<PAGE> 1
As filed with the Securities and Exchange Commission on November 21, 1997
Securities Act File No. 33-49290
Investment Company Act File No. 811-6726
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. 6 /x/
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /x/
Amendment No. 8 /x/
The Galaxy VIP Fund
(Exact Name of Registrant as Specified in Charter)
4400 Computer Drive
Westboro, Massachusetts 01581
(Address of Principal Executive Offices)
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)
Copies to:
Jylanne Dunne, Vice President
First Data Investor Services Group, Inc.
4400 Computer Drive
P.O. Box 5108
Westboro, Massachusetts 01581
It is proposed that this filing will become effective (check appropriate box)
/ / immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(i)
/ / on (date) pursuant to paragraph (a)(i)
/x/ 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.
Title of Securities Being Registered: Class E, Class F, Class G and Class
H shares of beneficial interest.
<PAGE> 2
THE GALAXY VIP FUND
FORM N-1A
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(a)
<TABLE>
<CAPTION>
Part A
Item No Prospectus Heading
- ------- ------------------
<S> <C>
I. Cover Page.................. Cover Page
II. Synopsis.................... Not Applicable
III. Financial Highlights........ Financial Highlights
IV. General Description of
Registrant.................. Investment Objectives and Policies;
Investment Limitations; Types of
Obligations and Other Investment
Information
V. Management of the Fund...... Management of Galaxy VIP; Investment
Objectives and Policies; Investment
Advisers; Authority to Act as
Investment Adviser; Administrator;
Custodian; Expenses; Performance and
Yield Information; Miscellaneous
VI. Capital Stock and Other
Securities.................. Dividends and Distributions; Taxes;
Description of Galaxy VIP and its
Shares; Miscellaneous
VII. Purchase of Securities
Being Offered............... Purchase and Redemption of Shares;
Distributor; Pricing of Shares
VIII. Redemption or
Repurchase............... Purchase and Redemption of
Shares; Distributor
IX. Pending Legal
Proceedings.............. Not Applicable
</TABLE>
(i)
<PAGE> 3
THE GALAXY VIP FUND
4400 COMPUTER DRIVE
WESTBORO, MASSACHUSETTS 01581
PROSPECTUS
, 1998
- ----------------
The Galaxy VIP Fund ("GALAXY VIP") is an open-end, diversified series
investment company established exclusively for the purpose of providing an
investment vehicle for variable annuity contracts and variable life insurance
policies offered by the separate accounts of various life insurance companies
("Participating Insurance Companies"). Shares of GALAXY VIP are not offered to
the general public but solely to such separate accounts ("Separate Accounts").
Shares of GALAXY VIP may be sold to and held by Separate Accounts funding
variable annuity contracts and variable life insurance policies issued by both
affiliated and unaffiliated life insurance companies. As of the date of this
Prospectus, shares of GALAXY VIP are offered only to Separate Accounts funding
variable annuity contracts issued by American Skandia Life Assurance
Corporation and its affiliated life insurance companies.
GALAXY VIP currently offers eight portfolios -- the Money Market Fund,
Equity Fund, Growth and Income Fund, Small Company Growth Fund, Columbia Real
Estate Equity Fund II, Asset Allocation Fund, High Quality Bond Fund and
Columbia High Yield Fund II (collectively, the "Funds") with investment
objectives as follows. There is, of course, no assurance that a Fund will
achieve its stated objective.
The investment objective of the MONEY MARKET FUND is to seek as high a
level of current income as is consistent with liquidity and stability of
principal. The Fund invests in "money market" instruments with remaining
maturities of 397 days or less, such as domestic and foreign bank certificates
of deposit, bankers' acceptances and commercial paper (including variable and
floating rate obligations) in addition to obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities, and repurchase
agreements relating to such obligations.
The investment objective of the EQUITY FUND is to seek long-term
growth by investing in companies that the Fund's investment adviser believes
have above-average earnings potential. Under normal market and economic
conditions, the Fund will invest at least 75% of its total assets in common
stock, preferred stock, common stock warrants and securities convertible into
common stock of such companies.
The investment objective of the GROWTH AND INCOME FUND is to seek a
relatively high total return through long-term capital appreciation and current
income. The Fund attempts to achieve this objective by investing primarily in
common stocks of companies believed to have prospects for above-average growth
and dividends or of companies where significant fundamental changes are taking
place. Under normal market and economic conditions, the Fund will invest at
least 65% of its total assets in common stock, preferred stock, common stock
warrants and securities convertible into common stock.
<PAGE> 4
The investment objective of the SMALL COMPANY GROWTH FUND is to seek
capital appreciation. The Fund attempts to achieve this objective by investing
primarily in the securities of companies with market capitalizations of $750
million or less that the Fund's investment adviser believes have the potential
for significant capital appreciation. Under normal market and economic
conditions, the Fund will invest at least 65% of its total assets in the equity
securities of companies with market capitalizations of $750 million or less.
The investment objective of the COLUMBIA REAL ESTATE EQUITY FUND II is
to seek, with equal emphasis, capital appreciation and above-average current
income by investing primarily in the equity securities of companies in the real
estate industry. With respect to current income, the Fund seeks to provide a
yield that exceeds the composite yield of the securities in the S&P 500. Under
normal market and economic conditions, the Fund will invest at least 65% of
its total assets in the equity securities of companies principally engaged in
the real estate industry, including real estate investment trusts ("REITs").
The investment objective of the ASSET ALLOCATION FUND is to seek a
high total return by providing both a current level of income that is greater
than that produced by the popular stock market averages as well as long-term
growth in the value of the Fund's assets. The Fund attempts to achieve this
objective and at the same time reduce volatility by allocating its assets in
varying amounts among short-term obligations, common stocks, preferred stocks
and bonds.
The investment objective of the HIGH QUALITY BOND FUND is to seek a
high level of current income consistent with prudent risk of capital. Under
normal market and economic conditions, the Fund will invest at least 80% of its
total assets in high quality debt obligations that are rated at the time of
purchase within the three highest rating categories assigned by a nationally
recognized statistical rating organization (a "Rating Agency"), such as
Standard & Poor's Ratings Group ("S&P") or Moody's Investors Service, Inc.
("Moody's") (or which, if unrated, are of comparable quality), and in
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities and other "money market" instruments.
The primary investment objective of the COLUMBIA HIGH YIELD FUND II is
to provide shareholders with a high level of current income by investing
primarily in lower-rated fixed income securities. Capital appreciation is a
secondary objective when consistent with the objective of high current income.
In attempting to achieve this objective, the Fund generally will invest at
least 65% of its total assets in high yielding fixed income securities rated BB
or lower by S&P or Ba or lower by Moody's. Such lower-rated securities are
commonly referred to as "junk bonds." Investments of this type are subject to
greater risk of loss of principal and nonpayment of interest than are
higher-rated investments. Investors should carefully consider these risks
before investing. See "Investment Objectives and Policies -- Special Risk
Consideration" below.
The Money Market Fund, Equity Fund, Growth and Income Fund, Small
Company Growth Fund, Asset Allocation Fund and High Quality Bond Fund are
advised by Fleet Investment Advisors Inc. The Columbia Real Estate Equity Fund
II and Columbia High Yield Fund II are advised by Columbia Management Co., an
affiliate of Fleet Investment Advisors Inc. Each of the Funds is sponsored and
distributed by First Data Distributors, Inc., which is unaffiliated with Fleet
Investment Advisors Inc., Columbia Management Co. and their parent, Fleet
Financial Group, Inc., and affiliates.
-2-
<PAGE> 5
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., COLUMBIA MANAGEMENT CO. 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, WITH RESPECT TO THE EQUITY FUND, GROWTH AND INCOME FUND,
SMALL COMPANY GROWTH FUND, COLUMBIA REAL ESTATE EQUITY FUND II, ASSET
ALLOCATION FUND, HIGH QUALITY BOND FUND AND COLUMBIA HIGH YIELD FUND II,
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. THE MONEY MARKET FUND SEEKS TO
MAINTAIN ITS NET ASSET VALUE PER SHARE AT $1.00 FOR PURPOSES OF PURCHASES AND
REDEMPTIONS, ALTHOUGH THERE IS NO ASSURANCE THAT IT WILL BE ABLE TO DO SO ON A
CONTINUOUS BASIS.
Shares of the Funds may only be purchased by the Separate Accounts of
Participating Insurance Companies for the purpose of funding variable annuity
contracts and variable life insurance policies. A particular Fund may not be
available under the variable annuity contract or variable life insurance policy
which you have chosen. The prospectus of the specific insurance product you
have chosen will indicate which Funds are available and should be read in
conjunction with this Prospectus. Inclusion in this Prospectus of a Fund which
is not available under your contract or policy is not to be considered a
solicitation.
This Prospectus sets forth concisely the information about GALAXY VIP
that a prospective investor ought to know before investing and should be
retained for future reference. Certain additional information about GALAXY VIP
is contained in a Statement of Additional Information dated the same date as
this Prospectus which has been filed with the Securities and Exchange
Commission and is incorporated herein by reference. The Statement of
Additional Information as it may be amended from time to time is available upon
request and without charge by writing to GALAXY VIP or calling the
Participating Insurance Company sponsoring the variable annuity contract or
variable life insurance policy.
----------------------------------------------
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.
-3-
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FINANCIAL HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
TYPES OF OBLIGATIONS AND OTHER INVESTMENT INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
INVESTMENT LIMITATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
PRICING OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
PURCHASE AND REDEMPTION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
DIVIDENDS AND DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
MANAGEMENT OF GALAXY VIP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
DESCRIPTION OF GALAXY VIP AND ITS SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
CUSTODIAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
PERFORMANCE AND YIELD INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
</TABLE>
-4-
<PAGE> 7
FINANCIAL HIGHLIGHTS
Except as noted below, the following financial highlights have been
audited by Coopers & Lybrand L.L.P., GALAXY VIP's independent accountants,
whose unqualified report on the financial statements containing such
information for the years ended December 31, 1994, December 31, 1995 and
December 31, 1996 and the period ended December 31, 1993 is contained in GALAXY
VIP's Annual Report to Shareholders dated December 31, 1996 and incorporated by
reference into the Statement of Additional Information. Such financial
highlights should be read in conjunction with the Funds' financial statements
and notes thereto contained in GALAXY VIP's Annual and Semi-Annual Reports to
Shareholders dated December 31, 1996 and June 30, 1997, respectively, and
incorporated by reference into the Statement of Additional Information. More
information about the performance of the Funds is also contained in the Annual
and Semi-Annual Reports, which may be obtained without charge by contacting
GALAXY VIP at the address provided above. During the periods shown, the Growth
and Income Fund, Small Company Growth Fund, Columbia Real Estate Equity Fund II
and Columbia High Yield Fund II were not operational.
-5-
<PAGE> 8
MONEY MARKET FUND
(SELECTED PER SHARE DATA FOR A FUND SHARE OUTSTANDING THROUGH THE PERIOD
INDICATED)
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1997 Year Ended Year Ended Year Ended Period Ended
(Unaudited) Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993(1)
---------------- ------------- ------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period . . $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- -----
Income from Investment Operations:
Net investment income(2) . . . . . . . 0.02 0.05 0.05 0.04 0.03
Net realized and unrealized gain (loss)
on investments . . . . . . . . . . . -- -- -- -- --
----- ---- ---- ---- ----
Total from Investment Operations: . . 0.02 0.05 0.05 0.04 0.03
----- ---- ---- ---- ----
Less Dividends:
Dividends from net investment income . (0.02) (0.05) (0.05) (0.04) (0.03)
Dividends from net realized
capital gains . . . . . . . . . . . . -- -- -- -- --
----- ---- ---- ---- ----
Total Dividends: . . . . . . . . . . (0.02) (0.05) (0.05) (0.04) (0.03)
----- ---- ---- ---- ----
Net increase (decrease) in net asset
value . . . . . . . . . . . . . . . . . -- -- -- -- --
----- ---- ---- ---- ----
Net Asset Value, End of Period . . . . . $1.00 $1.00 $1.00 $1.00 $1.00
===== ==== ==== ==== ====
Total Return . . . . . . . . . . . . . . 2.41%(3) 4.91% 5.38% 3.89% 2.74%(3)
Ratios/Supplemental Data:
Net Assets, End of Period (000's) . . . . $14,867 $16,295 $17,925 $13,276 $10,864
Ratios to average net assets:
Net investment income . . . . . . . . . 4.80%(4) 4.80% 5.25% 3.85% 3.00%(4)
Operating expenses(2) . . . . . . . . . 0.68%(4) 0.60% 0.63% 0.42% 0.13%(4)
</TABLE>
- ---------------------------
(1) The Fund commenced operations on February 2, 1993.
(2) Net investment income per share and annualized operating expense
ratios before waiver and reimbursement of fees by the investment
adviser and/or administrator for the six months ended June 30, 1997
(unaudited), for the fiscal years ended December 31, 1996, 1995 and
1994 and for the period ended December 31, 1993 were $0.02 and 1.12%,
$0.05 and 1.02%, $0.05 and 1.11%, $0.03 and 1.21%, and $0.01 and
2.00%, respectively.
(3) Not annualized.
(4) Annualized.
-6-
<PAGE> 9
EQUITY FUND
(SELECTED PER SHARE DATA FOR A FUND SHARE OUTSTANDING THROUGH THE PERIOD
INDICATED)
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1997 Year Ended Year Ended Year Ended Period Ended
(Unaudited) Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993(1)
---------------- ------------- ------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period . . . $15.58 $12.99 $10.40 $10.25 $10.00
------ ------ ------ ----- ------
Income from Investment Operations:
Net investment income(2) . . . . . . . . 0.10 0.19 0.18 0.20 0.16
Net realized and unrealized gain (loss)
on investments . . . . . . . . . . . . 2.67 2.59 2.59 0.15 0.25
---- ---- ---- ---- ----
Total from Investment Operations: . . . 2.77 2.78 2.77 0.35 0.41
---- ---- ---- ---- ----
Less Dividends:
Dividends from net investment income . . (0.09) (0.19) (0.18) (0.20) (0.16)
Dividends from net realized
capital gains . . . . . . . . . . . . . -- -- -- -- --
------ ------ ------ ------ ------
Total Dividends: . . . . . . . . . . . (0.09) (0.19) (0.18) (0.20) (0.16)
---- ---- ---- ------ ------
Net increase (decrease) in net asset value 2.68 2.59 2.59 0.15 0.25
---- ---- ---- ---- ----
Net Asset Value, End of Period . . . . . . $18.26 $15.58 $12.99 $10.40 $10.25
===== ===== ===== ===== =====
Total Return . . . . . . . . . . . . . . . 17.80%(3) 21.49% 26.76% 3.47% 4.15%(3)
Ratios/Supplemental Data:
Net Assets, End of Period (000's) . . . . . $59,062 $46,242 $30,826 $19,391 $12,909
Ratios to average net assets:
Net investment income . . . . . . . . . . 1.18%(4) 1.34% 1.55% 2.06% 2.23%(4)
Operating expenses(2) . . . . . . . . . . 1.12%(4) 1.10% 1.21% 0.71% 0.20%(4)
Portfolio Turnover Rate . . . . . . . . . . 0%(3) 8% 3% 2% 5%(3)
Average Commission Rate Paid(5) . . . . . . $0.0691 $0.0676 N/A N/A N/A
</TABLE>
- ---------------------------
(1) The Fund commenced operations on January 11, 1993.
(2) Net investment income (loss) per share and annualized operating
expense ratios before waiver and reimbursement of fees by the
investment adviser and/or administrator for the fiscal years ended
December 31, 1995 and 1994 and for the period ended December 31, 1993
were $0.18 and 1.24%, $0.13 and 1.42%, and ($0.02) and 2.60%,
respectively.
(3) Not annualized.
(4) Annualized.
(5) Required disclosure for fiscal years beginning on or after September
1, 1995.
-7-
<PAGE> 10
ASSET ALLOCATION FUND
(SELECTED PER SHARE DATA FOR A FUND SHARE OUTSTANDING THROUGH THE PERIOD
INDICATED)
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1997 Year Ended Year Ended Year Ended Period Ended
(Unaudited) Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993(1)
---------------- ------------- ------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period . . . . . . . . . . . . . $13.37 $12.38 $9.80 $10.33 $10.00
----- ----- ---- ----- ------
Income from Investment Operations:
Net investment income(2) . . . . 0.20 0.30 0.28 0.31 0.18
Net realized and unrealized gain
(loss) on investments . . . . . 1.19 1.53 2.58 (0.53) 0.35
---- ---- ---- ------ ----
Total from Investment
Operations: . . . . . . . . . 1.39 1.83 2.86 (0.22) 0.53
---- ---- ---- ------ ----
Less Dividends:
Dividends from net investment
income . . . . . . . . . . . . . (0.17) (0.30) (0.28) (0.31) (0.18)
Dividends from net realized
capital gains . . . . . . . . . -- (0.54) -- -- (0.02)
----- ---- ---- ------ ------
Total Dividends: . . . . . . . (0.17) (0.84) (0.28) (0.31) (0.20)
---- ---- ---- ------ ------
Net increase (decrease) in net asset
value . . . . . . . . . . . . . . 1.22 0.99 2.58 (0.53) 0.33
----- ---- ---- ------ ----
Net Asset Value, End of Period . . $14.59 $13.37 $12.38 $9.80 $10.33
===== ===== ===== ==== =====
Total Return . . . . . . . . . . . 10.47%(3) 14.64% 29.42% (2.15)% 5.33%(3)
Ratios/Supplemental Data:
Net Assets, End of Period (000's) . $30,505 $24,114 $17,246 $10,572 $11,800
Ratios to average net assets:
Net investment income . . . . . . 2.94%(4) 2.31% 2.54% 3.02% 3.01%(4)
Operating expenses(2) . . . . . . 1.19%(4) 1.33% 1.37% 0.78% 0.26%(4)
Portfolio Turnover Rate . . . . . . 27%(3) 45% 46% 28% 10%(3)
Average Commission Rate Paid(5) . . $0.0672 $0.0693 N/A N/A N/A
</TABLE>
- ---------------------------
(1) The Fund commenced operations on February 6, 1993.
(2) Net investment income per share and annualized operating expense
ratios before waiver and reimbursement of fees by the investment
adviser and/or administrator for the six months ended June 30, 1997
(unaudited), for the fiscal years ended December 31, 1995 and 1994 and
for the period ended December 31, 1993 were $0.19 and 1.31%, $0.26 and
1.54%, $0.22 and 1.68%, and $0.01 and 3.11%, respectively.
(3) Not annualized.
(4) Annualized.
(5) Required disclosure for fiscal years beginning on or after September
1, 1995.
-8-
<PAGE> 11
HIGH QUALITY BOND FUND
(SELECTED PER SHARE DATA FOR A FUND SHARE OUTSTANDING THROUGH THE PERIOD
INDICATED)
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1997 Year Ended Year Ended Year Ended Period Ended
(Unaudited) Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993(1)
---------------- ------------- ------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period . . $9.99 $10.37 $8.97 $10.11 $10.00
----- ----- ---- ----- ------
Income from Investment Operations:
Net investment income(2) . . . . . . . 0.29 0.58 0.57 0.56 0.47
Net realized and unrealized gain (loss)
on investments . . . . . . . . . . . (0.04) (0.38) 1.40 (1.14) 0.12
------ ------ ---- ------ ----
Total from Investment Operations: . . 0.25 0.20 1.97 (0.58) 0.59
---- ---- ---- ------ ----
Less Dividends:
Dividends from net investment income . (0.29) (0.58) (0.57) (0.56) (0.47)
Dividends from net realized
capital gains . . . . . . . . . . . . -- -- -- -- (0.01)
---- ---- ---- ------ ------
Total Dividends: . . . . . . . . . . (0.29) (0.58) (0.57) (0.56) (0.48)
------ ------ ---- ------ ------
Net increase (decrease) in net asset
value . . . . . . . . . . . . . . . . . . (0.04) (0.38) 1.40 (1.14) 0.11
------ ---- ---- ------ ----
Net Asset Value, End of Period . . . . . $9.95 $9.99 $10.37 $8.97 $10.11
===== ==== ===== ==== =====
Total Return . . . . . . . . . . . . . . 2.55%(3) 1.57% 22.55% (5.85)% 6.04%(3)
Ratios/Supplemental Data:
Net Assets, End of Period (000's) . . . . $11,482 $11,814 $11,067 $8,012 $9,802
Ratios to average net assets:
Net investment income . . . . . . . . . 5.90%(4) 5.78% 5.86% 5.90% 5.30%(4)
Operating expenses(2) . . . . . . . . . 0.82%(4) 0.72% 0.80% 0.57% 0.22%(4)
Portfolio Turnover Rate . . . . . . . . . 74%(3) 132% 21% 32% 7%(3)
</TABLE>
- ---------------------------
(1) The Fund commenced operations on January 21, 1993.
(2) Net investment income per share and annualized operating expense
ratios before waiver and reimbursement of fees by the investment
adviser and/or administrator for the six months ended June 30, 1997
(unaudited), for the fiscal years ended December 31, 1996, 1995 and
1994 and for the period ended December 31, 1993 were $0.26 and 1.51%,
$0.51 and 1.38%, $0.50 and 1.57%, $0.46 and 1.63% and $0.23 and 2.92%,
respectively.
(3) Not annualized.
(4) Annualized.
-9-
<PAGE> 12
INVESTMENT OBJECTIVES AND POLICIES
IN GENERAL
Fleet Investment Advisors Inc. ("Fleet"), the investment adviser for
the Money Market Fund, Equity Fund, Growth and Income Fund, Small Company
Growth Fund, Asset Allocation Fund and High Quality Bond Fund, and Columbia
Management Co. ("Columbia"), the investment adviser for the Columbia Real
Estate Equity Fund II and Columbia High Yield Fund II, will use their best
efforts to achieve the investment objectives of the respective Funds, although
such achievement cannot be assured. The investment objective of a Fund may not
be changed without the approval of the holders of a majority of its outstanding
shares (as defined under "Miscellaneous"). Except as noted below under
"Investment Limitations," a Fund's investment policies may be changed without
shareholder approval.
INVESTMENT OBJECTIVE AND POLICIES OF THE MONEY MARKET FUND
The investment objective of the Money Market Fund is to seek as high a
level of current income as is consistent with liquidity and stability of
principal. The Fund seeks to achieve its objective by investing in "money
market" instruments that are determined by Fleet to present minimal credit risk
and meet certain rating criteria. Instruments that may be purchased by the
Money Market Fund include obligations of domestic and foreign banks (including
negotiable certificates of deposit, non-negotiable time deposits, savings
deposits and bankers' acceptances); commercial paper (including variable and
floating rate notes); obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities; and repurchase agreements issued by
financial institutions such as banks and broker/dealers. These instruments
have remaining maturities of 397 days or less (except for certain variable and
floating rate notes and securities underlying certain repurchase agreements).
See "Types of Obligations and Other Investment Information" below for
information regarding additional investment policies of the Money Market Fund.
In accordance with a rule promulgated by the Securities and Exchange
Commission (the "SEC"), the Money Market Fund will purchase only those
instruments which meet the applicable quality requirements described below.
The Money Market Fund will not purchase a security (other than a U.S.
Government security) unless the security or the issuer with respect to
comparable securities (i) is rated by at least two Rating Agencies (such as
S&P, Moody's or Fitch Investor Services, L.P. ("Fitch")) in the highest
category for short-term debt securities, (ii) is rated by the only Rating
Agency that has issued a rating with respect to such security or issuer in such
Rating Agency's highest category for short-term debt, or (iii) if not rated,
the security is determined to be of comparable quality. These rating
categories are determined without regard to sub-categories and gradations.
Fleet will follow applicable regulations in determining whether a security
rated by more than one Rating Agency can be treated as being in the highest
short-term rating category. See "Investment Limitations" below.
Determinations of comparable quality shall be made in accordance with
procedures established by the Board of Trustees. Generally, if a security has
not been rated by a Rating Agency, the Fund may acquire the security if Fleet
determines that the security is of comparable quality to securities that have
received the requisite ratings. Fleet also considers other relevant
information in its evaluation of unrated short-term securities. See Appendix A
to the Statement of
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Additional Information for a description of the rating categories of S&P,
Moody's, Fitch and certain other Rating Agencies.
The Fund will maintain a dollar-weighted average portfolio maturity of
90 days or less in an effort to maintain a stable net asset value per share of
$1.00. The value of the Fund's portfolio securities will generally vary
inversely with changes in prevailing interest rates.
INVESTMENT OBJECTIVE AND POLICIES OF THE EQUITY FUND
The investment objective of the Equity Fund is to seek long-term
growth by investing in companies that Fleet believes have above-average
earnings potential. The Fund seeks to achieve its investment objective by
investing, under normal market and economic conditions, at least 75% of its
total assets in a broadly diversified portfolio of equity securities such as
common stock, preferred stock, common stock warrants and securities convertible
into common stock of companies that Fleet believes will increase future
earnings to a level above the average earnings of similar issuers. Such
companies often retain their earnings to finance current and future growth and,
for this reason, generally pay little or no dividends. Equity securities in
which the Fund invests are selected based on analyses of trends in industries
and companies, earning power, growth features, quality and depth of management,
marketing and manufacturing skills, financial conditions and other investment
criteria. By investing in convertible securities, the Fund will seek the
opportunity, through the conversion feature, to participate in the capital
appreciation of the common stock into which the securities are convertible.
All debt obligations, including convertible bonds, purchased by the
Fund will be rated at the time of purchase in one of the four highest rating
categories assigned by S&P (AAA, AA, A and BBB) or Moody's (Aaa, Aa, A and Baa)
or, if not rated, will be determined to be of an equivalent quality by Fleet.
Debt securities rated BBB by S&P or Baa by Moody's are generally considered to
be investment grade securities although they may have speculative
characteristics and changes in economic conditions or circumstances are more
likely to lead to a weakened capacity to make principal and interest payments
than is the case for higher grade debt obligations. See Appendix A to the
Statement of Additional Information for a description of S&P's and Moody's
rating categories.
The Equity Fund may invest up to 20% of its total assets indirectly in
foreign securities through the purchase of American Depository Receipts
("ADRs") and European Depository Receipts ("EDRs") as described below under
"Types of Obligations and Other Investment Information -- American, European
and Global Depository Receipts." In addition, the Fund may invest in
securities issued by foreign branches of U.S. banks and foreign banks, Canadian
commercial paper and Canadian securities listed on a national securities
exchange, and Europaper (U.S. dollar-denominated commercial paper of foreign
issuers). The Fund may also write covered call options. See "Types of
Obligations and Other Investment Information -- Options and Futures Contracts"
below.
As a temporary defensive measure, the Fund may invest without
limitation in cash, "money market" instruments (such as those listed under
"Types of Obligations and Other Investment Information -- Money Market
Instruments" below) and obligations issued or guaranteed by the U.S.
Government, its agencies and instrumentalities at such times and in such
proportions as, in the
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opinion of Fleet, prevailing market or economic conditions warrant. See "Types
of Obligations and Other Investment Information" below for information
regarding additional investment policies of the Equity Fund.
INVESTMENT OBJECTIVE AND POLICIES OF THE GROWTH AND INCOME FUND
The investment objective of the Growth and Income Fund is to seek a
relatively high total return through long-term capital appreciation and current
income. The Fund attempts to achieve this objective by investing primarily in
common stocks of companies believed to have prospects for above-average growth
and dividends or of companies where significant fundamental changes are taking
place. Under normal market and economic conditions, the Fund will invest at
least 65% of its total assets in common stock, preferred stock, common stock
warrants and securities convertible into common stock.
Stocks acquired by the Fund may include those of issuers with smaller
capitalizations. See "Investment Objective and Policies of the Small Company
Growth Fund" below for a description of the risks associated with investments
in small capitalization stocks. Investors should expect that the Fund will be
more volatile than, and may fluctuate independently of, broad stock market
indexes such as the S&P 500.
The Fund may purchase convertible securities, including convertible
preferred stock, convertible bonds or debentures, units consisting of bonds and
warrants or a combination of the features of several of these securities.
Convertible bonds purchased by the Fund will be rated BB or higher by S&P or
Fitch or Ba or higher by Moody's at the time of investment. See "Types of
Obligations and Other Investment Information -- Convertible Securities" below
for a discussion of the risks of investing in convertible bonds rated "BB" or
"Ba". The Fund may also buy and sell options and futures contracts and utilize
stock index futures contracts, options, swap agreements, indexed securities and
options on futures contracts. See "Types of Obligations and Other Investment
Information -- Options and Futures Contracts" and "Types of Obligations and
Other Investment Information -- Derivative Securities" below.
The Fund may invest up to 20% of its total assets in foreign
securities, either directly or indirectly through ADRs, EDRs and Global
Depository Receipts ("GDRs"). See "Special Risk Considerations -- Foreign
Securities" and "Types of Obligations and Other Investment Information --
American, European and Global Depository Receipts" below.
As a temporary defensive measure, in such proportions as, in the
judgment of Fleet, prevailing market conditions warrant, the Fund may invest
in: (i) short-term money market instruments (such as those listed below under
"Types of Obligations and Other Investment Information -- Money Market
Instruments") rated in one of the top two rating categories by a Rating Agency,
such as S&P, Moody's or Fitch; (ii) securities issued and/or guaranteed as to
payment of principal and interest by the U.S. Government, its agencies, or
instrumentalities; and (iii) repurchase agreements. Additional information
about the types of money market instruments and U.S. Government obligations in
which the Fund is permitted to invest is contained in the Statement of
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<PAGE> 15
Additional Information. See "Types of Obligations and Other Investment
Information" below for information regarding additional investment policies of
the Growth and Income Fund.
INVESTMENT OBJECTIVE AND POLICIES OF THE SMALL COMPANY GROWTH FUND
The investment objective of the Small Company Growth Fund is to seek
capital appreciation. The Fund attempts to achieve this objective by investing
primarily in the securities of companies with market capitalizations of $750
million or less ("Small Capitalization Securities") which Fleet believes have
the potential for significant capital appreciation.
Small Capitalization Securities in which the Fund may invest include
common stock, preferred stock, securities convertible into common stock, rights
and warrants. Under normal market and economic conditions, at least 65% of the
Fund's total assets will be invested in the equity securities of companies with
market capitalizations of $750 million or less. For temporary defensive
purposes, the Fund may also invest in corporate debt obligations. All debt
obligations purchased by the Fund will be rated at the time of purchase in one
of the four highest rating categories assigned by S&P (AAA, AA, A and BBB) or
Moody's (Aaa, Aa, A and Baa) or, if not rated, will be determined to be of an
equivalent quality by Fleet. See "Investment Objective and Policy of the
Equity Fund" above for a description of the risks associated with investments
in securities rated BBB by S&P or Baa by Moody's. See Appendix A to the
Statement of Additional Information for a description of S&P's and Moody's
rating categories.
The issuers of Small Capitalization Securities tend to be companies
which are smaller or newer than those listed on the New York or American Stock
Exchanges. As a result, Small Capitalization Securities are primarily traded
on the over-the-counter market, although they may also be listed for trading on
the New York or American Stock Exchanges. Because the issuers of Small
Capitalization Securities tend to be smaller or less well-established
companies, they may have limited product lines, markets or financial resources.
As a result, Small Capitalization Securities are often less marketable and may
experience a higher level of price volatility than the securities of larger or
more well-established companies.
The Fund may invest up to 20% of its total assets in foreign
securities, either directly or indirectly through ADRs, EDRs and GDRs. See
"Special Risk Considerations - Foreign Securities" and "Types of Obligations
and Other Investment Information -- American, European and Global Depository
Receipts" below.
The Fund may also buy and sell options and futures contracts and
utilize stock index futures contracts, options, swap agreements, indexed
securities and options on futures contracts. See "Types of Obligations and
Other Investment Information -- Options and Futures Contracts" and "Types of
Obligations and Other Investment Information -- Derivative Securities" below.
As a temporary defensive measure, the Fund may invest without
limitation in cash, "money market" instruments (such as those listed under
"Types of Obligations and Other Investment Information -- Money Market
Instruments" below) and U.S. Government obligations at such times
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<PAGE> 16
and in such proportions as, in the opinion of Fleet, prevailing market or
economic conditions warrant. See "Types of Obligations and Other Investment
Information" below for information regarding additional investment policies of
the Small Company Growth Fund.
INVESTMENT OBJECTIVE AND POLICIES OF THE COLUMBIA REAL ESTATE EQUITY FUND II
The investment objective of the Columbia Real Estate Equity Fund II is
to seek, with equal emphasis, capital appreciation and above-average current
income by investing primarily in the equity securities of companies in the real
estate industry. With respect to current income, the Fund seeks to provide a
yield that exceeds the composite yield of the securities in the S&P 500.
Under normal market and economic conditions, the Fund will invest at
least 65% of its total assets in the equity securities of companies principally
engaged in the real estate industry. A company is "principally engaged" in the
real estate industry if at least 50% of its gross income or net profits are
attributable to the ownership, construction, management, or sale of
residential, commercial, or industrial real estate. Equity securities include
common stock, preferred stock and debt or equity securities that are
convertible into common stock. The Fund may invest without limit in real
estate investment trusts ("REITs") and may invest up to 20% of its total assets
in foreign companies that are principally engaged in the real estate industry.
The Fund will not invest directly in real estate but may be subject to risks
similar to those associated with the direct ownership of real estate because of
its policy of concentration in the securities of companies in the real estate
industry. See "Special Risk Considerations -- Real Estate Securities",
"Special Risk Considerations -- Foreign Securities" and "Types of Obligations
and Other Investment Information -- REITs" below.
The Fund may also invest up to 35% of its total assets in the equity
securities of companies that are not principally engaged in the real estate
industry and in non-convertible debt securities. Columbia anticipates that
investments in companies not principally engaged in the real estate industry
will be primarily in securities of companies some of whose products and
services are related to the real estate industry. They may include
manufacturers and distributors of building supplies, financial institutions
that make or service mortgages, or companies with substantial real estate
assets relative to their stock market valuations, such as certain retailers and
railroads.
The types of non-convertible debt securities in which the Fund may
invest include corporate debt securities (bonds, debentures and notes),
asset-backed securities, bank obligations, collateralized bonds, loan and
mortgage obligations, commercial paper, repurchase agreements, savings and loan
obligations and U.S. Government and agency obligations. The Fund will only
invest in debt securities which are rated at the time of purchase in one of the
four highest rating categories assigned by S&P (AAA, AA, A and BBB) or Moody's
(Aaa, Aa, A and Baa) or, if not rated, are determined to be of an equivalent
quality by Columbia. See "Investment Objective and Policies of the Equity
Fund" above for a description of the risks associated with investments in debt
securities rated BBB by S&P or Baa by Moody's. See Appendix A to the Statement
of Additional Information for a description of S&P's and Moody's rating
categories.
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<PAGE> 17
As a temporary defensive measure, the Fund may invest without
limitation in cash, prime commercial paper, high grade debt securities,
securities of the U.S. Government, its agencies and instrumentalities, high
quality money market instruments (such as those listed under "Types of
Obligations and Other Investment Information -- Money Market Instruments"
below) and repurchase agreements at such times and in such proportions as, in
the opinion of Columbia, prevailing market or economic conditions warrant. See
"Types of Obligations and Additional Investment Information" below for
information regarding additional investment policies of the Columbia Real
Estate Equity Fund II.
INVESTMENT OBJECTIVE AND POLICIES OF THE ASSET ALLOCATION FUND
The investment objective of the Asset Allocation Fund is to seek a
high total return by providing both a current level of income that is greater
than that provided by the popular stock market averages as well as long-term
growth in the value of the Fund's assets. Fleet interprets the objective to
refer to the Dow Jones Industrial Averages (of 30 companies listed on the New
York Stock Exchange) and the S&P 500. Due to the Fund's expenses, net income
distributed to shareholders may be less than that of these averages.
The Fund seeks to achieve its investment objective and at the same
time reduce volatility by allocating its assets among short-term obligations,
common stock, preferred stock and bonds. The proportion of the Fund's assets
invested in each type of security will vary from time to time as a result of
Fleet's interpretation of economic and market conditions. However, at least
25% of the Fund's total assets will at all times be invested in fixed income
senior securities, including debt securities and preferred stock. In selecting
common stock for purchase by the Fund, Fleet will analyze the potential for
changes in earnings and dividends for a foreseeable period. Debt securities
purchased by the Fund will be rated at the time of purchase in one of the four
highest rating categories assigned by S&P (AAA, AA, A and BBB) or Moody's (Aaa,
Aa, A and Baa) (or which, if unrated, are determined by Fleet to be of
comparable quality). See "Investment Objective and Policies of the Equity
Fund" above for a description of the risks associated with investments in debt
securities rated BBB by S&P or Baa by Moody's. See Appendix A to the Statement
of Additional Information for a description of S&P's and Moody's rating
categories.
The Fund may also invest up to 20% of its total assets in foreign
securities. Such foreign investments may be made directly, by purchasing
securities issued or guaranteed by foreign corporations, banks, or governments
or their political subdivisions or instrumentalities, or by supranational banks
or other organizations, or indirectly by purchasing ADRs and EDRs.
Supranational entities include international organizations designated or
supported by governmental entities to promote economic reconstruction and
development and international banking institutions and related governmental
agencies. Examples of these include the International Bank for Reconstruction
and Development ("World Bank"), the Asia Development Bank and the InterAmerican
Development Bank. Obligations of supranational banks may be supported by
appropriated but unpaid commitments of their member countries and there is no
assurance that those commitments will be undertaken or met in the future. See
"Special Risk Considerations -- Foreign Securities" and "Types of Obligations
and Other Investment Information -- American, European
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<PAGE> 18
and Global Depository Receipts" below. The Fund may also invest in
dollar-denominated high quality debt obligations of U.S. corporations issued
outside the United States. The Fund may write covered call options, purchase
asset-backed securities and mortgage-backed securities and enter into foreign
currency exchange transactions. See "Types of Obligations and Other Investment
Information -- Options and Futures Contracts", "Types of Obligations and Other
Investment Information -- Asset-Backed Securities", "Types of Obligations and
Other Investment Information -- Mortgage-Backed Securities" and "Types of
Obligations and Other Investment Information -- Foreign Currency Exchange
Transactions" below.
As a temporary defensive measure, the Fund may invest without
limitation in cash, "money market" instruments (such as those listed under
"Types of Obligations and Other Investment Information -- Money Market
Instruments" below) and obligations issued or guaranteed by the U.S.
Government, its agencies and instrumentalities at such times and in such
proportions as, in the opinion of Fleet, prevailing market and economic
conditions warrant. See "Types of Obligations and Other Investment
Information" below for information regarding additional investment policies of
the Asset Allocation Fund.
INVESTMENT OBJECTIVE AND POLICIES OF THE HIGH QUALITY BOND FUND
The investment objective of the High Quality Bond Fund is to seek a
high level of current income consistent with prudent risk of capital. The Fund
invests its assets in corporate debt obligations such as bonds and debentures,
obligations convertible into common stock, "money market" instruments such as
bank obligations and commercial paper, in obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities, and in asset-backed and
mortgage-backed securities.
Under normal market and economic conditions, the Fund will invest at
least 80% of its assets in high quality debt obligations that are rated, at the
time of purchase, within the three highest rating categories assigned by S&P
(AAA, AA and A) or Moody's (Aaa, Aa and A) (or which, if unrated, are
determined by Fleet to be of comparable quality) and in obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and other
"money market" instruments such as those listed below under "Types of
Obligations and Other Investment Information -- Money Market Instruments."
Unrated securities will be determined to be of comparable quality to high
quality debt obligations if, among other things, other outstanding obligations
of the issuers of such securities are rated A or better. When, in Fleet's
opinion, a defensive investment posture is warranted, the Fund may invest
temporarily and without limitation in high quality, short-term "money market"
instruments. See Appendix A to the Statement of Additional Information for a
description of S&P's and Moody's rating categories.
The Fund may also invest, from time to time, in obligations issued by
state and local governmental issuers ("municipal securities"). The purchase of
municipal securities may be advantageous when, as a result of prevailing
economic, regulatory or other circumstances, the performance of such
securities, on a pretax basis, is comparable to that of corporate or U.S. debt
obligations. See "Types of Obligations and Other Investment Information --
Municipal Securities"
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<PAGE> 19
below. The High Quality Bond Fund may enter into interest rate futures
contracts to hedge against changes in market values of fixed income instruments
that the Fund holds or intends to purchase. See "Types of Obligations and
Other Investment Information -- Options and Futures Contracts" below. At least
65% of the Fund's total assets will be invested in non-convertible bonds. Any
common stock received through the conversion of convertible debt obligations
will be sold in an orderly manner as soon as possible.
In addition, the Fund may acquire high quality obligations issued by
Canadian Provincial Governments, which are similar to U.S. municipal securities
except that the income derived therefrom is fully subject to U.S. federal
taxation. These instruments are denominated in U.S. dollars and have an
established over-the-counter market in the United States. The Fund may also
invest in debt obligations of supranational entities. See "Investment
Objective and Policies of the Asset Allocation Fund" above. The Fund may also
invest in dollar-denominated high quality debt obligations of U.S. corporations
issued outside the United States.
The Fund seeks to provide a current yield greater than that generally
available from a portfolio of high quality short-term obligations. The Fund's
average weighted maturity will vary from time to time depending on, among other
things, current market and economic conditions and the comparative yields on
instruments with different maturities. The Fund adjusts its average weighted
maturity and its holdings of corporate and U.S. Government debt securities in a
manner consistent with Fleet's assessment of prospective changes in interest
rates. The success of this strategy depends upon Fleet's ability to predict
changes in interest rates.
The value of the Fund's portfolio securities will generally vary
inversely with changes in prevailing interest rates. The high quality credit
criteria applied to the selection of portfolio securities are intended to
reduce adverse price changes due to credit considerations. See "Types of
Obligations and Other Investment Information" below for information regarding
additional investment policies of the High Quality Bond Fund.
INVESTMENT OBJECTIVE AND POLICIES OF THE COLUMBIA HIGH YIELD FUND II
The primary investment objective of the Columbia High Yield Fund II is
to seek to provide shareholders with a high level of current income by
investing primarily in lower-rated fixed income securities. Capital
appreciation is a secondary objective when consistent with the objective of
high current income. The Fund may invest in a broad range of fixed income
securities, consisting of corporate debt securities (bonds, debentures and
notes), asset-backed securities, bank obligations, collateralized bonds, loan
and mortgage obligations, commercial paper, preferred stock, repurchase
agreements, savings and loan obligations, and U.S. Government and agency
obligations.
In attempting to achieve its investment objective, the Fund generally
will invest at least 65% of its total assets in high yielding fixed income
securities rated BB or lower by S&P or Ba or lower by Moody's. The Fund
intends to invest primarily in "upper tier" noninvestment grade securities
(that is, securities rated BB/Ba or B) and no more than 10% of the Fund's total
assets will be invested in fixed income securities rated CCC or lower by S&P or
Caa or lower by Moody's. The
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Fund may also invest in unrated fixed income securities when Columbia believes
the security is of comparable quality to that of securities eligible for
purchase by the Fund. Securities rated BB or less by S&P or Ba or less by
Moody's are considered to be noninvestment grade. These types of bonds are
commonly referred to as "junk bonds." They are subject to a high degree of
risk and are considered speculative by the major Rating Agencies with respect
to the issuer's ability to meet principal and interest payments. The Fund is
designed for investors who are willing to assume substantial risks of
significant fluctuations in principal value in order to achieve a high level of
current income. The Fund should represent only a portion of a balanced
investment program. See "Special Risk Considerations -- Lower-Rated
Securities" for a description of the risks of investing in lower-rated
securities. See Appendix A to the Statement of Additional Information for a
description of S&P's and Moody's rating categories.
There are no limitations on the average maturity of the Fund's
portfolio. Securities will be selected on the basis of Columbia's assessment
of interest rate trends and the liquidity of various instruments under
prevailing market conditions. Shifting the average maturity of the Fund's
portfolio in response to anticipated changes in interest rates generally will
be carried out through the sale of securities and the purchase of different
securities within the desired maturity range. This may result in greater
realized gains and losses than if the Fund held all securities to maturity.
The Fund may invest in corporate debt securities or preferred stocks
that are convertible into or exchangeable for common stock. The Fund may
acquire common stock in the following circumstances: (i) in connection with
the purchase of a unit of securities that includes both fixed income securities
and common stock; (ii) when fixed income securities held by the Fund are
converted by the issuer into common stock; (iii) upon the exercise of warrants
attached to fixed income securities held by the Fund; and (iv) when purchased
as part of a corporate transaction in which the holders of common stock will
receive newly issued fixed income securities. Common stock acquired by the
Fund in these circumstances may be held to permit orderly disposition or to
establish long-term holding periods for federal income tax purposes.
The Fund may invest up to 20% of its total assets in fixed income
securities of foreign issuers, including foreign governments, denominated in
U.S. dollars.
Special tax considerations are associated with investing in
lower-rated debt securities structured as zero coupon or pay-in-kind
securities. A zero coupon security has no cash coupon payments. Instead, the
issuer sells the security at a substantial discount from its maturity value.
The interest equivalent received by the investor from holding this security to
maturity is the difference between the maturity value and the purchase price.
Pay-in-kind securities are securities that pay interest in either cash or
additional securities, at the issuer's option, for a specified period. The
price of pay-in-kind securities is expected to reflect the market value of the
underlying debt plus an amount representing accrued interest since the last
payment. Zero coupon and pay-in-kind securities are more volatile than cash
pay securities. The Fund accrues income on these securities prior to the
receipt of cash payments. The Fund intends to distribute substantially all of
its income to its shareholders to qualify for pass-through treatment under the
tax laws and may, therefore, need to use its cash reserves to satisfy
distribution requirements.
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The Fund generally will not trade in securities for short-term profits
but, when circumstances warrant, it may purchase and sell securities without
regard to the length of time held. A high portfolio turnover may increase
transaction costs and may affect taxes paid by shareholders to the extent
short-term or mid-term gains are distributed.
As a temporary defensive measure, the Fund may invest without
limitation in cash, prime commercial paper, high grade debt securities,
securities of the U.S. Government, its agencies and instrumentalities, high
quality money market instruments (such as those listed under "Types of
Obligations and Other Investment Information -- Money Market Instruments"
below) and repurchase agreements at such times and in such proportions as, in
the opinion of Columbia, prevailing market or economic conditions warrant. See
"Types of Obligations and Other Investment Information" below for information
regarding additional investment policies of the Columbia High Yield Fund II.
SPECIAL RISK CONSIDERATIONS
Market Risk
The Equity Fund, Growth and Income Fund, Small Company Growth Fund and
Columbia Real Estate Equity Fund II invest primarily, and the Asset Allocation
Fund invests to a significant degree, in equity securities. As with other
mutual funds that invest primarily or to a significant degree in equity
securities, the Funds are subject to market risk. That is, the possibility
exists that common stocks will decline over short or even extended periods of
time and both the U.S. and certain foreign equity markets tend to be cyclical,
experiencing both periods when stock prices generally increase and periods when
stock prices generally decrease.
Interest Rate Risk
To the extent that the Funds invest in fixed income securities,
including municipal securities, their holdings of such securities are sensitive
to changes in interest rates and the interest rate environment. Generally, the
prices of bonds and debt securities fluctuate inversely with interest rate
changes.
Credit Risk
Credit risk refers to the ability of a bond issuer to meet interest
and principal payments when due. Generally, lower-rated (but higher yielding)
bonds, such as those acquired by the Columbia High Yield Fund II, are subject
to greater credit risk than higher quality (but lower yielding) bonds, such as
those acquired by the High Quality Bond Fund. See "Lower-Rated Securities"
below. The ratings of fixed income securities by S&P, Moody's and other Rating
Agencies are a generally accepted barometer of credit risk. See Appendix A to
the Statement of Additional Information for a description of the rating
categories of S&P, Moody's and certain other Rating Agencies.
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Foreign Securities
Investments in foreign securities involve higher costs for the Growth
and Income Fund, Small Company Growth Fund, Columbia Real Estate Equity Fund
II, Asset Allocation Fund and Columbia High Yield Fund II than investments in
U.S. securities, including higher transaction costs as well as the imposition
in some cases of additional taxes by foreign governments. For example, fixed
commissions on foreign stock exchanges are generally higher than the negotiated
commissions on U.S. exchanges and the Funds may be subject in some cases to
withholding and/or transfer taxes. In addition, foreign investments may
include additional risks associated with currency exchange rates, less complete
financial information about the issuers, less market liquidity, and political
instability. Future political and economic developments, the possible seizure
or nationalization of foreign holdings, the possible establishment of exchange
controls, or the adoption of other governmental restrictions, might adversely
affect the payment of principal and interest on foreign obligations.
Although the Growth and Income Fund, Small Company Growth Fund,
Columbia Real Estate Equity Fund II and Asset Allocation Fund may invest in
securities denominated in foreign currencies, the Funds value their securities
and other assets in U.S. dollars. As a result, the net asset value of the
Funds' shares may fluctuate with U.S. dollar exchange rates as well as with
price changes of the Funds' securities in the various local markets and
currencies. Thus, an increase in the value of the U.S. dollar compared to the
currencies in which the Funds make their investments could reduce the effect of
increases and magnify the effect of decreases in the price of the Funds'
securities in their local markets. Conversely, a decrease in the value of the
U.S. dollar will have the opposite effect of magnifying the effect of increases
and reducing the effect of decreases in the prices of the Funds' securities in
their local markets. In addition to favorable and unfavorable currency
exchange-rate developments, the Funds are subject to the possible imposition of
exchange control regulations or freezes on convertibility of currency.
Real Estate Securities
Although the Columbia Real Estate Equity Fund II will not invest in
real estate directly, it may be subject to risks similar to those associated
with the direct ownership of real estate because of its policy of concentration
in the securities of companies in the real estate industry. These risks
include declines in the value of real estate, risks related to general, local,
and regional economic conditions, dependence on management skills and heavy
cash flow, possible lack of availability of mortgage funds, overbuilding,
extended vacancies of properties, increased competition, increases in property
taxes and operating expenses, changes in zoning laws, losses due to costs
resulting from the clean-up of environmental problems, liability to third
parties for damages resulting from environmental problems, casualty or
condemnation losses, natural disasters, limitations on rents, changes in
neighborhood values and the appeal of properties to tenants, and changes in
interest rates. These risks may be more significant to the extent the Fund's
investments are concentrated in a particular geographic region.
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In addition to these risks, equity REITs may be affected by changes in
the value of the underlying property owned by the REIT, while mortgage REITs
may be affected by the quality of any credit extended. Further, REITs are
dependent upon management skills, may not be diversified, and are subject to
heavy cash flow dependency, defaults by borrowers, and self-liquidation. In
addition, a REIT could fail to qualify for pass-through of income under the
Internal Revenue Code of 1986, as amended (the "Code"), or fail to maintain its
exemption from registration under the Investment Company Act of 1940, as
amended (the "1940 Act"). The above factors may also adversely affect a
borrower's or a lessee's ability to meet its obligations to the REIT. If a
borrower or lessee defaults, a REIT may experience delays in enforcing its
rights as a mortgagee or lessor and may incur substantial costs associated with
protecting its investments.
Lower-Rated Securities
The lower-rated but higher yielding bonds purchased by the Columbia
High Yield Fund II may be issued in connection with corporate restructurings,
such as leveraged buyouts, mergers, acquisitions, debt recapitalizations, or
similar events. In addition, high yield bonds are often issued by smaller,
less creditworthy companies or by companies with substantial debt. The
securities ratings assigned by S&P, Moody's and other Rating Agencies are based
largely on the issuer's historical financial condition and the Rating Agency's
investment analysis at the time of the rating. As a result, the rating
assigned to a security does not necessarily reflect the issuer's current
financial condition, which may be better or worse than the rating indicates.
Credit ratings are only one factor Columbia relies on in evaluating lower-rated
fixed income securities. The analysis by Columbia of a lower-rated security
may also include consideration of the issuer's experience and managerial
strength, changing financial condition, borrowing requirements or debt maturity
schedules, regulatory concerns, and responsiveness to changes in business
conditions and interest rates. Columbia also may consider relative values
based on anticipated cash flow, interest or dividend coverage, balance sheet
analysis, and earnings prospects. Because of the number of investment
considerations involved in investing in lower-rated securities, achievement of
the Fund's investment objective may be more dependent upon Columbia's credit
analysis than is the case with investing in higher quality debt securities.
The recent growth in the market for lower-rated debt securities has
paralleled a long economic expansion. Past experience, therefore, may not
provide an accurate indication of future performance of this market,
particularly during a significant economic recession. An economic downturn or
increase in interest rates is likely to have a greater negative effect on the
ability of the issuers of the Fund's securities to pay principal and interest,
meet projected business goals, and obtain additional financing. These
circumstances also may result in a higher incidence of defaults compared to
higher-rated securities. As a result, adverse changes in economic conditions
and increases in interest rates may adversely affect the market for lower-rated
debt securities, the value of such securities in the Fund's portfolio, and,
therefore, the Fund's net asset value. As a result, investment in the Fund is
more speculative than investment in a fund that invests primarily in
higher-rated debt securities.
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Although the Fund intends generally to purchase lower-rated securities
that have secondary markets, these markets may be less liquid and less active
than markets for higher-rated securities. These factors may limit the ability
of the Fund to sell lower-rated securities at their expected value. Adverse
publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidity of lower-rated debt securities,
especially in a thinly traded market.
TYPES OF OBLIGATIONS AND OTHER INVESTMENT INFORMATION
The investment methods and techniques described in this Prospectus are
among those which one or more of the Funds have the ability to utilize. Some
may be employed on a regular basis; others may not be used at all.
Accordingly, reference to any particular method or technique carries no
implication that it will be utilized or, if it is, that it will be successful.
U.S. GOVERNMENT OBLIGATIONS
Each Fund may invest in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities to the extent described above
under "Investment Objectives and Policies." Such obligations include U.S.
Treasury securities, which differ only in their interest rates, maturities and
times of issuance: Treasury bills have initial maturities of one year or less;
Treasury notes have initial maturities of one to ten years; and Treasury bonds
generally have initial maturities of more than ten years. Obligations of
certain agencies and instrumentalities of the U.S. Government, such as the
Government National Mortgage Association ("GNMA"), are supported by the full
faith and credit of the U.S. Treasury; others, such as those of Federal Home
Loan Banks, are supported by the right of the issuer to borrow from the
Treasury; others, such as those of the Federal National Mortgage Association
("FNMA"), are supported by the discretionary authority of the U.S. Government
to purchase the agency's obligations; still others, such as those of the
Student Loan Marketing Association, are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored instrumentalities if it
is not obligated to do so by law. Some U.S. Government obligations may be
issued as variable or floating rate instruments.
Securities issued or guaranteed by the U.S. Government, its agencies
and instrumentalities have historically involved little risk of loss of
principal. However, due to fluctuations in interest rates, the market value of
such securities may vary during the period a shareholder owns shares of the
Funds.
MONEY MARKET INSTRUMENTS
"Money market" instruments include bank obligations and commercial
paper.
Bank obligations include bankers' acceptances, negotiable certificates
of deposit and non-negotiable time deposits issued for a definite period of
time and earning a specified return by a U.S. bank that is a member of the
Federal Reserve System or is insured by the Federal Deposit Insurance
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<PAGE> 25
Corporation ("FDIC"), or by a savings and loan association or savings bank that
is insured by the FDIC. Bank obligations also include U.S. dollar-denominated
obligations of foreign branches of U.S. banks or of U.S. branches of foreign
banks, all of the same type as domestic bank obligations. Investments in bank
obligations are limited to the obligations of financial institutions having
more than $1 billion in total assets at the time of purchase. Investments in
non-negotiable time deposits are limited to no more than 5% of the Money Market
Fund's total assets at the time of purchase.
Domestic and foreign banks are subject to extensive but different
government regulations which may limit the amount and types of their loans and
the interest rates that may be charged. In addition, the profitability of the
banking industry is largely dependent upon the availability and cost of funds
to finance lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and of
U.S. branches of foreign banks may subject a Fund to additional investment
risks, including future political and economic developments, possible seizure
or nationalization of foreign deposits, the possible establishment of exchange
controls, or the adoption of other foreign governmental restrictions which
might adversely affect the payment of principal and interest on such
obligations. In addition, foreign branches of U.S. banks and U.S. branches of
foreign banks may be subject to less stringent reserve requirements and to
different accounting, auditing, reporting, and recordkeeping standards than
those applicable to domestic branches of U.S. banks. Investments in the
obligations of U.S. branches of foreign banks or foreign branches of U.S.
banks will be made only when Fleet or Columbia, as the case may be, believes
that the credit risk with respect to the instrument is minimal.
Commercial paper may include variable and floating rate instruments,
which are unsecured instruments that permit the indebtedness thereunder to
vary. Variable rate instruments provide for periodic adjustments in the
interest rate. Floating rate instruments provide for automatic adjustment of
the interest rate whenever some other specified interest rate changes. Some
variable and floating rate obligations are direct lending arrangements between
the purchaser and the issuer and there may be no active secondary market.
However, in the case of variable and floating rate obligations with a demand
feature, a Fund may demand payment of principal and accrued interest at a time
specified in the instrument or may resell the instrument to a third party. In
the event an issuer of a variable or floating rate obligation defaulted on its
payment obligation, a Fund might be unable to dispose of the note because of
the absence of a secondary market and could, for this or other reasons, suffer
a loss to the extent of the default. Substantial holdings of variable and
floating rate instruments could reduce portfolio liquidity. The Funds may also
purchase Rule 144A securities. See "Investment Limitations" below for a
discussion of possible consequences to the Funds as a result of investing in
Rule 144A securities.
TYPES OF MUNICIPAL SECURITIES
The two principal classifications of municipal securities which may be
held by the High Quality Bond Fund are "general obligation" securities and
"revenue" securities. General obligation securities are secured by the
issuer's pledge of its full faith, credit and taxing power for the payment of
principal and interest. Revenue securities are payable only from the revenues
derived from a
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<PAGE> 26
particular facility or class of facilities or, in some cases, from the proceeds
of a special excise tax or other specific revenue source such as the user of
the facility being financed. Private activity bonds held by the Fund are in
most cases revenue securities and are not payable from the unrestricted
revenues of the issuer. Consequently, the credit quality of such private
activity bonds is usually directly related to the credit standing of the
corporate user of the facility involved.
The High Quality Bond Fund's portfolio may also include "moral
obligation" securities, which are normally issued by special purpose public
authorities. If the issuer of moral obligation securities is unable to meet
its debt service obligations from current revenues, it may draw on a reserve
fund, the restoration of which is a moral commitment but not a legal obligation
of the state or municipality which created the issuer. The failure by a state
or municipality to restore such a reserve fund could adversely affect the
ability of an issuer of moral obligation securities to meet its payment
obligations.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
Each Fund may purchase portfolio securities subject to the seller's
agreement to repurchase them at a mutually specified date and price
("repurchase agreements"). Repurchase agreements will be entered into only
with financial institutions such as banks and broker/dealers which are deemed
to be creditworthy by Fleet or Columbia, as the case may be, under guidelines
approved by GALAXY VIP's Board of Trustees. No Fund will enter into repurchase
agreements with Fleet, Columbia or any of their affiliates. Securities subject
to repurchase agreements may bear maturities exceeding thirteen months. Unless
a repurchase agreement has a remaining maturity of seven days or less or may be
terminated on demand by notice of seven days or less, the repurchase agreement
will be considered an illiquid security and will be subject to each Fund's 10%
limit (15% with respect to the Growth and Income Fund, Small Company Growth
Fund, Columbia Real Estate Equity Fund II and Columbia High Yield Fund II) on
such investments described under "Investment Limitations" below.
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. If the seller
defaulted on its repurchase obligation the Fund holding such obligation would
suffer a loss to the extent that the proceeds from a sale of the underlying
securities (including accrued interest) were less than the repurchase price
(including accrued interest) under the agreement. In the event that such a
defaulting seller filed for bankruptcy or became insolvent, disposition of such
securities by the Fund might be delayed pending court action.
Each Fund may also borrow funds for temporary purposes by selling
portfolio securities to financial institutions such as banks and broker/dealers
and agreeing to repurchase them at a mutually specified date and price
("reverse repurchase agreements"). Reverse repurchase agreements involve the
risk that the market value of the securities sold by a Fund may decline below
the repurchase price. The Funds would pay interest on amounts obtained
pursuant to a reverse repurchase agreement.
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SECURITIES LENDING
Each Fund may lend its portfolio securities to financial institutions
such as banks and broker/dealers in accordance with the investment limitations
described below. Such loans would involve risks of delay in receiving
additional collateral or in recovering the securities loaned or even loss of
rights in the collateral, should the borrower of the securities fail
financially. Any portfolio securities purchased with cash collateral would
also be subject to possible depreciation. Loans will generally be short-term,
will be made only to borrowers deemed by Fleet or Columbia, as the case may be,
to be of good standing and only when, in Fleet's or Columbia's judgment, the
income to be earned from the loan justifies the attendant risks. The Funds
currently intend to limit the lending of their portfolio securities so that, at
any given time, securities loaned by a Fund represent not more than one-third
of the value of its total assets.
INVESTMENT COMPANY SECURITIES
Each Fund except the Money Market Fund may invest in securities issued
by other investment companies which invest in high quality, short-term debt
securities and which determine their net asset value per share based on the
amortized cost or penny-rounding method. Investments in other investment
companies will cause a Fund (and, indirectly, the Fund's shareholders) to bear
proportionately the costs incurred in connection with the investment companies'
operations. Securities of other investment companies will be acquired by a
Fund within the limits prescribed by the 1940 Act. Each Fund currently intends
to limit its investments so that, as determined immediately after a securities
purchase is made: (a) not more than 5% of the value of its total assets will be
invested in the securities of any one investment company; (b) not more than 10%
of the value of its total assets will be invested in the aggregate in
securities of other investment companies as a group; (c) not more than 3% of
the outstanding voting stock of any one investment company will be owned by the
Fund; and (d) not more than 10% of the outstanding voting stock of any one
closed-end investment company will be owned in the aggregate by the Funds or
any other investment companies advised by Fleet or Columbia. Any change by the
Funds in the future with respect to their policies concerning investments in
securities issued by other investment companies will be made only in accordance
with the requirements of the 1940 Act.
REITS
The Columbia Real Estate Equity Fund II may invest without limit in
REITs. The Equity Fund, Growth and Income Fund, Small Company Growth Fund and
Asset Allocation Fund may invest up to 10% of their respective net assets in
REITs. REITs pool investors' funds for investment primarily in
income-producing real estate or real-estated related loans or interests. A
REIT is not taxed on income distributed to shareholders if it complies with
several requirements relating to its organization, ownership, assets and
income, and a requirement that it distribute to its shareholders at least 95%
of its taxable income (other than net capital gains) for each taxable year.
REITs can generally be classified as equity REITs, mortgage REITs and
hybrid REITs. Equity REITs invest the majority of their assets directly in
real property and derive their income
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primarily from rental and lease payments. Equity REITs can also realize
capital gains by selling properties that have appreciated in value. Mortgage
REITs make loans to commercial real estate developers and derive their income
primarily from interest payments on such loans. Hybrid REITs combine the
characteristics of both equity and mortgage REITs. REITs may be subject to
certain risks associated with the direct ownership of real estate including
declines in the value of real estate, risks related to general and local
economic conditions, overbuilding and increased competition, increases in
property taxes and operating expenses, and variations in rental income.
Generally, increases in interest rates will decrease the value of high yielding
securities and increase the costs of obtaining financing, which could decrease
the value of the REIT's investments. In addition, equity REITs may be affected
by changes in the value of the underlying property owned by the REITs, while
mortgage REITs may be affected by the quality of credit extended. Equity and
mortgage REITs are dependent upon management skill, are not diversified and are
subject to the risks of financing projects. REITs are also subject to heavy
cash flow dependency, defaults by borrowers, self liquidation and the
possibility of failing to qualify for pass-through of income under the Code and
to maintain exemption from the 1940 Act. See "Investment Objectives and
Policies -- Special Risk Considerations -- Real Estate Securities" above.
REITs pays dividends to their shareholders based upon available funds
from operations. It is quite common for these dividends to exceed a REIT's
taxable earnings and profits resulting in the excess portion of such dividends
being designated as a return of capital. Each Fund intends to include the
gross dividends from such REITs in its periodic distributions to its
shareholders and, accordingly, a portion of the Fund's distributions may also
be designated as a return of capital.
GUARANTEED INVESTMENT CONTRACTS
The Money Market Fund and High Quality Bond Fund may invest in
guaranteed investment contracts ("GICs") issued or guaranteed by United States
insurance companies. The High Quality Bond Fund may also enter into GICs
issued or guaranteed by Canadian insurance companies. Pursuant to such
contracts, the Fund makes cash contributions to a deposit fund of the insurance
company's general account. The insurance company then credits to the Fund
payments at negotiated, floating or fixed interest rates. A GIC is a general
obligation of the issuing insurance company and not a separate account. The
purchase price paid for a GIC becomes part of the general assets of the
insurance company, and the contract is paid from the company's general assets.
The Money Market Fund will only purchase GICs that are issued or guaranteed by
insurance companies that at the time of purchase are rated in accordance with
the Fund's quality requirements as described above under "Investment Objectives
and Policies -- Investment Objectives and Policies of the Money Market Fund."
The High Quality Bond Fund will only purchase GICs that are issued or
guaranteed by insurance companies that at the time of purchase are rated at
least AA by S&P or receive a similar high rating from a nationally recognized
service which provides ratings of insurance companies. The Funds will not
purchase GICs from Participating Insurance Companies or their affiliated life
insurance companies. GICs are considered illiquid securities and will be
subject to the Funds' 10% limitation on illiquid investments, unless there is
an active and substantial secondary market for the particular instrument and
market quotations are readily available.
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BANK INVESTMENT CONTRACTS
The High Quality Bond Fund may invest in bank investment contracts
("BICs") issued by banks that meet the quality and asset size requirements for
banks described above under "Money Market Instruments." Pursuant to BICs, cash
contributions are made to a deposit account at the bank in exchange for
payments at negotiated, floating or fixed interest rates. A BIC is a general
obligation of the issuing bank. BICs are considered illiquid securities and
will be subject to the Fund's 10% limitation on such investments, unless there
is an active and substantial secondary market for the particular instrument and
market quotations are readily available.
ASSET-BACKED SECURITIES
The Money Market Fund, Columbia Real Estate Equity Fund II, Asset
Allocation Fund, High Quality Bond Fund and Columbia High Yield Fund II may
purchase asset-backed securities, which represent a participation in, or are
secured by and payable from, a stream of payments generated by particular
assets, most often a pool of assets similar to one another. Assets generating
such payments will consist of such instruments as motor vehicle installment
purchase obligations, credit card receivables and home equity loans. Payment
of principal and interest may be guaranteed up to certain amounts and for a
certain time period by a letter of credit issued by a financial institution
unaffiliated with entities issuing the securities. The estimated life of an
asset-backed security varies with the prepayment experience with respect to the
underlying debt instruments. The rate of such prepayments, and hence the life
of the asset-backed security, will be primarily a function of current market
rates, although other economic and demographic factors will be involved. The
Money Market Fund will invest not more than 10% of its total assets in
asset-backed securities and will only purchase asset-backed securities that
meet the Fund's applicable quality requirements as described above under
"Investment Objectives and Policies -- Investment Objective and Policies of the
Money Market Fund." See "Mortgage-Backed and Asset-Backed Securities" in the
Statement of Additional Information.
MORTGAGE-BACKED SECURITIES
The Asset Allocation Fund, High Quality Bond Fund and Columbia High
Yield Fund II may invest in mortgage-backed securities (including
collateralized mortgage obligations) that represent pools of mortgage loans
assembled for sale to investors by various governmental agencies and
government-related organizations, such as the GNMA, the FNMA, and the Federal
Home Loan Mortgage Corporation. Mortgage-backed securities provide a monthly
payment consisting of interest and principal payments. Additional payment may
be made out of unscheduled repayments of principal resulting from the sale of
the underlying residential property, refinancing or foreclosure, net of fees or
costs that may be incurred. Prepayments of principal on mortgage-backed
securities may tend to increase due to refinancing of mortgages as interest
rates decline. To the extent that a Fund purchases mortgage-backed securities
at a premium, mortgage foreclosures and prepayments of principal by mortgagors
(which may be made at any time without penalty) may result in some loss of the
Fund's principal investment to the extent of the premium paid. The yield of a
Fund, should it invest in mortgage-backed securities, may be affected by
reinvestment of prepayments at higher or
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lower rates than the original investment. See "Mortgage-Backed and
Asset-Backed Securities" in the Statement of Additional Information.
Other mortgage-backed securities are issued by private issuers,
generally originators of and investors in mortgage loans, including savings
associations, mortgage bankers, commercial banks, investment bankers, and
special purpose entities. These private mortgage-backed securities may be
supported by U.S. Government mortgage-backed securities or some form of
non-government credit enhancement. Mortgage-backed securities have either
fixed or adjustable interest rates. The rate of return on mortgage-backed
securities may be affected by prepayments of principal on the underlying loans,
which generally increase as interest rates decline; as a result, when interest
rates decline, holders of these securities normally do not benefit from
appreciation in market value to the same extent as holders of other
non-callable debt securities. In addition, like other debt securities, the
values of mortgage-related securities, including government and
government-related mortgage pools, generally will fluctuate in response to
market interest rates.
MORTGAGE DOLLAR ROLLS
The Asset Allocation Fund, High Quality Bond Fund and Columbia High
Yield Fund II may enter into mortgage "dollar rolls" in which a Fund sells
securities for delivery in the current month and simultaneously contracts with
the same counterparty to repurchase similar (same type, coupon and maturity)
but not identical securities on a specified future date not exceeding 120 days.
During the roll period, a Fund loses the right to receive principal and
interest paid on the securities sold. However, a Fund would benefit to the
extent of any difference between the price received for the securities sold and
the lower forward price for the future purchase (often referred to as the
"drop") or fee income plus the interest earned on the cash proceeds of the
securities sold until the settlement date of the forward purchase. Unless such
benefits exceed the income, capital appreciation and gain or loss due to
mortgage prepayments that would have been realized on the securities sold as
part of the mortgage dollar roll, the use of this technique will diminish the
investment performance of a Fund compared with what such performance would have
been without the use of mortgage dollar rolls. All cash proceeds will be
invested in instruments that are permissible investments for each Fund. The
Funds will hold and maintain in a segregated account until the settlement date,
cash or liquid securities in an amount equal to the forward purchase price.
For financial reporting and tax purposes, the Funds propose to treat
mortgage dollar 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 mortgage dollar rolls that are accounted for as
a financing.
Mortgage dollar rolls involve certain risks. If the broker-dealer to
whom a Fund sells the security becomes insolvent, the Fund's right to purchase
or repurchase the mortgage-related securities may be restricted and the
instrument which the Fund is required to repurchase may be worth less than an
instrument which the Fund originally held. Successful use of mortgage dollar
rolls may depend upon Fleet's or Columbia's ability to predict correctly
interest rates and mortgage
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prepayments. For these reasons, there is no assurance that mortgage dollar
rolls can be successfully employed.
STRIPPED OBLIGATIONS
To the extent consistent with their investment objectives, the Asset
Allocation Fund, High Quality Bond Fund and Columbia High Yield Fund II may
purchase Treasury receipts and other "stripped" securities that evidence
ownership in either the future interest payments or the future principal
payments on U.S. Government and other obligations. These participations, which
may be issued by the U.S. Government or by private issuers, such as banks and
other institutions, are issued at their "face value," and may include stripped
mortgage-backed securities ("SMBS"), which are derivative multi-class mortgage
securities. Stripped securities, particularly SMBS, may exhibit greater price
volatility than ordinary debt securities because of the manner in which their
principal and interest are returned to investors.
SMBS are usually structured with two or more classes that receive
different proportions of the interest and principal distributions from a pool
of mortgage-backed obligations. A common type of SMBS will have one class
receiving all of the interest, while the other class will receive all of the
principal. However, in some instances, one class will receive some of the
interest and most of the principal while the other class will receive most of
the interest and the remainder of the principal. If the underlying obligations
experience greater than anticipated prepayments of principal, the Funds may
fail to fully recoup their initial investments in these securities. The market
value of the class consisting entirely of principal payments generally is
extremely volatile in response to changes in interest rates. The yields on a
class of SMBS that receives all or most of the interest are generally higher
than prevailing market yields on other mortgage-backed obligations because
their cash flow patterns are more volatile and there is a greater risk that the
initial investment will not be fully recouped. SMBS which are not issued by
the U.S. Government (or a U.S. Government agency or instrumentality) are
considered illiquid. Obligations issued by the U.S. Government may be
considered liquid under guidelines established by GALAXY VIP's Board of
Trustees if they can be disposed of promptly in the ordinary course of business
at a value reasonably close to that used in the calculation of net asset value
per share. Fleet or Columbia, as the case may be, may determine that SMBS
acquired by a Fund are liquid under guidelines established by the Board of
Trustees.
OPTIONS AND FUTURES CONTRACTS
Options. Each Fund other than the Money Market Fund and High Quality
Bond Fund may engage in writing covered call options. The Growth and Income
Fund, Small Company Growth Fund, Columbia Real Estate Equity Fund II and
Columbia High Yield Fund II may also buy put options, buy call options and
sell, or "write", secured put options on particular securities or various
securities indices or foreign currencies. A call option for a particular
security gives the purchaser of the option the right to buy, and a writer the
obligation to sell, the underlying security at the stated exercise price at any
time prior to the expiration of the option, regardless of the market price of
the security. The premium paid to the writer is the consideration for
undertaking the obligations under
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the options contract. A put option for a particular security gives the
purchaser the right to sell the underlying security at the stated exercise
price at any time prior to the expiration date of the option, regardless of the
market price of the security. In contrast to an option on a particular
security, an option on a securities index provides the holder with the right to
make or receive a cash settlement upon exercise of the option.
Options purchased by a Fund will not exceed 5%, and options written by
a Fund will not exceed 25%, of its net assets. Options must be listed on a
national securities exchange and issued by the Options Clearing Corporation.
Options trading is a highly specialized activity and carries greater
than ordinary investment risk. Purchasing options may result in the complete
loss of the amounts paid as premiums to the writer of the option. In writing a
covered call option, a Fund gives up the opportunity to profit from an increase
in the market price of the underlying security above the exercise price (except
to the extent the premium represents such a profit). Moreover, it will not be
able to sell the underlying security until the covered call option expires or
is exercised or a Fund closes out the option. In writing a secured put option,
a Fund assumes the risk that the market value of the security will decline
below the exercise price of the option.
Futures and Related Options. The Growth and Income Fund, Small
Company Growth Fund, Columbia Real Estate Equity Fund II, High Quality Bond
Fund and Columbia High Yield Fund II may invest to a limited extent in futures
contracts, and the Growth and Income Fund, Small Company Growth Fund, Columbia
Real Estate Equity Fund II and Columbia High Yield Fund II may invest in
options on futures contracts in order to gain fuller exposure to movements of
securities prices pending investment, for hedging purposes or to maintain
liquidity. Futures contracts obligate a Fund, at maturity, to take or make
delivery of certain securities or the cash value of a securities index. A Fund
may not purchase or sell a futures contract (or related option) unless
immediately after any such transaction the sum of the aggregate amount of
margin deposits on its existing futures positions and the amount of premiums
paid for related options is 5% or less of its total assets (after taking into
account certain technical adjustments).
The Growth and Income Fund, Small Company Growth Fund, Columbia Real
Estate Equity Fund II and Columbia High Yield Fund II may also purchase and
sell call and put options on futures contracts traded on an exchange or board
of trade. When a Fund purchases an option on a futures contract, it has the
right to assume a position as a purchaser or seller of a futures contract at a
specified exercise price at any time during the option period. When a Fund
sells an option on a futures contract, it becomes obligated to purchase or sell
a futures contract if the option is exercised. In anticipation of a market
advance, a Fund may purchase call options on futures contracts as a substitute
for the purchase of futures contracts to hedge against a possible increase in
the price of securities which that Fund intends to purchase. Similarly, if the
value of a Fund's portfolio securities is expected to decline, the Fund might
purchase put options or sell call options on futures contracts rather than sell
futures contracts.
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Transactions in futures as a hedging device may subject the Funds to a
number of risks. Successful use of futures by a Fund are subject to Fleet's or
Columbia's ability to predict correctly movements in the direction of the
market. In addition, there may be an imperfect correlation, or no correlation
at all, between movements in the price of futures contracts and movements in
the price of the instruments being hedged. There is no assurance that a liquid
market will exist for any particular futures contract at any particular time.
Consequently, a Fund may realize a loss on a futures transaction that is not
offset by a favorable movement in the price of securities which it holds or
intends to purchase or may be unable to close a futures position in the event
of adverse price movements.
More information regarding futures contracts and related options can
be found in Appendix B to the Statement of Additional Information.
CONVERTIBLE SECURITIES
Each Fund except the Money Market Fund may from time to time, in
accordance with its investment policies, invest in convertible securities.
Convertible securities are fixed income securities which may be exchanged or
converted into a predetermined number of shares of the issuer's underlying
common stock at the option of the holder during a specified time period.
Convertible securities may take the form of convertible preferred stock,
convertible bonds or debentures, units consisting of bonds and warrants or a
combination of the features of several of these securities.
Convertible bonds and convertible preferred stocks are fixed income
securities that generally retain the investment characteristics of fixed income
securities until they have been converted but also react to movements in the
underlying equity securities. The holder is entitled to receive the fixed
income of a bond or the dividend preference of a preferred stock until the
holder elects to exercise the conversion privilege. Usable bonds are corporate
bonds that can be used in whole or in part, customarily at full face value, in
lieu of cash to purchase the issuer's common stock. When owned as part of a
unit along with warrants, which are options to buy the common stock, they
function as convertible bonds, except that the warrants generally will expire
before the bond's maturity. Convertible securities are senior to equity
securities, and therefore, have a claim to the assets of the issuer prior to
the holders of common stock in the case of liquidation. However, convertible
securities are generally subordinated to similar nonconvertible securities of
the same issuer. The interest income and dividends from convertible bonds and
preferred stocks provide a stable stream of income with generally higher yields
than common stocks, but lower than non-convertible securities of similar
quality. In selecting convertible securities for the Funds, Fleet or Columbia,
as the case may be, evaluates the investment characteristics of the convertible
security as a fixed income instrument, and the investment potential of the
underlying equity security for capital appreciation. In evaluating these
matters with respect to a particular convertible security, Fleet and Columbia
consider numerous factors, including the economic and political outlook, the
value of the security relative to other investment alternatives, trends in the
determinants of the issuer's profits, and the issuer's management capability
and practices.
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The Growth and Income Fund may invest in convertible bonds rated BB or
higher by S&P or Fitch, or Ba or higher by Moody's at the time of investment.
Securities rated BB by S&P or Fitch or Ba by Moody's provide questionable
protection of principal and interest in that such securities either have
speculative characteristics or are predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with the terms of
the obligation. Debt obligations that are not rated, or determined to be,
investment grade are high-yield, high-risk bonds, typically subject to greater
market fluctuations, and securities in the lowest rating category may be in
danger of loss of income and principal due to an issuer's default. To a
greater extent than investment-grade bonds, the value of lower-rated bonds
tends to reflect short-term corporate, economic, and market developments, as
well as investor perceptions of the issuer's credit quality. In addition,
lower-rated bonds may be more difficult to dispose of or to value than
high-rated, lower-yielding bonds. Fleet will attempt to reduce the risks
described above through diversification of the Fund's portfolio and by credit
analysis of each issuer, as well as by monitoring broad economic trends and
corporate and legislative developments. If a convertible bond is rated below
BB or Ba after the Fund has purchased it, the Fund is not required to eliminate
the convertible bond from its portfolio, but will consider appropriate action.
The investment characteristics of each convertible security vary widely, which
allows convertible securities to be employed for different investment
objectives. The Fund does not intend to invest in such lower-rated bonds
during the current fiscal year.
Convertible bonds acquired by the Columbia High Yield Fund II will
generally be rated BB or lower by S&P or Ba or lower by Moody's. See
"Investment Objectives and Policies -- Special Risk Considerations --
Lower-Rated Securities" above for a description of the risks associated with
investments in such lower-rated securities.
SWAP AGREEMENTS AND INDEXED SECURITIES
The Growth and Income Fund and Small Company Growth Fund may enter
into interest rate swaps, currency swaps and other types of swap agreements
such as caps, collars and floors as a way to manage their exposure to different
types of investments. These Funds may also invest in indexed securities. The
value of indexed securities is linked to foreign currencies, interest rates,
commodities, indices or other financial indicators. Neither Fund intends to
invest more than 5% of its total assets in swap agreements or indexed
securities.
DERIVATIVE SECURITIES
The Funds may from time to time, in accordance with their respective
investment policies, purchase certain "derivative" securities. Derivative
securities are instruments that derive their value from the performance of
underlying assets, interest or currency exchange rates, or indices, and
include, but are not limited to, options, futures, indexed securities, swap
agreements and foreign currency exchange transactions.
Derivative securities present, to varying degrees, market risk that
the performance of the underlying assets, interest rates or indices will
decline; credit risk that the dealer or other counterparty to the transaction
will fail to pay its obligations; volatility and leveraging risk that, if
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interest or exchange rates change adversely, the value of the derivative
security will decline more than the assets, rates or indices on which it is
based; liquidity risk that the Funds will be unable to sell a derivative
security when it wants because of lack of market depth or market disruption;
pricing risk that the value of a derivative security will not correlate exactly
to the value of the underlying assets, rates or indices on which it is based;
and operations risk that loss will occur as a result of inadequate systems and
controls, human error or otherwise. Some derivative securities are more
complex than others, and for those instruments that have been developed
recently, data are lacking regarding their actual performance over complete
market cycles.
Fleet or Columbia, as the case may be, will evaluate the risks
presented by the derivative securities purchased by the Funds, and will
determine, in connection with its day-to-day management of the Funds, how such
securities will be used in furtherance of the Funds' investment objectives. It
is possible, however, that Fleet's or Columbia's evaluations will prove to be
inaccurate or incomplete and, even when accurate and complete, it is possible
that the Funds will, because of the risks discussed above, incur loss as a
result of their investments in derivative securities. See "Investment
Objectives and Policies -- Derivative Securities" in the Statement of
Additional Information for additional information.
AMERICAN, EUROPEAN AND GLOBAL DEPOSITORY RECEIPTS
The Equity Fund, Growth and Income Fund, Small Company Growth Fund and
Asset Allocation Fund may invest in ADRs and EDRs. The Growth and Income Fund
and Small Company Growth Fund may also invest in GDRs. ADRs are receipts
issued in registered form by a U.S. bank or trust company evidencing ownership
of underlying securities issued by a foreign issuer. EDRs are receipts issued
in Europe typically by non-U.S. banks or trust companies and foreign branches
of U.S. banks that evidence ownership of foreign or U.S. securities. GDRs are
receipts structured similarly to EDRs and are marketed globally. ADRs may be
listed on a national securities exchange or may be traded in the
over-the-counter market. EDRs are designed for use in European exchange and
over-the-counter markets. GDRs are designed for trading in non-U.S. securities
markets. ADRs, EDRs and GDRs traded in the over-the-counter market which do
not have an active or substantial secondary market will be considered illiquid
and therefore will be subject to the Funds' respective limitations with respect
to such securities. ADR prices are denominated in U.S. dollars although the
underlying securities are denominated in a foreign currency. Investments in
ADRs, EDRs and GDRs involve risks similar to those accompanying direct
investments in foreign securities. Certain of these risks are described above
under "Investment Objectives and Policies -- Special Risk Considerations --
Foreign Securities."
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Because the Growth and Income Fund, Small Company Growth Fund,
Columbia Real Estate Equity Fund II and Asset Allocation Fund may buy and sell
securities and receive interest, dividends and sale proceeds in currencies
other than the U.S. dollar, the Funds from time to time may enter into foreign
currency exchange transactions to convert the U.S. dollar to foreign
currencies, to convert foreign
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currencies to the U.S. dollar and to convert foreign currencies to other
foreign currencies. The Funds either enter into these transactions on a spot
(i.e. cash) basis at the spot rate prevailing in the foreign currency exchange
market, or use forward contracts to purchase or sell foreign currencies.
Forward foreign currency exchange contracts are agreements to exchange one
currency for another - - for example, to exchange a certain amount of U.S.
dollars for a certain amount of Japanese yen - - at a future date and at a
specified price. Typically, the other party to a currency exchange contract
will be a commercial bank or other financial institution.
Forward foreign currency exchange contracts also allow the Funds to
hedge the currency risk of portfolio securities denominated in a foreign
currency. By separating the asset and the currency decision, this technique
permits the assessment of the merits of a security separately from the currency
risk. Although forward foreign currency exchange contracts are of short
duration, generally between one and twelve months, the forward foreign currency
exchange contracts are rolled over in a manner consistent with a more long-term
currency decision. Because there is a risk of loss to the Funds if the other
party does not complete the transaction, forward foreign currency exchange
contracts will be entered into only with parties approved by GALAXY VIP's Board
of Trustees.
The Funds may maintain "short" positions in forward foreign currency
exchange transactions, which would involve a Fund's agreeing to exchange
currency that it currently does not own for another currency - - for example,
to exchange an amount of Japanese yen that it does not own for a certain amount
of U.S. dollars - - at a future date and at a specified price in anticipation
of a decline in the value of the currency sold short relative to the currency
that the Fund has contracted to receive in the exchange. In order to ensure
that the short position is not used to achieve leverage with respect to the
Fund's investments, the Fund would establish with its custodian a segregated
account consisting of cash or liquid securities equal in value to the
fluctuating market value of the currency as to which the short position is
being maintained. The value of the cash and securities in the segregated
account will be adjusted at least daily to reflect changes in the market value
of the short position. See the Statement of Additional Information for
additional information regarding foreign currency exchange transactions.
WHEN-ISSUED, FORWARD COMMITMENT AND DELAYED SETTLEMENT TRANSACTIONS
Each Fund other than the Money Market Fund may purchase eligible
securities on a "when-issued" basis and may purchase or sell eligible
securities on a "forward commitment" basis. Each of these Funds may also
purchase and sell eligible securities on a "delayed settlement" basis.
When-issued and forward commitment transactions, which involve a commitment by
a Fund to purchase or sell particular securities with payment and delivery
taking place at a future date (perhaps one or two months later), permit the
Fund to lock in a price or yield on a security it owns or intends to purchase
regardless of future changes in interest rates. Delayed settlement describes
settlement of a securities transaction in the secondary market which will occur
sometime in the future. When-issued, forward commitment and delayed settlement
transactions involve the risk, however, that the yield or price obtained in a
transaction may be less favorable than the yield or price available in the
market when the securities delivery takes place. It is expected that forward
commitments, when-issued purchases and delayed settlements will not exceed 25%
of a Fund's
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total assets absent unusual market conditions. In the event a Fund's forward
commitments, when-issued purchases and delayed settlements ever exceeded 25% of
the value of its total assets, the Fund's liquidity and the ability of Fleet or
Columbia, as the case may be, to manage the Fund might be adversely affected.
The Funds will not engage in when-issued purchases, forward commitments and
delayed settlements for speculative purposes, but only in furtherance of their
respective investment objectives. See the Statement of Additional Information
for additional information regarding when-issued, forward commitment and
delayed settlement transactions.
STAND-BY COMMITMENTS
The High Quality Bond Fund may acquire "stand-by commitments" with
respect to municipal securities held by it. Under a stand-by commitment, a
dealer agrees to purchase, at the Fund's option, specified municipal securities
at a specified price. The Fund will acquire stand-by commitments solely to
facilitate portfolio liquidity and does not intend to exercise its rights
thereunder for trading purposes. The Fund expects that stand-by commitments
will generally be available without the payment of any direct or indirect
consideration. However, if necessary or advisable, the Fund may pay for a
stand-by commitment either separately in cash or by paying a higher price for
portfolio securities which are acquired subject to the commitment (thus
reducing the yield otherwise available for the same securities). Stand-by
commitments acquired by the Fund would be valued at zero in determining the
Fund's net asset value.
PORTFOLIO TURNOVER
Each Fund may sell a portfolio investment soon after its acquisition
if Fleet or Columbia, as the case may be, believes that such a disposition is
consistent with the Fund's investment objective. Portfolio investments may be
sold for a variety of reasons, such as a more favorable investment opportunity
or other circumstances bearing on the desirability of continuing to hold such
investments. The rate of portfolio turnover will not be a limiting factor in
making portfolio decisions.
INVESTMENT LIMITATIONS
The following investment limitations are matters of fundamental policy
and may not be changed with respect to any Fund without the affirmative vote of
the holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Other investment limitations that also cannot be changed
without such a vote of shareholders are contained in the Statement of
Additional Information under "Investment Objectives and Policies."
No Fund may:
1. Make loans, except that (i) each Fund may purchase or hold
debt instruments in accordance with its investment objective
and policies, and may enter into repurchase agreements with
respect to portfolio securities, and (ii) each Fund may lend
portfolio
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securities against collateral consisting of cash or securities
which are consistent with the Fund's permitted investments,
where the value of the collateral is equal at all times to at
least 100% of the value of the securities loaned.
2. Borrow money or issue senior securities, except that each Fund
may borrow from domestic banks for temporary purposes (such as
to obtain cash to meet redemption requests when the
liquidation of portfolio securities is deemed disadvantageous
by Fleet or Columbia) and then in amounts not in excess of 10%
with respect to the Money Market Fund and High Quality Bond
Fund, or 33% with respect to the Equity Fund, Growth and
Income Fund, Small Company Growth Fund, Columbia Real Estate
Equity Fund II, Asset Allocation Fund and Columbia High Yield
Fund II, of the value of its total assets at the time of such
borrowing (provided that each Fund may borrow pursuant to
reverse repurchase agreements in accordance with its
investment policies and in amounts not in excess of 10% with
respect to the Money Market Fund and High Quality Bond Fund,
or 33% with respect to the Equity Fund, Growth and Income
Fund, Small Company Growth Fund, Columbia Real Estate Equity
Fund II, Asset Allocation Fund and Columbia High Yield Fund
II, of the value of its total assets at the time of such
borrowing); or mortgage, pledge, or hypothecate any assets
except in connection with any such borrowing and in amounts
not in excess of the lesser of the dollar amounts borrowed or
10% with respect to the Money Market Fund and High Quality
Bond Fund, or 33% with respect to the Equity Fund, Growth and
Income Fund, Small Company Growth Fund, Columbia Real Estate
Equity Fund II, Asset Allocation Fund and Columbia High Yield
Fund II, of the value of the Fund's total assets at the time
of such borrowing. No Fund will purchase securities while
borrowings (including reverse repurchase agreements) in excess
of 5% of its total assets are outstanding. With respect to
each Fund other than the Money Market Fund, if the securities
held by a Fund should decline in value while borrowings are
outstanding, the net asset value of the Fund's outstanding
shares will decline in value by more than the proportionate
decline in value suffered by the Fund's securities.
3. Invest more than 10% (15% with respect to the Growth and
Income Fund, Small Company Growth Fund, Columbia Real Estate
Equity Fund II and Columbia High Yield Fund II) of the value
of its net assets in illiquid securities, including repurchase
agreements with remaining maturities in excess of seven days,
time deposits with maturities in excess of seven days,
restricted securities, non-negotiable time deposits and other
securities which are not readily marketable.
4. Purchase securities of any one issuer, other than obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, if immediately after such purchase more
than 5% of the value of its total assets would be invested in
such issuer (the "5% Limitation"), except that up to 25% of
the value of the total assets of the Equity Fund, Growth and
Income Fund, Small Company Growth Fund, Columbia Real Estate
Equity Fund II, Asset Allocation Fund, High Quality Bond Fund
and
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Columbia High Yield Fund II may be invested without regard to
such 5% Limitation, provided that the Money Market Fund will
be able to invest more than 5% (but no more than 25%) of its
total assets in the securities of a single issuer for a period
of up to three business days after the purchase thereof, but
the Fund may not hold more than one such investment at any one
time.
5. Purchase any securities which would cause 25% or more of the
value of its total assets at the time of purchase to be
invested in the securities of one or more issuers conducting
their principal business activities in the same industry;
provided, however, that (a) there is no limitation with
respect to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, (b)
wholly-owned finance companies will be considered to be in the
industries of their parents if their activities are primarily
related to financing the activities of the parents, and (c)
utilities will be classified according to their services (for
example, gas, gas transmission, electric and gas, electric and
telephone each will be considered a separate industry); and
further provided that the Columbia Real Estate Equity Fund II
will invest at least 65% of its total assets in the equity
securities of companies principally engaged in the real estate
industry.
With respect to Investment Limitation No. 4 above: (a) a security is
considered to be issued by the governmental entity or entities whose assets and
revenues back the security, or, with respect to a private activity bond that is
backed only by the assets and revenues of a non-governmental user, such
non-governmental user; (b) in certain circumstances, the guarantor of a
guaranteed security may also be considered to be an issuer in connection with
such guarantee; and (c) securities issued or guaranteed by the U.S. Government,
its agencies or instrumentalities (including securities backed by the full
faith and credit of the United States) are deemed to be U.S. Government
obligations.
The SEC has adopted Rule 144A which allows for a broader institutional
trading market for securities otherwise subject to restrictions on resale to
the general public. Rule 144A establishes a "safe harbor" from the
registration requirements of the Securities Act of 1933, as amended, for resale
of certain securities to qualified institutional buyers. A Fund's investment
in Rule 144A securities could have the effect of increasing the level of
illiquidity of the Fund during any period that qualified institutional buyers
were no longer interested in purchasing these securities. For purposes of the
limitations on purchases of illiquid instruments described in Investment
Limitation No. 3 above, Rule 144A securities will not be considered to be
illiquid if Fleet or Columbia, as the case may be, has determined, in
accordance with guidelines established by the Board of Trustees, that an
adequate trading market exists for such securities.
In addition to the restrictions set forth above and those set forth in
the Statement of Additional Information, each Fund may be subject to investment
restrictions imposed under state insurance laws and regulations. These
restrictions are non-fundamental and, in the event of amendments to the
applicable statutes or regulations, each Fund will comply, without the approval
of its shareholders, with the requirements as so modified.
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If a percentage limitation is satisfied at the time of investment, a
later increase in such percentage resulting from a change in the value of a
Fund's portfolio securities will not constitute a violation of the limitation.
PRICING OF SHARES
Net asset value per share of each Fund is determined as of the close
of regular trading hours on the New York Stock Exchange (the "Exchange"),
currently 4:00 p.m. (Eastern Time). Net asset value per share is determined on
each day on which the Exchange is open for trading. Currently, the holidays
which GALAXY VIP observes are New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Net asset value per share of a Fund for purposes of pricing sales and
redemptions is calculated by dividing the value of all securities and other
assets belonging to the Fund, less the liabilities charged to the Fund, by the
number of outstanding shares of the Fund.
VALUATION OF THE MONEY MARKET FUND
The Money Market Fund's assets are valued based upon the amortized
cost method. Pursuant to this method, a security is valued by reference to the
Fund's acquisition cost as adjusted for amortization of premium or accretion of
discount, regardless of the impact of fluctuating interest rates on the market
value of the security. Although GALAXY VIP seeks to maintain the net asset
value per share of the Fund at $1.00, there can be no assurance that the net
asset value per share will not vary.
VALUATION OF THE EQUITY FUND, GROWTH AND INCOME FUND, SMALL COMPANY GROWTH
FUND, COLUMBIA REAL ESTATE EQUITY FUND II, ASSET ALLOCATION FUND AND COLUMBIA
HIGH YIELD FUND II
The assets in the Equity Fund, Growth and Income Fund, Small Company
Growth Fund, Columbia Real Estate Equity Fund II, Asset Allocation Fund and
Columbia High Yield Fund II which are traded on a recognized stock exchange are
valued at the last sale price on the securities exchange on which such
securities are primarily traded or at the last sale price on the national
securities market. Securities quoted on the NASD National Market System are
also valued at the last sale price. Other securities traded on
over-the-counter markets are valued on the basis of their closing
over-the-counter bid prices. Securities for which there were no transactions
are valued at the average of the most recent bid and asked prices. Investments
in debt securities with remaining maturities of 60 days or less are valued
based upon the amortized cost method. Restricted securities, securities for
which market quotations are not readily available, and other assets are valued
at fair value by Fleet or Columbia, as the case may be, under the supervision
of GALAXY VIP's Board of Trustees. An option is generally valued at the last
sale price or, in the absence of a last sale price, the last offer price.
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VALUATION OF THE HIGH QUALITY BOND FUND
The assets in the High Quality Bond Fund are valued for purposes of
pricing sales and redemptions by an independent pricing service ("Service")
approved by GALAXY VIP's Board of Trustees. When, in the judgment of the
Service, quoted bid prices for portfolio securities are readily available and
are representative of the bid side of the market, these investments are valued
at the mean between quoted bid prices (as obtained by the Service from dealers
in such securities) and asked prices (as calculated by the Service based upon
its evaluation of the market for such securities). Other investments are
carried at fair value as determined by the Service, based on methods which
include considerations of yields or prices of bonds of comparable quality,
coupon, maturity and type; indications as to values from dealers; and general
market conditions. The Service may also employ electronic data processing
techniques and matrix systems to determine value. Short-term securities are
valued at amortized cost, which approximates market value.
PURCHASE AND REDEMPTION OF SHARES
DISTRIBUTOR
Shares in each Fund are sold on a continuous basis by GALAXY VIP's
distributor, First Data Distributors, Inc. ("FD Distributors"), a wholly-owned
subsidiary of First Data Investor Services Group, Inc. and an indirect
wholly-owned subsidiary of First Data Corporation. FD Distributors is a
registered broker/dealer with principal offices located at 4400 Computer Drive,
Westboro, Massachusetts 01581.
PURCHASE AND REDEMPTION OF SHARES
Investors may not purchase or redeem shares of the Funds directly, but
only through variable annuity contracts and variable life insurance policies
offered through the Separate Accounts of Participating Insurance Companies.
You should refer to the prospectus of the Participating Insurance Company's
Separate Account for information on how to purchase a variable annuity contract
or variable life insurance policy, how to select specific Funds of GALAXY VIP
as investment options for your contract or policy and how to redeem monies from
GALAXY VIP.
The Separate Accounts of the Participating Insurance Companies place
orders to purchase and redeem shares of the Funds based on, among other things,
the amount of premium payments to be invested and the amount of surrender and
transfer requests (as defined in the prospectus describing the variable annuity
contracts and variable life insurance policies issued by the Participating
Insurance Companies) to be effected on that day pursuant to variable annuity
contracts and variable life insurance policies. Orders received by GALAXY VIP
are effected on days on which the Exchange is open for trading. Orders for the
purchase of shares of a Fund are effected at the net asset value per share next
calculated after an order is received in good order by the Fund. Redemptions
are effected at the net asset value per share next calculated after receipt of
a redemption request in good order by a Fund. Payment for redemptions will be
made by the Funds
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within seven days after the request is received. GALAXY VIP may suspend the
right of redemption under certain extraordinary circumstances in accordance
with the rules of the SEC.
The Funds do not assess any fees, either when they sell or redeem
their shares. Surrender charges, mortality and expense risk fees and other
charges may be assessed by Participating Insurance Companies under the variable
annuity contracts or variable life insurance policies. These fees should be
described in the Participating Insurance Companies' prospectuses.
Shares of the Funds may be sold to and held by Separate Accounts that
fund variable annuity and variable life insurance contracts issued by both
affiliated and unaffiliated Participating Insurance Companies. As of the date
of this Prospectus, shares of GALAXY VIP are offered only to Separate Accounts
funding variable annuity contracts issued by American Skandia Life Assurance
Corporation, an indirect wholly-owned subsidiary of Skandia Insurance Company,
Ltd., and its affiliated life insurance companies. GALAXY VIP currently does
not foresee any disadvantages to the holders of variable annuity contracts and
variable life insurance policies of affiliated and unaffiliated Participating
Insurance Companies arising from the fact that interests of the holders of
variable annuity contracts and variable life insurance policies may differ due
to differences of tax treatment or other considerations or due to conflicts
between the affiliated or unaffiliated Participating Insurance Companies.
Nevertheless, the Trustees will monitor events to seek to identify any material
irreconcilable conflicts which may possibly arise and to determine what action,
if any, should be taken in response to such conflicts. Should a material
unreconcilable conflict arise between the holders of variable annuity contracts
and variable life insurance policies of affiliated or unaffiliated
Participating Insurance Companies, the Participating Insurance Companies may be
required to withdraw the assets allocable to some or all of the Separate
Accounts from the Funds. Any such withdrawal could disrupt orderly portfolio
management to the potential detriment of such holders. The variable annuity
contracts and variable life insurance policies are described in the separate
prospectuses issued by the Participating Insurance Companies. GALAXY VIP
assumes no responsibility for such prospectuses.
DIVIDENDS AND DISTRIBUTIONS
Each Fund expects to distribute substantially all of its net
investment income and capital gains each year. Dividends for the Money Market
Fund, High Quality Bond Fund and Columbia High Yield Fund II are declared daily
and paid monthly. Dividends for the Equity Fund, Growth and Income Fund, Small
Company Growth Fund, Columbia Real Estate Equity Fund II and Asset Allocation
Fund are declared and paid quarterly. Net capital gains, if any, will be
distributed at least annually. All dividends and capital gain distributions
will be automatically reinvested in additional shares of a Fund at the net
asset value of such shares on the payment date.
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TAXES
Each of the Money Market Fund, Equity Fund, Asset Allocation Fund and
High Quality Bond Fund qualified during its last taxable year and intends to
continue to qualify, and each of the Growth and Income Fund, Small Company
Growth Fund, Columbia Real Estate Equity Fund II and Columbia High Yield Fund
II intends to qualify, as a "regulated investment company" under the Code,
which would generally relieve a Fund of liability for federal income taxes to
the extent the Fund's earnings are distributed in accordance with the Code. In
order to so qualify, a Fund must comply with certain distribution,
diversification, source of income and other applicable requirements. If for
any taxable year a Fund does not qualify for the special federal tax treatment
afforded regulated investment companies, all of the Fund's taxable income would
be subject to tax at regular corporate rates without any deduction for
distributions to shareholders. In such event, a Fund's distributions to
segregated asset accounts holding shares of the Fund would be taxable as
ordinary income to the extent of the Fund's current and accumulated earnings
and profits. A failure of a Fund to qualify as a regulated investment company
also could result in the loss of the tax favored status of variable annuity
contracts and variable life insurance policies based on a segregated asset
account which invests in the Fund.
Under Code Section 817(h), a segregated asset account upon which a
variable annuity contract or variable life insurance policy is based must be
"adequately diversified." A segregated asset account will be adequately
diversified if it complies with certain diversification tests set forth in
Treasury regulations. If a regulated investment company satisfies certain
conditions relating to the ownership of its shares, a segregated asset account
investing in such investment company will be entitled to treat its pro rata
portion of each asset of the investment company as an asset for purposes of
these diversification tests. Each Fund intends to meet these ownership
conditions and to comply with the diversification tests noted above.
Accordingly, a segregated asset account investing solely in shares of a Fund
will be adequately diversified. However, a failure of a Fund to meet such
conditions and to comply with such tests could cause the owners of variable
annuity contracts and variable life insurance policies based on such account to
recognize ordinary income each year in the amount of any net appreciation of
such contract or policy during the year (including the annual cost of life
insurance, if any, provided under such policy).
Provided that a Fund and a segregated asset account investing in the
Fund satisfy the above requirements, any distributions from the Fund to such
account will be exempt from current federal income taxation to the extent that
such distributions accumulate in a variable annuity contract or a variable life
insurance contract.
Persons investing in a variable annuity or variable life insurance
contract offered by a segregated asset account investing in a Fund should refer
to the prospectus with respect to such contract for further tax information.
The foregoing discussion of federal income tax consequences is based
on tax laws and regulations in effect on the date of this Prospectus and is
subject to change by legislative or
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<PAGE> 44
administrative action. Each prospective investor should consult his or her own
tax adviser as to the tax consequences of investments in the Funds.
MANAGEMENT OF GALAXY VIP
The business and affairs of GALAXY VIP are managed under the direction
of GALAXY VIP's Board of Trustees. The Board of Trustees approves all
significant agreements between GALAXY VIP and persons or companies furnishing
services to GALAXY VIP. The day-to-day operations of GALAXY VIP are delegated
to its elected officers, subject to the investment objectives and policies of
GALAXY VIP, the general supervision of the Board of Trustees and applicable
state law. GALAXY VIP's Statement of Additional Information contains the names
of and general background information concerning the Trustees.
INVESTMENT ADVISERS
Fleet, with principal offices at 75 State Street, Boston,
Massachusetts 02109-1810, serves as the investment adviser to the Money Market
Fund, Equity Fund, Growth and Income Fund, Small Company Growth Fund, Asset
Allocation Fund and High Quality Bond Fund. Fleet, which commenced operations
in 1984, also provides investment management and advisory services to
individual and institutional clients and manages the investment portfolios of
The Galaxy Fund and Galaxy Fund II. Columbia, with principal offices at 1300
S.W. Sixth Avenue, P.O. Box 1350, Portland, Oregon 97207-1350, serves as
investment adviser to the Columbia Real Estate Equity Fund II and Columbia High
Yield Fund II. Columbia, which commenced operations in 1969, also manages the
investment portfolios of Columbia Funds. Fleet and Columbia are indirect
wholly-owned subsidiaries of Fleet Financial Group, Inc., a registered bank
holding company with total assets of approximately $85 billion at December 31,
1996.
Subject to the general supervision of GALAXY VIP's Board of Trustees
and in accordance with the Funds' respective investment policies, Fleet and
Columbia manage the respective Funds, make decisions with respect to and place
orders for all purchases and sales of their portfolio securities and maintain
related records.
Harold A. Mackinney, Jr., Brendan Henebry, Stephen D. Barbaro, Donald
Jones and Marie M. Schofield are the portfolio managers of the Equity Fund,
Growth and Income Fund, Small Company Growth Fund, Asset Allocation Fund and
High Quality Bond Fund, respectively. Each portfolio manager is primarily
responsible for the day-to-day management of the respective Fund's investment
portfolio. Messrs. Mackinney and Jones have served as the respective portfolio
managers of the Equity Fund and Asset Allocation Fund since commencement of
each Fund's operations. Mr. Mackinney is Chairman of the Board of Fleet and
has been engaged in providing investment management services on behalf of Fleet
and/or its affiliates since 1962. Mr. Henebry has been associated with Fleet
as a portfolio manager since 1995 and currently serves as Vice President.
Prior to joining Fleet, Mr. Henebry was associated with Shawmut Bank where he
served as Vice President and managed the Growth and Income Equity Management
Group. Mr. Barbaro, a
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<PAGE> 45
Vice President and Senior Portfolio Manager, has been with Fleet and its
predecessors since 1976. Mr. Jones has been associated with Fleet as a
portfolio manager since 1988 and currently serves as Vice President. Ms.
Schofield, who became the portfolio manager of the High Quality Bond Fund on
March 1, 1996, is a Vice President, has been with Fleet since 1991 and has been
engaged in providing investment management services for over 20 years.
David W. Jellison and Jeffrey L. Rippey are the portfolio managers of
the Columbia Real Estate Equity Fund II and Columbia High Yield Fund II,
respectively. Each portfolio manager is primarily responsible for the
day-to-day management of the respective Fund's investment portfolio. Mr.
Jellison is a Vice President of Columbia and a Chartered Financial Analyst.
Prior to joining Columbia in 1992, Mr. Jellison was a Senior Research Associate
for RCM Capital Management. Mr. Rippey has been associated with Columbia since
1981 and currently serves as Vice President. Mr. Rippey is a Chartered
Financial Analyst.
For the services provided and expenses assumed with respect to the
Money Market Fund, Equity Fund, Growth and Income Fund, Small Company Growth
Fund, Asset Allocation Fund and High Quality Bond Fund, Fleet is entitled to
receive advisory fees, computed daily and paid monthly, at the annual rate of
.40% of the average daily net assets of the Money Market Fund, at the annual
rate of .75% of the average daily net assets of the Equity Fund, Growth and
Income Fund, Small Company Growth Fund and Asset Allocation Fund, respectively,
and at the annual rate of .55% of the average daily net assets of the High
Quality Bond Fund. For the services provided and expenses assumed with respect
to the Columbia Real Estate Equity Fund II and Columbia High Yield Fund II,
Columbia is entitled to received advisory fees, computed daily and paid
monthly, at the annual rate of .75% of the average daily net assets of the
Columbia Real Estate Equity Fund II and at the annual rate of .60% of the
average daily net assets of the Columbia High Yield Fund II. The advisory fees
for the Funds are higher than fees paid by some other mutual funds, although
the Board of Trustees of GALAXY VIP believes that they are not higher than
average advisory fees paid by funds with similar investment objectives and
policies.
Fleet and Columbia may from time to time, in their discretion, waive
advisory fees payable by the Funds in order to help maintain a competitive
expense ratio and may from time to time allocate a portion of their advisory
fees to subsidiaries of Fleet Financial Group, Inc., in consideration for
administrative and other services which they provide to beneficial
shareholders. Fleet is currently waiving a portion of the advisory fees
payable to it by the Money Market Fund and High Quality Bond Fund, but Fleet
may in its discretion revise or discontinue this waiver at any time. For the
fiscal year ended December 31, 1996, Fleet received advisory fees (after fee
waivers) at the effective rates of 0.15% of the Money Market Fund's average
daily net assets, 0.75% of the Equity Fund's average daily net assets, 0.75% of
the Asset Allocation Fund's average daily net assets and 0.15% of the High
Quality Bond Fund's average daily net assets, respectively.
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
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<PAGE> 46
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, 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, Columbia and the Funds' custodian 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 VIP 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 a Fund's net asset value per share or
result in financial losses to any shareholder.
ADMINISTRATOR
First Data Investor Services Group, Inc. ("FDISG"), a wholly-owned
subsidiary of First Data Corporation, is the Funds' administrator. FDISG's
offices are located at 4400 Computer Drive, Westboro, Massachusetts 01581.
FDISG generally assists the Funds in their administration and
operation. FDISG also serves as administrator to the portfolios of The Galaxy
Fund and Galaxy Fund II. For the services provided to the Funds, FDISG is
entitled to receive administration fees, computed daily and paid monthly, at
the annual rate of .085% of the first $1 billion of the combined average daily
net assets of the Funds, and declining percentages of assets in excess of $1
billion. The minimum aggregate annual fee payable for administration services
is $100,000. In addition, FDISG also receives a separate annual fee from each
Fund for certain fund accounting services and is paid by each Fund for custody
services provided by The Chase Manhattan Bank. From time to time, FDISG may
waive voluntarily all or a portion of the administration fee payable to it by
the Funds.
DESCRIPTION OF GALAXY VIP AND ITS SHARES
GALAXY VIP was organized as a Massachusetts business trust on May 27,
1992. GALAXY VIP is a series fund authorized to issue the following eight
classes of units of beneficial interest: Class A shares, representing interests
in the Money Market Fund; Class B shares, representing interests in the Equity
Fund; Class C shares, representing interests in the Asset Allocation Fund;
Class D shares, representing interests in the High Quality Bond Fund; Class E
shares, representing interests in the Small Company Growth Fund; Class F
shares, representing interests in the Growth and Income Fund; Class G shares,
representing interests in the Columbia Real Estate Equity Fund II; and Class H
shares, representing interests in the Columbia High Yield Fund II. Each share
of GALAXY VIP has a par value of $.001 per share, represents an equal
proportionate interest in the related Fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such Fund as are declared in the discretion of the
Board of Trustees. GALAXY VIP's Agreement and Declaration of
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<PAGE> 47
Trust authorizes the Board of Trustees to classify or reclassify any class or
series of shares into one or more classes or series of shares.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held, and will vote in
the aggregate and not by class, except as otherwise expressly required by law
or when the Board of Trustees determines that the matter to be voted on affects
only the interests of shareholders of a particular class. The rights
accompanying Fund shares are legally vested in the Separate Accounts. However,
Participating Insurance Companies will vote Fund shares held in their Separate
Accounts in a manner consistent with timely voting instructions received from
the holders of variable annuity contracts and variable life insurance policies.
Each Participating Insurance Company will vote Fund shares held in its Separate
Accounts for which no timely instructions are received from the holders of
variable annuity contracts and variable life insurance policies, as well as
shares it owns, in the same proportion as those shares for which voting
instructions are received. Additional information concerning voting rights of
the participants in the Separate Accounts are more fully set forth in the
prospectuses relating to those Accounts issued by the Participating Insurance
Companies.
GALAXY VIP is not required under Massachusetts law to hold annual
shareholder meetings and intends to do so only if required by the 1940 Act.
Shareholders have the right to call a meeting of shareholders to consider the
removal of one or more Trustees and such meeting will be called when requested
by the holders of record of 10% or more of GALAXY VIP's outstanding shares. To
the extent required by law, GALAXY VIP will assist in shareholder
communications in such matters.
CUSTODIAN
The Chase Manhattan Bank ("Chase"), 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. Services
performed by Chase for the Funds are described in the Statement of Additional
Information.
EXPENSES
GALAXY VIP bears the expenses in connection with the Funds'
operations, whether incurred directly or on its behalf by Fleet, Columbia,
FDISG or the Participating Insurance Companies, including taxes; interest; fees
(including fees paid to its Trustees and officers who are not affiliated with
FDISG); SEC fees; state securities fees; costs of preparing and printing
prospectuses for regulatory purposes and for distribution to existing
shareholders; advisory, administration, fund accounting and custody fees;
certain insurance premiums; outside auditing and legal expenses; costs of
shareholders' reports and meetings; and any extraordinary expenses. Otherwise,
Fleet, Columbia and FDISG bear their own expenses incurred in connection with
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<PAGE> 48
performing services for the Funds. The Funds also pay for brokerage fees and
commissions in connection with the purchase of portfolio securities.
PERFORMANCE AND YIELD INFORMATION
From time to time, in advertisements or in reports to shareholders,
the performance and yields of the Funds may be quoted and compared to those of
other mutual funds with similar investment objectives and to stock or other
relevant bond indexes or to rankings prepared by independent services or other
financial or industry publications that monitor the performance of mutual
funds.
Performance and yield data as reported in national financial
publications including, but not limited to, Money Magazine, Forbes, Barron's,
The Wall Street Journal and The New York Times, as well as in publications of a
local or regional nature may be used in comparing the performance and yields of
the Funds.
The yield of the Money Market Fund will refer to the income generated
over a seven-day period identified in the advertisement. This income is
annualized, i.e. the income during a particular week is assumed to be generated
each week over a 52-week period, and is shown as a percentage of the
investment. The Money Market Fund may also advertise its effective yield which
is calculated similarly but, when annualized, the income from an investment in
the Fund is assumed to be reinvested. Consequently, the "effective yield" will
be slightly higher because of the compounding effect.
The standard yield is computed by dividing a Fund's average daily net
investment income per share during a 30-day (or one month) base period
identified in the advertisement by the net asset value per share on the last
day of the period, and annualizing the result on a semi-annual basis. The
Funds may also advertise their "effective yield" which is calculated similarly
but, when annualized, the income earned by an investment in a Fund is assumed
to be reinvested.
The Funds may also advertise their performance using "average annual
total return" over various periods of time. Such total return figure reflects
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 dividend and capital gains distributions made by a Fund during the period
are reinvested in Fund shares.
Performance and yields of the Funds will fluctuate and any quotation
of performance or yield should not be considered as representative of future
performance. Since yields fluctuate, yield data
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<PAGE> 49
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.
Performance and yield are generally functions of the kind and quality of the
instruments held in a portfolio, portfolio maturity, operating expenses, and
market conditions.
Yields and total returns quoted for the Funds include the effect of
deducting the Funds' expenses, but may not include charges and expenses
attributable to a particular variable annuity contract or variable life
insurance policy. Since shares of the Funds can be purchased only through a
variable annuity contract or variable life insurance policy, you should
carefully review the prospectus of the variable annuity contract or variable
life insurance policy you have chosen for information on relevant charges and
expenses. Including these charges in the quotations of the Funds' yield and
total return would have the effect of decreasing performance. Performance
information for the Funds must always be accompanied by, and be reviewed with,
performance information for the insurance product which invests in the Funds.
The portfolio managers of the Funds and other investment professionals
may from time to time discuss in advertising, sales literature or other
material, including periodic publications, various topics of interest to
shareholders and prospective investors. The topics may include but are not
limited to the advantages and disadvantages of investing in tax-deferred and
taxable investments; Fund performance and how such performance may compare to
various market indices; shareholder profiles and hypothetical investor
scenarios; the economy; the financial and capital markets; investment
strategies and techniques; investment products; and tax, retirement and
investment planning.
MISCELLANEOUS
As used in this Prospectus, a "vote of the holders of a majority of
the outstanding shares" of GALAXY VIP or a particular Fund means, with respect
to the approval of an investment advisory agreement or a change in an
investment objective or fundamental investment policy, the affirmative vote of
the holders of the lesser of (a) more than 50% of the outstanding shares of
GALAXY VIP or such Fund, or (b) 67% or more of the shares of GALAXY VIP or such
Fund present at a meeting if more than 50% of the outstanding shares of GALAXY
VIP or such Fund are represented at the meeting in person or by proxy.
Inquiries regarding GALAXY VIP should be made to GALAXY VIP's offices
at 4400 Computer Drive, Westboro, Massachusetts 01581. Holders of variable
annuity contracts or variable life insurance policies issued by Participating
Insurance Companies for which shares of the Funds are the investment vehicle
will receive from the Participating Insurance Companies unaudited semi-annual
financial statements and year-end financial statements audited by the Funds'
independent certified public accountants. Each report will show the
investments owned by the Funds and the market values of the investments and
will provide other information about the Funds and their operations.
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<PAGE> 50
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
PRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY GALAXY VIP.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY GALAXY VIP IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
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<PAGE> 51
THE GALAXY VIP FUND
FORM N-1A
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(a)
<TABLE>
<CAPTION>
Part B
Item No Statement of Additional Information Heading
- ------- -------------------------------------------
<S> <C>
I. Table of Contents........... Table of Contents
II. General Information and
History..................... Not Applicable
III. Investment Objectives and
Policies.................... Investment Objectives and Policies; Net Asset
Value-Money Market Fund; Dividends-Money
Market Fund
IV. Management of the Fund...... Trustees and Officers; Miscellaneous
V. Control Persons and Principal
Holders of Securities....... See Prospectus -- "Management of Galaxy VIP"
VI. Investment Advisory and
Other Services.............. Advisory, Administration and Custodian
Agreements; Distributor; Auditors; Counsel
VII. Brokerage Allocation and
Other Practices............. Portfolio Transactions
VIII. Capital Stock and Other
Securities................. Description of Shares
IX. Purchase, Redemption and
Pricing of Securities
Being Offered............... Net Asset Value -- Money Market Fund; Additional
Purchase and Redemption Information; Description
of Shares
X. Tax Status.................. Not Applicable
XI. Underwriters................ Portfolio Transactions
XII. Calculation of
Performance Data............ Performance and Yield Information
XIII. Financial Statements........ Financial Statements
</TABLE>
(ii)
<PAGE> 52
THE GALAXY VIP FUND
STATEMENT OF ADDITIONAL INFORMATION
MONEY MARKET FUND
EQUITY FUND
GROWTH AND INCOME FUND
SMALL COMPANY GROWTH FUND
COLUMBIA REAL ESTATE EQUITY FUND II
ASSET ALLOCATION FUND
HIGH QUALITY BOND FUND
COLUMBIA HIGH YIELD FUND II
_________, 1998
<PAGE> 53
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the current prospectus (the "Prospectus") for the
investment portfolios of The Galaxy VIP Fund ("GALAXY VIP") dated _________,
1998 as it may from time to time be supplemented or revised. This Statement of
Additional Information is incorporated by reference in its entirety into such
Prospectus. No investment in shares of the Funds should be made without
reading the Prospectus. Copies of the Prospectus may be obtained by writing
GALAXY VIP c/o First Data Investor Services Group, Inc., 4400 Computer Drive,
Westboro, Massachusetts 01581 or by calling your Participating Insurance
Company.
<PAGE> 54
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Variable and Floating Rate Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Bank Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Mortgage-Backed and Asset-Backed Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
When-Issued, Forward Commitment and Delayed Settlement Transactions . . . . . . . . . . . . . . . . . . . . . . 3
Stand-By Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Repurchase Agreements; Reverse Repurchase Agreements; Loans of Portfolio Securities . . . . . . . . . . . . . . 5
U.S. Government Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Derivative Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Portfolio Securities Generally -- Money Market Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Additional Investment Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
NET ASSET VALUE - MONEY MARKET FUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
DIVIDENDS - MONEY MARKET FUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
DESCRIPTION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
TRUSTEES AND OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Shareholder and Trustee Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ADVISORY, ADMINISTRATION AND CUSTODIAN AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
DISTRIBUTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
COUNSEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
PERFORMANCE AND YIELD INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Yield Quotations -- Money Market Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Yield and Total Return Quotations -- Non-Money Market Funds . . . . . . . . . . . . . . . . . . . . . . . . . . 26
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
</TABLE>
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<PAGE> 55
<TABLE>
<CAPTION>
Page
----
<S> <C>
APPENDIX A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
APPENDIX B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FS-1
</TABLE>
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<PAGE> 56
INVESTMENT OBJECTIVES AND POLICIES
GALAXY VIP offers units of beneficial interest ("Shares") representing
interests in eight investment portfolios: the Money Market Fund, Equity Fund,
Growth and Income Fund, Small Company Growth Fund, Columbia Real Estate Equity
Fund II, Asset Allocation Fund, High Quality Bond Fund and Columbia High Yield
Fund II (collectively, the "Funds"). This Statement of Additional Information
provides additional investment information with respect to all Funds and should
be read in conjunction with the current Prospectus.
VARIABLE AND FLOATING RATE OBLIGATIONS
The Money Market Fund may purchase variable and floating rate
instruments as described in the Prospectus. If such an instrument is not
rated, the investment adviser to the Fund, Fleet Investment Advisors Inc.
("Fleet"), must determine that such instrument is comparable to rated
instruments eligible for purchase by the Fund and will consider the earning
power, cash flows and other liquidity ratios of the issuers and guarantors of
such notes and will continuously monitor their financial status in order to
meet payment on demand. In determining average weighted portfolio maturity of
the Fund, a variable or floating rate instrument issued or guaranteed by the
U.S. Government or an agency or instrumentality thereof will be deemed to have
a maturity equal to the period remaining until the obligation's next interest
rate adjustment.
Variable and floating rate obligations held by the Money Market Fund
may have maturities of more than thirteen months, provided the Fund is entitled
to payment of principal upon not more than 30 days' notice or at specified
intervals not exceeding one year (upon not more than 30 days' notice).
Variable and floating rate obligations with a demand feature held by
the Money Market Fund will be deemed to have a maturity equal to the longer of
the period remaining to the next interest rate adjustment or the demand notice
period.
The Equity Fund, Growth and Income Fund, Small Company Growth Fund,
Columbia Real Estate Equity Fund II, Asset Allocation Fund, High Quality Bond
Fund and Columbia High Yield Fund II may also purchase variable and floating
rate instruments in accordance with their investment objectives and policies as
described in the Prospectus.
BANK OBLIGATIONS
For purposes of the Money Market Fund's investment policy with respect
to bank obligations, the assets of a bank or savings institution will be deemed
to include the assets of its U.S. and foreign branches. Investments by the
Equity Fund, Small Company Growth Fund, Asset Allocation Fund and High Quality
Bond Fund in non-negotiable time deposits are limited to no more than 5% of
each such Fund's total assets at the time of purchase.
<PAGE> 57
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES
Mortgage-backed securities include fixed and adjustable Mortgage
Pass-Through Certificates, which provide the holder with a pro-rata share of
interest and principal payments on a pool of mortgages, ordinarily on
residential properties. There are a number of important differences among the
agencies and instrumentalities of the U.S. Government that issue
mortgage-backed securities and among the securities that they issue.
Pass-Through Certificates guaranteed by the Government National Mortgage
Association ("GNMA") (also known as "Ginnie Maes") are guaranteed as to the
timely payment of principal and interest by GNMA, whose guarantee is backed by
the full faith and credit of the United States. Mortgage-backed securities
issued by the Federal National Mortgage Association ("FNMA") include FNMA
guaranteed Mortgage Pass-Through Certificates (also known as "Fannie Maes")
which are guaranteed as to timely payment of principal and interest by FNMA.
They are not backed by or entitled to the full faith and credit of the United
States, but are supported by the right of the FNMA to borrow from the Treasury.
Mortgage-backed securities issued by the Federal Home Loan Mortgage Corporation
("FHLMC") include FHLMC Mortgage Participation Certificates (also known as
"Freddie Macs"). Freddie Macs are not guaranteed by the United States or by
any Federal Home Loan Bank and do not constitute a debt or obligation of the
United States or of any Federal Home Loan Bank. Freddie Macs entitle the
holder to timely payment of interest, which is guaranteed by the FHLMC. FHLMC
guarantees either ultimate collection or timely payment of all principal
payments on the underlying mortgage loans. When FHLMC does not guarantee
timely payment of principal, FHLMC is required to remit the amount due on
account of its guarantee of ultimate payment of principal no later than one
year after it becomes payable.
Mortgage-backed securities also include collateralized mortgage
obligations ("CMOs"), which provide the holder with a specified interest in the
cash flow of a pool of underlying mortgages or other mortgage-backed
securities. Issuers of CMOs frequently elect to be taxed as pass-through
entities known as real estate mortgage investment conduits, or REMICs. CMOs
are issued in multiple classes, each with a specified fixed or floating
interest rate and a final distribution date. Although the relative payment
rights of these classes can be structured in a number of different ways, most
often payments of principal are applied to the CMO classes in order of
respective stated maturities. CMOs can expose a Fund to more volatility and
interest rate risk than other types of mortgage-backed securities.
Asset-backed securities are generally issued as pass-through
certificates, which represent undivided fractional ownership interests in an
underlying pool of assets, or as debt instruments, which are also known as
collateralized obligations, and are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt. Asset-backed securities are often backed by a pool of
assets representing the obligations of a number of different parties.
The yield characteristics of mortgage-backed and asset-backed
securities differ from traditional debt securities. A major difference is that
the principal amount of the obligations
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may be prepaid at any time because the underlying assets (i.e., loans)
generally may be prepaid at any time. As a result, a decrease in interest
rates in the market may result in increases in the level of prepayments as
borrowers, particularly mortgagors, refinance and repay their loans. An
increased prepayment rate will have the effect of shortening the maturity of
the security. If a Fund has purchased a mortgage-backed or asset-backed
security at a premium, a faster than anticipated prepayment rate could result
in a loss of principal to the extent of the premium paid. Conversely, an
increase in interest rates may result in lengthening the anticipated maturity
because expected prepayments are reduced. A prepayment rate that is faster
than expected will reduce yield to maturity, while a prepayment rate that is
slower than expected may have the opposite effect of increasing yield to
maturity.
In general, the assets supporting non-mortgage asset-backed securities
are of shorter maturity than the assets supporting mortgage-backed securities.
Like other fixed-income securities, when interest rates rise the value of an
asset-backed security generally will decline; however, when interest rates
decline, the value of an asset-backed security with prepayment features may not
increase as much as that of other fixed income securities, and, as noted above,
changes in market rates of interest may accelerate or retard prepayments and
thus affect maturities.
These characteristics may result in a higher level of price volatility
for these assets under certain market conditions. In addition, while the
trading market for short-term mortgages and asset-backed securities is
ordinarily quite liquid, in times of financial stress the trading market for
these securities sometimes becomes restricted.
WHEN-ISSUED, FORWARD COMMITMENT AND DELAYED SETTLEMENT TRANSACTIONS
When a Fund agrees to purchase securities on a "when-issued," "forward
commitment" or "delayed settlement" basis, the Fund's custodian will set aside
cash or liquid portfolio securities equal to the amount of the commitment in a
separate account. In the event of a decline in the value of the securities
that the custodian has set aside, a Fund may be required to place additional
assets in the separate account in order to ensure that the value of the account
remains equal to the amount of the Fund's commitment. A Fund's net assets may
fluctuate to a greater degree if it sets aside portfolio securities to cover
such purchase commitments than if it sets aside cash. Because a Fund sets
aside liquid assets to satisfy its purchase commitments in the manner
described, the Fund's liquidity and ability to manage its portfolio might be
affected in the event its commitments to purchase "forward commitments,"
commitments to purchase "when-issued" securities or commitments to purchase
securities on a "delayed settlement" basis exceeds 25% of the value of its
total assets.
When a Fund engages in "when-issued," "forward commitment" or "delayed
settlement" transactions, it relies on the seller to consummate the trade.
Failure of the seller to do so may result in the Fund's incurring a loss or
missing an opportunity to obtain a price considered to be advantageous for a
security. For purposes of determining the average
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weighted maturity of a Fund's portfolio, the maturity of "when-issued"
securities is calculated from the date of settlement of the purchase to the
maturity date.
STAND-BY COMMITMENTS
Under a "stand-by commitment," a dealer agrees to purchase from the
High Quality Bond Fund, at the Fund's option, specified securities at a
specified price. "Stand-by commitments" are exercisable by the Fund at any
time before the maturity of the underlying security, and may be sold,
transferred or assigned by the Fund only with respect to the underlying
instruments.
Although "stand-by commitments" are often available without the
payment of any direct or indirect consideration, if necessary or advisable, the
Fund may pay for a "stand-by commitment" either separately in cash or by paying
a higher price for securities which are acquired subject to the commitment.
Where the Fund pays any consideration directly or indirectly for a "stand-by
commitment," its cost will be reflected as unrealized depreciation for the
period during which the commitment is held by the Fund.
The Fund will enter into "stand-by commitments" only with banks and
broker/dealers which present minimal credit risks. In evaluating the
creditworthiness of the issuer of a "stand-by commitment," Fleet, as the Fund's
investment adviser, will review periodically the issuer's assets, liabilities,
contingent claims and other relevant financial information.
The Fund will acquire "stand-by commitments" solely to facilitate
liquidity and does not intend to exercise its rights thereunder for trading
purposes. "Stand-by commitments" will be valued at zero in determining the
Fund's net asset value.
REPURCHASE AGREEMENTS; REVERSE REPURCHASE AGREEMENTS; LOANS OF PORTFOLIO
SECURITIES
Each Fund may enter into repurchase agreements. The repurchase price
under a repurchase agreement generally equals the price paid by a Fund plus
interest negotiated on the basis of current short-term rates (which may be more
or less than the rate on the securities underlying the repurchase agreement).
Securities subject to repurchase agreements will be held by a Fund's custodian
in a segregated account or in the Federal Reserve/Treasury book-entry system.
Repurchase agreements are considered to be loans by a Fund under the Investment
Company Act of 1940, as amended (the "1940 Act").
Each Fund may enter into reverse repurchase agreements. Whenever a
Fund enters into a reverse repurchase agreement, it will place in a segregated
custodial account cash or other liquid portfolio securities equal to the
repurchase price (including accrued interest). The Fund will monitor the
account to ensure such equivalent value is maintained. Reverse repurchase
agreements are considered to be borrowings by a Fund under the 1940 Act.
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A Fund that loans portfolio securities would continue to accrue
interest on the securities loaned and would also earn income on the loans. Any
cash collateral received by the Fund in connection with such loans would be
invested in high quality, short-term "money market" instruments.
U.S. GOVERNMENT SECURITIES
Examples of the types of obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities (hereinafter, "U.S. Government
obligations") that may be held by the Funds include, without limitation, direct
obligations of the U.S. Treasury, and securities issued or guaranteed by the
Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, Federal
Housing Administration, Farmers Home Administration, Export-Import Bank of the
United States, Small Business Administration, GNMA, FNMA, General Services
Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, FHLMC, Federal Intermediate Credit Banks, Resolution Trust
Corporation and Maritime Administration.
DERIVATIVE SECURITIES
OPTIONS TRADING
As stated in the Prospectus, (i) each Fund other than the Money Market
Fund and High Quality Bond Fund may write covered call options on securities
and (ii) the Growth and Income Fund, Small Company Growth Fund, Columbia Real
Estate Equity Fund II and Columbia High Yield Fund II may purchase put and call
options based on any type of security, index or currency. Options trading is a
highly specialized activity which entails greater than ordinary investment
risks. Regardless of how much the market price of the underlying security,
index or currency increases or decreases, the option buyer's risk is limited to
the amount of the original investment for the purchase of the option. However,
options may be more volatile than the underlying instruments, and therefore, on
a percentage basis, an investment in options may be subject to greater
fluctuation than an investment in the underlying instruments themselves. Put
and call options purchased by a Fund will be valued at the last sale price each
day or, in the absence of such a price, at the mean between bid and asked
prices.
A listed call option for a particular security gives the purchaser of
the option the right to buy from a clearing corporation, and a writer has the
obligation to sell to the clearing corporation, the underlying security at the
stated exercise price at any time prior to the expiration of the option,
regardless of the market price of the security. The premium paid to the writer
is in consideration for undertaking the obligations under the option contract.
A listed put option gives the purchaser the right to sell to a clearing
corporation the underlying security at the stated exercise price at any time
prior to the expiration date of the option, regardless of the market price of
the security. In contrast to an option on a particular security, an option on
an index provides the holder with the right to make or receive a cash
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settlement upon exercise of the option. The amount of this settlement will be
equal to the difference between the closing price of the index at the time of
exercise and the exercise price of the option expressed in dollars, times a
specified multiple.
The call options written by a Fund will be "covered", which means that
the Fund writing the option owns the security underlying the call or has an
absolute and immediate right to acquire that security without additional cash
consideration (or, if additional cash consideration is required, liquid assets
in such amount as are held in a segregated account by its custodian) upon
conversion or exchange of other securities held by it. For a call option on an
index, the option is covered if the Fund involved owns securities whose price
changes, in the opinion of Fleet or Columbia Management Co., the investment
adviser for the Columbia Real Estate Equity Fund II and Columbia High Yield
Fund II, are expected to be substantially similar to those of the index or
maintains with its custodian liquid assets equal to the contract value. A call
option is also covered if the Fund involved holds a call on the same security
or index as the call written where the exercise price of the call held is (i)
equal to or less than the exercise price of the call written, or (ii) greater
than the exercise price of the call written provided the difference is
maintained by the Fund in liquid assets in a segregated account with its
custodian. A secured put option written by a Fund means that the Fund
maintains in a segregated account with the custodian cash or U.S. Government
securities in an amount not less than the exercise price of the option at all
times during the option period.
The principal reason for writing call options on a securities
portfolio is the attempt to realize, through the receipt of premiums, a greater
current return than would be realized on the securities alone. In return for
the premium, the covered option writer gives up the opportunity for profit from
a price increase in the underlying security above the exercise price so long as
its obligation as a writer continues, but retains the risk of loss should the
price of the security decline. Unlike one who owns securities not subject to
an option, the covered option writer has no control over when it may be
required to sell its securities, since it may be assigned an exercise notice at
any time prior to the expiration of its obligation as a writer.
A Fund's obligation to sell a security subject to a covered call
option written by it, or to purchase a security subject to a secured put option
written by it, may be terminated prior to the expiration date of the option by
the Fund's executing a closing purchase transaction, which is effected by
purchasing on an exchange an option of the same series (i.e., same underlying
security, exercise price and expiration date) as the option previously written.
Such a purchase does not result in the ownership of an option. A closing
purchase transaction will ordinarily be effected to prevent the underlying
security from being called, to permit the sale of the underlying security, or
to permit the writing of a new option containing different terms on the
underlying security. The cost of such a liquidation purchase plus transaction
costs may be greater than the premium received upon the original option, in
which event the Fund will have incurred a loss in the transaction. An option
position may be closed out only on an exchange which provides a secondary
market for an
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option of the same series. There is no assurance that a liquid secondary
market on an exchange will exist for any particular option. A covered call
option writer, unable to effect a closing purchase transaction, would not be
able to sell the underlying security until the option expires or the underlying
security is delivered upon exercise. As a result, the writer in such
circumstances would be subject to the risk of market decline in the underlying
security during such period. A Fund will write an option on a particular
security only if Fleet or Columbia believes that a liquid secondary market will
exist on an exchange for options of the same series which will permit the Fund
to make a closing purchase transaction in order to close out its position.
When a Fund writes a covered call option, an amount equal to the net
premium (the premium less the commission) received by the Fund is included in
the liability section of the Fund's statement of assets and liabilities as a
deferred credit. The amount of the deferred credit will be subsequently
marked-to-market to reflect the current value of the option written. The
current value of the traded option is the last sale price or, in the absence of
a sale, the average of the closing bid and asked prices. If an option expires
on the stipulated expiration date or if the Fund enters into a closing purchase
transaction, it will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the net premium received when the option is sold) and the
deferred credit related to such option will be eliminated. Any gain on a
covered call option may be offset by a decline in the market price of the
underlying security during the option period. If a covered call option is
exercised, the Fund involved may deliver the underlying security held by it or
purchase the underlying security in the open market. In either event, the
proceeds of the sale will be increased by the net premium originally received
and the Fund will realize a gain or loss. If a secured put option is
exercised, the amount paid by the Fund for the underlying security will be
partially offset by the amount of the premium previously paid to the Fund.
Premiums from expired options written by a Fund and net gains from closing
purchase transactions are treated as short-term capital gains for federal
income tax purposes, and losses on closing purchase transactions are short-term
capital losses.
As noted previously, there are several risks associated with
transactions in options on securities and indices. For example, there are
significant differences between the securities and options markets that could
result in an imperfect correlation between these markets, causing a given
transaction not to achieve its objectives. In addition, a liquid secondary
market for particular options, whether traded over-the-counter or on a national
securities exchange may be absent for reasons which include the following:
there may be insufficient trading interest in certain options; restrictions may
be imposed by an exchange on opening transactions or closing transactions or
both; trading halts, suspensions or other restrictions may be imposed with
respect to particular classes or series of options or underlying securities;
unusual or unforeseen circumstances may interrupt normal operations on an
exchange; the facilities of an exchange or the Options Clearing Corporation may
not at all times be adequate to handle current trading volume; or one or more
exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of options (or a particular class or
series of options), in which event the secondary
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market on that exchange (or in that class or series of options) would cease to
exist, although outstanding options that had been issued by the Options
Clearing Corporation as a result of trades on that exchange would continue to
be exercisable in accordance with their terms.
A decision as to whether, when and how to use options involves the
exercise of skill and judgment, and even a well-conceived transaction may
result in a loss because of market behavior or unexpected events.
FUTURES CONTRACTS
The Growth and Income Fund, Small Company Growth Fund, Columbia Real
Estate Equity Fund II, High Quality Bond Fund and Columbia High Yield Fund II
may enter into financial futures contracts, which are commodity contracts that
obligate the holder to take or make delivery of a specified quantity of a
financial instrument, such as a security or a foreign currency, or the cash
value of a securities index, during a specified future period at a specified
price. The High Quality Bond Fund will only write contracts (both purchases
and sales) for the future delivery of fixed income securities (commonly known
as interest rate futures contracts). See Appendix B to this Statement of
Additional Information for additional information on futures contracts.
INDEXED SECURITIES
The Growth and Income Fund and Small Company Growth Fund may invest in
a type of derivative security known as indexed securities. The value of these
securities is linked to foreign currencies, interest rates, commodities,
indices or other financial indicators. Most indexed securities are short- to
intermediate-term fixed income securities whose values at maturity or interest
rates rise or fall according to the change in one or more specified underlying
instruments. Indexed securities may be positively or negatively indexed (i.e.,
their value may increase or decrease if the underlying instrument appreciates),
and may have return characteristics similar to direct investments in the
underlying instrument or to one or more options on the underlying instrument.
Indexed securities may be more volatile than the underlying instrument itself.
SWAP AGREEMENTS
As one way of managing their exposure to different types of
investments, the Growth and Income Fund and Small Company Growth Fund may enter
into interest rate swaps, currency swaps and other types of swap agreements
such as caps, collars and floors. In a typical interest rate swap, one party
agrees to make regular payments equal to a floating interest rate times a
"notional principal amount," in return for payments equal to a fixed rate times
the same amount, for a specified period of time. If a swap agreement provides
for payments in different currencies, the parties might agree to exchange the
notional principal amount as well. Swaps may also depend on other prices or
rates, such as the value of an index or mortgage prepayment rates.
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In a typical cap or floor agreement, one party agrees to make payments
only under specified circumstances, usually in return for payment of a fee by
the other party. For example, the buyer of an interest rate cap obtains the
right to receive payments to the extent that a specified interest rate exceeds
a designated level, while the seller of an interest rate floor is obligated to
make payments to the extent that a specified interest rate falls below an
agreed upon level. An interest rate collar combines elements of buying a cap
and selling a floor.
Swap agreements will tend to shift a Fund's investment exposure from
one type of investment to another. For example, if a Fund agreed to exchange
payments in dollars for payments in foreign currency, the swap agreement would
tend to decrease the Fund's exposure to U.S. interest rates and increase its
exposure to foreign currency and interest rates. Caps and floors have an
effect similar to buying or writing options. Depending on how they are used,
swap agreements may increase or decrease the overall volatility of a Fund's
investments and its share price and yield.
Swap agreements are sophisticated hedging instruments that typically
involve a small investment of cash relative to the magnitude of risks assumed.
As a result, swaps can be highly volatile and may have a considerable impact on
a Fund's performance. Swap agreements are subject to risks related to the
counterparty's ability to perform, and may decline in value if the
counterparty's creditworthiness deteriorates. A Fund may also suffer losses if
it is unable to terminate outstanding swap agreements or reduce its exposure
through offsetting transactions.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Because the Growth and Income Fund, Small Company Growth Fund,
Columbia Real Estate Equity Fund II and Asset Allocation Fund may buy and sell
securities denominated in currencies other than the U.S. dollar, and receive
interest, dividends and sale proceeds in currencies other than the U.S. dollar,
the Funds may enter into foreign currency exchange transactions to convert
United States currency to foreign currency and foreign currency to United
States currency as well as convert foreign currency to other foreign
currencies. A Fund either enters into these transactions on a spot (i.e.,
cash) basis at the spot rate prevailing in the foreign currency exchange
market, or uses forward contracts to purchase or sell foreign currencies.
A forward foreign currency exchange contract is an obligation by a
Fund to purchase or sell a specific currency at a specified price and future
date, which may be any fixed number of days from the date of the contract.
Forward foreign currency exchange contracts establish an exchange rate at a
future date. These contracts are transferable in the interbank market
conducted directly between currency traders (usually large commercial banks)
and their customers. A forward foreign currency exchange contract generally
has no deposit requirement, and is traded at a net price without commission.
Neither spot transactions nor forward foreign currency exchange contracts
eliminate fluctuations in the
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prices of a Fund's portfolio securities or in foreign exchange rates, or
prevent loss if the prices of these securities should decline.
A Fund may enter into foreign currency hedging transactions in an
attempt to protect against changes in foreign currency exchange rates between
the trade and settlement dates of specific securities transactions or changes
in foreign currency exchange rates that would adversely affect a portfolio
position or an anticipated portfolio position. Since consideration of the
prospect for currency parities will be incorporated into a Fund's long-term
investment decisions, a Fund will not routinely enter into foreign currency
hedging transactions with respect to portfolio security transactions; however,
it is important to have the flexibility to enter into foreign currency hedging
transactions when it is determined that the transactions would be in a Fund's
best interest. Although these transactions tend to minimize the risk of loss
due to a decline in the value of the hedged currency, at the same time they
tend to limit any potential gain that might be realized should the value of the
hedged currency increase. The precise matching of the forward contract amounts
and the value of the securities involved will not generally be possible because
the future value of these securities in foreign currencies will change as a
consequence of market movements in the value of those securities between the
date the forward contract is entered into and the date it matures. The
projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain.
PORTFOLIO SECURITIES GENERALLY -- MONEY MARKET FUND
Subsequent to its purchase by the Money Market Fund, an issue of
securities may cease to be rated or its rating may be reduced below the minimum
rating required for purchase by the Fund. The Board of Trustees or Fleet,
pursuant to guidelines established by the Board, will promptly consider such an
event in determining whether the Fund should continue to hold the obligation.
The Fund may continue to hold the obligation if the Board of Trustees or Fleet
determines that retention is in accordance with the interests of the Fund and
applicable regulations of the Securities and Exchange Commission ("SEC").
ADDITIONAL INVESTMENT LIMITATIONS
In addition to the investment limitations disclosed in the Prospectus,
the Funds are subject to the following investment limitations which may be
changed with respect to a particular Fund only by a vote of the holders of a
majority of such Fund's outstanding Shares (as defined under "Miscellaneous" in
the Prospectus).
No Fund may:
1. Purchase securities on margin (except such short-term credits
as may be necessary for the clearance of purchases), make
short sales of securities, or maintain a short position.
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2. Act as an underwriter within the meaning of the Securities Act
of 1933, except insofar as a Fund might be deemed to be an
underwriter upon disposition of restricted portfolio
securities, and except to the extent that the purchase of
securities directly from the issuer thereof in accordance with
a Fund's investment objective, policies and limitations may be
deemed to be underwriting.
3. Purchase or sell real estate, except that each Fund may
purchase securities which are secured by real estate and may
purchase securities of issuers which deal in real estate or
interests therein; however, the Funds other than the Columbia
Real Estate Equity Fund II and the Columbia High Yield Fund II
will not purchase or sell interests in real estate limited
partnerships.
4. Purchase or sell commodities or commodity contracts, or invest
in oil, gas or other mineral exploration or development
programs or mineral leases; provided, however, that (i) the
High Quality Bond Fund may enter into interest rate futures
contracts to the extent permitted under the Commodity Exchange
Act and the 1940 Act; (ii) the Growth and Income Fund, Small
Company Growth Fund, Columbia Real Estate Equity Fund II and
Columbia High Yield Fund II may enter into futures contracts
and options on futures contracts; and (iii) the Growth and
Income Fund, Small Company Growth Fund, Columbia Real Estate
Equity Fund II and Asset Allocation Fund may enter into
forward currency contracts and foreign currency futures
contracts and related options to the extent permitted by their
respective investment objectives and policies.
5. Invest in or sell put options, call options, straddles,
spreads, or any combination thereof; provided, however, that
(i) the Equity Fund, Growth and Income Fund, Small Company
Growth Fund, Columbia Real Estate Equity Fund II, Asset
Allocation Fund and Columbia High Yield Fund II may write
covered call options with respect to their portfolio
securities that are traded on a national securities exchange,
and may enter into closing purchase transactions with respect
to such options if, at the time of the writing of such
options, the aggregate value of the securities subject to the
options written by the Funds does not exceed 25% of the value
of their respective total assets; (ii) the Equity Fund and
Asset Allocation Fund may purchase put and call options to the
extent permitted by their respective investment objectives and
policies; and (iii) the Growth and Income Fund, Small Company
Growth Fund, Columbia Real Estate Equity Fund II and Columbia
High Yield Fund II may purchase put and call options and sell
or write secured put options to the extent permitted by their
respective investment objectives and policies.
6. Invest in companies for the purpose of exercising management
or control.
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7. Purchase securities of other investment companies except in
connection with a merger, consolidation, reorganization, or
acquisition of assets; provided, however, that each Fund other
than the Money Market Fund may acquire such securities in
accordance with the 1940 Act.
In addition to the above limitations:
8. The Money Market Fund may not purchase any securities other
than "money-market" instruments, some of which may be subject
to repurchase agreements, but the Fund may make
interest-bearing savings deposits not in excess of 5% of the
value of its total assets at the time of deposit and may make
time deposits.
9. The Money Market, Equity and High Quality Bond Funds may not
purchase foreign securities, except certificates of deposit,
bankers' acceptances, or other similar obligations issued by
U.S. branches of foreign banks or foreign branches of U.S.
banks; provided, however, that (i) the High Quality Bond Fund
may also purchase obligations of Canadian Provincial
Governments in accordance with the Fund's investment objective
and policies; (ii) the Equity Fund may purchase securities
issued by foreign banks, commercial paper issued by Canadian
issuers and other securities of Canadian companies in
accordance with its investment objective and policies; and
(iii) the Equity Fund may invest up to 20% of its total assets
in American Depository Receipts and European Depository
Receipts.
NET ASSET VALUE - MONEY MARKET FUND
GALAXY VIP uses the amortized cost method of valuation to value Shares
of the Money Market Fund. In order to use the amortized cost method, the Fund
complies with the various quality and maturity restrictions specified in Rule
2a-7 ("Rule 2a-7") promulgated under the 1940 Act. Pursuant to this method, a
security is valued at its initial acquisition cost, as adjusted for
amortization of premium or accretion of discount, regardless of the impact of
fluctuating interest rates on the market value of the security. Where it is
not appropriate to value a security by the amortized cost method, the security
will be valued either by market quotations or by fair value as determined by or
under the direction of GALAXY VIP's Board of Trustees. This method may result
in periods during which value, as determined by amortized cost, is higher or
lower than the price the Fund would receive if it sold the security. The value
of securities in the Fund can be expected to vary inversely with changes in
prevailing interest rates. Thus, if interest rates have increased from the
time a security was purchased, such security, if sold, might be sold at a price
less than its cost. Similarly, if interest rates have declined from the time a
security was purchased, such
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security, if sold, might be sold at a price greater than its purchase cost. In
either instance, if the security is held to maturity, no gain or loss will be
realized.
The Money Market Fund invests only in instruments which meet the
applicable quality requirements of Rule 2a-7 and maintains a dollar-weighted
average portfolio maturity appropriate to its objective of maintaining a stable
net asset value per Share, provided that the Fund will not purchase any
security deemed to have a remaining maturity (as defined in the 1940 Act) of
more than thirteen months nor maintain a dollar-weighted average portfolio
maturity which exceeds 90 days. GALAXY VIP's Board of Trustees has established
procedures reasonably designed, taking into account current market conditions
and the Fund's investment objective, to stabilize the net asset value per Share
of the Fund for purposes of sales and redemptions at $1.00. These procedures
include review by the Board of Trustees, at such intervals as it deems
appropriate, to determine the extent, if any, to which the net asset value per
Share of the Fund, calculated by using available market quotations, deviates
from $1.00 per Share. In the event such deviation exceeds one-half of one
percent, the Board of Trustees will promptly consider what action, if any,
should be initiated. If the Board of Trustees believes that the extent of any
deviation from the Fund's $1.00 amortized cost price per Share may result in
material dilution or other unfair results to new or existing investors, it has
agreed to take such steps as it considers appropriate to eliminate or reduce,
to the extent reasonably practicable, any such dilution or unfair results.
These steps may include selling portfolio instruments prior to maturity;
shortening the average portfolio maturity; withholding or reducing dividends;
redeeming Shares in kind; reducing the number of the Fund's outstanding Shares
without monetary consideration; or utilizing a net asset value per Share
determined by using available market quotations.
DIVIDENDS - MONEY MARKET FUND
As stated, GALAXY VIP uses its best efforts to maintain the net asset
value per Share of the Money Market Fund at $1.00. As a result of a
significant expense or realized or unrealized loss incurred by the Fund, it is
possible that the Fund's net asset value per Share may fall below $1.00.
Should GALAXY VIP incur or anticipate any unusual or unexpected significant
expense or loss which would affect disproportionately the income of the Fund
for a particular period, the Board of Trustees would at that time consider
whether to adhere to the present dividend policy with respect to the Fund or to
revise it in order to ameliorate to the extent possible the disproportionate
effect of such expense or loss on the income of the Fund. Such expense or loss
may result in a shareholder's receiving no dividends for the period in which it
holds Shares of the Fund and in its receiving upon redemption a price per Share
lower than that which it paid.
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ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Funds are sold on a continuous basis by First Data
Distributors, Inc. ("FD Distributors"). As described in the Prospectus, Shares
of the Funds are sold and redeemed at their net asset value as next determined
after receipt of the purchase or redemption order. Each purchase is confirmed
to the Separate Account in a written statement of the number of Shares
purchased and the aggregate number of Shares currently held.
Each Fund determines its net asset value per Share by subtracting the
Fund's liabilities (including accrued expenses and dividends payable) from its
total assets (the market value of the securities the Fund holds plus cash and
other assets, including income accrued and not yet received) and dividing the
result by the total number of Shares outstanding.
GALAXY VIP 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 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.
DESCRIPTION OF SHARES
GALAXY VIP is a Massachusetts business trust. GALAXY VIP's
Declaration of Trust authorizes the Board of Trustees to issue an unlimited
number of Shares and to classify or reclassify any unissued Shares into one or
more additional classes by setting or changing in any one or more respects
their respective preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption. Pursuant to such authority, the Board of Trustees
has authorized the issuance of eight classes of Shares, each representing
interests in one of eight separate investment portfolios: Money Market Fund,
Equity Fund, Growth and Income Fund, Small Company Growth Fund, Columbia Real
Estate Equity Fund II, Asset Allocation Fund, High Quality Bond Fund and
Columbia High Yield Fund II.
Shares have no preemptive rights and only such conversion or exchange
rights as the Board of Trustees may grant in its discretion. When issued for
payment as described in the Prospectus, Shares will be fully paid and
non-assessable. In the event of a liquidation or dissolution of GALAXY VIP or
an individual Fund, shareholders of a Fund are entitled to receive the assets
available for distribution belonging to the particular Fund, and a
proportionate distribution, based upon the relative asset values of the
respective Funds, of any general assets of GALAXY VIP not belonging to any
particular Fund which are available for distribution.
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Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as GALAXY VIP shall not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding Shares of
each Fund affected by the matter. A particular Fund is deemed to be affected
by a matter unless it is clear that the interests of each Fund in the matter
are substantially identical or that the matter does not affect any interest of
the Fund. Under the Rule, the approval of an investment advisory agreement or
any change in fundamental investment policy would be effectively acted upon
with respect to a Fund only if approved by a majority of the outstanding Shares
of such Fund. However, the Rule also provides that the ratification of the
appointment of independent public accountants, the approval of principal
underwriting contracts and the election of trustees may be effectively acted
upon by shareholders of GALAXY VIP voting without regard to class.
Shareholders are entitled to one vote for each full Share held and
fractional votes for fractional Shares held, and will vote in the aggregate,
and not by class, except as otherwise required by the 1940 Act or other
applicable law or when the matter to be voted upon affects only the interests
of the shareholders of a particular class. Voting rights are not cumulative
and, accordingly, the holders of more than 50% of the aggregate of GALAXY VIP's
outstanding Shares may elect all of the trustees, irrespective of the votes of
other shareholders.
GALAXY VIP does not intend to hold annual shareholder meetings except
as may be required by the 1940 Act. GALAXY VIP's Agreement and Declaration of
Trust provides that a meeting of shareholders shall be called by the Board of
Trustees upon the written request of shareholders owning at least 10% of the
outstanding Shares of GALAXY VIP entitled to vote.
GALAXY VIP's Agreement and Declaration of Trust authorizes the Board
of Trustees, without shareholder approval (unless otherwise required by
applicable law), to (a) sell and convey the assets of a class of Shares to
another management investment company for consideration which may include
securities issued by the purchaser and, in connection therewith, to cause all
outstanding Shares of such class to be redeemed at a price which is equal to
their net asset value and which may be paid in cash or by distribution of the
securities or other consideration received from the sale and conveyance; (b)
sell and convert the assets belonging to a class of Shares into money and, in
connection therewith, to cause all outstanding Shares of such class to be
redeemed at their net asset value; or (c) combine the assets belonging to a
class of Shares with the assets belonging to one or more other classes of
Shares of GALAXY VIP if the Board of Trustees reasonably determines that such
combination will not have a material adverse effect on the shareholders of any
class participating in such combination and, in connection therewith, to cause
all outstanding Shares of any such class to be redeemed at their net asset
value or converted into Shares of another class of GALAXY VIP's Shares at their
net asset value. However, the exercise of such authority by the Board of
Trustees may be subject to certain restrictions under the 1940
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<PAGE> 71
Act. The Board of Trustees may authorize the termination of any class of
Shares after the assets belonging to such class have been distributed to its
shareholders.
TRUSTEES AND OFFICERS
The trustees and executive officers of GALAXY VIP, their addresses,
principal occupations during the past five years, and other affiliations are as
follows:
<TABLE>
<CAPTION>
Positions Principal Occupation
with During Past 5 Years
Name and Address GALAXY VIP and Other Affiliations
---------------- ---------- ----------------------
<S> <C> <C>
Dwight E. Vicks, Jr. Chairman & President & Director, Vicks Lithograph &
Vicks Lithograph & Trustee Printing Corporation (book manufacturing
Printing Corporation and commercial printing); Director, Utica
Commercial Drive Fire Insurance Company; Trustee, Savings
P.O. Box 270 Bank of Utica; Director, Monitor Life
Yorkville, NY 13495 Insurance Company; Director, Commercial
Age 62 Travelers Mutual Insurance Company;
Trustee, The Galaxy Fund; Trustee, Galaxy
Fund II.
John T. O'Neill(1) President, Executive Vice President and CFO, Hasbro,
Hasbro, Inc. Treasurer & Inc. (toy and game manufacturer); Trustee,
200 Narragansett Trustee The Galaxy Fund; Trustee, Galaxy Fund II.
Park Drive
Pawtucket, RI 02862
Age 52
Louis DeThomasis Trustee President, Saint Mary's College of
Saint Mary's College Minnesota; Director, Bright Day Travel,
of Minnesota Inc.; Trustee, Religious Communities
Winona, MN 55987 Trust; Trustee, The Galaxy Fund; Trustee,
Age 55 Galaxy Fund II.
</TABLE>
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<PAGE> 72
<TABLE>
<CAPTION>
Positions Principal Occupation
with During Past 5 Years
Name and Address GALAXY VIP and Other Affiliations
---------------- ---------- ----------------------
<S> <C> <C>
Donald B. Miller Trustee Chairman, Horizon Media, Inc. (broadcast
10725 Quail Covey Road services); Director/Trustee, Lexington
Boynton Beach, FL 33436 Funds; Chairman, Executive Committee,
Age 70 Compton International, Inc. (advertising
agency); Trustee, Keuka College; Trustee,
The Galaxy Fund; Trustee, Galaxy Fund II.
James M. Seed Trustee Chairman and President, The Astra
The Astra Ventures, Inc. Projects, Incorporated (land development);
One Citizens Plaza President, The Astra Ventures,
Providence, RI 02903 Incorporated (previously, Buffinton Box
Age 55 Company - manufacturer of cardboard
boxes); Commissioner, Rhode Island
Investment Commission; Trustee, The Galaxy
Fund; Trustee, Galaxy Fund II.
Bradford S. Wellman(1) Trustee Private Investor; Director, Essex County
P.O. Box 2099 Gas Company, until January 1994; Director,
Bangor, ME 04402 Maine Mutual Fire Insurance Co.; Member,
Age 65 Maine Finance Authority until September
1995; Trustee, The Galaxy Fund; Trustee,
Galaxy Fund II.
W. Bruce McConnel, III Secretary Partner of the law firm Drinker Biddle &
1345 Chestnut Street Reath LLP, Philadelphia, Pennsylvania.
Philadelphia, PA 19107
Age 54
</TABLE>
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<PAGE> 73
<TABLE>
<CAPTION>
Positions Principal Occupation
with During Past 5 Years
Name and Address GALAXY VIP and Other Affiliations
---------------- ---------- ----------------------
<S> <C> <C>
Jylanne Dunne Vice President and First Data Investor Services Group, Inc.,
First Data Investor Services Assistant Treasurer 1990 to present.
Group, Inc.
4400 Computer Drive
Westboro, MA 01581-5108
Age 37
</TABLE>
- -------------------------
1. An interested person within the definition set forth in Section
2(a)(19) of the 1940 Act.
Effective November 1, 1996, each trustee receives an annual aggregate
fee of $29,000 for his services as a trustee of GALAXY VIP, The Galaxy Fund
("Galaxy") and Galaxy Fund II ("Galaxy II") (collectively, the "Trusts"), plus
an additional $2,250 for each in-person Galaxy Board meeting attended and
$1,500 for each in-person GALAXY VIP or Galaxy II Board meeting attended not
held concurrently with an in-person Galaxy meeting, and is reimbursed for
expenses incurred in attending all meetings. Each trustee also receives $500
for each telephone Board meeting in which the trustee participates, $1,000 for
each in-person Board committee meeting attended and $500 for each telephone
Board committee meeting in which the trustee participates. The Chairman of the
Boards of the Trusts is entitled to an additional annual aggregate fee in the
amount of $4,000, and the President and Treasurer of the Trusts 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 the Trusts based on their relative net
assets.
For the fiscal year ended October 31, 1996, each trustee was
authorized to receive an annual aggregate fee of $18,000 for his services as a
trustee of GALAXY VIP and Galaxy plus a separate annual fee of $5,000 for his
services as a trustee of Galaxy II, in addition to meeting fees of $1,500 for
each in-person Galaxy Board meeting attended, $1,500 for each in-person GALAXY
VIP Board meeting attended not held concurrently with a Galaxy Board meeting,
and $750 for each Galaxy II Board meeting attended, and reimbursement for
expenses incurred in attending meetings. Annual fees to the Chairman of the
Boards and the President and Treasurer of the Trusts were the same as the
current fees as were the fees for telephone and 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
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<PAGE> 74
deferred fees treated as if they had been invested by the Trusts in the Shares
of one or more portfolios in the Trusts, 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 Fund's assets, liabilities and net income per share, and will
not obligate the Trusts to retain the services of any trustee or obligate a
Fund to any level of compensation to the trustee. The Trusts may invest in
underlying securities without shareholder approval.
No employee of First Data Investor Services Group, Inc. receives any
compensation from GALAXY VIP for acting as an officer. No person who is an
officer, director or employee of Fleet, Columbia, or any of their affiliates,
serves as a trustee, officer or employee of GALAXY VIP. As of the date of this
Statement of Additional Information, the trustees and officers of GALAXY VIP
own less than 1% of its outstanding Shares.
The following chart provides certain information about the fees
received by GALAXY VIP's trustees in the most recently completed fiscal year.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Pension or
Retirement
Benefits Total Compensation
Accrued as Part from GALAXY VIP and
Aggregate Compensation of Fund Fund Complex* Paid to
Name of Person/Position from GALAXY VIP Expenses Trustees
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bradford S. Wellman $323.19 None $36,000
- ------------------------------------------------------------------------------------------------------------
Dwight E. Vicks, Jr. $349.94 None $38,500
Chairman
- ------------------------------------------------------------------------------------------------------------
Donald B. Miller** $249.19 None $36,430
- ------------------------------------------------------------------------------------------------------------
Brother Louis DeThomasis $312.14 None $35,000
- ------------------------------------------------------------------------------------------------------------
John T. O'Neill $322.64 None $35,250
President and Treasurer
- ------------------------------------------------------------------------------------------------------------
James M. Seed** $312.14 None $35,725
- ------------------------------------------------------------------------------------------------------------
</TABLE>
- -------------
* The "Fund Complex" consists of The Galaxy Fund, The Galaxy VIP Fund
and Galaxy Fund II. Each Trustee of Galaxy VIP also serves as a
trustee of The Galaxy Fund and Galaxy Fund II.
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<PAGE> 75
** Deferred compensation in the amounts of $0 and $211.26 accrued during
GALAXY VIP's fiscal year ended December 31, 1996 for Messrs. Miller
and Seed, respectively.
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for the
obligations of the trust. However, GALAXY VIP's Agreement and Declaration of
Trust provides that shareholders shall not be subject to any personal liability
in connection with the assets of GALAXY VIP for the acts or obligations of
GALAXY VIP, and that every note, bond, contract, order or other undertaking
made by GALAXY VIP shall contain a provision to the effect that the
shareholders are not personally liable thereunder. The Agreement and
Declaration of Trust provides for indemnification out of GALAXY VIP property of
any shareholder held personally liable solely by reason of his being or having
been a shareholder and not because of his acts or for some other reason. The
Agreement and Declaration of Trust also provides that GALAXY VIP shall, upon
request, assume the defense of any claim made against any shareholder for any
act or obligation of GALAXY VIP, and shall satisfy any judgment thereon. Thus,
the risk of a shareholder's incurring financial loss on account of shareholder
liability is limited to circumstances in which GALAXY VIP itself would be
unable to meet its obligations.
The Agreement and Declaration of Trust states further that no trustee,
officer or agent of GALAXY VIP shall be personally liable for or on account of
any contract, debt, tort, claim, damage, judgment or decree arising out of or
connected with the administration or preservation of GALAXY VIP property or the
conduct of any business of GALAXY VIP; nor shall any trustee be personally
liable to any person for any action or failure to act except by reason of his
own bad faith, willful misfeasance, gross negligence or reckless disregard of
his duties as trustee. The Agreement and Declaration of Trust also provides
that all persons having any claim against the trustees or GALAXY VIP shall look
solely to GALAXY VIP property for payment. With the exceptions stated, the
Agreement and Declaration of Trust provides that a trustee is entitled to be
indemnified against all liabilities and expenses reasonably incurred by him in
connection with the defense or disposition of any proceeding in which he may be
involved or with which he may be threatened by reason of his being or having
been a trustee, and that the Board of Trustees shall indemnify representatives
and employees of GALAXY VIP to the same extent to which they themselves are
entitled to indemnification.
ADVISORY, ADMINISTRATION AND CUSTODIAN AGREEMENTS
Fleet serves as investment adviser to the Money Market Fund, Equity
Fund, Growth and Income Fund, Small Company Growth Fund, Asset Allocation Fund
and High Quality Bond Fund. Columbia serves an investment adviser to the
Columbia Real Estate
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<PAGE> 76
Equity Fund II and Columbia High Yield Fund II. In their respective advisory
agreements, Fleet and Columbia have agreed to provide investment advisory
services to the respective Funds as described in the Prospectus. Fleet and
Columbia have also agreed to pay all expenses incurred by them in connection
with their activities under the respective advisory agreements other than the
cost of securities (including brokerage commissions) purchased for the Funds.
See "Expenses" in the Prospectus. For the services provided and expenses
assumed pursuant to the advisory agreements, GALAXY VIP has agreed (i) to pay
Fleet advisory fees, accrued daily and paid monthly, at the annual rate of .40%
of the average daily net assets of the Money Market Fund, .75% of the average
daily net assets of the Equity Fund, Growth and Income Fund, Small Company
Growth Fund and Asset Allocation Fund, respectively, and .55% of the average
daily net assets of the High Quality Bond Fund, and (ii) to pay Columbia
advisory fees, accrued daily and paid monthly, at the annual rate of .75% of
the average daily net assets of the Columbia Real Estate Equity Fund II and
.60% of the average daily net assets of the Columbia High Yield Fund II. Fleet
and Columbia may from time to time, in their discretion, waive advisory fees
payable by the respective Funds in order to maintain competitive expense
ratios.
For the fiscal year ended December 31, 1994, GALAXY VIP paid Fleet net
advisory fees of $2,899, $55,558, $32,641 and $3,966 for the Money Market Fund,
the Equity Fund, the Asset Allocation Fund and the High Quality Bond Fund,
respectively. For the fiscal year ended December 31, 1995, GALAXY VIP paid
Fleet net advisory fees of $20,155, $182,558, $77,415 and $11,048 for the Money
Market Fund, the Equity Fund, the Asset Allocation Fund and the High Quality
Bond Fund, respectively. For the fiscal year ended December 31, 1996, GALAXY
VIP paid Fleet net advisory fees of $26,160, $284,214, $152,669 and $16,778 for
the Money Market Fund, the Equity Fund, the Asset Allocation Fund and the High
Quality Bond Fund, respectively.
Each advisory agreement provides that Fleet or Columbia, as the case
may be, shall not be liable for any error of judgment or mistake of law or for
any loss suffered by the Funds in connection with the performance of its duties
under the advisory agreement, except a loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for services or a
loss resulting from willful misfeasance, bad faith or gross negligence on the
part of Fleet or Columbia, as the case may be, in the performance of its duties
or from reckless disregard by it of its duties and obligations thereunder.
Unless sooner terminated, the advisory agreement for a particular Fund will
continue in effect from year to year as long as such continuance is approved at
least annually (i) by the vote of a majority of trustees who are not parties to
such advisory agreement or interested persons (as defined in the 1940 Act) of
any such party, cast in person at a meeting called for the purpose of voting on
such approval; and (ii) by GALAXY VIP's Board of Trustees, or by a vote of a
majority of the outstanding Shares of such Fund. Each advisory agreement may
be terminated by GALAXY VIP or by Fleet or Columbia, as the case may be, on
sixty days' written notice, and will terminate immediately in the event of its
assignment.
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<PAGE> 77
First Data Investor Services Group, Inc. ("FDISG") serves as GALAXY
VIP's administrator. Under the administration agreement, FDISG has agreed to
maintain office facilities for GALAXY VIP, furnish GALAXY VIP with statistical
and research data, clerical, accounting, and bookkeeping services, certain
other services such as internal auditing services required by GALAXY VIP, and
compute the net asset value and net income of the Funds. FDISG 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 VIP's operations. For the services provided and expenses assumed
pursuant to the Administration Agreement, GALAXY VIP has agreed to pay FDISG
administration fees, computed daily and paid monthly, at the annual rate of
.085% of the first $1 billion of the combined average daily net assets of the
Funds, plus .078% of the next $1.5 billion of the combined average daily net
assets of the Funds, plus .073% of the combined average daily net assets of the
Funds in excess of $2.5 billion. In the event that the combined average daily
net assets of the Funds exceed $5 billion, the parties intend to review the
level of compensation payable to FDISG for its administration services. The
minimum aggregate annual fee payable for administration services is $100,000.
In addition, FDISG receives a separate annual fee from each Fund for certain
fund accounting services and is paid by each Fund for custody services provided
by GALAXY VIP's custodian. From time to time, FDISG may waive all or a portion
of the fees payable to it by the Funds, either voluntarily or pursuant to
applicable statutory expense limitations.
For the fiscal year ended December 31, 1994, GALAXY VIP paid FDISG net
administration, custody and fund accounting fees of $13,298, $15,624, $14,314
and $11,024 for the Money Market Fund, the Equity Fund, the Asset Allocation
Fund and the High Quality Bond Fund, respectively. For the fiscal year ended
December 31, 1995, GALAXY VIP paid FDISG net administration, custody and fund
accounting fees of $31,702, $63,860, $62,035 and $31,092 for the Money Market
Fund, the Equity Fund, the Asset Allocation Fund and the High Quality Bond
Fund, respectively. For the fiscal year ended December 31, 1996, GALAXY VIP
paid FDISG net administration, custody and fund accounting fees of $41,131,
$66,778, $70,758 and $36,993 for the Money Market Fund, the Equity Fund, the
Asset Allocation Fund and the High Quality Bond Fund, respectively.
CUSTODIAN
The Chase Manhattan Bank ("Chase Manhattan") serves as custodian to
the Funds pursuant to a Global Custody Agreement. Chase Manhattan's custody
fees are paid by FDISG. Under its custody agreement, Chase Manhattan has
agreed to: (i) maintain a separate account or accounts in the name of each
Fund; (ii) hold and disburse portfolio securities on account of each Fund;
(iii) collect and make disbursements of money on behalf of each Fund; (iv)
collect and receive all income and other payments and distributions on account
of each Fund's portfolio securities; (v) respond to correspondence from
security brokers and others relating to its duties; and (vi) make periodic
reports to the Board of
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<PAGE> 78
Trustees concerning the Funds' operations. Chase Manhattan is authorized to
select one or more banks or trust companies to serve as sub-custodian for the
Funds, provided that Chase Manhattan shall remain responsible for the
performance of all of its duties under the custodian agreement and shall be
liable to the Funds for any loss which shall occur as a result of the failure
of a sub-custodian to exercise reasonable care with respect to the safekeeping
of the Funds' assets. In addition, Chase Manhattan may employ sub-custodians
for the Growth and Income Fund, Small Company Growth Fund, Columbia Real Estate
Equity Fund II, Asset Allocation Fund and Columbia High Yield Fund II upon
prior approval by the Board of Trustees in accordance with the regulations of
the SEC, for the purpose of providing custodial services for the foreign assets
of those Funds held outside the United States. The assets of the Funds are
held under bank custodianship in compliance with the 1940 Act.
PORTFOLIO TRANSACTIONS
Debt securities purchased or sold by the Money Market Fund, Asset
Allocation Fund, High Quality Bond Fund and Columbia High Yield Fund II are
generally traded in the over-the-counter market on a net basis (i.e., without
commission) through dealers, or otherwise involve transactions directly with
the issuer of an instrument. 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.
Transactions in equity securities on U.S. stock exchanges for the
Equity Fund, Growth and Income Fund, Small Company Growth Fund, Columbia Real
Estate Equity Fund II and Asset Allocation Fund involve the payment of
negotiated brokerage commissions. On U.S. stock exchanges on which commissions
are negotiated, the cost of transactions may vary among different brokers.
Transactions in the over-the-counter market are generally principal
transactions with dealers and the costs of such transactions involve dealer
spreads rather than brokerage commissions. With respect to over-the-counter
transactions, Fleet or Columbia, as the case may be, will normally deal
directly with the dealers who make a market in the securities involved except
in those circumstances where better prices and execution are available
elsewhere or as described below.
For the fiscal years ended December 31, 1996, 1995 and 1994, the
Equity Fund paid brokerage commissions aggregating $13,235, $9,625 and $9,446,
respectively. For the fiscal years ended December 31, 1996, 1995 and 1994, the
Asset Allocation Fund paid brokerage commissions aggregating $9,717, $8,136 and
$4,403, respectively.
The Equity Fund, Growth and Income Fund, Small Company Growth Fund,
Columbia Real Estate Equity Fund II, Asset Allocation Fund, High Quality Bond
Fund and Columbia High Yield Fund II may engage in short-term trading to
achieve their investment objectives. Portfolio turnover may vary greatly from
year to year as well as within a particular year. The Money Market Fund does
not intend to seek profits from short-term
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<PAGE> 79
trading. Its annual portfolio turnover will be relatively high, but since
brokerage commissions are normally not paid on money market instruments, it
should not have a material effect on the net income of the Fund. The portfolio
turnover rates for the Equity Fund, Asset Allocation Fund and High Quality Bond
Fund for the six-month period ended June 30, 1997, for each of the last three
fiscal years and for the period from the commencement of operations is
disclosed in the Prospectus under "Financial Highlights." Although the Growth
and Income Fund, Small Company Growth Fund, Columbia Real Estate Equity Fund II
and Columbia High Yield Fund II cannot accurately predict their respective
annual portfolio turnover rates, it is not expected to exceed 100% for any of
these Funds.
In purchasing or selling securities for the Funds, Fleet or Columbia,
as the case may be, will seek to obtain the best net price and the most
favorable execution of orders. To the extent that the execution and price
offered by more than one broker/dealer are comparable, Fleet or Columbia may
effect transactions in portfolio securities with broker/dealers who provide
research, advice or other services such as (1) advice as to the value of
securities, the advisability of investing in, purchasing or selling securities
and the availability of securities or purchasers or sellers of securities and
(2) analyses and reports concerning industries, securities, economic factors
and trends, portfolio strategy and the performance of accounts. It is possible
that certain of the research, advice or other services received will primarily
benefit one or more other investment companies or other accounts for which
Fleet or Columbia exercises investment discretion. Conversely, GALAXY VIP or
any given Fund may be the primary beneficiary of the research, advice or other
services received as a result of portfolio transactions effected for such other
accounts or investment companies.
Except as permitted by the SEC or applicable law, the Funds will not
acquire portfolio securities from, make savings deposits in, enter into
repurchase or reverse repurchase agreements with, or sell securities to, Fleet,
Columbia, FDISG or their affiliates, and will not give preference to affiliates
and correspondent banks of Fleet or Columbia with respect to such transactions.
GALAXY VIP is required to identify any securities of its "regular
brokers or dealers" that GALAXY VIP has acquired during its most recent fiscal
year. At December 31, 1996, the High Quality Bond Fund held an interest in
Chase Manhattan Auto Owner Trust, 1996-C, Class A-3 (par value of $400,000).
The Chase Manhattan Bank (or affiliates) is considered a "regular broker or
dealer" of GALAXY VIP.
Investment decisions for each Fund are made independently from those
for the other Funds and for any other investment companies and accounts advised
or managed by Fleet or Columbia. When a purchase or sale of the same security
is made at substantially the same time on behalf of a Fund, another portfolio
of GALAXY VIP, and/or another investment company or account, the transaction
will be averaged as to price, and available investments allocated as to amount,
in a manner which Fleet or Columbia, as the case may be, believes to be
equitable to the Fund and such other portfolio, investment company or account.
In
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<PAGE> 80
some instances, this investment procedure may adversely affect the price paid
or received by a Fund or the size of the position obtained or sold by such
Fund. To the extent permitted by law, Fleet or Columbia, as the case may be,
may aggregate the securities to be sold or purchased for a Fund with those to
be sold or purchased for its other portfolios, or other investment companies or
accounts in order to obtain best execution.
DISTRIBUTOR
Unless otherwise terminated, the Distribution Agreement between GALAXY
VIP and FD Distributors remains in effect until May 31, 1998, and thereafter
will continue from year to year upon annual approval by GALAXY VIP's Board of
Trustees, or by the vote of a majority of the outstanding Shares of GALAXY VIP
and by the vote of a majority of the Board of Trustees of GALAXY VIP who are
not parties to the Agreement or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such approval. The
Agreement will terminate in the event of its assignment, as defined in the 1940
Act.
AUDITORS
Coopers & Lybrand L.L.P., independent certified public accountants,
with offices at One Post Office Square, Boston, Massachusetts 02109, serve as
auditors to GALAXY VIP. Coopers & Lybrand L.L.P. performs an annual audit of
the Funds' 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.
COUNSEL
Drinker Biddle & Reath LLP (of which Mr. McConnel, Secretary of GALAXY
VIP, is a partner), Philadelphia National Bank Building, 1345 Chestnut Street,
Philadelphia, Pennsylvania 19107, are counsel to GALAXY VIP and will pass upon
certain legal matters pertaining to the Shares offered hereby.
PERFORMANCE AND YIELD INFORMATION
YIELD QUOTATIONS -- MONEY MARKET FUND
The standardized annualized seven-day yield for the Money Market Fund
is computed by: (1) determining the net change, exclusive of capital changes,
in the value of a hypothetical pre-existing account in the Fund having a
balance of one Share at the beginning of a seven-day period, for which the
yield is to be quoted, (2) dividing the net change in
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<PAGE> 81
account value by the value of the account at the beginning of the base period
to obtain the base period return, and (3) annualizing the results (i.e.,
multiplying the base period return by (365/7)). The net change in the value of
the account in the Fund includes the value of additional Shares purchased with
dividends from the original Share and dividends declared on both the original
Share and any such additional Shares, and all fees that are charged by the Fund
to all shareholder accounts in proportion to the length of the base period,
other than nonrecurring account and sales charges. For any account fees that
vary with the size of the account, the amount of fees charged is computed with
respect to the Fund's mean (or median) account size. The capital changes to be
excluded from the calculation of the net change in account value are realized
gains and losses from the sale of the securities and unrealized appreciation
and depreciation. The effective compound yield quotation for the Fund is
computed by adding 1 to the unannualized base period return (calculated as
described above), raising the sum to a power equal to 365 divided by 7, and
subtracting 1 from the result.
The current yield for the Money Market Fund may be obtained by calling
GALAXY VIP at 1-800-628-0414. For the seven-day period ended June 30, 1997,
the annualized yield of the Money Market Fund was 4.93% and the effective yield
was 5.05%.
YIELD AND TOTAL RETURN QUOTATIONS -- NON-MONEY MARKET FUNDS
The Equity Fund's, Growth and Income Fund's, Small Company Growth
Fund's, Columbia Real Estate Equity Fund II's, Asset Allocation Fund's, High
Quality Bond Fund's or Columbia High Yield Fund II's 30-day (or one month)
yield described in the Prospectus is calculated for each Fund in accordance
with the method prescribed by the SEC for mutual funds:
a - b 6
YIELD = 2[( - - - +1) - 1]
cd
Where: a = dividends and interest earned by a Fund during the
period;
b = expenses accrued for the period (net of
reimbursements);
c = average daily number of Shares outstanding during the
period, entitled to receive dividends; and
d = maximum offering price per Share on the last day of
the period.
For the purpose of determining net investment income earned during the period
(variable "a" in the formula), dividend income on equity securities held by a
Fund is recognized by accruing 1/360 of the stated dividend rate of the
security each day that the security is in the
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Fund. Except as noted below, interest earned on debt obligations held by a
Fund is calculated by computing the yield to maturity of each obligation based
on the market value of the obligation (including actual accrued interest) at
the close of business on the last business day of each month, or, with respect
to obligations purchased during the month, the purchase price (plus actual
accrued interest) and dividing the result by 360 and multiplying the quotient
by the market value of the obligation (including actual accrued interest) in
order to determine the interest income on the obligation for each day of the
subsequent month that the obligation is held by the Fund. For purposes of this
calculation, it is assumed that each month contains 30 days. The maturity of
an obligation with a call provision is the next call date on which the
obligation reasonably may be expected to be called or, if none, the maturity
date. With respect to debt obligations purchased at a discount or premium, the
formula generally calls for amortization of the discount or premium. The
amortization schedule will be adjusted monthly to reflect changes in the market
value of such debt obligations. Expenses accrued for the period (variable "b"
in the formula) include all recurring fees charged by a Fund to all shareholder
accounts in proportion to the length of the base period and the Fund's mean (or
median) account size. Undeclared earned income will be subtracted from the
offering price per Share (variable "d" in the formula).
With respect to mortgage or other receivables-backed obligations which
are expected to be subject to monthly payments of principal and interest
("pay-downs") (i) gain or loss attributable to actual monthly pay downs are
accounted for as an increase or decrease to interest income during the period
and (ii) each Fund may elect either (a) to amortize the discount and premium on
the remaining security, based on the cost of the security, to the weighted
average maturity date, if such information is available, or to the remaining
term of the security, if any, if the weighted average date is not available or
(b) not to amortize discount or premium on the remaining security.
Based on the foregoing calculation, the yields of the Equity Fund,
Asset Allocation Fund and High Quality Bond Fund for the 30-day period ended
June 30, 1997 were (0.07)%, 1.65% and 5.13%, respectively.
Each Fund that advertises its "average annual total return" computes
such return by determining the average annual compounded rate of return during
specified periods that equates the initial amount invested to the ending
redeemable value of such investment according to the following formula:
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<PAGE> 83
ERV l/n
T = [(-----) - 1]
P
Where: T = average annual total return;
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
l, 5 or 10 year (or other) periods at the end
of the applicable period (or a fractional
portion thereof);
P = hypothetical initial payment of $1,000; and
n = period covered by the computation, expressed
in years.
Each Fund that advertises its "aggregate total return" computes such
returns by determining the aggregate compounded rates of return during
specified periods that likewise equate the initial amount invested to the
ending redeemable value of such investment. The formula for calculating
aggregate total return is as follows:
ERV
Aggregate Total Return = [(-----) - l]
P
The calculations are made assuming that (1) all dividends and capital
gain distributions are reinvested on the reinvestment dates at the price per
Share existing on the reinvestment date, (2) all recurring fees charged to all
shareholder accounts are included, and (3) for any account fees that vary with
the size of the account, a mean (or median) account size in the Fund during the
periods is reflected. The ending redeemable value (variable "ERV" in the
formula) is determined by assuming complete redemption of the hypothetical
investment after deduction of all nonrecurring charges at the end of the
measuring period. The annual total returns for the Equity Fund, Asset
Allocation Fund and High Quality Bond Fund for the one year period ended June
30, 1997 were 31.81%, 19.64% and 7.22%, respectively. The average annual total
returns for the Equity Fund, Asset Allocation Fund and High Quality Bond Fund
for the period from commencement of operations (January 11, 1993 with respect
to the Equity Fund, February 6, 1993 with respect to the Asset Allocation Fund
and January 21, 1993 with respect to the High Quality Bond Fund) through June
30, 1997 were 16.20%, 12.73% and 5.73%, respectively.
MISCELLANEOUS
As used in the Prospectus, "assets belonging to a Fund" means the
consideration received by GALAXY VIP upon the issuance of Shares in that
particular Fund, together with
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all income, earnings, profits, and proceeds derived from the investment
thereof, including any proceeds from the sale of such investments, any funds or
payments derived from any reinvestment of such proceeds and a portion of any
general assets of GALAXY VIP not belonging to a particular Fund. In
determining a Fund's net asset value, assets belonging to the particular Fund
are charged with the direct liabilities in respect of that Fund and with a
share of the general liabilities of GALAXY VIP which are allocated in
proportion to the relative asset values of the respective Funds at the time of
allocation. Subject to the provisions of GALAXY VIP's Agreement and
Declaration of Trust, determinations by the Board of Trustees as to the direct
and allocable liabilities, and the allocable portion of any general assets with
respect to a particular Fund, are conclusive.
As of November 20, 1997, all of the issued and outstanding shares of
each Fund were owned by American Skandia Life Assurance Corporation and held in
Separate Accounts pursuant to variable annuity contracts.
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<PAGE> 85
APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment of debt considered short-term in the relevant
market. The following summarizes the rating categories used by Standard and
Poor's for commercial paper:
"A-1" Issue's degree of safety regarding timely payment is strong.
Those issues determined to possess extremely strong safety
characteristics are denoted "A-1+."
"A-2" Issue's capacity for timely payment is satisfactory. However,
the relative degree of safety is not as high as for issues
designated "A-1."
"A-3" Issue has an adequate capacity for timely payment. It is,
however, somewhat more vulnerable to the adverse effects of
changes in circumstances than an obligation carrying a higher
designation.
"B" Issue has only a speculative capacity for timely payment.
"C" Issue has a doubtful capacity for payment.
"D" Issue is in payment default.
Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually promissory obligations not having an original
maturity in excess of 9 months. The following summarizes the rating categories
used by Moody's for commercial paper:
"Prime-1" Issuer or related supporting institutions are considered to
have a superior capacity for repayment of short-term
promissory obligations. Prime-1 repayment capacity will
normally be evidenced by the following characteristics:
leading market positions in well established industries; high
rates of return on funds employed; conservative capitalization
structures with moderate reliance on debt and ample asset
protection; broad margins in earning coverage of fixed
financial charges and high internal cash generation; and well
established access to a range of financial markets and assured
sources of alternate liquidity.
"Prime-2" Issuer or related supporting institutions are considered to
have a strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the
characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more
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subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external
conditions. Ample alternative liquidity is maintained.
"Prime-3" Issuer or related supporting institutions have an acceptable
capacity for repayment of short-term promissory obligations.
The effects of industry characteristics and market composition
may be more pronounced. Variability in earnings and
profitability may result in changes in the level of debt
protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is
maintained.
"Not Prime" Issuer does not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff & Phelps
employs three designations, "D-1+," "D-1" and "D-1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:
"D-1+" Debt possesses highest certainty of timely payment.
Short-term liquidity, including internal operating factors
and/or access to alternative sources of funds, is outstanding,
and safety is just below risk-free U.S. Treasury short-term
obligations.
"D-1" Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good
fundamental protection factors. Risk factors are minor.
"D-1-" Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental
protection factors. Risk factors are very small.
"D-2" Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing
funding needs may enlarge total financing requirements, access
to capital markets is good. Risk factors are small.
"D-3" Debt possesses satisfactory liquidity, and other protection
factors qualify issue as investment grade. Risk factors are
larger and subject to more variation. Nevertheless, timely
payment is expected.
"D-4" Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in
debt service. Operating factors and market access may be
subject to a high degree of variation.
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"D-5" Issuer has failed to meet scheduled principal and/or interest
payments.
Fitch short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years. The
following summarizes the rating categories used by Fitch for short-term
obligations:
"F-1+" Securities possess exceptionally strong credit quality.
Issues assigned this rating are regarded as having the
strongest degree of assurance for timely payment.
"F-1" Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment
only slightly less in degree than issues rated "F-1+."
"F-2" Securities possess good credit quality. Issues assigned this
rating have a satisfactory degree of assurance for timely
payment, but the margin of safety is not as great as the
"F-1+" and "F-1" categories.
"F-3" Securities possess fair credit quality. Issues assigned this
rating have characteristics suggesting that the degree of
assurance for timely payment is adequate; however, near-term
adverse changes could cause these securities to be rated below
investment grade.
"F-S" Securities possess weak credit quality. Issues assigned this
rating have characteristics suggesting a minimal degree of
assurance for timely payment and are vulnerable to near-term
adverse changes in financial and economic conditions.
"D" Securities are in actual or imminent payment default.
Fitch may also use the symbol "LOC" with its short-term ratings to
indicate that the rating is based upon a letter of credit issued by a
commercial bank.
Thomson BankWatch short-term ratings assess the likelihood of an
untimely or incomplete payment of principal or interest of unsubordinated
instruments having a maturity of one year or less which are issued by United
States commercial banks, thrifts and non-bank banks; non-United States banks;
and broker-dealers. The following summarizes the ratings used by Thomson
BankWatch:
"TBW-1" This designation represents Thomson BankWatch's highest rating
category and indicates a very high degree of likelihood that
principal and interest will be paid on a timely basis.
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"TBW-2" This designation indicates that while the degree of safety
regarding timely payment of principal and interest is strong,
the relative degree of safety is not as high as for issues
rated "TBW-1."
"TBW-3" This designation represents the lowest investment grade
category and indicates that while the debt is more susceptible
to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal
and interest in a timely fashion is considered adequate.
"TBW-4" This designation indicates that the debt is regarded as
non-investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
"A1+" Obligations supported by the highest capacity for timely
repayment.
"A1" Obligations are supported by the highest capacity for timely
repayment.
"A2" Obligations are supported by a satisfactory capacity for
timely repayment, although such capacity may be susceptible to
adverse changes in business, economic or financial conditions.
"A3" Obligations are supported by a satisfactory capacity for
timely repayment. Such capacity is more susceptible to
adverse changes in business, economic or financial conditions
than for obligations in higher categories.
"B" Obligations for which the capacity for timely repayment is
susceptible to adverse changes in business, economic or
financial conditions.
"C" Obligations for which there is an inadequate capacity to
ensure timely repayment.
"D" Obligations which have a high risk of default or which are
currently in default.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
A-4
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"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.
"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
A-5
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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 following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" Bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred
to as "gilt edged." Interest payments are protected by a
large or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
"Aa" Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally
known as high-grade bonds. They are rated lower than the best
bonds because margins of protection may not be as large as in
"Aaa" securities or fluctuation of protective elements may be
of greater amplitude or there may
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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.
The following summarizes the long-term debt ratings used by Duff &
Phelps for corporate and municipal long-term debt:
"AAA" Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt.
"AA" Debt is considered of high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to
time because of economic conditions.
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"A" Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater
in periods of economic stress.
"BBB" Debt possesses below average protection factors but such
protection factors are still considered sufficient for prudent
investment. Considerable variability in risk is present
during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt
rated "B" possesses the risk that obligations will not be met when due. Debt
rated "CCC" is well below investment grade and has considerable uncertainty as
to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.
The following summarizes the highest four ratings used by Fitch for
corporate and municipal bonds:
"AAA" Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong
ability to pay interest and repay principal, which is unlikely
to be affected by reasonably foreseeable events.
"AA" Bonds considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and
repay principal is very strong, although not quite as strong
as bonds rated "AAA." Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these
issuers is generally rated "F-1+."
"A" Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more
vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
"BBB" Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and
repay principal is considered to be adequate. Adverse changes
in economic conditions and circumstances, however, are more
likely to have an adverse impact on these bonds, and
therefore, impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is
higher than for bonds with higher ratings.
A-8
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"BB," "B," "CCC," "CC," "C," "DDD," "DD," and "D" - Bonds that possess
one of these ratings are considered by Fitch to be speculative investments.
The ratings "BB" to "C" represent Fitch's assessment of the likelihood of
timely payment of principal and interest in accordance with the terms of
obligation for bond issues not in default. For defaulted bonds, the rating
"DDD" to "D" is an assessment of the ultimate recovery value through
reorganization or liquidation.
To provide more detailed indications of credit quality, the Fitch
ratings from and including "AA" to "C" may be modified by the addition of a
plus (+) or minus (-) sign to show relative standing within these major rating
categories.
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for long-term debt ratings:
"AAA" Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal
and interest is substantial such that adverse changes in
business, economic or financial conditions are unlikely to
increase investment risk substantially.
"AA" Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal
and interest is substantial. Adverse changes in business,
economic or financial conditions may increase investment risk
albeit not very significantly.
"A" Obligations for which there is a low expectation of investment
risk. Capacity for timely repayment of principal and interest
is strong, although adverse changes in business, economic or
financial conditions may lead to increased investment risk.
"BBB" Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal
and interest is adequate, although adverse changes in
business, economic or financial conditions are more likely to
lead to increased investment risk than for obligations in
other categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one of
these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree
of speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating to
denote relative status within major rating categories.
A-9
<PAGE> 94
Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long term debt and preferred
stock which are issued by United States commercial banks, thrifts and non-bank
banks; non-United States banks; and broker-dealers. The following summarizes
the rating categories used by Thomson BankWatch for long-term debt ratings:
"AAA" This designation represents the highest category assigned by
Thomson BankWatch to long-term debt and indicates that the
ability to repay principal and interest on a timely basis is
extremely high.
"AA" This designation indicates a very strong ability to repay
principal and interest on a timely basis with limited
incremental risk compared to issues rated in the highest
category.
"A" This designation indicates that the ability to repay principal
and interest is strong. Issues rated "A" could be more
vulnerable to adverse developments (both internal and
external) than obligations with higher ratings.
"BBB" This designation represents Thomson BankWatch's lowest
investment grade category and indicates an acceptable capacity
to repay principal and interest. Issues rated "BBB" are,
however, more vulnerable to adverse developments (both
internal and external) than obligations with higher ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned by
Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
A Standard and Poor's rating reflects the liquidity concerns and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Ratings Group for municipal
notes:
"SP-1" The issuers of these municipal notes exhibit very strong or
strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics are
given a plus (+) designation.
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<PAGE> 95
"SP-2" The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest.
"SP-3" The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:
"MIG-1"/"VMIG-1" Loans bearing this designation are of the best
quality, enjoying strong protection by established
cash flows, superior liquidity support or
demonstrated broad-based access to the market for
refinancing.
"MIG-2"/"VMIG-2" Loans bearing this designation are of high quality,
with margins of protection ample although not so
large as in the preceding group.
"MIG-3"/"VMIG-3" Loans bearing this designation are of favorable
quality, with all security elements accounted for but
lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be
narrow and market access for refinancing is likely to
be less well established.
"MIG-4"/"VMIG-4" Loans bearing this designation 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" Loans bearing this designation are of speculative
quality and lack margins of protection.
Fitch and Duff & Phelps use the short-term ratings described under
Commercial Paper Ratings for municipal notes.
A-11
<PAGE> 96
APPENDIX B
As stated in the Prospectus and in this Statement of Additional
Information, certain of the Funds may enter into futures transactions and
options thereon for hedging purposes. Such transactions are described in this
Appendix.
I. Interest Rate Futures Contracts
Use of Interest Rate Futures Contracts. Bond prices are established
in both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, only a contract is made to purchase or sell a bond in the
future for a set price on a certain date. Historically, the prices for bonds
established in the futures markets have tended to move generally in the
aggregate in concert with the cash market prices and have maintained fairly
predictable relationships. Accordingly, a Fund may use interest rate futures
contracts as a defense, or hedge, against anticipated interest rate changes and
not for speculation. As described below, this would include the use of futures
contract sales to protect against expected increases in interest rates and
futures contract purchases to offset the impact of interest rate declines.
A Fund presently could accomplish a similar result to that which it
hopes to achieve through the use of futures contracts by selling bonds with
long maturities and investing in bonds with short maturities when interest
rates are expected to increase, or conversely, selling short-term bonds and
investing in long-term bonds when interest rates are expected to decline.
However, because of the liquidity that is often available in the futures
market, the protection is more likely to be achieved, perhaps at a lower cost
and without changing the rate of interest being earned by a Fund, through using
futures contracts.
Description of Interest Rate Futures Contracts. An interest rate
futures contract sale would create an obligation by a Fund, as seller, to
deliver the specific type of financial instrument called for in the contract at
a specific future time for a specified price. A futures contract purchase
would create an obligation by a Fund, as purchaser, to take delivery of the
specific type of financial instrument at a specific future time at a specific
price. The specific securities delivered or taken, respectively, at settlement
date, would not be determined until at or near that date. The determination
would be in accordance with the rules of the exchange on which the futures
contract sale or purchase was made.
Although interest rate futures contracts by their terms call for
actual delivery or acceptance of securities, in most cases the contracts are
closed out before the settlement date without the making or taking of delivery
of securities. Closing out a futures contract sale is effected by a Fund's
entering into a futures contract purchase for the same aggregate amount of the
specific type of financial instrument and the same delivery date. If the price
of the sale exceeds the price of the offsetting purchase, a Fund immediately is
paid the difference and thus realizes a gain. If the offsetting purchase price
exceeds the sale price,
B-1
<PAGE> 97
a Fund pays the difference and realizes a loss. Similarly, the closing out of
a futures contract purchase is effected by a Fund entering into a futures
contract sale. If the offsetting sale price exceeds the purchase price, a Fund
realizes a gain, and if the purchase price exceeds the offsetting sale price, a
Fund realizes a loss.
Interest rate futures contracts are traded in an auction environment
on the floors of several exchanges -- principally, the Chicago Board of Trade,
the Chicago Mercantile Exchange and the New York Futures Exchange. A Fund
would deal only in standardized contracts on recognized exchanges. Each
exchange guarantees performance under contract provisions through a clearing
corporation, a nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering various
financial instruments including long-term United States Treasury Bonds and
Notes; Government National Mortgage Association (GNMA) modified pass-through
mortgage backed securities; three-month United States Treasury Bills; and
ninety-day commercial paper. A Fund may trade in any interest rate futures
contracts for which there exists a public market, including, without
limitation, the foregoing instruments.
Example of Futures Contract Sale. A Fund would engage in an interest
rate futures contract sale to maintain the income advantage from continued
holding of a long-term bond while endeavoring to avoid part or all of the loss
in market value that would otherwise accompany a decline in long-term
securities prices. Assume that the market value of a certain security held by
a Fund tends to move in concert with the futures market prices of long-term
United States Treasury bonds ("Treasury bonds"). Fleet or Columbia, as the
case may be, wishes to fix the current market value of this portfolio security
until some point in the future. Assume the portfolio security has a market
value of 100, and Fleet or Columbia believes that, because of an anticipated
rise in interest rates, the value will decline to 95. A Fund might enter into
futures contract sales of Treasury bonds for an equivalent of 98. If the
market value of the portfolio security does indeed decline from 100 to 95, the
equivalent futures market price for the Treasury bonds might also decline from
98 to 93.
In that case, the five point loss in the market value of the portfolio
security would be offset by the five point gain realized by closing out the
futures contract sale. Of course, the futures market price of Treasury bonds
might well decline to more than 93 or to less than 93 because of the imperfect
correlation between cash and futures prices mentioned below.
Fleet or Columbia could be wrong in its forecast of interest rates and
the equivalent futures market price could rise above 98. In this case, the
market value of the portfolio securities, including the portfolio security
being protected, would increase. The benefit of this increase would be reduced
by the loss realized on closing out the futures contract sale.
B-2
<PAGE> 98
If interest rate levels did not change, a Fund in the above example
might incur a loss of 2 points (which might be reduced by an offsetting
transaction prior to the settlement date). In each transaction, transaction
expenses would also be incurred.
Example of Futures Contract Purchase. A Fund would engage in an
interest rate futures contract purchase when it is not fully invested in
long-term bonds but wishes to defer for a time the purchase of long-term bonds
in light of the availability of advantageous interim investments, e.g., shorter
term securities whose yields are greater than those available on long-term
bonds. A Fund's basic motivation would be to maintain for a time the income
advantage from investing in the short-term securities; a Fund would be
endeavoring at the same time to eliminate the effect of all or part of an
expected increase in market price of the long-term bonds that a Fund may
purchase.
For example, assume that the market price of a long-term bond that a
Fund may purchase, currently yielding 10%, tends to move in concert with
futures market prices of Treasury bonds. Fleet or Columbia, as the case may
be, wishes to fix the current market price (and thus 10% yield) of the
long-term bond until the time (four months away in this example) when it may
purchase the bond. Assume the long-term bond has a market price of 100, and
Fleet or Columbia believes that, because of an anticipated fall in interest
rates, the price will have risen to 105 (and the yield will have dropped to
about 9 1/2%) in four months. A Fund might enter into futures contracts
purchases of Treasury bonds for an equivalent price of 98. At the same time, a
Fund would assign a pool of investments in short-term securities that are
either maturing in four months or earmarked for sale in four months, for
purchase of the long-term bond at an assumed market price of 100. Assume these
short-term securities are yielding 15%. If the market price of the long-term
bond does indeed rise from 100 to 105, the equivalent futures market price for
Treasury bonds might also rise from 98 to 103. In that case, the 5 point
increase in the price that a Fund pays for the long-term bond would be offset
by the 5 point gain realized by closing out the futures contract purchase.
Fleet or Columbia could be wrong in its forecast of interest rates;
long-term interest rates might rise to above 10%; and the equivalent futures
market price could fall below 98. If short-term rates at the same time fall to
10% or below, it is possible that a Fund would continue with its purchase
program for long-term bonds. The market price of available long-term bonds
would have decreased. The benefit of this price decrease, and thus yield
increase, will be reduced by the loss realized on closing out the futures
contract purchase.
If, however, short-term rates remained above available long-term
rates, it is possible that a Fund would discontinue its purchase program for
long-term bonds. The yield on short-term securities in the portfolio,
including those originally in the pool assigned to the particular long-term
bond, would remain higher than yields on long-term bonds. The benefit of this
continued incremental income will be reduced by the loss realized on closing
out the futures contract purchase. In each transaction, expenses would also be
incurred.
B-3
<PAGE> 99
II. Index Futures Contracts.
A stock or bond index assigns relative values to the stocks or
bonds included in the index and the index fluctuates with changes in the market
values of the stocks or bonds included. A stock or bond index futures contract
is a bilateral agreement pursuant to which two parties agree to take or make
delivery of an amount of cash equal to a specified dollar amount times the
difference between the stock index value (which assigns relative values to the
common stocks or bonds included in the index) at the close of the last trading
day of the contract and the price at which the futures contract is originally
struck. No physical delivery of the underlying stocks in the index is made.
Some stock index futures contracts are based on broad market indices, such as
the Standard & Poor's 500 or the New York Stock Exchange Composite Index. In
contrast, certain exchanges offer futures contracts on narrower market indices,
such as the Standard & Poor's 100 or indices based on an industry or market
segment, such as oil and gas stocks. Futures contracts are traded on organized
exchanges regulated by the Commodity Futures Trading Commission. Transactions
on such exchanges are cleared through a clearing corporation, which guarantees
the performance of the parties to each contract.
A Fund will sell index futures contracts in order to offset a
decrease in market value of its portfolio securities that might otherwise
result from a market decline. A Fund may do so either to hedge the value of
its portfolio as a whole, or to protect against declines, occurring prior to
sales of securities, in the value of the securities to be sold. Conversely, a
Fund will purchase index futures contracts in anticipation of purchases of
securities. In a substantial majority of these transactions, a Fund will
purchase such securities upon termination of the long futures position, but a
long futures position may be terminated without a corresponding purchase of
securities.
In addition, a Fund may utilize index futures contracts in
anticipation of changes in the composition of its portfolio holdings. For
example, in the event that a Fund expects to narrow the range of industry
groups represented in its holdings it may, prior to making purchases of the
actual securities, establish a long futures position based on a more restricted
index, such as an index comprised of securities of a particular industry group.
A Fund may also sell futures contracts in connection with this strategy, in
order to protect against the possibility that the value of the securities to be
sold as part of the restructuring of their respective portfolios will decline
prior to the time of sale.
The following are examples of transactions in stock index
futures (net of commissions and premiums, if any).
B-4
<PAGE> 100
ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
<TABLE>
<CAPTION>
Portfolio Futures
--------- -------
<S> <C>
-Day Hedge is Placed-
Anticipate Buying $62,500 Buying 1 Index Futures at 125
Equity Portfolio Value of Futures = $62,500/Contract
-Day Hedge is Lifted-
Buy Equity Portfolio with Sell 1 Index Futures at 130
Actual Cost = $65,000 Value of Futures = $65,000/Contract
Increase in Purchase Price = $2,500 Gain on Futures = $ 2,500
</TABLE>
HEDGING A STOCK PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Fund
Factors:
Value of Stock Fund = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
Fund Beta Relative to the Index = 1.0
<TABLE>
<CAPTION>
Portfolio Futures
--------- -------
<S> <C>
-Day Hedge is Placed-
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Equity Portfolio Value of Futures = $1,000,000
-Day Hedge is Lifted-
Equity Portfolio-Own Stock Buy 16 Index Futures at 120
with Value = $960,000 Value of Futures = $960,000
Loss in Fund Value = $ 40,000 Gain on Futures = $ 40,000
</TABLE>
If, however, the market moved in the opposite direction, that
is, market value decreased and a Fund had entered into an anticipatory purchase
hedge, or market value increased and a Fund had hedged its stock portfolio, the
results of the Fund's transactions in stock index futures would be as set forth
below.
B-5
<PAGE> 101
ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
<TABLE>
<CAPTION>
Portfolio Futures
--------- -------
<S> <C>
-Day Hedge is Placed-
Anticipate Buying $62,500 Buying 1 Index Futures at 125
Equity Portfolio Value of Futures = $62,500/Contract
-Day Hedge is Lifted-
Buy Equity Portfolio with Sell 1 Index Futures at 120
Actual Cost - $60,000 Value of Futures = $60,000/Contract
Decrease in Purchase Price = $2,500 Loss on Futures = $ 2,500
</TABLE>
HEDGING A STOCK PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Fund
Factors:
Value of Stock Fund = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
Fund Beta Relative to the Index = 1.0
<TABLE>
<CAPTION>
Portfolio Futures
--------- -------
<S> <C>
-Day Hedge is Placed-
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Equity Portfolio Value of Futures = $1,000,000
-Day Hedge is Lifted-
Equity Portfolio-Own Stock Buy 16 Index Futures at 130
with Value = $1,040,000 Value of Futures = $1,040,000
Gain in Fund Value = $40,000 Loss of Futures = $ 40,000
</TABLE>
III. Futures Contracts on Foreign Currencies.
A futures contract on foreign currency creates a binding
obligation on one party to deliver, and a corresponding obligation on another
party to accept delivery of, a stated quantity of a foreign currency, for an
amount fixed in U.S. dollars. Foreign currency
B-6
<PAGE> 102
futures may be used by a Fund to hedge against exposure to fluctuations in
exchange rates between the U.S. dollar and other currencies arising from
multinational transactions.
IV. Margin Payments
Unlike purchases or sales of portfolio securities, no price is paid or
received by a Fund upon the purchase or sale of a futures contract. Initially,
a Fund will be required to deposit with the broker or in a segregated account
with the Fund's custodian an amount of cash or liquid securities, known as
initial margin, based on the value of the contract. The nature of initial
margin in futures transactions is different from that of margin in security
transactions in that futures contract margin does not involve the borrowing of
funds by the customer to finance the transactions. Rather, the initial margin
is in the nature of a performance bond or good faith deposit on the contract
which is returned to a Fund upon termination of the futures contract assuming
all contractual obligations have been satisfied. Subsequent payments, called
variation margin, to and from the broker, will be made on a daily basis as the
price of the underlying instruments fluctuates making the long and short
positions in the futures contract more or less valuable, a process known as
marking-to-the-market. For example, when a Fund has purchased a futures
contract and the price of the contract has risen in response to a rise in the
underlying instruments, that position will have increased in value and a Fund
will be entitled to receive from the broker a variation margin payment equal to
that increase in value. Conversely, where a Fund has purchased a futures
contract and the price of the future contract has declined in response to a
decrease in the underlying instruments, the position would be less valuable and
a Fund would be required to make a variation margin payment to the broker. At
any time prior to expiration of the futures contract, Fleet or Columbia, as the
case may be, may elect to close the position by taking an opposite position,
subject to the availability of a secondary market, which will operate to
terminate a Fund's position in the futures contract. A final determination of
variation margin is then made, additional cash is required to be paid by or
released to a Fund, and a Fund realizes a loss or gain.
V. Risks of Transactions in Futures Contracts
There are several risks in connection with the use of futures by a
Fund as hedging devices. One risk arises because of the imperfect correlation
between movements in the price of the futures and movements in the price of the
instruments which are the subject of the hedge. The price of the futures may
move more than or less than the price of the instruments being hedged. If the
price of the futures moves less than the price of the instruments which are the
subject of the hedge, the hedge will not be fully effective but, if the price
of the instruments being hedged has moved in an unfavorable direction, a Fund
would be in a better position than if it had not hedged at all. If the price
of the instruments being hedged has moved in a favorable direction, this
advantage will be partially offset by the loss on the futures. If the price of
the futures moves more than the price of the hedged instruments, a Fund will
experience either a loss or gain on the futures which will not be completely
offset by movements in the price of the instruments which are the subject of
the
B-7
<PAGE> 103
hedge. To compensate for the imperfect correlation of movements in the price
of instruments being hedged and movements in the price of futures contracts, a
Fund may buy or sell futures contracts in a greater dollar amount than the
dollar amount of instruments being hedged if the volatility over a particular
time period of the prices of such instruments has been greater than the
volatility over such time period of the futures, or if otherwise deemed to be
appropriate by Fleet or Columbia, as the case may be. Conversely, a Fund may
buy or sell fewer futures contracts if the volatility over a particular time
period of the prices of the instruments being hedged is less than the
volatility over such time period of the futures contract being used, or if
otherwise deemed to be appropriate by Fleet or Columbia. It is also possible
that, where a Fund had sold futures to hedge its portfolio against a decline in
the market, the market may advance and the value of instruments held in a Fund
may decline. If this occurred, a Fund would lose money on the futures and also
experience a decline in value in its portfolio securities.
Where futures are purchased to hedge against a possible increase in
the price of securities before a Fund is able to invest its cash (or cash
equivalents) in an orderly fashion, it is possible that the market may decline
instead; if a Fund then concludes not to invest its cash at that time because
of concern as to possible further market decline or for other reasons, a Fund
will realize a loss on the futures contract that is not offset by a reduction
in the price of the instruments that were to be purchased.
In instances involving the purchase of futures contracts by a Fund, an
amount of liquid assets, equal to the market value of the futures contracts,
will be deposited in a segregated account with the Fund's custodian and/or in a
margin account with a broker to collateralize the position and thereby insure
that the use of such futures is unleveraged.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures and the
instruments being hedged, the price of futures may not correlate perfectly with
movement in the cash market due to certain market distortions. Rather than
meeting additional margin deposit requirements, investors may close futures
contracts through off-setting transactions which could distort the normal
relationship between the cash and futures markets. Second, with respect to
financial futures contracts, the liquidity of the futures market depends on
participants entering into off-setting transactions rather than making or
taking delivery. To the extent participants decide to make or take delivery,
liquidity in the futures market could be reduced thus producing distortions.
Third, from the point of view of speculators, the deposit requirements in the
futures market are less onerous than margin requirements in the securities
market. Therefore, increased participation by speculators in the futures
market may also cause temporary price distortions. Due to the possibility of
price distortion in the futures market, and because of the imperfect
correlation between the movements in the cash market and movements in the price
of futures, a correct forecast of general market trends or interest rate
movements by Fleet or Columbia may still not result in a successful hedging
transaction over a short time frame.
B-8
<PAGE> 104
Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Funds
intend to purchase or sell futures only on exchanges or boards of trade where
there appear to be active secondary markets, there is no assurance that a
liquid secondary market on any exchange or board of trade will exist for any
particular contract or at any particular time. In such event, it may not be
possible to close a futures investment position, and in the event of adverse
price movements, a Fund would continue to be required to make daily cash
payments of variation margin. However, in the event futures contracts have
been used to hedge portfolio securities, such securities will not be sold until
the futures contract can be terminated. In such circumstances, an increase in
the price of the securities, if any, may partially or completely offset losses
on the futures contract. However, as described above, there is no guarantee
that the price of the securities will in fact correlate with the price
movements in the futures contract and thus provide an offset on a futures
contract.
Further, it should be noted that the liquidity of a secondary market
in a futures contract may be adversely affected by "daily price fluctuation
limits" established by commodity exchanges which limit the amount of
fluctuation in a futures contract price during a single trading day. Once the
daily limit has been reached in the contract, no trades may be entered into at
a price beyond the limit, thus preventing the liquidation of open futures
positions. The trading of futures contracts is also subject to the risk of
trading halts, suspensions, exchange or clearing house equipment failures,
government intervention, insolvency of a brokerage firm or clearing house or
other disruptions of normal activity, which could at times make it difficult or
impossible to liquidate existing positions or to recover excess variation
margin payments.
Successful use of futures by a Fund is also subject to the ability of
Fleet or Columbia, as the case may be, to predict correctly movements in the
direction of the market. For example, if a Fund has hedged against the
possibility of a decline in the market adversely affecting securities held by
it and securities prices increase instead, a Fund will lose part or all of the
benefit to the increased value of its securities which it has hedged because it
will have offsetting losses in its futures positions. In addition, in such
situations, if a Fund has insufficient cash, it may have to sell securities to
meet daily variation margin requirements. Such sales of securities may be, but
will not necessarily be, at increased prices which reflect the rising market.
A Fund may have to sell securities at a time when it may be disadvantageous to
do so.
B-9
<PAGE> 105
FINANCIAL STATEMENTS
The audited financial statements for the Money Market Fund, Equity
Fund, Asset Allocation Fund and High Quality Bond Fund and notes thereto in
GALAXY VIP's Annual Report to Shareholders for the fiscal year ended December
31, 1996 and the unaudited financial statements for the Money Market Fund,
Equity Fund, Asset Allocation Fund and High Quality Bond Fund and notes thereto
in GALAXY VIP's Semi-Annual Report to Shareholders for the six-month period
ended June 30, 1997 are incorporated into this Statement of Additional
Information by reference. No other parts of the Annual and Semi- Annual
Reports are incorporated by reference herein. The financial statements
included in the Annual Report have been audited by the Fund's independent
accountants, Coopers & Lybrand L.L.P., whose report thereon is incorporated
herein by reference. Such audited financial statements have been incorporated
herein in reliance upon such report given upon their authority as experts in
accounting and auditing. Additional copies of the Annual and Semi-Annual
Reports may be obtained free of charge by telephoning the GALAXY VIP at
800-628-0414.
FS-1
<PAGE> 106
Part C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to this Registration Statement.
(iii)
<PAGE> 107
THE GALAXY VIP FUND
FORM N-1A
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
(1) Included in Part A:
- Money Market Fund
Financial Highlights for the six-month period ended June
30, 1997 (unaudited), for the fiscal years ended
December 31, 1996, 1995 and 1994 and for the period
February 2, 1993 (commencement of operations) through
December 31, 1993
- Equity Fund
Financial Highlights for the six-month period ended June
30, 1997 (unaudited), for the fiscal years ended
December 31, 1996, 1995 and 1994 and for the period
January 11, 1993 (commencement of operations) through
December 31, 1993
- Asset Allocation Fund
Financial Highlights for the six-month period ended June
30, 1997 (unaudited), for the fiscal years ended
December 31, 1996, 1995 and 1994 and for the period
February 6, 1993 (commencement of operations) through
December 31, 1993
- High Quality Bond Fund
Financial Highlights for the six-month period ended June
30, 1997 (unaudited), for the fiscal years ended
December 31, 1996, 1995 and 1994 and for the period
January 21, 1993 (commencement of operations) through
December 31, 1993
(2) Incorporated by reference into Part B:
The unaudited financial statements and related notes thereto
for the Money Market, Equity, Asset Allocation and High
Quality Bond Funds as
<PAGE> 108
contained in Registrant's June 30, 1997 Semi-Annual Report to
Shareholders, a copy of which has been filed with the
Commission.
The audited financial statements and related notes thereto for
the Money Market, Equity, Asset Allocation and High Quality
Bond Funds as contained in Registrant's December 31, 1996
Annual Report to Shareholders, a copy of which has been 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) Agreement and Declaration of Trust of the Registrant dated
May 27, 1992 is incorporated herein by reference to Exhibit
(1) to Registrant's Registration Statement on Form N-1A as
filed with the Commission on July 7, 1992.
(2) Registrant's Code of Regulations is incorporated herein by
reference to Exhibit (2) to Registrant's Registration
Statement on Form N-1A as filed with the Commission on July
7, 1992.
(3) None.
(4) None.
(5)(a) Investment Advisory Agreement dated September 30, 1992
between Registrant and Fleet Investment Advisors Inc. with
respect to the Money Market, Equity, Asset Allocation and
High Quality Bond Funds is incorporated herein by reference
to Exhibit (5) to Registrant's Post-Effective Amendment No.
1 as filed with the Commission on July 14, 1993.
(b) Form of Addendum No. 1 to Investment Advisory Agreement
between Registrant and Fleet Investment Advisors Inc., with
respect to the Growth and Income Fund and Small Company
Growth Fund.
(c) Form of Advisory Agreement between Registrant and Columbia
Management Co. with respect to the Columbia Real Estate
Equity Fund II and Columbia High Yield Fund II.
-2-
<PAGE> 109
(6)(a) Distribution Agreement dated as of June 1, 1997 between
Registrant and First Data Distributors, Inc.
(b) Form of Amendment No. 1 to Distribution Agreement between
Registrant and First Data Distributors, Inc.
(7) 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
Exhibit (7) to Registrant's Post-Effective Amendment No. 5
as filed with the Commission on February 28, 1997.
(8)(a) Global Custody Agreement dated November 13, 1992 between
Registrant and The Chase Manhattan Bank, N.A. is
incorporated herein by reference to Exhibit (8) to
Registrant's Post-Effective Amendment No. 1 as filed with
the Commission on July 14, 1993.
(b) Form of Amendment No. 1 to Global Custody Agreement between
Registrant and The Chase Manhattan Bank, N.A.
(9)(a) Administration Agreement dated as of June 1, 1997 between
Registrant and First Data Investor Services Group, Inc.
(b) Form of Amendment No. 1 to Administration Agreement between
Registrant and First Data Investor Services Group, Inc.
(c) Proposed Sales Agreement between Registrant and American
Skandia Life Assurance Corporation is incorporated herein
by reference to Exhibit (9)(c) to Registrant's
Post-Effective Amendment No. 1 as filed with the Commission
on July 14, 1993.
(10) Opinion of counsel that shares will be validly issued,
fully paid and non-assessable.
(11)(a) Consent of Coopers & Lybrand L.L.P.
(b) Consent of Drinker Biddle & Reath LLP.
(12) None.
-3-
<PAGE> 110
(13)(a) Purchase Agreement dated January 8, 1993 between
Registrant and Fleet Investment Advisors Inc. is
incorporated herein by reference to Exhibit (13) to
Registrant's Post-Effective Amendment No. 1 as filed with
the Commission on July 14, 1993.
(b) Form of Purchase Agreement between Registrant and Fleet
Investment Advisors Inc.
(14) None.
(15) None.
(16) Schedule for Computation of Performance Quotations for The
Money Market, Equity, Asset Allocation and High Quality
Bond Funds is incorporated herein by reference to Exhibit
(16) to the Registrant's Post-Effective Amendment No. 1 as
filed with the Commission on July 14, 1993.
(18) None.
(27) Financial Data Schedules for the six-month period ended
June 30, 1997 for the Money Market, Equity, Asset
Allocation and High Quality Bond Funds.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Registrant is controlled by its Board of Trustees, the members of which
also serve as members of the Board of Trustees of The Galaxy Fund and
Galaxy Fund II.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
Registrant was organized primarily for the purpose of providing a vehicle
for the investment of assets received by various separate investment
accounts ("Separate Accounts") established by various participating life
insurance companies. The assets in such Separate Accounts are, under state
law, assets of the life insurance companies which have established such
Separate Accounts. Thus at any time such life insurance companies will own
such of Registrant's outstanding shares as are purchased with Separate
Account assets; however, where required to do so, such life insurance
companies will vote such shares only in accordance with instructions
received from owners of the contracts pursuant to which monies are
invested in such Separate Accounts.
-4-
<PAGE> 111
<TABLE>
<CAPTION>
Number of
Record Holders
Title of Class As of September 30, 1997
-------------- ------------------------
<S> <C>
Class A 2
(Money Market Fund)
Class B 2
(Equity Fund)
Class C 2
(Asset Allocation Fund)
Class D 2
(High Quality Bond Fund)
Class E 0
(Small Company Growth Fund)
Class F 0
(Growth and Income Fund)
Class G 0
(Columbia Real Estate Equity Fund II)
Class H 0
(Columbia High Yield Fund II)
</TABLE>
ITEM 27. INDEMNIFICATION
Indemnification of Registrant's principal underwriter and custodian
against certain losses is provided for, respectively, in Section 1.15 of
the Distribution Agreement, filed herein as Exhibit (6), and in Section 12
of the Global Custody Agreement, incorporated herein by reference as
Exhibit (8). Registrant has obtained from a major insurance carrier a
directors' and officers' liability policy covering certain types of errors
and omissions. In addition, Section 9.3 of Registrant's Agreement and
Declaration of Trust, incorporated herein by reference as Exhibit (1),
provides as follows:
9.3 Indemnification of Trustees, Representatives and Employees. The
Trust shall indemnify each of its Trustees against all liabilities
and expenses (including amounts paid in satisfaction of judgments,
in compromise, as fines and penalties, and as counsel fees)
reasonably incurred by him in connection with the defense or
disposition of any action, suit or other proceeding, whether civil
or criminal, in
-5-
<PAGE> 112
which he may be involved or with which he may be threatened, while
as a Trustee or thereafter, by reason of his being or having been
such a Trustee except with respect to any matter as to which he
shall have been adjudicated to have acted in bad faith, willful
misfeasance, gross negligence or reckless disregard of his duties,
provided that as to any matter disposed of by a compromise payment
by such person, pursuant to a consent decree or otherwise, no
indemnification either for said payment or for any other expenses
shall be provided unless the Trust shall have received a written
opinion from independent legal counsel approved by the Trustees to
the effect that if either the matter of willful misfeasance, gross
negligence or reckless disregard of duty, or the matter of bad faith
had been adjudicated, it would in the opinion of such counsel have
been adjudicated in favor of such person. The rights accruing to any
person under these provisions shall not exclude any other right to
which he may be lawfully entitled, provided that no person may
satisfy any right of indemnity or reimbursement hereunder except out
of the property of the Trust. The Trustees may make advance payments
in connection with the indemnification under this Section 9.3,
provided that the indemnified person shall have given a written
undertaking to reimburse the Trust in the event it is subsequently
determined that he is not entitled to such indemnification.
The Trustees shall indemnify representatives and employees of the
Trust to the same extent that Trustees are entitled to
indemnification pursuant to this Section 9.3.
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to trustees, officers and
controlling persons of Registrant pursuant to the foregoing
provisions, or otherwise, Registrant has been advised that in the
opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
Registrant of expenses incurred or paid by a trustee, officer or
controlling person of 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, 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
Act and will be governed by the final adjudication of such issue.
Section 9.6 of the Registrant's Agreement and Declaration of Trust,
incorporated herein by reference as Exhibit (1), also provides for the
indemnification of shareholders of the Registrant. Section 9.6 states as
follows:
-6-
<PAGE> 113
9.6 Indemnification of Shareholders. In case any Shareholder or former
Shareholder shall be held to be personally liable solely by reason
of his being or having been a Shareholder and not because of his
acts or omissions or for some other reason,
the Shareholder or former Shareholder (or his heirs, executors,
administrators or other legal representatives or, in the case of a
corporation or other entity, its corporate or other general
successor) shall be entitled out of the assets belonging to the
classes of Shares with the same alphabetical designation as that of
the Shares owned by such Shareholder to be held harmless from and
indemnified against all loss and expense arising from such
liability. The Trust shall, upon request by the Shareholder, assume
the defense of any claim made against any Shareholder for any act or
obligations of the Trust and satisfy any judgment thereon from such
assets.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISERS
(1) Fleet Investment Advisors Inc. ("Fleet") is an investment adviser
registered under the Investment Advisers Act of 1940 (the "Advisers
Act").
The list required by this Item 28 of officers and directors of
Fleet, together with information as to any business profession,
vocation or employment of a substantial nature engaged in by such
officers and directors during the past two years is incorporated
herein by reference to Schedules A and D of Form ADV filed by Fleet
pursuant to the Advisers Act (SEC File No. 801-20312).
(2) Columbia Management Co. ("Columbia") is an investment adviser
registered under the Advisers Act.
The list required by this Item 28 of the officers and directors of
Columbia, together with the 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 Columbia pursuant to the Advisers Act (SEC File No.
801-5930).
ITEM 29. PRINCIPAL UNDERWRITER
(a) In addition to The Galaxy VIP Fund, First Data Distributors, Inc.
(the "Distributor") currently acts as distributor for The Galaxy
Fund, Galaxy Fund II, and Armada Funds. 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 wholly-owned subsidiary of
First Data Investor Services Group, Inc. which is located at 4400
Computer Drive, Westboro, Massachusetts 01581.
-7-
<PAGE> 114
(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. 8-45467).
(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
administrator, which receives administration fees as described in
parts A and B.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
(1) Fleet Investment Advisors Inc., 75 State Street, Boston,
Massachusetts 02109 (records relating to its functions as investment
adviser to Registrant's Money Market, Equity, Growth and Income,
Small Company Growth, Asset Allocation and High Quality Bond Funds).
(2) Columbia Management Co., 1300 S.W. Sixth Avenue, P.O. Box 1350,
Portland, Oregon 97207-1350 (records relating to its functions as
investment adviser to Registrant's Columbia Real Estate Equity Fund
II and Columbia High Yield Fund II).
(3) First Data Distributors, Inc., (records relating to its functions as
distributor) 4400 Computer Drive, Westboro, Massachusetts 01581.
(4) First Data Investor Services Group, Inc., 53 State Street, Boston,
Massachusetts 02109 (records relating to its functions as
administrator).
(5) Drinker Biddle & Reath LLP, 1345 Chestnut Street, Philadelphia,
Pennsylvania 19107 (Registrant's Declaration of Trust, Code of
Regulations and Minute Books).
(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
Inapplicable.
ITEM 32. UNDERTAKINGS
Registrant hereby undertakes to provide its Annual Report upon request
without charge to any recipient of a Prospectus for the Money Market Fund,
Equity Fund, Growth and
-8-
<PAGE> 115
Income Fund, Small Company Growth Fund, Columbia Real Estate Equity Fund
II, Asset Allocation Fund, High Quality Bond Fund and Columbia High Yield
Fund II.
Registrant hereby undertakes to file a post-effective amendment with
respect to the Growth and Income Fund, Small Company Growth Fund, Columbia
Real Estate Equity Fund II and Columbia High Yield Fund II (the "New
Funds"), using financial statements which need not be certified, within
four to six months of the effective date of the Registration Statement
pertaining to the New Funds.
-9-
<PAGE> 116
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, Registrant has duly caused
this Amendment to its Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Pawtucket, State of Rhode
Island, on the 21 day of November, 1997.
THE GALAXY VIP FUND
Registrant
/s/John T. O'Neill
----------------------------
President
John T. O'Neill
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Post-Effective Amendment No. 6 to the Registration Statement has been
signed below by the following persons in the capacities and on the dates
indicated.
Signature Title Date
- --------- ----- ----
/s/John T. O'Neill Trustee, President November 21, 1997
- ------------------------- and Treasurer
John T. O'Neill
*Dwight E. Vicks, Jr. Chairman of the Board November 21, 1997
- ------------------------ of Trustees
Dwight E. Vicks, Jr.
*Donald B. Miller Trustee November 21, 1997
- -------------------------
Donald B. Miller
*Louis DeThomasis Trustee November 21, 1997
- -------------------------
Louis DeThomasis
*Bradford S. Wellman Trustee November 21, 1997
- -------------------------
Bradford S. Wellman
*James M. Seed Trustee November 21, 1997
- -------------------------
James M. Seed
/s/John T. O'Neill
- -------------------------
*By: John T. O'Neill
Attorney-in-Fact
<PAGE> 117
THE GALAXY VIP FUND
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints W.
Bruce McConnel, III his true and lawful attorney-in-fact and agent with full
power of substitution and 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 (the "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 said attorney 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 attorney may
lawfully do or cause to be done by virtue hereof.
Dated: June 11, 1992. /s/ John T. O'Neill
--------------------
John T. O'Neill
<PAGE> 118
THE GALAXY VIP FUND
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 and
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 (the "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: June 11, 1992. /s/ Dwight E. Vicks, Jr.
-------------------------
Dwight E. Vicks, Jr.
<PAGE> 119
THE GALAXY VIP FUND
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 and
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 (the "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: June 11, 1992. /s/ Donald B. Miller
---------------------
Donald B. Miller
<PAGE> 120
THE GALAXY VIP FUND
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 and
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 (the "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: June 11, 1992. /s/ Brother Louis DeThomasis
-----------------------------
Brother Louis DeThomasis
<PAGE> 121
THE GALAXY VIP FUND
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 and
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 (the "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: June 11, 1992. /s/ Bradford S. Wellman
------------------------
Bradford S. Wellman
<PAGE> 122
THE GALAXY VIP FUND
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 and
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 (the "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: June 11, 1992. /s/ James M. Seed
------------------
James M. Seed
<PAGE> 123
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C>
(5)(b) Form of Addendum No. 1 to Investment Advisory
Agreement between Registrant and Fleet Investment
Advisors Inc., with respect to the Growth and Income
Fund and the Small Company Growth Fund.
(5)(c) Form of Advisory Agreement between Registrant and
Columbia Management Co. with respect to the Columbia
Real Estate Equity Fund II and the Columbia High Yield
Fund II.
(6)(a) Distribution Agreement dated as of June 1, 1997
between Registrant and First Data Distributors, Inc.
(6)(b) Form of Amendment No. 1 to Distribution Agreement
between Registrant and First Data Distributors, Inc.
(8)(b) Form of Amendment No. 1 to Global Custody Agreement
between Registrant and The Chase Manhattan Bank, N.A.
(9)(a) Administration Agreement dated as of June 1, 1997
between Registrant and First Data Investor Services Group, Inc.
(9)(b) Form of Amendment No. 1 to Administration Agreement
between Registrant and First Data Investor Services
Group, Inc.
(10) Opinion of counsel that shares will be validly issued,
fully paid and non-assessable.
(11)(a) Consent of Coopers & Lybrand L.L.P.
(11)(b) Consent of Drinker Biddle & Reath LLP.
(13)(b) Form of Purchase Agreement between Registrant and
Fleet Investment Advisors Inc.
(27) Financial Data Schedules for the six-month period
ended June 30, 1997 for the Money Market, Equity,
Asset Allocation and High Quality Bond Funds.
</TABLE>
<PAGE> 1
Exhibit (5)(b)
THE GALAXY VIP FUND
ADDENDUM NO. 1 TO ADVISORY AGREEMENT
This Addendum No. 1, dated as of the ___ day of ____________, 1998,
is entered into between THE GALAXY VIP FUND, a Massachusetts business trust,
located in Westboro, Massachusetts ("Galaxy"), and FLEET INVESTMENT ADVISORS
INC., a New York corporation, located in Boston, Massachusetts (the "Adviser").
WHEREAS, Galaxy and the Adviser have entered into an Advisory
Agreement dated as of September 30, 1992 (the "Advisory Agreement"), pursuant to
which Galaxy appointed the Adviser to act as investment adviser to Galaxy for
its Money Market Fund, Equity Fund, Asset Allocation Fund and High Quality Bond
Fund (each a "Fund");
WHEREAS, Galaxy has notified the Adviser that it has established a
Growth and Income Fund and Small Company Growth Fund;
NOW THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. APPOINTMENT. Galaxy hereby appoints the Adviser to act as
investment adviser to Galaxy for the Growth and Income Fund and Small Company
Growth Fund for the period and on the terms set forth in the Advisory Agreement.
The Adviser hereby accepts such appointment and agrees to render the services
set forth in the Advisory Agreement for the compensation herein provided.
2. COMPENSATION. For the services provided and the expenses assumed
pursuant to the Advisory Agreement with respect to the Growth and Income Fund
and Small Company Growth Fund, Galaxy will pay the Adviser and the Adviser will
accept as full compensation therefor fees, computed daily and paid monthly,
based on the net assets of the Growth and Income Fund and Small Company Growth
Fund considered separately on a per-Fund basis at the annual rates of .75% of
the net assets of each of the Growth and Income Fund and Small Company Growth
Fund.
3. CAPITALIZED TERMS. From and after the date hereof, the term
"Fund" as used in the Advisory Agreement shall be deemed to include the Growth
and Income Fund and Small Company Growth Fund. Capitalized terms used herein and
not otherwise defined shall have the meanings ascribed to them in the Advisory
Agreement.
<PAGE> 2
4. MISCELLANEOUS. Except to the extent supplemented hereby, the
Advisory Agreement shall remain unchanged and in full force and effect and is
hereby ratified and confirmed in all respects as supplemented hereby.
IN WITNESS WHEREOF, the undersigned have executed this Addendum as
of the date and year first above written.
THE GALAXY VIP FUND
By:_______________________________________
Title:____________________________________
FLEET INVESTMENT ADVISORS INC.
By:_______________________________________
Title:____________________________________
-2-
<PAGE> 1
Exhibit (5)(c)
THE GALAXY VIP FUND
ADVISORY AGREEMENT
COLUMBIA REAL ESTATE EQUITY FUND II AND
COLUMBIA HIGH YIELD FUND II
AGREEMENT made as of ____________, 1998 between THE GALAXY VIP FUND,
a Massachusetts business trust, located in Westboro, Massachusetts ("Galaxy")
and COLUMBIA MANAGEMENT CO., an Oregon corporation, located in Portland, Oregon
(the "Adviser").
WHEREAS, Galaxy is registered as an open-end, diversified,
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, Galaxy desires to retain the Adviser as investment adviser
to the Columbia Real Estate Equity Fund II and Columbia High Yield Fund II
(individually, a "Fund" and collectively, the "Funds");
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, it is agreed between the parties hereto as follows:
1. Delivery of Documents. The Adviser acknowledges that it has
received copies of each of the following as certified by Galaxy:
(a) Galaxy's Agreement and Declaration of Trust, as filed with
the State Secretary of the Commonwealth of Massachusetts on May 27, 1992
and all amendments thereto (such Agreement and Declaration of Trust, as
presently in effect and as it shall from time to time be amended, is
herein called the "Declaration of Trust");
(b) Galaxy's Code of Regulations and any amendments thereto
(such Code of Regulations, as presently in effect and as it shall from
time to time be amended, is herein called the "Code of Regulations");
(c) Resolutions of Galaxy's Board of Trustees authorizing
the appointment of the Adviser and approving this Agreement;
(d) Galaxy's Notification of Registration on Form N-8A under
the 1940 Act as filed with the Securities and Exchange Commission ("SEC")
on July 7, 1992 and all amendments thereto;
<PAGE> 2
(e) Post-Effective Amendment No. 6 to Galaxy's Registration
Statement on Form N-1A under the Securities Act of 1933, as amended (the
"1933 Act") and under the 1940 Act (Registration No. 33-49290/811-6726) as
filed with the SEC on November 21, 1997; and
(f) Galaxy's most recent prospectus and statement of
additional information with respect to the Funds (such prospectus and
statement of additional information as presently in effect and all
amendments and supplements thereto herein called the "Prospectus").
Galaxy will furnish the Adviser from time to time with execution
copies of all amendments of, or supplements to, the foregoing.
2. Services. Galaxy hereby appoints the Adviser to act as investment
adviser to the Funds for the period and on the terms set forth in this
Agreement. Intending to be legally bound, the Adviser accepts such appointment
and agrees to furnish the services required herein to the Funds for the
compensation hereinafter provided.
Subject to the supervision of Galaxy's Board of Trustees, the
Adviser will provide with respect to the Funds a continuous investment program
for each Fund, including investment research and management with respect to all
securities and investments and cash equivalents in such Fund. The Adviser will
determine from time to time what securities and other investments will be
purchased, retained or sold by each Fund and will arrange for the purchase and
sale of securities and other investments of each Fund. The Adviser will provide
the services under this Agreement in accordance with each Fund's investment
objective, policies and restrictions as stated in the Prospectus and resolutions
of Galaxy's Board of Trustees applicable to such Fund.
3. Covenants by Adviser. The Adviser agrees with respect to the
services provided to each Fund that it:
(a) will conform with all rules and regulations of the SEC
applicable to it as investment adviser and will in addition conduct its
activities under this Agreement in accordance with those regulations of
the Board of Governors of the Federal Reserve System pertaining to the
investment advisory activities of bank holding companies which are
applicable to the Adviser;
(b) will use the same skill and care in providing such
services as it uses in providing services to other investment companies;
-2-
<PAGE> 3
(c) will place orders pursuant to its investment
determinations for the Funds either directly with the issuer or with any
broker or dealer. In placing orders with brokers and dealers, the Adviser
will attempt to obtain the best net price and the most favorable execution
of its orders. Consistent with this obligation, when the execution and
price offered by two or more brokers or dealers are comparable, the
Adviser may, in its discretion, purchase and sell portfolio securities
from and to brokers and dealers who provide the Adviser with research
advice and other services. Except as permitted by the SEC, the portfolio
securities will not be purchased from or sold to the Adviser, the Funds'
distributor (the "Distributor"), or any affiliated person of Galaxy, the
Adviser or the Distributor, provided, however, that subject to the
provisions of this paragraph and to the extent permitted by law, the
Adviser may purchase or sell portfolio securities through the Distributor
or an affiliate of the Distributor or the Adviser acting as broker;
(d) will maintain all books and records with respect to the
securities transactions for the Funds, keep Galaxy's books of account with
respect to the Funds and furnish Galaxy's Board of Trustees such periodic
and special reports as the Board may request with respect to the Funds;
(e) will treat confidentially and as proprietary information
of Galaxy all records and other information relative to the Funds and
prior, present or potential shareholders, and will not use such records
and information for any purpose other than performance of its
responsibilities and duties hereunder (except after prior notification to
and approval in writing by Galaxy, which approval shall not be
unreasonably withheld and may not be withheld and will be deemed granted
where the Adviser may be exposed to civil or criminal contempt proceedings
for failure to comply, when requested to divulge such information by duly
constituted authorities, or when so requested by Galaxy).
4. Services Not Exclusive. The services furnished by the Adviser
hereunder are deemed not to be exclusive, and nothing in this Agreement shall
(i) prevent the Adviser or any affiliated person (as defined in the 1940 Act) of
the Adviser from acting as investment adviser or manager for any other person or
persons, including other management investment companies with investment
objectives and policies the same as or similar to those of either Fund or (ii)
limit or restrict the Adviser or any such affiliated person from buying, selling
or trading any securities or other investments (including any securities or
other investments which either Fund is eligible to buy) for its or their own
accounts or for the accounts of others for whom it or they may be acting;
-3-
<PAGE> 4
provided, however, that the Adviser agrees that it will not undertake any
activities which, in its judgment, will adversely affect the performance of its
obligations to the Funds under this Agreement.
5. Books and Records. In compliance with the requirements of Rule
31a-3 under the 1940 Act, the Adviser hereby agrees that all records which it
maintains for the Funds are the property of Galaxy and further agrees to
surrender promptly to Galaxy any of such records upon Galaxy's request. The
Adviser further agrees to preserve for the periods prescribed by Rule 31a-2
under the 1940 Act the records required to be maintained by Rule 31a-1 under the
1940 Act.
6. Expenses. During the term of this Agreement, the Adviser will pay
all expenses incurred by it in connection with its activities under this
Agreement other than the cost of securities (including brokerage commissions, if
any) purchased for the Funds.
7. Compensation. For the services provided and the expenses assumed
with respect to the Columbia Real Estate Equity Fund II pursuant to this
Agreement, Galaxy will pay the Adviser from the assets belonging to the Fund and
the Adviser will accept as full compensation therefor fees, computed daily and
paid monthly, at an annual rate of .75% of the net assets of the Fund.
For the services provided and the expenses assumed with respect to
the Columbia High Yield Fund II pursuant to this Agreement, Galaxy will pay the
Adviser from the assets belonging to the Fund and the Adviser will accept as
full compensation therefor fees, computed daily and paid monthly, at an annual
rate of .60% of the net assets of the Fund.
8. Limitation of Liability. The Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by Galaxy, except a
loss resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from willful misfeasance, bad
faith or gross negligence on the part of the Adviser in the performance of its
duties or from reckless disregard of its obligations and duties under this
Agreement.
9. Duration and Termination. This Agreement shall become effective
with respect to each Fund on the day such Fund first commences the public
offering of its shares and, unless sooner terminated, shall continue in effect
until August 10, 1999. Thereafter, if not terminated, this Agreement shall
continue in effect with respect to a particular Fund for successive twelve-month
periods ending on August 10, provided such continuance is specifically approved
at least annually (a) by the vote of a majority of those members of Galaxy's
Board of
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<PAGE> 5
Trustees who are not parties to this Agreement, or interested persons of any
such party, cast in person at a meeting called for the purpose of voting on such
approval, and (b) by Galaxy's Board of Trustees or by the vote of a majority of
the outstanding voting securities of such Fund. Notwithstanding the foregoing,
this Agreement may be terminated as to either Fund at any time, without the
payment of any penalty, by Galaxy's Board of Trustees or by vote of a majority
of the outstanding voting securities of such Fund, or by the Adviser, on 60
days' written notice (which notice may be waived by the party entitled to
receive the same). This Agreement will immediately terminate in the event of its
assignment. (As used in this Agreement, the terms "majority of the outstanding
voting securities," "interested persons" and "assignment" shall have the same
meaning as such terms in the 1940 Act.)
10. Amendment of this Agreement. No provision of this Agreement may
be changed, waived, discharged or terminated orally, but only by an instrument
in writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought. No amendment of this Agreement shall be
effective with respect to a particular Fund until approved by the vote of a
majority of the outstanding voting securities of that Fund.
11. Miscellaneous. The Adviser expressly agrees that notwithstanding
the termination of or failure to continue this Agreement with respect to a
particular Fund, the Adviser shall continue to be legally bound to provide the
services required herein for the other Fund for the period and on the terms set
forth in this Agreement.
The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. If any provision of this
Agreement shall be held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected thereby.
This Agreement shall be binding upon and shall inure to the benefit
of the parties hereto and their respective successors and shall be governed by
Massachusetts law.
12. Names. The names "The Galaxy VIP Fund" and "Trustees of The
Galaxy VIP Fund" refer respectively to the Trust created and the Trustees, as
trustees but not individually or personally, acting from time to time under an
Agreement and Declaration of Trust dated May 27, 1992 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 the principal office of Galaxy. The
obligations of "The Galaxy VIP Fund" entered into in the name or on behalf
thereof by any of the
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<PAGE> 6
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 Galaxy personally, but bind only the property of Galaxy, and
all persons dealing with any class of shares of Galaxy must look solely to the
property of Galaxy belonging to such class for the enforcement of any claims
against Galaxy.
IN WITNESS WHEREOF, the parties hereto have caused this instrument
to be executed by their officers designated below as of the day and year first
above written.
THE GALAXY VIP FUND
By:___________________________________
President
COLUMBIA MANAGEMENT CO.
By:___________________________________
President
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<PAGE> 1
Exhibit (6)(a)
DISTRIBUTION AGREEMENT
THIS AGREEMENT is made as of this 1st day of June, 1997 (the
"Agreement") by and between The Galaxy VIP Fund (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
<PAGE> 2
current shareholders, and the printing and mailing of sales
literature.
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 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 the
Company.
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 Fund.
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
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<PAGE> 3
Additional Information and such other materials as the Company
shall provide or approve.
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 Company and its
custodian.
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
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<PAGE> 4
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) monthly balance
sheets as soon as practicable after the end of each month, and (e)
from time to time such additional information regarding the Funds'
financial condition as the Distributor may reasonably request.
1.14 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 or Prospectus.
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
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<PAGE> 5
contained in this Agreement shall in any way limit the Company's
right to file at any time such amendments to any Registration
Statement and/or supplements to any Prospectus, of whatever
character, as the Company may deem advisable, such right being in
all respects absolute and unconditional.
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 any reasonable counsel fees incurred in connection
therewith) which the Distributor, its officers and directors, or any
such controlling person, may incur under the 1933 Act, or under
common law or otherwise, arising out of or based upon any untrue
statement, or alleged untrue statement of a material fact contained
in any Registration Statement or any Prospectus or arising out of or
based upon any omission, or alleged omission, to state a material
fact required to be stated in 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
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<PAGE> 6
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 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
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<PAGE> 7
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. 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
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<PAGE> 8
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 1.18
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;
(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 (1) 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
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<PAGE> 9
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.
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 Distributors
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
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<PAGE> 10
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.
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 nonperforming
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<PAGE> 11
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.
To the Company:
John T. O'Neill, President
The Galaxy VIP Funds
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.
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<PAGE> 12
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 fights or remedies
hereunder,
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 I 1. 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.
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<PAGE> 13
11.2 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
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 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 "The Galaxy VIP Fund" and "Trustees of The Galaxy VIP
Fund" 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 May 22, 1992 which is
hereby referred to and a copy of which is on file at the office of
the State
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<PAGE> 14
Secretary of the Commonwealth of Massachusetts and at the principal
office of the Company. The obligations of "The Galaxy VIP Fund"
entered into in the name or on behalf thereof by any of the
Trustees, representatives or agents are made not individually, but
in such capacities, and are not binding upon any of the Trustees,
Shareholders, or representatives of the Company personally, but
bind only the Trust Property, and all persons dealing with any
class of Shares of the Company must look solely to the Trust
Property belonging to such class for the enforcement of any claims
against the Company.
13. ENTIRE AGREEMENT
This Agreement, including the Schedule hereto, constitutes the
entire agreement between the parties with respect to the subject
matter hereof and supersedes all prior and 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.
THE GALAXY VIP FUND
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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<PAGE> 15
SCHEDULE A
NAME OF FUNDS
Money Market Fund
Equity Fund
Asset Allocation Fund
High Quality Bond Fund
A-1
<PAGE> 1
Exhibit (6)(b)
THE GALAXY VIP FUND
DISTRIBUTION AGREEMENT
Amendment No. 1
_____________, 1998
First Data Distributors, Inc.
4400 Computer Drive
Westboro, Massachusetts 01581
Dear Sirs:
This letter is to confirm that the undersigned, The Galaxy VIP Fund (the
"Trust"), a Massachusetts business trust, has agreed that the Distribution
Agreement ("Agreement") between the Trust and First Data Distributors, Inc. ("FD
Distributors") dated as of June 1, 1997, is herewith amended to provide that FD
Distributors shall be the distributor for the Trust's Growth and Income Fund,
Small Company Growth Fund, Columbia Real Estate Equity Fund II and Columbia High
Yield Fund II on the terms and conditions contained in the Agreement.
If the foregoing is in accordance with your understanding, will you so
indicate by signing and returning to us the enclosed copy thereof.
Very truly yours,
THE GALAXY VIP FUND
By:___________________________________
Name:
Title:
Accepted:
FIRST DATA DISTRIBUTORS, INC.
By:___________________________________
Name:
Title:
<PAGE> 1
Exhibit (8)(b)
THE GALAXY VIP FUND
GLOBAL CUSTODY AGREEMENT
Amendment No. 1
_____________, 1998
The Chase Manhattan Bank
Chase Metrotech Center
Brooklyn, NY 11245
Attn: Global Custody Division
Dear Sirs:
This letter is to confirm that the undersigned, The Galaxy VIP Fund (the
"Trust"), a Massachusetts business trust, has agreed that the Global Custody
Agreement ("Agreement") between the Trust and The Chase Manhattan Bank (formerly
The Chase Manhattan Bank, N.A.) ("Chase") dated as of November 13, 1992, is
herewith amended to provide that Chase shall be the custodian for the Trust's
Growth and Income Fund, Small Company Growth Fund, Columbia Real Estate Equity
Fund II and Columbia High Yield Fund II on the terms and conditions contained in
the Agreement.
If the foregoing is in accordance with your understanding, will you so
indicate by signing and returning to us the enclosed copy thereof.
Very truly yours,
THE GALAXY VIP FUND
By:_________________________________
Name:
Title:
Accepted:
THE CHASE MANHATTAN BANK
By:_________________________________
Name:
Title:
<PAGE> 1
Exhibit (9)(a)
ADMINISTRATION AGREEMENT
THIS ADMINISTRATION AGREEMENT is made as of June 1, 1997 (the
"Agreement"), by and between FIRST DATA INVESTOR SERVICES GROUP, INC., a
Massachusetts corporation ("FDISG"), and THE GALAXY VIP FUND, a Massachusetts
business trust (the "Company").
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
WHEREAS, the Company desires to retain FDISG to render certain
administrative services with respect to each investment portfolio listed in
Schedule A hereto, as the same may be amended from time to time by the parties
hereto (collectively, the "Funds"), and FDISG is willing to render such
services;
WITNESSETH:
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Company hereby appoints FDISG to act as
Administrator of the Company for the period and on the terms set forth in this
Agreement. FDISG accepts such appointment and agrees to render the services
herein set forth for the compensation herein provided. In the event that the
Company decides to retain FDISG to act as Administrator hereunder with respect
to one or more portfolios other than the Funds, the Company shall notify FDISG
in writing. If FDISG is willing to render such services, it shall notify the
Company in writing whereupon such portfolio shall become a Fund hereunder.
2. Delivery of Documents. The Company has furnished FDISG with copies
properly certified or authenticated of each of the following:
(a) Resolutions of the Company's Board of Trustees authorizing
the appointment of FDISG to provide certain administrative services required by
the Company for each Fund and approving this Agreement;
(b) The Company's Declaration of Trust (the "Declaration of
Trust") filed with the Commonwealth of Massachusetts and all amendments thereto;
(c) The Company's Code of Regulations and all amendments
thereto (the "Code of Regulations");
<PAGE> 2
(d) The Investment Advisory Agreement between Fleet Investment
Advisors Inc. (the "Adviser") and the Company and all amendments thereto (the
"Advisory Agreement");
(e) The Global Custody Agreement between The Chase Manhattan
Bank (the "Custodian") and the Company and all amendments thereto (the "Custody
Agreement");
(f) The Distribution Agreement between First Data
Distributors, Inc. (the "Distributor") and the Company and all amendments
thereto (the "Distribution Agreement");
(g) The Company's Registration Statement on Form N-1A (the
"Registration Statement") under the Securities Act of 1933 and under the 1940
Act (File Nos. 33-49290 and 811-6726), as declared effective by the Securities
and Exchange Commission ("SEC"), relating to shares of beneficial interest of
the Company, and all amendments thereto;
(h) Each Fund's most recent prospectus and statement of
additional information and all amendments and supplements thereto (collectively,
the "Prospectuses"); and
(i) Procedures adopted by the Board of Trustees relating to
the pricing and valuation of the portfolio securities of each Fund.
The Company will furnish FDISG from time to time with copies, properly
certified or authenticated, of all amendments of or supplements to the
foregoing. Furthermore, the Company will provide FDISG with any other documents
that FDISG may reasonably request and will notify FDISG as soon as possible of
any matter materially affecting the performance by FDISG of its services under
this Agreement.
3. Duties as Administrator.
(a) Subject to the supervision and direction of the Board of
Trustees of the Company, FDISG, as Administrator, will assist in supervising
various aspects of the Company's administrative operations and undertakes to
perform the following specific services:
(i) Maintaining office facilities (which may be in
the offices of FDISG or a corporate affiliate) and furnishing officers for the
Company;
(ii) Furnishing statistical and research data,
clerical, accounting and bookkeeping services (including the maintenance of such
accounts, books and records of the Company as may be required by Section 31(a)
of the 1940 Act and the rules thereunder) and stationery and office supplies;
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<PAGE> 3
(iii) Providing internal auditing and legal services
(as described in Schedule D to this Agreement) and internal and executive
administrative services;
(iv) Performing all functions ordinarily performed
by the office of a treasurer, and furnishing the services and facilities
ordinarily incident thereto, including calculating the net asset value of the
shares of each Fund and the net income available for distribution in conformity
with each Fund's current Prospectus and resolutions of the Board of Trustees,
which resolutions have been provided to FDISG;
(v) Preparing those portions of the Company's Annual
and Semi-Annual Reports to shareholders and semi-annual reports to the SEC on
Form N-SAR that pertain to each Fund and coordinating and filing such reports;
(vi) Compiling data for and preparing for execution
those portions of the Company's federal and state tax returns and required tax
filings that pertain to each Fund and filing such returns and filings when
completed (other than those filings made by the Custodian);
(vii) Assisting the Adviser, at the Adviser's request,
in monitoring and developing compliance procedures for the Company which will
include, among other matters, procedures to assist the Adviser in monitoring
compliance with each Fund's investment objective, policies, restrictions, tax
matters and applicable laws and regulations;
(viii) Performing "Blue Sky" compliance functions,
including maintaining notice filings, registrations or "Blue Chip" exemptions
(if available) in all U.S. jurisdictions requested in writing by the Company,
monitoring sales of shares in all such jurisdictions and filing such additional
notice or applying for such additional or amended registrations as may be
reasonably anticipated to be necessary to permit continuous sales of the shares
of the Funds in all such jurisdictions, filing sales literature and advertising
materials to the extent required, with such Blue Sky authorities, and making and
filing all other applications, reports, notices, documents and exhibits in
connection with the foregoing;
(ix) Performing custody liaison operations, including
maintaining the day-to-day operational contact with the Custodian, calculating
daily cash availability, authorizing and monitoring cash movements, processing
corporate actions, supporting income and security settlements processed by the
Custodian and recorded by FDISG;
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<PAGE> 4
(x) Compiling data for notices to the SEC required
with respect to the registration of each Fund's shares pursuant to Rules 24e-2
and 24f-2 under the 1940 Act;
(xi) Arranging for and bearing the cost of
processing purchase and redemption orders with respect to each Fund's shares;
and
(xii) Furnishing all other services identified on
Schedule D attached hereto and incorporated herein which are not otherwise
specifically set forth above.
(b) 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 Company and
FDISG.
(c) In compliance with the requirements of Rule 31a-3 under
the 1940 Act, FDISG hereby agrees that all records which it maintains for the
Company are the property of the Company, and further agrees to surrender
promptly to the Company any of such records upon the Company's request. FDISG
further agrees to preserve for the periods prescribed by Rule 31a-2 under the
1940 Act the records required to be maintained under Rule 31a-1 of the 1940 Act.
(d) In computing the net asset value of each Fund, FDISG may
utilize one or more independent pricing services approved from time to time by
the Board of Trustees of the Company to obtain securities prices. Each Fund will
pay its share of the cost of such services based upon its actual use of the
services.
(e) In performing its duties under this Agreement, FDISG: (a)
will act in accordance with the Company's Declaration of Trust, Code of
Regulations, Prospectuses and with the instructions and directions of the
Company and will conform to and comply with the requirements of the 1940 Act and
all other applicable federal or state laws and regulations; and (b) will consult
with legal counsel to the Company, as necessary and appropriate. Furthermore,
FDISG shall not have or be required to have any authority to supervise the
investment or reinvestment of the securities or other properties which comprise
the assets of the Company or any of its Funds and shall not provide any
investment advisory services to the Company or any of its Funds.
4. Compensation and Allocation of Expenses. FDISG shall bear all
expenses in connection with the performance of its services under this
Agreement, except as indicated below.
(a) FDISG will from time to time employ or associate with
itself such person or persons as FDISG may believe to be
-4-
<PAGE> 5
particularly suited to assist it in performing services under this Agreement.
Such person or persons may be officers and employees who are employed by both
FDISG and the Company. The compensation of such person or persons shall be paid
by FDISG and no obligation shall be incurred on behalf of the Company in such
respect.
(b) FDISG shall not be required to pay any of the following
expenses incurred by the Company: membership dues in the Investment Company
Institute or any similar organization; investment advisory fees and expenses;
interest on borrowed money; fees of Trustees of the Company who are not
affiliated with FDISG; outside auditing expenses; outside legal expenses; taxes;
brokerage fees and commissions; SEC fees and state Blue Sky qualification fees;
custodian, transfer and dividend disbursing agents' fees; certain insurance
premiums; costs of maintenance of corporate existence; typesetting and printing
of Prospectuses for regulatory purposes and for distribution to current
shareholders of the Funds; costs of shareholders' reports and corporate
meetings; or other expenses not specified in this Section 4 which may be
properly payable by the Company. The Funds will not bear, directly or
indirectly, the cost of any activity which is primarily intended to result in
the distribution of Fund shares.
(c) The Company on behalf of each of the Funds will compensate
FDISG for the performance of its obligations hereunder in accordance with the
fees set forth in the written Fee Schedule attached hereto as Schedule B and
incorporated herein.
(d) The Company on behalf of each of the Funds will pay to
FDISG domestic and/or global custody fees and expenses for each Fund as set
forth in Schedule B. FDISG shall be the party responsible for payment of all
fees and expenses under the terms of the Custody Agreement.
(e) The fees set forth in Schedule B do not include
out-of-pocket disbursements of FDISG for which FDISG shall be entitled to bill
separately. Out-of-pocket disbursements shall include, but shall not be limited
to, (i) the items specified in the written schedule of out-of-pocket expenses
attached hereto as Schedule C and incorporated herein, as the same may be
modified from time to time by written agreement of the parties hereto, and (ii)
the Special Projects outlined in Schedule D hereto.
(f) FDISG will submit a detailed bill to the Company as soon
as practicable after the end of each calendar month for all out-of-pocket
disbursements made during such month. The Company will promptly pay to FDISG the
amount of such billing.
(g) The Company acknowledges that the fees that FDISG charges
the Company under this Agreement reflect the allocation
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<PAGE> 6
of risk between the parties, including the disclaimer of warranties in Section 7
and the limitations on liability in Section 5. Modifying the allocation of risk
from what is stated here would affect the fees that FDISG charges, and in
consideration of those fees, the Company agrees to the stated allocation of
risk.
5. Limitation of Liability.
(a) FDISG shall not be liable 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 FDISG's willful misfeasance, bad faith or negligence in the
performance of such obligations and duties, or by reason of its reckless
disregard thereof.
(b) Each party shall have the duty to mitigate damages for
which the other party may become responsible.
(c) 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 FOR CONSEQUENTIAL DAMAGES.
6. Indemnification.
(a) The Company 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:
(i) FDISG's reasonable reliance on, or reasonable
use of information, data, records and documents received by FDISG from the
Company, or any authorized third party acting on behalf of the Company, in the
performance of FDISG's duties and obligations hereunder; and
(ii) the Company's refusal or failure to comply with
the terms of this Agreement or any Claim which arises out of the Company's
negligence or misconduct or the breach of any representation or warranty by the
Company made herein.
(b) In any case in which the Company may be asked to indemnify
or hold FDISG harmless, FDISG will notify the Company promptly after identifying
any situation which it believes
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<PAGE> 7
presents or appears likely to present a claim for indemnification against the
Company although the failure to do so shall not prevent recovery by FDISG and
shall keep the Company advised with respect to all developments concerning such
Indemnification Claim. The Company shall have the option to defend FDISG against
any Indemnification Claim and, in the event that the Company so elects, such
defense shall be conducted by counsel chosen by the Company and satisfactory to
FDISG, and thereupon the Company shall take over complete defense of the 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 Company will be asked to provide
indemnification, except with the Company's prior written consent. Subject to
subsection (c) hereof, the obligations of the parties hereto under this Section
6 shall survive the termination of this Agreement.
(c) Any Indemnification Claim under this Agreement must be
made prior to the earlier of:
(i) one year after FDISG becomes aware of the event
for which indemnification is claimed; or
(ii) one year after the earlier of the termination
of this Agreement or the expiration of the term of this Agreement.
(d) Except for remedies that cannot be waived as a matter of
law (and injunctive or provisional relief), the provisions of this Section 6
shall be FDISG's sole and exclusive remedy for claims or other actions or
proceedings to which the Company's indemnification obligations pursuant to this
Section 6 may apply.
7. EXCLUSION OF WARRANTIES. 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 COMPANY OR ANY OTHER PERSON.
8. Termination of Agreement.
(a) This Agreement shall be effective on the date first
written above and shall continue for a period of one (1) year (the "Initial
Term"), unless earlier terminated pursuant to the terms of this Agreement.
Thereafter, this Agreement shall continue automatically for additional terms of
one (1) year ("Renewal Terms") each.
(b) Either party may terminate this Agreement at the end of
the Initial Term or at the end of any subsequent Renewal Term upon not than less
than sixty (60) days prior written notice to the other party.
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<PAGE> 8
(c) The Company 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 Company or its shareholders in excess of one hundred thousand
dollars ($100,000). "Damages to the Company" 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 Company's right to terminate under this Section
8(c) shall remain effective in the event FDISG has made the Company whole with
respect to the damages caused. Unless the Company provides FDISG with written
notice of the Company's intent to exercise its option under this Section 8(c)
within 30 days after the Company becomes aware of the occurrence, the Company
shall have waived its option to terminate under this provision.
(d) If a party hereto is guilty of a material failure to
perform its duties and obligations hereunder (a "Defaulting Party"), such 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.
(e) The Company shall have the right to terminate this
Agreement at any time if the company reorganizes into another entity, liquidates
or otherwise ceases to exist. In the event the Company terminates the Agreement
pursuant to this Section 8(e), the Company shall reimburse FDISG for all
reasonable costs associated with such termination.
(f) In the event this Agreement is terminated by the Company
pursuant to Sections 8(c) or 8(d) hereof, all reasonable expenses associated
with movement of records and materials and conversion thereof to a successor
administrator will be borne by FDISG and the Company shall not be responsible
for FDISG's costs associated with such termination. In the event of termination
of this Agreement pursuant to any other Section of this Agreement, all
reasonable expenses associated with conversion to a successor administrator will
be borne by the Company.
9. Modifications and Waivers. No change, termination, modification,
or waiver of any term or condition of this Agreement shall be valid unless in
writing signed by each party.
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<PAGE> 9
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 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.
10. No Presumption Against Drafter. FDISG 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 FDISG, and
no presumptions arise favoring any party by virtue of the authorship of any
provision of this Agreement.
11. Publicity. Neither FDISG 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.
12. 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,
including the limitations on liability and exclusion of damages, shall remain
fully effective.
13. Miscellaneous.
(a) Any notice or other instrument authorized or required by
this Agreement to be given in writing to the Company or FDISG 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> 10
To the Company:
John T. O'Neill, President
The Galaxy VIP Fund
c/o Hasbro, Inc.
200 Narragansett Park Drive
Pawtucket, Rhode Island 02862
with a copy to:
W. Bruce McConnel, III, Esq.
Drinker Biddle & Reath LLP
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, Pennsylvania 19107
To FDISG:
First Data Investor Services Group, Inc.
4400 Computer Drive
Westborough, Massachusetts 01581
Attention: President
with a copy to FDISG's General Counsel
(b) This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns and is not intended to confer upon any other person any rights or
remedies hereunder. 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 Company 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 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 same extent that it is hereunder.
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<PAGE> 11
(c) 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 Company hereby submit themselves to the exclusive
jurisdiction of those courts.
(d) 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.
(e) 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.
(f) The names "The Galaxy VIP Fund" and "Trustees of The
Galaxy VIP Fund" 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 May 27, 1992 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
"The Galaxy VIP Fund" 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.
14. Confidentiality.
(a) 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 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 to protect its own
Confidential Information. The Company and FDISG 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 or filed as an exhibit
thereto, the Company 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.
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<PAGE> 12
The Company and FDISG may, however, disclose Confidential Information to their
respective employees who have a need to know the Confidential Information to
perform work for the other, provided that the Company and FDISG shall use
reasonable efforts to ensure that the Confidential Information is not duplicated
or disclosed by their respective employees in breach of this Agreement. The
Company 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 the confidentiality obligations substantially similar to
this Section 14. Notwithstanding the previous sentence, in no event shall either
the Company or FDISG disclose the Confidential Information to any competitor of
the other without specific, prior written consent.
(b) Proprietary Information means:
(i) any data or information that is completely
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 FDISG, their respective subsidiaries and
affiliated companies and the customers, clients and suppliers of any of them;
(ii) 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 Company or
FDISG a competitive advantage over its competitors; and
(iii) 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.
(c) 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.
15. 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
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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.
16. Entire Agreement. This Agreement, including all Schedules 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 instrument to
be duly executed and delivered by their duly authorized officers as of the date
first written above.
FIRST DATA INVESTOR SERVICES GROUP, INC.
By:/s/Barbara L.Worthen
-----------------------
Name:Barbara L. Worthen
---------------------
Title:EVP; General Counsel
--------------------
THE GALAXY VIP FUND
By:/s/John T. O'Neill
------------------
Name:John T. O'Neill
----------------
Title:President
---------------
-13-
<PAGE> 14
SCHEDULE A
Money Market Fund
Equity Fund
Asset Allocation Fund
High Quality Bond Fund
-14-
<PAGE> 15
SCHEDULE B
FEE SCHEDULE
For the services to be rendered, the facilities to be furnished and the
payments to be made by FDISG, as provided for in this Agreement, the Company, on
behalf of each Fund, will pay FDISG on the first business day of each month a
fee for the previous month at the rates listed below. Upon any termination of
this Agreement before the end of any month, the fee for such part of a month
shall be prorated according to the proportion which such period bears to the
full monthly period and shall be payable upon the date of termination of this
Agreement.
All asset-based fees shall be calculated daily and paid monthly. Net
assets shall be computed in accordance with the Funds' Prospectuses and the
resolutions of the Company's Board of Trustees.
ADMINISTRATION FEES:
FDISG shall be paid an annual administration fee at the annual rate of
.085% of the first $1.0 billion of the Funds' combined average daily net assets,
.078% of the next $1.5 billion of combined average daily net assets, .073% of
combined average daily net assets in excess of $2.5 billion and a percentage
rate to be negotiated by the parties of the combined average daily net assets in
excess of $5 billion. The minimum aggregate fee for the Funds will be $100,000.
FUND ACCOUNTING FEES:
FDISG shall be paid an annual fund accounting fee for each Fund based
on the average net assets of each Fund as follows:
<TABLE>
<CAPTION>
Assets Fee
------ --------
<S> <C>
Net assets under $50 million $ 25,000
Net assets of $50 million but less than $200 million $ 35,000
Net assets of $200 million but less than $500 million $ 50,000
Net assets of $500 million but less than $1 billion $ 85,000
Net assets in excess of $1 billion $125,000
</TABLE>
The annual fund accounting fee for a Fund possessing more than 25% in
non-domestic assets will be 150% of the annual fund accounting fees described
above.
DOMESTIC AND/OR GLOBAL CUSTODY FEES:
Domestic and/or global custody fees for each Fund are comprised of an
annual account fee, annual holding fees and transaction fees (domestic custody)
and/or an annual account maintenance fee and asset and transaction fees per
country
-15-
<PAGE> 16
(global custody) as more particularly set forth in Exhibit 1 to this Schedule B,
plus out-of-pocket charges including but not limited to taxes, insurance,
telephone and script fees.
-16-
<PAGE> 17
EXHIBIT 1 TO SCHEDULE B
CUSTODY
DOMESTIC CUSTODY
The fees for Domestic Custody are comprised of three separate charges
as follows:
<TABLE>
<S> <C>
ANNUAL ACCOUNT FEE
Assets less than $100 million $ 5,000
Assets $100 - 500 million $ 7,500
Assets greater than $500 million $15,000
ANNUAL HOLDING FEE
Book Entry (DTC, FBE, etc.) $ 24.00
Physical $ 60.00
PTC $ 72.00
Euroclear/Cedel 3 basis points
TRANSACTION FEE
DTC $ 8.00
Fed Book Entry $ 8.00
Physical/Commercial Paper $ 22.00
Interfund Trades $ 5.00
Options $ 25.00
Futures $ 25.00
Repurchase Agreements $ 15.00
</TABLE>
Note: Euroclear/Cedel holdings charge is based upon dollar
value of holdings (i.e. asset based charge).
GLOBAL CUSTODY
The fees for Global Custody are comprised of three separate charges as
follows:
ANNUAL ACCOUNT MAINTENANCE FEE
Fees are based on average net assets per Fund and include
management of custodian network, collection and settlement of
principal and income items and monitoring the quality of
services provided. Fees are billable on a monthly basis at the
rate of 1/12 of the annual fee.
<TABLE>
<CAPTION>
Fund Net Assets Annual Fee
<S> <C>
Up to $100 million $25,000
$100 to $250 million $35,000
$250 to $500 million $45,000
Over $500 million Negotiable
</TABLE>
-17-
<PAGE> 18
ASSET AND TRANSACTION FEES PER COUNTRY
<TABLE>
<CAPTION>
Basis Point Transaction
County Charge Charge
------ ------ ------
<S> <C> <C>
Argentina 22 $ 75
Australia 7 $ 30
Austria 12 $ 60
Belgium 7 $ 30
Canada 7 $ 30
Chile 20 $100
China 40 $100
Denmark 16 $ 60
Finland 16 $ 60
France 7 $ 30
Germany 7 $ 30
Greece 26 $120
Hong Kong 12 $ 60
India 40 $100
Indonesia 26 $120
Ireland 7 $ 30
Italy 7 $ 30
Japan (debt) 12 $ 60
Japan (equity) 7 $ 30
Malaysia 22 $120
Mexico 16 $ 60
Netherlands 7 $ 30
New Zealand 12 $ 60
Norway 12 $ 60
Philippines 22 $120
Singapore 22 $120
South Korea 20 $100
Spain 26 $120
Sweden 7 $ 30
Switzerland 7 $ 30
Taiwan 32.75 $120
Thailand 22 $120
Turkey 26 $120
United Kingdom 7 $ 30
Venezuela 22 $120
</TABLE>
Out-of-pocket charges, including but not limited to, taxes, insurance,
telephone, script fees, will be invoiced at cost.
-18-
<PAGE> 19
SCHEDULE C
OUT-OF-POCKET EXPENSES
Out-of-pocket expenses include the following:
- Postage of Board meeting materials and other materials to the
Company's Board members and service providers (including
overnight or other courier services)
- Telecommunications charges (including FAX) with respect
to communications with the Company's directors,
officers and service providers
- Duplicating charges with respect to filings with
federal and state authorities and Board meeting
materials
- Courier services
- Pricing services
- Equity and bond price quotes ($.20 and $.50 per quote
per day, respectively)
- Money market price quotes ($.50 per quote per week)
- Forms and supplies for the preparation of Board
meetings and other materials for the Company
- Vendor set-up charges for Blue Sky services
- Customized programming requests
- Such other expenses as are agreed to in writing by
FDISG and the Company
-19-
<PAGE> 20
SCHEDULE D
FUND ACCOUNTING AND ADMINISTRATIVE SERVICES
ROUTINE PROJECTS
- - Daily, Weekly, and Monthly Reporting
- - Portfolio and General Ledger Accounting
- - Daily Pricing of all Securities
- - Daily Valuation and NAV Calculation
- - Comparison of NAV to market movement
- - Review of price tolerance/fluctuation report
- - Research items appearing on the price exception report
- - Weekly cost monitoring along with mark-to-market valuations in accordance
with Rule 2a-7
- - Preparation of monthly ex-dividend monitor
- - Daily cash reconciliation with the custodian bank
- - Daily updating of price and rate information to the Insurance Agent
- - Daily support and report delivery to Portfolio Management
- - Daily calculation of Fund advisor fees and waivers
- - Daily calculation of distribution rates
- - Daily maintenance of each Fund's general ledger including expense accruals
- - Daily price notification to other vendors as required
- - Calculation of SEC yields and total returns
- - Preparation of month-end reconciliation package
- - Monthly reconciliation of Fund expense records
- - Preparation of monthly pay down gain/loss summaries
- - Preparation of all annual and semi-annual audit work papers
- - Preparation and printing of financial statements
- - Providing shareholder tax information to Transfer Agent
- - Producing drafts of IRS and state tax returns
- - Treasury Services including:
Provide officers for the Company
Expense accrual monitoring
Determination of dividends
Prepare materials for review by the Board, e.g., 2a-7,
10f-3, 17a-7, 17e-1, Rule 144a
- - Tax and financial counsel
- - IRS and SEC compliance testing including Section 817(h)
- - Updating projections of annual expenses
- - Preparation of monthly Fund portfolio profile reports
- - Preparation of various management reports
- - Reporting of Fund statistics to ICI
- - Sending of Rule 24f-2 or 24e-2 notices to the SEC in
conjunction with the Company's counsel
-20-
<PAGE> 21
DISTRIBUTION AND LEGAL, REGULATORY AND BOARD OF TRUSTEES SUPPORT
ROUTINE PROJECTS
- - Review and filing of Form N-SAR
- - Review and filing of Annual and Semi-Annual Financial Reports
- - Assistance in Preparation of Fund Registration Statements
- - Review of all Sales Material and Advertising
- - Consultations regarding legal issues as needed
- - Assist with marketing strategy and product development
- - Assist in preparation of proxy statements
- - Develop or assist in developing guidelines or procedures to
improve overall compliance by each Fund and its agents
- - Maintain legal liaison with, and provide advice to, the
Company regarding its relationships with various agents with respect to
their activities on behalf of the Company
- - Monitor and, to the extent necessary and appropriate,
participate in the preparation of
- - documents and the overall handling of litigation matters by
outside counsel and non-routine regulatory investigations
SPECIAL PROJECTS*
- - Proxy material preparation
- - N-14 preparation (merger document)
- - Preparation of Post-Effective Amendments and Prospectus
Supplements
- - Prospectus simplification
- - Exemptive order applications
- - Extraordinary non-recurring projects
- - Basic sales, mutual funds, and product training to branch and
sales representatives
*Charged on a project-by-project basis upon the Company's prior
written approval.
-21-
<PAGE> 1
Exhibit (9)(b)
THE GALAXY VIP FUND
ADMINISTRATION AGREEMENT
Amendment No. 1
_____________, 1998
First Data Investor Services
Group, Inc.
4400 Computer Drive
Westboro, Massachusetts 01581
Dear Sirs:
This letter is to confirm that the undersigned, The Galaxy VIP Fund (the
"Trust"), a Massachusetts business trust, has agreed that the Administration
Agreement ("Agreement") between the Trust and First Data Investor Services
Group, Inc. ("FDISG") dated as of June 1, 1997, is herewith amended to provide
that FDISG shall be the administrator for the Trust's Growth and Income Fund,
Small Company Growth Fund, Columbia Real Estate Equity Fund II and Columbia High
Yield Fund II on the terms and conditions contained in the Agreement.
If the foregoing is in accordance with your understanding, will you so
indicate by signing and returning to us the enclosed copy thereof.
Very truly yours,
THE GALAXY VIP FUND
By:__________________________________
Name:
Title:
Accepted:
FIRST DATA INVESTOR SERVICES
GROUP, INC.
By:______________________________
Name:
Title:
<PAGE> 1
Exhibit (10)
LAW OFFICES
Drinker Biddle & Reath LLP
1345 Chestnut Street
Philadelphia, PA 19107-3496
Telephone: (215) 988-2700
Fax: (215) 988-2757
November 21, 1997
The Galaxy VIP Fund
4400 Computer Drive
Box 5108
Westboro, MA 01581-5108
RE: SHARES REGISTERED BY POST-EFFECTIVE AMENDMENT NO. 6 TO
REGISTRATION STATEMENT ON FORM N-1A (FILE NOS. 33-49290 AND
811-6726)
Ladies and Gentlemen:
We have acted as counsel to The Galaxy VIP Fund (the "Trust") in
connection with the preparation and filing with the Securities and Exchange
Commission of Post-Effective Amendment No. 6 (the "Amendment") to the Trust's
Registration Statement on Form N-1A under the Securities Act of 1933, as
amended, registering Class E, Class F, Class G and Class H shares of beneficial
interest (collectively, the "Shares") representing interests in the Small
Company Growth Fund, Growth and Income Fund, Columbia Real Estate Equity Fund
II and Columbia High Yield Fund II, respectively. The Amendment seeks to
register an indefinite number of the Shares.
We have reviewed the Trust's Declaration of Trust, its Code of
Regulations, resolutions adopted by its Board of Trustees and shareholders and
such other legal and factual matters as we have deemed appropriate.
This opinion is based exclusively on the laws of the Commonwealth of
Massachusetts and the federal laws of the United States of America. We have
relied upon an opinion of Ropes & Gray, special Massachusetts counsel to the
Trust, insofar as our
<PAGE> 2
Galaxy VIP Fund
November 21, 1997
Page 2
opinion related to matters arising under the laws of the Commonwealth of
Massachusetts.
Based upon the foregoing, it is our opinion that the Shares, when
issued for payment as described in the Trust's prospectus and for not less than
$.001 per share, will be legally issued, fully paid and non-assessable by the
Trust.
We note that under certain circumstances, the shareholders of
a Massachusetts business trust may be subject to assessment at the instance of
creditors to pay the obligations of such trust in the event that such trust's
assets are insufficient for that purpose. However, the Declaration of Trust
disclaims shareholder liability for acts or obligations of the Trust and
requires that notice of such disclaimer be given in each note, bond, contract,
order or other undertaking issued by or on behalf of the Trust or the Trustees
relating to the Trust or any class of shares of beneficial interest of the
Trust. The Declaration of Trust provides for indemnification out of the assets
of the particular class of shares for all loss and expense of any shareholder
of that class held personally liable solely by reason of his being or having
been a shareholder. Thus, the risk of a shareholder's incurring financial loss
on account of shareholder liability is limited to circumstances in which that
class of shares itself would be unable to meet its obligations.
We hereby consent to the filing of this opinion as an exhibit to the
Amendment.
Very truly yours,
/s/Drinker Biddle & Reath LLP
-----------------------------
DRINKER BIDDLE & REATH LLP
<PAGE> 1
Exhibit (11)(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees of
The Galaxy VIP Fund:
We hereby consent to the following with respect to Post-Effective
Amendment No. 6 to the Registration Statement on Form N-1A (File No. 33-49290)
under the Securities Act of 1933, as amended, of The Galaxy VIP Fund:
1. The incorporation by reference of our report dated February 7,
1997 accompanying the financial statements of the Money
Market, Equity, Asset Allocation, and High Quality Bond Funds
(four series of The Galaxy VIP Fund) as of December 31, 1996
into the Statement of Additional Information.
2. The reference to our firm under the heading "Financial
Highlights" in the Prospectus.
3. The reference to our firm under the headings "Auditors" and
"Financial Statements" in the Statement of Additional
Information.
/s/Coopers & Lybrand LLP
------------------------
COOPERS & LYBRAND LLP
Boston, Massachusetts
November 18, 1997
<PAGE> 1
EXHIBIT 11(b)
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the references to our
firm under the captions "Trustees and Officers" and "Counsel" in the Statement
of Additional Information included in Post-Effective Amendment No. 6 to the
Registration Statement (No. 33-49290) on Form N-1A under the Securities Act of
1933, as amended, of The Galaxy VIP Fund (Money Market Fund, Equity Fund,
Growth and Income Fund, Small Company Growth Fund, Columbia Real Estate Fund II,
Asset Allocation Fund, High Quality Bond Fund and Columbia High Yield Fund II).
This consent does not constitute a consent under Section 7 of the Securities
Act of 1933, as amended and in consenting to the use of our name and the
references to our Firm under such captions, 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.
/s/Drinker Biddle & Reath LLP
-----------------------------
DRINKER BIDDLE & REATH LLP
Philadelphia, Pennsylvania
November 21, 1997
<PAGE> 1
Exhibit (13)(b)
PURCHASE AGREEMENT
The Galaxy VIP Fund (the "Trust"), a Massachusetts business trust, and
Fleet Investment Advisors Inc., a New York corporation ("Fleet"), hereby agree
with each other as follows:
1. The Trust hereby offers Fleet and Fleet hereby purchases one (1)
Class E, one (1) Class F, one (1) Class G and one (1) Class H share, at a
purchase price of $10.00 per share, aggregating to four (4) shares of beneficial
interest in the Trust (such shares of beneficial interest in the Trust being
hereinafter collectively known as "Shares"). Fleet hereby acknowledges purchase
of the Shares and the Trust hereby acknowledges receipt from Fleet of funds in
the amount of $40.00 in full payment for the Shares.
2. Fleet represents and warrants to the Trust that the Shares are
being acquired for investment purposes and not with a view of the distribution
thereof and that Fleet will not redeem any of the Shares for a period of six
months following the date of this Agreement.
3. The name "The Galaxy VIP Fund" and "Trustees of The Galaxy VIP
Fund" refer respectively to the Trust created and the Trustees, as trustees but
not individually or personally, acting from time to time under an Agreement and
Declaration of Trust dated May 27, 1992 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 Trust. The obligations of "The
Galaxy VIP Fund" 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 Trust personally, but bind only the Trust property, and
all persons dealing with any class of shares of the Trust must look solely to
the Trust property belonging to such class for the enforcement of any claims
against the Trust.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the ____ day of _______________, 1998.
THE GALAXY VIP FUND
By:_____________________________
FLEET INVESTMENT ADVISORS INC.
By:_____________________________
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> VIP MONEY MARKET
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 14,897,803
<INVESTMENTS-AT-VALUE> 14,897,803
<RECEIVABLES> 668
<ASSETS-OTHER> 4
<OTHER-ITEMS-ASSETS> 1,938
<TOTAL-ASSETS> 14,900,413
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 33,136
<TOTAL-LIABILITIES> 33,136
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 14,867,099
<SHARES-COMMON-STOCK> 14,867,099
<SHARES-COMMON-PRIOR> 16,295,115
<ACCUMULATED-NII-CURRENT> 284
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 106
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 14,867,277
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 423,817
<OTHER-INCOME> 0
<EXPENSES-NET> 52,354
<NET-INVESTMENT-INCOME> 371,463
<REALIZED-GAINS-CURRENT> 2
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 371,465
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 371,463
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,799,328
<NUMBER-OF-SHARES-REDEEMED> (4,498,807)
<SHARES-REINVESTED> 371,463
<NET-CHANGE-IN-ASSETS> (1,428,014)
<ACCUMULATED-NII-PRIOR> 284
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 108
<GROSS-ADVISORY-FEES> 30,979
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 87,021
<AVERAGE-NET-ASSETS> 15,618,166
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .02
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.02)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .68
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> VIP EQUITY FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 37,580,589
<INVESTMENTS-AT-VALUE> 59,111,174
<RECEIVABLES> 41,682
<ASSETS-OTHER> 1,097
<OTHER-ITEMS-ASSETS> 1,778
<TOTAL-ASSETS> 59,155,731
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 93,238
<TOTAL-LIABILITIES> 93,238
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 37,778,422
<SHARES-COMMON-STOCK> 3,235,353
<SHARES-COMMON-PRIOR> 2,968,723
<ACCUMULATED-NII-CURRENT> 24,408
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 270,922
<ACCUM-APPREC-OR-DEPREC> 21,530,585
<NET-ASSETS> 59,062,493
<DIVIDEND-INCOME> 302,460
<INTEREST-INCOME> 297,062
<OTHER-INCOME> 0
<EXPENSES-NET> 292,909
<NET-INVESTMENT-INCOME> 306,613
<REALIZED-GAINS-CURRENT> 35,320
<APPREC-INCREASE-CURRENT> 8,332,434
<NET-CHANGE-FROM-OPS> 8,674,367
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 282,205
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,737,035
<NUMBER-OF-SHARES-REDEEMED> (1,590,760)
<SHARES-REINVESTED> 282,205
<NET-CHANGE-IN-ASSETS> 4,428,480
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 306,242
<GROSS-ADVISORY-FEES> 195,703
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 292,909
<AVERAGE-NET-ASSETS> 52,619,966
<PER-SHARE-NAV-BEGIN> 15.58
<PER-SHARE-NII> .10
<PER-SHARE-GAIN-APPREC> 2.67
<PER-SHARE-DIVIDEND> (.09)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.26
<EXPENSE-RATIO> 1.12
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> VIP ASSET ALLOCATION
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 25,378,332
<INVESTMENTS-AT-VALUE> 30,384,925
<RECEIVABLES> 177,802
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 1,974
<TOTAL-ASSETS> 30,564,701
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 59,480
<TOTAL-LIABILITIES> 59,480
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 24,249,952
<SHARES-COMMON-STOCK> 2,091,384
<SHARES-COMMON-PRIOR> 1,804,021
<ACCUMULATED-NII-CURRENT> 46,988
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,201,688
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,006,593
<NET-ASSETS> 30,505,221
<DIVIDEND-INCOME> 103,420
<INTEREST-INCOME> 454,594
<OTHER-INCOME> 0
<EXPENSES-NET> 160,408
<NET-INVESTMENT-INCOME> 397,606
<REALIZED-GAINS-CURRENT> 1,022,744
<APPREC-INCREASE-CURRENT> 1,340,112
<NET-CHANGE-FROM-OPS> 2,760,462
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 350,618
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,116,163
<NUMBER-OF-SHARES-REDEEMED> (1,485,523)
<SHARES-REINVESTED> 350,618
<NET-CHANGE-IN-ASSETS> 3,981,258
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 178,944
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 101,358
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 176,735
<AVERAGE-NET-ASSETS> 27,252,828
<PER-SHARE-NAV-BEGIN> 13.37
<PER-SHARE-NII> .20
<PER-SHARE-GAIN-APPREC> 1.19
<PER-SHARE-DIVIDEND> (.17)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.59
<EXPENSE-RATIO> 1.19
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> VIP HIGH QUALITY BOND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 11,260,165
<INVESTMENTS-AT-VALUE> 11,334,418
<RECEIVABLES> 368,988
<ASSETS-OTHER> 8
<OTHER-ITEMS-ASSETS> 1,831
<TOTAL-ASSETS> 11,705,245
<PAYABLE-FOR-SECURITIES> 207,101
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 15,902
<TOTAL-LIABILITIES> 223,003
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11,798,578
<SHARES-COMMON-STOCK> 1,153,558
<SHARES-COMMON-PRIOR> 1,182,359
<ACCUMULATED-NII-CURRENT> 1,077
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 391,666
<ACCUM-APPREC-OR-DEPREC> 74,253
<NET-ASSETS> 11,482,242
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 389,146
<OTHER-INCOME> 0
<EXPENSES-NET> 47,346
<NET-INVESTMENT-INCOME> 341,800
<REALIZED-GAINS-CURRENT> (22,887)
<APPREC-INCREASE-CURRENT> (24,264)
<NET-CHANGE-FROM-OPS> 294,649
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 341,788
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 697,007
<NUMBER-OF-SHARES-REDEEMED> (1,323,479)
<SHARES-REINVESTED> 341,788
<NET-CHANGE-IN-ASSETS> (284,684)
<ACCUMULATED-NII-PRIOR> 1,065
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 368,779
<GROSS-ADVISORY-FEES> 31,854
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 87,318
<AVERAGE-NET-ASSETS> 11,679,326
<PER-SHARE-NAV-BEGIN> 9.99
<PER-SHARE-NII> .29
<PER-SHARE-GAIN-APPREC> (.04)
<PER-SHARE-DIVIDEND> (.29)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.95
<EXPENSE-RATIO> .82
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
