to enroll in the Direct Deposit Program, Direct Investors should call FD
Distributors at 1-800-628-0414. Death or legal incapacity will terminate a
Direct Investor's participation in the Program. A Direct Investor may elect at
any time to terminate his or her participation by notifying in writing the
Social Security Administration. Further, Galaxy II may terminate a Direct
Investor's participation upon 30 days' notice to the Direct Investor.
INFORMATION SERVICES
GALAXY II INFORMATION CENTER - 24 HOUR INFORMATION SERVICE
The Galaxy II Information Center provides Fund performance and
investment information 24 hours a day, seven days a week. To access the Galaxy
II Information Center, just call 1-800-628-0414.
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<PAGE>
VOICE RESPONSE SYSTEM
The Voice Response System provides Direct Investors automated access
to Fund and account information as well as the ability to make telephone
exchanges and redemptions. These transactions are subject to the terms and
conditions described under Investor Programs. To access the Voice Response
System, just call 1-800-628-0414 from any touch-tone telephone and follow the
recorded instructions.
GALAXY II SHAREHOLDER SERVICES
For account information and recent exchange transactions, Direct
Investors can call Galaxy II Shareholder Services Monday through Friday, between
the hours of 9:00 a.m. to 5:00 p.m. (Eastern Time) at 1-800-628-0414.
Galaxy II also offers a TDD service for the hearing impaired. Just
call 1-800-696-6515, 24 hours a day, seven days a week.
Direct Investors residing outside the United States can contact Galaxy
II by calling 1-508-855-5237.
Investment returns and principal values will vary with market
conditions so that an investor's shares, when redeemed, may be worth more or
less than their original cost. Past performance is no guarantee of future
results. Unless otherwise indicated, total return figures include changes in
share price and reinvestment of dividends and capital gains distributions, if
any.
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to shareholders,
the performance of the Fund may be quoted and compared to that of other mutual
funds with similar investment objectives and to stock or other relevant 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 data as reported in national financial publications
including, but not limited to, MONEY MAGAZINE, FORBES, BARRON'S, THE WALL STREET
JOURNAL, and THE NEW YORK TIMES, or publications of a local or regional nature,
may also be used in comparing the performance of the Fund.
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" figures over various periods of time. Such total return figures
reflect the average percentage change in the value of an investment in the Fund
from the beginning date of the measuring
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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.
The performance of the Fund will fluctuate and any quotation of
performance 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 data are generally functions of the kind and quality of the
instruments held in a portfolio, portfolio maturity, operating expenses, and
market conditions.
Any additional fees charged by institutions with respect to accounts
of Customers that have invested in shares of the Fund will not be included in
performance calculations.
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<PAGE>
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by
independent certified public accountants.
Inquiries regarding the Fund may be directed to Galaxy II at
1-800-628-0414.
Year 2000 Risks. Like other investment companies, financial and
business organizations and individuals around the world, Galaxy II could be
adversely affected if the computer systems used by Fleet and Galaxy II's other
service providers do not properly process and calculate date-related information
and data from and after January 1, 2000. This is commonly known as the "Year
2000 Problem." Fleet is taking steps to address the Year 2000 Problem with
respect to the computer systems that it uses and to obtain assurance that
comparable steps are being taken by Galaxy II's other major service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact on Galaxy II as a result of the Year 2000
Problem.
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<PAGE>
GALAXY FUND II
THE INDEXED FUNDS
FORM N-1A
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(a)
Part B Heading in Statement of
Item No. Additional Information
- -------- ----------------------
Cover Page Cover Page
Table of Contents Table of Contents
General Information and Not Applicable
History
Investment Objectives and Investment Objectives; Investment
Policies Policies and Risk Considerations;
Investment Limitations
Management of the Fund Trustees and Officers
Control Persons and Principal See Prospectus--"Management of the
Holders of Securities Funds"
Investment Advisory and Advisory, Administration, Sub-
Other Services Administration, Custody and Transfer
Agency Agreements; Independent
Accountants; Counsel
Brokerage Allocation and Other Portfolio Transactions
Securities
Capital Stock and Other See Prospectus--"Description of
Securities Shares"
Purchases and Redemptions Additional Purchase and Redemption
Information
Tax Status Additional Information Concerning
Taxes
Underwriters Portfolio Transactions
Calculation of Performance Performance and Yield Information
Data
Financial Statements Financial Statements
<PAGE>
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, 1998
<PAGE>
This Statement of Additional Information is meant to be read in
conjunction with the Prospectus of Galaxy Fund II ("Galaxy II") dated July 29,
1998 relating to the Large Company Index, Small Company Index, Utility Index
and U.S. Treasury Index Funds (the "Funds") 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 Funds should be made solely upon the information contained herein. Copies
of the Prospectus relating to the Funds may be obtained by calling First Data
Distributors, Inc., Galaxy II's distributor, at 1-800-628-0414. Information
regarding the status of shareholder accounts may be obtained by calling First
Data Investor Services Group, Inc., Galaxy II's transfer agent, at
1-800-628-0414.
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.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
INVESTMENT OBJECTIVES . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
INVESTMENT POLICIES AND RISK CONSIDERATIONS . . . . . . . . . . . . . . . . 1
The Indexing Approach . . . . . . . . . . . . . . . . . . . . . . . . 1
U.S. Government Securities . . . . . . . . . . . . . . . . . . . . . . 2
Bank Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Futures Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Lending of Portfolio Securities. . . . . . . . . . . . . . . . . . . . 4
Repurchase Agreements. . . . . . . . . . . . . . . . . . . . . . . . . 4
Investing in Utilities . . . . . . . . . . . . . . . . . . . . . . . . 5
Valuation of Portfolio Securities. . . . . . . . . . . . . . . . . . . 5
INVESTMENT LIMITATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Portfolio Turnover . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . 8
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION. . . . . . . . . . . . . . .10
ADDITIONAL INFORMATION CONCERNING TAXES . . . . . . . . . . . . . . . . . .10
TRUSTEES AND OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . .11
ADVISORY, ADMINISTRATION, SUB-ADMINISTRATION,
CUSTODY AND TRANSFER AGENCY AGREEMENTS. . . . . . . . . . . . . . . . . . .15
Investment Adviser and Administrator . . . . . . . . . . . . . . . . .15
Authority to Act as Investment Adviser . . . . . . . . . . . . . . . .17
Custodian and Transfer Agent . . . . . . . . . . . . . . . . . . . . .17
PERFORMANCE AND YIELD INFORMATION . . . . . . . . . . . . . . . . . . . . .18
COUNSEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
INDEPENDENT ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . . . . .20
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . .21
</TABLE>
<PAGE>
INVESTMENT OBJECTIVES
Galaxy II, which is a no-load, open-end, management investment
company, offers five investment options, four of which, the Large Company Index
Fund (the "Large Company Fund"), the Small Company Index Fund (the "Small
Company Fund"), the Utility Index Fund (the "Utility Fund"), and the U.S.
Treasury Index Fund (the "U.S. Treasury Fund," and together with the Large
Company Fund, the Small Company Fund and the Utility Fund, the "Funds"), are
described in this Statement of Additional Information. The investment objective
of the Large Company Fund is to provide investment results that, before
deduction of operating expenses, match the price and yield performance of U.S.
publicly traded common stocks with large stock market capitalizations, as
represented by the Standard & Poor's 500 Composite Stock Price Index (the "S&P
500"). The investment objective of the Small Company Fund is to provide
investment results that, before deduction of operating expenses, match the price
and yield performance of U.S. publicly traded common stocks with smaller stock
market capitalizations, as represented by the Standard & Poor's SmallCap 600
Stock Price Index (the "S&P SmallCap 600 Index"). The investment objective of
the Utility Fund is to provide investment results that, before the deduction of
operating expenses, match the price and yield performance of U.S. publicly
traded common stocks of companies in the utility industry, as represented by the
Standard & Poor's Utilities Composite Stock Price Index (the "S&P Utilities
Index"). The investment objective of the U.S. Treasury Fund is to provide
investment results that, before deduction of operating expenses, match the price
and yield performance of U.S. Treasury notes and bonds, as represented by the
U.S. Treasury component (the "U.S. Treasury Index") of the Salomon Brothers
Broad Investment-Grade Bond Index.
A Prospectus and Statement of Additional Information describing the
fifth investment option available through Galaxy II, the Municipal Bond Fund,
can be obtained by calling Galaxy II at 1-800-628-0414.
INVESTMENT POLICIES AND RISK CONSIDERATIONS
The following policies supplement the descriptions of the Funds'
investment objectives and policies in the Prospectus.
THE INDEXING APPROACH
In using sophisticated computer models to select securities, a Fund
will only purchase a security that is included in its respective index at the
time of such purchase. A Fund may, however, temporarily continue to hold a
security that has been deleted from its respective index pending the rebalancing
of the Fund's portfolio. A list of securities included, as of the date of this
Statement of Additional Information, in each of the S&P 500, the S&P SmallCap
600 Index, the S&P Utilities Index, and the U.S. Treasury Index is available
free of charge by calling Galaxy II at 1-800-628-0414, or by writing to Galaxy
II, c/o First Data Investor Services Group, Inc., 4400 Computer Drive, P.O. Box
5108, Westboro, Massachusetts 01581.
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<PAGE>
As noted in the Prospectus, the U.S. Treasury Fund will not and the
Small Company Index Fund may not, from time to time, hold all of the issues
in its index 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 U.S. Government 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 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. 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. A Fund will invest in an
obligation of a foreign bank or a foreign branch of a U.S. bank 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
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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.
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
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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 TARGET
index. There is some risk, therefore, that the use of stock index futures
contracts may reduce the correlation between the performance of a Stock Fund and
its index.
Losses incurred in futures transactions and the costs of these
transactions will affect a Fund's performance. In addition, a Fund might have
to sell securities to meet daily variation margin requirements at a time when it
would be disadvantageous to do so. These sales of securities may, but will not
necessarily, be at increased prices.
LENDING OF PORTFOLIO SECURITIES
Each Fund may lend portfolio securities to brokers, dealers and other
financial organizations that meet capital and other credit requirements or other
criteria established by Galaxy II's 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(a) banks that are the issuers of instruments acceptable for purchase
by the Fund or that are on the "approved list" maintained by Fleet or (b)
primary non-bank dealers that are listed on the Federal Reserve Bank of New
York's list of reporting dealers and that meet certain other criteria.
Repurchase agreements are contracts under which the buyer of a security
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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(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 (including accrued interest).
Repurchase agreements involve certain risks in the event of default or
insolvency of the other party, including possible delays or restrictions upon
the subject Fund's ability to dispose of the underlying securities. In
evaluating these potential risks, Fleet, acting under the supervision of the
Board of Trustees, and on an ongoing basis, monitors (a) the value of the
collateral underlying each repurchase agreement of the Funds to determine
whether the value is at least equal to the total amount of the repurchase
obligation, including interest, and (b) the creditworthiness of the banks and
dealers with which the Funds enter into repurchase agreements. A Fund will not
enter into repurchase agreements that would cause more than 5% of its net assets
to be invested in illiquid securities.
A joint trading account may be used by the Funds to enter into
repurchase agreements. Each Fund's decision to invest in the joint account will
be solely at its option; a Fund will not be required either to invest a minimum
amount or to maintain a minimum balance. The Board of Trustees will evaluate
annually the joint account arrangement and will continue participation only if
it determines that there is a reasonable likelihood that each participating Fund
and its shareholders would benefit from continued participation and that no
participant will be treated on a less advantageous basis than another
participant.
INVESTING IN UTILITIES
The Utility Fund will concentrate its investments in the utility
industry. As a result, the Fund's investments may be subject to greater risk
and market fluctuation than a fund that had securities representing a broader
range of investment alternatives. The Fund's concentration policy means that it
will invest in excess of 25% of its total assets in utility companies, which
policy is a fundamental policy of the Fund and cannot be changed without
approval of a majority of the Fund's outstanding 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
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amortization to maturity of any discount or premium, regardless of the impact of
fluctuating interest rates on the market value of the instrument) unless Galaxy
II's Board of Trustees has determined that amortized cost does not approximate
market value. Other securities for which market quotations are readily
available are valued as nearly as possible in the manner described above.
Securities may be valued by a pricing service when such prices are believed to
reflect the fair market value of such securities. Other assets and securities
for which market quotations are not readily available are valued based on fair
value as determined in good faith in accordance with procedures established by
Galaxy II's Board of Trustees.
INVESTMENT LIMITATIONS
The investment limitations set forth below as they affect a particular
Fund may not be changed without the approval by a vote of a majority of the
outstanding shares of that Fund. A majority vote by shareholders, with respect
to the approval of an investment advisory agreement or a change in a fundamental
investment objective or 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 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.
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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 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,
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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, 1997 and
1998, respectively, the portfolio turnover rates were as follows: the Large
Company Index Fund, 11% and 3%; the Small Company Index Fund, 8% and 99%; the
Utility Index Fund, 170% and 72%; and the U.S. Treasury Index Fund, 39% and
79%.
At a special meeting of shareholders of Galaxy II's Small Company Fund
and Utility Fund held on May 9, 1997, shareholders of each Fund approved a
change in each Fund's benchmark index. Specifically, shareholders of the Small
Company Fund approved a change from the Russell Special Small Company Index to
the S&P SmallCap 600 Index and shareholders of the Utility Fund approved a
change from the Russell 1000 Utility Index to the S&P Utilities Index. As a
result, there was a significant variation in the Small Company Fund's portfolio
turnover rate for the fiscal year ended March 31, 1998 from that reported during
the fiscal year ended March 31, 1997 because of the rebalancing of 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, 1998 as compared to
the fiscal year ended March 31, 1997 because during the fiscal year ended
March 31, 1997 Fleet, in the mistaken belief that the Board approval had been
obtained and that shareholder approval was not required before changing the
Fund's benchmark index to the S&P Utilities Index, proceeded to rebalance the
Fund's portfolio pursuant to this desired change in the index. Once Fleet
became aware that the Board approval had not been obtained and that
shareholder approval was required, Fleet reversed these steps and rebalanced
the Fund's portfolio to bring it in line with the Russell 1000 Utility Index.
Fleet reimbursed the Utility Fund and adjusted its shareholder accounts as
necessary to eliminate any material negative impact to the Fund or its
shareholders resulting from this error. The Utility Fund's portfolio
turnover rate for the fiscal year ended March 31, 1998 reflects the
rebalancing of the Fund's portfolio in accordance with the new benchmark
index approved by shareholders on May 9, 1997.
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
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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 Galaxy II. 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 insuring to the Funds. During the fiscal year ended March 31, 1998,
the total amount of soft dollar commissions paid by the Large Company Index
Fund, Small Company Index Fund and Utility Index Fund were $53,737, $381,899
and $9,649, respectively.
Transactions on U.S. stock exchanges involve the payment of
negotiated brokerage commissions. On exchanges on which commissions are
negotiated, the cost of transactions may vary among different brokers. There
is generally no stated commission in the case of securities traded in U.S.
over-the-counter markets, but the prices of those securities include
undisclosed commissions or mark-ups. The cost of securities purchased from
underwriters includes an underwriting commission or concession, and the
prices at which securities are purchased from and sold to dealers include a
dealer's mark-up or mark-down. U.S. Government Securities are generally
purchased from underwriters or dealers, although certain newly issued U.S.
Government Securities may be purchased directly from the U.S. Treasury or
from the issuing agency or instrumentality. No brokerage commissions are
typically paid on purchases and sales of U.S. Government Securities.
During the fiscal years ended March 31, 1996, March 31, 1997 and
March 31, 1998, the Funds paid the following commissions to broker-dealers
for execution of portfolio transactions: Large Company Fund - $22,538,
$118,621 and $84,998, respectively; Small Company Fund - $95,120, $105,820 and
$652,975, respectively; Utility Fund - $16,044, $296,342 and $106,486,
respectively; and U.S. Treasury Fund - $0, $0 and $0, respectively.
Galaxy II is required to identify any securities of its regular
brokers or dealers or their parents that Galaxy II has acquired during its
most recent fiscal year. At March 31, 1998, the Large Company Fund held
common stock of(a) Chase Manhattan Corp. in the amount of $4,069,710; (b)
Lehman Brothers Holdings, Inc. in the amount of $539,100; and (c) Morgan
Stanley, Dean Witter, Discover & Co. in the amount of $3,101,269.
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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 utilize is restricted, or an
emergency, as defined by the rules and regulations of the Securities and
Exchange Commission (the "SEC"), exists making disposal of the Funds'
investments or determination of their net asset values not reasonably
practicable; (b) the New York Stock Exchange is closed (other than customary
weekend and holiday closings); or (c) the SEC has by order permitted such
suspension.
ADDITIONAL INFORMATION CONCERNING TAXES
Each Fund has qualified each year in the past and each Fund intends
to qualify each year in the future as a "regulated investment company" under
the Internal Revenue Code of 1986, as amended (the "Code"). Provided that a
Fund (a) qualifies as a regulated investment company and (b) distributes to
its shareholders at least 90% of its "investment company taxable income"
(that is, its income minus its "net capital gains" and after taking into
account certain required adjustments), the Fund generally will not be subject
to federal income tax to the extent its net investment income (that is, its
income other than its net realized capital gains) and its net realized
long-term and short-term capital gains are distributed to its shareholders in
accordance with the Code. Because of the Code's requirements for
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. Failure to meet these requirements would cause the
Fund to be subject to corporate income tax on its net income and gains,
without any deduction for dividends paid to shareholders.
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
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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.
Investors considering buying shares of a Fund on or just prior to
the record date for a taxable dividend or capital gain distribution should be
aware that the amount of the forthcoming dividend or distribution payment,
although, in effect, a return of capital will be a taxable dividend or
distribution payment.
If a shareholder fails to furnish a correct taxpayer identification
number, fails to report fully dividend or interest income, or fails to
certify that he or she has provided a correct taxpayer identification number
and that he or she is not subject to backup withholding, then the shareholder
may be subject to a 31% "backup withholding tax" with respect to (a)
dividends and distributions and (b) the proceeds of any sales or redemptions
of a Fund's shares. An individual's taxpayer identification number is his or
her social security number. Corporate shareholders and certain other
shareholders specified in the Code generally are exempt from backup
withholding. The 31% "backup withholding tax" is not an additional tax and
may be credited against a taxpayer's regular federal income tax liability.
Dividends and distributions also may be subject to state and local taxes
depending on each shareholder's particular situation.
The foregoing is only a summary of certain tax considerations
generally affecting the Funds and their shareholders, and is not intended as
a substitute for careful tax planning. Shareholders are urged to consult
their tax advisers with respect to the particular tax consequences to them of
an investment in a Fund.
TRUSTEES AND OFFICERS
The trustees and executive officers of Galaxy II, their addresses,
their principal occupations during the past five years, ages and other
affiliations are set forth below. Each trustee who is an "interested person"
of Galaxy II, as defined in the 1940 Act, is indicated by an asterisk.
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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 & President & Director, Vicks
Printing Corporation Lithograph & Printing Corporation
Commercial Drive (book manufacturing and commercial
P.O. Box 270 printing); Director, Utica First Insurance
Yorkville, NY 13495 Company; Trustee, Savings Bank of Utica;
Age 65 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. Executive Vice President and Chief
1027 Newport Avenue Financial Officer, Hasbro, Inc. (toy and
Pawtucket, RI 02862 game manufacturer); Trustee, President and
Age 53 Treasurer, The Galaxy Fund and The Galaxy VIP
Fund.
Louis DeThomasis Trustee
Saint Mary's College President, Saint Mary's College of
of Minnesota Minnesota; Director, Bright Day
Winona, MN 55987 Travel, Inc.; Trustee, Religious Communities
Age 57 Trust; Trustee, The Galaxy Fund and The
Galaxy VIP Fund.
Donald B. Miller Trustee
10725 Quail Covey Road Chairman, Horizon Media, Inc.
Boynton Beach, FL 33436 (broadcast services) Director/Trustee,
Age 72 Lexington Funds; Director, Maguire Group of
Connecticut, Inc. (consulting engineers);
Trustee, Keuka College; Trustee, The Galaxy
Fund and The Galaxy VIP Fund.
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Positions Held with Galaxy II and
Principal Occupation(s) During
Name and Address Past 5 Years
- ---------------- ---------------------------------
James M. Seed Trustee
The Astra Ventures, Inc. Chairman and President, The Astra Projects,
One Citizens Plaza Incorporated (land development); President,
Providence, RI 02903 The Astra Ventures, Incorporated
Age 57 (manufacturer of cardboard boxes);
Commissioner, Rhode Island Investment
Commission; Trustee, The Galaxy Fund and
The Galaxy VIP Fund.
Bradford S. Wellman* Trustee
2468 Ohio Street Private Investor; Director, Essex
Bangor, ME 04401 County Gas Company, until January 1994;
Age 67 Director, Maine Mutual Fire Insurance Co.;
Member, Maine Finance Authority; Trustee, The
Galaxy Fund and The Galaxy VIP Fund.
Jylanne Dunne Vice President and Assistant
First Data Investor Treasurer
Services Group, Inc. Employee of First Data
4400 Computer Drive Investor Services Group, Inc.
P.O. Box 5108
Westboro, MA 01581
Age 39
W. Bruce McConnel, III Secretary
Drinker Biddle & Reath LLP Partner of the law firm of Drinker
1345 Chestnut St. Biddle & Reath LLP, Philadelphia,
Philadelphia, PA 19107 Pennsylvania.
Age 55
Effective March 5, 1998, each trustee receives an annual aggregate
fee of $40,000 for his services as a trustee of Galaxy II, The Galaxy Fund
("Galaxy") and The Galaxy VIP Fund ("Galaxy VIP"), plus an additional $2,500
for each in-person Galaxy Board meeting attended and $1,500 for each
in-person Galaxy VIP or Galaxy II Board meeting attended not held
concurrently with an in-person Galaxy Board meeting, and is reimbursed for
expenses
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incurred in attending meetings. Each trustee also receives $750 for each
telephone Board meeting in which the trustee participates, $1,000 for each
in-person Board committee meeting attended and $500 for each telephone Board
committee meeting in which the trustee participates. The Chairman of the
Boards of 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 March 5, 1998, each trustee was authorized to receive an
annual aggregate fee of $29,000 for his services as a trustee of Galaxy II,
Galaxy and Galaxy VIP, plus an additional $2,250 for each in-person Galaxy
Board meeting attended, $1,500 for each in-person Galaxy VIP or Galaxy II
Board meeting attended not held concurrently with an in-person Galaxy Board
meeting, and $500 for each telephone Board meeting in which the trustee
participated and was reimbursed for expenses incurred in attending all
meetings. Annual fees to the Chairman of the Boards and the President and
Treasurer of Galaxy II, Galaxy and Galaxy VIP were the same as the current
fees, as were the fees for Board committee meetings.
Beginning March 1, 1996, each trustee became entitled to
participate in The Galaxy Fund, The Galaxy VIP Fund and Galaxy Fund II
Deferred Compensation Plans (the "Original Plans"). Effective January 1,
1997, the Original Plans were merged into The Galaxy Fund/The Galaxy VIP
Fund/Galaxy Fund II Deferred Compensation Plan (together with the Original
Plans, the "Plan"). Under the Plan, a trustee may elect to have his deferred
fees treated as if they had been invested by Galaxy II, Galaxy and Galaxy VIP
in the shares of one or more portfolios in Galaxy II or Galaxy, or other
types of investment options, and the amount paid to the trustees under the
Plan will be determined based upon the performance of such investments.
Deferral of trustees' fees will have no effect on a portfolio's assets,
liabilities, and net income per share, and will not obligate Galaxy II,
Galaxy and Galaxy VIP to retain the services of any trustee or obligate a
portfolio to any level of compensation to the trustee. Galaxy II, Galaxy and
Galaxy VIP may invest in underlying securities without shareholder approval.
No employee of Investor Services Group 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.
-14-
<PAGE>
The following chart provides certain information about the trustee
fees for the year ended March 31, 1998:
<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSA-
RETIREMENT TION FROM
BENEFITS FUND
AGGREGATE ACCRUED COMPLEX*
NAME OF COMPENSATION AS PART OF PAID TO
PERSON FROM GALAXY II GALAXY II EXPENSES TRUSTEES
- ------ -------------- ------------------ --------
<S> <C> <C> <C>
Bradford S. Wellman $3,599 None $38,500
Dwight E. Vicks, Jr. $4,021 None $43,000
Donald B. Miller** $3,665 None $39,000
Louis DeThomasis $3,647 None $39,000
John T. O'Neill $3,880 None $41,500
James M. Seed** $3,665 None $39,000
</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 $ 3,919 and $ 4,004 accrued during
Galaxy II's fiscal year ended March 31, 1998 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.
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 fiscal years ended March 31, 1996, March 31, 1997 and March
31, 1998, Fleet earned advisory fees of $194,615, $324,858 and $523,353,
respectively, with respect to the Large Company Fund, $264,753, $311,685 and
$365,498, respectively, with
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<PAGE>
respect to the Small Company Fund, $55,279, $51,447 and $48,970,
respectively, with respect to the Utility Fund, and $117,603, $116,944 and
$113,719, 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. ("Investor Services Group"), pursuant to which
Investor Services Group has agreed to provide Galaxy II with the services
which Galaxy II is entitled to receive under the Administration Agreement
with FNB.
For the fiscal years ended March 31, 1996, March 31, 1997 and March
31, 1998, FNB earned administration fees of $581,697, $974,572 and
$1,570,060, respectively, with respect to the Large Company Fund, $787,499,
$935,055 and $1,096,493, respectively, with respect to the Small Company
Fund, $164,968, $154,341 and $146,908, respectively, with respect to the
Utility Fund, and $352,810, $350,831 and $341,158, 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; sub-account fees
payable with respect to shares of the Funds held by defined contribution
plans; 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
-16-
<PAGE>
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
agreement.
Fleet Bank and Columbia Trust Company, affiliates of Fleet, are
paid fees for sub-account and administrative services performed with respect
to shares of the Funds held by defined contribution plans. Pursuant to
agreements with Galaxy II and Investor Services Group, Fleet Bank and
Columbia Trust Company will be paid $21.00 per year for each defined
contribution plan participant sub-account. As of June 30, 1998, there were
approximately 24,228 defined contribution plan participant sub-accounts
invested in shares of the Funds; thus it is expected that Fleet Bank will
receive annually approximately $508,788 for sub-account services. Investor
Services Group bears this expense directly, and shareholders of the Funds
bear this expense indirectly through fees paid to Investor Services Group for
transfer agency services.
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.
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
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<PAGE>
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.("Investor Services Group")
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, Investor Services Group has agreed to:
(i) issue and redeem shares of each Fund; (ii) transmit all communications by
each Fund to its shareholders of record, including reports to shareholders,
dividend and distribution notices and proxy materials for meetings of
shareholders; (iii) respond to correspondence by security brokers and others
relating to its duties; and (iv) maintain shareholder accounts.
PERFORMANCE AND YIELD INFORMATION
From time to time, a Fund may quote its performance, as based upon its
total return, 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, 1998 were 47.29% and 21.91%, respectively, with respect to the Large Company
Fund, and 41.22% and 17.70%, 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, 1998 were 21.03% and 20.80%, respectively. For
the U.S. Treasury Fund, the average annual total returns for the one-year and
five-year periods ended March 31, 1998 were 11.72% and 6.32%, 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, 1998 was 7.93%. For
the Utility Fund, the total return for the one-year and five-year periods ended
March 31, 1998 were 39.07% and 12.65%, respectively. The average annual total
return for the Utility Fund for the period beginning January 5, 1993
(commencement of operations) through March 31, 1998 was 14.09%. 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
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
-18-
<PAGE>
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:
6
YIELD = 2[(a-b+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 of the U.S. Treasury Fund for the 30-day period ended March
31, 1998 was 5.19%.
Tax-equivalent yield is calculated over a specified thirty-day period
by dividing that portion of the Fund's yield which is tax-exempt by one minus a
stated income tax rate and adding the product to that portion, if any, of the
yield of the Fund that is not tax-exempt.
A Fund's performance will vary from time to time depending upon market
conditions, the composition of its portfolio and its operating expenses.
Consequently, any given performance quotation should not be considered
representative of a Fund's performance for any specified period in the future.
In addition, because the performance will fluctuate, it may not provide a basis
for comparing an investment in a Fund with certain bank deposits or other
investments that pay a fixed yield for a stated period of time. Investors
comparing a Fund's performance with that of other mutual funds should give
consideration to the quality and maturity of the respective investment
companies' portfolio securities.
Comparative performance information may be used from time to time in
advertising the shares of a Fund, including data from Lipper Analytical
Services, Inc., Ibbotson Associates, Morningstar, Inc., the Dow Jones Industrial
Average, the BIG Index, the S&P 500, the S&P SmallCap 600 Index, the S&P
Utilities Index, the U.S. Treasury Index, and other industry publications.
Galaxy II may compare the performance of the Large Company Fund and
the Small Company Fund to certain U.S. diversified equity mutual funds, as
calculated by Morningstar, Inc. or another industry service and with that of the
S&P 500 and the S&P SmallCap 600 Index, respectively. The performance of the
Utility Fund may be compared to certain utility funds, as calculated by
Morningstar, Inc. or another industry service and with that of the S&P Utilities
Index. In addition, Galaxy II may compare the performance of the U.S.
-19-
<PAGE>
Treasury Fund to certain U.S. fixed income mutual funds, as calculated by
Morningstar, Inc. or another industry service and with that of the U.S. Treasury
Index.
COUNSEL
Drinker Biddle & Reath LLP (of which Mr. McConnel, Secretary of Galaxy
II, is a partner), 1345 Chestnut Street, Philadelphia, Pennsylvania 19107, is
counsel to Galaxy II and will pass upon certain legal matters on its behalf.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, independent accountants, with offices
at One Post Office Square, Boston, Massachusetts 02109, currently serve as
auditors to Galaxy II. PricewaterhouseCoopers LLP 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. Investor Services Group
maintains a record of each shareholder's ownership of Galaxy II shares. Shares
do not have cumulative voting rights, which means that holders of more than 50%
of the shares voting for the election of trustees can elect all trustees.
Shares are transferable, but have no preemptive, conversion or subscription
rights. Shareholders generally vote by Fund, except with respect to the
election of trustees and the selection of independent accountants. At a
shareholders meeting held on June 15, 1994, trustees were elected and the
Advisory Agreement was approved with respect to each of the Funds. There will
normally be no meetings of shareholders for the purpose of electing trustees
unless and until such time as less than a majority of trustees holding office
have been elected by shareholders, at which time trustees then in office will
call a shareholders' meeting for the election of trustees. Under the 1940 Act,
shareholders of record of no less than two-thirds of the outstanding shares of
Galaxy II may remove a trustee through a declaration in writing or by vote cast
in person or by proxy at a meeting called for that purpose. Under the Trust
Agreement, trustees are required to call a meeting of shareholders for the
purpose of voting upon the question of removal of any such trustee when
requested in writing to do so by the shareholders of record of not less than 10%
of Galaxy II's outstanding shares.
-20-
<PAGE>
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. Trustees intend to conduct
the operations of Galaxy II in such a way so as to avoid, as far as possible,
ultimate liability of the shareholders for liabilities of Galaxy II.
As of July 10, 1998, the name, address and percentage ownership of the
persons that owned of record 5% or more of the outstanding shares of any
portfolio of Galaxy II were as follows: Large Company Index Fund - - Gales &
Co., Fleet Investment Services, Mutual Funds Unit-NY/RO/T04A, 159 East Main
Street, Rochester, NY 14638, (33.58%); Fleet Savings Plus, c/o Norstar Trust
Company, Gales & Co., 150 East Main Street, Rochester, NY 14638 (15.54%); U.S.
Treasury Index Fund - - Gales & Co., Fleet Investment Services, Mutual Funds
Unit-NY/RO/T04A, 159 East Main Street, Rochester, NY 14638, (12.34%); Priests
Retirement Plan, Diocese of Albany, c/o Norstar Trust Company, Gales & Co., 150
East Main Street, Rochester, NY 14638, (5.89%). No person owned of record 5% or
more of the outstanding shares of the Small Company Index Fund, the Utility
Index Fund or the Municipal Bond Fund.
FINANCIAL STATEMENTS
Galaxy II's audited financial statements and notes thereto in
Galaxy II's Annual Report to Shareholders for the fiscal year ended March 31,
1998 (the "Annual Report") are incorporated into this Statement of Additional
Information by reference. No other parts of the Annual Report are
incorporated by reference herein. The financial statements included in the
Annual Report have been audited by PricewaterhouseCoopers LLP, whose report
thereon is incorporated herein by reference. Such financial statements have
been incorporated herein in reliance upon such report given upon the
authority of PricewaterhouseCoopers LLP as experts in accounting and
auditing. Additional copies of the Annual Report may be obtained at no
charge by telephoning Galaxy II at 1-800-628-0414.
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<PAGE>
GALAXY FUND II
MUNICIPAL BOND FUND
FORM N-1A
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(a)
Part B Heading in Statement of
Item No. Additional Information
- -------- ----------------------
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, Sub-
Other Services Administration, Custody and Transfer
Agency Agreements; Independent
Accountants; Counsel
Brokerage Allocation and Other Portfolio Transactions
Securities
Capital Stock and Other See Prospectus--"Description of
Securities Shares"
Purchases and Redemptions Additional Purchase and Redemption
Information
Tax Status Additional Information Concerning
Taxes
Underwriters Portfolio Transactions
Calculation of Performance Performance and Yield Information
Data
Financial Statements Financial Statements
-2-
<PAGE>
GALAXY FUND II
STATEMENT OF ADDITIONAL INFORMATION
MUNICIPAL BOND FUND
JULY 29, 1998
<PAGE>
TABLE OF CONTENTS
Page
----
INVESTMENT OBJECTIVE . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
INVESTMENT POLICIES AND RISK CONSIDERATIONS. . . . . . . . . . . . . . . . 2
U.S. Government Securities. . . . . . . . . . . . . . . . . . . . . . 2
Bank Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Securities of Other Investment Companies. . . . . . . . . . . . . . . 3
Futures Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Options on Futures Contracts. . . . . . . . . . . . . . . . . . . . . 5
Repurchase Agreements . . . . . . . . . . . . . . . . . . . . . . . . 5
Municipal Securities. . . . . . . . . . . . . . . . . . . . . . . . . 6
When-Issued and Delayed-Delivery Securities . . . . . . . . . . . . . 8
Valuation of Portfolio Securities . . . . . . . . . . . . . . . . . . 8
Ratings as Investment Criteria. . . . . . . . . . . . . . . . . . . . 9
INVESTMENT LIMITATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 9
PORTFOLIO TURNOVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ADDITIONAL INFORMATION CONCERNING TAXES. . . . . . . . . . . . . . . . . . 13
TRUSTEES AND OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ADVISORY, ADMINISTRATION, SUB-ADMINISTRATION,
CUSTODY AND TRANSFER AGENCY AGREEMENTS. . . . . . . . . . . . . . . . . 19
Investment Adviser, Administrator and Sub-Administrator . . . . . . . 19
Authority to Act as Investment Adviser. . . . . . . . . . . . . . . . 20
Custodian and Transfer Agent. . . . . . . . . . . . . . . . . . . . . 21
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION . . . . . . . . . . . . . . 21
PERFORMANCE AND YIELD INFORMATION. . . . . . . . . . . . . . . . . . . . . 22
COUNSEL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
INDEPENDENT ACCOUNTANTS. . . . . . . . . . . . . . . . . . . . . . . . . . 23
GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
-i-
<PAGE>
Page
----
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 24
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
-ii-
<PAGE>
This Statement of Additional Information is meant to be read in
conjunction with the Prospectus of Galaxy Fund II ("Galaxy II") dated July 29,
1998, 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 First
Data Distributors, Inc., Galaxy II's distributor, at 1-800-628-0414.
Information regarding the status of shareholder accounts may be obtained by
calling First Data Investor Services Group, Inc., Galaxy II's transfer agent, at
1-800-628-0414.
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.
<PAGE>
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, i.e. the Large Company Index Fund, the Small Company Index Fund, the U.S.
Treasury Index Fund and the Utility Index Fund (collectively with the Fund, the
"Funds"), can be obtained by calling Galaxy II at 1-800-628-0414.
INVESTMENT POLICIES AND RISK CONSIDERATIONS
The following policies supplement the descriptions of the Fund's
investment objective and policies in the Prospectus.
U.S. GOVERNMENT SECURITIES
As noted in the Prospectus, the Fund may invest in short-term debt
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities ("U.S. Government Securities"). U.S. Government Securities in
which the Fund may invest include direct obligations of the U.S. Treasury and
obligations issued by U.S. Government agencies and instrumentalities. Included
among direct obligations of the United States are Treasury Bills, Treasury Notes
and Treasury Bonds, which differ principally in terms of their maturities.
Included among the securities issued by U.S. Government 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 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.
-2-
<PAGE>
The Fund will invest in an obligation of a foreign bank or a foreign branch of a
U.S. bank 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 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,
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assuming all contractual obligations have been satisfied. The broker will have
access to amounts in the margin account if the Fund fails to meet its
contractual obligations. Subsequent payments, known as "variation margin," to
and from the broker, will be made daily as the price of the index or securities
underlying the futures contract fluctuates, making the long and short positions
in the futures contract more or less valuable, a process known as
"marking-to-market." At any time prior to the expiration of a futures contract,
the Fund may elect to close the position by taking an opposite position, which
will operate to terminate the Fund's existing position in the contract.
Galaxy II will set aside with its custodian, or with a designated
sub-custodian, cash or liquid securities at least equal to the underlying
commodity value of each long position the Fund assumes in commodity futures
contracts or will take other actions consistent with regulatory requirements to
avoid leverage.
There are several risks in connection with investing in futures
contracts. Successful use of such futures contracts by the Fund is subject to
the ability of Fleet to predict correctly movements in the direction of interest
rates. Such predictions involve skills and techniques which may be different
from those involved in the management of a municipal bond portfolio. In
addition, although the Fund intends to enter into futures contracts only if
there is an active market for such contracts, there is no assurance that a
liquid market will exist for the contracts at any particular time. Most futures
exchanges limit the amount of fluctuation permitted in futures contract prices
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.
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OPTIONS ON FUTURES CONTRACTS
The Fund may purchase put and call options on interest rate and
municipal bond index futures contracts which are traded on a United States
exchange as a hedge against changes in interest rates, and may enter into
closing transactions with respect to such options to terminate existing
positions. The Fund would sell put and call options on futures contracts only
as part of closing sale transactions to terminate its options positions. There
is no guarantee that such closing transactions can be effected.
Options on futures contracts, as contrasted with the direct investment
in such contracts, gives the purchaser the 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 (a) banks that are the issuers of
instruments acceptable for purchase by the Fund or that are on the "approved
list" maintained by Fleet or (b) primary non-bank dealers of U.S. Government
Securities that are listed on the Federal Reserve Bank of New York's list of
reporting dealers and that meet certain other criteria. Repurchase agreements
are contracts
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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 (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 (including accrued
interest).
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 15% of its net assets to be invested in illiquid
securities.
A joint trading account may be used by the Fund to enter into
repurchase agreements. The Fund's decision to invest in the joint account will
be solely at its option; the Fund will not be required either to invest a
minimum amount or to maintain a minimum balance. The Board of Trustees will
evaluate annually the joint account arrangement and will continue participation
only if it determines that there is a reasonable likelihood that the Fund and
its shareholders would benefit from continued participation and that no
participant will be treated on a less advantageous basis than another
participant.
MUNICIPAL SECURITIES
The term "municipal securities" as used in the Prospectus and this
Statement of Additional Information means debt obligations issued by, or on
behalf of, states, territories and possessions of the United States and the
District of Columbia and their political subdivisions, agencies and
instrumentalities or multi-state agencies or authorities, the interest from
which debt obligations is, in the opinion of bond counsel to the issuer,
excluded from gross income for regular federal income tax purposes. Municipal
securities generally are understood to include debt obligations issued to obtain
funds for various public purposes, including the construction of a wide range of
public facilities, refunding of outstanding obligations, payment of general
operating expenses and extensions of loans to public institutions and
facilities. Private activity bonds that are issued by or on behalf of public
authorities to finance privately operated facilities are considered to be
municipal securities if the interest paid on them qualifies as excluded from
gross income (but not necessarily from alternative minimum taxable income) for
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.
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Municipal securities may be issued to finance lifecare 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 healthcare delivery and competition
from alternative healthcare or conventional housing facilities.
Municipal leases are municipal securities that may take the form of a
lease or an installment purchase contract issued by state and local governmental
authorities to obtain funds to acquire a wide variety of equipment and
facilities such as fire and sanitation vehicles, computer equipment and other
capital assets. These obligations have evolved to make it possible for state
and local government authorities to acquire property and equipment without
meeting constitutional and statutory requirements for the issuance of debt.
Thus, municipal leases have special risks not normally associated with municipal
securities. These obligations frequently contain "non-appropriation" clauses
that provide that the governmental issuer of the obligation has no obligation to
make future payments under the lease or contract unless money is appropriated
for those purposes by the legislative body on a yearly or other periodic basis.
In addition to the non-appropriation risk, municipal leases represent a type of
financing that has not yet developed the depth of marketability associated with
other municipal securities. Moreover, although municipal leases will be secured
by the leased equipment, the disposition of the equipment in the event of
foreclosure might prove to be difficult. The Fund does not intend to invest
more than 5% of its net assets in municipal leases.
The yields on municipal securities are dependent on a variety of
factors, including general economic and monetary conditions, money market
factors, conditions of the municipal securities market, the size of a particular
offering, maturity of the obligation, and rating of the issue.
Municipal securities may also be subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors, such as the Federal Bankruptcy 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
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difficulties. In addition, there could be economic, business or political
developments or changes which might affect all municipal securities of a similar
type. However, the Fund believes that the most important consideration
affecting risk is the quality of particular issues of municipal securities
rather than factors affecting all, or broad classes of, municipal securities.
Tax legislation in recent years has included several provisions that
may affect the supply of, and the demand for, municipal securities, as well as
the tax-exempt nature of interest paid on those obligations. Neither Galaxy II
nor Fleet can predict with certainty the effect of recent tax law changes upon
the municipal securities market, including the availability of instruments for
investment by the Fund. In addition, neither Galaxy II nor Fleet can predict
whether additional legislation adversely affecting the municipal securities
market will be enacted in the future. Galaxy II will monitor legislative
developments and consider whether changes in the investment objective or
policies of the Fund need to be made in response to those developments.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES
Municipal securities are subject to changes in value based upon the
public's perception of the creditworthiness of the issuers and changes, real or
anticipated, in the level of interest rates. In general, municipal securities
tend to appreciate when interest rates decline and depreciate when interest
rates rise. Purchasing municipal securities on a when-issued or
delayed-delivery basis, therefore, can involve the risk that the yields
available in the market when the delivery takes place actually may be higher
than those obtained in the transaction itself. To account for this risk, a
separate account of the Fund consisting of cash or liquid securities equal to
the amount of the when-issued or delayed-delivery commitments will be
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. ("Investor Services Group"), 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
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the Board of Trustees, which may rely on the assistance of the pricing service.
The procedures of the pricing service are reviewed periodically by Fleet under
the general supervision and responsibility of Galaxy II's Board of Trustees.
Portfolio securities which are listed on the New York Stock Exchange
or the American Stock Exchange are valued at the last quoted sales price, or if
no sales occurred, the closing bid price. Investments in U.S. Government
Securities (other than short-term investments) are valued at the average of the
quoted bid and asked prices in the over-the-counter market. Short-term
investments that mature in 60 days or less are valued on the basis of amortized
cost (which involves valuing an investment instrument at its cost and,
thereafter, assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument) unless Galaxy II's Board of Trustees has determined
that amortized cost does not approximate market value. Other securities for
which market quotations are readily available are valued as nearly as possible
in the manner described above. Securities may be valued by a pricing service
when such prices are believed to reflect the fair market value of such
securities. Other assets and securities for which market 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
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shareholders is defined, with respect to the approval of an investment advisory
agreement or a change in a fundamental investment objective or policy as the
lesser of (a) 67% or more of the shares present at the meeting, if the holders
of more than 50% of the outstanding shares of the Fund are present or
represented by proxy, or (b) more than 50% of the outstanding shares of the
Fund.
The Fund may not:
1. Under normal market conditions invest less than 80% of its net
assets in municipal securities.
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.
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7. Purchase or sell real estate or real estate limited partnership
interests, or invest in oil, gas or mineral leases, or mineral exploration or
development programs, except that the Fund may invest in securities secured by
real estate mortgages or interests therein and may purchase securities issued by
companies that invest or deal in any of the above.
8. Make short sales of securities or maintain a short position.
9. Purchase securities of other investment companies except as they
may be acquired in connection with a merger, consolidation, acquisition,
reorganization or offer of exchange and except as permitted under the 1940 Act.
10. With respect to 75% of its total assets, purchase more than 10%
of the voting securities of any one issuer, more than 10% of the securities of
any class of any one issuer or more than 10% of the outstanding debt securities
of any one issuer; provided that this limitation shall not apply to investments
in U.S. Government Securities. The Fund will regard each state and each of its
political subdivisions, agencies and instrumentalities and each multi-state
agency, as separate issuers for purposes of this restriction. If private
companies are responsible for payment of principal and interest, the Fund will
regard each such company as a separate issuer for purposes of this restriction.
All securities of a foreign government and its agencies will be treated as a
single issuer for purposes of this restriction.
11. Purchase securities on margin, except that the Fund may obtain
any short-term credits necessary for the clearance of purchases and sales of
securities. For purposes of this restriction, the deposit or payment of initial
or variation margin in connection with futures contracts or related options will
not be deemed to be a purchase of securities on margin by the Fund.
12. Invest in commodities, except that the Fund may invest in futures
contracts and options thereon as described herein and in the Prospectus.
13. Invest in companies for the purpose of exercising control or
management.
14. Invest more than 15% of the value of the Fund's net assets in
securities which may be illiquid because of legal or contractual restrictions on
resale or securities for which there are no readily available market quotations.
15. Invest more than 25% of its assets in the securities of issuers
in any single industry; provided that there shall be no limitation on the
purchase of municipal securities and U.S. Government Securities. For the
purposes of this restriction, private activity bonds, where the payment of
principal and interest is the ultimate responsibility of 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.
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PORTFOLIO TURNOVER
Galaxy II cannot accurately predict the Fund's portfolio turnover
rate. However, the annual turnover rate of the Fund generally is expected to be
less than 100%. For the fiscal years ended March 31, 1997 and March 31, 1998,
the Fund's portfolio turnover rates were 7% and 28%, 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 Galaxy II.
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 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
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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.
Galaxy II is required to identify any securities of its regular
brokers or dealers or their parents that Galaxy II has acquired during its most
recent fiscal year. At March 31, 1998, the Large Company Index Fund held
common stock of (a) Chase Manhattan Corp. in the amount of $4,069,718; (b)
Lehman Brothers Holdings, Inc. in the amount of $539,100; and (c) Morgan
Stanley, Dean Witter, Discover & Co. in the amount of $3,101,269.
ADDITIONAL INFORMATION CONCERNING TAXES
As described above and in the Prospectus, the Fund is designed to
provide shareholders with current income which is excluded from gross income for
regular federal income tax purposes. The Fund is not intended to constitute a
balanced investment program and is not designed for investors seeking capital
gains or maximum tax-exempt income irrespective of fluctuations in principal.
Investment in the Fund would not be suitable for tax-exempt institutions,
qualified retirement plans (including those that cover self-employed
individuals) and individual retirement accounts since such investors would not
gain any additional tax benefit from the receipt of tax-exempt income.
The Fund 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. If the Fund were to fail to meet these tests, the Fund would be
taxed on its taxable income at regular corporate rates without any deduction for
dividends to shareholders, and shareholders would be taxable on Fund dividends,
including dividends derived from tax-exempt interest.
Although the Fund expects to be relieved of all or substantially all
federal, state and local income and franchise taxes, portions of the Fund's
income may be subject to state or local tax in some jurisdictions. Any such
taxes paid by the Fund would reduce the amount of income and gains available for
distribution to shareholders.
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
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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.
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, Galaxy II 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. 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 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.
-14-
<PAGE>
Investors considering buying shares of the Fund on or just prior to
the record date for a taxable dividend or capital gain distribution should be
aware that the amount of the forthcoming dividend or distribution payment,
although in effect a return of capital, will be a taxable dividend or
distribution payment.
If a shareholder fails to furnish a correct taxpayer identification
number, fails to report fully dividend or interest income, or fails to certify
that he or she has provided a correct taxpayer identification number and that he
or she is not subject to backup withholding, then the shareholder may be subject
to a 31% "backup withholding tax" with respect to (a) dividends and
distributions and (b) the proceeds of any sales or redemptions of the Fund's
shares. An individual's taxpayer identification number is his or her social
security number. The 31% "backup withholding tax" is not an additional tax and
may be credited against a taxpayer's regular federal income tax liability.
The foregoing is only a summary of certain tax considerations
generally affecting the Fund and its shareholders, and is not intended as a
substitute for careful tax planning. Shareholders are urged to consult their
tax advisers with specific reference to their own tax situations, including
their state and local tax liabilities.
TRUSTEES AND OFFICERS
The trustees and executive officers of Galaxy II, their addresses,
ages and their principal occupations during the past five years and other
affiliations are set forth below. 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
Name, Address and Age Occupation(s) During Past 5 Years
--------------------- -------------------------------------------
Dwight E. Vicks, Jr. Trustee and Chairman of the Board
Vicks Lithograph &
Printing Corporation President & Director, Vicks Lithograph &
Commercial Drive Printing Corporation (book manufacturing
P.O. Box 270 and commercial printing); Director, Utica
Yorkville, NY 13495 First Insurance Company; Trustee, Savings
Age 65 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.
-15-
<PAGE>
Positions Held with Galaxy II and Principal
Name, Address and Age Occupation(s) During Past 5 Years
--------------------- -------------------------------------------
John T. O'Neill* Trustee, President and Treasurer
Hasbro, Inc.
1027 Newport Avenue Executive Vice President and Chief
Pawtucket, RI 02862 Financial Officer, Hasbro, Inc. (toy and
Age 53 game manufacturer); Trustee, 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 57 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 72 (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 57 development); President, The Astra
Ventures, Incorporated (manufacturer of
cardboard boxes); Commissioner, Rhode
Island Investment Commission; Trustee, The
Galaxy Fund and The Galaxy VIP Fund.
-16-
<PAGE>
Positions Held with Galaxy II and Principal
Name, Address and Age Occupation(s) During Past 5 Years
--------------------- -------------------------------------------
Bradford S. Wellman* Trustee
2468 Ohio Street
Bangor, ME 04401 Private Investor; Director, Essex County
Age 67 Gas Company, until January 1994; Director,
Maine Mutual Fire Insurance Co.; Member,
Maine Finance Authority; Trustee, The
Galaxy Fund and The Galaxy VIP Fund.
Jylanne Dunne Vice President and Assistant
First Data Investor Treasurer
Services Group, Inc.
4400 Computer Drive Employee of First Data Investor Services
P.O. Box 5108 Group, Inc.
Westboro, MA 01581
Age 39
W. Bruce McConnel, III Secretary
Drinker Biddle & Reath LLP
1345 Chestnut St. Partner of the law firm of Drinker
Philadelphia, PA 19107 Biddle & Reath LLP, Philadelphia,
Age 55 Pennsylvania.
Effective March 5, 1998, each trustee receives an annual aggregate
fee of $40,000 for his services as a trustee of Galaxy II, The Galaxy Fund
("Galaxy") and The Galaxy VIP Fund ("Galaxy VIP"), plus an additional $2,500
for each in-person Galaxy Board meeting attended and $1,500 for each in-person
Galaxy VIP or Galaxy II Board meeting attended not held concurrently with an
in-person Galaxy Board meeting, and is reimbursed for expenses incurred in
attending meetings. Each trustee also receives $750 for each telephone Board
meeting in which the trustee participates, $1,000 for each in-person Board
committee meeting attended and $500 for each telephone Board committee meeting
in which the trustee participates. The Chairman of the Boards of 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 March 5, 1998, each trustee was authorized to receive an
annual aggregate fee of $29,000 for his services as a trustee of Galaxy II,
Galaxy and Galaxy VIP, plus an additional $2,250 for each in-person Galaxy
Board meeting attended, $1,500 for each in-person Galaxy VIP or Galaxy II Board
meeting attended not held concurrently with an
-17-
<PAGE>
in-person Galaxy Board meeting, and $500 for each telephone Board meeting in
which the trustee participated and was reimbursed for expenses incurred in
attending all meetings. Annual fees to the Chairman of the Boards and the
President and Treasurer of Galaxy II, Galaxy and Galaxy VIP were the same as
the current fees, as were the fees for Board committee meetings.
Beginning March 1, 1996, each trustee became entitled to participate
in The Galaxy Fund, The Galaxy VIP Fund and Galaxy Fund II Deferred Compensation
Plans (the "Original Plans"). Effective January 1, 1997, the Original Plans
were merged into The Galaxy Fund/The Galaxy VIP Fund/Galaxy Fund II Deferred
Compensation Plan (together with the Original Plans, the "Plan"). Under the
Plan, a trustee may elect to have his deferred fees treated as if they had been
invested by Galaxy II, Galaxy and Galaxy VIP in the shares of one or more
portfolios in Galaxy II or Galaxy, or other types of investment options, and the
amount paid to the trustees under the Plan will be determined based upon the
performance of such investments. Deferral of trustees' fees will have no effect
on a portfolio's assets, liabilities, and net income per share, and will not
obligate Galaxy II, Galaxy and Galaxy VIP to retain the services of any trustee
or obligate a portfolio to any level of compensation to the trustee. Galaxy II,
Galaxy and Galaxy VIP may invest in underlying securities without shareholder
approval.
No employee of Investor Services Group 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, 1998:
<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSA-
RETIREMENT TION FROM
BENEFITS FUND
AGGREGATE ACCRUED COMPLEX*
NAME OF COMPENSATION AS PART OF PAID TO
PERSON FROM GALAXY II GALAXY II EXPENSES TRUSTEES
- ------ -------------- ------------------ --------
<S> <C> <C> <C>
Bradford S. Wellman $3,599 None $38,500
Dwight E. Vicks, Jr. $4,021 None $43,000
Donald B. Miller** $3,665 None $39,000
Louis DeThomasis $3,647 None $39,000
John T. O'Neill $3,880 None $41,500
James M. Seed** $3,665 None $39,000
</TABLE>
-18-
<PAGE>
* 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 $ 3,919 and $ 4,004 accrued
during Galaxy II's fiscal year ended March 31, 1998 for Messrs. Miller and
Seed, respectively.
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 fiscal years ended March 31, 1996 , March 31, 1997 and March
31, 1998, Fleet earned advisory fees of $59,097 , $51,631 and $48,421,
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, Inc. ("Investor Services Group"),
pursuant to which Investor Services Group has agreed to provide Galaxy II with
the services which Galaxy II is entitled to receive under the Administration
Agreement with FNB.
-19-
<PAGE>
For the fiscal years ended March 31, 1996 , March 31, 1997 and March
31, 1998, FNB earned administration fees of $82,017 , $72,282 and $67,789,
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; annual sub-account
fees payable with respect to shares of Galaxy II's Large Company Index, Small
Company Index, Utility Index and U.S. Treasury Index Funds held by defined
contribution plans; 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 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 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 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 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 Fund, Galaxy II might be required to alter
materially or discontinue its arrangements with such companies and change its
-20-
<PAGE>
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.
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.
Investor Services Group 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, Investor
Services Group 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.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Fund are sold on a continuous basis by Galaxy II's
distributor, First Data Distributors, Inc. ("FD Distributors"), and FD
Distributors has agreed to use appropriate efforts to solicit all purchase
orders. As described in the Prospectus, shares of the Fund are sold to
customers ("Customers") of FIS Securities, Inc., Fleet Brokerage Securities
Inc., Fleet Securities, Inc., Fleet Enterprises, Inc., Fleet Financial Group,
Inc., its affiliates, their correspondent banks, and other qualified banks,
savings and loan associations and broker/dealers ("Institutions"). As described
in the Prospectus, Shares may also be sold to individuals or corporations who
submit a purchase application to Galaxy II, purchasing either for their own
accounts or for the accounts of others ("Direct Investors").
Galaxy II may suspend the right of redemption or postpone the date of
payment for shares for more than seven days during any period when (a) trading
in the markets the Fund normally utilizes is restricted, or an emergency, as
defined by the rules and regulations of the Securities and Exchange Commission
("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.
-21-
<PAGE>
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.
The Fund's average annual total return for the one-year period ended
March 31, 1998 was 8.29%. The Fund's average annual total return for the
period beginning April 15, 1993 (commencement of operations) through March 31,
1998 was 5.67%.
Yield is calculated by annualizing the net investment income generated
by the Fund over a specified thirty-day period according to the following
formula:
6
YIELD = 2[( a-b +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 Fund's yield for the 30-day period ended March 31, 1998 was
3.73%.
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 Fund's tax-equivalent yield for the 30-day period ended March 31,
1998
-22-
<PAGE>
was 5.18% for a federal marginal income tax ("FMIT") bracket of 28%, 5.41%
for a FMIT bracket of 31%, 5.83% for a FMIT bracket of 36% and 6.18% 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.
COUNSEL
Drinker Biddle & Reath LLP (of which Mr. McConnel, Secretary of
Galaxy II, is a partner), 1345 Chestnut Street, Philadelphia, Pennsylvania
19107, are counsel to Galaxy II and will pass upon certain legal matters on its
behalf.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, independent accountants, with offices
at One Post Office Square, Boston, Massachusetts 02109, currently serve as
auditors to Galaxy II. PricewaterhouseCoopers LLP 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. Investor Services Group
maintains a record of each shareholder's ownership of Galaxy II shares. Shares
do not have cumulative voting rights, which
-23-
<PAGE>
means that holders of more than 50% of the shares voting for the election of
trustees can elect all trustees. Shares are transferable, but have no
preemptive, conversion or subscription rights. Shareholders generally vote by
series of Galaxy II, except with respect to the election of trustees and the
selection of independent accountants. Trustees were elected and the Fund's
investment advisory agreement was approved by shareholders at a meeting of
shareholders on June 15, 1994. There will normally be no meetings of
shareholders for the purpose of electing trustees unless and until such time as
less than a majority of the trustees holding office have been elected by
shareholders, at which time the trustees then in office will call a
shareholders' meeting for the election of trustees. Under the 1940 Act,
shareholders of record of no less than two-thirds of the outstanding shares of
Galaxy II may remove a trustee through a declaration in writing or by vote cast
in person or by proxy at a meeting called for that purpose. Under the Trust
Agreement, the trustees are required to call a meeting of shareholders for the
purpose of voting upon the question of removal of any such trustee when
requested in writing to do so by the shareholders of record of not less than 10%
of Galaxy II's outstanding shares.
Massachusetts law provides that shareholders could, under certain
circumstances, be held personally liable for the obligations of Galaxy II. The
Trust Agreement disclaims shareholder liability for acts or obligations of
Galaxy II, however, and requires that notice of the disclaimer be given in each
agreement, obligation or instrument entered into or executed by Galaxy II or a
trustee. The Trust Agreement provides for indemnification from Galaxy II's
property for all losses and expenses of any shareholder held personally liable
for the obligations of Galaxy II. Thus, the risk of a shareholder's incurring
financial loss on account of shareholder liability is limited to circumstances
in which Galaxy II would be unable to meet its obligations, a possibility that
Galaxy II's management believes is remote. Upon payment of any liability
incurred by Galaxy II, the shareholder paying the liability will be entitled to
reimbursement from the general assets of Galaxy II. The trustees intend to
conduct the operations of Galaxy II in such a way so as to avoid, as far
as possible, ultimate liability of the shareholders for liabilities of Galaxy
II.
As of July 10, 1998, the name, address and percentage ownership of
the persons who owned of record 5% or more of the outstanding shares of any
portfolio of Galaxy II were as follows: Large Company Index Fund - - Gales &
Co., Fleet Investment Services, Mutual Funds Unit-NY/RO/T04A, 159 East Main
Street, Rochester, NY 14638, (33.58%); Fleet Savings Plus, c/o Norstar Trust
Company, Gales & Co., 150 East Main Street, Rochester, NY 14638 (15.54%); U.S.
Treasury Index Fund - - Gales & Co., Fleet Investment Services, Mutual Funds
Unit-NY/RO/T04A, 159 East Main Street, Rochester, NY 14638, (12.34%); Priests
Retirement Plan, Diocese of Albany, c/o Norstar Trust Company, Gales & Co., 150
East Main Street, Rochester, NY 14638, (5.89%). No person owned of record 5% or
more of the outstanding shares of the Small Company Index Fund , the Utility
Index Fund or the Municipal Bond Fund.
FINANCIAL STATEMENTS
Galaxy II's audited financial statements and notes thereto in Galaxy
II's Annual
-24-
<PAGE>
Report to Shareholders for the fiscal year ended March 31, 1998 (the "Annual
Report") are incorporated into this Statement of Additional Information by
reference. No other parts of the Annual Report are incorporated by reference
herein. The financial statements included in the Annual Report have been
audited by PricewaterhouseCoopers LLP, whose report thereon is incorporated
herein by reference. Such financial statements have been incorporated herein
in reliance upon such report given upon the authority of
PricewaterhouseCoopers LLP as experts in accounting and auditing. Additional
copies of the Annual Report may be obtained at no charge by telephoning
Galaxy II at 1-800-628-0414.
-25-
<PAGE>
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 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.
A-1
<PAGE>
"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") 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:
A-2
<PAGE>
"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"
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.
A-3
<PAGE>
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. "SG" denotes speculative quality and lack of margins of
protection.
A-4
<PAGE>
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>
GALAXY FUND II
FORM N-1A
Part C. Other Information
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
(1) Included in Part A:
Financial Highlights for a share outstanding throughout each
period for the fiscal years ended March 31, 1998, March 31,
1997, March 31, 1996, March 31, 1995, March 31, 1994, March
31, 1993 and March 31, 1992 and the period October 1, 1990
(commencement of operations) through March 31, 1991 for the
Large Company Index Fund and the Small Company Index Fund, for
the years ended March 31, 1998, March 31, 1997, March 31,
1996, March 31, 1995, March 31, 1994, March 31, 1993 and the
period June 4, 1991 (commencement of operations) through March
31, 1992 for the U.S. Treasury Index Fund, for the years ended
March 31, 1998, March 31, 1997, March 31, 1996, March 31,
1995, March 31, 1994 and the period January 5, 1993
(commencement of operations) through March 31, 1993 for the
Utility Index Fund, and for the fiscal years ended March 31,
1998, March 31, 1997, March 31, 1996 and March 31, 1995 and
the period April 15, 1993 (commencement of operations) through
March 31, 1994 for the Municipal Bond Fund.
(2) Incorporated by reference into Part B:
The financial statements contained in Registrant's Annual
Report to Shareholders dated March 31, 1998, which has been
previously filed with the Commission.
(3) All required financial statements are included in or
incorporated by reference into Parts A and B hereof. All
other financial statements and schedules are inapplicable.
(b) Exhibits:
(1) Declaration of Trust of Registrant is incorporated herein by
reference to Registrant's Registration Statement on Form N-1A
filed with the
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<PAGE>
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 herein by reference to
Post-Effective Amendment No. 18 to Registrant's Registration
Statement on Form N-1A filed with the Commission on July 28,
1995.
(2)(a) By-Laws of Registrant are incorporated herein by reference to
Post-Effective Amendment No. 2 to Registrant's Registration
Statement on Form N-1A filed with the Commission on May 24,
1991.
(2)(b) Amendment No. 1 to By-Laws of Registrant dated June 30, 1994
is incorporated herein by reference to Post-Effective
Amendment No. 18 to Registrant's Registration Statement on
Form N-1A filed with the Commission on July 28, 1995.
(3) Not applicable.
(4) Not applicable.
(5) Investment Advisory Agreement between Registrant and Fleet
Investment Advisors Inc. dated June 30, 1994 is incorporated
herein by reference to Post-Effective Amendment No. 18 to
Registrant's Registration Statement on Form N-1A filed with
the Commission on July 28, 1995.
(6)(a) Distribution Agreement between Registrant and First Data
Distributors, Inc. Dated June 1, 1997.
(7)(a) Galaxy Fund II Deferred Compensation Plan and Related
Agreement effective as of March 1, 1996 is incorporated herein
by reference to Post-Effective Amendment No. 22 to
Registrant's Registration Statement
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<PAGE>
on Form N-1A filed with the Commission on May 30, 1997.
(7)(b) The Galaxy Fund/The Galaxy VIP Fund/Galaxy Fund II Deferred
Compensation Plan and Related Agreement effective as of
January 1, 1997 is incorporated herein by reference to
Post-Effective Amendment No. 22 to Registrant's Registration
Statement on Form N-1A filed with the Commission on May 30,
1997.
(8)(a) Custody Agreement among Registrant, The Chase Manhattan Bank,
N.A. and Fleet National Bank dated June 30, 1994 is
incorporated herein by reference to Post-Effective Amendment
No. 18 to Registrant's Registration Statement on Form N-1A
filed with the Commission on July 28, 1995.
(9)(a) Administration Agreement between Registrant and Fleet National
Bank dated October, 1994 is incorporated herein by reference
to Post-Effective Amendment No. 18 to Registrant's
Registration Statement on Form N-1A filed with the Commission
on July 28, 1995.
(9)(b) Sub-Administration Agreement between Fleet National Bank and
The Shareholder Services Group, Inc., d/b/a 440 Financial
dated March 31, 1995 is incorporated herein by reference to
Post-Effective Amendment No. 18 to Registrant's Registration
Statement on Form N-1A filed with the Commission on July 28,
1995.
(9)(c) Transfer Agency and Services Agreement among Registrant, First
Data Investor Services Group, Inc. and Fleet National Bank
dated June 1, 1997.
(9)(d) Amendment No. 1 to Transfer Agency and Services Agreement
among Registrant, First Data Investor Services Group, Inc. and
Fleet National Bank dated March 5, 1998.
(9)(e) Form of Amendment No. 2 to Transfer Agency and Services
Agreement among Registrant, First Data Investor Services Group,
Inc. and Fleet National Bank.
(9)(f) Services Agreement between Registrant and Columbia Trust
Company dated October 1, 1997.
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<PAGE>
(9)(g) Form of Amendment No. 1 to Services Agreement between
Registrant and Columbia Trust Company.
(9)(h) Form of Services Agreement among Registrant, Fleet National
Bank and First Data Investor Services Group, Inc.
(10) Opinion of Counsel that shares are validly issued, fully paid
and non-assessable.
(11)(a) Consent of PricewaterhouseCoopers LLP
(11)(b) Consent of Drinker Biddle & Reath LLP.
(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.
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<PAGE>
(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
Item 25. Persons Controlled by or Under Common Control with Registrant
Registrant is controlled by its Board of Trustees.
Item 26. Number of Holders of Securities
<TABLE>
<CAPTION>
Number of Record Holders
Title of Series as of June 30, 1998
--------------- ------------------------
<S> <C>
Large Company Index Fund 19,286
Small Company Index Fund 19,310
U.S. Treasury Index Fund 5,645
Utility Index Fund 4,442
Municipal Bond Fund 932
</TABLE>
Item 27. Indemnification
Indemnification of Registrant's principal underwriter, custodian
and transfer agent against certain losses is provided for respectively in
Section 1.15 of the Distribution Agreement filed herein as Exhibit (6)(a),
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<PAGE>
in Section 20 of the Custody Agreement incorporated by reference herein as
Exhibit (8), and in Article 10 of the Transfer Agency and Services Agreement
filed herein as Exhibit (9)(c). Registrant has obtained from a major
insurance carrier a directors' and officers' liability policy covering
certain types of errors and omissions. In addition, under Article XI,
Sections 1 and 2 of the Declaration of Trust (the "Trust Agreement"), any
past or present trustee or officer of Registrant, including persons who serve
at the Registrant's request as directors, officers or trustees of another
organization in which Registrant has any interest as a shareholder, creditor
or otherwise) (hereinafter referred to as a "Covered Person") is indemnified
to the fullest extent permitted by law against liability and all expenses
reasonably incurred by him in connection with any claim, action, suit or
proceeding to which he may be a party or otherwise involved by reason of his
being or having been a Covered Person of Registrant, and against amounts paid
or incurred by him in the settlement thereof. These provisions do not
authorize indemnification when it is determined, in the manner specified in
the Trust Agreement, that such Covered Person has not acted in good faith in
the reasonable belief that his actions were in or not opposed to the best
interests of the Registrant. Moreover, this provision does not authorize
indemnification when it is determined, in the manner specified in the Trust
Agreement, that the Covered Person would otherwise be liable to the
Registrant or its shareholders by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of his duties involved in the conduct
of his 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.
C-6
<PAGE>
Item 28. Business and Other Connections of Investment Advisers
Fleet Investment Advisors Inc. ("Fleet") is an investment adviser
registered under the Investment Advisers Act of 1940, as amended (the "Advisers
Act").
The list required by this Item 28 of officers and directors of Fleet,
together with information as to any business profession, vocation or employment
of a substantial nature engaged in by such officers and directors during the
past two years, is incorporated herein by reference to Schedules A and D of Form
ADV filed by Fleet pursuant to the Advisers Act (SEC File No. 801-20312).
Item 29. Principal Underwriter
(a) In addition to Galaxy Fund II, First Data Distributors, Inc. (the
"Distributor") currently acts as distributor for The Galaxy Fund, The Galaxy VIP
Fund, BT Insurance Funds Trust, CT & T Funds, Panorama Funds, and Wilshire
Target Funds, Inc. The Distributor is registered with the Securities and
Exchange Commission as a broker-dealer and is a member of the National
Association of Securities Dealers. The Distributor is a subsidiary of First
Data Investor Services Group, Inc., which is located at 4400 Computer Drive,
P.O. Box 5108, Westboro, Massachusetts 01581.
(b) The information required by this Item 29(b) with respect to each
director, officer, or partner of the Distributor is incorporated by reference to
Schedule A of Form BD filed by the Distributor with the Securities and Exchange
Commission pursuant to the Securities Act of 1934 (File No. 8-14716).
(c) The Distributor receives no compensation from the Registrant for
distribution of its shares. The Distributor is an affiliated person of First
Data Investor Services Group, Inc., the Registrant's sub-administrator and
transfer agent, which receives sub-administration and transfer agency fees as
described in Parts A and B of this Registration Statement.
Item 30. Location of Accounts and Records
The records and books of the Registrant and the Funds are located at
the offices of:
(1) Fleet Investment Advisors Inc., 75 State Street, Boston,
Massachusetts 02106 (records relating to its functions as
investment adviser to all of the Registrant's Funds);
(2) First Data Distributors, Inc., 4400 Computer Drive, P.O. Box
5108,
C-7
<PAGE>
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, By-Laws and minute books); and
(6) The Chase Manhattan Bank, 1211 Avenue of the Americas, New York,
New York 10036 (records relating to its functions as custodian).
Item 31. Management Services
Not applicable.
Item 32. Undertakings
Registrant hereby undertakes to call a meeting of shareholders for the
purpose of voting upon the question of removal of a trustee or trustees of
Registrant when requested in writing to do so by the holders of at least 10% of
Registrant's outstanding shares. Registrant hereby undertakes further, in
connection with the meeting, to comply with the provisions of Section 16(c) of
the Investment Company Act of 1940, as amended, relating to communications with
shareholders of certain common law trusts. Registrant hereby undertakes further
to furnish each person to whom a prospectus is delivered with a copy of the
Registrant's latest annual report to shareholders, upon request and without
charge.
C-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, the Registrant
certifies that it meets all the requirements for effectiveness of this
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment No. 24 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 29th
day of July, 1998.
GALAXY FUND II
By:/s/ John T. O'Neill
----------------------
John T. O'Neill
President
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Post-Effective Amendment No. 24 to its Registration Statement has
been signed below by the following persons in the capacities and on the date
indicated.
Signature Title Date
--------- ----- ----
/s/ John T. O'Neill Trustee, President July 29, 1998
- ------------------------------ and Treasurer
John T. O'Neill
* Dwight E. Vicks, Jr. Chairman of the July 29, 1998
- ------------------------------ Board of Trustees
Dwight E. Vicks, Jr.
* Donald B. Miller Trustee July 29, 1998
- ------------------------------
Donald B. Miller
* Louis DeThomasis Trustee July 29, 1998
- ------------------------------
Louis DeThomasis
* Bradford S. Wellman Trustee July 29, 1998
- ------------------------------
Bradford S. Wellman
* James M. Seed Trustee July 29, 1998
- ------------------------------
James M. Seed
*By:/s/ John T. O'Neill
------------------------------
John T. O'Neill
Attorney-in-Fact
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<PAGE>
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
-------------------
Dwight E. Vicks, Jr.
<PAGE>
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>
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>
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>
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>
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
(6)(a) Distribution Agreement between Registrant and First
Data Distributors, Inc.
(9)(c) Transfer Agency and Services Agreement among
Registrant, First Data Investor Services Group, Inc.
and Fleet National Bank.
(9)(d) Amendment No. 1 to Transfer Agency and Services
Agreement among Registrant, First Data Investor
Services Group, Inc. and Fleet National Bank.
(9)(e) Form of Amendment No. 2 to Transfer Agency and Services
Agreement among Registrant, First Data Investor
Services Group, Inc. and Fleet National Bank.
(9)(f) Services Agreement between Registrant and Columbia
Trust Company.
(9)(g) Form of Amendment No. 1 to Services Agreement between
Registrant and Columbia Trust Company.
(9)(h) Form of Services Agreement among Registrant, Fleet
National Bank and First Data Investor Services Group,
Inc.
(10) Opinion of Counsel that shares are validly issued,
fully paid and non-assessable.
(11)(a) Consent of PricewaterhouseCoopers LLP
(11)(b) Consent of Drinker Biddle & Reath LLP
(27) Financial Data Schedules
<PAGE>
Exhibit (6)(a)
DISTRIBUTION AGREEMENT
THIS AGREEMENT is made as of this 1st day of June, 1997 (the "Agreement")
by and between Galaxy Fund II (the "Company"), a Massachusetts business trust,
and First Data Distributors, Inc. (the "Distributor"), a Massachusetts
corporation.
WHEREAS, the Company is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
and is currently offering units of beneficial interest (such units of all
classes and series are hereinafter called the "Shares"), representing interests
in investment portfolios of the Company identified on Schedule A hereto (the
"Funds") which are registered with the Securities and Exchange Commission (the
"SEC") pursuant to the Company's Registration Statement on Form N-1A (the
"Registration Statement"); and
WHEREAS, the Company desires to retain the Distributor as distributor for
the Funds to provide for the sale and distribution of the Shares of the Funds
identified on Schedule A and for such additional classes or series as the
Company may issue, and the Distributor is prepared to provide such services
commencing on the date first written above.
NOW THEREFORE, in consideration of the premises and mutual covenants set
forth herein and intending to be legally bound hereby the parties hereto agree
as follows:
1. SERVICE AS DISTRIBUTOR
1.1 The Distributor will act as the Company's disclosed agent for the
distribution of the Shares covered by the Registration Statement then in
effect under the Securities Act of 1933, as amended (the "1933 Act"). The
Distributor will have no liability for payment for the purchase of Shares
sold pursuant to this Agreement or with respect to redemptions or
repurchases of Shares.
1.2 The Distributor agrees to use efforts deemed appropriate by the Distributor
to solicit orders for the sale of the Shares and will undertake such
advertising and promotion as it believes reasonable in connection with such
solicitation. The Distributor shall, at its own expense, finance
appropriate activities which it deems reasonable which are primarily
intended to result in the sale of Shares, including, but not limited to,
advertising, compensation of underwriters, dealers and sales personnel, the
printing and mailing of Prospectuses to other than current shareholders,
and the printing and mailing of sales literature.
<PAGE>
1.3 The Company understands that the Distributor is now, and may in the future
be, the distributor of the shares of several investment companies or series
(collectively, the "Investment Entities"), including Investment Entities
having investment objectives similar to those of the Funds. The Company
further understands that investors and potential investors in the Funds may
invest in shares of such other Investment Entities. The Company agrees
that the Distributor's duties to such Investment Entities shall not be
deemed in conflict with its duties to the Company under this Section 1.3.
1.4 The Distributor agrees to provide (a) two wholesalers dedicated to
supporting sales of Shares of the Funds and The Galaxy Fund, and (b) one or
more persons, during normal business hours, to respond to telephone
questions with respect to the Funds.
1.5 The Distributor may enter into selling agreements with selected dealers or
other institutions with respect to the offering of Shares to the public.
Each selling agreement will provide that (a) all payments for purchases of
Shares will be sent directly from the dealer or such other institution to
the Funds' transfer agent and (b) if payment is not made with respect to
purchases of Shares at the customary or required time for settlement of the
transaction, the Distributor will have the right to cancel the sale of
Shares ordered by the dealer or such other institution, in which case the
dealer or such other institution will be responsible for any loss suffered
by any Fund or the Distributor resulting from such cancellation. The
Distributor may also act as disclosed agent for a Fund and sell Shares of
that Fund to individual investors, such transactions to be specifically
approved by an officer of that Fund.
1.6 The Distributor will send a confirmation to each purchaser of Shares under
this Agreement. Such confirmations will comply with all applicable Federal
and state laws and rules and regulations of authorized regulatory bodies
and will clearly state that the Distributor is acting as agent in the
transaction and that all remittances, registration instructions and
certifications for redemption should be sent directly to the Funds'
transfer agent. Such confirmations will also set forth the mailing address
and delivery address of the Funds' transfer agent.
1.7 The Distributor shall not utilize any materials in connection with the sale
or offering of Shares except the Company's then current Prospectuses and
Statements of Additional Information and such other materials as the
Company shall provide or approve.
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<PAGE>
1.8 All activities by the Distributor and its agents and employees, as
distributor of the Shares, shall comply with all applicable laws, rules and
regulations, including, without limitation, all rules and regulations made
or adopted pursuant to the 1940 Act by the SEC or the National Association
of Securities Dealers.
1.9 The Distributor will transmit any orders received by it for purchase or
redemption of the Shares to the transfer agent and custodian for the
Company.
1.10 Whenever in their judgment such action is warranted by unusual market,
economic or political conditions or abnormal circumstances of any kind,
officers of the Company may decline to accept any orders for, or make any
sales of, the Shares until such time as those officers deem it advisable to
accept such orders and to make such sales, and the Company shall notify the
Distributor promptly of any such determination.
1.11 The Company agrees to pay all costs and expenses in connection with the
registration of Shares under the 1933 Act and all expenses in connection
with maintaining facilities for the issue and transfer of Shares and for
supplying information, prices and other data to be furnished by the Company
hereunder, and all expenses in connection with the preparation and printing
of the Company's Prospectuses and Statements of Additional Information for
regulatory purposes and for distribution to existing shareholders.
1.12 The Company agrees at its own expense to execute any and all documents and
to furnish any and all information and otherwise to take all actions that
may be reasonably necessary in connection with the qualification of the
Shares for sale in such states as the Distributor may designate. The
Company shall notify the Distributor in writing of the states in which the
Shares are to be sold and shall notify the Distributor in writing of any
changes to the information contained in the previous notification.
1.13 The Company shall furnish from time to time, for use in connection with the
sale of the Shares, such information with respect to the Company and the
Shares as the Distributor may reasonably request; and the Company warrants
that the statements contained in any such information shall fairly show or
represent what they purport to show or represent. The Company shall also
furnish the Distributor upon request with: (a) audited annual statements
and unaudited semi-annual statements of the Funds' books and accounts
prepared by the Company, (b) quarterly earnings statements of the Funds
prepared by the Company, (c) a monthly itemized list of the securities in
the Funds, (d)
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monthly balance sheets as soon as practicable after the end of each month,
and (e) from time to time such additional information regarding the Funds'
financial condition of the Company as the Distributor may reasonably
request.
1.14 The Company represents to the Distributor that all Registration Statements
and Prospectuses filed by the Company with the SEC under the 1933 Act with
respect to the Shares have been prepared in conformity with the
requirements of the 1933 Act and the rules and regulations of the SEC
thereunder. As used in this Agreement, the terms "Registration Statement"
and "Prospectus" shall mean any Registration Statement and any Prospectus
including any Statement of Additional Information incorporated therein by
reference relating to the Company filed with the SEC and any amendments or
supplements thereto at any time filed with the SEC. The Company represents
and warrants to the Distributor that any Registration Statement and
Prospectus, when such Registration Statement becomes effective, will
contain statements required to be stated therein in conformity with the
1933 Act and the rules and regulations of the SEC; that all statements of
fact contained in any such Registration Statement and Prospectus will be
true and correct when such Registration Statement becomes effective; and
that no Registration Statement or Prospectus when such Registration
Statement becomes effective will include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading to a purchaser of
the Shares. The Distributor may but shall not be obligated to propose from
time to time such amendment or amendments to any Registration Statement and
such supplement or supplements to any Prospectus as, in the light of future
developments, may, in the opinion of the Distributor's counsel, be
necessary or advisable. The Distributor shall promptly notify the Company
of any advice given to it by its counsel regarding the necessity or
advisability of amending or supplementing such Registration Statement. If
the Company shall not propose such amendment or amendments and/or
supplement or supplements within fifteen days after receipt by the Company
of a written request from the Distributor to do so, the Distributor may, at
its option, terminate this Agreement. The Company shall not file any
amendment to any Registration Statement or supplement to any Prospectus
without giving the Distributor reasonable notice thereof in advance;
provided, however, that nothing contained in this Agreement shall in any
way limit the Company's right to file at any time such amendments to any
Registration Statements and/or supplements to any Prospectus, of whatever
character, as the Company may deem advisable, such right being in all
respects absolute and unconditional.
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<PAGE>
1.15 The Company authorizes the Distributor (and dealers pursuant to any
agreements described in Section 1.5 above) to use any Prospectus in the
form furnished by the Company from time to time in connection with the sale
of the Shares. The Company agrees to indemnify, defend and hold the
Distributor, its several officers and directors, and any person who
controls the Distributor within the meaning of Section 15 of the 1933 Act,
free and harmless from and against any and all claims, demands, liabilities
and expenses (including the cost of investigating or defending such claims,
demands or liabilities and pay reasonable counsel fees incurred in
connection therewith) which the Distributor, its officers and directors, or
any such controlling person, may incur under the 1933 Act, or under common
law or otherwise, arising out of or based upon any untrue statement, or
alleged untrue statement of a material fact contained in any Registration
Statement or any Prospectus or arising out of or based upon any omission,
or alleged omission, to state a material fact required to be stated in
either any Registration Statement or any Prospectus or necessary to make
the statements in either thereof not misleading; provided, however, that
the Company's agreement to indemnify the Distributor, its officers or
directors, and any such controlling person, shall not be deemed to cover
any claims, demand, liabilities or expenses arising out of any
representations or statements contained in any Registration Statement or in
any Prospectus that were furnished in writing to the Company or its counsel
by the Distributor expressly for use in the answers to the Registration
Statement or in the corresponding statements made in the Prospectus, or
arising out or based upon any omission or alleged omission to state a
material fact in connection with such information furnished in writing by
the Distributor to the Company or its counsel and required to be stated in
such answers or necessary to make such answers not misleading; and further
provided that the Company's agreement to indemnify the Distributor and the
Company's representations and warranties hereinbefore set forth in Section
1.14 shall not be deemed to cover any liability to the Company or its
shareholders to which the Distributor would otherwise be subject by reason
of willful misfeasance, bad faith or negligence in the performance of its
duties, or by reason of the Distributor's reckless disregard of its duties
and obligations under this Agreement. The Company's indemnification
agreement contained in this Section 1.15 and the Company's representations
and warranties in this Agreement shall remain operative and in full force
and effect regardless of any investigation made by or on behalf of the
Distributor, its officers and directors, or any controlling person, and
shall survive delivery of any Shares. The Company agrees promptly to
notify the Distributor of the commencement of any litigation or proceedings
against the Company or any of its officers or
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<PAGE>
trustees in connection with the issue and sale of any Shares. This
agreement to indemnify will inure exclusively to the Distributor's benefit,
to the benefit of its several officers and directors and their respective
estates, and to the benefit of its controlling persons and their
successors.
1.16 The Distributor agrees to indemnify, defend and hold the Company, its
several officers and trustees, and any person who controls the Company
within the meaning of Section 15 of the 1933 Act, free and harmless from
and against any and all claims, demands, liabilities and expenses
(including the costs of investigating or defending such claims, demands, or
liabilities and any reasonable counsel fees incurred in connection
therewith) which the Company, its officers or trustees, or any such
controlling person, may incur under the 1933 Act, or under common law or
otherwise, but only to the extent that such liability or expense incurred
by the Company, its officers or trustees, or such controlling person,
resulting from such claims or demands, shall arise out of or be based upon
any untrue, or alleged untrue, statement of a material fact contained in
information furnished in writing by the Distributor to the Company or its
counsel expressly for use in the answers to any of the items of the
Registration Statement or in the corresponding statements made in the
Prospectus, or shall arise out of or be based upon any omission, or alleged
omission, to state a material fact in connection with such information
furnished in writing by the Distributor to the Company or its counsel and
required to be stated in such answers or necessary to make such information
not misleading. The Distributor's indemnification agreement contained in
this Section 1.16 and representations and warranties in this Agreement
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of the Company or its officers and
trustees, and shall survive the delivery of any Shares. The Distributor
agrees promptly to notify the Company of the commencement of any litigation
or proceedings against the Distributor or any of its officers, directors or
controlling persons in connection with the issuance and sale of any of the
Shares.
1.17 (a) In any case in which one party hereto (the "Indemnifying Party") may
be asked to indemnify or hold the other party hereto (the "Indemnified
Party") harmless, the Indemnified Party will notify the Indemnifying Party
in writing promptly after identifying any situation which it believes
presents or appears likely to present a claim for indemnification (an
"Indemnification Claim") against the Indemnifying Party, although the
failure to do so shall not relieve the Indemnifying Party from any
liability which it may otherwise have to the Indemnified Party, and the
Indemnifying Party shall keep the Indemnifying Party advised with respect
to all developments concerning such situation.
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The Indemnifying Party shall be entitled to participate at its own expense
in the defense, or if it so elects, to assume the defense of, any
Indemnification Claim which may be the subject of this indemnification,
and, in the event that the Indemnifying Party so elects, such defense shall
be conducted by counsel of good standing chosen by the Indemnifying Party
and approved by the Indemnified Party, which approval shall not be
unreasonably withheld. In the event the Indemnifying Party elects to
assume the defense of any such Indemnification Claim and retain such
counsel, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by the Indemnified Party. The Indemnified
Party will not confess any Indemnification Claim or make any compromise in
any case in which the Indemnifying Party will be asked to provide
indemnification, except with the Indemnifying Party's prior written
consent.
(b) In the event that the Company is the Indemnifying Party and the
Indemnifying Party does not elect to assume the defense of any such
Indemnification Claim, or in case the Distributor reasonably does not
approve of counsel chosen by the Company, the Company will reimburse the
Distributor, its officers, directors and employees, or the controlling
person or persons named as defendant or defendants in such Indemnification
Claim, for the fees and expenses of any counsel retained by the Distributor
or them.
(c) The obligations of the parties hereto under Sections 1.15 through 1.17
shall survive the termination of this Agreement.
1.18 No Shares shall be offered by either the Distributor or the Company under
any of the provisions of this Agreement and no orders for the purchase or
sale of Shares hereunder shall be accepted by the Company if and so long as
effectiveness of the Registration Statement then in effect or any necessary
amendments thereto shall be suspended under any of the provisions of the
1933 Act, or if and so long as a current prospectus as required by Section
5(b)(2) of the 1933 Act is not on file with the SEC; provided, however,
that nothing contained in this Section 1.22 shall in any way restrict or
have any application to or bearing upon the Company's obligation to redeem
Shares tendered for redemption by any shareholder in accordance with the
provisions of the Company's Registration Statement or Declaration of Trust.
1.19 The Company agrees to advise the Distributor as soon as reasonably
practical by a notice in writing delivered to the Distributor:
(a) of any request by the SEC for amendments to the Registration Statement
or Prospectus then in effect or for additional information;
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(b) in the event of the issuance by the SEC of any stop order suspending
the effectiveness of the Registration Statement or Prospectus then in
effect or the initiation by service of process on the Company of any
proceeding for that purpose;
(c) of the happening of any event that makes untrue any statement of a
material fact made in the Registration Statement or Prospectus then in
effect or that requires the making of a change in such Registration
Statement or Prospectus in order to make the statements therein not
misleading; and
(d) of all actions of the SEC with respect to any amendments to any
Registration Statement or Prospectus which may from time to time be filed
with the SEC.
For purposes of this Section 1.23, informal requests by or acts of the
staff of the SEC shall not be deemed actions of or requests by the SEC.
2. TERM
2.1 This Agreement shall become effective on the date first written above and,
unless sooner terminated as provided herein, shall continue for an initial
one-year term and thereafter shall continue automatically for successive
one-year terms, provided such continuance is specifically approved at least
annually by (i) the Company's Board of Trustees or (ii) by a vote of a
majority (as defined in the 1940 Act and Rule 18f-2 thereunder) of the
outstanding voting securities of the Company, provided that in either event
the continuance is also approved by a majority of the Trustees who are not
parties to this Agreement and who are not interested persons (as defined in
the 1940 Act) of any party to this Agreement, by vote cast in person at a
meeting called for the purpose of voting on such approval. This Agreement
is terminable without penalty, on at least sixty days' written notice, by
the Company's Board of Trustees, by vote of a majority (as defined in the
1940 Act and Rule 18f-2 thereunder) of the outstanding voting securities of
the Company, or by the Distributor. This Agreement will also terminate
automatically in the event of its assignment (as defined in the 1940 Act
and the rules thereunder).
2.2 In the event a termination notice is given by the Company and provided that
the Distributor is not in default under this Agreement at the time of such
termination notice, all reasonable expenses associated with movement of
records and materials and conversion thereof to a successor distributor
will be borne by the Company.
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<PAGE>
3. LIMITATION OF LIABILITY
3.1 The Distributor shall not be liable to the Company for any error of
judgment or mistake of law or for any loss suffered by the Company in
connection with the performance of its obligations and duties under this
Agreement, except a loss resulting from the Distributor's willful
misfeasance, bad faith or negligence in the performance of such obligations
and duties, or by reason of its reckless disregard thereof.
3.2 Each party shall have the duty to mitigate damages for which the other
party may become responsible.
3.3 NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, IN NO EVENT
SHALL EITHER PARTY, ITS AFFILIATES OR ANY OF ITS OR THEIR DIRECTORS,
TRUSTEES, OFFICERS, EMPLOYEES, AGENTS OR SUBCONTRACTORS BE LIABLE TO THE
OTHER PARTY CONSEQUENTIAL DAMAGES[, PROVIDED, HOWEVER, THAT NOTHING
CONTAINED IN THIS SECTION 3.3 SHALL BE CONSTRUED SO AS TO LIMIT THE RIGHT
OF ANY SHAREHOLDER OF THE COMPANY, WHETHER SUING ON HIS, HER OR ITS OWN
BEHALF OR DERIVATIVELY THROUGH THE COMPANY, TO CONSEQUENTIAL DAMAGES].
4. MODIFICATIONS AND WAIVERS
No change, termination, modification, or waiver of any term or condition of
the Agreement shall be valid unless in writing signed by each party. No
such writing shall be effective as against the Company unless said writing
is executed by the President of the Company. No such writing shall be
effective as against the Distributor unless said writing is executed by a
Senior Vice President, Executive Vice President or President of the
Distributor. A party's waiver of a breach of any term or condition in the
Agreement shall not be deemed a waiver of any subsequent breach of the same
or another term or condition.
5. NO PRESUMPTION AGAINST DRAFTER
The Distributor and the Company have jointly participated in the
negotiation and drafting of this Agreement. The Agreement shall be
construed as if drafted jointly by the Company and the Distributor, and no
presumptions arise favoring any party by virtue of the authorship of any
provision of this Agreement.
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<PAGE>
6. PUBLICITY
Neither the Distributor nor the Company shall release or publish news
releases, public announcements, advertising or other publicity relating to
this Agreement or to the transactions contemplated by it without prior
review and written approval of the other party; provided, however, that
either party may make such disclosures as are required by legal, accounting
or regulatory requirements after making reasonable efforts in the
circumstances to consult in advance with the other party.
7. SEVERABILITY
The parties intend every provision of this Agreement to be severable. If a
court of competent jurisdiction determines that any term or provision is
illegal or invalid for any reason, the illegality or invalidity shall not
affect the validity of the remainder of this Agreement. In such case, the
parties shall in good faith modify or substitute such provision consistent
with the original intent of the parties. Without limiting the generality
of this paragraph, if a court determines that any remedy stated in this
Agreement has failed of its essential purpose, then all other provisions of
this Agreement shall remain fully effective.
8. FORCE MAJEURE
No party shall be liable for any default or delay in the performance of its
obligations under this Agreement if and to the extent such default or delay
is caused, directly or indirectly, by circumstances beyond such party's
reasonable control. In any such event, the non-performing party shall be
excused from any further performance and observance of the obligations so
affected only for so long as such circumstances prevail and such party
continues to use commercially reasonable efforts to recommence performance
or observance as soon as practicable.
10. MISCELLANEOUS
10.1 Any notice or other instrument authorized or required by this Agreement to
be given in writing to the Company or the Distributor shall be sufficiently
given if addressed to the party and received by it at its office set forth
below or at such other place as it may from time to time designate in
writing.
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<PAGE>
To the Company:
John T. O'Neill, President
Galaxy Fund II
c/o HASBRO, Inc.
200 Narragansett Park Drive
Pawtucket, Rhode Island 02862
with a copy to:
W. Bruce McConnel, III
Drinker Biddle & Reath LLP
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, Pennsylvania 19107
To the Distributor:
First Data Distributors, Inc.
4400 Computer Drive
Westboro, Massachusetts 01581
Attention: President
with a copy to the Distributor's Chief Legal Officer
10.2 The laws of the Commonwealth of Massachusetts, excluding the laws on
conflicts of laws, and the applicable provisions of the 1940 Act shall
govern the interpretation, validity, and enforcement of this Agreement. To
the extent the provisions of Massachusetts law or the provisions hereof
conflict with the 1940 Act, the 1940 Act shall control. All actions
arising from or related to this Agreement shall be brought in the state and
federal courts sitting in the City of Boston, and the Distributor and the
Company hereby submit themselves to the exclusive jurisdiction of those
courts.
10.3 This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original and which collectively shall be deemed to
constitute only one instrument.
10.4 The captions of this Agreement are included for convenience of reference
only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
10.5 This Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and is not intended to
confer upon any other person any rights or remedies hereunder.
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11. CONFIDENTIALITY
11.1 The parties agree that the Proprietary Information (defined below) and the
contents of this Agreement (collectively "Confidential Information") are
confidential information of the parties and their respective licensers.
The Company and the Distributor shall exercise at least the same degree of
care, but not less than reasonable care, to safeguard the confidentiality
of the Confidential Information of the other as it would to protect its own
Confidential Information. The Company and the Distributor may use the
Confidential Information only to exercise their respective rights or
perform their respective duties under this Agreement. Except as otherwise
required by law and except as disclosed in the Company's Registration
Statement and filed as an exhibit thereto, the Company and the Distributor
shall not duplicate, sell or disclose to others the Confidential
Information of the other, in whole or in part, without the prior written
permission of the other party. The Company and the Distributor may,
however, disclose Confidential Information to its employees who have a need
to know the Confidential Information to perform work for the other,
provided that the Company and the Distributor shall use reasonable efforts
to ensure that the Confidential Information is not duplicated or disclosed
by its employees in breach of this Agreement. The Company and the
Distributor may also disclose the Confidential Information to independent
contractors, auditors and professional advisors, provided they first agree
in writing to be bound by confidentiality obligations substantially similar
to this Section 11. Notwithstanding the previous sentence, in no event
shall either the Company or the Distributor disclose the Confidential
Information to any competitor of the other without specific, prior written
consent.
11.2 Proprietary Information means:
(a) any data of information that is competitively sensitive material, and
not generally known to the public, including, but not limited to,
information about product plans, marketing strategies, finance, operations,
customer relationships, customer profiles, sales estimates, business plans,
and internal performance results relating to the past, present or future
business activities of the Company or the Distributor, their respective
subsidiaries and affiliated companies and the customers, clients and
suppliers of any of them;
(b) any scientific or technical information, design, process, procedure,
formula, or improvement that is commercially valuable and secret in the
sense that its
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confidentiality affords the Company or the Distributor a competitive
advantage over its competitors; and
(c) all confidential or proprietary concepts, documentation, reports,
data, specifications, computer software, source code, object code, flow
charts, databases, inventions, know-how, show-how and trade secrets,
whether or not patentable or copyrightable.
11.3 Confidential Information includes, without limitation, all documents,
inventions, substances, engineering and laboratory notebooks, drawings,
diagrams, specifications, bills of material, equipment, prototypes and
models, and any other tangible manifestation of the foregoing of either
party which now exist or come into the control or possession of the other.
11.4 Notwithstanding the foregoing, it is hereby understood and agreed by the
parties hereto that any marketing strategies, financing plans, customer
profiles, sales estimates, business plans or similar items prepared or
developed by the Distributor for the benefit of the Company shall be
considered the Proprietary Information of the Company and nothing in this
Agreement shall be construed to prevent or prohibit the Company from
disclosing such Proprietary Information to a successor distributor.
12. OBLIGATIONS OF THE TRUST
The names "Galaxy Fund II" and "Trustees of Galaxy Fund II" refer
respectively to the Trust created and the Trustees, as trustees but not
individually or personally, acting from time to time under a Declaration of
Trust dated February 22, 1990 which is hereby referred to and a copy of
which is on file at the office of the State Secretary of the Commonwealth
of Massachusetts and at the principal office of the Company. The
obligations of "Galaxy Fund II" entered into in the name or on behalf
thereof by any of the Trustees, representatives or agents are made not
individually, but in such capacities, and are not binding upon any of the
Trustees, Shareholders, or representatives of the Company personally, but
bind only the Trust Property, and all persons dealing with any class of
Shares of the Company must look solely to the Trust Property belonging to
such class for the enforcement of any claims against the Company.
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13. ENTIRE AGREEMENT
This Agreement, including the Schedule hereto, constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior and contemporaneous proposals, agreements, contracts,
representations, and understandings, whether written or oral, between the
parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
GALAXY FUND II
By: /s/ John T. O'Neill
-------------------------------
Name: John T. O'Neill
-----------------------------
Title: President
----------------------------
FIRST DATA DISTRIBUTORS, INC.
By: /s/ Francis Koudelka
-------------------------------
Name: Francis Koudelka
-----------------------------
Title: President & CEO
----------------------------
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SCHEDULE A
NAME OF FUNDS
Large Company Index Fund
Small Company Index Fund
U.S. Treasury Index Fund
Utility Index Fund
Municipal Bond Fund
A-1
<PAGE>
Exhibit (9)(c)
TRANSFER AGENCY AND SERVICES AGREEMENT
THIS AGREEMENT, dated as of this 1st day of June, 1997 between GALAXY FUND
II (the "Fund"), a Massachusetts business trust, FIRST DATA INVESTOR SERVICES
GROUP, INC. ("FDISG"), a Massachusetts corporation and FLEET NATIONAL BANK
(The "Administrator").
WITNESSETH
WHEREAS, the Fund is authorized to issue Shares in separate classes and
series, with each such classes representing interests in a separate portfolio of
securities or other assets.
WHEREAS, the Fund initially intends to offer Shares in those Portfolios
identified in the attached Exhibit 1, which such Portfolios, together with all
other Portfolios subsequently established by the Fund, shall be subject to this
Agreement in accordance with Article 14;
WEEREAS, the Fund, on behalf of the Portfolios, desires to appoint FDISG as
its transfer agent, dividend disbursing agent and agent in connection with
certain other activities and FDISG desires to accept such appointment;
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 FDISG under this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and promises
hereinafter set forth, the Fund and FDISG agree as follows:
Article 1 DEFINITIONS.
1.1 Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
(a) "Articles of Incorporation" shall mean the Articles of
Incorporation, Declaration of Trust, or other similar organizational
document as the case may be, of the Fund as the same may be amended from
time to time.
(b) "Authorized Person" shall be deemed to include (i) any authorized
officer of the Fund; or (ii) any person, whether or not such person is an
officer or employee of the Fund, duly authorized to give Oral Instructions
or Written Instructions on behalf of the Fund as indicated in writing to
FDISG from time to time.
(c) "Board of Directors" shall mean the Board of Directors or Board
of Trustees of the Fund, as the case may be.
(d) "Commission" shall mean the Securities and Exchange Commission.
<PAGE>
(e) "Custodian" refers to any custodian or subcustodian of securities
and other property which the Fund may from time to time deposit, or cause
to be deposited or held under its name or account, with such a custodian or
subcustodian pursuant to a Custodian or Subcustodian Agreement.
(f) "1933 Act" shall mean the Securities Act of 1933 and the rules
and regulations promulgated thereunder, all as amended from time to time.
(g) "1934 Act" shall mean the Securities Exchange Act of 1934 and the
rules and regulations promulgated thereunder, all as amended from time to
time.
(h) "1940 Act" shall mean the Investment Company Act of 1940 and the
rules and regulations promulgated thereunder, all as amended from time to
time.
(i) "Oral Instructions" shall mean instructions, other than Written
Instructions, actually received by FDISG from an Authorized Person or from
a person reasonably believed by FDISG to be an Authorized Person.
(j) "Portfolio" shall mean each separate class of shares offered by
the Fund representing interests in a separate portfolio of securities and
other assets.
(k) "Prospectus" shall mean the most recently dated Fund Prospectuses
and Statements of Additional Information, including any supplements thereto
if any, which have become effective under the 1933 Act and the 1940 Act.
(l) "Shares" refers collectively to such shares of capital stock or
beneficial interest, as the case may be, or class or series thereof, of
each respective Portfolio of the Fund as may be issued from time to time.
(m) "Shareholder" shall mean a record owner of at least one Share or
any fraction thereof of each respective Portfolio of the Fund.
(n) "Written Instructions" shall mean a written communication signed
by an Authorized Person or by a person reasonably believed by FDISG to be
an Authorized Person and actually received by FDISG. Written Instructions
shall include manually executed originals and authorized electronic
transmissions, including telefacsimile of a manually executed original or
other process.
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<PAGE>
Article 2 APPOINTMENT OF FDISG.
The Fund, on behalf of the Portfolios, hereby appoints and constitutes
FDISG as transfer agent and dividend disbursing agent for Shares of each
respective Portfolio of the Fund and as shareholder servicing agent for the Fund
for the period and on the terms set forth in this Agreement. The Fund may from
time to time issue separate classes or series of Shares or classify or
reclassify Shares of each class or series. FDISG shall identify to each such
class or series property belonging to such class or series and in such reports,
confirmations and notices to the Fund called for under this Agreement shall
identify the class or series to which such report, confirmation or notice
pertains. FDISG accepts such appointment and agrees to furnish the services
herein set forth and in accordance with the written procedures which may be
agreed to in writing from time to time by the Fund and FDISG, in return for the
compensation as provided in Section 6 of this Agreement, subject, however, to
the performance standards set forth in Appendix I to this Agreement.
Article 3 DUTIES OF FDISG.
3.1 FDISG shall be responsible for:
(a) Administering and/or performing the customary services of a
transfer agent; acting as service agent in connection with dividend and
distribution functions; and performing shareholder account and
administrative agent functions in connection with the issuance, transfer
and redemption or repurchase (including coordination with the Custodian) of
Shares of each Portfolio, as more fully described in the written schedule
of Duties of FDISG annexed hereto as Schedule A and incorporated herein,
and in accordance with the terms of the Prospectus of the Fund on behalf of
the applicable Portfolio, applicable law and the procedures agreed to in
writing from time to time by FDISG and the Fund.
(b) Recording the issuance of Shares and maintaining pursuant to Rule
17Ad-10(e) of the 1934 Act a record of the total number of Shares of each
Portfolio which are authorized, based upon data provided to it by the Fund,
and issued and outstanding. FDISG shall provide the Fund on a regular
basis with the total number of Shares of each Portfolio which are
authorized and issued and outstanding and shall have no obligation, when
recording the issuance of Shares, to monitor the issuance of such Shares or
to take cognizance of any laws relating to the issue or sale of such
Shares, which functions shall be the sole responsibility of the Fund.
(c) In addition to providing the foregoing services, the Fund hereby
engages FDISG to provide the print/mail
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services as set forth in Schedule B annexed hereto and incorporated herein,
for the fees also identified in Schedule B. FDISG agrees to perform such
print/mail services subject to the terms and conditions of this Agreement.
(d) Notwithstanding any of the foregoing provisions of this
Agreement, FDISG shall be under no duty or obligation to inquire into, and
shall not be liable for: (i) the legality of the issuance or sale of any
Shares or the sufficiency of the amount to be received therefor; (ii) the
legality of the redemption of any Shares, or the propriety of the amount to
be paid therefor; (iii) the legality of the declaration of any dividend by
the Board of Directors, or the legality of the issuance of any Shares in
payment of any dividend; or (iv) the legality of any recapitalization or
readjustment of the Shares.
3.2 In addition, the Fund shall (i) identify to FDISG in writing those
transactions and assets to be treated as exempt from blue sky reporting for each
State and (ii) verify the establishment of transactions for each State on the
system prior to activation and thereafter monitor the daily activity for each
State. The responsibility of FDISG for the Fund's blue sky State registration
status is solely limited to the initial establishment of transactions subject to
blue sky compliance by the Fund and the reporting of such transactions to the
Fund as provided above.
3.3 In addition to the duties set forth herein, FDISG shall perform such
other duties and functions, and shall be paid such amounts therefor, as may from
time to time be agreed upon in writing by the Fund and FDISG.
Article 4 RECORDKEEPING AND OTHER INFORMATION.
4.1 FDISG shall create and maintain all records required of it pursuant to
its duties hereunder and as set forth in Schedule A in accordance with all
applicable laws, rules and regulations, including records required by Section
31(a) of the 1940 Act. Where applicable, such records shall be maintained by
FDISG for the periods and in the places required by Rule 31a-2 under the 1940
Act.
4.2 To the extent required by Section 31 of the 1940 Act, FDISG agrees
that all such records prepared or maintained by FDISG relating to the services
to be performed by FDISG hereunder are the property of the Fund and will be
preserved, maintained and made available in accordance with such Section and
other applicable securities laws and rules and regulations. The Fund, or the
Fund's authorized representatives, shall have access to such records at all
times during FDISG's normal business hours and such records will be surrendered
promptly to the Fund on and in accordance with the Fund's request. Upon the
reasonable
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request of the Fund, copies of any such records shall be provided by FDISG to
the Fund or the Fund's authorized representative at the Fund's expense.
4.3 In case of any requests or demands for the inspection of Shareholder
records of the Fund, FDISG will endeavor to notify the Fund of such request and
secure Written Instructions as to the handling of such request. FDISG reserves
the right, however, to exhibit the Shareholder records to any person whenever it
is advised by its counsel that it may be held liable for the failure to comply
with such request.
Article 5 FUND INSTRUCTIONS.
5.1 Subject to FDISG meeting the standard of care set forth in Article 11,
FDISG will have no liability when acting upon Written or Oral Instructions
reasonably believed to have been executed or orally communicated by an
Authorized Person and will not be held to have any notice of any change of
authority of any person until receipt of a Written Instruction thereof from the
Fund. FDISG will also have no liability when processing Share certificates
which it reasonably believes to bear the proper manual or facsimile signatures
of the officers of the Fund and the proper countersignature of FDISG.
5.2 At any time, FDISG may request Written Instructions from the Fund and
may seek advice from legal counsel for the Fund, or its own legal counsel, at
its own expense, with respect to any matter arising in connection with this
Agreement, and subject to FDISG meeting the standard of care set forth in
Article 11, it shall not be liable for any action taken or not taken by it in
good faith in accordance with such Written Instructions or in accordance with
the advice of counsel for the Fund or for FDISG. Written Instructions requested
by FDISG pursuant to this Section 5.2 will be provided by the Fund within a
reasonable period of time.
5.3 Unless otherwise provided in this Agreement, FDISG, its officers,
agents or employees, shall act only upon Oral Instructions or Written
Instructions and shall be entitled to rely upon only Oral Instructions and any
Written Instructions actually received by them pursuant to this Agreement,
provided that such Oral Instructions and Written Instructions reasonably appear
to have been given by an Authorized Person. The Fund agrees that all Oral
Instructions shall be followed within one business day by confirming Written
Instructions, and that the Fund's failure to so confirm shall not impair in any
respect FDISGs right to rely on Oral Instructions.
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Article 6 COMPENSATION.
6.1 The Administrator on behalf of each of the Portfolios will
compensate FDISG for the performance of its obligations hereunder in
accordance with the fees set forth in the written Fee Schedule annexed hereto
as Schedule B and incorporated herein, subject, however, to the performance
standards set forth in Appendix I to this Agreement.
6.2 The Administrator on behalf of each of the Portfolios agrees to pay
all fees within thirty (30) days following the receipt of the respective
invoice.
6.3 Any compensation payable to FDISG hereunder pursuant to Schedule B
hereof may be adjusted from time to time by attaching hereto a revised
Schedule B, executed and dated by the parties hereto.
6.4 The Fund acknowledges that the fees that FDISG charges the Fund under
this Agreement reflect the allocation of risk between the parties, including the
disclaimer of warranties in Section 9.3 and the limitations on liability in
Article 12. Modifying the allocation of risk from what is stated here would
affect the fees that FDISG charges, and in consideration of those fees, the Fund
agrees to the stated allocation of risk.
Article 7 DOCUMENTS.
In connection with the appointment of FDISG, the Fund shall, on or before
the date this Agreement goes into effect, but in any case within a reasonable
period of time for FDISG to prepare to perform its duties hereunder, deliver or
cause to be delivered to FDISG the documents set forth in the written schedule
of Fund Documents annexed hereto as Schedule C.
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Article 8 TRANSFER AGENT SYSTEM.
8.1 FDISG shall retain title to and ownership of any and all data bases,
computer programs, screen formats, report formats, interactive design
techniques, derivative works, inventions, discoveries, patentable or
copyrightable matters, concepts, expertise, patents, copyrights, trade secrets,
and other related legal rights utilized by FDISG in connection with the services
provided by FDISG to the Fund herein (the "FDISG System").
8.2 FDISG hereby grants to the Fund a limited license to the FDISG System
for the sole and limited purpose of having FDISG provide the services
contemplated hereunder and nothing contained in this Agreement shall be
construed or interpreted otherwise and such license shall immediately terminate
with the termination of this Agreement.
8.3 In the event that the Fund, including any affiliate or agent of the
Fund or any third party acting on behalf of the Fund is provided with direct
access to the FDISG System for either account inquiry or to transit transaction
information, including but not limited to maintenance, exchanges, purchases and
redemptions, such direct access capability shall be limited to direct entry to
the FDISG System by means of on-line mainframe terminal entry or PC emulation of
such mainframe terminal entry and any other non-conforming method of
transmission of information to the FDISG System is strictly prohibited without
the prior written consent of FDISG.
Article 9 REPRESENTATIONS AND WARRANTIES.
9.1 FDISG represents and warrants to the Fund that:
(a) it is a corporation duly organized, validly existing and in good
standing under the laws of the Commonwealth of Massachusetts;
(b) it is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform this Agreement;
(c) all requisite corporate proceedings have been taken to authorize
it to enter into this Agreement;
(d) it is duly registered with its appropriate regulatory agency as a
transfer agent and such registration will remain in effect for the duration
of this Agreement; and
(e) it has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations
under this Agreement.
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9.2 The Fund represents and warrants to FDISG that:
(a) it is duly organized, validly existing and in good standing under
the laws of the jurisdiction in which it is organized;
(b) it is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into this Agreement;
(c) all corporate proceedings required by said Articles of
Incorporation, By-Laws and applicable laws have been taken to authorize it
to enter into this Agreement;
(d) a registration statement under the 1933 Act, as amended, and the
1940 Act on behalf of each of the Portfolios is currently effective and
will remain effective, and all appropriate state securities law filings
have been made and will continue to be made, with respect to all Shares of
the Fund being offered for sale; and
(e) all outstanding Shares are validly issued, fully paid and
non-assessable and when Shares are hereafter issued in accordance with the
terms of the Fund's Articles of Incorporation and its Prospectus with
respect to each Portfolio, such Shares shall be validly issued, fully paid
and non-assessable.
9.3 THIS IS A SERVICE AGREEMENT. EXCEPT AS EXPRESSLY PROVIDED IN THIS
AGREEMENT, FDISG DISCLAIMS ALL OTHER REPRESENTATIONS OR WARRANTIES, EXPRESS OR
IMPLIED, MADE TO THE FUND OR ANY OTHER PERSON.
Article 10 INDEMNIFICATION.
10.1 FDISG shall not be responsible for and the Fund on behalf of each
Portfolio shall indemnify and hold FDISG harmless from and against any and all
claims, costs, expenses (including reasonable attorneys' fees), losses, damages,
charges, payments and liabilities of any sort or kind which may be asserted
against FDISG or for which FDISG may be held to be liable (a "Claim") arising
out of or attributable to any of the following unless such Claim resulted from a
negligent act or omission to act or bad faith by FDISG in the performance of its
duties hereunder:
(a) any actions of FDISG required to be taken pursuant to this
Agreement;
(b) FDISG's reasonable reliance on, or reasonable use of information,
data, records and documents (including but not limited to magnetic tapes,
computer printouts, hard copies and microfilm copies) received by FDISG
from the Fund, or any authorized third party acting on behalf of the
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Fund, including but not limited to the prior transfer agent for the Fund,
in the performance of FDISG's duties and obligations hereunder;
(c) the reliance on, or the implementation of, any Written or Oral
Instructions or any other instructions or requests of the Fund on behalf of
the applicable Portfolio;
(d) the offer or sales of Shares in violation of any requirement
under the securities laws or regulations of any state that such Shares be
registered in such state or in violation of any stop order or other
determination or ruling by any state with respect to the offer or sale of
such Shares in such state; and
(e) the Fund's refusal or failure to comply with the terms of this
Agreement, or any Claim which arises out of the Fund's negligence or
misconduct or the breach of any representation or warranty of the Fund made
herein.
10.2 In any case in which the Fund may be asked to indemnify or hold FDISG
harmless, FDISG will notify the Fund promptly after identifying any situation
which it believes presents or appears likely to present a claim for
indemnification ("Indemnification Claim") against the Fund although the failure
to do so shall not prevent recovery by FDISG and shall keep the Fund advised
with respect to all developments concerning such Indemnification Claim. The
Fund shall have the option to defend FDISG against any Indemnification Claim
which may be the subject of this indemnification, and, in the event that the
Fund so elects, such defense shall be conducted by counsel chosen by the Fund
and satisfactory to FDISG, and thereupon the Fund shall take over complete
defense of the Indemnification Claim and FDISG shall sustain no further legal or
other expenses in respect of such Indemnification Claim. FDISG will not confess
any Indemnification Claim or make any compromise in any case in which the Fund
will be asked to provide indemnification, except with the Fund's prior written
consent. Subject to Section 10.3 hereof, the obligations of the parties hereto
under this Article 10 shall survive the termination of this Agreement.
10.3 Any Indemnification Claim under this Agreement must be made prior to
the earlier of:
(a) one year after FDISG becomes aware of the event for which
indemnification is claimed; or
(b) one year after the earlier of the termination of this Agreement
or the expiration of the term of this Agreement.
10.4 Except for remedies that cannot be waived as a matter of law (and
injunctive or provisional relief), the provisions of this Article 10 shall be
FDISG's sole and exclusive remedy for
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claims or other actions or proceedings to which the Fund's indemnification
obligations pursuant to this Article 10 may apply.
Article 11 STANDARD OF CARE.
11.1 In the performance of its duties hereunder, FDISG shall be obligated
to exercise care and diligence and to act in good faith and to use its best
efforts within commercially reasonable limits to ensure the accuracy of all
services performed under this Agreement, but assumes no responsibility for loss
or damage to the Fund unless said loss or damages are caused by FDISGs own
negligence, bad faith or willful misconduct or that of its employees, agents or
representatives.
11.2 Each party shall have the duty to mitigate damages for which the other
party may become responsible.
Article 12 CONSEQUENTIAL DAMAGES.
NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, IN NO EVENT
SHALL EITHER PARTY, ITS AFFILIATES OR ANY OF ITS OR THEIR DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS OR SUBCONTRACTORS BE LIABLE FOR CONSEQUENTIAL DAMAGES.
Article 13 TERM AND TERMINATION.
13.1 This Agreement shall be effective on the date first written above and
shall continue for a period of one (1) year (the "Initial Term").
13.2 Upon the expiration of the Initial Term, this Agreement shall continue
automatically for successive terms of one (1) year ("Renewal Terms") each,
unless the Fund or FDISG provides written notice to the other of its intent not
to renew. Such notice must be received not less than sixty (60) days prior to
the expiration of the Initial Term or the then current Renewal Term.
13.3 The Fund may terminate this Agreement in the event that the negligent
action or negligent omission to act on the part of FDISG causes damages to the
Fund in excess of one hundred thousand dollars ($100,000). "Damages to the
Fund" are defined as damages caused by a single event, or cumulative series of
events related to the same matter, which generates a monetary loss. The Fund's
right to terminate under this Section 13.3 shall remain effective in the event
FDISG has made the Fund whole with respect to the damages caused. Unless the
Fund provides FDISG with written notice of the Fund's intent to exercise its
option under this Section 13.3 within 30 days after the Fund becomes aware of
the occurrence, the Fund shall have waived its option to terminate under this
provision.
13.4 If a party hereto is guilty of a material failure to perform its
duties and obligations hereunder (a "Defaulting
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Party"), the other party (the "Non-Defaulting Party") may give written notice
thereof to the Defaulting Party, and if such material breach shall not have been
remedied within thirty (30) days after such written notice is given, then the
Non-Defaulting Party may terminate this Agreement by giving thirty (30) days
written notice of such termination to the Defaulting Party. If FDISG is the
Non-Defaulting Party, its termination of this Agreement shall not constitute a
waiver of any other rights or remedies of FDISG with respect to services
performed prior to such termination or rights of FDISG to be reimbursed for
out-of-pocket expenses. In all cases, termination by the Non-Defaulting Party
shall not constitute a waiver by the Non-Defaulting Party of any other rights it
might have under this Agreement or otherwise against the Defaulting Party.
13.5 The Fund shall have the right to terminate this Agreement at any time
if the Fund reorganizes into another entity, liquidates or otherwise ceases to
exist. In the event the Fund terminates the Agreement pursuant to this Section
13.5, the Fund shall reimburse FDISG for all reasonable costs associated with
such termination.
13.6 In the event that FDISG fails to be registered as a transfer agent
with the appropriate federal agency at any time during the term of this
Agreement, the Fund may, upon written notice to FDISG, immediately terminate
this Agreement.
13.7 In the event this Agreement is terminated by the Fund pursuant to
Sections 3.3, 3.4 or 3.6 hereof or pursuant to paragraph (d) of the Performance
Standards set forth in Appendix I hereto, all reasonable expenses associated
with movement of records and materials and conversion thereof to a successor
transfer agent will be borne by the FDISG and the Fund shall not be responsible
for FDISG's costs associated with such termination. In the event of termination
of this Agreement pursuant to any other Sections of this Agreement, all
reasonable expenses associated with conversion will be borne by the Fund.
Article 14 ADDITIONAL PORTFOLIOS
14.1 In the event that the Fund establishes one or more Portfolios in
addition to those identified in Exhibit 1 with respect to which the Fund desires
to have FDISG render services as transfer agent under the terms hereof, the Fund
shall so notify FDISG in writing, and if FDISG agrees in writing to provide such
services, Exhibit 1 shall be amended to include such additional Portfolios.
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Article 15 CONFIDENTIALITY.
15.1 The parties agree that the Proprietary Information (defined below) and
the contents of this Agreement (collectively "Confidential Information") are
confidential information of the parties and their respective licensors. The
Fund and FDISG shall exercise at least the same degree of care, but not less
than reasonable care, to safeguard the confidentiality of the Confidential
Information of the other as it would exercise to protect its own Confidential
Information. The Fund and FDISG may use the Confidential Information only to
exercise their respective rights or perfom their respective duties under this
Agreement. Except as required by law and except as disclosed in the Fund's
registration statement or filed as an exhibit thereto, the Fund and FDISG shall
not duplicate, sell or disclose to others the Confidential Information of the
other, in whole or in part, without the prior written permission of the other
party. The Fund and FDISG may, however, disclose Confidential Information to
their employees who have a need to know the Confidential Information to perform
work for the other, provided that the Fund and FDISG shall use reasonable
efforts to ensure that the Confidential Information is not duplicated or
disclosed by its employees in breach of this Agreement. The Fund and FDISG may
also disclose the Confidential Information to independent contractors, auditors,
and professional advisors, provided they first agree in writing to be bound by
confidentiality obligations substantially similar to this Section 15.1.
Notwithstanding the previous sentence, in no event shall either the Fund or
FDISG disclose the Confidential Information to any competitor of the other
without specific, prior written consent.
15.2 Proprietary Information means:
(a) any data or information that is competitively sensitive material,
and not generally known to the public, including, but not limited to,
information about product plans, marketing strategies, finance, operations,
customer relationships, customer profiles, sales estimates, business plans,
and internal performance results relating to the past, present or future
business activities of the Fund or FDISG, their respective subsidiaries and
affiliated companies and the customers, clients and suppliers of any of
them;
(b) any scientific or technical information, design, process,
procedure, formula, or improvement that is commercially valuable and secret
in the sense that its confidentiality affords the Fund or FDISG a
competitive advantage over its competitors; and
(c) all confidential or proprietary concepts, documentation, reports,
data, specifications, computer software, source code, object code, flow
charts, databases,
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inventions, know-how, show-how and trade secrets, whether or not patentable
or copyrightable.
15.3 Confidential Information includes, without limitation, all documents,
inventions, substances, engineering and laboratory notebooks, drawings,
diagrams, specifications, bills of material, equipment, prototypes and models,
and any other tangible manifestation of the foregoing of either party which now
exist or come into the control or possession of the other.
Article 16 FORCE MAJEURE.
16.1 No party shall be liable for any default or delay in the performance
of its obligations under this Agreement if and to the extent such default or
delay is caused, directly or indirectly, by circumstances beyond such party's
reasonable control. In any such event, the non-performing party shall be
excused from any further performance and observance of the obligations so
affected only for as long as such circumstances prevail and such party continues
to use commercially reasonable efforts to recommence performance or observance
as soon as practicable.
16.2 Notwithstanding Section 16.1, in the event of equipment failures
beyond FDISG's control, FDISG shall, at no additional expense to the Fund, take
reasonable steps to minimize service interruptions but shall have no liability
with respect thereto. FDISG shall enter into and maintain in effect with
appropriate parties one or more agreements making reasonable provision for
emergency use of electronic data processing equipment to the extent appropriate
equipment is available.
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Article 17 ASSIGNMENT AND SUBCONTRACTING.
This Agreement, its benefits and obligations shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. This Agreement may not be assigned or otherwise transferred
by either party hereto, without the prior written consent of the other party,
which consent shall not be unreasonably withheld; provided, however, that FDISG
may, in its sole discretion, assign all its right, title and interest in this
Agreement to an affiliate, parent or subsidiary, provided that, in the
reasonable judgment of the Board of Trustees of the Fund acting in its sole
discretion: (i) the financial capacity of such assignee is not materially less
than that of FDISG; (ii) the nature and quality of the services to be provided
hereunder, including the Performance Standards set forth in Appendix I, are not
materially adversely affected by such assignment; and (iii) the quality and
capability of the personnel and facilities of the assignee are not materially
less than those of FDISG. FDISG may, in its sole discretion, engage
subcontractors to perform any non-material or non-substantive obligations
contained in this Agreement that it is otherwise required to perform hereunder,
provided that FDISG shall be responsible for all compensation payable to such
subcontractors and shall remain responsible for the acts and omissions of such
subcontractors to the extent that it is hereunder.
Article 18 NOTICE.
Any notice or other instrument authorized or required by this Agreement to
be given in writing to the Fund or FDISG, shall be sufficiently given if
addressed to that party and received by it at its office set forth below or at
such other place as it may from time to time designate in writing.
To the Fund:
John T. O'Neill, President
Galaxy Fund II
c/o HASBRO, Inc.
200 Narragansett Park Drive
Pawtucket, Rhode Island 02862
with a copy to:
W. Bruce McConnel, III
Drinker Biddle & Reath LLP
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, Pennsylvania 19107
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To FDISG:
First Data Investor Services Group, Inc.
4400 Computer Drive
Westboro, Massachusetts 01581
Attention: President
with a copy to FDISG's General Counsel
Article 19 GOVERNING LAW/VENUE.
The laws of the Commonwealth of Massachusetts, excluding the laws on
conflicts of laws, shall govern the interpretation, validity, and enforcement of
this Agreement. All actions arising from or related to this Agreement shall be
brought in the state and federal courts sitting in the City of Boston, and FDISG
and the Fund hereby submit themselves to the exclusive jurisdiction of those
courts.
Article 20 COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original; but such counterparts shall, together,
constitute only one instrument.
Article 21 CAPTIONS.
The captions of this Agreement are included for convenience of reference
only and in no way define or limit any of the provisions hereof or otherwise
affect their construction or effect.
Article 22 PUBLICITY.
Neither FDISG nor the Fund shall release or publish news releases, public
announcements, advertising or other publicity relating to this Agreement or to
the transactions contemplated by it without the prior review and written
approval of the other party; provided, however, that either party may make such
disclosures as are required by legal, accounting or regulatory requirements
after making reasonable efforts in the circumstances to consult in advance with
the other party.
Article 23 RELATIONSHIP OF PARTIES.
The parties agree that they are independent contractors and not partners or
co-venturers and nothing contained herein shall be interpreted or construed
otherwise.
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Article 24 COOPERATION WITH ACCOUNTANTS
FDISG shall cooperate with the Fund's independent certified public
accountants and shall take all reasonable action in the performance of its
obligations under this Agreement to assure that the necessary information is
made available to such accountants for the expression of their opinion as such
may be required from time to time by the Fund.
Article 26 ENTIRE AGEEMENT; SEVERABILITY.
26.1 This Agreement, including the Schedules, Addenda, and Exhibits hereto,
constitutes the entire Agreement between the parties with respect to the subject
matter hereof and supersedes all prior and contemporaneous proposals,
agreements, contracts, representations, and understandings, whether written or
oral, between the parties with respect to the subject matter hereof. No change,
termination, modification, or waiver of any term or condition of the Agreement
shall be valid unless in writing signed by each party. No such writing shall be
effective as against the Fund unless said writing is executed by the President
of the Fund. No such writing shall be effective as against FDISG unless said
writing is executed by a Senior Vice President, Executive Vice President, or
President of FDISG. A party's waiver of a breach of any term or condition in
the Agreement shall not be deemed a waiver of any subsequent breach of the same
or another term or condition.
26.2 The parties intend every provision of this Agreement to be severable.
If a court of competent jurisdiction determines that any term or provision is
illegal or invalid for any reason, the illegality or invalidity shall not affect
the validity of the remainder of this Agreement. In such case, the parties
shall in good faith modify or substitute such provision consistent with the
original intent of the parties. Without limiting the generality of this
paragraph, if a court determines that any remedy stated in this Agreement has
failed of its essential purpose, then all other provisions of this Agreement,
including the limitations on liability and exclusion of damages, shall remain
fully effective.
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26.3 The names "Galaxy Fund II" and "Trustees of Galaxy Fund II" refer
respectively to the Trust created and the Trustees, as trustees but not
individually or personally, acting from time to time under a Declaration of
Trust dated February 22, 1990 which is hereby referred to and a copy of which is
on file at the office of the State Secretary of the Commonwealth of
Massachusetts and at the principal office of the Fund. The obligations of
"Galaxy Fund II" entered into in the name or on behalf thereof by any of the
Trustees, representatives or agents are made not individually, but in such
capacities, and are not binding upon any of the Trustees, Shareholders, or
representatives of the Fund personally, but bind only the Trust Property, and
all persons dealing with any class of Shares of the Fund must look solely to the
Trust Property belonging to such class for the enforcement of any claims against
the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers, as of the day and year first above
written.
GALAXY FUND II
By: /s/ John T. O'Neill
-------------------------------
Title: President
----------------------------
FIRST DATA INVESTOR SERVICES GROUP, INC.
By: /s/ Barbara L. Worther
-------------------------------
Title: Executive Vice President
----------------------------
FLEET NATIONAL BANK
Only with respect to Article 6 of this Agreement
By: /s/ Richard Joseph
-------------------------------
Title: Senior Vice President
----------------------------
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Exhibit 1
LIST OF PORTFOLIOS
Large Company Index Fund
Small Company Index Fund
U.S. Treasury Index Fund
Utility Index Fund
Municipal Bond Fund
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Schedule A
DUTIES OF FDISG
1. SHAREHOLDER INFORMATION. (a) FDISG shall maintain a record of the
number of Shares held by each Shareholder of record which shall include name,
address, taxpayer identification numbers and which shall indicate whether such
Shares are held in certificated or uncertificated form and shall include
historical information regarding the account of each Shareholder, including
dividends and distributions paid and the date and price for all transactions in
a Shareholder's account; any stop or restraining order placed against a
Shareholder's account; information with respect to withholdings; any information
required for FDISG to perform any calculations contemplated or required by the
Agreement to which this is a Schedule (the "Agreement"); FDISG shall keep a
record of all redemption checks and dividend checks returned by the postal
authorities, and shall maintain such records as are required by law.
(b) FDISG shall keep subaccounts for each Shareholder requesting such
service in connection with Shares held by such Shareholder for separate
accounts, containing the same information for each subaccount as required by
subparagraph (a) above.
2. SHAREHOLDER SERVICES. FDISG shall respond as appropriate to all
inquiries and communications from Shareholders, securities brokers and others
relating to Shareholder accounts with respect to its duties hereunder and such
other information and communications as may be from time to time mutually agreed
upon in writing by FDISG and the Fund.
3. SHARE CERTIFICATES.
(a) At the expense of the Fund, the Fund shall supply FDISG with an
adequate supply of blank share certificates to meet FDISG requirements therefor.
Such Share certificates shall be properly signed by facsimile. The Fund agrees
that, notwithstanding the death, resignation, or removal of any officer of the
Fund whose signature appears on such certificates, FDISG or its agent may
continue to countersign certificates which bear such signatures until otherwise
directed by Written Instructions.
(b) FDISG shall issue replacement Share certificates in lieu of
certificates which have been lost, stolen or destroyed, upon receipt by FDISG of
properly executed affidavits and lost certificate bonds, in form satisfactory to
FDISG, with the Fund and FDISG named as obligees under the bond.
(c) FDISG shall also maintain a record of each certificate issued,
the number of Shares represented thereby and the Shareholder of record. With
respect to Shares held in open accounts or uncertificated form (i.e., no
certificate being
-19-
<PAGE>
issued with respect thereto), FDISG shall maintain comparable records of the
Shareholders thereof, including their names, addresses and taxpayer
identification numbers. FDISG shall further maintain a stop transfer record on
lost and/or replaced certificates.
4. MAILING COMMUNICATIONS TO SHAREHOLDERS; PROXY MATERIALS. FDISG will
address and mail all communications by then Fund to Shareholders or their
authorized representatives, including reports to Shareholders, dividend and
distribution notices and proxy material for the Fund's meetings of Shareholders.
In connection with meetings of Shareholders, FDISG will prepare Shareholder
lists, mail and certify as to the mailing of proxy materials, process and
tabulate returned proxy cards, report on proxies voted prior to meetings, act as
inspector of election at meetings and certify Shares voted at meetings.
5. SALES OF SHARES.
(a) FDISG shall not be required to issue any Shares of the Fund where
it has received Written Instructions from the Fund or official notice from any
appropriate authority that the sale of the Shares of the Fund has been suspended
or discontinued. The existence of such Written Instructions or such official
notice shall be conclusive evidence of the right of FDISG to rely on such
Written Instructions or official notice.
(b) In the event that any check or other order for the payment of
money is returned unpaid for any reason, FDISG will endeavor to: (i) give
prompt notice of such return to the Fund or its designee; (ii) place a stop
transfer order against all Shares issued as a result of such check or order; and
(iii) take such actions as FDISG may from time to time deem appropriate.
6. TRANSFER AND REPURCHASE.
(a) FDISG shall process all requests to transfer or redeem Shares in
accordance with the transfer or repurchase procedures set forth in the Fund's
Prospectus.
(b) FDISG will transfer or repurchase Shares upon receipt of Oral or
Written Instructions or otherwise pursuant to the Prospectus and Share
certificates, if any, properly endorsed for transfer or redemption, accompanied
by such documents as FDISG reasonably may deem necessary.
(c) FDISG reserves the right to refuse to transfer or repurchase
Shares until it is satisfied that the endorsement on the instructions is valid
and genuine. FDISG also reserves the right to refuse to transfer or repurchase
Shares until it is satisfied that the requested transfer or repurchase is
legally authorized, and it shall incur no liability for the refusal, in good
faith, to make transfers or repurchases which FDISG, in its
-20-
<PAGE>
good judgment, deems improper or unauthorized, or until it is reasonably
satisfied that there is no basis to any claims adverse to such transfer or
repurchase.
(d) When Shares are redeemed, FDISG shall, upon receipt of the
instructions and documents in proper form, deliver to the Custodian and the Fund
or its designee a notification setting forth the number of Shares to be
repurchased. Such repurchased shares shall be reflected on appropriate accounts
maintained by FDISG reflecting outstanding Shares of the Fund and Shares
attributed to individual accounts.
(e) FDISG, upon receipt of the monies provided to it by the Custodian
for the repurchase of Shares, shall disburse the redemption proceeds to the
person entitled to such proceeds, all in accordance with the procedures and
controls as are mutually agreed to in writing from time to time by the Fund,
FDISG and the Custodian.
(f) FDISG shall not process or effect any repurchase with respect to
Shares of the Fund after receipt by FDISG or its agent of notification of the
suspension of the determination of the net asset value of the Fund.
7. DIVIDENDS
(a) Upon the declaration of each dividend and each capital gains
distribution by the Board of Directors of the Fund with respect to Shares of the
Fund, the Fund shall furnish or cause to be furnished to FDISG Written
Instructions setting forth the date of the declaration of such dividend or
distribution, the ex-dividend date, the date of payment thereof, the record date
as of which Shareholders entitled to payment shall be determined, the amount
payable per Share to the Shareholders of record as of that date, the total
amount payable on the payment date and whether such dividend or distribution is
to be paid in Shares at net asset value.
(b) On or before the payment date specified in such resolution of the
Board of Directors, the Fund will provide FDISG with sufficient cash to make
payment on the payment date to the Shareholders as of the record date.
(c) If FDISG does not receive sufficient cash from the Fund to make
total dividend and/or distribution payments on the date of payment to all
Shareholders of the Fund as of the record date, FDISG will notify the Fund. The
Fund hereby instructs FDISG to process dividend and/or distribution payments to
all Shareholders as of the record date regardless of whether sufficient cash is
available on the payment date. Subject to FDISG meeting the standard of care
set forth in Article 11 hereof, the Fund shall be responsible for and shall
indemnify and hold FDISG harmless from all claims asserted by others with
-21-
<PAGE>
respect to the actions of FDISG in complying with the foregoing sentence.
(d) FDISG shall prepare and file with the Internal Revenue Service
and/or other appropriate taxing authorities, and address and mail to
Shareholders or their authorized representatives, such returns and information
relating to dividends and distributions paid by the Fund as are required to be
so prepared, filed and mailed by applicable laws, rules and regulations, or such
substitute form of notice as may from time to time be permitted or required by
the Internal Revenue Service and/or other appropriate taxing authorities. On
behalf of the Fund, FDISG shall pay on a timely basis to the appropriate federal
authorities any taxes required by applicable federal tax laws to be withheld by
the Fund on dividends and distributions paid by the Fund.
8. QNGOING FUNCTIONS. FDISG will perform the following functions on an
ongoing basis for each class or series of Shares of the Fund:
(a) furnish state-by-state registration reports to the Fund;
(b) calculate dealer commissions for the Fund, as applicable, if any;
(c) provide toll-free lines for direct Shareholder use, plus
customer liaison staff with on-line inquiry capacity;
(d) mail duplicate confirmations to dealers of their clients'
activity, whether executed through the dealer or directly with FDISG, if any;
(e) provide detail for underwriter or broker confirmations and other
participating dealer Shareholder accounting, in accordance with such procedures
as may be agreed upon from time to time by the Fund and FDISG;
(f) provide Shareholder lists and statistical information concerning
accounts to the Funds; and
(g) provide timely notification of Fund activity, and such other
information as may be agreed upon from time to time by FDISG and the Custodian,
to the Fund or the Custodian.
9. In addition to and neither in lieu nor in contravention of the
services set forth above, FDISG shall: (i) perform all the customary services of
a transfer agent, registrar, dividend disbursing agent and agent of the dividend
reinvestment and cash purchase plan as described herein consistent with those
requirements in effect as at the date of this Agreement. The detailed
definition, frequency, limitations and associated costs (if any) set out in the
attached fee schedule, include but are
-22-
<PAGE>
not limited to: maintaining all Shareholder accounts, preparing Shareholder
meeting lists, mailing proxies, tabulating proxies, mailing Shareholder reports
to current Shareholders, withholding taxes on U.S. resident and non-resident
alien accounts where applicable, preparing and filing U.S. Treasury Department
Forms 1099 and other appropriate forms required with respect to dividends and
distributions by federal authorities for all Shareholders.
-23-
<PAGE>
Schedule B
FEE SCHEDULE
For the services to be rendered, the facilities to be furnished and the
payments to be made by FDISG, as provided for in this Agreement, and the
services to be rendered by FDISG to the Administrator under the
Sub-Administrative Agreement dated March 31, 1995, by and between FDISG and
the Administrator, the Administrator will pay FDISG on the first business day
of each month a fee for the previous month at the annual rate of 0.15% of the
average daily net assets of the Fund. Upon any termination of this Agreement
before the end of any month, the fee for such part of a month shall be
prorated according to the proportion which such period bears to the full
monthly period and shall be payable upon the date of termination of this
Agreement.
-24-
<PAGE>
Schedule C
FUND DOCUMENTS
- Certified copy of the Articles of Incorporation of the Fund, as
amended
- Certified copy of the By-laws of the Fund, as amended,
- Copy of the resolutions of the Board of Directors authorizing the
execution and delivery of this Agreement
- Specimens of the certificates for Shares of the Fund, if applicable,
in the form approved by the Board of Directors of the Fund, with a
certificate of the Secretary of the Fund as to such approval
- All account application forms and other documents relating to
Shareholder accounts or to any plan, program or service offered by the
Fund
- All notices issued by the Fund with respect to the Shares in
accordance with and pursuant to the Articles of Incorporation or
By-Laws of the Fund or as required by law.
-25-
<PAGE>
Appendix I
Pursuant to Section 2 of this Agreement, FDISG has agreed to perform the
services described in this Agreement in accordance with the Performance
Standards set forth in this Appendix I. The parties agree that such Performance
Standards, which are described below, may be revised from time to time upon the
mutual agreement of the parties.
Each of the performance standards will be monitored by a Quality Assurance
Team:
(a) In the event that FDISG fails to meet a particular Performance
Standard (except any failure due to circumstances beyond its control) in any
particular month, FDISG agrees to take appropriate corrective action within the
following thirty (30) day period.
(b) In the event that FDISG fails to meet a particular Performance
Standard (except for any failure due to circumstances beyond its control) in two
(2) consecutive months, the fee payable to FDISG hereunder for such service
shall be reduced by one percent (1%) for the second of those two months.
(c) In the event that FDISG fails to meet a particular Performance
Standard (except for any failure due to circumstances beyond its control) for
any three (3) consecutive months, the fee payable to FDISG hereunder for such
service shall be reduced by one and one-half percent (1.5%) for the third of
those three months.
(d) In the event that FDISG fails to meet a particular Performance
Standard (except for any failure due to circumstances beyond its control) for
any three (3) months within any six (6) month period, the Fund shall have the
right to terminate this Agreement upon forty-five (45) days' written notice to
FDISG.
(e) In the event that there is no specific fee for a particular service
set forth in Schedule A hereto, then any reduction in the fee payable to FDISG
as a result of a failure to meet a particular performance standard for that
service hereunder shall be taken as a reduction in the annual per account
maintenance fee.
-26-
<PAGE>
(f) The Performance Standards shall be as follows:
- --------------------------------------------------------------------------------
ITEM STANDARD
- --------------------------------------------------------------------------------
GENERAL PROCESSING
- --------------------------------------------------------------------------------
New Account Set-Up 100% processed same day
- --------------------------------------------------------------------------------
Financial Quality Control 100% processed same day
- --------------------------------------------------------------------------------
Non-Financial Correspondence 100% acknowledged by telephone within
24 hours of receipt; items less than
30 days old resolved within 3 business
days; items older than 30 days
resolved within 5 business day
- --------------------------------------------------------------------------------
Maintenance Items 3 business days
- --------------------------------------------------------------------------------
Not In Good Order Items 100% called on same day
- --------------------------------------------------------------------------------
Research Received by Phone 100% called with status report within
48 hours of receipt; 100% resolved
within 3 business days
- --------------------------------------------------------------------------------
Research Received by Mail 100% acknowledged by telephone within
24 hours of receipt; 100% resolved
within 4 business days
- --------------------------------------------------------------------------------
PHONES
- --------------------------------------------------------------------------------
Abandonment Rate 3% or less
- --------------------------------------------------------------------------------
Average Speed of Answer 20 seconds or less
- --------------------------------------------------------------------------------
Service Level 90% of calls will be answered in 20
seconds or less
- --------------------------------------------------------------------------------
FULFILLMENT within 24 hours
- --------------------------------------------------------------------------------
PRINT/MAIL
- --------------------------------------------------------------------------------
Monthly Statements 5 business days
- --------------------------------------------------------------------------------
Daily Confirmations T + 2
- --------------------------------------------------------------------------------
Checks T + 1
- --------------------------------------------------------------------------------
Ad hoc Projects 5 business days from receipt of
request
- --------------------------------------------------------------------------------
-27-
<PAGE>
Exhibit 9(d)
AMENDMENT NO. 1 TO
TRANSFER AGENCY AND SERVICES AGREEMENT
This Amendment No. 1, dated as of March 5, 1998, is entered into among
GALAXY FUND II (the "Fund"), a Massachusetts business trust, FIRST DATA INVESTOR
SERVICES GROUP, INC. ("FDISG"), a Massachusetts corporation, and FLEET NATIONAL
BANK (the "Administrator").
WHEREAS, the Fund, FDISG and the Administrator have entered into a
Transfer Agency and Services Agreement, dated as of June 1, 1997 (the "Transfer
Agency Agreement"), pursuant to which the Fund appointed FDISG to act as the
transfer agent, dividend disbursing agent and agent in connection with certain
other activities for the Fund's portfolios; and
WHEREAS, Section 25.1 of the Transfer Agency Agreement provides, in
part, that no change, termination, modification or waiver of any term or
condition of the Transfer Agency Agreement shall be valid unless in writing
signed by each party;
NOW THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. The following paragraph is added to Schedule A of the Transfer
Agency Agreement as Section 10:
"10. FULFILLMENT.
FDISG will process and mail Fund marketing literature. Tasks include
kit assembly, order processing and mailing of materials. This service may be
terminated by the Fund upon ninety (90) days' written notice to FDISG."
2. The following is added to Schedule B of the Transfer Agency
Agreement:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
"FULFILLMENT PRICING
- --------------------------------------------------------------------------------
SHAREHOLDER KITS
- --------------------------------------------------------------------------------
<S> <C>
Self Mailer (68-71) .1480
- --------------------------------------------------------------------------------
Bond, Equity and Asset Allocation Kits (53-59) .1480
- --------------------------------------------------------------------------------
Fleet Payroll Kits - Money Market, Bond, Equity (10, 11, 31-
33) .3500
- --------------------------------------------------------------------------------
Money Mkt., Variable Instit. Kits, A/P Form IRA & Reg (12,
63, 72, 50, 62) .4300
<PAGE>
- --------------------------------------------------------------------------------
Annuity Kit, Exchange and Transfer (93-98) .4800
- --------------------------------------------------------------------------------
IRA, VIP & Retirement Kits (61, 85, 89, 90, 91) .6100
- --------------------------------------------------------------------------------
Total Service IRA Kit (91, 100) 1.3000
- --------------------------------------------------------------------------------
Annuity Fulfillment (99) .4800
- --------------------------------------------------------------------------------
College Investment Kit (100) 2.0000
- --------------------------------------------------------------------------------
New Kits (102, 110, 13) .4000
- --------------------------------------------------------------------------------
Net West S/H Kit (103) .3500
- --------------------------------------------------------------------------------
New Kits (20, 200, 201, 220-222, 109) .3500
- --------------------------------------------------------------------------------
New Kits (461A) .3500
- --------------------------------------------------------------------------------
New Broker Kit (FND-FIS) 55.0000
- --------------------------------------------------------------------------------
Investment Spec Report Dec. 1997 .1800
- --------------------------------------------------------------------------------
PK (Pro Kit w/supplements) (1-313) .0500
- --------------------------------------------------------------------------------
Individual Items - Components .0500
- --------------------------------------------------------------------------------
OTHER FULFILLMENT CHARGES 9./pallet
- --------------------------------------------------------------------------------
Warehouse Storage
- --------------------------------------------------------------------------------
Transportation Charges - pass through/out-of-pocket
- --------------------------------------------------------------------------------
Print Charges - pass through/out of pocket
- --------------------------------------------------------------------------------
</TABLE>
3. Appendix I to the Transfer Agency Agreement is amended and
restated in its entirety to read as set forth in Appendix I hereto.
4. The changes to the Transfer Agency Agreement effected by this
Amendment No. 1 shall be effective as of May 1, 1998. Except to the extent
amended hereby, the Transfer Agency Agreement shall remain unchanged and in full
force and effect and is hereby ratified and confirmed in all respects as amended
hereby.
-2-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 1
as of the day and year first above written.
GALAXY FUND II
By: /s/ John T. O'Neill
--------------------------
Name: John T. O'Neill
Title: President
FIRST DATA INVESTOR
SERVICES GROUP, INC.
By: /s/ Jylanne Dunne
--------------------------
Name: Jylanne Dunne
------------------------
Title: VP
------------------------
FLEET NATIONAL BANK
By: /s/ Richard Joseph
--------------------------
Name: Richard Joseph
------------------------
Title: Senior Vice President
------------------------
-3-
<PAGE>
Exhibit (9)(e)
AMENDMENT NO. 2 TO
TRANSFER AGENCY AND SERVICES AGREEMENT
This Amendment, dated as of April 1, 1998, is entered into by GALAXY FUND
II (the "Fund"), FIRST DATA INVESTOR SERVICES GROUP, INC. ("FDISG") and FLEET
NATIONAL BANK (the "Administrator").
WHEREAS, the Fund, FDISG and the Administrator entered into a Transfer
Agency and Services Agreement dated as of June 1, 1997, as previously amended
(as so amended, the "Agreement");
WHEREAS, the Fund has entered into, or intends to enter into, agreements
(the "Recordkeeping Agreements") with certain entities (the "Recordkeepers")
whereby the Recordkeepers will provide administrative services and functions
comprised of, but not limited to, certain recordkeeping, reporting and
processing services for certain defined contribution and other employee benefit
plans (the "Plans") that are shareholders of record of the Funds, which services
include processing and transfer arrangements for the investment and reinvestment
of Plan assets in the Funds;
WHEREAS, the Fund, FDISG and the Administrator wish to amend certain
provisions of the Agreement in order to support the Recordkeeping Agreements;
NOW, THEREFORE, the parties hereto, intending to be legally bound hereby,
hereby agree as follows:
1. Pursuant to Section 3.3 of the Agreement, the Fund hereby instructs
FDISG to become a party to the Recordkeeping Agreements in order to compensate
the Recordkeepers for the services provided under the Recordkeeping Agreements.
2. Schedule B to the Agreement is hereby deleted in its entirety and is
replaced with the attached Schedule B.
3. Except to the extent amended hereby, the Agreement shall remain
unchanged and in full force and effect and is hereby ratified and confirmed in
all respects as amended hereby.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 2 as
of the date and year first written above.
GALAXY FUND II
By
-------------------------------------
FIRST DATA INVESTOR SERVICES
GROUP, INC.
By
-------------------------------------
FLEET NATIONAL BANK
By
-------------------------------------
-2-
<PAGE>
SCHEDULE B
FEE SCHEDULE
For the services to be rendered, the facilities to be furnished and the
payments to be made by FDISG, as provided for in this Agreement, and the
services to be rendered by FDISG to the Administrator under the
Sub-Administration Agreement dated March 31, 1995, by and between FDISG and the
Administrator, the Administrator will pay FDISG on the first business day of
each month a fee for the previous month at the annual rate of 0.15% of the
average daily net assets of the Fund. Upon any termination of this Agreement
before the end of any month, the fee for such part of a month shall be prorated
according to the proportion which such period bears to the full monthly period
and shall be payable upon the date of termination of this Agreement.
In addition, FDISG shall be entitled to receive reimbursement each month
directly from the Fund for the following out-of-pocket expense: 1/12 of $21.00
for each participant's sub-account of one or more omnibus accounts in existence
during all or part of such monthly period, each such omnibus account
representing investments of assets contributed to a defined contribution or
other employee benefit plan by or on behalf of more than one participant.
<PAGE>
Exhibit (9)(f)
SERVICES AGREEMENT
This Agreement is made as of October 1, 1997, by and between Columbia Trust
Company, an Oregon banking corporation (the "Recordkeeper"), and Galaxy Fund II,
a Massachusetts business trust (the "Company"), on behalf of the investment
portfolios listed on Schedule A (the "Funds")
RECITALS
A. The Recordkeeper desires to provide administrative services and functions
comprised of, but not limited to, certain recordkeeping, reporting and
processing services for certain defined contribution and other employee benefit
plans (individually, a "Plan" and collectively, the 'Plans"), which services
include processing and transfer arrangements for the investment and reinvestment
of Plan assets in the Funds specified by an investment adviser, sponsor or
administrative committee of a Plan (a "Plan Representative") generally upon the
direction of the Plan participants (the "Participants").
B. The Recordkeeper and the Company desire to facilitate the purchase and
redemption of shares of the Funds on behalf of the Plans and their Participants
through omnibus accounts in each Fund (individually an "Account" and
collectively, the "Accounts") to be maintained of record by the Recordkeeper as
nominee of each Plan, subject to the terms and conditions of this Agreement.
In consideration of the mutual promises set forth in this Agreement, the
parties agree as follows:
1. PERFORMANCE OF SERVICES. The Recordkeeper agrees to perform the
administrative functions and services specified in Schedule B attached hereto
(the "Services") with respect to the shares of the Funds owned by the Plans and
included in the Accounts as may be requested by the Plans.
2. THE ACCOUNTS.
(a) Each Account will be opened based upon the information contained
in the attached Schedule C. In connection with each Account, the
Recordkeeper represents and warrants that it is authorized to act on behalf
of each Plan effecting transactions in the Account in connection with the
Services pursuant to an agreement with the Plan Representative, it is
satisfied that the person or persons who signed the Recordkeeper's
contracts with the Plan were themselves properly authorized by the Plan and
the entity which they represent. and that the information specified on
Schedule C is correct.
(b) The Company shall designate each Account in each Fund with an
account number. Account numbers will be the means of identification when
the parties are transacting in the Accounts. The assets in the Accounts
are assets of the Plans and are
<PAGE>
segregated from the Recordkeeper's own assets. The Company agrees to cause
the Accounts to be kept open on each Fund's books regardless of lack of
activity or small position size except to the extent the Recordkeeper takes
specific action to close an Account or to the extent the Fund's Prospectus
reserves the right to close accounts which are inactive or of a small
position size. In the latter two cases, the Company or its designee will
give prior notice to the Recordkeeper before closing an Account.
(c) The Recordkeeper agrees to provide the Company or its designee,
(i) by the 15th day of each month, a report which indicates the number of
Participants that hold, through a Plan, interests in each Account as of the
last day of the prior month and (ii) any other information as the Company
may reasonably request concerning such Participants as may be necessary or
advisable to enable the Company to comply with applicable laws, including
state "Blue Sky" laws relating to the sale of each Fund's shares.
3. PRICING INFORMATION. For each Fund, the Company shall use its best
efforts to furnish, or cause to be furnished by its designee, to the
Recordkeeper prior to 6:30 p.m., Eastern time, on each day that the Fund is open
for business (a "Business Day"): (a) the Fund's closing net asset value for that
day, and (b) for those Funds for which such information is calculated, the daily
accrual 'interest rate factor (mil rate). This information shall be
communicated via fax or through indirect or direct systems access acceptable to
the Recordkeeper and the Company or its designee.
4. PRICE ERRORS.
(a) In the event adjustments are required to correct any error in the
computation of the net asset value of a Fund's shares, the Company or its
designee shall notify the Recordkeeper as soon as practicable after
discovering the need for those adjustments that result in a reimbursement
to an Account in accordance with the Fund's then current policies on
reimbursement. Notification may be made via facsimile or via direct or
indirect systems access. Any such notification shall be promptly followed
by a letter written on the Company's or such designee's letterhead stating
for each day for which an error occurred the incorrect price, the correct
price, and, to the extent communicated to the Fund's shareholders, the
reason for the price change.
(b) If an Account received amounts in excess of the amounts to which
it other-wise would have been entitled prior to an adjustment for an error,
the Recordkeeper, when requested by the Company or its designee, will use
its best efforts to collect the excess amounts from the applicable Plans.
(c) If an adjustment is to be made in accordance with subsection 4(a)
above to correct an error which has caused an Account to receive an amount
less than that to which it is entitled, the Company or its designee shall
make all necessary adjustments (within the parameters specified in
subsection 4(a)) to the number of shares owned in the Account and
distribute to the Plan the amount of such underpayment for credit to the
Participants' subaccounts.
-2-
<PAGE>
5. PURCHASE AND REDEMPTION ORDERS. On each Business Day, the
Recordkeeper shall aggregate and calculate the net purchase and redemption
orders for each Plan from Participants or the Plan Representatives for shares
of a Fund that it received prior to the close of trading on the New York
Stock Exchange (the "NYSE") (i.e., 4:00 p.m., Eastern time), unless the NYSE
closes at an earlier time in which case the earlier time shall apply. The
Recordkeeper shall communicate to the Company or its designee, by telephone
or facsimile (or by any other means as the parties hereto may agree to in
writing), the net aggregate purchase or redemption order (if any) for each
Account for that Business Day (such Business Day is sometimes referred to in
this Agreement as the "Trade Date"). The Recordkeeper will communicate the
orders to the Company or its designee prior to 10:30 a.m., Eastern time, on
the next Business Day following the Trade Date. All trades communicated to
the Company or its designee by the foregoing deadline shall be treated by the
Company as if they were received by the Company prior to the close of trading
on the Trade Date. The Recordkeeper shall not accept any conditional orders.
The Company may in its sole discretion, but at a minimum consistent with its
practices- or policies applied to other shareholders of the Fund, accept or
reject an "as of" order.
6. SETTLEMENT OF TRANSACTIONS.
(a) PURCHASES. The Company or its designee will provide to the
Recordkeeper written instructions ("Purchase Instructions") for wire
transfers to the custodian for the applicable Funds. Recordkeeper will
wire, or arrange for the wire of, the purchase price for each purchase
order in accordance with the Purchase Instructions so that the funds are
received by the applicable Fund's custodian by no later than close of
business on the next Business Day following the Trade Date. The
Recordkeeper will use its best efforts so that such funds, or a Federal
Funds wire system reference number, is provided to the Company or its
designee by 5:00 p.m., Eastern Time. The Recordkeeper agrees that if it
falls to provide funds to the Fund's custodian by the close of business on
the next Business Day following the Trade Date, then, at the option of the
Company, (i) the transaction may be canceled, or (ii) the transaction may
be processed at the next determined net asset value for the applicable Fund
after purchase order funds are received.
(b) REDEMPTIONS. The Company will use its best efforts to cause to
be transmitted, by wire transfer on or before 5:00 p.m., Eastern time, on
the Business Day immediately following the Trade Date, to the custodial
account directed by the Recordkeeper in writing, the proceeds of all
redemption orders placed by Recordkeeper. Should the Company or its
designee need to extend the settlement on a trade, it will contact the
Recordkeeper to discuss the extension. For purposes of determining the
length of settlement, the Company agrees to treat the Accounts no less
favorably than other shareholders of the Funds. Each wire transfer of
redemption proceeds shall indicate, on the Federal Funds wire system, the
amount thereof attributable to each Fund; PROVIDED, HOWEVER, that if the
number of entries would be too great to be transmitted through the Federal
Funds wire system, the Company or its designee shall, on the day the wire
is sent, fax the entries to the Recordkeeper or, if possible, send via
direct or indirect systems access until otherwise directed by the
Recordkeeper in writing.
-3-
<PAGE>
(c) AUTHORIZED PERSONS. The following persons are each duly
authorized to act on behalf of the Recordkeeper under this Agreement. The
Company and any designee is entitled to conclusively rely on verbal or
written instructions that the Company or such designee reasonably believes
were originated by any one of these persons. The Recordkeeper shall inform
the Company or such designee of additions to or subtractions from this list
of authorized persons pursuant to Section 24 hereof:
VICKI ARTIS
LAURA PETTIS
MIKE NELSON
7. AGENCY. The Company hereby appoints the Recordkeeper as its agent for
the limited purpose of accepting purchase and redemption instructions from the
Plans and their Participants for the purchase and redemption of shares of the
Funds by the Recordkeeper on behalf of each Plan.
8. MAINTENANCE OF RECORDS.
(a) Recordkeeping and other administrative services to the
Participants shall be the responsibility of the Recordkeeper and shall not
be the responsibility of the Company. Neither the Company nor any designee
shall maintain separate accounts or records for Participants. The
Recordkeeper shall maintain and preserve all records as required by law to
be maintained and preserved in connection with providing the Services and
in making shares of the Funds available to the Plans.
(b) Upon the request of the Company or its designee, the Recordkeeper
shall provide copies of all the historical records relating to transactions
between the Funds and the Plans, written communications regarding the Funds
to or from the Plans and other materials, in each case (1) as are
maintained by the Recordkeeper in the ordinary course of its business, and
(2) as may reasonably be requested to enable the Company, or its
representatives, including without limitation its auditors or legal
counsel, to (A) monitor and review the Services, (B) comply with any
request of a governmental body or self-regulatory organization or the
Plans, (C) verify compliance by the Recordkeeper with the terms of this
Agreement, (D) make required regulatory reports, or (E) perform general
customer supervision. The Recordkeeper agrees that it will permit the
Company or such representatives of either to have reasonable access to its
personnel and records in order to facilitate the monitoring of the quality
of the Services.
(c) Upon the request of Recordkeeper, the Company shall provide, or
cause its designee to provide, copies of all the historical records
relating to transactions between the Funds and the Accounts, written
communications regarding the Funds to or from the Accounts and other
materials, in each case (1) as are maintained by the Company or its
designee in the ordinary course of its business and in compliance with
applicable law, and (2) as may reasonably be requested to enable the
Recordkeeper, or its representatives, including without limitation its
auditors or legal counsel, to (A) comply with any request of a governmental
body or self-regulatory organization of the Plans, (B) verify
-4-
<PAGE>
compliance by the Company with the terms of this Agreement, (C) make
required regulatory reports, or (D) perform general customer super-vision.
(d) The parties agree to cooperate in good faith in providing records
to one another pursuant to this Section 8.
9. ACCOUNT ACTIVITY AND DISTRIBUTION INFORMATION.
(a) The Company or its designee will provide the Recordkeeper (1)
confirmations of Account activity within 5 Business Days after each day on
which a purchase or redemption of Shares is effected for an Account, (2)
statements detailing activity in each Account no less frequently than
monthly, and (3) any other information as may be reasonably requested by
the Recordkeeper.
(b) As to each Fund, the Company or its designee shall provide the
Recordkeeper with all distribution announcement information as soon as it
is announced by each Fund. The distribution information shall set forth
ex-dates, record date, payable date, distribution rate per share, record
date share balances, cash and reinvested payment amounts and all other
information reasonably requested by the Recordkeeper. Where possible, the
Company or its designee shall provide the Recordkeeper with direct or
indirect systems access to the Company's or such designee's systems for
obtaining such distribution information.
(c) All dividends and capital gains distributions will be
automatically reinvested on the payable date at net asset value in
accordance with each Fund's then current prospectus.
10. PROXIES. The Recordkeeper will distribute, or arrange for the
distribution of, all proxy material furnished by the Funds to each Plan and will
vote the Plan's shares as directed by the Plan Representatives. The
Recordkeeper and its agents will in no way recommend action in connection with
or oppose or interfere with the solicitation of such proxies.
11. FUND EXPENSES. The Recordkeeper shall not bear any of the expenses
for the cost of registration of the Funds' shares, preparation of the Funds'
prospectuses, proxy materials and reports, and preparation of other related
statements and notices required by law.
12. PLAN AND PARTICIPANT COMMUNICATIONS. The Company shall, as
applicable, provide in bulk to the Recordkeeper or its authorized
representative, at a single address and at no expense to the Recordkeeper,
the following shareholder communications materials prepared for circulation
to shareholders of record of a Fund in quantities requested by the
Recordkeeper which are sufficient to allow mailing thereof by the
Recordkeeper or a Plan Representative and, to the extent required by
applicable law, to all Participants: proxy or information statements, annual
reports, semi-annual reports, and all updated prospectuses, supplements and
amendments thereof. Except for the distribution of proxy materials, the costs
of which shall be responsibility of the Company, the Company shall not be
responsible for the cost of distributing any other materials to the Plan
Representatives or the Participants.
-5-
<PAGE>
13. COMPLIANCE WITH LAWS.
(a) The Company shall comply with all laws, rules and regulations
applicable to it by virtue of entering into this Agreement including, but
not limited to: (1) any information contained in any prospectus,
registration statement, annual report, proxy statement, or item of
advertising or marketing material prepared by the Company relating to any
Fund, and (2) the registration or qualification of any shares of any Fund
under any federal or applicable state laws.
(b) The Recordkeeper shall comply with all laws, rules and
regulations applicable to it by virtue of entering into this Agreement
including, but not limited to: (1) the Services, (2) the services the
Recordkeeper provides to the Plans, (3) the responsibilities and duties of
the Recordkeeper to the Plans, (4) all sales literature prepared by the
Recordkeeper, its affiliates or agents relating to the Company, and (5) the
activities, if any, of the Recordkeeper and its affiliates relating to the
decisions of the Participants to have the Plans purchase a Fund's shares.
(c) If so requested by the Recordkeeper, the Company will use its
best efforts to review, or cause its designee to review, sales literature
and other marketing materials prepared by the Recordkeeper which relates to
the Company for factual accuracy as to such entities, provided that the
Company or such designee is provided at least five (5) Business Days to
review the materials. The Company or such designee will not review the
materials for compliance with applicable laws. The Recordkeoper shall
provide the Company or its designee with copies of all sales literature and
other marketing materials which refer to the Company within five (5)
Business Days after their first use, regardless of whether the Company or
its designee has previously reviewed the materials. If requested by the
Company or its designee, Recordkeeper shall cease to use any sales
literature or marketing materials which refer to the Company that the
Company or its designee determines to be inaccurate, misleading or
otherwise unacceptable.
(d) Each party hereto is entitled to rely on any written records or
instructions provided to it by the other party.
14. INDEMNIFICATION.
(a) The Recordkeeper shall indemnify, defend and hold harmless the
Company and each of its trustees, officers, employees and agents and each
person who controls it within the meaning of the Securities Act of 1933, as
amended, ("Company Indemnities") from and against any and all losses,
claims, damages, liabilities and expenses (including reasonable attorney's
fees) they incur ("Losses") insofar as the Losses arise out of or are based
upon (1) the provision of Services by the Recordkeeper, (2) the
Recordkeeper's negligence, willful misconduct or violation of applicable
law in the performance of its duties and obligations under this Agreement,
(3) any breach by the Recordkeeper of any- material provision of this
Agreement (including the failure to wire funds or provide the Federal Funds
reference number thereof by the deadline established
-6-
<PAGE>
in Section 6(a) hereof, (4) adherence to instructions that the Company or
any designee reasonably believes were originated by persons specified in
Section 6 of this Agreement, and (5) any material breach by the
Recordkeeper of a representation, warranty or covenant made by it in this
Agreement. The Recordkeeper shall also reimburse the Company Indemnities
for any legal or other expenses reasonably incurred by them in connection
with investigating or defending against the Losses. This indemnity
agreement is in addition to any other liability which the Recordkeeper may
otherwise have.
(b) The Company shall indemnify, defend and hold harmless the
Recordkeeper and each of its affiliates, directors, officers, employees and
agents and each person who controls it within the meaning of the Securities
Act of 1933, as amended (the "Recordkeeper Indemnities") from and against
any and all Losses insofar as such Losses arise out of or are based upon
(1) the Company's negligence, willful misconduct or violation of applicable
law in the performance of its duties and obligations under this Agreement,
(2) any breach by the Company of any material provision of this Agreement,
(3) any untrue or alleged untrue statement of a material fact contained in
the prospectus or statement of additional information of any Fund or any
promotional material or other information furnished to the Recordkeeper, in
writing, for distribution to the Plans, and (4) any material breach by the
Company of a representation, warranty or covenant made in this Agreement.
The Company shall also reimburse the Recordkeeper Indemnities for any legal
or other expenses reasonably incurred by them in connection with
investigating or defending against such Losses. This indemnity agreement
is in addition to any other liability which the Company may otherwise have.
(c) Promptly after receipt by a party entitled to indemnification
under this Section 14 (an "Indemnified Party") of notice of the
commencement of an investigation, action, claim or proceeding, the
Indemnified Party will, if a claim in respect thereof is to be made
against the indemnifying party under this Section 14, notify the
indemnifying party of the commencement thereof, but the omission so to
notify the indemnifying party will not relieve it from any liability
which it may have to any Indemnified Party otherwise than under this
Section. In case an action is brought against an Indemnified Party, and
the Indemnified Party notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to
participate therein and, to the extent that it may wish, assume the
defense thereof, with counsel satisfactory to the indemnified Party.
After notice from the indemnifying party of its intention to assume the
defense of an action, the Indemnified Party shall bear the expenses of
any additional counsel obtained by it, and the indemnifying party shall
not be liable to the Indemnified Party under this Section for any legal
or other expenses subsequently incurred by the Indemnified Party in
connection with the defense thereof other than reasonable costs of
investigation. The Indemnified Party may not settle any action without
the written consent of the indemnifying party. The indemnifying party
may not settle any action without the written consent of the Indemnified
Party unless such settlement completely and finally releases the
Indemnified Party from any and all liability. In either event, consent
shall not be unreasonably withheld.
-7-
<PAGE>
15. FEES.
No fee shall be payable by the Company to the Recordkeeper in
consideration for the Services to be provided by the Recordkeeper pursuant to
this Agreement until such time as such fees have been agreed to by the parties
hereto and approved by their respective Board of Directors or Trustees, if such
approval is deemed necessary by such party. Upon agreement to and approval of
such fees, the parties hereto agree to promptly amend this Agreement in
accordance with Section 19 herein to reflect the payment of such fees.
16. REPRESENTATIONS AND WARRANTIES.
(a) COMPANY. The Company hereby represents and warrants to
Recordkeeper that:
(1) It has full power and authority under applicable law, and
has taken all action necessary, to enter into and perform this
Agreement and the person executing this Agreement on its behalf is
duly authorized and empowered to execute and deliver this Agreement;
(2) This Agreement constitutes its legal, valid and binding
obligation, enforceable against it in accordance with its terms;
(3) No consent or authorization of, filing with, or other act by
or in respect of any governmental authority, is required in connection
with the execution, delivery, performance, validity or enforceability
of this Agreement;
(4) The execution, performance and delivery of this Agreement by
it will not result in it violating any applicable law or breaching or
otherwise impairing any of its contractual obligations; and
(5) The Company is, and will be, registered as an investment
company under the Investment Company Act of 1940, and the shares of
each Fund are, and will be, registered under the Securities Act of
1933, except to the extent the Recordkeeper is so notified in writing.
(b) RECORDKEEPER. The Recordkeeper hereby represents and warrants to
the Company that:
(1) It has full power and authority under applicable law, and
has taken all action necessary, to enter into and perform this
Agreement and the person executing this Agreement on its behalf is
duly authorized and empowered to execute and deliver this Agreement;
(2) This Agreement constitutes the legal, valid and binding
obligation of the Recordkeeper and is enforceable against it in
accordance with its terms;
-8-
<PAGE>
(3) No consent or authorization of, filing with, or other act by
or in respect of any governmental authority, is required in connection
with the execution, delivery, performance, validity or enforceability
of this Agreement;
(4) The execution, performance and delivery of this Agreement
will not result in the Recordkeeper violating any applicable law or
breaching or otherwise impairing any of its contractual obligations;
(5) It is registered as a transfer agent pursuant to Section 17A
of the Securities Exchange Act of 1934, as amended (the " 1934 Act");
and
(6) The arrangements provided for in this Agreement will be
disclosed to the Plans.
17. TERMINATION.
(a) Either party may terminate this Agreement by providing 90 days
written notice to the other party.
(b) Notwithstanding the foregoing, this Agreement may be terminated
by either party (1) at any time by giving 30 days written notice to the
other party in the event of a material breach of this Agreement by the
other party that is not cured during such 30day period; and (2) at any time
by giving written notice to tile other party (A) upon institution of forma
proceedings relating to the legality of the terms and conditions of this
Agreement by the National Association of Securities Dealers, Inc., the
Securities and Exchange Commission or any other regulatory body, provided
that the terminating party has a reasonable belief That the institution of
formal proceedings is not without foundation and will have a material
adverse impact on the terminating party, (B) upon assignment of the
Agreement in contravention of the terms hereof, (C) in the event shares of
a Fund are not registered, issued or sold in conformance with Federal law
or the law precludes the use of a Fund's shares as an underlying investment
medium of the Plans; prompt notice shall be given by either party to the
other in the event the conditions of this provision occur; and P) as is
required by law, order, or instruction by a court of competent jurisdiction
or a regulatory body or self-regulatory organization with jurisdiction over
the terminating party.
18. GOVERNING LAW. This Agreement shall be governed by and
interpreted in accordance with the internal laws of the State of Oregon
applicable to agreements fully executed and to be performed therein;
exclusive of conflicts of laws.
19. AMENDMENT AND WAIVER. No modification of any provision of this
Agreement will be binding unless in writing and executed by the party to be
bound thereby. Notwithstanding anything in this Agreement to the contrary,
the Company may unilaterally amend Schedule A hereto to add additional
investment portfolios ("New Funds") as Funds by sending to the Recordkeeper a
written notice of the New Funds and indicating therein the fees to be paid to
the Recordkeeper with respect to the Services provided in connection with the
New
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<PAGE>
Funds. No waiver of any provision of this Agreement will be binding unless in
writing and executed by the party granting such waiver. Any valid waiver of a
provision set forth herein shall not constitute a waiver of any other provision
of this Agreement. In addition, any waiver shall constitute a present waiver of
the provision and shall not constitute a permanent future waiver of the
provision.
20. ASSIGNMENT. This Agreement shall be binding upon and shall inure to
the benefit of the parties and their respective successors and assigns;
PROVIDED, HOWEVER, that neither this Agreement nor any rights, privileges,
duties or obligations of the parties may be neither assigned by either party
without the written consent of the other party or as expressly contemplated by
this Agreement.
21. ENTIRE AGREEMENT. This Agreement contains the full and complete
understanding between the parties with respect to the transactions covered and
contemplated hereunder, and supersedes all prior agreements and understandings
between the parties relating to the subject matter hereof, whether oral or
written, express or implied.
22. RELATIONSHIP OF PARTIES; NO JOINT VENTURE, ETC. Except for the
limited purpose provided in Section 7, . t is understood and agreed that all
Services performed hereunder by the Recordkeeper shall be as an independent
contractor and not as an employee or agent of the Company and neither party,
shall hold itself out as an agent of the other party with the authority to bind
such party. Neither the execution nor performance of this Agreement shall be
deemed to create a partnership or joint venture by and between Recordkeeper or
the Company.
23. OPERATIONS OF FUNDS. In no way shall the provisions of this Agreement
limit the authority of the Company to take such action as it may deem
appropriate or advisable in connection with all matters relating to the
operation of the Funds and the sale of Shares. In no way shall the provisions
of this Agreement limit the authority of the Recordkeeper to take such action as
it may deem appropriate or advisable in connection with all matters relating to
the provision of the Services or the shares of funds other than the Funds
offered to the Plans.
24. NOTICES. All notices hereunder shall be given in writing (and shall
be deemed to have been duly given upon receipt) by delivery in person, by
facsimile, by registered or certified mail or by overnight delivery (postage
prepaid, return receipt requested) to the respective parties as follows:
if to the Recordkeeper:
Columbia Trust Company
1301 SW Fifth Avenue
PO Box 1350
Portland, OR 97207
Attention : Jeff B. Curtis
Facsimile No.: (503) 226-4067
if to the Company:
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<PAGE>
Galaxy Fund 11
c/o First Data Investor Services Group, Inc.
4400 Computer Drive
Westborough, MA 01581
Attention: Jylanne Dunne
Facsimile No. (508) 871-9625
25. EXPENSES. All expenses incident to the performance by each party of
its respective duties under this Agreement shall be paid by that party.
26. TIME OF ESSENCE. Time shall be of the essence in this Agreement.
27. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
28. SURVIVAL. The provisions of Sections 8, 13, 14, 16 and 17(c) shall
survive termination of this Agreement.
29. NON-EXCLUSIVITY. Each of the parties acknowledges and agrees that
the Agreement and the arrangements described herein are intended to be
non-exclusive and that each of the parties is free to enter into similar
agreements and arrangements with other entities.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
RECORDKEEPER
Columbia Trust Company
By: /s/ Lawrence S. Viehl
-----------------------
Name: Lawrence S. Viehl
Title: Vice President
GALAXY FUND II
By: /s/ Jylanne Dunne
-----------------------
Name: Jylanne Dunne
Title: Vice President
-11-
<PAGE>
Schedule A
FUNDS
NAME OF FUND
Large Company
Index Fund
-12-
<PAGE>
Schedule B
The Services
The Recordkeeper shall, to the extent required by each Plan or applicable
law, perform the following services. Such services shall be the responsibility
of the Recordkeeper and shall not be the responsibility of the Company.
1. Maintain separate records for each Plan, which records shall reflect
Fund shares ("Shares") purchased and redeemed, including the date and price for
all transactions, Share balances, and the name and address of each Participant,
including zip codes and tax identification numbers.
2. Credit employer contributions to individual Participant accounts in
accordance with the employer's instructions and invest such contributions and
other Plan assets in Shares of the Funds to the extent so designated by the
employer, Plan trustee or Participant.
3. Disburse or credit to the Plans, and maintain records of, all
proceeds of redemptions of Shares and all other distributions not reinvested
in Shares.
4. Prepare and transmit to the Plans and Participants, periodic
account statements showing, among other things, the total dollar value of the
account as of the statement closing date, contributions, redemptions, and
transfers made during the period covered by the statement, and the dividends
and other distributions paid during the statement period (whether paid in
cash or reinvested in Shares).
5. Transmit to the Plans or the Participants, as required by
applicable law, prospectuses, proxy materials, shareholder reports, and other
information provided by the Company and required to be sent to shareholders
under the Federal securities laws.
6. Transmit to the Company or its designee purchase orders and
redemption requests placed by the Plans and arrange for the transmission of
funds to and from the Funds.
7. Transmit to the Company or its designee such periodic reports as
the Company or its designee shall reasonably conclude is necessary to enable
a Fund to comply with applicable Federal and state Blue Sky requirements.
8. Transmit to each Plan confirmations of purchase orders and
redemption requests placed by each Plan.
9. Maintain all account balance information for the Plans and daily
and monthly purchase summaries expressed in Shares and dollar amounts.
10. Prepare, transmit and file all Federal, state and local government
reports and returns as required by law with respect to each account
maintained on behalf of the Plans.
-13-
<PAGE>
Respond to Participants' inquiries regarding, among other things, Share prices,
account balances, dividend options, dividend amounts, and dividend payment
dates.
-14-
<PAGE>
Schedule C
ACCOUNT INFORMATION
1. Entity in whose name each Account will be opened:__________________________
Mailing address: __________________________
__________________________
__________________________
2. Employer ID number (For internal usage only):
3. Authorized contact persons: The following persons are authorized on behalf
of the Recordkeeper to effect transactions in each Account:
Name: ____________________________________ Name:______________________________
Phone: ____________________________________ Phone:_____________________________
4. Will the Accounts have telephone exchange? _______Yes _________No
(THIS OPTION LETS RECORDKEEPER REDEEM SHARES BY TELEPHONE AND APPLY THE PROCEEDS
FOR PURCHASE IN ANOTHER IDENTICALLY REGISTERED FUNDS ACCOUNT.")'
5. Will the Accounts have telephone redemption? _______Yes _________No
(This option lets Recordkeeper sell shares by telephone. The proceeds will
be wired to the bank account specified below.)
6. All dividends and capital gains will be reinvested automatically.
7. Instructions for all outgoing wire transfers:______________________________
______________________________
______________________________
______________________________
8. If this Account Information Form contains changed information, the
undersigned authorized officer has executed this amended Account
Information Form as of the date set forth below and acknowledges the
agreements and representations set forth in the Services Agreement:
________________________________ _________________________________
(Signature of authorized Officer) (Date)
-15-
<PAGE>
9. Recordkeeper represents under penalty of perjury that:
(i) The employer ID number on this form is correct; and
(ii) Recordkeeper (and each Plan) is not subject to backup withholding
because (a) Recordkeeper (and a Plan) is exempt from backup withholding, (b)
Recordkeeper (and a Plan) has not been notified by the IRS that it is subject to
backup withholding as a result of failure to report all interest or dividends,
or (c) the IRS has notified the Recordkeeper (and a Plan) that it Is no longer
subject to backup withholding. (Cross out (ii) if Recordkeeper (or any Plan) has
been notified by the IRS that it is subject to backup withholding because of
underreporting interest or dividends on its tax return.)
Please Note.- Company employs reasonable procedures to confirm that instructions
communicated by telephone are genuine and not be liable for losses due to
unauthorized or fraudulent instructions. Please see the prospectus for the
applicable Fund for more information on the telephone exchange and redemption
privileges.
-16-
<PAGE>
Exhibit (9)(g)
AMENDMENT NO. 1
TO
SERVICES AGREEMENT
Amendment No. 1 dated as of April 1, 1998 to the Services Agreement
(the "Agreement") dated as of October 1, 1997 by and between Columbia Trust
Company (the "Recordkeeper") and Galaxy Fund II (the "Company").
WHEREAS, the Recordkeeper currently provides the administrative
services and functions described in Schedule B of the Agreement (the "Services")
with respect to the shares of the Company's investment portfolios listed on
Schedule A of the Agreement (the "Funds") owned by certain defined contribution
and other employee benefit plans (the "Plans") and included in one or more
omnibus accounts in each Fund (the "Accounts") maintained of record by the
Recordkeeper as nominee of each Plan;
WHEREAS, in accordance with Section 15 of the Agreement, no fee is
currently paid by the Company to the Recordkeeper in consideration for the
Services provided by the Recordkeeper pursuant to the Agreement; and
WHEREAS, the parties hereto wish to amend the Agreement (a) to provide
for the payment of a fee by the Company to the Recordkeeper in consideration for
the Services provided by the Recordkeeper and (b) to join First Data Investor
Services Group, Inc., the Company's transfer agent (the "Transfer Agent"), as a
party to the Agreement solely with respect to the payment of such fees to the
Recordkeeper;
NOW, THEREFORE, intending to be legally bound, the parties hereto
hereby agree as follows:
1. The Transfer Agent is hereby joined as a party to the Agreement
only with respect to Section 15 of the Agreement.
2. Section 15 of the Agreement is hereby amended and restated in its
entirety to read as follows:
"15. FEES.
In consideration for the Services to be provided by the Recordkeeper
to the Company pursuant to this Agreement, the Transfer Agent shall
pay to the Recordkeeper the fees set forth in Schedule A to this
Agreement. The parties agree that the fees are solely for shareholder
servicing and other administrative services provided by the
Recordkeeper and do not constitute payment in any manner for
investment
<PAGE>
advisory, distribution, trustee or other custodial services."
3. Section 24 of the Agreement is amended by adding the following at
the end of the Section:
"...if to the Transfer Agent:
First Data Investor Services Group, Inc.
4400 Computer Drive
Westboro, MA 01581
Attention: William Greilich
Facsimile No.: (508) 871-9625"
4. Schedule A of the Agreement is amended and restated in its
entirety to read as set forth in Schedule A attached hereto.
5. Except to the extent amended hereby, the Agreement shall remain
unchanged and in full force and effect and is hereby ratified and confirmed in
all respects as amended hereby.
IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 1
as of the day and year first above written.
RECORDKEEPER
Columbia Trust Company
By:
-----------------------
Name:
Title:
GALAXY FUND II
By:
-----------------------
Name: John T. O'Neill
Title: President
FIRST DATA INVESTOR
SERVICES GROUP, INC.
By:
-----------------------
Name:
Title:
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<PAGE>
Schedule A
FUNDS AND FEES
(a) The Transfer Agent shall pay to the Recordkeeper with respect to
each Account a monthly fee of 1/12 of $21.00 for each Participant
sub-account of such Account in existence during all or part of such monthly
period. Such fee shall be billed by the Recordkeeper monthly in arrears.
(b) The Funds subject to this Agreement are as follows:
Large Company Index Fund
-3-
<PAGE>
Exhibit 9(h)
SERVICES AGREEMENT
This Agreement is made as of April 1, 1998, by and between Fleet National
Bank, a national banking association (the "Recordkeeper"), Galaxy Fund II, a
Massachusetts business trust (the "Company"), on behalf of the investment
portfolios listed on Schedule A (the "Funds"), and First Data Investor Services
Group, Inc., a Massachusetts corporation and the Company's transfer agent (the
"Transfer Agent").
RECITALS
A. The Recordkeeper desires to provide administrative services and
functions comprised of, but not limited to, certain recordkeeping, reporting and
processing services for certain defined contribution and other employee benefit
plans (individually, a "Plan" and collectively, the "Plans"), which services
include processing and transfer arrangements for the investment and reinvestment
of Plan assets in the Funds specified by an investment adviser, sponsor or
administrative committee of a Plan (a "Plan Representative") generally upon the
direction of the Plan participants (the "Participants").
B. The Recordkeeper and the Company desire to facilitate the purchase and
redemption of shares of the Funds on behalf of the Plans and their Participants
through omnibus accounts in each Fund (individually an "Account" and
collectively, the "Accounts") to be maintained of record by the Recordkeeper as
nominee of each Plan, subject to the terms and conditions of this Agreement.
In consideration of the mutual promises set forth in this Agreement, the
parties agree as follows:
1. PERFORMANCE OF SERVICES. The Recordkeeper agrees to perform the
administrative functions and services specified in Schedule B attached hereto
(the "Services") with respect to the shares of the Funds owned by the Plans and
included in the Accounts as may be requested by the Plans.
2. THE ACCOUNTS.
(a) Each Account will be opened based upon the information contained
in the attached Schedule C. In connection with each Account, the
Recordkeeper represents and warrants that it is authorized to act on behalf
of each Plan effecting transactions in the Account in connection with the
Services pursuant to an agreement with the Plan Representative, it is
satisfied that the person or persons who signed the Recordkeeper's
contracts with the Plan were themselves properly authorized by the Plan and
the entity which they represent, and that the information specified on
Schedule C is correct.
(b) The Company shall designate each Account in each Fund with an
account number. Account numbers will be the means of identification when
the parties are transacting in the Accounts. The assets in the Accounts
are assets of the Plans and are
<PAGE>
segregated from the Recordkeeper's own assets. The Company agrees to cause
the Accounts to be kept open on each Fund's books regardless of lack of
activity or small position size except to the extent the Recordkeeper takes
specific action to close an Account or to the extent the Fund's Prospectus
reserves the right to close accounts which are inactive or of a small
position size. In the latter two cases, the Company or its designee will
give prior notice to the Recordkeeper before closing an Account.
(c) The Recordkeeper agrees to provide the Company or its designee,
(i) by the 15th day of each month, a report which indicates the number of
Participants that hold, through a Plan, interests in each Account as of the
last day of the prior month and (ii) any other information as the Company
may reasonably request concerning such Participants as may be necessary or
advisable to enable the Company to comply with applicable laws, including
state "Blue Sky" laws relating to the sale of each Fund's shares.
3. PRICING INFORMATION. For each Fund, the Company shall use its best
efforts to furnish, or cause to be furnished by its designee, to the
Recordkeeper prior to 6:30 p.m., Eastern time, on each day that the Fund is
open for business (a "Business Day"): (a) the Fund's closing net asset value
for that day, and (b) for those Funds for which such information is calculated,
the daily accrual interest rate factor (mil rate). This information shall be
communicated via fax or through indirect or direct systems access acceptable to
the Recordkeeper and the Company or its designee.
4. PRICE ERRORS.
(a) In the event adjustments are required to correct any error in the
computation of the net asset value of a Fund's shares, the Company or its
designee shall notify the Recordkeeper as soon as practicable after
discovering the need for those adjustments that result in a reimbursement
to an Account in accordance with the Fund's then current policies on
reimbursement. Notification may be made via facsimile or via direct or
indirect systems access. Any such notification shall be promptly followed
by a letter written on the Company's or such designee's letterhead stating
for each day for which an error occurred the incorrect price, the correct
price, and, to the extent communicated to the Fund's shareholders, the
reason for the price change.
(b) If an Account received amounts in excess of the amounts to which
it otherwise would have been entitled prior to an adjustment for an error,
the Recordkeeper, when requested by the Company or its designee, will use
its best efforts to collect the excess amounts from the applicable Plans.
(c) If an adjustment is to be made in accordance with subsection 4(a)
above to correct an error which has caused an Account to receive an amount
less than that to which it is entitled, the Company or its designee shall
make all necessary adjustments (within the parameters specified in
subsection 4(a)) to the number of shares owned in the Account and
distribute to the Plan the amount of such underpayment for credit to the
Participants' subaccounts.
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<PAGE>
5. PURCHASE AND REDEMPTION ORDERS. On each Business Day, the
Recordkeeper shall aggregate and calculate the net purchase and redemption
orders for each Plan from Participants or the Plan Representatives for shares of
a Fund that it received prior to the close of trading on the New York Stock
Exchange (the "NYSE") (i.e., 4:00 p.m., Eastern time), unless the NYSE closes at
an earlier time in which case the earlier time shall apply. The Recordkeeper
shall communicate to the Company or its designee, by telephone or facsimile (or
by any other means as the parties hereto may agree to in writing), the net
aggregate purchase or redemption order (if any) for each Account for that
Business Day (such Business Day is sometimes referred to in this Agreement as
the "Trade Date"). The Recordkeeper will communicate the orders to the Company
or its designee prior to 10:30 a.m., Eastern time, on the next Business Day
following the Trade Date. All trades communicated to the Company or its
designee by the foregoing deadline shall be treated by the Company as if they
were received by the Company prior to the close of trading on the Trade Date.
The Recordkeeper shall not accept any conditional orders. The Company may in
its sole discretion, but at a minimum consistent with its practices or policies
applied to other shareholders of the Fund, accept or reject an "as of" order.
6. SETTLEMENT OF TRANSACTIONS.
(a) PURCHASES. The Company or its designee will provide to the
Recordkeeper written instructions ("Purchase Instructions") for wire
transfers to the custodian for the applicable Funds. Recordkeeper will
wire, or arrange for the wire of, the purchase price for each purchase
order in accordance with the Purchase Instructions so that the funds are
received by the applicable Fund's custodian by no later than close of
business on the next Business Day following the Trade Date. The
Recordkeeper will use its best efforts so that such funds, or a Federal
Funds wire system reference number, is provided to the Company or its
designee by 5:00 p.m., Eastern Time. The Recordkeeper agrees that if it
fails to provide funds to the Fund's custodian by the close of business on
the next Business Day following the Trade Date, then, at the option of the
Company, (i) the transaction may be canceled, or (ii) the transaction may
be processed at the next-determined net asset value for the applicable Fund
after purchase orders are received.
(b) REDEMPTIONS. The Company will use its best efforts to cause to
be transmitted, by wire transfer on or before 5:00 p.m., Eastern time, on
the Business Day immediately following the Trade Date, to the custodial
account directed by the Recordkeeper in writing, the proceeds of all
redemption orders placed by Recordkeeper. Should the Company or its
designee need to extend the settlement on a trade, it will contact the
Recordkeeper to discuss the extension. For purposes of determining the
length of settlement, the Company agrees to treat the Accounts no less
favorably than other shareholders of the Funds. Each wire transfer of
redemption proceeds shall indicate, on the Federal Funds wire system, the
amount thereof attributable to each Fund; PROVIDED, HOWEVER, that if the
number of entries would be too great to be transmitted through the Federal
Funds wire system, the Company or its designee shall, on the day the wire
is sent, fax the entries to the Recordkeeper or, if possible, send via
direct or indirect systems access until otherwise directed by the
Recordkeeper in writing.
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<PAGE>
(c) AUTHORIZED PERSONS. The following persons are each duly
authorized to act on behalf of the Recordkeeper under this Agreement. The
Company and any designee is entitled to conclusively rely on verbal or
written instructions that the Company or such designee reasonably believes
were originated by any of these persons. The Recordkeeper shall inform the
Company or such designee of additions to or subtractions from this list of
authorized persons pursuant to Section 24 hereof:
___________
___________
___________
7. AGENCY. The Company hereby appoints the Recordkeeper as its agent for
the limited purpose of accepting purchase and redemption instructions from the
Plans and their Participants for the purchase and redemption of shares of the
Funds by the Recordkeeper on behalf of each Plan.
8. MAINTENANCE OF RECORDS.
(a) Recordkeeping and other administrative services to the
Participants shall be the responsibility of the Recordkeeper and shall not
be the responsibility of the Company. Neither the Company nor any designee
shall maintain separate accounts or records for Participants. The
Recordkeeper shall maintain and preserve all records as required by law to
be maintained and preserved in connection with providing the Services and
in making shares of the Funds available to the Plans.
(b) Upon the request of the Company or its designee, the Recordkeeper
shall provide copies of all the historical records relating to transactions
between the Funds and the Plans, written communications regarding the Funds
to or from the Plans and other materials, in each case (1) as are
maintained by the Recordkeeper in the ordinary course of its business, and
(2) as may reasonably be requested to enable the Company, or its
representatives, including without limitation its auditors or legal
counsel, to (A) monitor and review the Services, (B) comply with any
request of a governmental body or self-regulatory organization or the
Plans, (c) verify compliance by the Recordkeeper with the terms of this
Agreement, (D) make required regulatory reports, or (E) perform general
customer supervision. The Recordkeeper agrees that it will permit the
Company or its designee, or such representatives of either, to have
reasonable access to its personnel and records in order to facilitate the
monitoring of the quality of the Services.
(c) Upon the request of Recordkeeper, the Company shall provide, or
cause its designee to provide, copies of all the historical records
relating to transactions between the Funds and the Accounts, written
communications regarding the Funds to or from the Accounts and other
materials, in each case (1) as are maintained by the Company or its
designee in the ordinary course of its business and in compliance with
applicable law, and (2) as may reasonably be requested to enable the
Recordkeeper, or its representatives, including without limitation its
auditors or legal counsel, to (A) comply
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<PAGE>
with any request of a governmental body or self-regulatory organization of
the Plans, (B) verify compliance by the Company with the terms of this
Agreement, (C) make required regulatory reports, or (D) perform general
customer supervision.
(d) The parties agree to cooperate in good faith in providing records
to one another pursuant to this Section 8.
9. ACCOUNT ACTIVITY AND DISTRIBUTION INFORMATION.
(a) The Company or its designee will provide the Recordkeeper (1)
confirmations of Account activity within 5 Business Days after each day on
which a purchase or redemption of Shares is effected for an Account, (2)
statements detailing activity in each Account no less frequently than
monthly, and (3) any other information as may be reasonably requested by
the Recordkeeper.
(b) As to each Fund, the Company or its designee shall provide the
Recordkeeper with all distribution announcement information as soon as it
is announced by each Fund. The distribution information shall set forth
ex-dates, record date, payable date, distribution rate per share, record
date share balances, cash and reinvested payment amounts and all other
information reasonably requested by the Recordkeeper. Where possible, the
Company or its designee shall provide the Recordkeeper with direct or
indirect systems access to the Company's or such designee's systems for
obtaining such distribution information.
(c) All dividends and capital gain distributions will be
automatically reinvested on the payable date at net asset value in
accordance with each Fund's then current prospectus.
10. PROXIES. The Recordkeeper will distribute, or arrange for the
distribution of, al proxy material furnished by the Funds to each Plan and will
vote the Plan's shares as directed by the Plan Representatives. The
Recordkeeper and its agents will in no way recommend action in connection with
or oppose or interfere with the solicitation of such proxies.
11. FUND EXPENSES. The Recordkeeper shall not bear any of the expenses
for the cost of registration of the Funds' shares, preparation of the Funds'
prospectuses, proxy materials and reports, and preparation of other related
statements and notices required by law.
12. PLAN AND PARTICIPANT COMMUNICATIONS. The Company shall, as
applicable, provide in bulk to the Recordkeeper or its authorized
representative, at a single address and at no expense to the Recordkeeper, the
following shareholder communications materials prepared for circulation to
shareholders of record of a Fund in quantities requested by the Recordkeeper
which are sufficient to allow mailing thereof by the Recordkeeper or a Plan
Representative and, to the extent required by applicable law, to all
Participants: proxy or information statements, annual reports, semi-annual
reports, and all updated prospectuses, supplements and amendments thereof.
Except for the distribution of proxy materials, the costs of which shall be
responsibility of the
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<PAGE>
Company, the Company shall not be responsible for the cost of distributing any
other materials to the Plan Representatives or the Participants.
13. COMPLIANCE WITH LAWS.
(a) The Company shall comply with all laws, rules and regulations
applicable to it by virtue of entering into this Agreement including, but
not limited to: (1) any information contained in any prospectus,
registration statement, annual report, proxy statement, or item of
advertising or marketing material prepared by the Company relating to any
Fund, and (2) the registration or qualification of any shares of any Fund
under federal or any applicable state laws.
(b) The Recordkeeper shall comply with all laws, rules and
regulations applicable to it by virtue of entering into this Agreement
including, but not limited to: (1) the Services, (2) the services the
Recordkeeper provides to the Plans, (3) the responsibilities and duties of
the Recordkeeper to the Plans, (4) all sales literature prepared by the
Recordkeeper, its, affiliates or agents relating to the Company, and (5)
the activities if, any, of the Recordkeeper and its affiliates relating to
the decisions of the Participants to have the Plans purchase a Fund's
shares.
(c) If so requested by the Recordkeeper, the Company will use its
best efforts to review, or cause its designee to review, sales literature
and other marketing materials prepared by the Recordkeeper which relate to
the Company for factual accuracy as to such entities, provided that the
Company or such designee is provided at least five (5) Business Days to
review the materials. The Company or such designee will not review the
materials for compliance with applicable laws. The Recordkeeper shall
provide the Company or its designee with copies of all sales literature and
other marketing materials which refer to the Company within five (5)
Business Days after their first use, regardless of whether the Company or
its designee has previously reviewed the materials. If requested by the
Company or its designee, Recordkeeper shall cease to use any sales
literature or marketing materials which refer to the Company that the
Company or its designee determines to be inaccurate, misleading or
otherwise unacceptable.
(d) Each party hereto is entitled to rely on any written records or
instructions provided to it by the other party.
14. INDEMNIFICATION.
(a) The Recordkeeper shall indemnify, defend and hold harmless the
Company and each of its trustees, officers, employees and agents and each
person who controls it within the meaning of the Securities Act of 1933, as
amended, ("Company Indemnities") from and against any and all losses,
claims, damages, liabilities and expenses (including reasonable attorney's
fees) they incur ("Losses") insofar as the Losses arise out of or are based
upon (1) the provision of Services by the Recordkeeper, (2) the
Recordkeeper's negligence, willful misconduct or violation of applicable
law in
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<PAGE>
the performance of its duties and obligations under this Agreement, (3) any
breach by the Recordkeeper of any material provision of this Agreement
(including the failure to wire funds or provide the Federal Funds reference
number thereof by the deadline established in Section 6(a) hereof, (4)
adherence to instructions that the Company or any designee reasonably
believes were originated by persons specified in Section 6 of this
Agreement, and (5) any material breach by the Recordkeeper of a
representation, warranty or covenant made by it in this Agreement. The
Recordkeeper shall also reimburse the Company Indemnities for any legal or
other expenses reasonably incurred by them in connection with investigating
or defending against the Losses. This indemnity agreement is in addition
to any other liability which the Recordkeeper may otherwise have.
(b) The Company shall indemnify, defend and hold harmless the
Recordkeeper and each of its affiliates, directors, officers, employees and
agents and each person who controls it within the meaning of the Securities
Act of 1933, as amended, (the "Recordkeeper Indemnities") from and against
any and all Losses insofar as such Losses arise out of or are based upon
(1) the Company's negligence, willful misconduct or violation of applicable
law in the performance of its duties and obligations under this Agreement,
(2) any breach by the Company of any material provision of this Agreement,
(3) any untrue or alleged untrue statement of a material fact contained in
the prospectus or statement of additional information of any Fund or any
promotional material or other information furnished to the Recordkeeper, in
writing, for distribution to the Plans, and (4) any material breach by the
Company of a representation, warranty or covenant made in this Agreement.
The Company shall also reimburse the Recordkeeper Indemnities for any legal
or other expenses reasonably incurred by them in connection with
investigating or defending against such Losses. This indemnity agreement
is in addition to any other liability which the Company may otherwise have.
(c) Promptly after receipt by a party entitled to indemnification
under this Section 14 (an "Indemnified Party") of notice of the
commencement of an investigation, action, claim or proceeding, the
Indemnified Party will, if a claim in respect thereof is to be made against
the indemnifying party under this Section 14, notify the indemnifying party
of the commencement thereof, but the omission so to notify the indemnifying
party will not relieve it from any liability which it may have to any
Indemnified Party otherwise than under this Section. In case an action is
brought against an Indemnified Party, and the Indemnified Party notifies
the indemnifying party of the commencement thereof, the indemnifying party
will be entitled to participate therein and, to the extent that it may
wish, assume the defense thereof, with counsel satisfactory to the
Indemnified Party. After notice from the indemnifying party of its
intention to assume the defense of an action, the Indemnified Party shall
bear the expenses of any additional counsel obtained by it, and the
indemnifying party shall not be liable to the Indemnified Party under this
Section for any legal or other expenses subsequently incurred by the
Indemnified Party under this Section for any legal or other expenses
subsequently incurred by the Indemnified Party in connection with the
defense thereof other than
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<PAGE>
reasonable costs of investigation. The Indemnified Party may not settle
any action without the written consent of the indemnifying party. The
indemnifying party may not settle any action without the written consent of
the Indemnified Party unless such settlement completely and finally
releases the Indemnified Party from any and all liability. In either
event, consent shall not be unreasonably withheld.
15. FEES.
In consideration for the Services to be provided by the Recordkeeper
to the Company pursuant to this Agreement, the Transfer Agent shall pay to the
Recordkeeper the fees set forth in Schedule A to this Agreement. The parties
agree that the fees are solely for shareholder servicing and other
administrative services provided by the Recordkeeper and do not constitute
payment in any manner for investment advisory, distribution, trustee or
custodial services.
16. REPRESENTATIONS AND WARRANTIES.
(a) COMPANY. The Company hereby represents and warrants to
Recordkeeper that:
(1) It has full power and authority under applicable law, and
has taken all action necessary, to enter into and perform this
Agreement and the person executing this Agreement on its behalf is
duly authorized and empowered to execute and deliver this Agreement;
(2) This Agreement constitutes its legal, valid and binding
obligation, enforceable against it in accordance with its terms;
(3) No consent or authorization of, filing with, or other act by
or in respect of any governmental authority, is required in
connection with the execution, delivery, performance, validity or
enforceability of this Agreement;
(4) The execution, performance and delivery of this Agreement by
it will not result in it violating any applicable law or breaching or
otherwise impairing any of its contractual obligations; and
(5) The Company is, and will be, registered as an investment
company under the Investment Company Act of 1940, as amended, and the
shares of each Fund are, and will be, registered under the Securities
Act of 1933, as amended, except to the extent the Recordkeeper is so
notified in writing.
(b) RECORDKEEPER. The Recordkeeper hereby represents and warrants to
the Company that:
(1) It has full power and authority under applicable law, and
has taken all action necessary, to enter into and perform this
Agreement and the person
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<PAGE>
executing this Agreement on its behalf is duly authorized and
empowered to execute and deliver this Agreement;
(2) This Agreement constitutes the legal, valid and binding
obligation of the Recordkeeper and is enforceable against it in
accordance with its terms;
(3) No consent or authorization of, filing with, or other act by
or in respect of any governmental authority, is required in connection
with the execution, delivery, performance, validity or enforceability
of this Agreement.;
(4) The execution, performance and delivery of this Agreement
will not result in the Recordkeeper violating any applicable law or
breaching or otherwise impairing any of its contractual obligations;
(5) It is registered as a transfer agent pursuant to Section 17A
of the Securities Exchange Act of 1934, as amended (the "1934 Act");
and
(6) The arrangements provided for in this Agreement will be
disclosed to the Plans.
17. TERMINATION.
(a) The Recordkeeper or the Company may terminate this Agreement by
providing 90 days written notice to the other party.
(b) Notwithstanding the foregoing, this Agreement may be terminated
by the Recordkeeper or the Company (1) at any time by giving 30 days
written notice to the other party in the event of a material breach of this
Agreement by the other party that is not cured during such 30-day period;
and (2) at any time by giving written notice to the other party (A) upon
institutional of formal proceedings relating to the legality of the terms
and conditions of this Agreement by the National Association of Securities
Dealers, Inc., the Securities and Exchange Commission or any other
regulatory body, provided that the terminating party has a reasonable
belief that the institution of formal proceedings is not without foundation
and will have a material adverse impact on the terminating party, (B) upon
assignment of the Agreement in contravention of the terms hereof, (C) in
the event shares of a Fund are not registered, issued or sold in
conformance with Federal law or the law precludes the use of a Fund's
shares as an underlying investment medium of the Plans; prompt notice shall
be given by either party to the other in the event the conditions of this
provisions occur; and (D) as is required by law, order, or instruction by a
court of competent jurisdiction or a regulatory body or self-regulatory
organization with jurisdiction over the terminating party.
18. GOVERNING LAW. This Agreement shall be governed by and interpreted
in accordance with the internal laws of the Commonwealth of Massachusetts
applicable to agreements fully executed and to be performed therein,
exclusive of conflicts of laws.
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<PAGE>
19. AMENDMENT AND WAIVER. No modification of any provision of this
Agreement will be binding unless in writing and executed by the party to be
bound thereby. Notwithstanding anything in this Agreement to the contrary,
the Company may unilaterally amend Schedule A hereto to add additional
investment portfolios ("New Funds") as Funds by sending to the Recordkeeper a
written notice of the New Funds and indicating therein the fees to be paid to
the Recordkeeper with respect to the Services provided in connection with the
New Funds. No waiver of any provision of this Agreement will be binding
unless in writing and executed by the party granting such waiver. Any valid
waiver of a provision set forth herein shall not constitute a waiver of any
other provision of this Agreement. In addition, any waiver shall constitute
a present waiver of the provision and shall not constitute a permanent future
waiver of the provision.
20. ASSIGNMENT. This Agreement shall be binding upon and shall insure
to the benefit of the parties and their respective successors and assigns;
PROVIDED, HOWEVER, that neither this Agreement nor any rights, privileges,
duties or obligations of the parties may be assigned by any party without the
written consent of the other parties or as expressly contemplated by this
Agreement.
21. ENTIRE AGREEMENT. This Agreement contains the full and complete
understanding among the parties with respect to the transactions covered and
contemplated hereunder, and supersedes all prior agreements and
understandings between the parties relating to the subject matter hereof,
whether oral or written, express or implied.
22. RELATIONSHIP OF PARTIES; NO JOINT VENTURE, ETC. Except for the
limited purpose provided in Section 7, it is understood and agreed that all
Services performed hereunder by the Recordkeeper shall be as an independent
contractor and not as an employee or agent of the Company and neither the
Recordkeeper or the Company shall hold itself out as an agent of the other
party with the authority to bind such party. Neither the execution nor
performance of this Agreement shall be deemed to create a partnership or
joint venture by and between Recordkeeper and the Company.
23. OPERATIONS OF FUNDS. In no way shall the provisions of this
Agreement limit the authority of the Company to take such action as it may
deem appropriate or advisable in connection with all matters relating to the
operation of the Funds and the sale of shares. In no way shall the
provisions of this Agreement limit the authority of the Recordkeeper to take
such action as it may deem appropriate or advisable in connection with all
matters relating to the provisions of the Services or the shares of funds
other than the Funds offered to the Plans.
24. NOTICES. All notices hereunder shall be given in writing (and shall
be deemed to have been duly given upon receipt) by delivery in person, by
facsimile, by registered or certified mail or by overnight delivery (postage
prepaid, return receipt requested) to the respective parties as follows:
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<PAGE>
if to the Recordkeeper:
Fleet National Bank
____________________
____________________
Attention:
Facsimile No.:
if to the Company
Galaxy Fund II
c/o First Data Investor Services Group, Inc.
4400 Computer Drive
Westborough, MA 01581
Attention: Jylanne Dunne
Facsimile No.: (508) 871-9625
if to the Transfer Agent:
First Data Investor Services Group, Inc.
4400 Computer Drive
Westborough, MA 01581
Attention: William Greilich
Facsimile No.: ______________
25. EXPENSES. All expenses incident to the performance by each party
of its respective duties under this Agreement shall be paid by that party.
26. TIME OF ESSENCE. Time shall be of the essence in this Agreement.
27. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
28. SURVIVAL. The provisions of Section 8, 13, 14, 16 and 17(c) shall
survive termination of this Agreement.
29. NON-EXCLUSIVITY. Each of the parties acknowledges and agrees that
this Agreement and the arrangements described herein are intended to be
non-exclusive and that each of the parties is free to enter into similar
agreements and arrangements with other entities.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as
of the date first above written.
RECORDKEEPER
Fleet National Bank
By:____________________________
Name:
Title:
GALAXY FUND II
By:____________________________
Name: John T. O'Neill
Title: President
FIRST DATA INVESTOR
SERVICES GROUP, INC.
Only with respect to Section 15
By:____________________________
Name:
Title:
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<PAGE>
Schedule A
FUNDS AND FEES
(a) The Transfer Agent shall pay to the Recordkeeper with respect to
each Account a monthly fee of 1/12 of $21.00 for each Participant
sub-account of such Account in existence during all or part of such monthly
period. Such fee shall be billed by the Recordkeeper monthly in arrears.
(b) The Funds subject to this Agreement are as follows:
Large Company Index Fund
Small Company Index Fund
Utility Index Fund
U.S. Treasury Index Fund
<PAGE>
Schedule B
THE SERVICES
The Recordkeeper shall, to the extent required by each Plan or applicable
law, perform the following services. Such services shall be the responsibility
of the Recordkeeper and shall not be the responsibility of the Company.
1. Maintain separate records for each Plan, which records shall reflect
Fund shares ("Shares") purchased and redeemed, including the date and price for
all transactions, Share balances, and the name and address of each Participant,
including zip codes and tax identification numbers.
2. Credit employer contributions to individual Participant accounts in
accordance with the employer's instructions and invest such contributions and
other Plan assets in Shares of the Funds to the extent so designated by the
employer, Plan trustee or Participant.
3. Disburse or credit to the Plans, and maintain records of, all proceeds
of redemptions of Shares and all other distributions not reinvested in Shares.
4. Prepare and transmit to the Plans and Participants, periodic account
statements showing, among other things, the total dollar value of the account as
of the statement closing date, contributions, redemptions, and transfers made
during the period covered by the statement, and the dividends and other
distributions paid during the statement period (whether paid in cash or
reinvested in Shares).
5. Transmit to the Plans or the Participants, as required by applicable
law, prospectuses, proxy materials, shareholder reports, and other information
provided by the Company and required to be sent to shareholders under the
Federal securities laws.
6. Transmit to the Company or its designee purchase orders and redemption
requests placed by the Plans and arrange for the transmission of funds to and
from the Funds.
7. Transmit to the Company or its designee such periodic reports as the
Company or its designee shall reasonably conclude is necessary to enable a Fund
to comply with applicable Federal and state Blue Sky requirements.
8. Transmit to each Plan confirmations of purchase orders and redemption
requests placed by each Plan.
9. Maintain all account balance information for the Plans and daily and
monthly purchase summaries expressed in Shares and dollar amounts.
10. Prepare, transmit and file all Federal, state and local government
reports and returns as required by law with respect to each account maintained
on behalf of the Plans.
<PAGE>
11. Respond to Participants' inquiries regarding, among other things,
Share prices, account balances, dividend options, dividend amounts, and dividend
payment dates.
<PAGE>
Schedule C
ACCOUNT INFORMATION
1. Entity in whose name each Account will be opened: _______________________
Mailing address: _______________________
_______________________
_______________________
2. Employer ID number (FOR INTERNAL USAGE ONLY): _______________________
3. Authorized contact persons: The following persons are authorized on behalf
of the Recordkeeper to effect transactions in each Account:
Name:_____________________________ Name:______________________________
Phone:____________________________ Phone:______________________________
4. Will the Accounts have telephone exchange? _____ Yes _____ No
(THIS OPTION LETS RECORDKEEPER REDEEM SHARES BY TELEPHONE AND APPLY THE
PROCEEDS FOR PURCHASE IN ANOTHER IDENTICALLY REGISTERED FUNDS ACCOUNT.)
5. Will the Accounts have telephone redemption? _____ Yes _____ No
(THIS OPTION LETS RECORDKEEPER SELL SHARES BY TELEPHONE. THE PROCEEDS WILL
BE WIRED TO THE BANK ACCOUNT SPECIFIED BELOW.)
6. All dividends and capital gains will be reinvested automatically.
7. Instructions for all outgoing wire transfers:: _______________________
_______________________
_______________________
_______________________
8. If this Account Information Form contains changed information, the
undersigned authorized officer has executed this amended Account Information
Form as of the date set forth below and acknowledges the agreements and
representations set forth in the Services Agreement.
___________________________________ ____________________________________
(SIGNATURE OF AUTHORIZED OFFICER) (DATE)
<PAGE>
9. Recordkeeper represents under penalty of perjury that:
(i) The employer ID number on this form is correct; and
(ii) Recordkeeper (and each Plan) is not subject to backup withholding
because (a) Recordkeeper (and a Plan) is exempt from backup withholding, (b)
Recordkeeper (and a Plan) has not been notified by the IRS that it is subject
to backup withholding as a result of failure to report all interest or
dividends, or (c) the IRS has notified the Recordkeeper (and a Plan) that it
is no longer subject to backup withholding. (Cross out (ii) if Recordkeeper
(or any Plan) has been notified by the IRS that it is subject to backup
withholding because of underreporting interest or dividends on its tax
return).
PLEASE NOTE: THE COMPANY EMPLOYS REASONABLE PROCEDURES TO CONFIRM THAT
INSTRUCTIONS COMMUNICATED BY TELEPHONE ARE GENUINE AND MAY NOT BE LIABLE FOR
LOSSES DUE TO UNAUTHORIZED OR FRAUDULENT INSTRUCTIONS. PLEASE SEE THE
PROSPECTUS FOR THE APPLICABLE FUND FOR MORE INFORMATION ON THE TELEPHONE
EXCHANGE AND REDEMPTION PRIVILEGES.
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<PAGE>
Exhibit (10)
DRINKER BIDDLE & REATH LLP
PHILADELPHIA NATIONAL BANK BUILDING
1345 CHESTNUT STREET
PHILADELPHIA, PA 19107-3496
TELEPHONE: (215) 988-2700
FAX: (215) 988-2757
July 28, 1998
Galaxy Fund II
4400 Computer Drive
Westboro, MA 01581
Re: Galaxy Fund II - Shares of Beneficial Interest
----------------------------------------------
Gentlemen:
We have acted as counsel for Galaxy Fund II, a Massachusetts business
trust (the "Trust"), in connection with the registration of its shares of
beneficial interest, par value $.001 per share, under the Securities Act of
1933, as amended.
The Trust is authorized to issue an unlimited number of shares of
beneficial interest. The Board of Trustees of the Trust has the power to
classify and reclassify any unissued shares of beneficial interest into one or
more classes of shares and to classify or reclassify any class of shares into
one or more series of shares. Pursuant to such authority, the Board of Trustees
has previously classified an unlimited number of the Trust's shares of
beneficial interest into five classes of shares (the "Classes"). The Classes
are referred to herein as the "Shares". You have asked for our opinion on
certain matters relating to the Shares. The Board of Trustees has previously
authorized the issuance of the Shares to the public.
We have reviewed the Trust's Declaration of Trust, as amended, its
By-Laws, as amended, resolutions adopted by its Board of Trustees and
shareholders, and such other legal and factual matters as we have considered
necessary.
This opinion is based exclusively on the laws of the Commonwealth of
Massachusetts and the federal law of the United States of America. We have
relied on an opinion of Ropes & Gray, special Massachusetts counsel to the
Trust, insofar as our opinion below relates to matters arising under the laws of
the Commonwealth of Massachusetts.
<PAGE>
Galaxy Fund II
July 28, 1998
Page 2
We have also assumed the following for this opinion:
1. The Shares have been, and will continue to be, issued in
accordance with the Trust's Declaration of Trust, as amended, and By-Laws, as
amended, and resolutions of the Trust's Board of Trustees and shareholders
relating to the creation, authorization and issuance of the Shares.
2. The Shares have been, or will be, issued against consideration
therefor as described in the Trust's prospectuses relating thereto, and that
such consideration was, or will be, in each case at least equal to the
applicable net asset value and the applicable par value.
On the basis of the foregoing, it is our opinion that the Shares have
been and will be validly issued, fully paid, and non-assessable by the Trust.
Under Massachusetts law, shareholders of a Massachusetts business
trust could, under certain circumstances, be held personally liable for the
obligations of the trust. However, the Declaration of Trust disclaims
shareholder liability in connection with Trust property or the acts, obligations
or affairs of the Trust. The Declaration of Trust also states that neither the
Trust nor its trustees, nor any officer, employee or agent of the Trust, shall
have any power to bind any shareholder of the Trust personally or, except as
specifically provided in the Declaration of Trust, to call upon any such
shareholder for the payment of any sum of money or assessment whatsoever other
than such as the shareholder may at any time personally agree to pay by way of
subscription for shares of the Trust or otherwise. The Declaration of Trust
further provides that every note, bond, contract or other undertaking issued by
or on behalf of the Trust or its trustees shall include a recitation limiting
the obligation represented thereby to the Trust and its assets (but that the
omission of such a recitation shall not operate to bind any shareholder of the
Trust). The Declaration of Trust provides for indemnification out of the assets
of the Trust belonging to the series of shares owned by a shareholder for all
claims and liabilities to which that shareholder may become subject by reason of
his or her being or having been such a shareholder, and for all legal and other
expenses reasonably incurred by the
<PAGE>
Galaxy Fund II
July 28, 1998
Page 3
shareholder in connection with any such claim or liability.
Thus, the risk of a shareholder's incurring financial loss on account of
shareholder liability is limited to circumstances in which the relevant series
of shares itself would be unable to meet its obligations, except that a
shareholder may be liable for amounts that the shareholder has personally agreed
to pay by way of subscription for shares of the Trust or otherwise.
We hereby consent to the filing of this opinion with the Securities
and Exchange Commission as an exhibit to Post-Effective Amendment No. 24 to the
Trust's Registration Statement on Form N-1A.
Very truly yours,
/s/DRINKER BIDDLE & REATH LLP
-----------------------------
DRINKER BIDDLE & REATH LLP
<PAGE>
Exhibit (11)(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees of
The Galaxy Fund II:
We hereby consent to the following with respect to Post-Effective Amendment No.
24 to the Registration Statement on Form (N-1A File No. 33-33617) under the
Securities Act of 1933, as amended, of The Galaxy Fund II:
1. The incorporation by reference of our report dated May 8, 1998
accompanying the financial statements of the Large Company Index Fund,
Small Company Index Fund, Utility Index Fund, U.S. Treasury Index
Fund, and Municipal Bond Fund (five series of the Galaxy Fund II) as
of March 31, 1998 into the Statements of Additional Information.
2. The reference to our firm under the heading "Financial Highlights" in
the Prospectuses.
3. The reference to our firm under the headings "Independent Accountants"
and "Financial Statements" in the Statements of Additional
Information.
/s/PricewaterhouseCoopers LLP
---------------------------------
PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
July 29, 1998
<PAGE>
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. 24 to the Registration Statement on
Form N-1A under the Investment Company Act of 1940, as amended, of Galaxy Fund
II. This consent does not constitute a consent under Section 7 of the
Securities Act of 1933, and in consenting to the use of our name and the
references to our Firm under such caption we have not certified any part of the
Registration Statement and do not otherwise come within the categories of
persons whose consent is required under Section 7 or the rules and regulations
of the Securities and Exchange Commission thereunder.
Philadelphia, Pennsylvania /s/ Drinker Biddle & Reath LLP
July 29, 1998 ------------------------------
DRINKER BIDDLE & REATH LLP
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