<PAGE> 1
As filed with the Securities and Exchange Commission on February 28, 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. 5 [x]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]
Amendment No. 7 [x]
The Galaxy VIP Fund
(Exact Name of Registrant as Specified in Charter)
4400 Computer Drive
Westboro, Massachusetts 01581
(800) 628-0414
(Address of Principal Executive Offices)
W. Bruce McConnel, III
DRINKER BIDDLE & REATH
1345 Chestnut Street
Philadelphia, Pennsylvania 19107
(Name and Address of Agent for Service)
Copies to:
Jylanne Dunne
Vice President
4400 Computer Drive
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)
[x] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
The Registrant has previously filed a declaration of indefinite
registration of its shares of beneficial interest pursuant to Rule 24f-2 under
the Investment Company Act of 1940, as amended. Registrant's Rule 24f-2 Notice
for the fiscal year ended December 31, 1996 was filed on February 26,
1997.
<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> <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 Adviser; 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
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
FORM N-1A
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(a)
---------------
<TABLE>
<CAPTION>
Part B
Item No. Statement of Additional Information Heading
- -------- -------------------------------------------
<S> <C> <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; Expenses; 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> 4
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> 5
THE GALAXY VIP FUND
4400 COMPUTER DRIVE
WESTBOROUGH, MASSACHUSETTS 01581
PROSPECTUS
APRIL 29, 1997
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 four portfolios -- Money Market, Equity,
Asset Allocation and High Quality Bond Funds (collectively, the "Funds") with
investment objectives as follows. There is, of course, no assurance that a Fund
will achieve its stated objective.
The MONEY MARKET FUND'S investment objective 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 thirteen months 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 EQUITY FUND'S investment objective 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 ASSET ALLOCATION FUND'S investment objective 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 HIGH QUALITY BOND FUND'S investment objective 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 its assets in high quality
debt obligations that are rated at the time of purchase within the three
highest rating categories assigned by Standard & Poor's Ratings Group
<PAGE> 6
("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.
Each of the Funds is distributed by First Data Distributors, Inc. and
advised by Fleet Investment Advisors Inc. SHARES OF THE FUNDS ARE NOT BANK
DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, FLEET FINANCIAL GROUP
INC. OR ANY OF ITS AFFILIATES, FLEET INVESTMENT ADVISORS INC. OR ANY
FLEET BANK. SHARES OF THE FUNDS ARE NOT FEDERALLY INSURED BY, GUARANTEED BY,
OBLIGATIONS OF OR OTHERWISE SUPPORTED BY THE U.S. GOVERNMENT, THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENTAL AGENCY. INVESTMENT RETURN AND, WITH RESPECT TO THE EQUITY, HIGH
QUALITY BOND AND ASSET ALLOCATION FUNDS, 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.
-2-
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FINANCIAL HIGHLIGHTS....................................................................................... 4
INVESTMENT OBJECTIVES AND POLICIES......................................................................... 8
TYPES OF OBLIGATIONS AND OTHER INVESTMENT INFORMATION...................................................... 13
INVESTMENT LIMITATIONS..................................................................................... 23
PRICING OF SHARES.......................................................................................... 25
PURCHASE AND REDEMPTION OF SHARES.......................................................................... 26
DIVIDENDS AND DISTRIBUTIONS................................................................................ 28
TAXES...................................................................................................... 29
MANAGEMENT OF GALAXY VIP................................................................................... 31
DESCRIPTION OF GALAXY VIP AND ITS SHARES................................................................... 32
CUSTODIAN.................................................................................................. 32
EXPENSES................................................................................................... 32
PERFORMANCE AND YIELD INFORMATION.......................................................................... 32
MISCELLANEOUS.............................................................................................. 33
</TABLE>
-3-
<PAGE> 8
FINANCIAL HIGHLIGHTS
The financial highlights presented below have been audited by Coopers
& Lybrand L.L.P., GALAXY VIP's independent accountants, whose report is
contained in GALAXY VIP's Annual Report to Shareholders dated December 31,
1996 (the "Annual Report"). Such financial highlights should be read in
conjunction with the Funds' financial statements and notes thereto contained in
the Annual Report and the Statement of Additional Information. More information
about the performance of the Funds is also contained in the Annual Report ,
which may be obtained without charge by contacting GALAXY VIP at the address
provided above.
MONEY MARKET FUND
(SELECTED PER SHARE DATA FOR A FUND SHARE OUTSTANDING THROUGH THE PERIOD
INDICATED)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Period Ended
Dec. 31, 1996 Dec. 31, Dec. 31, 1994 Dec. 31, 1993(1)
------------- -------- ------------- ----------------
1995
----
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................. $1.00 $1.00 $1.00 $1.00
----- ----- ----- -----
Income from Investment Operations:
Net investment income(2)........................... 0.05 0.05 0.04 0.03
Net realized and unrealized gain (loss)
on investments..................................... -- -- -- --
----- ----- ----- -----
Total from Investment Operations:................ 0.05 0.05 0.04 0.03
----- ----- ----- -----
Less Dividends:
Dividends from net investment income............... (0.05) (0.05) (0.04) (0.03)
Dividends from net realized
capital gains.................................... -- -- -- --
---- ----- ----- -----
Total Dividends:................................. (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
===== ===== ===== =====
Total Return......................................... 4.91% 5.38% 3.89% 2.74%(3)
Ratios/Supplemental Data:
Net Assets, End of Period (000's).................... $16,295 $17,925 $13,276 $10,864
Ratios to average net assets:
Net investment income.............................. 4.80% 5.25% 3.85% 3.00%(4)
Operating expenses(2).............................. 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 the annualized operating expense
ratios before waiver and reimbursement of fees by the investment
adviser and administrator for the fiscal years ended December 31,
1996, 1995 and 1994 and for the period ended December 31, 1993 were
$0.05 and 1.02%, $0.05 and 1.11%, $0.03 and 1.21%, and $0.01 and
2.00% (annualized), respectively.
(3) Not Annualized.
(4) Annualized.
-4-
<PAGE> 9
EQUITY FUND
(SELECTED PER SHARE DATA FOR A FUND SHARE OUTSTANDING THROUGH THE PERIOD
INDICATED)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Period Ended
Dec. 31, 1996 Dec. 31, Dec. 31, 1994 Dec. 31, 1993(1)
------------- -------- ------------- ----------------
1995
----
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................. $12.99 $10.40 $10.25 $10.00
------ ------ ------ ------
Income from Investment Operations:
Net investment income(2)........................... 0.19 0.18 0.20 0.16
Net realized and unrealized gain (loss)
on investments..................................... 2.59 2.59 0.15 0.25
------ ------ ------ ------
Total from Investment Operations:................ 2.78 2.77 0.35 0.41
------ ------ ------ ------
Less Dividends:
Dividends from net investment income............... (0.19) (0.18) (0.20) (0.16)
Dividends from net realized
capital gains.................................... -- -- -- --
------ ------ ------ ------
Total Dividends:................................. (0.19) (0.18) (0.20) (0.16)
------ ------ ------ ------
Net increase (decrease) in net asset value........... 2.59 2.59 0.15 0.25
------ ------ ------ ------
Net Asset Value, End of Period....................... $15.58 $12.99 $10.40 $10.25
====== ====== ====== =======
Total Return......................................... 21.49% 26.76% 3.47% 4.15%(3)
Ratios/Supplemental Data:
Net Assets, End of Period (000's).................... $46,242 $30,826 $19,391 $12,909
Ratios to average net assets:
Net investment income.............................. 1.34% 1.55% 2.06% 2.23%(4)
Operating expenses(2)................................ 1.10% 1.21% 0.71% 0.20%(4)
Portfolio Turnover Rate.............................. 8% 3% 2% 5%(3)
Average Commission Rate Paid(5)...................... $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 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% (annualized), respectively.
(3) Not Annualized.
(4) Annualized.
(5) Required disclosure for fiscal years beginning on or after
September 1, 1995.
-5-
<PAGE> 10
ASSET ALLOCATION FUND
(SELECTED PER SHARE DATA FOR A FUND SHARE OUTSTANDING THROUGH THE PERIOD
INDICATED)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Period Ended
Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993(1)
------------- ------------- ------------- ----------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period.................................. $12.38 $9.80 $10.33 $10.00
----- ---- ----- ------
Income from Investment Operations:
Net investment income(2)................ 0.30 0.28 0.31 0.18
Net realized and unrealized gain
(loss) on investments................... 1.53 2.58 (0.53) 0.35
----- ---- ----- ------
Total from Investment
Operations:......................... 1.83 2.86 (0.22) 0.53
----- ---- ----- ------
Less Dividends:
Dividends from net investment
income.................................. (0.30) (0.28) (0.31) (0.18)
Dividends from net realized
capital gains......................... (0.54) -- -- (0.02)
----- ---- ----- ------
Total Dividends:...................... (0.84) (0.28) (0.31) (0.20)
----- ---- ----- ------
Net increase (decrease) in net asset
value................................... 0.99 2.58 (0.53) 0.33
----- ---- ----- ------
Net Asset Value, End of Period............ $13.37 $12.38 $9.80 $10.33
===== ===== ===== ======
Total Return.............................. 14.64% 29.42% (2.15)% 5.33%(3)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)......... $24,114 $17,246 $10,572 $11,800
Ratios to average net assets:
Net investment income................... 2.31% 2.54% 3.02% 3.01%(4)
Operating expenses(2)..................... 1.33% 1.37% 0.78% 0.26%(4)
Portfolio Turnover Rate................... 45% 46% 28% 10%(3)
Average Commission Rate Paid(5)........... $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 administrator for the fiscal years ended December 31, 1995
and 1994 and for the period ended December 31, 1993 were $0.26 and
1.54%, $0.22 and 1.68%, and $0.01 and 3.11% (annualized), respectively.
(3) Not Annualized.
(4) Annualized.
(5) Required disclosure for fiscal years beginning on or after
September 1, 1995.
-6-
<PAGE> 11
HIGH QUALITY BOND FUND
(SELECTED PER SHARE DATA FOR A FUND SHARE OUTSTANDING THROUGH THE PERIOD
INDICATED)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Period Ended
Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993(1)
------------- ------------- ------------- ----------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................. $10.37 $8.97 $10.11 $10.00
------ ---- ----- ------
Income from Investment Operations:
Net investment income(2)........................... 0.58 0.57 0.56 0.47
Net realized and unrealized gain (loss)
on investments..................................... (0.38) 1.40 (1.14) 0.12
----- ---- ------ ----
Total from Investment Operations:................ 0.20 1.97 (0.58) 0.59
----- ---- ------ ----
Less Dividends:
Dividends from net investment income............... (0.58) (0.57) (0.56) (0.47)
Dividends from net realized
capital gains.................................... -- -- -- (0.01)
----- ---- ------ ------
Total Dividends:............................... (0.58) (0.57) (0.56) (0.48)
----- ---- ------ ------
Net increase (decrease) in net asset value........... (0.38) 1.40 (1.14) 0.11
----- ---- ------ ----
Net Asset Value, End of Period....................... $9.99 $10.37 $8.97 $10.11
===== ===== ==== =====
Total Return......................................... 1.57% 22.55% (5.85)% 6.04%(3)
Ratios/Supplemental Data:
Net Assets, End of Period (000's).................... $11,814 $11,067 $8,012 $9,802
Ratios to average net assets:
Net investment income.............................. 5.78% 5.86% 5.90% 5.30%(4)
Operating expenses(2)................................ 0.72% 0.80% 0.57% 0.22%(4)
Portfolio Turnover Rate.............................. 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 administrator for the fiscal years ended December 31,
1996, 1995 and 1994 and for the period ended December 31, 1993 were
$0.51 and 1.38%, $0.50 and 1.57%, $0.46 and 1.63% and $0.23 and
2.92% (annualized), respectively.
(3) Not annualized.
(4) Annualized.
-7-
<PAGE> 12
INVESTMENT OBJECTIVES AND POLICIES
IN GENERAL
Fleet Investment Advisors Inc. ("Fleet"), the Funds' investment
adviser, will use its best efforts to achieve the investment objectives of the
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 Money Market Fund's investment objective 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 thirteen months 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 nationally recognized statistical
rating organizations ("Rating Organizations") (such as S&P , Moody's or Fitch
Investor Services, L.P.) in the highest category for short-term debt
securities, (ii) is rated by the only Rating Organization that has issued a
rating with respect to such security or issuer in such Rating Organization'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 Additional Information for a description of the rating categories
of S&P, Moody's and certain other Rating Organizations.
-8-
<PAGE> 13
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 Equity Fund's investment objective is to seek long-term growth by
investing in companies that the Fund's investment adviser 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 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." 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" 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" 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 or economic conditions warrant. See "Types of
Obligations and Other Investment Information" below for information regarding
additional investment policies of the Equity Fund.
-9-
<PAGE> 14
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 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 to the Statement of Additional Information
for a description of S&P's and Moody's ratings.
The Asset Allocation 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 Inter
American 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" 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" 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" 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
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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 High Quality Bond Fund's investment objective 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." 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. 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" 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" below. The Fund may also invest in
dollar-denominated high quality debt obligations of U.S. corporations issued
outside the United States.
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The Fund seeks to provide a current yield greater than that generally
available from a portfolio of high quality short-term obligations. The High
Quality Bond 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.
SPECIAL RISK CONSIDERATIONS
Market Risk
The Equity Fund invests 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 risks. 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.
Foreign Securities
Investments in foreign securities involve higher costs for the Asset
Allocation Fund 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 Fund 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.
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Although the Asset Allocation Fund may invest in securities
denominated in foreign currencies, the Fund values its securities and other
assets in U.S. dollars. As a result, the net asset value of the Fund's shares
may fluctuate with U.S. dollar exchange rates as well as with price changes of
the Fund's 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 Fund makes its investments could reduce the effect of increases and magnify
the effect of decreases in the price of the Fund's 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 Fund's securities in their local markets. In
addition to favorable and unfavorable currency exchange-rate developments, the
Fund is subject to the possible imposition of exchange control regulations or
freezes on convertibility of currency.
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." Obligations of certain agencies and
instrumentalities of the U.S. Government, such as the Government National
Mortgage Association, 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, 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.
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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
Corporation, or by a savings and loan association or savings bank that is
insured by the Federal Deposit Insurance Corporation. 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 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
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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 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 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 under guidelines approved by GALAXY VIP's Board of
Trustees. No Fund will enter into repurchase agreements with Fleet or any of
its 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 the 10% limit described in Investment
Limitation No. 3 under "Investment Limitations" in this Prospectus.
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.
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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.
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 to be of good standing and only
when, in Fleet'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 Investment Company Act of 1940, as amended
(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. 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 Equity Fund and Asset Allocation Fund may invest up to 10% of
their respective net assets in real estate investment trusts ("REITs").
Equity REITs invest directly in real property while mortgage REITs invest
in mortgages on real property. 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 portfolio's investments. In addition, equity REITs may be affected by
changes in the value of the underlying property owned by the trusts, 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 tax-free pass-through of income under
the Internal Revenue Code and to maintain exemption from the 1940 Act. REITs
pays dividends to their shareholders based upon available funds from operations.
It is quite common for these dividends to exceed the REITs 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.
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GUARANTEED INVESTMENT CONTRACTS
The Money Market and High Quality Bond Funds 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 Objective 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.
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
Each Fund except the Equity Fund 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
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only purchase asset-backed securities that meet the Fund's applicable quality
requirements as described above under "Investment Objectives and Policies --
Investment Objectives and Policies of the Money Market Fund." See
"Mortgage-Backed and Asset-Backed Securities" in the Statement of Additional
Information.
MORTGAGE-BACKED SECURITIES
The High Quality Bond and Asset Allocation Funds 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
Government National Mortgage Association, the Federal National Mortgage
Association, 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 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 High Quality Bond and Asset Allocation Funds 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
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<PAGE> 23
the right to receive principal and interest paid on the securities sold.
However, the 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 ability to predict correctly interest rates and
mortgage 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 High
Quality Bond and Asset Allocation Funds 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 High Quality
Bond and Asset Allocation 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
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<PAGE> 24
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 may
determine that SMBS acquired by the High Quality Bond and Asset Allocation
Funds are liquid under guidelines established by the Board of Trustees.
COVERED CALL OPTIONS
To further increase return on their portfolio securities, in
accordance with their investment objectives and policies, the Equity and Asset
Allocation Funds may engage in writing covered call options (options on
securities owned by a Fund) and may enter into closing purchase transactions
with respect to such options. Such options must be listed on a national
securities exchange and issued by the Options Clearing Corporation. The
aggregate value of the securities subject to options written by a Fund may not
exceed 25% of the value of its net assets. By writing a covered call option, a
Fund forgoes the opportunity to profit from an increase in the market price of
the underlying security above the exercise price, except insofar as the premium
represents such a profit, and it will not be able to sell the underlying
security until the option expires or is exercised or the Fund effects a closing
purchase transaction by purchasing an option of the same series. The use of
covered call options is not a primary investment technique of the Funds, and
such options will normally be written on underlying securities as to which
Fleet does not anticipate significant short-term capital appreciation.
AMERICAN AND EUROPEAN DEPOSITORY RECEIPTS
The Equity and Asset Allocation Funds may each invest up to 20% of
their total assets in ADRs and EDRs. 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. 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. ADRs and EDRs 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' limitation 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 and EDRs
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."
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FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Because the Asset Allocation Fund may buy and sell securities and
receive interest, dividends and sale proceeds in currencies other than the U.S.
dollar, the Fund from time to time may enter into foreign currency exchange
transactions to convert the U.S. dollar to foreign currencies, to convert
foreign currencies to the U.S. dollar and to convert foreign currencies to
other foreign currencies. The 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. 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 Fund 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 Fund if the other
party does not complete the transaction, forward foreign currency exchange
contracts will be entered into only with parties approved by the Fund's Board
of Trustees.
The Fund may maintain "short" positions in forward foreign currency
exchange transactions, which would involve the 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.
FUTURES CONTRACTS
The High Quality Bond Fund may enter into contracts (both purchases
and sales) for the future delivery of fixed-income securities (commonly known
as interest rate futures contracts). The Fund will not engage in future
transactions for speculation, but only to hedge against changes in the market
values of securities which the Fund holds or intends to purchase. The Fund will
engage in futures transactions only to the extent permitted by the Commodity
Futures Trading Commission and the SEC. The purchase of futures instruments in
connection with securities which the Fund intends to purchase will require an
amount of cash and/or U.S. Government obligations, equal to the market
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<PAGE> 26
value of the outstanding futures contracts, to be deposited in a segregated
account to collateralize the position and thereby insure that the use of such
futures is unleveraged. The Fund will limit its hedging transactions in futures
contracts so that, immediately after any such transaction, the aggregate
initial margin that is required to be posted by the Fund under the rules of the
exchange on which the futures contract is traded does not exceed 5% of the
Fund's total assets after taking into account any unrealized profits and
unrealized losses on the Fund's open contracts. In addition, no more than
one-third of the Fund's total assets may be covered by such contracts.
Transactions in futures as a hedging device may subject the Fund to a
number of risks. Successful use of futures by the Fund is subject to Fleet'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, the 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. Additional information concerning futures
transactions is contained in the Statement of Additional Information and in
Appendix B thereto.
WHEN-ISSUED, FORWARD COMMITMENT AND DELAYED SETTLEMENT TRANSACTIONS
The High Quality Bond Fund may purchase eligible securities on a
"when-issued" basis and may purchase or sell eligible securities on a "forward
commitment" basis. The Fund may also purchase and sell eligible securities on a
"delayed settlement" basis. When-issued and forward commitment transactions,
which involve a commitment by the Fund to purchase or sell particular
securities with payment and delivery taking place at a future date (perhaps one
or two months later), permit a 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 the Fund's total assets absent
unusual market conditions. In the event the Fund's forward commitments,
when-issued purchases and delayed settlements ever exceeded 25% of the value of
its assets, the Fund's liquidity and the ability of Fleet to manage the Fund
might be adversely affected. The Fund will not engage in when-issued purchases,
forward commitments and delayed settlements for speculative purposes, but only
in furtherance of its investment objective.
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
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<PAGE> 27
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 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 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 the investment adviser) and then in amounts not in excess
of 10% with respect to the Money Market and High Quality Bond
Funds, or 33% with respect to the Equity and Asset Allocation
Funds, 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 and High Quality Bond Funds, or
33% with respect to the Equity and Asset Allocation Funds, of
the value of its total assets at the time of such borrowing);
or mortgage,
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<PAGE> 28
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 and High Quality Bond Funds, or 33% with respect
to the Equity and Asset Allocation Funds, 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 the Equity, Asset Allocation
and High Quality Bond Funds, if the securities held by one of
these Funds 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% 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, Asset
Allocation Fund and High Quality Bond Fund 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 a Fund's 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.)
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.
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<PAGE> 29
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 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 10% limitation on purchases of
illiquid instruments described under Investment Limitation No. 3 above, Rule
144A securities will not be considered to be illiquid if Fleet 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.
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
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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 AND ASSET ALLOCATION FUNDS
The assets in the Equity and Asset Allocation Funds 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 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.
VALUATION OF THE HIGH QUALITY BOND FUND
The High Quality Bond Fund's assets 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, Westborough, Massachusetts 01581.
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<PAGE> 31
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 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
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<PAGE> 32
holders (see "Miscellaneous" for more details). 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
and High Quality Bond Funds are declared daily and paid monthly. Dividends for
the Equity Growth and Asset Allocation Funds 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.
TAXES
Each of the Funds qualified during its last taxable year and intends
to continue to qualify as a "regulated investment company" under the Internal
Revenue Code of 1986, as amended (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. The 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 the 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).
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<PAGE> 33
Provided that the 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 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. 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 ADVISER
Fleet, with principal offices at 75 State Street, Boston,
Massachusetts 02109-1810, serves as the investment adviser to the Funds.
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. Fleet is an
indirect wholly-owned subsidiary 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 each Fund's investment policies, Fleet manages each
Fund, makes decisions with respect to and places orders for all purchases and
sales of its portfolio securities and maintains related records.
Harold A. Mackinney, Jr., Donald Jones and Marie M. Schofield are the
portfolio managers of the Equity, Asset Allocation and High Quality Bond Funds,
respectively. Messrs. MacKinney and Jones have served as the respective
portfolio managers of the Equity and Asset Allocation Funds since commencement
of each Fund's operations. Each portfolio manager is primarily responsible for
the day-to-day management of the respective Fund's investment portfolio. Mr.
Mackinney is Chairman of the Board and Chief Executive Officer of Fleet and has
been engaged in providing
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<PAGE> 34
investment management services on behalf of Fleet and/or its affiliates since
1962. 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, a Vice
President , has been with Fleet since 1991 and has been engaged in providing
investment management services for over 20 years.
For the services provided and expenses assumed with respect to the
Funds, 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 and Asset Allocation Fund, respectively, and at the annual
rate of .55% of the average daily net assets of the High Quality Bond Fund. 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 it is not
higher than average advisory fees paid by funds with similar investment
objectives and policies.
Fleet may from time to time, in its 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 its 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 Money Market and High
Quality Bond Funds, 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 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 and the
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. State securities laws on this issue may differ from Federal law
and banks and financial institutions may be required to register as dealers
pursuant to state law.
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<PAGE> 35
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, Westborough, 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 all or a portion of the administration fee payable to it by the Funds,
either voluntarily or pursuant to applicable statutory expense limitations.
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 four
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; and
Class D shares, representing interests in the High Quality Bond Fund. 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 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
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<PAGE> 36
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, 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 shareholder meetings; and any extraordinary expenses. Otherwise, Fleet and
FDISG bear their own expenses incurred in connection with 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,
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<PAGE> 37
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 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.
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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, a distribution plan 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, Westborough, 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.
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> 39
THE GALAXY VIP FUND
STATEMENT OF ADDITIONAL INFORMATION
MONEY MARKET FUND
EQUITY FUND
ASSET ALLOCATION FUND
HIGH QUALITY BOND FUND
APRIL 29, 1997
<PAGE> 40
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 April 29,
1997 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, Westborough,
Massachusetts 01581 or by calling your Participating Insurance Company.
<PAGE> 41
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<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....................................................................... 3
Repurchase Agreements; Reverse Repurchase Agreements; Loans of Portfolio
Securities............................................................................... 4
U.S. Government Securities................................................................. 4
Option Writing............................................................................. 5
Foreign Currency Exchange Transactions -- Asset Allocation Fund............................ 6
Portfolio Securities Generally............................................................. 7
Additional Investment Limitations.......................................................... 7
NET ASSET VALUE - MONEY MARKET FUND................................................................. 9
DIVIDENDS - MONEY MARKET FUND....................................................................... 10
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION...................................................... 10
DESCRIPTION OF SHARES............................................................................... 11
TRUSTEES AND OFFICERS............................................................................... 13
Shareholder and Trustee Liability.......................................................... 16
ADVISORY, ADMINISTRATION AND CUSTODIAN AGREEMENTS................................................... 17
Custodian.................................................................................. 19
PORTFOLIO TRANSACTIONS.............................................................................. 19
DISTRIBUTOR......................................................................................... 21
AUDITORS............................................................................................ 21
COUNSEL............................................................................................. 21
</TABLE>
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<TABLE>
<CAPTION>
Page
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<S> <C>
PERFORMANCE AND YIELD INFORMATION................................................................. 21
Yield Quotations -- Money Market Fund.................................................... 21
Yield and Performance of the Equity, Asset Allocation and High Quality Bond
Funds.................................................................................... 22
MISCELLANEOUS....................................................................................... 24
APPENDIX A.......................................................................................... A-1
APPENDIX B.......................................................................................... B-1
FINANCIAL STATEMENTS.............................................................................. FS-1
</TABLE>
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<PAGE> 43
INVESTMENT OBJECTIVES AND POLICIES
GALAXY VIP offers units of beneficial interest ("Shares") representing
interests in four investment portfolios: the Money Market, Equity, Asset
Allocation and High Quality Bond Funds (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, Asset Allocation and High Quality Bond Funds 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, Asset Allocation and High Quality Bond Funds 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> 44
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 Banks 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.
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 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 the 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.
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<PAGE> 45
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 the High Quality Bond 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, the 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. The 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 the Fund sets aside liquid assets to satisfy its purchase
commitments in the manner described, its 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 assets.
When the 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 weighted maturity of the
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.
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<PAGE> 46
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 repurchase agreements 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
or sub-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").
All Funds may enter into reverse repurchase agreements. Whenever a
Fund enters into a reverse repurchase agreement, it will place in a segregated
custodial account liquid assets such as cash, U.S. Government securities or
other liquid high grade debt 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.
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 Funds 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
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<PAGE> 47
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.
OPTION WRITING
The Equity and Asset Allocation Funds may write listed covered call
options. A listed call option gives the purchaser of the option the right to
buy from a clearing corporation, and obligates the writer 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 consideration for
undertaking the obligations under the option contract. If an option expires
unexercised, the writer realizes a gain in the amount of the premium. Such a
gain may be offset by a decline in the market price of the underlying security
during the option period.
A Fund may terminate its obligation to sell prior to the expiration
date of the option by 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 realize a
profit on an outstanding call option, to prevent an underlying security from
being called, to permit the sale of the underlying security or to permit the
writing of a new call option containing different terms on such underlying
security. The cost of such a liquidating purchase plus transaction costs may be
greater than the premium received upon the original option, in which event the
writer 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 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 option writer, unable
to effect a closing purchase transaction, will not be able to sell the
underlying security until the option expires or the underlying security is
delivered upon exercise. The writer in such circumstances will be subject to
the risk of market decline of the underlying security during such period. A
Fund will write an option on a particular security only if Fleet 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 an option, an amount equal to the net premium (the
premium less the commission) received by the Fund is included as a deferred
credit in the liability section of the Fund's statement of assets and
liabilities. 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 price, the average of the closing bid and asked prices. If an option
expires on the stipulated expiration
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<PAGE> 48
date or if a 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. If an option is exercised, the Fund may deliver
the underlying security from its portfolio and 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. Premiums from expired call 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
treated as short-term capital losses.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS -- ASSET ALLOCATION FUND
Because the 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 Fund
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. The 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 the
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 prices of the Fund's portfolio securities or in foreign
exchange rates, or prevent loss if the prices of these securities should
decline.
The 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 the Fund's long-term
investment decisions, the 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 the 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
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<PAGE> 49
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
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).
Each Fund may not:
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.
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 the 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 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 the High
Quality Bond Fund may enter into interest
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<PAGE> 50
rate futures contracts to the extent permitted under the
Commodity Exchange Act and the 1940 Act; and further provided
that the Asset Allocation Fund may enter into forward
currency contracts and foreign currency futures contracts and
related options to the extent permitted by its investment
objective and policies.
5. Invest in or sell put options, call options, straddles,
spreads, or any combination thereof; provided, however, that
the Equity and Asset Allocation Funds 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
Fund does not exceed 25% of the value of its total assets;
and further provided that the Equity and Asset Allocation
Funds may purchase put and call options to the extent
permitted by their investment objectives and policies.
6. Invest in companies for the purpose of exercising management
or control.
7. Purchase securities of other investment companies except in
connection with a merger, consolidation, reorganization, or
acquisition of assets; provided, however, that the Equity,
Asset Allocation and High Quality Bond Funds may acquire such
securities in accordance with the 1940 Act.
In addition to the above limitations:
1. 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.
2. 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 and Asset Allocation Funds
may each invest up to 20% of its total assets in American
Depository Receipts and European Depository Receipts.
-8-
<PAGE> 51
The investment restrictions described below are not fundamental
policies of GALAXY VIP and may be changed by GALAXY VIP's Board of Trustees.
These non-fundamental investment policies require that:
(A) covered call options written by the Equity and Asset
Allocation Funds will not exceed (at the time when written) 25% of the net
(rather than total) assets of the Fund. See Investment Limitation No. 5 above;
(B) a Fund may not purchase any security if, as a result, the Fund
would then have more than 5% of its total assets invested in securities of
companies (including predecessors) that have been in continuous operation for
less than three years; and
(C) a Fund may not invest in warrants (other than warrants acquired by
the Fund as part of a unit or attached to securities at the time of purchase)
if, as a result, the investments (valued at the lower of cost or market) would
exceed 5% of the value of the Fund's net assets or if, as a result, more than
2% of the Fund's net assets would be invested in warrants not listed on a
recognized United States or foreign stock exchange, to the extent permitted by
applicable state securities laws.
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 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 Funds will not purchase any
security deemed to have a remaining maturity (as defined in
-9-
<PAGE> 52
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.
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
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<PAGE> 53
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 four classes of Shares, each representing interests
in one of four separate investment portfolios: Money Market Fund, Equity Fund,
Asset Allocation Fund and High Quality Bond Fund.
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.
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.
-11-
<PAGE> 54
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 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.
-12-
<PAGE> 55
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 &
Vicks Lithograph & Trustee Director, Vicks
Printing Corporation Lithograph & Printing
Commercial Drive Corporation (book
P.O. Box 270 manufacturing and
Yorkville, NY 13495 commercial printing);
Age 62 Director, Utica Fire
Insurance Company;
Trustee, Savings Bank
of Utica; Director,
Monitor Life Insurance
Company; Director,
Commercial Travelers
Mutual Insurance
Company; Trustee, The
Galaxy Fund; Trustee,
Galaxy Fund II.
John T. O'Neill(1) President, Executive Vice
Hasbro, Inc. Treasurer & President and CFO,
200 Narragansett Trustee Hasbro, Inc. (toy and
Park Drive game manufacturer);
Pawtucket, RI 02862 Trustee, The Galaxy
Age 52 Fund; Trustee, Galaxy
Fund II.
Louis DeThomasis Trustee President, Saint
Saint Mary's College Mary's College of
of Minnesota Minnesota; Director,
Winona, MN 55987 Bright Day Travel,
Age 55 Inc.; Trustee,
Religious Communities
Trust; Trustee, The
Galaxy Fund; Trustee,
Galaxy Fund II.
Donald B. Miller Trustee Chairman,
10725 Quail Covey Road Horizon Media, Inc.
Boynton Beach, FL 33436 (broadcast services);
Age 70 Director/Trustee,
Lexington Funds;
Chairman, Executive
Committee, Compton
International, Inc.
(advertising agency);
Trustee, Keuka College;
Trustee, The Galaxy
Fund; Trustee, Galaxy
Fund II.
</TABLE>
-13-
<PAGE> 56
<TABLE>
<CAPTION>
Positions Principal Occupation
with During Past 5 Years
Name and Address GALAXY VIP and Other Affiliations
- ---------------- ---------- -----------------------
<S> <C> <C>
James M. Seed Trustee Chairman and
The Astra Ventures, Inc. President, The Astra
One Citizens Plaza Projects, Incorporated
Providence, RI 02903 (land development);
Age 55 President, The Astra
Ventures, Incorporated
(previously, Buffinton
Box Company -
manufacturer of
cardboard boxes);
Commissioner, Rhode
Island Investment
Commission; Trustee,
The Galaxy Fund;
Trustee, Galaxy Fund
II.
Bradford S. Wellman(1) Trustee Private
P.O. Box 2099 Investor; Director,
Bangor, ME 04402 Essex County Gas
Age 65 Company, until January
1994; Director, Maine
Mutual Fire Insurance
Co.; Member, Maine
Finance Authority until
September 1995;
Trustee, The Galaxy
Fund; Trustee, Galaxy
Fund II.
W. Bruce McConnel, III Secretary Partner of the
1345 Chestnut Street law firm Drinker Biddle
Philadelphia, PA 19107 & Reath, Philadelphia,
Age 54 Pennsylvania.
Jylanne Dunne Vice President First Data
First Data Investor Services and Assistant Investor Services
Group, Inc. Treasurer Group, Inc., 1990 to
4400 Computer Drive present.
Westborough, 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") (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
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<PAGE> 57
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 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 portfolio's
assets, liabilities, and net income per share, and will not obligate the Trusts
to retain the services of any trustee or obligate a portfolio 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 for acting as an officer. No person who is an
officer, director or employee of Fleet, or any of its affiliates, serves as a
trustee, officer or employee of Galaxy. 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.
-15-
<PAGE> 58
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Pension or Total
Retirement Compensation
Benefits from GALAXY
Aggregate Accrued as VIP and Fund
Compensation from Part of Fund Complex*Paid to
Name of Person/Position 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.
** 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 GALAXY VIP. 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
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<PAGE> 59
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 Funds. In its advisory
agreement, Fleet has agreed to provide investment advisory services to the
Funds as described in the Prospectus. Fleet has also agreed to pay all
expenses incurred by it in connection with its activities under the 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 agreement, GALAXY VIP
has agreed 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 and Asset Allocation
Fund, respectively, and .55% of the average daily net assets of the High
Quality Bond Fund. Fleet may from time to time, in its discretion, waive
advisory fees payable by the Funds in order to maintain a competitive expense
ratio.
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,
-17-
<PAGE> 60
$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.
The advisory agreement provides that Fleet 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 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
the Funds 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. The advisory
agreement may be terminated by GALAXY VIP or by Fleet on sixty days' written
notice, and will terminate immediately in the event of its assignment.
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
-18-
<PAGE> 61
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 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 Asset Allocation Fund 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 that Fund
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, High Quality
Bond and Asset Allocation Funds 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 and Asset Allocation Funds 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
-19-
<PAGE> 62
brokerage commissions. With respect to over-the-counter transactions, Fleet
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, Asset Allocation and High Quality Bond Funds 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 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
rate for each Fund (except the Money Market Fund) for each of the last three
fiscal years and for the period from its commencement of operations is
disclosed in the Prospectus under "Financial Highlights."
In purchasing or selling securities for the Funds, Fleet 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 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 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, FDISG, or their affiliates, and will not give preference to affiliates
and correspondent banks of Fleet 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.
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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. 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 believes to be equitable to the Fund and such other
portfolio, investment company or account. In 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 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, FD Distributors and its parent, FDISG, remains in effect until
May 31, 1997, 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 (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.
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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 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 same 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 December 31,
1996, the annualized yield of the Money Market Fund was 4.76% and the
effective yield was 4.87% .
YIELD AND PERFORMANCE OF THE EQUITY, ASSET ALLOCATION AND HIGH QUALITY BOND
FUNDS
The Equity Fund's, Asset Allocation Fund's or High Quality Bond Fund'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);
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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 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, Asset
Allocation and High Quality Bond Funds for the 30-day period ended December 31,
1996 were 1.34%, 2.74% and 6.00%, 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> 66
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
December 31, 1996 were 21.49%, 14.64% and 1.57%, 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 December 31, 1996 were 13.61%, 11.58% and 5.80%,
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 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
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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 January 31, 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> 68
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
A-1
<PAGE> 69
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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<PAGE> 70
"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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<PAGE> 71
"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
<PAGE> 72
"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
<PAGE> 73
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
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<PAGE> 74
be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger
than in "Aaa" securities.
"A" Bonds possess many favorable investment attributes and are to
be considered as upper medium-grade obligations. Factors
giving security to principal and interest are considered
adequate but elements may be present which suggest a
susceptibility to impairment sometime in the future.
"Baa" Bonds considered medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the
present but certain protective elements may be lacking or may
be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics
and in fact have speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates some speculative elements; "B" indicates a general lack of
characteristics of desirable investment; "Caa" represents a poor standing; "Ca"
represents obligations which are speculative in a high degree; and "C"
represents the lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be
in default.
Con. (---) Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of
projects under construction, (b) earnings of projects
unseasoned in operation experience, (c) rentals which begin
when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating
denotes probable credit stature upon completion of
construction or elimination of basis of condition.
(P)... When applied to forward delivery bonds, indicates that the
rating is provisional pending delivery of the bonds. The
rating may be revised prior to delivery if changes occur in
the legal documents or the underlying credit quality of the
bonds.
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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<PAGE> 75
"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.
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<PAGE> 76
"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> 77
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.
A-10
<PAGE> 78
"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> 79
APPENDIX B
As stated in the Prospectus, the High Quality Bond Fund may enter into
futures transactions for hedging purposes.
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, the 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.
The 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 the Fund, through
using futures contracts.
Description of Interest Rate Futures Contracts. An interest rate
-----------------------------------------------
futures contract sale would create an obligation by the 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 the 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 the 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, the Fund immediately
is paid the difference and thus realizes a gain. If the offsetting purchase
price exceeds the sale price, the Fund pays the difference and realizes a loss.
Similarly, the closing out of a futures
B-1
<PAGE> 80
contract purchase is effected by the Fund entering into a futures contract
sale. If the offsetting sale price exceeds the purchase price, the Fund
realizes a gain, and if the purchase price exceeds the offsetting sale price,
the 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. The 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. The 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. The 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
the Fund tends to move in concert with the futures market prices of long-term
United States Treasury bonds ("Treasury bonds"). Fleet 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 believes
that, because of an anticipated rise in interest rates, the value will decline
to 95. The 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 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.
If interest rate levels did not change, the 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.
B-2
<PAGE> 81
Example of Futures Contract Purchase. The 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. The Fund's basic motivation would be to maintain for a time the income
advantage from investing in the short-term securities; the 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 the Fund may
purchase.
For example, assume that the market price of a long-term bond that the
Fund may purchase, currently yielding 10%, tends to move in concert with
futures market prices of Treasury bonds. Fleet 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 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. The Fund might
enter into futures contracts purchases of Treasury bonds for an equivalent
price of 98. At the same time, the 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 the Fund pays for the
long-term bond would be offset by the 5 point gain realized by closing out the
futures contract purchase.
Fleet 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 the 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 the 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.
II. Margin Payments
---------------
Unlike purchases or sales of portfolio securities, no price is paid or
received by the Fund upon the purchase or sale of a futures contract.
Initially, the Fund will be required to deposit with the broker or in a
segregated account with the Trust's custodian an amount of
B-3
<PAGE> 82
cash or cash equivalents, 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 the 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 the 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 the Fund will be entitled to receive
from the broker a variation margin payment equal to that increase in value.
Conversely, where the 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 the Fund would be required
to make a variation margin payment to the broker. At any time prior to
expiration of the futures contract, Fleet may elect to close the position by
taking an opposite position, subject to the availability of a secondary market,
which will operate to terminate the 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 the Fund, and the Fund realizes a loss or
gain.
III. Risks of Transactions in Futures Contracts
------------------------------------------
There are several risks in connection with the use of futures by the
High Quality Bond 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, the 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, the 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 hedge. To compensate for the imperfect
correlation of movements in the price of instruments being hedged and movements
in the price of futures contracts, the 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. Conversely, the
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
B-4
<PAGE> 83
if otherwise deemed to be appropriate by Fleet. It is also possible that,
where the 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 the Fund
may decline. If this occurred, the 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 the Fund is able to invest its cash (or cash
equivalents) in an orderly fashion, it is possible that the market may decline
instead; if the Fund then concludes not to invest its cash at that time because
of concern as to possible further market decline or for other reasons, the 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 the Fund,
an amount of cash and cash equivalents, equal to the market value of the
futures contracts, will be deposited in a segregated account with the Trust'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 may still not result in a successful hedging transaction over a short
time frame.
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 High
Quality Bond Fund intends 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, the Fund would continue to be required to make daily
cash payments of variation margin. However, in the event futures contracts have
been used to
B-5
<PAGE> 84
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 the High Quality Bond Fund is also
subject to Fleet's ability to predict correctly movements in the direction of
the market. For example, if the Fund has hedged against the possibility of a
decline in the market adversely affecting securities held by it and securities
prices increase instead, the 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
the 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. The Fund
may have to sell securities at a time when it may be disadvantageous to do so.
B-6
<PAGE> 85
FINANCIAL STATEMENTS
The audited financial statements for the Money Market, Equity, Asset
Allocation, and High Quality Bond Funds and notes thereto in Galaxy VIP's
Annual Report to Shareholders for the fiscal year ended December 31, 1996
(the "1996 Annual Report") are incorporated in this Statement of Additional
Information by reference. No other parts of the 1996 Annual Report are
incorporated by reference herein. The financial statements included in the
1996 Annual Report have been audited by the Fund's independent accountants,
Coopers & Lybrand L.L.P., whose reports thereon are incorporated herein by
reference. Such 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 1996 Annual Report may be obtained at any
charge by telephoning the Fund at 800-628-0414.
FS-1
<PAGE> 86
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 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 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 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 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 financial statements contained in Registrant's
December 31, 1996 Annual Report to Shareholders, a
copy of which has been filed with the Commission.
<PAGE> 87
(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 filed 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
filed on July 7, 1992.
(3) None.
(4) None.
(5) 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 filed
on July 14, 1993.
(6) Distribution Agreement dated June 1, 1996 by and
among Registrant, First Data Investor Services
Group, Inc. and First Data Distributors, Inc.
(formerly known as 440 Financial 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.
(8) 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 filed on July 14, 1993.
(9)(a) Administration Agreement dated as of June 1,
1996 between Registrant and First Data
Investor Services Group, Inc.
(b) Fee Letter Agreement dated as of June 1, 1996
between Registrant and First Data Investor
Services Group, Inc.
-2-
<PAGE> 88
(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
filed on July 14, 1993.
(1)(10) Opinion of counsel that shares are validly issued,
fully paid and non-assessable.
(11)(a) Consent of Coopers & Lybrand L.L.P.
(b) Consent of Drinker Biddle & Reath.
(12) None.
(13) 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
filed on July 14, 1993.
(14) None.
(15) None.
(16) Schedule for Computation of Performance Quotations
- 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 filed on July 14,
1993.
(18) None.
(27) Financial Data Schedules for the year ended
December 31, 1996 - 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.
- ------------------------
(1) Filed under Rule 24f-2 as part of Registrant's Rule 24f-2 Notice.
-3-
<PAGE> 89
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.
<TABLE>
<CAPTION>
Number of
Record Holders
Title of Class As of February 25, 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)
</TABLE>
ITEM 27. INDEMNIFICATION
Indemnification of Registrant's principal underwriter and custodian
against certain losses is provided for, respectively, in Section 1.13
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
-4-
<PAGE> 90
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:
-5-
<PAGE> 91
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 ADVISER
Fleet Investment Advisors Inc. ("Fleet") is an investment adviser
registered under the Investment Advisers Act of 1940 (the "Advisers
Act").
The list required by this Item 28 of officers and directors of Fleet,
together with information as to any business profession, vocation or
employment of a substantial nature engaged in by such officers and
directors during the past two years is incorporated herein by
reference to Schedules A and D of Form ADV filed by Fleet pursuant to
the Advisers Act (SEC File No. 801-20312).
ITEM 29. PRINCIPAL UNDERWRITER
(a) In addition to 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, Westborough,
Massachusetts 01581.
(b) The information required by this Item 29 (b) with respect to
each director, officer, or partner of the Distributor is
incorporated by reference to Schedule A of Form BD filed by
the Distributor with the Securities and Exchange Commission
pursuant to the Securities Act of 1934 (File No. 8-45467).
(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.
-6-
<PAGE> 92
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 all of the Registrant's Funds).
(2) First Data Distributors, Inc., (records relating to its
functions as distributor) 4400 Computer Drive, Westborough,
Massachusetts 01581.
(3) First Data Investor Services Group, Inc., 53 State Street,
Boston, Massachusetts 02109 (records relating to its functions
as administrator).
(4) Drinker Biddle & Reath, 1345 Chestnut Street, Philadelphia,
Pennsylvania 19107 (Registrant's Declaration of Trust, Code of
Regulations and Minute Books).
(5) 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,
Equity, Asset Allocation and High Quality Bond Funds.
-7-
<PAGE> 93
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 28th day of February, 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. 5 to the Registration Statement has
been signed below by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/John T. O'Neill Trustee, President February 28, 1997
- ------------------------- and Treasurer
John T. O'Neill
*Dwight E. Vicks, Jr. Chairman of the Board February 28, 1997
- ------------------------ of Trustees
Dwight E. Vicks, Jr.
*Donald B. Miller Trustee February 28, 1997
- ------------------------
Donald B. Miller
*Louis DeThomasis Trustee February 28, 1997
- -----------------------
Louis DeThomasis
*Bradford S. Wellman Trustee February 28, 1997
- -----------------------
Bradford S. Wellman
*James M. Seed Trustee February 28, 1997
- -------------------------
James M. Seed
/s/John T. O'Neill
- --------------------------
*By: John T. O'Neill
Attorney-in-Fact
</TABLE>
<PAGE> 94
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> 95
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> 96
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> 97
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> 98
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> 99
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> 100
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C> <C>
(6) Distribution Agreement dated
June 1, 1996 by and among Registrant,
First Data Investor Services Group,
Inc. and First Data Distributors, Inc.
(formerly known as 440 Financial
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.
(9)(a) Administration Agreement dated as of
June 1, 1996 between Registrant and
First Data Investor Services Group, Inc.
(9)(b) Fee Letter Agreement dated as of June
1, 1996 between Registrant and First
Data Investor Services Group, Inc.
(11)(a) Consent of Coopers & Lybrand L.L.P.
(11)(b) Consent of Drinker Biddle & Reath.
(27) Financial Data Schedules for the year
ended December 31, 1996 - The Money
Market, Equity, Asset Allocation and
High Quality Bond Funds.
</TABLE>
<PAGE> 1
EXHIBIT (6)
AMENDED AND RESTATED
DISTRIBUTION AGREEMENT
THIS AGREEMENT is made as of this 1st day of June, 1996 by and among THE
GALAXY VIP FUND, a Massachusetts business trust ("Galaxy VIP"), FIRST DATA
INVESTOR SERVICES GROUP, INC., a Massachusetts corporation ("FDISG"), and 440
FINANCIAL DISTRIBUTORS, INC., a Massachusetts corporation (the "Distributor")
and a wholly-owned subsidiary of FDISG.
W I T N E S S E T H
WHEREAS, Galaxy VIP 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 VIP is currently offering units of beneficial interest,
par value $.001 (the "Shares"), representing interests in the following
investment portfolios: Money Market Fund, Equity Fund, Asset Allocation Fund
and High Quality Bond Fund (individually a "Fund" and collectively the
"Funds"); and
WHEREAS, the Distributor currently serves as distributor for the Funds
pursuant to a Distribution Agreement dated as of March 31, 1995 by and among
Galaxy VIP, FDISG and the Distributor (the "Existing Agreement"); and
WHEREAS, the parties hereto wish to amend and restate the Existing
Agreement in its entirety to reflect certain changes to the terms thereof;
NOW THEREFORE, in consideration of the premises and mutual covenants 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 Galaxy VIP's disclosed agent for the
distribution of the Shares covered by the registration statement and prospectus
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 appropriate efforts to solicit
orders for the sale of the Shares and will undertake such advertising and
promotion as it believes reasonable in connection with such solicitation.
Galaxy VIP understands that the Distributor is the distributor, and may in the
future be the distributor, of the shares of other investment companies'
portfolios ("Portfolios") including Portfolios having investment
<PAGE> 2
objectives similar to those of the Funds. Galaxy VIP further understands that
investors and potential investors in the Funds may invest in shares of such
other Portfolios. Galaxy VIP agrees that the Distributor's duties to such
Portfolios shall not be deemed in conflict with its duties to Galaxy VIP under
this paragraph 1.2.
1.3 The Distributor shall, at its own expense, finance appropriate
activities which it deems reasonable which are primarily intended to result in
the sale of the Shares, including, but not limited to, advertising,
compensation of underwriters, dealers and sales personnel, the printing and
mailing of prospectuses to other than current shareholders, and the printing
and mailing of sales literature.
1.4 All activities by the Distributor and its agents and employees as
distributor of the Shares shall comply with all applicable laws, rules and
regulations, including, without limitation, all rules and regulations made or
adopted pursuant to the 1940 Act by the Securities and Exchange Commission or
any securities association registered under the Securities Exchange Act of
1934, as amended.
1.5 The Distributor will provide one or more persons, during normal
business hours, to respond to telephone questions with respect to the Funds.
1.6 The Distributor will transmit any orders received by it for
purchase or redemption of the Shares to Galaxy VIP's transfer agent and
custodian.
1.7 Whenever in their judgment such action is warranted by unusual
market, economic or political conditions, or by abnormal circumstances of any
kind, Galaxy VIP's officers may decline to accept any orders for, or make any
sales of, the Shares until such time as those officers deem it advisable to
accept such orders and to make such sales.
1.8 The Distributor may enter into selling agreements with selected
dealers or other institutions with respect to the offering of the Shares to the
public. Each such selling agreement will provide (a) that all payments for
purchases of Shares will be sent directly from the dealer or such other
institution to the Funds' transfer agent and (b) that, 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 the 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 the Fund or the Distributor resulting from such cancellation.
The Distributor may also as disclosed agent for a Fund sell Shares of that Fund
to individual investors, such
-2-
<PAGE> 3
transactions to be specifically approved by an officer of that Fund.
1.9 The Distributor will send a confirmation to each purchaser of
Shares under this Agreement. Such confirmations will comply with all
applicable Federal and state laws and rules and regulations of authorized
regulatory bodies and will clearly state that the Distributor is acting as
agent in the transaction and that all remittances, registration instructions
and certifications for redemption should be sent directly to the Funds'
transfer agent. Such confirmations will also set forth the mailing address and
delivery address of the Funds' transfer agent.
1.10 Galaxy VIP agrees at its own expense to execute any and all
documents and to furnish any and all information and otherwise to take all
actions that may be reasonably necessary in connection with the qualification
of the Shares for sale in such states as the Distributor may designate.
1.11 Galaxy VIP shall furnish from time to time, for use in
connection with the sale of the Shares, such written information with respect
to the Funds and the Shares as the Distributor may reasonably request; and
Galaxy VIP warrants that the statements contained in any such information shall
fairly show or represent what they purport to show or represent. Galaxy VIP
shall also furnish the Distributor upon request with (a) unaudited semi-annual
statements of the Funds' books and accounts, (b) quarterly earnings statements
of the Funds, (c) a monthly itemized list of the securities in the Funds, (d)
monthly balance sheets as soon as practicable after the end of each month, and
(e) from time to time such additional information regarding the Funds'
financial condition as the Distributor may reasonably request.
1.12 Galaxy VIP represents to the Distributor that all registration
statements and prospectuses filed by Galaxy VIP with the Securities and
Exchange Commission under the 1933 Act with respect to the Shares have been
prepared in conformity with the requirements of said Act and rules and
regulations of the Securities and Exchange Commission thereunder. As used in
this agreement the terms "registration statement" and "prospectus" shall mean
any registration statement and prospectuses filed with the Securities and
Exchange Commission and any amendments and supplements thereto, including
statements of additional information incorporated therein by reference, which
at any time shall have been filed with the Securities and Exchange Commission.
Galaxy VIP represents and warrants to the Distributor that any registration
statement and prospectus, when such registration statement becomes effective,
will contain all statements required to be stated therein in conformity with
said Act and the rules and regulations of the Securities and Exchange
Commission; that all statements of fact contained in any such
-3-
<PAGE> 4
registration statement and prospectus will be true and correct when such
registration statement becomes effective; and that neither any registration
statement nor any prospectus when such registration statement becomes effective
will include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading to a purchaser of the Shares. Galaxy VIP 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 Galaxy VIP's
counsel, be necessary or advisable. Galaxy VIP shall promptly notify the
Distributor of any advice given to it by Galaxy VIP's counsel regarding the
necessity or advisability so to amend or supplement such registration statement
or prospectus. If Galaxy VIP shall not propose such amendment or amendments
and/or supplement or supplements within fifteen days after receipt by Galaxy
VIP of a written request from the Distributor to do so, the Distributor may, at
its option, terminate this Agreement. Galaxy VIP shall not file any amendment
to any registration statement or supplement to any prospectus without giving
the Distributor reasonable notice thereof in advance; provided, however, that
nothing contained in this Agreement shall in any way limit Galaxy VIP's right
to file at any time such amendments to any registration statement and/or
statements to any prospectus, of whatever character, as Galaxy VIP may deem
advisable, such right being in all respects absolute and unconditional.
1.13 Galaxy VIP authorizes the Distributor and dealers to use any
prospectus in the form furnished from time to time in connection with the sale
of the Shares. Galaxy VIP agrees to indemnify, defend and hold the
Distributor, its several officers and directors, and any institution 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 counsel fees incurred in connection therewith) which the
Distributor, its officers and directors, or any such controlling person, may
incur under the 1933 Act, or under common law or otherwise, arising out of or
based upon any untrue statement, or alleged untrue statement, of a material
fact contained in any registration statement or any prospectus or arising out
of or based upon any omission, or alleged omission, to state a material fact
required to be stated in either any registration statement or any prospectus or
necessary to make the statements in either thereof not misleading; provided,
however, that Galaxy VIP's agreement to indemnify the Distributor, its officers
or directors, and any such controlling person shall not be deemed to cover any
claims, demands, liabilities or expenses arising out of any statements or
representations contained in any registration statement or in any
-4-
<PAGE> 5
prospectus that were furnished in writing to Galaxy VIP or its counsel by the
Distributor and used in the answers to the registration statement or in the
corresponding statements made in the prospectus, or arising out of or based
upon any omission or alleged omission to state a material fact in connection
with the giving of such information required to be stated in such answers or
necessary to make the answers not misleading; and further provided that Galaxy
VIP's agreement to indemnify the Distributor and Galaxy VIP's representations
and warranties hereinbefore set forth in paragraph 1.12 shall not be deemed to
cover any liability to Galaxy VIP 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 disregarding of its obligations and duties under this Agreement.
Galaxy VIP's agreement to indemnify the Distributor, its officers and
directors, and any such controlling person, as aforesaid, is expressly
conditioned upon Galaxy VIP's being notified of any action brought against the
Distributor, its officers or directors, or any such controlling person, such
notification to be given by letter or by telegram addressed to Galaxy VIP at
its principal office in Westboro, Massachusetts and sent to Galaxy VIP by the
person against whom such action is brought, within 10 days after the summons or
other first legal process shall have been served. The failure so to notify
Galaxy VIP of any such action shall not relieve Galaxy VIP from any liability
which Galaxy VIP may have to the person against whom such action is brought by
reason of any such untrue, or allegedly untrue, statement or omission, or
alleged omission, otherwise than on account of Galaxy VIP's indemnity agreement
contained in this paragraph 1.12. Galaxy VIP will be entitled to assume the
defense of any suit brought to enforce any such claim, demand or liability,
but, in such case, such defense shall be conducted by counsel of good standing
chosen by Galaxy VIP and approved by the Distributor, which approval shall not
unreasonably be withheld. In the event Galaxy VIP elects to assume the defense
of any such suit and retain counsel of good standing approved by the
Distributor, the defendant or defendants in such suit shall bear the fees and
expenses of any additional counsel retained by any of them; but in case Galaxy
VIP does not elect to assume the defense of any such suit, or in case the
Distributor reasonably does not approve of counsel chosen by Galaxy VIP, Galaxy
VIP will reimburse the Distributor, its officers and directors, or the
controlling person or persons named as defendant or defendants in such suit,
for the fees and expenses of any counsel retained by the Distributor or them.
Galaxy VIP's indemnification agreement contained in this paragraph 1.12 and
Galaxy VIP's representations and warranties in this Agreement shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of the Distributor, its officers and directors, or any controlling
person, and shall survive the delivery of any Shares. This agreement of
indemnity will inure exclusively to the
-5-
<PAGE> 6
Distributor's benefit, to the benefit of its several officers and directors,
and their respective estates, and to the benefit of the controlling persons and
their successors. Galaxy VIP agrees promptly to notify the Distributor of the
commencement of any litigation or proceedings against Galaxy VIP or any of its
officers or trustees in connection with the issuance and sale of any Shares.
1.14 FDISG and the Distributor agree to indemnify, defend and hold
Galaxy VIP, its several officers and trustees, and any person who controls
Galaxy VIP 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 counsel fees incurred in connection therewith) which Galaxy
VIP, its officers or trustees or any such controlling person, may incur under
the 1933 Act, or under common law or otherwise, but only to the extent that
such liability or expense incurred by Galaxy VIP, 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 Galaxy VIP
or its counsel and used in the answers to any of the items of the registration
statement or in the corresponding statements made in the prospectus, or shall
arise out of or be based upon any omission, or alleged omission, to state a
material fact in connection with such information furnished in writing by the
Distributor to Galaxy VIP or its counsel required to be stated in such answers
or necessary to make such information not misleading. The agreement of FDISG
and the Distributor to indemnify Galaxy VIP, its officers and trustees, and any
such controlling person, as aforesaid, is expressly conditioned upon FDISG's
and the Distributor's being notified of any action brought against Galaxy VIP,
its officers or trustees, or any such controlling person, such notification to
be given by letter or telegram addressed to FDISG and the Distributor at their
principal offices in Westboro, Massachusetts, and sent to FDISG and the
Distributor by the person against whom such action is brought, within 10 days
after the summons or other first legal process shall have been served. FDISG
and the Distributor shall have the right of first control of the defense of
such action, with counsel of their own choosing, satisfactory to Galaxy VIP, if
such action is based solely upon such alleged misstatement or omission on the
Distributor's part, and in any other event Galaxy VIP, its officers or trustees
or such controlling person shall each have the right to participate in the
defense or preparation of the defense of any such action. The failure so to
notify FDISG and the Distributor of any such action shall not relieve FDISG and
the Distributor from any liability which FDISG and the Distributor may have to
Galaxy VIP, its officers or trustees, or to such controlling person by reason
of any such untrue or
-6-
<PAGE> 7
alleged untrue statement, or omission or alleged omission, otherwise than on
account of FDISG's and the Distributor's indemnity agreement contained in this
paragraph 1.14.
1.15 No Shares shall be offered by either the Distributor or Galaxy
VIP under any of the provisions of this Agreement and no orders for the
purchase or sale of Shares hereunder shall be accepted by Galaxy VIP 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
10(a)(2) of the 1933 Act is not on file with the Securities and Exchange
Commission; provided, however, that nothing contained in this paragraph 1.15
shall in any way restrict or have any application to or bearing upon Galaxy
VIP's obligation to repurchase Shares from any shareholder in accordance with
the provisions of Galaxy VIP's prospectus or Declaration of Trust.
1.16 Galaxy VIP agrees to advise the Distributor as soon as
reasonably practical by a notice in writing delivered to the Distributor:
(a) of any request by the Securities and Exchange
Commission for amendments to the registration statement or prospectus
then in effect or for additional information;
(b) in the event of the issuance by the Securities and
Exchange Commission of any stop order suspending the effectiveness of
the registration statement or prospectus then in effect or the
initiation by service of process on Galaxy VIP of any proceeding for
that purpose;
(c) of the happening of any event that makes untrue any
statement of a material fact made in the registration statement or
prospectus then in effect or which requires the making of a change in
such registration statement or prospectus in order to make the
statements therein not misleading; and
(d) of all action of the Securities and Exchange
Commission with respect to any amendment to any registration statement
or prospectus which may from time to time be filed with the Securities
and Exchange Commission.
For purposes of this paragraph 1.16, informal requests by or acts of the
Staff of the Securities and Exchange Commission shall not be deemed actions of
or requests by the Securities and Exchange Commission.
1.17 The Distributor agrees on behalf of itself and its employees
to treat confidentially and as proprietary information
-7-
<PAGE> 8
of Galaxy VIP all records and other information relative to Galaxy VIP and its
prior, present or potential shareholders, and not to use such records and
information for any purpose other than performance of its responsibilities and
duties hereunder, except after prior notification to and approval in writing by
Galaxy VIP, which approval shall not be unreasonably withheld and may not be
withheld where the Distributor may be exposed to civil or criminal contempt
proceedings for failure to comply, when requested to divulge such information
by duly constituted authorities, or when so requested by Galaxy VIP.
1.18 This Agreement shall be governed by the laws of the
Commonwealth of Massachusetts.
1.19 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 Galaxy VIP. 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 Galaxy VIP personally, but bind only the Trust Property, and
all persons dealing with any class of Shares of Galaxy VIP must look solely to
the Trust Property belonging to such class for the enforcement of any claims
against Galaxy VIP.
1.20 FDISG and the Distributor shall not be liable for any error of
judgment or mistake of law or for any loss suffered by Galaxy VIP in connection
with the performance by the Distributor of its services hereunder, except for a
loss resulting from willful misfeasance, bad faith or negligence on the part of
the Distributor in the performance of its duties or from reckless disregard by
it of its obligations and duties under this Agreement.
2. Term.
-----
This Agreement shall become effective as of June 1, 1996 and, unless
sooner terminated as provided herein, shall continue until May 31, 1997 and
thereafter shall continue automatically for successive annual periods ending on
May 31 of each year, provided such continuance is specifically approved at
least annually by (a) Galaxy VIP's Board of Trustees or (b) by a vote of a
majority (as defined in the 1940 Act) of the outstanding voting securities of
Galaxy VIP, provided that in either event the continuance is also approved by a
--------
majority of Galaxy VIP's trustees who are not parties to this Agreement and who
are not interested persons (as defined in the 1940 Act) of any party to
-8-
<PAGE> 9
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
sixty days' notice, by Galaxy VIP's Board of Trustees, by vote of a majority
(as defined in the 1940 Act) of the outstanding voting securities of Galaxy
VIP, or by the Distributor. This Agreement will also terminate automatically
in the event of its assignment (as defined in the 1940 Act).
3. Counterparts.
-------------
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
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:/s/John T. O'Neill
---------------------
Attest:/s/W. Bruce McConnel, III President
--------------------------
Secretary
FIRST DATA INVESTOR SERVICES
GROUP, INC.
By:
---------------------------
Title:
Attest:
-----------------------
440 FINANCIAL DISTRIBUTORS, INC.
By:
----------------------------
Title:
Attest:
-----------------------
-9-
<PAGE> 1
EXHIBIT (7)
THE GALAXY FUND
THE GALAXY VIP FUND
GALAXY FUND II
SUMMARY OF
DEFERRED COMPENSATION PLAN
Basic Plan: The Galaxy Fund/The Galaxy VIP Fund/Galaxy Fund II Deferred
- -----------
Compensation Plan (the "Plan") is a nonqualified unfunded deferred compensation
plan under which individual Agreements ("Deferred Compensation Agreements" or
"Agreements") are executed between one or more of the Trustees and The Galaxy
Fund, The Galaxy VIP Fund and Galaxy Fund II (the "Trusts").
Eligibility: All members of the Boards of the Trusts are eligible to
- ------------
participate.
Amounts Deferred Under Prior Plans: The Galaxy Fund Deferred Compensation
- -----------------------------------
Plan, The Galaxy VIP Fund Deferred Compensation Plan and Galaxy Fund II
Deferred Compensation Plan (the "Original Plans") have been merged into the
Plan. Any amounts which were deferred under the Original Plans by a Trustee,
plus earnings, will be paid from the Plan in accordance with the Trustee's
elections under the Original Plans.
Amount to be Deferred: All or a portion of the compensation earned by a
- ----------------------
Trustee from the Trusts may be deferred and credited to a Deferred Compensation
Account for the Trustee.
Election to Defer: A Trustee elects to defer his compensation by executing a
- ------------------
Deferred Compensation Agreement prior to the beginning of the calendar year in
which the compensation will be earned. A Trustee may also elect to defer fees
subsequently earned in the calendar year of election if such election is made
within 30 days of the Plan's effective date or within 30 days of the Trustee's
first becoming eligible to participate in the Plan. Until terminated or
replaced with a new Agreement, the Agreement will be effective for subsequent
years.
A Trustee may establish a new Agreement with respect to future compensation on
an annual basis. For example, even if a Trustee does not enter into a Deferred
Compensation Agreement during the first year he is able to do so, he will still
have the opportunity to defer compensation earned in a subsequent year by
executing an appropriate agreement prior to January 1 of the calendar year for
which he seeks deferral. A Trustee can also annually enter into a new
Agreement whereby he elects to change the method by which he will receive
payment of amounts deferred in future years, or changes the percentage of
compensation deferred. For each new Agreement entered into which changes the
date of receipt of deferred amounts, a new Deferred Compensation Account will
be established for the Trustee.
<PAGE> 2
A trustee may terminate an election to defer by notifying the Trusts in
writing.
Earnings on Deferred Amounts: A Trustee may elect to have his Deferred
- -----------------------------
Compensation Account(s) invested in any combination of investment options
offered by the Trusts. The Galaxy VIP Fund's portfolios will not be offered as
investment options under the Plan. The income, gains and losses credited to
the Trustee's Account(s) will reflect the income, gains, and losses achieved by
the chosen investment option(s). The Trustee may also elect to change the
investment allocation of past and future deferred amounts in his Deferred
Compensation Accounts once per calendar quarter upon proper notice to the
Trusts. The Boards of Trustees will periodically announce which investment
options will be available under the Plan. The Trustee Account Allocation
Election Form attached to the Agreement lists the investment options currently
available under the Plan.
Distribution of Deferred Amounts: Distributions will begin as of January 31 of
- ---------------------------------
the year following the year in which the Trustee dies, retires, resigns,
becomes disabled or otherwise ceases to be a member of the Boards of Trustees.
At the time the Trustee enters into the Agreement, the Trustee will elect to
receive payments either in a single sum or in annual payments for a period of
two to 15 years. The Trustee's elections as to the time and manner of
receiving payments may not be changed with respect to any year covered by that
Agreement. A Trustee may execute a new Agreement and thereby make a different
election as to the manner of payment with respect to compensation for services
performed in later years.
Beneficiary Designation: May be amended at any time by providing written
- ------------------------
notice to the Trusts.
Hardship Distributions: Provision is made for hardship distribution in the
- -----------------------
case of unforeseeable emergencies.
Taxability of Fees: Deferred compensation should be taxable as ordinary income
- -------------------
in the year distributed to the Trustee. Such distributions may be subject to
withholding pursuant to the tax laws in effect at the time of distribution. In
addition, under current law, self-employment taxes will be due on deferred
Trustee's fees in the year they are received by the Trustee, rather than in the
year earned.
Security of Deferred Amounts: A Trustee's claim against the Trusts for amounts
- -----------------------------
due under the Plan will have the same standing as that of any unsecured general
creditor. The Trusts will have no obligation to set aside monies to fund their
obligations under the Plan, and all distributions under the Plan will be made
from the general funds of the Trusts.
-2-
<PAGE> 3
Annual Report: The Trusts will provide each participating Trustee with an
- --------------
annual statement of his Deferred Compensation Account balance(s).
-3-
<PAGE> 4
THE GALAXY FUND
THE GALAXY VIP FUND
GALAXY FUND II
DEFERRED COMPENSATION PLAN
1. Eligibility. Each Trustee of the Boards of Trustees (the
------------
"Board") of The Galaxy Fund, The Galaxy VIP Fund and Galaxy Fund II (the
"Trusts") shall be eligible to participate in The Galaxy Fund/The Galaxy VIP
Fund/Galaxy Fund II Deferred Compensation Plan (the "Plan").
2. Terms of Participation
----------------------
(a) A Trustee may elect to participate in the Plan by
signing a Deferred Compensation Agreement (the "Agreement") in the form
attached hereto and incorporated by reference herein. A Trustee's
participation will commence on January 1 of the calendar year immediately
following the year in which the Trustee executed the Agreement, except that
when a Trustee executes an Agreement within 30 days of the Plan's initial
effective date or within 30 days of first becoming eligible to participate in
the Plan, participation will commence with respect to services to be performed
subsequent to the date of the Agreement.
(b) Participation in the Plan will continue until the
Trustee furnishes written notice to the Trusts that the Trustee terminates his
------- ------
participation in the Plan or until such time as the Trusts terminate the Plan
pursuant to Section 6 below. Termination by a Trustee shall be made by written
notice delivered or mailed to the Treasurer of the Trusts (the "Treasurer") (or
his delegate) no later than December 31 of the calendar year preceding the
calendar year in which such termination is to take effect.
(c) A Trustee who has terminated his participation may
subsequently elect to participate in the Plan by executing a new Agreement in
accordance with subsection (a) above.
(d) A Trustee may alter the amount of deferral for any
future calendar year, and/or elect a different method by which he will receive
amounts deferred for future calendar years, if the Trustee and the Trusts enter
into a new Agreement on or before December 31 of the calendar year preceding
the calendar year for which the new Agreement is to take effect. For each new
Agreement which changes the method of receipt of deferred amounts, a new record
account (the "Deferred Compensation Account" or "Account") will be established
for the Trustee.
<PAGE> 5
3. Deferred Compensation Account. While a Trustee participates
------------------------------
in the Plan pursuant to an Agreement, all deferred compensation payable by the
Trusts for the Trustee's services shall be credited to the Trustee's Deferred
Compensation Account under the applicable Agreement. A Trustee shall allocate
amounts in his Account(s) among the investment options available under the Plan
by submitting a written request to the Treasurer (or his delegate) on such form
as may be required by the Treasurer prior to the date deferrals are scheduled
to begin. The Boards shall specify from time to time the investment options
available under the Plan. The Galaxy VIP Fund's portfolios will not be offered
as investment options under the Plan. The Trustee may request that the
investment allocation of his Account, including past as well as future
deferrals, be changed by submitting a written request to the Treasurer (or his
delegate) on such form as may be required by the Treasurer, or by telephoning
the Treasurer (or his delegate); provided that a Trustee may make an investment
-------------
allocation change only once per calendar quarter. Such changes shall become
effective as soon as administratively feasible after the Treasurer (or his
delegate) receives such request.
The Trustee's Account(s) will be credited with any income, gains and
losses that would have been realized if amounts equal to the deferred amounts
had been invested in accordance with the Trustee's allocation election on the
date such deferred amounts were credited to the Trustee's Account(s). For this
purpose, any amounts that would have been received, had amounts been invested
as described above, from a chosen investment option will be treated as if
reinvested in that option on the date such amounts would have been received.
4. Distribution. As of January 31 of the year following the
-------------
year in which the Trustee dies, retires, resigns, becomes disabled or otherwise
ceases to be a member of the Boards, the total amount credited to the Trustee's
Account under the applicable Agreement shall be distributed to the Trustee (or
upon his death, to his designated beneficiary) in accordance with one of the
alternatives set forth below:
(i) one single-sum payment; or
(ii) any number of annual installments (as calculated
in the following paragraph) for a period of two to 15 years. Installments
shall be paid annually as of January 31 until the balance in the Trustee's
Account is exhausted.
Selection of an alternative shall be made at the time the Trustee
executes the Agreement. Except as provided in the following paragraph, the
amount of each installment payment, other than the final payment, shall be
equal to 1/n multiplied by the balance in the Trustee's Account as of the
previous December 31, where "n" equals the number of payments yet to be made.
The
-2-
<PAGE> 6
final payment will equal the balance in the Trustee's Account as of the final
January 31 payment date, and such payment shall be made as soon as practicable
after such date. For example, if payments are to be made in ten annual
installments commencing on January 31, 2000, the first payment will be equal to
1/10th of the December 31, 1999 balance in the Account, and the following
year's payment would be equal to 1/9th of the December 31, 2000 balance.
If the balance in the Trustee's Account as of the date of the first
scheduled payment is less than $2,000, the Trusts shall instead pay such amount
in a single sum as of that date. Further, the Trustee may not select a period
of time which will cause an annual payment to be less than $1,000.
Notwithstanding the foregoing, in the event the Trustee ceases to be a Trustee
of the Trusts and becomes a proprietor, officer, partner, or employee of, or
otherwise becomes affiliated with, any business or entity that is in
competition with any of the Trusts, or becomes employed by any governmental
agency having jurisdiction over the affairs of any of the Trusts, the Trusts
reserve the right at the sole discretion of the Boards to make an immediate
single-sum payment to the Trustee in an amount equal to the balance in the
Trustee's Account at that time.
Notwithstanding the preceding two paragraphs, the Trusts may at any
time make a single-sum payment to a Trustee (or surviving beneficiary) equal to
a part or all of the balance in the Trustee's Account upon a showing of an
unforeseeable (i.e., unanticipated) financial emergency caused by an event
beyond the control of the Trustee (or surviving beneficiary) which would result
in severe financial hardship to the Trustee (or surviving beneficiary) if such
payment were not made. The determination of whether such emergency exists
shall be made at the sole discretion of the Boards (with the Trustee requesting
the payment not participating in the discussion or the decision). The amount
of the payment shall be limited to the amount necessary to meet the financial
emergency, and any remaining balance in the Trustee's Account shall thereafter
be paid at the time and in the manner otherwise set forth in this Section.
If there is no beneficiary designation in effect at the Trustee's
death or the designated beneficiary is dead at the Trustee's death, any amounts
in the Trustee's Account shall be paid in a single sum to the Trustee's estate.
If the designated beneficiary dies after beginning to receive installment
payments, any amounts payable from the Trustee's Account shall be paid in a
single sum to the beneficiary's estate at the beneficiary's death.
5. Designation of Beneficiary. A Trustee may designate in
---------------------------
writing any person or legal entity as his beneficiary to receive any amounts
payable from his Account(s)
-3-
<PAGE> 7
upon his death. If the Trustee should die without effectively designating a
surviving beneficiary, his beneficiary shall be his estate.
6. Amendment and Termination of the Plan. The Trusts reserve
--------------------------------------
the right to amend or terminate the Plan by a joint resolution of the Boards.
A written notice of any such amendment or termination shall be delivered or
mailed to each participating Trustee no later than December 31 of the calendar
year preceding the calendar year in which the amendment or termination is to
take effect. The balance in the Trustee's Account(s) shall remain subject to
the provisions of the Plan and distribution will not be accelerated because of
the termination of the Plan.
7. Non-Assignability. The right of a Trustee or any other
------------------
person to receive payments under this Plan or any Agreement hereunder shall not
be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, attachment, or garnishment by creditors of the
Trustee or any beneficiary.
8. Miscellaneous
-------------
(a) No Funding. The Trusts shall not be required to
-----------
fund or secure in any way their respective obligations hereunder. Nothing in
the Plan or in any Agreement hereunder and no action taken pursuant to the
provisions of the Plan or of any Agreement hereunder shall be construed to
create a trust or a fiduciary relationship of any kind. Payments under the
Plan and any Agreement hereunder shall be made when due from the general assets
of the Trusts. Neither a Trustee nor his designated beneficiary shall acquire
any interest in such assets by virtue of the Plan or any Agreement hereunder.
This Plan constitutes a mere promise by the Trusts to make payments in the
future, and to the extent that a Trustee or his designated beneficiary acquires
a right to receive any payment from the Trusts under the Plan, such right shall
be no greater than the right of any unsecured general creditor of the Trusts.
The Trusts intend for this Plan to be unfunded for tax purposes and for the
purposes of Title I of the Employee Retirement Income Security Act of 1974, as
amended.
(b) Interpretation. The Trusts shall have full power
---------------
and authority to interpret, construe and administer this Plan and any Agreement
hereunder and their interpretation and construction thereof, and actions
hereunder, including any valuation of the Trustee's Account(s), or the amount
or recipients of the payment to be made therefrom, shall be binding and
conclusive on all persons for all purposes. The Trusts shall not be liable to
any person for any action taken or omitted in connection with the
interpretation and administration of this
-4-
<PAGE> 8
Plan and any Agreement hereunder unless attributable to their own willful
misconduct or lack of good faith.
(c) Withholding. To the extent required by law, the
------------
Trusts shall withhold federal or state income or employment taxes from any
payments under the Plan or any Agreement hereunder and shall furnish the
Trustee (or beneficiary) and the applicable governmental agency or agencies
with such reports, statements or information as may be required in connection
with such payments.
(d) Incapacity of Payee. If the Trusts shall find
--------------------
that any person to whom any payment is payable under this Plan or any Agreement
hereunder is unable to care for his affairs because of illness or accident, or
is a minor, any payment due (unless a prior claim therefor shall have been made
by a duly appointed guardian, committee or other legal representative) may be
paid to the spouse, a parent, or a brother or sister, or to any person deemed
by the Trusts to have incurred expense for the person who is otherwise entitled
to payment, in such manner and proportions as the Trusts may determine. Any
such payment shall serve to discharge the liability of the Trusts under this
Agreement to make payment to the person who is otherwise entitled to payment.
(e) Expenses. All expenses incurred in administering
---------
this Plan and any Agreement hereunder shall be paid by the Trusts.
(f) No Additional Rights. Nothing in this Plan or any
---------------------
Agreement hereunder shall be construed as conferring any right on the part of
the Trustee to be or remain a Trustee of the Trusts or to receive any
particular amount of Trustee's fees.
(g) Binding Notice. This Plan and any Agreement
---------------
hereunder shall be binding upon, and inure to the benefit of, the Trusts, their
respective successors and assigns, and each Trustee and his heirs, executors,
administrators and legal representatives.
(h) Governing Law. This Plan and any Agreement
--------------
hereunder shall be governed by and construed under the laws of the Commonwealth
of Massachusetts.
(i) Effective Date. This Plan shall be effective as
---------------
of January 1, 1997. The Galaxy Fund Deferred Compensation Plan, The Galaxy VIP
Fund Deferred Compensation Plan and Galaxy Fund II Deferred Compensation Plan
(the "Original Plans") are hereby merged into the Plan. Any amounts which were
deferred
-5-
<PAGE> 9
under the Original Plans by a Trustee, and earnings thereon, shall be paid from
the Plan in accordance with the terms of the Trustee's elections under the
Original Plans.
Adopted: December 7, 1995 Adopted by the
Revised: December 5, 1996 Boards of Trustees
of The Galaxy Fund,
The Galaxy VIP Fund and
Galaxy Fund II
-6-
<PAGE> 10
THE GALAXY FUND/THE GALAXY VIP FUND/GALAXY FUND II
DEFERRED COMPENSATION PLAN AGREEMENT
This Agreement is entered into this ____ day of ___________,
19__, between The Galaxy Fund (consisting of the Institutional Treasury Money
Market, Money Market, Government, Tax-Exempt, Connecticut Municipal Money
Market, Massachusetts Municipal Money Market, U.S. Treasury, Equity Value,
Equity Growth, Equity Income, International Equity, Small Company Equity, Asset
Allocation, Small Cap Value, Growth and Income, Short-Term Bond, Intermediate
Government Income, Corporate Bond, High Quality Bond, Tax-Exempt Bond, New York
Municipal Bond, Connecticut Municipal Bond, Massachusetts Municipal Bond and
Rhode Island Municipal Bond Funds), The Galaxy VIP Fund (consisting of the
Money Market Fund, Equity Fund, Asset Allocation Fund and High Quality Bond
Fund), Galaxy Fund II (together with The Galaxy Fund and The Galaxy VIP Fund,
the "Trusts") (consisting of the Large Company Index, Small Company Index,
Utility Index, U.S. Treasury Index and Municipal Bond Funds) and any other
investment portfolio that may be established by the Trusts in the future, and
____________________ (the "Trustee") pursuant to The Galaxy Fund/The Galaxy VIP
Fund/Galaxy Fund II Deferred Compensation Plan (the "Plan").
WHEREAS, the Trustee will be rendering valuable services to
the Trusts as a member of the Boards of Trustees (the "Board"),
<PAGE> 11
and the Trusts are willing to accommodate the Trustee's desire to be
compensated for such services on a deferred basis;
NOW, THEREFORE, the parties hereto agree as follows:
1. With respect to services performed by the Trustee for the
Trusts on and after _____________, 19__, the Trustee shall
defer ____% of the amounts otherwise payable to the Trustee
for serving as a Trustee. The deferred compensation shall be
credited to a book reserve maintained by the Trusts in the
Trustee's name, together with credited amounts in the nature
of income, gains and losses (the "Account"). The Account
maintained for the Trustee shall be paid to the Trustee on a
deferred basis in accordance with the terms of this Agreement.
2. The Trusts shall credit the Trustee's Account as of the day
such amount would be paid to the Trustee if this Agreement
were not in effect. Such Account shall be valued at fair
market value as of the last day of the calendar year and such
other dates as are necessary for the proper administration of
this Agreement, and the Trustee shall receive a written
accounting of his Account balance following such valuation.
-2-
<PAGE> 12
The Trustee may request that all or a portion of the amount in
his Account be allocated among one or more of the investment
options offered by the Board under The Plan. The Galaxy VIP
Fund's portfolios will not be offered as investment options
under the Plan. The initial allocation request may be made at
the time of enrollment. Once made, an investment allocation
request shall remain in effect for all future amounts
allocated to the Trustee's Account until changed by the
Trustee. The Trustee may change his investment allocation for
past deferrals and future deferrals by submitting a written
request to the Treasurer of the Trusts (the "Treasurer") (or
his delegate) on such form as may be required by the Treasurer
or by telephoning the Treasurer (or his delegate); provided
--------
that, the Trustee may make an investment allocation change
----
only once per calendar quarter. Such changes shall become
effective as soon as administratively feasible after the
Treasurer (or his delegate) receives such request. Although
the Trusts intend to invest the amounts in the Trustee's
Account according to the Trustee's requests, the Trusts
reserve the right to invest the amounts in the Trustee's
Account without regard to such requests.
The Trustee agrees on behalf of the Trustee and any designated
beneficiary to assume all risks in
-3-
<PAGE> 13
connection with the investment performance of any amounts
which are invested or which continue to be invested in
accordance with the investment directions of the Trustee.
Title to and beneficial ownership of any assets, whether cash
or investments, which the Trusts may use to pay benefits
hereunder, shall at all times remain in the Trusts, and the
Trustee and any designated beneficiary shall not have any
property interest whatsoever in any specific assets of the
Trusts.
3. As of January 31 of the calendar year following the calendar
year the Trustee dies, retires, resigns, becomes disabled or
otherwise ceases to be a member of the Board, the Trusts
(subject to the terms of the Plan) shall: [check one]
[ ] pay the Trustee (or his beneficiary) a single-sum
amount equal to the balance in the Trustee's Account
on that date; or
[ ] commence making annual payments to the Trustee (or
his beneficiary) for a period of __ [insert a whole
number from two through 15] years.
-4-
<PAGE> 14
If the second box is selected, such payments shall be made on
January 31st of each year in approximately equal annual
installments as adjusted and computed by the Trusts in
accordance with the terms of the Plan, with the final payment
equalling the then remaining balance in the Trustee's Account.
4. In the event the Trustee dies before payments have commenced
or been completed under Section 3, the Trusts shall make
payment in accordance with Section 3 to the Trustee's
designated beneficiary, whose name, address, and Social
Security number are:
--------------------------------------
--------------------------------------
--------------------------------------
--------------------------------------
If there is no beneficiary designation in effect at the
Trustee's death or the designated beneficiary is dead at the
Trustee's death, any amounts in the Trustee's Account shall be
paid in a single sum to the Trustee's estate. If the
designated beneficiary dies after
-5-
<PAGE> 15
beginning to receive installment payments, any amounts payable
from the Trustee's Account shall be paid in a single sum to
the beneficiary's estate at the beneficiary's death.
5. This Agreement shall remain in effect with respect to the
Trustee's compensation for services performed as a Trustee of
the Trusts in all future years unless terminated on a
prospective basis in writing in accordance with the terms of
----------
the Plan. The Trustee may subsequently elect to defer his
compensation by executing a new Deferred Compensation
Agreement. If a new Agreement is entered into which changes
the manner in which deferred amounts will be distributed, a
new Trustee's Account will be established for purposes of
crediting deferrals, income, gains, and losses under the new
Agreement. Any new Agreement shall relate solely to
compensation for services performed after the new Agreement
becomes effective and shall not alter the terms of this
Agreement with respect to the deferred payment of compensation
for services performed during any calendar year in which this
Agreement was in effect. Notwithstanding the foregoing, the
Trustee may at any time amend the beneficiary designation
hereunder by written notice to the Trusts.
-6-
<PAGE> 16
6. This Agreement constitutes a mere promise by the Trusts to
make benefit payments in the future, and the right of any
person to receive such payments under this Agreement shall be
no greater than the right of any unsecured general creditor of
the Trusts. The Trusts and Trustee intend for this Agreement
to be unfunded for tax purposes and for the purposes of Title
I of the Employee Retirement Income Security Act of 1974, as
amended.
7. Any written notice to the Trusts referred to in this Agreement
shall be made by mailing or delivering such notice to the
Trusts to the attention of the Treasurer, c/o Jylanne Dunne,
First Data Investor Services Group, Inc., 4400 Computer Drive,
Westboro, MA 01581-5108. Any written notice to the Trustee
referred to in this Agreement shall be made by delivery to the
Trustee in person or by mailing such notice to the Trustee at
his last known residential or business address.
8. This Agreement is subject to all of the terms contained in the
Plan as attached hereto and incorporated by reference herein.
-7-
<PAGE> 17
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first above written.
THE GALAXY FUND
By:
---------------------------
Title:
------------------------
THE GALAXY VIP FUND
By:
---------------------------
Title:
------------------------
GALAXY FUND II
By:
---------------------------
Title:
-----------------------
TRUSTEE
------------------------------
(Signature of Trustee)
-8-
<PAGE> 18
THE GALAXY FUND/THE GALAXY VIP FUND/GALAXY FUND II
DEFERRED COMPENSATION PLAN
TRUSTEE ACCOUNT ALLOCATION REQUEST
I hereby request to have my Account(s) under The Galaxy
Fund/The Galaxy VIP Fund/Galaxy Fund II Deferred Compensation Plan (the "Plan")
invested in the following investment options in the percentages indicated as
soon as administratively feasible. This request supersedes any prior requests I
have made with respect to the Plan, and applies to amounts deferred in the past
under the Plan as well as to future deferrals. I hereby agree to assume all
risks in connection with the investment performance of the amounts which are
invested in accordance with this election.
Percentage
Invested Investment Option
---------- -------------------------
100% U.S. Treasury Bills Account (two-year rate,
---------- adjusted quarterly)
100%
==========
DATED: , 1996
--------------------- ------------------------
<PAGE> 1
EXHIBIT 9(a)
AMENDED AND RESTATED
ADMINISTRATION AGREEMENT
THIS AGREEMENT is made as of this 1st day of June, 1996 between
THE GALAXY VIP FUND, a Massachusetts business trust ("Galaxy VIP") and First
Data Investor Services Group, Inc., a Massachusetts corporation ("FDISG").
W I T N E S S E T H
WHEREAS, Galaxy VIP is registered as an open-end, diversified
management company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, Galaxy VIP desires to employ the capital held in the
following of its investment portfolios, Money Market Fund, Equity Fund, Asset
Allocation Fund and High Quality Bond Fund (individually a "Fund" and
collectively the "Funds"), by investing and reinvesting the same in investments
of the type and in accordance with the limitations specified in its Declaration
of Trust and in its Prospectus with respect to each Fund as from time to time
in effect; and
WHEREAS, Galaxy VIP has submitted or will submit to FDISG copies
of Galaxy VIP's Declaration of Trust and the Prospectus for each Fund and
resolutions of Galaxy VIP's Board of Trustees with respect to each Fund; and
WHEREAS, FDISG currently serves as administrator for the Funds
pursuant to an Administration Agreement dated as of March 31, 1995 by and
between Galaxy VIP and FDISG (the "Existing Agreement"); and
WHEREAS, the parties hereto wish to amend and restate the
Existing Agreement in its entirety in order to reflect certain changes to the
terms thereof;
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. Services as Administrator.
-------------------------
FDISG hereby accepts its appointment as administrator for the
Funds, and agrees to provide services hereunder subject to the direction and
control of Galaxy VIP's Board of Trustees.
With respect to each Fund, FDISG agrees to: compute the net
asset value of Galaxy VIP's Funds and the net income available for dividends in
accordance with Galaxy VIP's current Prospectus, the Statement of Additional
Information and the
<PAGE> 2
resolutions of the Board of Trustees; furnish statistical and research data,
clerical, accounting and bookkeeping services, and stationery and office
supplies; provide internal auditing and legal services and internal executive
and administrative services; prepare those portions of Galaxy VIP's semi-annual
reports to the Securities and Exchange Commission on Form N-SAR that pertain to
each Fund, and coordinate and file such reports; compile data for and prepare
for execution by Galaxy VIP those portions of Galaxy VIP's Federal and state
tax returns and required tax filings that pertain to each Fund and to file such
returns and filings when completed (other than those filings required to be
made by Galaxy VIP's custodian and transfer agent); prepare compliance filings
pursuant to state securities laws with the advice of Galaxy VIP's counsel;
prepare those portions of Galaxy VIP's Annual and Semi-Annual Reports to
shareholders that pertain to each Fund, and coordinate and file such reports;
compile data for, prepare, and file timely notices to the Securities and
Exchange Commission required with respect to the registration of each Fund's
shares pursuant to Rule 24f-2 under the 1940 Act; arrange for and bear the cost
of processing purchase and redemption orders with respect to each Fund's
shares; keep and maintain the Funds' financial accounts and records; and
generally assist in all aspects of the Funds' operations.
FDISG also agrees to maintain office facilities for Galaxy VIP
(which may be at the offices of FDISG or a corporate affiliate and which shall
be in such location as Galaxy VIP may reasonably determine) and to supervise
all administrative aspects of the Funds' operations except those performed by
the Funds' investment adviser under its Advisory Agreement.
In compliance with the requirements of Rule 31a-3 under the 1940
Act, FDISG hereby agrees that all records which it maintains for Galaxy VIP are
the property of Galaxy VIP, and further agrees to surrender promptly to Galaxy
VIP any of such records upon Galaxy VIP'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 by Rule 31a-1 under the 1940 Act.
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 Galaxy VIP to obtain securities prices. Each Fund will
pay its share of the cost of such services based upon its actual use of the
services.
-2-
<PAGE> 3
2. Fees; Expenses; Expense Reimbursement.
-------------------------------------
In consideration of services provided and expenses assumed with
respect to the Funds, Galaxy VIP will pay FDISG a monthly fee as agreed to by
Galaxy and FDISG from time to time.
FDISG will from time to time employ or associate with itself such
person or persons as FDISG may believe to be particularly fitted to assist it
in the performance of this Agreement. Such person or persons may be officers
and employees who are employed by both FDISG and Galaxy VIP. The compensation
of such person or persons shall be paid by FDISG and no obligation will be
incurred on behalf of Galaxy VIP in such respect.
FDISG will bear all expenses in connection with the performance
of its services under this Agreement. Other expenses to be incurred in the
operation of the Funds including taxes, interest, brokerage fees and
commissions, if any, fees of trustees who are not officers, directors,
stockholders or employees of FDISG, or of the Funds' investment adviser or
distributor, Securities and Exchange Commission fees and state Blue Sky
qualification fees, advisory and administration fees, charges of custodians,
transfer and dividend disbursing agents' fees, certain insurance premiums,
outside auditing and legal expenses, 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 and any extraordinary expenses will be borne by
the Funds, provided, however, that 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.
If in any fiscal year the aggregate expenses of a Fund (as
defined under the securities regulations of any state having jurisdiction over
such Fund) exceed the expense limitation of any such state, FDISG will
reimburse such Fund for .20% of such excess expense. The expense reimbursement
obligation of FDISG is limited to the amount of its fees hereunder for such
fiscal year, provided, however, that notwithstanding the foregoing, FDISG shall
-------- -------
reimburse a Fund for such excess expense regardless of the amount of fees paid
to it during such fiscal year to the extent that the securities regulations of
any state having jurisdiction over the Fund so require. Such expense
reimbursement, if any, will be estimated, reconciled, and paid on a monthly
basis.
-3-
<PAGE> 4
3. Proprietary and Confidential Information.
----------------------------------------
FDISG agrees on behalf of itself and its employees to treat
confidentially and as proprietary information of Galaxy VIP all records and
other information relative to Galaxy VIP and prior, present or potential
shareholders, and not to use such records and information for any purpose other
than performance of its responsibilities and duties hereunder, except after
prior notification to and approval in writing by Galaxy VIP, which approval
shall not be unreasonably withheld and may not be withheld and will be deemed
granted where FDISG 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 VIP.
4. Limitation of Liability.
-----------------------
FDISG shall not be liable for any error of judgment or mistake of
law or for any loss suffered by Galaxy VIP in connection with the matters to
which this Agreement relates, except for a loss resulting from willful
misfeasance, bad faith or negligence on the part of FDISG in the performance of
its duties or from reckless disregard by it of its obligations and duties under
this Agreement. Any person, even though also an officer, partner, employee or
agent of FDISG, who may be or become an officer, trustee, employee or agent of
Galaxy VIP, shall be deemed, when rendering services to Galaxy VIP or acting on
any business of Galaxy VIP (other than services or business in connection with
FDISG's duties as administrator hereunder), to be rendering such services to or
acting solely for Galaxy VIP and not as an officer, partner, employee, or agent
or one under the control or direction of FDISG even though paid by FDISG.
5. Term.
----
This Agreement shall become effective as of June 1, 1996 and,
unless sooner terminated as provided herein, shall continue until May 31, 1997
and thereafter shall continue automatically with respect to each Fund for
successive annual periods ending on May 31 of each year, provided, such
--------
continuance is specifically approved at least annually (a) by the vote of a
majority of those members of Galaxy VIP's Board of Trustees who are not
interested persons of any party to this Agreement, cast in person at a meeting
called for the purpose of voting on such approval, and (b) by Galaxy VIP's
Board of Trustees or by the vote of a majority of the outstanding voting
securities of the affected Fund. Notwithstanding the foregoing, this Agreement
may be terminated as to any Fund at any time without the payment of any
penalty, by Galaxy VIP by the vote of Galaxy's VIP's Board of Trustees, or by
the vote of a majority of the outstanding voting securities of the Fund, or by
FDISG, on sixty days' written notice. (As used in this Agreement, the terms
"majority of the
-4-
<PAGE> 5
outstanding voting securities" and "interested person" shall have the same
meaning as such terms in the 1940 Act.) This Agreement shall be governed by
the laws of the Commonwealth of Massachusetts.
6. 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 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 Galaxy VIP. 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 Galaxy VIP personally, but bind only the Trust Property, and all persons
dealing with any class of shares of Galaxy VIP must look solely to the Trust
Property belonging to such class for the enforcement of any claims against
Galaxy VIP.
7. Counterparts.
------------
This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below as of the date and
year first above written.
THE GALAXY VIP FUND
Attest:/s/W. Bruce McConnel, III By:/s/John T. O'Neill
-------------------------- -----------------------
Secretary President
FIRST DATA INVESTOR SERVICES
GROUP, INC.
Attest: By:
------------------------ -------------------------
Title: Title:
-5-
<PAGE> 1
EXHIBIT 9(b)
June 1, 1996
The Galaxy VIP Fund
4400 Computer Drive
Westboro, MA 01581
Re: CUSTODIAN, FUND ACCOUNTING AND ADMINISTRATION FEES
--------------------------------------------------
Gentlemen:
This letter constitutes our agreement with respect to
compensation to be paid to (a) First Data Investor Services Group, Inc.
("FDISG") as the party responsible for payment of all fees and expenses under
the terms of a Global Custody Agreement dated October 30, 1992 between you
(the "Company") and The Chase Manhattan Bank, N.A. ("Chase"), as amended; and
(b) FDISG under the terms of an Amended and Restated Administration Agreement
dated as of June 1, 1996 between the Company and FDISG. Pursuant to the terms
of these agreements, the Company will pay to FDISG, for its administrative and
fund accounting services, and for the services that Chase will provide to the
Company as custodian in respect of the Company's Money Market Fund, Equity
Fund, High Quality Bond Fund and Asset Allocation Fund and such other
investment portfolios as are from time to time added by means of an Exhibit to
each of these agreements (each a "Portfolio" and collectively the "Portfolios")
the following:
1. An asset-based administration fee at the annual rate of .085%
of the first $1 billion of the Portfolios' combined average daily net assets,
.078% of the next $1.5 billion of combined average daily net assets and .073%
of combined average daily net assets over $2.5 billion and a percentage rate to
be negotiated by the parties of the combined average annual daily net assets in
excess of $5 billion. The minimum annual fee for the Portfolios will be
$100,000.
2. An annual fund accounting fee for each Portfolio based on the
average net assets of each Portfolio as follows: 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; and net assets in excess of $1
<PAGE> 2
The Galaxy VIP Fund
June 1, 1996
Page 2
billion - $125,000, plus out-of-pocket expenses, including but not limited to
an out-of-pocket charge for security quotes estimated to be as follows - equity
and bond price quotes - $.10 and $.50 per quote per day, respectively, and
money market price quotes - $.50 per quote per week. The annual fund
accounting fee for a Portfolio possessing more than 25% in non-domestic assets
will be 150% of the annual fund accounting fees described above.
3. Domestic and/or global custody fees for each Portfolio 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 (global custody) as more particularly set forth
in the Schedule attached hereto as Exhibit "A", plus out-of-pocket charges
including but not limited to taxes, insurance, telephone and script fees.
4. All asset-based fees shall be calculated daily and paid monthly.
Net assets shall be computed in accordance with the Portfolios' prospectuses,
statements of additional information and the resolutions of the Company's
Board of Trustees. All other fees and out-of-pocket expenses shall be
invoiced and paid monthly.
The fees for the period from the day of the year this agreement
is entered into until the end of that year shall be pro-rated according to the
proportion which such period bears to the full annual period. Upon any
termination of the underlying agreements before the end of any year, the fees
for such part of a year shall be prorated according to the proportion which
such period bears to the full year and shall be payable upon the date of
termination of any agreement.
5. FDISG accepts the payments hereunder as full payment from the
Company under the terms of its respective agreements with the Company with
respect to the Portfolios.
6. 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
<PAGE> 3
The Galaxy VIP Fund
June 1, 1996
Page 3
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.
7. This letter agreement may be signed by each party hereto upon a
separate copy in which event all copies shall constitute a single counterpart
of this letter agreement.
If the foregoing accurately sets forth our agreement and you
intend to be legally bound thereby, please execute a copy of this letter and
return it to us.
Very truly yours,
FIRST DATA INVESTOR SERVICES
GROUP, INC.
By:
-----------------------------
Title:
Accepted: THE GALAXY VIP FUND
By: /s/John T. O'Neill
-------------------------
President
<PAGE> 4
EXHIBIT "A"
CUSTODY
DOMESTIC CUSTODY
The fees for Domestic Custody are comprised of three separate charges as
follows:
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
Euroclear/Cedel $30.00
Note:
(1) 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 portfolio 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.
A-1
<PAGE> 5
<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>
ASSET AND TRANSACTION FEES PER COUNTRY
- --------------------------------------
<TABLE>
<CAPTION>
Annual Annual
Basis Point Transaction Basis Point Transaction
Country Charge Charge Country Charge Charge
- ------- -------------------------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C>
Argentina 22 $ 75 Japan 7 $ 30
(equity)
Australia 7 $ 30 Malaysia 22 $120
Austria 12 $ 60 Mexico 16 $ 60
Belgium 7 $ 30 Netherlands 7 $ 30
Canada 7 $ 30 New Zealand 12 $ 60
Chile 20 $100 Norway 12 $ 60
China 40 $100 Philippines 22 $120
Denmark 16 $ 60 Singapore 22 $120
Finland 16 $ 60 South Korea 20 $100
France 7 $ 30 Spain 26 $120
Germany 7 $ 30 Sweden 7 $ 30
Greece 26 $120 Switzerland 7 $ 30
Hong Kong 12 $ 60 Taiwan 32.75 $120
India 40 $100 Thailand 22 $120
Indonesia 26 $120 Turkey 26 $120
Ireland 7 $ 30 United Kingdom 7 $ 30
Italy 7 $ 30 Venezuela 22 $120
Japan (debt) 12 $ 60
</TABLE>
Out-of-pocket charges, including but not limited to, taxes, insurance,
telephone, script fees, will be invoiced at cost.
A-2
<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. 5 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 L.L.P.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 24, 1997
<PAGE> 1
EXHIBIT (11)(b)
CONSENT OF COUNSEL
THE GALAXY VIP FUND
(Money Market, Equity, Asset Allocation
and High Quality Bond Funds)
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. 5
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, Equity, Asset
Allocation and High Quality Bond Funds). 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
------------------------------
DRINKER BIDDLE & REATH
Philadelphia, Pennsylvania
February 28, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> VIP MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 16300564
<INVESTMENTS-AT-VALUE> 16300564
<RECEIVABLES> 19705
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 3614
<TOTAL-ASSETS> 16323883
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 28592
<TOTAL-LIABILITIES> 16295291
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 16295115
<SHARES-COMMON-STOCK> 16295115
<SHARES-COMMON-PRIOR> 17925195
<ACCUMULATED-NII-CURRENT> 284
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 108
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 16295291
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 958940
<OTHER-INCOME> 0
<EXPENSES-NET> 106460
<NET-INVESTMENT-INCOME> 852480
<REALIZED-GAINS-CURRENT> 92
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 852572
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 852480
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9677376
<NUMBER-OF-SHARES-REDEEMED> 12159936
<SHARES-REINVESTED> 852480
<NET-CHANGE-IN-ASSETS> (1629988)
<ACCUMULATED-NII-PRIOR> 284
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 200
<GROSS-ADVISORY-FEES> 71009
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 181317
<AVERAGE-NET-ASSETS> 17752253
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.0
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.60
<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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 33016361
<INVESTMENTS-AT-VALUE> 46214512
<RECEIVABLES> 101276
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 3540
<TOTAL-ASSETS> 46319328
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 77477
<TOTAL-LIABILITIES> 77477
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 33353196
<SHARES-COMMON-STOCK> 2968723
<SHARES-COMMON-PRIOR> 2372831
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 3254
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 306242
<ACCUM-APPREC-OR-DEPREC> 13198151
<NET-ASSETS> 46241851
<DIVIDEND-INCOME> 572817
<INTEREST-INCOME> 353848
<OTHER-INCOME> 0
<EXPENSES-NET> 417452
<NET-INVESTMENT-INCOME> 509213
<REALIZED-GAINS-CURRENT> (99373)
<APPREC-INCREASE-CURRENT> 7121725
<NET-CHANGE-FROM-OPS> 7531565
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 512467
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10270161
<NUMBER-OF-SHARES-REDEEMED> 2386124
<SHARES-REINVESTED> 512467
<NET-CHANGE-IN-ASSETS> 15415602
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 206869
<GROSS-ADVISORY-FEES> 284214
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 417452
<AVERAGE-NET-ASSETS> 37895208
<PER-SHARE-NAV-BEGIN> 12.99
<PER-SHARE-NII> 0.19
<PER-SHARE-GAIN-APPREC> 2.59
<PER-SHARE-DIVIDEND> 0.19
<PER-SHARE-DISTRIBUTIONS> 0.0
<RETURNS-OF-CAPITAL> 0.0
<PER-SHARE-NAV-END> 15.58
<EXPENSE-RATIO> 1.10
<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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 20314194
<INVESTMENTS-AT-VALUE> 23980675
<RECEIVABLES> 171341
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 4471
<TOTAL-ASSETS> 24156487
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 42368
<TOTAL-LIABILITIES> 24114119
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 20268694
<SHARES-COMMON-STOCK> 1804021
<SHARES-COMMON-PRIOR> 1392562
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 5180
<ACCUMULATED-NET-GAINS> 184124
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3666481
<NET-ASSETS> 24114119
<DIVIDEND-INCOME> 215918
<INTEREST-INCOME> 525234
<OTHER-INCOME> 0
<EXPENSES-NET> 270345
<NET-INVESTMENT-INCOME> 470807
<REALIZED-GAINS-CURRENT> 1139968
<APPREC-INCREASE-CURRENT> 1262456
<NET-CHANGE-FROM-OPS> 2873231
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 476468
<DISTRIBUTIONS-OF-GAINS> 928540
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6863797
<NUMBER-OF-SHARES-REDEEMED> 2868427
<SHARES-REINVESTED> 1405008
<NET-CHANGE-IN-ASSETS> 6868601
<ACCUMULATED-NII-PRIOR> 379
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 27202
<GROSS-ADVISORY-FEES> 152669
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 270345
<AVERAGE-NET-ASSETS> 20355815
<PER-SHARE-NAV-BEGIN> 12.38
<PER-SHARE-NII> 0.30
<PER-SHARE-GAIN-APPREC> 1.53
<PER-SHARE-DIVIDEND> 0.30
<PER-SHARE-DISTRIBUTIONS> 0.54
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 13.37
<EXPENSE-RATIO> 1.33
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> VIP HIGH QUALITY BOND FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 11552712
<INVESTMENTS-AT-VALUE> 11651229
<RECEIVABLES> 174509
<ASSETS-OTHER> 0
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